BSA 2105 Atty. F. R.

Soriano

DONOR’S TAX – DISCUSSION AID

Donor’s tax, concept

Donor’s tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of transfer. It is not a property tax, but is a tax
imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal
Revenue.) It shall not apply unless and until there is a completed gift.

Gift with reserved powers

A gift that is incomplete because of reserved powers, becomes complete when either (1) the
donor renounces the power; or (2) his right to exercise the reserved power ceases because of the happening
of some event or contingency or the fulfillment of some conditions, other than because of the donor’s
death.

Renunciation by surviving spouse

Renunciation of the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other
person/s is subject to donor’s tax. However, general renunciation by an heir, including the surviving
spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax, unless
specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other
co-heirs in the hereditary estate.

Transfer of property for less than an adequate and full consideration

Where property, other than real property that has been subjected to final capital gains tax, is
transferred for less than an adequate and full consideration in money or money’s worth, then the amount by
which the FMV of the property at the time of the execution of the Contract to Sell or Deed of Sale which is
not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price
shall be deemed a gift, shall be included in computing the amount of the gifts made during the taxable year.
This is the rule if the transfer was not in contemplation of death, a revocable transfer or transfer under a
general power of appointment; otherwise, the excess of the FMV at the time of death over the consideration
received shall form part of the gross estate.
However, a sale, exchange, or other transfer of property made in the ordinary course of the
business (a transaction which is bona fide, at arm’s length, and free from donative intent) will be
considered as made for an adequate and full consideration in money or money’s worth.
Where real property (located in the Philippines and held as capital asset) is transferred for less than
an adequate and full consideration in money or money’s worth, the excess of the FMV at the time of the
execution of the Deed of Sale over the consideration received shall not be deemed a gift, because the basis
of the capital gains tax of 6% is the gross selling price or FMV, whichever is higher

Forgiveness of indebtedness
If the creditor forgives the indebtedness of his debtor, the following rules shall apply:
1. If the creditor condones the debt on account of services rendered by the debtor, the debt forgiven is
income to the debtor. Debtor’s sevices to the creditore= taxable income
2. If the creditor simply condones the debt without any consideration therefor and there is acceptance
by the debtor, the amount of the debt is a donation by the creditor to the debtor. No services were
rendered= taxable gift

Remuneratory donation
Remuneratory donation refers to a donation made in consideration of services rendered to the
donor provided they do not constitute a demandable debt, such as in the case of a donation made by
one to another for latter’s loyal and faithful service. Such donation is not subject to donor’s tax but
INCOME TAX.

Treatment of election campaign contributions

Donations/contributions that have been utilized/spent during the campaign period as set by the
Commission on Elections are exempt from donor’s tax. Donations utilized before or after the campaign
period are subject to donor’s tax and not deductible as political contribution on the part of the donor.

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Kinds of donor
1. Citizen (whether residing in the Philippines or not at the time of the donation) and resident alien
donors – Properties for inclusion in the gross gifts are all properties, whether tangible or intangible,
located in the Philippines and outside the Philippines at the time of the donation.
2. Non-resident alien donor
a. If there is no reciprocity – Properties for inclusion in the gross gifts are all properties
located in the Philippines only, whether tangible or intangible, at the time of the donation.
b. If there is reciprocity – Properties for inclusion in the gross gifts are tangible properties
located in the Philippines only at the time of the donation. Intangible properties located in
the Philippines are excluded.

Valuation of gifts
If a donation is made in property, the FMV of such property at the time of the donation shall be
the value of the gross gifts. The principles of valuation of properties for estate tax purposes apply in
valuing properties for donor’s tax purposes.

Exemption of certain gifts

The following are exempt from the donor’s tax:
1. Gifts made to or for the use of the National Government or nay entity created by any of its agencies
which is not conducted for profit, or to any political subdivision of the said Government.
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent (30%) of said
gifts shall be used by such donee for administrative purposes. For the purpose of this exemption, a
“non-profit educational and/or charitable corporation, institution accredited nongovernment
organization, trust or philanthropic organization and/or research institution or organization” is a
school, college or university and/or charitable organization, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or organization,
incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no
compensation, and devoting all its income, whether students’ fees or gifts, donation, subsidies or
other form of philanthropy, to the accomplishment and promotion of the purposes enumerated in its
Articles of Incorporation.
Such gifts shall be included in the gross gifts but will also be shown as a deduction.

Deductions from gross gifts

The following are deductible from the donor’s gross gift:
1. Mortgage or other encumbrances on the property donated which was assumed by the donee.
2. Amount specifically provided by the donor as a diminution of the property donated.

Computation of the donor’s tax

The computation of the donor’s tax is on cumulative basis over a period of one calendar year.
Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s tax.

If what was donated was a conjugal property or community property, the FMV of the property donated
shall be split between the spouses as well as the amount of deductions.

However, if what was donated is a conjugal or community property and only one spouse signed the deed of
donation, there is only one donor for donor’s tax purposes, without prejudice to the right of the other
spouse to question the validity of the donation without his/her consent pursuant to the pertinent provisions
of the Civil Code of the Philippines and the Family Code of the Philippines.

Format in computing the donor’s tax

First donation during the calendar year
Name of donee and description of gift* P xxx
Less: Deduction xxx
Net gifts xxx
Less: Exempt gifts 250,000
Taxable gifts P xxx
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Donor’s tax on taxable gifts (Taxable gifts x 6%) P xxx
 Subsequent donation/s during the year
Name of donee and description of gift P xxx
Less: Deduction xxx
Net gifts xxx
Add: Prior net gifts xxx
Aggregate net gifts xxx
Less: Exempt gifts 250,000
Taxable gifts P xxx

Donor’s tax on taxable gifts (Taxable gifts x 6%) P xxx

Less: Donor’s tax paid on prior gifts xxx
Donor’s tax still due P xxx

*Format in computing net gifts if there is more than one donee:

Name of donee and description of gift P xxx

Name of donee and description of gift xxx
Gross gifts xxx
Less: Deduction xxx
Net gifts P xxx

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