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Midterm Exam Reviewer

TRANSFER TAXERS

Transfer tax
- It is the tax imposed on one’s right to make casual and gratuitous transfer on one’s property to the other person.
- Classifications: Donor’s Tax and Estate Tax

Nature of Transfer Taxes


1. Excise or privilege tax
The tax is imposed on the act of transmitting one’s property for free.
2. Irregular payments
Tax is not paid on regular intervals. The period of payment is undeterminable unlike income tax which is periodic.
3. Direct tax
Tax is imposed on the property left by the decedent not on the recipient. It cannot be shifted.
4. National tax
Tax is collected by the BIR (national government’s agency responsible for collecting taxes)
5. Fiscal
It helps to increase the revenue of the government.
6. Compensatory tax
Tax is intended to be redistributed in the form of governmental projects for the general welfare.
7. Ad valorem tax
The value of the tax imposed is based on the fair market values of the property at the time of the death or at the
time of donation.
8. Progressive tax
The greater the value of the property transmitted, the higher the tax rate is imposed.
9. Subject to exemption
All donations used actually, directly, and exclusively for educational purposes shall be tax exempted.
10. Returnable
Transfer taxes are required to be reported using the prescribed form tax return provided by the BIR.

Mode of Transferring Properties


1. Onerous transfer
2. Gratuitous transfer
3. Partially gratuitous transfer

Onerous Transfer
- Bilateral transfer
- The sale or exchange of property for a monetary consideration or a transfer of goods or services in return for something of
equal value like in sales or barter.
- The seller and the buyer of the property are mutually obligated to give the property and to pay the value of the property.
- May be made through:
- Regular business activities
 These sales or exchanges in ordinary course of business and usually imposed with VAT, OPT and excise
tax (business and income taxes).
- Casual Sale of property
 Sale done by person not engaged in business of selling property and usually imposed with capital gains
tax or regular income tax (not business tax).

Gratuitous Transfer
- Unilateral transfer
- The conveyance of property which is not conditioned or reciprocated by any consideration in exchange for the value of the
property give away.
- It is the transfer of property for free.
- May be made through:
- Donation
 Donation Inter-Vivos
 A gratuitous transfer of property to the done during the lifetime of the donor.
 Subject to donor’s tax
- Succession
 Donation Mortis causa
 The effectivity of gratuitously transferring properties to the heirs is caused by the death of the property
owner either through the operation of law or by a written will.
 Subject to estate tax.

Partially Gratuitous Transfer


- This conveyance of property is made possible for an inadequate consideration. It is usually called the “disguised sale”
because the intent of property transfer is partly sale and partly gift.

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Effectivity of Transfer of Properties


1. Inter-Vivos Transfers – property is transferred during the lifetime of the donor and done, and is effected upon the delivery
and acceptance of the property donated.

2. Mortis Causa Transfers – the law provides that the right to succession is effected from the moment of the decedent’s
death.

Justification of Transfer Taxes


1. Redistribution of wealth theory
- Properties given for free contributes to the unequal distribution of wealth and earnings because the recipient has
not actually worked for it.

2. Benefit-received theory
- The government protects and provides services in the accumulation of properties transferred gratuitously. It is fair
that the government collects equivalent compensation for giving protection and services to individual persons,
properties or rights who gained from the benefits.

3. Privilege or state partnership theory


- The State is a “passive and silent partner” in the accumulation of wealth as it protects every individual within its
territory.

4. Ability-to-pay theory
- Every inheritance received by an heir is in the nature of unearned wealth. The effect of inheritance increases the
wealth of the heir thereby creating an ability to pay the tax and thus contributing to government income.

5. Equitable recoupment theory


- The intended purpose of this tax is to prevent “unjust enrichment” by either the taxpayer or the government. There
is unjust enrichment on the part of the taxpayer if properties are gratuitously transferred without payment of transfer
taxes.

Distinction between Donor’s Tax and Estate Tax


Donor’s tax Estate Tax
Effectivity of During the lifetime of the donor Upon the death of the decedent
transfer of property and donee
Taxpayer The donor Estate of the deceased person
Basis of Tax The net gift The net estate
Exempt amount Net gift of P100k and below Net estate of P200k and below
Filing and payment Within 30 days after the date Within six months from the
gift is made decedent’s death.

