Tax 2

Atty. Lean Jeff Magsombol

Estate Tax Road Map Donor’s Tax Road Map

Gross Estate Gross Estate

-Deduction -Deductions
= Net Estate = Net Gift
x % x%
= Tax Due = Tax Due
-Credit -Credit
= Tax Payable = Tax Payable

Important Provisions of the NIRC

Estate Tax Donor’s Tax
Section 85 – Inc Section 100 - Consideration
Section 104 – Situs Section 104 - Situs
Section 87 – Exclusions Section 102 - Valutation
Section 88 – Valuation Section 101
Section 86 – Deduction Section 99
Section 84 – Tax Due Section 101 (c)
Section 86 (E) – Tax Payable
Estate Tax
- At the time of death
- tax on the right to transfer property not tax on the property.
Test: at the time of death does the decedent have any right over the property?

Properties Subject to Estate Tax

All properties real or personal, tangible or intangible.
a. Resident Citizen
b. Non Resident Citizen
c. Resident Alien
Only the part situated in the Philippines; Subject to the Rule of Reciprocity; Only Intangible
Personal Property
a. Non Resident Alien
Transfer in Contemplation of Death
- occurred intervivos
- transferred in full upon the death of the decedent
Revocable Transfer
The test is whether the power to revoke exists at the time of death.

Note: If you can choose the transferee then it is General Power of Attorney not Special Power of
Attorney.
Insufficient Sale
Compare the fair market value of the property at the time of dean and the fair market value at the
time of sale to determine whether there is insufficient sale.
Fair Market Value (Section 6 E)
Whichever is higher of:
1. The fair market value as determined by the Commissioner; or
2. The fair market value as shown in the schedule of values of the Provincial and City
Assessors.
Deductions:
ELIT- V-T-F,S,M,4917-RarC
 Note: Be wary of the dates, if there transaction happened before January 1, 2018 then
the 1997 Tax Code will govern. However if it happened on January 1, 2018 or after then
the TRAIN Law already applies.
Judicial and Administrative Expenses
Test: It must be for the estate
Claims Against the Estate
1. Personal Obligation of the Deceased
2. Good Faith, Adequate and Full Consideraton
3. Valid and Enforceable Claim
4. Debt is not condoned or prescribed
Dizon v. Court of Appeals:
Post death developments are not considered. It is the value of the property at the time of
death that will be considered.
XPN: Casualty losses

Casualty Losses:
1. During settlement of estate
2. Must be from fire, shipwreck, or robbery
3. Must not be compensated by insurance
4. Must not be claimed as deduction
Family Home
Fair Market Value of the lot and improvements
Medical Expenses
- Only the year prior to death
- 500,000 pesos limit
Vanishing Deduction
Decedent received property through succession or donation
- Must be part of the Gross Estate
- Property should be situated in the Philippines
- Should have been received within 5 years prior to the death
- Donor’s or estate tax must already be settled
- No vanishing deduction claimed by the previous decedent
Situation
What if you have a tax liability of 20 Million that you have to pay before inheriting 80 million
that is still in the bank account of the deceased?
Answer: CAR Remedy
Avail of the option of paying 6 % final withholding tax in order to withdraw the 80 million.

Donor’s Tax
Situs
- Same rule as estate tax
Rule of Reciprocity
- Applicable only to non resident aliens and intangible property.
Rule on Renunciation
1. Suriving spouse – subject to donor’s tax
2. 2. Any heir – not subject provided renunciation is made in general
Note: Before TRAIN, donative intent did not matter. The difference between the book value and
the selling price would be considered a donation/ (Lladoc Case)
Now donative intent is considered to determine whether there is a donation or not.
Before TRAIN, dowry can still be deducted.
Dowry
1. By reason of marriage
2. before or within 1 year after marriage
3. given by the parents
4. given to legitimate children
After TRAIN
No more dowry deduction