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Intro To Transfer Taxation - Estate Tax
Intro To Transfer Taxation - Estate Tax
NATURE OF TRANSFER
TAXES 1. Privilege tax
2. Excise tax
3. Ad valorem tax – dependent on the value of the property transferred.
4. Proportional tax – flat 6% of the net estate or gift
5. National tax – levied by the national government
6. Direct tax – transferor-donor or transferor-decedent is the one subject to tax.
7. Fiscal tax – levied to raise money for the support of the government.
TYPES OF TRANSFERS
1. Bilateral Transfers – involves transmission of property for a consideration. They are referred as
onerous transactions or exchanges.
2. Complex Transfers – transfer for less than full and adequate consideration. These are sales made at
prices which are significantly lower than the fair value of the property sold.
● Adequate consideration – income tax
● Inadequate/less than and full/absence – transfer and income tax.
TYPES OF TRANSFER
TAXPAYERS Taxpayers Inter-vivos Mortis-cause
Resident or citizens Global donation Global estate
(RC, NRC, RA, DC, RFC) (RC, NRC, RA)
Non-resident aliens Philippine donation
(NRA)
Except: Intangible Personal Properties subject to
reciprocity.
SITUS OF TRANSFER
● Transfer occurs in the location of the property
SITUS OF INTANGIBLES
1. Securities ● Domestic corporation – always within
● Foreign corporation – without (abroad)
Except:
A. 85% business rule
B. Acquisition of situs in PH (if shares are issued or
traded here)
2. Interest in business Place of establishment/registered
3. Claims/debts Residence of debtor
4. Other intangibles Place where employed
NON-TAXABLE
TRANSFERS 1. VOID TRANSFERS – prohibited by law or those that do not conform with legal requirements
a. Donation of properties not owned by the donor
b. Donation between spouses
c. Donations which do not manifest all essential requisites to vaidity such as donation refused by
the donee.
d. Donations that do not conform to all formal requirement such as oral donation of real
properties.
2. QUASI-TRANFERS
ESTATE TAXATION
- Taxation of mortis causa transfer or succession
SUCCESSION ● a mode of transmission of the ownership, rights, interests, and obligations over property by reason of
death of the owner in favor of certain persons designated by the owner himself or by operation of
law.
● the heirs will inherit what remains of the decedent’s property after satisfying the decedent’s
indebtedness and obligations including estate tax. The heirs shall not inherit the debt of the
decedent.
KINDS OF SUCCESSION:
1. Testate (Voluntary)
- succession is carried out according to the wishes of the testator expressed in a will executed in the
form prescribed by law
● Holographic will – entirely written, dated and signed by the hand of the testator. Need not
be witnessed.
● Notarial will – a notarized will signed by the decedent
● Codicil – a supplement or addition to a will. Need to be executed as in the case of a will to
be valid.
2. Intestate (Involuntary)
- succession without a will or with one invalid, succession will take effect by operation of law
3. Mixed Succession
- Transmission of the decedent properties shall be partly by virtue of a written will and partly by
operation of law.
ELEMENTS:
1. Decedent - the person who died whose properties, rights and obligations are transmitted
2. Successor - the person to whom the property, rights and obligations of the decedent will pass
3. Estate - the properties, rights, and obligations of the decedent (inheritance)
4. Heirs – a person called to the succession either by the provision of a will or by operation of law.
Legitime – part of the testator’s property which he cannot dispose of because the law has reserved it for
certain heirs who are, therefore, called compulsory heirs. The excess properties of the decedent is called “free
portion”
GROSS ESTATE
Gross Estate – totality of the properties owned by the decedent at the point of death.
Inventory count – before – forward, after – worked backed.
VALUATION OF GROSS Fair value at the point of death
ESTATE
1. Special Exclusion in Gross Estate - 6% final withholding tax
● Cash withdrawals from decedent’s bank account subject to 6% FWHT.
Unlisted
Book value (SHE ÷ Outstanding shares)
*Adjusted Net Asset Method or Appraisal Valuation is no
longer followed.
3. Other properties ▪ New = cost/purchase price
▪ Old = second hand value
▪ Jewelries etc = pawn value x 3
Jan. 1 FMV = 10M Date of Death: FMV 15M Amount included in Gross Estate
Different FMV Jan. 1 FMV = 10M Date of Death: FMV 15M 15M (amount at the date of death)
Insufficient Selling Price: 6M Date of Death: FMV 15M 9M (15M – 6M) if negative (0), no
consideration amount included. [SP is higher]
Sufficient consideration Selling Price: 9.6M Date of Death: FMV 15M 0 – not subject to transfer tax
*Bona fide sale (Estate tax) because onerous
transaction.
If what is revocable/irrevocable is benefit from SSS or GSIS 🡪 not included in the gross estate
PRESENTATION OF
GROSS ESTATE IN BIR FORM 1801
THE ESTATE TAX RFBTP (T – taxable transfers)
RETURN 1. Real properties All immovable properties of the decedent, excluding family home
2. Family home
3. Personal properties All movable properties of the decedent, except right or interest in
the business
4. Business interest
MARRIED DECEDENTS
1. Absolute separation of property (ASP) – all properties of the spouses are separate properties, except
those properties which they may acquire jointly.
