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Estate and Donors Taxes Introduction The general concept of taxation is to tax income of a person. On the other hand the concept of a transfer tax is a tax on the privilege to transfer certain properties from one person to another. Estate tax or donors tax, is a tax not on the income of the estate nor of the property being donated but on the privilege to transfer certain properties from one person to another person by virtue of the death of a person or donation of the property to another person. Estate Tax (Sections 84, 85 and 86 of the NIRC ) Estate Tax is an excise tax on the privilege of transferring properties owned by a decedent at the time of his death to his/her heirs. Section 84 of the NIRC provides for the tax rate applicable to be imposed upon the net estate that are subject of the transfer. While the tax base shall be the net value of the properties subject of transfer. Gross Estate The Gross estate according to Section 85 shall be determined by including at the time of the decedent’s death the value of all property, real or personal, tangible or intangible, and wherever situated. And depending upon whether the decedent is a resident or citizen or non resident alien, this will also determine which properties will be included or excluded in arriving at the gross estate. Gross estate of a decedent according to Section 84 includes properties , real or personal, tangible or intangible wherever situated , provided that in case of non resident decedent who at the time of death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. With respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the Tax Code. For resident or citizen therefore , the gross estates is composed of, properties, real or personal, tangible or intangible, wherever situated. Definition of Decedent Interest All the interest of the decedent at the time of his death. Decedent Interest
. Transfer in contemplation of death When a decedent has at anytime made a transfer by trust or otherwise in contemplation of or intended to take effect in possession or enjoyment at or after his death OR has at anytime made a transfer by trust or otherwise under which he has retained for his life or for a period not ascertainable without reference to his death or for any period which does not in fact end before his death.The decedent’s interest which are to be included as part of the gross estate includes the following: 1. transfer in contemplation of death 3. Except if such transfer is a bonafide sale or for an adequate and cull consideration in money or money’s worth. property passing under general power of appointment 4. where the enjoyment of thereof was subject was subject of change at the date of the death of the decedent through the exercise of a power by the decedent himself or in conjunction with any other person to amend or revoke or terminate and such power is relinguish in contemplation of the decedent’s death. transfer for insufficient consideration 7. Section 85 (B) NIRC Donations intervivos vs donations mortis causa Donations intervivos – are donations made during the lifetime of a person hence it is subject to donors tax. or the right either alone or in conjunction with any person to designate the person who shall possess or enjoy the property or the income there from. the possession or enjoyment of or the right to the income of the property. hence it is subject to estate tax Property passing under general power of appointment . that is to take effect at or upon death of the giver. prior interests 6. revocable transfer 2. capital of surviving spouse Revocable transfer Any interest of a decedent which the decedent has transferred at any time either by trust or otherwise. proceeds of life insurance 5. Donations mortis causa are donations made in contemplation of death. Section 85 (1) (2).
Transfer for insufficient consideration If any transfers. either alone or in conjunction with any person. estates. Proceeds of life insurance When a decedent takes an insurance policy on his own life and the amounts are receivable by the decedent’s estate. powers and relinquishment of powers .To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will. designate the persons who shall possess or enjoy the property or the income therefrom. (C) and (E) of Section 85 shall apply to the transfers. but is not a bonafide sale for an adequate and full consideration in money or money’s worth. the property. or (b) the right. or the right to the income from. created. at the time of death. the proceeds of which are to be included in the computation of the gross estate. whether made. OR the amounts are receivable by any beneficiary designated in the policy of the insurance as revocable beneficiary. of the decedent’s interests is for a consideration in money or money’s worth. or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death (a) the possession or enjoyment of. Valuation of the Net Estate For purposes of determining the value of the estate. Capital of the Surviving Spouse The capital of the surviving spouse of a decedent shall not. the fair market value shall be the fair market value as determined by the Commissioner of Internal Revenue or the fair market value as shown in the schedule of values fixed by the provincial and city assessors whichever is higher…… In case of shares of stocks. except in case or a bona fide sale for an adequate and full consideration in money or money’s worth. exercised or relinquished before or after the effectivity of the Code. or administrator irrespective of whether or not the insured retained the power of revocation. Unlisted shares are valued based on the book value while unlisted preferred shares are . existing. or intended to take effect in possession or enjoyment at. Section 5 of Revenue Regulations No. arising. subsections (B). there shall be included in the gross estate only the excess of the fair market value. the fair market value shall depend on whether the shares are listed or non-listed in the stock exchanges. over the value of the consideration received therefore by the decedent. of the property otherwise to be included on account of such transaction. Prior Interests Except as otherwise specifically provided therein. or (2) by deed executed in contemplation of . If the property is a real property. as severally enumerated and described therein. or after his death. his executor. 2-2003 provides that “ the properties comprising the gross estate shall be valued based on their fair market value as of the time of the death. trusts. for the purpose of computing the gross estate of a decedent be deemed a part of his or her gross estate. rights. interests.
