Chasing after Lessors

Last week, several people asked me for my comments regarding an incident in BGC where the BIR requested the condo admin to provide their list of lessors.

1. This has been ongoing since 1st quarter of this year. It's not only that particular condo that's implicated. All condos in Taguig share the same predicament and have now refused to issue Certificates of Non-Tenancy (CNT). Some condos in Makati took a step ahead and have begun to refuse to issue CNTs.

2. Lawyers have differing comments on whether providing such information to the tax regulator is legal. Some point to Justice Corona's court case to prove that such requests require court orders. I won't join the debate.

3. Should the condo admin refuse to provide such data, the BIR has other ways to check whether units were leased out.

4. So far, Taguig and Paranaque RDOs have chased after lessors. The results of Taguig's efforts will dictate whether other RDOs (e.g., Makati) will follow suit.

5. Regardless of whether the condo admin provides the list, lessors in Taguig have a severe predicament because of the non-issuance of the CNT. Without the CNT, the BIR will presume the seller leased out their property and subject the sale to back taxes for the rent, VAT, and income tax.

Suppose owners pay these taxes (effectively admitting they are engaged in RE business). In that case, ALL their properties–even personal ones–will be tagged as ordinary assets, and their future sale will be subjected to VAT + Income Tax.

6. There are LEGAL ways to circumvent this problem (which I can't disclose) that will cost significantly less than paying VAT and Income Tax. Consult your broker/lawyer. Clue: transfer the property.

Some tips:

Buyers – To be safe, buyers should indicate the following phrase in all their contracts: "The Capital Gains Tax, Creditable Withholding Tax, Value Added Tax (VAT), whichever may apply, shall be for the SELLER's account."

Brokers – I suggest including a quitclaim to your Authority to Sell/Lease Agreements stating that you shall not be liable if the BIR imposes such taxes on the transaction.