2. Conjugal partnership of gains (CPG) – all properties that accrue as fruit of their individual or joint labor or
fruits of their properties during the marriage will be common properties of the spouses.
3. Absolute community of property (ACP) – all the present properties owned by the spouses at the date of
celebration of marriage shall become common properties of the spouses including future fruit of their
separate or joint industry or fruits of their common properties.
▪ In the absence of an agreement or when the regime agreed by the spouse is void, marriages celebrated
before AUGUST 3, 1988 shall be governed by the CPG. Marriages celebrated starting AUGUST 3, 1988 shall
be governed by the ACP.
2. Special deductions are items which do not reduce the inheritance but are nonetheless allowed by the law as
incentive deductions against gross estate in the determination of the net taxable estate.
3. Share of the surviving spouse pertains to the interest of the surviving spouse in the net conjugal or
communal properties of the spouses. This portion is not owned by the decedent and will not be transmitted
by the decedent as part of the inheritance; hence, it must be removed in the taxable estate.
CLAIM AGAINST
INSOLVENT ▪ Is a form of loss but is presented as a separate item of deduction in the tax return. The deductible amount of
PERSON (CAIP) claim against insolvent person is the unrecoverable amount of claim.
▪ Include first in the gross estate
Receivable xx
CLAIMS AGAINST
THE ESTATE (CAE) ▪ Indebtedness with respect to property may arise out of contract, tort, or operations of law.
▪ Should be incurred and remained pending at the point of death.
Examples:
a. 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.
b. An unpaid real property tax on the family home shall be deducted against common property even if the
family home is a separate property of either spouse.
c. Obligations constituted for the medication or other support expenses of any family member shall be
considered deductions against common properties.
Examples:
a. 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.
b. An obligation arising from exclusive property shall be considered as deduction from exclusive properties
unless it accrued or was used for the benefit of the family.
Jan-01 Death: June 1 2022 Dec-31
Unpaid mortgage/debts deductible: obligations existing at the point of
Unpaid taxes death
ex: doc stamps, unpaid rpt, inc tax
Taxes – shall properly be included under the category “others” not on CAE.
TRANSFER FOR
PUBLIC USE ▪ Includes the amount of all bequests, legacies, devises or transfer to or for the use of the Government of the
Republic of the Philippines, or any political subdivision thereof, for the exclusive public purposes. The must
be indicated in the last will and testament.
REQUISITES:
1. Property is part of the gross estate of the present decedent situated in the Philippines
2. The present decedent acquired the property by inheritance or donation within 5 years prior to his death;
3. The property subject to vanishing deduction can be identified as the one received from the prior decedent,
or from the donor, or can be identified as having been acquired in exchangé for the property so received;
Deduction is still claimable even if the property transformed into another kind of property.
4. The property acquired form part of the gross estate of the prior decedent, or of the taxable gift of the donor,
5. The estate tax on the prior transfer or the gift tax on the gift must have been paid; and
6. The estate of the prior decedent has not previously availed of the vanishing deductions
1. Determine the initial value - 🡫 FMV at the time of donation/inheritance and FMV at time of death
2. Compute initial basis
Initial value xx
Less: Indebtedness assumed and paid before death (xx)
Initial basis xx
Initial basis xx
Less: (Initial basis/Gross estate x LIT & TFPP) (xx)
Final basis xx
4. Determine the vanishing deduction by multiplying the final basis by the corresponding rate that apply for
the time period from the point the property was transferred by the prior decedent (i.e.: point of death) or by
the donor (i.e. date of gift).
Ang pinagsasama lang sa computation ng VD ay yung same year and same classification
Donation which was preceded by succession when both events happened within 5 years 🡪 cannot be claimed
SPECIAL DEDUCTIONS
FAMILY HOME
▪ composed of the land and the dwelling house to which the decedent and his family resides
▪ shall be included in gross estate at whichever is higher between its zonal value and assessed value at the
point of death of the decedent
▪ Who can claim family home? ✔ Head of the family, ✔ married, 🗶 single
Requisites:
4. Death of the decedent shall be after July 28, 1992
5. Total value of the family home must be included in gross estate
6. The family home must be the actual residence of the decedent and his family at the time of death, as
certified by the Barangay Captain of the locality where the family home is situated
7. Deduction cannot exceed whichever is lower between the zonal or assessed value at the time of death and
P10M
8. it is a deduction from either common or personal property or separate properties of the decedent
▪ if under common property, divide first by 2, and get whichever is lower [amount vs. 10M]
STANDARD
DEDUCTIONS ▪ A deduction in the amount of 5M shall be allowed as an additional deduction without the need of
substantiation. The full amount of 5M shall be allowed as deduction for the benefit of the decedent.
BENEFITS UNDER
RA 4917 ▪ Pursuant to RA 4917 which took effect on June 17, 1967, the retirement bnefit or termination benefit
received by employees of private firms is not subject to attachment, levy, execution, or any tax whatsoever.
