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2. T 7. F 12. T
3. T 8. T 13. T
4. T 9. T 14. T
5. F 10. T 15. F
MULTIPLE CHOICE
1. D 12. C 23. D 34. D 45. B
2. T 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. T
1 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
2. F 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. F
Supporting Computations:
23.
Bank deposit in the foreign branch of a domestic bank P500,000
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Exclusion from the gross estate P2,800,00
0
23.
House and lot, family home in Quezon City P1,500,000
Bank deposit in Makati branch of a foreign bank 300,000
2 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Inclusion from the gross estate P3,800,00
0
25.
Shares of stocks, domestic corp. P250,000
(certificate kept in UK)
Shares of stocks, domestic corp. 100,000
(certificate kept in Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Intangibles subject to reciprocity P600,000
26.
Land & building, Philippines P2,000,000
House and lot, Philippines 3,500,000
Shares of stocks, domestic corp. (certificate kept in 250,000
UK)
Shares of stocks, domestic corp. (certificate kept in 100,000
Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Gross Estate P6,100,000
3 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
44. Bequests to charitable institutions are considered exclusions from the gross estate only
if the problem clearly states that not more than 30% were used for administrative purposes.
PROBLEM SOLVING:
PROBLEM 1
(1) P19,300,000 (2) P19,300,000 (3) P11,800,000 (4) P14,300,000
Citizen/ NRA with R NRA w/o R
Resident
(# 1 & 2) (# 3) (# 4)
PROBLEM 2
To Juan P25,000,000
To Pedro 18,000,000
4 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
To Maria 15,000,000
To Sisa 20,000,000
Total Gross Estate P78,000,00
0
PROBLEM 3
1. P230,0000
2. P1,100,000
3. P0
4. P5,000,000
5. P1,000,000 + [1M x (1M x 10% x 1.5)] = P1,150,000
MODIFIED IDENTIFICATION
EXERCISE A
*Included in the gross estate if the beneficiary is the estate, administrator or executor. In case
of doubt, the item should be taxable.
**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be
included first in the gross estate before deducting the same from the gross estate.
*** Bequests to charitable institutions are considered exclusions from the gross estate only if
the problem clearly states that not more than 30% were used for administrative purposes.
EXERCISE B EXERCISE C
1. P0; valid sale 1. P10M
2. P0; valid sale 2. P20M
3. P0; valid sale 3. P5M
4. P4,000,000 4. P10M
5. P6,000,000 5. P0
5 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
CHAPTER 3 DEDUCTIONS FROM THE GROSS ESTATE
TRUE OR FALSE
1. T 7. T 13. F 19. T 25. T
6 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Actual Funeral Expenses P89,700
Limit: 5% of Gross Estate (P2M x 5%) P100,000
ALLOWED (Lower Amount) P89,700
15.
Real property tax for the year 2013 P100,000
Notarized interest bearing promissory note 100,000
Accrued interest on the promissory note at the time 20,000
of death
Income tax due for 2013 200,000
Allowable deductions P420,000
(Disregard standard deduction)
23.
Income tax from practice of profession - 2013 P300,000
Income tax from practice of profession for Jan.-June 100,000
13
Real property taxes for 2013 150,000
Deductible taxes P550,000
35.
ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN
41.
Value to take/Initial Basis P900,000
Mortgage paid (50,000)
Initial basis 850,000
2nd Deduction:
(850/1,000 x P100,000**) (85,000)
Final Basis P765,000
X Vanishing rate 40%
VANISHING DEDUCTION P306,000
** Mortgage P150,000
50,000
54.
Shares, domestic corporation P500,000
Tangible personal property 1,500,000
7 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Gross Estate 2,000,000
ELIT (500,000 x 2,000/2,500) (400,000)
Taxable Estate P1,600,000
TAX DUE
1st P500,000 P15,000
In excess of P500,000 = (1,100,00 x 8%) 88,000
Estate Tax Due P103,000
55.
