GUIDELINES ON ESTATE AND DONOR'S TAX Atty. Edwin R.

Abella

Concept and Nature:
Estate tax is a tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries. It is not a tax on property. Estate tax is held to be an excise tax imposed on the privilege of transmitting property upon the death of the owner. The estate tax is generated by death and accrues at the time of death. It is governed by the law in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

Properties Includable In Gross Estate or Gross Gift:
1. Citizen or resident decedent or donor:
1) Real or immovable property, wherever located. 2) Personal property, tangible or intangible, wherever located.(PD1457, 6/11/78)

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.

Properties Considered Situated in the Philippines:
1) Franchise which must be exercised in the Philippines.x 2) Shares, obligations or bonds issued by corporation or sociedad anonima organized or constituted in the Philippines. 3) Shares, obligations or bonds issued by a foreign corporation eightyfive per centum of the business of, which is located in the Philippines. 4) Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines. 5) Shares or rights in any partnership, business or industry established in the Philippines.

Composition of the Gross Estate:
1) 2) 3) 4) 5) Real and personal property, whether tangible or intangible or mixed. Decedent's interest in property. Proceeds of life insurance. Taxable transfers. Transfers for insufficient consideration.

Proceeds of Life Insurance:
1) Includable in gross estate: a. Revocable beneficiary. b. Appointed beneficiary is the estate, executor or administrator. 2) Not includable in gross estate: Received from the GSIS and SSS.

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1) Transfer in contemplation of death (3-year presumption repealed by PD 1705, 8/1/80) 2) Transfer with retention or reservation of certain rights.

annuities.Formula using American Tropical Experience Table. Covers only the excess of the fair market value over the value of the consideration. 1985 . otherwise will be subject to donors's tax. a. Foreign currency and cash in bank . Conjugal or community property. 1988 . b. 1974 to November 24. oriental rugs. the valuation shall take into account the probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table.Peso value at exchange rate at the time of death. etc. use or habitation . 1988 to February 18. business or industry. 1976 to December 31. 611 iii.Comm. Machineries.PD 539 iv.3) Revocable transfer. 1969 . tangible or intangible. Kinds of Property: 1) By Nature: a. etchings. jewelry. b. 1974 -R. fixtures. 7) Usufruct.RAMO 2-91 iv. Passing of property by virtue of such death.Present . Valuation of Gross Estate or Gift: 1) Valuation date . silverware. Interest in partnerships. obligations or bonds . vases. Act 466 ii.Time of death or gift.RAMO 3-86 ii. Other personal properties . use or habitation. June 10. b. tools. collection of stamps and coins. January 1. farm animals. February 5.PD 1994 b. Cash on hand and in banks.Fair market value at the time of death.RAMO 1-82 vi. a. c.PD 1054 v.RAMO 1-88 iii. 4) Transfers of property under general power of appointment. Transfer was made in contemplation of death. 1986 . books. farm implements. Personal property. 5) Transfers for insufficient consideration. vii. Exercise of such power by the decedent by will or by deed intended to take effect upon death. Improvements i. . 1976 . Real properties (land) i. viii. September 1. 2) By Ownership: a. 1994-FMV per TD (Latest TD) v. Shares of stocks.A. Usufruct. bonds and securities. August 14. February 19. 1991 . Exclusive capital or paraphernal property. Personal Properties: 1) 2) 3) 4) Shares of stocks. b. 5) Antiques. Beginning January 1. 2) Basis of valuation: a. 1998. statues. 1986 to February 4. engravings. 1969 to August 13. Real or immovable property. 6) Household furnitures. annuities. November 25. Prior to August 31. paintings. Existence of general power of appointment held by the decedent. 1991 to 1994 . appliances and other personal effects. transportation equipments.

