Chapter 5 - Estate Tax

19
BUSINESS AND TRANSFER TAXATION
Chapter 5: ESTATE
TAX
CHAPTER 5
ESTATE TAX
Problem 51
1. False only P200,000.
2. True
3. True
4. True
5. True
6. True
7. True
8. False If the value of the gross estate exceeds P2,000,000.
9. False only 30 days.
10. True
Problem 52
1. A
2. C
3. A
4. D
5. D
6. D
7. C
8. A
9. D
10. A
Problem 53
1. Conjugal gross estate (P3,120,000 + P180,000)
Funeral expense allowed (P3,300,000 x 5%)
Share of surviving spouse (P3,300,000 P165,000) x 50%
Standard deduction
Net estate
2.
Net conjugal estate

Less: Share of surviving spouse
Standard deduction
Net estate
P3,300,000
( 165,000)
( 1,567,500)
( 1,000,000)
P 567,500
P2,000,000
P1,000,000
1,000,000
2,000,000
P
- 0 -
3.
Net distributable estate (P1,000,000 + P900,000)
P1,900,000
4.
Net estate of P15,000 estate tax

Add: Standard deduction
Net estate before standard deduction
Add: Share of surviving spouse
Net conjugal estate before funeral expense allowed
Divided by (100% - 5%)
Gross estate
P 500,000
1,000,000
P1,500,000
1,500,000
P3,000,000
95%
P3,157,895
Chapter 5: ESTATE
5.
20
TAX
Gross estate (within)

Less: Prorated allowable deduction* (P1,000,000 x 5/15)
Net estate Philippines
P5,000,000
333,333
P4,666,667
*If properties outside are presented, then prorate. It not, then there
is no deduction allowed for NRA.
Estate tax on P2,000,000
Add: Tax on excess (P2,666,667 x 11%)
Estate tax
6.
7.
40% of properties in the Philippines are intangible

Tangible properties in the Philippines (P5,000,000 x 60%)
Less: Allowable deduction (P1,000,000 x 5/15) x 60%
Net estate Philippines
P3,000,000
200,000
P2,800,000

Add: Tax on excess (P800,000 x 11%)
Estate tax - Philippines
P 135,000
88,000
P 223,000
Gross estate
Less: Funeral expense
Net conjugal estate
Less: Share of surviving spouse (P19,800,000 x 50%)
Net estate before standard
Less: Standard deduction
Net estate
Add: Tax on excess (P3,900,000 x 15%)
Estate tax due
Tax credit:
Limit (P1,050,000 x 40%) = P420,000
Actual allowed
8.
P135,000
293,333
P428,333
Gross estate (P20,000,000 x 60%)

