TAXATION

E.R. GARCIA

TAXATION 1 - ESTATE TAX

A. FORMAT OF COMPUTATION (BIR form 1801)

Exclusive Common Total

Real properties excluding family home P xxx P xxx P xxx
Family home xxx xxx xxx
Personal properties xxx xxx xxx
Taxable transfers xxx xxx xxx
Business Interest xxx xxx xxx
Gross estate P xxx P xxx P xxx
Less: Deductions ( xxx ) ( xxx ) ( xxx )
Estate after deductions xxx xxx* xxx
Less: Special deductions
Family home ( xxx )
Standard deduction ( xxx )
Others ( xxx )
Net Estate xxx
Less: Share of Surviving Spouse (Net Common Estate divided by 2)* ( xxx )
Taxable net estate P xxx

Tax due P xxx

Less: Tax credits/payments
Foreign estate tax paid (tax credit) ( xxx )
Tax paid in return previously filed (if this is an amended return) ( xxx )
Tax payable xxx

B. RATE OF ESTATE TAX

TRAIN Law:
The net estate of every decedent, whether resident or non-resident of the Philippines, as determined in accordance with the NIRC, shall be
subject to an estate tax at the rate of six percent (6%).

C. TAXABILITY OF THE ESTATE IN GENERAL

1. Classification of a Decedent
a. Resident Citizen
b. Non-Resident Citizen
c. Resident Alien
d. Non-Resident Alien

2. Types of Properties
a. Real or immovable property
Examples: Land, building or similar structures, or improvements, which are fixed more or less permanently on the ground.
b. Tangible personal property
Examples: Equipment, furniture, machines, paintings, jewelry items, and similar property.
c. Intangible personal property (Rights and claims of the decedent existing at the time of death)
Examples: Receivables or claims against another, bills and coins, bank deposits, shares of stock, bonds or certificates of indebtedness,
franchise and similar property or rights.

3. Taxability of an estate in accordance with the classification of a decedent and the type of property
Classification of Decedent Properties located in the Philippines Properties located in a Foreign Country
Tangible Intangible Tangible Intangible
Real Real
personal personal personal personal
properties properties
properties properties properties properties
Resident Citizen / / / / / /
Non-Resident Citizen / / / / / /
Resident Alien / / / / / /
Non-Resident Alien / / /** X X X

4. Rule of reciprocity (Non-resident Alien)**

a. Properties covered by reciprocity
Intangible personal properties situated in the Philippines and owned by a non-resident alien decedent.
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Taxation (ERG)
Reciprocity can take place when the foreign country where the non-resident alien was a citizen and resident:
- Does not have any kind of death taxes
- Has death taxes but allows exemption to non-resident Filipinos

b. Basic Rules
With reciprocity - Intangible personal properties of non-resident alien situated in the Philippines are not included in the gross estate
Without reciprocity - Intangible personal properties of non-resident alien situated in the Philippines are included in the gross estate

c. Intangible personal properties considered as situated in the Philippines

The following shall be considered as situated in the Philippines (among others):
1) Franchise which must be exercised in the Philippines;
2) Shares, obligations or bonds issued by any corporation or sociedad anonima organized and constituted in the Philippines in accordance with its
law;
3) Shares, obligations or bonds issued by any foreign corporation 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.

D. COMPOSITION OF THE GROSS ESTATE OF A DECEDENT

Gross estate (SEC. 85) - The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a non-resident decedent who at the
time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be
included in his taxable estate. It shall also include revocable transfers and transfer for insufficient consideration etc. (R.R. 12-2018)

1. Properties owned by the decedent

 Real Properties
 Family Home
 Personal Properties
 Business Interest

2. Properties transferred (Taxable Transfers)

 These are properties which at the time of the death of the decedent are not part of the decedent’s assets because these were already
transferred (sold or donated) by him during his lifetime.
 The values of these properties will be included in determining the value of the gross estate even though such properties are not anymore
part of the assets of the decedent.

a. Transfer in Contemplation of Death - is a transfer of property motivated by the thought of death, although death may not be imminent.

Examples of a transfer made in contemplation of death

1) When the transferor of a property is at an advanced age.
2) When the transferor of a property is terminally ill or with incurable disease.
3) When a person concurrently makes a will and transfers a property.

Exception: in case of a bona fide sale for an adequate and full consideration in money or money's worth

Examples of motives that preclude a transfer from the category of one made in contemplation of death (Motives associated with life)
1) To relieve donor from the burden of management
2) To save income or property taxes
3) To settle family litigate and un-litigated disputes
4) To provide independent income for dependents
5) To see the children enjoy the property while the donor is alive
6) To protect the family from hazards of business operations, and
7) To reward services rendered

b. Revocable Transfer - is a transfer where the enjoyment of the property maybe altered, amended or revoked.

Whether or not on or before the date of the decedent's death notice has been given or the power to revoke has been exercised, such notice shall be
considered to have been given, or the power to revoke have been exercised, on the date of his death.

c. Property Passing Under General Power of Appointment

d. Transfer of Property for an Insufficient Consideration

If the transfers, trusts, interests, rights or powers is made, created, exercised or relinquished for a consideration in money or money's worth, but is
not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of
the fair market value, at the time of death, of the property otherwise to be included on account of such transaction, over the value of the
consideration received therefor by the decedent.

e. Transfer with retention or reservation of certain rights (possession or enjoyment of, or the right to the income from the property, or the right to
designate a person who may exercise such right)

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Taxation (ERG)

Exercises:

a. Determine the value of the property to be included in the gross estate.

