Donation as a Mode

of Acquiring Ownership
Art. 735 – 773 of the New Civil Code of the Philippines
Donation – Inclusions
• An act of liberality whereby a person disposes gratuitously of a thing
or right in favor of another, who accepts it (Art. 725).

• It includes:
• Gift for the services rendered by the donee to the donor, provided does not
constitute a demandable debt (Art. 726)
• Transfer for insufficient consideration (Art. 726)
• Gift with illegal or impossible conditions (Art. 727)
Donation - Inclusions
• It includes:
• Donation effective during the lifetime of the donor, but property will be
delivered to the donee upon the donor’s death. Hence, the fruits will pertain
to the donee upon his acceptance, unless otherwise provides. (Art. 729)
• Donation with suspensive condition, unless the contrary provision provides.
(Art. 730)
• Donation with resolutory condition. (Art. 731)

• It excludes:
• Donation that will take after the death of the donor – succession.
Donation - Perfection
• Perfected from the moment the donor knows of the acceptance by
the donee. (Art. 734)
Person Who May Donate or Receive
Donation
• Gen. Rule: All person who may contract and dispose of their property
(Art. 735).
• He must be capacitated at the time of donation.
• Likewise, all who are not disqualified by law may receive donation.

• Exception:
• Guardians and trustees as to the property of their wards (Art. 736)
Void Donations
1. Guilty of adultery or concubinage
2. Guilty of the same criminal offense
3. Made by/to public officer or his wife, descendants and ascendants,
by reason of his office. (Art. 739)
Incapacity to Succeed
• General rule: Donation to incapacitated person shall be void (Art. 743)

Exception:
1. Incapacity to succeed by will shall be applicable to donations inter vivos
(Art. 740).
2. Minors and other who cannot enter into a contract, acceptance shall be
done by the parents or guardians (Art. 741)
3. Donations to conceived and unborn children may be accepted by those
persons who legally represent them if they were already born. (Art. 742)
Double Donation
• Rule on double sale applies (Art. 744)

• Movables – first possessor

• Immovables:
(1) First registration in good faith;
(2) First possessor in good faith;
(3) Oldest title (Acquisition)
Acceptance
• Donee must accept personally or through an authorized person with
special power for the purpose, or with a general and sufficient power,
otherwise, donation shall be void. (Art. 745)

• It must be made during the lifetime of the donor and the donee. (Art.
746)
Formalities
• Movable – orally or in writing, except when the amount of donation is
P 5,000 or more, it must be in writing, otherwise, void.

• Immovable – it must be in public document.

• Acceptance may be made in the same deed of donation or in a

separate public document (Art. 749).
Effect of Donations
and Limitations
Thereon
Properties that can be donated
• Rule: A donor may donate all his property.

• Limitations:
(a) He cannot donate future property at the time of donation (perfection).
• Except, between spouses, under the rule on succession.
(b) He must reserve, in full ownership or in usufruct, sufficient means for
himself and of all the relatives at the time of the acceptance of the
donation, are by law entitled to be supported by him.
(c) He cannot give donation more than he can give by will.
Donation to Several Person Jointly
• Presumed equal shares, no right of accretion, unless the donor has
otherwise provided.

• Except: Husband and wife, there is a right of accretion, if the contrary

has not been provided.
Subrogation (Art. 754)
• The donee is subrogated to all the rights and actions which in case of
eviction would pertain to the donor.

• Liability of donor in case of eviction and hidden defects;

• Rule is not liable, except when onerous.
• Bad faith - liable
Reservation
• The donor can reserve his right over the donated property; but if he
dies without exercising the right, the property reserved shall belong
to the donee.
Usufruct
• The donor can donate to one person the ownership of the property
and the usufruct to another.
Debts
• The donee is not liable beyond the value of donated property, unless
a contrary intention clearly appears.

• The donee shall be responsible for the donation in fraud of the

creditors.

• Presumption of fraud: when donor did not provide sufficient property

to pay his debts prior to the donation.
 Revocation and
Reduction of Donations
Grounds for Revocation or Reduction
1. If the donor, after the donation, should have legitimate or
legitimated or illegitimate children, even though they be
posthumous;

2. If the child of the donor, whom the latter believed to be dead when
he made the donation, should turn out to be living;

3. If the donor should subsequently adopt a minor child;

Effect of Revocation or Reduction
• Return or pay the value of the property;

• If mortgaged, redeem by the donor and reimburse from the donee;

Prescriptive Period
• 4 years…

• The actions cannot be renounced and is transmitted, upon the death

of the donor, to his legitimate and illegitimate children and
descendants.
Other Grounds: Non-fulfillment of conditions
• Fails to comply with the conditions;

• Return the donation;

• Prescribed within 4 years… may be transmitted to the heirs of the

donor and may be exercised against the donee’s heirs.
Other Grounds: Ingratitude
1. If the donee should commit some offense against the person, the
honor or the property of the donor, or of his wife or children under
his parental authority;
2. If the donee imputes to the donor any criminal offense, or any act
involving moral turpitude, even though he should prove it, unless
the crime or the act has been committed against the donee himself,
his wife or children under his authority.
3. If he unduly refuses him support when the donee is legally or
morally bound to give support to the donor.
Effect:
• Recover the property from the donee, or pay the value of the
property;

