Nature of Donor’s Tax

 Donor’s tax is synonymous with the term gift tax. “It is a tax imposed on the gratuitous
transfer of property between two or more persons who are living at the time of the
transfer.”85 The gift tax falls upon the gratuitous transmission of property which tends
to reduce the estate subject to tax at death. Like estate tax, donor’s tax is in the nature
of an excise tax which is imposed on the transfer of property by lifetime gifts. It has
been held that: “The donor’s tax is not a property tax, but is a tax imposed on the
transfer of property by way of gift inter vivos.”

 The donor’s tax shall not apply unless and until there is a completed gift. The transfer of
property by gift is perfected from the moment the donor knows of the acceptance by
the donee; it is completed by the delivery, either actually or constructively, of the
donated property by the donee.

Donation
 A donation is defined as an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another who accepts it.
 Gift is an intentional transfer of property from the transferor out of generosity.
 There are two individuals involved in donation: the one disposing the thing gratuitously
or the donor, and the one accepting the thing or the donee.
 Donation can be of two kinds: donations mortis causa and donations inter vivos.
 The former takes effect upon the death of the donor and partakes of a testamentary
disposition, and is thus, properly the subject of estate tax. The latter is a donation
between two living persons which is perfected from the time the donor has knowledge
of the donee’s acceptance, and is properly the subject of donor’s tax.

Purpose of Donor’s Tax

 The purposes of donor’s tax are the following: to prevent avoidance of estate taxes, and
to compensate for loss of income tax when large estates are split by donations.
 As a rule, all donations whether outright gifts or made to a trust, are subject to donor’s
gift tax except donations enumerated in the NIRC and other special laws.
 For the application of donor’s tax, there must be a completed gift.
Essentials of Taxable Donation
1. Capacity of the Donor- refers to the condition and legal competence of the donor to
enter into a valid contract. The donor must be capacitated. Not necessarily for the
donee.
Persons who may give donations

 All persons who may contract and dispose of their property may make a donation.
 Guardians and trustees cannot donate the property entrusted to them.

2. Formalities

Donation of Movables
Value is < 5,000 Donation : Oral or Writing
IF ORALLY MADE, it requires simultaneous delivery of the
thing or the document representing the right donated
IF IN WRITING, it does not require simultaneous delivery if
the thing donated
Acceptance: Oral or Writing or Tacit (Implied Acceptance)

Value is > 5000 Donation

Intangible property Acceptance Writing Otherwise Void
Must be made in public instrument
Donation of Immovables Donation: Writing AND Public Instrument (Notarized)
Acceptance: EITHER: 1. Made in the same deed of donation
2. In a separate public document
MUST:1. Be done during the lifetime of the donor
2. Donor must be notified of the acceptance, if made in
separate instrument

3. Donative Intent
 Refers to the conscious desire to make a gift. This is different from giving something for
nothing by mistake or under pressure.
 Under the law, donative intent must be present in a direct gift of property to warrant
the imposition of donor’s tax.
 However, donative intent is not required in transfers of property for less than adequate
and full consideration. In this type of transfer, donative intent is unnecessary.
 Section 100 of the Tax Code provides that the amount by which the fair market value
(FMV) of the property exceeds the value of the consideration shall be considered a gift
subject to the donor’s tax. The same is true if the property involved are shares of stocks
pursuant to Revenue Regulations No. 6-2008.
 4. Acceptance of the Gift by the Donee
 Acknowledgment of the thing donated
 It is perfected from the moment the donor has known the acceptance by the done and
completed by the delivery

Persons who may accept donations

 All those who are not specifically disqualified by law
 Minors and others who cannot enter into contract may become donees but
acceptance shall be done through their parents or legal representatives.
 Donations made to unborn children may be accepted by those persons who would
legally represent them if they were already born.
 Donations made to incapacitated person shall be void, though simulated under guise
of another contract or through a person who is interposed or mediated.
 Husband and wife are considered as separate and distinct taxpayers for purposes of
the donors tax.
 Husband and wife cannot donate conjugal property without the consent of another
but can make joint donation of conjugal property, in which case for donors tax
purposes, each spouse shall be considered separate donor of his or her own interest.
 Unless the wife expressly join in making the donation, it is presumed to have been
done by the husband.
 However, either of the spouse, may without the consent of the other, make moderate
donations for charity of on occasions of family rejoicing or family distress.

5. Delivery
 The delivery must be actual or constructive
 Completion of the gift requires physical delivery or delivery of the instrument
 Donor’s tax does not apply until there is completed gift

Void Donations

 Those made between persons who were guilty of concubinage or adultery

at the time of donation
 Those made between persons found guilty of the same criminal offense, in
consideration thereof
 Those made between the spouses during the marriage, except moderate
gifts for family rejoicing
  Those made between persons living together as husband and wife without
a valid marriage
 Those made to a public officer or his wife, descendants and ascendants, by
reason of his office
Classification of Donors
 Citizen or Resident
 Non-resident Alien

◦ w/ reciprocity

◦ w/out reciprocity
 Non-resident Foreign Corporation – if the donor was a non-resident foreign corporation,
its real or personal property so transferred which are situated outside the Philippines
shall not be included as part of its gross gift.

