To simplify, capital assets are property that has not been used for business.
What is Capital Gains Tax (CGT)?
As defined by the Bureau of Internal Revenue: “Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale”
What is the rate for CGT?
“For real property - 6%.”
CGT Sample calculations
Important note: The below examples are simplified examples. As always please verify with BIR what taxes are actually involved.
Example 1: Juan wants to sell his own residential house and lot for Php5M.
Answer: CGT = 5M x 6% = 300k; He will get 4.7M net of proceeds from the sale assuming CGT is the only deduction from proceeds.
Example 2: Juan wants to sell his office space that is currently tenanted. He wants to sell it for Php5M.
Answer: Since the property is actually being used for the business then the property isn't classified as a capital asset instead it is classified as a ordinary asset. Therefore CGT = 0. As an ordinary asset though, it is subject to other taxes.