Chapter 16- Introduction to Donation and Donor's Tax

CHAPTER 16: SELF-TEST EXERCISES

Discussion Questions
1. What is donor's tax? Briefly discuss.
2Explain the difference of donation inter-vivos from donation mortis causa.
3. Enumerate and explain each of the rationalization of donor's taxation.
4. Enumerate and explain each of the essential requisites of donation.
5. Discuss the formal requisites of donation.
6. Enumerate and discuss the classification of donor's.
7. Who are strangers and relatives in donor's taxation? Explain briefly
including the donor's tax rules on each donee.
8. Discuss the rules on donation of common properties and donation to
several donees.
9. Enumerate the list of exempt donations.
10. Enumerate the list of prohibited or defective donations.
11. Illustrate the donor's tax format.

Exercise Drills: Identification of transfer or exchange

On the blank provided for, indicate whether the transaction is a sale, transfer
inter-vivos or mortis causa. For complex transfers, indicate sale and its
appropriate transfer counterpart. Leave the space blank if the transaction is
neither a sale nor a transfer.

1. Revocable donation intrust

2. Revocable donation
3. Revocable donation pre-terminated by the death of
the donor
4. Conditional donation_
5. Revocable donation pre-terminated by the death of
the donee
6. Conditional donation, the condition of which is waived
by the donor during hislifetime
| 7. Irrevocable donation in trust
8. Waiver by the donor of his right to revoke a revocable
donation
9. Sale of personal property with fair value of P2M and
cost of P1M for only P1.2M
10. Fulfillment by the donee of the terms of a conditional
donations
11. Transfer of personal property with fair value of P2M
and cost of P1M for only P1.2M in contemplation of
death
12. Cancellation of a debtor's indebtedness by a creditor
out oflove and affection
| 13. Cancellation of a debtor's indebtedness by a creditor|
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 Chapter16-Introduction to Donation and Donor's Tax

in consideration of service rendered by theformer

14. Sale of real property classified as capital asset with
fairvalue of P2M and cost of P1M for only P1.2M
15. Sale of real property classified as ordinary asset with
fairvalue of P2M and cost of P1M for only P1.2M
16. Sale of domestic stocks classified as capital asset with
fairvalue of P2M and cost of P1M for only P1.2M
17. The surrender by the fiduciary heir upon his death of
the property designated by a predecessor to a

fideicommissary
18. Transfer from the first heir to the second heir in

accordance with the desire of a predecessor

19. Sale of a property costing P1M with fair value of 2M
for only PIM. Title shall not transfer until death of the

seller. Fairvalue at death is P1.8M.

20. Sale of a property costing P1M with fair value of 2M
for only PIM. Title shall not transfer until death of the
seller. Fair value at death is P800,000.
21. Donation of property not owned
22. Rendering of services for a compensation
23. Transferring of money in consideration of a promise

by the recipient for repayment

24. Return by the trustee of the property held in trust to

the grantor
25. Transfer of property for an adequateconsideration

True or False 1
1. Donor's tax is a tax on the gratuitous disposition of property by a living
donor.
2. Donor's tax is a property tax.
3. Donees and benefactor of donees have the primary obligation to pay the
donor's ax.
4. The amount of donor's tax is paid depends on the value of the property
donated.
5. Donor's tax is applicable to donation mortis causa made inter-vivos.
6. Donor's tax is intended to minimize loopholes in both income tax and estate
tax.
7. Donor's tax is also imposed to counter evasion from business tax.

9
8. A donor must be at least 18 years of
age to make valid donation.
a
Donation may be implied when the transferor is not claiming the return of
his property.
10. Donations, void or valid, are subject to tax.
11. The donee's acceptance is required for the completion of the donation.
. The delivery of the donor of the property to be donated perfects the

contract of donation.
 Chapter 16- Introduction to Donation and Donor's Tax

13. Acceptance is required even in transfers for inadequate considerations.

14. The donation of intangible personal property must be in writing.
15. The donation of tangible personal property may be made orally if the value
exceeds P5,000.
16. The donation of real property must be in a public instrument.
17. The donation of intangible personal property must be made in writing if the

value does not exceed P5,000.

18. Donors classified into residents or citizens and non-resident aliens.
are
19. Non-resident aliens are subject to donor's tax only on donations of tangible
properties located in the Philippines.
donor's
20. The donation to a non-resident alien is exempt from
tax.

