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BIR Ruling on Revocable Trust Taxation

This document is a ruling from the Bureau of Internal Revenue (BIR) regarding the tax implications of transferring real property and securities into a revocable inter vivos trust established by Leonora F. Pascual. The BIR rules that the transfer is not subject to capital gains tax or documentary stamp tax as there is no change in ownership. The creation of the revocable living trust also does not affect estate tax payable upon Pascual's death, as property in a revocable trust is included in the estate for tax purposes. The BIR approves registration of the properties under the name of the trust.

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236 views2 pages

BIR Ruling on Revocable Trust Taxation

This document is a ruling from the Bureau of Internal Revenue (BIR) regarding the tax implications of transferring real property and securities into a revocable inter vivos trust established by Leonora F. Pascual. The BIR rules that the transfer is not subject to capital gains tax or documentary stamp tax as there is no change in ownership. The creation of the revocable living trust also does not affect estate tax payable upon Pascual's death, as property in a revocable trust is included in the estate for tax purposes. The BIR approves registration of the properties under the name of the trust.

Uploaded by

mikmgonzales
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia 2013 1


January 20, 1995
BIR RULING [UN-041-95]
Atty. Carlos A. Lardizabal
817 EDSA, South Triangle
Quezon City, Metro Manila
S i r :
This refers to your letters dated August 4, 1993 and December 30, 1994
requesting on behalf of your client, MS. LEONORA F. PASCUAL, for a ruling based
on the following representation of facts: cdasia
"LEONORA F. PASCUAL, has established a revocable inter vivos trust
and would like to change the manner of holding title to her real properties and
stocks and securities from LEONORA F. PASCUAL, to LEONORA F.
PASCUAL, Trustee (and subsequent trustees), L. F. PASCUAL TRUST."
"This is a revocable trust under Sec. 56 of the NIRC and the transfer of
the properties into the trust is a non-taxable event and not subject to
documentary stamp tax. During her lifetime, she is a trustor, trustee and
beneficiary and hold all incidents of ownership."
In reply, please be informed that under Section 21 (e) of the Tax Code, as
amended, capital gains presumed to have been realized from the sale, exchange or
other disposition of real property, located in the Philippines classified as capital asset,
including pacto de retro sales or other forms of conditional sales, by individuals,
including estates and trust shall be taxed at the rate of 5% based on the gross selling
price or the fair market value prevailing at the time of sale, whichever is higher.
Such being the case, and considering that there is no actual transfer of
ownership over the aforementioned properties as a result of the transfer thereof to
LEONORA F. PASCUAL, Trustee (and subsequent trustees), L.F. PASCUAL
TRUST, the said transfer is not subject to the 5% capital gains tax under Section 21
(e) of the Tax Code, as amended, and consequently, not also subject to the expanded
creditable withholding tax prescribed under Section 50 (b) of the Tax Code, as
implemented by Revenue Regulations No. 6-85 as amended by Revenue Regulations
Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2013 2
No. 12-94.
Moreover, the deed conveying the aforementioned properties to LEONORA F.
PASCUAL, Trustee (and subsequent trustees), L.F. PASCUAL TRUST is not subject
to documentary stamp tax imposed by Section 196 of the Tax Code, but the notarial
acknowledgment is subject to the documentary stamp tax of P10.00 under Section 188
of the same Code, as amended.
It shall be understood in this connection, that property placed in revocable trust
is includible in the trustor's gross estate for estate tax purposes. Even if the trustor is
incompetent and cannot legally exercise the power of revocation, mere possession at
death of the power to revoke shall cause the inclusion of the properties held in trust in
the trustor's estate. Accordingly, the creation of a revocable living trust does not
directly affect the amount of estate tax payable at the trustor's death.
In view thereof, the aforementioned real properties, stocks and securities may
now be registered by the Registry of Deeds concerned and the Securities and
Exchange Commission, respectively, in the name of LEONORA F. PASCUAL,
Trustee (and subsequent trustees), L.F. PASCUAL TRUST.
This ruling is being issued on the basis of the foregoing facts as represented.
However, if it will be discovered upon investigation that the facts are different, then
this ruling shall be considered null and void from the date of issue. (BIR Ruling No.
086-92 dated March 19, 1992; UN-130-94, and UN-129-94 both dated April 11,
1994) cdtech
Very truly yours,
ALICIA P. CLEMENO
Assistant Commissioner
(Legal Service)

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