Succession
- A mode of acquisition by virtue of which the property, right and obligations to the extent of the value of the inheritance, of a
person are transmitted through his death to another or others either by will or by operation of law.

Elements of Succession
1. Decedent
- The person who died and whose property is transmitted through succession. (general term)

Testator
- The decedent who made the last Will and Testament
2. Estate
- The totality of the assets and liabilities of a person at the time of his death.
- The properties or property rights of the decedent which is the subject matter of succession.
Inheritance
- Includes all properties, rights, and obligations of a person which are not extinguished by his death. It also includes
those which have accrued thereto since the opening of the succession.
3. Successor
- The heir of the person to whom the property or property rights is to be transferred.

Primary Compulsory Heirs


1. Legitimate children and their descendants with respect to their legitimate parents and ascendants.
2. Surviving legitimate spouse; and
3. Illegitimate children and their descendants.

Secondary Compulsory Heirs


1. Legitimate parents and ascendants
2. Illegitimate parents
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Persons Incapable of Succeeding


1. The priest who heard the confession of the testator during his last illness, or minister of the gospel who extended spiritual
aid to him during the same period.

2. The relatives of such priest or minister of the gospel within the fourth degree, the church, order, chapter, community,
organization, or institution to which such priest or minister may belong;

3. A guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship
have been approved even if the testator should die after the approval thereof; nevertheless, any provision made by the ward
in favor of the guardian when the latter is his ascendant, descendant, brother, sister, or spouse, shall be valid;

4. Any attesting witness to the execution of a will, the spouse, parents, or children or any one claiming under such witness,
spouse, parents, or children;

5. Any physician, surgeon, nurse, health officer, or druggist who took care of the testator during his last illness; and

6. Individuals, associations, and corporation not permitted by law to inherit.

Gross Estate
- The total valuation of the assets and liabilities of the deceased at the time of his death.

Situs of the Gross Estate


Filipino/Resident Alien Within Outside
Real Properties Yes Yes
Personal Tangible Yes Yes
Personal Intangible Yes Yes
Non-Resident Alien Without Reciprocity With reciprocity
Real Properties Yes Yes
Personal Tangible Yes Yes
Personal Intangible Yes No

Valuation of the Gross Estate


 General Valuation Rule: at its fair market value at the time of the decedent’s death.

 Gross amount shall not be diminished by:


o Encumbrances or mortgage loans attached to the property;
o Portion of claims that are worthless like bad debts;
o Taxes, and other permissible deductions;
o Share of the surviving spouse in the conjugal or communal property; and
o Any subsequent contingency affecting the estate.

Usufruct Real Property Personal Property Valuation Stocks, bonds and other securites
Valuation Valuation
Take into account  Assessed value (by 1. Current Market Price (newly acquired property) If listed in the local stock exchange:
the Basic Provincial or City 2. Second-hand market price (used property) 1. Closing price on the date of death. Or
Standard Assessor) or 3. Grossed-up loan value (loaned property 2. Trading price at the date nearest to
Mortality Table  Zonal Value (BIR) 4. Fair value plus accrued interest (interest- the date of death
(probable life of earning receivables/ bank deposits)
the beneficiary) *whichever is higher* 5. Discounted value (non-interest bearing notes If not listed in the local stock exchange:
receivables) Adjusted Net Asset Method (Fair value
6. Face value (Phil Peso Currency) of assets less fair value of liabilities)
7. Converted Philippine peso value (foreign
currencies)

Inclusions of the Gross Estate


1. Property of the decedent at them time of his death
2. Property transferred but ownership remains to the decedent.
3. Accrued interests of the decedent even received after the death.

Specific Properties (under inclusions)


1. Decedent’s Interest
2. Transfer in contemplation of death
3. Revocable Transfer
4. Property Passing under a general power of appointment
5. Proceeds of the life insurance with revocable beneficiary
6. Prior interests
7. Transfer for insufficient consideration
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1) Decedents Interest
- The value of any interest in property or rights accrued in favor of the decedent on or before his death which have been
received only after his death.
- Examples:
- Dividends declared on or before the death of the stockholder, and received by the estate after said stockholder’s
death;
- Partnership’s profit earned prior to the death of the partner, received by the estate after the partner’s death; and
- Accrued interest income and accrued rent income on or before the time of death, but collection was made after
death.

