TRANSFER

TAXATION
OVERVIEW
WHAT IS TRANSFER TAX?

• Impositions on the transfer of property from

the owner to a buyer, beneficiary, donee or
transferee.
DISCUSSION:

This tax is imposed on the right of an individual or artificial being to transfer owned
property to another individual or artificial being.
In short, a citizen paying transfer tax is not paying for his property but is paying for his
right to transfer the ownership of such property.
TRANSFER TAX UNDER LOCAL GOVERNMENT
CODE (LGC) SECTION 135

• Imposed on the sale, donation, barter, or on any other mode of transferring ownership or title
to real property.
• Payment is required by the Register of Deeds of the province concerned before registering
any deed.
• Required by the provincial assessor before cancelling an old tax declaration and issuing a
new one in its place.
• Only covers transfers of real property.
• To be paid at the Treasurer’s Office where the property is located.
DISCUSSION:

• This is just a glimpse of local taxation, and to inform you that this is different from the
transfer tax under BIR.
• This is a local transfer tax imposed by LGUs on REAL properties ONLY.
TRANSFER TAX UNDER NATIONAL INTERNAL
REVENUE CODE (NIRC)
• Involves ESTATE and DONOR’s taxes.
• Cover the transfer of any kind of property, whether it be real or personal.
• Essentially involve gratuitous transfers.
• Generally paid at the Bureau of Internal Revenue Regional District Office, where the
decedent or donor is domiciled.
• Required by the Register of Deed before issuing a transfer certificate of title if real
property is involved.
DISCUSSION:

• Key points to remember with transfer tax payable to BIR:

 This includes estate tax and donor’s tax.
 It covers not only real properties but also includes personal properties like jewelries.
 This is only applicable to gratuitous transfer. When we say gratuitous transfer, this is a
transfer of property without expecting any return.
Moreover, transfer of assets for less than an adequate and full consideration in money or
money’s worth is considered as a donation therefore subject to transfer tax.
KINDS OF TRANSFER

Capital
Casual
Gains Tax
Onerous
Sale/Exchange
(Normal Course of
Business
Transfer of Property
Business) Taxes
(Personal/Real)
Donor’s
Donation
Tax
Gratuitous
Fact of
Estate Tax
Death
DISCUSSION:

• Onerous transfer – this is a transfer of property in exchange for something of equal value.
This can be casual transfer or under normal course of business.
• When we say casual transfer, this is the transfer or sale of capital assets such as residential
properties. The transferor was not really into business of selling real or personal properties.
Capital gains tax is imposed on this kind of transaction.
• On the other hand, business taxes are imposed on transfer under normal course of business.
GRATUITOUS TRANSFER OF PROPERTY

Donation Inter Vivos Subject to Donor’s Tax

Gratuitous Transfer
Donation Mortis-Causa
Testate Subject to Estate Tax
Intestate
DISCUSSION:

• As what I already said from the previous slide, transfer tax is for gratuitous transfer only.
Key points to remember:
 Donation Inter Vivos – this type of donation is done out of love and liberty and within the
donor’s lifetime, and is also accepted by the donee within the said period.
 Donation Mortis-Causa - Like an inheritance, donation can also be done after a donor’s
passing or death. This is also motivated by the donor’s love and affection for the donee, and
is also free and does not involve any monetary consideration.
 It conveys no title or ownership to the transferee before the death of the transferor; or, what
amounts to the same thing, that the transferor should retain the ownership (full or naked) and
control of the property while alive.
DISCUSSION:

 That before his death, the transfer should be revocable by the transferor at will, ad nutum; but
revocability may be provided for indirectly by means of a reserved power in the donor to dispose of
the properties conveyed;
 That the transfer should be void if the transferor should survive the transferee. (Nauna namatay ang
bibigyan, void ang transfer.)
 When the deed of donation provides that the donor will not dispose or take away the property
donated (thus making the donation irrevocable), he in effect is making a donation inter vivos. He
parts away with his naked title but maintains beneficial ownership while he lives. It remains to be a
donation inter vivos despite an express provision that the donor continues to be in possession and
enjoyment of the donated property while he is alive. (If nangako si donor na hindi nya babawiin ang
transfer kahit anong mangyari, that is donation inter vivos. Kahit pa gamitin nya yong property
habang buhay pa sya.)
DISCUSSION

 Inheritance/Succession – either by testate (will) or intestate.

 Testate means that the person who died left a will.
 Intestate means that he died without leaving a will.
 TRANSFER TAXES

DONOR’s TAX ESTATE TAX

Known as a gift tax that is imposed on the
gratuitous transfers of property during one’s
lifetime.
Not a property tax.
Shall not apply unless and until the gift is
completed.
Tax rate is 6% computed on the basis of the total
gifts in excess of P 250,000 exempt gift made
during the calendar year whether the donee is a
relative or stranger.
Paid by the donor.
Tax imposed on the transfer of economic benefits
and enjoyment of property from decedent person to
the heir.
Not a property tax.
Accrues as of the death of the decedent.
The net estate of every decedent shall be subject to
a tax at the rate of 6%.
Paid by the estate.
PURPOSE OF TRANSFER TAX

DONOR’s TAX ESTATE TAX

Prevent the avoidance of estate tax through
lifetime transfers of property which would
otherwise transfer by will or through death of the
donor.
The imposition of estate tax governed by the
following theories:
1. Redistribution of Wealth Theory
2. Benefit-Received Theory
3. Privilege or State Partnership Theory
4. Ability to Pay Theory
PURPOSES OF ESTATE TAX

• Inheritance received by the heir contributes to the unequal distribution of wealth and
Redistribution of Wealth earnings because he/she has not actually worked for it.
Theory • Imposition of estate tax helps to distribute some of the economic benefits which should
have been solely enjoyed by the heir.

• Because government provides services as to transfer of the estate, it is therefore fair

Benefit-Received Theory to collect its equivalent compensation in protecting individual persons properties or
rights.

Privilege or State • Asserts that the State is a passive and silent partner in the accumulation of wealth as
Partnership Theory it protects every individual within its territory

• The effect of inheritance increases the wealth of the heir thereby creating an ability
Ability to Pay Theory to pay the tax.
 NEXT TOPIC:
DONATION AND DONOR’S TAX