• Fruits:
• Prior to filing of complaint – not return;
• Non-fulfillment of condition – property and fruits;
Prescriptive Period:
• 1 year…

• Cannot be renounced;

• Non-transferrable to the heirs;

 Donor’s Tax
Sec. 98 – 104 of the Tax Code of the Philippines,
as amended by RA 10963, TRAIN LAW
What is Donor’s Tax?
• A tax imposed on the gratuitous transfer of property (donation or gift)
between two or more persons who are living at the time of the
transfer.

• Contribution to any candidate, political party or coalition of parties for

campaign purposes shall be governed by Election Code.
Properties Covered?
• All properties, whether personal or real, tangible or intangible.

• Whether the transfer is in trust or otherwise, whether the gift is direct

or indirect.
Tax Situs
Property Citizen/Resident Alien Non-resident Alien Donor
Donor
Property within Included Included
Property without Included Excluded
Intangible property within Included Included;
when there is reciprocity,
it must be excluded.
Intangible without Included Excluded

Note: For Foreign corporation, donation is subject only to donor’s tax if the
property donated is located in the Philippines.
Intangible Assets Situated in the Philippines
(Sec. 104)

• Franchise which must be exercised in the Philippines;

• Shares, obligations, or bonds issued by any corporation or
sociedad anima organized or constituted in the Philippines in
accordance with its law;
• Shares, obligations, or bonds by any foreign corporation 85% of
the business of which is located in the Philippines;
• Shares, obligations, or bonds have acquired a business situs in the
Philippines;
• Shares or rights in any partnership, business, or industry
established in the Philippines.
How much is the donor’s tax?
• 6% of the total gifts, in excess of P 250,000.
Gross Gift xxx
Deduction xxx
Net gift xxx
Exemption xxx
Taxable Gift xxx (6%) = Donor’s Tax

• How it is done? Cumulative over a period of one year.

• Husband and wife are considered separate taxpayers.

Gross Gift
• Valuation: FMV at the time of gift.

• For real property, the higher amount between the assessed value or
zonal value.

• For stocks traded, the arithmetic mean between the highest and the
lowest quoted selling price of the securities on the valuation date.
• For stocks not traded, common shares – book value; preference
shares – par value.
Gross Gift
1. Direct gifts
2. Gifts through creation of trust
3. Transfer for insufficient consideration (FMV > SP)
4. Condonation of debt
5. Repudiation of inheritance
6. Renunciation by the surviving spouse of his/her share in the
common property
Transfer for insufficient consideration

• FMV exceeds the considerations = excess is subject to donor’s tax.

• Exception: Sale of real property held as capital asset, and those

transfer in the ordinary course of business with adequate
consideration.
Renunciation of Inheritance
• Subject to donor’s tax if specifically, and categorically done in favor of
identified heir(s) or any other person (s) to the exclusion or
disadvantage of the other co-heirs in the hereditary estate.
Exemptions
1. Donation to the National Government or any entity created by any of
its agencies which is not conducted for profit, or to any political
subdivision of the said Government.
2. Donation to an education and/or charitable, religious, cultural, or social
welfare corporation, institution, accredited non-government
organization, trust, or philanthropic organization or research institution
or organization: Provided, however, that not more than 30% of said
gifts shall be used by such donee for administration purposes.
3. Encumbrance (deduction)
4. Diminutions (deduction)
Donation Exempt by Special Laws
1. International Rice Research Institute
2. Ramon Magsaysay Award Foundation
3. Southern Philippines Development Administration
4. Philippines American Cultural Foundation
5. Integrated Bar of the Philippines
6. Development Academy of the Philippines
7. National Social Action Council
8. Museum of Philippine Costumes
9. Aqua-culture Department of South East Asia Fisheries Development Center of
the Philippines
10. Intramuros Administration
Foreign Tax Credit
• Same as estate tax or income tax.

Lim. A: net gift – foreign countries/net gift – world x PDT = Tax credit vs.
actual tax paid, choose the lower amount

Lim. B: net gift – per foreign country / net gift – world x PDT = Tax credit
vs. Actual tax paid, chose the lower amount