2) Transfer in Contemplation of Death


- Death must be contemplated, and the thought of death as distinguished from purposes associated with life, must be the
impelling cause of transfer.
- Made during the lifetime of the decedent in anticipation of his death.
- Instances:
1. Where a donation was made concurrently with the execution of a will
2. Where a donation was made due to the decedent’s age and/or the decedents known serious illness at the time of
the gift.
3. Where the time between making a gift and the death of the donor was relatively close.
4. While still alive, the decedent transferred his property in favor of another person, but the transfer was intended to
take effect only upon the former’s death.
5. By gift intended to take effect at death, or after death, or under which the donor reserved the income or the right to
designate the persons who should enjoy the income.
- The law does not specify the number of years prior to the decedent’s death within which the transfer can be considered in
contemplation of death. The period is not necessarily imminent, as long as the controlling motive is the thought of death.

3) Revocable Transfer
- The transfer of property with retention or reservation of rights over the property by the donor while he still lives.
- Instances:
1. By gift where the donor has reserved the power to alter, amend, and revoke donation.
2. The donor retains the option to relinquish such power in contemplation of death.
3. Conditional transfers where attached conditions are not completed by the done prior to the donor’s death.

4) Property Passing under General Power of Appointment


- General Power of Appointment means that the decedent must have had a power exercisable in favor of himself, his estate,
or creditors of his estate.
- If the power released by the decedent is a special power of appointment, the property subject to such power shall be
excluded from the gross estate because the decedent had already relinquished interest over the property. A power is special
if the decedent appointed only amount restricted or designated class of persons other than himself, his estate, his creditors,
or creditors of his estate.

5) Proceeds of Life Insurance with Revocable Beneficiary


- Life insurance covers all description of insurance related to life, including death benefits and accident insurance.
- Rules:
1. Exclude from the gross estate if the beneficiary is irrevocable.
2. Include in the gross estate if the beneficiary is:
a. Revocable, or
b. The decedent’s estate, his administrator or his executor.
- When the designation the beneficiary is not stated or is not clear, the assumption is revocable designation.
- If the insurance is other than life insurance, it is not contemplated under this topic.
- Proceeds is part of exclusive property if the premium were paid out of exclusive funds and is part of the conjugal property if
the premiums were paid out of conjugal funds.
- Excluded if the proceeds or benefits are from SSS or GSIS
- Excluded if the proceed are from a group insurance taken by the employer because what the law requires to be included
refers to the proceeds under policies “taken out by the decedent upon his own life”

6) Prior Interests

7) Transfer for Insufficient Consideration


- A property is transferred for insufficient consideration if sold or disposed for less than its prevailing market value.
- The value to be included shall be determined under the following rules:
1. If the transfer was in the nature of a bona fide sale for an adequate and full consideration in money or money’s
worth, no value shall be included in the gross estate.
2. If the consideration received is less than adequate and full consideration, the value to be included in the gross
estate shall be the excess of the fair market value of the property at the time of the decedent’s death over the
consideration received. (the difference must be significant)

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3. If there was no consideration received on the transfer (as in donation mortis causa), the value to be included in the
gross estate shall be the fair market value of the property at the time of the decedent’s death.
4. If the transfer is not shown to have been made in contemplation of death or to take effect upon the decedent’s
demise, the transfer is subject to donor’s tax.

