Professional Documents
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TRANSFER TAXERS
Transfer tax
- It is the tax imposed on one’s right to make casual and gratuitous transfer on one’s property to the other person.
- Classifications: Donor’s Tax and Estate Tax
Onerous Transfer
- Bilateral transfer
- The sale or exchange of property for a monetary consideration or a transfer of goods or services in return for something of
equal value like in sales or barter.
- The seller and the buyer of the property are mutually obligated to give the property and to pay the value of the property.
- May be made through:
- Regular business activities
These sales or exchanges in ordinary course of business and usually imposed with VAT, OPT and excise
tax (business and income taxes).
- Casual Sale of property
Sale done by person not engaged in business of selling property and usually imposed with capital gains
tax or regular income tax (not business tax).
Gratuitous Transfer
- Unilateral transfer
- The conveyance of property which is not conditioned or reciprocated by any consideration in exchange for the value of the
property give away.
- It is the transfer of property for free.
- May be made through:
- Donation
Donation Inter-Vivos
A gratuitous transfer of property to the done during the lifetime of the donor.
Subject to donor’s tax
- Succession
Donation Mortis causa
The effectivity of gratuitously transferring properties to the heirs is caused by the death of the property
owner either through the operation of law or by a written will.
Subject to estate tax.
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2. Mortis Causa Transfers – the law provides that the right to succession is effected from the moment of the decedent’s
death.
2. Benefit-received theory
- The government protects and provides services in the accumulation of properties transferred gratuitously. It is fair
that the government collects equivalent compensation for giving protection and services to individual persons,
properties or rights who gained from the benefits.
4. Ability-to-pay theory
- Every inheritance received by an heir is in the nature of unearned wealth. The effect of inheritance increases the
wealth of the heir thereby creating an ability to pay the tax and thus contributing to government income.
Succession
- A mode of acquisition by virtue of which the property, right and obligations to the extent of the value of the inheritance, of a
person are transmitted through his death to another or others either by will or by operation of law.
Elements of Succession
1. Decedent
- The person who died and whose property is transmitted through succession. (general term)
Testator
- The decedent who made the last Will and Testament
2. Estate
- The totality of the assets and liabilities of a person at the time of his death.
- The properties or property rights of the decedent which is the subject matter of succession.
Inheritance
- Includes all properties, rights, and obligations of a person which are not extinguished by his death. It also includes
those which have accrued thereto since the opening of the succession.
3. Successor
- The heir of the person to whom the property or property rights is to be transferred.
2. The relatives of such priest or minister of the gospel within the fourth degree, the church, order, chapter, community,
organization, or institution to which such priest or minister may belong;
3. A guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship
have been approved even if the testator should die after the approval thereof; nevertheless, any provision made by the ward
in favor of the guardian when the latter is his ascendant, descendant, brother, sister, or spouse, shall be valid;
4. Any attesting witness to the execution of a will, the spouse, parents, or children or any one claiming under such witness,
spouse, parents, or children;
5. Any physician, surgeon, nurse, health officer, or druggist who took care of the testator during his last illness; and
Gross Estate
- The total valuation of the assets and liabilities of the deceased at the time of his death.
Usufruct Real Property Personal Property Valuation Stocks, bonds and other securites
Valuation Valuation
Take into account Assessed value (by 1. Current Market Price (newly acquired property) If listed in the local stock exchange:
the Basic Provincial or City 2. Second-hand market price (used property) 1. Closing price on the date of death. Or
Standard Assessor) or 3. Grossed-up loan value (loaned property 2. Trading price at the date nearest to
Mortality Table Zonal Value (BIR) 4. Fair value plus accrued interest (interest- the date of death
(probable life of earning receivables/ bank deposits)
the beneficiary) *whichever is higher* 5. Discounted value (non-interest bearing notes If not listed in the local stock exchange:
receivables) Adjusted Net Asset Method (Fair value
6. Face value (Phil Peso Currency) of assets less fair value of liabilities)
7. Converted Philippine peso value (foreign
currencies)
1) Decedents Interest
- The value of any interest in property or rights accrued in favor of the decedent on or before his death which have been
received only after his death.
