BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40

SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

CHAPTER 6
DONOR’S TAX
Problem 6-1
1. False – during the lifetime of the donor.
2. True
3. True
4. False – there is no consideration in donation.
5. True
6. False – It is enough that the duly representative of the incapacitated donee to receive
the donation.
7. True
8. False – Real property donation must be put in writing regardless of value.
9. True
10. False – The value of donated personal property must exceed P5,000.
11. True
12. True
13. False – not gifts.
14. False – constitutes dividend income.
15. True

Problem 6-2
1. False – dowry is not allowed to nonresident alien donor.
2. False – the donee’s identity is not material to make the donation valid. The donor can
make donation to an unborn child.
3. True
4. True
5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his
properties within and outside the Philippines
6. True
7. True
8. True
9. False – only one-half of the share is donated.
10. False – only if the gift is on account of marriage.
11. False – only the first P100,000 is exempt.
12. False – may be subject to business tax such as VAT, custom duties, or excise tax.
13. False - When the donee is a stranger, the tax rate is 30%.
14. True
15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter vivos.

Problem 6-3 Problem 6-4 Problem 6-5

1. B 1. A 1. C
2. D 2. C 2. D
3. A 3. D 3. A
4. D 4. C & A 4. B
5. A 5. A 5. A
6. A 6. C 6. D
7. C 7. D 7. A
8. B 8. A 8. A
9. B 9. A 9. C
10. A 10. D 10. A
11. C 11. C 11. C
12. A 12. D 12. D
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 41
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problem 6-6 D
Donation to his unborn grandchild P200,000

Problem 6-7 A
Zero, because the renunciation is a general renunciation.

Problem 6-8 C
Father Mother
Gross estate P5,500,000 P5,500,000
Less: Standard deduction 1,000,000 1,000,000
Net estate P4,500,000 P4,500,000

Estate tax on P2,000,000 P 135,000 P 135,000

Excess (P2,500,000 x 11%) 275,000 275,000
Estate tax P 410,000 P 410,000

Distributable estate (P11,000,000 – P820,000) P10,180,000

Divided by number of heirs 4
Share of each heir P 2,545,000

Donor’s tax on P1,000,000 P 44,000

Donor’s tax on excess (P1,545,000 x 8%) 123,600
Donor’s tax P167,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is not a
general renunciation.

Problem 6-9 B
Husband Wife
Gross gifts (P3,500,000/2) P1,750,000 P1,750,000
Less: Mortgage assumed by done (P1,000,000/2) (500,000) (500,000)
Dowry ( 10,000) ( 10,000)
Net gifts P1,240,000 P1,240,000

Problem 6–10 A
Wedding gift (P500,000 – P10,000) P490,000
Casual gift – car 500,000
Total gift subject to tax P990,000

Donor’s tax on P500,000 P14,000

Excess (P490,000 x 6%) 29,400
Total donor’s tax in the Philippines P43,400

Problem 6–11 A
Donations: Mr. Salonga Mrs. Salonga
Vacation house – conjugal (P500,000/2) P250,000 P250,000
Car – conjugal (P240,000/2) 120,000 120,000
Jewelry – exclusive of Mrs. Salonga 20,000
Dowry ( 10,000) ( 10,000)
Net gift P360,000 P380,000

Donor’s tax on P200,000 P2,000 P2,000

Excess (P160,000 x 4%) 6,400
(P180,000 x 4%) 7,200
Total donor’s taxes, respectively P8,400 P9,200
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 42
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problem 6–12 D
Donation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire
amount of P250,000.

Problem 6–13 A
Donations made between a man and a woman living together as husband and wife are void, and
therefore, not subject to donor’s tax.

Problem 6–14 D
Donation between spouses during marriage time is void; hence, not subject to donor’s tax.

Problem 6–15 D
Wedding gift P110,000
Less: Dowry 10,000
Net gift – first P100,000 donor’s tax exempt P100,000

Net gift taxable is P - 0 -

Problem 6–16 D
2005 gift – house and lot P300,000
Less: Dowry (P10,000 – P6,000) 4,000
Net gift P296,000
Donor’s tax on P200,000 P2,000
Excess (P96,000 x 4%) 3,840
Donors tax – 2005 P5,840

Problem 6–17 C
Donor’s tax (P50,000 x 2%) P1,000

Problem 6–18 D
P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the
th
6 degree of the collateral line.

