1.

Generally HOAD is subject to tax

(1) exception is when LGU issues certificate to the effect that that the HOA spends for the basic
necessities (life, water, sanitary, security of the area) and likewise it states that the LGU is
spending for these expenditure in the area
(2) and that there is proof that the HOA spends for these expenditure that should have been
provided for by the LGU, then the membership dues shall be exempt from income tax, and
exempt from value added tax
(3) there is a law that exempts HOA from tax

2. But in case of condominium units, the association fees are subject to income and value added tax

3. Senior citizens due are exempted from value added tax, but they are not exempt from income tax
expanded senior citizens act

4. PWD related by affinity within the 4th degree of relationship

(1) 20% discount entitlement, like senior citizens
(2) the treatment of 20% discount on the part of the seller is a tax deduction
(3) on the part of the PWD or senior citizen, both of them are exempted from VAT of 12%

5. If there is importation, the same is subject to the VAT of 12%

(1) in case of the importer, being exempt from value added tax of 12%, if the goods are
subsequently transferred in favor of a non exempt entity, the subsequent transferee will be
treated as the original importer, who will be subject to tariffs and duties and value added tax
a) example: consular office
b) tax clearance from bureau of customs before LTO can cause the transfer of vehicle in the
name of the transferee, and the plate will be replaced

6. Estate tax
(1) person who died
(2) it is not about corporation
(3) prior to settlement of estate, prior to distribution

(4) when a person dies, until such time that the property has not yet been distributed, it is called
an estate

(5) estate represents the value of the property, personal or real, tangible or intangible, wherever
situated, provided that in the case of a non resident, only those properties located within shall
be subject to tax
7. There are two consequences when a person dies:

(1) personal exemption of 20,000 (for those individuals who are earning purely compensation
income, and he dies)

Pending distribution, the estate is an income tax payer, and the estate being an individual
income tax payer, the deduction allowed on the estate as such is personal exemption of 20,000
pesos

All the income of the tax payer deceased will be subjected to income tax, just like an ordinary
tax payer depending on whether the deceased is a resident citizen, non-resident citizen,
resident alien or a non resident alien

It is not about whether the person who died is a business man or an employee

One is just classified whether he is a resident or non-resident citizen or alien

The tax due is always NIT

But the exemption allowed by law is personal exemption deduction of 20,000

For individuals who are earning purely compensation income

When a person dies, his estate is an income tax payer

There is another exemption allowed by law, and that is the exemption for the deceased tax
payer as far as being an income tax payer, and the exemption is 20,000 pesos

The estate will be allowed to claim exemption of 20,000 pesos

(2) estate tax

It is also called inheritance tax. In other countries it is called decedents tax

There are only two kinds of estate: (1) resident estate, and (2) non-resident estate
8. kinds of decedent estate

(1) resident citizen

(2) non resident citizen
(3) resident alien
(4) non resident alien

9. In the income tax side, the question is, what are the income of testate while the assert or properties
are not yet distributed

The estate is an income tax payer, and the estate will be subject to estate tax

How much is the property of a person at the point of his death

10. What constitutes the estate of a deceased person?

This is covered by Sec 85 and 104

Sec 85 says gross estate refers to the value of all the properties, whether real or personal, tangible
or intangible, wherever situated, provided that in the case of estate of non resident alien, only those
properties located within shall be subject to estate tax

Kinds of E IN OUT
RC Check Check
NRC Check Check
RA Check Check
NRA Check Cross

K of Txpyrs IN OUT
RC Check Check
NRC Check Cross
RA Check Cross
NRA Check Cross

11. Distinction of income tax and estate tax

In income tax, the taxability is based on the source of the income.