Exclusions from the Gross Estate


1. The Exclusive Property of the surviving spouse

2. Properties, Interests, Rights and all income accruing after the death of the decedent;

3. Properties or transfer exempt by law from the estate tax:


a. GSIS Proceeds/benefits
b. Accruals from SSS
c. Proceeds of life insurance where the beneficiary is irrevocably appointed
d. Proceeds of life insurance under a group insurance taken by employer
e. War damage payments
f. Transfer by way of bona fide sales
g. Transfer of property to the government or to any of its political subdivisions
h. Merger or usufruct in the owner of naked title
i. Properties held in trust by the decedent
j. Acquisition and/or transfer expressly declared as not taxable

4. Properties located outside the Philippines for Non-resident aliens

5. Intangible personal properties of Non-resident aliens located in the Philippines under Reciprocity Law.

Exemptions from the Estate Tax


1. The merger of usufruct in the owner of the naked title;

2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommisary

3. The transmission from the first heir, legatee, or done in favor of another beneficiary, in accordance with the desire of the
predecessor; and

4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of
which goes to the benefit of any individual; provided, however, that not more than 30% of the said bequests, devises,
legacies, or transfers shall be used by such institutions for administration purposes.

Deductions from the Gross Estate


I. Ordinary Deductions
A. Expenses, Losses, Indebtedness, Taxes, etc.
i. Funeral Expenses
ii. Judicial Expenses
iii. Claims against the estate
iv. Claims against Insolvent person
v. Unpaid property mortgage
vi. Unpaid taxes before death
vii. Casualty losses
B. Transfers for Public Use
C. Vanishing Deductions

II. Special Deductions


A. Standard deductions
B. Family Home
C. Medical Expenses
D. Amount received by heirs under R.A. 4917

III. Share of the Surviving Spouse in the net conjugal/community estate (50%)
Rules for Valid Deductions
1. Valid Deductions
o All deductions from the gross estate must be specially granted and within the limits as provided by law
2. Substantiation
o All deductions allowed from gross estate must be proven to be true. Deductions claimed in the estate tax return
must be supported with documentary evidences such as:
 Valid contracts, invoices, receipts, audited financial statements;
 Notarized certifications, signed sworn statement of account;
 Court Order approving the claims against the estate; and
 Other documents as may be required by the BIR
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3. Common Deductions
o For married decedent, deductions are presumed to be conjugal/communal deductions
4. Timing for allowable deduction
o Allowed deductions:
 Unpaid obligations before death
 Funeral Expenses incurred on or before the burial; and
 Losses sustained on or before the settlement date of the estate tax.
5. No double deduction and not compensated
o Deductions and losses that have been deducted from the gross income are no longer allowed to be deducted from
the gross estate.

Ordinary Deductions
- Are deductions that are comprised of expenses, losses, indebtedness, taxes, transfers for public use and vanishing
deductions:
o Funeral Expenses (deleted by Train)
o Judicial Expenses (deleted by Train)
o Casualty Losses
o Claims against the estate
o Claims against the insolvent persons; and
o Unpaid taxes and mortgages

FUNERAL EXPENSES JUDICIAL EXPENSES CASUALTY LOSSES


Lowest amount of any of the following: These are deductions incurred for the Losses incurred during the settlement of
- Actual funeral Expenses up to the administration, inventory taking of assets, the estate arising from robbery, theft,
time of interment and settlement of the estate, and embezzlement, fire, shipwreck, storms
- Amount equal to five percent of his distribution of the estate among the heirs. and/ or other casualties.
gross estate; or
- Statutory limit of 200k Must be incurred during the settlement of Must be incurred not later than the last
estate but not beyond the last day day for the payment of the estate tax.
Must be substantiated otherwise cannot prescribed by law, or the extension
be deducted thereof, for filing of the estate tax return. 1. The amount of loss must be
compensated by any insurance
*estate tax return should be filed within 6 or extra-judicial settlement; and
months from the decedent’s death. Can 2. Not claimed as deduction from
be extended for meritorious cases for a gross income for income tax
period not exceeding 30 days purposes at the time of the filing
of the estate tax return.
Components:
1. Fees of Executor or
administrator
2. Attorney’s fees
3. Court fees
4. Accountant fees
5. Appraiser’s fees
6. Clerk hire
7. Costs of preserving and
distributing the property
8. Brokerage fees for selling
property of estate.
CLAIMS AGAINST THE ESTATE CLAIMS AGAINST INSOVENT UNPAID TAXES AND MORGAGES
PERSONS
Something that is owed or obligation to A person is insolvent if his assets are Taxes incurred prior to the date of the
pay which could have been enforced inadequate to discharge his liabilities. decedent’s death and remained unpaid
against the deceased during his lifetime Being a debtor, he has no capacity to pay as of the date of the death are deductible.
his debts as they fall due.
It may arise out of Taxes should qualify as claims against
1. Contract If the assets are liquidated, the cash the estate. They must be enforceable
2. Tort or quasi-delict proceeds will be used to pay his obligations of the decedent at time of his
3. Operation of law obligation in the following order. death.

