Below is a general overview of the key considerations and legal principles surrounding capital gains tax (CGT) in the Philippines when dealing with the so-called “condo pasalo” (i.e., when a condominium unit buyer “passes on” or assigns his or her rights and obligations to another party). This article is for informational purposes only and does not constitute legal advice. Always consult a lawyer or tax specialist for advice suited to your specific circumstances.

1. Understanding “Pasalo” in Real Estate (Condo Context)

1.1. What Is a Condo “Pasalo”?

“Pasalo,” in Philippine real estate parlance, typically refers to the assignment or transfer of one’s rights and obligations under an existing contract to sell or mortgage arrangement from the original buyer (“assignor”) to a new buyer (“assignee”). In condo transactions, the assignor has often paid a portion of the purchase price and is still making installment payments to the developer or is servicing a mortgage loan with a bank or Pag-IBIG. Instead of selling the property after completing all payments and obtaining the final title, the assignor “passes on” his or her interest early, and the assignee continues the remaining obligations.

1.2. Common Scenarios

Contract to Sell with the Developer
If you have a contract to sell (CTS) with a developer (the unit might not yet have a Condominium Certificate of Title in the buyer’s name), and you want to transfer or sell your rights before fully paying the contract price.
Mortgage Assumption
Where the buyer already has a loan (e.g., from a bank or Pag-IBIG), the new buyer takes over the outstanding mortgage payments, effectively assuming the financial responsibility.

2. Overview of Taxes in Real Estate Transactions

Philippine law imposes several potential taxes and fees on real estate transactions, including:

Capital Gains Tax (CGT) – Generally 6% of the gross selling price or the fair market value (whichever is higher) in a real property sale. This is common for the sale of real properties classified as “capital assets.”
Creditable Withholding Tax (CWT) – If the property is an ordinary asset (e.g., if the seller is habitually engaged in real estate transactions as a developer), a creditable withholding tax may be due instead of CGT.
Documentary Stamp Tax (DST) – Imposed on documents evidencing the sale or transfer of real property, typically 1.5% of either the actual consideration or the fair market value (whichever is higher).
Transfer Tax – A local tax imposed by the province or city/municipality, the rate varying depending on the local government unit (commonly 0.50% to 0.75% of the property value).
Registration Fees – Paid to the Registry of Deeds (for titled properties) to record the transfer.

For condominium units specifically, you typically deal with capital gains tax (or CWT, depending on classification), documentary stamp tax, transfer tax (paid to local government), and registration fees.

3. Capital Gains Tax in a “Pasalo” Arrangement

3.1. When Does Capital Gains Tax Apply?

Capital gains tax generally applies to sales, exchanges, or other dispositions of real property (considered “capital assets”) located in the Philippines. A condominium unit is classified as real property. Therefore, when ownership or rights over a condominium unit are effectively transferred (e.g., via a deed of sale or an assignment of rights), the Bureau of Internal Revenue (BIR) may consider that a taxable event subject to CGT.

Key Point:

If the condo unit is classified as a capital asset (i.e., typically owned by an individual who is not habitually engaged in the real estate business), the sale or assignment of rights is subject to the 6% CGT.
If the person or entity selling has the property classified as an ordinary asset (for example, the seller is a property developer or someone regularly engaged in buying and selling), the transaction may be subject to the creditable withholding tax, not CGT.

3.2. Sale vs. Assignment of Rights

A condo pasalo often involves assigning a contract rather than executing a direct deed of sale of the titled property. Still, the BIR can treat an assignment of the beneficial interest in the property as a sale. In practice, once you register the assignment of rights or the final transfer of title, the BIR will require payment of either CGT or CWT (depending on the asset classification).

For the BIR to consider it an official transfer:

The developer might require a formal “Deed of Assignment” or “Deed of Absolute Sale” among the parties to reflect the new arrangement.
The buyer (the assignee) must usually be recognized by the developer (or the mortgagee bank if there is a loan). This recognition can trigger the tax obligations.

3.3. Determination of the Tax Base

The CGT is calculated as 6% of whichever is higher:

The gross selling price (in the deed/contract), or
The fair market value (FMV) of the property, as determined by either the BIR Zonal Value or the local Assessor’s Office.

Example:

If the selling price/assignment price stated is PHP 2,000,000, but the BIR Zonal Value is PHP 2,500,000, the tax base is PHP 2,500,000.
CGT = 6% of PHP 2,500,000 = PHP 150,000.

4. Timing and Manner of Payment of Capital Gains Tax

Payment Deadline
The CGT must generally be paid within thirty (30) days from the date of the taxable sale or disposition.
BIR Forms
Capital gains tax on real property transactions is usually filed using BIR Form 1706 (though this can change, so always check the latest BIR issuance).

