Is selling a fully depreciated asset tax-free?

No. Being fully depreciated only means the asset's book value has been reduced to zero (or scrap value) under NIRC Section 34(F). It does not exempt the sale from tax. If the asset is sold for any amount above its remaining tax basis, which is often zero once fully depreciated, the entire amount received is taxable gain, because there is no remaining basis to offset against the proceeds.

Is gain on the sale of a fully depreciated business asset subject to capital gains tax?

No. A business asset used in trade or business, such as machinery, equipment, or a delivery vehicle, is an ordinary asset, not a capital asset. Gain or loss on its sale is ordinary gain or loss includible in the computation of regular taxable income, not the separate final capital gains tax that applies to shares of stock or capital-asset real property.

Do I charge VAT when selling old equipment or a scrapped company vehicle?

Yes, if the seller is VAT-registered. A sale of goods or properties in the course of trade or business is subject to VAT, and transactions incidental to the main business, such as selling off old equipment, scrap materials, or a company vehicle no longer needed, are still treated as being in the course of trade or business. Output VAT applies even though selling used equipment is not the company's main line of business.

Does the sale of a fully depreciated asset appear on the RELIEF SLSP?

Yes. The sale of a capital good or fixed asset should be reported in the seller's books and, like any other sale of goods, may appear in the seller's RELIEF Summary List of Sales (SLSP) for the relevant quarter.

What tax basis do I use if the asset was fully depreciated to zero?

The tax basis to offset against the sale proceeds is the asset's remaining undepreciated cost, which is zero once an asset has been fully depreciated to scrap value. With no remaining basis, there is nothing to subtract from the proceeds, so the full sale price is taxable gain.

Selling a Fully Depreciated Business Asset: Income Tax and VAT Treatment

Selling a fully depreciated business asset is not a tax-free event: the entire sale proceeds are ordinary taxable gain for income tax purposes, and a VAT-registered seller still charges output VAT on the sale. “Fully depreciated” only describes the asset’s book value under NIRC Section 34(F) — it has nothing to do with whether the sale itself is taxed.

This post walks through why a depreciated machine, vehicle, or piece of equipment is still an ordinary asset, how the sale proceeds become taxable gain, why VAT still applies, and how the sale gets reported. For the depreciation rules that bring an asset’s book value to zero in the first place, see Depreciation Expense Deduction Under NIRC Section 34(F); for how a fixed-asset sale fits into quarterly VAT reporting, see Do You Report Capital Goods and Fixed Asset Purchases in Your RELIEF SLSP? and What Is RELIEF SLSP?

Report the Sale on Your RELIEF SLSP FREE →

Is a fully depreciated business asset a capital asset or an ordinary asset? #

A business asset used in trade or business — machinery, equipment, delivery vehicles, office equipment — is generally an ordinary asset, not a capital asset, and that classification does not change just because the asset is fully depreciated. The Tax Code’s general rule for classifying property draws the line at how the property is used: real or personal property used in the taxpayer’s trade or business is an ordinary asset, while property not so used (like an investment property held outside the business) is a capital asset.

An ordinary asset’s gain or loss on sale flows into the computation of regular taxable income, taxed at the taxpayer’s ordinary income tax rate.
A capital asset, by contrast, can be subject to a separate final capital gains tax regime — the kind that applies to shares of stock not traded on the stock exchange or to real property classified as a capital asset.
Full depreciation changes only the asset’s book value, not its classification. A delivery truck used in the business for ten years and fully depreciated is still an ordinary asset on the day it is sold.
Because the asset is ordinary, gain on its sale does not qualify for the final capital gains tax rate; it is added to the seller’s other ordinary income and taxed through the regular corporate or individual income tax computation.

Why is a fully depreciated asset’s sale not tax-free? #

“Fully depreciated” is an accounting and tax-basis concept, not a tax-exemption concept — it simply means the asset’s depreciable cost has already been written off to zero or to scrap value over its useful life under NIRC Section 34(F). Depreciation lets a business recover an asset’s cost gradually, as a deduction against income, over the years the asset is used. Once that recovery is complete, there is no more cost left to recover — but that has no bearing on whether a later sale of the asset is taxed.