FMV at the time of transfer Consideration received for FMV of property at the time Value of property to be
Case of property transfer of property of death of the decedent included in the gross estate
1 P100,000 P110,000 P120,000
2 P100,000 P100,000 P120,000
3 P100,000 P90,000 P120,000
4 P100,000 0 P120,000
5 P100,000 P90,000 P80,000

b. Determine which of the following events are considered as taxable transfers.

Events Answer
1) Property transferred inter vivos, transferor is of advanced age and died within 3 years after the date of transfer.
2) Property sold for adequate and full consideration, transferor/seller died after one day because of incurable disease.
3) Property sold for P1,000,000. The FMV of the property sold was P 1,100,000.
4) Property transferred, transferor has the right to take back the property.
5) Property transferred, transferor has the right to take back the property. The transferor has waived his right before he died.
6) Property transferred, the transferee has the power to appoint or transfer to anybody the said property.
7) Property transferred, the transferee has the power to appoint or transfer the said property as designated by the transferor.
8) Property transferred, the transferor has the right to the income of the property transferred while he is still alive.
9) Property donated, Donor’s tax paid. In the deed of donation, the donor expressly reserved for himself the usufruct over the
property

3. Business Interest (Interests, rights and claims of the decedent existing at the time of death)
a. Proceeds of Life Insurance
1). The amount receivable by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon
his own life, irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any
beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable.

2) The following are also not taxable:

a) proceeds/benefits coming from SSS
b) proceeds/benefits coming from GSIS.
c) proceeds coming from group insurance.
3) When the designation of the beneficiary is not stated or is not clear, the Insurance Code assumes revocable designation.

b. Claims against insolvent persons – are claims of the deceased against insolvent persons.
1) The full amount of the claim is included in the gross estate.
2) The uncollectible amount of the claim is deducted from the gross estate.

c. Amount received by heirs under R.A. No. 4917 - any amount received by the heirs from the decedent’s employer as a consequence of the death
of the decedent-employee in accordance with Republic Act No. 4917.
1) The amount received is included in the gross estate of the decedent.
2) The amount is also allowed as deduction from the gross estate.

R.A. No. 4917 is entitled ‘An Act providing that retirement benefits of employees of private firms shall not be subject to attachment, levy,
execution, or any tax whatsoever’.

d. Prior interest/Decedent’s interest

Refers to the value of any interest in property or rights accrued in favor of the decedent on or before his death which have been received only after
his death. (Sec. 85 (A) NIRC)

As a rule, the interest must exist at the time of the decedent’s death to be included as part of the gross estate.
Examples
1. Dividends declared on or before the death of the stockholder, and received by the estate after said stockholder’s death.
2. Partnership’s profit earned prior to death of the partner, received by the estate after the partner’s death.
3. Accrued interest and rents on or before the time of death, but collection was made after death.

4. Family Home

The family home refers to the dwelling house, including the land on which it is situated, where the husband and the wife, or an unmarried person
who is the head of the family and members of the family reside, as certified by the Barangay Captain of the locality.

a. Head of the family

A head of a family is a single individual who actually supports and maintains in one household one or more individuals, and whose right to
exercise family control and provide for these dependent individuals is based upon some moral or legal obligation.(Sec. 11, Rev. Reg. 2-40)

The following are the dependents of a head of a family:

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Taxation (ERG)
a. one or both parents;
b. one or more brothers or sisters;
c. one or more legitimate, recognized natural, or adopted child;
d. senior citizen;
(The Train Law does not include illegitimate child, foster child and person with disability as dependents of a head of the family)

A dependent legitimate, recognized natural and legally adopted child is a:

1. a child who is chiefly dependent upon the taxpayer,
2. a child who is living with the taxpayer,
3. a child who is not more than twenty-one (21) years of age, or, regardless of age, if such dependent is incapable of self-support
because of mental or physical defect.
4. unmarried child and
5. a child who is not gainfully employed.

A dependent brother/ sister is a:

1. a brother/ sister who is chiefly dependent upon the taxpayer,
2. a brother/ sister who is living with the taxpayer,
3. a brother/ sister who is not more than twenty-one (21) years of age, or, regardless of age, if such dependent is incapable of self-
support because of mental or physical defect.
4. unmarried brother/ sister and
5. a brother/ sister who is not gainfully employed.

A dependent parent/senior citizen is:

1. chiefly dependent upon the taxpayer,
2. living with the taxpayer,

b. Married
The term Married means those who are legally married.

Exercise:
a. Determine which proceeds of life insurance will be included in the gross estate.
1) Proceeds of life insurance, daughter of the insured was irrevocably designated as the beneficiary of the life insurance.
2) Proceeds of life insurance, wife of the insured was revocably designated as the beneficiary of the life insurance.
3) Proceeds of life insurance, the beneficiary’s designation was not stated in the insurance policy.
4) Proceeds of life insurance, the administrator of the estate was revocably designated as beneficiary of the life insurance.
5) Proceeds of life insurance, the executor of the estate was irrevocably designated as beneficiary of the life insurance.
6) Benefits received from SSS, beneficiary was irrevocably designated as beneficiary.
7) Benefits from GSIS, beneficiary was revocably designated as beneficiary.
8) Proceeds of life insurance, the estate was designated as beneficiary of it.
9) Proceeds of life insurance from group insurance.

D. GROSS ESTATE OF MARRIED DECEDENTS

1. Properties included in the gross estate of the married decedent

Conjugal partnership of gains Absolute community of properties
Exclusive properties of the decedent Included Included
Exclusive properties of the surviving spouse Not included Not included
Common properties Included Included

2. Common types of property regimes:

a. Absolute separation of property (ASP) - All properties of the spouses are separate properties, except those properties which they may
acquire jointly.`
b. Conjugal partnership of gains (CPG) - All properties that accrues as fruit of their individual or joint labor and fruits of their properties
during the marriage will be common properties of the spouses.
c. Absolute community of property (ACP) - All present properties owned by the spouses at the date of celebration of the marriage shall
become common properties of the spouses including future fruit of their separate or joint
industry or fruits of their common properties.