True or False 2

Donations to relatives may be exempt if the amount of donation

does not
1.
exceed P100,000.
2. The donation to strangers may be exempt if the amount of the donation
does not exceed P100,000.
3.
3. Donations by non-resident alien donors may be exempt from Philippine
donor's tax for intangible personal properties.
4 Intangible personal properties of non-resident alien donors, regardless of
their location, are subject to the rule on reciprocity exemption.
5. Aliens, residents or non-residents, are subject to donor's tax on tangible
personal properties located in the Philippines.
6. Aliens, residents or non-residents, are subject to donor's tax on intangible
personal properties located in the Philippines.
7. Resident or citizen donors are taxable on donation of any property
regardless of the location of the property.
8. Relatives encompass those who are within the fourth degree of
consanguinity from the donor, either in the lineal or collateral line.
9. Only relatives by consanguinity are considered relatives; hence, relatives by
affinity are strangers.
10. Strangers are persons beyond the fifth degree of consanguinity in the
collateral line.
11. There can be no relatives for juridical person donor.
12. A business proprietor is related to his business.
13. Donor's tax is a local tax intended to raise money for the government.
14. The donor's tax to strangers is 40% of the gross gift.
15. The donor's tax to relatives is determined from a schedule of progressive
tax rates.
16. The renunciation by the surviving spouse of his share in the hereditary
estate is always
taxable to donor's tax.
17. The general renunciation of inheritance is generally exempt from donors
tax.
Chapter 16- Introduction to Donation and Donor's Tax

Multiple Choice Theory: Part1

1. Which is an incorrect statement?
a. Donor's tax is imposed on donation inter-vivos
b. Estate tax is imposed on donation mortis causa
C. Income tax is imposed on onerous transactions
d. None of these

2. Donor's tax is not intended to

a. raise money for the government.
b. recoup government loss on future tax revenue.
C. control tax evasion of income tax.
d. provide a system of business regulation.

3. Who is the one directly liable to the payment of donor's tax?

a. The donor
b. The donee
of the
C. The person in possession of the property upon discovery
donation
d. Any of these

4. Which of these donations is subject to donor's tax?

a. Irrevocable donation
b. Transfer in contemplation of death
C. Transfer under special power of appointment
d. Transfer under general power of appointment

5. Which of the following donation is not subject to donor's tax?

Donation intended by the donor to see his children enjoy the propertyy
a.
while he still lives
the donor to reward services rendered by the
b. Donation intended by
donee
C.
Donation intended by the donor to settle family disputes
d. Donation intended to take effect upon the death of the decedent

6. Which is subject to donor's tax?

a. Merger of the usufruct in the owner of the naked title
b. Delivery of the property by the trustee to the beneficiary
C Support payment to children
d. Cancellation of indebtedness ofa debtor out of gratuity

7. Which is not requiredin a contract of donation?

a. Legal capacity of the donee
b. Acceptance by the donee
C. Delivery
d. Intention to donate
Chapter 16- Introduction to Donation and Donor'sTax

8. Which is not required in taxation of transfers for less than adequate and full
consideration?
a. Intention of the donor
b. Acceptance of the donee
C. Delivery
d. A and B

9.
9. What is the required form in the donation of real property?
a. Written agreement
b. Public instrument
C. Oral agreement
d. A or B

10. The donation of shares of stocks must be in

a. writing
b. writing if the value exceeds P5,000.
C. a public instrument.
d. any formn.

11. Which is a correct statement?

Donation of tangible personal property not exceeding P5,000 can be
a.
made orally.
b. Donation of intangible personal property exceeding P5,000 may be
made in writing
The donation of tangible personal property worth P5,000 or more must
C.
be in writing
d. The donation of real property must be in writing.

12. Which donor is subject to tax on global donation?

a. Mexican donor, residing in Africa
b. American donor, residing in America

C.Japanese donor, residingin the Philippines

d. Chinese donor, residing in Japan

13. Which is taxable only on Philippine donations?

a. Filipino residing in Jolo, Sulu, Philippinnes
b. A Filipino citizen, residing in Canada
C. An Australian citizen, residing in the Philippines
d. An Italian citizen, residing in the United Arab Emirates

14. Which of the following donated properties of a non-resident alien donor

may be exempt from donor's tax?

a. Investment in domestic stocks
b. Condominium unit
C. Cars
d. None of these
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 Chapter 16- Introduction to Donation and Donor's Tax

15. Which is a donation made to an stranger?

a. Personal donation to a charitable entity
b. Corporate donation to an individual donee
C. Corporate donation to a non-profit entity
d. All of these