▪ Pursuant to the NIRC, any amount received by the heirs from the decedent’s employer as a consequence of
the death of the decedent-employee in accordance with RA 4917 is allowed as a deduction provided that the
amount of the separation benefit is included as part of the gross estate of the decedent.
To illustrate:
Total foreign net estate x Philippine estate tax
Net world estate
ADMINISTRATIVE REQUIREMENTS
PERIOD TO FILE ESTATE TAX Within one (1) year from date of death
RETURN Required to file when:
(BIR FORM 1801) 1. the transfer is subject to tax
2. the gross value of the estate exceeds P200,000, even if exempt from tax
3. when gross estate consists of registered or registrable property, regardless of the value of the
gross estate – clearance from the BIR is a condition precedent to the transfer of title to registrable
property
Where the request for extension is by reason of negligence, intentional disregard of rules and regulations,
or fraud on the part to the taxpayer, the Commissioner will grant no extension.
Any amount paid after the statutory due date of the tax, but within the extension period shall be subject to
interest but not to surcharges.
TIME FOR PAYMENT General Rule: Pay as you file – Shall be filed triplicate.
EXTENSION OF TIME TO PAY When the Commissioner finds that the payment of the estate tax or any part thereof would imposed
ESTATE TAX hardship upon the estate or any of the heirs, he may extend the time of such tax or any part thereof –
- Not to exceed five years in case the estate is settled through the courts
- Two years in case estate is settled extra-judicially
Any amount paid after the statutory date but within the extension period is subject to interest and not to
surcharge
POSTING OF BOND IN CASE OF Not exceeding double the amount of estate tax and with such sureties as the CIR deems necessary
EXTENSION
CPA CERTIFICATE Gross value of estate exceeds Php 5 Million (Old rule is Php 2 Million)
INFORMATION IN CPA Itemized assets
CERTIFICATE Itemized liabilities
Estate tax due
INSTALLMENT PAYMENT In case the available cash of the estate is insufficient to pay the total estate tax due, payment by
installment shall be allowed within two (2) years from the statutory date of payments, without civil
penalty and interest
Requirement for withdrawal: duly stamped received BIR Form 1904 (Application for TIN of Estate)
ENFORCE ACTION The Commissioner may enforce action against the estate after the due date of the estate tax provided that
all the applicable laws and required procedures are observed.
LIABILITY OF BENEFICIARY Beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment
of such portion of the estate tax as his distributive share bears to the value of the total net estate.
EXCEPTIONS (NOT
COVERED BY 1. Shall have become final and executory, and
AMNESTY) 2. To properties involved in cases pending in appropriate courts
A. Falling under the jurisdiction of Presidential Commission on Good Governance
B. Involving unexplained or unlawfully acquired wealth
C. Involving violations of Anti-Money Laundering Law
D. Tax evasion and other criminal offenses under NIRC
E. Involving felonies of frauds, illegal exactions and transactions, and malversation of public finds and
property under the Revised Penal Code
DEFINITION OF
TERMS ▪ Basic Tax Assessed refers to the latest amount of tax assessment issued by the BIR against the taxpayer,
exclusive of interest, penalties and surcharges
▪ Net Estate refers to the gross estate less all allowable deductions prevailing at the time of death of the
decedent
▪ Net Undeclared Estate refers to the difference between the total net estate valued at the time of death
and the net estate previously declared with the BIR, if any
ESTATE TAX
AMNESTY TAX
Notes:
1. The provisions of NIRC, as amended applies suppletorily
2. The law which shall govern is the law that is applicable at the time of death
subject to the Amnesty Law
3. If allowable deductions applicable at the time of death of the decedent exceed
the value of the gross estate, the heirs, executors, or administrators may avail of
the benefits of tax amnesty and pay the minimum estate tax amnesty tax of Php
5,000.00
4. Installment payment not allowed
5. Amnesty granted shall become final and irrevocable
AVAILMENT OF THE
ESTATE TAX
AMNESTY
CERTIFICATE OF The Bureau of Internal Revenue shall issue the certificate within fifteen (15) calendar days from submission of the
AVAILMENT OF THE Acceptance Payment Form and the Estate Tax Amnesty Return.
ESTATE TAX
AMNESTY The duplicate copies, stamped as received, shall be deemed as sufficient proof of availment
IMMUNITIES AND 1. Immune from the payment of all estate taxes, increments and additions thereto
PRIVILEGE 2. Immune from all appurtenant civil, criminal and administrative cases and penalties under the NIRC, as amended
The BIR, in coordination with the applicable regulatory agencies, shall set up a system enabling the transfer of title
over properties to heirs and/or beneficiaries and cash withdrawals from the bank accounts of the decedent, when
applicable.
1. Amnesty may be availed of on properties involved in cases pending in appropriate courts – FALSE
2. Amnesty is not allowed on properties involving violations of RA No. 9160 (Anti-Money Laundering Act) –
TRUE
3. Properties transferred mortis causa in 2018 maybe allowed estate tax amnesty – FALSE
4. Estate tax amnesty is allowed until June 14, 2023 – TRUE
5. In computing the gross estate, the basis is the present market value of the property although the decedent
died in 1960 – FALSE – valuation at the time of death