Transfer Taxes KDA TRAIN

SY 2018-2019 404_Taxation 2 - KMA
DONOR’S TAXATION transfer of title of the property. However, for purposes of computation for the tax
liability, cumulative kay annual tax man.
Definition of Donor’s Tax 3. Ad valorem tax
Donor’s tax is a tax on a donation or gift and is imposed on the gratuitous transfer of property - Basis: FMV of property at the time of donation (FMV – price at which any seller will sell
between 2 or more persons who are living at the time of the transfer. and any buyer will buy, both willingly without any force or intimidation)
- Real property valuation: HIGHER of FMV (1) as determined by the Commissioner of
Before TRAIN: Donees are classified into 2: stranger (30%) or non-stranger (graduated rates) Internal Revenue (zonal value), or (2) as shown in the schedule of values fixed by the
TRAIN: all fixed at 6% Provincial and City Assessors (assessed value).
4. National tax
Basic Principles on Donor’s Tax - The national government collects the tax through the BIR
§ A donor’s tax is a tax levied, assessed, collected and paid upon the transfer by any person, 5. Revenue or fiscal tax
resident or non-resident, of the property by gift. (Sec. 98, NIRC) - The primary purpose is to raise revenue
§ It shall apply whether the transfer is in trust or OW, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible. TN: Before TRAIN, donor’s tax is also described as a progressive tax because before, we consider
Gifts in trust the relationship of the donor and the donee. If the donee is a non-stranger, the donor’s tax
We are referring to the transfer of ownership and economic benefit to the trustee. If this is just a table ranges from 0-15%. So, in that sense, the donor’s tax is progressive. As the value increases,
normal trustor-trustee agreement where there is no transfer of ownership, then do not subject it the tax rate can go from 0-15% although upon reaching the maximum level, it becomes fixed at
to donor’s tax. The heading of the document will not prevail even if nakalabel na as declaration of 15% in which case, it becomes degressive.
trust. Look at the content. If the true intent is to transfer ownership, then that is considered a
donation if there is no consideration involved and the parties are alive at the time of transfer.
Applicable Law in Donor’s Taxation
§ Donor’s tax is imposed upon donations inter vivos only, not donations mortis causa.
§ The law in force at the time of the perfection and completion of the donation.
Purposes
Donation – gratuitous transfer of property from one person to another, as distinguished from
1. To control tax evasion of the estate tax
an onerous transfer where there is a transfer for a sufficient consideration.
2. To control tax evasion on income tax
3. To recoup future loss of income tax revenue
Parties
Donor – owner of the property; transfer the property out of generosity
Nature of Donor’s Tax
Donee – accepts the donation
1. It is a privilege/excise tax
- an excise tax imposed on the privilege of the owner to give
Art. 275, NCC
- although it involves properties, it is not a property tax (e.g. real property tax)
Donation is an act of liberality which could happen:
- imposed upon the conduct or exercise of transfer of property from one person to another
- given the privilege to transfer your property • during the lifetime (donation inter vivos) – donor’s tax
2. It is an annual tax • upon death (donation mortis causa) – estate tax
- TN: The 250k exemption is applicable for the entire taxable year.
- The filing of donor’s tax return is within 30 days after the donation. It doesn’t mean na Classification Rule
kay annual tax siya, iconsolidate ang filing. You don’t do that, OW you cannot process the § the motive of the donation is the controlling rule
Never settle. The moment you do, you stop dreaming.

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§ if the motive is associated with the existence of life out of love, generosity, liberality – § The formalities of donation go hand in hand with the formalities of acceptance (ex. if the
donation inter vivos donation must be in writing, then the acceptance must be in writing, etc.)
§ if the motive is due to an impending death – donation mortis causa § Effect of non-compliance: donation is void and unenforceable; hence, not subject to donor’s
tax. But the transfer will now be subject to income tax on the part of the supposed donee
Prior to TRAIN: for purposes of computing the donor’s tax, a distinction must be made WON since income taxation is source blind. VAT or OPT cannot be imposed on such transaction
the donee is a stranger or not. because these tax impositions presuppose that there is an ordinary business transaction.
TRUE or FALSE: One of the advantages of TRAIN is that it is easier now to compute for the tax Personal property – depends on the value of the property:
since there is already no need to distinguish whether the donation is an inter vivos or a mortis § Tangible – can be perceived by senses; in taxation, it is the same as movable properties
causa transfer since both estate tax and donor’s tax have the same tax rate of 6%. o 5k or less – oral or verbal declaration; acceptance must be simultaneous
FALSE. There is still a need to distinguish because the tax base is different. As to donor’s o more than 5k – the donation and acceptance must be in writing
taxation, the tax base is total gifts, in excess of 250k; whereas in estate taxation, the tax base is § Intangible – ex. franchise, copyrights, royalties, shares of stock in a DC; like RP, it must be
net estate. ‘Net’ presupposes that the gross estate was further deducted by the allowable made in a public instrument.
deductions. Furthermore, they have different deadlines as to the filing of their returns. And
obviously, they also use different BIR forms. Illustration
Laptop worth 50k is donated. Is it still required to file a return even if it is not subject to
Requisites of a Taxable Gift [ADIC FID] donor’s tax?
1. Acceptance by the donee during lifetime of the donor Yes, for purposes of declaration. It is possible man gud na you will donate again within the
2. Delivery (whether actual or constructive) – “donative act” same taxable year and when you accumulate all your donations, it already exceeded the 250k
3. Intent to donate or donative intent exemption which is good for 1 taxable year. In this case, you already have to pay donor’s tax.
4. Capacity of the donor
5. Forms to effect donation Real property – regardless of value, it must be in a public instrument, and acceptance may be
6. Increase in the patrimony of the donee made on the same instrument or in another public instrument, in which case the donor must
7. Decrease in the patrimony of the donor be informed of such fact.
Acceptance by the donee during lifetime of the donor Land is donated and it is only written in a private instrument. Can the donee compel the donor
to deliver it to him?
No, since the donation is void and unenforceable. What can the donee do is to compel the
This is important because nobody can be compelled to accept the generosity of another. As a supposed donor to get the document be notarized.
general rule, acceptance must be made personally, except if made through an authorized
person with a special power, or general power sufficient for the purpose of accepting the
Delivery or “Donative Act”
specific donation. The acceptance must also be made known to the donor. Taking all of these
in consideration, we can conclude that there is only a perfected donation when it happens
during the lifetime of the donor and the donee. This COMPLETES the donation; as distinguished from the acceptance made known to the donor
which merely PERFECTS the donation. If the acceptance and delivery are made simultaneously,
Formalities of acceptance then the donation is deemed perfected and completed. Donor’s tax shall not apply unless and
§ depends on the kind and the value of the property donated until there is a completed gift.
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For instance, the compulsory heirs of the deceased are the surviving spouse, 1 son and 1
Actual delivery daughter. The general renunciation of the s.s. of her share in the NDE is exempt. However, her
Delivery by physically placing the thing donated in the hands of the donee (movables) or renunciation in her share in the common/conjugal properties is always taxable.
physically placing it in his possession and control (immovables).
Intent to donate or Donative Intent
Constructive delivery
a) By legal formalities – when the donation is made through a public instrument, the execution
thereof shall be equivalent to delivery of the thing donated. This pertains to the intent of the donor to donate without consideration since it’s a gratuitous
b) Symbolic delivery (traditio symbolica) – by delivering the keys of the place or depository transfer (act of liberality). It refers to the proper declaration of the legal owner of a property or
where the movable is stored or kept (wrong ex: key of the car and the thing donated is the right to transfer ownership to another without consideration.
car itself; correct ex: key of the warehouse where the thing donated is stored)
c) Traditio longa manu (delivery by the long hand) – by mere consent or agreement of the TN: Consideration means money or equal value or some goods or service capable of being
parties if the thing cannot be transferred to the possession of the donee at the time of evaluated in money. Hence, love and affection does NOT amount to consideration.
donation; usually by pointing at the thing; applies to movables only
d) Traditio brevi manu (delivery by the short hand) – the donee is already in the possession of When it comes to donation, and insofar as the NIRC is concerned, it covers both direct and
the thing donated even before the donation and thereafter continues in possession thereof indirect donation. We need to cover indirect donation because one of the purposes in levying
in the concept of an owner; applies to movables only donor’s tax is to avoid income tax evasion. And one way of evading income tax is to undervalue
e) Traditio constitutum possessorium – the donor continues in possession of the thing donated the property you are going to sell.
after the donation but in another capacity such as that of a lessee or depositary; applies to
both movables and immovables IOW, donative intent is only required in a direct gift. If a gift is indirect taking place by way of
sale, exchange or other transfer of property as contemplated in Section 100 of the Tax Code,
TYPE OF RENUNCIATION GENERAL SPECIFIC donative intent is not necessary. Among all the other essential requisites, this is the only
More than 2 heirs Exempt Taxable requisite which can be dispensed with in some circumstances such as:
Only 2 heirs Exempt Exempt a. Transfer for insufficient or inadequate consideration
By the surviving spouse (s.s.) Taxable Taxable b. Condonation of debt
of his/her share in the § Not all under circumstances that your condonation will be subject to donor’s tax
common/conjugal because it will only be subjected to it if the condonation is out of generosity (without
properties consideration). However, if the reason is because there’s a past service or future service
rendered or to be rendered by the debtor, such will be subjected to income tax because
Gross estate P10M it will already be considered as condonation with consideration.
Deductions (4M)
Net Estate P 6M
½ share of S.S (3M)
Net Distributable Estate P 3M