Gross Estate (Tangible property Phils.) P6,000,000
ELIT (1,200,000 x 6,000/10,000,000) (720,000)
Taxable Estate P5,280,000
PROBLEM SOLVING
Problem 1
Case A: P150,000
Case B: P200,000
Case C: P150,000
Case D: P150,000
Case E: P0
Problem 2
ASSUME GROSS ESTATE OF P2,000,000
Embalming charges P15,000
Burial apparel of the decedent 3,500
Cost of coffin 125,000
Mourning apparel of the surviving spouse during the burial 5,000
Mourning apparel of the minor child 2,000
Snacks and drinks during the wake 12,500
Honoraria of priest for daily masses before burial 2,000
Telecommunication charges to inform relatives 1,000
Charges for death notice published in a newspaper 8,000
Cost of video footage of the burial and interment 12,000
Funeral car service during interment 4,000
Honorarium of priest who celebrated the mass during 2,000
interment
Cost of tombstone 30,000
8 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
ACTUAL FUNERAL EXPENSE P232,000
Vs. Limit (P5% of P2M) 100,000
ALLOWABLE FUNERAL EXPENSE P100,00
0
NOTE: Hospital bills for two months of confinement before decedents death should be
charged to medical expenses
Problem 3
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable P500,000
Collectible portion (400/1,200) x 500,000 (166,667)
Uncollectible portion of the claim P333,333
Case C: P0. Debtor is not insolvent
Problem 4
DUE FROM PEDRO P200,000
Assets of Pedro P400,000
Less: Due to the BIR for unpaid taxes (200,000)
Balance 200,000
Collectible by Juan X 200/600 (66,667)
UNCOLLECTIBLE PORTION
(Deductible from Juans Gross Estate) P133,333
Problem 5
Question 1: P550,000 computed as follows:
Unpaid taxes on the estate before death P150,000
Unpaid mortgage on the estate 200,000
Unpaid loans arising from debt instruments (notarized) 125,000
Unpaid loans arising from debt instruments (not notarized). 75,000
The debt instrument was issued by a financial institution not
requiring notarizations for debt instruments issued
Total Deductible Claim Against the Estate P550,000
9 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Funeral expenses 200,000
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses 100,000
Unpaid loans arising from debt instruments (notarized) 125,000
Unpaid loans arising from debt instruments (not notarized). 75,000
The debt instrument was issued by a financial institution not
requiring notarizations for debt instruments issued
Casualty loss 65,000
Special Deductions:
Standard deduction 1,000,000
Medical expenses 82,000
Total Allowable deduction from the gross estate P2,097,000
Problem 6
Question 1: P217,500
Question 2: P217,500
Same answer with question #1. Whether or not the estate was settled judicially
is irrelevant in the determination of allowable deduction for judicial expenses.
Solution:
Expenditures incurred for the collection of assets and payment P100,000
of debts
Attorneys fees (1/2 were incurred after six months) 20,000
P40,000 x 1/2
Accountants fees 25,000
Executors commission 15,000
Appraisers fees 2,500
Court fees 18,000
Cost of preserving and distributing the estate 15,000
Cost of storing or maintaining the property of the estate 12,000
Brokerage fees for selling property of the estate 10,000
Total allowable judicial expenses P217,500
Problem 7
Loss due to shipwreck, two (2) months after the decedents P500,000
death.
10 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Robbery loss, seven (7) months after the decedents death. 2,000,000
The decedents executor was allowed by the Bureau of
Internal Revenue to extend the filing (within the period
allowed by the Tax Code) of estate tax return due to a
meritorious reason
Problem 8
Value to take P937,500
1st Deduction: Mortgage paid (187,500)
Initial basis P750,000
2nd D e d u c t i o n : Pr o p o r t i o n a t e
deduction (93,750)
(750/4,500) x 562,500
Final Basis P656,250
x Vanishing rate 40%
Vanishing Deduction P262,500
Problem 9
Value to take P1,500,000
1st Deduction: Mortgage paid ------
Initial basis P1,500,000
2nd D e d u c t i o n : Pr o p o r t i o n a t e
deduction (128,788)
(1,500/1,980) x 170,000
Final Basis P1,371,212
x Vanishing rate 80%
Vanishing Deduction P1,096,97
0
Problem 10
Case A: P1,000,000
Case B: P1,000,000
Case C: P1,000,000
Case D: P0
Case E: P0
Problem 11
Case A: P500,000
Case B: P500,000
Case C: P150,000
11 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Case D: P500,000
Case E: P0
Problem 12
Case A: P1,000,000
Case B: P500,000
Case C: P0
Case D: P500,000
Case E: P600,000
Case F: P750,000; [ (1M/2) + (500,000/2)]
Problem 13
Gross Estate P3,000,000
Funeral expenses (150,000)
Actual P300,000 120,000 = P180,000
Limit = P3M x 5% = P150,000
Standard deduction (1,000,000
)
Medical expenses (400,000)
Taxable Estate P1,450,00
