Donor’s Tax 4.

Acceptance by the donee

Taxable Net Gifts •Acknowledgement of the property donated
•Perfected from the moment the donor has known the
acceptance by the donee and completed by the
delivery

TYPES OF DONORS AND SUMMARY RULES

Kinds of Donation
1. Donation Mortis Causa
- a donation which takes effect upon the death of the
donor; subject to Estate Tax.
- Donor retains ownership before his death
- The transfer is revocable by the donor at will
- The transfer is void if the donee dies ahead before
the donor
2. Donation Inter Vivos CONJUGAL DONATION
- a donation made between living persons; perfection •Husband and wife cannot transfer by virtue of sale
is at the moment when the donor knows of the or donation any conjugal or community property
acceptance of the donee (except immovable without consent from the other, unless it is a
properties); subject to Donor’s Tax moderate donations for charity or on occasion of
- Takes effect during the lifetime of the donor. family rejoicing
• Spouses are considered as separate donor of the
DONATION conjugal property
•An act of liberality whereby a person (donor) •Unless the wife expressly joins in making the
disposes gratuitously of a thing or right in favor of donation, it is presumed to have been done by the
another (donee), who accepts it. husband
•Transfer of ownership and passage of control over •Donations made between husband and wife during
the economic bene t of the property marriage are void unless these are moderate gifts
•Donation inter-vivos (donation + inter + vivos)
•Gift + between + living

ESSENTIALS OF DONATIONS
1. Capacity of the donor
•Refers to the condition and legal competence of the
donor to enter into a valid contract
•The donor must be capacitated (not necessary for
donee)
2. Donative intent
•Oral donation: any tangible personal property with
value of P 5,000 or less with simultaneous delivery
of the thing
•In writing: the value of tangible personal property
exceeds P 5,000 whose donation and acceptance
must be in writing, otherwise it is void DONOR’S TAX
•Public instrument: any donation which involves real De nition:
property and intangible personal property - Tax upon the gratuitous transfer between two or
3. Donative act or delivery more living persons at the time of transfer whether
•The delivery may be actual or constructive the transfer is direct or in trust and without regard to
•Completion of the gift requires physical delivery or the type of property transferred.
delivery of the instrument
•Donor’s tax does not apply until there is completed
gift (no reservation over the gift)
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Rationale behind Donor’s Tax Donations for Election Campaign (Exclusion)

•To control tax evasion of the estate tax •Any contribution in cash or in kind to any candidate,
•To control tax evasion on income tax political party or coalition of parties for campaign
•To recoup future loss of income tax revenue purposes shall be governed by the Election Code.
Exemption is not automatic.
Nature of Donor’s Tax •These donations must be reported to the Commission
•Privilege (excise) tax on Elections to be exempt from donor’s tax
•Proportional tax
•Ad valorem tax Transfer for Insuf cient Consideration
•National tax • Generally if:
•National tax ❖ Selling price < Fair Market Value (FMV) at the time
•Revenue ( scal) tax of transfer
• Gratuitous portion of transfer for insuf cient
VALUATION OF GROSS GIFTS
consideration → donor’s tax
General Valuation
- The value of the gift at the time it is made, fair • Applies to:
❖ Sale of real properties classi ed as ordinary
market value on completed gifts
asset
• Cash – face amount
❖ Sale of personal or movable property
• Personal property – fair market value whether ordinary or capital asset
• Real property ❖ Donated capital assets
• Value as determined by the CIR ❖ Sale or exchange of stocks not in the local
- Whichever is higher: stock exchange (subject to both CGT and
- If there is no zonal value? donor’s tax)
- FMV that appears in the latest tax declaration • Does not apply to: (exclusions)
- If there is an improvement? ❖ Sale of real property classi ed as capital
- Value of improvement shall be the construction asset → 6% capital gains tax not donor’s tax
cost or FMV that appears in the latest tax ✓ FMV vs. Selling price whichever is higher
declaration ❖ Bargain transaction
• Value xed by provincial or City Assessor
• Stocks and bonds:
- Unlisted shares
• Common shares: Book value per share of issuing
corporation
• Preference shares: Par value per share
- Listed shares
• Fair market value shall be the arithmetic mean
between the highest and lowest quotation at a
date of donation or nearest the date of donation

COMPOSITION OF GROSS GIFTS

Gross Gifts:
•Direct gifts
•Gift(s) through creation of trust, if irrevocable
•Transfer for insuf cient consideration
•Repudiation of inheritance by an heir:
✓ Speci c repudiation of heir in hereditary estate
(unless there are only two heirs)
✓ General or speci c repudiation of surviving
spouse or renunciation by the surviving spouse of
his/her share in the common property
•Condonation of debt
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Repudiation of inheritance by an heir:

✓Speci c repudiation of heir on net hereditary estate
✓General or speci c repudiation of surviving spouse
or renunciation by the surviving spouse of his/her
share in the common property

Classi cations under RA 10963 (TRAIN Law)

