TAX 2 Notes • For non-resident alien who claims expenses on a pro-rated basis, the actual funeral expense

and judicial expense are no longer included in the deductions he can claim pro-rata
ESTATE TAX
o Thus, the pro-rated deductions now only include claims against the state, claims
Amendments to Estate Tax Provisions of the NIRC by TRAIN Law against insolvent person, unpaid mortgage, unpaid taxes and casualty losses
• Tax rate is fixed 6% with Tax Base of Value of Net Estate
On Computation o Value of Net Estate = Gross Estate - Allowable Deductions
• Removes the deductions from gross estate pertaining to:
o Actual funeral expenses or 5% of the gross estate, whichever lower On Administrative Procedures
o Judicial expenses
• Repeals provision requiring filing of notice of death of the decedent by his/her executor,
o Medical expenses
administrator or any of the legal heirs within 2 months after decedent’s death
• Increased amount of standard deduction from P1M to P5M
• Extends the period within which estate tax return should be filed, from 6 months to 1 year
• Increases amount of deduction for family home from P1M to P10M and removes sine qua non
from decedent’s death
condition for the exemption or deduction
o In addition, one of the requirements to claim “losses” as a deduction from the gross
o Family home must have been decedent’s family home as certified by the barangay
estate is that the “losses” are incurred not later than the last day for the payment of
captain of the locality
taxes. Hence, due to the extension, the period within which “losses” must be incurred
• Increased amount of gross value of estate provided in estate tax returns that requires to be is also extended to 1 year
supported with a statement duly certified by a CPA from P2M to P5M
• Provides payment by installment basis in cash if cash is insufficient to pay the estate tax due
• In summary, the deductions allowed to citizen and resident decedents are: o Payment shall be allowed within 2 years from the statutory date for its payment
A. Ordinary deductions w/out civil penalty and interest
a. Losses, Indebtedness, Taxes (LIT)
• Removes P20,000 limit that may be withdrawn from bank account of decedent w/out
i. Losses
certification from BIR and allows for withdrawal of any amount but with final withholding
ii. Claims against the estate
tax of 2%
iii. Claims against insolvent person
o However, withdrawal shall only be made within 1 year from the date of the death of
iv. Unpaid mortgage
the decedent
v. Unpaid taxes
• TRAIN Law deleted, in Section 90(A) of the NIRC, the phrase “or where, though exempt
b. Property previously taxed or vanishing deduction
from tax, the gross value of the estate exceeds P200,000” emphasizing the need to file an
c. Transfer for public use
estate tax return of the subject estate
B. Special deductions
a. Family home (maximum of P10M) Republic Act No. 11213 (Tax Amnesty Act)
b. Benefits received under Art. 4917
c. Standard deduction (P5M) • Provides for a one-time opportunity to settle estate tax obligations through an estate tax
• Removes the deductions for nonresident estates pertaining to expenses, losses, indebtedness, amnesty program that will give reasonable tax relief to estates with deficiency estate taxes.
and taxes but provides for standard deduction amounting to P500K • In other words, it provides a clean slate for taxpayers with existing estate tax delinquencies
• Deletes provision requiring executor, administrator or anyone of the heirs to include in the • Covers all unpaid internal revenue taxes for taxable year 2017 and years prior to it with
estate tax return that part of the nonresident alien’s gross estate not situated in the Philippines respect to (1) Estate Tax Amnesty and (2) Tax Amnesty on Delinquencies.
to be able to claim deductions
 • Cover the estate of decedents who died on or before December 31, 2017, with or without the zonal value as determined by the Commissioner of Internal Revenue and the fair
assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued as market value as shown in the schedule of values fixed by the provincial and city
of December 31, 2017 assessors.
• The estate tax amnesty shall not cover the following:
Effects of Availment
a. Delinquent estate tax liabilities which have become final and executory and which are
covered by Tax Amnesty of Delinquencies; and • Once the requirements and conditions of the IRRs of Estate Tax Amnesty are fully complied
b. Properties involved in cases pending appropriate courts as enumerated in the regulation, with, the estate shall be immune from the payment of all estate taxes including increments and
viz: additions thereto arising from the failure to pay the estate tax for the years 2017 and prior
o Those falling under the jurisdiction of the Presidential Commission on Good years. Immunity shall extend to all appurtenant civil, criminal, and administrative cases and
Government (PCGG); penalties under the 1997 Tax Code, as amended.
o Unexplained or unlawfully acquired wealth under the Anti-Graft and Corrupt • The availment of the Estate Tax Amnesty and the issuance of the Acceptance Payment Form
Practices Act and Plunder Act; do not imply an admission of criminal civil or administrative liability on the part of the
o Violation of the Anti-Money Laundering Act; availing estate.
o Tax evasion and other criminal offenses under Chapter II of Title X of the Tax
Code; Preliminary
o Felonies of fraud, illegal exactions and transactions, malversation of public
Article 712 of the New Civil Code provides for the different modes of acquiring ownership:
funds and property.
(OILDTSP)
One-Time Declaration
1. Occupation
• If the estate involved has properties which are still in the name of another decedent or donor, 2. Intellectual Property
the present holder, heirs, executors or administrators cannot file one Estate Tax Amnesty 3. Law
Return. One-time declaration and settlement is not allowed. 4. Donation
5. Tradition
Tax Rate and Applicable Rules 6. Succession
7. Prescription
• Estate Amnesty tax rate is 6% of the decedent’s total net estate at the time of death.
• If an estate tax return was earlier filed, the 6% estate amnesty tax will be based on the net
• Of these modes of acquiring ownership, succession and donation are generally regarded as
undeclared estate.
gratuitous transfers of property from one person to another.
• A minimum estate amnesty tax of PHP5,000 shall be paid if the allowable deductions
• Transfer tax - taxes imposed upon the gratuitous disposition of private properties.
applicable at the time of death exceed the value of the gross estate.
o They are taxes levied on the transmission of properties from a prior decedent to his
o Net undeclared estate refers to the difference between the total net estate valued at
heirs in the case of estate tax or from a donor to a donee in case of a donor’s tax.
the time of death and the net estate previously declared with the BIR, if any.
o Taxes of this general character are predicated on the passing of property as
o Net Estate refers to the gross estate less all allowable deductions as provided in the
distinguished from those imposed on property as such because of its ownership and
Tax Code, or the applicable estate tax laws prevailing at the time of death of the
possession.
decedent.
• Two kinds of transfer taxes:
o Gross Estate shall be valued based on the fair market value as of the time of death
o Estate Tax (Section 84, NIRC)
of the decedent. For Real properties, fair market value shall be the higher between
o Donor’s Tax (Section 98, NIRC)
Estate Tax (Definition) 6. One-Time Tax
• Estate tax applies to a person once in a lifetime
• It is tax on the exercise of the right to transfer property at death and is measured by the value
of the property Purposes of Imposing Estate Tax
o It accrues as of the date of death of the decedent
• Estate tax is not property tax but the value of the property serves as the basis of the tax. • Its imposition is based on the following theories:
(1) Benefit-Received Theory
• Estate tax is an excise tax or a privilege tax
o The government performed services in the distribution of the properties of the
• Estate tax is the tax on the right to transmit property at death and on certain transfers by the
decedent to the heirs. In view of these services and benefits, the state collects a
decedent during his lifetime which are made by the law the equivalent of testamentary
tax
dispositions.
(2) Redistribution of Wealth Theory
Estate Tax (Nature) o The imposition of estate tax reduces the property received by the successor
bringing about a more equitable distribution of wealth in society.
1. Excise Tax o Portion of the property taken by the state in the form of tax is used to fund social
• Estate tax is an excise tax or a privilege tax imposed on the privilege of transferring a programs and projects of the state
property upon the death of the owner (3) Ability-to-Pay
o The object of estate tax is to tax the shifting of economic benefits and enjoyment o Bigger estate, higher tax
of property from the dead to the living. o If the decedent dies without any property or if the properties are sufficient to
• It is not a property tax because their imposition does not rest upon general ownership but cover some deductions allowed = no liability to pay the tax
rather, they are imposed on the act of passing ownership property o Receipt of inheritance which is in the nature of an unearned wealth or windfall,
• Neither is it a capitation tax are placed assets into the hands of the heirs and beneficiaries
o Capitation tax is an assessment levied upon a person by the government at a ▪ This created an ability to pay the tax and thus contributes to
fixed rate regardless of income/worth. government income
• It is different from inheritance tax (4) State Partnership Theory
o Inheritance tax is a tax imposed on the legal right or privilege to succeed to, o State is viewed as a passive and silent partner in the accumulation of wealth and
receive or take property by or under a will, intestacy law, or deed, grant or gift property of decedent
becoming operative at or after death o Under this theory, inheritance is not a right but a privilege granted by the State
o The primary virtue of an inheritance tax is that it may be graduated according to and legacies have been acquired only with the protection of the state
the amount received and the relationship of the recipient to the deceased. o State grants protection to the large estate of decedent
o Inheritance tax has been abolished by P.D. No. 69 o State collects its just chare in such effort in the right time
2. Revenue or General Tax (5) Additional Revenue for the Government
• Estate tax is intended as a revenue or fiscal measure
Incidence or Burden of Estate Tax
3. Ad Valorem Tax
• Estate tax is dependent upon the value of the estate • Three (3) Views on who is Taxpayer in Estate Taxation:
4. National Tax (1) Predecessor - The incidence falls on the predecessor because the object of the tax is,
• Estate tax is imposed by the national government after all, the property which has been held or accumulated by the deceased and the
5. Proportional Tax tax has fallen upon him in the sense it has affected the amount of the property which
• Estate tax is imposed as 6% on the net estate he could dispose;
 (2) Successor - The incidence is on the successor because the tax is not paid by the
predecessor who has no liability till he dies and who is free to ignore the duty if he
wishes, while the successor comes into less than he would have, and has no kind of
redress
(3) No personal incidence - Strictly speaking, the estate has no personal incidence at all,
merely falling upon the estate as such.
Power to Impose Estate Tax
(1) Basis - The power to tax estates and inheritances is based on the general discretionary taxing
power of a State legislature to select the subjects of taxation and this power extends to all the
usual objects within its sovereignty.
o It arises because of the shifting from one to another of the power or privilege
incidental to ownership or enjoyment of property occasioned by death.
(2) Scope - The power of the legislature to impose estate tax is not limited to taxation of transfer
at death.
o It extends to the creation, exercise, acquisition, or relinquishment of any power or
legal privilege or right which is incident to the ownership of property, whenever any
of these is occasioned by death.
Governing Law on Imposition of Estate Tax
• Estate taxation is governed by the statute in force at the time of death of the decedent,
although the amount of the tax may then be unknown, but on determination thereof, it relates
back to the time of death.
o The taxpayer cannot foresee and ought not to be required to guess the outcome of
pending legislative bills or measures
o The tax may be made retroactive in its operation. But legislative intent that a tax
statute should operate retroactively should be perfectly clear.
• The accrual of tax is distinct from the obligation to pay the same, which is 1 year after the
death of the decedent
o Estate tax accrues as of the death of the decedent
• For purposes of estate tax, following are the relevant tax laws:
o Revised Administrative Code
o C.A 106
o C.A 466
o R.A 579
o P.D 69
o P.D 1994
o R.A 7499
o R.A. 8424 (NIRC of 1997)
o R.A 10963 (Tax Reform for Acceleration and Inclusion or TRAIN)
• Even if the estate of the decedent is being settled at present, one must look at date of death of
decedent to determine the applicable law in the settlement of estate in the settlement of estate
and computation of the tax liability
When Estate Tax Accrues
• Estate tax accrues upon death of the decedent and is completely paid at the time the estate tax
return is filed by the executor or administrator.
• The accrual of the tax is to be distinguished from the obligation to pay the same. The time
when the heir legally succeeds to the inheritance may differ from the time when he actually
receives such inheritance.
• The property belongs to the heir at the moment of the death of the ancestor as completely as if
the latter had executed and delivered to the former a deed for the same before his death.
• However, it does not follow that the obligation to pay the tax arises as of that date.
• The time for payment is clearly fixed by law (1 year from the time of death - TRAIN Law)
• “Estate” in the Civil Code is different from “estate” under the Tax Code.
o In the Civil Code: It is the property and the transmissible rights and obligations of a
person existing at the time of his death and those which have accrued thereto since
the opening of the succession.
o In the Tax Code: The estate is the statutory taxpayer of estate tax and is treated as a
“person” for purposes of paying such taxes
• There is separate taxpayer identification number (TIN) for the estate issued by the BIR for
purpose of filing estate tax return and payment of estate tax
• Estate tax is paid by the executor or administrator before the delivery of the distributive share
in the inheritance to any heir or beneficiary
o Heir or beneficiary has subsidiary liability for the payment of that portion of the
estate which his share bears the value of the total net estate
o Extent of his liability shall not exceed value of his share in the inheritance
Time and Transfer of Properties
• The rights to the succession are transmitted from the moment of the death of the decedent.
[Art. 777, Civil Code). The decedent’s estate includes property to the extent of the interest
therein of the decedent at the time of his death. [Sec. 85(A), NIRC]
 • The executor or administrator shall not deliver a distributive share to any party interested in 2. For shares of stock, the FMV shall depend on whether the shares are listed or unlisted in the
the estate despite the transfer of properties and rights at the time of death, unless there is a stock exchange
certification from the CIR that estate tax has been paid. [Sec. 94, NIRC] a. If unlisted
i. Common shares - based on their book value
Estate Tax Rate ii. Preferred shares - based on their par value
b. If listed
• The tax rate is a flat rate of 6% with a tax base of the Net Taxable Estate (NTE) determined as
i. The mean between the highest and lowest quotation on the date of death
of the time of death of the decedent composed of all properties, real or personal, tangible or
ii. If none, then the date nearest the death
intangible less allowable deductions.
