Professional Documents
Culture Documents
A. Donation
1. Definition
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
2. Classification of Donations
a. From viewpoint of motive, purpose or cause
1) Simple—the cause is pure liberality
2) Remuneratory—due to past services rendered or future services or charges and burdens
3) Onerous—burdens and charges equal to the value of the thing donated
4) Modal—consideration is less than the value of the thing donated
5. Completed Gift
a) Gift perfected and completed – it is perfected from the moment the donor knows of the acceptance of the done and it is completed by delivery to
the donee either actually or constructively of the donated property.
b) A gift that is incomplete because of reserved powers becomes complete when either,
1) the donor renounces the reserved power
2) the right to exercise the reserved power ceased because of the happening of some event or contingency or the fulfilment of some condition,
other than because of the donor’s death.
c) The donor’s tax shall not apply unless and until there is a completed gift.
6. Qualified Donors
All persons who may contract and dispose of their property may make a donation (Art. 735, Civil Code).
7. Qualified Donees
a. All those who are not specially disqualified by law therefor may accept donations (Art. 738, Civil Code).
b. Minors and others who cannot enter into a contract may become donees but acceptance shall be done through their parents or legal
representatives (Art. 741, Civil Code).
c. Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already
born (Art. 742, Civil Code).
B. Donor’s Tax
1. Definition of Donor’s Tax
Is a tax levied, assessed, collected and paid upon the transfer by any person, resident or non resident, of the property by gift.
E. Gross Gifts
1. Direct Gift
3) Intangible personal property Receivables or claims against another, bills and coins, bank deposits, shares of stock, bonds or
Rights and claims of the donor certificates of indebtedness, franchise and similar property or rights.
b. Classification of Donor Properties located in the Philippines Properties located in a Foreign Country
Tangible
Intangible personal Tangible personal Intangible personal
Real properties personal Real properties
properties properties properties
properties
Resident Citizen / / / / / /
Non-Resident Citizen / / / / / /
Resident Alien / / / / / /
Non-Resident Alien / / /** X X X
2) Basic Rules
When there is reciprocity - The intangible personal property of non-resident alien situated in the Philippines are not included in the gross gift
When there is no reciprocity - The intangible personal property of non-resident alien situated in the Philippines are included in the gross gift
2. Indirect Gifts
a. Transfer for Less Than Adequate and Full Consideration
• Rule: Where a property, other than a real property subject to capital gain tax, is transferred for less than an adequate and full consideration
Exceptions:
1) Real properties classified as capital assets transferred for less than adequate and full consideration (Capital Gains Tax)
2) Where the owner was compelled to sell his property to minimize his losses.
Exercise:
Determine if the transfer of property is subject to donor’s tax otherwise indicate what applicable tax apples.
FMV of Consideration Applicable Tax
Property Received
Transactions Transferred
1. Computer equipment used in business and transferred to his cousin. P 30,000 P 40,000
2. Computer equipment for personal use and transferred to his cousin P 50,000 P 40,000
3. Building for rent, sold to his best friend. P 25,000,000 P 23,000,000
4. Building for rent, sold to his uncle. P 25,000,000 P 30,000,000
5. House and lot sold to his sister. P 5,000,000 P 3,000,000
6. Car for his personal use. P 5,000,000 P 3,000,000
7. Car used in business. P 400,000 P 300,000
b. Forgiveness of Debt
Cancellation and forgiveness of may result into payment of income tax or donor’s tax.
Norma/Regularl Income tax - when the debtor performs services for the creditor, who in return cancels the debt of the debtor. The debtor is
subject to income tax.
Donor’s tax – when the creditor without any consideration received from the debtor cancels the debt of the debtor. The creditor is liable to donor’s
tax.
Final Withholding Tax on Passive Income – When a corporation forgives the debt of a stockholder. It results to a payment of dividends subject
to final withholding tax on passive income.
