THE P40MN TAX TRAP

Once upon a time, a broker successfully closed the sale of a condo unit. To handle the title transfer, they relied on their Runner.

Just before the Runner was submitting the documents to the BIR, he called the broker with a concern: they had used the wrong BIR form (1706). He insisted that Form 1606 should be used instead, citing that the Seller was registered as a sole proprietor with the BIR.

End of story? Not quite.

This is actually a horror story. The Runner’s advice was completely wrong—and following it would have exposed the Seller to over Php 40 million in taxes. And that’s just for this one transaction.

BIR Form 1606 is used to pay withholding tax on the sale of Ordinary Assets. Meanwhile, BIR Form 1706 is for Capital Gains Tax, which applies to sales of Capital Assets—including most residential properties. If the broker had blindly followed their Runner’s advice, using Form 1606 would have essentially declared the Seller as engaged in the real estate business. But the Seller’s sole proprietorship was registered for an entirely different type of business—not real estate.

So, was the Runner’s suggestion an honest mistake? Or was it a calculated move—payback for the countless reprimands he had endured throughout his employment?