Share of the surviving spouse in the net conjugal properties – ½ of the net conjugal properties.000. 1998).000.cultural and charitable institutions. Transfer for public purposes vi. Separate property of the surviving spouse.000. judgements. 1973) . g. obligations and action which have for their object movables or demandable sums. j. whichever is higher. h. d. b. Claims against insolvent persons ii. i.000. 1974) Allowable Deductions: 1) Expenses. RA 8424 (January 1. All bequests. but not exceeding P1. Merger of usufruct in the owner of the naked title. participation certificates.5% of gross estate ii.Amount allowable is equivalent to the current or fair market value or zonal value of the decedent's family home. Unpaid mortgages or indebtedness iii.8) Mortgage notes. CA 466 (July 1. 9) Goodwill. Transfer of property to the National Government or to any of its political subdivisions. Judicial expenses. Unpaid taxes iv.00 iii. WAR damage payments. Transfer by way of bonafide sales. provided that not more than 30% of which shall be used for administration purposes (PD 507. 2) Exempted under the Tax Code: a. 1992). . c. patents.5% of gross estate but not exceeding P200. PD 69 (January 1. f. Losses v. legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor. Proceeds of life insurance under a group insurance taken by the employer (Not taken out by the decedent upon his own life) e. Claims against the estate i. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary. and trademarks.00. USVA -RA 136. Proceeds of life insurance where the beneficiary is irrevocably appointed. losses. e. Exclusions and Exemption from the Gross Estate: 1) Exempted under Special Laws and Exemptions by Omission: a. Accruals from SSS c. Properties held in trust by decedent. Transmission from the first heir. RA 7499 (July 28. Family Home .000. no part of the net income of which inures to the benefit of any individual. Funeral expenses: i.00 b. 1939) . GSIS proceeds/benefits b. d. iv.5% of gross estate but not exceeding P100. indebtedness and taxes: a. devises.5% of gross estate but not exceeding P50. c. legacies or transfers to social welfare. Vanishing deduction (Property previously taxed) d.

000.000. Vanishing deduction iv.000. The amount in excess of P1. ii. iv. Must be the decedent's family home as certified to by the Barangay Captain in the locality. indebtedness & taxes World Gross estate ii. 4917.000. Transfer for public purposes iii. whichever is lower.X Expenses. losses.000. 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. g.000 shall be subject to estate tax. This is the "Initial Basis". 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. No vanishing deduction on the property was allowed to the prior estate. i. indebtedness. 4) The estate taxes on the gift must have been finally determined and paid.000. 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. 3) The property must be identified as the same property received from the prior decedent or donor or the one received in exchange therefore.f. iii. losses. losses. Deductions allowable to a non-resident decedent who is not a citizen of the Philippines: i. i. h. Amount Received by heirs under RA No. A proportion of the expenses. taxes or transfer for public purposes: . PROCEDURE IN COMPUTING THE VANISHING DEDUCTION: 1) Determine the initial value of the property previously taxed. Standard Deduction of P1. Must not exceed the value included in the gross estate or P1.Depending on the property relationship of the husband and wife in the country where they are national. Gross Estate ------------------------. whichever is lower. Medical Expenses incurred within one year from death in an amount not exceeding P500. where such mortgage or lien was a deduction from the gross estate of the prior decedent or gift of the donor. 2) Deduct any mortgage or lien on the "Property Previously Taxed" paid by the present decedent prior to his death.00. indebtedness and taxes: Formula: Phil. 3) The "Initial Basis" in Step (b) shall be further reduced by the following ratio of the expenses. Only one (1) family home may be claimed. Share of surviving spouse .

000.4 " .000. married and resident of the Philippines died on July 31. transfer for 4) Compute the final basis of PPT: Initial Basis (Step (b) x x x Less: Limitation (Step (c ) x x x Final Basis (Amount subject to vanishing deduction) x x x 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: .000 which was paid by "A" on April 30.40% .00 Share of surviving spouse: Conjugal properties -------------------------------------------------------------------------P10. indebtedness taxes.00 Gross estate -------------------------------------------------------------------------------------.00 Less: Deductions: Expenses.2.5 " .000.000.000. 1998 ------------------------------------------------------------.000.000. losses.000.20% over .000.0% The final basis (Step (d) multiplied by the percentage deduction (Step (e) will be the vanishing deduction allowable.3 " . HYPOTHETICAL EXAMPLE OF COMPUTATION OF VANISHING DEDUCTION: "A" a Filipino.000.000.P7.100% .00 Property valued for P4.000. 1998 leaving the following properties: Conjugal properties -------------------------------------------------------------------------------.00 1/2 share of surviving spouse -----------------------------------------------------------------P 4.00 Less: Conjugal deduction ---------------------------------------------------------------------. losses.000.60% .00 Conjugal family home------------------------------------------------------------------------------. indebtedness. 1997 together with a mortgage loan of P1.2 " .Initial Basis -----------------public use Gross estate X Expenses.00 Net conjugal estate --------------------------------------------------------------------------. 000.P 8.000.3.000.00 Family home .000.000.5.000.P15.000.000 was inherited from his father who died on June 30.80% .1 year . taxes & transfer for public use ------------------------------------------------------------------P2.