- Examples:
- Dividends declared on or before the death of the stockholder, and received by the estate after said stockholder’s
death;
- Partnership’s profit earned prior to the death of the partner, received by the estate after the partner’s death; and
- Accrued interest income and accrued rent income on or before the time of death, but collection was made after
death.
3) Revocable Transfer
- The transfer of property with retention or reservation of rights over the property by the donor while he still lives.
- Instances:
1. By gift where the donor has reserved the power to alter, amend, and revoke donation.
2. The donor retains the option to relinquish such power in contemplation of death.
3. Conditional transfers where attached conditions are not completed by the done prior to the donor’s death.
6) Prior Interests
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3. If there was no consideration received on the transfer (as in donation mortis causa), the value to be included in the
gross estate shall be the fair market value of the property at the time of the decedent’s death.
4. If the transfer is not shown to have been made in contemplation of death or to take effect upon the decedent’s
demise, the transfer is subject to donor’s tax.
2. Properties, Interests, Rights and all income accruing after the death of the decedent;
5. Intangible personal properties of Non-resident aliens located in the Philippines under Reciprocity Law.
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommisary
3. The transmission from the first heir, legatee, or done in favor of another beneficiary, in accordance with the desire of the
predecessor; and
4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of
which goes to the benefit of any individual; provided, however, that not more than 30% of the said bequests, devises,
legacies, or transfers shall be used by such institutions for administration purposes.
III. Share of the Surviving Spouse in the net conjugal/community estate (50%)
Rules for Valid Deductions
1. Valid Deductions
o All deductions from the gross estate must be specially granted and within the limits as provided by law
2. Substantiation
o All deductions allowed from gross estate must be proven to be true. Deductions claimed in the estate tax return
must be supported with documentary evidences such as:
Valid contracts, invoices, receipts, audited financial statements;
Notarized certifications, signed sworn statement of account;
Court Order approving the claims against the estate; and
Other documents as may be required by the BIR
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3. Common Deductions
o For married decedent, deductions are presumed to be conjugal/communal deductions
4. Timing for allowable deduction
o Allowed deductions:
Unpaid obligations before death
Funeral Expenses incurred on or before the burial; and
Losses sustained on or before the settlement date of the estate tax.
5. No double deduction and not compensated
o Deductions and losses that have been deducted from the gross income are no longer allowed to be deducted from
the gross estate.
Ordinary Deductions
- Are deductions that are comprised of expenses, losses, indebtedness, taxes, transfers for public use and vanishing
deductions:
o Funeral Expenses (deleted by Train)
o Judicial Expenses (deleted by Train)
o Casualty Losses
o Claims against the estate
o Claims against the insolvent persons; and
o Unpaid taxes and mortgages
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4. The indebtedness must not have been 1. Income tax upon income
condoned by the creditor or the action received after the death of the
to collect has not yet prescribed. decedent;
Substantiation: 2. Property taxes not accrued
1. Debt instrument must be before the decedent’s death;
notarized at the time the and
indebtedness was incurred. 3. Estate tax
2. Duly notarized certification from
the creditor as the unpaid Unpaid Mortgages are unpaid
balance of the debt. (creditor indebtedness secured by a debtor’s
must not be relative within 4th property.
civil degree)
3. Proof of financial capacity of the
creditor to lend the amount at
the time the loan was granted.
4. Statement under oath executed
by the administrator or executor
of the estate reflecting the
disposition of the proceeds of
the load if it was contracted 3
years prior to the death of the
decedent.
Vanishing Deductions
- Property Previously taxed
- The amount of property at the time of the death of the 1 st decedent or the 2nd decedent, whichever is lower.
