ESTATE TAX

Sec. 84 to Sec. 97 National Internal Revenue Code

Prepared by Joanna Rose R. Tarroza

WHAT IS ESTATE TAX?

Estate Tax is a tax on the privilege or right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property.

PURPOSES IN IMPOSING ESTATE TAX

1.

2. 3. 4.

Generate additional revenue for the government Reduce the concentration of wealth Provide for an equal distribution of wealth Compensate the government for the protection given to the decedent that enabled him to prosper and accumulate wealth

CHARACTERISTICS OF ESTATE TAX

1.

2. 3. 4. 5.

6.

General revenue used for general purposes National Sec.21 of the NIRC Excise tax tax on the privilege Ad valorem tax based on the FMV Indirect tax amount may be shifted to transferee Progressive increases as the tax base increases

BASES FOR THE IMPOSITION OF ESTATE TAX

1.

2.
3.

Benefits-protection theory State-partnership theory Redistribution of wealth

REQUISITES FOR THE IMPOSITION OF THE ESTATE TAX

1.

2.

3.

Death of decedent Successor is alive at the time of the decedents death Successor is not disqualified to inherit

WHEN TO FILE NOTICE OF DEATH

Within two (2) months after the decedents death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner. (Sec. 89) WHO CAN FILE 1. Executor 2. Administrator 3. Any of the legal heirs

WHEN TO FILE ESTATE TAX RETURNS Within six (6) months from the decedents death. (Sec. 91) Extension of time to file The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for the filing of the return. (Sec. 91)

WHERE TO FILE
1.

(SEC.90 (D)) IN RE: SECS. 21 & 2

2.
3. 4.

5.

Authorized agent bank Revenue District Officer Collection Officer Duly authorized treasurer of the city or municipality in which the decedent was domiciled at the time of death Or there be no legal residence in the Philippines, with the Office of the Commissioner

WHEN TO PAY (SEC. 91 (A) )

The estate tax imposed by Sec. 84 shall be paid at the time the return is filed by the executor, administrator or the heirs. Extension of time to pay (Sec. 91 (B) )
Judicial settlement within 5 years Extrajudicial settlement within 2 years Commissioner may require a bond

ESTATE TAX COMPUTATION:

GROSS ESTATE OF THE DECEASED --- LESS: Ordinary deduction --- LESS: Share of surviving spouse --- LESS: Special deductions Total: NET TAXABLE ESTATE

GROSS ESTATE (SEC. 85)

For: Resident decedent The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated

GROSS ESTATE..
For: Nonresident decedent Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only the part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate.

DETERMINATION OF THE VALUE OF THE ESTATE (SEC.88)

PROPERTY REAL PROPERTY VALUATION Whichever is the higher of 1. The fair market value as determined by the Commissioner 2. The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors Whether tangible or intangible, appraised at the FMV

PERSONAL PROPERTY

SHARES OF STOCK 1. Unlisted (a) unlisted common book value (b) Unlisted preferred par value 2. Listed the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself. USUFRUCT Shall be taken into account the probable life of the beneficiary in accordance with the latest Basic

ITEMS INCLUDED IN THE GROSS ESTATE (SEC. 85) Decedents interest (B) Transfer in contemplation of death (C) Revocable transfer (D) Property passing under general power of appointment (E) Proceeds of life insurance (F) Prior interests (G) Transfer for insufficient consideration
(A)

GROSS ESTATE:
PROCEEDS OF LIFE INSURANCE
BENEFICIARY DESIGNATION GROSS ESTATE

Estate Executor / Administrator OTTHER THAN E/EA OTHER THAN E/EA

Revocable / Irrevocable
Revocable Irrevocable

INCLUDED

INCLUDED NOT INCLUDED

COMPUTATION OF THE NET ESTATE (SEC. 86)

(A) Deductions Allowed to the Estate of a Citizen or a Resident: 1. Expenses, Losses, Indebtedness, and Taxes ORDINARY DEDUCTIONS 2. Property Previously Taxed 3. Transfer for Public Use 4. The Family Home 5. Standard deduction SPECIAL 6. Medical Expenses DEDUCTIONS 7. Amount received by heirs under RA 4917

ORDINARY DEDUCTIONS
1.

