TRANSFER & BUSINESS TAXATION

11
Basic Concepts of Donation

DEFINITION OF DONATION
dahil sa kabutihang loob
A gift is an
intentional transfer of property from the transferor out of generosity. A
person can arrange to make gift during life, at the moment of death, or by wili, after
death.

There are many reasons why a person makes a gift during life, rather than by will, after
death. One is avoid estate taxes. Another reason is to have absolute assurance that
to

the intended donee receives the gift. The only way for a donor to be absolutely certain
that an intended donee receives a gift is for the donor to make the gift directly to the

donee during life.

As earlier defined, donation is an act of liberality whereby a person disposes gratuitously

of athing or right in favor of another, who accepts it. The person who disposes of the
thing or right is called the donor while the one who accepts it is the donee.

For donor's tax purposes, there is donation when a person gives to another a thing, or
right on account of the latter's merits or on account of the services rendered by him to

the donor, provided they do not constitute a demandable debt. When the gift imposes
upon the donee a burden which is less than the value of the thing given, there is also a
donation.

be a donation of property, and does not

A donation, for donor's tax purposes, must
or a donation of a right to use
Include a donation of personal service (e.g., facial)
property (e.g., parking space).

Donation Inter Vivos Versus Donation Mortis Causa

donation inter vivos and donation mortis causo.

There are two kinds of donation
living persons and which is perfected from
Donation inter vivos iS one made between
the moment the donor knows of the acceptance of the donee. This donation is subject
intends that the donation shall take effect during the
to donor's tax. When the donor
lifetime of the donor, though
the property shall not be delivered until after the donor's
of the property from the time of the
vivos. The fruits
death, there is donation inter
 donor
acceptance of the donation, shall pertain to the donee, unless the provides
otherwise.

Illustration: Eric gave Barbara a heart-shaped necklace as a symbol of his love for her.
Barbara happily accepted it.
This is a
donation because there is no consideration other than Eric's love for
gift or

Barbara. The donation is inter vivos because it takes effect during the lifetime of the
donor and the donee.

Donations mortis causa are donations which are to take effect upon the death of the
donor and partake of the nature of testamentary provisions governed by the rules
established in the Title on Succession under the Civil Code.

Illustration. Source: BIR Ruling 081-98, May 28, 1998

Yvonne gave, transferred and
conveyed a certain real property to Marijo, her sister. The deed of donation
provides for the following conditions:
1. That the donation shall produce effects only by and because of the death of the donor, the property
donated to
pass title after the donor's death.
2. That the donor reserves the
rightto amend or cancelthe donation at anytime during her lifetime.
Marijo accepted the gift subject to the above conditions,

This
donation is mortis causa in substance. The
which was intended donation shall not be subject to donor's tax.
The donation
to take effect upon the death of the donor partake .of
provisions and the same shall remain part the nature of testamentary
donor-decedent's
of the
This is a transfer in contemplation of death and shall
gross estate at the time of her death.
be subject to estate tax.

Elements of Donation

1. Consent. As
any other contract, agreement between the parties
In

donation is perfected only from the moment thedonor knows of the

essential. is The
the donee. Vitiated

any thoun en tindonsionweidnvie, The conce mat pe.oe

acceptance
the donation
personally, through an authorized
purpose, or with a general and sufficient power; special power for the
void. Acceptance must be made during otherwise, the donation shall be
the lifetime of the
donor and the donee.
2. Object. An ordinary donation may comprehend all
donor, or part thereof, provided he the present
reserves, in full property of the
sufficient means for the support of himself,and of ownership or in usufruct,
all relatives
the donations, are by law entitled to be
supported by the who,at the time of
reservation, the donation shall be reduced on donor. Without
such
Donations cannot comprehend future property. petition of
any person
By future affected.
anything which the donor cannot dispose of at the time property
of the
IS understood
of future property shall be governed by the donation.
and the formalities of wills. provisions on testamentary Donations
succession
178 Transfer and Business Taxation 2022 Edition by Prof. WIN
Ballada and Susan
Ballada
3. Cause. Donation
donee's merits or
is an act of liberality although it may also be on account of the
services not constituting a demandable debt or of a burden which
Is less than the
essential.
value of the thing given. In this case, donative intent is not at all