0
2. T 7. F 12. F 17. T
3. T 8. T 13. T 18. T
4. T 9. F 14. T 19. T
5. T 10. F 15. F 20. T
MULTIPLE CHOICE
1. A 7. D 13. B 19. C 25. C
12 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
*Change Aug. 3, 1998 TO August 3, 1988
** Under conjugal partnership of gains, fruits earned during marriage, regardless of
source, are common properties
Supporting Computations
No. 22 and 23
Gross Estate: Exclusive Conjugal
Rest House in Batangas P2,500,000
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land 500,000
Income from exclusive property of the 200,000
spouse
Jewelry owned before the marriage 300,000
Other properties at the time of her 1,000,000
death
No. 24 and 25
Gross Estate: Exclusive Common
No. 26
Conjugal properties P200,000
Conjugal Deductions:
Funeral expenses (35,000)
Actual = P45,000
Limit = (P500,000 + 200,000) x 5% =
35,000
13 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Judicial expenses (20,000)
Claim against the estate (45,000)
Net Conjugal properties P100,000
Divide 2
Share of the Surviving Spouse P50,000
No. 27
Real property, Philippines P4,000,000
Real property, USA 5,000,000
Funeral expenses (200,000)
Judicial expenses (200,000 50,000) (150,000
Claim against insolvent persons (50,000)
Unpaid taxes (50,000)
Balance P8,550,000
Standard Deductions (1,000,000)
Medical expenses (max.allowed) (500,000)
Family Home (P1,500,000/2) (750,000)
Share of the surviving spouse (P8,550,000/2) (4,275,000)
Net Taxable Estate P2,025,000
No. 28
Exclusive Common Total
Conjugal real properties P5,000,000
Conjugal family home 1,500,000
Exclusive properties P2,500,000
Total P2,500,000 P6,500,000 P9,000,000
Ordinary Deductions:
Funeral expenses (75,000)
Actual P300,000 x 25% = P75,000
Limit = 5% x P9M = P450,000
14 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Casualty losses*** (100,000)
Miscellaneous deductions (P1M x 75%) (750,000) (825,000)
Net P2,400,000 P5,675,000 P8,075,000
Special Deductions:
Standard Deductions (1,000,000)
Medical expenses (P500,000 x 50%) (250,00)
Family Home (1,500,000/2) (750,000)
Share of the surviving spouse (2,837,500)
(5,675,000/2)
Net Taxable Estate P3,275,000
ERRATUM: DISREGARD .Exclusive Properties are NET of Casualty Losses***
15 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Net Estate Before Special Deductions P2,880,000 200,000 P3,080,000
Standard deductions (1,000,000)
Medical expenses (500,000)
Share of the surviving spouse (P200,000/2) (100,000)
Share of surviving spouse (P1,800,000/2) P1,480,000
****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is
common.
PROBLEM SOLVING
PROBLEM 1:
(a)P1,624,773 (b)P4,132,955 (c)P3,691,250 (d)P321,038
16 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
*The problem is silent as to reciprocity, hence, the gross estate should include tangible and
intangible properties within the Philippines.
**ELIT:
Funeral expenses P200,000
Judicial expenses 800,000
Claim against the estate 1,725,000
TOTAL ELIT P2,725,000
X 7,000/22,00
0
ALLOWABLE ELIT P867,045
**VANISHING DEDUCTIONS:
Value to take P500,0 00
1st Deduction: Mortgage paid -
Initial basis P500,000
2nd D e d u c t i o n : Pr o p o r t i o n a t e
deduction (61,932)
(500/7,000) x 867,045
Final Basis P438,068
x Vanishing rate 40%
Vanishing Deduction P175,227
**** Since the properties were already classified as exclusive and common, it should be
assumed that the exclusive properties were already inclusive of transfer for public use.
PROBLEM 2:
(Decedent: Resident Citizen)
a) Vanishing deduction = P1,676,200
b) Net exclusive property of the decedent = P7,923,800
c) Net community property = P17,800,000
d) Net Taxable estate = P15,323,800
e) Estate tax due = P2,279,760
17 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Exclusive Conjugal Total
*From the information provided in the problem, the amount of P400,000 as claim against
exclusive property should pertain to the unpaid mortgage on the land inherited. Therefore,
the present decedent paid P100,000 on the original amount of the mortgage (P500,000). This
should be taken into consideration in computing the vanishing deduction.
** LEGACY AGAINST EXCLUSIVE PROPERTIES
Legacy means bequest or inheritance of personal properties. The deductible legacy/devised
(bequests) under the tax code are:
Transfer for public use (Rule: Include both in the Gross Estate as well as in the
Deductions from the Gross Estate) ; and
Bequests to charitable institutions wherein not more than 30% of the bequest was
used for administrative purposes (Rule: Same as transfer for public use)
From the information provided above, the problem was silent as to the type of the legacy. In
case of doubt, the two types of transfers enumerated above should not be assumed.