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Illustration the fair market value of the property exceeded the value of the consideration shall, for the
Mr. X – individual transferred: purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year: Provided, however, that a sale,
A. Car (used in business) – since the car is used in business, it is an ordinary asset (OA). exchange, or other transfer of property made in the ordinary course of business (a transaction
which is a bona fide, at arm’s length, and free from any donative intent) will be considered as
FMV 800k 300k subject to 6% donor’s tax
made for an adequate and full consideration in money or money’s worth.
SP 500k
Cost 700k This proviso provides a defense on the taxpayer assessed with donor’s tax why the SP is lesser
Income (Loss) (200k) – no income tax liability kay loss man than the FMV. The taxpayer must have to prove in this case that the salse was a bona fide sale
at arm’s length by proving that (1) there is no relation between seller and buyer (e.g. blood
B. House & Lot – this is a real property which is a capital asset (CA) relatives, affiliate, or the other corporation does not have a control of the buyer or seller) and
(2) the transfer is free from donative intent (easy to prove because you did not execute a deed
FMV 10M 6% CGT, whichever is HIGHER of donation). So, it will then be subjected to income tax and business tax, but not donor’s tax.
SP 5M
Cost 4M Donation with reserved powers
1M – not subject to income tax since it is a CA These are incomplete transfers because the transferee cannot exercise full dominion over the
property. As a general rule, donor’s tax is imposed at the time the donation is perfected and
No donor’s tax since wa man na-alkansi ang government because the tax base of CGT is completed, and such is considered completed by delivery. However, there are instances that
whichever is higher between the FMV and SP. despite delivery, the transfer will not yet be subjected to tax:
§ Conditional donation – Ownership will transfer only upon the happening of a future event,
C. Commercial Building – OA kay commercial man as specified by the donor. Only upon the happening of such event will the transaction be
held liable for donor’s tax. The condition must be other than the death of the donor. OW,
FMV 20M the imposition will be estate tax.
10M subject to 6% donor’s tax
SP 10M § Revocable transfers – The donor executes a deed of donation but there is a provision where
Cost 9M the donor reserves his or her power to revoke the transferee’s ownership. The donation will
Income (Loss) 1M – subject to 0-35% GITR be deemed completed only upon the death of the transferor (estate tax) because at such
time will only his power to revoke be irrevocable UNLESS the donor during his lifetime:
D. Shares of stocks in a corporation; not listed – CA o Renounces his power to revoke; or
o Becomes incapacitated (insanity) to exercise his right to revoke and never regained
NABV 1M the capacity before death
600k subject to 6% donor’s tax
SP 400k
Cost 200k Quasi-Transfers
200k – subject to 15% NCG These are the other instances where the delivery of the property to another will not be
subjected to donor’s tax because ang gi-deliveran, sya naman daan ang rightful owner of the
Amendment by TRAIN: (Sec. 16, RR 12-2018) property. The transfer has already been subjected to estate tax before (during the first transfer)
Where property, other than real property referred to in Section 24(D), is transferred for less but the transferee during that time held the property as a trustee. (Caveat: naghimu2x ra kog example
than an adequate and full consideration in money or money's worth, then the amount by which based on my understanding kay mangayug example si sir usahay)

SY 2018-2019 404_Taxation 2 - KMA
(A) The merger of usufruct in the owner of the naked title; Since it says ‘in accordance with the desire of the predecessor,’ this presupposes that the predecessor executed a will. It is
possible that in the will, the deceased gives a power of appointment to a certain person. This is the right to designate the
person or persons who will receive the property. A power of appointment may be:
It must be during the lifetime of the usufructuary kay if patay na sya, mahug na sya as example of a transfer exempt from o Special Power of Appointment – must be exercised only in favor of a restricted or designated class of persons other than
estate tax. Exemption from donor’s tax pa man ta J the first heir, legatee or donee
Illustration:
Usufructuary has the right to the use and fruits of the property but he doesn’t have the legal title to it. The owner of the Katie devised in her will that her farmland in Ormoc shall go to Ellie until such time that Nikki passes the bar exam. On
naked title can exercise all the rights of ownership (remember the discussions in partnership) consistent with the enjoyment April 26, 2021, Nikki passed the bar exam. What are the tax implications?
of the things by the usufructuary. There is merger of the usufruct in the owner of the naked title when the naked ownership Upon the death of Katya, estate tax will be imposed. However, the transfer of the farmland from Ela to Nika when the
and the usufruct come to be held by the same person. latter passed the bar exam is exempt from donor’s tax.
Illustration: o General Power of Appointment – may be exercised in favor of anybody.

KMair died testate on July 5, 2018. The will provides that the usufruct over her land shall be inherited by DSamantha while Illustration:
the naked title shall go to Alex. The term of the usufruct will last only until January 1, 2025. What happens upon the arrival Katie devised in her will that her farmland in Ormoc shall go to Ellie but it was not specified to whom should Ellie transfer
of the term? the property upon Nikki’s passing the bar exam. When Nikki passed the bar exam, Ellie transferred the farmland to Kennie
On January 1, 2025, there will be a merger of the usufruct in the owner of the naked title because Alex will be the absolute without any consideration. What are the tax implications?
owner of the property. In this case, the transfer from Samantha to Alex is exempt from donor’s tax. The exemption is In this case, estate tax should be imposed on the transfer from Katya to Ela. Since Katya gave Ela a GPA, Ela can exercise
premised on the fact that there is only one transmission of property (from Mair to Alex). Moreover, the reason of the law is full ownership since her right to dispose the property is not limited to a specific person(s) only. She has an option to
that the transfer had been previously subjected to estate tax; hence, the exemption. whom will she transfer the property. In fact, she can appoint herself as the beneficiary. Hence, the transfer from Ellie to
Kennie is subject to donor’s tax, considering that it was transferred without any consideration.
What happens if Alex predeceases Samantha?
If this happens, heirs of Alex will inherit the property, with the corresponding obligation to respect the rights of Samantha
(usufructuary) during the term of the usufruct. On January 1, 2025, the merger will happen. The transfer from Samantha to (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
the heirs of Alex will still be exempt from donor’s tax. Take note that the estate taxes involving the same property are institutions, no part of the net income of which inures to the benefit of any individual:
imposed on the transfers from Mair to Alex and from Alex to his heirs; but there is no donor’s tax liability on the transfer
from Samantha (usufruct) to the heirs of Alex. Provided, however, that not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary; Capacity of the Donor
It must also be during the lifetime of the fiduciary heir kay if patay na sya, mahug na sya as example of a transfer exempt
from estate tax. Exemption from donor’s tax pa man ta J Take note that we refer to the capacity of the donor, NOT of the donee, because it is his
Fideicomissary substitution is that by virtue of which a testator institutes a first heir, and charges him to preserve and patrimony which will be decreased.
transmit the whole or part of the inheritance later on to a second heir. The relationship of the fiduciary heir and the
fideicomissary must be one degree such that of parent and child, vise versa. Incapacitated donors
Illustration: 1. Insane persons, except if donation is made during a lucid interval
Katya instituted Mella as first heir, and Ela’s youngest daughter Nika as second heir. The will requires Mella to preserve and 2. Minors
transmit the property by the time Nika reaches the age of majority. Nika turned 18 now. Will the transfer from Mella to Nika
be subjected to donor’s tax?
3. Those under civil interdiction
No, the transfer is exempt because a fideicomissary substitution is given tax exemption by the Code. The transfer from Katya 4. Spouses to each other; common law spouses and mistresses and paramours
to Mella has already been subjected to estate tax. To tax both transfers would amount to double taxation.
GR: Only the capacity of the donor is required.

