Donor’s Tax

➢ The donor’s tax is imposed on annual net gifts reckoned over a calendar year basis. For every taxable
donation, the donor shall determine and report his/her net gift. The tax is paid within 30 days after every
donation.

➢ Net gift refers to the net economic benefits from the transfer that accrues to the donee.

Donor’s tax rate:

Up to P250,000 Exempt
Excess above P250,000 6%

Illustration 1
In 2019, Mr. Reyes donated a condominium unit with a value of P4M to his first cousin, Mr. Alfonso.
Amount
Net gift 4,000,000
Less: Exempt donation 250,000
Net gift subject to tax 3,750,000
Multiply by: Tax rate 6%
Donor's tax 225,000

Illustration 2
A donor made the following donations in 2019:
Date Donee Net gift
Jan. 4, 2019 Bestfriend 100,000
Mar. 7, 2019 Brother, as wedding gift 300,000
Nov. 10, 2019 Sister, as birthday gift 500,000
Dec. 25, 2019 Mother as Christmas gift 400,000
Feb. 14, 2020 Girlfriend 700,000

January 4, 2019 donation

The donor’s tax due shall be nil.
Amount
Net gift 100,000
Less: Exempt donation 250,000
Net gift subject to tax (150,000)

March 7, 2019 donation

The donor’s tax due shall be P9,000, computed as follows:
Amount
Total net gift (100K + 300K) 400,000
Less: Exempt donation 250,000
Net gift subject to tax 150,000
Multiply by: 6%
Donor's tax to date 9,000
Less: Tax due in prior donation 0
Donor's tax still due 9,000

November 10, 2019 donation

The donor’s tax due shall be P30,000, computed as follows:
 Amount
Total net gift (100K + 300K+ 500K) 900,000
Less: Exempt donation 250,000
Net gift subject to tax 650,000
Multiply by: 6%
Donor's tax to date 39,000

Less: Tax due in prior donation 9,000

Donor's tax still due 30,000

December 25, 2019 donation

The donor’s tax due shall be P24,000, computed as follows:
Amount
Total net gift (100K + 300K+ 500K + 400K) 1,300,000
Less: Exempt donation 250,000
Net gift subject to tax 1,050,000
Multiply by: 6%
Donor's tax to date 63,000
Less: Tax due in prior donation 39,000
Donor's tax still due 24,000

February 14, 2020 donation

Amount
Net gift 700,000
Less: Exempt donation 250,000
Net gift subject to tax 450,000
Multiply by: 6%
Donor's tax due to date 27,000
Less: Tax due in prior donation 0
Donor's tax still due 27,000

Note: Note that the gifts made in 2019 shall not be included since the donor’s tax is a tax on annual donation. The
accumulation of donation stops at the end of every calendar year.

Valuation of Net Gift

1. Valuation rules
2. Timing of valuation
3. Donation of common properties
4. Encumbrances on the property donated

Valuation of property donated

A. Real property- the higher of zonal or fair value per assessor’s office
B. Personal properties-
1. Shares of stock
a. If listed in the PSE- average high and low price of the stocks at the date of donation
b. If not listed
i. Preferred stocks- par value
ii. Common stocks- book value appearing in FS published nearest to the date of donation

2. Other properties-
a. Newly purchased- purchase price
b. Old items- second hand value
 c. Monetary claims- the amount fixed in the contract

Illustration: FV of listed shares

On June 4, 2019, Mr. Gary donated 1,000 shares of the stocks of Labama Corporation, a listed corporation. The
shares of Labama Corporation had the following trading prices on June 4, 2019:

Opening price P800.00

Highest intra-day trading price 870.00
Lowest intra-day trading price 790.00
Weighted average traded price 820.00
Last trading price 850.00

The donation shall be included in net gift at P830,000, computed as ((P870 + P790)/2 x 1,000). The regulation
requires the use of simple average of the high and low not the weighted average price.