Therefore, the item should be treated as a simple legacy or transfer in contemplation of
death which is added only in the gross estate.
18 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Initial basis P2,900,000
2nd Deduction: 2,900/30,000 x P1.1M (106,333)
Final Basis P2,793,667
x rate 60%
Vanishing Deduction*** P1,676,200
PROBLEM 3:
(Decedent: Resident Alien) (a) Net Taxable estate = P3,570,000; (b)Estate tax due =
P307,700
House and lot, USA * P2,000,000
Ordinary Deductions:
Special Deductions:
19 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
NOTE (Problem 3)
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedents gross
estate
***Assume the debtor is an insolvent person.
Land P3,000,000
House and Lot, furniture and appliances P5,000,000
Other tangible personal properties 1,200,000
Amount received under RA4917 1,000,000
Claims against insolvent persons 50,000 P10,250,000
Ordinary deductions:
20 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
** P700,000 350,000 = P350,000
***The amount paid on the mortgage should not be considered in computing the vanishing
deduction because the amount pertains to a mortgage entered into by Pedro during his
lifetime. To be deductible, the mortgage should have been assumed on the property at the
time of inheritance.
PROBLEM 5
Conjugal Absolute
Partnership Community
Real Property inherited by the decedent during the E E
marriage.
Income earned during marriage from the property in C E
the preceding number.
Property acquired by the decedent with cash owned E C
before the marriage
Personal belongings used exclusively by the decedent E E
Jewelry for the exclusive use of one of the spouses C C
Property unidentified when and by whom acquired C C
Lot acquired before the marriage by the surviving E E
spouse (surviving spouse had a previous marriage and
legitimate children in that previous marriage)
Income from the lot above E E
Cash income during marriage C C
Exclusive property was sold, and was repurchased C C
using conjugal property
21 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Supporting Computations:
No.5
Estate tax due (for P4M) P355,000
Estate tax credit (3/4 x P355,000) vs P80,000 (80,000)
Estate tax payable P275,000
No. 6
Estate tax due (for P500,000) P55,000
Less: Estate tax credit (20,500)
Estate tax payable P34,500
No. 7
Gross Estate P10,000,000
Deductions (5,000,000)
Share of the surviving spouse (5,000,000 x 60% x 50%) (1,500,000)
Net taxable estate P3,500,000
Tax Due P300,000
Estate tax credit (2.8/3.5 x P300,000) vs P124,500 (124,500)
Estate tax payable P175,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000
Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000
No. 8
Estate tax due (for P500,000) P71,000
Less: Estate tax credit (41,417)
Estate tax payable P29,583
22 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Limit 1: Limit Actual Allowed
Japan: 300/1,200 x P71,000 P17,750 P20,000 P17,750
USA: Exclude for purposes of computing Limit - - -
1
HK: 450/1,200 x P71,000 26,625 45,000 26,625
P44,375
Limit 2: (Include USA)
700/1,200 x P71,000 P41,417 65,000 41,417
ALLOWED TAX CREDIT (LOWER AMOUNT) P41,417
No. 9 and 10
Net Taxable Net Distributable
Property inherited P1,400,000 P1,400,000
Property acquired through own labor 3,600,000 3,600,000
Funeral expenses (200,000) (240,000)
Judicial expenses (200,000) (200,000)
Claims against the estate
Notarized (40,000) (40,000)
Not notarized - (20,000)
Standard deduction (1,000,000) -
Net Taxable/Distributable estate P3,560,000 P4,500,000
No. 28
Letter a .The Bureau of Internal Revenue can ask payment from the heirs to whom the
estate has been disturbed .. change to Distributed
PROBLEM SOLVING
Problem I:
(1)P200,000 (2)P0; not allowed
Net Taxable Estate P10,000,000
Problem II:
Net Taxable Estate P2,000,000
23 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Estate Tax Due P135,000
Estate tax credit (67,500)
Estate tax payable after tax credit P67,500
Problem III:
(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770
(c ) Net Distributable Estate = P4,427,230
House and lot, USA * P2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000 000