In estate tax, the taxability is based on the location of the property

It covers the value of all the property, wherever situated. Provided that in case of a non resident
decedent, only those property located within shall be subject to tax

For income tax purposes, only a resident citizen shall be subject to income tax for income realized
within and without

But in the case of estate tax, even a non resident citizen decedent or estate and the resident alien
estate, all the properties located within and outside the Philippines shall be subject to estate tax

In the income tax side, a non-resident alien, is subject to income tax if the income is derived from
Philippine sources. But if it is derived from outside, then no tax

In the estate tax side, for non-resident citizens, even properties located outside are subject to
estate tax; and for resident aliens, even the properties located outside shall be treated as subject to
estate tax

Double taxation

In both tables, double taxation in the broad sense is very much evident

Because in the case of a resident alien, the income from the Philippines is subject to tax here and
most likely, that income will also be subjected to income tax in the country where he is a citizen of

In the case of non resident alien, the income here in the Philippines, and definitely, they will also be
subjected to income tax in the country where they are either residing or a citizen of

In income tax, the remedies to reduce impact of double taxation in the broad sense are:

(1) Tax credit

(2) tax pairing rule / vanishing deductions
(3) reciprocity rule Sec 104
 In estate tax, the remedies to reduce the impact of taxation in the broad sense are the following:

(1) Tax credit

(2) tax pairing rule / vanishing deductions
(3) reciprocity rule Sec 104

2. Fair market value of the property

(1) real property

(2) tangible personal property
(3) intangible personal properties Sec 104
a) shares of stock
b) debentures
c) promissory notes

3. In estate tax, if the tangible real property or real property is inside the map of the Philippines, it is
within

But if the property is outside the map, then it is without

4. Taxability of intangible property (situs of intangible properties for estate tax purposes)

For intangible properties, the situs for estate tax purposes, is found in Sec 104

According to Sec 104, in case of non resident alien decedent, there are 5 intangible personal
properties (non resident decedent)

(1) if these 5 intangible properties are owned by a non resident alien decedent at the time of his
death, these 5 intangible properties are considered as within

X is a US citizen, residing in Paris. He has shares of stocks in San Miguel Corp or PLDT in the
Philippines, a domestic corporation. The value of the shares of stocks is worth 5M

X died.

Shares in a domestic corporation

 He is a US citizen residing in Paris (non resident alien), who has shares of stock in a domestic
corporation. Is it taxable here?

Shares in a foreign corporation

If it is shares of stocks with a foreign corporation, 85% of the business of which must be located
in the Philippines to be considered as within - Section 104?

Foreign corporations are mentioned in the tax code twice

The first one is, when the dividends were issued by a foreign corporation, it is considered as
within

But if 3 years before the issuance of the dividend, the earnings of the corporation from the
Philippines is less than 50% of its total earnings, it means that not all of its earnings are within.
Only a part of it

The second one is in Sec 104. If the shares of stocks are issued by a foreign corporation,
whether resident or non-resident in the Philippines, and 85% of the business of which is located
in the Philippines, then all of its shares are considered within. Therefore, whoever is the owner,
everything will be taxable

So if the 5M is issued by a domestic corporation, it is taxable

5. Considered within if the owner is a non resident alien, and he died, all of these are considered
within, and so it is taxable

(1) Shares, obligations and bonds issued by a foreign corporation, 85% of the business of which is
located in the Philippines,

(2) Shares, obligations and bonds issued by a domestic corporation

(3) Franchise exercised in the Philippines

(4)

(5)
6. Reciprocity rule

(1) Total or full exemption

a) The 5M shares of stock owned by X who is a US citizen, is included in his gross estate. But if
in his country (US), they do not collect estate tax on the same shares of stocks of a Filipino
citizen who died in the US, then we also do not collect taxes - reciprocity

If they do not collect estate tax on the same shares of stocks when Filipino dies in that
country, then we also do not impose estate tax

(2) Partial exemption

a) If in the country in which he is a citizen, they do not impose estate tax in full for those same
intangible properties listed under Section 104 owned by a Filipino citizen who died as an
alien in that country, then we will also give the same rate of exemption

7. Get the value of the property (FMV) at the point of death

(1) it is not the FMV when it was bought or sold, or book value before it was bought
(2) it is FMV at the point of death