Requisites: 1. Unpaid taxes to the government 1. Property taxes accrued prior to


1. The liability represents a personal 2. Secured mortgage load to preferred the decedent’s death.
obligation of the deceased existing at creditors and 2. Unpaid taxes on income
the time of his death except: 3. Pay ordinary creditors. received by the decedent before
2. The liability was contracted in good his death
faith and for adequate and full To be deductible: 3. Gift taxes on lifetime gifts which
consideration in money or money’s 1. The amount of said claims has been are unpaid upon death.
worth initially included as part of the
3. The claim must be a debt or claim which decedent’s gross estate. Not deductible:
is valid in law and enforceable in court; 2. The incapacity of the debtor to pay his
debt is proven not merely alleged.

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4. The indebtedness must not have been 1. Income tax upon income
condoned by the creditor or the action received after the death of the
to collect has not yet prescribed. decedent;
Substantiation: 2. Property taxes not accrued
1. Debt instrument must be before the decedent’s death;
notarized at the time the and
indebtedness was incurred. 3. Estate tax
2. Duly notarized certification from
the creditor as the unpaid Unpaid Mortgages are unpaid
balance of the debt. (creditor indebtedness secured by a debtor’s
must not be relative within 4th property.
civil degree)
3. Proof of financial capacity of the
creditor to lend the amount at
the time the loan was granted.
4. Statement under oath executed
by the administrator or executor
of the estate reflecting the
disposition of the proceeds of
the load if it was contracted 3
years prior to the death of the
decedent.

Transfers for Public Use


- The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the
Philippines, or any political subdivision thereof, shall be deductible from the gross estate as long as the said amount is used
exclusively for public purposes.
- The transfer should be through a testamentary succession. Oral transfers are not allowed.
- It is deductible from the exclusive portion of the estate unless the spouse has written consent to the transfer.

Vanishing Deductions
- Property Previously taxed
- The amount of property at the time of the death of the 1 st decedent or the 2nd decedent, whichever is lower.
- Conditions:
1. Five year rule
2. Philippine Situs rule
3. Previously transfer tax rule
4. No previous vanishing deduction rule
5. The same property rule
- Rate of Vanishing Deductions
Percentage Period from 1st to present decedent
100% If within 1 year
80% If more than 1 year to 2 years
60% If more than 2 years to 3 years
40% If more than 3 years to 4 years
20% If more than 4 years to 5 years

Special Deductions
- Are new deductions that are categorically permitted by special laws to reduce the net estate of Filipino decedents, or
Resident alien decedents.
- These are:
1. Standard Deduction
2. Family Home
3. Medical Expenses
4. Amounts received by heirs under RA 4917

Standard Deduction
- A standard deduction of Php 1,000,000.00 is allowed as special deduction from the net estate of a citizen or resident
decedent without the need of substantiation. (Php 5,000,000.00 – TRAIN)

Family Home
- The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family and
members of their family reside.
- One family home only.
- The current fair market value of the decedent’s family home which shall not exceed Php 1,000,000.00 (TRAIN 10M)
- Requisites
1. Certified by the Barangay Captain of the locality as the actual residential house of the decedent and his family
2. Included in the gross estate of the decedent
3. The lower amount of the decedent’s interest in the family home, or Php 1,000,000 (10M)

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- If married, the amount of deduction is half only the value of the family home, unless it shows that it is the exclusive property
of the decedent (partially or entirely)

Medical Expenses
- Cost of medicines, hospital bills, doctor’s fees, etc. which were actually incurred with the maximum amount of P500,000.00.
- Must be substantiated with receipts
- Must be incurred within 1 year from the death of the decedent.