(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in Exc: Instances when the donee is considered incapacitated (enumerated below)
accordance with the desire of the predecessor; and

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Void Donations B. Juridical donors
Despite delivery, there is no transfer of ownership. Hence, there can be no donor’s tax liability. 1. Domestic Corporation (DC)
However, the recipient may be subjected to income tax since income taxation is source blind. 2. Resident Foreign Corporation (RFC)
3. Non-Resident Foreign Corporation (NRFC)
(1) Donations to incapacitated persons:
§ Those under civil interdiction Reciprocity Rule
- an accessory penalty to those crimes involving moral turpitude Our country will exempt intangible personal properties from donor's tax if the country of origin
§ Spouses and man and woman living together without the benefit of marriage (to avoid of the NRA or NRFC will also exempt from donor's taxation intangible personal properties
undue influence) donated by Filipinos who are considered non-resident in their country. In short, bawsanay. But
§ Lawyers who notarized the will that only applies to intangible personal properties.
§ Public officers or their spouses if the gift was given by reason of their public office
§ Those incapacitated to receive in succession due to undue influence (i.e. priests, doctors, Exemptions vs. Deductions
etc.) o Exemption – not included in the gross amount
o Deduction – include it in the gross amount and later on make it appear as a deduction
(2) Donation of future property.
In estate tax, naa juy computation of the taxable estate. There is a specific portion for
(3) Donation between spouses during the marriage or persons living together as husband & deductions but here in donor’s taxation wala. If there is a deduction, we will just have to deduct
wife without a valid marriage, except: (Art. 87, FC) it immediately in the value of the property before you add it to the gross gift. If you notice sa
a. Moderate gifts on the occasion of any family rejoicing. RR, it says “6% of the total gift in excess of 250,000.” It is not termed “net gift” because if ever
b. Donation mortis causa there are deductions you do not present it separately. (ex. FMV: 1M; mortgage paid by donee:
100k; total gift: 900k)
(4) Donations enumerated in Art. 739, NCC:
§ between persons who were guilty of adultery or concubinage at the time of the DEDUCTIONS FROM GROSS GIFTS
donation; § Encumbrances – claims or liabilities attached to a property; to be deductible, must be
- the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor assumed by the donee(i.e. mortgage, security interest, costs of rights, accrued and unpaid
and donee may be proved by preponderance of evidence in the same action.
taxes)
§ between persons found guilty of the same criminal offense, in consideration thereof; Jabar donated to Tine a parcel of land worth 2M. At the time of donation, the property was mortgaged to a bank
§ made to a public officer or his wife, descendants and ascendants, by reason of his office. for 400k. If Tine will assume the mortgage indebtedness on the land, then said amount shall be deducted from
2M. In that case, the total gift would amount to 1.6M.
Kinds of Donors § Diminutions – conditions or amounts that need to be shouldered by the donee in order to
effect the donation. This is the decrease in the value of property donated as a result of a
A. Individual donors condition made by the donor to the donee.
1. Residents or Citizens (RC, NRC, RA) – taxable on all property located within and without Sammy gave cash of 600k to Vanda as a birthday gift. There is a condition, however, that Vanda shall pay his debt
the Philippines. with Najen in the amount of 65k which Vanda agreed. In this case, the payment made by Vanda to Najen has
diminished the amount of gift which she received from Sammy. Hence, the amount of 65k shall be deducted
2. Non-Resident and Non-Citizen (NRA) – taxable on all real and tangible properties within from 600k to get the amount of the total gift.
the Philippines, and intangible personal property, subject to the reciprocity rule.

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EXEMPTION OF CERTAIN GIFTS institution or organization: Provided, however, that not more than thirty percent (30%) of
When we talk of exempted gifts, these are not subject to donor’s tax. Since this talks about said gifts shall be used by such donee for administration purposes.
exemption from tax liability, the rules must be strictly construed against the taxpayer. Mas daghag requisites sa resident or citizen. Here, the only requisite is that not more than 30% of the donation
Exemption is NOT automatic. The taxpayer must first file a request for a ruling from the BIR shall be used for administration purposes. In practice, if an NRA makes a donation, to easily ascertain if ma-
exempt ba na for donor’s tax, ang tanawn ni NRA is if ang entity is registered with the PCNC ba. Most probably,
showing its compliance with the requisites. OW, it might be assessed. the reason is really kay mas ganahan ta na ang mu donate is NRA because if mu-donate sila, dollars gud na.
A. For residents and citizens (Sec. 17, RR. 12-2018) Donation of conjugal or community property
Neither spouse may donate any conjugal or community property without the consent of the
1. Gifts made to or for the use of the National Government or any entity created by any of its other. If such is donated and only the husband signed the deed of donation, there is only one
agencies which is not conducted for profit, or to any political subdivision of the said donor, without prejudice to the right of the wife to question the validity of the donation without
Government; her consent (NCC & FC). H and W are considered as distinct taxpayers for donor’s tax purposes.
GOCCs are not included.
Thus, in case a gift is made by the spouses out of conjugal or community property, each of them
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare is a donor out of the respective share in the property. Since they are considered separate
corporation, institution, accredited nongovernment organization, trust or philanthropic donors, then the computation of the donor's tax and the 250k exemption would also be applied
organization or research institution or organization [ERC-SCARP]. (no athletic or sports separately. Accordingly, the donor's tax return will also be filed separately.
association)
Principle of Accumulation
Requisites: The computation of the base is cumulative. To arrive at the taxable base, all the gifts previously
o not more than 30% of said gifts shall be used by such donee for administration purposes made in the same calendar year must be added to the present gift. However, the donor’s taxes
o incorporated as a non-stock entity paid on the previous donations are allowed as tax credits.
o no payment of dividends (this fact, in so far as the BIR is concerned, must be reflected in
the Articles of Incorporation and by-laws) TN: Donor's taxation – calendar year under all circumstances even if corporate.
o governed by trustees who receive no compensation (Board of Directors receive
honorarium every meeting) Tax credit for donor’s taxes paid to a foreign country
o donation must be used for the purpose to which the ERC-SCARP is organized A tax imposed upon a donor who was a citizen or resident at the time of donation shall be
o if the donee is an NGO, it must be accredited. credited with the amount of any donor’s tax on any character and description imposed by the
If you’re into social welfare then get accreditation from DSWD; if education then get from DePEd or CHed. authority of a foreign country (Sec. 101 [C], NIRC). However, the amount of tax credit shall be
But other than these accreditations from these agencies, we have the accreditation of the PCNC. subject to each of the ff limitations:
1. Global Limitation – applicable if involves only one foreign country
B. Non-resident aliens
Net Gift, foreign country x Philippine = Tax credit
1. Gifts made to or for the use of the National Government or any entity created by any of its Entire Net Gifts Donor’s tax
agencies which is not conducted for profit, or to any political subdivision of the said
Government.
2. Per Country Limitation – applicable ALSO (in addition to global limitation) if there are 2 or
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare more foreign countries involved
corporation, institution, foundation, trust or philanthropic organization or research
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SOLUTION:
Net Gift, all foreign countries x Phil Donor’s tax = Tax credit
Entire Net Gifts Date of Donation Amount Donor’s Tax
June 6, 2018 484k
16k 500k
See illustration in estate tax. Same ra man ug concept J Share of spouse 1/2
250k
Less: Exempt Gift (250k)
Illustrations:
Tax due/payable on the June donation 0
1. Joseph donated P4.5M cash to Ericka. How much should be the Donor’s tax due if: October 8, 2018 100k 100k
§ Ericka is Joseph’s sister Add: June donation 500k
Before TRAIN: use the 0-15% graduated tax rates 600k
TRAIN: Share of spouse 1/2
300k
Value of Gift P 4.5M
Deduction (250k) Total 50k
Net Value of gift P 4.25M Tax due 6% 3k
Tax rate x 6% Less: Tax paid on June donation 0
Tax Due P 255K Tax due/payable on the Oct donation 3k
§ Ericka is Joseph’s girlfriend
April 4, 2019 700k 700k
Before TRAIN: 30% tax rate (considered as stranger)
Share of spouse 1/2
TRAIN: same as above – 225k 350k
2. Mr. and Mrs. Steven Otida, citizens and residents of the Philippines, made the following Total 100k
donations: Tax due/payable on the April donation 6% 6k
June 6, 2018 To Jericho, a legitimate son, on 484, 000 Filing of Donor’s Tax Return
account of marriage
To Bettina, a legitimate daughter, 20,000 § Time of filing: within 30 days after the date the gift is made
property with mortgage of 4,000
which was assumed by Bettina § Time of payment: date of filing since we follow ‘pay as you file system’
October 8, 2018 To Renato, a legitimate son of Mrs. 100,000 § Place of filing and payment: Except in cases where the Commissioner of Internal
Otida by prior marriage, on Revenue (CIR) OW permits, the return shall be filed and the tax paid to either
account of marriage - Authorized agent bank (AAB); or
April 4, 2019 To the Cebu Catholic Church 100,000 - Revenue District Officer (RDO); or
To Cynthia, a family friend 700,000
- Revenue Collection Officer; or
- Duly authorized treasurer of the city or municipality where the donor was domiciled
at the time of transfer; or
- If no legal residence in the Phil: Office of the CIR

