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Lesson 3

Donor’s tax

Lesson Objectives:

At the end of this lesson, the students should be able to:

a. Define donor’s tax
b. Identify gifts or gratuitous transfers that are subject to donor’s tax
c. Apply, practice, solve, analyze, and evaluate problems relating to the
computation of gross gifts and the donor’s tax due

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Discussion:

DONOR’S TAX
Nature of Donor’s Tax Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it. A donor’s tax is a tax levied, assessed,
collected, and paid upon the transfer by any person, resident or nonresident, of
the property by gift (whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or
intangible.
Purposes of Donor’s Tax 1. To supplement the estate tax
2. To prevent the avoidance of income taxes. Without donor’s tax, the donor
may escape the progressive rates of income taxation through the simple
expedient way of splitting his income among numerous donees.
Elements of Taxable 1. Capacity of the donor to transfer property
Donation 2. Donative intent
3. Delivery
4. Acceptance of the gift by the donee
Formal requisites Personal property Real property
Amount of P5,000 or less More than P5,000 Regardless of
donation amount
Form of donation Oral or in writing In writing In public
document
Classification of donors 1. Citizen or resident
2. Nonresident alien
a. With reciprocity
b. Without reciprocity
Format of computation First donation of the year
gross gift xxx
less: exemptions/deductions xxx
xxx
Less: tax exempt gift (under TRAIN Law) (250,000)
net taxable gift xxx
donor's tax rate 6%
donor's tax due xxx
Less: tax credit (if applicable) xxx
donor's tax payable xxx
Subsequent donation within the year
gross gift, current xxx
less: exemptions/deductions, current xxx
xxx
add: prior gifts xxx
total xxx
Less: tax exempt gift (under TRAIN Law) (250,000)

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net taxable gift xxx

donor's tax rate 6%
donor's tax due xxx
Less: tax credit (if applicable) xxx
tax paid- prior gifts xxx
donor's tax payable xxx
Donor’s tax rate 6% based on the value of the net taxable gift in excess of P250,000

GROSS GIFT
Transfer’s subject to
donor’s tax
Gift from common The gift is taxable one-half to each donor spouse
property
Donation between GR: the gift is not taxable, as it is declared void by law.
husband and wife during Exception: moderate gifts between the spouses are valid.
the marriage
Exemptions and/or
deductions from gross gift
1. Direct gift
2. Gift through creation of a trust
3. Condonation of debt
4. Repudiation of inheritance if:
a. Specifically and categorically done in favor of identified heirs
b. To the exclusion or disadvantage of other co-heirs
5. Renunciation by the surviving spouse of his/her share in the conjugal
partnership or absolute community after the dissolution of the marriage in
favor of the heirs of the deceased spouse or any other person/s
6. Transfer for insufficient consideration
Exception: real property classified as capital asset in the Philippines
1. Encumbrances on the property donated assumed by the done
2. Diminution of gift provided by the donor
3. Gifts to the government- gifts made to or for the use of the National
Government or any entity created by an of its agencies which is not
conducted for profit
4. Gifts to educational, charitable, religious corporation
Requisites:
a. Gifts in favor of educational, charitable, religious, cultural, social
welfare. Accredited non-government organization, trust or
philanthropic organization, or research institution/organization
b. Not more than 30% of the said gift shall be used for administrative
purposes
5. Exemption under special laws
a. International Rice Research Institute
b. Ramon Magsaysay Foundation
c. Integrated Bar of the Philippines
d. Development Academy of the Philippines
e. National Museum
f. National library
g. Archives of the National Historical Institute

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h. Museum of Philippine Costumes

i. Intramuros Administration

TAX CREDIT FOR DONOR’S TAX PAID TO A FOREIGN COUNTRY

Entitled to tax credit Resident or citizen decedents
Limitations on credit
a. Only one foreign Limit: net estate, foreign/entire net estate x Philippine donor’s tax or
country is involved Actual foreign estate tax, whichever is lower
b. Two or more foreign Limit A- per foreign country: net gift, per foreign country/world net gift x
countries are involved Philippine donor’s tax due or
Limit B- by total: net gift (all foreign countries)/ world net gift x Philippine donor’s
tax due
whichever is lower

Sample Problem:
Juliet, a Filipina, made the following donations
a. To Nick, a land worth P450,000 in Manila
b. To Rosalee, jewelry worth P100,000 in Japan
c. To Adalind, PLDT shares amounting to P150,000
d. To Renard, a building in Italy P1,600,000 mortgaged for P50,000 assumed by the done
e. To Drew, land in Davao worth P300,000
f. P300,000 cash, PNB New York to Hank
g. P200,000 receivable, 50% condoned by Juliet
She has also transferred the following properties:
Selling Price FMW
Car, Makati 200,000 300,000
Car, Malaysia 300,000 200,000
Rest House, Tagaytay 1,000,000 2,000,000
Rest House, Malaysia 1,500,000 2,500,000
The gross gift of Juliet assuming she is a:
Citizen NRA w/o reciprocity NRA w/ reciprocity
to Nick 450,000 450,000 450,000
to Rosalee 100,000
to Adalind 150,000 150,000
to Renard 1,600,000
to Drew 300,000 300,000 300,000
to Hank 300,000
condonation 100,000 100,000
insufficient consideration (car, Manila) 100,000 100,000 100,000
insufficient consideration (Rest House, Malaysia) 1,000,000
total gross gift 4,100,000 1,100,000 850,000

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Summary of the Lesson:

The lesson defined what are donor’s taxes and its nature. It also discussed the gifts or
gratuitous transfers done by the donor that are subject to donor’s tax. The lesson also
focused on illustrating problems relating to the computation of the gross gifts of the taxpayer
and its respective donor’s tax due.

References:
TABAG, E.D. (2020). Donor’s Tax. CPA Reviewer in Taxation with Special Topics and Properly
Filled BIR Forms. EDT Bookshop

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