3. In the absence of a pre-nuptial agreement - (Date of Marriage):

Before August 3, 1988 On or after August 3, 1988
Conjugal partnership of gains Absolute community of properties

4. Separate property of the Husband and Wife

Capital Property Property owned solely by the husband
Paraphernalia Property Property owned solely by the wife

Capital/ Paraphernalia Property (exclusive property) of surviving spouse – The capital/ paraphernalia of the surviving spouse of a decedent
shall not be deemed as part of the gross estate of the decedent.

5. Conjugal partnership of gains

Exclusive Properties Conjugal Properties

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Taxation (ERG)
a. Properties brought into the marriage as either of the spouse’s own. a. Properties acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition is for the
partnership or for only one of the spouses.

b. Properties acquired by gratuitous (or lucrative) title during marriage. b. Properties obtained from labor, industry, work or profession of either
or both of the spouses.

c. Properties acquired by right of redemption or by exchange with c. The fruits, natural, industrial or civil, due or received during the
other property belonging to only one of the spouses. marriage from the common property, as well as the net fruits from
the exclusive property of each spouse.

d. Properties acquired with the exclusive money of either spouse. d. The share of either spouse in the hidden treasure which the law awards
to the finder or owner of the property where the treasure is found.

e. Properties acquired through occupation such as fishing and hunting.

f. Livestock existing upon the dissolution of the partnership in excess of

the number of each kind brought to the marriage by either
spouse.

g. Properties acquired by chance, such as winnings from gambling and

betting.

6. Absolute community of properties

Exclusive Properties Community Properties
a. Properties acquired during the marriage by gratuitous (or lucrative) a. All properties owned by spouses at the time of the celebration of
title by either spouse, and the fruits as well as the income thereof, marriage or acquired thereafter.
if any, unless it is specifically provided by the donor, testator or
grantor that they shall form part of the community.

b. Property for personal and exclusive use of either spouse, however,

jewelry shall form part of the community property.

c. Property acquired before the marriage by either spouse who has

legitimate descendants by a former marriage and the fruits as
well as the income, if any, of such property.

7. Summary: Similarities between Conjugal Partnership of Gain (CPOG) and Absolute Community of Property (ACOP)
Property CPOG ACOP
a. Property inherited or received as donation during the marriage Exclusive property Exclusive property
b. Property acquired during the marriage (other than inheritance or donation) Conjugal property Community property
c. Property acquired from labor, industry, work or profession of spouses Conjugal property Community property
Under ACOP, “JEWELRY” shall be considered community property even if they are for the exclusive use of either spouse.

8. Summary: Differences between Conjugal Partnership of Gains (CPOG) and Absolute Community of Property
(ACOP)
Property CPOG ACOP
a. Property before marriage or brought to the marriage Exclusive property Community property
b. Fruits or income due or derived during the marriage coming from exclusive property Conjugal property Exclusive property

Exercise:
a. Mr. Toby Bito is married to Kanna Bito. On January 1, 2019, he died and left the following properties:
EXCL-CPG CONJ- EXCL- COMM-
CPG ACP ACP
1. Cash owned by his wife before the marriage. P2,000,000
2. Real property inherited by Mr. Bito during the marriage. 6,000,000
3. Personal property received by his wife as gift before the marriage. 400,000
4. Personal property received by Mr. Bito as gift before the marriage. 2,000,000
5. Property acquired by Mr. Bito using his cash owned before the marriage. 600,000
6. Clothes of Mr. Bito purchased with his wife’s exclusive money. 500,000
7. Jewelry purchased with the exclusive cash of the surviving spouse. 1,000,000
8. Jewelry inherited during the marriage by the surviving spouse. 1,000,000
9. Jewelry inherited before the marriage by the surviving spouse. 1,000,000
10. Unidentified property. 1,200,000
11. Cash representing the income earned during the marriage from the exclusive 2,000,000
property of Mr. Bito.
12. Cash representing the income earned during the marriage from the common 2,000,000
property of the spouses.
Total
Required: Determine the taxable gross estate of Mr.Bito.

E. EXCLUSIONS AND EXEMPTIONS FROM THE GROSS ESTATE

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Taxation (ERG)
1. Exemptions
a. The merger of the usufruct in the owner of the naked title.
b. The transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary.
c. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor.
d. All bequest, devices, legacies or transfer to social welfare, cultural and charitable institutions, no part of the net income of which inures to the
benefit of any individual and provided, however, that not more than 30% of said bequest, devises, legacies or transfer shall be used by such
institutions for administrative purposes.

The government agency which is empowered to determine the exemption is the BIR. To enable it to exercise such power, the value of transfer to
social welfare, cultural and charitable institutions should be included in the gross estate. While the Tax Codes includes this item in the exempt
acquisition and transmissions, it is actually considered a deduction from the gross estate.