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§ If by non-resident: ESTATE TAXATION
- Philippine Embassy; or
- Consulate in the country where he is domiciled at the time of transfer; or Nature of Estate Tax
- directly with the Office of the CIR
1. Excise tax – tax on the privilege of transmitting one’s property.
Accreditation of corporations, associations or NGOs 2. National tax – collected by the BIR.
3. Fiscal – helps to raise revenue for the government.
When we talk about accreditation of the NGO, primarily you are going to ask for accreditation 4. Ad valorem – values to which the tax imposed are based on the FMVs of the property at the
from the concerned or relevant government agency. But then, because of the proliferation of time of death or time of donation.
the NGOs and because of the Napoles scandal, the Philippine Council for NGOs Certification 5. Annual Tax
(PCNC) was formed. This is actually a private entity, not a government entity. This is composed TN: No longer progressive; currently taxed at a fixed rate of 6%. Prior to TRAIN, progressive sya
primarily of NGOs which formed a governing body, a licensing body where the NGOs go for kay subjected to graduated tax rates of 5%-20%, exempting the first P200k, depending on the
accreditation. To encourage these NGOs to register with PCNC, tax-exempt status can be value of the estate. Before, the greater the value of the property, the higher the tax rate.
availed upon accreditation. But before you can be registered or accredited by the PCNC, it is a
requirement that you must have the vision/mission and dapat gi-apply nah nimo. There is Notice of Death:
proper segregation of authority between the officers, proper financial reporting, among others. In all cases of transfers subject to tax, the executor or administrator or any of the legal heirs, as
the case may be, within 2 months after the decedent’s death, OR within a like period after
However, there was an RMO issued by the BIR sometime 2015 or 2016, where it was stated qualifying as such executor or administrator, must give a written notice thereof to the
that accreditation in the PCNC is not the sole way for an NGO to be exempted from income tax. Commissioner.
It's just one of the many ways to get an accreditation. This is because many NGOs complained.
They said that such accreditation with PCNC is very difficult and costly since the price ranges BUT according to KMA, this only applies prior to TRAIN. Such is no longer provided in the current
around 10k-25k and that is only valid for a year or two and they have to re-accredit and pay law.
again. So because of that clamor from the NGOs, the BIR issued an RMO which says that if you
don't want to be accredited by the PCNC then you can get an accreditation from the Purposes
government agency. § To raise revenue to defray government expenses.
§ To facilitate the distribution of wealth
Donee's status If there is no transfer of properties from the deceased to the heirs, the property becomes stagnant and useless,
If the donee is a non-stock non-profit NGO, the donor can receive tax deductible and tax- so there is no economic movement.
exempt contributions under the law. So, if I am the donor, then one way of shielding the § To prevent undue accumulation of wealth.
transfer from taxation is to make donations to these PCNC-accredited NGOs. Take note that it
is not automatic na once accredited ka sa PCNC, exempted na ka from taxation. You still need Underlying Theories of Estate Tax [BRASE]
to submit that certificate of accreditation from PCNC to the BIR and the BIR will issue exemption 1. Benefit-Received Theory – Government protects and provides services in the accumulation
ruling or certification. Such issuance is considered most like mandatory on the part of the BIR. of properties transferred gratuitously, thus there must be an equivalent compensation for
If you can also recall in income taxation, when it comes to donation to charitable institution, the protection and services.
the transfer can be deducted either by limited or full deduction. And one of the requisites for 2. Redistribution of Wealth Theory – Properties given for free contributes to the unequal
full deduction is that it must be contributed to an accredited NGO. distribution of wealth and earning because the recipient has not actually worked for it.

SY 2018-2019 404_Taxation 2 - KMA
3. Ability-to-Pay Theory – Effect of inheritance increases wealth of the heir thereby creating an Intangible Personal Properties located in the Philippines: [PDF 2F]
ability to pay the tax. (a) Franchise which must be exercised in the Philippines;
4. State Partnership Theory. State is the passive and silent partner in the accumulation of (b) Shares, obligations or bonds issued by a domestic corporation;
wealth. (c) Shares, obligations or bonds issued by a foreign corporation 85% of the business of which
5. Equitable Recoupment Theory. To prevent unjust enrichment on the part of the taxpayer if is located in the Philippines;
properties are gratuitously transferred. (d) Shares, obligations or bonds issued by a foreign corporation, if such shares, obligations or
bonds have acquired a business situs in the Philippines;
An estate is a separate juridical being. This can be shown by the fact that upon the death of the (e) Shares or rights in any partnership, business or industry in the Philippines.
decedent, his Tax Identification Number (TIN) will also die and another TIN will be given to the TN: the list is not exclusive. Any other intangible property (e.g. receivables) in the Philippines
estate for distribution and settlement purposes. will be included in the GE.
Kinds of Decedent Valuation of the Gross Estate (Sec. 5, RR No. 12-2018)

1. Resident Citizens – regardless of location The properties comprising the gross estate shall be valued according to their fair market value
2. Non-resident Citizens – regardless of location (FMV) as of the time of decedent’s death.
3. Resident Alien – regardless of location
4. Non-resident Alien – only within; however, intangible personal properties are subject to § Real Property
reciprocity rule The appraised value as of the time of death shall be, whichever is the HIGHER of the FMV:
(1) as determined by the Commissioner, or
Properties covered by Gross Estate (2) as shown in the schedule of values fixed by the provincial and city assessors
The gross estate of a RESIDENT OR CITIZEN of the Philippines includes all properties, regardless
of location (as opposed to income tax na sa resident citizen ra mu-apply ang income within and § Shares of stocks
without). Thus, gross estate will include: o Unlisted common shares – based on their book value; appraisal surplus shall NOT be
(a) Real Property; and considered as well as the value assigned to preferred shares, if there are any.
(b) Personal Property – tangible or intangible. o Unlisted preferred shares – at par value
o Shares listed in the stock exchanges – the FMV shall be the arithmetic mean between the
Reciprocity Rule highest and lowest quotation at a date nearest the date of death, if none is available on
Intangible personal property located in the Philippines of the non-resident, not citizen of the the date of death itself.
Philippines, will not be included in the gross estate. The law states: (a) if the decedent at the
time of his death was a citizen and resident of a foreign country which at the time of death did § Units of participation in any association, recreation or amusement club
not impose a transfer or death tax of any character in respect of intangible personal of citizens The bid price nearest the date of death published in any newspaper or publication of general
of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country circulation
of which the decedent was a citizen and resident at the time of death allow a similar exemption
from transfer taxes or death taxes of every character in respect of intangible personal property § Right to usufruct, use or habitation, annuity
owned by citizens of the Philippines not residing in that foreign country. 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 recommendation
GR: real properties – lex rei sitae; personal properties – mobilia sequuntor personam of the Insurance Commissioner.
EXC: NRA’s intangible personal properties subject to reciprocity rule
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Formula
Illustration:
Inventory of properties at the time of death P xx Mr. B, a citizen and resident of the Philippines, had the ff data on the estate he left:
Less: Exempt Transfers
Properties not owned P xx Net taxable estate:
Properties owned but excluded by law xx Philippines P 570k
Inventory of taxable present properties xx Malaysia 2.1M
Add: Taxable transfers xx Indonesia 1.7M
Gross Estate P xx
Estate taxes paid:
Gross Estate P xx Malaysia P 200k
Less: Deductions ( xx ) Indonesia 100k
½ share of surviving spouse ( xx )
Net Estate P xx How much is Philippine estate tax due?
Rate 6% Computation:
Estate Tax Due P xx
Tax Credits ( xx ) Net taxable estate, Philippines P 570k
Estimated Tax Payable P xx Net taxable estate, Malaysia 2.1M
Net taxable estate, Indonesia 1.7M
Tax Credit for Foreign Estate Tax Paid Net taxable, world P 4.37M
Only the estate of a RESIDENT OR CITIZEN of the Philippines can claim a credit for foreign estate
tax paid. Estate tax P 262,200
Tax credit allowed (226,000)
Formulas on foreign estate tax credit. Estate tax still due P 36, 200
A. Per Country Limitation (Limitation A) Limitation A

Net Estate, foreign country x Philippine = P xx
Net Estate world tax Estate tax Malaysia:
Tax credit allowed P 126k
Compare: [2.1M/4.37M * 6% (570k+2.1M+1.7M)]
Foreign estate tax paid and tax credit allowed, whichever is LOWER Actually paid 200k P 126k
B. Global Limitation (Limitation B) Indonesia:

