CGT Exemption

Here are three things you should remember when claiming a Capital Gains Tax Exemption (CGTE).

The process:

+ When claiming CGTE, you put the money in escrow instead of paying the BIR for the 6% CGT. Thus, the supposed CGT amount is still money out of your bank account.

+ You must tell the BIR you will be claiming in BIR Form 1706. If you've filed the form without indicating the application for CGTE, you've lost your chance.

+ You have 18 months to present the BIR with a new title(s) and tax declaration(s) under the same name(s) as the title of the property sold. Upon approval, the BIR will issue a certificate/order to the escrow agent to release the funds to you.

Things to remember:

1. If four co-owners own property (4 siblings) and each will go their separate ways (i.e., buy and live in separate houses), the BIR will require each to purchase a home using their equal (25%) share of the proceeds.

To understand this, imagine each co-owner getting Php25 Mn from selling a Php100 Mn property. Each person would get a (25 Mn * 6% CGT) 1.5 Mn savings–max–from claiming the exemption. The BIR will check by comparing the names stated in the old title and the new title(s) of the property(ies) purchased.

If, let's say, one of the three has no intention to purchase a new home (e.g., migrate abroad), then the 6% CGT should be paid for their share from square one.

2. The 18-month deadline for claiming CGT exemption is from notarizing the primary residence to obtaining the Tax Declaration of the new property purchased. Assuming the negotiation (1 mo), closing due diligence (1 mo), and title transfer (3 mo) for the new property is five months, claimants are left with 13 months to find a new property to purchase.

3. The law is flawed since it assumes the new property to be bought is worth more than the property sold. For example, let's say a seller sold their ancestral property for Php200 Mn and downsized to a Php50 Mn property; upon collection of the CGT exemption, BIR will impose a penalty on the "unutilized portion."

These are all from experience.