Problem 6–19
1. Letter C
Gross gifts, as of August 15, 200A (P150,000 x 2 lots) P300,000
Less: Deductions 0
Net gifts, August 15, 200A P300,000

Donor’s tax on P200,000 P 2,000

Tax on excess (P300,000 – P200,000) x 4% 4,000
Total donor’s tax P 6,000

2. Letter D
Wedding gifts, as of November 15, 200A P150,000
Less: Deductions - dowry 10,000
Net gifts, November 15, 200A P140,000
Add: Previous, net gifts 300,000
Total net gifts P440,000

Donor’s tax on P200,000 P 2,000

Tax on excess (P440,000 – P200,000) x 4% 9,600
Total donor’s tax P 11,600
Less: Donor’s tax – August 15, 200A 6,000
Donor’s tax payable – November 15, 200A P 5,600
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 43
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problem 6–20 C
th
P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4
collateral line for donor’s tax purposes.

Problem 6–21 D
Donor’s tax (P8,000,000 x 30%) P2,400,000

Problem 6-22 D
Value of
First donation: Donation Donor’s tax
Donated value of P200,000 P200,000 P 2,000
Excess donation (4% x P290,000) 290,000 11,600
Dowry deducted 10,000 .
Total value of first donation P500,000 P13,600

Second donation:
First donation – total value P500,000 P14,000
Excess donation (6% x 400,000) 400,000 24,000
Total after dowry deducted P900,000 P38,000
Add: Dowry deducted in two donations (P10,000 x 2) 20,000
Total P920,000
Less: First donation 500,000
Value of second donation P420,000

Problem 6–23 D
No deduction is allowed for donations on account of birthday.

Problem 6–24 B
Gross gift (FMV at time of donation) P200,000

Problem 6–25 B
Donor’s tax (P200,000 x 30%) P60,000

Problem 6–26 A
Donor’s tax (P10,000,000 x 30%) P3,000,000

The donation is taxable because more than 30% of it shall be used for administration purposes.

Problem 6–27 A
Donor’s tax P100,000
Surcharge (P100,000 x 25%) 25,000
Interest (P100,000 x 20% x 6/12) 10,000
Total amount due P135,000

Problem 6–28 D
No reciprocity With reciprocity
Taxable gift in the Philippines P3,000,000 P - 0-

Donor’s tax on P3,000,000 P 204,000 P - 0-

No dowry deduction is allowed for nonresident alien donor.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 44
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problem 6–28

1. Letter C

Philippine donor’s tax P404,000

Actual donor’s tax - foreign P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400

2. Letter B
Philippine donor’s tax:
Relative (P500,000) P 14,000
Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000
Less: Tax credit
Actual donor’s tax – foreign (lower) P120,000 120,000
Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400
Donor’s tax still due and payable P1,244,000

Problem 6–30 D
Estate tax Donor’s tax
Gross amount of asset P5,000,000 P5,000,000
Less: Standard deduction 1,000,000 .
Net amount subject to tax P4,000,000 P5,000,000

Estate tax on P2,000,000 P135,000

Excess (P2,000,000 x 11%) 220,000
Donor’s tax on P5,000,000 . P404,000
Total P355,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000

Problem 6–31
Gross gifts made:
To L, on account of marriage P500,000
To M, on account of marriage 200,000
Total gross gifts P700,000
Less: Deductions:
Dowry for L, on account of marriage P10,000
Dowry for M, on account of marriage 10,000
Mortgage assumed by L on property donated 100,000 120,000
Net gifts P580,000

Problem 6–32
1. Donors tax for relatives:
Mar. 1 - To his son on account of marriage P 600,000
Oct. 1 - To his daughter on account of graduation 500,000
Total P1,100,000
Less: Dowry 10,000
Net taxable gifts P1,090,000

Donor’s tax on P1,000,000 P 44,000

Excess (P90,000 x 8%) 7,200
Total donor’s tax for donations to relatives P 51,200
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 45
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

