iRealtee OS Glossary

Capital Gains Tax

Capital Gains Tax (CGT) in the Philippines is a Bureau of Internal Revenue (BIR) tax on the gross selling price or fair market value—whichever is higher—of real...

Capital Gains Tax

Capital Gains Tax is a tax concept that imposes a 6% levy on the sale of Philippine real property classified as capital assets.

Definition

Capital Gains Tax (CGT) in the Philippines is a Bureau of Internal Revenue (BIR) tax on the gross selling price or fair market value—whichever is higher—of real property held as a capital asset. It applies to sales, exchanges, or transfers of properties not used in business, and is distinct from ordinary income tax or Value-Added Tax on business assets. Sellers must file BIR Form 1706 and pay CGT within 30 days from the notarization of the deed.

Key Components

  • Tax rate: 6% of higher between gross selling price and zonal/fair market value.
  • Scope: TCT/CCT properties classified as capital assets (not dealer inventory).
  • Timing: File and pay within 30 days from notarization of the deed of sale or Contract to Sell.
  • Documentary needs: BIR Form 1706, notarized deed, tax declaration, ID/authority to sell, and payment proof.
  • Related charges: Documentary Stamp Tax, transfer tax (LGU), and updated amilyar before Registry of Deeds processing.

How It Works

  1. Seller computes 6% on the higher of selling price or zonal/fair market value.
  2. Seller files BIR Form 1706, pays CGT at an Authorized Agent Bank or RDO within 30 days of notarization.
  3. Secure CGT receipt and DST payment, then obtain BIR Certificates Authorizing Registration (CAR/eCAR).
  4. Submit CAR, tax clearances, and deed to the Registry of Deeds for title transfer.
  5. Track payments and receipts through Payment Tracking and BIR Tax Reports.

Pros & Cons

  • Pros: Predictable flat rate; straightforward computation; clear BIR form.
  • Cons: Payable quickly after notarization; based on higher of two values; adds to closing costs with DST and transfer taxes.

Real-World Application (Philippine Real Estate)

  • Brokers advise sellers to budget CGT, DST, and transfer taxes before pricing a resale or Ready for Occupancy unit.
  • For “pasalo” or assume-balance deals, clarify whether CGT applies on full consideration and coordinate with the lender.
  • Use Invoice Management to store receipts, Payment Tracking for deadlines, and BIR Tax Reports to consolidate filings for audit trails.

References

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