Buyer-Shouldered Capital Gains Tax (CGT) in a Conditional Sale of Real Property
Philippine law, June 2025
Key take-away: Under the National Internal Revenue Code (NIRC) the seller is the taxpayer for CGT, but parties are free to shift the economic burden to the buyer. When they do so in a conditional sale, the buyer must still observe all deadlines and procedures in the seller’s name, because the Bureau of Internal Revenue (BIR) will look to the seller if the tax is not paid.
1. Legal framework
| Source | Core rule |
|---|---|
| NIRC § 24(D) (individuals) & § 27(D)(5) (corporations) | - 6 % CGT on “the gross selling price or fair market (zonal) value, whichever is higher,” on each sale, exchange, or other disposition of real property located in the Philippines and classified as a capital asset of the seller. |
| Civil Code arts. 1458, 1475, 1545 | Distinguish contracts of sale (ownership passes at perfection) from contracts to sell (ownership reserved until a future fact, usually full payment). |
| BIR Regs. & Rulings – RMO 15-2003, RMC 55-2013, RMC 55-2018, assorted BIR rulings (e.g., DA-216-05, 476-14, 846-12) | Detail filing forms, deadlines, CAR issuance, and clarify tax timing for conditional agreements. |
2. “Conditional sale” versus “contract to sell”
| Type | When does ownership transfer? | CGT trigger point |
|---|---|---|
| Conditional sale (suspensive or resolutory condition) | Immediately upon notarization; the condition merely affects either the birth of the obligation (suspensive) or resolution of the sale (resolutory). Title normally moves, subject to the condition. | On notarization of the Deed of Conditional Sale. Buyer must pay within 30 days. |
| Contract to sell | Seller expressly retains title until the buyer fulfills a condition (typically full payment). | Upon execution of the follow-up Deed of Absolute Sale (or deed of assignment) after the condition is met. |
Common mistake: many developers label a document “Deed of Conditional Sale” when, read as a whole, it is really a contract to sell. The BIR examines the substance, not the title.
3. Statutory liability vs. contractual burden‐shifting
Who owes CGT in law? Always the seller.
Can the buyer pay it? Yes. Parties routinely agree—especially in distressed sales or where the buyer wants quick transfer—that the buyer will advance or shoulder CGT for and on behalf of the seller.
Effect if buyer fails to pay:
- BIR enforcement is still against the seller (including surcharge, 12 % p.a. interest, compromise penalty).
- Buyer cannot register the transfer because the Registry of Deeds will not accept the conveyance without a BIR Certificate Authorizing Registration (CAR) showing CGT was paid.
- The seller may sue the buyer for breach of the tax-shifting clause.
4. Timing and computation when the buyer shoulders CGT
| Step | Deadline | Form & mode |
|---|---|---|
| 1. Notarize Deed of Conditional Sale | Day 0 | - |
| 2. File & pay CGT | Within 30 days from Day 0 (non-extendible) | BIR Form 1706 (individual) or 1706Q/1707-A (corporate/quarterly), cash, manager’s check, or AAB online facility. |
| 3. Pay Documentary Stamp Tax (DST) | Same 30-day window | BIR Form 2000 OT, rate = 1.5 % of higher of GSP/FM V. |
| 4. Secure CAR | 3–15 working days after complete documents | Present proof of payment, TINs, IDs, tax clearance, certified true copy of title, tax declaration, SPA if filing through buyer. |
| 5. Register Deed with Registry of Deeds & Assessor | Within 1 year to avoid incremental penalties on local transfer tax | CAR, Deed, owner’s duplicate title, tax receipts. |
Tax base: Higher of │ Gross Selling Price stated in the deed │ BIR zonal value / assessor’s fair market value.
Tip: When the buyer shoulders CGT, parties often inflate the stated price to absorb the 6 % so the seller nets his target amount.
Illustrative computation (Metro Manila):
- Contract price = ₱5 000 000
- Zonal value = ₱4 200 000
- CGT base = ₱5 000 000 (higher)
- CGT = ₱300 000 (5 000 000 × 6 %) – buyer pays it in the seller’s name.
