Page 1 of 7 | TAX 11

TAXATION
REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION
REX B. BANGGAWAN, CPA, MBA
DONOR’S TAX
Donor’s tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons
who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the gift is direct
or indirect and whether the property is real or personal.

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Why is donation subjected to tax?
1. Donor’s tax serves to compensate for loss of income taxes to the government brought by splitting the capital resources

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to smaller portions.
2. To prevent the avoidance of estate tax.
3. To compensate for the limitation of income taxation.

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Essential Requisites of donation:
1. Capacity of the donor
2. Intention to Donate
3. Donative Act – actual or constructive (i.e.: execution of a public instrument) delivery
4. Acceptance by the donee*
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*required only in direct donation but not with indirect donation as in the case of transfer with insufficient consideration.

Kinds of Donation:
1. Inter Vivos – donation between living individuals
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2. Mortis Causa – takes effect upon the death of the donor

Types of Donor:
A. Citizen or Resident Alien
Properties transferred regardless of location (i.e.: within or outside the Philippines) is taxable under Donor’s Taxation.
B. Non-resident Alien
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Only properties within the Philippines are subject to Donor’s Tax.

Which Donation can be included in Gross Gift?

Alien
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Citizen Resident Non-resident

Properties located in the Philippines Include Include Include
Properties located abroad Include Include Exclude

Which properties are considered located in the Philippines?

For purposes of donor’s taxation, the following are situated in the Philippines:
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1. franchises which must be exercised in the Philippines

2. share, obligations, or bonds issued by any corporation or sociedad anonima organized in the Philippines in accordance
with its laws
3. share, obligations, or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines
4. share, obligations, or bonds which have acquired situs in the Philippines
5. any personal property, whether tangible or intangible, located in the Philippines

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 Page 2 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Reciprocity in Donor’s Taxation

The intangible property transferred by a non-resident alien donor shall be exempt from Donor’s Tax if either one of the
following is satisfied:
a. The country to which such non-resident alien donor is a citizen does not impose donor’s tax on similar transfer of
intangible properties to Filipino citizens not residing therein.
b. The country to which such non-resident alien donor is a citizen allows similar exemption to the transfer of intangible
personal property of Filipinos not residing therein.

Nature of Donation:
a. There is a transfer of properties (real or personal, tangible or intangible) directly or indirectly in trust or otherwise.
b. The transfer is gratuitous (without consideration).

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c. The donation is made inter-vivos.

Classification of Donor’s Tax:

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a. proportional tax – fixed percentage to apply to donations to strangers
b. excise tax – being a on privilege to transfer properties
c. direct tax – paid by the statutory taxpayers without shifting

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d. ad valorem tax – imposed based according to value
e. national tax – levied and collection by the national government
f. general tax – fiscal or revenue purpose, not specific
g. annual tax – imposed upon yearly donation

Mode of Execution of Donation:

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Depending on the property involved, donation can be executed by the following:
A. Real or immovable property
Issuance of a public instrument, Deed of Donation
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Note to candidates: Donation of real properties is not subject to donor’s tax but are subject to the 6% capital gains
tax. It should be noted that the 6% capital gains tax covers sale, exchange and other disposition of real properties.
B. Personal property
a. Tangible
i. P5,000 and below in value – oral is allowed
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ii. More than P5,000 in value – donation and acceptance should be in writing (for validity)
b. Intangible – execution public instrument

The following transfers, if without adequate or full consideration, are not within the scope of Donor’s Tax but within the
scope of Estate Tax:
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1. Revocable transfers
2. Transfers with reservation to the right to income of the property until death
3. Transfer with reservation to the right to the possession or enjoyment of the property until death
4. Transfer in contemplation of death – refers to transfers motivated by the thought of death not from motives associated
with life
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Transfers associated with life such as the following are not transfer in contemplation of death and hence taxable
under Donor’s tax:
a. to relieve the donor of the burden of management of the property
b. to save income taxes
c. to make the children financially independent
d. to settle family disputes
e. to see children enjoy the property while the donor still lives
5. transfer under general power of appointment

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 Page 3 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Exempt Donation under Special Laws:

1. International Rice Research Institute
2. Ramon Magsaysay Award Foundation
3. National Health Insurance (R.A. 7875 – National Health Insurance Act of 1995)
4. National Commission on Indigenous People (R.A. 8371 – The Indigenous People Right Act of 1997)
5. Donations in accordance with the R.A. 9003 – Ecological Solid Waste Management Act of 2000.
6. Donations to the Pollution Adjudication Board under R.A. 8749 – The Philippine Clean Air Act of 1999.
7. Southern Philippines Development Administration
8. Philippine American Cultural Foundation
9. Integrated Bar of the Philippines
10. Development Academy of the Philippines

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11. National Social Action Council
12. Museum of Philippine Costumes
13. Aqua-Culture Department of South East Asia Fisheries Development Center of the Philippines

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14. Intramuros Administration
15. Philippine Inventor’s Commission

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Exempt Donation under the NIRC, as amended
1. Gifts made to non-profit organization, foundation or trust:
Non-profit organization – an organization that:
a. is organized as a non-stock entity
b. pays no dividends
c. governed by trustees with no compensation
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d. and devoting all income to the accomplishment of its purposes

For example: educational, charitable, religious, cultural, social welfare, philanthropic organization, research institution
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and accredited non-government organization.

