1. What is donation?

Donation is an act of liberality whereby a donor disposes gratuitously of a thing or right in favor
of a donee who accepts it.

2. What are the kinds of donations?

a. Donation inter vivos - a donation made between living persons. Its perfection is at
the moment when the donor knows the acceptance of the donee. It is subject to donor’s
tax.
b. Donation mortis causa – a donation which takes effect upon the death of the donor.
It is subject to estate tax.

3. What are the requisites for a gift to be taxable?

a. Capacity of donor to donate

Note: The donor’s capacity shall be determined as of the time of the making of the donation

b. Donative intent

Note: Donative intent is necessary only in cases of direct gift. If the gift is indirectly taking
place by way of sale, exchange or other transfer of property as contemplated in cases of
transfers for less than adequate and full consideration (Sec. 100, NIRC), not always essential
to constitute a gift.

c. Acceptance by the done

d. Actual or constructive delivery of gift

4. What is the tax treatment in case of donations made by spouses?

Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s
tax. However, if what was donated is a conjugal or community property and only the husband
signed the deed of donation, there is only one donor for donor’s tax purposes, without prejudice
to the right of the wife to question the validity of the donation without her consent pursuant to
the pertinent provisions of the Civil Code of the Philippines and the Family Code of the
Philippines.

5. What is the nature of donor’s tax?

It is an excise tax on the privilege of the donor to give or on the transfer of property by way of
gift inter vivos. It is not a property tax.
 Note: The subject of donor’s tax is the gift or donation.
Note: The donor’s tax shall not apply unless and until there is a completed gift.

6. When does a transfer become complete and therefore taxable?

A transfer becomes complete and taxable only when, the donor has divested himself of all
beneficial interests in the property transferred and has no power to recover any such interest in
himself or his estate.

7. When does an incomplete gift become a complete one, subject to donor’s tax?

A gift that is incomplete because of reserved powers becomes complete when either:

a. The donor renounces the power to recover; or

b. His right to exercise the reserved power ceases because of the happening of some event or
contingency or the fulfillment of some condition, other than because of the donor’s death.

8. Are onerous donations subject to donor’s tax?

No, since there is no gratuitous disposal. Except, where the transfer is for less than an adequate
and full consideration in money or money’s worth; or the gift imposes upon the donee a burden
which is less than the value of the
thing given.

Note: The excess of the fair market value of the property over the actual value of the
consideration shall be subject to donor’s tax.

Note: Donations made by a corporation to its deceased officer out of gratitude for past services
are subject to donor’s tax. Past services rendered without relying on a promise express or implied
that such services would be paid for in the future do not constitute a demandable debt. Thus, the
amount given by the corporation to the heirs of the deceased officer of the corporation as
gratitude for past services rendered by the officer is subject to donor’s tax.

9. A, an individual, sold to B, her sister-in-law, his lot with a market value of P1,000,000 for
P600,000. A's cost in the lot is P100,000. B is financially capable of buying the lot. A also owns
XCo., which has a fast growing business. A sold some of her shares of stock in X Co. to her key
executives in X Co. These executives are not related to A. The selling price is P3, 000,000,
which is the book value of the shares sold but with a market value of P5, 000,000. A's cost in
the shares sold is P1, 000,000. The purpose of A in selling the shares is to enable her key
executives to acquire a propriety interest in the business and have a personal stake in its
business. Explain if the above transactions are subject to donor's tax.
 The first transaction where a lot was sold by A to her sister-in-law for a price below its fair
market value will not be subject to donor's tax if the lot qualifies as a capital asset. The transfer
for less than adequate and full consideration, which gives rise to a deemed gift, does not apply
to a sale of property subject to capital gains tax (Sec. 100, NIRC).
However, if the lot sold is an ordinary asset, the excess of the fair market value over the
consideration received shall be considered as a gift subject to the donor's tax. The sale of shares
of stock below the fair market value thereof is subject to the donor's tax pursuant to the
provisions of Section 100 of the Tax Code. The excess of the fair market value over the selling
price is a deemed gift.

10. What are the transfers which may constitute donation?

a. Condonation or remission of debt

b. Transfer for less than adequate and full consideration. Unless, where property transferred is
real property located in the Philippines considered as capital asset, the donor’s tax is not
applicable but the final income tax of 6% of the fair market value or gross selling price,
whichever is higher.