• First P200,000 worth NTE is now also taxable by 6% Right to Usufruct, Use or Habitation, and Annuity
• Estate Tax Liability is computed as follows:
o Gross Estate • The probable life of the beneficiary in accordance with the latest basic standard mortality
- Allowable Deductions table, to be approved by the Secretary of Finance.
---------------------------
Classification of Decedent for Estate Tax Purposes
Net Taxable Estate
x Estate Tax Rate (6%) 1. Residents
--------------------------- a. Resident Citizen Decedent (RCD)
Estate Tax Due b. Resident Alien Decedent (RAD)
- Tax Credits (if any) 2. Non Residents
--------------------------- a. Non-resident Citizen Decedent (NRCD)
Estate Tax Due (Final) b. Non Resident Alien Decedent (NRAD)
• Still depends whether decedent is married or not i. With reciprocity (WR)
ii. Without reciprocity (WOR)
Valuation of Gross Estate
• A corporation, whether domestic or foreign, is not liable for estate tax because it is not
General Rule: Gross Estate = FMV at the time of the decedent’s death [Sec. 5, RR-12-2018] capable of natural death
• Decedents and estates are classified in accordance with the benefits protection theory. In turn,
Real Property the classification determines what is the composition of gross estate for purposes of taxation
o The protection given by the Philippines to the persons of citizens and resident alien
1. Appraised value, whichever is higher between:
extends to their properties wherever situated
a. FMV, as determined by the CIR (zonal value); or
b. FMV, as shown in the schedule of values fixed by the Provincial or City Assessor Situs of Estate Taxation
2. If there is an improvement, the value of improvement is the construction cost per building
permit or the FMV per latest tax declaration. [Sec. 5, RR-12-2018] • Here is a table to summarize the properties owned by the decedent and if they are to be
included in the gross estate
Personal Property

1. FMV at the time of death

a. Recently acquired by the decedent - purchase price may indicate FMV
b. Not recently acquired - there should be some evidence of the FMV
 Properties within the Philippines Properties Gross Estate
Personal Properties Located
Decedent • Gross Estate pertains to the value of all properties, real or personal, tangible or intangible, of
Real Properties Outside the
Tangible Intangible the decedent subject to estate tax
Philippines
Resident Citizen ✓ ✓ ✓ ✓ • Gross estate includes any interest or right in the nature of property, but less than title, having
Non-Resident value of capable of having value, like
✓ ✓ ✓ ✓ o Dividends declared, but paid after death
Citizen
Resident Alien ✓ ✓ ✓ ✓ o Partnership profits
Non-Resident o Right of usufruct
Alien w/ ✓ ✓ X X • This is determined by taking into consideration the citizenship, residence, and status of the
repricrocity decedent as well as location of the property
Non-Resident • Gross estate of an RC, NRC, and RA comprises all properties, wherever situated, and interests
Alien w/ ✓ ✓ ✓ X at the time of his death
reciprocity • Gross estate of a non-resident alien comprises only properties situated in the Philippines
o With respect to intangible property, payment of estate tax is subject to the rule of
Reciprocity Rule reciprocity
• There are two concepts to be discussed under gross estate
• Applies only to a non-resident alien decedent and only on his intangible personal properties o Exclusions in gross estate — those properties or transfers excluded by law from
located in the Philippines estate taxation
• This rule provides that no estate tax will be collected in respect of intangible personal o Inclusions in gross estate — those properties which are to be included as part of the
property if the foreign country of which the decedent was a citizen and resident at the time of taxable gross estate
his death: • In summary it is comprised of the ff:
o Did not impose transfer tax, in respect of intangible personal property of citizens of Properties owned and existing at the time of Death
the Philippines not residing in that foreign country - Exempt Transmissions/Acquisitions
o Allows a similar exemption from the transfer or death taxes of every character or - Excluded Properties
description in respect of intangible personal property owned by citizens of the ----------------------------------------
Philippines not residing in that foreign country + Taxable Transfer
• When there is reciprocity, the transmission of intangibles located in the Philippines of a + Other Inclusions
NRAD is not subject to tax ----------------------------------------
• When there is no reciprocity, the transmission of intangibles located in the Philippines of a Gross Estate
NRAD is subject to tax
o Reciprocity must be total. If any of the two states or countries collects or imposes Real Property
and does not exempt any transfer, death, legacy or succession tax of any character, • Land, buildings, roads and constructions of all kinds adhered to the soil. Trees, plants and
reciprocity does not apply (CIR v. Fisher, G,R, No. L-11622, January 28, 1961) growing fruits, while they are attached to the land or form an integral part of immovable
o Reciprocity in exemption does not require the “foreign country” to possess property.
international personality (CIR v. Campos Rueda, G.R. No. L-13250, October 29, • Everything attached to immovable property in a fixed manner, in such a way that it cannot be
1971 separated from said immovable w/out breaking the material or deterioration of the object
Personal Property Receivables Resident of the debtor
• Any movable thing or intangible item of value that is capable of being owned by a person and Bank deposit Location of the depositary bank
not recognized as real property.
• An object is movable/personal if it possesses: Kinds of Estates of Decedents for the Purpose of Imposing Estate Tax
o Ability to change location • Estates of Decedent RC, NRC, and RA
o Without substantial injury to the immovable to which it is attached. o All properties, real, or personal, tangible or intangible, wherever situated, and
• Tangible Property interest therein at the time of his death, including:
o Physical items that can be seen and touched ▪ Transfer in contemplation of death
o Also known as chattel ▪ Revocable transfer
• Intangible Property ▪ Property passing under the general power of appointment, and
o Not physical items that can be touched but which have a value to the owner ▪ Transfer for insufficient consideration
o The situs of intangible property is the domicile of the owner, also known as “mobilia • Estates of Decedent NRA
sequntur personam” o Properties situated in the Philippines with respect in intangible personal property
▪ However such rule is not applicable: located in the Philippines, its inclusion in the gross estate is subject to rule of
(1) if the intangible property has a situs elsewhere or where the intangible reciprocity.
property has acquired a business situs in another jurisdiction because the ▪ Provided under Sec. 104 of the Tax Code.
principle “mobilia sequntur personam” is only used for convenience; or
(2) when it is inconsistent with express provisions of law. Concept of “Residence” for Estate Tax Purposes
▪ Example: The situs of franchise should not be based in the domicile of the • For purposes of estate taxation, residence refers to the domicile of a person (CIR v. De Lara,
owner but the place where such franchise is exercised G.R. No. L-9456, January 6, 1958)
o Franchise which must be exercised in the Philippines; • Domicile - Fixed permanent home to which one whenever absent has an intention to return,
o Shares of stock, obligations or bonds issued by corporations organized or constituted and depends on facts and circumstances, in the sense that they disclose intent.
in the Philippines; • It is, therefore, not necessarily the actual place of residence
o Shares, obligations or bonds issued by a foreign corporation 85% of the business of
which is located in the Philippines; Gross estate of decedent resident citizen, non-resident citizens and resident aliens (within and
o Shares of stock, obligations or bonds issued by a foreign corporation if such shares, without the Philippines) and non-resident aliens (within the Philippines)
obligations or bonds have acquired a business situs in the Philippines, that is, they • Generally, gross estate consists of all the property owned by a decedent or which the decedent
are used in the furtherance of its business in the Philippines; and had an interest at the time of death, such as:
o Shares, rights in any partnership, business or industry established in the Philippines. o Real property
o Any personal property, whether tangible or intangible, located in the Philippines. o Personal tangible property
o Intangible personal property
Situs of Tangible and Intangible Property ▪ Shares of stock
▪ Bank deposit
Property Situs ▪ Dividends declared before his death, but received after death
Real property and tangible property Location of the property ▪ Partnership profit, which have accrued before his death
Shares, franchise, copyright and the like Where the intangible is exercised regardless of ▪ Usufructuary and rights
where the corresponding certificate is stored • Section 85 of the Tax Code enumerates the composition of the gross estate:
 DTRPPTC
o Decedent’s interest
o Transfer in contemplation of death
o Revocable transfer
o Property passing under general power of appointment
o Proceeds of life insurance
o Transfers for insufficient consideration
o Capital of the surviving spouse
Taxable Transfer
• Taxable transfers — transfers of properties during the lifetime of the decedent or transfers
inter vivos
• Considering that the transfer happened during the lifetime of the decedent, the properties
involved are no longer with the decedent at the time of his death, and are supposedly not
included in his gross estate anymore
o However, the nature and circumstances attending the transfers, indicate the transfers
are actually transfers mortis causa or suggest that the decedent still owns and
controls the properties up to the date of his death. Hence, these transfers of properties
must be included in the gross estate and are subject to estate tax
Decedent’s Interest
• “Interest” - A general term used to denote a right to have the advantage accruing from
anything; any right in the nature of property, but less than a title.
• The Tax Code provides that decedent’s interest to the extent of the interest therein of the
decedent, at the time of death shall be included in gross estate
• Decedent interest — refers to the extent of equity or ownership participation of the decedent
on any property physically existing and present in the gross estate, whether or not in his
possession, control, or dominion.
o It pertains to any interest having value or capable of being valued, and transferred by
the decedent at the time of his death
• It also refer to the value of any interest in property, owned or possessed by the decedent at the
time of his death
• Examples are:
o Dividends declared by a corporation before death of the stockholder although paid
after death
o Partnership profits even if paid after death of the partner
o Proceeds of a life insurance policy payable to a designated revocable beneficiary
o Right of usufruct
o Where the decedent had, before his death, relinquished his interest in property, he
could not be deemed to have transmitted any interest in such property at his death.
Transfer in Contemplation of Death
• A transferred in contemplation of death is a disposition of property prompted by thought of
death
o Contemplation of death is a state of mind, and it cannot be easily ascertained, unless
he says so, that the person is transferring the property because he knows he would
die anytime soon
o In this case, the acts and circumstances present before, during, or after the transfer
are considered to ascertain whether the transfer is in contemplation of death
Circumstances Considered
(1) The health condition and age of the decedent at the time of the gift, especially where he was
aware of serious illness
(2) Concurrent execution of the last will and testament or making a will within a short time
after its transfer
(3) Length of time between the gift and the date of death.
a. A short interval suggests that the conclusion that the thought of death was in the
decedent’s mind, and a long interval suggests the opposite.
• It is the thought of death, as a controlling motive, which induces the disposition of the
property
• Included within this concept is donation mortis causa
• The gross estate shall include the value of property transferred by the decedent during his
lifetime in anticipation of his death, such as:
o Transfer of property in favor of another person, but the transfer was intended to take
effect only after the transferor’s death
▪ This refers to a transfer intended to take effect in possession or enjoyment at
or after his death. These are donations mortis causa
▪ Example: The deceased expressly and consistently declared her conveyance
to be one of donation mortis causa and further forbade the registration of
deed until after her death
o Transfer by gift intended to take effect at death, or after death, or under which the
donor reserved the income or the right to designate the persons who should enjoy the
income
 ▪ This relates to a transfer under which a person has retained for his life or for
any period not ascertainable without reference to his death or for any period
which does not in fact end before his death.
o Transfer with retention or reservation of rights. The decedent had transferred his
property during his lifetime, but retained for himself beneficial enjoyment of the
thing, or the right to receive income from the same.
• Section 85 provides that there is no transfer in contemplation of death when the transfer of
property is a bona fide sale for an adequate and full consideration in money or money’s worth
• If transfer is made to compulsory heir, it is presumed that the transfer is contemplation in
death
• If made to a person other thsn the compulsory heir, there is no presumption and the transfer is
merely considered a donation inter vivos
• When transfer is made but the payment is installment basis
Motives Associated with Life/Instances Where the Transfer is not made in Contemplation of Death
(1) To relieve the donor from the burden of management
(2) To save income or property taxes
(3) To settle family litigated and unlitigated disputes
(4) To provide independent income for dependents
(5) To see the children enjoy the property while the donor is alive
(6) To protect family from hazards of business operations; and
(7) To reward the services rendered.
Revocable Transfer
• The rationale for taxing such transfer interest at the time of death of the trustor is to reach
transfers, which are really substitutes for testamentary dispositions and thus prevent invasion
of estate tax
o To be exempt from estate tax, the transfer inter vivos must be absolute and outright
with no strings attached whatsoever by the transferor, which is not the case here
• It is sufficient that the decedent had the power to revoke, though he did not exercise the power
Property Passing Under General Power of Appointment
• Power of appointment — refers to the right to designate the person or persons who will
succeed to the property of the prior decedent.
• There are two parties involved in the property, passing under the power of appointment:
o Donor of the power — persons having property subject to disposition who created,
reserved, or granted the power to designate the transferees or recipient of the
property.
o Donee of the power — persons to whom the property to designate the transferees or
recipient of the property is given or conferred
▪ For estate, tax purposes, the “donee of the power” is the decedent
• The power of appointment maybe general or special
o General Power of Appointment (GPA)— when the power of appointment authorizes
the donee of the power to appoint any person he pleases
▪ The power may be exercised in favor of anybody, including the donee-
decedent
▪ The donee of a general power of appointment holds the appointed property
with all the attributes of ownership. Thus, the appointed property shall form
part of the gross estate of the donee (beneficiary) of the power upon his
death.
▪ Illustration: In the last will and testament of Mr. A, he devised a parcel of
land, located in Batangas to B, with the power to appoint any person he
pleases. B decided to transfer the property to C through his last will and
testament.
• In this case, B received the property under general power of
appointment.
