GROSS ESTATE

ESTATE TAX

 Is a tax imposed on the privilege that a person is given in controlling to a certain extent, the disposition of his
property to take effect upon death

Decedent Gross Estate

1. Resident Citizen (RC)  ALL REAL properties, wherever situated;
2. Nonresident Citizen (NRC)  TANGIBLE PERSONAL properties, wherever
3. Resident Alien (RA) situated; and
 INTANGIBLE PERSONAL properties,
wherever situated.

Decedent Gross Estate

4. Nonresident Alien (NRA)  ALL REAL properties, situated in the PH;
 TANGIBLE PERSONAL properties, situated in
the PH; and
 INTANGIBLE PERSONAL properties,
situated in the PH EXCEPT when reciprocity
clause applies.

RECIPROCITY CLAUSE

 All intangible personal properties of a NRA shall be excluded in the decedent’s gross estate if:
o The decedent at the time of his death was a RC of a foreign country which at the time of his death did
not impose an estate tax of any character in respect of intangible personal property of Filipino citizen
not residing in that foreign country; or
o The laws of the foreign country of which the decedent was a RC at the time of his death allow a similar
exemption from estate taxes of every character, in respect of intangible personal property owned by a
Filipino citizen not residing in that foreign country.
INTANGIBLE ASSET

 It was not defined in the Tax Code, nonetheless, Accounting Standards defines intangible asset as an “identifiable
nonmonetary asset without physical substance.”
 Their value is derived from intellectual or legal rights, and from the value they add to the other assets.

INTANGIBLE ASSETS CONSIDERED WITHIN THE PH

Under Section 104 of the Tax Code, the following intangible personal property with situs in the PH for tax
estate purposes:
1. Franchise which must be exercised in the PH.
2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted
in the PH in accordance with its laws.
3. Shares, obligations or bonds issued by any foreign corporation, 85% of the business of which is
located in the PH.
4. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds
have acquired a business situs in the PH.
5. Shares or rights in any partnership, business or industry established in the PH.
Note: If the problem is silent if there is a reciprocity clause or not, assume that there is NO RECIPROCITY CLAUSE. If the % is
silent in a foreign corporation then it is not considered as an intangible asset within the PH.

Formula: GROSS ESTATE

Gross Estate xx  All properties (real or personal) owned by the decedent at the
Less: Allowable Deductions (xx) time of his death.
Net Estate xx *BV Formula
Multiply: Estate tax rate 6%
ESTATE TAX xx =Peso value of outstanding shares + RE – Treasury Shares
No. of Outstanding Common Shares

VALUATION OF GROSS ESTATE

1. General Rule FMV of the properties at the time of death.
2. Real Properties HIGHER between the Zonal value and Value fixed by
Provincial or City Assessor or Assessors Value
3. Personal Properties FMV at the time of death
4. Shares of stocks  Preference shares: @ Par value
 Unlisted ordinary shares: @ Book value*
 Listed ordinary shares: @ Average of highest
and lowest quotation at date nearest to the date
of death.
5. Usufructs and annuities In accordance with the latest Basic Standard Mortality
Table taking into account the probable life of the
beneficiary. (i.e., Present Value)
6. Taxable transfers for insufficient consideration Consideration paid at the date of transfer.

EXCLUSIONS UNDER SECTIONS 85 AND 86 OF THE TAX CODE

1. Exclusive property of the surviving spouse.
2. Properties outside the PH of a NRA decedents.
3. Intangible personal properties of a NRA under the Reciprocity Law.
EXCLUSIONS UNDER SECTION 87 OF THE TAX CODE
1. The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir (1 st heir) or legatee to the
fideicommissary (2nd heir).
3. The transmission from the 1st heir, legatee or done in favor of another beneficiary, in accordance with the
desire of the predecessor. (Special Power of Appointment)
4. All bequests, devises, legacies or transfer to social welfare, cultural, and charitable institutions, no part
of net income of which inures to the benefit of any individual; provided, however, that not more than 30% of
the said bequest, devises, legacies or transfers shall be used by such institutions for administration
purposes.
 EXCLUSIONS UNDER SPECIAL LAWS
1. Proceeds of GSIS policy or benefits from GSIS.
2. Accruals and benefits received by members from the SSS by reason of death.
3. Proceeds of irrevocable life insurance policy payable to beneficiary other than estate, executor or
administrator.

Beneficiary Revocable Irrevocable

Estate, executor, administrator Included Included
Other parties Included Excluded

4. Proceeds of group insurance taken out by a company for its employees.

5. War damage payments.
6. United States Veterans Administration (USVA) benefits.
7. Transfer by way of bona fide sales.
8. Properties held in trust by the decedent.
9. Nontaxable acquisition or transfers
10. Personal Equity and Retirement Account (PERA) assets of the decedent-contributor.

INCLUSIONS IN THE GROSS ESTATE

A. PROPERTY OWNED BY THE DECEDENT ACTUALLY AND PHYSICALLY PRESENT IN HIS ESTATE AT
THE TIME OF HIS DEATH.
Ex. are but not limited to:
 Land
 Building
 Shares of stock
 Vehicles
 Bank deposits

B. DECEDENT’S INTEREST
It refers to the value of any interest in property owned or possessed by the decedent at the time of his
death (interest having value or capable of being valued or transferred).
Ex. are but not limited to:
 Dividends declared before his death but received after death
 Share in a partnership profit which have accrued before his death
 Usufructuary & rights

C. PROPERTY NOT PHYSICALLY IN THE ESTATE BUT ARE STILL SUBJECT TO PAYMENT OF
ESTATE TAX
 Transfer in contemplation of death
- It is a disposition of property prompted by thought of death.
 Transfer with retention or reservation of certain rights
- The decedent had transferred his property during his lifetime, but retained for himself beneficial
enjoyment of the thing or the right to receive income from the same.
 Revocable transfer
- A transfer where the terms of enjoyment of the property may be altered, amended, revoked or
terminated by the decedent. The power to revoke though he did not exercise the power.
 Transfer under a General Power of Appointment (GPA)
- When the power of appointment authorizes the donee of the power to appoint any person he
pleases.
 Transfer for insufficient consideration
- When the sale or transfer (other than a bona fide or valid sale) was made for a price lower than the
FMV at the date of transfer.
- Measurement: FMV of the property at the time of death – Value of consideration/Selling Price =
ESTATE TAX RATE

 RA 10963, otherwise known as TRAIN Law provides that, the net estate of every decedent, whether resident or
nonresident of the PH, as determined in accordance with the NIRC (as amended) shall be subject to an estate tax
of six percent (6%).

FILING OF ESTATE TAX

 Notice of death is no longer required under the TRAIN Law.

 Estate tax shall be paid by the executor or administrator or any of the legal heirs at the time of the Estate Tax
return is filed. (Pay as you file system)
 Estate Tax Return shall be filed within 1 year from the date of the death but the Commissioner or any
Revenue Officer authorized by the former shall have the authority to grant, in meritorious cases, a reasonable
extension not exceeding 30 days for filing the return.
 Estate tax returns with gross value EXCEEDING P5,000,000 shall be supported by a statement certified by a
CPA containing the following:
o Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case
of NRA, that part of his gross estate situated in the PH;
o Itemized deductions allowed from the gross estate under Section 86 of the Tax Code, as amended;
o The amount of tax due, whether paid or still due and outstanding.