Investment in bonds, USA*** 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable 200.000
Car, Philippines 800,000
Legacy in favor of Philippine National Red Cross** 50,000
Devise to Quezon City for childrens playground** 70,000
Total Gross Estate P5,970,000
Ordinary Deductions:
24 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Legacy in favor of Philippine National Red Cross 50,000
Special Deductions:
NOTE:
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedents gross
estate
*** Considered as Estate within
Ordinary Deductions:
Special Deductions:
Standard deduction -
25 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Problem IV:
Real property, Philippines P4,000,000
Claim Against Insolvent Persons 50,000
Real property, USA 3,000,000
Real property, Japan 2,000,000
Net estate, Malaysia (1,000,000)
Total Gross Estate (common) P8,050,000
Funeral expenses (maximum) (200,000)
Judicial expenses (P200,000-100,000) (100,000)
Claim against insolvent persons (50,000)
Unpaid taxes (50,000)
Net estate before special deductions P7,650,000
X (Share of the surviving spouse) 1/2
Net estate of the decedent in the conjugal P3,825,000
properties
TAX DUE:
1ST P500,000 P15,000
In excess of P500,000 @ 8% 66,000
ESTATE TAX DUE P81,000
Estate Tax Credit (None; No Estate Tax Payments ----
abroad)
ESTATE TAX PAYABLE P81,000
26 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Unpaid taxes (50,000)
Net estate before special deductions P7,450,000
X (Share of the surviving spouse) 1/2
Net estate of the decedent in the conjugal P3,725,000
properties
Standard Deduction ------
Family Home ------
Medical Expenses (actual) (650,000)
Estate Tax (81,000)
NET DISTRIBUTABLE ESTATE P2,994,000
27 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Supporting computation:
No. 17.
ERRATUM: Letter C: A gift to the International Rice Research Institute is exempt
from gift *
No. 19. If the sale is considered fictitious, the entire value at the date of sale is subject to donors tax.
No. 22.
Letter a onerous transfer
Letter b - To be considered valid donation, the renunciation should be specifically and categorically
done in favor of identified heir(s) to the exclusion or disadvantage of the other co-heir(s) in the
hereditary estate.
Letter c gratuitous transfer, subject to donors tax
No. 25.
Donation to Pedro Clara
Gross Gifts (2M/2) /2 P500,000 P500,000
Less Dowry (10,000) -
Net taxable gift P490,000 P500,000
No. 28.
DONEE
Son D. in Law
Gross Gifts (5M/2) P2,500,000 -
Less Dowry (10,000) -
No. 32-34.
Husband Wife
28 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
GG (7/1) 100,000 100,000
No. 39.
Taxable gift P300,000
Tax Due P6,000
Tax Credit P4,500 vs. (200/300 x (4,000)
P6,000=P4,000)
D.T.Pyable P2,000**
PROBLEM SOLVING
Problem I:
ITEM Q#1 Q#2 Q#3 Q#4 Q#5
Land 1** - - - - -
Land 2*** - - - - -
29 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
purposes is not taxable if the property donated is a real property classified as
capital asset subject to capital gains tax.
Problem II:
ITEM Q#1 Q#2
A P4,500,00 P4,500,00
B 1,000,000 -
C 1,500,000 -
D 2,000,000 -
E 3,000,000 3,000,000
F 500,000 -
Car, Alabang 200,000 200,000
Car, Malaysia 200,000 -
Land Cebu - -
GROSS GIFT P12,900,000 P7,700,000
Problem III:
1.P0 2.P5,000 3.P10,000 43,000
Problem IV:
Donation-Red Cross (exempt under a special P100,000
law)*
Donation to Manila City Hall * 300,000
Mortgage on the land (400,000 x ) 100,000
Total deductions from the gross gifts P500,000
*Exempt donations which partake the nature of deductions and are, therefore ,
deductible from the gross gifts to arrive at taxable net gifts.
30 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Shoes and bags to his girlfriend 30,000
NOTE:
Cash to PPCRV. Not considered as donation under the tax code. It is subject to the
rules and regulations of the COMELEC under the election code of the Philippines.
City of Makati AND Land for Public Use. Although the donation is exempt, it shall be
considered in the determination of gross gifts
Gift subject to revocation is not a gift.
Donation mortis causa is a donation subject to estate tax, not donors tax.