4. Formalities. The
donation of a movable may be made orally or in writing. An oral
donation requires the
of the document
simultaneous delivery, actual or constructive, of the thing or
representing the right donated.
If the value of the
personal property donated exceeds five thousand pesos, the
donation and the
acceptance shall be made in writing. Otherwise, the donation
shall be void.

In order that a donation of

an immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges
which the donee
must satisfy. The acceptance may be made in the same deed of
donation or in separate public document, but it shall not take effect unless it is
a

done during the lifetime of the donor.

Persons Who May Give or Receive a Donation

All persons who may contract and dispose of their property may make a donation.
Guardians and trustees cannot donate the property entrusted to them. The donor's

capacity shall be determined as of the time of the making of the donation.

All those who are not specifically disqualified by law, therefore, may accept donations.
succeed by will shall be applicable to donations inter vivos. Minors and
Incapacity to
others who cannot enter into a contract may become donees but acceptance shall be
done through their parents or legal representatives. Donations made to conceived andif
unborn children may be accepted by those persons who would legally represent them
incapacitated persons shall be void, though
they were already born. Donations made
to

a person who is interposed.

simulated under the guise of another contract or through

Evono vs. Department of Finance, CIR and the

Illustration. Source: Hordon H. Evono and Maribel C.
CTA EB 705, June 4, 2012
Republic of the Philippines,
there is a donation, the true intention of the parties must be
this case, to determine whether or not

that petitioners presented various contracts to prove that their childrenforwere

in

ascertained. Records show However, in order to determine the tax liability any
in the sale of the subject properties.
also buyers be considered, but also some other external factors
legal documents will
transaction, not only the transfer of properties. This is a
such as the capacity of the buyer in cases of
surrounding the transaction, of the legal tax due,
preventive measure imposed to prevent avoidance
children since they do not own
was alleged that there
was no transfer of property from the parent to their
subject to donor's tax. Moreover,
thess blete property, hence, the inclusion of theirallowance,
names in the cicus
not

which came from their parents, to purchase the

it was claimed that
the minor children used their
properties.

Donor's Tax 179

 when the names
In its decision, the CTA held that there is a clear "animus donandi"' or intent to give of

minor children who in the CAR and

certificate of titles of the
are
not earning any income are included allowances and buy
property. It held that while it is true that minor children can save money from their
children will not
propertiesfrom their savings, considering the children's age and the price of property, the
be able to save
substantial amount, even if they receive enormous allowances from the parents.
Moreover, such an early age and without a
highly unlikely for an individual to own real property at
it is

source of income; thus the CTA deemed the transaction to be a donation.

No person may give or receive, by or receive by

way of donation, more than he may give
will. The
donation shall be inofficious in all that it may exceed this limitation.

Husband and wife are considered as separate and distinct taxpayer's for purposes of the
donor's tax.

Husband and wife are

co-owners of conjugal or community property. They cannot
donate any conjugal or community property without the consent of the other except
moderate donations for charity or on occasions of family rejoicing or family distress.

Husband and wife

may make a joint donation conjugal or community property. In
of
this case and for donor's
tax
purposes, each spouse shall be considered a separate
donor of his or her interest
in the property-one-half being the gift of the husband and
the other half that of the wife. Each spouse shall file separate donor's tax return.

However, if what was donated is a conjugal or

community property and only the
husband signed the deed of donation, there is only one donor for donor's tax purposes,
without prejudice to the right of the wife to question the validity of the
donation
without her consent pursuant to the pertinent provisions of the Civil Code of
the
Philippines and the Family Code of the Philippines.
In case of death
of a spouse, the renunciation by the surviving spouse of his/her share
the conjugal partnership or in

favor of the heirs of the absolute community after the dissolution of marriage in
deceased spouse or any other person is subject
to donor's tax.

