TRANSFER TAX

Transfer Taxes taxes imposed upon the gratuitous disposition of private property.
Kinds:
a.) Estate Tax ( Donation Mortis Causa) tax levied on the transmission of
properties from a decedent to his heirs. It is a tax on a privilege to transmit
property at death and on certain transfers which are made the equivalent of
testamentary dispositions by statute.
b.) Donors Tax (Donation Inter Vivos) tax levied on the transmission of
properties from a living person (donor) to another living person (done)
ESTATE TAX
Q: What is the nature of transfer taxes?
A: They are excise taxes; not property taxes. Note: They are not property taxes
because their imposition does not rest upon general ownershipbut rather they are
privilege tax since they are imposed on the act of passing ownershipof property.
Estate- properties, rights and obligations including those properties, earnings and
obligations that have accrued thereto since the opening of succession.
Trust- administration of funds and properties in behalf of individuals.
If the property is not yet transferred to the successors/beneficiaries, the estate/trust
generate income. Therefore, it shall be subjected to income tax. The estate is
allowed to deduct the amount of income of the estate during the taxable year which
has been paid or credited to the heir, legatee, beneficiary, subject to a creditable
withholding tax of 15%
Treatment: the same manner and basis as in the case of individual taxpayers
Gross estate- all property owned by a decedent at the time of death , including
stocks, bonds, real estate, mortgages and any other property that technically
belonged to him. It is to be reduced by decedents debts, taxes., funeral expenses,
share of the surviving spouse and other permissible deductions.
Q: How is the gross estate determined?
A: 1. If the decedent is a resident or nonresident citizen, or a resident alien All
properties, real or personal, tangible or intangible, wherever situated.
2. If the decedent is a non-resident alien Only properties situated in the Philippines
provided that, intangible personal property is subject to the rule of reciprocity
provided for under Sec
Property Valuation
As to real property - Whichever is higher between the fair market value:
1. as determined by the Commissioner (zonal value) or
2. as shown in the schedule of values fixed by the provincial and city assessors * if
there is no zonal value, use the FMV in the latest tax declaration.
As to personal property- Whether tangible or intangible, appraised at FMV.
Sentimental value is practically disregarded.

As to shares of stock - 1. Unlisted

a. unlisted common - book value
b. unlisted preferred - par value
2. ListedArithmetic mean between the highest and lowest
quotation at a date nearest the date of death, if none is
available on the date of death itself.
As to right to usufruct, use or habitation, as well as that of annuity - Shall be taken
into account the probable life of the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
Gross estate includes:
If the decedent is a resident citizen, nonresident citizen, or resident alien, value at
the time of death of all:
1. Real property wherever situated
2. Personal property, tangible or intangible, wherever situated
3. To the extent of the interest therein of the decedent at the time of his death.
If the decedent is a non resident alien, value at the time of death of all:
1. Tangible personal property situated in the Philippines
2. Intangible personal property with situs in the Philippines unless exempted on the
basis of reciprocity
Items to be Included in Gross Estate
Q: What are included in the gross estate?
A:
1. Decedent's interest
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration
8. Claims against insolvent persons
9. amount received by heirs under R.A 4917
Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have
already been transferred during the lifetime of the decedent but are still
subject to payment of estate tax) - are transfers inter-vivos which are
considered part of gross estate
Decedents Interest.
Q: What does the decedents interest include?
A: It includes any interest having value or capable of being valued, transferred by
the decedent at his death.
Transfer In Contemplation of Death.

Q: Define transfer in contemplation of death.

A: This is a transfer motivated by the thought of impending death although death
may not be imminent: 1. When the decedent has, at any time, made a transfer in
contemplation of or intended to take effect in possession or enjoyment at or after
death;or
2. When decedent has, at any time, made a transfer under which he has retained
for his life or for a period not ascertainable without reference to his death or any
period which does not in fact end before his death: a. Possession, enjoyment or right
to income from the property; or b. The right alone or in conjunction with any other
person to designate the person who will possess or enjoy the property or income
there from.
Q: What are the transfers not considered in contemplation of death and not part of
the gross estate?
A:
1. A bonafide sale
2. Sale for adequate and full consideration in money or in moneys worth
Revocable Transfer.
Q: Define revocable transfer.
A: A revocable transfer is a transfer by trust or otherwise, where the enjoyment
thereof was subject at the date of his death to any change through the exercise of a
power to alter or amend or revoke or terminate such transfer by the donor or the
transferor.
Property Passing Under a General Power of Appointment
Q: Define general power of appointment (GPA).
A: It is the right to designate the person who will succeed to the property of the
prior decedent, in favor of anybody, including himself, his estate, his creditors, or
the creditors of his estate. If the donation contains a provision of reversion to the
donor, this is similar to a revocable transfer. Note: A power is not general (specific)
if it can be exercised only in favor of one or more designated person or classes of
persons exclusive of the decedent, his estate, his creditors and creditors of his
estate, or if it expressly not exercisable in favor of the decedent, his estate, his
creditors, or creditors of his estate
Proceeds of Life Insurance
Proceeds of life insurance policy taken by a decedent upon his life and received by
the following: (ERA)
a. Estate
b. Revocable Beneficiary
c. Administrator or executor
shall form part of the taxable gross estate.
GR: Proceeds of life insurance will form part of the taxable gross estate and
generally taxable.
EXN: (SIG)
a. proceeds or benefits are from SSS or GSIS
b. a third person is designated as an Irrevocable beneficiary
c. proceeds are from Group insurance with heir as beneficiary.

Transfers for Insufficient Consideration

Q: What shall be included in the gross estate if a transfer is for insufficient
consideration?
A: Only the excess of the fair market value of the property at the time of the
decedents death over the consideration received shall be included in the gross
estate.
Q: When is this applicable?
A: This is applicable to:
1. Transfers in contemplation of death
2. Revocable transfers
3. Transfers under general power of appointment which are not bona fide sale
for an adequate and full consideration in money and moneys worth
EXEMPTIONS/EXCLUSIONS FROM ESTATE TAX
Q: What are the acquisitions and transfers which are not included in the gross
estate?
A: (FAMI-30%- CSR)
1. The Merger of the usufruct in the owner of the naked title
2. The transmission or the delivery of the inheritance or legacy by the
fiduciary heir or legate to the Fideicommissary
3. The transmission from the first heir, legatee or donee in favor of Another
beneficiary, in accordance with the desire of the predecessor
4. All the bequests, devises, legacies or transfers to social welfare, cultural
and charitable Institutions no part of the net income of which inures to the
benefit of any individual: provided that not more than 30% of the value given
is used for administrative purposes [Sec. 87, NIRC]
5. Exceptions under the Reciprocity Clause
6. Capital of the SS
7. Exemptions under Special Laws