Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

Department of Accounting Education
Mabini Street, Tagum City

Davao del Norte
Telefax: (084) 655-9591, Local 116
UNIVERSITY OF MINDANAO
Tagum College

Accountancy Program
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)
Course/Subject: TAX2a – Transfer and Business Taxation
Name of Teacher: Argem Jay M. Porio, CPA
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE. THIS
IS INTENDED ONLY FOR THE USE OF THE STUDENTS WHO ARE OFFICIALLY
ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL
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Course Outline: TAX 2a– Business & Other Taxes
Course Coordination: Jon D. Inocentes

Email: jdinocentes@yahoo.com.ph
Student Consultation: By appointment
Mobile: 0912-781-3586
Phone: None
Effectivity Date: June 2020
Mode of Delivery Distance Education Delivery (DED)
Time Frame 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: TAX 1A
Credit: 3
Attendance Requirements: For online sessions: minimum of 95% attendance
For 1-day on campus/onsite review: 100%attendance;
for 1-day on-campus/on-site final exam: 100%
attendance
Course Policy
Areas of Concern Details

This 3-unit course self-instructional manual is
designed for distant learning mode of instructional
delivery with scheduled face to face or virtual
sessions which can be done using LMS, traditional
contact (via cellphone/telephone and SMS) and
social media platforms (e.g. email, private
messenger, Facebook, Viber, WhatsApp, Line,
Contact and Non-contact Hours Zoom and other similar applications) depending on
what is available for both teachers and students.
The expected number of hours will be 54 including

the face to face or virtual sessions. The face to face
sessions shall include the summative assessment
tasks (exams) since this course is crucial in the
licensure examination for Certified Public
Accountant.
Assessment Task Submission Submission of assessment tasks shall be on the 2 nd,
4th and 6th week of the summer class. Moreover,
specific dates of submission are specified in the
Course Schedules Section of this manual. The
assessment paper shall be attached with cover
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page including the title of assessment task (if the

task is performance), the name of the course
coordinator, date of submission and name of the
student. The document shall be submitted to the
course coordinator thru LMS (Schoology), email, FB
messenger or thru any means accessible to
students. It is also expected that you already paid
your tuition and other fees before the submission of
the assessment task.
If the assessment task is done in real time through

the features of LMS accessible to students, the
schedule shall be arranged ahead of time by the
course coordinator.
Since this course is included in the licensure

examination for CPAs, you will be required to take
the Multiple Choice Question Exam inside the
school. This should be scheduled ahead of time by
your course coordinator. This is non-negotiable for
all licensure-based programs.
Turnitin Submission To ensure honesty and authenticity, all assessment

(if necessary) tasks are required to be submitted thru Turnitin with
a maximum similarity index of 30% allowed. This
means that if your paper goes beyond 30%, the
students will either opt to redo her/his paper or
explain in writing addressed to the course
coordinator the reasons for similarity. In addition, if
the paper has reached more than 30% similarity
index, the student may be called for a disciplinary
action in accordance with the University’s OPM on
Intellectual and Academic Honesty.
Please note that academic dishonesty such as

cheating and commissioning other students or
people to complete the task for you have severe
punishments (reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after
Assignments/Assessments the designated time on the due date, without an
approved extension of time, will be reduced by 5%
of the possible maximum score for that assessment
item for each day or part day that the assessment
item is late.
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However, if the late submission of assessment

paper has a valid reason, a letter of explanation
should be submitted and approved by the course
coordinator. If necessary, you will also be required
to present/attach evidences.
Assessment tasks will be returned to you one (1)
week after the submission. This will be returned by
LMS, email, FB messenger or any other
communication platforms available for both teacher
and students.
Return of Assignments/
For some group assessment tasks, the course
Assessments
coordinator will require some or few of the students
for online or virtual sessions to ask clarificatory
questions to validate the originality of the
assessment task submitted and to ensure that all
the group members are involved.
You should request in writing addressed to the

course coordinator his/her intention to resubmit an
assessment task. The resubmission is premised on
the student’s failure to comply with the similarity
Assignment Resubmission
index and other standards or other reasonable
circumstances e.g. illness, accidents, financial
constraints.
You should request in writing addressed to the

program coordinator your intention to appeal or
contest the score given to an assessment task. The
letter should explicitly explain the reasons/points to
contest the grade. The program coordinator shall
communicate with the students on the approval or
Re-marking of Assessment
disapproval of the request.
Papers and Appeal
If disapproved by the course coordinator, you can
elevate your case to the program head or the dean
with the original letter of request. The final decision
will come from the Dean of College.
Grading System You shall be evaluated based on the following:
Assessment methods Weights

EXAMINATIONS 60%
A Exam 1st – 3rd 30%
.
B Final Exam 30%
.
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CLASS PARTICIPATI 40%

ONS
C Quizzes 10%
.
D Assignments 5%
.
E Research/Requirement 15%
.
F. Oral recitation 10%
Total 100%
Submission of the final grades shall follow the usual

University system and procedures.
Preferred Referencing Style Use the general practice of APA 6th edition.
The course coordinator shall create Group Chat in

FB messenger for the class. Each student shall
create a Schoology account. The course coordinator
will then provide a Schoology access code to the
students for them to enroll to have access to the
materials and resources of the course. All
communication formats: chat, submission of
Student Communication assessment tasks, request, etc. may be done thru
any platforms available for the convenience of
teacher and students.
You can also meet the course coordinator in person

through the scheduled face to face sessions to
raise your issues and concerns.
Contact Details of the Dean Dr. Gina Fe G. Israel, EdD

Email: deansofficetagum@umindanao.edu.ph
Mobile: 09099942314
Contact Details of the For Accountancy:

Program Head
Mary Cris L. Luzada, CPA, MSA
Email: luzadacris@umindanao.edu.ph
Mobile: 09228321794
For Accounting Technology:
Maria Teresa A. Ozoa, CPA, MBA

Email: ozoamateresa@umindanao.edu.ph
Mobile: 09472657119
Student with Special Needs Students with special needs shall communicate with
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the course coordinator about the nature of his or her

special needs. Depending on the nature of the need,
the course coordinator with the approval of the
program coordinator may provide alternative
assessment tasks or extension of the deadline of
submission of assessment tasks. However, the
alternative assessment tasks should still be in the
service of achieving the desired course learning
outcomes.
Course Information – see/download course syllabus posted in

Schoology or other available platforms
CC’s Voice:Hello dear students! Welcome to this course TAX 2a (Business and
other taxes. This course in in continuation of Tax1a which covers income taxation.
This course will give you additional knowledge on taxation rules other than income
tax such estate tax, donors, value added tax (VAT) and other percentage (OPT)
which will help you as a future accountant in public and private practice.
Course outcome:
As a student of this course you are expected to:
(1) ) Discuss the basic concepts of succession: Its scope, elements and
nature. Identify the estate tax and donor’s tax due through determining
the allowable deductions from its gross estates and gross gifts
(2) Explain the nature and concept of value-added (input and output taxes),
percentage and excise taxes. Identify the concerned individual or
entities subject to these taxes and compute for the tax due.
.
Let us begin!
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Big Picture
Week 1 : Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Determine the nature of transfer taxes
b. Identify the basic concept of succession.
Big Picture in Focus: ULOa. Determine the nature and concept of

succession.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand
the following essential knowledge laid down in the succeeding pages. Please note that you
are not limited to exclusively refer to these resources. Thus, you are expected to utilize other
books, research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc., and even online tutorial websites.
Topic: ESTATE TAXATION
INTRODUCTION TO TRANSFER TAX
Transfer tax is a tax imposed upon gratuitous transfer of property ownership. Gratuitous
transfer is one that neither imposes burden nor requires consideration from transferee or
recipient. It is a privilege tax which is imposed on the act of passing ownership of property
and not a tax on the property itself.
The transfer of ownership may take effect during lifetime in the case of the gift tax (inter
vivos) , or upon death of a person in the case of the estate tax ( mortis causa). Estate tax
and donor’s tax are the two transfer taxes under our laws and is defined in the National
Internal Revenue code as:
1. Estate tax which is an excise tax imposed upon the right of transmitting property at
the time of death, and the privilege of controlling the disposition of one’s property to
take effect upon death.
2. Donor’s tax (Gift tax) which is a tax on the privilege of transmitting one’s property to
another during his lifetime without adequate and full valuable consideration.
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Basic Concepts of Succession
Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to
another or others by will or by operation of law (Art. 774, Civil Code of the Philippines)
Elements of Succession
 Decedent – the person whose property is transmitted through succession, whether
testamentary, intestate, or mixed.
 Heir – the person called to the succession either by the provision of a will or by
operation of law.
 Estate – refers to all property, rights and obligations of a person which are not
extinguished upon his death.
Kinds of Succession
a. Testamentary – results from the designation of an heir, made in a will executed in

