Ch. 6 Capital Gains Taxation Flashcards
What are the classification of taxpayer’s properties?
- Ordinary assets
- Capital assets
Define what ordinary assets are?
Basically, ordinary assets are assets used in business, either held for sale or use.
Define what a business is?
Business is a habitual engagement in a non-commercial activity involving the regular sale of goods or services for a profit.
Do non-profit entities count as a businesses?
No they don’t count as businesses
Define what are capital assets
Are assets other than ordinary assets. Basically, capital assets are Personal assets of individual taxpayers and Business assets of any taxpayer which are: Financial assets, and Intangible assets
The classification of assets or properties as ordinary assets or capital assets depends upon?
The nature of the taxpayer business and its usage by the business
(T or F) A property purchased for future use in business is an ordinary asset even though this purpose is later thwarted by circumstances beyond the taxpayer’s circumstances
True
(T or F) Discontinuance of the active use of the property changes its character previously established as a business property to an capital asset
False, it does not change its character previously established
(T or F) Real properties used, being used, or have been previously used, in trade of the taxpayer shall be considered ordinary assets
True
(T or F) Properties classified as ordinary assets for being used in business by a taxpayer not engaged in the real estate business are automatically converted to capital assets upon showing of proof that the same have not been used in business for more than 2 years prior to the consummation of the taxable transaction involving such property
True
(T or F) A depreciable asset is an capital asset even if it is fully depreciated, or there is a failure to take depreciation during the period of ownership
False, it is an ordinary asset
(T or F) Real properties used by an exempt corporation in its exempt operations are considered ordinary assets. Exempt corporations are still business.
False, they are considered capital assets and exempt corporations are not business
(T or F) The classification of property transferred by sale, barter or exchange, inheritance, donation, or declaration of property dividends shall depend on whether or not the acquirer uses it on business
True
(T or F) For real properties subject of involuntary transfer such as expropriation and foreclosure sale, the involuntariness of such sale shall have no effect on the classification of such real property
True
(T or F) Change in business from real estate to non-real estate business shall change the classification of ordinary assets previously held
False, it should not change the classification
Types of gains on dealings in properties
- Ordinary gain
- Capital gain
Define an ordinary gain
arises from the sale, exchange and other disposition including pacto de retro sales and other conditional sales of ordinary assets
Define a capital gain
arises from the sale, exchange, and other disposition including pacto de retro sales and other conditional sales of capital assets
What are the capital gains that are subject to capital gains tax
- Capital gains on the sale of domestic stocks sold directly to buyer
- Capital gains on the sale of real properties not used in business
What is the tax rate used on the gain of sale, exchange, and other disposition of domestic stocks directly to buyer?
15% capital gains tax
What is the tax rate used on the sale, exchange, and other disposition of real property in the Philippines?
6% capital gains tax
What is the tax rate is used on gains from other capital assets
Regular income tax
Other than exchange for cash, capital gains tax also covers sales of domestic stocks in kind and other dispositions such as
- Foreclosure of property in settlement of debt
- Pacto de retro sales - sale with buy back agreement
- Conditional sales - sales which will be perfected upon completion of certain specified conditions
- Voluntary buy back of shares by the issuing corporation - redemption of shares which may be re-issued and not intended for cancellation
Under NIRC, are treasury share premium subject to capital gains tax?
No, they are not
Are exchange of stocks for services, considered a capital gain?
No, there are no gain or loss that can be imputed as it involves payment of expense in kind
Are redemption of shares in a mutual fund exempted from income taxation?
Yes