Illustration: FV of non-listed shares

Ms. Pagco donated her 20,000 common stocks of Argon Corp., a closely-held corporation. The latest balance
sheet of Argon Corp. disclosed the following:

Total assets P20,000,000

Less: Total liabilities 5,000,000
Stockholder’s equity 15,000,000

Argon issued 40,000 preference shares at par value of P100 per share and 1,000,000 ordinary shares.

Stockholder’s equity 15,000,000

Less: Par value of preferred stocks (P400 x 10,000) 4,000,000
Residual equity to common shares 11,000,000
Divided by: No. of outstanding common shares 1,000,000
BV per share P 11.00

The donation of Ms. Pagco shall be reported in net gift at P220,000, computed as P11.00 x 20,000 shares.

Timing of value of gift

➢ Donation is valued at the point of completion or perfection of donation.
➢ Donation is perfected upon acceptance by the donee. In conditional donations, the donation is completed
and perfected upon satisfaction by the donee of the terms of donation or upon waiver by the donor of the
conditions.
a. Revocable donation b. Conditional donation

Donation of common properties

➢ Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s tax.
➢ Donation of conjugal or community property by the spouses is deemed ½ made by the husband and ½
made by the wife. The husband and the wife shall file separate donor’s tax returns for the donation.

Illustration:
Mr. and Mrs. Villarama donated a brand new car worth P2M to their son on his graduation. Mr. and Mrs. Villarama
shall report half of the donation in their respective donor’s tax return as follows:

Mr. Villarama Mrs. Villarama

Net gift 1,000,000 1,000,000
Less: Exempt gift 250,000 250,000
Net gift subject to tax 750,000 750,000
Multiply by: 6% 6%
 Donor's tax due 45,000 45,000

This rule applies to donation of co-owned properties

Encumbrances on the property donated assumed by the donee

➢ Obligations on the donated property which are assumed by the donee are diminutions to the gratuity
accruing to the donee. These are onerous assignments of debt are not gratuity; hence are deductible
from the value of the donation.

Illustration:
Don Quito donated an agricultural land to his son, Kervin. The land which was encumbered by an P8M mortgage
had value of P20M. The land also had P500K unpaid real property tax. Kervin assumed the mortgage while Don
Quito assumed the real property tax.

The net gift of Don Quito shall be computed as:

Gross gift P20,000,000

Less: Obligations assumed by donee 8,000,000
Net gift 12,000,000

Note: An obligation assumed by the donor is not deductible as it will not reduce the economic benefits accruing to
the donee.

Donor’s tax return

➢ BIR Form 1800 is filed within 30 days after the donation is made. Note that the law requires duplicate
copies. In practice, the return is filed in triplicate copies. Two copies will be taken by the BIR. One copy
will be the taxpayer’s copy.

➢ Only one return is required for donations made on at a single day even if made to several donees.

Content of the donor’s tax return

The return shall set forth:
1. Each gift made during the calendar year which is to be included in computing net gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts made during the same calendar year;
4. The name of the donee;
5. Such further information as the Commissioner may require.

Where to file the return?

Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to any of the
following:
a. An authorized agent bank
b. Revenue district officer
c. Revenue collection officer
d. Duly authorized treasurer of the city or municipality where the donor is domiciled
e. Office of the Commissioner, if the taxpayer has no legal residence in the Philippines

Note: Donation for public use-exempt

Donation to an accredited non-profit institution-exempt

Resident or citizen donor- globally taxable on donations

Non-resident alien donor- taxable on Philippine donations. If with reciprocity, exclude the intangible
property in the Philippines.
Foreign Tax Credit
➢ Residents and citizens with foreign donation may be subjected to foreign donor’s tax. To minimize
international double taxation, our tax law allows a credit for taxes paid in a foreign country.

➢ Foreign tax credit is computed depending on whether a single foreign country or multiple foreign
countries are involved.