00 Initial basis [Step (b)]---------------------------------------------------------------------------.138.000.00 Vanishing deduction (80%) Inherited property ----------------------------------------------------------------------------P 4.000 -------------------------------------------------------------------.000 x P2.000 135. .000.400.000.00 920.000 @ 15% ------------------------.000.000 2.000.P 9.00 ESTATE TAX RATES: (R.000.000.215.000.00 Less: 3.080.000.000 5% 8% 11% 15% 20% OF EXCESS OVER 0 P200.00 Less: Mortgage paid ----------------------------------------------------------------------------.000 ---------------------------------.2.3.080.00 Net taxable estate -------------------------------------------------------------------------------.000.00 Final basis [Step (d)] --------------------------------------------------------------------------P 2.00 Total estate tax due ------------------------------.000 1.000.000 465. 8424) THE ESTATE TAX SHALL BE Exempt 0 P15.A.000 5.000.920.000 Tax Credit For Estate Taxes Paid To A Foreign Country: 1) The estate tax due shall be credited with the amount of estate tax imposed by a foreign country on property located in said foreign country and included in the decedent's gross estate in the Philippines.000.P 5.000.00 Total deductions -------------------------------------------------------------------------------.000.P465.000 500.000.000.000.00 Computation of estate tax: P5.00 80% Vanishing deduction [Step (e)] ---------------------------------------------------------.----------------------------------------------------------------------------------------1.000.600.000.000.P 603.000 PLUS Below P200.000.00 15.000.000.1.000 10.

000. 1939 . • Persons required to file: a) Executor b) Administrator c) Anyone of the legal heirs • Time for filing: a) Commonwealth Act 466 . .The amount of credit for estate tax paid to a foreign country shall not exceed the proportion of the tax due in the Philippines which the decedent's net estate situated within such country bears to his entire net estate. though exempt from tax. or b) Where. where the said estate consists of registered or registerable property. Estate Tax Return: • When required: a) In all cases of transfer subject to tax. or 4) The laws of the foreign country allow a similar exemption from transfer taxes or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. or b) Where. 3) The total amount of credit shall not exceed the proportion of the tax here in the Philippines which the decedent's net estate situated outside the Philippines bears to his entire net estate. Notice of Death: • When required: a) In all cases of transfer subject to tax. or d) Within two (2) months after the executor or administrator has qualified. ADMINISTRATIVE PROVISIONS ON ESTATE TAXATION A.00 • Time of filing: c) Within two (2) months after the decedent's death. the value of the gross estate exceeds P20. • Within twelve (12) months after decedent's death if proceedings form settlement was filed in court within six (6) months after death. • Who shall file notice of death: e) Executor f) Administrator g) Any of the legal heirs B. the gross value of the estate exceeds P200.00. though exempt from tax.2) Limitation on credit .July 1. Reciprocity Provision On Transfer Tax Imposition: 1) The property involved is intangible personal property. 3) That the foreign country did not impose a transfer tax of any character in respect of intangible personal property owned by a Filipino citizen not residing in said foreign country.December 31. 1972 • Within six (6) months after decedent's death.000. 2) The decedent or donor at the time of death or donation was a citizen and resident of a foreign country. c) Regardless of the gross value of the estate.

• Within nine (9) months after decedent's death.25% of tax due per return  July 1. 69 . c) Presidential Decree No. b) Late payment of tax: . 1973 to December 31. 1985:  Estate tax is payable at the time the return is filed.Payable within twenty one (21) and twenty-four (24) months. 1985. as the case may be) c) Presidential Decree No. 1992:  Estate tax is payable at the time the return is filed (Within ninety (90) days after death) d) Republic Act 7499 . Payment of Estate Tax: • Time of payment: a) Commonwealth act 466-July 1.Payable within nine (9) and Twelve (12) months.Estate is settled extrajudicially. (Within nine (9) days or twenty-one (21) months. • Within ninety (90) days after decedent's death d) Republic Act 7499 . 1992 to present: • Within six (6) months after decedent's death Extension to File Return: • Not exceeding thirty (30) days in meritorious cases. 1994 . after death.January 1. 1986 to July 27.January 1.July 28.• • b) Presidential Decree No. 1939 to December 31. • Within twenty-one (21) months after decedent's death proceedings for settlement was filed in court within nine (9) months after death. 1939 to December 31.  Estate and inheritance taxes .Estate settled judicially. Place of Filing: a) Office of the Commissioner of Internal Revenue b) Office of the Revenue District Officer.Discretionary or maybe waived if a) The return is voluntarily filed without notice from the Commissioner b) The failure to file the return on time was due to a reasonable cause. 69 . b) Presidential Decree No. • Surcharges: a) Late filing of estate tax return .January 1.January 1. 1986 to July 27.July 28. if proceedings for settlement of estate was filed in court within six (6) months after death. 1994 . 1992. 1992 to present:  Estate tax is payable at the time the return is filed (Within six (6) months after death)  Extension to pay estate tax a) Two (2) years . Collection Officer or authorized treasurer of the Municipality in which the decedent was domiciled at the time of death. 1972:  Estate and Inheritance taxes. b) Five (5) years . C. respectively. 1973 to December 31. respectively. 1972 .