Amounts received by the Heirs under R.A. 4917


1. Retirement benefits received by officials and employees of private firms, whether individual or corporate in accordance with
a reasonable private benefit plan maintained by the employer, provided that:
a. The retiring official or employee has been in the service of the same employer for at least 10 years and is not less
than fifty years of age at the time of this retirement.
b. The benefits granted under RA 4917 shall be availed of only once by an official or employee.
2. Benefits granted in case of separation of official or employee from service of the employer due to death, sickness, or other
physical disability or for any cause beyond the control of the said official or employee.

Share of the Surviving Spouse


- The net share of the surviving spouse in the conjugal or communal property, net of the obligations properly chargeable
therein, shall be deducted from such amount to arrive at the net estate. (50%)

Rate of Estate Tax – Graduated rate (Flat rate under TRAIN)

NET ESTATE ESTATE TAX


OVER NOT OVER TAX OF PLUS % EXCESS OVER
-0- P 200,000.00 Exempt -0- -0-
200,000.00 500,000.00 -0- 5% 200,000.00
500,000.00 2,000,000.00 15,000.00 8% 500,000.00
2,000,000.00 5,000,000.00 135,000.00 11% 2,000,000.00
5,000,000.00 10,000,000.00 465,000.00 15% 5,000,000.00
10,000,000.00 And over 1,215,000.00 20% 10,000,000.00

Administrative Requirements:

VALUE OF THE GROSS ESTATE


Requirements: Exceeds P20,000 Exceeds P200,000 Exceeds
P2,000,000.00
1. Notice of death
- filed within 2 months YES YES YES
in the RDO where the
decedent resides.
2. Estate tax Return
- filed within 6 months NO YES YES
from the death of the
decedent
(within 1 year under
TRAIN)
3. CPA Certificate
- filed within 6 months NO NO YES
from the death of the
decedent
(required only if
exceeded P5M under
TRAIN)

- The estate tax return shall be filed within 6 months from the decedent’s death.

- Extension of Filing: In meritorious cases, a reasonable extension for filing the return not exceeding 30 days shall be granted
by the BIR Commissioner or any authorized Revenue Officer.

- Extension of Payment: the BIR Commissioner may extend the time of payment of such tax or nay part thereof not to exceed
five year in case the estate is settled through the courts, or two (2) years in case the estate is settled extra-judicially

- Any amount paid after the statutory due date of the tax but within the extension period shall be subject to interest but not
surcharge.

- * Under the TRAIN: may be paid by installment within 2 year from the statutory date without penalty.

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- 25% Surcharge

- Failure to file any return and pay the amount of tax or installment due on or before the due date.
- Filing a return with a person or office other than those with whom it is required to be filed.
- Failure to pay the full or partial amount of tax shown on the return or the full amount of tax due for which no return
is required to be filed on or before the due date.
- Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.

- 50% Surcharge
- Willful neglect to file the return within the period prescribed by the Code or by rules and regulations; or
- The return filed is false or fraudulent. (overstating or non-declaration)

- Interest
The rate of twenty percent (20%) per annum shall be imposed on the basic unpaid amount of tax from the date prescribed
for payment until the amount is fully paid.

Net Distributable Estate


- The net distributable estate represents the value of the net estate which shall be inherited by the heirs or beneficiaries. It is
computed by considering the realizable value of the gross estate reduced by the amount of actual deductions which will
diminish the estate.

Net Distributable Estate vs. Net Taxable Estate


- The NDE represents the net value of the actual inheritance, while NTE represents the amount of estate subject to estate
tax.

DONATION
- An act of gratuitously transferring property or right motivated by the liberality of the giver (donor) in favor of the receiver
(done) who accepts it.
- Donation is a bilateral act because the donor gives a gift and the donee receives it.

Donation as a contract:
1. Unilateral contract – imposes obligations only on the donor.
2. Gratuitous contract – only one party provides advantage without receiving anything in return.
3. Voluntary contract – the giving is an exercise of the giver’s free will.
4. Legal contract – the donor must be capacitated and the object must be lawful.

Donation Mortis Causa vs. Donation Inter vivos


Donation Mortis Causa Donation Inter vivos
Takes effect upon the Takes effect during the
death of the donor lifetime of the donor
Subject to estate tax Subject to estate tax
The transferor retains
ownership
The transfer is revocable
by transferor
The transfer becomes
void if the transferor
outlive the transferee.