2) Specific renunciation (in favor of one or more of the heirs but not all heirs)
a) Specific renunciation by an heir of his share in the hereditary estate in favor of one or more of the heirs - subject to donor’s tax
5. Others
a. Donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services.
b. Transfers a property to a trust in consideration of marriage. (Commissioner V. Wemyss (324 U.S. 303, 1945).
b. Gifts in favor of an educational and/or charitable , religious, cultural or social welfare, corporation, institution, accredited non-
government organization, trust or philanthropic organization or research institution or organization
Requisites:
1) not more than 30% of said gift shall be used by such donee for administration purposes.
Note:
A Non-stock educational and/or charitable corporation, institution, accredited non-government organization, etc. is a school, college or
university and/or charitable corporation, accredited non-government organization etc.:
a. Incorporated as non stock entity
b. Paying no dividends
c. Governed by trustees who receive no compensation and
d. Devoting all its income to the accomplishment and promotion of the purpose enumerated in its Articles of
Incorporation
2. Other Deductions
a. Encumbrance on the property donated if assumed by the donee
b. Those specifically provided by the donor as diminution from the property donated
(RMC 30-2016) Any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes, duly
reported to the Commission shall not be subject to the payment of any gift tax. Only those donations/contributions that have been
utilized/spent “during” the campaign period as set by the COMELEC are exempt from donor’s tax. Donations utilized before or after the
campaign period are subject to donor’s tax.
Exercises:
1. Determine the gross gift and the deduction from each of the following transactions below.
Gross gift Deduction
1. Real property donated, cost P1,000,000; fair market value P2,000,000 with unpaid mortgage of P400,000 P2,000,000 P400,000
assumed by the donee.
2. Real property donated, cost P1,000,000; zonal value P1,500,000; assessed value P2,000,000; appraisal P2,000,000 0
value P3,000,000 with unpaid mortgage of P400,000 assumed by the donor
3. Real property donated valued at P2,000,000 with unpaid real esate tax of P150,000 not assumed by the P2,000,000 0
donee.
4. Real property donated valued at P1,500,000, the donee agreed to assume the applicable donor’s tax of 1,500,000 0
P450,000
5. Personal property donated valued at P200,000, the donor provided that P10,000 of the property donated P200,000 P10,000
be transferred by the donee to a social wefare organization
6. Personal property donated valued at P220,000, the donor did not provide any diminution on the property P220,000 0
donated
7. Real property used as parking space of the factory sold for P3,000,000; fair market value P4,000,000 P1,000,000
8. Vehicle donated to Ramon Magsaysay Award foundation valued at P300,000 P300,000 P300,000
H. Void Donations/Gifts
1. Under Art. 739 of the new civil code, the following donations shall be void:
In the case referred to in No.1. a., the action for declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the
donor and donee may be proved by preponderance of evidence in the same action.
2. Under Art. 87 of the new family code:
a. Every donation between the spouses, whether direct or indirect during the marriage shall be void.
Exceptions:
1) Moderate gifts, which the spouse may give each other on the occasion of any family rejoicing.
2) Donation mortis causa.
b. Between persons living together as husband and wife without a valid marriage.
g. Parents who have abandoned their children or induced their daughters to lead a corrupt or immoral life, or attempted against their virtue;
h. Any person who has been convicted of an attempt against the life of the testator, his or her spouse, descendants, or ascendants;
i. Any person who has accused the testator of a crime for which the law prescribes imprisonment for six years or more, if the accusation has been
found groundless;
j. Any heir of full age who, having knowledge of the violent death of the testator, should fail to report it to an officer of the law within a month,
unless the authorities have already taken action; this prohibition shall not apply to cases wherein, according to law, there is no obligation to
make an accusation;
k. Any person convicted of adultery or concubinage with the spouse of the testator;
l. Any person who by fraud, violence, intimidation, or undue influence should cause the testator to make a will or to change one already made;
m. Any person who by the same means prevents another from making a will, or from revoking one already made, or who supplants, conceals, or
alters the latter's will;
n. Any person who falsifies or forges a supposed will of the decedent. (756, 673, 674a)
2. If what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor’s tax
purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions
of the Civil Code of the Philippines and the Family Code of the Philippines.