• GPA exists when the power of appointment authorizes the donee of
the power to appoint any person he pleases
• The donee of a general power of appointment holds the appointed
property with all the attributes of ownership. Thus, the appointed
property shall form part of the gross estate of the donee
(beneficiary) of the power upon his death
• Should the property be included in Mr. A’s gross estate?
o Yes
• Should the property be included in B’s gross estate?
o Yes
o Special Power of Appointment (SPA) — when the donee can appoint only from a
restricted or designated class of persons other than himself
▪ Property transferred under a special power of appointment should be
excluded from the cross estate of the donee of the power because the donee-
decedent only holds the property in trust
 ▪ Illustration: Mr. A donated property to B through his last will and testament.
It includes a provision that B can transfer the property only to his son, C.
• Should the property be included in Mr. A’s gross estate?
o Yes
• Should the property be included in B’s gross estate?
o No. B only holds the property in trust. The intention of
Mr. A is to transfer the property to C, not to B.
• The power of appointment may be exercised by the donor-decedent through the following
modes:
o By will
o By deed to take effect in possession or enjoyment at or after his death
o By deed under which he has retained for his life or any period not ascertainable
without reference to his death, or for any period which does not in fact end before his
death
o The possession or enjoyment of, or the right to the income from the property
o The right, either alone, or in conjunction with any person to designate the person
who shall process or enjoy the property or the income therefrom
Proceeds of Life Insurance
• Proceeds of life insurance, taken out by the decedent on his own life should be included in
gross estate, if the following requisites are present:
o It must be an insurance on the life of the decedent
o The beneficiary must be either of the following:
▪ His estate or executor or administrator (revocable or not)
▪ Any third person (other than estate or administrator, or executor) provided
that the designation is revocable
• The Philippine Insurance Code presumes that the designation of a policy is revocable in case
the designation of beneficiary is not clear or silent.
• Notwithstanding the foregoing, in the event the insured does not change the beneficiary
during his lifetime, the designation shall be deemed irrevocable (Section 11, Insurance Code)
• Proceeds of the following insurance are not included in the gross estate of the decedent, and
not subject to estate tax:
o Policy is an accident or property insurance
o Policy is taken by the employer for his employees or the so-called group life
insurance.
o Proceeds of insurance issue by the GSIS and SSS for government and private
employees, respectively
o Proceeds of life insurance payable to the heirs of the deceased members of the US
and Philippine army
Transfer for Insufficient Consideration
• When a sale or transfer (other than a bona fide or valid sale) was made for a price less than its
fair market value at the time of sale or transfer, the excess of the fair market value of the
transferred property at the time of death, over the value of the consideration received, should
be included in gross estate.
• For this purpose, the following fair market value shall be used:
o Fair market value of the property at the time of sale or transfer
▪ This is used to determine whether or not the consideration was full or
adequate
▪ If the consideration received is substantially the same with the fair market
value at the time of transfer, such sale or transfer, is considered a bona fide
sale, hence, not subject to estate tax
o Fair market value of the property at the time of death
▪ This is used to determine the amount to be included in the gross estate
▪ If the consideration received is substantially lower or for less than full, or
adequate consideration compared to the fair market value at the time of sale
or transfer, such a sale or transfer was made for insufficient consideration
▪ If there was no consideration received at the date of transfer and such
transfer was made in contemplation of death, the fair market value of the
property at the time of death, not at the date of transfer, should be included
in the gross estate of the decedent
▪ If there was no consideration received at the date of transfer, and such
transfer was not made in contemplation of death, such transfer shall be
considered donation inter vivos subject to donor’s tax based on the fair
market value of the property at the date the donation was made.
Rules on Insufficient Consideration
Consideration is greater than or equal to the Bona fide sale.
FMV at the time of transfer Excluded from the decedent’s gross estate
Consideration is less than the FMV at the time of Insufficient consideration.
transfer Include in the gross estate the excess of the FMV
at the time of death over the consideration
received
 by the decedent, and will not be transmitted by the decedent as part of the
Sale was made in the ordinary course of trade Bona fide sale regardless of the amount of inheritance; hence, it must be removed from the taxable estate
consideration o The classification decedent is important because the estate of a resident citizen,
No consideration received Either donation mortis causa (subject to estate non-resident citizen, and resident alien decedent may claim both ordinary and
tax) or donation inter vivos (subject to donor’s special deductions. With respect to a non-resident alien decedent, his estate may
tax) only claim ordinary deductions but not special deduction. In addition, the non-
resident alien decedent (NRA) can only claim pro-rated expenses, losses,
Deductions in Estate Tax indebtedness and taxes.
• These are charges which naturally diminish the amount of the inheritance of the heirs. Hence,
the law allows deductions from gross estate. General Principles of Estate Deductions
• In addition to these charges, the law also allows certain deductions in the nature of incentives 1. The substantiation rule
from gross estate o As a rule, items of deduction must be supported with documentary evidence, such as
• They are classified into: receipts, invoices, contracts, and other proofs, that they actually exist, or occurred to
o Ordinary Deductions - conceptually include items which diminish the amount of the establish their validity
inheritance. The only exception here is the deduction for “property previously taxed” o XPN: Standard deductions
which is a tax incentive, but is classified as ordinary deduction in pursuance to the 2. Matching principle
estate tax form. o As a rule, items of deduction must pertain to properties that are part of the gross
▪ Expenses, Losses, Indebtedness, Taxes, etc. (ELITE) estate. No deduction is allowed for those which do not form part of the gross estate.
❖ Funeral Expense o Examples:
❖ Judicial Expense ▪ Obligations of the exclusive properties of the surviving spouse cannot be
❖ Claims Against Estate claimed as deductions, because said properties are not included in gross
❖ Claims Against Insolvent Person estate
❖ Unpaid Mortgage ▪ Losses of properties before the death of the taxpayer are not deductible,
❖ Unpaid Taxes because the properties are no longer part of the gross estate of the decedent
❖ Losses at the time of death
▪ Property Previously Taxed or Vanishing Deduction ▪ Separate obligations or losses of exclusive properties of the surviving
▪ Transfer for Public Use spouse cannot be deducted against the gross estate
o Special Deductions - are items which do not reduce the inheritance, but are 3. “No double classification” rule
nonetheless allowed by the law as incentive deductions against gross estate in the o Items of deduction cannot be claimed simultaneously under several deduction
determination of the net taxable estate. categories
▪ Family Home o Examples:
▪ Medical Expenses ▪ A family home, which is destroyed by any casualties during the settlement
▪ Benefits Received under R.A 4917 (Act Providing Retirement Benefits of of the estate, cannot be simultaneously deducted as a “family home” and a
Employees of Private Firms) “casualty loss”
▪ Standard Deduction ▪ Losses claimed in the income tax return of the estate, cannot be claimed
o Share of the Surviving Spouse - pertains to the interest of the surviving spouse in again as a deduction in the estate tax return
the net conjugal or communal properties of the spouses. This portion is not owned 4. Default presumption on ordinary deduction
 o In the case of married decedents, ordinary deductions are presumed to be against the o Any portion of the funeral and burial expenses defrayed by relatives and friends
common properties, unless proven to be an exclusive property of either spouse. of deceased are not deductible
o This is in line with the rule that the properties are common properties, unless proven o Expenses must be supported by receipts or invoices or other evidence to who that
to be exclusive. they were actually incurred.
o Amount that may be claimed as funeral expense is whichever is lower b/w:
Deductions Allowed to the Estate of Decedent RC, NRC, and RA ▪ (1) actual funeral expenses up to interment or
▪ (2) 5% of the value of the gross estate but shall not exceed P200,000
Summary of Deduction Rules o Any amount of funeral expenses in excess of the P200,000 threshold, whether the
RC, NRC, RA NRA same had actually been paid or still payable is now not allowed as a deduction.
Losses Yes o Estates of decedents who died on January 1, 2018 onwards may no longer claim
Claims against the estate Yes funeral expense (TRAIN LAW)
Pro-rated amount
Indebtedness Yes • Judicial Expense
Taxes Yes o Expenses for testamentary or intestate proceedings which include expenses
Transfer for public use Yes Yes incurred in the inventory-taking assets comprising the gross estate, their
Vanishing deduction Yes Yes administration, the payment of debts of the estate, as well as distribution of the estate
Family home Yes No among the heirs.
Standard deduction Yes Yes o These expenses are incurred during the settlement of the estate but not beyond
Benefits under RA 4917 Yes No the last day prescribed by law for the filing of the estate tax return
Share of the surviving spouse Yes Yes o Judicial expenses may include:
▪ Administrator or executor’s fees
Expenses, Losses, Indebtedness, and Taxes ▪ Attorney’s Fees
• Funeral Expense ▪ Court Fees
o Expenses incurred from the date of death until date of interment ▪ Accountant Fees
o They include: ▪ Appraiser’s fees
▪ Mourning apparel of surviving spouse and minor children ▪ Clerk Hire
▪ Expenses for the deceased’s wake ▪ Costs of preserving and distributing the estate
▪ Publication charges for death notices ▪ Costs of storing or maintaining property of the estate
▪ Telecommunication expenses for informing relatives of deceased ▪ Brokerage fees for selling property of the estate
▪ Cost of burial plot, tombstones, monument, or mausoleum but not their o These expenses should be supported by a sworn statement of account issued and
upkeep signed by the creditor
❖ In case the deceased owns a family estate or several burial lots, o Administration expenses as deductions for purposes of arriving at the value of
only the value corresponding to the plot where he is buried is the net estate have been construed to include all expenses essential to the collection
deductible. of assets, payment of debts or the distribution of the property to persons entitled to it
▪ Interment and/or cremation fees and charges o Judicial expenses include expenses incurred in the judicial proceeding or
▪ All other expenses incurred for the performance of the rites and ceremonies extrajudicial settlement of the estate.
to incident to interment o Expenditures incurred for the individual benefit of the heirs, devisees, or
o Expenses incurred after interment are not deductible legatees are not deductible
 ▪ It also does not include fees incident to litigation incurred by the heirs in
asserting their respective rights
o Estates of decedents who died on January 1, 2018 onwards may no longer claim
judicial expense as deduction
• Losses
o From the date of death of the decedent and during settlement of the estate, there are
losses that may occur on the properties owned by the decedent and may be
claimed as deductions subject to these requisites:
ii. Losses are due to fire, storms, shipwrecks, or other casualties, or from
robbery, theft, or embezzlement
iii. Losses are not compensated for by insurance or otherwise
iv. Losses are not claimed as a deduction for income tax in income tax return
v. Losses are incurred not later than the last day of payment of the estate
tax
o Period within which these losses may be incurred is set up to 1 year from the
date of death of the decedent or the allowed extension
o Examples:
▪ Ronaldo McDonaldo died January 1, 2018. A fire razed his mansion on
March 1, 2018. His estate was settled January 1, 2020. He can claim a
deduction, because the fire happened within a year of his death.
▪ Joe Li Bag died January 1, 2018. A fire razed his shanty on January 19,
2019. He cannot claim a deduction, because the fire happened more than a
year after his death.
• Claims Against Estate
o In claims against estate, decedent is the debtor.
o “Claims” is generally construed to mean debts or demand of a pecuniary nature
which could have been enforced against the deceased in his lifetime and could
have been reduced to simple money judgments
o These claims may arise out of contract, tort or operation of law
o Requisites for this deduction:
i. Liability represents a personal obligation of the deceased existing at the
time of his death except funeral expenses and medical expenses
ii. Liability was contracted in good faith and for adequate and full
consideration in money or money’s worth
iii. Claim must be a debt or claim, which is valid in law and enforceable in
court
iv. Indebtedness must not have been condoned by the creditor or the action
to collect from the decedent must not have been prescribed
o Note that if the debts were condoned AFTER the decedent’s death, the debts are
deductible, following the date-of-death valuation rule. (Dizon vs. CTA, G.R. No.
140944, April 30, 2008)
o Also required that at the time the indebtedness was incurred, the debt instrument
was duly notarized
o If the loan was contracted within 3 years before the death of decedent,
administrator or executor is required to submit a statement showing the disposition
of the proceeds of the loan
Classification Rules for Claims Against Estate
1. Family Benefit Rule
• If the obligation was contracted or incurred for the benefit of the family, the
claim shall be classified as a deduction against common property. Otherwise,
the property classification shall be applied.
• Examples:
o A mortgage which was contracted, for the education of the children of
the spouses shall be deducted against common properties, even if the
same is constituted against a separate property of either spouse
o An unpaid real property tax on the family home she’ll be deducted
against common property, even if the family home is separate property
of either spouse
o Obligations constituted for the medication, or other support expenses of
any family members should be considered deductions against common
property
2. Property Classification Rule
• Claims follow the classification of the relevant property
• Examples:
o A mortgage or unpaid taxes on property, inherited or acquired before
marriage shall be classified following the classification of the property
based on the applicable family regime of the spouses
o An obligation arising from exclusive property should be considered as
deduction from exclusive properties, unless it accrued or was used for
the benefit of the family
Substantiation Requirements on Claims Against the Estate
1. Simple loan and advances
 • The debt instrument must be duly notarized at the time the indebtedness was
incurred
o Except for loans, granted by financial institutions, where notarization is
not part of the business practice of the financial institution-lender
• A duly notarized certification from the creditor as to the unpaid balance of
the debt, including interest as of the time of the death
• A statement under oath, executed by the administrator or executor of the
estate, reflecting the disposition of the proceeds of the loan, if said loan was
contracted within three years prior to the death of the decedent
2. Purchase of goods or services
• Pertinent documents, evidencing, the purchase of goods or services as duly
acknowledged, executive, and signed by the decedent and the creditor, such as:
o Sales of goods — sales invoice/delivery receipt
o Sales of services — contract for the services agreed to be rendered
• Statement of account given by the creditor as duly received by the decedent-
debtor
• A duly notarized certification from the creditor as to the unpaid balance of the
debt, including interest as of the time of the death
• Certified true copy of the latest audited balance sheet of the creditor with a
detailed schedule of its receivable, showing the unpaid balance of the decedent-
debtor
3. Where the settlement is made through the court in a testate, or interstate proceeding,
pertinent documents, filed with the court, evidencing the claims against the estate, in the
court order, approving the said claim is already issued in addition to the documents
mentioned in the preceding paragraph
4.