The Rule of Reciprocity

For the purpose of donor’s tax, the rule of reciprocity is applicable only to intangible personal property with situs within the Philippines
owned by nonresident alien. There is reciprocity when:
1. A foreign country, of which the donor is a citizen and a resident at the time of the gift, did not impose a donor’s tax.
2. When the foreign country allowed similar exemption from transfer tax with respect to the intangible personal property owned
by a Filipino citizen not residing within the said foreign country.

Requisites of Donation
1. Capacity of the Donor
2. Donative Intent
3. Delivery of the gift
4. Acceptance of the donee

Capacity of the donor


- All persons who may enter into contract
- A donor may be natural or juridical person who owns a property or right being donated.
- Minors who cannot enter into a contract may become donees but acceptance shall be done through their parents or legal
representatives.

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- Must have/be:
1. Title of ownership over the property or right
2. Legal age
3. Not deaf-mute who do not know how to write
4. Sanity or soundness of mind.

Donative Intent
- The declared purpose of the legal of a property/right to transfer ownership to another for free. Such intent followed by a
donative act is essential to constitute a gift especially in case of direct donation.
- Required only in a direct gift. If it a gift is indirect taking place by way of sale, exchange or other transfer, donative intent is
not necessary.

Formal Requisites of Donation


Personal Property Can be made orally or in writing however
amounting to P5,000 or less it is made orally, it requires simultaneous
delivery otherwise unenforceable
Personal Property Donation and acceptance must be in
exceeding P5,000 writing.

If the acceptance is in a separate


instrument, it must be in a public
instrument
Real Properties In a public instrument

Void Donations
1. Donation between persons who were guilty of adultery or concubinage at the time of donation.
2. Donation between persons found guilty of the same criminal offense in consideration thereof.
3. Those made to a public officers of his wife, descendants, and ascendants, by reason of his office.
4. Donations made to incapacitated persons shall be void, through simulated under the guise of another contract or thorugh
a person who is interposed.
5. Every donation between husband and wife during the marriage shall be void except moderate gifts on the occasion of any
family rejoicing. (applicable to common law spouses)

Remunerative Donations
- A donation is remunerative if it rewards past services as an expression of gratitude, happiness and/or generosity
- Subject to donor’s tax

Cancellation of Indebtedness
- Condonation or remission of debt where the debtor did not render service in favor of the creditor is a donation.
- It is not donation if the cancellation is due to the rendition of service
- It is not donation if the corporation forgives the debt of its stockholder, the transaction has the effect of payment of
dividend.

Compromises on Will Disputes


- Compromises and settlements of will contests and other disputes are not gifts.
- Gift only to the dissatisfied heir with no legally enforceable rights.
Beneficiary of Trust
- Where a gift is made to a trustee, the beneficiary is the donee not the trustee.

Corporation’s Shares of Stock


- It is subject to income tax (not donor’s tax) if given to employees in consideration of their services.

Court Ordered Payments


- These are not donations.
- However, court-ordered payments out of the estate of an incompetent or a minor for the benefit of relatives whom the
incompetent minor is not legally obligated to support have been held to be gifts.

Donor’s Tax
- The donor’s tax is not a property tax but one which is imposed on the transfer of property by way of gift inter vivos
- Imposed on the amount of net taxable gifts

Nature of Donor’s Tax:


1. An excise tax
2. Tax liability of the donor
3. An inter vivos transfer tax
4. An ad valorem tax

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Midterm Exam Reviewer
Justification in imposing donor’s tax
- To prevent the nonpayment of estate tax since properties are transferred without consideration while the property owner is
still alive.

Donor’s Tax Rate


1. 2% - 15% : Donation to relatives within the 4th degree of consanguinity
2. 30% : Donation to strangers

Valuation of Donation
- Fair Market Value existing at the time when the gift was made
- In revocable donation, the time to the value of the property when the donor relinquished control and transfer absolute
ownership to the done during his lifetime.
- In donation with suspensive condition, the time to the value of the property when the condition is fulfilled.