Less: Prorated allowable deduction (P2,000,000 x 60%)
Net estate before share of surviving spouse
Net estate NRA
Add: Tax on excess (P400,000 x 15%)
Philippine estate tax
P20,000,000
200,000
P19,800,000
9,900,000
P 9,900,000
1,000,000
P 8,900,000
P 465,000
585,000
P1,050,000
P100,000
P12,000,000
1,200,000
P10,800,000
5,400,000
P 5,400,000
P 465,000
60,000
P 525,000
21
Chapter 5: ESTATE
TAX
Problem 54
B
Gross estate
Funeral expense allowed (P3,000,000 x 5%)
Standard deduction
Net estate
Problem 55
A
Net estate after deductions
Add: Actual deductions (P150,000 + P50,000)
Gross estate
Less: Funeral expense allowed (P1,400,000 x 5%)
Other deduction
Standard deduction
Net estate
Problem 56
P3,000,000
( 150,000)
(1,000,000)
P1,850,000
P1,200,000
200,000
P1,400,000
P
70,000
50,000
1,000,000
Property cash
Transfer for public use
Funeral expense allowed
Share of surviving spouse (P4,000,000 P200,000) x 50%
Standard deduction
Net estate
Exclusive
P1,000,000
(1,000,000)
Conjugal
P4,000,000
( 200,000)
(1,900,000)
(1,000,000)
P 900,000
Problem 57
A
Gross estate
Funeral and judicial expenses
Share of surviving spouse
Net estate before special deduction
Standard deduction
Net estate negative
Net estate taxable in the Philippines is
Problem 58
(1,120,000)
P 280,000
P1,500,000
( 60,000)
P1,440,000
( 720,000)
P 720,000
(1,000,000)
( P280,000)
P - 0 -
Properties
Funeral expense
Judicial expenses
Claims against properties
Shares of surviving spouse (P2,400,000 x 50%)
Standard deduction
Net estate
Conjugal
P3,400,000
( 200,000)
( 250,000)
( 550,000)
(1,200,000)
Exclusive
P2,600,000
(700,000)
1,200,000
(1,000,000)
P2,100,000
22
Chapter 5: ESTATE
TAX
Problem 59
C
Net estate of P500,000 has a estate tax amounting to
Problem 510
P15,000
Amounts
Net estate
P2,000,000
Estate tax
P135,000
Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is
not deductible because no part of gross estate located outside the Philippines is reported.
(Sec. 86 (B), NIRC)
Problem 511
1.
2.
3.
A
Real estate
Personal property
Funeral expense, limit
Judicial expenses
Unpaid mortgage loan
Share of surviving spouse (P1,800,000 x 50%)
Standard deduction
Family home (P1,600,000/2)
Net estate
Conjugal
Exclusive
P1,600,000
800,000
( 200,000)
( 100,000)
( 300,000)
( 900,000)
P2,800,000
B
Estate tax on P500,000
Estate tax on excess (P1,400,000 x 8%)
Estate tax
B
Real estate
Personal property
Funeral expense, actual
Judicial expenses
Unpaid mortgage loan
Estate tax
Net distributable estate
Problem 512
C
Tax credit P100,000 x 2M/5M)
900,000
(1,000,000)
( 800,000)
P1,900,000
P 15,000
112,000
P127,000
Conjugal
P1,600,000
800,000
( 245,000)
( 100,000)
( 300,000)
( 877,500)
Exclusive
P2,800,000
877,500
( 127,000)
P3,550,500
P40,000
23
Chapter 5: ESTATE
TAX
Problem 513 A
Total gross estate (P1,700,000 + P800,000)
Less: Deductions
Net taxable estate
P2,500,000
1,500,000
P1,000,000
Estate tax on P500,000

Excess P500,000 x 8%
Total estate tax in the Philippines
P15,000
40,000
P55,000
Tax credit allowed

(P800,000/ P2,500,000) x P55,000 = P17,600 vs. P20,000
P17,600
Problem 514
Gross estate (P2,000,000 + P180,000)
Less: Deductions:
Unpaid mortgage
Funeral expense
Judicial expense
Standard
Net estate
P2,180,000
P 480,000
60,000
20,000
1,000,000
Tax on P500,000
Tax on excess P120,000 x 8%
Total estate tax
Gross estate
Less: Ordinary deductions (P480,000 + P80,000)
Estate tax
Problem 515
Cash
Property
Gross estate
Deductions:
Promissory note
Funeral expense
Net estate
1,560,000
P 620,000
P15,000
9,600
P24,600
P2,180,000
P560,000
24,600
584,600
P1,595,400
P 400,000
1,500,000
P1,900,000
( 500,000)
(
70,000)
P1,330,000
665,000
P 665,000
1,000,000
(P 335,000)
24
Chapter 5: ESTATE
TAX
Gross estate
Less: Promissory note
Funeral expense
P1,900,000
P500,000
70,000
570,000
P1,330,000
665,000
P 665,000
Problem 516
Gross estate (P1,000,000 + P9,000,000)