- DST = ₱75 000 (5 000 000 × 1.5 %) – usually buyer’s burden as well.
If the contract instead states that the ₱5 000 000 is already net of CGT, the buyer grosses-up: Net price ÷ 94 % = Actual GSP (5 000 000 ÷ 0.94 = ₱5 319 149); CGT = 6 % of that.
5. Installment variant
Even in installments, CGT on a conditional sale is still computed on the entire price and due within 30 days of notarization. The only relief is in a contract to sell where the deed of absolute sale is executed only after full payment.
6. Refunds and rescission
If the condition fails (e.g., buyer cannot complete payment and parties rescind), two possibilities:
| Scenario | Tax treatment |
|---|---|
| Mutual rescission before CAR issuance | File BIR Form 1914 – Application for Tax Credit/Refund attaching Deed of Rescission. BIR may grant a cash refund or tax credit certificate. |
| Rescission after transfer of title | CGT is non-refundable; only ordinary loss may be claimed by the seller if the property is reconveyed, subject to strict substantiation. |
7. Penalties for late payment
| Item | Surcharge | Interest | Compromise penalty |
|---|---|---|---|
| CGT | 25 % of basic tax | 12 % p.a. (TRAIN, formerly 20 %) | ₱1 000–₱30 000 depending on amount |
| DST | Same structure | Same | ₱200–₱10 000 |
8. Consequences in buyer’s own taxes
- Individual buyer – CGT he pays for the seller forms part of the property’s cost basis (important if he later sells and computes his own CGT).
- Corporate buyer – recorded as part of acquisition cost; no input VAT because CGT is outside the VAT system.
- Withholding tax? – Not applicable to capital-asset sales; CWT applies only to ordinary-asset sellers.
9. Sample clause (for guidance only)
Taxes and Expenses. The Buyer shall, for and on behalf of the Seller, pay the capital gains tax, documentary stamp tax, and all fees necessary to secure the Certificate Authorizing Registration. All other taxes accruing after the execution hereof shall be for the account of the Buyer. Should the Buyer fail to remit any such amount on or before its due date, the resulting penalties and interest shall likewise be for the Buyer’s sole account, without prejudice to the Seller’s right to cancel this sale and recover damages.
10. Practical compliance checklist for buyers
- Review the deed’s true nature (conditional sale vs contract to sell).
- Compute CGT using the latest zonal value (check BIR Zonal Value Table for the city/municipality/barangay).
- Gather seller documents early: TIN, IDs, latest real-property tax clearance, Special Power of Attorney if you will file.
- Pay CGT & DST first → obtain eCAR → only then schedule title transfer.
- Log your deadlines; BIR rarely grants extensions.
- Keep originals of the BIR-stamped 1706/2000OT returns; you will need them when you resell.
- If the condition is non-fulfilment of full price (buyer’s default), negotiate a refund mechanism in advance.
11. Frequently-asked questions
| Question | Short answer |
|---|---|
| Can the buyer simply withhold CGT from the price? | Yes, if the parties agree; but the buyer must still file the BIR return in the seller’s name. |
| Does BIR allow staggered CGT payment on installments? | No. CGT is one-off, due 30 days from notarization. |
| Is CAR transferable? | No. It is specific to the transaction; any amendment (e.g., price change) requires a new CAR and new tax computation. |
| What if the seller is a non-resident foreign corporation? | The deal is subject to both the 6 % CGT and a separate 15 % branch-profit remittance tax if profits are repatriated, unless tax-treaty relief applies. The buyer still may contractually shoulder CGT. |
| Does local transfer tax shift too? | Usually yes, because registries will not issue a new title without proof; payable within 60 days to the Treasurer’s Office. |
12. Conclusion
While Philippine law fixes CGT liability on the seller, market practice often puts the pocket burden on the buyer—especially in conditional sales where quick title transfer (or lender requirements) make the buyer eager to secure the Certificate Authorizing Registration. By understanding (1) when ownership legally passes, (2) the unyielding 30-day CGT deadline, and (3) the penalties for delay, a buyer can shoulder CGT safely, protect his investment, and avoid crippling surcharges.
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Consult a Philippine tax professional or lawyer for advice tailored to your specific facts.