Multiple Choice Theory: Part 2

1. Which is a relative?
a. Best friend
b. Boyfriend
C. Adopted daughter
d. Father-in-law

2. Which of the following donees is a stranger?

a. Republic of the Philippines
b. First cousin
C. Niece
d. Siblings

3. Who is not a relative to the donor?

a. Half-brother
sister
b. Granddaughter of the donor's
C. Great grandson
d. God son

44. Which is a stranger?

a. Sister of the donor's grandfather
donor's first cousin
b. Daughter of the
niece
C. Son of the donor's
d. All of these
tax.
to 30% donor's
Donation to him is subject
5 Donation to grandparents
a.

b. Donation to half-brothers

C. Donation to step-sisters
brother
d. Donation to an adopted
donor's tax
progressive
donation is subject to
6.
6. The following
Donation to a foster child
a. natural son
Donation to a recognized
b. brother-in-law
C.
C. Donation to a
second cousin
d. Donation to a
Chapter 16- Introduction to Donation and Donor's Tax

are subject to
donor's tax.
7. Statement 1: Donations to residents or citizens
from donor's tax.
are exempt
Statement 2: Donations to non-resident aliens

Which is correct?
a. Statement 1 c. Both statements
d. Neither statement
b. Statement 2

of non-resident aliens to resident citizens are

8. Statement 1: Donations

exempt. aliens to non-resident aliens are

Statement 2: Donations of non-resident

exempt.
Which statement is correct?
c. Both statements
a. Statement 1
d. Neither statement
b. Statement 2

9. In donor's taxation, which is not considered in determining taxability of

donations?
a. Tax classification of the donor
b. Location of the property
C. Relationship of the donee to the donor
d. A andB
from donor's tax if the
10. The donation ofa non-resident alien donor is exempt
property is
a. located abroad.
b. a real property located abroad.
C. an intangible property located in the Philippines.
d. located in the Philippines at the date of donation.

11. Which of the following donation to is not exempt from donor's tax?
a. Donation to the International Rice Research Institute
b. Donation to a government-owned and controlled corporation
C. Donation to the Integrated Bar of the Philippines
d. Donation to the Philippine Inventors' Commission

12. Which of the following donation is not exempt?

a. Philippine Institute of Certified Public Accountant
b. Intramuros Administration
C. Development Academy of the Philippines
d. Ramon Magsaysay Award Foundation

13. Which is not excluded in gross gift?

a Donations to politicians or political parties
b. Donations between spouses
C. Donations with reserved powers

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Chapter 16- Introduction to Donation and Donor's Tax

d. Foreign donations of resident aliens

14. The donation by a corporate donor is

a. Always subject to donor's ax.
b. Presumed always made to a stranger.
C. Presumed always made to a relative.
tax.
Taxable by either the progressive donor's tax or the
proportional
d.
who
or non-resident
natural or juridical, resident
15. Statement 1:Any person, tax return.
shall file an estate
transfers or causes to transfer property by gift otherwise,
whether made in trust or
Statement 2: A donation is taxable, is real or
direct or and whether the property
indirect,
whether the gift is
personal.

Which is correct?
c. Both statements
a. Statement 1
d. Neither statement
b. Statement 2

taxable in the Philippines?

16. Which of these is
Donations made abroad
a.
b. Donations made in the Philippines
of situated in the Philippines
C.
Donations property

d. All of these
donor is a
from tax if the
Donation of foreign properties is exempt
17. C. non-resident citizen.
a. resident citizen.
d. non-resident alien.
resident alien.
b.
on donor's
tax?
to a reciprocity exemption Philippines by
18. Which is subject property situated
in the
Donation of intangible personal
a.a.
a non-resident citizen.
situated in the Philippines by
Donation of intangible
personal property
b.
a resident alien. by
situated in the Philippines
Donation of intangible
personal property
C.
a non-resident alien.
All of these
d.
to
these is subject to donor's tax
the reciprocity rule applies, which of
19. When donor?
non-resident alien
a

Property Location
a. Cash Philippines
b. Land Japan
C. Car Philippines
d. Franchise Japan

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Chapter 16- Introduction to Donation and Donor's Tax

20. Which is incorrect?

a. Donations of non-resident aliens involving properties located abroadto
residents of the Philippines are exempt from donor's tax.
b. Renunciation of inheritance by an heir to another is not subject to
donor's tax.
C. Gifts are reckoned on an annual basis. The donor's tax is determined for
the whole gift throughout the year.
d. Donation by a non-resident citizen to a non-resident alien is exempt
from donor's tax.