Ordinary deductions:
Funeral expense (limit)
Judicial expense
Claims against the estate
Net conjugal estate before share of surviving spouse
Less: Share of surviving spouse (P100,000 x 50%)
Special deductions:
Standard deduction
Medical expense
Net taxable estate
Tax on P5,000,000
Tax on excess P2,550,000 x 15%
Estate tax
Conjugal estate
Less: Ordinary deductions (actual):
Funeral expense
Judicial expense
Claims against the estate
Net conjugal estate before share of surviving spouse
Net share of the decedent
Add: Exclusive property of the decedent
Net distributable estate before estate tax
Less: Estate tax
Divide by number of heirs (12 + 1)
Share of each heir
Note: The medical expense is assumed to have been paid.
Conjugal
Exclusive
P1,000,000
P9,000,000
(
(
(
P
200,000)
200,000)
500,000)
100,000
50,000
50,000
(1,000,000)
( 500,000)
P7,550,000
P465,000
382,500
P847,500
P1,000,000
P210,000
200,000
500,000
910,000
90,000
45,000
P 45,000
9,000,000
P9,045,000
847,500
P8,197,500
13
P 603,576.92
P
25
Chapter 5: ESTATE
TAX
Problem 517
Taxable
Conjugal property - real estate
Funeral expenses, limit (P2,300,000 x 5%)
Judicial expenses
Unpaid mortgage
Vanishing deduction*
Less: Share of surviving spouse (50%)
Net estate before exclusive property
Add: Exclusive property personal property inherited
Net estate
Divide by number of compulsory heirs
Inheritance of each heir
P2,000,000
( 115,000)
( 5,000)
( 500,000)
( 175,304)
P1,204,696
( 602,348)
P 602,348
300,000
P 902,348
1,000,000
(P 97,652)
*Value taken
Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000)
Final basis
Multiply by percentage of vanishing deduction one year ago
Vanishing deductions
Distributabl
e
P2,000,000
( 150,000)
(
5,000)
( 500,000)
.
P1,345,000
672,500
P 672,500
300,000
P 972,500
.
P 972,500
3
P 324,167
P300,000
80,870
P219,130
80%
P175,304
Note: The inherited property is exclusive because the problem states that it is the decedents
estate.
Problem 518
1. P3,900,000
2. P 265,000
3. P2,250,000
4. P1,817,500
5. P - 0 - or (P432,500)
6. P - 0 7. P1,515,000
Note: The house and lot in New York, Quezon City is assumed family home because Don and
Dona Posamin resides in that place.
26
Chapter 5: ESTATE
TAX
Supporting computations (Problem 5-18):

Gross estate
House and lot, Baguio City
House and lot, Quezon City family home*
Grocery store, Baclaran
Inventory (P700,000 P300,000) x 450/300
Cash sales
Claims against insolvent persons
Funeral (P3,900,000 x 5%)
Unpaid income taxes
Net estate before special deductions
Special deductions:
Family home (P1,500,000/2)
Medical expenses
Standard deductions
Net estate
P1,000,000
1,500,000
300,000
600,000
450,000
50,000
P3,900,000
(1)
( 265,000)
P3,635,000
1,817,500
P1,817,500
(2)
(2,250,000)
(P 432,500)
(3)
(5)
Estate tax due
(6)
Gross estate
Actual deductions:
Funeral
Unpaid income taxes
Medical expense
Net estate before share of spouse
P3,900,000
P 195,000
50,000
20,000
P 750,000
500,000
1,000,000
P250,000
50,000
20,000
550,000
870,000
P3,030,000
1,515,000
P1,515,000
(4)
(7)
27
Chapter 5: ESTATE
TAX
Problem 519
1. P6,540,000
2. P350,000
3. P2,500,000
4. P595,000
5. P22,600
6. P3,047,400
7. P761,750
Supporting computations (Problem 5-19):

House and lot (family home)
Time deposit principal amount
Accrued interest 2004: (P2,000,000 x 12% x 12/12)
2005: (P2,000,000 x 12% x 10/12)
Car
Claims against insolvent person
Gross estate
Funeral expense, limit
Judicial
Net estate before special deductions
Special deductions:
Standard deductions
Medical expense, limit
Family home, limit
Net estate
P3,000,000
2,000,000
240,000
200,000
1,000,000
100,000
P6,540,000
P 200,000
50,000
100,000
P1,000,000
500,000
1,000,000
Tax on P500,000
Tax on excess (P95,000 x 8%)
Estate tax
Gross estate
Actual deductions:
Funeral expense
Judicial expense
Net distributable estate before share of surviving spouse
Net actual estate
Less: Estate tax
Divided by number of heirs (intestate succession)
Share of each heir
( 350,000)
P6,190,000
3,095,000
P3,095,000
2,500,000
P 595,000
P 15,000
7,600
P 22,600
P6,540,000
P250,000
50,000
100,000
( 400,000)
P6,140,000
3,070,000
P3,070,000
22,600
P3,047,400
4
P 761,850
28
Chapter 5: ESTATE
TAX
Problem 520
1. Estate tax credit = P212,917
2. Estate tax payable = P224,583
Supporting computations:
a. Estate tax payable to the Philippines :
Country A
Gross estate
Unpaid mortgages
Unpaid taxes
Transfer for public use
Net of identifiable deduct.
Allocated deductions**
Net estate
P1,200,000
(200,000)
.
P1,000,000
(208,333)
P 791,667
Country B
Philippines
Entire
P2,500,000
P5,000,000
(500,000)
.
P2,000,000
(416,667)
P1,583,333
(2,000,000)
P3,000,000
(625,000)
P2,375,000
P8,700,000
(200,000)
(500,000)
(2,000,000)
P6,000,000
(1,250,000)
P4,750,000
b. Computation of Philippines estate tax:

Tax on P2,000,000
Tax on excess (P2,750,000 x 11%)
Total
Less: Tax credit allowed*
Estate tax payable to the Philippine Government
c. Computation of tax credit:
Limit A:
Country A: [P437,500 x (P791,667/ P4,750,000)] - lower
Actual payment to country A
Tax credit allowed for country A
Country B: (P437,500 x P1,583,333/ P4,750,000)
Actual payment to country B
Tax credit allowed for country B
P135,000
302,500
P437,500
212,917
P224,583
P 72,917
P 75,000
P 72,917
P145,833
P140,000
140,000
Tax credit Limit A

Limit B:
Total net estate foreign
[(P791,667 + P1,583,333)/ P4,750,000] x P437,500
Total actual estate tax payments foreign
(P75,000 + P140,000) lower
Tax credit Limit B
*Tax credit allowed (the lower of limit A or B)
** Computation of allocated deductions:
P212,917
P218,750
P215,000
P215,000
P212,917
29
Chapter 5: ESTATE
TAX
Funeral expenses
Judicial expenses
Standard deduction allocated
Total allocated deductions
Country A
P 33,333
8,333
166,667
P208,333
Country B Philippines
P 66,667 P100,000
16,667
25,000
333,333
500,000
P416,667 P625,000
Entire
P 200,000
50,000
1,000,000
P1,250,000
Note: The above deductions are allocated because they are not specifically identified as deductions from a specific country. The allocation
is computed by multiplying the fraction of the estate after identifiable deduction with the allocable deductions. The fraction per country is
computed as follows:
Estate net of identifiable

deductions per country
Divide by entire net estate
Fraction
Country A
Country B
Philippines
Entire
P1,000,000
P6,000,000
1/6
P2,000,000
P6,000,000
2/6
P3,000,000
P6,000,000
3/6
P6,000,000
P6,000,000
6/6
Problem 521
Cash
Shares of stock (P100 x 100,000 shares)
Insurance proceeds
Transfer in contemplation of death
Total gross estate
Ordinary deduction Transfer for public use
Net estate before share of spouse
Net estate
Conjugal
P2,000,000
.
P2,000,000
.
P2,000,000
P1,000,000

Tax on excess (P2,000,000 x 11%)
Total estate tax
Less: Tax credits on tax previously paid (P34,840 + P204,000)
Transfer tax still due
Problem 522
Estate tax on excess (P3,000,000 x 15%)
Estate tax
Add: Surcharges willful neglect (P585,000 x 50%)
Interest for 4 years (P585,000 x 20% x 4)
Total amount to be paid
Exclusive
P10,000,000
1,000,000
3,000,000
P14,000,000
(10,000,000)
P 4,000,000
1,000,000
P 5,000,000
1,000,000
P 4,000,000
P135,000
220,000
P355,000
238,840
P116,160
P 135,000
450,000
P 585,000
P292,500
468,000
760,500
P1,345,500

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19

BUSINESS AND TRANSFER TAXATION

Net conjugal estate

Net distributable estate (P1,000,000 + P900,000)

Net estate of P15,000 estate tax

BUSINESS AND TRANSFER TAXATION

Gross estate (within)

40% of properties in the Philippines are intangible

Estate tax on P2,000,000

Gross estate (P20,000,000 x 60%)

BUSINESS AND TRANSFER TAXATION

BUSINESS AND TRANSFER TAXATION

BUSINESS AND TRANSFER TAXATION

Estate tax on P500,000

Tax credit allowed

BUSINESS AND TRANSFER TAXATION

Gross estate (P1,000,000 + P9,000,000)

Note: The medical expense is assumed to have been paid.

BUSINESS AND TRANSFER TAXATION

BUSINESS AND TRANSFER TAXATION

Supporting computations (Problem 5-18):

Estate tax due

BUSINESS AND TRANSFER TAXATION

Supporting computations (Problem 5-19):

BUSINESS AND TRANSFER TAXATION

b. Computation of Philippines estate tax:

Tax credit Limit A

BUSINESS AND TRANSFER TAXATION

Estate net of identifiable

Estate tax on P2,000,000

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