In a recent decision, the Second Chamber of the Superior Court of Justice (STJ) understood that the exclusion of the income tax exemption in cases where the taxpayer uses the capital gains to pay off, completely or partially, the remaining debt of an acquisition of residential property already contracted by the taxpayer with payment in installments, is not applicable.
In accordance with article 2, paragraph 11, "I" of the Normative Ruling SRF No. 599/2005, the exemption of Income Tax on capital gains resulting from the sale of property, established by Federal Law No. 11,196/2005, is not applicable to cases where the seller of a residential property uses the capital gains to pay, completely or partially, the remaining debt from the acquisition of another residential property already held by the taxpayer.
Even though Judge Herman Benjamin had accepted the arguments presented by the Federal Revenue, the majority of the Chamber followed the interpretation favorable to the taxpayer, presented by Judge Mauro Campbell Marques, in the sense that the purpose of the rule is achieved when the property seller, observing the term of 180 days, applies the capital gain from the sale in the acquisition of another property, including within this concept the total or partial payment of the remaining debt resulting from a property acquisition previously contracted.
The exemption of the income tax on capital gains in these cases increases the market liquidity and stimulates the residential business from buyers, sellers, constructors, financial institutions and others. Based on this reasoning, the Judge Mauro Campbell Marques argues that such practices make the economy more dynamic, and encourage a "virtuous cycle", which he considers to be the purpose of the rule provided by Federal Law No. 11,196/2005.
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