Notes:
• There is no requirement to add the amount to the gross estate (as compared to claims
against insolvent persons/mortgages)
• This is a DIRECT DEDUCTION.
• Claims Against Insolvent Person
o Decedent is the creditor in this case
o The claim is incurred during the lifetime of the decedent but remains unpaid at
the time of his death, it is the estate collecting the credit from the debtors of
decedent
o Debtor must be insolvent
o “Insolvent” – financial condition of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets
o Value of the claim of decedent against these insolvent persons must be included
in the gross estate because it is the decedent’s interest or property at the time of his
death
o Incapacity of the debtor must be duly proven
o Claims against insolvent persons is a form of loss but is presented as a separate item
of deduction in the tax return.
o The deductible amount of claim against insolvent persons is the unrecoverable
amount of claim
o Requisites for deductibility:
(1) The full amount owed by the insolvent must first be included in the
decedent’s gross estate.
(2) The incapacity of the debtor to pay his obligation should be proven, although
a judicial declaration of insolvency is not required. [Monserrat v. CIR, CTA
Case No. 11 (1995)]
• Unpaid Mortgage
o Requisites for Deductibility:
(1) The amount of unpaid mortgage is allowed as a deduction provided the fair market
value of the property mortgaged or the decedent’s interest therein, undiminished by
such mortgage or indebtedness, is included in the gross estate
(2) The mortgages were contracted bona fide and for an adequate and full consideration
in money or money’s worth.
▪ Deduction allowed in case of claims against estate, unpaid mortgages,
or any indebtedness is, when founded upon promise or agreement, limited
to the extent that they were contracted and for an adequate and full
consideration in money or money’s worth
▪ IF unpaid mortgage is being claimed BY the estate, verification must be
made as to who was the beneficiary of the loan proceeds
❖ If loan proceeds went to another person, value of unpaid loan
must be included as a receivable of the estate (An
accommodation loan)
❖ If there is a legal impediment to recognize the same as
receivable of the estate, said unpaid obligation/mortgage shall
not be allowed as a deduction
 o For (1) claims against insolvent persons and (2) unpaid mortgage/indebtedness on
property, the values of each must first be added to the gross estate
▪ These are called zero-sum computations. They do not really benefit the
heirs because these transactions were not supposed to be part of the gross
estate anyway. Note that the value of the property undiminished by the
mortgage must be included in the gross estate. (R.R. 12-2018)
o Example: Kobe Ryan died leaving real property with a FMV of P1M, subject to a
mortgage in the amount of P600K. Before the estate can deduct the P600K, it has to
include the total FMV of the property of the gross estate.
o Subrogation of estate to rights of mortgagee - It has been held that where the
decedent only owned ½ of the property mortgaged so that only ½ of its value
was included in his estate, only ½ of the mortgage debt was deductible, and even
though the executor paid the entire debt, the liability of the decedent being solidary,
inasmuch as the executor would be subrogated to the rights of the mortgagee as
against the co-owner and co-mortgagor.
o Where mortgagor a nonresident alien - Indebtedness secured by mortgage of
real property situated outside the Philippines may not be deducted where such
property is not deductible in the gross estate for the reason that the decedent at the
time of his death was a nonresident alien.
• Unpaid Taxes
o This includes taxes such as income tax, business, tax, and property tax, which have
accrued as of the death of the decedent, and which were unpaid as of the time of
death
o To claim as deduction, taxes must have accrued as of date of death of the
decedent and remain unpaid as of time of death.
o Following taxes cannot be claimed as deduction:
a. Income tax upon income received after death
b. Property taxes not accrued before his death
c. Estate tax due from the transmission of his estate
d. Business taxes accruing after death
o The above taxes except (4) are chargeable to the income of the estate.
Property Previously Taxed (Vanishing Deductions)
• These are the instances where properties are transferred between persons in short periods of
time, causing a series of transfer taxation
• A vanishing deduction operates to ease the harshness of successive taxation of the same
property within a relatively short period to time occasioned by the untimely death of the
transferee after the death of the prior decedent or after the donation
• It is a deduction allowed from gross estates of RC, NRC, RA, and non-resident estates for
properties which were previously subject to donor’s or estate taxes
• Deduction allowed diminishes for a period of 5 years
• Two occasions where vanishing deduction may arise:
1) A decedent transferred his property to his heir/transferee
➢ The transfer is subject to estate tax
➢ Subsequently and within 5 years, the heir/transferee who received the property
from the decedent, also died, the second transfer is also subject to estate tax
➢ Estate in the second transfer may claim vanishing deduction as allowable
deduction
2) A person donated property to the donee
➢ The transfer is subject to donor’s tax
➢ Subsequently and within a period of 5 years, the donee who still owns the
donated dies
➢ Second transfer is subject to estate tax and vanishing deduction is allowable
deduction
• No vanishing deduction if the first transfer is a donation and the second transfer is also a
donation or if the first transfer is a succession and the second transfer is a donation
• Despite the absence of a rule prohibiting double deduction using vanishing deduction, there is
no good reason to claim vanishing deduction, if the entire value of the property is
already claimed under:
o Casualty losses
o Transfer for public purpose
o Family home
▪ The property is effectively excused from taxation by being deducted under
the aforementioned categories. There would be no double taxation to occur.
Hence, further claim of vanishing deduction should be disallowed.
Requisites to Claim Vanishing Deduction
a. Present decedent died within 5 years from the date of death of the prior decedent or
the present decedent died within 5 years from the date of donation
b. Property must be located in the Philippines and can be specifically identified as the
one received from the prior decedent or from the donor, or which can be identified as
having been acquired in exchange for property so received
c. Value of the property is included in the gross estate of present decedent
 d. Donor’s tax or estate tax on the prior transfer must be finally determined and paid • For estate tax purposes, the family home is generally characterized by permanency, that is,
by or on behalf of such donor, or the estate of such prior decedent the place to which, whenever absent for business or pleasure, one still intends to return
• Vanishing deduction cannot be claimed if the donor’s tax or estate tax was not • The family home must be part of the properties of the absolute community or of the conjugal
paid in the prior transfer partnership or of the exclusive properties of either spouse depending upon the classification of
e. The estate of the prior decedent did not claim or was not allowed to claim vanishing the property (family home) and the property relations of the husband and wife.
deduction in the case of multiple succession • May also be constituted by an unmarried head of a family
• No vanishing deduction on the property or the property given in exchange • For purposes of estate tax allowable deduction, a person may constitute only 1 family home
thereof was allowed to the prior estate Requisites for Family Home as Allowable Deduction:
• This rule applies in the case of series of deaths a. Family home must be the actual residential home of the decedent and his family at
• If the prior estate, claimed, vanishing deduction, the second estate cannot the time of death
claim vanishing deduction, because the purpose of vanishing deduction is the b. Total value of the family home must be included in the gross estate of the decedent
mitigate double taxation c. Allowable deduction must be in an amount equivalent to the current fair market
Decreasing Percentages of Deduction: value of the family home as declared or included in the gross estate, or the extent of the
Percentages of the value Period covered decedent’s interest whichever is lower, but not exceeding P10M
100% Present decedent died within one year prior to the • TRAIN Law increased the allowable amount of family home deduction from not more than
death of the prior decedent, or if the property was P1M to P10M in the settlement of estate of decedents who died Jan. 1, 2018 onwards
transferred to him (donee) by gift within the same
period prior to his death (donee) Standard Deduction
80% Period is more than 1 year but not more than 2 • It is a deduction without need of substantiation in the amount of P5M.
years
• The only requirement is that the decedent is either a RC, NRC, or RA
60% More than 2 years but not more than 3 years
40% More than 3 years but not more than 4 years
Medical Expenses
20% More than 4 years but not more than 5 years
• All medical expenses incurred (paid or unpaid) are allowed as deductions provided the ff.
Transfers for Public Use are present:
• Amount of all bequests, legacies, devices or transfers to or for use of the Government of o Expenses are incurred within 1 year before death of decedent
the Rep. of the Philippines or any political subdivision thereof, for exclusively public o Expenses are fully substantiated with official receipts for services rendered by the
purposes is allowed as deduction decedent’s attending physician, invoices, statements, of accounts duly certified by
These must be indicated in the decedent’s last will and testament the hospital and other documents in support
Family Home o Total amount does not exceed P500K
• “Family Home” – dwelling house, including the land on which it is situated, where the • Any amount in excess of P500K nor any amount incurred prior to the 1 year period from
husband and the wife, or the head of the family and members of their family reside date of death cannot be allowed as deduction
• The Barangay Captain of the locality where the family home is located must issue a • Estates of decedents who died on January 1, 2018 onwards may no longer claim medical
certification that it is actually the family home of the decedent expense as deduction
• Family home is deemed constituted on the house and lot from the time it is actually occupied
Amount Received by Heirs under R.A 4917
as a family residence and is considered as such for as long as any of its beneficiaries actually
resides therein • Any amount received by the heirs from the decedent’s employer as a consequence of the
death of the decedent-employee in accordance with R.A 4917 is allowed as a deduction,
 provided that the amount of separation benefit is included as part of gross estate of
decedent.
Surviving Spouse’s Net Share in the Conjugal Property
• After deducting the allowable deductions appertaining to the conjugal or community
properties included in the gross estate, the share of the surviving spouse must be removed
to ensure only the decedent’s interest in the estate is taxed
• The share of the surviving spouse is 1/2 of the net conjugal or community properties of
the spouses
• In the inventory of the properties of the estate, the properties of the spouses are presumed
common properties, unless proven to be exclusive properties of either of the spouses
o This presumption does not apply under absolute separation of property. Under ASP,
properties are presumed separate properties of either spouse unless proven to be joint
properties of the spouses.
• The sale or exchange of properties do not alter their classification. Properties acquired using
separate properties are separate properties. Likewise, properties acquired using common
properties are common properties.
Deductions Allowed to the Estate Decedents NRA
Expenses, Losses, Indebtedness
• The proportion of the total expenses, losses, indebtedness, and taxes which the value of such
part bears to the value of his entire gross estate wherever situated is allowed as deduction.
• The pro rata treatment which normally result in items of losses, indebtedness, and taxes being
deducted at an amount different from their actual costs or value
• Allowable deduction is computed as follows:
𝐆𝐫𝐨𝐬𝐬 𝐄𝐬𝐭𝐚𝐭𝐞 − 𝐏𝐡𝐢𝐥𝐢𝐩𝐩𝐢𝐧𝐞𝐬
𝐱 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬, 𝐋𝐨𝐬𝐬𝐞𝐬, 𝐈𝐧𝐝𝐞𝐛𝐭𝐞𝐝𝐧𝐞𝐬𝐬, 𝐚𝐧𝐝 𝐓𝐚𝐱𝐞𝐬
𝐆𝐫𝐨𝐬𝐬 𝐄𝐬𝐭𝐚𝐭𝐞 − 𝐖𝐨𝐫𝐥𝐝
Property Previously Taxed
• Same concepts as those applied for RC, NRC, and RA
Transfers for Public Use
• Same concepts as those applied for RC, NRC, and RA
Surviving Spouse’s Net Share in the Conjugal Property
• Same concepts as those applied for RC, NRC, and RA
Tax Credit for Estate Taxes Paid to a Foreign Country
• Estate of citizen and resident decedents are taxable in all their properties within or without the
Philippines.
• In order to avoid or at least minimize the effect of double taxation, an estate tax credit on the
estate taxes paid in a foreign country is allowed in the Philippines
Limitations on Tax Credit
• Amount of credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent’s net estate
situated within such country taxable under this Title bears to his entire estate
• The total amount of credit shall not exceed the same proportion of the tax against which
such credit is taken, which the decedent’s net estate situated outside the Philippines taxable
to his entire net estate
• Tax credit allowed shall depend on whether one foreign country or multiple foreign countries
are involved
o One Foreign Country
▪ Tax credit is whichever is lower of the actual estate tax paid in foreign
country and the limit as determined:
𝐍𝐞𝐭 𝐓𝐚𝐱𝐚𝐛𝐥𝐞 𝐄𝐬𝐭𝐚𝐭𝐞−𝐅𝐨𝐫𝐞𝐢𝐠𝐧
𝒙 𝑬𝒔𝒕𝒂𝒕𝒆 𝑻𝒂𝒙 𝑫𝒖𝒆 𝒊𝒏 𝑷𝒉𝒊𝒍𝒊𝒑𝒑𝒊𝒏𝒆𝒔
𝐍𝐞𝐭 𝐓𝐚𝐱𝐚𝐛𝐥𝐞 𝐄𝐬𝐭𝐚𝐭𝐞−𝐖𝐨𝐫𝐥𝐝
o Multiple Foreign Countries
▪ Determine whichever is lower of the actual estate tax paid in each of the
foreign country and the limit per country using the formula above
▪ Determine the total world estate tax credit limit using the formula:
𝐓𝐨𝐭𝐚𝐥 𝐍𝐞𝐭 𝐓𝐚𝐱𝐚𝐛𝐥𝐞 𝐄𝐬𝐭𝐚𝐭𝐞−𝐅𝐨𝐫𝐞𝐢𝐠𝐧
𝒙 𝑬𝒔𝒕𝒂𝒕𝒆 𝑻𝒂𝒙 𝑫𝒖𝒆 𝒊𝒏 𝑷𝒉𝒊𝒍𝒊𝒑𝒑𝒊𝒏𝒆𝒔
𝑵𝒆𝒕 𝑻𝒂𝒙𝒂𝒃𝒍𝒆 𝑬𝒔𝒕𝒂𝒕𝒆−𝑾𝒐𝒓𝒍𝒅
▪ Allowable Estate Tax Credit is whichever is lower b/w the computed
limitations in the two previous bullet points
Exclusions
• Under the Tax Code, the separate or exclusive property of the surviving spouse (i.e., the
husband’s capital or wife’s paraphernal or separate property) is not deemed part of the gross
estate of the decedent spouse.