But the general renunciation by an

in the
heir including the surviving spouse, of his/her share
hereditary estate left by the decedent is not subject
specifically and categorically done in
to
donor's tax, unless
favor of identified heir/s to the exclusion
disadvantage of the other co-heirs in or

the hereditary estate (Rev. Reg. 12-2018, TRAIN).

Exempt Donations Under Special Laws

Donations made to the following are exempt from donor's tax:

1. International Rice Research Institute;
2.
Philippine-American Cultural Foundation;
Ramon Magsaysay Award Foundation;
4. Philippine Inventor's Commission;
5. Integrated Bar of the Philippines;

180 Transfer and Business Taxation 2022 Edition by Prof. WIN Ballada and
Susan Ballada
6. Development Academy of the
7. Aquaculture Department of thePhilippines;
Southeast Asian Fisheries Development Center of
the Philippines;

8. National Social Action Council;

9. Intramuros Administration;
10. Southern
Philippines Development Foundation;
11. National Museum;
12. National Library;
13. National Historical Institute;
14. Task Force on HumanSettlement consisting of equipment, materials and services;
15. Public Schools in accordance with the 'Adopt-a-School Act of 1998' (R.A. 8525);
16. Philippine Red Cross.

Void Donations

1. Those made between persons who were guilty of adultery or concubinage at the

time of the donation;

Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made between the spouses during the marriage, except moderate gifts which
the spouses may give each other on the occasion of any family rejoicing.
4. Those made between persons living together as husband and wife without a valid

marriage.
Those made to a public officer or his wife, descendants and ascendants, by reason
of his office.

DONOR'S TAX

Definition and Nature of Donor's Tax

Donor's tax or gift tax is a tax imposed on the gratuitous transfer of property between
two or more persons who are living at the time of the transfer. is levied, assessed,
It

of the property by gift.

collected and paid upon the transfer by any person,

excise (privilege) tax. not a property tax, but Is a tax imposed on

It is
Donor's tax is an
is a tax imposed on the right or
the transfer of property way of gift inter vivos. It
privilege of the donor to make a gift.

The donor's tax shall apply whether the transfer is in trust or otherwise, whether the gift
is real or personal, tangible or intangible.
is direct or indirect, and whether the property

that the donation of an immovable may valid, it must be made in a public

be
In order
Deed of Donation or
in a separate public document, but it shall not take effect unless it is
the donor. If the acceptance is made in a separate
done during the lifetime of

Donor's Tax 181

 authentic form, and this step shall
thereof in an
instrument, the donor shall be notified TRAIN).
be noted in both instruments (Rev. Reg. 12-2018,
donation to the extent of the fair
Condonation or remission of constitute
debt would
remitted. Therefore,
the creditor would be considered:
value of the debt condoned or thereon.
donor for donor's tax purposes and would be liable for the tax

is a completed gift. The transfer of

The donor's tax shall not apply unless and until there
donor knows of the acceptance by
property by gift is perfected from the moment the
or constructively, of the
the donee; it is completed by the delivery, either actually
of the completion of
donated property to the donee. Thus, the law in force at the time
the donation shall govern the imposition of the donor's tax.

Purposes of Donor's Tax

1. Donor's tax
supplements the estate tax. Avoidance of estate tax is prevented by
taxing donations inter vivos.

2. Donor's tax compensates for the loss of income tax. Avoidance of income tax is
done by
splitting income among numerous donees to escape the effects of
progressive income tax rates.

182 Transferand Business Taxation 2022 Edition by Prof.

WIN Ballada
and Susan
Ballada
NAME:
SCORE:
SECTION:
PROFESSOR:

True or False

1. Donation of an
immovable property must be in a public instrument.
not essential
2. Donative intent is still
necessary when the donation is on account of a burden which
is less than the value
of
the thing given.
3.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it.
4. The person who disposes of the thing or right is called the donee while the one who
accepts it is the donor.