8. What is the exemption for purposes of income tax of the estate as an income tax payer?
(1) usufructuary dies sec 87

9. Section 85 provides for items of inclusion

10. Section 87 provides for items of exclusion

11. Estate tax covers all transfers of properties taking effect after death (mortis causa)

12. What are the items of inclusion? Sec 85 (DTRP)

(1) D2T3RP under section 85

(2) What is the value of all his properties at the time of his death
(3) Decedents interest
 All DTRP of a resident citizen within and without shall be subject to estate tax

All DTRP of a non-resident citizen within and without shall be subject to estate tax

All DTRP of a resident alien within and without shall be subject to estate tax

But in the case of a non resident alien, all DTRP located in the Philippines shall be subject to
estate tax

13. Decedents interest (A)

(1) It is the extent of ones interest over the property at the point of his death

(2) If one owns a land with usufruct, and he dies, what is included is the value of the property less
usufruct

(3) If it is the usufructuary who dies, it is not included. Because that is an exemption

(4) If the owner dies, he remains the owner of the land, so it is included in his gross estate
(decedents interest)

It is the value of the land less usufruct

(5) If it is the usufructuary, the usufruct is merged to the owner of the naked title. That is exempted
insofar as the usufructuary. It is not included in the estate of the usufructuary

(6) Owner dies, then it is the value of the land less usufruct

(7) But if it is the usufructuary who dies, the usufruct will return to the owner. The usufruct is not
included in the estate of the usufructuary. That is exemption 1 under Sec 87

14. Transfer in contemplation of death (B)

(1) When it is the thought of impending death, which made him transfer the property while alive,
then it is a transfer in contemplation of death. The law says it is included.

(2) If the house was bought at 5M, and its fair market value now is 6M, but the doctor said that
owner has only 2 months to go
 Because of this, he transferred it to Y for 4M
He died of cancer. After 2 months the value of the house became 4.5M

Since it was transferred in contemplation of death, it is included in the gross estate

If it is the thought of impending death which made him transfer the property while alive, then it
is included

The amount of inclusion is the value at the time of death (4.5 M)

Not the purchase price, not the fair market value at the time of diagnosis, not the selling price,
but the value at the time of death

(3) if he did not die of cancer, but instead was shot, the value of property transferred in
contemplation of death will still be included

(4) If he did not die within 3 months, but died after 10 years, then it is still included. What will be
included is the value 10 years after. This is because gross estate refers to the value of the
property at the point of death

(5) If at the time of transfer, it is the thought of impending death that made him transfer, then it
should be included.

Include the value of the property at the time of death

Wait for him to die.

Gross estate is always the value at the point of death

15. Revocable transfer (C)

16. Property passing under a general power of attorney (D)

17. Properties (parlor and house) in the Philippines and in the States were bought for 1M each.

(1) It was sold for 200k each in contemplation of death, because the doctor says that he has cancer
 It was the thought of impending death which made him transfer the properties

What are the tax consequences?

a) For the house in the Phil, it is always CGT of 6% under Sec 24D

b) For the 3 others (house in the states, parlor in the Phil, and parlor in the US), it is estate tax

Donors tax

1. It will become donors tax, if the transfer is not (1) in contemplation of death, if it is not (2)
revocable transfer, and if it is not (3) passing under a general power of attorney

But if these 3 are present, then they are estate tax

But these 3 are forever CGT of 6% under Sec 24D

1. Revocable transfer (C)

1) There is revocable transfer when, while the person is still alive, he sold the property and he
reserved certain rights for himself (seller).

He reserves either the (1) right to revoke the sale or the (2) right to enjoy the fruits or the (3)
right of possession over the property

If these rights are reserved by the seller at the time of sale, and he died, then it is called
revocable transfer

And the value at the time of death, not the value at the time of transfer will be included in the
gross estate

2. Property passing under a general power of appointment (D)

1) X sold his property to Y, on the condition that upon Ys death, Y is going to transfer it to
whomever Y wants (general power of appointment)

As distinguished from a special power of attorney, wherein X sells the property to Y for 5M, on
the condition that upon Ys death, Y is going to transfer it to Mr. A as dictated by X
 When Y dies in the first scenario, under a general power of appointment, since Y has the choice
on whoever will be the subsequent transferee, the value of the property there is included in the
gross estate of Mr Y.

But in the second scenario, in SPA, Y does not have the choice as to who would be the
subsequent transferee, because it was X who dictated on him, then this time, here it will be
excluded in the estate of Y

In other words,

If the property is transferred and the same is under a general power of appointment, then
include it in the gross estate of Mr Y

But if the property is transferred pursuant to a special power of appointment, wherein Y does
not have any control on who will be the subsequent transferee, because the subsequent
transferee is dictated by X, then it is excluded in the estate of Y

3. The rule of thumb in estate tax is whether at the time of death, there is degree of control. If the
answer is yes, then that is included in the estate

So if Y has a choice on whoever is the subsequent transferee, then it is included in the estate of Y.

If it is X, who has a choice on whoever is the subsequent transferee, then it is excluded in the estate
of Y

At the time Y died, he has no interest or control, because it was dictated to him to transfer it to a
specific person

4. Proceeds of life insurance policy (E)

1) Income tax

X insured his life, paying premium of 5k, proceeds go to the wife (1 million), 10% interest, and
ROP

Is it included or excluded in income tax?

 1 million is excluded. 10% interest is included. It is subject to tax which is NIT. ROP is excluded,
Sec 32 par b (2)

2) Estate tax

Proceeds of life insurance policy of 1M, 10% interest, and ROP, are these included in the gross
estate of X, such that it will be subject to estate tax?

The rule is, if the designated beneficiary wife is the executor or administrator, whether
designation is revocable or irrevocable, include

If the wife designated beneficiary is not the executor or administrator, and the designation is
revocable, include

But if the designated beneficiary is irrevocable, the same will be excluded from the gross estate
of Mr. X, and therefore no estate tax consequence

5. Prior interest (F)

1) 3 items which are included

(1) A
(2) B transfer in contemplation of death
(3) C revocable transfer
(4) D
(5) E proceeds of life insurance policy
(6) F
(7) G
(8) H

2) These 3 were taken by the tax payer while he was still alive

They are included

The law effective upon the time of death shall be the one applied

If this is what we will follow, these 3 would have been excluded

 But because the law says that these 3 that were taken before the effectivity of the tax code, or
taken after the effectiviy of the tax code, are included

It is a catch all provision

These 3, whether taken before the effectivity of the tax code, after the effectiviy of the tax code,
and then he dies later on, these 3 are included

6. Exclusive property of the surviving spouse (H)

1) this need not be written

2) because while a person is alive and he marries another, each of them has his own properties.

3) What the law says is that once H dies, the property of the surviving spouse (W) is not included

4) If H dies, then his gross estate are his own properties

5) If W dies, his gross estate are his own properties

6) Do not consider the properties of the surviving spouse because they are not your properties

7) This provision is a surplusage

18. What are the items of exempted by law from payment of estate tax?

In estate tax, items of exemption Sec 87

In income tax, the items excluded by law from payment of tax are:

1) PCSO
2) Lotto winnings
3) Interest on long term deposit which one does not pre-terminate for 5 years

Income tax - treated by law as exemptions because they are excluded are: Sec 32 par b
1) Life insurance proceeds
2) ROP
3) Gifts, bequest and devices
4) Income exempt under a treaty
5) Compensation for injuries or sickness
6) pensions
7) Miscellaneous items

Estate tax (exempted)

1) Merger of the usufruct to the owner of the naked title

If there is an owner of the land with usufructuary, and he dies, the value of the property is
included in his gross estate less the usufruct

If it is the usufructuary who dies, the usufruct will be merged to the owner of the naked title. It
is exempted from estate tax (Sec 87, 1)

2) Transfer of the property from the fiduciary heir to the fideicommisary heir

In the last will testament testator appoints one to be a fiduciary heir, who is required by the
testator to preserve the property in favor of another, the fideicommisary heir

If the testator dies, the property is included in his gross estate

If fideicommisary dies, then it is exempted, which means it is not included in the gross estate of
testator

If fideicommisary dies first, there is no longer fideicommiary-fiduciary substitution. And he will

be treated as an original and only heir

So if he dies, subsequently, it is included

3) Transfer of the property from the first heir to the second heir
 Simple substitution in succession

If testator dies, and he owns the property, then it is included in his gross estate

If he appoints a person as first heir, substitution, for the purpose of preserving the property in
favor of a second heir

If the second heir dies, then it is exempted

If the first heir dies, it is not included in his (first heirs) estate

If the second heir dies first before the first heir, there is no more substitution, and so the first
heir becomes the only and original heir. So subsequently, if the first heir dies, then
subsequently, that property will be included

It is no longer exempted

4) Transfer in favor of various organizations, provided that not more than 30% is used for
administration purposes (Sec 87)

19. Income tax

In income tax, the formula is gross income, less allowable deductions is equal to taxable net income,
multiplied by the rates, individual and corporate, is equal to tax due, less tong if any, is the net
income tax due

GE ADD = TNI x rate

= tax due - tong / tax credit if any
= NET ESTATE TAX DUE (NETD)

In income tax, there are many more kinds of taxes

(WT, MCIT, IAES, BPRT) classes on income tax

In estate tax, and it is estate tax

 Estate tax

The formula is gross estate less allowable deductions is equal to taxable net estate, multiply by the
rates. That is the tax due, less tong or tax credit if any, is equal to the net estate tax due

All transfers of properties, taking upon death, is included (85 and 87)

Rates are ranging from 5% - 20%

Rate depends on the net estate

20. Deductions from the gross estate (12:20) part 1_4

(1) Funeral expense

a) 5% of the actual gross estate or the actual funeral expense whichever is lower but not to
exceed 200,000 pesos
b) actual funeral expense covers all the expenses from the time the person dies up to the time
that he was buried, but it should not exceed 200,00 pesos
c) examples are:
(1) obituary
(2) notice of death
(3) telephone calls
(4) funeral services
(5) (ataul, ilaw, bulaklak, damit ng namatay, pang embalsamo, damit ng naiwanan habang
umiiyak / morning apparel, pagkain habang nakaburol, pamisa)
(6) lapida
(7) burial lot

d) Requirement is it must be documented, there must be receipt, because this pertains to

actual funeral expense

e) X US citizen in the USA

(1) his property in the Phil is 3M

(2) his property in US is 12M
(3) total is 15 M
 (4) in the Phil, we will tax only the 3M because in the case of a NRA, we tax only his
property in the Phil
(5) When it comes to deductions side, NRA cannot claim all deductions because what were
taxed were only those properties in the Phil and not out. Therefore, it must be in
proportion

(6) If his spent is 200,000 then that is (3m/15m) x 200k

(7) That is 40k, which is in proportion

(8) 3M taxable, deductible from 3M is 40k

(9) In contrast, in the case of a resident citizen or non-resident citizen or resident alien, the
entire 15k is taxable

15k is taxable, deductible 200k

(2) Judicial Expenses

a) for proper settlement of the estate
b) example
(1) appraisal of the property
(2) accountant
(3) geodetic engineer
(4) legal fees
c) no limit, unlike in funeral expense that there is 200k limit

It means that for as long as one could account or support the expense, then it can be
deducted

d) for non resident alien, the law says it is in proportion

(3) Claims against the estate

a) versus claims against insolvent person
b) Y obtained loan from Z in the amount of 100k with an interest of 10k
c) Both of them are alive
d) Y paid Z 110k, 10k is income. It is taxable, NIT
e) Y cannot claim 10k as interest expense, because Y is entitled only to claim 1,2,3

f) X obtained loan in the amount of 150k, with an interest of 10% (15k)

g) X paid Z, 165 k
h) that is included within and without
i) on the part of X, X can claim interest (i) as deductible expense from the gross income
subject to tax arbitranch rule (33%)

j) X and Y died
k) They (debtor) died without paying Z (110k + 165K)