the form prescribed by the law.
b. Legal or Intestate Succession – transmission of properties where there is no will,
or if there is a will, such is void or lost its validity, or nobody succeeds the will
c. Mixed Succession – a transmission of properties, which is effected partly by will and
partly by operation of law
Persons authorized to manage the estate

a. Executor (executrix) is the person nominated by the testator to carry out the
directions and requests in the decedent’s will and to dispose his property according
to the decedent’s testamentary provisions after his death.
b. Administrator (administratrix) is the person appointed by the court, in accordance
with the governing statute, to administer and settle intestate estate and such
testate estate as no competent executor designated by the testator.
TESTAMENTARY SUCCESSION
WILL- an act wherebyn a person is permitted with the formalities requireed by law, to control
to a certain degree the disposition of his estate, to take effect after his death from the
moment of the death of the decedent, the rights to the suceession are transmitted , and the
possession of the hereditary proprerty is deemed transmitted to the heir.
Kinds of Wills:
1. Notatrial will- is one which which is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the New Civil Code. It s a will that is created for
the testator by a third party, usually his lawyer, follows proper form, signed and
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dated in front of required number of wtnesses ( 3 or more witnesses) and

acknowledged by the presence of a notay public.
2. Holographic will- a written will which must be entirely written, dated and signed
by the hand of the testator himself, without any necessity of any witness. This kind
of will does not need formalities because many people can recognize his
handwriting and it can be verified by a penmanship expert.
Codicil- a supplemet or addition to a will, made after the exceution of a will and
and annexed to be taken as part thereof, by which any disposition made in the
original will is explained, added to or alttered.
Kinds of Successors
a. Legatee – an heir of personal property given by virtue of a will
b. Devisee – an heir of real property given by virtue of a will
Under testamentary succession, properties left by the decedent are classified into:
Legitime – portion of the testator’s property which could not be disposed freely because the
law has reserved it for the compulsory heirs.
Free portion – part of the whole estate which the testator could dispose of freely through a
written will irrespective of his relationship to the recipient.
The following are the compulsory heirs:
1. Legitimate children and descendants, which include legally adopted children

2. In the absence of legitimate descendants, the legitimate parents or ascendants*
3. Surviving spouse
4. Illegitimate child, both natural and spurious
*Note: Legitimate parents or ascendants can only inherit in the absence of legitimate
children or descendants. Brothers and sisters of the decedent are not considered as
compulsory heirs, thus they cannot inherit from the legitime of the decedent
In the absence of compulsory heirs, the successors would be:
1. Relatives up to 5th degree of consanguinity
2. If there were no relatives, the government shall inherit the whole estate.
3. If there is a will, the decedent may name other persons to inherit the free
portion of the net distributable estate
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The table below explains the legitime of the compulsory heirs:
Legitimate Legitimate Surviving Illgitimate Free

Children/Descendnts Parents/Ascendants Spouse Children/Descendsants Portion
a. 1/2 excluded Same as 1/2 legitime of a Varies

legitime of a legitimate child
legitimate child
b. None surviving 1/2 None surviving None surviving 1/2
c. None surviving 1/2 1/4 None surviving 1/4
d. None surviving None surviving 1/2 None surviving 1/2
e. None surviving None surviving 1/3 1/3 1/3
Examples:
1. Hereditary estate - P 1,500,000
Survivors:
Legitimate child
Parents
Spouse
The distribution of the estate is

Legitimate child – P 750,000 (1/2 of the hereditary state)
Parents - None
Spouse - P750, 000
Free portion

Survivors:
Legitimate children -2
Parents
Spouse
Legitimate children – P 750,000 (375,000 each child)
Parents - None
Spouse - P375, 000 ( equal to the share of each legitimate child)
Free portion - P375, 000
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Survivors:
Parents
Spouse

Parents - None
Spouse - P250, 000 (equal to the share of each legitimate child)

Survivors:
Illegitimate child
Parents
Spouse

Parents - None
Illegitimate child -P 187,500 (1/2 of the share of each legitimate child)
Spouse - P 375,000 (equal to the share of each legitimate child)
Free portion - P187,500

Survivors:
Parents
Parents - P750,000
Free portion - P750,000

Survivors:
Parents
Spouse
Parents - P750,000
Spouse - P 375,000
Free portion - P 375,000

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Survivor:
Spouse
Spouse - P 750,000
Free portion - P 750,000

Survivors:
Illegitimate child
Spouse
Illegitimate child - P 500,000
Spouse - P 500,000
Try This!
Hereditary Estate – P9,000,000
Survivors: 2 legitimate children, spouse, 3 illegitimate children
Legitimate Children: 4.5m (2.25m each child)
Spouse: 2.25m
Illegitimate Children: 1,125,000 (375,000 each child)
Free: 1,125,000
Disinheritance
When a person expects or is expected to inherit, but does not, the person is said to be
disinherited.
Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his

legitime, for causes expressly stated by law. (848a)
Article 916. Disinheritance can be effected only through a will wherein the legal cause
therefor shall be specified. (849)
Article 917. The burden of proving the truth of the cause for disinheritance shall rest upon
the other heirs of the testator, if the disinherited heir should deny it. (850)
Article 918. Disinheritance without a specification of the cause, or for a cause the truth of
which, if contradicted, is not proved, or which is not one of those set forth in this Code, shall
annul the institution of heirs insofar as it may prejudice the person disinherited; but the
devises and legacies and other testamentary dispositions shall be valid to such extent as will
not impair the legitime. (851a)
Article 919. The following shall be sufficient causes for the disinheritance of children and
descendants, legitimate as well as illegitimate:
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(1) When a child or descendant has been found guilty of an attempt against the life of the
testator, his or her spouse, descendants, or ascendants;
(2) When a child or descendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation has been found groundless;
(3) When a child or descendant has been convicted of adultery or concubinage with the
spouse of the testator;
(4) When a child or descendant by fraud, violence, intimidation, or undue influence causes
the testator to make a will or to change one already made;
(5) A refusal without justifiable cause to support the parent or ascendant who disinherits
such child or descendant;
(6) Maltreatment of the testator by word or deed, by the child or descendant;
(7) When a child or descendant leads a dishonourable or disgraceful life;
(8) Conviction of a crime which carries with it the penalty of civil interdiction. (756, 853, 674a
Article 920. The following shall be sufficient causes for the disinheritance of parents or
ascendants, whether legitimate or illegitimate:
(1) When the parents have abandoned their children or induced their daughters to live a
corrupt or immoral life or attempted against their virtue;
(2) When the parent or ascendant has been convicted of an attempt against the life of the
testator, his or her spouse, descendants, or ascendants;
(3) When the parent or ascendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation has been found to be false;
(4) When the parent or ascendant has been convicted of adultery or concubinage with the
spouse of the testator;
(5) When the parent or ascendant by fraud, violence, intimidation, or undue influence causes
the testator to make a will or to change one already made;
(6) The loss of parental authority for causes specified in this Code;
(7) The refusal to support the children or descendants without justifiable cause;
(8) An attempt by one of the parents against the life of the other, unless there has been a
reconciliation between them. (756, 854, 674a)
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Article 921. The following shall be sufficient causes for disinheriting a spouse:
(1) When the spouse has been convicted of an attempt against the life of the testator, his or
her descendants, or ascendants;
(2) When the spouse has accused the testator of a crime for which the law prescribes
imprisonment of six years or more, and the accusation has been found to be false;
(3) When the spouse by fraud, violence, intimidation, or undue influence cause the testator
to make a will or to change one already made;
(4) When the spouse has given cause for legal separation;
(5) When the spouse has given grounds for the loss of parental authority;
(6) Unjustifiable refusal to support the children or the other spouse. (756, 855, 674a)
LEGAL OR INTESTATE SUCCESSION
If a person dies without leaving a will, the person is said to have died intestate, a status
known as intestacy.
Art. 960. Legal or intestate succession takes place:

