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U Note:
Government requires us to pay taxes so that we can exercise the privileges that they have granted upon us and these taxes also work for the protection of our rights and privileges.
To understand taxation, one must understand the concept of rights and privileges. Rights are usually not taxable while Privileges are usually taxable. Double Taxation - illegal in the Philippines. You cannot tax the same thing twice for the same period and for the same purpose. Capital Gains tax A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of a noninventory asset that was purchased at a lower price. 2 Basic Questions in Taxation 1. Are you a Citizen? 2. Are you a Resident If the answer is YES to anyone of these this is TAXABLE.
Police Power power to monitor people for the general welfare. Eminent Domain power to expropriate private property for public use. Taxation power of the government to impose burden upon the people to earn revenue.
U Note:
Taxation is the foundation wherein government is founded on. Taxes and the government have a symbiotic relationship. Without taxation there is no government
KINDS OF TAXES 1. 2.
- Judge Cooley
a. b. c.
3.
Value Added Taxes Other Percentage Taxes Excise Tax tax imposed on SIN products ( products that are harmful and wasteful)
a. b.
Estate Taxes takes effect after death Donors Taxes takes effect during lifetime a. Donation Inter Vivos - during life b. Donation Mortis Causa takes effect after death. ( Last will and Testament)
4.
RIGHT VS. PRIVILEGE Right The basics of human existence.Those things that are
Necessary to live. You cannot live without these.
Eg. Right to breathe, right to live, right to vote, Freedom of speech. Etc.
Principles of Succession
EleMENTS OF SUCCESSION
1. Deceased/ Decedent Person who died. Testator/ Testatrix (F) person who wrote the last will and testament. Also called the decedent. 2. Estate- a bulk of property left behind by the decedent. 3. Successors/ Heir- the persons to whom the estate is given to. 4. Executor/Administrator person who will take charge of the estate before the distribution. ** Executor- person named in the will by the testator
Notes from: The New Philippine Business and Transfer Taxes (Principles, Law and Problems) by Virgilio D. Reyes (Nov 2007) Business and Transfer Taxes Notes from G. Mendoza And Lectures by: ATTY. PRACKIE JAY ACAYLAR, CPA (EAC- Manila)
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Holographic Will - a will entirely written or created by the testator himself, signed and dated and NOT subject to legal formalities on form, witnesses, or acknowledgement before a notary public. >>> This kind of will does not need formalities because many people can recognize his handwriting and it can be verified by a penmanship expert.
c. 2. 3.
Rights legal claims, franchises, (could be the same as intangible property) Obligations unpaid debt
Notarial Will- a will that is created FOR the testator by a 3rd party, usually his lawyer, follows proper form, signed and dated in front of the required number of witnesses and acknowledged by the presence of a notary public.
designation of heirs made in the last will and testament executed by the testator. Intestate/Legal Succession- succession which results from the operation of law where there is no last will and testament or the LW&T is void for any reason given by law. Mixed Succession succession which results partly from the LW&T and Partly from the operation of law.
Legitime This is a secured portion of the estate that the law reserves
for compulsory heirs. Free Portion Portion of the will that the testator can freely dispose of. This is a Special
Kinds of Heirs
~
No property of a testator shall pass to an heir unless proven that all terms in the Last will and testament is legal and valid in court.
Revocation of Will the testator may revoke his last will and testament at
any time before he dies. If he executed more than one Last will and testament the last one before he dies will be the prevalent one
Legitimate Children- all children born & conceived NOT out of wedlock. Legitimate Child Legally Adopted Child Legitimated Child Illegitimate Children all children born & conceived out of wedlock.
EXECUTOR/ ADMINISTRATOR Carries out the provisions of the last will and
testament that is appointed by the testator. If he does not accept, the court shall appoint.
All Children conceived and born outside a valid marriage are considered illegitimate.
~(Art 165, Family Code of the Philippines) ~
ESTATE TAXES
Secondary Compulsory Heir only can get part of the estate in the absence of the primary compulsory heirs. W Legitimate Ascendants W Illigitimate Ascendants Voluntary Heirs Heirs determined through the last will
and testament.
A tax on the right of transmitting property at the time of death and on the privilege that a person is given control to a certain extent to the disposition of his property to take effect upon death.
Applies to: a) Citizens of the Philippines b) Residents of the Philippines Non-resident aliens with properties in the Philippines Where to file- municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner.