2. Exclusions
a. Amounts received as war damages
b. Amounts received from the United States Veterans Administration
c. Benefits received from the GSIS
d. Benefits received from the SSS
e. Intangible personal property of a non-resident alien decedent under the reciprocity clause
f. Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)
g. Amounts withdrawn from the deposit accounts of a decedent subject to the 6% final withholding tax imposed under section 97 of the NIRC

F. DETERMINATION OF THE VALUE OF THE ESTATE

1. Right to Usufruct, Use or Habitation, 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 the recommendation of the Insurance Commissioner.
2. Property 
a. Generally, it is valued at its fair market value at the time of decedent’s death
b. Real property is valued at the higher between the zonal value (BIR) vs. assessed value (Provincial and City assessor)
c. Personal properties –
Recently purchase – Purchase price
Not recently purchase – Pawn value x 3
d. Securities (Shares of stock)
1. Shares of stock traded in the local stock exchange- Mean between the highest and lowest quotations on valuation date or on a
date nearest the valuation date.
2. Shares of stock not traded in the local stock exchange
a) Common (ordinary) share – book value per share of issuing corporation.
b) Preferred (preference) share – 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.

e. Units of participation in any association, recreation or amusement club (such as golf, polo, or similar clubs) – the bid price nearest the date
of death as published in any newspaper or publication of general circulation.

Exercise:
a. Mr. Ken Gee died and left the following properties:
Resident NRA-No NRA-With
/Citizen Reciprocity Reciprocity
House and lot, USA, FMV, time of death P4,000,0000, cost, P2.000,000
House and lot, Philippines, FMV(per BIR), time of death, P2,500,000;
Value per tax declaration, time of death, P2,000,000
Furniture and appliances, Philippines, Pawn value time of death, P500,000
Car, Japan, purchase price, P1,800,000
Preference Shares, Philippines, sold for P300,000 1 day before death, FMV, date of sale,
P250,000 Par value, date of death, P350,000 (Reason of death, car accident).
Bonds, issued by a Philippine Corporation, cost, P450,000;
Ordinary shares of stock, issued by a foreign corporation, 80% of the business is located in
the Philippines, par value, time of death, P500,000; book value, time of death, P600,000
Proceeds of life insurance, Philippines (the estate is the designated beneficiary) , P1,800,000
Total
Required: Determine the Philippine gross estate of the decedent.

G. DEDUCTIONS FROM THE GROSS ESTATE

1. Ordinary Deductions
Items of Deductions Resident citizen, Non-resident citizen and Non-resident alien decedent
Resident alien decedent
a. Losses, indebtedness, taxes, etc. (LITE) Deductible Deductible:
Phil. GE x LITE
World GE
b. Transfer for public purpose Deductible Deductible
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Taxation (ERG)
c. Property previously taxed (Vanishing Deductible Deductible
Deductions)

2. Special Deductions
Items of Deductions Resident citizen, Non-resident citizen and Non-resident alien decedent
Resident alien decedent
a. Family home Deductible Not Deductible
b. Standard deduction Deductible Deductible
c. Amount received under R.A. 4917 Deductible Not Deductible

3. Others
Item/s of Deductions Resident alien or citizen decedent Non-resident alien decedent
a. Share of Surviving Spouse Deductible Deductible

H. DEDUCTIONS AMPLIFIED

1. Losses, Indebtedness, Taxes, Etc. (LITE)

Deductions Requisites for deductibility Amount and items deductible Deducted
from
a. Losses a. It is incurred during the settlement of the Value of the property lost Common
estate. property if
b. It arose from fire, storm, shipwreck, or connected to
other casualties, or from robbery, theft, common
or embezzlement.
c. It is not compensated for by insurance or Exclusive
otherwise. property if
d. It must not have been claimed as connected to
deduction for income tax purposes in an exclusive
income tax return.
e. It is incurred not later than the last day
for the payment of the estate tax

b. Indebtedness (Claims against
the estate)
a. The liability represents a personal Debts or demands of pecuniary nature which Common
obligation of the deceased existing at the could have been enforced against the deceased property if
time of his death in his lifetime and could have been reduced to connected to
b. The liability was contracted in good faith simple money terms common
and for adequate and full consideration
in money or money’s worth Exclusive
c. The claim must be a debt or claim which property if
is valid in law and enforceable in court connected to
d. The indebtedness must not have been exclusive
condoned by the creditor or the action to
collect from the decedent must not have
prescribed.

Claims against the estate or indebtedness in

respect of property may arise out of the
following sources:
1. Contract
2. Tort
3. Operation of law

e. If the claim was based on a debt

instrument, such instrument must be
NOTARIZED. (Except loans granted
by financial institutions where
notarization is not part of the business
practice of the financial institution
lender.)

f. If a loan was incurred within 3 years

before the decedent death, the
administrator, or executor is required to
render a statement showing the
disposition of the loan proceeds.
c. Unpaid taxes a. The tax must have accrued before the Unpaid taxes that accrued before the Common
death of the decedent decedent’s death but not including: property if
connected to
a. Any income tax upon income received after common
the death of the decedent, or
b. Property taxes not accrued before his death, Exclusive
or property if
c. Any estate tax connected to
exclusive

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Taxation (ERG)
Deductions Requisites for deductibility Amount and items deductible Deducted
from
d. Claims against insolvent a. The value of the claims is included in the Claims that are not collectible Common
persons gross estate. property if
b. The debtors are incapable of paying their connected to
debts. common

Exclusive
property if
connected to
exclusive
e. Unpaid mortgage a. The fair market value of the mortgaged Amount of unpaid mortgage Common
property undiminished by such property if
mortgage or indebtedness has been connected to
included as part of the gross estate common
b. The mortgage indebtedness was
contracted in good faith and for an Exclusive
adequate and full consideration property if
connected to
exclusive

Excercises:
a. Mrs. Christie E. Santos died on January 1, 2019. Determine the deduction in the following cases.
FMV of property at the
time of death of the Amount compensated by
Case Date of casualty decedent an insurance Deduction
1 December 31, 2018 P7,000,000 0 0
2 January 5, 2019 P7,000,000 0 P7,000,000
3 December 31, 2019 P7,000,000 P5,000,000 P2,000,000
4 January 2, 2020 P7,000,000 P5,000,000 0
5 May 1, 2020 P7,000,000 0 0

b. Determine the gross estate and deduction in the following cases.

