Tax on Non-Profit Property Disposition

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BIR REVENUE MEMORANDUM CIRCULAR NO. 7-2012: Tax on Non-Profit Property Disposition

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Title Supreme Court: Tax on Non-Profit Property Disposition

Law: Bir Revenue Memorandum Circular No. 7-2012

Decision Date: Feb 23, 2012

BIR Revenue Memorandum Circular No. 7-2012 clarifies that non-stock, non-profit organizations, such as the Mary Immaculate Development Foundation, Inc. (MIDFI), are liable for capital gains tax and documentary stamp tax on the sale of real property, despite their tax-exempt status.

documentary stamp

profit organization

A

Relevant Provisions on Exemptions Under Section 30 of the Tax Code

Paragraph (E) exempts non-stock corporations organized for religious, charitable, scientific, athletic, cultural purposes, or veteran rehabilitation from income tax, provided that no profits inure to members or specific persons.
Paragraph (G) exempts civil leagues or organizations operated exclusively for social welfare promotion.
Despite exemptions, income from any properties or profit-oriented activities of these organizations is taxable.

Interpretation and Application of the Law

The last paragraph of Section 30 must be read in conjunction with other paragraphs, as statutes are construed as a whole to ascertain legislative intent.
Each provision in Section 30 should be interpreted harmoniously, giving meaning to all words and expressions.
Case precedents emphasize the importance of considering the entire statutory context rather than isolated parts.

Income from Property Sale as Taxable Income

Revenue Regulations No. 2, as amended, clarifies that income from the sale of property by tax-exempt organizations constitutes taxable income.
Sale of real property by a non-stock, non-profit organization is subject to capital gains tax.

Capital Gains Tax Computation and Documentary Stamp Tax

Capital gains tax is based on the higher of the gross selling price or the current fair market value of the property.
Applicable sections for tax computation include Section 27(D)(5) and Section 6(E) of the Tax Code of 1997, supported by Revenue Regulations No. 7-2003.
The Deed of Absolute Sale for such property disposition is subject to documentary stamp tax under Section 196 of the Tax Code of 1997.

Enforcement and Guidelines for Tax Officials

All revenue officials and employees must enforce these rules consistently when processing one-time transactions.
Proper assessment of capital gains tax and documentary stamp tax on non-stock non-profit organizations’ property sales is mandated.
The Circular calls for widespread dissemination of these guidelines to ensure compliance and uniform application by relevant authorities.

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