Provided that, not more than 30% of said gifts are used by the above entities for administrative purposes (i.e.: to be
verified by BIR)

Donors engaged in business to qualified donee institutions shall give notice of donation for every donation worth at
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least P50,000 to the RDO which has jurisdiction over the place of business within 30 days after the receipt of the
qualified donee institutions certificate of donation.

2. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not
conducted for profit
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3. Bona fide, at arm’s length and donative-intent free sale, exchange or other transfer of other property made in the
ordinary course of business

DEDUCTIONS FROM GROSS GIFT

1. Encumbrances on the property donated, if assumed by the donee
2. Those specifically provided by the donor as a diminution of the property donated
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Note to candidates:
The amount of gift taxable represents the net benefit accruing to the donee. Net gifts as defined herein represents the net
cumulative amounts of gift for the whole calendar year; however, the donor’s tax thereon is paid quarterly based on net
cumulative gift.

Donor’s Tax: 6% of the net gift in excess of P250,000

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 Page 4 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Gifts involving Conjugal or Community Property or Co-owned property

Each spouse or co-owners shall file separate returns corresponding to his or her respective share in the conjugal or
community or co-owned property. Separate classification of the recipient depending on their relation or affinity with the
donor is required.
Tax Credit for donor’s tax paid to a foreign country
- Can be claimed only by donors those whose gift are taxable even if made outside the Philippines:
a. resident citizens
b. non-resident citizens
c. resident aliens

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- The allowed creditable donor’s tax paid to a foreign country shall be subject to limit similar to the limitations in foreign
tax credit in income taxation and estate tax.
Filing of Return and Payment of Tax

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 Donor’s tax return shall be filed within 30 days from the date of gift. The tax due thereon is to be paid at the time of
filing the return.
 For gifts made to related parties, gifts made on the same day will be filed in a singe Donor’s Tax Return.

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 For donations made by husbands and wife out of their common property, the donation is deemed made by each;
hence, both shall prepare separate Donor’s Tax Return and claim separate deductions.
 The Return shall be filed to the same receiving entities as enumerated in income and estate taxation.
Filing Requirements:
A return under oath in duplicate which shall set forth the following:

b. the deductions claimed and allowable

c. any previous net gifts made during the same calendar year
d. the name of the donee; and
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a. each gift made during the calendar year which is to be included in computing net gifts
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e. such further information as may be required by rules and regulations made pursuant to law

DRILL PROBLEMS

Illustration 1: Identify tax that will apply

Indicate whether covered by Donor’s Tax, Estate Tax or Income Tax:
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1. A person transferred properties in trust in favor of another and the trust is irrevocably designated. ___________
2. A person transferred properties in trust in favor of another and the trust is designated as revocable. ___________
3. A person transferred properties in trust in favor of another and the trust is designated as revocable which the
transferor failed to revoke by the time of his or her death. ___________
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4. A person transferred personal properties to another during his lifetime for less than adequate consideration. The
transfer is to take effect upon the death of the transferor ____________
5. A person transferred personal properties to another during his lifetime for less than adequate consideration. The
transfer is to take effect immediately ___________
6. A person transferred a real property classified as capital asset during his lifetime for less than adequate consideration.
The transfer is to take effect upon death ___________
7. A person transferred a real property classified as capital asset during his lifetime for less than adequate consideration.
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The transfer is to take effect immediately ___________

8. A person transferred properties to another during his lifetime for an adequate consideration. __________
Illustration 2: Determination of donor’s tax
The following donations during the calendar year 2021 are made to relatives and strangers:
January 30, 2021 P 2,000,000 to a relative
March 30, 2021 1,000,000 to a stranger
August 15, 2021 500,000 to a stranger
September 1, 2022 800,000 to a relative

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 Page 5 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Required: Compute the following:

1. How much is the tax due on the gift made on January30, 2021?
2. How much is the tax due on the gift made on March 30, 2021?
3. How much is the tax due on the gift made on August 15, 2021?
4. How much is the tax due on the gift made on September 1, 2022?