2. Donors tax for strangers:

Dec. 25- To his god-children P400,000
Dec. 31- To his neighbor 100,000
Total P500,000
Multiplied by donor’s tax rate 30%
Donor’s tax for donations to strangers P150,000

Problem 6–33
Mr. Dinero Mrs. Dinero
March 30, 200B (P500,000/2) P250,000 P250,000
June 28, 200B (P2,000,000/2) – P10,000 990,000 990,000
Net taxable gifts P1,240,000 P1,240,000

Donor’s tax on P1,000,000 P44,000 P44,000

Excess (P240,000 x 8%) 19,200 19,200
Total P63,200 P63,200
Donor’s tax paid on March 30, 200B
Donor’s tax on P200,000 ( 2,000) ( 2,000)
Excess (P50,000 x 4%) ( 2,000) ( 2,000)
Donor’s tax for donation on June 28, 200B P59,200 P59,200

Problem 6–34
Cash his son for wedding held during the year P 200,000

Problem 6–35
To his son on account of marriage during the year P 500,000
To his daughter on account of her birthday 500,000
To Garci, his brother, as renunciation of inheritance 400,000
Net gift subject to donor’s tax P1,400,000

Note: No dowry is allowed for nonresident alien.

Problem 6–36
Taxable inadequate consideration - Personal properties (P500,000 – P50,000) P 450,000

Donor’s tax on P200,000 P 2,000

Excess (P250,000 x 4%) 10,000
Donor’s tax for inadequate consideration P 12,000

The inadequate consideration in the sale of real property will not be subject to donor’s tax
because the sale is subject to 6% final tax based on the selling price or fair market value,
whichever is higher.

Problem 6–37
1. December 25, 200A:
Average value per share (P500 + P450)/ 2 P 475
Multiply by number of shares 1,000
Taxable base of the gift P475,000

2. The same answer with number 1.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 46
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problem 6–38
There is no donor’s tax because the donations are donation mortis causa, void donation and
tax-exempt donation. Specific principles:

a. House and lot Subject to estate tax because the transfer shall take effect upon
death of the donor (included in the last will and testament).

b. Parejo car The value of property donated is P200,000 and it was made orally.
The donation is null and void because personal property donated
with value exceeding P5,000 should be put in writing to become a
valid donation.

c. Business Revocable donation is a revocable transfer, hence, subject to estate

tax.

d. Furniture and fixtures Donation mortis causa is subject to estate tax.

e. Time deposit The amount is P100,000 given to his illegitimate daughter. This
donation is tax exempt because the first P100,000 of donation to
relatives shall not be subjected to donor’s tax.

Problem 6–39
Car consequently destroyed after delivery to his son P 500,000
Donor’s tax P14,000

Problem 6–40
Donations to relatives:
200B:
January 31 Car to Uncle P300,000
Less: Encumbrances assumed by the donee 50,000
Net taxable gift – January 31, 2002 P250,000

Donor’s tax on P200,000 P 2,000

Tax on excess (P250,000 – P200,000) x 4% 2,000
Donor’s tax for January 31 donation P 4,000

November 30 House and lot to his son on account of marriage P600,000

Less: Dowry exemption (weeding was held beyond one year) - 0 -
Net gifts P600,000
Add: Previous net gifts during the year 250,000
Aggregate taxable gift P850,000

Donor’s tax on P500,000 P 14,000

Tax on excess (P840,000 – P500,000) x 6% 21,000
Total P 35,000
Less: Donor’s tax for previous gifts during the year 4,000
Donor’s tax for November 30 donation P 31,000

Donations to strangers:
200B:
June 30 Cash to Miss Rosal, a radio manager P100,000
Less: Diminution of gift (P100,000 x 60%) 60,000
Net taxable gift P 40,000

Donor’s tax for June 30 donation (P40,000 x 30%) P 12,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 47
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

August 31 Land to National Government P500,000

Less: Deduction (total amount) 500,000
Net taxable gift P - 0 -

Donor’s tax for August 31 donation None

October 31 Cash to non-profit organization – 40% Administrative P400,000

Less: Deduction - 0-
Net taxable gift P400,000

Donor’s tax for October 31 donation (P400,000 x 30%) P120,000

Total donor’s tax during 200B:

Total donor’s tax to relatives (P30,400 + P4,000) P 35,000

Total donor’s tax to stranger (P12,000 + P120,000) 132,000
Total donor’s tax for the year 200B P167,000

Problem 6–41
Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000

Net gift to daughter on account of marriage (P50,000 – P10,000) P 40,000

Add: Previous net gifts:
April 1 – Gift to mother P50,000
June 10 – Wedding gift to son (P50,000 – P10,000) 40,000 90,000
Total net gift during the year P130,000

Donor’s tax on P100,000 Tax exempt

Donor’s tax on excess P30,000 x 2% = donor’s tax payable
Oct. 31, 200A P 600

Problem 6–42
1. January 29, 200B

2. June 1, 200A gift Nilo Co Nila Co

Gift on account of their daughter’s marriage P250,000 P250,000
Less: Dowry 10,000 10,000
Net gift P240,000 P240,000

Tax on P200,000 P 2,000 P 2,000

Tax on excess P40,000 x 4% 1,600 1,600
Total P 3,600 P 3,600 P 7,200
Surcharges (P7,200 x 50%) 3,600
Interest (P7,200 x 20% x 11/12) 1,320
P12,120

December 30, 200A gift Nilo Co Nila Co

Christmas gift to son P100,000 P100,000
Previous gift – June 1, 200A 240,000 240,000
Total net gift during 200A P340,000 P340,000

Tax on P200,000 P 2,000 P 2,000

Tax on excess P140,000 x 4% 5,600 5,600
Total P 7,600 P 7,600
Less: Tax on previous gift 3,600 3,600
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 48
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
Donor’s tax on current gift P 4,000 P 4,000 P 8,000
Surcharge (P8,000 x 50%) 4,000
Interest (P8,000 x 20% x 4/12) 533
P12,533
Total amount to be paid on June 1, 200B P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in
200A, yet they did not pay the donor’s tax within 30 days from the date of donation in both
occasion, hence, habitual and intentional neglect.

Problem 6–43
Relative Stranger Total
Donor’s tax on property located in Japan, P1,000,000 P44,000 P 44,000
Donor’s tax on property located in the Philippines
(P2,000,000 x 30%) P600,000 600,000
Total donor’s tax in the Philippines P644,000

Computation of donor’s tax still due and payable:

Total donor’s tax in the Philippines P644,000
Less: Allowable tax credit: - Actual lower than limit 70,000
Limit (P1,000,000/ P3,000,000) x P644,000 P214,667
Donor’s tax still due and payable P574,000

Problems 6–44
Gift to
Property donated: Relatives Strangers Total
To son - House and lot ($500,000 x P50) – P10,000 P24,990,000
Carabaw FX – to brother-in-law P 500,000
. .
Taxable base P24,990,000 P 500,000

Philippine donor’s tax:

First P10,000,000 P 1,004,000
Tax on excess (P14,990,000,000 x 15%) 2,248,500
Total P 3,252,500
Less: Tax credit allowed ($20,000 x P50/$1) 1,000,000
Donors tax rate for donation made to strangers . 30% .
Net donor's tax P 2,252,500 P 150,000 P 2,402,500

Note: Donation to common-law-wife is void. Hence, no donor’s tax.

Computation of tax credit allowed:

Limit 1: (P24.990M/ P25.490M) x P2,402,500 P2,335,373

Allowed: Actual, lower amount ($20,000 x P50/$1) P1,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 49
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

Problems 6–45
Assume donations are made to strangers:
Total net gifts P10,000,000

Philippine donor’s tax (P10,000,000 x 30%) P3,000,000

Tax credit:
Limit (P3,000,000 x 5/10) P1,500,000
Actual – lower ( 400,000)
Donor’s tax payable P2,600,000

Assume donations are made to relatives:

Philippine donor’s tax P1,004,000
Tax credit:
Limit (P1,004,000 x 5/10) P502,000
Actual – lower ( 400,000)
Donor’s tax payable P 604,000