• If the decedent was married, his gross estate would consist of his exclusive properties and his
share in the conjugal or community properties. (Sec. 85(H), NIRC)
Exclusive property of each spouse
(1) Where the system of absolute community of property governs property relations of the spouses
- Under the Family Code, in the absence of marriage settlement executed before the
 celebration of the marriage, or when the regime agreed upon is void, the system of absolute
community of property governs the property relations between the spouses
a. The community property shall consist of all the property owned by the spouses at the
time of the celebration of the marriage or acquired thereafter
b. The following are excluded from the community of property:
i. Property acquired by gratuitous title by either spouse, and the fruits as well as the
income thereof, if any, unless it is expressly provided by the donor, testator or
grantor that they shall form part of the community property;
ii. Property for personal and exclusive use of either spouse; however, jewelry shall
form part of the community property; and
iii. Property acquired before the marriage by either spouse who has legitimate
descendants by a former marriage, and the fruits as well as the income, if any, of
such property
c. Property acquired during the marriage is presumed to belong to the community, unless
it is proved that it is one of those excluded therefrom.
(2) Where conjugal partnership of gains governs property relations of the spouses - The future
spouses may agree in their marriage settlements that the regime of conjugal partnership of
gains shall govern their property relations during the marriage.
a. Under this regime, the husband and wife place in a common fund the proceeds,
products, fruits and income from their separate properties and those acquired by either
or both spouses through their efforts of by chance and upon dissolution of the marriage
or of the partnership, the net gains or benefits obtained by either or both spouses shall
be divided equally between them, unless otherwise agreed in the marriage settlements
b. These are the exclusive property of each spouse:
i. That which is brought to the marriage as his or her own;
ii. That which each acquires during the marriage by gratuitous title;
iii. That which is acquired by right of redemption, by barter, or by exchange with
property belonging to only one of the spouses; and
iv. That which is purchased with the exclusive money of the wife or of the husband
c. Property bought on installments, paid partly from exclusive funds of either, or both
spouses and partly from conjugal funds belongs to the buyer or buyers if full ownership
was vested before the marriage, subject to reimbursement of the amounts advanced
with a conjugal partnership or by either or both spouses
d. Whenever an amount or credit payable within a period of time, belongs to one of the
spouses, the sums collected during the marriage in partial payments or by installments
on the principal, are considered the exclusive property of the spouse. However,
interests falling due during the marriage on the principal belong to the conjugal
partnership
e. All property acquired during the marriage, whether the acquisition appears to have
been made, contracted, or registered in the name of one or both spouses, is presumed to
belong to the conjugal partnership, unless it be proved that it pertains exclusively to the
husband or to the wife.
(3) Where the regime of separation of property governs property relations of the spouses - The
future spouses may agree in the marriage settlements that their property relations during the
marriage should be governed by the regime of separation of property
a. Separation of property may be for the present or future property or both. It may be total
or partial. In the latter case, the property not agreed upon as separate shall pertain to the
absolute community.
b. To each spouse shall belong all earnings from his or her profession, business or
industry and all fruits, natural, industrial, or civil, due or received during the marriage
from his or her separate property.
Exempt Transfers
1. Transfers of properties not owned by the decedent
• One cannot transfer properties he/she does not own.
• Properties not owned by the decedent are not part of his/her donation mortis causa.
• These properties must be excluded in gross estate even if they transfer to other
persons at the point of death
2. Transfers legally excluded
• These are the properties that are owned by the decedent at the point of death.
• These properties naturally form part of his/her donation mortis causa to heirs, but are
exempted by law from estate taxation
Exemption of Certain Acquisitions and Transmissions
• Gross estate of the decedent does not include:
(1) Exempt transmissions/acquisitions
(2) Excluded properties even if they are existing and with decedent at the time of
death
• Exempt Properties – exempt from estate tax and shall not be taxed
• The exemptions in (1), (2), and (3) are premised on the fact that in all the transfers mentioned,
there is really one transmission of property, i.e., from the testator - to the owner of the naked
title, or to the fideicommissary, or to the second beneficiary, as the case may be.
• Hence, the exemption from the tax was because the transfer was already subject previously
thereto.
• The exemption in (4) is dictated by public policy to encourage such transfers.
a. The merger of usufruct in the owner of the naked title
▪ Illustration:
❖ Predecessor: Mr. A
❖ Usufructuary: B
❖ Owner of the naked title: C
▪ Mr. A dies in June 2011, in his will, he devised an agricultural land to B
who shall use the property over 10 years and thereafter, to C. Subsequently,
B died resulting in the transmission of the property to C.
❖ The transfer from the usufructuary, B, to the real owner, C, upon
the death of B does not constitute a donation mortis causa as it is a
mere return of the property to the real owner.
❖ Note that the transfer from Mr. A, the predecessor, of the usufruct
to B and the naked title to C involves transfer of ownership. It is a
donation mortis causa of Mr. A subject, the estate tax.
b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary
▪ Illustration:
❖ Predecessor: Mr. A
❖ Fiduciary heir: B
❖ Fideicommissary: C
▪ Mr. A died, leaving an inheritance consisting of several real estates to his
favorite grandson, C, the son of his favorite son, B. Because C was a minor,
Mr. A appointed B, as the fiduciary of the inheritance. Before transferring
the property to C, B died.
❖ The delivery of the inheritance upon the death of B (fiduciary
heir), to C (fideicommissary) shall not be included in the gross
estate of B because the transfer it does not involve a transfer of
ownership from B to C. B is merely a trustee.
❖ The delivery is a mere return of the property to the real owner, C
▪ In fideicommissary substitution, the substitution must not go beyond one
degree from the heir originally instituted, and the fiduciary or first heir and
the second heir must be living at the time of the death of the testator. (Art.
866, Civil Code)
c. The transmission from the first heir, legatee, are done in favor of another beneficiary,
in accordance with desire of the predecessor
▪ Illustration:
❖ Predecessor: Mr. A
❖ First heir: B
❖ Second heir: C
▪ In his will, Mr. A devised a piece of land to B as the first heir and thereafter
to C as the second heir. B subsequently died, transmitting the property to C
in accordance with Mr. A’s will
❖ The transfer from B to C is referred to as transfer under a special
power of appointment. The same is not B’s donation mortis causa.
❖ The transfer from B to C is merely an implementation of the
transfer, which was originally mandated by the predecessor A
❖ The same rule applies even if B were given the power, solely or in
conjunction with others, to appoint the second heir to the property
from a list drawn by predecessor A
d. All bequests, devises, legacies, or transfer to social welfare, cultural and charitable
institutions
➢ No part of the net income of social welfare, cultural, and charitable
institutions must inure to the benefit of any individual, and not more
than 30% of the said bequests, devises, legacies, or transfers are used
by such institutions for administration purposes
o The 30% conditional exclusion is deemed satisfied if the donee is
an accredited non-profit donee institution
➢ Transfers to these institutions are initially included in the inventory list of
taxable properties, but is removed from the list if the donee is verified as a
qualified donee institution
➢ If the transfer qualifies for exclusion, the same is not reflected in both gross
estate and deduction.
o It must be noted that there is no item of deduction for such transfer
under the Tax Code and in the estate tax return
➢ Despite this, bequests, devises, or legacies which are restricted by the
decedent for administrative expenses of the donee institution (whether
accredited or non-accredited) shall be included in gross estate
e. Exempt acquisitions and transmissions of intangible personal property under the
principle of reciprocity

Other Exempt Properties
• Exempted by reason of non-ownership of the decedent
1. Proceeds of irrevocable life insurance policy payable to beneficiary other than the
estate, executor, or administrator
o The proceeds of life insurance policies, which are irrevocably designated
by the decedent to the beneficiary are no longer owned by the decedent at the
time of his death. They are owned by the beneficiary designated by the
decedent. Hence, this shall not be included in gross estate.
o The proceeds of life insurance policies, which are revocably designated by
the decedent to any beneficiary, are owned by the decedent at the point of
his death. Hence, this shall be included in gross estate.
o If the decedent named a beneficiary without indicating whether the
designation is revocable or irrevocable, the designation is presumed to be
revocable.
▪ However, if the decedent did not replace the beneficiary until his
death, the designation should be deemed irrevocable and exempt
from estate tax
o If the beneficiary designated is the estate, executor or administrator, the
proceeds of life insurance is included in gross estate, regardless of the
designation of the beneficiary, because these beneficiaries are considered
extensions of the interest of the decedent
2. Properties held in trust by the decedent
o Properties held in trust by the decedent at the point of his death, are not
owned by him
3. Separate properties of the surviving spouse of the decedent
o Spouses have their separate properties and common properties
o Husband’s capital — separate or exclusive properties of the husband
o Wife’s paraphernal — separate or exclusive properties of the wife
4. Transfer by way of bona fide sales
o Transfers by way of bona fide sales are onerous transactions rather than
gratuitous transactions; hence they are not subject to estate tax.
• Exempted by Reason of Law
1. Proceeds of group insurance taken out by a company for its employees
2. Proceed of GSIS policy of benefits from GSIS
3. Accruals from SSS
4. United Veterans Administration (USVA) benefits — RA 136
5. War damage payments
6. Acquisitions and/or transfers expressly declared as non-taxable by law
7. Bank deposits withdrawn from the decedent account during the settlement of estate
o However, if such withdrawal is not subjected to the 6% final tax, the amount
of withdrawal must be included in gross estate
8. Transfer of property to the National Government or to any of its political subdivisions
9. Grants and donations to the Intramuros Administration [P.D. 1616]
10. Personal Equity and Retirement Account [PERA] assets of the decedent-contributor
[Sec. 14, RA 9505]
11. Bequests to be used actually, directly and exclusively for educational purposes are also
exempt form tax.
• Property acquired using GSIS benefits, SSS accruals, USVA benefits, proceeds of group
insurance and war damage payments are exempted as long as the heirs or administrators can
prove that the properties were acquired using these exempt benefits
Common Valuation Rule for All Gross Estates Whether of Decedent Filipinos, Resident or Non-
Resident Aliens
Valuation of Gross Estate
• General Rule: Gross Estate = Fair Market Value (FMV) at the time of the decedent’s death
[Sec. 5, RR-12-2018]
• “Fair value” refers to the amount at which two willing independent buyers and sellers
could transact an exchange
Valuation Rules
1. The fair value of the property as of the time of death, shall be the value to include in gross
estate
2. Fair value rules set by law or revenue regulations must be followed
3. In default of such fair value rules, reference may be made to fair value rules under
generally accepted accounting principles
4. Encumbrances on the property, or decrease in value thereof after death should be ignored
Real Property
1. Appraised value, whichever is higher between:
a. FMV, as determined by the CIR (zonal value); or
b. FMV, as shown in the schedule of values fixed by the Provincial or City Assessor
 • If there is no zonal value, the taxable base shall be the fair market value
that appears in the latest tax declaration. Additional Guidelines in Determining Fair Values
• Note that the TRAIN law points to the fair value listed in the schedule of • For pawned properties, the fair value may be reestablished by grossing-up the pawn value
market value — not the assessed value by the loan-to-value ratio
2. If there is an improvement, the value of improvement is the construction cost per building • For property fixed in monetary terms, such as a loan or receivable, the fair value is the
permit or the FMV per latest tax declaration. [Sec. 5, RR-12-2018] amount fixed in the contract, including accrued income thereto
• For foreign currencies, the fair value should be its Peso value translated at the prevailing
Personal Property exchange rate at the date of death
1. Appraised value, whichever is higher between:
a. Recently acquired by the decedent - purchase price may indicate FMV
b. Not recently acquired - there should be some evidence of the FMV Date of Death Valuation Rule
Note: • Property subject to estate tax, shall be appraised at the fair value at the point of death
❖ Pieces of evidence that should be provided: • Refers to the fair market value of each estate asset at the time of the decedent’s death
❖ Good and property = Sales invoice
❖ Services = Official receipt Rationale for Date of Death Valuation Rule
2. For shares of stock, the FMV shall depend on whether the shares are listed or unlisted in • Since succession and the accrual of the corresponding estate tax take effect upon death, it
the stock exchange shall only be fair to appraise the estate at its fair market value at the time of the decedent’s
a. If unlisted death.
i. Common shares - based on their book value
ii. Preferred shares - based on their par value Administrative Requirements
b. If listed 1. Estate Tax Return
i. The mean between the highest and lowest quotation on the date of death 2. Certified Public Accountant Certification
ii. If none, then the date nearest the death
Estate Tax Returns
Right to Usufruct, Use or Habitation, and Annuity
• The probable life of the beneficiary in accordance with the latest basic standard mortality Estate Tax Return and Its Contents
table, to be approved by the Secretary of Finance, upon recommendation of Insurance • Executor, administrator, or any of the heirs shall file in duplicate an estate tax return
Commissioner under oath, setting forth the following:
1. Value of gross estate at the point of death, or, in the case of nonresident alien, that part of
Units of Participation in any association, recreation or amusement club (Golf, polo, similar clubs) his gross estate situated in the Philippines
• The bid price nearest the date of death published in any newspaper or publication of 2. Deductions allowed from gross estate
general circulation 3. Supplemental data which may be necessary to establish the correct tax

Other Properties CPA Certification

• For other properties which the law or revenue regulations has not fixed evaluation rules, • Where the value of gross estate exceeds P5 million, the return shall be accompanied by a
valuation shall take into consideration fair value rules under generally accepted accounting statement certified by a certified public accountant
principles • Contents of the statement:
 o Itemized assets of the decedent with their corresponding gross value at the time
of death, or, in the case of nonresident alien, that part of his gross estate situated in
the Philippines
o Itemized deductions from gross estate
o The amount of tax due whether paid or still due and outstanding
Instances when Required (Copies in duplicate) to be Filed (BIR Form No. 1801)
a. In all cases of transfers subject to estate tax
b. In cases regardless of the gross value of the estate, where said estate consists of registered or
registrable property such as:
i. Real property
ii. Motor Vehicle
iii. Shares of Stock
iv. Other similar property for which clearance from BIR is required as a condition
precedent to transfer of ownership
Who Should File
• Primary responsibility: The executor, administrator, or the heirs shall be responsible for the
filing of the estate tax return.