NE, foreign country Philippine Tax credit allowed P 102k
x = P xx
NE world tax Estate tax [1.7M/4.37M * 262.2k)
Actually paid 100k 100k
Compare: Foreign estate tax paid, Limitation A and Limitation B, whichever is LOWEST Total, Lim. A P 226k
SY 2018-2019 404_Taxation 2 - KMA
property, or (2) the right, either alone or in conjunction with any person, to designate the
Limitation B person who shall possess or enjoy the property or the income therefrom; except in case of
Tax credit allowed P 228k a bona fide sale for an adequate and full consideration in money or money's worth.
[(2.1M+1.7M)/4.37M)*262.2k]
Actually paid 300k This is a transfer motivated by their thought of death, although death may not be imminent.
Tax credit to apply (whichever is LOWEST) P226k Manifestations:

o Age and state of health of the decedent at the time of gift, especially where he was aware
GROSS ESTATE COMPOSITION of a serious illness
1. Decedent’s interest o Length of time between the gift and the date of death. A short interval suggests the
2. Transfer in contemplation of death conclusion that the thought of death was in the decedent’s mind, and a long interval
3. Revocable transfer suggests the opposite. But there is not exact length of time.
4. Property passing under the general power of appointment o Concurrent making of a will or making a will within a short time after the transfer.
5. Proceeds of life insurance
6. Prior interests Revocable Transfers (Sec. 85(C), NIRC)
7. Transfers for insufficient consideration
8. Capital of surviving spouse
9. Amount received under R.A. 4917 (Retirement Benefits Act) (1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in money
or money's worth) by trust or otherwise, where the enjoyment thereof was subject at the
Decedent’s Interest (Sec. 85(A), NIRC)
date of his death to any change through the exercise of a power (in whatever capacity
exercisable) by the decedent alone or by the decedent in conjunction with any other
Ø To the extent of the interest therein of the decedent at the time of his death. person (without regard to when or from what source the decedent acquired such power),
to alter, amend, revoke, or terminate, or where any such power is relinquished in
Illustration contemplation of the decedent's death.
The date of declaration of the dividend income is during the lifetime of the decedent. However, (2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered
the date of distribution is after death. This forms part of the decedent’s GE because this is to exist on the date of the decedent's death even though the exercise of the power is
already considered as his own at the date of declaration. subject to a precedent giving of notice or even though the alteration, amendment or
revocation takes effect only on the expiration of a stated period after the exercise of the
Transfer in Contemplation of Death (Sec. 85(B), NIRC) power, whether or not on or before the date of the decedent's death notice has been given
or the power has been exercised. In such cases, proper adjustment shall be made
representing the interests which would have been excluded from the power if the
Ø To the extent of any interest therein of which the decedent has at any time made a transfer, decedent had lived, and for such purpose if the notice has not been given or the power has
by trust or otherwise, in contemplation of or intended to take effect in possession or not been exercised on or before the date of his death, such notice shall be considered to
enjoyment at or after death, or of which he has at any time made a transfer, by trust or have been given, or the power exercised, on the date of death.
otherwise, under which he has retained for his life or for any period which does not in fact
end before his death (1) the possession or enjoyment of, or the right to the income from the
SY 2018-2019 404_Taxation 2 - KMA
This is a transfer where the terms of enjoyment of the property may be altered, amended, o General Power of Appointment (GPA) – may be exercised in favor of anybody. In this case,
revoked or terminated by the decedent. It is sufficient that the decedent had the power to the property shall form part of the gross estate (GE) of the transferee upon his death.
revoke, though he did not exercise the power. In this case, the transferee is not free to exercise o Limited/Special Power of Appointment (SPA) – must be exercised only in favor of a restricted
acts of strict dominion. or designated class of persons other than the transferee. In this case, the property shall not
form part of the GE of the transferee since he merely holds the property in trust. The first
Illustration: transferor will be the one subjected to donor’s tax or estate tax, whatever the case may be.
o The transferor imposes restrictions such as when he sets a condition that the income will
still be attributable to him or to any other persons he designates. Illustration:
o There’s a condition that when the transferee predeceases, the property reverts back to the K transferred property to D with a provision that if D transfers the property, such transfer may
transferor. be in favor of any body. This transfer will be subjected to donor’s tax if done gratuitously during
o A transferred property to B to be held in trust for C. However, (1) without taking back the the lifetime of K. Now, if D transferred the property to A upon his death, it shall now form part
property, A can change B; or (2) without taking back the property, A can change C; or (3) A of D’s GE.
can take back the property anytime he wants.
Distinguished from:
Exception:
§ If there’s a waiver to exercise the power to revoke during the lifetime of the transferor. The K transferred property to D, with a provision that if D transfers the property, such transfer must
renunciation of the right to revoke must be express in another document. be in favor of P or R only. Since D can only transfer it to a restricted class of persons, what he
§ When the transferor becomes incapacitated during his lifetime, his right to revoke is has is only a special power of appointment. This first transfer will subject K to donor’s tax if
SUSPENDED until such time he recovers from such incapacity. transferred during his lifetime or estate tax if transferred upon his death. If D now transfers it
to P or R upon his death, it will not form part of his GE as he merely held such property as a
Property Passing Under General Power of Appointment (Sec. 85(D), NIRC) trustee for P or R.
Proceeds of Life Insurance (Sec. 85(E), NIRC)

Ø To the extent of any property passing under a general power of appointment exercised by
the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death, or (3) by deed under which he has Ø To the extent of the amount receivable by the estate of the deceased, his executor, or
retained for his life or any period not ascertainable without reference to his death or for any administrator, as insurance under policies taken out by the decedent upon his own life,
period which does not in fact end before his death (a) the possession or enjoyment of, or irrespective of whether or not the insured retained the power of revocation, or to the extent
the right to the income from, the property, or (b) the right, either alone or in conjunction of the amount receivable by any beneficiary designated in the policy of insurance, except
with any person, to designate the persons who shall possess or enjoy the property or the when it is expressly stipulated that the designation of the beneficiary is irrevocable.
income therefrom; except in case of a bona fide sale for an adequate and full consideration
in money or money's worth. Life insurance policies must be taken out by the decedent himself. It will constitute part of the
GE if the beneficiary is:
A power of appointment is the right to designate the person or persons who will succeed to the (a) The estate of the decedent, his executor or administrator; or
property of a prior decedent. A power of appointment may be: (b) A third person other than those mentioned in (a) AND the designation of the beneficiary
is REVOCABLE.

SY 2018-2019 404_Taxation 2 - KMA
Under the Insurance Code of the Philippines, a designation of beneficiary is revocable, unless Prior Interests (Sec. 85(F), NIRC)
stated expressly in the policy that the designation is irrevocable.
Estate Taxation vs. Insurance Law Ø Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section
The Insurance Code provides that the proceeds in a life insurance policy exclusively belongs to shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of
the beneficiary, regardless of the designation; and the beneficiary is not obliged to turn over powers, as severally enumerated and described therein, whether made, created, arising,
such proceeds to the heirs of the decedent. This rule does not run in conflict with the rule in existing, exercised or relinquished before or after the effectivity of this Code.
estate taxation wherein we consider the designation before concluding whether such will form
part of the GE of the decedent or not. The insurance law merely dictates to whom the proceeds Prior to 1997 amendment, there was no provision regarding these (B) – transfer in
will go. Even if the designation was revocable, the fact that the decedent is already dead, he contemplation of death, (C) – revocable transfer, and (E) – proceeds of life insurance.
can no longer exercise his right to revoke and the beneficiary will now enjoy the proceeds. The
death rendered the designation irrevocable in the eyes of the insurance law. On the other hand, Transfers for Insufficient Consideration (Sec. 85(G), NIRC)
the estate taxation considers the designation because it wants to see who is in control of such
policy during the lifetime of the decedent. If the designation is irrevocable, then the decedent
during his lifetime has already given the right to the proceeds to the beneficiary, which the Ø If any one of the transfers, trusts, interests, rights or powers enumerated and described in
latter can already consider such as a vested right. Whereas, if the designation is revocable, the Subsections (B), (C) and (D) of this Section is made, created, exercised or relinquished for a
decedent still has the control and the true ownership of the proceeds because he can anytime consideration in money or money's worth, but is not a bona fide sale for an adequate and
change the beneficiary during his lifetime. IOW, he can still exercise his rights of ownership over full consideration in money or money’s worth, there shall be included in the gross estate
it. 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
Proceeds not taxable: therefor by the decedent.
1.) Accident Insurance
2.) If the beneficiary is other than the estate, administrator, executor in which the designation § If the real property is classified as a capital asset, it will no longer be subjected to estate tax
is irrevocable kay di man alkansi ang government. The higher between the GSP or FMV of the property has
3.) Proceeds of the life insurance covered by GSIS or SSS already been subjected to 6% CGT.
4.) Proceeds of a group insurance policy taken out by the company for his employees § The transfer for insufficient consideration must fall under [DR. G]: transfer in contemplation
5.) Proceeds of life insurance payable to heirs of deceased members of military personnel of death or revocable transfer or property passing under GPA; OW, it will be subjected to
donor’s tax.
TN: In computing for the taxable estate of a decedent who is married, consider (1) the source § Compare the FMV at the time of transfer with the consideration received to determine the
of the funds in paying for the policy, and (2) the property regime applicable, whether governed adequacy of the consideration. If found to be inadequate, compare the consideration
by absolute community, or conjugal partnership of gains, or complete separation. If the funds received with the FMV at the time of death. The excess of the FMV at the time of death over
used were from the decedent’s exclusive property, then the proceeds will be considered his the consideration will be included in the GE.
exclusive property. On the other hand, if the conjugal or common funds were used, the ½ share § FMV = in an arm’s length transaction, the price that the seller who is willing to sell, but not
of the surviving spouse will be taken into consideration. compelled to sell; and a buyer not compelled to buy, but is willing to buy