Foreign Tax Credit Limit: One foreign country

The foreign tax credit shall be the lower of the actual foreign donor’s tax paid and the following limit:

Foreign country net gifts

X Philippine donor's tax due
World net gifts

Foreign tax credit limit: Multiple foreign countries

The tax credit limit for each country is individually determined first using the foregoing computations.
The final foreign tax credit shall be the lower of the total of the donor’s tax credit allowable per country and the
world donor’s tax credit limit computed as:

Total foreign country net gifts

X Philippine donor's tax due
World net gifts

Illustration 1: One foreign country

A Filipino citizen made the following donations during the year:

Philippines Abroad Total

Total net gifts 600,000 300,000 900,000
Foreign donor's tax paid 21,000 14,000

The donor’s tax due on the donations shall be computed as:

Total global net gifts 900,000

Less: Exempt donation 250,000
Total net gifts subject to tax 650,000
Multiply by: 6%
Total donor's tax due 39,000

The donor’s tax credit shall be computed as:

Actual foreign donor’s tax paid 14,000

Limit: (P300K/900K x P39K) 13,000
Foreign tax credit-LOWER 13,000

The donor’s tax payable shall be:

Total donor’s tax due 39,000
Less:
Foreign tax credit 13,000
Philippine donor’s tax paid 21,000 34,000
Donor’s tax still due 5,000
Illustration 2: Multiple foreign countries
Assume a resident alien made the following donations during the year:

Donation Philippines Taiwan Korea Total

Total net gifts 500,000 300,000 200,000 1,000,000
Donor's tax paid 15,000 21,000 5,000 41,000

The tax due on the donations shall be computed as:

Total global net gifts 1,000,000

Less: Exempt donation 250,000
Total net gifts subject to tax 750,000
Multiply by: 6%
Total donor’s tax due 45,000

The donor’s tax credit shall be determined as follows:

Per country tax credit:

Taiwan:
Actual amount paid 21,000
Country limit: (300K/ 1M x P45K) 13,500
Lower amount 13,500

Korea:
Actual amount paid 5,000
Country limit: (200K/ 1M x 45K) 9,000
Lower amount 5,000
Total of tax credit allowable per country 18,500

World tax credit limit:

((300K + 200K)/ 1 M x P45K tax due) 22,500

Foreign income tax credit (LOWER) 18,500

The donor’s tax payable shall be:

Total donor’s tax due 45,000

Less:
Foreign tax credit 18,500
Philippine donor’s tax paid 15,000 33,500
Donor’s tax payable 11,500

Practical case application

Illustration:
A resident donor made the following donation in 2020:

Date Net gifts Net gift subject to tax Location of property Donor's tax paid
Mar. 5 400,000 150,000 Philippines 9,000
Apr. 3 200,000 350,000 Philippines 12,000
May. 7 150,000 500,000 Abroad ?
Aug. 4 250,000 750,000 Philippines ?

The donor paid P10,000 on the donations made abroad.

Since tax credit cannot be computed until all donations throughout the year are known, the donor’s tax paid in the
foreign country should be deducted as a preliminary tax credit. The final tax credit will be determined at year-end.

May 7, 2020 donation 30,000

Tax due on P500,000 global net gifts
Less: Donor’s tax paid on prior gifts
Tax paid, prior Philippines gifts 21,000
Foreign donor’s tax paid 10,000 31,000
Donor’s tax still due (1,000)

August 4, 2020 donation

Tax due on P750,000 global donation 45,000
Less: Donor’s credit
Tax paid prior gifts- Philippines 21,000
Foreign donor’s tax paid 10,000 31,000
Donor’s tax still due 14,000

Adjustment return at year-end

Year 2020 concluded with P1M total gifts and a P750K net gift subject to tax.

The donor’s tax for the 2020 donation is P45,000 since there is no more succeeding donation from thereafter:

The foreign donor’s tax credit should be computed as:

Actual foreign income tax paid 10,000

Limit: (150K/1M x 45K) 6,750
Foreign tax credit-LOWER 6,750

The donor’s tax still due shall be:

Total donor’s tax due 45,000

Less:
Foreign tax credit-final amount 6,750
Philippine donor’s tax paid 35,000 41,750
Donor’s tax still due 3,250

Mar 5, 2020 9,000

April 3, 2020 12,000
Aug 4, 2020 14,000
Total 35,000

Tax credit is limited to residents or citizens