Transferring a condominium title in the Philippines is a process governed primarily by the Civil Code, the Condominium Act (R.A. 4726), and the National Internal Revenue Code (NIRC). When a property owner decides to transfer ownership, they typically choose between two primary legal instruments: a Deed of Absolute Sale or a Deed of Donation.
While both result in the issuance of a new Condominium Certificate of Title (CCT), they differ significantly in their legal nature, documentary requirements, and tax liabilities.
1. Deed of Absolute Sale
A Deed of Absolute Sale is used when the property is transferred in exchange for a "consideration" (money). This is a bilateral contract where the seller obligates himself to deliver the property, and the buyer obligates himself to pay the price.
Tax Implications for Sale
The taxes involved in a sale depend on whether the property is classified as a capital asset or an ordinary asset. Most residential condominiums owned by individuals are considered capital assets.
- Capital Gains Tax (CGT): Fixed at 6% of the Gross Selling Price or the Zonal Value (BIR), whichever is higher. This is traditionally paid by the seller.
- Documentary Stamp Tax (DST): Fixed at 1.5% of the actual consideration or the Zonal Value, whichever is higher. This is traditionally paid by the buyer.
- Transfer Tax: Usually ranges from 0.50% to 0.75% of the value, depending on the local government unit (LGU) where the condo is located.
- Registration Fees: Paid to the Register of Deeds, usually based on a sliding scale published by the Land Registration Authority (LRA).
2. Deed of Donation
A Deed of Donation is a unilateral act of liberality where the "Donor" disposes of the property gratuitously in favor of the "Donee," who must accept the gift.
Tax Implications for Donation
Since the passage of the TRAIN Law (R.A. 10963), the taxation for donations has been simplified.
Donor’s Tax: Fixed at a flat rate of 6% on the total value of the gift in excess of ₱250,000 per calendar year.
Note: Before the TRAIN Law, rates varied based on the relationship between donor and donee. Now, the 6% rate applies regardless of whether the parties are relatives or strangers.
Documentary Stamp Tax (DST): Unlike sales, donations of real property are also subject to DST at 1.5% of the value.
Transfer Tax and Registration Fees: These remain applicable, similar to a sale.
3. Comparative Summary of Costs
| Tax/Fee | Deed of Absolute Sale | Deed of Donation |
|---|---|---|
| Primary Tax | 6% Capital Gains Tax | 6% Donor's Tax (above ₱250k) |
| Doc Stamp Tax | 1.5% of value | 1.5% of value |
| Transfer Tax | 0.50% - 0.75% (LGU) | 0.50% - 0.75% (LGU) |
| Registration Fee | Based on LRA table | Based on LRA table |
| Basis of Tax | Higher of Selling Price/Zonal Value | Zonal Value / Fair Market Value |
4. The Step-by-Step Transfer Process
Regardless of whether the transfer is via sale or donation, the administrative process remains largely the same:
- Execution of the Deed: The parties sign the Deed of Sale or Donation before a Notary Public.
- Tax Clearance (BIR): File the necessary returns (Form 1706 for sale or 1800 for donation) at the Revenue District Office (RDO) having jurisdiction over the property. Upon payment, the BIR issues the Certificate Authorizing Registration (CAR).
- Local Transfer Tax: Present the CAR and the Deed to the City Treasurer’s Office to pay the Transfer Tax and secure a Tax Clearance.
- Tax Declaration Transfer: Update the records at the Assessor’s Office to change the name on the Tax Declaration.
- Registration of Title: Submit the CAR, Tax Clearance, old CCT, and Deeds to the Register of Deeds. They will cancel the old title and issue a new CCT in the name of the new owner.
5. Critical Considerations
The "Management Certificate"
Unique to condominiums, the Register of Deeds will require a Management Certificate from the Condominium Corporation. This document certifies that the seller/donor has settled all association dues, assessments, and insurance premiums.
Right of First Refusal
Some Condominium Master Deeds contain a "Right of First Refusal" clause. This requires the owner to offer the unit to the Condominium Corporation or other unit owners first before selling it to an outsider.
Assessing "Fair Market Value"
For tax purposes, the BIR always uses the "Highest Value" rule. It compares:
- The Zonal Value (set by the BIR).
- The Fair Market Value (set by the City Assessor).
- The Actual Selling Price (in the case of a sale). The tax is always computed based on whichever is highest among the three.
Would you like me to draft a checklist of the specific documents required by the BIR for the issuance of a Certificate Authorizing Registration (CAR)?