SY 2018-2019 404_Taxation 2 - KMA
Illustration: Property passing under GPA for Insufficient Consideration (C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
K transferred property to D with a provision that if D transfers the property, such transfer may accordance with the desire of the predecessor; and
be in favor of anybody. In this first transfer, K will be subjected to donor’s tax. Since under GPA (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
man ni na transfer, D can exercise all the rights of ownership. Wa man gi-restrict ni K si D kung institutions, no part of the net income of which inures to the benefit of any individual:
ka kinsa lang pwede itransfer ang property. During his lifetime, D sold the property which has Provided, however, that not more than thirty percent (30%) of the said bequests, devises,
an FMV of P1M for P100k. So, transfer for insufficient consideration sya kay FMV is way higher legacies or transfers shall be used by such institutions for administration purposes.
than the SP. Upon D’s death, the FMV of the property increased to P1.5M. The value that will
be included in D’s GE is the excess of the FMV of the property at the time of his death over the The value of property in exemption (a), (b) and (c) need not be included in the GE anymore.
consideration received. In this case, it will be P1.4M (1.5M-100k). Take note na if not because With regard to the property in (d), the value of the property will be included in the GE, and the
of the fact na gi-transfer ang property to D under GPA saona, the transfer for insufficient same value will be deducted from the GE, so that the net taxable estate from it will be P0. Why?
consideration by D would have been subjected to donor’s tax. The value would be the excess Because to be exempt, 2 conditions must be satisfied: (1) no part of the income of the
of the FMV at the time of the transfer over the consideration received (P1M-100k = P900k). institution will inure to the benefit of any individual; and (2) not more than 30% of the bequests,
legacies and transfers will be used for administrative purposes. The satisfaction of the
Capital of the Surviving Spouse (Sec. 85(H), NIRC) conditions is subject to verification by the BIR. If the conditions are not satisfied the
transmission is taxable and the value of the property will be in the net taxable estate, and will
pay the estate tax.
Ø The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter,
be deemed a part of his or her gross estate. ALLOWABLE DEDUCTIONS
Amount received by heirs under RA 4917 (Retirement Benefits Act) I. Citizens or Resident decedent
(Sec. 86 (A), par. 7, NIRC) A. Ordinary deductions [CULIT Pa Rin]
§ CULIT:
o Claims against the estate
Ø Any amount received by the heirs from the decedent-employee as a consequence of the
o Unpaid mortgage or indebtedness
death of the decedent-employee in accordance with Republic Act No. 4917: Provided, That
o Losses (casualty, robbery, theft or embezzlement)
such amount is included in the GE of the decedent.
o Claims against insolvent persons
o Taxes
Requisites: (1-10-50 Plan)
§ Transfer for public use
o Benefits granted under this Act were availed only once
§ Amount received by heirs under Retirement Benefits Act
o The decedent has been in the service of the same employer for at least 10 years
B. A deduction of its own (as per KMA)
o The decedent is not less than 50 years of age at the time of his retirement
§ Vanishing deductions
o In accordance with a reasonable private benefit plan
§ Share of the surviving spouse in the conjugal/community property
C. Special deductions [FS / Financial Statements]
ACQUISITIONS & TRANSMISSIONS NOT SUBJECT TO ESTATE TAX (Sec. 87, NIRC)
§ Family Home
(A) The merger of usufruct in the owner of the naked title;
§ Standard Deduction
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;

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II. Non-resident alien decedent (diff: CULIT proportion; no FH & retirement benefits; SD amt.) o Duly notarized certification from the creditor as to the unpaid balance of the debt,
A. Ordinary deductions including interest as of the time of death.
§ Proportionate deduction for CULIT o Proof of financial capacity of the creditor to lend the amount at the time the loan was
§ Transfers for public use granted, as well as its latest audited balance sheet with a detailed schedule of its receivable
B. A deduction of its own (as per KMA) showing the unpaid balance of the decedent-debtor. If the creditor is a non-resident, the
§ Vanishing deductions executor/administrator or any of the legal heirs must submit a duly notarized declaration
C. Special deductions by the creditor of his capacity to lend at the time when the loan was granted, authenticated
§ Standard Deduction or certified to as such by the tax authority of the country where the non-resident creditor
is a resident.
Deductions which are deductible only when also included in the GE: o Statement under oath executed by the administrator or executor of the estate reflecting
ü Capital of the surviving spouse the disposition of the proceeds of the loan if said loan was contracted within 3 years prior
ü Amount received by heirs under RA 4917 to the death of the decedent.
ü Claims against insolvent persons
ü Transfers for public use B. Arises from purchase of goods/services [LBC CD]
o Documents evidencing the purchase of goods or service (sales invoice/delivery receipt
I. Citizens or Resident decedent or contract for the services)
o Duly notarized certification from the creditor as to the unpaid balance of the debt,
Claims Against the Estate including interest as of the time of death
o Certified true copy of the latest audited balance sheet of the creditor with a detailed
schedule of its receivable showing the unpaid balance of the decedent-debtor.
Requisites for Deductibility: o Certified true copy of the updated latest subsidiary ledger/records of the debt of the
§ The liability represents a personal obligation of the deceased existing at the time of his debtor-decedent.
death; o If the settlement is made through the Court in a testate or intestate proceeding,
§ The liability was contracted in good faith and for adequate and full consideration in money pertinent documents filed with the Court evidencing the claims against the estate, and
or money’s worth; the Court Order approving the said claims, if already issued.
§ The claim must be a debt or claim which is valid in law and enforceable in court;
§ The indebtedness must not have been condoned by the creditor or the action to collect As to the balance in your credit cards, the billing statement of account can be presented as
from the decedent must not have prescribed. proof.
TN: if the condonation happens after death, it can still be allowed as a deduction since the debt
is still existing at the time of death.
Unpaid Mortgage or Indebtedness
Substantiation Requirements:
Requisites for Deductibility:
A. Simple loan [PIC 3] § Value of the property, undiminished by such mortgage or indebtedness, is included in the
o Duly notarized debt instrument at the time the indebtedness was incurred, except for value of the GE at FMV.
loans granted by financial institutions where notarization is not part of the business § Deduction is limited to the amount of mortgage contracted bona fide and for an adequate
practice/policy of the financial institution-lender; and full consideration in money or money’s worth. This presupposes that the full amount of
SY 2018-2019 404_Taxation 2 - KMA
the proceeds of the loan goes to the mortgagor-decedent. If he only mortgaged his property The NIRC enumerated taxes that cannot be deducted, as follows: (a) income tax on income
to accommodate another person, such will not be considered as indebtedness. In fact, this received AFTER death; (b) property taxes NOT accrued BEFORE death; and (c) estate tax. Estate
is considered as a receivable. The net effect is 0 since the decedent has (1) a receivable from tax accrues after death, hence not deductible from the GE. However, in the case of a decedent
the accommodated party and (2) a liability to the bank for the loan. (As a review, an who was a citizen or resident of the Philippines at the time of death, there shall be a Philippine
accommodated party is a party to an instrument for whose benefit an accommodation party estate tax payment on his properties within and outside the Philippines, and a foreign estate
signs and incurs liability on the instrument. He is the person for whose benefit an tax payment on his properties outside the Philippines. In this case, the law allows a tax credit
accommodation is made.) to reduce the Philippine estate tax. However, the Philippine estate tax cannot be deducted.
Losses Transfers for Public Use
Requisites for Deductibility: [SAD Cause Loss] These are dispositions in a last will and testament, or transfer to take effect after death, in favor
§ incurred during the settlement of the estate (6 months after death + the allowed extension) of the Government of the Philippines, or any political subdivision thereof, for exclusively public
§ arising from acts of God, such as fires, storms, shipwreck or other casualties; or from acts of purposes. To be deductible, the whole amount must be included in the computation for the GE.
man, such as robbery, theft or embezzlement
§ not claimed as a deduction in an income tax return of the estate subject to income tax Political Subdivisions of the National Government:
§ not compensated by insurance or otherwise (if naa but the FMV of the property lost is o provinces
greater than the amount of the insurance proceeds, only the difference will be deductible.) o cities
§ incurred not later than the last day for payment of the estate tax (Last day to pay: 6 months o municipalities
after death or the allowed extension) o barangays
Claims against Insolvent Persons Vanishing Deductions (Property Previously Taxed)
Insolvency = liabilities exceed assets; properties are no longer sufficient to pay one’s obligations Property may change hands within a very short period of time by reason of the early death of
the owner who received it by inheritance or donation. This subjects the property to a very heavy
To be deductible, the full amount of the receivables must be included in the GE. However, the burden in taxes, because the transfer tax is imposed on each transfer. To provide a relief, VD is
deduction shall only include the uncollectible portion. allowed to reduce the GE of the recipient of the inheritance or donation.
Taxes Requisites for Deductibility: [DILPIN]