- Conditions:
1. Five year rule
2. Philippine Situs rule
3. Previously transfer tax rule
4. No previous vanishing deduction rule
5. The same property rule
- Rate of Vanishing Deductions
Percentage Period from 1st to present decedent
100% If within 1 year
80% If more than 1 year to 2 years
60% If more than 2 years to 3 years
40% If more than 3 years to 4 years
20% If more than 4 years to 5 years
Special Deductions
- Are new deductions that are categorically permitted by special laws to reduce the net estate of Filipino decedents, or
Resident alien decedents.
- These are:
1. Standard Deduction
2. Family Home
3. Medical Expenses
4. Amounts received by heirs under RA 4917
Standard Deduction
- A standard deduction of Php 1,000,000.00 is allowed as special deduction from the net estate of a citizen or resident
decedent without the need of substantiation. (Php 5,000,000.00 – TRAIN)
Family Home
- The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family and
members of their family reside.
- One family home only.
- The current fair market value of the decedent’s family home which shall not exceed Php 1,000,000.00 (TRAIN 10M)
- Requisites
1. Certified by the Barangay Captain of the locality as the actual residential house of the decedent and his family
2. Included in the gross estate of the decedent
3. The lower amount of the decedent’s interest in the family home, or Php 1,000,000 (10M)
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- If married, the amount of deduction is half only the value of the family home, unless it shows that it is the exclusive property
of the decedent (partially or entirely)
Medical Expenses
- Cost of medicines, hospital bills, doctor’s fees, etc. which were actually incurred with the maximum amount of P500,000.00.
- Must be substantiated with receipts
- Must be incurred within 1 year from the death of the decedent.
Administrative Requirements:
- The estate tax return shall be filed within 6 months from the decedent’s death.
- Extension of Filing: In meritorious cases, a reasonable extension for filing the return not exceeding 30 days shall be granted
by the BIR Commissioner or any authorized Revenue Officer.
- Extension of Payment: the BIR Commissioner may extend the time of payment of such tax or nay part thereof not to exceed
five year in case the estate is settled through the courts, or two (2) years in case the estate is settled extra-judicially
- Any amount paid after the statutory due date of the tax but within the extension period shall be subject to interest but not
surcharge.
- * Under the TRAIN: may be paid by installment within 2 year from the statutory date without penalty.
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- 25% Surcharge
- Failure to file any return and pay the amount of tax or installment due on or before the due date.
- Filing a return with a person or office other than those with whom it is required to be filed.
- Failure to pay the full or partial amount of tax shown on the return or the full amount of tax due for which no return
is required to be filed on or before the due date.
- Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
- 50% Surcharge
- Willful neglect to file the return within the period prescribed by the Code or by rules and regulations; or
- The return filed is false or fraudulent. (overstating or non-declaration)
- Interest
The rate of twenty percent (20%) per annum shall be imposed on the basic unpaid amount of tax from the date prescribed
for payment until the amount is fully paid.
DONATION
- An act of gratuitously transferring property or right motivated by the liberality of the giver (donor) in favor of the receiver
(done) who accepts it.
- Donation is a bilateral act because the donor gives a gift and the donee receives it.
Donation as a contract:
1. Unilateral contract – imposes obligations only on the donor.
2. Gratuitous contract – only one party provides advantage without receiving anything in return.
3. Voluntary contract – the giving is an exercise of the giver’s free will.
4. Legal contract – the donor must be capacitated and the object must be lawful.
For the purpose of donor’s tax, the rule of reciprocity is applicable only to intangible personal property with situs within the Philippines
owned by nonresident alien. There is reciprocity when:
1. A foreign country, of which the donor is a citizen and a resident at the time of the gift, did not impose a donor’s tax.
2. When the foreign country allowed similar exemption from transfer tax with respect to the intangible personal property owned
by a Filipino citizen not residing within the said foreign country.