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Properties owned by the decedent actually and physically present in his estate at the time of his death such as land, buildings, shares of stock, vehicles, bank deposit, etc The value of any interest in property owned or possessed by the decedent at the time of his death such as dividends declared before his death but received after his death, partnership profits which have accrued before his death, usufructuary rights, etc. The value of property, right or interest in the property, transferred by the decedent during his lifetime which, under the law, are in the nature of testamentary dispositions such as life insurance proceeds in favor of a revocable beneficiary. TAXABLE TRANSFERS Value of the property or interest in property transferred by the decedent during his lifetime which is in the nature of testamentary disposition: Transfers in contemplation of death Revocable transfers Property passing under a general power of appointment Transfer with retention or reservation of certain rights over the income or enjoyment of the property transferred Transfer for insufficient consideration
SUBJECT TO TAX
WITHIN Citizen / Resident Resident Alien Non Resident Alien/ Non Resident Citizen Non Resident Citizen y y y y
WITHOUT y y N Y
Transfers in Contemplation of Death Impelled by the thought of death, or the motivating factor or controlling motive for the transfer of the property is the thought of death without regard to the state of health of the transferor. Donation Mortis Causa Takes effect upon the death of the donor. Its characteristics are: there is no conveyance of title or ownership to the donee or transferee the transfer is revocable by the donor at will during his lifetime the transfer shall be void id the donor survives the donee
Real Property- country where they are situated Tangible Personal Property- country where they are actually located at the time of death of the decedent Intangible Personal Property- considered as intangible personal properties situated in the Philippines: ~ franchise which must be exercised in the Philippines ~ shares, obligations or bonds issued by any corporation organized in the Philippines ~ shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Phils ~ shares, obligations or bonds issued by a foreign corporation if such shares have acquired a business situs in the Phils. ~ Shares or rights in any partnership, business or industry established in the Phils.
PROPERTIES INCLUDIBLE IN THE GROSS ESTATE
DECEDENTS INTEREST - shall include all properties, rights and interest
which the decedent owns at the time of death. It shall include:
REVOCABLE TRANSFERS Where the enjoyment of the property transferred may be altered, amended, revoked or terminated by the decedent. The revocability is not affected by the failure of the decedent to exercise the power to revoke during his lifetime. If the notice has not been given, the power to revoke has not been exercised on of before the date of his death, such notice shall be considered to have been given, or the power exercised on the date of his death. PROPERTY PASSING UNDER A GENERAL POWER OF APPOINTMENT
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The donee of a general power of appointment holds the appointed property with all the attributes of ownership thus, the appointed property shall form part of the gross estate of the donee of the power upon his death. Transfers with Retention and Reservation of Certain Rights Over the Income or Enjoyment of the Property Transferred Transfers where the donor reserves the right to the income of the property until death; or Transfers where the donor reserves the right to the possession or enjoyment of the property until death These transfers do not actually convey full ownership over the property transferred hence the property still remains part of the gross estate of the transferor. TRANFERS FOR INSUFFICIENT CONSIDERATION If the transfer is a bona fide sale for adequate and full consideration in money or moneys worth, no value shall be included in the gross estate. If the transfer is not a bona fide sale for an adequate and full consideration in money or moneys worth, there shall be included in the gross estate only the excess of the fair market value of the property at the time of death over the value of the consideration received by the decedent. If an inter vivos transfer of the decedent is proven to be fictitious, the total value of the property at the time of death shall be included in the gross estate. Reasons for Taxability of the Transfers It will be seen that in most of these transfers, the property remains substantially that of the transferor during his lifetime notwithstanding the transfer as he still retains either the Beneficial Ownership or Naked Title to the property. Hence, the transfer is essentially similar in respect to a transmission by testacy or intestacy upon the death of the owner. In order to be exempted from the purview of the
CLAIMS AGAINST INSOLVENT PERSONS Are receivables due or owing from persons who are not financially capable of meeting their obligations. The receivables shall be included in the gross estate at their full amount. CAPITAL OF THE SURVIVING SPOUSE The gross estate of a married decedent shall consist of the following: conjugal or community properties exclusive properties
The capital of the surviving spouse shall not be deemed part of the gross estate. EXEMPT ACQUISITIONS AND TRANSACTIONS FROM PAYMENT OF ESTATE TAXES the merger of the usufruct in the owner of the naked title the transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary the transmission from the first heir, legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor all bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the income of which inures to the benefit of any individual; Provided, however, that no more than 30% of the said bequests, devices, legacies or transfers shall be used by such institutions for administration purposes.