Chose the lower amount bet. Lim. A and Lim. B

Filing and Payment of Tax
• Time of filing: Return must be filed within 30 days from the time of
donation and payment shall be made upon filing of the return;
• Place of Filing: Except in cases where the Commissioner otherwise permits,
the return shall be filed and the tax paid to an (1) an authorized agent
bank; (2)Revenue District Officer; (3) Revenue Collection Officer; (4) duly
authorized Treasurer of the city or municipality where the donor was
domiciled at the time of the transfer or if there’s no legal residence in the
Philippines, with the Office of the Commissioner:
• In the case of gifts made by a non-resident, the return may be filed with:
(1) Philippine Embassy or Consulate in the country where he is domiciled at
the time of transfer, or (2) directly with the Officer of the Commissioner.
 Application: Cash 100,000
Jewelries 200,000
A. Dimaganti, single, donated the following properties on the following information: House and lot 1,500,000
Cash – PICPA 20,000
Value Property Donee Cash – father 100,000
Gross gift 1,920,000
100,000 Cash Dimalupig,brother, on account of marriage
Exemption (250,000)
200,000 Jewelries Trexy, girlfriend residing in Japan Taxable net gift 1,670,000
1,500,000 House and lot Parents, silver wedding anniversary gift Donor’s tax 100,200
20,000 Cash PICPA
75,000 Lot Brgy. Matinios, for use as site of barangay hall
300,000 Car Ugang, brother, donation is revocable
50,000 Cash International Rice Research Institute
100,000 Cash Matatag, father of the father of his mother
70,000 Motorcycle Nico, niece, donation is embodied in the will

The donor’s tax due is –

 Mr. Mrs.
April. 16, 2018
Cash to Tado 300,000 300,000
B. Spouses Santos gave the following donation: Exemption (250,000) (250,000)
Taxable net gift 50,000 50,000
Donor’s tax 3,000 3,000

April 16, 2018 – To Tado, brother of Mr. Santos, on account of marriage, cash worth Nov.
P 600,000
2, 2028
November 2, 2018 – Additional donation to Tado, P 600,000 Cash 300,000 300,000
Prior gift 300,000 300,000
January 15, 2019 – Property worth P 1,000,000 to Lala, daughter Total gift 600,000 600,000
Exemption (250,000)(250,000)
Taxable net gift 350,000 350,000
1. The gift tax due on Mr. Santos on April 16, 2018 is – Donor’s tax 21,000 21,000
Tax paid (3,000) (3,000)
2. The donor’s tax payable by Mr. Santos on November 2, 2018 is – Tax still due 18,000 18,000
3. The gift tax payable by Mr. Santos on January 15, 2019 is –
Jan. 15, 2019
4. The donor’s tax due on Mrs. Santos on November 2, 2018 is – Property 500,000 500,000
Exemption (250,000)(250,000)
Taxable net gift 250,000 250,000
Donor’s tax 15,000 15,000
C. Wright an American Citizen residing in New York, USA, donated the following properties: Wright: NRA – Within the Phils.
Real – location
Personal – residence
Jan. 18
January 18 – To Mang Doming, his Filipino friend in New York City, property situated in the Property – Phils 180,000
Philippines worth P 180,000. Exemption (250,000)
- To accredited NGO, 200 square meters of land valued at P 250 per square meter. Feb. 20
Rest house – Quezon 1,600,000
Prior gift 180,000
February 20 – To his legitimate daughter, Simmang, a resident of the Philippines, on account of Total gift 1,780,000
marriage to a Filipino boyfriend, a rest house in Quezon Province valued at P 1,600,000 but with aExemption (250,000)
cost of P 1,200,000. Taxable net gift 1,530,000
Donor’s tax 91,800
August 5
August 5 – To his brother, Diony, a naturalized Filipino citizen, residing in Iloilo City, car worth PCar 600,000
600,000. Prior gift 1,780,000
Total gift 2,380,000
Exemption (250,000)
5. How much is the donor’s tax on January 18 – Taxable net gift 2,130,000
6. The donor’s tax due on the February 20 donation is – Donor’s tax 127,800
7. The donor’s tax payable on the August 5 donation is – Tax paid (91,800)
Tax still due 36,000
D. The following donation were made by a domestic corporation during the year:

To the DSWD 500,000 Gross gift 500,000

To another domestic corporation 500,000 Exemption (250,000)
Taxable net gift 250,000
Donor’s tax 15,000
8. The donor’s tax due is –
 Foreign Tax Credit: RC, NRC, RA
E. Carina, Filipina had the following data: - TAX CREDIT Tax Situs: Within and Without

Net gift, Philippines 150,000 Limitation:

NG-Foreign/NG-World x PDT
Net gift. United States 450,000
Gift tax paid in the United States 7,500 Net gift – world 600,000
Exemption (250,000)
9. The donor’s tax payable on Carina is Taxable net gift 350,000
Donor’s tax 21,000
Foreign tax credit (7,500)
Still due 13,500

Lim:
450T/600 x 21,000 = 15,750
F. Django, resident made the following donations on May 6 of the current year:

P 175,000 – to his sister, Diana property situated in Los Angeles, California, USA. The donor’s tax
paid in US is P 20,000.
P 225,000 – To Barbara, his girlfriend in the Philippines
P 50,000 – To International Rice Research Institute Property – USA 175,000
Barbara 225,000
Gross gift 400,000
10. The donor’s tax due after-tax credit is –
Exemption (250,000)
Taxable net gift 150,000
Donor’s tax 9,000
Foreign tax credit (3,938)
Tax still due 5,062

Lim: 175T/400T x 9,000 = 3,938

THANKS!
Chris de Guzman, CPA, CAT