Usufruct Valuation Real Property Valuation Personal Property Stock, bonds and other
Valuation securities
The annual value of usufruct Assessed Value (City Same with estate Same with estate
to the extent of its present Assessors) or Zonal Value
value based on the number of (BIR’s FMV)
years of usufructuary right. Whichever is higher

Transfer for inadequate Renunciation of Inheritance Conjugal Donations Several Donations with
consideration insufficient value
Difference between the value General Renunciation is not One-half of the conjugal If the disposable portion is not
of the property and the subject to donor’s tax property shall be considered sufficient to cover all of them,
consideration of the husband and the other those of the more recent date
Subject to donor’s tax if half is of the wife if wife shall be suppressed or
specifically and categorically expressly joins in making reduced with regard to the
done in favor of identified donation. excess.
heirs or other persons to the
disadvantage of others
Donation to Several Destroyed Donations
Persons
Understood to be in equal the donor is still liable if the
shares, no right of accretion property is destroyed after the
amount them, unless the delivery.
donor otherwise provided.

Deductions from Gross Gifts


1. Encumbrance assumed by the done
2. Diminution of gift provided by the donor

Exemptions from Donor’s Tax


1. Dowries or gifts to the extent of first P10,000 made by parents to their children on account of marriage given before or
within one year thereafter. (P10k each parent)
2. The first P100,000 of the aggregate net gifts to relatives every year
3. Donations to the National Government and its political subdivisions.
4. Donations given to the following institutions or organizations as provided by the NIRC
a. Educational
b. Charitable
c. Cultural or social welfare corporation
d. Accredited NGOs
e. Trust or philanthropic
f. Research institution or organization
5. Political contributions duly reported to the COMELEC
6. Donations laws given to organization expressly exempted by special laws.

Requisite for donor’s tax exemption for donations to Non-Profit Organizations


1. Must be an accredited non-stock and non-profit organizations
2. Shall not use more than thirty percent (30%) of the gifts received for administrative purposes
3. Governed by trustees with no compensation
4. Does not pay dividends; and
5. Devotes all of its revenue to the accomplishment and promotion of its purposes enumerated in its Articles of Incorporation.

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Midterm Exam Reviewer
Filing and Payment of Donor’s Tax

How and What to file:


1. Donor’s Tax Return setting forth the following:
a. Each gift made during the calendar year which is to be included in computing the net gifts
b. The deductions claimed and allowable
c. Any previous net gifts during the same calendar year
d. The name of the donee
e. Such further information as may be required by rules and regulations made pursuant to law.
2. Donor’s Tax Return attachment
a. Sworn statement of the relationship of the donor to the donee
b. Proof of claimed tax credit
c. Certified true copy of the Original/Transfer/Condominium Certificate of Title of the donated property.
d. Certified true copy of the latest Tax Declaration of lot and/or improvement, if applicable;
e. Certificate of No Improvement issued by Assessor’s Office where the donated real property/ies have not declared
improvements, if applicable.
f. Proof of Valuation of shares of stock at the time of donation, if applicable
g. Proof of valuation of other types of personal properties, if applicable
h. Proof of claimed deductions, if applicable.
i. Proof of the Tax Debit Memo used as payment, if applicable.

3. The Return must be under oath and in duplicate form.

When to file:
 The filing of donor’s tax is within 30 days after the date of gift is made and the tax due thereon must be paid on the date of
the filing.

When to pay:
 The tax shall be paid at the same time when the return is filed unless the Commissioner gives an extension, not exceeding
six months.

Where:
 The filing of returns for donor’s tax is with the Revenue District Office, or duly authorized collection agent in which the
donor resided at the time of transfer. (domicile of the donor)
 If there is no legal residence in the Philippines, filling should be made with the Office of the Commissioner of Internal
Revenue

Penalties
 25% Surcharge
1. Failure to file any return and pay the amount of tax or installment due on or before the due date
2. Filing a return with a person or office other than those with whom it is required to be filed;
3. Failure to pay the full amount of tax shown on the return or the full amount of tax due for which no return is
required to be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.

 50% Surcharge
1. Willful neglect to file the return within the period prescribed by the law.
2. The return filed is false or fraudulent.

 20% Interest per annum


The interest shall be imposed on the basic unpaid amount of tax from the date prescribed for payment until the amount
is fully paid.

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