11. Who are liable to pay donor’s tax?

These are liable to pay donor’s tax within and outside Philippines:

a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Domestic corporation

These are taxable only within the Philippines:

a. Non-resident alien
b. Foreign corporation

Note: A corporation, domestic or foreign, cannot be made liable to pay estate tax, but may be
liable to pay donor’s tax.

12. When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the
net gifts. For purposes of this tax, who is a stranger?

A stranger is the one who is not a brother, sister, spouse, ancestor and lineal descendant, or a
relative by consanguinity in the collateral line within the 4th civil degree of the donee.

13. How are gross gifts valued?

 a. Personal property - the fair market valueof the property given at the time of the gift shall be
the value of the gross gift.
b. Real property - the fair market value at the time of donation or the value fixed by the
assessor, whichever is higher. (Sec. 102)

14. What are the gifts made by a resident citizen/alien that is considered exempt from donor’s tax?

a. Specific exemption - net gifts of the amount of P100,000 or less are exempt
b. Dowries or gifts made on account of marriage and before its celebration or made within one
year thereafter by
parents to each of their legitimate, recognized natural, or adopted children to the extent of
the first Ten thousand pesos (P10,000)
c. Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not
conducted for profit, or to any political subdivision of the said Government
d. Gifts in favor of: CARTER CPS
a. Charitable
b. Accredited NGOs
c. Religious
d. Trust foundations
e. Educational institutions
f. Research institutions
g. Cultural foundations
h. Philanthropic organizations
i. Social welfare corporations

15. What are the requisites for exemption of dowries?

a. The gift is given on account of marriage

b. The gift is given before the celebration of marriage or within 1 year thereafter
c. Donor is the parent or both parents
d. Donee is the legitimate, recognized natural or legally adopted child of the donor
e. Maximum amount of the exemption is P10,000 for each child that may be claimed by each
parent.

Note: Both parents may give dowries and gifts on account of marriage. Each parent is entitled to
the exemption. This has the effect of splitting the value of the gift into half for both spouses so
each spouse can claim the exemption. However, both spouses must file separate returns because
the husband and the wife are considered as distinct entities for purposes of donor’s tax (Sec. 12,
RR 2003).
16. What conditions must occur in order that all grants, donations and contributions to non-stock,
non-profit private educational institutions may be exempt from the donor's tax under Sec. 101
(a) of the Tax Code?
a. Not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes
b. The educational institution is incorporated as a non-stock entity
c. paying no dividends
d. governed by trustees who receive no compensation
e. Devoting all its income, whether students' fees or gifts, donations, subsidies or other forms
of philanthropy, to the accomplishment and promotion of the purposes enumerated in its
Articles of Incorporation. (Sec. 101[A][3], NIRC)

17. The Congregation of Mary Immaculate donated a parcel of land and a dormitory building
located along Espana St. in favor of Sisters of the Holy Cross, a group of nuns operating a free
clinic and high school teaching basic spiritual values. Is the donation subject to donor’s tax?

No. Gifts in favor of educational and/or charitable, religious, social welfare corporation or
cultural institution, accredited non-government organization, trust or philanthropic organization
or research institution or organization are exempt from donor’s tax, provided, that, no more
than 30% of the gifts are used for administration purposes.
The donation being in the nature of real property complies with the utilization requirement.
(Sec. 101[A][3], NIRC) (2007 Bar Question)

18. What gifts made by a non-resident, not a citizen of the Philippines are exempt from donor’s
tax?

a. Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not
conducted for profit, or to any political subdivision of the said Government.
b. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution,
foundation, trust or philanthropic organization or research institution or organization:
Provided, however, that not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes. (Sec. 101[B], NIRC)

19. What are exempted from donor’s tax under other special laws?

a. Donation to International Rice Research Institute (IRRI)

b. Donation to Ramon Magsaysay Award Foundation
c. Donation to Philippines Inventors Convention (PIC)
d. Donation to Integrated Bar of the Philippines (IBP)
e. Donation to the Development Academy of the Philippines
f. Donation to social welfare, cultural or charitable institution, no part of the net income of
which inures to the benefit of any individual, if not more than 30% of the donation shall be
used by the done for administration purposes
g. Donation to Aquaculture Department of the Southeast Asian Fisheries Development Center
of the Philippines
h. Donation to the National Museum
i. Donation to the National Library