Philippine Dangerous Goods Carriage Regulations

Legal basis, purpose, and policy aim

The Regulations are issued to streamline and make more efficient the collection of the capital gains tax, if any, presumed to be realized from the sale, exchange, or disposition of a natural person’s Principal Residence.
The Regulations apply to transactions covered by Section 24(D) of the National Internal Revenue Code of 1997 for principal residence sales by natural persons.

Core term: Principal Residence

The term “Principal Residence” refers to the dwelling house, including the land on which it is situated, where the husband and wife or an unmarried individual and members of his family reside, whether or not the unmarried individual is qualified as head of family.
Actual occupancy of the principal residence is not considered interrupted or abandoned due to temporary absence for travel, studies, work abroad, or other similar circumstances.
A principal residence must be characterized by permanency—it must be the dwelling house to which the individual intends to return whenever absent.
Where the land and the dwelling house belong to different persons (e.g., where the land is leased to the dwelling house owner), only the dwelling house is treated as the dwelling house owner’s Principal Residence; accordingly, if both the land and the dwelling house are jointly sold or disposed by the owners, only the sale or disposition of the dwelling house is entitled to the capital gains tax exemption.
Where the landowner and the dwelling house owner both actually reside in the dwelling house, both the land and dwelling house are treated as their Principal Residence.
Where the land and dwelling house are owned by several co-owners (e.g., inherited by two or more heirs through hereditary succession) and one or more co-owners actually use and occupy the property as their Principal Residence (including family members), the property is treated as the Principal Residence of the co-owner/s who actually occupy and use it, to the extent of their proportionate share in the value.
The capital gains tax exemption does not apply to other co-owners who do not actually use and occupy the property as their Principal Residence.
The residential address shown in the latest income tax return filed by the vendor/transferor immediately preceding the date of sale is treated as a conclusive presumption of the true residential address, notwithstanding certification to the contrary.
If the vendor is exempt from filing any tax return such that there is no tax record immediately prior to the sale, the certification of the Barangay Chairman or Building Administrator (for a condominium unit) suffices.

Conditions for principal residence tax exemption

Capital gains presumed to have been realized from the sale, exchange, or disposition by a natural person of his Principal Residence are not imposed with six percent (6%) capital gains tax if the conditions are complied with.
The exemption is subject to the following conditions:

Escrow agreement and authorized bank custody

The six percent (6%) capital gains tax otherwise due on the presumed capital gains must be deposited in cash or manager’s check in an interest-bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue District Officer, the Seller/Transferor, and the AAB.
The Escrow amount, including its interest yield, is released to the Seller/Transferor only upon certification by the RDO that the proceeds of sale or disposition have in fact been utilized to acquire or construct the Seller/Transferor’s new Principal Residence within eighteen (18) calendar months from the date of sale or disposition.
The date of sale or disposition refers to the date of notarization of the document evidencing the transfer.
The term “Escrow” means a scroll, writing, or deed delivered by the grantor, promisor, or obligor into the hands of a third person to be held until the happening of a contingency or performance of a condition, and then delivered to the grantee, promisee, or obligee.

Capital gains tax return filing within deadline

The Seller/Transferor must file, in duplicate, a Capital Gains Tax Return (BIR Form No. 1706) covering the sale or disposition of his Principal Residence with the concerned Revenue District Office within thirty (30) days from the date of sale or disposition.
No capital gains tax is required to be paid during the 18-month period if the Principal Residence is duly established as such.
For purposes of the capital gains tax otherwise due on the sale, exchange, or disposition of the Principal Residence, the execution of the Escrow Agreement is considered sufficient.
The Capital Gains Tax Return must be accompanied by the following:
- Proof of payment of the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 on the deed of sale or conveyance of the Principal Residence.
- A sworn statement from the Barangay Chairman that the taxpayer’s Principal Residence is located within that Barangay’s jurisdiction and that it has been the taxpayer’s residence immediately prior to the date of sale or disposition; for a condominium unit, the certification is issued by the Building Administrator.
- A duplicate original copy of the Deed of Conveyance of the Principal Residence.
- A certified xerox copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) covering the Principal Residence sold or disposed.
- A certified xerox copy of the latest Tax Declaration covering the Principal Residence (land and improvement).
- If the building or improvement was constructed on or after 1990, the Building Permit or Occupancy Permit issued by the concerned city or municipality showing the amount of construction cost.

