MODULE 4

Transfer and Business Taxation

SESSION TOPIC: Donor’s Tax

LEARNING OUTCOMES
The following specific learning objectives are expected to be realized at the end of the session:
1. To be able to understand the nature of donation, classification of donors, compute
the value of gifts.

KEY POINTS

DONOR DONEE

CORE CONTENT

Introduction:
This module on transfers taxes, specifically Donor’s Tax. This module includes topics on
gross gifts, exemptions and tax rates.

IN-TEXT ACTIVITY

Donation is the gratuitous transfer of property from one living person (donor) to another (donee)

Formal Requisites of Donation

Property Required Formality

Real Property Public instrument*
Tangible personal property
- Amount exceeding P5,000 Written
- Amount not exceeding P5,000 Oral
Intangible personal property Public Instrument

Summary of rules on taxable donation

Residents or Citizens NRA without NRA with reciprocity

reciprocity
Property location -> Within Abroad Within Abroad Within Abroad
Real Properties √ √ √ x √ x
Personal Properties
- Tangible √ √ √ x √ X
- Intangible √ √ √ x x x

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Donor’s Tax
Donor’s tax is a tax upon the gratuitous transfer of property between two or more living persons
at the time of transfer whether the transfer is direct or in trust and without regard to the type of
property transferred.
Donors tax is imposed on annual net gifts reckoned over a calendar year basis.
Net gift refers to the net economic benefits from the transfer that accrued to the done.

Exempt Gifts
The following are exempt donations:
1. Donations to except donees under the NIRC and special laws
2. Donations for election campaign – any contribution in cash or in kind to any candidate,
political party, or coalition of parties for campaign purposes shall be governed by the
Election Code. These donations must be reported to the Commission on Elections to ber
exempt from donor’s tax.
3. Transfers for insufficient consideration involving real property classified as capital assets
-the gratuitous portion of transfers for insufficient consideration (complex transfers) is
subject to donor’s tax. However, this rule does not apply to the sale of real property
capital asset. The sale, exchange and other disposition of real property classified as
capital asset is subject to a capital gains tax of 6% based on fair value of gross selling
price, whichever is higher.
4. General renunciations of inheritance – a general renunciation of inheritance occurs when
a heir or the surviving spouse renounces her or his share in the hereditary estate of a
decedent in favor of no particular co heir.
5. Donations with reserved powers (incomplete transfers). This pertains to transfers of
property wherein ownership will transfer only upon the happening of a future event which
is specified by the donor, such as conditional donation or revocable transfers. The
donor’s tax shall not apply unless and until there is a completed gift.
6. Donation to the government for public use – Gifts made to or for the use of the national
government or any entities created by any of its agencies which are not conduct for profit
or to any political subdivision of the said government are exempt from donor’s tax.
7. Donation to accredited non-profit institution – Gifts in favor of an educational and or
charitable, religious, cultural or social welfare corporation, institution, accredited
nongovernment organization, trust, or philanthropic organization or institution are exempt
from donor’s tax/
8. Quasi transfers – involve delivery of property to another person but will never results in
transfer of ownership thereto. These are not subject to donor’s tax.
9. Void donations – are invalid donations. Void donations include those prohibited by law
and those with defects in their execution. Void donations are not objects of taxation.
10. Foreign donations of non-resident alien donors – donations of property situation in a
foreign country by a non-resident alien (NRA) are not subject to donor’s tax.
11. Donations of property exempt under reciprocity – The donations of intangible property in
the Philippines by a non-resident alien are exempt if the reciprocity exemption applies.

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Donation to certain exempt donees under the NIRC and special laws
Donation to the following done entities are exempt:
1. Agriculture Department of the Southeast Asian Fisheries Development Center
2. Aurora Pacific Economic Zone and Freeport Authority
3. Development Academy of the Philippines
4. Girl Scouts of the Philippines
5. Integrated Bar of the Philippines
6. International Rice Research Institute
7. National Commission for Culture and the Arts
8. National Social Action Council
9. National Water Quality Management Fund
10. People’s Television Network, Incorporated
11. People’s Survival Fund
12. Philippine-American Cultural Foundation
13. Philippine Normal University
14. Philippine Investor’s Commission
15. Philippine Red Cross
16. Ramon Magsaysay Award Foundation
17. Rural Farm School
18. Task Force on Housing Settlements
19. Tubbataha Reefs National Park
20. University of the Philippines

Donor’s Tax Rate

Up to P250,000 ……………………… Exempt
Excess above P250,000……………. 6%

Valuation of Net Gift

1. Valuation of property donated
A. Real property – higher of zonal or fair value per assessor’s office.
B. Personal properties
1. Shares of stock
a. If list in the PSE – the average high and low price of the stocks at the date of
donation
b. If not listed:
Preferred stocks – par value
Common stocks – the book value appearing in financial statements published
nearest to the date of donation
2. Other properties
A. Newly purchased – purchase price
B. Old items – second hand value
C. Monetary claims – the amount fixed in the contract

Donor’s Tax Return

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Any person making a donation (whether direct or indirect), unless the donation is specifically
exempt under the Code or other special laws, is required to accomplish under oath a donor’s tax
return in duplicate for every donation.

Filing date
BIR Form 1800 is filed within 30 days after the donation is made. A separate return is required
for donations made at different dates during the year reflecting therein any previous net gift
made in the same year.
Only one return is required for donations made on a single day even if made to several donees.
If the donation is a conjugal or communal property, each spouse shall file a separate return
corresponding to their respective share in the conjugal or communal property.

Contents of the donor’s tax return

The return shall set forth
1. Each gift made during the calendar year which is to be included in computing net gifts.
2. The deductions claimed and allowable.
3. Any previous net gifts made during the same calendar year.
4. The name of the done.
5. Such further information as the Commissioner may required.

Where to file the return

The return shall be filed and the tax paid to any of the following:
a. An authorized agent bank
b. Revenue district officer
c. Revenue collection officer
d. Duly authorized treasurer of the city or municipality where the donor is domiciled
e. Office of the Commissioner, if the taxpayer has no legal residence in the Philippines

Foreign Tax Credit

Residents and citizens with foreign donation may be subjected to foreign donor’s tax. To
minimize international double taxation, our tax laws a tax credit for taxes paid in a foreign
country.
Foreign tax credit is computed depending on whether a single foreign country or multiple foreign
countries are involved.

Foreign Tax Credit Limit: One foreign country

The foreign tax credit shall be the lower of the actual foreign donor’s tax paid and the following
limit:

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Foreign country net gifts x Philippine donor’s tax due
World net gifts

Foreign Tax Credit Limit: Multiple foreign country

The final foreign tax credit shall be the lower of the total of the donor’s tax credit allowable per
county and the world donor’s tax credit limit computed as:
Total foreign net gifts x Philippine donor’s tax due
World net gifts

SESSION SUMMARY

Taxes help the government fund their projects for economic development. It's also the lifeblood
of outstanding government

SELF-ASSESSMENT

Assignment. Computation of gross gift

REFERENCES

Refer to the references listed in the syllabus of the subject.

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