Payment of Capital Gains Tax on Foreclosure Sales

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BIR REVENUE MEMORANDUM ORDER NO. 6-92: Payment of Capital Gains Tax on Foreclosure Sales

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Title Supreme Court: Payment of Capital Gains Tax on Foreclosure Sales

Law: Bir Revenue Memorandum Order No. 6-92

Decision Date: Jan 15, 1992

BIR Revenue Memorandum Order No. 6-92 mandates that banks, finance, and insurance companies are liable for capital gains tax on extra-judicial foreclosure sales, based on the auction bid price, with provisions for reimbursement if the debtor-mortgagor redeems the property.

judicial foreclosure

A

Extra-Judicial Foreclosure Sales under Act No. 3135 as Amended

Previously, CGT on extra-judicial foreclosure sales under Act No. 3135, as amended by Act No. 4118, was due only after the one-year redemption period expired.
Under the amended provision, these sales are included under the tax net at the time of sale.

Liability for Capital Gains Tax in Extra-Judicial Foreclosure Sales

The creditor financial institution (banks, finance companies, and insurance companies) acting as statutory seller is liable for CGT based on the auction's bid price.
This financial institution represents the owner-mortgagor in the sale of the real property.

Reimbursement and Recovery of Capital Gains Tax

Financial institutions may recover or seek reimbursement of CGT if:
- The debtor-mortgagor exercises the right of redemption within the redemption period.
- The property is subsequently sold to any third party.

Amendment to Section 2.2 of RMO No. 29-86

The tax applies comprehensively to all forms of sales including pacto de retro and conditional sales.
Mortgage foreclosure sales, inclusive of both judicial and extra-judicial foreclosures, are specifically included.

Effectivity

This amendment takes effect immediately upon issuance (January 15, 1992).

Summary of Legal Concepts

Clarifies that CGT applies upon the occurrence of the sale itself in all foreclosure sales.
Aligns the tax liability clearly with the creditor financial institution as statutory seller.
Provides financial institutions with a mechanism to recover CGT when redemption or resale occurs.

END