21. Which of the following donations may be exempt?

a. Donation of a resident alien of its properties located abroad to a non-
resident alien.
b. Donation of a non-resident alien of intangible properties located in the
Philippines to a non-resident alien.
C. Donation of a non-resident alien of real properties located in the
Philippines to a resident alien.
d. Donation of intangible properties located in the Philippines by resident
aliens.

22. Statement 1: For purposes of the donor's tax, second-degree cousins are
strangers to each other.
Statement 2: Encumbrance on the property donated, if assumed by the
donor, is deductible for donor's tax purposes.
a. True, True b. True, False c. False, True d. False, False

(RCPA)
23. Statement 1: A donation between husband and wife during the marriage is
generally void.
Statement 2: A donation can be made to conceived or unborn children.
a. True,True b. True, False c. False, True d. False, False

24. Which is incorrect?

(RCPA)
a. Donor's tax shall not apply until and unless there is a
b. Donation is perfected from the moment the donee
completed gift.
accepts delivery.
C. Donation is completed at the moment the donor makes
d. Donor's tax is a tax on the transfer of delivery.
property at death.

Multiple-Choice Problems: Part 1

1. Mr. Merto sold his stock investments with a tax basis of
P1,000,000 and fair
value of P2,000,000 for
only P1,200,000. Compute the amount of gratuity
subject to donor's tax.
a. P0 c. P 800,000
b. P 200,000 d. P1,000,000
Chapter 16- Introduction to Donation and Donor's Tax

2. Mr. Berto sold his family home for P2,000,000. His family home was
acquired 10 years ago for P1,000,000. At the date of sale, his property had a
fair value of P2,500,000. Compute the gratuity subject to donor's tax.
a. PO C.P1,000,000
b. P 500,000 d. P1,500,000

3. On June 4, 2014, Mr. Momoy donated a car worth P800,000 to Mr. Palaboy
subject to the condition that Mr. Palaboy must graduate college not later
than October 2014. Mr. Palaboy graduated from his course. The property
was now worth P700,000. The same was purchased by Mr. Momoy at a cost

of P1,000,000.

Compute the gratuity subject to donor's tax.

a. PO c. P 800,000
b. P 700,000 d. P 1,000,000

In 2009, Don Bosco transferred a lot to Basco revocable within five years.
4.
Bosco did not
The property had a fair value of P2,000,000 at that time. Don
in
revoke the property. In 2012, Don Bosco waived his right to the property
favor of Basco. The property had a fair value of P2,500,000 in
2012 and
P3,000,000 in 2014

donor's tax.
Compute the gratuity subject to
a. PO c. P 2,500,000
b. P 2,000,000 d. P 3,000,000

his brother Jay, Alex transferred a commercial lot

to motivate
5. Intending
valued at P2,000,000 for only P1,000,000 subject to the condition that Jay
must become a lawyer years. Jay passed the Philippine Bar
in 5
Examinations on the fourth year. The property was worth P2,500,000 at
that time.

Compute the amount of gratuity subject to donor's tax.

a. P500,000 c. P1,500,000
b. P 1,000,000 d. P 2,500,000

6. Mr. John Hay, a resident alien, sold a residential lot with a fair value of
P6.000,000 for only P3,000,000. He acquired the property 20 years ago for
only P500,000. Compute the amount subject to donor's tax.
a. PO c. P3,000,000
b. P 2,500,000 d. P6,000,000

7. ABC Holdings sold a building to DEF

of ABC Holdings, for P2,000,000. The
Company, a wholly-owned subsidiary
building had a book
P1,500,000 but with a fair market value of P5,000,000 at the date ofvalue of
sale.

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Chapter 16- Introduction to Donation and Donor's Tax

What is the amount subject to donor's tax?

a. P500,000 C. P 3,000,000
b. P 2,000,000 d. P 3,500,000

8. Which is correct with respect to the above transaction?

a. The gratuity is subject to progressive tax.
b. The gratuity is subject to final income tax.
C. The gratuity is a gift made between strangers subject to progressive
donor's tax.
d. The gratuity is a gift subject to a proportional donor's tax.

