BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 28

SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

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

Problem 6-2
1. True
2. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his
properties within and outside the Philippines
3. True
4. True
5. True
6. False – only one-half of the share is donated.
7. False – only if the gift is on account of marriage.
8. False – only the first P100,000 is exempt.
9. False – may be subject to business tax such as VAT, custom duties, or excise tax.
10. False - When the donee is a stranger, the tax rate is 30%.
11. True
12. False - excise tax – transfer of property by way of gift inter vivos.

Problem 6-3

1. Zero, because the renunciation is a general renunciation.

2. P30,000 or 30% of P100,000. A third cousin is a stranger for donor’s tax purposes.

3. The total amount of donor’s tax is P62,000, computed as follows:

Son Daughter-in-law
Relative - P200,000 (See schedular tax table) P2,000
Stranger (P200,000 x 30%) P60,000

Note: Daughter-in-law is included as a relative for donor’s tax purposes.

4. Zero. Donations between husband and wife are void and not subject to donor’s tax.

5. Zero. Donations between a man and a woman living together as husband and wife are void
and not subject to donor’s tax. (Art 87, Family Code)
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 29
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX

6. P30,000 or 30% of P100,000. A gift to a priest or to Church is not exempt from gift tax.
(Lladoc vs. Commissioner of Internal Revenue, L-19201, 14 SCRA, p. 292) – assume donation
is made to a church established and operates within the Philippines.

7. P600,000 or 30% of P2,000,000. There is no blood relationship between corporation, hence

both are stranger from each other.

8. P40,400

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

9. P1,244,000

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

10. P135,000

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 6-4 Problem 6-5 Problem 6-6

1. C 1. D 1. C
2. D 2. D 2. D
3. C 3. C 3. D
4. A 4. C 4. No answer. All statements are correct.
5. A 5. C 5. C
6. A 6. C 6. B
7. A 7. B 7. A
8. B 8. C 8. D
9. B 9. C
10. A 10. A

Problem 6-7 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

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 30
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
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
specifically for Daw.

Problem 6-8 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 6–9 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 6–10 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 -

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

Problem 6–12 A
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 31
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
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 6–13 D
Wedding gift P110,000
Less: Dowry 10,000
Net gift – first P100,000 donor’s tax exempt P100,000

Problem 6–14 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 6–15 C
Donor’s tax (P50,000 x 2%) P1,000

Problem 6–16
1. C
Gross gifts, as of August 15, 2002 (P150,000 x 2 lots) P300,000
Less: Deductions 0
Net gifts, August 15, 2002 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. D
Wedding gifts, as of November 15, 2002 P150,000
Less: Deductions - dowry 10,000
Net gifts, November 15, 2002 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, 2002 6,000
Donor’s tax – November 15, 2002 P 5,600

Problem 6–17 D
Donor’s tax (P8,000,000 x 30%) P2,400,000

Problem 6–18 D
No deduction is allowed for donations on account of birthday.

Problem 6–19 B
Gross gift (FMV at time of donation) P200,000

Problem 6–20 B
Donor’s tax (P200,000 x 30%) P60,000

Problem 6–21 A
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 32
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
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 6–22 D
Estate tax Donor’s tax
Gross amount 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 6–23
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

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 6–24
Mr. Dinero Mrs. Dinero
March 30, 2005 (P500,000/2) P250,000 P250,000
June 28, 2005 (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, 2005
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, 2005 P59,200 P59,200

Problem 6–25
Cash his son for wedding held during the year P 200,000

Problem 6–26
To his son on account of marriage during the year P 500,000
To his daughter on account of her birthday 500,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 33
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
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 alient.

Problem 6–27
Real estate (P1,000,000 – P100,000) P 900,000
Personal properties (P500,000 – P50,000) 450,000
Total taxable gifts (inadequate consideration) P1,350,000

Donor’s tax on P1,000,000 P 44,000

Excess (P350,000 x 8%) 28,000
Donor’s tax for inadequate consideration P 72,000

Problem 6–28
Correction:
The date for requirement No. 2 should be November 5, 2005 instead of November 5, 2002.

1. December 25, 2005:

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.

Problem 6–29
There is no donor’s tax because the donations are donation mortis causa, void donation and tax-
exempt donation.
Properties:
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 6–30
Car consequently destroyed after delivery to his son P 500,000

Donor’s tax P14,000

Problem 6–31
Donations to relatives:
2006:
January 31 Car to Uncle P300,000
Less: Encumbrances assumed by the donee 50,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 34
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
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:
2006:
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

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 2006:

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 2006 P167,000

Problem 6–32
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
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 35
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
Donor’s tax on P100,000 Tax exempt
Donor’s tax on excess P30,000 x 2% P 600

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

Problem 6–33
1. January 29, 2006

2. June 1, 2005 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, 2005 gift Nilo Co Nila Co

Christmas gift to son P100,000 P100,000
Previous gift – June 1, 2005 240,000 240,000
Total net gift during 2005 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
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, 2006 P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in
2005, 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 6–34
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 6–35
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
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 36
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
. .
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 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 P1,000,000