Requisites of Donation
1. Capacity of the Donor
2. Donative Intent
3. Delivery of the gift
4. Acceptance of the donee
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- Must have/be:
1. Title of ownership over the property or right
2. Legal age
3. Not deaf-mute who do not know how to write
4. Sanity or soundness of mind.
Donative Intent
- The declared purpose of the legal of a property/right to transfer ownership to another for free. Such intent followed by a
donative act is essential to constitute a gift especially in case of direct donation.
- Required only in a direct gift. If it a gift is indirect taking place by way of sale, exchange or other transfer, donative intent is
not necessary.
Void Donations
1. Donation between persons who were guilty of adultery or concubinage at the time of donation.
2. Donation between persons found guilty of the same criminal offense in consideration thereof.
3. Those made to a public officers of his wife, descendants, and ascendants, by reason of his office.
4. Donations made to incapacitated persons shall be void, through simulated under the guise of another contract or thorugh
a person who is interposed.
5. Every donation between husband and wife during the marriage shall be void except moderate gifts on the occasion of any
family rejoicing. (applicable to common law spouses)
Remunerative Donations
- A donation is remunerative if it rewards past services as an expression of gratitude, happiness and/or generosity
- Subject to donor’s tax
Cancellation of Indebtedness
- Condonation or remission of debt where the debtor did not render service in favor of the creditor is a donation.
- It is not donation if the cancellation is due to the rendition of service
- It is not donation if the corporation forgives the debt of its stockholder, the transaction has the effect of payment of
dividend.
Donor’s Tax
- The donor’s tax is not a property tax but one which is imposed on the transfer of property by way of gift inter vivos
- Imposed on the amount of net taxable gifts
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Justification in imposing donor’s tax
- To prevent the nonpayment of estate tax since properties are transferred without consideration while the property owner is
still alive.
Valuation of Donation
- Fair Market Value existing at the time when the gift was made
- In revocable donation, the time to the value of the property when the donor relinquished control and transfer absolute
ownership to the done during his lifetime.
- In donation with suspensive condition, the time to the value of the property when the condition is fulfilled.
Usufruct Valuation Real Property Valuation Personal Property Stock, bonds and other
Valuation securities
The annual value of usufruct Assessed Value (City Same with estate Same with estate
to the extent of its present Assessors) or Zonal Value
value based on the number of (BIR’s FMV)
years of usufructuary right. Whichever is higher
Transfer for inadequate Renunciation of Inheritance Conjugal Donations Several Donations with
consideration insufficient value
Difference between the value General Renunciation is not One-half of the conjugal If the disposable portion is not
of the property and the subject to donor’s tax property shall be considered sufficient to cover all of them,
consideration of the husband and the other those of the more recent date
Subject to donor’s tax if half is of the wife if wife shall be suppressed or
specifically and categorically expressly joins in making reduced with regard to the
done in favor of identified donation. excess.
heirs or other persons to the
disadvantage of others
Donation to Several Destroyed Donations
Persons
Understood to be in equal the donor is still liable if the
shares, no right of accretion property is destroyed after the
amount them, unless the delivery.
donor otherwise provided.
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Filing and Payment of Donor’s Tax
When to file:
The filing of donor’s tax is within 30 days after the date of gift is made and the tax due thereon must be paid on the date of
the filing.
When to pay:
The tax shall be paid at the same time when the return is filed unless the Commissioner gives an extension, not exceeding
six months.
Where:
The filing of returns for donor’s tax is with the Revenue District Office, or duly authorized collection agent in which the
donor resided at the time of transfer. (domicile of the donor)
If there is no legal residence in the Philippines, filling should be made with the Office of the Commissioner of Internal
Revenue
Penalties
25% Surcharge
1. Failure to file any return and pay the amount of tax or installment due on or before the due date
2. Filing a return with a person or office other than those with whom it is required to be filed;
3. Failure to pay the full amount of tax shown on the return or the full amount of tax due for which no return is
required to be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
50% Surcharge
1. Willful neglect to file the return within the period prescribed by the law.
2. The return filed is false or fraudulent.
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