§ Death – died within 5 years from receipt of the property from a prior decedent or donor;
§ Identity of the property – can be identified as the one received from the prior decedent, or
Requisites for Deductibility: from the donor, or something acquired in exchange for it. It must be (1) the very same
§ accrued PRIOR to the decedent’s death property or (2) the value received in exchange for it. Example, if you received a car before
§ unpaid as of the time of death then you sold it for 500k, the 500k will be used as the value on which the VD can be claimed.
However, if you already spent the money for something else, let’s say a bike, you can no
longer claim VD on such property.
SY 2018-2019 404_Taxation 2 - KMA
§ Location of the property – must be in the Philippines; if such is previously situated abroad Formula:
and the first tax was imposed and paid there, then it follows that it cannot be considered as
a property previously taxed here in the Philippines. Value taken for PPT (LOWER)
§ Previous taxation of the property – estate tax on the prior succession or the donor’s tax on (Mortgages or liens paid by the present decedent)
the gift had been finally determined and paid; Initial Basis
§ Inclusion of the property – part of the taxable estate of the prior decedent, or of the taxable (IB/GE x Ordinary Deductions)
gift of the donor; Final Basis
§ No VD on the property was allowable to the estate of the prior decedent. X VD %
Vanishing Deduction
Computation
Illustration:
1. PPT Value – LOWER of: Mr. DILPIN, Filipino, and a resident of Cebu City, died on June 19, 2018, leaving a GE of P4M. Included in
o Value at the time of the prior decedent’s death or prior donation his GE is a parcel of land in Cebu City, and a car which he inherited from his mother, who predeceased
o Value at the time of the present decedent’s death him on Nov. 2, 2015, currently valued at P1.2M and P120k, respectively. The properties were previously
taxed for estate tax purposes at the value of: Land – P1M; Car – P200k, with a mortgage liability on the
TN: where the property referred to consists of 2 or more items, the aggregate of the item
land of P40k which was paid by Mr. DILPIN in 2016. His wife, Mrs. DILPIN, claimed the ff deductions:
by item lower of 2 values will be the initial basis. 1. Funeral Expenses – P60k
2. Initial Basis (IB) – the PPT value (1) will be reduced by the mortgage or lien on the 2. Judicial Expenses – P40k
property paid by the PRESENT decedent. This mortgage or lien should have been 3. Claims against the estate – P50k
included in the deduction from the GE of the PRIOR decedent or gift of the donor. 4. Unpaid taxes – P80k
3. The IB (2) will be further reduced by: 5. Family Home – P1M
Initial Basis
x Ordinary Deductions Compute the VD.
GE
4. The remaining balance will be multiplied by the corresponding percentage: Solution:

Value taken for PPT P 1,120,000
Mortgage paid (40,000)
% If received by inheritance or gift Initial Basis P 1,080,000
100% Within 1 yr prior to the death of the decedent (1.08M/4M x 130k) (35,100)
80% More than 1 yr but not more than 2 yrs prior to the death of the decedent Final Basis P 1, 044,900
60% More than 2 yrs but not more than 3 yrs prior to the death of the decedent VD % 60%
40% More than 3 yrs but not more than 4 yrs prior to the death of the decedent VD P 626,940
20% More than 4 yrs but not more than 5 yrs prior to the death of the decedent
How to compute for the period:
Year Month Day
2018 17 06 18 19
2015 11 02
02 07 17
TN: if silent as to who paid the mortgage, qualify your answer!
SY 2018-2019 404_Taxation 2 - KMA
Share of the Surviving Spouse in the Conjugal/Community Property - If FH is a co-owned property, the full amount of FH shall be included in the GE but the
amount that can be claimed as a deduction is only the portion the decedent owns
- If FH is a mortgaged property, both FH and unpaid mortgage can be claimed as
The property regime of spouses may be: deductions
• complete separation of property;
• conjugal partnership of gains; Effect of temporary absence
• absolute community; or Temporary absence from the constituted FH due to travel or studies or work abroad, etc. does
• any other property relationship. not interrupt actual occupancy. The FH is generally characterized by permanency, that is, the
place to which, whenever absent for business or pleasure, one still intends to return.
In the absence of such pre-nuptial agreement or if such is void:
(a) Marriages contracted before Aug. 3, 1988 – conjugal partnership of gains Decedent’s Interest
(b) Marriages contracted on or after Aug. 3, 1988 – absolute community There is no problem if the deceased is the head of the family. But if he is married and there is a
surviving spouse, take into consideration only the decedent’s interest. If the family home is part
o Conjugal or community property – include everything as part of the GE and deduct the ½ of the conjugal property of the spouses, divide the value by two first.
share of the surviving spouse later on before arriving at the net taxable estate.
o Exclusive property – not be included in the computation of the GE Illustration
Mr. X died in 2018, leaving the ff: (1) House – P10M and (2) Lot – P6M
Family Home
Case 1 Case 2 Case 3
House Exclusive of Mr. X (+) Common Common
Prior to TRAIN Law: Maximum Limit is P1M Lot Common Exclusive of Mrs. X Exclusive of Mr. X (+)
TRAIN: 10M
Case 1:
This is the dwelling house where the person and his family reside, and the land on which it is Gross Estate % of Ownership FH
situated. Within the meaning of “family” are the spouse, parents, ascendants, descendants, House 10M 100% 10M
brothers and sisters, who are living in the FH and who depend upon the head of family for Lot 6M 50% 3M
support. Total 16M 13M
This deduction from the GE shall be allowed when the FH is certified to as such by the Brgy.
Captain of the locality where it is located. This requirement makes the FH located abroad not Value: 13M vs. 10M
deductible since it cannot satisfy such requirement.
Case 2:
Decedent is married under absolute community or conjugal partnership of gains Gross Estate % of Ownership FH
Ø the deduction for FH is ½ of the FMV of the FH but must NOT exceed P10M. House 10M 50% 5M
Lot 6M 0%
TN: - There can be one FH only. Total 16M 5M
- The max limit of 10M is applicable to both spouses separately; not 5M each
Value: 5M vs. 10M
SY 2018-2019 404_Taxation 2 - KMA
Case 3: Purpose: to be able to apply the formula; naa bayay ‘World’
Gross Estate % of Ownership FH
House 10M 50% 5M Illustration
Lot 6M 100% 6M
Total 16M 11M Mr. X, decedent, married and resident of the Philippines, died on Sept 12, 2018, leaving behind
his family home, which is a conjugal property with an FMV of P30M. Other conjugal properties
Value: 11M vs. 10M are composed of real and personal properties amounting to P14M. In addition, he has exclusive
properties amounting to 5M. Decedent has an unpaid mortgage amounting to 1M, and unpaid
taxes of another 1M. Compute the taxable estate.
Standard Deduction
Exclusive Conjugal Total
Prior to TRAIN Law: P1M; no SD for NRA decedents Conjugal Properties:
TRAIN: P5M for resident OR citizens; P500k for NRA Family Home 30M 30M
Purpose: to ensure that the heirs will receive something Real & Personal Properties 14M 14M
Exclusive Properties 5M 5M
Deductions for a Non-Resident, Non-Citizen (NRA) Gross Estate 5M 44M 49M
Less:
Ordinary Deductions
Its allowable deductions are the same as that of a resident or citizen decedent EXCEPT:
Conjugal OD (2M) (2M)
§ No family home
Net Conjugal Estate 42M
§ No amounts received by heirs under RA 4917
Special Deductions
§ SD is only P500k
Family Home (10M)
§ CULIT is not at full amount; only proportion
Standard Deduction (5M)
GE, Philippines Total Deductions (17M)
x World CULIT
GE, World Net Estate 32M
Less: ½ share of SS 21M
Tax Credit for Estate Taxes paid to a Foreign Country (Sec. 86 (E), NIRC) Conjugal Property 44M
The tax imposed in the Philippines shall be credited with the estate tax paid abroad. The amount Conjugal Deductions (2M)
of the credit taken shall be subject to per country and global limitations. Net Conjugal Estate 42M
(42M/2)
Requirement to disclose all his GE not situated in the Philippines NET TAXABLE ESTATE 11M
No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines, unless
the executor, administrator, or anyone of the heirs, as the case may be, includes in the return TN: if silent, ordinary deductions will be treated as conjugal except transfers for public purpose
required to be filed under Section 90 the value at the time of his death of that part of the gross (presumption: exclusive)
estate of the nonresident not situated in the Philippines. (Sec. 86 (D), NIRC)

