If you are an owner of a condominium unit, you may have noticed that your association dues went down since the first quarter of the year. This is due to the Tax Reform for Acceleration and Inclusion or TRAIN Law, a measure which allows for a simpler and more efficient tax system for Filipinos that took effect on January 1.
The law’s positive and negative effects on gut issues have been discussed extensively. On one hand, it will result in a higher take home pay for most workers, but on the other hand, it has increased prices of oil, petroleum products, and sweetened beverages such as your favorite cola or iced tea.
But what about its impact on the property sector? If you are planning to invest in real estate soon, here’s what you need to know about TRAIN’s effects:
Impact on Estate Tax
Before TRAIN Law: Estate tax, which is imposed on inherited properties, was computed based on a schedule wherein properties worth P200,000 and above are taxed between 5 to 20 percent. Only family homes worth P1 million and below are exempted from estate tax.
With TRAIN Law: Estate tax has been placed at a flat rate of 6 percent. Estate properties with a net value of P5 million and below and family homes worth P10 million and below are now exempt from estate tax. Certified Public Accountant certifications are required for estate tax returns exceeding a gross value of P5 million. The period for filing estate tax returns has also been increased from 6 months to 1 year from the decedent’s death.
Impact on Real Estate Transactions
Before TRAIN Law: Residential lots valued at P1,919,500 and residential dwellings (house and lots and condominiums) valued at P3,199,200 were exempt from the 12 percent Value Added Tax.
With TRAIN Law: The new law lowered the VAT exemptions for residential lots to P1.5 million and for residential dwellings to P2.5 million. The sale of residential dwellings worth P2 million and below outside of the National Capital Region is now exempted from VAT, a move that industry experts say support efforts to decongest Metro Manila. Properties utilized for socialized housing are now also VAT-exempt, boosting government’s efforts to address the rising mass housing backlog.
Impact on Apartments / Condominium Units
Before TRAIN Law: Only the lease of residential units with a monthly rental not exceeding P12,800 are VAT-exempt. Condominium association dues are also levied the 12 percent VAT.
With TRAIN Law: The VAT exemption for the lease of residential units has been raised to P15,000, and this will be adjusted to the present value using the Consumer Price Index of the Philippine Statistics Authority every three years. VAT on association dues for condominiums has also removed.
Pronove Tai International Property Consultants noted that these provisions, combined with the tax relief and the revenues that will be raised through the TRAIN Law, will encourage growth across industries, including real estate. The increase in VAT exemption for the lease of residential units, in particular, will benefit young members of the workforce who are likely to rent condominium units or apartments near their place of work.
For future property owners, the provisions of the TRAIN Law and the presence of reputable developers like Ayala Land have made it easier to own not just real estate but an enriched way of living as well. You can now enjoy carefully master-planned and sustainably-built communities where quality moments are created, with the peace of mind that the simplified tax system brings.