Professional Documents
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Guidelines On Estate and Donor S Tax
Guidelines On Estate and Donor S Tax
2. Non-resident alien:
1) Real or immovable property located in the Philippines.
2) Tangible personal property located in the Philippines.
3) Intangible personal property with situs in the Philippines subject to the
rule of reciprocity exemption.
Taxable Transfers:
1) Transfer in contemplation of death (3-year presumption repealed by
PD 1705, 8/1/80)
2) Transfer with retention or reservation of certain rights.
3) Revocable transfer.
4) Transfers of property under general power of appointment.
a. Existence of general power of appointment held by the decedent.
b. Exercise of such power by the decedent by will or by deed
intended to take effect upon death.
c. Passing of property by virtue of such death.
5) Transfers for insufficient consideration.
a. Covers only the excess of the fair market value over the value of
the consideration.
b. Transfer was made in contemplation of death, otherwise will be
subject to donors's tax.
Kinds of Property:
1) By Nature:
a. Real or immovable property.
b. Personal property, tangible or intangible.
2) By Ownership:
a. Exclusive capital or paraphernal property.
b. Conjugal or community property.
Personal Properties:
1)
2)
3)
4)
Allowable Deductions:
1) Expenses, losses, indebtedness and taxes:
a. Funeral expenses:
i. CA 466 (July 1, 1939) - 5% of gross estate
ii. PD 69 (January 1, 1973) - 5% of gross estate but not
exceeding P50,000.00
iii. RA 7499 (July 28, 1992)- 5% of gross estate but not
exceeding P100,000.00.
iv. RA 8424 (January 1, 1998)- 5% of gross estate but not
exceeding P200,000.00
b. Judicial expenses.
c. Claims against the estate
i. Claims against insolvent persons
ii. Unpaid mortgages or indebtedness
iii. Unpaid taxes
iv. Losses
v. Transfer for public purposes
vi. Vanishing deduction (Property previously taxed)
d. Share of the surviving spouse in the net conjugal properties
of the net conjugal properties.
e. Family Home - Amount allowable is equivalent to the current or
fair market value or zonal value of the decedent's family home,
whichever is higher, but not exceeding P1,000,000.
f.
g.
h.
i.
Vanishing Deduction
Requisites:
1) Present decedent must have died within five (5) years from the date of
death of prior decedent or date of gift.
2) The property with respect to which deduction is claimed must have
formed part of the gross estate situated in the Philippines of the prior
decedent or taxable gift of the donor.
3) The property must be identified as the same property received from
the prior decedent or donor or the one received in exchange therefore.
4) The estate taxes on the gift must have been finally determined and
paid.
No vanishing deduction on the property was allowed to the
prior estate.
PROCEDURE IN COMPUTING THE VANISHING DEDUCTION:
1) Determine the initial value of the property previously taxed; Rule Value of "Property previously Taxed" in computing the estate tax or
donor's tax of the prior transfer or that of the present decedent's
estate, whichever is lower.
2) Deduct any mortgage or lien on the "Property Previously Taxed" paid
by the present decedent prior to his death, where such mortgage or
lien was a deduction from the gross estate of the prior decedent or gift
of the donor. This is the "Initial Basis".
3) The "Initial Basis" in Step (b) shall be further reduced by the following
ratio of the expenses, losses, indebtedness, taxes or transfer for public
purposes:
Initial Basis
-----------------public use
Gross estate
0
1
2
3
4
5
5) Determine the year interval between the date of death of the prior and
present decedent or date of gift and death of present decedent to find
the applicable percentage deduction:
- 1 year - 100%
- 2 " - 80%
- 3 " - 60%
- 4 " - 40%
- 5 " - 20%
over - 0%
The final basis (Step (d) multiplied by the percentage deduction (Step (e) will
be the vanishing deduction allowable.