(1) If a person dies without a will, or with a void will, or one which has subsequently lost its
validity;
(2) When the will does not institute an heir to, or dispose of all the property belonging to the
testator. In such case, legal succession shall take place only with respect to the property of
which the testator has not disposed;
(3) If the suspensive condition attached to the institution of heir does not happen or is not
fulfilled, or if the heir dies before the testator, or repudiates the inheritance, there being no
substitution, and no right of accretion takes place;
(4) When the heir instituted is incapable of succeeding, except in cases provided in this
Code. (912a)
Art. 961. In default of testamentary heirs, the law vests the inheritance, in accordance with
the rules hereinafter set forth, in the legitimate and illegitimate relatives of the deceased, in
the surviving spouse, and in the State. (913a)
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Art. 962. In every inheritance, the relative nearest in degree excludes the more distant ones,
saving the right of representation when it properly takes place.
Relatives in the same degree shall inherit in equal shares, subject to the provisions of article
1006 with respect to relatives of the full and half blood, and of Article 987, paragraph 2,
concerning division between the paternal and maternal lines. (912a)
Art. 963. Proximity of relationship is determined by the number of generations. Each

generation forms a degree. (915)
Art. 964. A series of degrees forms a line, which may be either direct or collateral.
A direct line is that constituted by the series of degrees among ascendants and
descendants.
A collateral line is that constituted by the series of degrees among persons who are not
ascendants and descendants, but who come from a common ancestor. (916a)
Right of Representation
Art. 970. Representation is a right created by fiction of law, by virtue of which the
representative is raised to the place and the degree of the person represented, and acquires
the rights which the latter would have if he were living or if he could have inherited. (942a)
Art. 972. The right of representation takes place in the direct descending line, but never in
the ascending.
In the collateral line, it takes place only in favor of the children of brothers or sisters, whether
they be of the full or half blood. (925)
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Consider the illustration:
AB
CE DF
H I
GK
JL
M N
1. In the Illustration C and D are siblings (brothers and sisters). Their common parents are
A and B.
2. G is the daughter of C and E; J is the son of D and F.
3. M is the son of G and K; N is the daughter of J and L.
4. A, C, G and M, in that order, are relatives in the direct descending line. From A to C is
one degree; from C to G is another degree and from G to M is another degree.
5. N, J, D and B, are relatives in the ascending direct line.
6. C, G, and M are relatives of D, J and N in the collateral line.
7. G is the niece of D, D is the uncle of G; J is the nephew of C, C is the aunt of J.
8. H and I are first cousins, they are four degrees apart, H to C, C to AB, AB to D, and D to
I.
9. M and N are second cousins; they are six degrees apart.
10. Because of G’s marriage to K, K becomes H’s brother in law, H being G’s brother. They
become relatives by affinity. Affinity is the connection existing in consequence of
marriage between each of the marri spouse and the kindred of the other.
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legitimate Legitimate Illegitimate Surviving Brothers, Other

children parents/ children/ spouse Sisters/ Collateral
/ ascendants) descendants Nephews, relatives within State
descenda Nieces 5th degree
nts
a. entire excluded None surviving excluded excluded excluded excluded

b. ½ if only 1 excluded None surviving 1/2 excluded excluded excluded
child
c. 1/3 each if excluded None surviving 1/3 excluded excluded excluded
two
children
d. None entire None surviving None excluded excluded excluded
surviving surviving
e. None 1/2 1/4 1/4 excluded excluded excluded
surviving
f. None None 1/2 1/2 excluded excluded excluded
surviving surviving
g. None None None surviving entire excluded excluded excluded
surviving surviving
h. None None None surviving 1/2 1/2 excluded excluded
surviving surviving
i. None None None surviving None entire excluded excluded
surviving surviving surviving
j. None None None surviving None None surviving entire excluded
k. None None None surviving None None surviving None surviving entire
11. Applying right of representation, If C dies ahead of A, C’s daughter G and son H may
represent C to the succession when A dies.
Order of Intestate Succession
1. Descending direct line (legitimate children/descendants)

2. Ascending direct line (legitimate parents/ascendants)
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3. Illegitimate children/descendants
4. Surviving spouse
5. Collateral relatives within 5th degree
6. The State
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50M / 4 = 12.5M
Legitimate Children ( 4 x 2) 8
Illegitimate Children (2 x 1) 2
10
50M / 10 = 5M
5M X 8 =40M to the legitimate children, 10M to each legitimate child

5M X 2 = 10M, 5M to each illegitimate child.
Share of the legitimate children (4 x 2) 8

Share of the illegitimate children (3 x 1) 3
Share of the Spouse (1 x 2) 2 13
50M / 13 =3,846,153.85
Legitimate children = 8 x 3,846,153.85 = 30,769,230.8 /4 =7,692,307.7 to each legitimate

child.
Illegitimate children = 3 x 3,846,153.85 = 11,538,461.55 / 3 = 3,846,153.85 tp each child.
Spouse = 2 x 3,846,153.85 =7,692,307.7
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Self-Help: You can also refer to the sources below to help you further
understand the lesson.
Ballada, W., & Ballada, S. (2018). Transfer and Business Taxation: made easy (17th ed.).
Philippines: DomDane Publishers & Made Easy Books.
Ampongan, O. (2013). Business & Transfer Taxes: 2/e: Conanan Educational Supply.
Tabag, D. ( 2018) Cpa Reviewer in Taxation with Special Notes : Professional Review and
Training Center
Let’s Check
I. Questions:
1. What is the meaning of the term succession?
________________________________________________________
________________________________________________________
________________________________________________________
2. Identify and differentiate the kinds of succession.

________________________________________________________
________________________________________________________
________________________________________________________
3. When does legal or intestate succession takes place?

________________________________________________________
________________________________________________________
________________________________________________________
4. What is meant by the word legitime?
5. What are the sufficient causes for disinheriting a spouse?
II. True or False:
1. Estate tax is an excise tax.

2. A transfer is said to be gratuitous when there is a consideration for the transfer.
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3. Legitime is the portion of the testator’s property which could not be disposed freely
because the law has reserved it for the compulsory heirs.
4. Brothers and sisters of the decedent are not compulsory heirs.
5. The surviving spouse is not entitled to his legitime if all compulsory heirs exist.
6. In every inheritance, the relative nearest in degree excludes the more distant ones,
saving the right of representation when it properly takes place.
7. An executor is a person appointed by the court to administer the assets and liabilities
of the decedent.
8. Representation is a right created by fiction of law, by virtue of which the

representative is raised to the place and the degree of the person represented, and
acquires the rights which the latter would have if he were living or if he could have
inherited.
9. Disinheritance can be affected only through a will but the legal cause therefor may not
be specified.
10. Under the law on legitimes, if only survivor is the widow or widower, she or he shall
be entitled to one-half of the hereditary estate of the deceased spouse, and the
testator may freely dispose of the other half.
III. Multiple Choice:
1. When there is a will, a person appointed in such will take charge in carrying out the
wishes of the testator is called:
a. Administrator b. executor c. trustee d. heir
2. Who is the taxpayer in estate tax

a. The heirs or successors
b. The deceased person’s estate
c. The heir’s legal representatives
d. The executor or administrator of the state.
3. When there are two or more legitimate children in a testamentary succession, the share
of the surviving spouse would be
a. One-half of a share of a child
b. Equal to the share of each child
c. One-fourth of the hereditary state
d. One-half of the hereditary
4. Succession which results from the designation of an heir, made in a will executed in the
form prescribe by law.
a. Testamentary
b. intestate succession
c. mixed succession
d. legal succession
Davao del Norte
Telefax: (084) 655-9591, Local 116
5. Estate tax is
a. Property tax
b. Personal tax
c. Business tax
d. Excise tax
6. Part of estate which is restricted for the compulsory heirs of the decedent.
a. Free portion
b. Restricted property
c. Legitime
d. Taxable Estate
7. Which of the following is not regarded as compulsory heir?