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 Summary of Exclusions
Condonation (remission or cancellation) of • Donations exempt under civil code
• Donations for election campaigns
debt
• Transfer for insuf cient consideration involving real
•It is a mode of extinguishing an obligation
properties classi ed as capital assets
•An act of liberality, by virtue of which the creditor,
• General renunciation of inheritance
without receiving any equivalent, renounces the
• Donations with reserved powers
enforcement of the obligation which is extinguished
• Void donations
in its entirety or in that part or aspect of the same to
• Foreign donations of non-resident alien donor’s
which the remission refers
• Donations of property exempt under reciprocity
•Except for:
❖ Condonation is due to the rendition of service
Summary of Exemptions
❖ Condonation was made by a corporation in favor of
•Refer to page 187 number 4 of the book
its shareholders

TAXABLE NET GIFTS

Donation with reserved power (Incomplete Less: Deductions from gross gifts (Exemptions)
Transfers) Allowed to all donor’s: Citizens, residents or non
• Conditional donation resident aliens
• Revocable transfers •Obligations assumed by the donee
The donor’s tax shall not apply unless and until there
(encumbrances)
is a completed gift.
- Usually takes the form of a mortgaged assumed
by the donee upon transfer of the property
Void donations under Civil Code (exclusions) - These are dimunitions to the gratuity accruing to
•Donations between husband and wife during the done
marriage, except minor gifts - These are onerous assignments of debt and are
•Donations between persons who were guilty of not gratuity
adultery or concubinage at the time of donation
•Donations between persons found guilty of the same
•Diminutions
criminal offense, in consideration thereof
- Reduction in the value of the donated property as
•Donations to a public of cer or his wife, descendants
provided by the donor
or ascendants by reason of his of ce
- Decrease in the value of the donated property as
•Donations to incapacitated persons
a result
•Donations of future property

•Donation (gift) to the National Government

Void donations with defects at execution
- Gifts to or for the use of the national government
(exclusions) or any of its political subdivisions which are not
• Donation by a person who has no legal title to the for pro t
property - Hence, donations made to government-owned
• Oral or written donation of real property or and controlled corporations are generally not a
intangible personal property deduction from the gross gift
• Donation refused by the donee

• Donation (gift) to accredited non-pro t

Foreign Donations (exclusions)
• Foreign corporations effecting donation where the organizations (educational, charitable
property is situated in: institutions, etc.)
❖ Philippines → donor’s tax These are gifts in favor of:
❖ Outside the Philippines → exempt ❖ educational
•Donations subject to reciprocity rule → intangible ❖ charitable
personal property in the Philippines by foreign ❖ religious
corporation of non-resident alien → exempt ❖ cultural
❖ social welfare corporation
❖ accredited non-government organization
❖ trust
❖ philanthropic organization or institution

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 Requisites: ADMINISTRATIVE PROVISIONS

1. Not more than 30% of the said gift will be used by Time and place of ling:
such donee for administrative purposes. •Timing and payment: The Donor’s Tax Return (BIR
2. The donee entity must be organized as a non-stock Form No. 1800) shall be led within thirty (30) days
entity. after the date the gift (donation) is made and the tax
3. The donee entity does not pay dividends. due thereon shall be paid at the same time that
4. The donee entity’s trustees earns no compensation. return is led.
5. The donee entity must devote all of its income, •Place of ling: The return shall be led with any
donations, subsidies, or other forms of philanthropy to Authorized Agent Bank (AAB) of the Revenue
the accomplishments and promotion of its purposes District Of ce having jurisdiction over the place of
enumerated in its Articles of Incorporation. domicile of the donor at the time of the donation, or
if there is no legal residence in the Philippines, with
• Donations under special laws the Of ce of the Commissioner of Internal Revenue,
•Deduction of P 250,000 (Revenue District Of ce No. 39, South Quezon
City). In case of gifts made by a non-resident alien,
Two-hundred fty thousand (P 250,000) exempt gift the return may be led with RDO No. 39, or with
and donor’s tax rate the Philippine Embassy or Consulate in the country
•Beginning January 1, 2018, upon the effectivity of where he is domiciled at the time of donation.
the TRAIN law, the tax rate payable by a donor for
each calendar year shall be 6% of the total gifts in Requirements for ling:
excess of P250,000 •The Donor’s Tax Return (BIR Form No. 1800) shall
•In case of married donors, the P 250,000 is allowed be led in triplicate
deduction for each donor, each for the husband and •The return shall set forth:
wife ❖ Each gift made during the calendar year
which is to be included in gifts;
COMPUTING DONOR’S TAX ❖ Deductions claimed and allowable;
- Donor’s tax is computed on the date of each ❖ Any previous gifts made during the same
donation and It must be on a cumulative basis. calendar year;
❖ Name of the donees; and
❖ Any further information as the Commissioner
may require.

Civil Penalties and Interest

1. Penalty of 25% if there is no false or fraudulent
intent on the taxpayer.
2. Penalty of 50% if there is false, malice or fraudulent
intent on the taxpayer.
3. Interest of 12% on the unpaid amount of tax from
the date computed until fully paid.
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DONOR’S TAX CREDIT

Essential concepts:
• Refers to the taxpayer’s right to deduct from the tax
due the amount of tax it has paid to a foreign country
• The amount can be claimed as a deduction if such
taxes pertain to properties which are included in the
gross gifts for Philippine donor’s tax computation
• Non-resident alien decedents are not entitled to
donor’s tax credit

General Rule:
•The amount of credit for the donor’s tax paid shall
not exceed the proportion of the tax due in the
Philippines which the decedent’s net estate situated
within such country bears to his entire net gifts.