Illustration 3
A donor made the following gifts in 2022:
Property type Location Value Donee
Tangible property Philippines P 300,000 Non-resident citizen
Intangible property Philippines P 400,000 Non-resident alien

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Tangible property Abroad P 500,000 Resident citizen
Tangible property Abroad P 600,000 Non-resident citizen

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Required: Determine the gift subject to tax in 2022 under the following circumstance:
Taxpayer is a Reciprocity exemption applies Reciprocity exemption does not apply
a. Resident alien

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b. Non-resident citizen
c. Non-resident alien

Illustration 4

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On July 18, 2021, Mr. and Mrs. Rolando made a donation of property worth P1,000,000 to their daughter, Inday, and her
fiancé, June, on account of Inday’s marriage to June which was scheduled on March 14, 2022.

Required: Determine the taxpayer, the donor’s tax and the deadline of payment if
a. What was donated is a common property designated by the spouses for Inday only
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b. What was donated is an exclusive property of Mrs. Rolando for Inday only
c. What was donated is a common property designated by the spouses for Inday and June
d. What was donated is an exclusive property of Mr. Rolando designated June only

Illustration 5
Jerry disposed a certain property for P6,000,000 when its fair value was P10,000,000. He previously purchased the
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property for P5,000,000.

Required:
Compute the donor’s tax under the following assumptions:
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The property is Classified as ordinary asset Classified as capital asset

- Movable property
- Immovable property

Illustration 6
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On June 15, 2020, A transferred shares to B during his lifetime for a consideration of P8,000,000. The shares were
purchased for P5,000,000 three years ago and has a P12,000,000 fair value at the date of transfer. The shares were
valued at P18,000,000 when A died on March 14, 2022. A had no other property at the point of death.

Required: Compute the taxes assuming:

Ownership of shares is Income tax at date of Donor’s tax at date of Estate Tax at the date of
stipulated by A to transfer transfer transfer death
- Immediately
- Upon his death

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 Page 6 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Illustration 7
Mr. A is a professional practitioner while Mrs. A is a housewife. The spouses made the following donations in 2022 and
2023:

In 2022:
Property classification Value Donee/Buyer/Transferee
- Shares of stocks, a capital asset* P 600,000 Mr. A’s first cousin
- Truck, an ordinary asset P 800,000 Mrs. A’s sister
- Cash, a capital asset P 300,000 Buhay Foundation, an accredited NGO
*Previously purchased by the spouses for P300,000 and was sold for only P 400,000

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In 2023:
Property classification Value Donee/Buyer/Transferee
- Shares of stocks, a capital asset P 500,000 Mr. Zee, a family friend

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- Old equipment, an ordinary asset* P 800,000 To an unrelated party
- House and lot, a capital asset** P 900,000 Mr. A’s brother
*The book value in Mr. A’s books was P1,000,000 but was sold for P 600,000 only due to obsolescence.

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**Purchased by the spouses for Given for only P400,000 to brother

Required:
2022 2023
a. Donor’s tax of Mr. and Mrs. A
b. Deductions against Mr. A’s gross income
c. Capital gains tax
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Illustration 8
Mr. A died. He was survived by his wife and 2 children, Andrew and Bran. The following relates to the properties of the
spouses:
- Communal properties, P22,000,000
- Separate properties of Mr. A, P8,000,000

The estate administrator noted the following possible estate deductions:

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- Mortgage on Mr. A’s separate property P2,000,000

- Claim against communal properties, P1,500,000
- Funeral expenses, P 300,000 (P50,000 still unpaid)
- Judicial expenses, P300,000 (P200,000 still unpaid)
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- Medical expenses, P400,000 (P100,000 still unpaid)

- Vanishing deductions against common properties, P500,000
- Communal family house worth P4,000,000

Mrs. A waived her share in the communal property in favor of her children. Following her mother’s example, Andrew
waived his share in the hereditary estate in favor of Bran.
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Required: Compute the donor’s tax on:

a. Mrs. A’s renunciation of share in communal properties
b. Andrew’s renunciation of share in the inheritance

Illustration 9
ABC Corporation was under financial distress. In 2022, it was forced to sell an equipment with fair value of P1,000,000 for
P700,000 to pay off debts. To repay maturing debts in 2023, ABC was forced to sell a land which was held for speculation
at 60% of its P2,000,000 zonal value and an item of equipment worth P1,000,000 for half its price.

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 Page 7 of 7 | TAX 11

REX B. BANGGAWAN, CPA, MBA

DONOR’S TAXATION

Required: Compute the donor’s tax in 2022 and 2023.

Illustration 10
Juan Canor, non – resident citizen donor, made the following donations on July 15, 2022:
 To Alex, a property in Indonesia (donor’s tax paid in Indonesia, P70,000), fair market value, P500,000
 To Andrea, best friend in the Philippines, a property with an unpaid mortgage of P50,000 assumed by Andrea, fair
market value, P450,000

Required: Compute the donor’s tax credit.

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Illustration 11
Mr. A, a Filipino citizen made the following gifts to his children for calendar year 2022:

Phil USA Canada Australia

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Gift P350,000 P300,000 P250,000 P100,000
Donor’s tax paid 15,000 10,000 5,000

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Required: Compute the donor’s tax still due.

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