MODULE 1: DONOR’S TAXATION

Lesson 4: Laws / Rules on Gross Gift

Overview:
Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it (Civil Code of the Philippines). The transfer includes not
only the transfer of ownership but also the passage of control over the economic benefits of the
property.
Donor’s Tax is imposed on the transfer of property by way of gift inter-vivos. The tax
shall not apply until there is completed gift. The computation is on a cumulative basis over one
calendar year.
Gross Gift is the value of the property or right donated subject to donor’s tax before
any deduction The classes of Donor are Citizen or Resident Alien donor (who are taxable for
donations within and outside Philippines) and Nonresident Alien donor who are taxable only for
the donations within the Philippines. This module will discuss in details the Gross gift in Donor’s
taxation.

Module Objectives:
After successful Completion of this module, you should be able to:
1. Know the provisions of Tax Code (both the Old and new Tax Code) related to Gross
gift for purpose of determining the taxable net gift.
2. Summarized the amendments made by TRAIN law on the Philippine Tax Code.
3. Apply the provisions of Tax Code in different scenarios.
4. Identify the transactions (donations / gift) that are part of Gross gift.
5. Compute the Donor’s Tax still due based on the Tax Code (both the Old and New Tax
Code)

Course Materials:
COMPOSITION OF GROSS GIFT:

1. If Citizen or Resident Alien Donor:

 Real Property within and without the Philippines.
 Tangible and Intangible Property within and without the Philippines.
2. If Not a Citizen or Non- Resident Donor:
 Real Property within the Phil.
 Intangible and Tangible Personal Property within Phil.

Reciprocity Rule ; Intangible Personal Property of a not citizen, non resident donor. It shall be
exempt from Donor’s Tax if either of one or two conditions are present:
1. The country where the said donor is a citizen and resident does not impose a transfer tax on
intangible personal property of Filipinos not residing in that country.
2. The country where the said donor is a citizen and resident allows a similar exemption from transfer
tax on intangible personal property of Filipinos residing in that country.
Property Considered Intangible Personal Property within Philippines:

1. Franchise which must be exercised in the Philippines;

2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized
or constituted in the Philippines in accordance with its laws;
3. Shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of
the business of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines;
5. Shares or rights in any partnership, business or industry established in the Philippines,
shall be considered as situated in the Philippines

Transfer for less than adequate and full consideration :

Where property other than real property classified as capital asset is transferred for
adequate and full consideration in money or money’s worth, then the amount by which the fair
market value exceeded the value consideration shall be deemed a gift and shall be included in
the amount of gifts made during the calendar year.

INCLUSION IN THE GROSS GIFT:

1. TAXABLE Gifts or Donations subject to Donor’s tax
 Actual gifts
 Transactions deemed Gifts
 Condonation of receivables for without any or for inadequate
considerations
 Property transfer for inadequate considerations (Excess of FV over the
considerations received on transfer) EXCEPT: A). property transfer subject
to estate tax B). property transfer subject to capital gains tax or Real
property held as capital asset located in the Philippines and C). Property
transfer representing boa fide sale, arm’s length transactions.

2. Exempt Gifts or Donations not subject to Donor’s tax.

EXEMPTIONS OF CERTAIN GIFTS (EXEMPT GIFTS)

The following are property gifts, donations or contributions that are exempt from donor’s
tax:

1. Dowries or gifts made on account of marriage and before its celebration or within one
year thereafter by parents to each of their legitimate, recognized natural, or adopted
children to the extent of the first Ten thousand pesos (P10,000) (Repealed by TRAIN
law)

Under TRAIN law, this is no longer allowed.

 2. Gifts made to or for the use of the National Government or any entity created by any of
its agencies which is not conducted for profit, or to any political subdivision of the said
Government;
3. 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 administration
purposes.
4. Exempt gifts under Special Laws.

EXCLUSION FROM GROSS GIFT:

The following property transfers or transactions shall be treated as non taxable transfer and shall
not be part of the computation of gross gift:
1. Donations of property situated without the Philippines in case of non resident alien
donor.
2. Donation of intangible personal property in the Philippines if provided for under
reciprocity clause in case of non resident alien donor.
3. Donations or property transfer during the lifetime subject to estate tax; namely;
 Property donation Mortis-causa
 Property transfer in contemplation of death
 Property transfer subject to revocation
 Property transfer passing under a general power of appointment, if death
related.
 Property transfer for inadequate considerations, if death related.
4. Sale or exchange of real property held as capital asset subject to capital gain tax under
Sec 24.
5. Transfer of property by way of bona fide, arm’s length transactions and those made in
the ordinary course of business.
6. Gratuitous rendition service by a person to another.
7. Any contribution in cash or in kind to any candidate, political party or coalition of parties
for campaign purposes shall be governed by Election Code.

Bases in the Valuation of Property

The properties comprising the gift/donation shall be valued based on their fair market value as of
the time of donation.

If the property is a real property, the fair market value thereof as of the time of donation shall be,
whichever is the 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 fixed by the provincial and city
assessors.

In the case of shares of stocks, the fair market value shall depend on whether the shares
are listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their
book value while unlisted preferred shares are valued at par value. In determining the book value
of common shares, appraisal surplus shall not be considered as well as the value assigned to
 preferred shares, if there are any. On this note, the valuation of unlisted shares shall be
exempt from the provisions of RR No. 6-2013, as amended.

For shares which are listed in the stock exchanges, the fair market value shall be the
arithmetic mean between the highest and lowest quotation at a date nearest the date of
donation, if none is available on the date of donation.

The fair market value of units of participation in any association, recreation or amusement
club (such as golf, polo, or similar clubs), shall be the bid price nearest the date of donation
published in any newspaper or publication of general circulation.
To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there shall be taken
into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, to
be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner. (Sec. 2, RR
No. 17-2018 and Sec. 5 of RR No. 12-2018