Expenses, Losses, Indebtedness, Taxes, etc

a. Funeral expenses actual funeral expenses or

b.
c. d.

e.

5% of the gross estate, not to exceed P200k Judicial expenses for estate proceedings For claims against the estate For claims in favor of the estate For unpaid mortgages

ORDINARY DEDUCTIONS
2.

Property previously transferred deduction allowed from the gross estate for properties which were previously subject to estate taxes; PURPOSE: to lessen effects of double taxation
PERIOD DEDUCTION 100%

Within 1 year or less

More than 1 year but not more than 2 years More than 2 years but not more than 3 years More than 3 years but not more than 4 years

80%
60%

40%

ORDINARY DEDUCTIONS
Transfer for public use Requisites for the deductability:
3.
a. b. c. d. e.

The disposition is in a last will and testament To take effect after death In favor of the Government For exclusive public purpose The value of the property given is included in the gross estate

SPECIAL DEDUCTIONS
4.

5. 6.

7.

The Family Home the current FMV of the decedents family, not to exceed P1 Million Standard Deduction P1 Million Medical Expenses - those incurred within 1 year prior to his death, duly supported with receipts Amount received from the retirement benefits, RA 4917

DEDUCTIONS.. (B) Deductions Allowed to Nonresident Estates 1. Expenses, Losses, Indebtedness, and Taxes 2. Property Previously Taxed 3.Transfer for Public Use
(C) Share in the Conjugal Property (D) Miscellaneous Provisions (E) Tax Credit for Estate Taxes Paid to a Foreign Country

EXEMPTION OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

(SEC. 87)

The following shall not be taxed: (A) The merger of usufruct in the owner of the naked title
(B) The transmission of delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary

EXEMPTIONS..
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and,

(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, that not more than 30% shall be used by such institutions for administration purposes

EXEMPTION ALLOWED TO ESTATE

(SEC. 62)

For the purpose of the tax provided for in this Title, there shall be allowed an exemption of twenty thousand pesos (P20,000) from the income of the estate or trust.

ESTATE TAX CREDIT

It is a remedy against international double taxation to minimize the onerous effect of taxing the same property twice. It can be availed by the estate of the citizen or a resident alien at the time of death for any estate taxes paid in a foreign country

SEC. 84. RATES OF ESTATE TAX

OVER BUT NOT OVER THE TAX SHALL BE PLUS IN EXCESS OF

P200,000.00
P200,000.00 P500,000.00 P2,000,000.00 P5,000,000.00 P10,000,000.00 P500,000.00 P2,000,000.00 P5,000,000.00 P10,000,000.00

EXEMPT
0 P15, 000.00 P135, 000.00 P465, 000.00 5% 8% 11% 15% P 200,000.00 P500,000.00 P 2,000,000.00 P5,000,000.00 P10,000,000.00

P1, 215,000.00 20%

Estate taxation is governed by the statute in force at the time of death of the decedent.

PROCEDURE
File NOTICE OF DEATH within 2 months from the death of the decedent Account for all the real and personal properties of the decedent within 6 months to file ESTATE TAX RETURNS GROSS ESTATE --Ordinary deductions --surviving spouses share --special deductions ---------------------------------Net Taxable Estate PAYMENT Pay Estate Taxes upon filing of Estate Tax Returns. Payment may be extended: 5yrs judicial settlement 2 yrs extrajud. Set. Upon full payment of estate tax, an estate clearance tax will be issued by the CIR to serve as the authority to distribute the inheritance

Distribution of Inheritance

ESTATE TAX VS. DONORS TAX

SIMPLIFIED ESTATE TAX DONORS TAX

SUBJECT TAXPAYER LIABILITY TO PAY EFFECTIVITY

TAX BASE

Right to transfer Estate Administrator/ executor Upon death

Net estate

Right to transfer Donor Donor

Lifetime of donor and donee Net gift

CEILING/ EXEMPTION FILING

P2000,000.00
Within 6 months from date of death

P100,000.00
Withing30 days from date of donation