Query: Can a seller be exempt from paying Capital Gains Tax (CGT) when selling a property to purchase another property?

In the Philippines, the sale of real property classified as a capital asset is subject to Capital Gains Tax (CGT). CGT is a tax imposed on the profit gained from the sale of real property and is mandated by the National Internal Revenue Code (NIRC) of the Philippines.

Capital Gains Tax (CGT) Overview

CGT in the Philippines is levied at a rate of 6% of the gross selling price or fair market value, whichever is higher. This tax is typically borne by the seller of the property and must be paid within 30 days from the date of the sale.

Exemptions from Capital Gains Tax

While there are certain situations where the sale of a property can be exempt from CGT, these exemptions are specific and must meet certain criteria:

Principal Residence Exemption: Under Section 24(D) of the NIRC, an individual who sells his or her principal residence is exempt from CGT, provided the proceeds of the sale are fully utilized in acquiring or constructing a new principal residence within 18 months from the date of sale. Additionally, the seller must notify the Bureau of Internal Revenue (BIR) within 30 days from the date of sale of their intention to avail of the exemption.
Inherited Properties: Properties transferred through inheritance are not subject to CGT but are subject to estate tax. The subsequent sale of an inherited property by the heirs, however, is subject to CGT.
Donations: Properties transferred as donations are subject to donor's tax instead of CGT.
Government Expropriation: Properties acquired by the government through expropriation are exempt from CGT.

Filing and Documentation Requirements

To claim the exemption for the sale of a principal residence, the seller must submit the following documents to the BIR:

Duly accomplished BIR Form 1706 (Capital Gains Tax Return).
Deed of Absolute Sale.
Proof of full utilization of the proceeds in acquiring a new principal residence (e.g., contract to sell, official receipts).
Sworn declaration of the seller’s intention to use the proceeds to acquire a new principal residence.

Conclusion

In summary, sellers in the Philippines can be exempt from paying Capital Gains Tax when selling their principal residence if they reinvest the proceeds into a new principal residence within the stipulated time frame and comply with the BIR's notification and documentation requirements. For other types of real property transactions, the general rule of imposing CGT applies. It is advisable for sellers to consult with tax professionals or legal experts to ensure compliance with tax laws and proper filing of necessary documents.