(CIR vs CA GR. Computation of the net estate In determining the net estate as the basis for computing the estate tax. their administration. Internment and/or cremation fees and charges. appraisal surplus shall not be considered as well as the value assigned to preferred shares. losses. Actual funeral expenses or 5% of the gross estate whichever is lower but in no case to exceed 200K pesos. March 22. if none is available on the date of death itself. if there are any. This may include: i. publication charges for death notices iv. Expenses. plot. as well as the distribution of the estate among the heirs. For shares listed in the stock exchanges. 2000) This may also includes expenses incurred in the inventory taking of assets comprising the gross estate. Judicial expenses of the testamentary or intestate proceedings. monument or mausoleum but not their upkeep vi. Deductions allowed to the Estate of a Citizen or a Resident – Section 6 Rev Reg 2-2003 1. and vii. Fees of executor or administrator . All other expenses incurred for the performance of the rites and ceremonies incident to internment b.valued at par value. Funeral expenses include the following: i. expenses for the deceased wake. mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial. the payment of debts of the estate. cost of burial. ii. In determining the book value of common shares. indebtedness and taxes a. tombstones. 123206. the value of the gross estate shall allow certain deductions according to Section 86 of the Tax Code. including food and drinks iii. telecommunication expenses incurred in informing relatives of the deceased v. No. the FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death.
Proof of financial capacity to lend of the creditor as well as the financial statement showing the indebtedness as a receivable. Atty’s fees iii. c. Brokerage fees for selling property of the estate. vii. For simple loan a. (2) tort. Claim must be valid in law and enforceable in court 4. Appraiser’s fees vi.ii. c. d. Court fees iv. Liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death 2. Requisites for deductibility of claims against the estate 1. 3. debt instrument must be duly notarized at the time the indebtedness was incurred b. Claims against the estate . Clerk hire. Substantiation requirements 1. Liability was contracted in good faith and for adequate and full consideration in money or money’s worth. Accountant’s fees v.Claims against the estate or indebtedness in respect of property may arise out of : (1) contract. or (3) operation of law i. Costs of storing or maintaining property of the estate and ix. Indebtedness must not have been condoned by the creditor or must not be barred by prescription ii. Statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within 3 years prior to the death of the decedent . duly notarized certification from the creditor as t o the unpaid balance of the debt including interest as of the time of death. Costs of preserving and distributing the estate viii.
a. b. such as sales invoice/ delivery receipt. 80% of the value if the prior decedent died more than one year c. This is called Vanishing deductions because the allowed deductions diminishes over a period of 5 years. 40% of the value if the prior decedent died more than 3 years e. executed and signed by the decedent-debtor and creditor. taxes and casualty losses 2. of the Tax Code. Unpaid mortgages. Property previously taxed – This is a deduction which is allowed to be deducted from the gross estates of citizens. 100% of the value if the prior decedent died within one year prior to the death of the decedent will be deducted. For unpaid obligation arose from purchase of goods or services. Duly notarized certification from the creditor as to the unpaid balance of the debt. Transfers for public use . or contract for services agreed to be rendered as duly acknowledged. resident aliens and non resident estates for properties which were previously subject to donor’s or estate taxes. or if the property was transferred to him by gift within the same period prior to his death. statement of account given by the creditor as duly received by the decedent-debtor.. resident aliens and nonresident estates for properties which were previously subject to estates or donor’s taxes. 3. Documents evidencing the purchase of goods or service.amount of all bequests. Section 86 (A) (2) and (B) (2) . GR No. Claims of the deceased against insolvent persons where the value of the decedent’s interest therein is included in the value of the gross estate. b. 140944. April 30 2008) d. a. 60% of the value if the prior decedent died more two years d. . for exclusively public purposes. This kind of deductions is also called Vanishing Deduction. devises or transfers to or for the use of the government of the Republic of the Philippines or any political subdivision thereof. (Dizon vs CTA. legacies.2. 20% of the value if the prior decedent died more than 4 years but not more than 5 years prior to the death of the decedent. Certified true copy of the latest audited balance sheet of the creditor with the detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. e. Definition of Vanishing Deduction Deduction from the gross estates of citizens. c.
unless the executor. The amount of one Million pesos (P1.000. Transfer for public use However. 6. The following are the allowable deductions: 1. or anyone of the heirs. Computation of the net estate of a decedent who is a non resident alien The value of the net estate of a decedent who is a non-resident alien shall be determined by deducting from the value of his gross estate which at the time of his death is situated in the Philippines. as the case maybe. that if the said current fair market value exceeds One million pesos(P 1.000.000. provided they are duly receipted and not to exceed P 500. Section 7 Rev Reg 2-2003 Taxation of estate is governed by the law existing at the time of the death of the decedent and the accrual of the tax due is distinct from the obligation to pay the same. the excess shall be subject to estate tax. administrator. no deduction shall be allowed in the case of a non-resident decedent not a citizen of the Phil. Expenses. Standard deduction a.000.). losses. The family must be certified as such by the barangay captain of the locality. indebtedness and taxes 2. Amounts received by heirs under RA 4917.000. All medical expenses incurred within one year before the death of the decedent shall be allowed as deduction. 7. includes in the return required to be filed under Section 90 of the Code the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines. Amount equivalent to the current fair market value of the decedent’s family home: provided however. Definition of a family home Arts 152 and 153 of the Family Code) 5. Medical expenses a. Family Home a. Property previously taxed 3. Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with RA 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent.) shall be allowed as an additional deduction without need of any substantiation. i. The tax .4.