HYPOTHETICAL EXAMPLE OF COMPUTATION OF VANISHING
DEDUCTION:
"A" a Filipino, married and resident of the Philippines died on July 31, 1998
leaving the following properties:
Conjugal properties
-------------------------------------------------------------------------------- P7,000,000.00
Conjugal family
home------------------------------------------------------------------------------- 3,000,000.00
Property valued for P4,000,000 was inherited from his
father who died on June 30, 1997 together with a
mortgage loan of P1,000,000 which
was paid by "A" on April 30, 1998
------------------------------------------------------------- 5,000,000.00
Gross estate
-------------------------------------------------------------------------------------- P15,
000,000.00
Less: Deductions:
Expenses, losses, indebtedness, taxes
& transfer for public use ------------------------------------------------------------------P2,000,000.00
Share of surviving spouse:
Conjugal properties -------------------------------------------------------------------------P10,000,000.00
Less: Conjugal
deduction ---------------------------------------------------------------------- 2,000,000.00
Net conjugal estate
--------------------------------------------------------------------------- P 8,000,000.00
1/2 share of surviving spouse -----------------------------------------------------------------P 4,000,000.00
Family home
----------------------------------------------------------------------------------------1,000,000.00
Vanishing deduction (80%)
Inherited property ----------------------------------------------------------------------------P 4,000,000.00
Less: Mortgage paid
----------------------------------------------------------------------------- 1,000,000.00
Initial basis [Step
(b)]---------------------------------------------------------------------------- 3,000,000.00
Less:
3,000,000 x P2,000,000
-------------------------------------------------------------------- 400,000.00
15,000,000.00
Final basis [Step (d)] --------------------------------------------------------------------------P 2,600,000.00
80% Vanishing deduction [Step (e)]
---------------------------------------------------------- 2,080,000.00
Total deductions
-------------------------------------------------------------------------------- P
9,080,000.00
Net taxable estate
-------------------------------------------------------------------------------- P
5,920,000.00
Computation of estate tax:
P5,000,000
---------------------------------- P465,000.00
920,000 @ 15%
------------------------- 138,000.00
Total estate tax due
------------------------------- P 603,000.00
PLUS
Below
P200,000
5%
8%
11%
15%
20%
OF EXCESS
OVER
0
P200,000
500,000
2,000,000
5,000,000
10,000,000
Deficiency tax 6%
b) September 1, 1969 to December 31, 1972 (RA 6110,
8/4/69)----------------------12%
c) January 1, 1973 to January 16, 1981 (PD 69,
11/24/72)----------------------14%
d) January 16, 1981 to present (PD 1773,
1/16/81)------------------------------20%
Place of filing of return and payment of tax:
a) Commissioner of Internal Revenue, or
b) Regional Director, Revenue District Officer or Collection Officer of
the city or municipality in which the decedent was domiciled at the
time of his death.
Person liable to pay estate tax:
a) Executor or administrator before distribution of estate
b) Heir or beneficiary subsidiarily liable to the extent of his distributive
share.
DONOR'S TAX
Concept of Consideration:
1. Consideration must be measurable in money or money's worth. Mere
legal consideration is not sufficient.
2. The consideration must flow to the donor, mere detriment to the donee
does not satisfy the purpose of the statute.
Commissioner V. Wemyss (324 U.S. 303, 1945)
Marriage is not a consideration reducible to money value. If a person
transfers a property to a trust in consideration of marriage, a gift is
made because no money consideration flows to the transferor/donor.
Donative intent on the part of the tranferor is not an essential element
for the imposition of the gift tax to the transfer.
Kinds of Donation:
1. Inter-vivos
2. Mortis causa
3. Indirect donation (Except real property referred to in Section 24(D) and
Section 27(D)(5) of the NIRC).
Gross Gifts:
1. Composition -(Same as in estate tax)
2. Valuation - At the time the gift was made (Same as in estate tax)
PLU
S
0
2%
4%
6%
8%
10
%
12
%
15
%
OF EXCESS
OVER
0
P100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000
Donation
Amount
a) 1/15/99
Cash
100,000 (brother)
b) 1/15/99
3/10/99
Cash
Cash
100,000
250,000 (sister)
350,000
c) 9/8/99
180,000
Tax Due
Exempt
d) 10/25/99
3/10/99
1/15/99
Lot
Cash
Cash
Cash
200,000 (Stranger)
Tax Due: 200,000 x 30% ==========
60,000
f) 2/14/2000
Cash
300,000 (brother-in-law)
Tax On: 200,000 ================
2,000
100,000 x 4% =========== 4,000
6,000
Note: Letter (f) was donated in year 2000 therefore; this is not included in
the cumulative total for 1999's donations.
ADMINISTRATIVE REQUIREMENTS ON DONOR'S TAX
A. Donor's Tax Return:
1. Requirements (State the following information/data):
a. Each gift made during the calendar year
b. Deductions claimed and allowable
c. Previous net gifts during the same calendar year
d. Name of donee and address
e. Other pertinent information
2. Time of filing:
a. Before December 31, 1972:
On or before March 1 following the close of the calendar
year.
b. January 1, 1973 to December 31, 1997
Within thirty (30) days after each donation.
Extension not exceeding thirty (30) days maybe granted.
c. January 1, 1998 to present
Within thirty (30) days after each donation- No Extension
3. Place of filing of donor's tax return
a. Commissioner of Internal Revenue
b. Revenue District Officer, Collection Officer or duly authorized
Treasurer of the municipality where the donor was domiciled at
the time of donation.
B. Payment of Donor's Tax:
1. Donor's tax should be paid at the time the return is filed or within thirty
(30) days after the date of gift.
2. Extension to pay tax may be granted not exceeding six (6) months.