Post reporting requirement within 30 days after 18 months

Proceeds from the sale, exchange, or disposition of the old Principal Residence must be fully utilized in acquiring or constructing the new Principal Residence within eighteen (18) calendar months from date of sale, exchange, or disposition.
To show positive action to utilize proceeds within the 18-month period, the Seller/Transferor must submit to the RDO within thirty (30) days from lapse of the 18-month period:
- A sworn statement that total proceeds have been actually utilized to acquire or construct the new Principal Residence; if construction is still in progress, the sworn statement must state the amount shall be fully utilized to procure necessary materials and pay cost of labor and other expenses.
- A certified statement from his architect or engineer, or both, showing cost of materials and labor for the construction of the new Principal Residence.
- A certified copy of the Building Permit issued by the Office of the Building Official of the city or municipality where the new Principal Residence will be constructed, plus xerox copies of documents submitted with the Building Permit application (e.g., building specification plan, construction plans, or construction cost estimates) on which the computation of building license fee was based.
- If the new Principal Residence is acquired by purchase, a duplicate original copy of the Deed of Absolute Sale covering the purchase of the new Principal Residence.

Release from escrow on proof of full utilization

Upon showing, based on submitted documents, that proceeds have already been fully utilized in acquiring or constructing the new Principal Residence, the concerned RDO must release the Escrow within fifteen (15) days from the date of submission by the Seller/Transferor, in favor of the Seller/Transferor.

Limits on the exemption privilege

The tax exemption may be availed of only once every ten (10) years.

Carryover of cost basis

The historical cost or adjusted cost basis of the old Principal Residence sold, exchanged, or disposed must be carried over to the cost basis of the new Principal Residence.

Deficiency capital gains tax and escrow application

If documentary evidence is not submitted within thirty (30) days after lapse of the 18-month period showing that proceeds were utilized to acquire or construct the new Principal Residence, the Seller/Transferor is treated deficient in payment of capital gains tax and is assessed for deficiency capital gains tax inclusive of 20% interest per annum, pursuant to Section 228 of the Code, as implemented by Revenue Regulations No. 12-99, in relation to Section 249 of the Code.
A required post reporting notice informs the taxpayer in writing of the aforementioned facts to allow an informal conference.
A required preliminary assessment notice must be issued before issuance of the formal assessment notice.
If at that time the escrowed tax money is still held by the Depository Bank, the full amount including interest earnings is applied in computing the taxpayer’s deficiency capital gains tax.
After the deficiency tax assessment becomes final and executory, the escrow deposit, inclusive of interest earnings, is forfeited and applied against the taxpayer’s deficiency capital gains tax liability.
The Depository Bank is then informed of this action and, upon written demand by the Commissioner or his duly authorized representative, must turn over the money for application to the taxpayer’s deficiency tax liability.
If the escrow deposit is insufficient to cover the entire assessed amount, the Seller/Transferor remains liable for the remaining balance.
If there is an excess deposit amount, it is returned forthwith to the Seller/Transferor by the bank upon written authorization from the Commissioner or his duly authorized representative.

Partial utilization results in deficiency tax

If there is no full utilization of the proceeds of sale, exchange, or disposition of the old Principal Residence for acquisition or construction of the new Principal Residence, the Seller/Transferor is liable for deficiency capital gains tax inclusive of 20% interest per annum, computed from the 31st day after the date of sale or disposition of the old Principal Residence.

CAR or TCL issuance based on preliminary conditions

Compliance with the preliminary conditions for exemption under Section 3(1) and Section 3(2) of the Regulations is sufficient basis for the RDO to approve and issue a Certificate Authorizing Registration (CAR) or a Tax Clearance Certificate (TCL) for the principal residence sold, exchanged, or disposed.
The CAR or TCL must state that the sale, exchange, or disposition is exempt from capital gains tax pursuant to Section 24(D)(2) of the Code.
The CAR or TCL is expressly subject to compliance with the post-reporting requirements under Section 3(3) of the Regulations.

Penalties for false certification and violations

A Barangay Chairman or Building Administrator, as the case may be, who falsely certifies that the property sold or disposed is the vendor/transferor’s Principal Residence when it is not, is punished under the penalty of perjury, at the discretion of the Court.
Any other violation of the Regulations, upon conviction for each act or omission, is punishable under Section 275 of the Code by a fine of not more than PHP 1,000.00, or imprisonment of not more than six (6) months, or both, at the discretion of the Court.

Repeal and effectivity rules

Any revenue issuance inconsistent with these Regulations is considered revoked, amended, or modified accordingly.