Reciprocity Clause
 No tax shall be imposed with respect to intangible personal properties of a NRA situated
in the PH

◦ when the foreign country, where such NRA is a resident and citizen, does not
impose transfer tax with respect to intangible personal properties of Filipino
citizens not residing in that country; or

◦ when the foreign country imposes transfer tax, but grants similar exemption
with respect to intangible personal properties of Filipino citizens not residing in
that country.
Summary of Gross Gift Based on Citizenship & Residence
Transfers subject to donor’s tax
Gift giving has always been a part of the Filipino culture -- one that is innate
and manifests our generosity towards others. It is our way of expressing
gratitude, love, affection, friendship, or simply showing that we care.
1. Direct gift means and includes an outright contribution of food, clothing, money,
credit, property, financial assistance or other thing of value to be used for a
charitable or religious purpose and for which the donor receives no consideration or
thing of value in return.

2. Gift through creation of a trust

A gift in trust is an indirect bequest of assets to a beneficiary by means of a special legal and
fiduciary arrangement. The purpose of a gift in trust is to avoid taxes on gifts that exceed the
annual gift tax exclusion amount.

3. Condonation of debt
Condonation or remission of debt is a mode of extinguishing an obligation. It is an act of
liberality, by virtue of which the creditor, without receiving any equivalent, renounces the
enforcement of the obligation (Tolentino, Commentaries and Jurisprudence on the Civil Code of
the Philippines). It simply means that by a generous act of a person who, for instance, lends
money to another with an obligation to re-pay, the borrower is released from such obligation.
Condonation of debt in exchange for services rendered is income and expense on the part of
the creditor and debtor, respectively.
Condonation of debt without exchange of services is considered a gift subject to donor’s tax.

4. Repudiation of inheritance if
 Specifically and categorically done in favor of identical heirs and
 To the exclusion or disadvantage of other co-heirs

5. Repudiation of inheritance if
 Specifically and categorically done in favor of identical heirs and
 To the exclusion or disadvantage of other co-heirs
Transfer for insufficient consideration
Exception: Real property classified as capital assets (subject to 6% Capital Gains Tax and
transfers in ordinary course of business)
FMV at the time of sale PXXX
Less: Selling Price (XXX)
Taxable Gift XXX

Even if the sale, exchange, or other transfer of property is for an insufficient consideration, the
same will still be considered made for adequate and full consideration provided that such
transfer is made in the ordinary course of business, i.e.:
•a bona fide transaction;
•at arm’s length; and
•free from donative intent.
Gift from Common Property – the gift is taxable one-half to each donor spouse.
Donation between husband and wife during the marriage – Generally VOID, except moderate
gifts for family rejoicing/distress
Exemptions and Deductions from Gross Gift
 Gifts to the Government (deduction)
 Gifts to educational, charitable, religious corporation etc. (exemptions)

◦ Provided not more than 30% of the said gift shall be used for administration
purposes
 Encumbrances on the property donated assumed by the donee (deduction)
 Diminution of gift provided by the donor (deduction)
Net Gift
For purposes of the donor’s tax, “NET GIFT” shall mean the net economic benefit from the
transfer that accrues to the donee.
Donor’s Tax Rate
The donor’s tax is fixed at 6% based on annual total gifts exceeding ₱250,000 (exempt gift),
regardless of whether the donee is a stranger or not.
Computation for Donor's Tax
 Note: the computation of the donor's tax is on a cumulative basis over a period of one
calendar year.
Compliance Requirements
 Deadline for Filing of Return – within 30 days from the date of donation, no allowed
extension, pay as you file
 Place of Filing

◦ Domicile of the donor at the time of transfer

◦ If no legal residence on PH, with Office of the Commissioner:

 Authorized agent bank
 RDO
 Revenue Collection Officer
 Duly authorized Treasurer of the City or municipality

◦ In the case of gifts made by non-resident, the return may be filed with
 Philippine Embassy or Consulate in the country where he domiciled at the
time of transfer
 Directly with the Office of the Commissioner

Notice of donation by a donor engaged in business

 In order to be exempt from donor’s tax given to qualified donee institution’s duly
accredited:

◦ Notice of donation of at least P50,000

◦ Within 30 days after receipt of the qualified donee institution’s duly issued
Certificate of Donation

◦ Not more than 30% of the said donation/gifts shall be used by such qualified
donee institution for administration purposes