Problem VI
Tax payable on:
1) March 1 = P2,000
2) May 30 = P18,000
3) June 30 = P90,000
4) July 31 = P0
5) September 30 = P447,200
Solution
Gross Gifts P200,000
Dowry - > 1 year after celebration
Net taxable gift P200,000
Donors Tax Due/ Payable March 1 P2,000
31 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Donors Tax Due P20,000
Less: Tax paid (2,000)
Donors tax payable-May 30 P18,000
September 30
Problem VII
1) January 15, 2012 = P32,000
2) April 1, 2012 = P6,000
3) December 25, 2012 = P0
4) March 30, 2013 = P30,000
5) May 25, 2013 = P0
Solution
Gross Gifts-Jan. 1, 2012 P1,000,000
Less: Encumbrance (200,000)
Taxable gift P800,000
Donors tax due/payable-Jan. 1, P32,000
2012
32 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Gross gift April 1, 2012 P100,000
Add: Prior net gift 800,000
Taxable gift P900,000
Donors Tax Due P38,000
Less: Tax paid (32,000)
Donors tax payable-Apr. 1, 2012 P6,000
March 30, 2013 The rule that gift of not more than
P100,000 x 30% P30,000 P100,000 is exempt is applicable
only to donations made to relatives.
May 25, 2013
Gross gift P200,000
Deductions (200,000)
Taxable gift P0
Tax Due P0
Problem VIII
1) October 8, 2014 = P9,800
2) November 4, 2014 = P1,200
June 6, 2014
October 8, 2014
Husband Wife Total
33 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Prior Net Gift 228,000
Taxable gift P228,000 P248,000
@30
November 4, 2014
@30 @30
Problem IX
1) October 10, 2013 = P3,140
2) April 4, 2014 = P13,500
June 6, 2013
Mr.Ramos Mrs.Ramos Total
34 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Donors Tax P1,570 P1,570
Tax paid - -
Donors Tax Payable P1,570 P1,570 P3,140
April 4, 2014
Mr.Ramos Mrs.Ramos Total
@30
Donors Tax Payable P13,500 Exempt P13,500
Problem X
(1)P7,000 (2)P2,600 (3)P69,800 (4)P30,000
Feb. 15, 2014
Mr.Macariola Mrs.Macariola Total
35 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
June 1, 2014
Mr.Macariola Mrs.Macariola Total
36 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
CHAPTER 7 BUSINESS TAXES
MULTIPLE CHOICE
1. A 7. B 13. D 19. C 25. A*
* The end-use (person using the communication facility is the one liable for OCT, not the
communication company.
**3% CCT is applicable only to domestic carriers transporting passengers by land, not by air or sea.
3. T 8. F 13. T 18. T
4. F 9. T 14. F 19. F
37 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
6. D 26. C 46. D 66. B 86. D
ERRATUM:
Illustration #6 . Medical fees (included in the
hospital bills)
Supporting Computations:
No. 14 To be exempt, the contributions from each member in item III should not exceed P15,000.
No. 21 Item a is composed of selling price and the applicable output vat
No. 23
Output Vat (P280,550 +P152,400) x P51,954
12%
Input vat (P110,220+P101,250) x 12% (25,374.6)
Vat Payable P26,578
No. 24
Output vat (P10M x 12%) P1,200,000
Input vat on materials (480,000)
Input vat on capital goods (36,000)
(P3Mx12%) /60 mos.
38 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Vat Payable June 30, 2014 P684,000
No. 42
No. 44
Sales, shares held as inventory P5,000,000
Cos of shares, held as inventory (2,000,000)
Gross income 3,000,000
Vat rate 12%
Output vat P360,000
Les: Input vat
Supplies expense 12,000
Rent expense 24,000 (36,000)
Vat payable P324,000
No. 52
Domestic sales (P600,000 x 12%) P72,000
Add: Transaction deemed sales
Jan. 4 consignment (P200,000 x 12%) 24,000
Goods consumed on Fe. 27 (P50,000 x 12%) 6,000
Property dividends (P150,000 x 12%) 18,000
Total Output Vat P120,000
39 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
No. 63
Output tax (1,500,00 x 12%) P180,000
Less: Input taxes
Purchases (800,000 x 12%) 96,000
Machinery (240,000/60 x 3mos.) 12,000
Carry-over 97,000 205,000
Excess input vat (P25,000)
No. 64
Output tax on sale (2,000,000x 12%) P240,000
Output tax on sale of machinery (2,000,000x 12%) 240,000
Less: Input taxes
Purchases 1,000,000x 12%) 120,000
Unamortized input tax on machinery 25,000
(240,000- 12,000)
Carry-over 228,000 (373,000)
VAT Payable P107,000
No. 71 & 72
Output vat (P592,480 x 3/28) P63,480
Less: Input Vat
Purchases of goods (P100,000 x 12%) P12,000
Purchases of services (P20,000 x 2,400
12%)
Transitional input vat 4,800 (19,200)
VAT Payable P44,280
No. 77
Change the year from 2010 to 2012
Output Vat for October 2012 = P3M x 12 = P360,000
Ratio of Initial Payt over Gross S.P. = P900,000/P3,000,000 = 30%
If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale
which is treated as Cash Sale. Therefore, the entire output vat is due on the month of
sale.