1. Payment shall be made before the delivery of the distributive shares in the inheritance
2. If there are two or more executors or administrators, all of them are severally liable for
the payment of tax
3. The tax clearance issued by the CIR or the RDO having jurisdiction over the estate will
serve as the authority to distribute the remaining properties.
• Secondary responsibility — any of the heirs or beneficiaries, for the payment of that portion
of the estate tax which bears the value of the total net estate. [Se. 9(9), RR 12-2018]
o The heirs shall be liable in proportion to their share in the inheritance [Marcos v. CA,
G.R. No. 120880(1997]
• Estate tax returns showing a gross value exceeding Five Million pesos (P5,000,000.00) shall
be supported with a statement duly certified to by a Certified Public Accountant.
Period for Filing
• Estate Tax Return must be filed within 1 year from the decedent’s death
• The court approving the project of partition shall furnish the Commissioner with a
certified copy thereof and its order within 30 days for filing the return
Extension of Time for Filing
• The Commissioner has the authority to grant, in meritorious cases, a reasonable extension not
exceeding 30 days for filing the return
• If the Commissioner of Internal Revenue grants the 30 day extension, filing for all other
claims against estate are also deemed extended
Payment of Estate Tax
When Paid
• The BIR adopts the pay-as-you-file system
• The deadline for payment of tax is on the deadline of the filing of the corresponding tax
return which is within 1 year from the date of death of the decedent
• Payment of Estate tax due may be extended by Commissioner if he finds that payment on
due date would impose undue hardships on the estate or the heirs
o Amount paid after statutory due date is subject to interest but not to surcharge
o Commissioner may also require the executor, administrator, or beneficiary to
furnish a bond in such amount not exceeding double the amount of the tax and
sureties Commissioner deems necessary
o There is no extension for payment of taxes where the taxes are assessed by
reason of negligence, intentional disregard of rules and regulation, or fraud on
part of taxpayer
• Extension depends on whether the estate is settled judicially or extra-judicially
o Judicial Settlement
▪ Payment of estate tax may be extended for a period not exceeding 5 years
o Extra-judicial Settlement
▪ Payment may be extended to a period not exceeding 2 years
Requisites for Extension of Time
1. The commissioner or his duly authorized representative shall approved application
2. The request must be filed before the expiration of the original period to pay, which is within
one year from death.
3. There must be a finding by the commissioner that the payment of the estate tax, or any part
thereof would impose undue hardship upon the estate or any of the heirs
4. The extension must be for a period not exceeding five years if the estate is settled through the
courts (judicially) or two years, if settled extrajudicially
Effects of Granting an Extension
 1. Payment of the amount in respect of which extension is granted on or before the date of the o The administrator or executor shall register the estate of the decedent and secure a
expiration of the period of the extension new TIN from the Revenue District Office where the decedent domiciled at the
2. Suspension of the running of the statute of limitations for deficiency assessment for the period time of his death and shall file and pay the estate tax with the:
of any extension. ▪ Accredited Agent Bank (AAB),
3. Amount paid after statutory due date of the tax, but within the extension period shall be • Usually Land Bank of the Philippines
subject to interest but not to surcharge. [Sec. 9(5), RR 12-2018] ▪ Revenue District Officer, Collection Officer or
4. The commissioner or his duly authorized representative may require the executor or ▪ Duly authorized Treasurer of the City or Municipality where the decedent
administrator or beneficiary, as the case may be to furnish a bond was domiciled after his death
• NRC and NRA
Insufficiency of Cash to Pay Tax
o The administrator or executor shall register the estate of the decedent and secure a
If there is difficulty in paying the tax, the same may be settled by: new TIN from the Revenue District Office where such executor or administrator
1. Installment payment is registered.
2. Partial disposition of estate ▪ If executor or administrator is not registered, estate tax return shall be
filed with and the TIN of the estate secured from the Revenue District
Payment by Installment [Sec. 91(C), NIRC] Office having jurisdiction over the executor or administrator’s legal
In case the available cash of the estate is insufficient to pay the total estate tax due, payment by residence
installment shall be made within 2 years from the statutory date of filing, without civil penalty and o In case NRC/NRA does not have an executor or administrator in the Philippines,
interest. estate tax return shall be filed with and the TIN of the estate shall be secured from
the Office of the Commissioner through RDO No. 39 – South Quezon City
Restitution of tax paid [Sec. 96, NIRC] • Notwithstanding the foregoing, the Commissioner of Internal Revenue may continue to
If, after the payment of the estate tax, new obligations of the decedent appear, and the persons exercise his power to allow a different venue/place in the filing of tax returns Officer
interested satisfied them by order of the court, they shall have a right to the restitution of the
proportional part of the tax paid. Tax deficiency after distribution of properties
1. The BIR may recover the deficiency from all the heirs and collect from each of them the
Withdrawal from a bank account of the decedent
amount proportionate to the inheritance
General Rule: If a bank has knowledge of the death of a person, who maintained a bank deposit
2. By virtue of a lien created under Sec. 219, it may go after one heir and subject the property he
account alone, or jointly with another, it shall allow withdrawal from the said deposit account, subject
received from the estate to the payment of estate tax. Such heir may seek reimbursement from
to a final withholding tax of 6% [Sec. 10. RR12-2018]
other heirs.
Exception: No withholding tax shall be imposed where the bank deposit accounts have been duly
included in the gross estate of the decedent and the estate tax due thereon has been paid provided that DONOR’S TAX
an electronic Certificate Authorizing Registration (eCAR) is presented prior to withdrawing [Sec. 10, Donation Basic Concepts
RR 12-2018]
What is Donation?
Place of Payment • It is an act of liberality whereby one person disposes gratuitously of a thing or right in
• RC and RA favor of another, who accepts it. (Article 725)
• Donation is the gratuitous transfer of property from one living person (donor) to another
(donee)
 (1) Minors and others who cannot enter into a contract may become donees.
Transfer Covered The acceptance, however, shall be done through their parents or legal
• Generally, therefore, a gift is a voluntary transfer of property from one person to another representatives. (Art. 741, Civil Code)
without any consideration or compensation therefor. (2) Donations may even be made to conceived and unborn children and the
(4) There is also a donation when a person gives to another a thing or right on account of the same may be accepted by those persons who would legally represent them if
latter’s merits or of the services rendered by him to the donor provided they do not they were already born. (Art. 742, Civil Code)
constitute a demandable debt or when the gift imposes upon the donee a burden which is (3) Donation made to a trustee for the benefit of a beneficiary is gift to the
less than the value of the thing given. (Art. 726, Civil Code) latter and not to the former.
(5) For tax purposes, the term has a wider meaning. It extends to sales, exchanges or other 2. Donative Intent
transfers for less than an adequate and full consideration in money or money’s worth. • Intent of the donor to make a gift
(Sec. 100, NIRC) • It refers to the proper declaration of the legal owner of a property or right to transfer
ownership to another without consideration
Kinds of Donation • This requisite is only necessary in cases of direct gift
• For tax purposes, donation may be donation mortis causa or donation inter vivos • If the gift is indirectly taking place by way of sale, exchange, or other transfer of
o Donation mortis causa – property as contemplated in cases of transfers for less than adequate and full
▪ Donation takes effect upon the death of the donor and therefore partakes of consideration, intent to donate is not essential to constitute a gift
the nature of a testamentary disposition • There is no such thing as an implied donation
▪ Subject to estate tax 3. Acceptance of the Donee
o Donation inter vivos – • The transfer of property by gift is perfected from the moment the donor knows
▪ Donation made b/w living person or those to take effect during lifetime of of the acceptance of the donee
the donor • No one shall be compelled to accept the generosity of another. The donee has the
▪ Subject to donor’s tax prerogative to accept or reject gratuity
4. Delivery of the Gift
Elements of Donation • Donation is a real contract
1) The reduction of the patrimony of the donor
• Delivery, whether actual or constructive, of the donated to the donee completes the
2) The increase in the patrimony of the donee
donation
3) The intent to do an act of liberality or animus donandi
Note: A transfer which does not manifest all of these attributes is not a donation, and will not be
Essential Requisites of Donation
subject to tax. However, in transfers for insufficient consideration, the acceptance by the donee is not a
1. Capacity of the Donor
condition to taxation.
• The donor must have the capacity to donate which is determined as of the time of the
making of the donation Formal Requisites
• All persons who may contract and dispose of their property may make a donation • Movable Property
• Capacity of the donor is determined at the perfection of the donation a. May be made orally or in writing
• The donee, unlike the donor, need not be capacitated. i. P5000 or less – can be made orally
 ii. More than P5000 – donation and acceptance shall be made in writing. • A direct donation is one made by the donor directly to the donee
Otherwise, the donation shall be void and, therefore, not taxable. (Note: “in 2. Indirect donation
writing” - means that it can be made through a private or public instrument) • An indirect donation involves transfer of property by the donor in favor of the donee
b. An oral donation requires the simultaneous delivery of the thing or of the but under the supervision of another party. This is called donation in trust
document representing the right donated (Article 748, Civil Code)
• Immovable Property Donor’s Tax
a. Donation must be in a public instrument, specifying therein the property • A transfer tax levied, assessed, collected, and paid upon the transfer of any person,
donated and the value the charges which the donee must satisfy resident or non-resident, of the property by gift inter vivos
▪ “Charges” refers to: (1) conditions or burdens imposed if any (but which • Also known as a gift tax
should not be equal in value to the realty donated); or (2) encumbrances on • It is a tax imposed on the transfer without consideration of property between two or more
the property such as lease, usufruct, or mortgage persons who are living at the time the transfer is made; or the tax imposed on the transfer of
b. Acceptance must be also be in a public instrument either in the same deed of property by gift inter vivos without relation to the death of the donor
donation or in separate public document • It is a tax upon the gratuitous transfer of property between two or more living persons at the
i. Acceptance shall not take effect unless done in the lifetime of the donor time of transfer whether the transfer is direct or in trust and without regard to the type of
ii. If acceptance is made in a separate instrument, donor shall be notified property transferred
thereof in an authentic form. This step shall be noted in both instruments • Applies whether the donation is:
(Article 749, Civil Code) o In trust or otherwise
• If the giving and the accepting are in the SAME public instrument, notification to the donor of o Direct or indirect
the fact of acceptance is NOT necessary. And this is true, even if the acceptance was made on o Real or personal
ANOTHER date and in a place other than that where the deed was executed. What is important o Tangible or intangible
is that the acceptance was made in the SAME public instrument. (Kapunan, et.al v. Casilan, • The donor’s tax is computed by multiplying the appropriate donor’s tax rate with the net
et.al., L-8178, October 31, 1960) taxable gift which is its tax base.
• A donation of immovable property that does not comply with the required form is a void or • Net gift - the net economic benefit from the transfer that accrues to the donee.
inexistent. This is because a donation of real property is a solemn contract.
• Donor’s Tax is computed as follows:
• A public instrument is a written document annotated by a lawyer (Article 794, Civil Code) Gross Gift
- Deductions
Simplified Table ------------------
Net Taxable Gift
Property Required Formality x Tax Rate (6%)
Real Property Public Instrument ------------------
Tangible Personal Property More than P5000 – donation and acceptance shall Donor’s Tax Due
be made in writing - Tax Credit
Amount not exceeding P5,000 – Oral ------------------
Intangible Personal Property Public Instrument Donor’s Tax Still Due

Types of Inter Vivos Donation

1. Direct donation
Nature of Donor’s Tax and the Law That Governs the Imposition of Donor’s Tax P250,000
1. Excise Tax The burden is on the donor The burden is generally on the estate
• It is a tax on the privilege of transmitting one’s property or property rights to another or others Property transfer which is subject to tax occurs Property transfer which is subject to tax occurs at
without adequate and full valuable consideration during the lifetime of the donor and donee the time of death of the decedent
• It is not a property tax. It is an excise tax on the privilege of the donor to give or to transfer Imposed on donations inter vivos Imposed on transfer in the nature of testamentary
property by way of gift inter vivos dispositions
Provides an exemption of P250,000 There is no exemption
• It is not a tax on property (which is the subject of the gift) as such because its imposition
May be imposed upon natural and juridical May only be imposed upon the estate of a natural
does not rest upon general ownership although the amount of the tax is measured by the
persons person
value of the property donated.
• It is a direct tax imposed on the donor Purpose of Donor’s Tax
• It applies to both natural and juridical persons • Supplements the estate tax by preventing the avoidance of the donor to pay tax through the
• The donor’s tax shall not apply unless and until there is a completed gift device of donating the property during the lifetime of the deceased
• Transfer of property by gift is perfected from the moment the donor knows of the acceptance • Without donor’s tax, the donor may escape the progressive rates of income taxation through
by the donee simple expedient of splitting his income amount to numerous donees
• The law in force at time of the perfection/completion of the donation shall govern o Sellers of the goods and properties may intentionally set the selling price below the
imposition of the donor’s tax fair value for some personal reasons. The gratuity is an unrealized benefit which will
2. Proportional Tax not be taxed under income taxation. The donor’s tax supports income tax by taxing the
• Donor’s tax is based on a fixed percentage of net gift gratuity
3. Annual Tax • To raise revenue (Lifeblood Doctrine)
• Donor’s tax is imposed on yearly net gifts of donors in excess of P250,000
4. Ad Valorem Tax Nature of Transfer to be Taxable
• Donor's tax depends upon the value of the property donated • The term “transfer of property in trust or otherwise, direct or indirect” is used by the law in the
5. National Tax most comprehensive sense
• Donor’s tax is imposed by the national government (1) It includes not only the transfer of ownership in the fullest sense but also the transfer of any
6. Revenue or Fiscal Tax right or interest in property, but less than title.
• Donor’s tax is intended to provide the government income (2) A transfer becomes complete and taxable only when, the donor has divested himself of
all beneficial interest in the property transferred and has no power to revest any such
Transfers subject to Donor’s Tax interest in himself or his estate.