a. Illegitimate children
b. Surviving spouse
c. Legitimate parents
d. Brother
8. In default of testamentary heirs, the law determines who are to succeed to the
inheritance of the deceased. Which of the following ranks first in order of intestate
succession?
a. Legitimate children
b. Surviving spouse
c. Legitimate parents
d. Illegitimate children
9. If the surviving heirs in a testamentary succession are the parent and a legitimate child of
the decedent, what is the share of the parent in legitime?
a. 1/3 b. ¼ c. 1/2 d. Zero
10. Which of the following is not a cause for a valid disinheritance of a children or
descendants?
a. Parents have abandoned their children
b. The child has been convicted with the concubinage with the spouse of the
decedent.
c. A child by fraud causes the testator to make a will
d. A child has been found guilty of an attempt against the life of the testator
Let’s Analyze
Donor died on the day on which the inter vivos donation was made. Dina Malas
executed a deed of donation on her one (1) hectare parcel of land in favour of her friend,
Benny Buenas. Five (5) minutes after it was signed by the notary public, Dina went home but
on her way she met an accident. Dina died instantaneously. Her heir claimed that the
donation was not valid because it was a mortis causa transfer. Moreover, the instrument was
Davao del Norte
Telefax: (084) 655-9591, Local 116
not executed in accordance with the formalities of a will. Is the donation an inter vivos or a
mortis causa? Justify your answer.
In a Nutshell
1. Puma Panao died intestate leaving 3 illegitimate Anac, Sila and Labas. Cute and Sweetie
are the legitimate children of Anac who predeceases Puma Panao. The net distributable
estate of Puma Panao amounts to P 12,000,000.
How much is the share of Cute?
2. The hereditary state is P 3,000,000. The surviving relative are the parents, the spouse
and the four children. The testator is giving 20% of the free portion to his sister-in-law.
How much could be designated to the sister-in-law?
Week 2 & 3 : Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Identify properties to be included in the gross estate
b. Determine allowable deductions from gross estate.
c. Compute estate tax due of unmarried decedent.
Big Picture in Focus: ULOa. Apply taxation rules in computation of

estate tax due of unmarried decedent.
GROSS ESTATE
Consist of all properties and interests in properties of a decedent at the time of death as well
as properties transferred during lifetime (only in form), but in substance was only transferred
at the time of death.
Classification of decedent
1. Resident or citizen- gross estate shall include all properties located within and outside
the Philippines.
2. Non-resident alien- gross estate shall include properties located only within the
Philippines.
Resident Citizen, Non-Resident Citizen and Resident Alien decedents

The following shall comprise the gross estate of the decedent:
1. Tangible personal property. Personal property that can be seen and touched. These
include appliances, jewellery, car and other movable property which can be transported
from another.
Davao del Norte
Telefax: (084) 655-9591, Local 116
2. Intangible personal property. Personal property that can not be seen and touched
because they have no physical form. Bank deposits, bonds, promissory notes, copyright,
trademark, mortgages, patent, and licenses are intangible personal property.
3. Real or immovable property. This consist of land, building, or anything attached to soil
with permanence.
4. Taxable transfers. Although these transfers are inter vivos( during the life time ) in
form, they are actually mortis causa in substance because they are intended to take
effect upon or after the death of the transferor.
a. Transfer in contemplation of death

b. Revocable transfers
c. Transfers under general power of appointment
d. Proceeds of life insurance with revocable beneficiary
e. Transfer for insufficient consideration
Transfer in contemplation of death

 The impelling cause of the transfer is the thought of his death
 It includes disposition of property for the purpose of avoiding tax
 Transfers of properties based on their following grounds are not considered in
contemplation of death
a. to relieve the donor from the burden of management
b. to settle family litigated or unlitigated disputes
c. to reduce or save tax or property taxes
d. to provide independent income for dependents
e. to reward services rendered
f. to protect family members from the hazards of business operations
g. to see children enjoy the property and its fruit while the donor is still alive
Revocable transfers
 In revocable transfers, the terms may be changed, amended, revoked, or
terminated by the decedent.
 What is material is the power to amend, revoke, terminate, or alter though the
power is not exercised.
 It includes the transfer which allows the transferor to continue enjoying,
possessing or controlling the property.
Transfers under general power of appointment

 A power of appointment is a right to designate by will or deed executed in
contemplation of death or after death.
 A power of appointment may either be general or special (limited)
 A special power of appointment authorizes the holder of the power to appoint only
among a restricted or designated class of persons other than him/her.
 General power of appointment means that the decedent must have the power to
exercise in favor of himself/herself, his/her estate, or the creditors of his/her estate.
Davao del Norte
Telefax: (084) 655-9591, Local 116
 Requisites for inclusion of property transferred under the general power of

appointment
a. existence of the general power of appointment
b. exercise of such power by the decedent by will or by deed.
c. the transfer of the property by virtue of such exercise
Proceeds of life insurance with revocable beneficiary

a. If the wife, child, or other third person is the beneficiary
 The proceeds shall be taxable if the policy is revocable
 The proceeds shall be tax exempt the policy is irrevocable
b. If the estate, executor or administrator is the beneficiary:
 The proceeds are taxable whether the policy is revocable or irrevocable
 The policy shall clearly indicate whether the beneficiary is revocable or
irrevocable. In absence of any clear indication to that effect of designation of the
beneficiary shall be treated as revocable.
Transfer for insufficient consideration

 In general, if a property is transferred with inadequate consideration (partial
payment), the excess of the payment over the fair value at time of death shall be
included as part of the gross estate.
 If the property is transferred with inadequate consideration is capital asset ( real
assets such as land or building).it is subject to 6% capital gain tax based on the
selling price or the fair market value whichever is higher.
 If the property is transferred in an ordinary asset, the disposition thereof for
inadequate consideration is subject to donor’s tax.
 If the transfer is not shown to have been made in contemplation of death or to take
effect upon the decedent’s death, the transfer is subject to donor’s tax.
Non-resident alien decedent

If the decedent is was a non-resident alien, only his property situated in the Philippines shall
form part of his gross estate. His gross estate shall include the following:
1. Franchise which must be exercisable in the Philippines;

2. Shares, obligations or bonds issued by domestic corporations;
3. Shares, obligations or bonds issued by any foreign corporation, 85% of business of
which is in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation, if such shares,
obligations or bonds have acquired business situs in the Philippines;
5. Shares or rights in any partnership, business or industry established in the
Philippines.
The inclusion of intangible personal property located in the Philippines in the gross estate of
a non-resident alien decedent is subject to reciprocity rule. Such intangible personal
property shall not be included in the gross estate in the following cases:
Davao del Norte
Telefax: (084) 655-9591, Local 116
 If the decedent at the time of was a resident of a foreign country which at the time of
death did not impose a transfer tax or death of any character in respect of intangible
personal property of citizens of the Philippines not residing in that foreign country; or
 If the laws of the foreign country of which the decedent was resident at the time of his
death allow similar exemption from transfer taxes or death taxes of every character in
respect of in intangible personal property owned by the citizens of the Philippines not
residing in that foreign country.
Valuation of gross estate

1. In general, gross estate shall be valued at its fair market value at the time of decedent’s
death
2. Real properties- valued, whichever is higher, based on
 Fair market value
 Zonal value0
3. Personal properties-
 Recently acquired properties- valued at acquisition cost or purchase price
 Previously acquired properties- fair market value at the time of death
4. Usufruct
 In accordance with the latest Basic Standard Mortality Table, to be approved the
secretary of finance, upon recommendation of the Insurance Commissioner.
5. Shares of stock
a. Traded in local stock exchange (LSE)- mean between the highest and lowest
quotations nearest the date of death, if none is available on the date of death itself.
b. Not traded in local stock exchange
 Common shares- book value