1981 to present (PD 1773. 1969 to December 31.• • •  July 1. . 1981 (PD 69. or b) Regional Director. 1939 to September 1. 1980 . 1986 to present (PD 1994) 25% Interests: a) July 1. 1972 (RA 6110. 1/16/81)------------------------------20% Place of filing of return and payment of tax: a) Commissioner of Internal Revenue.5%  August 1. 1939 to August 1. 1969 (CA 466)  Tax per return 12%  Deficiency tax 6% b) September 1. 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. 1973 to January 16. 11/24/72)----------------------14% d) January 16. 8/4/69)----------------------12% c) January 1. 1980 to December 31. 1985 (PD 1705)10%  January 1.

What Constitutes A "Gift" For Gift Tax Purposes? 1. Wemyss (324 U.S. ty referred to in Section 24(D) and Section 27(D)(5) of the NIRC). 2. 2. a gift is made because no money consideration flows to the transferor/donor. If a person transfers a property to a trust in consideration of marriage. 3. Inter-vivos 2. 303. it is clear that no gift has occurred. On or after September 1. mere detriment to the donee does not satisfy the purpose of the statute. Concept of Consideration: 1. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another. It also includes sales. Persons Subject to Donor's Tax: 1. 2. who accepts it. 4. Donative intent on the part of the tranferor is not an essential element for the imposition of the gift tax to the transfer. If the donor retains an unlimited power to revoke the gift. Kinds of Donation: 1. actually or constructively. is subject to donor's tax. The consideration must flow to the donor. Mere legal consideration is not sufficient.DONOR'S TAX Definition and Concepts: Gift tax is an excise on the transfer by a living person to another of money or other property without consideration. Mortis causa 3. When Does The "Gift" Occur? A gift occurs when the donor surrenders CONTROL over the property.Only donation made by individual is subject to donor's tax. and Delivery of the gift to the donee. whether natural or juridical. Requisites of A Taxable Gift: 1. 1945) Marriage is not a consideration reducible to money value. Commissioner V. Consideration must be measurable in money or money's worth. Transfer of property without consideration. . exchanges and other dispositions of property for a consideration to the extent that the value of the property transferred exceeds the value in money or money's worth of the consideration received therefor. Indirect donation (Except real property referred to in Section 24(D) and Section 27(D)(5) of the NIRC). 1969 . Capacity of the donor Donative intent (Except gift under Section 93 NIRC) Acceptance by the donee. 1969 (RA 6110) Donation made by all person. 2. (Same as in estate tax) Before September 1.

Tax payable by the donor on gifts made in favor of relatives is computed based on graduated rates. Gifts made during previous year or years are collated to the present gift and the gift tax computed on the total gift. Donor's and donee's gift taxes were imposed based on graduated rates. Gifts to the National Government or any of its agencies. religious. and/or charitable. 1998 to present (RA 8424) a. c. 5. Tax payable by the donor on gifts made in favor of relatives is computed based on graduated rates. b. 1973 to January 15. whichever is higher. Tax payable by the donor in favor of stranger is computed at 20% or based on graduated rates. Gifts made during the same calendar year are collated and the donor's tax computed on the total gifts during the calendar year. c. Brother. Valuation . Spouse.At the time the gift was made (Same as in estate tax) Deductions from the Gross Gift: 1. foundation. July 28. Donor's tax was imposed on graduated rates. 5. before its celebration or within one (1) year thereafter to the extent ofP10. cultural or social welfare corporation.Gross Gifts: 1. 1997 (RA 7499) a. 1981 (PD 69) a. 1972: a. 6. January 1.000. Tax payable by the donor on gifts made in favor of strangers is computed at 10% of the net gifts. Tax payable by the donor in favor of relatives is computed based on the graduated rates. Composition -(Same as in estate tax) 2. b. Tax Payable by the Donor: 1. Gifts made in favor of an educational. 4. 6. 1992 to December 31. 2. Those specifically provided by the donor as a condition of the donation which will diminish the value of the property received by the donee. b. Tax payable by the donor on gifts made in favor of strangers is computed at 30% of the net gifts. 2. January 1. 3. Gifts made during the previous year or years are computed separately. 1981 to July 27. Collation of gifts are made only on gifts made during the same calendar year. Donor's tax computed on the total gifts made during each calendar year. d. b. trust or philanthropic organization or research institution or organization. Exempt donation under special laws. 1992 (PD 1773) a. 4. ancestor and lineal decedent b. Relatives for donor's tax purposes: a. January 16. b. sister (whether by whole or half blood) . 3. Encumbrance on the property donated if assumed by the donee in the deed of donation. On or before December 31. Dowries or gifts by parents to children on account of marriage.