• The Tax Code state that the tax shall apply whether the transfer is in trust or otherwise, (3) The law contemplates the passage of control over the economic benefits of the property,
whether the gift is direct (see Art. 725, Civil Code) or indirect (e.g., where R [donor] rather than the mere technical changes in the title.
condones the obligation of X who agrees not to collect from E [donee], and whether the
property is real or personal, tangible or intangible. (Sec. 98[B]. Law that Governs Imposition of Donor’s Tax
• Law at the time of perfection/completion of the donation
DONOR’S TAX ESTATE TAX • Current Applicable Laws for Donor’s Tax
Accrues from the date of perfection/completion of Accrues from moment of death of decedent o National Internal Revenue Code (Section 98-104)
the donation ▪ R.R. No. 12-2018
Tax base is the Net Taxable Gift in excess of Tax base is Net Taxable Estate
 •Consolidates Revenue Regulations on Estate Tax and Donor's Tax • Prior to the amendments brought by TRAIN Law, the donor’s tax paid due to a donation to a
incorporating the amendments introduced by RA No. 10963 stranger was 30% of the Net Gifts while the donor’s tax paid due to the donee being a relative
(TRAIN Law) is based on a Graduated and Progressive and Schedular Rates:
o TRAIN Law or Tax Reform for Acceleration and Inclusion Law
Over But Not Over The Tax Shall Be Plus Of the Excess
Donation Inter Vivos vs. Donation Mortis Causa Over
P100,000 Exempt
Donation Inter Vivos Donation Mortis Causa P100,000 200,000 0 2% P100,000
Transfer of property is done during the lifetime of Transfer of property is done at the moment of 200,000 500,000 2,000 4% 200,000
two or more persons (donor and donee) death of the decedent 500,000 1,000,000 14,000 6% 500,000
It is made out of the donor’s pure It is made in contemplation of his death without 1,000,000 3,000,000 44,000 8% 1,000,000
generosity/liberality the intention to lose the thing or its free disposal 3,000,000 5,000,000 204,000 10% 3,000,000
in case of survival 5,000,000 10,000,000 404,000 12% 5,000,000
A donation inter vivos remains valid if the donor The donation is void if the donor survives the 10,000,000 1,004,000 15% 10,000,000
survives the donee donee.
Generally irrevocable during the lifetime of the Revocable at any time and for any reason before • A relative of a donor is a person who is:
donor except for the grounds provided under the the death of the donor. (1) A brother, sister (whole or half-blood)
law. (2) Spouse
Follows the formalities of donations Must follow the formalities of wills and codicils (3) Ancestor
The right of disposition is completely transferred The right of disposition isn’t transferred to the (4) Lineal Decedent
to the donee donee while the donor is still alive (5) Relative by consanguinity in the collateral line within the 4 th degree
Acceptance by donee must be during lifetime of Acceptance by donee mortis causa can only be
• Upon effectivity of the TRAIN Law, the tax for each calendar year is 6% computed on basis
donor done upon donor’s death
of the total net gifts in excess of P250,000.
Simple vs. Remuneratory vs. Onerous Donations • Donor’s tax is reported by calendar year
• So, if you want to avoid paying the tax, split the donation (December 31 and January 1)
Simple Remuneratory Onerous • The TRAIN Law does not anymore distinguish if donee is a stranger or relative and a flat rate
Underlying cause is plain One made for the purpose of That which imposes upon of 6% applies to both of the transfer of properties done for them.
gratuity rewarding the donee for past the donee a reciprocal • Moreover, the six percent (6%) donor’s tax rate is in excess of P250,000 net gift making the
services, which services do not obligation to give back a first P250,000 exempt from donor’s tax
amount to a demandable debt. valuable thing, the cost of which o Note that the P250,000 counts as a deduction from total gifts, because the 6% rate is
is equal to or more than the imposed on the total gifts in excess of P250,000
thing donated.
Calendar Year vs Fiscal Year
Progressive Schedular Taxes • Calendar year - refers to the actual calendar which would be 12 months from January 1 (Year
• Under the Tax Code, the donor’s tax rate is determined based on who the donee is, whether a 1) to December 31 (Year 1)
relative or a stranger.
 • Fiscal Year - can start on any month and then the year-end date is 12 consecutive months from
that date. (Ex: If a company has a fiscal year-end of June 30th, then the company would report
the operations from the 12 months from July 1st [Year 1] to June 30th [Year 2].
Determination and Composition of Gross Gift
• Gross Gift - refers to the value of the property or right donated or transferred by the
donor to the donee before any deduction.
o The properties included in the gross gift or those subject to donor’s tax are
determined based on the following:
▪ Classification of the donor
▪ Location of the property and whether the reciprocity rule applies
Gifts of an RC, NRC, RA, and NRA that are Subject to Donor’s Tax
• Donor may either be a natural person or juridical person.
• Unlike in estate tax, juridical person may be a donor or a donee.
• It is important to determine the classification of donor to ascertain whether the properties
donated are subject to donor’s tax or not.
Resident Citizen (RC), Non-Resident Citizen (NRC), and Resident Alien (RA)
• They are subject to donor’s tax regardless of where the gift is made or where the property
donated is located.
• Gross gifts would consist of:
o Real estate, regardless of location
o Tangible personal property, regardless of location
o Intangible personal property, regardless of location
Non-Resident Alien (NRA)
• Gross gift would consist of:
o Real estate located in the Philippines
o Tangible personal property located in the Philippines
• They are subject to donor’s tax only on its donations of properties located in the Philippines
subject to the reciprocity rule
• The inclusion of intangible personal properties in the gross gift of the non-resident alien donor
depends on whether the reciprocity rule applies
• The reciprocity rule applies only on his intangible personal property in the PH.
• No Donor’s Tax shall be collected with respect to intangible personal property in the ff.
instances:
o Foreign country does not impose transfer tax - If the donor at the time of the
donation was a citizen and resident of the foreign country and of which the gift
made was not imposed donor’s tax upon it, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country
o Foreign country imposes transfer tax but grants a similar exemption - If the laws of
the foreign country of which the donor was a citizen and resident at the time of
the donation allows a similar exemption from transfer or donor’s taxes of every
character or description in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country
• Section 104 of the NIRC provides the intangible personal property deemed located in the PH:
a. Franchise exercised in the PH
b. Shares, obligations, and bonds issued by a corporation or sociedad anonima organized
or constituted in the Philippines in accordance with its laws
c. Shares, obligations or bonds by any foreign corporation 85% of the business of which
is located in the Philippines
d. Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired a business situs in the Philippines
e. Shares or rights in any partnership, business, or industry established in the Philippines
• Before reciprocity rule can apply, a donor must be a citizen and resident of a foreign
country that does not impose donor’s tax or grants an exemption thereto
o If a donor is a citizen of one foreign country but a resident of another foreign country
at the time of the donation, reciprocity rule cannot be applied
Domestic and Resident Foreign Corporation
• They are subject to donor’s tax regardless of where the gift is made or where the property
donated is located
• In short, they are taxable for all properties donated within and without the Philippines
Non-Resident Foreign Corporation
• They are subject to donor’s tax only on its donations of properties located in the Philippines
• Unlike non-resident alien donors, the reciprocity rule does not apply to non-resident foreign
corporations
 Summarization of Gross Gift Included for Computation of Donor’s Tax of Different Types of ▪ FMV, as determined by the CIR (zonal value); or
Donors ▪ FMV, as shown in the schedule of values fixed by the Provincial or City
Assessor
Properties within the Philippines Properties o If there is an improvement, the value of improvement is the construction cost per
Personal Properties Located building permit or the FMV per latest tax declaration. [Sec. 5, RR-12-2018]
Donor
Real Properties Outside the o Illustration: Mr. L owned several parcels of land and he donated a parcel each of his
Tangible Intangible
Philippines two children. Mr. L acquired both parcels of land in 1975 for P200,000.00. At the time
Resident Citizen ✓ ✓ ✓ ✓ of donation, the fair market value of the two parcels of land, as determined by the
Non-Resident CIR, was P2,300,000.00; while the fair market value of the same properties was
✓ ✓ ✓ ✓ shown in the schedule of values prepared by the City Assessors was P2,500,000.00.
Citizen
What is the proper valuation of Mr. L’s gift for purposes of computing donor’s tax?
Resident Alien ✓ ✓ ✓ ✓
o Answer: The proper valuation is P2,500,000 or FMV based on the schedule of the
Non-Resident
City Assessors. According to Section 88(B), Tax Code, for donor’s tax purposes (and
Alien w/ ✓ ✓ X X
also estate tax purposes), the FMV of real property is the higher value of either the
reciprocity
FMV as determined by the CIR or the FMV as determined by the schedule prepared
Non-Resident
by the Provincial or City Assessor.
Alien w/out ✓ ✓ ✓ X
• Personal Property
reciprocity
o FMV at the time of death
Domestic
✓ ✓ ✓ ✓ ▪ Recently acquired by the decedent - purchase price may indicate FMV
Corporation
▪ Not recently acquired - there should be some evidence of the FMV
Resident Foreign
✓ ✓ ✓ ✓ • Shares of Stock - the FMV shall depend on whether the shares are listed or unlisted in the
Corporation
Non-Resident stock exchange
Foreign ✓ ✓ ✓ X o If unlisted
Corporation ▪ Common shares - based on their book value
▪ Preferred shares - based on their par value
Tax Payable by Donor if Donee is a Stranger o If listed
• 6% computed on the basis of the total gifts in excess of Two hundred fifty thousand pesos ▪ The mean between the highest and lowest quotation on the date of death
(P250,000) exempt gift made during the calendar year. (Section 99 (A), NIRC) ▪ If none, then the date nearest the death
o The reckoning point for valuation is the date when the donation is made. (Section
Value of Gross Gift 13, Revenue Regulations No. 12-2018)
• The rules applicable in the valuation of gross estate for estate tax purposes also apply to
valuation of gross gift for donor’s tax purposes. Badges of a Donation Inter Vivos
• General Rule: 1. Made out of love and affection;
o Value of Gross Gift = FMV at the time of donation (Section 102, NIRC) 2. Reservation of usufruct in favor or the donor (i.e., the naked ownership has been transferred
• Cash - valued at face amount to the donee)
• Real Property 3. Donor reserved certain properties for himself (so he still had something to live by)
o Appraised value, whichever is higher between:
 4. The donee accepted the donation (no need for acceptance if donation mortis causa. (Spouses
Gestopa v. CA., G.R. No. 111904, October 5, 2000)
Also to be considered as gifts are the following:
1. Transfers for insufficient consideration
2. Cancellation of indebtedness
3. Renunciation by heir of inheritance
4. Donation with reserved powers
Transfer for Less Than Adequate and Full Consideration
• This is an example of indirect donation where donative intent is not necessary
• In indirect donation, the person transferring a property to another, is contemplating a
transaction but the circumstances present and surrounding the transaction made such
transaction a donation instead
• When a property is sold, the FMV of the property at the time of the contract to sell or sale
is compared with the agreed or actual consideration of the selling price.
• A transfer for real/personal property will be considered a donation/gift and subject to the
donor’s tax when:
a. The transfer was for less than adequate and full consideration
b. Such transfer was effective during his lifetime (inter vivos)
c. Other than real property in Section 24(d), NIRC i.e., the property was not subject
to final capital gains tax (capital asset)
o The sale is for less than adequate and full consideration when the FMV is higher than
or exceeded the actual consideration or selling price
o Excess of the FMV is “deemed gift” and shall be included in computing the amounts
of gifts made during the calendar year
o “Deemed Gift” is intended to impose donor’s tax on the difference of FMV and
consideration of the sale. (FMV – Selling Price = “Deemed Gift”)
o If the FMV of the value of shares of stock is higher than the selling price, the
excess/difference shall be treated as gift subject to donor’s tax
o The “deemed gift” provision under Section 100 of the NIRC compliments the income
tax rule on the measurement of gain and accordingly, works to about recurrence of
under declaration of the selling price
o Prior to the passage of TRAIN, the absence of donative intent did not matter, as
Section 100 categorically states that the amount by which the fair market value of
the property exceeds the value of the consideration shall be deemed a gift.
o The amount by which the value of the property exceeded the consideration shall be
considered a donation.
o For example, Bettina Cooper sold her car to Ronnie Lodge for P100K. It had an FMV
of P280K. The P180K will be considered a donation and thus subject to tax.
o But there is now an exception in Section 100 of the NIRC:
▪ Provided, however, That a sale, exchange, or other transfer of property
made in the ordinary course of business (a transaction which is a bona
fide, at arm’s length, free from any donative intent), will be considered as
made for an adequate and full consideration in money or money’s worth:
1. a transaction which is a bona fide,
2. at arm’s length,
3. free from any donative intent
▪ The determination of whether the sale of shares of stock not listed and
traded is at arm’s length is a question of fact and not of law.
• It behooves upon the party seeking to apply the exception to
prove that indeed the sale involves no irregularity b/w unrelated and
independent parties.