Claims against insolvent
Case person Uncollectible amount Gross Estate Deduction
1 P100,000 P100,000 P100,000 P100,000
2 P100,000 P 80,000 P100,000 P 80,000
3 P100,000 0 P100,000 0

c. Mrs. Jerilee C. Bagayao died on February 28, 2019. Determine the deduction in the following cases.
Case Type of unpaid taxes Period covered Total amount Amount paid Deduction
1 Real property tax Year 2019 P40,000 1st quarter installment P30,000
2 Income tax 1st quarter of 2019 P45,000 0 P30,000
3 Estate tax February 28, 2019 P60,000 0 0

2. Transfer for Public Use*

a. Amount deductible
b. Requisites for deduction
c. Deducted from
Amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Philippines, or any
political subdivision for exclusively public purpose.
1. The disposition must be
a. testamentary in character (in the last will and testament) or
b. by way of donation mortis causa (should take effect after death)
c. executed by the decedent before his death.
2. In favor of the Government of the Philippines or any of its political subdivisions.
3. Exclusive for public purpose.
4. The value of the property given is included in the gross estate.
Exclusive property

3. Property Previously Tax (Vanishing Deduction)* - This is a deduction derived from a property that was previously subjected to transfer tax.

a. Requisites for deduction

1. Death
2. Identity of the Property
3. Inclusion of the Property
4. Previous taxation of the property
5. No previous vanishing deduction on the
property
The present decedent must have died within five (5) years from the receipt of the property from
a prior decedent or donor.
The property involved must have been a property transferred by a prior decedent or donor to the
present decedent or the property acquired in exchange for the original property so received.
The property must have formed part of the prior decedent’s gross estate situated in the
Philippines or been included in the total amount of the gifts of the donor made within 5
years prior to the present decedent’s death.
The estate tax on the prior succession must have been finally determined and paid by the
prior decedent. The same applies to gifts, in that donors must have taken care of the donor’s
tax.
The vanishing deduction on the property must not have been claimed by the previous estate
involving the same property.

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 Taxation (ERG)

b. Rates of vanishing deduction – If the present decedent died within the following period after the date of prior decedent’s death or after
the date of donation:
More than But not more than The rate is
- 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years - 0%

c. Format of computation
Value to take*** xxx
Less Mortgaged paid by the current decedent (xxx)
Initial basis xxx
Less: Proportional Deductions(ELITE and property transferred for public used) (Initial basis / Gross estate x LITE plus TPU) (xxx)
Final Basis xxx
Multiply by Rate of Vanishing Deduction %
Vanishing Deduction xxx

*** Value taken is the LOWER between the fair market value of the property in the gross estate of the prior decedent or the fair market value of the
gift and the fair market value of the same property in the gross estate of the present decedent.
Notes:
1. Under conjugal partnership of gains vanishing deduction is a deduction from exclusive property.
2. Under absolute community of property, vanishing deduction may be deducted from exclusive property or community property.

Exercise:
a. Ms. Vani Shing died unmarried and left a property she inherited from her father 3 ½ years ago. At the time of her father’s death the property has
a fair market value of P800,000 and an unpaid mortgage of P100,00. During her death it has a fair market value of P750,000. P50,000 of the
unpaid mortgage of the inherited property was paid by her before she died. Her gross estate, other than her inherited property has a fair market
value of P1,350,000. The total losses, indebtedness, taxes, etc.(LITE) and transfer for public purpose amounted to P300,000.

Required:
1. Compute the vanishing deduction allowed to be deducted from the estate of Ms.Shing.
2. Compute the vanishing deduction allowed to be deducted from the estate of Ms.Shing, assuming the unpaid mortgage is not yet included in
the total losses, indebtedness, taxes, etc.(LITE) and transfer for public purpose.

I. SPECIAL DEDUCTIONS
1. Family Home - The family home refers to the dwelling house, including the land on which it is situated, where the husband and the wife, or an
unmarried person who is the head of the family and members of the family reside, as certified by the Barangay Captain of the locality.

Conditions for the allowance of family home deduction from the gross estate:
a. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain
of the locality the family home is situated
b. The total value of the family home must be included as part of the gross estate of the decedent, and
c. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross
estate, or to the extent of the decedent’s interest (whether conjugal/community or exclusive), whichever is lower, but not exceeding P10,000,000.

Deductible amount
Classification of family home Amount deductible
a. Exclusive property Full value included in the gross estate or P10,000,000 whichever is lower

b. Conjugal/community property One-half (1/2) of the value included in the gross estate or 10,000,000 whichever
is lower
c. Partly exclusive property, partly conjugal/community property Exclusive part (full value included in the gross estate) xxx
Conjugal/Community part (1/2 x value included in the gross estate) xxx
Total xxx
Total or P10,000,000 whichever is lower

Exercise:
Determine the allowable family home deduction.
FMV at the Time of Death of the Decedent Deductible Amount
1. Exclusive family home P 8,000,000
2. Exclusive family home P 12,000,000
3. Common family home P 12,000,000
4. Common family home P 36,000,000
5. Exclusive family home (Decedent is single) P 8,000,000
6. Exclusive lot P 4,000,000
Common house P 8,000,000

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Taxation (ERG)

2. Standard Deduction-
For resident citizen, non-resident citizen and resident alien
 The amount deductible is P5,000,000 (TRAIN Law) without any required substantiation

For non-resident alien

 The amount deductible is P500,000 without any required substantiation.