 Preferred share-par value
Situs of Property
As a general rule, the situs of real property is the place or country where it is situated.
Generally, the situs of tangible personal property is the place or country where such is
actually located at the time of decedent’s death.
As a general rule, the situs of intangible personal property is the domicile or residence of the
owner. However, this rule may not control when the property has in fact, a situs, elsewhere.
In addition, to the ones already enumerated, the following tests of situs apply,
1. Accounts receivable - residence of the debtor

2. Bank deposit - location of depository bank
3. Copyright, trademark, patent, & franchise- place or country were the intangibles is used
or exercised.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Illustration on Situs and Gross Estate:
Ms. Nila Banez, single, died leaving the following properties:
a. House and lost in the Philippines 2,500,000.00
b. House and lot in Australia 3,000,000.00
Building & land o which is stands on Quezon,City 10,000,000.0

c. Philippines 0
d. Trees, plants, growing fruits and land on which they are
planted in Tiaong,Quezon 500,000.00
e. Fish pond in Marilao, Bulacan 200,000.00
f. Car in the Philippines 700,000.00
g. Vanh in australia 800,000.00
h. Appliances in house and lot in the Philippines 200,000.00
i Appliances in house and lot in Australia 400,000.00
j. Jewelry in the Philippines 1,200,000.00
k Jewelry in China 500,000.00
15,000,000.0
l. Bank deposit in Beijing, China 0
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00
n. Notes receivable, debtor resising in the Philippines 150,000.00

Accounts receivable, debtor resising in Sydney,
o. Australia 175,000.00
p. Copyright exercised in the Philippines 300,000.00
q. Trademark used in Australia 400,000.00

Davao del Norte
Telefax: (084) 655-9591, Local 116
r. Patent exercised in China 600,000.00
s. Franchise used in the Philippines 700,000.00
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00

Meralco certificate of stocks kept safe in the
u. Philippines. 550,000.00
V. Trasury bonds issued by Bangko sentral njg Pilipinas. 850,000.00
W. Foreign shares,80% business in the Philippines 900,000.00

Obligations issued by foreign corporation with no
X. business
business situs in the Philippines 750,000.00
y. Foreign bonds with business situs in the Philippines 650,000.00

Business right in a coprporation established in Macau,
z. China 1,500,000.00
aa. Investment in partnership established in the Philippines 2,250,000.00

bb
. Foreign shares,90% business in the Philippines 1,750,000.00
cc. Interest in an industry established in Brisbane, Australia 2,000,000.00
53,975,000.0
Total 0
Required: After determining the situs of each items above, compute for the gross estate if
Ms. Banes died a/an:
1. Filipino residing in the Philippines.

2. Filipino residing in Australia.
3. Australian residing in the Philippines.
4. Australian residing in the Australia with reciprocity.
5. Australian residing in China
Solution: The situs of each item above follows:
a. House and lot in the Philippines 2,500,000.00 Within
b. House and lot in Australia 3,000,000.00 Without

c. Within
Building & land on which it stands on Quezon City 10,000,000.0
Davao del Norte
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Philippines 0
d. Trees, plants, growing fruits and land on which they are 500,000.00 Within
planted in Tiaong, Quezon
e. Fishpond in Marilao, Bulacan 200,000.00 Within
f. Car in the Philippines 700,000.00 Within
g. Van in Australia 800,000.00 Without
h. Appliances in house and lot in the Philippines 200,000.00 Within
i Appliances in house and lot in Australia 400,000.00 Without
j. Jewelry in the Philippines 1,200,000.00 Within
k Jewelry in China 500,000.00 Without
15,000,000.0
l. Bank deposit in Beijing, China 0 Without
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00 Within
n. Notes receivable, debtor residing in the Philippines 150,000.00 Within
Accounts receivable, debtor residing in Sydney,

o. Australia 175,000.00 Without
p. Copyright exercised in the Philippines 300,000.00 Within
q. Trademark used in Australia 400,000.00 Without
r. Patent exercised in China 600,000.00 Without
s. Franchise used in the Philippines 700,000.00 Within
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00 Within
u. Meralco certificate of stocks kept safe in the Philippines. 550,000.00 Within
V. Treasury bonds issued by Bangko Sentral ng Pilipinas. 850,000.00 Within
W. Foreign shares,80% business in the Philippines 900,000.00 Without

.
Obligations issued by foreign corporation with no
X. business situs in the Philippines 750,000.00 Without
y. Foreign bonds with business situs in the Philippines Within
Davao del Norte
Telefax: (084) 655-9591, Local 116
650,000.00
Business right in a corporation established in Macau,

z. China 1,500,000.00 Without
aa. Investment in partnership established in the Philippines 2,250,000.00 Within
bb. Foreign shares, 90% business in the Philippines 1,750,000.00 Within
cc. Interest in an industry established in Brisbane, Australia 2,000,000.00 Without
1. The gross estate of Ms. Banes being a resident of tre Philippines shall include all her
property wherever situated, as enumerated in the illustration or P 53,975,000.
2. The gross estate of Ms. Banes being a Filipino residing in Australia is also P 53,975,000
because Filipino citizens whether residing or not in the Philippines, are subject to estate
tax in the same manner.
3. The gross estate of Ms. Banes being an Australian residing in Philippines is also
P53,975,000 because residents of the Philippines, whether Filipino citizens or aliens are
subject to estate tax in the same manner.
4. The gross estate of Ms, Banes being an Australian residing in Australia shall consist of
property situated in the Philippines.
The reciprocity rule may apply in this case because Ms. Banez at the time of her death is
a resident and citizen of Australia and has intangible personal property in the Philippines.
When there is reciprocity, the transmission of intangible personal property located in the
Philippines of a non-resident alien decedent is not subject to tax. Accordingly, the
computation of Ms. Banes’ gross estate is shown below:
a. House and lot in the Philippines 2,500,000.00
Building & land on which it stands on Quezon, City 10,000,000.0

c. Philippines 0
d. Trees, plants, growing fruits and land in which they are
planted in Tiaong, Quezon 500,000.00
e. Fishpond in Marilao, Bulacan 200,000.00

Total
15,300,000.0
Davao del Norte
Telefax: (084) 655-9591, Local 116
5. The gross estate of Ms, Banes being an Australian residing in China shall consist of
property situated in the Philippines.
The reciprocity rule cannot apply in this case because Ms. Banez although a non-
resident alien in the Philippines is not a resident and citizen of one foreign country. So
that the reciprocity rule may apply, the non-resident alien must be a resident and citizen
of one foreign country at the time of his death.
When there is no reciprocity, the transmission of intangible personal property located in

the Philippines of a non –resident alien decedent is subject to tax,
a. House and lost in the Philippines 2,500,000.00
c. Building & land on which it stands on Quezon City Philippines 10,000,000.00

d. Trees, plants, growing fruits and land in which they are
planted in Tiaong, Quezon 500,000.00
e. Fishpond in Marilao, Bulacan 200,000.00
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00
n. Notes receivable, debtor residing in the Philippines 150,000.00
p. Copyright exercised in the Philippines 300,000.00
s. Franchise used in the Philippines 700,000.00
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00
u. Meralco certificate of stocks kept safe in the Philippines. 550,000.00
V. Trasury bonds issued by Bangko sentral ng Pilipinas. 850,000.00
y. Foreign bonds with business situs in the Philippines 650,000.00
aa. Investment in partnership established in the Philippines 2,250,000.00

bb. Foreign shares, 90% business in the Philippines
Davao del Norte
Telefax: (084) 655-9591, Local 116
1,750,000.00
Total 27,950,000.00
Exemptions and Exclusions from Gross Estate

 Under Section 85 and 86 of NIRC
1. Capital or exclusive property of the surviving spouse
2. Properties outside the Philippines of a non-resident alien decedent
3. Intangible personal property of a non-resident alien in the Philippines when the
rule of reciprocity applies.
 Under Section 87 of NIRC

1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy of the fiduciary heir or
legatee to the fideicommissary
3. Transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the will of the predecessor
4. All bequests, devices, legacies or transfers to social welfare , cultural and
charitable institutions, provided:
i. No part of the net income of said institution inure to the benefit of any
individual;
ii. Not more than 30% of such transfers shall be used for administration
purposes.
 Under Special Laws