K. Splitting of Gift
1. A tax minimization scheme which is done by spreading the gift over numerous calendar years to avail of lower tax liability.
2. This scheme is legally permissible, means to reduce or escape totally from a possible tax liability.
3. The splitting method is applicable if the donor makes two or more donations during different calendar years. Under the splitting method, since the
donations are made during different calendar years, it is not required to include all donations in the last return.
Amount Deductible:
a. Actual donor’s tax paid abroad Whichever is
b. Limit lower
1. One foreign country
Limit
Net gift, foreign x Philippine donor’s tax due Allowed Tax
Total net gifts credit (lower
between actual
and limit)
Actual
Foreign donor’s tax
Limit B – By Total
Net Gift all foreign countries
World Net Gift x Philippine Donor’s Tax
2. Tax Form
BIR Form 1800-Donor’s Tax Return
25% surcharge Penalty of 25% if there is no false or fraudulent intent on the taxpayer.
50% surcharge Penalty of 50% if there is false, malice, fraudulent intent on the taxpayer.
Interest Interest of double the legal interest rate per annum on the unpaid amount of tax from the date
computed until fully paid.
Problems
Problem 1: Determine whether or not the following is subject to donor’s tax (Yes/No)
1. Husband donated conjugal property with the consent of the wife to charity event (charitable institution’s administration expenses exceed 30% Yes
of the gift
2. Wife donated community property without the consent of the husband on occasion of their legitimate child’s birthday (amount of gift is Yes
moderate)
3. Husband donated conjugal property, only the husband signed the Deed of Donation Yes
4. Husband gifted his wife a diamond ring on occasion of her birthday No
5. Wife gifted her husband a branded shirt of account of his birthday (amount is moderate) Yes
6. Husband transferred some of his exclusive property to his wife, transfer to take effect after his death No
7. Surviving spouse renounced his share in the conjugal partnership if favour of all the heirs in the hereditary estate Yes
8. Surviving spouse renounced his share inthe community in favour of htis youngest son Yes
9. Taxpayer donated to the campaign fund of a candidate, duly reported to the COMELEC No
10. Donee failed to indicate his acceptance of the donation before the transferor died No
11. Donee signified his acceptance of the donated property known to the donor before he died, delivery of the donated property done after the Yes
transferor died
Problem 2: Don and Dona H, Filipino citizens, made conjugal donations during the year as follows:
20X1:
November 30 To their son on account of marriage, P300,000
To their daughter-in-law on account of marriage P100,000
December 30 To their friend P600,000 on condition that the latter will give P120,000 of the total gift to charity. (Diminution)
20X2:
January 1 To Liberal Party (exclusive money of Don), P500,000
To Philippine Government, P1,000,000
To Chinese Government, P200,000
March 31 To their nephew on account of graduation, P50,000
To their godson on account of marriage, P100,000
To their church, P200,000
June 30 To their daughter, real property, P1,000,000 subject to suspensive condition of passing the CPA Exam. Their daughter
intends to take the exam in 20X3
To their son, house and lot on account of marriage last year November 30, 20X1, P2,000,000 subject to a mortgage of
P400,000 assumed by their son
October 30 To each other, P1,000,000 car from Dona to Don and P2,000,000 worth of jewelries from Don to Dona on account of
marriage anniversary
December 30 To Ramon Magsaysay Foundation P500,000
To their son, P500,000
To their daughter-in-law, P100,000
To their daughter, P500,000
Required: Compute the amount of donor’s tax still due of Don on:
1. November 30, 20X1
2. December 30, 20X1
3. January 1, 20X2
4. March 31, 20X2
5. June 30, 20X2
6. October 30, 20X2
7. December 30, 20X2
Problem 3
Net gift, Philippines P200,000
Net gift, United States 150,000
Net gift, Japan 50,000
Gift tax paid, United States 4,000
Gift tax paid, Japan 3,500
Required: Assumed a resident citizen donor, compute the gift tax due after tax credit is
END