000. 2000 . P300.000 4.000 5. Loi.to Clara. Jun.000 Answer: Date a) 1/15/99 b) 1/15/99 3/10/99 Donation Cash Cash Cash Amount 100.000 14.30% SAMPLE PROBLEM OF DONOR'S TAX Mr. 1999 .000 3.to his girlfriend.000 w/ FMV of P800. Nov 12. January 15. Relatives by consanguinity in the collateral lines within the fourth degree of relationship. March 10.000 5. a vacant lot worth P1.000.004.to Luis.000 Cash 600. P100. his sister.000 200. Oct 25. Carlos.to his father. Joseph Ramos.to his brother.000. P200. a brand new car worth P600.000 250. Maria.500.000 150. Rates of Donor's Tax (RA 8424) Donations to Relatives (Graduated Table) THE DONOR’S TAX SHALL BE Exempt 0 2. 1999 .000 3. P250.000 Donations to Stranger . his brother in law.to his mother.000 (Stranger) .000 44.000 ================ 2.000 8.000 x 4% ============ 6.000 PLU S 0 2% 4% 6% 8% 10 % 12 % 15 % OF EXCESS OVER 0 P100. Sept 8.000 404.000 500. 1999 . Feb 14.000 Tax Due Exempt c) 9/8/99 Tax on: 200.000 (brother) 100. 1999 .000 2.000 Less: Tax on previous donation (donation a)============ 0000 8.000 6.000 204.000 and zonal value of P1.000 (sister) 350.000.000 10.000 1.000.c.000 1. 1999 . single made the following donations: 1.

000 (brother-in-law) Tax On: 200. Time of filing: a.No Extension 3.000 112. B.500.000 e) 11/12/99 Cash 200. Place of filing of donor's tax return a.000 d) 10/25/99 3/10/99 1/15/99 Lot Cash Cash 1. Before December 31. Payment of Donor's Tax: . this is not included in the cumulative total for 1999's donations. 1972:  On or before March 1 following the close of the calendar year.000 (Stranger) Tax Due: 200. Deductions claimed and allowable c. Commissioner of Internal Revenue b.000. c. Requirements (State the following information/data): a. Each gift made during the calendar year b. Collection Officer or duly authorized Treasurer of the municipality where the donor was domiciled at the time of donation. 1997  Within thirty (30) days after each donation.000 850.000 104.000 Less: Tax on previous donation (donation a + b) 8. Previous net gifts during the same calendar year d. January 1.000 x 30% ========== 60.000 1.000 x 8% ============ 68. b.850.000 100.  Extension not exceeding thirty (30) days maybe granted.000 6. Other pertinent information 2.000 ================ f) 2/14/2000 2.000 x 4% =========== 4.000 (ZV) (father) 250. Revenue District Officer.000 ============== 44.000 300.000 Note: Letter (f) was donated in year 2000 therefore. Donor's Tax Return: 1. ADMINISTRATIVE REQUIREMENTS ON DONOR'S TAX A. Name of donee and address e.000 Tax on: 1. January 1. 1998 to present  Within thirty (30) days after each donation.000 x 30%========== 180.000 Cash 100.Tax Due: 600. 1973 to December 31.

1. C. 1998 (RA 8424). no extension for the payment of the donor's tax shall be granted. Extension to pay tax may be granted not exceeding six (6) months. 2. Donor's tax should be paid at the time the return is filed or within thirty (30) days after the date of gift.  Effective January 1. Interest: (Same as estate tax) . Surcharges: (Same as estate tax) D.

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