1. Proceeds of life insurance and benefits received by members of the GSIS (RA
728)
2. Benefits received by members from SSS by reason of death (RA 1792)
3. Amounts received from Philippine and United States governments for war
damages
4. Amounts received from United States Veterans Administration
5. Retirement benefits of officials/employees of a private firm (RA 4917),
provided they are included in the gross estate.
6. Payments from the Philippines and US governments to the legal heirs of
deceased of World War II Veterans and deceased civilian for supplies/services
furnished to the US and Philippine Army (RA 136)
Deductions from Gross Estate
Deductions are the amounts or items that the law allows to be deducted from gross estate to
arrive at net estate.
Davao del Norte
Telefax: (084) 655-9591, Local 116
The deductions from gross estate should be grouped into:

1. Those allowed if the decedent was a resident or citizens
2. Those allowed if the decedent was a non-resident alien
Resident Citizen, Non-Resident Citizen and Resident Alien decedents
Ordinary deductions
1. Losses, Indebtedness, Taxes, etc.
a. Casualty losses
b. Claim against insolvent person
c. Claim against the estate
d. Unpaid mortgage
e. Unpaid taxes
2. Transfer for public use
3. Property previously taxed or vanishing deduction
Special deductions
1. Standard deduction
2. Family home
3. Amount received by heirs under R.A. 4917
4. Share of the surviving spouse
Non-resident alien decedent
1. Claims against the estate, claims against insolvent persons, and unpaid mortgages.
This deduction is subject to limitation as follows:
Gross estate, Phil x World Claims against the estate,

Gross estate, World claims against insolvent persons, = Deductions allowed
and unpaid mortgages
2. Property previously taxed or vanishing deduction. Vanishing deduction on property

situated in the Philippines.
3. Transfer for public use of property situated in the Philippines
4. Net share of surviving spouse in the conjugal partnership or community property
5. Standard deduction of P 500,000.
Ordinary deductions
Casualty losses
This includes losses due to fire, storm, shipwreck, theft, robbery or embezzlement.
Requisites:
 Incurred during the settlement of the estate;
 The loss is not compensated by insurance or otherwise;
Davao del Norte
Telefax: (084) 655-9591, Local 116
 The loss is not claimed as a deduction in the estate income tax return;
 The loss must occur not later than the last day for payment of the estate tax. (The
last day for payment of the estate tax is 1 year from the decedent's death).
Amount deductible – the amount deductible is the value of property lost
Claim against insolvent person

These are receivables of the decedent on persons declared by competent authorities as
insolvent.
Requisites:
 value of the decedent's interest therein is included in the gross estate;
 The insolvency of the debtor must be established
Amount deductible – the amount of claims/receivable that cannot be collected
Example:
Mr. X borrowed P 150,000 from Mr. Y. After a month, the debtor paid P 50,000. Before the
remaining balance of P 100,000 was paid, Mr. X died. Prior to his death, the court declared
Mr. X insolvent. The total assets and total liabilities of the debtor amount to P 200,000 and P
500,000 respectively.
The full amount of the claim must be included in the gross estate. The proportionate amount
of P 40,000 (P 100,000 X 2/5) is still collectible. The amount deductible from gross estate is
P 60,000 (P 100,000-P 40,000).
Claim against the estate

These are financial obligation of the decedent prior to his/her death and still enforceable at
the time of death.
Requisites:
 Contracted in good faith;
 Must be valid in law and enforceable in court;
 Must not have been condoned by the creditors;
 Must have not been prescribed;
 Personal debt of the decedent existing at the time of his death
Amount deductible- the amount of debt that will qualify in the above requirements.
Unpaid mortgage
These are amounts owed by the decedent supported with collateral and still outstanding at
the time of death.
Requisites:
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The fair market value of the mortgaged property undiminished by the mortgage
indebtedness should be included in the gross estate;
 Contracted in good faith
 For an adequate and full consideration
Amount deductible- amount of unpaid mortgage
Unpaid taxes
Requisites:
 The tax must have accrued as of the death of the decedent which were unpaid as of
the time of death
Amount deductible –amount of taxes that accrued before the decedent’s death but not
including:
 Income tax on income earned after death;
 Property taxes that accrue after death;
 Estate tax
Transfer for public use

These are amount of bequest, legacies, or devices to or for the use of the of the
government of the Philippines exclusively for public purpose.
Requisites:
 Given to the government of the Philippines (national or local);
 Must be testamentary in character;
 By way of donation mortis causa excecuted by the decedent before his death;
 Exclusively for public purpose
Amount deductible- amount of all bequest, legacies, devises, or transfers to or for the use
of the Government of the Philippines, or any of its political subdivisions.
Property previously taxed or vanishing deduction

Purpose - to minimize the effects of a double tax on the same property within a short period
of time.
Requisites:
Conditions for allowance:
 There is a property forming a part of the gross estate of the present decedent situated
in the Philippines;
 The present decedent acquired the property by inheritance or donation within 5 years
prior to his death;
 The property subject to vanishing deduction can be identified as the one received
from the prior decedent, or from the donor, or can be identified as having been
acquired in exchange for the property so received;
Davao del Norte
Telefax: (084) 655-9591, Local 116
 The property acquired formed part of the gross estate of the prior decedent, or of the
taxable gift of the donor;
 The estate tax on the prior transfer or the gift tax on the gift must have been paid; and
 The estate of the prior decedent has not previously availed of the vanishing
deduction.
Percentage of vanishing deduction - the rate depends on the interval between the death
of present decedent and death of prior decedent (if the property was acquired by
inheritance) or death of present decedent and date of gift (if the property was acquired by
donation), as follows:
More than Not more than Percentage

xxx 1 years 100%
1 years 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years Xxx Xxx
Procedures in computing vanishing deduction
a. Determine the initial value by comparing the FMV of the property used in computing
the first transfer tax paid with the FMV of the property in the present decedent. The
lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property previously
taxed which was paid by the present decedent prior to his death, where such
mortgage or lien was a deduction from the gross estate of the prior decedent or gross
gift of the donor. This is the initial basis.
c. The initial value taken, as reduced by Step (b), shall be further reduced by prorated
deductions for losses, indebtedness, taxes and transfers for public purpose only,
allocable to the property previously taxed as follows:
Initial basis
X Deductions = Portion deductible
Gross estate
This is the final basis.
d. Determine the time interval between the death of present decedent and death of prior
decedent (if the property was acquired by inheritance) or death of present decedent
and date of gift (if the property was acquired by donation) to find the applicable
percentage of vanishing deduction
e. .Multiply the final basis by the percentage of vanishing deduction to arrive at the
VANISHING DEDUCTION.
Davao del Norte
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Example:
Val Hallada died on November 20, 2018. Some of the properties he left are the following:
Mode of Date of Market value

Death of
Assets Acquisition Acquisition Date acquired VaL Hallada
Land Donation 7- 3- 2014 P 500,000 P 350,000

Car Purchase 10- 2-2017 800,000 980,000
Other information:
1. The gross estate of the decedent amounts to P 3,000,000.
2. The land was mortgaged for P 50,000 which was deducted in prior estate and Hallada
paid the same before he died.
3. The allowable deductions total P125,000, which includes medical expenses of P 30,000. It
excludes transfer to national government amounting to P 50,000.
Required: Compute for the vanishing deduction
Corrected Losses, indebtedness, taxes and Transfer for public use:

Unadjusted P 125,000
Add: Transfer for public use 50,000
Less: Medical expenses 30,000
Adjusted P 145,000
Value taken (Land) P350,000