5. A donation may be inter vivos in form but mortis causa in substance.

6. The acceptance of an immovable property may be made in the same deed of

donation or in a separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.

7. Donor's tax is a tax imposed on the gratuitous transfer of property between two or

more persons who are living at the time of the transfer.

Donor's tax supplements the estate tax and compensates for the loss of income tax.

9. All persons who may contract and dispose of their property may make a donation.

receive, by way of donation, more than he may give or

10. No person may give or

receive by will.

adultery or concubinage at
made between persons who were guilty
of
11. Donations
the time of the donation are void.

Donor's Tax 183

 SCORE:
NAME:
PROFES)O
SECTION:

Multiple Choice

1. Donation of an immovable is valid when

a. made in a public instrument.

b. done during the lifetime of the donor.

C.
donor is duly notified of donee's acceptance.
d. all of the above

2. There is no donation when

account of the latter's merits.
a person gives to another a thing or right
on
a. the services
rendered
right on account of
b. a person gives to another a thing or
demandable debt.
by him to the donor provided they do not constitute
or right on
account of the services rendered
C. a person gives to another a thing
demandable debt.
by him to the donor constituting a value of the
d. the gift imposes upon the donee a burden which is less than the

thing given.

3. Which is not true?

of the donor
a. An ordinary donation may comprehend all the present property
subject to no limitation.
b. Donations cannot comprehend future property.
C. By future property is understood anything which the donor cannot dispose of at

the time of the donation.

d. Donations of future property shall be governed by the provisions on
testamentary succession and the formalities of wills.

4. Donations are subject to formalities? Which is not true?

a. The donation of movable may be made orally or in writing.

If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing; otherwise, the donation
shall be voidable.
An oral donation requires the simultaneous delivery, actual or constructive, of
the thing or of the document representing the right donated.
d In order that a donation of an immovable may be valid, it must be made in a
public document.

5. Which is not true about giving and accepting donation?

Guardians and trustees cannot donate the property

a.
entrusted to them.

Business Taxation 2022 Edition by Prof. WIN

184 Transfer and Ballada and Susan
Ballada
 b Minors and others who
cannot enter into a contract may become donees but
acceptance shall be done
through their parents or legal representatives.
C.
Donations made to conceived and unborn children may be accepted by those
persons
who would legally represent them if they were already born.
Donations made to
under the guise of
incapacitated persons shall be voidable, though simulated
another contract or through a person who is interposed.
Which is not true
about donation between spouses?
6.

a.
Husband
the
and wife cannot donate any conjugal or community property without
consent of the other.
b When a
spouse makes moderate donations for charity or on occasions of family
rejoicing or family distress, the consent of the other spouse is needed.
C. Husband and wife may make a joint donation of conjugal or community
property.
d. In ajoint donation of conjugal or community property, each spouse shall be
considered a separate donor of his or her interest in the
property.

7. Donations made to the following except one are exempt. Which is it?

a. Philippine Inventor's Commission

b. National Social Action Council
C. Task Force on Human Settlement consisting of equipment, materials and
services

Binibining Pilipinas Organizers

8. Which is not a void donation?

Those made between the spouses during the marriage, except moderate gifts
which the spouses may give each other on the occasion of any family rejoicing.
Those made between persons living together as husband and wife without a
valid marriage.
C. Those made to public officer or his wife, descendants and ascendants, by
reason of his office.
d. Those made between childhood sweethearts.

9 Which IS not true about donor's tax?

Donor's tax is levied,

assessed, collected and paid upon the transfer by any
a.

person, of the property by gift.

b. Donor's tax is synonymous to estate tax.
C. The donor's tax
shall apply whether the transfer is in trust or otherwise,
is direct or indirect, and whether the property is real or
whether the gift
personal, tangible or intangible:
excise (privilege) tax because it is a tax imposed on the right or
Donor's tax is an

privilege of the donor to make a gift.

Donor's Tax 185