VALUATION OF THE ESTATE Valuation Date- time of death Basis of Valuation- fair market value, which is the price which a property will bring when it is offered for sale by one who desires, but is not obligated to sell and is bought by one who is under not necessity of buying it Valuation of Usufruct- probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table Valuation of Real Property -
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F) Vanishing Deduction The purpose is to minimize the effect of a double taxation on the same property within a short period of time Conditions:
DEDUCTIONS FROM THE GROSS ESTATE The estate tax is computed based on the net estate. The net estate is determined by subtracting from the gross estate the deductions authorized by law. A)Funeral Expenses The limit is the actual funeral expenses or the amount equal to 5% of the gross estate, whichever is lower, but in no case to exceed P200,000. Funeral expenses include the expenses for the mourning clothing of the spouse and unmarried minor children, fees and charges for masses, rites, ceremonies incident to the interment, expenses of interment, and the cost of the coffin, burial plot, tombstone, mausoleum or niche. The cost of obituary notices, flowers and expenses of the wake preceding the burial are also part of funeral expenses. Expenses incurred after burial can no longer be deducted. B) Judicial Expenses Refers primarily to court expenses and expenses of administration. The expenses of administration include those actually and necessarily incurred in the administration of the estate.
a) Decedent died within five (5) years from receipt of the property from a prior decedent or donor; b) Property on which vanishing deduction is being claimed must be located in the Philippines; c) Property must have formed part of the taxable estate of the prior decedent, or of the taxable gift of the donor; d) Estate tax on the prior succession or the donors tax on the gift must have been finally determined and paid; e) Property on which vanishing deduction is being taken must be identified as the one received from the prior decedent or from the donor, or something acquired in exchange therefore. f) No vanishing deduction on the property was allowable to the estate of the prior decedent G) Family Home A deduction from the gross estate is an amount equivalent to the current fair market value of the decedents family home. The maximum is P1M. As a condition for the deduction for the family home, it must be certified to as family home by the barangay captain of the locality where it is located. H) Standard Deduction The law provides an amount equivalent to P1M. I) Medical Expenses
C) Claims Against Insolvent Persons The gross estate shall include receivables of the decedent at their full amount due from debtors who are insolvent. The deduction is the amount of the receivable which cannot be collected due to insolvency. D) Unpaid Mortgage Unpaid mortgage in respect to property is a deduction from the gross estate subject to the condition that the decedents interest in the property, undiminished by the mortgage, is included in the gross estate. E) Losses Requisites: 1. loss is not compensated by insurance or otherwise
There is a deduction for medical expenses incurred by the decedent within 1 year prior to his death, substantiated with receipts. In no case shall the deductible medical expenses exceed P500,000. J) Amount Received under RA 4917 Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent-employee in accordance with RA 4917 shall be deductible if such amount is included in the gross estate of the decedent. K) Procedural Requirements Notice of death (Sec. 89) in all cases of transfers subject to tax, or if exempt from tax, the gross value of the estate exceeds P20,000.00
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Time for filing: 6 months from the decedents death Extension of time: Commissioner has authority to grant in meritorious cases a reasonable extension not exceeding 30 days. Place of filing: Authorized agent bank, RDO, Collection officer, duly authorized treasurer of city/municipality where decedent was domiciled or if there be no legal residence in the Philippines, with the Office of the commissioner. IX. Payment of Estate Tax Time of Payment: at the time the return is filed by executor, admin, and heir Extension: When Commissioner finds that payment would impose undue hardship on estate or heirs, he may grant an extension not exceeding 5 years, if estate is settled through the courts not exceeding 2 years, if estate is settled extrajudicially
No extension in cases of assessment by reason of negligence, intentional disregard of rules and regulations or fraud on part of taxpayer. Who pays : Executor, administrator before delivery to beneficiary. Beneficiary subsidiarily liable to the extent of distributive share. X. Rates of Estate Tax Section 84 XI. Duties of government agencies a. Sec. 94 No judge shall authorize the executor or administrator to deliver the distributive share to any party interested in the estate unless a Certification from the Commissioner shows that the estate taxes have been paid.
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