Less: mortgage paid 50,000
Initial basis P300,000
Less: proportional deduction
(300,000/3,000,000)*145,000 14,500
Final basis 285,500
Vanishing deduction % 20%
Vanishing deduction 57,100
Davao del Norte
Telefax: (084) 655-9591, Local 116
Special deductions
Standard deduction
This is a fixed amount equivalent to P 5, 000,000 which is automatically deductible and
not subject to any substantiation.
Family home
1. Defined - The family home is the dwelling house where a person and his family reside,
and the land on which it is situated.
2. Value included in the gross estate. The current fair market value or zonal value of
the family home, whichever is higher, shall be included in the gross estate of decedent.
3. Valuation date. The family home shall be valued as of the date of death.
4. Conditions for allowance of deduction :
a. Decedent must have died on or after July 28, 1992.
b. The total value of the family home must be included in the gross estate of the
decedent.
c. The family home must be the actual residence of decedent and his family at the time
of death, as certified by the Barangay Captain of the locality where the family home
is situated.
d. Deduction cannot exceed the fair market value or zonal value of the family home as
included in the gross estate but not exceeding P10,000,000.
e. It is a deduction from common properties or separate properties of the decedent, as
the case maybe.
Example:
The current value of the family home at the time of death is of Mr. X is P 16,000,000 when
the zonal value is 17,500,000.
What amount of family home is to be included and deducted in the gross estate?
Answer:
The amount includible in the gross estate is the zonal value of P 17,500,000 because it is
higher than the current value.
The family home deductible from the gross estate is P 10,000,000 only because it is the
maximum amount allowed.
If the family home is a conjugal or community property, the amount deductible is the share
of the decedent in such property, which is equivalent to ½ of the amount included in the
gross estate but not exceeding P 10,000,000.
Davao del Norte
Telefax: (084) 655-9591, Local 116
Thus, if the family home is part of the community property, the entire amount of P
17,500,000 is included in the gross estate. However only P 8,750,000 is deductible because
this is the only amount corresponding the share of the decedent is such property.
Amount received by heirs under R.A. 4917

This pertaining to the benefits granted and received by the heris of the decedent from his
employer, as a consequence of separation of service, due to death of the decedent.
Provided, however, that such amount is included in the gross estate of the decedent.
Share of the surviving spouse

The share of the surviving spouse in the conjugal or community property as diminished
by the obligations properly chargeable to such property shall be deducted from the gross
estate.
Common properties P xx
Common deductions (xx)
Net common properties before deductions xx
Multiply by 50%
Share of the surviving spouse P xx
Net Estate and Estate tax: Unmarried Decedent
Format of Computation:
Gross Estate P xx
Less:
Ordinary deductions (xx)
Special deductions (xx)
Net Taxable Estate xx
Estate tax rate 6%
Estate tax due xx
Illustration- Resident Citizen

Dina Nakahinga, resident Filipino, single, died on February 14, 2018. Assets declared and
deductions claimed by the estate are as follows:
Assets:
Family Home (house) Quezon City 8,000,000
Lot in Quezon City where the house stands 500,000
Fishpond, Bulacan 4,000,000
Apartment, Manila 1,600,000
Shares of stock, Good Luck Co., domestic 600,000
Shares of stock, BX Inc., a foreign Corporation
60% of the business is in the Phil. 400,000
Cash in Bank 100,000
Deductions claimed:
Funeral expenses 300,000
Family home deduction 8,500,000
Medical expenses incurred within one year before death 600,000
Davao del Norte
Telefax: (084) 655-9591, Local 116
Loss (Decedent has a receivable from Mr. MAX) 40,000

Liability (This represents unpaid subscription to 200
shares of Tililing Co. acquired on February 10,2018) 200,000
Standard deduction (Unitemized & undocumented) 5,000,000
Death benefits under RA 4917 300,000
Compute for the net taxable estate and estate tax.
Gross estate
Family Home (house) Quezon City 8,000,000
Lot in Quezon City where the house stands 500,000
Fishpond, Bulacan 4,000,000
Apartment, Manila 1,600,000
Shares of stock, Good Luck Co., domestic 600,000
Shares of stock, BX Inc., a foreign Corporation
60% of the business is in the Phil. 400,000
Cash in Bank 100,000
Shares of stock, Tilling Co. 200,000
Receivable from Mr. MAX 40,000
P 15,740,000
Less: Deductions
Loss (Decedent has a receivable from Mr. MAX) 40,000
Liability (This represents unpaid subscription to 200
shares of Tililing Co. acquired on February 10,2018) 200,000
Family home deduction 8,500,000
Standard deduction (Unitemized & undocumented) 5,000,000
Total P14,040,000
Net Taxable estate P 1,700.000
Estate tax due (1,700,000* 6%) P 102,000
Illustration- Non resident alien

Che Cua, a non resident alien died leaving the following assets-
Domestic shares P 1,000,000
Foreign shares 3,000,000
Tangible personal property, Philippines 6,000,000
Expenses( deductible) 1,200,000
Note- The country where he is a citizen and resident does not impose transfer tax on
transmission of intangibles of Filipinos.
Compute for the net taxable estate and estate tax.

Gross estate within in the Philippines P6, 000,000
Gross estate outside the Philippines 4,000,000
Total gross estate within and outside the Philippines P 10,000,000
Gross estate P 6,000,000

Davao del Norte
Telefax: (084) 655-9591, Local 116
Less:
Proportional deductions
(1,200,000*6/10) 720,000
Standard deduction 500,000
Total P1,220,000
Net Taxable estate P 4,780,000
Estate tax due (4,780,000* 6%) P 286,800
Self-Help: You can also refer to the sources below to help you further
understand the lesson.
Ballada, W., & Ballada, S. (2018). Transfer and Business Taxation: made easy (17th ed.).
Philippines: DomDane Publishers & Made Easy Books.
Ampongan, O. (2013). Business & Transfer Taxes: 2/e: Conanan Educational Supply.
Tabag, D. ( 2018) Cpa Reviewer in Taxation with Special Notes : Professional Review and
Training Center
Let’s Check
I Questions:
1. What constitute gross estate of a resident citizen?

________________________________________________________
________________________________________________________
________________________________________________________
2. What constitute gross estate of a non-resident alien?

________________________________________________________
________________________________________________________
________________________________________________________
3. What are the ordinary deductions?

________________________________________________________
________________________________________________________
________________________________________________________
4. What are the special deductions?

Davao del Norte
Telefax: (084) 655-9591, Local 116
5. Explain reciprocity rule of non-resident alien?
II MULTIPLE CHOICE QUESTIONS
1. As a rule, all the decedents are taxable on world, except

a. Non-resident alien
b. Non-resident citizen
c. Resident-alien
d. All of these
2. Which property is covered by the reciprocity exemption?

a. Intangible personal property abroad
b. Intangible personal property in the Philippines
c. Tangible personal property abroad
d. Tangible personal property in the Philippines
3. The proceeds of life insurance designated by the decedent to his executor is excluded in
the gross estate
a. If the designation is revocable
b. If the designation is irrevocable
c. Without regard to the designation as revocable or irrevovable
d. Under no circumstances
4. Mr. Faustino Santos, testator appointed Mr. Generoso Cruz as the executor of the estate.
Mr. Santos was a citizen of Argentina and a resident of Quezon City. He was in
California, USA visiting his son when he died. He owned a Mercedes sports car and
several bank deposits in the USA. The executor asked you whether or not the car and
bank deposits in USA will still have to be declared as part of the Philippine gross estate
of Faustino Santos. Argentina does not impose taxes of any kind. What answer will you
give him?
a. The car and bank deposits in the USA have to be declared as part of the
Philippine gross estate because the decedent was a resident at the time of his
death and, as such, properties wherever situated are included in the gross estate.
b. The car and bank deposits in the USA need not be declared as part of the
Philippine gross estate because when Mr. Santos died he was in California, USA
making him a non-resident alien.
c. The car and the bank deposits in the USA have to be declared as part of the
Philippine gross estate only when the decedent specified in his will and testament
that such properties must form part of his gross estate.
d. The car and the bank deposits in the USA need not be declared as part of the
Philippine gross estate because Argentina does not impose transfer taxes of any
kind.
Davao del Norte
Telefax: (084) 655-9591, Local 116
5. Statement 1: A resident alien is taxable only on his estate situated in the Philippines.
Statement 2: A non-resident alien is taxable only on his estate situated in the
Philippines.
Which is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
6. Which shall not form part of the gross estate of a decedent:

a. Life insurance where the executor is the beneficiary and it is irrevocable
b. Transfer passing special power of appointment.
c. Revocable transfer
d. Intangible personal property of non-resident
7. Personal property with a cost of P400,000 and a fair market value at the time of death
P900,000, but subject to a mortgage of P250,000
a. Shall be in the taxable net estate at P500,000
b. Shall be in the gross estate at the decedent’s equity of P650,000
c. Shall be in the gross estate at P400,000
d. Shall be in the gross estate at P900,000
8. Statement 1: Losses can be deducted only if incurred during the settlement of the estate.
Statement 1: Losses can be deducted only if the property lost is included in the gross
estate.
a. both statement are true.
b. both statement are false.
c. the first statement is true, but the second statement is false.
d. the first statement is false, but the second statement is true.
9. Which of the following is deductible from the gross estate?