SY 2018-2019 404_Taxation 2 - KMA
ADMINISTRATIVE MATTERS Filing of Estate Tax Return
Notice of Death If the ETR shows a GE exceeding P5,000,000, it shall be supported with a statement duly
certified to by a CPA containing the following:
TRAIN: no longer required 1. Itemized assets of the resident or citizen decedent with their corresponding gross value at
Prior to TRAIN Law: the executor, administrator or any of the legal heirs, as the case may be, the time of his death. In the case of an NRA, those situated in the Philippines;
within 2 months after the decedent’s death, or within a like period after qualifying as such 2. Itemized deductions from gross estate; and
executor or administrator, must give a written notice thereof to the Commissioner. 3. The amount of tax due whether paid or still due and outstanding.
Bank Deposits of a Decedent § Time for Filing – within 1 year from the decedent’s death.
§ The Court approving the project of partition shall furnish the Commissioner with a certified
Before: if it is a joint account and one of the joint depositors died, ma-freeze ang account. The copy thereof and its order within 30 days after promulgation of such order.
other depositor may only be allowed to withdraw P20,000 for daily sustenance. § Extension of time to file – not exceeding 30 days; power to grant: Commissioner or any
Revenue Officer authorized by him in meritorious cases
Now: Pursuant to RR 12-2018, 2 options are already given: § Time for payment of the estate tax – pay as you file system
§ Extension of time to pay estate tax – not to exceed 5 years if settled judicially, or 2 years if
(1) Withdrawal of the amount settled extrajudicially. Power to grant: Commissioner, if he finds that the payment would
Ø This option is subject to 6% FWT and can be availed only within 1 year from the impose undue hardship upon the estate or any of the heirs
decedent’s death. Because of the concept of FWT (‘final’), it only means that it will no § Any amount paid after the statutory due date of the tax, but within the extension period,
longer be subjected to any other tax. Hence, it will no longer be part of the GE which will shall be subject to interest but NOT to surcharge.
be subjected to estate tax. § Request for Extension of Time, Installment Payment and Partial Disposition of Estate – filed
with the Revenue District Officer (RDO) where the estate is required to secure its TIN and
(2) Present the Certificate Authorizing Registration (CAR) file the estate tax return. This request shall be approved by the Commissioner or his duly
The CAR is the proof that the estate tax has already been paid. The imposition of FWT will authorized representative.
not be applied if the deposit has already been duly included in the GE which was subjected § Liability for payment – primarily liable: executor or administrator; subsidiarily liable: heir or
to estate tax. beneficiary only to the extent of his share in the inheritance
Better Option In case of insufficiency of cash for the immediate payment of the total estate tax due, the
If the amount is less than the allowable deductions, it may be better if such will be included as estate has the following options:
part of the GE because you can still avail of the allowable deductions before subjecting it to 6% (1) Extension (NIRC)
estate tax; as opposed to the 1st option where the whole amount will automatically and fully be (2) Cash installment (TRAIN)
subjected to 6% FWT. (3) Partial disposition (TRAIN)
TN: Pursuant to a Memorandum Circular, ang isubject to 6% FWT will only be the percentage Purpose of these additional provisions under TRAIN: to make it easier for the taxpayer to
share of the decedent in the deposited account because it will be unfair and prejudicial on the comply and for the BIR to collect estate tax.
part of the other depositor(s) to subject their shares to FWT during his/their lifetime as well.

SY 2018-2019 404_Taxation 2 - KMA
v Cash installment dispose, mag compute ug estate tax kay maka-claim kag deductions (ex. 5M SD) sa each
§ Send a letter request to the Commissioner within 1 yr from the date of death of the decedent property.
§ The installments shall be made within 2 years from the date of filing of the ETR § Upon payment of such proportion of the estate tax liability, you will be given a tax clearance
§ The frequency (monthly, quarterly, semi-annually or annually – depends on the agreement and ECAR pertaining to that asset.
between the taxpayer and the Commissioner), deadline and amount of each installment shall § In case of failure to pay the total estate tax due out from the proceeds of the said disposition,
be indicated in the ETR, subject to the prior approval by the BIR the estate tax due shall be immediately due and demandable subject to the applicable
§ In case of lapse of 2 years without the payment of the entire tax due, the remaining balance penalties and interest reckoned from the prescribed deadline for filing the return and payment
shall be due and demandable subject to the applicable penalties and interest reckoned from of the estate tax.
the prescribed deadline for filing the return and payment of the estate tax
§ No civil penalties or interest may be imposed but nothing prevents the Commissioner from Can the BIR attach the properties of the estate in case of failure to pay estate tax?
executing enforcement action against the estate after the due date of the estate tax Yes. This is a remedy on the part of the BIR. However, the BIR chooses not to avail this because
it is too costly and timely. Before it can attach, it has to have a formal assessment first. This
v Partial disposition of estate and application of its proceeds to the estate tax due would require examination of the the properties involved, adto pas legal division, etc. So, better
§ A written request shall be approved by the BIR, which shall be filed together with a notarized remedies are the additional provisions under the TRAIN Law.
undertaking that the proceeds shall be EXCLUSIVELY used for the payment of the total estate
tax due Place of filing the return and payment of the tax
§ Before, you file the appropriate tax return and pay the corresponding estate tax before the BIR
will issue a CAR. There will only be 1 CAR for all the properties. But usually, what happens is
o Resident decedent – TIN will be secured from the RDO where the decedent was domiciled
that decedent only owns real properties. So, these are not liquid. Consequently, no enough
at the time of his death. ETR must be filed and the corresponding estate tax be paid with:
cash to pay the estate tax. That is why now, the BIR found ways through the RR for the estate
tax to be easily settled: the new provisions on the 6% FWT if you withdraw the bank deposits
ü the Accredited Agent Bank (AAB) or having jurisdiction on the place
of the decedent who is your co-depositor, and the new provisions on cash installment and ü Revenue District Officer or where the decedent was domiciled
at the time of his death
partial disposition of the assets. The RR states that this partial disposition covers both real and ü Revenue Collection Officer
personal properties of the decedent. If the BIR approves this request of partial disposition, it
will issue 1 CAR for that particular asset that will be sold kay kinsa may buyer ganahan mupalit o Non-resident decedent – TIN will be secured from and the ETR be filed in:
kung di ma-transfer sa iyang title diba. Remember that one requisite for a valid transfer of ü RDO where the executor or administrator is registered
ownership kay CAR baya. Under the TRAIN Law, once the partial disposition request has been ü RDO having jurisdiction over the executor or administrator’s legal residence – If the
approved by the BIR, bayaran ni taxpayer ang estate tax pertaining to that asset partially executor of administrator is not registered
disposed and the BIR will now issue a CAR pertaining to that particular asset only. But it’s not ü Office of the Commissioner through RDO No. 39-South Quezon City – without executor or
the same as the manual CAR before. Now, the BIR will issue the so-called electronic CAR (ECAR). administrator in the Philippines
The usual manual CAR has an expiry date (1 yr man siguro) so dapat ka magpa-revalidate. But
now, as explained by the RDO, ang system sa BIR will be linked with the system of the ROD. So TN:
once you pay the tax, iclick sa BIR ang print button but way paper mugawas, pero upon clicking, o The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may
your ECAR may be viewed already under the system of the ROD. What will be given to the continue to exercise his power to allow a different venue/place in the filing of tax returns.
taxpayer kay reference number nalang. Ig adto sa ROD, mao nalang imu ipakita. o The TRAIN Law only added the provisions on installments. As regards to other rules in filing,
§ The computed estate tax due shall be allocated IN PROPORTION to the value of each property. still same rules in NIRC.
The rule is that the BIR will compute the estate tax of all the assets. The usual formula will be
used. Di kay mu-compute ug estate tax sa each property na ipartially dispose, na tagsa2x-on
jud kay once lang pwede ma-claim ang deductions. Ma-alkansi ang BIR if every time you

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SY 2018-2019 404_Taxation 2 - KMA

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Illustration: o General Power of Appointment – may be exercised in favor of anybody.

GR: Only the capacity of the donor is required.

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Kinds of Decedent Valuation of the Gross Estate (Sec. 5, RR No. 12-2018)

A. Per Country Limitation (Limitation A) Limitation A

B. Global Limitation (Limitation B) Indonesia:

Tax credit to apply (whichever is LOWEST) P226k Manifestations:

Proceeds of Life Insurance (Sec. 85(E), NIRC)

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

Losses Transfers for Public Use

Claims against Insolvent Persons Vanishing Deductions (Property Previously Taxed)

Taxes Requisites for Deductibility: [DILPIN]

4. The remaining balance will be multiplied by the corresponding percentage: Solution:

Never settle. The moment you do, you stop dreaming.

Never settle. The moment you do, you stop dreaming.

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