9. Mrs. Anderson had the following information regarding her inheritance

from her deceased husband where she and her three children were the only
heirs:

Share from communal properties P 1,200,000

Share in the net distributable estate 300,000

If Mrs. Anderson renounces both shares categorically in favor of the

youngest child, what amount is subject to donor's tax?
a. PO c.P 1,200,000
b. P 300,000 d.P 1,500,000

10. In the immediately preceding problem, if Mrs. Anderson renounces both

shares in favor of all the heirs, what is the amount subject to donor's tax?
a. P0 c.P 1,200,000
b. P 300,000 d. P 1,500,000

Multiple-Choice -
Problems: Part 2
1. On May 2, 2015, Uno donated the following properties:

Donee Property andlocation Value

Dos Car, in Somalia P 600,000
Tres Business interest, in the USA 400,000
Quattro Cash, in the Philippines 300,000
Zinco Land, in the Philippines 900.000
Total P2,200,000
Compute the taxable donation if Uno is a non-resident citizen.
a. PO c. P 1,200,000
b. P900,000 d. P 2,200,000

2. Compute the taxable donation if Uno is a non-resident alien.

a. PO c. P 1,200,000
b. P 900,000 d.P 2,200,000

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Chapter 16- Introduction to Donation and Donor's Tax

3. Compute the taxable donation if Uno is a non-resident alien and assuming

the reciprocity condition applies.
a. PO C.P1,200,000
b. P900,000 d. P 1,500,000

4. A donor transferred the following properties:

Property Donee Location Value
Car Resident citizen Philippines P 300,000
Cash Non-resident citizen Philippines 200,000
Stocks Non-resident alien Abroad 150,000
Land Resident alien Abroad 250.000
Total P 900,000
resident alien.
Compute the amount subject to donor's tax if the donor is
a

a. PO c.P500,000
b. P 400,000 d. P 900,000

if the donor is a non-resident

5. Compute the amount subject to donor's tax

alien.
a. P0 c.P 500,000
b. P 400,000 d. P 900,000

6. A Mexican donor who lives in the USA

made the following donations:
P 5,000,000
Deposit in Philippine banks 2,000,000
Shares of stocks in a non-resident foreign corporation
Business interest in the Philippines 3.000,000
P10.000.000
Total
to tax.
Compute the donation subject
a. P0 c. P8,000,000
b. P3,000,000 d. P10,000,000

the donation assuming the

7. In the immediately preceding problem, compute
reciprocity rule applies.
a. PO c. P8,000,000
b. P3,000,000 d. P10,000,000

resident citizen, donated P100,000 cash to his second cousin abroad.

88. Anjo, a
Which is correct?
a.
The donation is subject to progressive tax.
b. The donation is exempt because it does not exceed P100,000.
C. The donation is subject to a 30% tax because it is a donation made to a
stranger.
d. The donation made to a non-resident is subject to a 30% tax.
 Chapter 16-Introduction to Donation and Donor's Tax
9. Mr. Swastika, a Russian citizen residing in Ukraine, made the following
donations in Philippine currency equivalent:
A commercial land in Russia, to a Filipino citizen - P3,000,000
A sports car to his Filipina girlfriend - P5,000,000
C a s h to his Russian maid - P2,000,000

Determine the total amount subject to Philippine donor's tax.

a. P0 c.P8,000,000
b. P 2,000,000 d. P 10,000,000

10. Mr. Crown, a Canadian citizen who is married and residing in the
Philippines, made the following donations during the year
Cash, to his brother-in-law - P1,000,000
S h a r e s of stocks in Canada to his brother in Canada - P2,000,000

Canada does not impose donor's tax to aliens in their territory.

Compute the amount subject to Philippine donor's tax.

a. P0 c. P 2,000,000
b. P1,000,000 d.P 3,000,000

11. A donor made the following transfers to various relatives during the year:

Donation in revocable trust P 500,000

Donation in irrevocable trust 1,200,000
Direct donation to wife 800,000
Direct donation to sister 500.000
Total donation P 3,000,000
What is the amount of donation subject to Philippine donor's tax?
a. P 500,000 c. P2,500,000
b. P1,700,000 d. P3,000,000

12. Ms. Dina Nalo believes in the chances of Mrs. May Laban for the
congressional seat in their district. She donated P400,000 in cash for the
latter's campaign expenses. Ms. Dina Nalo reported the donation to the
COMELEC.

Which is correct?
a. Ms. Dina Nalo shall
pay P120,000 donor's tax.
b. Ms. Dina Nalo is
exempt from donor's tax on the first P100,000 of the
net gift.
C. The donation is exempt from donor's tax.
d. None of these.