What is the tax consequence of X and Y in the estate tax side

This is called claims against the estate

In the claims against the estate, it is the debtor that died

Z who is alive will claim from the estate of Y and X

l) In special proceeding, the estate of X and Y cannot be settled extra-judicially, because the
rule in extrajudicial settlement is there should be debt

Debtor X and Y died with a debt

m) In the estate of X and Y, how much can X and Y claim as deduction?

110k and 165k

Claims against the estate

These 110k and 165k can be claimed by X and Y as deduction in the gross estate

n) If the decedent is a non resident, the same will be in proportion

o) Claims against insolvent person

(1) here, the one who died is the creditor

(2) he died without having been paid by his debtors X and Y

(3) If Z (creditor) is alive, he calls it bad debt, deduction in the income tax side

(4) if he is dead, then it is called claims against insolvent person

 Because the estate of Z will file a claim

It will go after the debtors who did not pay

(5) But the requirement is that the estate of Z who died, must first include 165k and 110k in
the gross estate, before he can claim these as claims against insolvent persons

(6) The estate of Z will have to add 165 and 110 as part of the gross estate and claim it as a
deduction (165 and 110)

Idagdag, then bawasin

(7) There is a need to add, because credit is an intangible property owned by the decedent
Z at the time of his death. And according to Sec 85, it is included (tangible or intangible,
wherever situated)

(8) it is a violation of the law, if it is not added as part of gross estate

It is also a violation of the law if it is not deducted

Isama sa gross estate, then ibawas

(9) gross estate is higher, then higher tax is paid

(4) Unpaid Mortgage

a) debtor, who has a loan with a mortgage, died without paying the loan

b) mortgaged loan has not been paid until he died

c) the deductions will be the value of the unpaid mortgage loan, but one has to add the value
of the property

d) If the value of the property is 1M, and the mortgage loan is 700k (representing 70% of the
value of the house)
 e) Out of 700k, only 200k was paid. The 500k remains unpaid

f) when he died, the value of the property is 3million

g) The law says that the 500k may be deducted (claimed as deduction)

But the value of the property (3M) must be added to the gross estate

This is because X is the owner of the house and lot. It is called decedents interest

So at the time of death, the value of house and lot should be added to the gross estate, but
the unpaid mortgaged loan can be claimed as deduction

(5) Casualty loss

a) Y has gintong gunting 100k, which has a value of 25k when it was stolen by M
b) X has a GG 100k, used in his parlor, which at the time it was stolen by M has a value of 50k

c) When the GG worth 25k was stolen, Y cannot claim it as a deduction, because Y is only
entitled to claim 1,2,3
d) X can claim GG as deduction valued as 50k when it was stolen

e) If X and Y are dead, M income because of the GG he stole is taxable, and the kind of tax is
NIT

f) There is casualty loss in income tax, and there is casualty loss in estate tax

(1) the distinction between the two is, in the case of Y who died, he cannot claim it in the
income tax side, but he can claim it in the estate tax

When it comes to X, X can claim it in the income tax side, or he can claim it in the estate
tax side

But if the casualty loss has already been claimed for income tax purposes

Its one of the two

That is the only distinction

(2) The scenario is the same. It must be characterized by suddenness of the loss. The loss
must arise from death, robbery, embezzlement, or from fire, storm, shipwreck, and
other natural calamity, not compensated for by the insurance
 (3) For income tax side, Y cannot claim it, while X can claim it

(4) X can claim it in the income tax side or estate tax side. But Y can claim it only in the
estate tax side

(5) X can claim it either in the income tax side or estate tax side

g)