Vanishing Deductions

Vanishing Deductions – Property Previously Taxed

Purpose – to minimize the effects of a double taxation on the same property within a short period of
time.

Conditions for allowance;

A. There is a property forming a part of the gross estate of the present decedent situated in the
Philippines.

B. The present decedent acquired property by inheritance or donation within 5 years prior to his death.

C. The property subject to vanishing deduction can be identified as the one received from prior
decedent, or from the donor or can be identified as having acquired in exchange of the property so
received.

D. The property acquired formed part of the gross estate of the prior decedent, or of the taxable gift of
the donor.

E. The estate of the prior decedent has not previously availed of the vanishing deduction.

Percentage of Vanishing Deduction:

More Than Not More than Percentage

xx 1 yr 100%

1 of 2 yrs 80%

2 yrs 3 yrs 60%

3 yrs 4 yrs 40%

4 yrs 5 yrs 20%

5 yrs xx xxx

Procedures in Computing Vanishing Deduction

a. Determine the initial value by comparing the FMV of the property used in computing the first transfer
tax paid with the FMV of the property in the present decedent. The lower of the two is the initial value.

b. From the initial value taken, deduct any mortgage or lien on the property previously taxed which was
paid by the present decedent prior to his death. This is the initial basis.

c. The initial value taken, as reduced by Step B, shall further reduced by prorated deductions for
Expenses, Losses, Indebtedness and Taxes and transfers for public purpose only, allocated to the
property previously taxed as follows:

Initial Basis / Gross Estate x Deductions = Portion Deductible

D. Final basis. Determine the time interval between the present decedent and death prior to decedent
and date of gift (if the property was acquired by donation) to find the applicable percentage of vanishing
deduction.

E. Multiply the final basis by the percentage of vanishing deduction to arrive at the vanishing deduction

REPUBLIC ACT No. 4917

AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF PRIVATE FIRMS SHALL NOT BE
SUBJECT TO ATTACHMENT, LEVY, EXECUTION, OR ANY TAX WHATSOEVER.
Section 1. Any provision of law to the contrary notwithstanding, the retirement benefits received by
officials and employees of private firms, whether individual or corporate, in accordance with a
reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not
be liable to attachment, garnishment, levy or seizure by or under any legal or equitable process
whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or
that arising from liability imposed in a criminal action: Provided, That the retiring official or employee
has been in the service of the same employer for at least ten (10) years and is not less than fifty years of
age at the time of his retirement: Provided, further, That the benefits granted under this Act shall be
availed of by an official or employee only once: Provided, finally, That in case of separation of an official
or employee from the service of the employer due to death, sickness or other physical disability or for
any cause beyond the control of the said official or employee, any amount received by him or by his
heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove
provided.

As used in this Act, the term "reasonable private benefit plan" means a pension, gratuity, stock bonus or
profit sharing plan maintained by an employer for the benefit of some or all of his officials and
employees, wherein contributions are made by such employer or officials and employees, or both, for
the purpose of distributing to such officials and employees the earnings and principal of the fund thus
accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or
income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of
the said officials and employees.

Section 2. This Act shall take effect upon its approval.