Where the property is under a contract to sell and you do a “pasalo,” the BIR typically looks to the date of the assignment as the triggering date for CGT liability. If you end up registering the final transfer only much later, you might encounter penalties or surcharges if the CGT was not timely paid.

5. Documentary Stamp Tax (DST)

Along with the CGT, a documentary stamp tax of 1.5% also generally applies to the transfer of real property. The DST is likewise based on the higher of:

The selling/assignment price, or
The fair market value (zonal or assessor’s value).

DST must be paid on or before the fifth (5th) day of the month following the execution of the deed/assignment.

6. Potential Exemptions or Special Cases

Exemption for Principal Residence (Now Rarely Applicable)
Under certain circumstances (Section 24(D) of the National Internal Revenue Code, as amended), the sale of a principal residence can be exempt from CGT provided the proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from the date of sale. This requires prior application with the BIR. However, many condo pasalo arrangements do not qualify for this exemption because they often do not involve a principal residence or the necessary compliance steps.
Developer “Buy-Back”
If the developer itself is involved and the contract is rescinded or restructured before final title transfer, different considerations (like potential refunds, CWT instead of CGT, or no recognized sale) may apply. Consult a tax lawyer or the BIR to verify specifics.
Inherited Properties
If the condo was inherited, the property must have already passed through estate tax settlement before any CGT on a subsequent sale. If that is not completed, it can complicate the tax obligations.

7. Procedures and Documentation

Deed of Assignment or Deed of Absolute Sale
You will likely need a notarized instrument (Deed of Assignment or Deed of Absolute Sale) to document the transfer or “pasalo.” This document typically stipulates the selling price, payment terms, and obligations of each party.
Developer’s Consent/Approval
Where an existing contract to sell is being assigned, the developer’s formal approval (and sometimes a contract novation or amendment) is typically required. The developer may charge a “transfer fee” or “processing fee.”
Mortgagee Approval
If a bank loan or Pag-IBIG loan is being assumed, the lender must approve the assignment of mortgage. This usually involves credit checks, updated documentation, and possibly new mortgage terms.
BIR Requirements
- Completed BIR Forms (e.g., Form 1706 for CGT, Form 2000-OT for DST, etc.).
- Tax Declaration of the condominium unit from the local Assessor’s Office.
- Certified True Copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT), if already issued. If not issued, the developer’s master title or other proof.
- Copy of the notarized Deed of Assignment/Sale.
- Relevant IDs and taxpayer identification (TIN) documents.
Payment of Fees at the City/Municipal Hall
Transfer tax must be settled, and relevant forms/receipts must be filed.
Registration with the Registry of Deeds
After paying the necessary taxes, the documents (including proof of tax payment) must be submitted to the Registry of Deeds for official registration of the new owner or assignee.

8. Common Pitfalls and Practical Tips

Late Payment Penalties
Delaying payment of CGT or DST beyond the statutory deadlines can result in surcharges (as high as 25%), interest, and compromise penalties.
Undisclosed “Side Agreement” on Price
Some sellers/buyers might undervalue the property in the paperwork to lower taxes. This is risky and illegal. The BIR’s assessment is always based on the higher of the declared selling price or the zonal value. Under-declaration can expose parties to possible penalties, tax deficiency assessments, or legal complications.
Ensuring Mortgage or Developer Approval
Failing to secure official approval from the mortgagee bank or the condo developer can render the “pasalo” arrangement unenforceable or lead to future conflicts.
Overlapping Charges
Besides CGT, the new buyer might also pay association dues, continuing real property tax, etc. Make sure both parties agree clearly on who shoulders which fees and from which date.
Seek Professional Advice
Because pasalo arrangements involve more steps (assignment of rights, developer’s consent, potential assumption of mortgage), it is strongly recommended to consult a lawyer or tax specialist to avoid pitfalls.

9. Conclusion

A condo pasalo arrangement in the Philippines involves a legal transfer of rights that typically triggers the same set of taxes as a direct sale, particularly the 6% capital gains tax (or creditable withholding tax, depending on the seller’s status) and the 1.5% documentary stamp tax, among others. The key is recognizing that from the Bureau of Internal Revenue’s perspective, an assignment of beneficial ownership or rights is treated much like a standard property sale and is therefore taxable.

To ensure compliance:

Execute a proper Deed of Assignment or Sale.
Secure the necessary approvals from the condo developer or mortgage lender.
File and pay the CGT (and other taxes) on time.
Register the transaction properly with the Registry of Deeds.

Always consult qualified professionals when dealing with real estate taxes and “pasalo” arrangements. Legal and tax regulations can change, and every specific transaction may have nuances that affect tax liabilities, deadlines, and filing procedures.