3. Amount Received by Heirs Under R.A. No. 4917

Amount deductible and Requisites
 Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent employee in accordance
with Republic Act No. 4917 is allowed as deduction provided that the amount of the separation benefit is included as part of the gross
estate of the decedent
Amount Received by Heirs Under R.A. No. 4917
1. RA No. 4917 is entitled “an act providing the retirement benefits of employees of private firms shall not be subject to attachment, levy,
execution, or any tax whatsoever”
2. The amount received by heirs from decedent’s employer as a consequence of the death of the decedent employee is included in the gross
estate of the decedent
3. The amount above is also allowed as deduction from gross estate

J. OTHER DEDUCTIONS

1. Share of the Surviving Spouse- applicable only to married decedents

Gross Conjugal / community properties Xxx
Less: Conjugal / community deductions (xxx)
Net conjugal/community properties (NCP) Xxx
Share of surviving spouse (1/2 x NCP) Xxx

Exercise
a. George James is non-resident Chinese citizen. He died testate and left the following properties:
Car, Philippines (Received as donation 2 years before his death, FMV, date of donation P1,500,000) P1,000,000
Car, Shanghai, China 900,000
Bonds, Philippines 1,000,000
Shares of stock, Shanghai, China 600,000
House and lot, China (Mortgaged for P200,000) 1,800,000
Cash deposit, BDO-Sampaloc, Manila 1,200,000
Other tangible personal properties, Manila 500,000
Franchise, exercised in the Philippines 2,500,000
Shares of stock issued by a foreign corporation 1,500,000

His cousin, Lebron James was assigned as the executor of his last will and testament. Lebron sought your advice and presented to you the list of
expenses and deductions relating to the estate of George as follows:
Actual funeral expenses (defrayed by relatives) P100,000
Judicial expenses (extra judicial settlement) 300,000
Loss of certain tangible personal properties 250,000
Claims against the estate 100,000
Unpaid taxes, accrued after death 150,000
Claims against insolvent person 100,000
Transfer for public use 100,000
Medical expenses 600,000

1. How much is the total Philippine gross estate?

2. How much is the total allowable deductions
3. How much is the taxable net estate in the Philippines?
.

K. DEDUCTIONS FROM THE EXCLUSIVE OR CONJUGAL/COMMUNAL RPOPERTY UNDER THE

FAMILY CODE

a. Support of spouses, their common children and legitimate children of either spouse Conj/Comm
b. All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the conjugal Conj/Comm
partnership of gain or community, or by both spouses, or by one spouse with the consent of the other.
c. Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been Conj/Comm
benefited
d. All taxes, liens, charges and expenses, including major and minor repairs, upon the conjugal/community property Conj/Comm
e. All taxes and expenses for mere preservation made during the marriage upon the separate property of either spouse used by the Conj/Comm
family
f. Expenses to enable either spouse to commence or complete a professional or vocational course, or other activity for self- Conj/Comm
employment
g. Ante nuptial debts of either spouse insofar as they have redounded to the benefit of the family Conj/Comm

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Taxation (ERG)
h. Value of what is donated or promised by both spouses in favor of their legitimate children for the exclusive purpose of Conj/Comm
commencing or completing a professional or vocational course or other activity for self-improvement
i. Expenses of litigation between the spouses unless the suit is found to be groundless Conj/Comm
j. Ante-nuptial debts of either spouse that did not redound to the benefit of the family Exclusive
k. Support of illegitimate children of either spouse Exclusive
l. Liabilities incurred by either spouse by reason of crime or quasi-delict Exclusive
m. Loss during the marriage in any game of chance, betting, Sweepstakes, or any other kind of gambling whether permitted or Exclusive
prohibited by law

L. NET DISTRIBUTABLE ESTATE

1. Net distributable estate vs Net taxable estate

Net distributable estate Net taxable estate

The result after the reduction of the gross estate by actual expenses or The result of the application of the law under estate taxation
payments

Variance between them can be traced to deductions which do not involve

payment like vanishing deductions, standard deduction, and family
home. Where the actual amount of payment or expenses is higher than
allowed like funeral expenses or medical expenses. Net Taxable Estate Distributable Net Estate
Gross estate:
Real or immovable property Included Included
Tangible personal property Included Included
Intangible personal property Included Included
Transfer in contemplation of death Included Not included
Revocable transfers Included Not included
Transfer under the general power of appointment Included Not included
Proceeds of life insurance Included Included
Exclusion such as SSS, GSIS, etc Not included Included
Allowable deductions:
Funeral expenses Not allowed Actual
Judicial Not allowed Actual
Unpaid taxes Actual Actual
Claims against the estate Actual Actual
Claims against insolvent person Actual Actual
Losses Actual * Actual
Transfer for public purpose Actual Actual
Vanishing deduction As computed Not considered
Standard deduction P5,000,000 Not considered
Family home With limit Not considered
Medical expenses Not allowed Actual
Amount received under RA 4917 Actual Not considered
Share of surviving spouse As computed As computed
NET TAXABLE ESTATE Pxxx
Estate Tax Due Pxxx (xxx)
DISTRIBUTABLE NET ESTATE Pxxx
* within the settlement period only

The rules in classifying property into conjugal and exclusive property are the same for purposes of computing the net distributable estate. For net
distributable estate purposes, medical expenses are conjugal deduction.

M. TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY

 A tax credit is allowed to the estate of a citizen or resident alien decedent for estate tax paid to foreign countries pertaining to properties which
are part of the present estate.
1. Entitled to tax credit
Resident alien or Citizen decedents
2. Deducted from estate tax due
The estate tax imposed in the Tax Code shall be credited with the amounts of any estate tax imposed by the authority of a foreign country.
3. Limitations on credit Amount Deductible
a. Actual Estate tax paid abroad
Whichever is
b. Limit

Limit
If there is only one foreign country involved

Net Estate, foreign country

World Net Estate x Philippine Estate Tax

If there are two or more foreign countries involved (whichever is lower between limit A and limit B)

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Taxation (ERG)
Limit A- Per Foreign Country
World Net Estate x Philippine Estate Tax

Limit B- All Foreign Countries

World Net Estate x Philippine Estate Tax

Exercise
The following information were made available from the estate of a non-resident citizen decedent:
Net estate, Philippines P2,500,000
Net estate, USA (after paying P32,000 estate tax) 268,000
Net estate, Korea (before paying P20,000 estate tax) 300,000
Net estate, Singapore (100,000)

1. How much is the allowable estate tax credit?

2. Assuming that the net estate in Singapore is P400,000 and estate tax paid was 6,000, How much is the allowable estate tax credit?
3. Assuming that all foreign net assets are located in only one foreign country and foreign estate tax paid was P80,000, How much is the allowable
estate tax credit?

N. ADMINISTRATIVE PROVISIONS
1. Notice of Death

TRAIN Law
It is no longer required to be filed.

2. Estate Tax Returns

a. Tax form BIR Form 1801 – Estate Tax Return
b. Estate tax returns are filed 1. In all cases of transfer subject to tax;
2. Regardless of the value of the gross estate, where the said estate consists of registered or registrable
property
a) Real Property
b) Motor Vehicle
c) Shares of Stock
d) Other similar property from which a clearance from the BIR is required.as a condition precedent for the
transfer of ownership thereof in the name of the transferee.
c. Person/s who will file the returns
The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by:
1. Executor
2. Administrator
3. Any of the legal heirs

If there is no executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive
possession of any property of the decedent.

Taxpayers who are filing BIR Form 1801 are excluded in the mandatory coverage from using the eBlRForms (Section 2 of RR No. 9-2016)

d. Items shown in the returns

1. The value of the gross estate of the decedent at the time of his death, or in case of non-resident alien of that part of his gross estate situated
in the Philippines
2. The deductions allowed from the gross estate
3. Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct
taxes.
e. Period when the returns are filed
Within 1 year from the decedent’s death.
f. Returns to be supported with statements certified by a CPA
When the estate tax returns show a gross value exceeding P5,000,000
g. Contents of the statements certified by a CPA
1. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in case of non resident alien, of that part of
his estate situated in the Philippines
2. Itemized deductions
3. The amount of tax due whether paid or still due and outstanding
h. Period when a certified copy of the schedule of partition and the order of the court ordering the same be filed
Within 30 days after the promulgation of such order
i. Extension period for filing the returns
The commissioner can, in meritorious cases, extend the filing of returns for a period not exceeding 30 days
j. Place where the returns can be filed
1) In case of resident decedent:
a) Accredited agent bank
b) Revenue district office

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 Taxation (ERG)
c) Collection officer
d) Duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of death
2) In case of non-resident decedent:
a) Revenue District Office where the executor or administrator is registered;
b) Revenue District Office having jurisdiction over the executor or administrator’s legal residence
c) Office of the Commissioner [Office of the BIR Commissioner (RDO No. 39- South Quezon City) if the estate does not have
an executor or administrator in the Philippines]

Exercise: Which of the following cases requires notice of death, estate tax return or statement certified by a CPA?
Notice of death Estate tax return Statement
certified by CPA

Case
A. Gross estate is P20,000
B. Gross estate is P200,000
C. Gross estate is P2,000,000
D. Gross estate is P10,000 (shares of stock)
E. Gross estate is P8,300,000; Total deductions are P6,290,000
F. Gross estate is P12,000,000; Total deductions are P7,000,000
G. Gross estate is P17,500,000; Total deductions are P19,000,000
H. Gross estate is P4,500,000; Deductions are P8,000,000

3. Payment of Tax
a. Time of payment of estate tax
At the time the estate tax returns are filed
b. Extension of time of payment of estate tax
1) Estate is settled through the courts – not to exceed 5 years
2) Estate is settled extra-judicially – not to exceed 2 years
c. Payment of estate tax by installment
Payment of estate tax can be done by installment within 2 years without any civil penalties or interest.(TRAIN Law)
d. Extension of payment of estate tax not allowed
When there is:
1. Negligence
2. Intentional disregard of rules and regulations
3. Fraud on the part of the taxpayer
e. Liability for payment
1. The estate tax shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or
beneficiary.
2. Where there are two or more executors or administrators, all of whom are severally liable for the payment of tax.
3. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary
liability for the payment of that portion of the estate tax which his distributive share bears to the value of the total net asset.

4. Acts Requiring Certification from the Commissioner that the Estate Tax has been Paid
Acts requiring certification
1. Delivery of distributive shares to the heirs.
2. Registration in the registry of Deeds of transfer of inherited real property or real rights.
3. Payments of debt by decedent’s debtor to the heirs, legatees, executor or administrator of the creditor-decedent.
4. Transfer of inherited shares, rights or bonds.

5. Withdrawal from decedent’s bank deposit

Withdrawal from decedent’s bank deposit does not require an authorization from the commissioner. However any withdrawal from decedent’s bank
deposit will subject to a 6% final withholding tax.

O. Documentary Requirements

Mandatory Requirements [additional two (2) photocopies of each document]:

1. Certified true copy of the Death Certificate;
2. Taxpayer Identification Number (TIN) of decedent and heir/s;
3. Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if gross taxable estate exceeds P20,000 for deaths
occurring on January 1, 1998 up to December 31, 2017; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to January
1, 1998;
4. Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial Settlement of the Estate, if the estate has been settled
extra-judicially; c) Court order if settled judicially; d) Sworn Declaration of all properties of the Estate;
5. A certified copy of the schedule of partition and the order of the court approving the same within thirty (30) days after the promulgation of
such order, in case of judicial settlement;

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Taxation (ERG)
6. Proof of Claimed Tax Credit, if applicable;
7. Certified Public Accountant (CPA) Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount
due if the gross value of the estate exceeds five million pesos (Php5,000,000.00) for decedent’s death on or after January 1, 2018 or two
million pesos (Php2,000,000.00) for decedent’s death from January 1, 1998 to December 31, 2017;
8. Certification of the Barangay Captain for the claimed Family Home (If the family home is conjugal property and does not exceed Php10
Million, the allowable deduction is one-half (1/2) of the amount only);
9. Duly Notarized Promissory Note for "Claims Against the Estate" arising from Contract of Loan;
10. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent;
11. Proof of the claimed "Property Previously Taxed";
12. Proof of the claimed "Transfer for Public Use";
13. Copy of Tax Debit Memo used as payment, if applicable;

For Real Properties, if any [additional two (2) photocopies of each document]:

1. Certified true copy/ies of the Transfer/Original/Condominium Certificate/s of Title of real property/ies (front and back pages), if applicable;
2. Certified true copy of the Tax Declaration of real properties at the time of death, if applicable;
3. Certificate of No Improvement issued by the Assessor's Office where declared properties have no improvement

For Personal Properties, if any [additional two (2) photocopies of each document]:

1. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable;
2. Photocopy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if applicable;
3. Proof of valuation of shares of stock at the time of death, if applicable;

1. For shares of stocks not listed/not traded - Latest Audited Financial Statement of the issuing corporation with computation of the
book value per share 
2. For shares of stocks listed/traded - Price index from the Philippine Stock Exchange (PSE) /latest Fair Market Value (FMV)
published in the newspaper at the time of transaction
3. For club shares - Price published in newspapers on the transaction date or nearest to the transaction date

4. Photocopy of Certificate of stocks, if applicable;

5. Proof of valuation of other types of personal property, if applicable;

Other Additional Requirements, if applicable:

 Special Power of Attorney (SPA), if the person transacting/processing the transfer is not a party to the transaction and/or Sworn Statement
if one of the heirs is designated as executor/administrator;
 Certification from the Philippine Consulate if document is executed abroad
 Location Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be readily determined from the documents
submitted
 Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or his authorized representative, if tax exempt
 BIR-approved request for installment payment of Estate tax due
 BIR-approved request for partial disposition of Estate
 Such other documents as may be required by law/rulings/regulations/etc.

Comprehensive Problem (Adapted)

Mr. Emilio Bonifacio, a Filipino residing in Cavite, died testate on May1, 2019. His wife presented you the list of properties left by him in the
Philippines.

Exclusive Cash in Banco de Oro- Espana Boulevard branch, P1,000,000. (This was given to him as a wedding gift by his mother ten years ago.
P200,000 was withdrawn by the heirs one day after his death. The withdrawal was subjected to a 6% final withholding tax)
Rice field, (1,200 sq. m.) donated by his brother on June 15, 2016; FMV per tax declaration, P2,900,000; zonal value, P5,000 per sq. m.;
Car, inherited from his father who died on August 1, 2015, FMV, P900,000; Cost, P1,200,000;
Jewelries, bought before the marriage, FMV, P100,000;
Jewelries, acquired during the marriage by the wife using cash inherited by her during the marriage, FMV, P2100,000;
Jewelries, sold to Mrs. Bonifacio by her sister 2 years before their marriage, FMV, 3100,000; Selling priceP3,000,000; the sale was made in the
ordinary course of business
House and lot, acquired during their marriage (family home), FMV, P5,500,000; assessed value, P4,400,000;
Household furniture, acquired during their marriage, FMV, P500,000;
Household appliances, acquired during their marriage, FMV, P1,500,000;
Amount received by heirs (under R.A. 4917) from decedent’s employer, P2,000,000
Other personal properties including cash, FMV, P1,800,000.

The spouses also owned a real property in the USA with fair market value of P2,500,000. It was mortgaged by Mr. Bonifacio for P1,500,000 and
paid P1,200,000 before he died. The estate of Mr. Bonifacio paid P500,000 estate tax to the USA Government.

A year before the death of the decedent, the spouses bought a land in Japan at a cost of P 5,000,000. The estate of Mr Bonifacio paid an estate tax
amounting to P100,000 to the Japanese government.

The wife also presented to you the following expenses and deductions from the gross estate in the Philippines:
Funeral expense, P547,000.

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Taxation (ERG)
Judicial expenses P100,000
Last quarter of 2018 unpaid realty tax on donated rice field, P50,000;
Jewelry acquired before marriage, lost on October 8, 2019 due to theft, P90,000;
Other claims against the conjugal properties, P500,000;
Claims against insolvent persons, P50,000;
Transfer to the Province of Cavite for public purpose, P300,000;
Medical expenses,paid and incurred within 12 months before death, P720,000.

During the time of donation his brother paid the donor’s tax based on a fair market value of P3,000,000. The estate of the decedent’s father paid the
estate tax on the car, based on its purchase price of P1,200,000. During the marriage, Mr. Bonifacio mortgaged the rice field donated to him for
P 900,000 for the benefit of the family. He paid P300,000 before he died.

1 - How much is the total taxable gross conjugal property?

2 - How much is the total exclusive property of the decedent?
3 - How much is the total allowable deductions from the gross estate?
4 - How much is the total special deductions from the gross estate?
5 - How much is the total allowable estate tax credit?
6 - How much is the taxable net estate and the tax payable?
7 - How much is the share of the surviving spouse?
END

Each one of us should please our neighbors for their good, to build them up.
Romans 15:2

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