The tax consequence of a sale depends on the asset’s remaining tax basis compared to what it sells for, not on how much depreciation was previously claimed:

Concept	What it means
Original cost	What the business paid to acquire the asset
Accumulated depreciation	Cost already deducted over the asset’s useful life
Remaining tax basis	Original cost minus accumulated depreciation — zero once fully depreciated
Gain on sale	Sale proceeds minus remaining tax basis

Once the remaining tax basis is zero, every peso received on the sale is gain, because there is nothing left to subtract. A fully depreciated asset sold for ₱1 technically produces ₱1 of taxable gain; sold for ₱150,000, it produces ₱150,000 of taxable gain. The gain is ordinary gain, reported with the taxpayer’s other income for the regular income tax computation — not a separate capital gains tax return.

Does VAT apply to the sale of old or scrapped equipment? #

Yes — if the seller is VAT-registered, the sale of old equipment, scrap materials, or a company vehicle no longer needed is still subject to output VAT, even though selling used equipment is not the company’s main line of business. VAT applies to a sale of goods or properties in the course of trade or business. Transactions that are merely incidental to a business’s main line of activity are still treated as occurring in the course of trade or business for VAT purposes — selling off a fixed asset the business no longer needs is a classic example of an incidental transaction, not a casual personal sale outside VAT’s reach.

A VAT-registered seller charges the standard 12% output VAT on the gross selling price of the asset, the same as on a sale of inventory.
The fact that selling used equipment happens only occasionally, and isn’t the business’s primary product or service, does not take the sale outside VAT.
The buyer, if also VAT-registered, may be able to claim the VAT charged as input VAT, subject to the usual input VAT substantiation rules.
Because the transaction is a VAT-taxable sale of goods, it should be invoiced and recorded the same way any other sale of goods is.

Worked example: selling a fully depreciated delivery truck #

A single numeric example shows how the income tax and VAT treatment combine on one transaction. The figures and company name below are fictional and illustrative only.

“Coastal Logistics Corp.” bought a delivery truck years ago for ₱1,200,000 and fully depreciated it to zero book value under the straight-line method. Coastal is VAT-registered. It now sells the truck for ₱150,000, plus 12% VAT, to a buyer.

Step	Computation	Result
Remaining tax basis	Original cost ₱1,200,000 − accumulated depreciation ₱1,200,000	₱0
Taxable gain on sale (income tax)	Sale price ₱150,000 − remaining basis ₱0	₱150,000 ordinary gain
Output VAT	₱150,000 × 12%	₱18,000
Total invoice amount	₱150,000 + ₱18,000	₱168,000

Three things follow from this:

Income tax: the entire ₱150,000 is ordinary taxable gain, because there is no remaining basis to subtract. It is included in Coastal’s regular corporate income tax computation for the year — not reported on a separate capital gains tax return, since the truck was an ordinary asset used in the business.
VAT: Coastal charges ₱18,000 of output VAT on top of the ₱150,000 selling price, for a total invoice of ₱168,000, because the sale of the truck is a sale of goods in the course of trade or business even though trucking equipment resale isn’t Coastal’s main business.
Reporting: the sale appears as a sale of goods in Coastal’s RELIEF Summary List of Sales (SLSP) for the quarter in which it was invoiced, the same as any other sale of goods, alongside the related output VAT.

How is the sale reported to the BIR? #

The sale of a fully depreciated fixed asset is recorded in the seller’s books like any other sale of goods and, for a VAT-registered seller, flows into the quarterly RELIEF SLSP. It is not a special or separate filing category.

Record the sale in the general ledger and sales journal at the invoiced amount, with the output VAT shown separately.
Remove the asset and its accumulated depreciation from the fixed asset register, and record the resulting gain in the income statement.
Include the sale in the seller’s RELIEF Summary List of Sales for the quarter, following the same fields used for any other sale of goods — see What Is RELIEF SLSP? for the form’s general structure and Do You Report Capital Goods and Fixed Asset Purchases in Your RELIEF SLSP? for the fixed-asset angle specifically.
Reflect the ordinary gain in the appropriate line of the annual or quarterly income tax return, as part of regular taxable income.

Summary #

A fully depreciated business asset is still an ordinary asset, and selling it is not a tax-free event. The entire sale price above the asset’s remaining tax basis — often zero once fully depreciated — is ordinary taxable gain includible in regular income tax, not a capital gains tax item. A VAT-registered seller still charges output VAT on the sale, because disposing of old equipment or a used company vehicle counts as a transaction incidental to trade or business. The sale is recorded in the books and reported in the RELIEF SLSP for the quarter like any other sale of goods. Businesses planning a sale of older fixed assets should confirm the exact basis, gain, and VAT figures with a qualified tax professional before filing.