No. 78
Output Vat for 2013 = P0; The entire output vat was paid in 2012
No. 80
Downpayment P112,000
40 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
1st installment payment 112,000
Total (vat inclusive) 224,000
Less: VAT (P224,000 x 3/28) (24,000)
Initial Payment (exclusive of vat) P200,000
Divide by contract Price (P1,120,000 x 3/28) 1,000,000
Ratio of Initial Payment over SP 20%
Output vat for 2012 (P200,000 x 12%) P24,000
No. 80
VAT ON CASH SALE: P72,000
(FMV is higher than SP) (P600,000 x 12%)
VAT ON DEFERRED SALE: 36,000
(Ratio of Initial payment over SP > 25%
No. 83 and 84
Output vat (P336,000 x 3/28) P36,000
Input vat (56,000 + 11,200) x 3/28 x 300/500 (4,320)
Vat Payable P31,680
No. 85
OUTPUT VAT (P896,000 x 3/28) P96,000
INPUT VAT
Purchases of goods, vat business, vat included (24,000)
(P224,000 x 3/28)
MIXED Transactions:
Purchases of supplies, for vat & non vat business
[(112,000 x 3/28) x (800,000/1,000,000)] (9,792)
Purchase of depreciable asset, for use in vat and non vat
business
[(P2,240 x 3/28) x (800,000/1,000,000)]
VAT PAYABLE P62,208
41 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
No. 86 and 87
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28 P64,821
Export sales (zero rated) 0
INPUT VAT
Purchases of goods, supplies and services for domestic sales and for
export (374,000 + 69,848 + 154,000 + 55,000) x 3/28 (69,948)
Vat Payable (P5,127)
No. 88
Raw Materials (P560,000 x 3/28) x 400,000/1M P24,000
Supplies (P448,000 x 3/28) x 400,000/1M 19,200
Equipment (P300,000 x 12% x 400,000/1M) 14,400
INPUT VAT ATTRIBUTED TO EXPORT SALES P57,600
PROBLEM SOLVING
Problem 1:
a) P0
b) P134,400 x 3/28 = P14,400
c) PP201,600 x 3/28 = P201,600 (regardless of whether or not Abi is a vat registered
exporter)
Not zero rated. To be zero rated, the problem should provide that Abi exported more
than 70% of its annual production
d) Vat exempt
Problem 2:
Problem 3:
42 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Sales (P8M 400,000) x 12% P912,000
Sales from consignment (March and Feb.) 36,000
(20+10) x P10,000 x 12%
Transactions deemed sales
January 8 consignment (20 x P10,000) x 12% 24,000
Goods withdrawn 6,000
Goods taken as payment to creditors 3,600 P981,600
INPUT VAT
Purchase of goods, supplies, freight/insurance) 82,080
Capital goods (ASSUME USEFUL LIFE OF 4 2,750 (84,830)
YEARS)
(P1,100,000 x 12%) / 48 mos.
VAT PAYABLE P896,770
Problem 4:
Business tax VAT OPT
Gross receipts (collections) from:
Hotel rooms P1,800,00
0
Dining hall 3,150,000
Other revenues 700,000
Total P5,650,00
0
VAT 12% P678,000
Gross receipts (collections) from disco operations P504,000
@18%
TOTAL Business Taxes P1,182,000
Problem 5:
Output vat on gross receipts (collections)
from construction contracts with:
Bobads, City Condo & Urban Devt.