Problems 6–46
1. Gross gifts subject to donor’s tax Don Dona
a. No donation

b. Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000

c. Donation to son on account of marriage – relative

(P5,000,000/2) 2,500,000 2,500,000

d. Donation to Philippine government – not subject to

Donor’s tax

e. Donation to religious group – considered stranger

(P1,000,000/2) 500,000 500,000

f. Donation mortis causa – not subject to donor’s tax

g. Donation to NGOs – generally not subject to donor’s tax

h. Donation to political party – not subject to donor’s tax

Exclusive donations by Don:

a. Donation to secretary – stranger 100,000
b. Donation to wife – null and void
c. Donation to relative – father 200,000 .
Total amount of gross gifts subject to donor’s tax P4,300,000 P4,000,000

2. Donor’s tax
Donation to relatives:
Donation to son on account of marriage – relative
(P5,000,000/2) – P10,000 P2,490,000 P2,490,000
Donation to relative – father 200,000
Total net gifts P2,690,000

Tax on P1,000,000 P 44,000 P 44,000

Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) 135,200 119,200
Total donor’s tax due – donation to relatives P179,200 P163,200
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 50
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
Donation to strangers:
Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000
Donation to religious group – considered stranger
(P1,000,000/2) 500,000 500,000
Donation to secretary – stranger 100,000 .
Total amount – donation to strangers P1,600,000 P1,500,000
Multiplied by donor’s tax rate to strangers 30% 30%
Total donor’s tax due – donation to strangers P 480,000 P 450,000
Total amount of donor’s tax P 659,200 P 613,200

Problems 6–47
Donor’s tax Don Dona
1. Dec. 30, 200A:
Relative - on account of son’s marriage
(P300,000/2) – P10,000) P140,000 P140,000
Tax on P100,000 Exempt Exempt
Tax on excess (P40,000 x 2%) – donor’s tax due P800 P800

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000

Multiplied by applicable donor’s tax rate 30% 30%
Donor’s tax due P15,000 P15,000

2. Jan. 1, 200B:
Stranger – Chinese government (P200,000/2) P100,000 P100,000
Multiplied by applicable donor’s tax rate 30% 30%
Donor’s tax due P 30,000 P 30,000

3. March 31, 200B:

Relatives – nephew (P50,000/2) P25,000 P25,000
Donor’s tax Exempt Exempt

Stranger – god son (P100,000/2) P 50,000 P 50,000

Church (P200,000/2) 100,000 100,000
Total P150,000 P150,000
Multiplied by applicable donor’s tax rate 30% 30%
Donor’s tax due P 45,000 P 45,000

4. June 30, 200B:

Relative – son on account of marriage (dowry already taken)
(P2,000,000 – P400,000)/2 P800,000 P800,000
Add: Previous net gifts to relatives – Mar. 31, 200B 25,000 25,000
Total net gifts P825,000 P825,000

Tax on P500,000 P14,000 P14,000

Tax on excess (P325,000 x 6%) 19,500 19,500
Total donor’s tax payable – June 30, 200B P33,500 P33,500

5. Oct. 30, 200B:

Void donation – husband and wife

6. Dec. 30, 200B:

Relatives:
Son (P500,000/2) P250,000 P250,000
Daughter (P500,000/2) 250,000 250,000
Total net gifts to relatives – Dec. 30, 200B P500,000 P500,000
Add: Previous net gifts to relatives during 200B:
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SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
March 31, 200B: Relatives – nephew (P50,000/2) 25,000 25,000
June 30, 200B:
Relative – son on account of marriage (dowry already taken)
(P2,000,000 – P400,000)/2 800,000 800,000
Total net gifts to relatives as of Dec. 30, 200B P1,325,000 P1,325,000

Tax on P1,000,000 P44,000 P44,000

Tax on excess (P325,000 x 8%) 26,000 26,000
Total P70,000 P70,000
Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B P33,500 P33,500
Donor’s tax payable as of Dec. 30, 200B – relatives P36,500 P36,500

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000

Multiplied by applicable donor’s tax rate 30% 30%
Donor’s tax due P 15,000 P 15,000