When the transfer is one for less than adequate consideration. Section 100. The transfer by any person. In both cases. It is based on pure act of liberality where the transfer of the property is one without any or adequate consideration and without any legal compulsion to do so. Revenue Regulations 2-2003. The donees are (1) brother. Payment of Estate Tax is due on the day the Return is filed by the Executor . spouse. the gross value of the estate exceeds 20K. ancestor and lineal descendant (2) relatives by consanguinity in the collateral line within the fourth degree of relationship . provided it will not exceed 5 years in case the estate is settled though courts. Administrators. whether the gift is direct or indirect and whether the property is real or personal. or within alike period after qualifying as such executor or administrator. a bond shall be required. sister (whether by whole or half-blood). or heirs. Section 3. the executor. or where though exempt from tax. Section 9 Rev Reg 2-2003 However payment of estate tax maybe extended for meritorious reason. The Estate Tax Return shall be filed within 6 months from the decedent’s death. resident or non resident of the property by gift computed as provided for in Section 99 whether in trust or otherwise. The tax base. is arrived at on the basis of the total net gifts during the calendar year and the tax rate is in accordance with the schedule provided for under section 99. administrator or any of the legal heirs. Section 9 Rev Reg 2-2003 Payment can also be in installments Section 9 Rev Reg 2-2003 Section 89 provides that in all cases of transfers subject of tax. tangible or intangible. that is within 6 months from the time of the death of the decedent. Donors Tax It is an excise tax for the privilege of transferring properties by way of donation or a gift during the lifetime of the giver.accrues at the time of death. shall give a written notice to the Commissioner of Internal Revenue. within 2 months after the death of the decedent. the difference between the supposed consideration and the actual fair market value of the property will be considered as a donation and such amount shall be included in computing the total amount of the gifts made during the calendar year. or 2 years in case the estate is settled extrajudicially.
recognized natural. cultural or social welfare organization. provided however. shall be credited with the amount of any donor’s tax of any character and description imposed by the authority of a foreign country. or research institution or org. Tax Credit for Donor’s Taxes paid to a Foreign Country Tax Credit for Donor’s Taxes paid to a Foreign Country applicable to citizen or a resident at the time of donation. cultural or social welfare corp... c. a. Donation to a stranger If donation is made to a stranger. instead net gifts means the total value of the gifts made during the calendar year. trust or philanthropic org. 2. But if the donee is a stranger the tax payeable by the donor shall be thirty per cent (30%) of the net gifts. Section 99 of the Tax Code. b. That not more than 30% of said gifts shall be used by such donee for administration purposes. Gift made to or for the use of the National government…. however. It should be just proportionate to what was credited. Unlike in the computation of the net estate. there are no deductions allowed to arrive at the value of the net gifts. the tax payable by the donor shall be thirty per cent (30%) of the net gifts.The transfer of the total net gifts made during the calendar year shall be subject to tax in accordance with the schedule provided in Section 99 of the Tax Code. foundation. Dowries or gifts made on account of marriage before its celebration or one year thereafter by parents to each of their legitimate. Gifts made by a Resident a. Gifts made to or for 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 said government. religious. institution. There is a limit to the amount that maybe credited. . Gifts in favor of educational and/or charitable. Which means the donor shall be entitled to credit the taxes he has paid as taxes for donations made provided the amount of the tax to be allowed to credit such amount of tax paid to the foreign country with regard to such donation. Gifts made by a Non-resident not a citizen of the Phils. or adopted children to the extent of the first 10k. trust or philanthropic org. Provided. Certain Gifts which are exempted from Donors Tax Section 101 of the Tax Code 1. b. Gifts in favor of educational/charitable religious. or research institution or org. that not more than 30 of said gifts shall be used by such donee for administration purposes .
by way of gifts intervivos or mortis causa unless upon a certification from the Commissioner of Internal Revenue that the estate or donor’s tax fixed and actually has been paid. 22003. February 23. political party or coalition of parties for campaign purposes shall be governed by the Election Code.Campaign Contributions Section 99 of the Tax Code provides that any contribution in cash or in kind to any candidate. Reg . No. Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage. . a donor’s tax return must also be filed. Section 13 Rev. duly reported to the COMELEC shall not be subject to the payment of any gift tax. Section 99 of the Tax Code. Section 13 of RA 7166 Manuel Abello. Section 102 Tax Code Filing of donors tax return and payment. Section 103Tax Code . et al vs CIR GR 120721. as amended. For every donation made. The donor’s tax return shall be filed within 30 days after the date the gift is made or completed and the tax due is paid at the time the return is filed. Property subject of donation is not considered as transferred unless donors tax is paid. 2005 Valuation of gifts made in property The value shall be equivalent to the fair market value at the time the gift was made. Section 13 of RA 7166 on one hand states that “ any provision of law to the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes.
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