• This would require presentation of reasonable evidence sufficient
enough to convince that the sale of shares of stock less than its
FMV is without intent to evade and defraud the government
Rules on Insufficient Considerations
Consideration is greater than or equal to the Bona fide sale.
FMV at the time of transfer Not subject to Donor’s Tax
Consideration is less than the FMV at the time Include in the gross gift the excess of the FMV of
of transfer the property sold over the consideration received
If consideration is fictitous Included in the gross gift the entire FMV of the
property
What are the implications if the real property sold was a capital asset as against an ordinary
asset?
• For example, the real property had a cost of P100K, an FMV of P200K, but sold only for
P170K.
o If it were classified as a capital asset, it will be taxed at 6% of the FMV (remember,
the base is either the consideration or the FMV, whichever is higher)
 o If it were classified as an ordinary asset, it will be taxed twice. First, it will be taxed
for income tax purposes (tax base of P70K). Second, it will be taxed for donor’s
tax (tax base at 30K). In this case, donor’s tax will be attracted unwittingly.
Where purchase price is payable in installments at a certain rate of interest
• A sale, exchange or any transfer of property for less than an adequate and full consideration
constitutes an indirect gift to the extent of the difference where there is no donative intent to
make a gift.
• However, where the purchase price is payable in installments at a certain rate of interest,
the difference between the purchase price agreed upon by the parties and the fair market
value of the property when the purchase was paid in full is not subject to donor’s tax. The
parties are bound by the agreed purchase price.
• In fact, the gain or income derived by the seller which is subject to income tax shall be based
on the agreed selling price. (BIR Ruling No. 024, January 28, 1978)
• Where the transferor did not derive any gain from the transaction, no income tax is payable.
Cancellation of Indebtedness
• The cancellation and forgiveness of indebtedness may amount to a payment of income, to a
gift or to a capital transaction, depending upon the circumstances.
(1) If, for example, an individual performs services for a creditor, who in
consideration thereof cancels the debt, income to that amount is realized by the
debtor as compensation for his services
(2) If, however, a creditor merely desires to benefit a debtor without any
consideration therefor cancels the debt, the amount of the debt is a gift from the
creditor to the debtor and need not be included in the latter’s gross income
(3) If a corporation to which a stockholder is indebted forgives the debt, the
transaction has the effect of the payment of a dividend.
Renunciation by Heir of Inheritance
• Renunciation in favor of other heirs is subject to donor’s tax (Sec 12, RR-12-2018)
1. 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 is subject to donor’s tax
2. Renunciation by an heir, specifically and categorically in favor of identified heirs to
the exclusion or disadvantage of the other co-heirs in the hereditary estate.
• To be exempt, the renunciation of inheritance must be general or not be done categorically in
favor of an identified heir or to the exclusion of other heirs
• XPN: General renunciation by an heir, including the surviving spouse, of his/her share in
the hereditary estate left by the decedent is not subject to donor’s tax
o XPN to the XPN: The renunciation by the surviving spouse of his/her share in the
net conjugal or communal properties upon dissolution of marriage is a taxable
donation, provided that the renunciation is not general
Distributions Made By the Surviving Spouse
1. General - made without specifying what percentage the heirs will get (not taxable)
2. Specific - heirs and their share are identified (not taxable)
• If the inheritance will be transferred equally among all the heirs
Donations with Reserved Powers (Incomplete Transfer)
• This pertains to transfers of property where in ownership will transfer only upon the
happening of a future event, which is specified by the donor, such as:
o Conditional donation
o Revocable transfer
• The donor’s tax shall not apply, unless and until there is a completed gift.
• Incomplete transfers are not subject to tax upon delivery of the property. They are taxable
upon completion and perfection of the donation.
• A gift that is incomplete because of reserved powers become complete, when either:
o The donor renounces the power; or
o His right to exercise the reserved powers ceases because of the happening of some
event or contingency or the fulfillment of some condition, other than because of the
donor’s death.
Exempt Donations
• Exemptions are not to be treated as exclusions from the gross gifts of the donor
• They partake the nature of deductions and are, therefore, deductible from the gross gift in
order to arrive at taxable net gifts.
Gifts Made by a Resident
(1) Dowries or Gifts made in account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the
extent of the first P10,000.
o Was already removed by TRAIN as an exempt donation, but if the gift does not
exceed the exemption limit of P250,000, may still be exempted from donor’s tax
o This is on a parent per child basis
o Time period of one year applies only when the gift is given after the marriage
 o No time period restriction if the gift is given prior to celebration of marriage o Not more than 30% of said gifts shall be used by donee for administration purposes
(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, or any political subdivision of the said Donations to ff. Entities are exempt from Donor’s Tax under the NIRC and Special Laws
Government a. Integrated Bar of the Philippines
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare b. International Rice Research Institute
corporation, institution, accredited nongovernment organization, trust or philanthropic c. Philippine Red Cross
organization, or research institution or organization d. Ramon Magsaysay Award Foundation
o Requisite of this exemption is: e. University of the Philippines
1. A school, college or university and/or charitable corporation, accredited f. Philippine Normal University
nongovernment organization, trust or philanthropic organization and/or research g. Development Academy of the Philippines
institution or organization h. Girls Scout of the Philippines
2. Incorporated as a non-stock entity i. Boy Scout of the Philippines
3. Paying no dividends j. National Commission for Culture and the Arts
4. Governed by trustees who receive no compensation k. Aquaculture Department of the Southeast Asian Fisheries Development Center
5. Devoting all its income, students’ fees or gifts, donation, subsidies or other l. Aurora Pacific Economic Zone and Freeport Authority
forms of philathrophy, to the accomplishment and promotion of the purposes m. National Social Action Council
enumerated in the AOI n. National Water Quality Management Fund
6. Donee must not use 30% of the gifts for administration purposes o. People’s Television Network, Incorporated
7. The donor engaged in business shall give notice of donation on every donation p. People’s Survival Fund
worth at least P50,000 to the RDO which had jurisdiction over his place of q. Philippine-American Cultural Foundation
business within 30 days after receipt of the qualified donee institution’s duly r. Philippine Investors Commission
issued Certificate of donation s. Rural Farm School
(4) Athletes Prizes and Awards t. Task Force on Human Settlements
o Requisites: u. Tubbataha Reefs Natural Park
▪ Awarded in local and international sports tournaments and competitions v. Museum of the Philippine COstumes
▪ Held in the Philippines or abroad w. Intramuros Administration
▪ Sanctions by their respective national sports associations x. Philippine Health Insurance Corporation
▪ “National Sports Association” shall mean those duly accredited by y. Donations for election campaign
the Philippine Olympics Committee • Under RA 7166, contributions to candidates or political parties duly reported to the
BIR are not subject to any donor’s tax.
Gifts Made by a Non-resident not a Citizen of the Philippines • Any provision of law to the contrary notwithstanding, any contribution in cash or in
(1) Gifts made to or for the use of the national Government or any entity created by any of its kind to any candidate or political party or coalition of parties for campaign purposes,
agencies which is not conducted for profit, or to any political subdivision of the said duly reported to the Commission shall not be subject to the payment of any gift tax.
Government (R.R. 8-2009)
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare • Segue to income taxes: so what happens to the money given to the candidate? (R.R.
corporation, institution, foundation, trust, or philanthropic organization or research institution 7-2011, February 8, 2011)
or organization
 o General Rule: The money given to the candidate will NOT go into his
taxable income, as long as it is utilized in his campaign
o Exception: Unutilized/excess campaign funds shall be subject to income
tax
o Moreover, any candidate (winner or loser) must file with the COMELEC
his/her statement of expenditures. If not, he/she will be precluded from
using such expenditures as deductions from his or her campaign
contributions. As such, the entire amount of such contributions will be
directly subject to income tax
Other Exempt Donations
1. Transfers for insufficient consideration involving real property classified as capital assets
• General Rule: The gratuitous portion of transfers for insufficient consideration is
subject to Donor’s Tax
• XPN: The sale, exchange and other dispositions of real property classified as capital
asset is subject to a capital gains tax of 6% based on FMV or gross selling price,
whichever is higher
2. General Renunciation of Inheritance
3. Donations with reserved powers
4. Quasi-transfers
5. Void donations
6. Foreign donations of foreign non-resident alien donors
7. Donation of property exempt under reciprocity
Gratuitous Donations to Associations
• Associations do not qualify as exempt donee institutions under Section 101 of the NIRC.
• Hence, endowments or gifts received by associations are not exempt from donor’s tax
Quasi-transfers
• Quasi-transfers involve delivery of property to another person but will never result in transfer
of ownership thereto.
• These are not subject to donor’s tax
• Examples:
o Merger of the usufruct in the owner of the naked title during the lifetime of the
usufructuary
o The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary during the lifetime of the fiduciary heir
o The transmission from the first heir, legatee, or donee during his lifetime in favor of
another beneficiary, in accordance with the desire of the predecessor
Other Deductions Allowed
• Has two deductions allowed:
o Encumbrance assumed by donee
o Diminutions
• When the property donated is subject of an encumbrance like a mortgage, amount of unpaid
mortgage may be claimed as a deduction if assumed by the donee
o If the donee does not assume the unpaid mortgage, it is not an allowable deduction
o If a mortgaged property is transferred as a gifts, but imposing upon the donee the
obligation to pay the mortgage liability, then the net gift is measured by deducting
from the FMV of the property the amount of mortgage assumed
• Diminutions are reductions on the donations given by the donor upon his specific instruction
Donations Between Husband and Wife
• The husband and wife are considered as separate and distinct tax payers for purposes of the
donor’s tax.
• 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.
Tax Credit for Foreign Donor’s Taxes
• Citizen and resident donors are also a taxable in the foreign country where their property is
located
o In order to avoid or atleast minimize double taxation, a donor’s tax credit on the
donor’s taxes paid in the foreign country is allowed in the Philippines
• The privilege of claiming foreign tax credit is allowed only to citizen or resident donors at the
time of the donation
o Nonresident alien donors cannot claim foreign tax credit. This is due to the fact that
their foreign donations are not taxable in the Philippines.
Limitations on Tax Credit
a. Amount of credit in respect to the tax paid to any country shall not exceed the same proportion
of the tax against which such credit is taken, which the net gifts situated within such country
taxable under this Title bears to his entire net gifts
 b. Total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the donor’s net gifts situated outside the Philippines taxable under this
title bears to his entire net gifts
o Tax Credit shall depend whether one foreign country or multiple foreign countries are
involved:
▪ One Foreign Country – tax credit is whichever is lower of the actual donor’s tax paid
in the foreign country and the limit as determined below:
𝑁𝑒𝑡 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐺𝑖𝑓𝑡 (𝐹𝑜𝑟𝑒𝑖𝑔𝑛)
𝑥 𝐷𝑜𝑛𝑜𝑟 ′ 𝑠 𝑇𝑎𝑥 𝐷𝑢𝑒 𝑖𝑛 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒𝑠
𝑁𝑒𝑡 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐺𝑖𝑓𝑡 (𝑊𝑜𝑟𝑙𝑑)
▪ Multiple Foreign Countries
❖ Determine whichever is lower of the actual donor’s tax paid in each of the
foreign countries and the limit per country using the formula above
❖ Determine the total world donor’s credit limit using the formula below
𝑇𝑜𝑡𝑎𝑙 𝑁𝑒𝑡 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐺𝑖𝑓𝑡 (𝐹𝑜𝑟𝑒𝑖𝑔𝑛)
𝑥 𝐷𝑜𝑛𝑜𝑟 ′ 𝑠 𝑇𝑎𝑥 𝐷𝑢𝑒 𝑖𝑛 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒𝑠
𝑁𝑒𝑡 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐺𝑖𝑓𝑡 (𝑊𝑜𝑟𝑙𝑑)
❖ Allowable donor’s tax credit is whichever lower b/w the 2 limitations listed
above.
Administration Requirements
Filing of Returns and Payment of Taxes
• Any person making a donation, direct or indirect, unless the donation is specially exempt
under the Code or other special laws, is required to accomplish under oath a donor’s tax return
in duplicate.
o Note that the law requires duplicate copies. In practice, the return is filed in triplicate
copies. Two copies will be taken by the BIR. One copy will be the taxpayer’s copy.
• A donor’s tax return is filed at every donation
• Donor’s tax return shall contain the following:
o Each gift made during the calendar year which is to be included in computing net
gifts
o Deductions claimed and allowable
o Any previous net gifts made during the same calendar year
o Name of donee
o Relationship of donor to donee (this has been removed by R.R. No. 12-2018)
o Further information as the Commissioner may require
Time and Place of Filing
• Donor’s tax return must be filed within 30 days after the date the gift or donation is made or
completed and follows a “pay-as-you-file” system
• A separate return is required for donations made at different dates during the year reflecting
therein any previous net gifts in the same year
• Only one return is required for donations made on a single day, even if made several donees.
• If the donation is a conjugal or communal property, each spouse shall file a separate return
corresponding to their respective share in the conjugal our community property
• The time for payment is mandatory and a notice of assessment or demand is unnecessary
before any gift tax must be paid. (BIR Ruling, 1959)
• The term “donor’s tax” implies that it is a tax on the donor and not on the donee. In fact, the
tax is levied on the transfer by the donor who is the one required to accomplish a donor’s tax
and to pay the tax.
• Return is filed and tax paid to:
o Authorized Agent Bank (AAB)
o Revenue District Office
o Revenue Collection Officer
o Duly Authorized Treasurer
of the city or municipality where the donor was domiciled at the time of transfer
• If there is no legal residence in the Philippines, with the Office of the Commissioner
• In case of gifts made by non-residents, return may be filed with the Philippine Embassy or
Consulate in the country which he is domiciled at the time of transfer or directly with the
Office of the Commissioner
o Office of the Commissioner = Revenue District Office having jurisdiction over the
BIR-National Office Building which houses the Office of the Commissioner – RDO
No. 39, South Quezon City