a. Income tax paid on income received after death.
b. Unpaid property taxes accrued in the year of death.
c. Donor’s tax accrued after to death.
d. Estate tax paid to a foreign country.
10. Which is not a requisite of vanishing deduction?
a. If the property is acquired by inheritance, the prior estate must have paid the
estate tax
b. If the property is acquired by inheritance, the property must not have claimed
vanishing deduction
c. The decedent must have acquired the property by way of inheritance or
donation.
d. The decedent must have acquired the property by purchase.
11. A resident decedent was married at the time of death and under the system of conjugal
partnership of gains. Among the properties in the gross estate were:
Davao del Norte
Telefax: (084) 655-9591, Local 116
Land, inherited before the marriage, fair market value P5, 000,000
Family home built by the spouses on the inherited land 4,000,000
Deduction for family home is: (UNDER TRAIN LAW)
a. P9,000,000 c. P5,000,000
b. P7,000,000 d. P2,000,000
12. The heirs of the decedent compiled the following accrued taxes:
Before death After death
Real property tax P 40,000 P-
Income tax P 80,000 P 110,000
Estimated estate tax P 400,000
Compute the deductible taxes.
a. P 120,000
b. P 230,000
c. P 510,000
d. P 630,000
A decedent left the following properties:

Land in Italy (with P1M unpaid mortgage) P 2,000,000
Land in Davao City, Phil.. (zonal value P750,000) 500,000
Franchise in USA 100,000
Receivable from debtor in Phil. 50,000
Receivable from debtor in USA 100,000
Bank deposit in Phil 20,000
Bank deposits in USA 80,000
Shares of stocks of PLDT, Phil. 75,000
Shares of stock of ABC, foreign corporation
75% of the business in the Philipinnes 125,000
Other personal properties in the Philippines 300,000
Davao del Norte
Telefax: (084) 655-9591, Local 116
13. If the decedent is a non-resident citizen his gross estate is:
a. P 3,350,000
b. P 3,600,000
c. P 2,350,000
d. P 2,600,000
14. If the decedent is non-resident alien (no reciprocity) his gross estate is?
a. P 800,000
b. P 945,000
c. P 1,050,000
d. P 1,195,000
15. If in the preceding number reciprocity law can be applied the gross estate is:
a. P 800,000
b. P 945,000
c. P 1,050,000
d. P 1,195,000
Let’s Analyze
For each type of decedent, compute for the Gross estate of Mr. Lao if he left the
following property:
A. Resident Citizen
B. Non- Resident Citizen
C. Resident Alien
D. Non- Resident Alien
E. Non- Resident Alien, Without Reciprocity
1. Lot in Pakistan P1,500,000

2. Accounts Receivable ,debtor in Jolo, Sulu 150,000
3. Foreign Bonds 2,800,000
4. Buildings in Quezon City 5,000,000
5. Fishing Boat in Nasugbu, Batangas 175,000
6. Car in Pakistan 1,200,000
7. Van in Manila 1,400,000
8. Farm in Lean, Batangas 550,000
9. Appliances in Cotabato City 500,000
10. Jewelry in Pakistan 800,000
11. Shares of stock,domestic corporation 250,000
12. Bank deposit, Swiss Bank 3,0000,000
13. Notes Receivable, debtor in Pakistan 700,000
Page 46 of 47
Davao del Norte
Telefax: (084) 655-9591, Local 116
14. Copyright exercised in the Philippines 2,500,000

15. Patent used in Paris 4,500,000
16. Franchise used in Sta. Rosa Laguna 2,000,0000
17. Treasury bonds, government corporation 900,000
18. House & Lot in Davao City 1,000,000
19. Fishpond in Nasugbu, Batangas 300,000
20. Mango Fruits and Tress in Zambales 850,000
21. Obligations by a domestic corporation 400,000
22. Interest in a domestic industry 475,000
23. Library house in Cotabato City 250,000
In a Nutshell
Mr. Nakalimot Huminga, head of family died on January 15,2018 ,leaving the following
properties and obligations:
Cash in bank,50% donated mortis causa to Natl
Govt;50% to Q.C. Govt 3,000,0000
House and lot in Makati, F. Home 15,000,000
Personal properties 15,000,000
Farm lot 8,250,000
Claim against an insolvent debtor 2,250,000
Transfer in contemplation of death( gratuitous) 15,000,000
Transfer passing under special power of appointment 750,000
Deductions claimed:
Funeral expenses 5,750,000
Judicial expenses 675,000
Donation mortis causa to Quezon City Government 1,500,000
Unpaid mortgage on the farm lot 750,000
Medical expenses( included in the funeral expenses
Incurred within the 1 year period with receipts) 2,250,000
The farm lot was inherited 5 1/2 years by the decedent before his death with a value then of P
5,750,000 and a mortgage indebtedness of P 1,500,000.
Determine the following:

a. Gross Estate
b. Total allowable deductions
c. Net taxable estate
d. Estate tax due
Page 47 of 47

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Department of Accounting Education

Mabini Street, Tagum City

Department of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)

Course/Subject: TAX2a – Transfer and Business Taxation

Name of Teacher: Argem Jay M. Porio, CPA

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

Course Outline: TAX 2a– Business & Other Taxes

Course Coordination: Jon D. Inocentes

Areas of Concern Details

The expected number of hours will be 54 including

page including the title of assessment task (if the

If the assessment task is done in real time through

Since this course is included in the licensure

Turnitin Submission To ensure honesty and authenticity, all assessment

Please note that academic dishonesty such as

However, if the late submission of assessment

You should request in writing addressed to the

You should request in writing addressed to the

Grading System You shall be evaluated based on the following:

Assessment methods Weights

CLASS PARTICIPATI 40%

Submission of the final grades shall follow the usual

The course coordinator shall create Group Chat in

You can also meet the course coordinator in person

Contact Details of the Dean Dr. Gina Fe G. Israel, EdD

Contact Details of the For Accountancy:

For Accounting Technology:

Maria Teresa A. Ozoa, CPA, MBA

the course coordinator about the nature of his or her

Course Information – see/download course syllabus posted in

Big Picture in Focus: ULOa. Determine the nature and concept of

Topic: ESTATE TAXATION

INTRODUCTION TO TRANSFER TAX

Basic Concepts of Succession

a. Testamentary – results from the designation of an heir, made in a will executed in

Persons authorized to manage the estate

dated in front of required number of wtnesses ( 3 or more witnesses) and

The following are the compulsory heirs:

1. Legitimate children and descendants, which include legally adopted children

The table below explains the legitime of the compulsory heirs:

Legitimate Legitimate Surviving Illgitimate Free

a. 1/2 excluded Same as 1/2 legitime of a Varies

b. None surviving 1/2 None surviving None surviving 1/2

c. None surviving 1/2 1/4 None surviving 1/4

d. None surviving None surviving 1/2 None surviving 1/2

e. None surviving None surviving 1/3 1/3 1/3

The distribution of the estate is

2. Hereditary estate - P 1,500,000

3. Hereditary estate - P 1,500,000

The distribution of the estate is

4. Hereditary estate - P 1,500,000

The distribution of the estate is

5. Hereditary estate - P 1,500,000

6. Hereditary estate - P 1,500,000

7. Hereditary estate - P 1,500,000

8. Hereditary estate - P 1,500,000

Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his

(6) Maltreatment of the testator by word or deed, by the child or descendant;

(7) When a child or descendant leads a dishonourable or disgraceful life;

LEGAL OR INTESTATE SUCCESSION

Art. 960. Legal or intestate succession takes place: