SEC. 2. DEFINITION OF TERMS.

For purposes of these Regulations, the following

terms shall be defined as follows:
a. Capital assets shall refer to all real properties held by a taxpayer, whether or
not connected with his trade or business, and which are not included among the
real properties considered as ordinary assets under Sec. 39(A)(1) of the Code.
b. Ordinary assets shall refer to all real properties specifically excluded from the
definition of capital assets under Sec. 39(A)(1) of the Code, namely:
1. Stock in trade of a taxpayer or other real property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the close
of the taxable year; or
2. Real property held by the taxpayer primarily for sale to customers inthe
ordinary course of his trade or business; or
3. Real property used in trade or business (i.e., buildings and/or
improvements) of a character which is subject to the allowance for
depreciation provided for under Sec. 34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.
Real properties acquired by banks through foreclosure sales are considered
as their ordinary assets. However, banks shall not be considered as
habitually engaged in the real estate business for purposes of determining
the applicable rate of withholding tax imposed under Sec. 2.57.2(J) of
Revenue Regulations No. 2-98, as amended.

BIR Ruling No. 232-13 dated June 20, 2013

Facts:
A Co. and B Co. are both non-stock, non-profit religious corporations organized as
corporate soles. In 2010, A Co. donated a piece of land in favor of B Co.
Issues:
1. Is the donation exempt from donors tax?
2. Is the donation subject to DST?
3. Will there be any taxes on the subsequent transfer of the donated property by B Co.?
Ruling:
1. Yes. Under Section 101(A)(3) of the Tax Code, gifts in favor of a religious corporation
are exempt from donors tax, subject to the condition that not more than 30% of the

gifts shall be used by the donee for administrative purposes. For donations of real
property, the Register of Deeds shall annotate the condition at the back of the Transfer
Certificate of Title covering the land, because failure to do so shall be a ground for the
revocation of the donation.
2. No. Under Section 185 of the Revised DST Regulations, conveyances of realty not in
connection with a sale, to trustees or other persons without consideration are not
subject to DST. However, the deed of donation is subject to DST of Php15.00 under
Section 188 of the Tax Code.
3. Yes. If a property acquired by donation is subsequently conveyed by way of sale or
exchange, the same will be subject to corporate income tax on the gain, which is
determined by deducting from the gross selling price the historical cost, or the adjusted
basis thereof, as it would be in the hands of the donor. If the subsequent transfer is by
way of donation to a non-exempt donee, the donor shall be subject to donors tax
pursuant to Section 98 of the Tax Code.