(P30M x 12%) P3,600,000
Less: Input vat on payments/advances made
to:
Alpha (P12M x 90% x 12%) (1,296,000)
Charlie (P4M-P1M) x 12% (360,000)
43 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Delta (P2M x 12%) (240,000)
VAT PAYABLE, 1st Quarter 2014 P1,704,000
Problem 6:
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale
Problem 7:
Output vat: school supplies and gift items (P560,000 + 336,000) x 3/28 P96,000
Input vat:
44 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
2. T 7. F 12. F 17. F (False, should be 20 days)
3. T 8. T 13. F 18. F
4. F 9. T 14. T 19. T
2. T 7. F 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. F 14. T 19. T
45 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
16. B 36. A 56. A 76. D
Supporting Computations:
No. 5 (P280,000 + P220,000) x 3% = P15,000
No. 6 (P50,000 + 100,000 75,000) x 3% = P2,250
No. 7
Gross receipts (refer to #6) P75,000
x vat rate 12%
Output vat P9,000
Input vat (P11,200 x 3/28) (1,200)
Vat Payable P7,800
No. 35
Covered by the NOT Covered by the
Franchise Franchise
AR, beg. P600,000 AR, beg. P----
46 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Revenues 4,000,000 Revenues 1,000,000
AR, end (800,000) AR, end (160,000)
Gross receipts P3,800,000 Gross receipts P840,000
Franchise tax rate 2% Franchise tax rate 12%
Business tax due P76,000 Business tax due P100,800
Total Business Taxes P176,800
No. 34
Output vat (P5M x 12%) P600,000
Input Vat
No. 48
OPT% GRT
Interest income from lending activities
from inst1uments with remaining terms
of:
Five years and less 5,000,000 5% P250,000
More than five years 3,000,000 1% 30,000
Dividends & equity shares from 1,000,000 0% 0
subsidiaries
Rental income 500,000 7% 35,000
Net trading gains 300,000 7% 21,000
Total Gross Receipts Tax P336,000
No. 49
OPT% GRT
Rentals from safety deposit boxes P880,000 7% P61,600
Net foreign exchange gains 220,000 7% 15,400
Net trading gains from trading of 660,000 7% 46,200
securities
Trust fees 110,000 7% 7,700
Dividends from domestic corporations 30,000 0% 0
47 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
Other service fees 220,000 7% 15,400
Interest income from lending activities
from inst1uments with remaining terms
of:
Five years and less 700,000 5% 35,000
More than five years 800,000 1% 8,000
Total Gross Receipts Tax P189,300
No. 50
Interest income with maturity of less than 5 years (P500,000 x P25,000
5%)
Rentals (P500,000 x 7%) 35,000
Net trading loss = none; if net trading gain, tax is 7%
Gross receipt tax (GRT) P60,00
0
No. 51
Interest income with maturity of less than 5 years (P1M x P50,000
5%)
Rentals (P500,000 x 7%) 35,000
Net trading gain
[200,000 (100,000 net trading loss previous month) x 7,000
7%]
Gross receipt tax (GRT) P92,000
No. 52
Interest withheld and paid (P100,000 x 5 years x 1%) P5,000
Adjusted amount of tax due to pretermination (P100,000 x 5 years 25,000
x 5%)
Tax Payable P20,000
48 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
a - not subject to percentage tax or any business tax Overseas communication into the
Philippines.
b and d - subject to vat
c not world or oriental championship. Subject to 10% OPT
PROBLEM SOLVING
Problem I:
Gross receipts-passenger operations P240,000
(P8,000,000 x 3% CCT)
Gross receipts cargo operations 450,000
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat) 240,000
Total business taxes P930,000
Problem II:
1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3% = P42,000
2) VAT = P1,400,000 x 12% = P168,000
Problem III:
1) Income tax due = P625,000
Subject to 2.5% GPB:
EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention fees, and
other charges relating to inbound and outbound cargoes are considered as income
derived from sources within the Philippines subject to regular tax rates.
49 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
2) Income tax due = P545,000
Subject to 2% GPB (Under a tax treaty):
50 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a
GR from cargo operations-Phils. 6,000,000
Problem IV:
1. P0. Not subject to business tax but subject to a capital gains tax of P2,500.
[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT
2. P0. Not subject to business tax as well as income tax (CGT). The transaction
resulted to a loss amounting to P75,000, hence, not subject to CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share
Problem V:
1. P3,000 OPT. ratio=10/35=28.5%; IPO rate= 2%; Tax due on=P150,000 x 2% =
P3,000
2. P100 OPT. P20,000 x .005
Problem VI:
1. P1,053,000 OPT (amusement tax). P5,850,000 x 18%
2. P1,053,000 OPT. Subject only to a business tax due of 18% OPT.
3. P720,000 OPT P4,000,000 x 18%
4. P55,500 OPT. P1,850,000 x 3%
5. P108,000 Vat. (P1850,000 x 12%) [P750,000 x 12% + (P224,000 x 3/28)]
Problem VII:
1. P651,250
(P4M + 3.5M + 775,000) x 7% = P579,250
(P6M + 1.2M) x 1% = P72,000
2. P578,500
[(P2.8M + 3.3M + 825,000) + (325,000 150,000)] x 7% = P497,000
(P7.2M + 950,000) x 1% = P81,500
51 | Tr a n s f e r & B u s i n e s s Ta x a t i o n ( 3 rd E d i t i o n ) b y Ta b a g a n d G a r c i a