ESTATE TAXATION

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 MODULE 1

LEARNING OBJECTIVES:

After studying this module, the learners should be able to:

1. Understand the reason why transfer tax is imposed

2. Distinguish donation inter vivos from donation mortis causa
3. Determine whether the gratuitous transfer of properties will be
subjected to either donor’s tax or estate tax.

Different modes of transferring properties:

1. Bilateral transfer – onerous transfer of properties which could be
done either by sale or barter.

2. Unilateral transfer – gratuitous transfer of properties which could be

either donation inter vivos or donation mortis causa.

3. Complex transfer – transfer of properties with inadequate

consideration.

Two kinds of donation:

1. Donation inter vivos – will take effect during the lifetime of the
donor.

2. Donation mortis causa – will take effect after the death of the
donor.

Theories on the justification of transfer tax imposition

1. Ability to pay theory – the fact that the donor have properties to
donate indicates a clear ability to pay.

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 2. Benefit received theory – the process of gratuitously transferring
properties will be facilitated by the existing laws, which is considered
one of the benefits for being under the rule of systematic government.

3. Prevent tax evasion theory – without transfer taxes, parties in sales

transactions can easily lower the price that will appear in documents
thereby evading payment of the correct taxes.

4. State partnership theory – State is considered as indirect partner of

any person in accumulating properties. Thus, whenever these
properties are transferred, certain percentage of it will be given to the
State in the form of tax.

5. Tax recoupment theory – the transfer of properties may reduce the

future income of its previous owner. To address this potential loss of
revenue, transfer tax is imposed.

6. Wealth redistribution theory - properties are considered wealth that

the State will strive to equitably share to its citizen. One way of doing
this is to impose transfer tax, and use the revenue collected for public
purpose.

Transfer in contemplation of death

For tax purposes, it is important to determine the motive behind the
gratuitous transfer of property. If the transfer is due to impending death,
then it will be subjected to estate taxation.

Incomplete transfers of properties

1. Conditional transfer – ownership of properties will be transferred
subject to the fulfillment of condition.

2. Revocable transfer – donation that may be revoked by the donor.

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 3. Donation with reservation of title – properties are transferred
physically, but the ownership will only be transferred upon the
death of the donor.

It is important to note that the properties in conditional transfer and

revocable transfer will be included in the gross estate if the death of the
donor occurs prior to the happening of the condition, or prior to the arrival of
period within which the donation may be revoked.

Classification of taxpayers, as to taxability:

Filipino citizens, and resident aliens are liable to pay transfer tax
irrespective of actual location of
property.

Non-resident aliens Liable to pay transfer tax for

properties located in Philippines.

END OF MODULE 1

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Subsequent – after the time of the death of the decedent.

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Applicable to non-resident alien only.

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No.3 hnd mo pwedeng ibigay yung property directly sa 1 year old na apo nya. Bali sa magulang muna
ang makakareceive ng pamana. Pag nasa legal age na sya pwede ng itransfer sa apo.

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