FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
21 NOVEMBER 2017
TITLE III
ESTATE AND DONOR’S TAX
TRANSFER involves transfer of properties or rights from one person
to another, with or without consideration. Transfer in general is just a
transfer of property or transfer of ownership.
KINDS OF TRANSFER
(1) ONEROUS TRANSFERS – involve transfers for a valuable
consideration hence, burdensome.
a. ORDINARY TRANSFERS – involves transfer of
properties used in business. This kind of transfer
is subject to income tax.
b. CASUAL TRANSFERS – involves transfer of
properties outside of or not used in business.
This kind of transfer is subject to capital gains
tax.
(2) GRATUITOUS TRANSFERS – transfers without or for a
grossly inadequate any consideration. These are subject to
transfer taxes.
a. DONATION – subject to donor’s tax
b. SUCCESSION – subject to estate tax
TRANSFER TAXES is a tax on the privilege to transfer properties
gratuitously. Hence, if a transfer is related to your business, it will not
be subjected to Transfer Tax but a Business Tax either VAT or
Percentage Tax.
CAPITAL ASSETS
• These are properties not related to business.
• If it is a real property, normally it will be subjected to capital
gains tax.
• When it comes to stocks, identify first if it is listed or not
listed.
• Also consider the rules as to capital assets in general,
meaning those, which are not real properties situated
within the Philippines and stocks issued by domestic
corporations.
NATURE OF TRANSFER TAXES
• It is an excise tax.
• It is a tax on the privilege of transferring properties to
another without any consideration.
• It is NOT a property tax because it does not rest upon the
ownership. It rests upon the act of passing ownership of
the property.
KINDS OF TRANSFER TAXES
(1) Estate tax
(2) Donor’s tax
GOVERNING LAWS OF TRANSFER TAXES: Transfer taxes are
governed by the laws existing at the time when the transfer takes
place.
• Donation inter vivos – the property is given gratuitously,
and it will take effect during the lifetime of the giver.
• Donation mortis causa - the property is given
gratuitously, and it will take effect only after the death of
the giver.
ESTATE TAXATION
ESTATE, in the context of succession, is the mass of properties of
whatever nature, left behind by the person after his death. It is
synonymous to inheritance, which is defined under the Civil Code:
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
ARTICLE 776. The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his death.
WHAT HAPPENS TO THE ESTATE WHEN THE PERSON DIES?
The properties left behind will be transferred to the heirs either by
will or by law.
ARTICLE 777. The rights to the succession are transmitted from the
moment of death of the decedent.
This act of transfer to the heirs is what is being taxed by the State.
Pag may namatay, merong buwis.
PRINCIPLES TO REMEMBER
1. NATURE OF AN ESTATE TAX: This is an excise tax and
NOT a property tax.
2. OBJECT OF THE ESTATE TAX: It is to tax the shifting of
economic benefits and enjoyment of the property from the
dead to the living.
PURPOSES OF ESTATE TAXATION
1. For the equitable distribution of wealth;
2. It is the most appropriate and effective method for taxing
the privilege, which the decedent enjoys of controlling the
disposition upon his death of the properties he
accumulated during his lifetime.
3. To generate additional revenue for the government
4. The only method of collecting the share which is properly
due to the State as a “partner” in the accumulation of the
property on account of the protection given by the State.
Q: IS INHERITANCE TAX THE SAME WITH ESTATE TAX? NO.
ESTATE TAX INHERITANCE TAX
Tax imposed on the gratuitous Tax on the act of receiving
transfer of the property. What is property by virtue of succession.
being taxed here is the act of
transferring.
They are two different animals. Noon, meron tayong inheritance tax.
But during the 1977 NIRC, inheritance tax was abrogated. What we
have now is just the estate tax.
TAX BASE OF ESTATE TAX: Net Taxable Estate
“NET DISTRIBUTABLE ESTATE”
• Here, the estate tax has already been considered. Iba ito.
• This is the final residue of the estate, which will eventually
be distributed to the heirs.
Net Taxable Estate – Estate Tax paid = Net Distributable Estate
For Net Taxable Estate, the basic equation is:
Gross Estate – Deductions = Net Taxable Estate
It is pretty much the same with Income Taxation:
Gross Income – Deductions = Net Taxable Income
TYPES OF DEDUCTIONS
1. Ordinary Deductions
2. Special Deductions
3. Share of the surviving spouse
rd
• The 3 one is a sui generis deduction.
The FIRST thing that we have to consider is what are those included
and excluded in the Gross Estate.
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 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
Q: WE HAVE THE GENERAL PRINCIPLES OF INCOME
TAXATION, WHAT IS THE RULE IN INCOME TAXATION WHEN IT
COMES TO CLASSIFICATION OF A TAXPAYER VIS-À-VIS THE
SOURCE OF THE INCOME?
Only resident citizens and domestic corporations are taxable within
and without the Philippines. The rest of the taxpayers are taxable
only on their income within the Philippines.
In ESTATE TAXATION, the rule is somewhat baliktad.
GR: All properties of the decedent, regardless of type, wherever
situated forms part of the gross estate.
EXC: When the decedent is a non-resident alien. He is taxable only
on his estate situated within the Philippines.
WHEN WILL THE ESTATE TAX ACCRUE OR ACCUMULATE? At
the time of the death of the decedent. But it does not mean that it is
also upon death that the estate tax should be paid.
RULE: The accrual of the estate tax is different from the obligation to
pay the same.
WHY? Because the obligation to pay the tax is actually declared by
law. Normally, it is within 6 months from the date of death.
SECTION 90. Estate Tax Returns. (B) Time for Filing. For the
purpose of determining the estate tax provided for in Section 84 of
this Code, the estate tax return required under the preceding
Subsection (A) shall be filed within 6 months from the decedent's
death.
SECTION 91. Payment of Tax. (A) Time of Payment. The estate tax
imposed by Section 84 shall be paid at the time the return is filed
by the executor, administrator or the heirs.
LORENZO vs. POSADAS
G.R. No. L-43082 | June 18, 1937
The accrual of the estate tax is different from the obligation to
pay the same. The time for the payment of the Estate Tax is
declared by law. The accrual of the estate tax is at the time of death
of the decedent.
Take note, we have to consider the nationality and residence of the
decedent. If you forget the nationality and residence of the decedent,
just go with the rule that: “All properties of the decedent,
regardless of type, wherever situated, forms part of the gross
estate.” And if the decedent is a non-resident alien, then only those
properties within the Philippines will form part of the gross estate.
The next thing you have to think of is the TYPE OF PROPERTY.
GR: All properties, regardless of classification, form part of the gross
estate.
BUT IF YOU CLASSIFY:
1. Real property
2. Personal property
3. Intangible property
WHY IS IT IMPORTANT TO CLASSIFY THE PROPERTY?
1. Because intangible properties of non-resident alien
decedents are supposed to be excluded from the gross
estate if the reciprocity rule applies.
2. Because there will be an effect on the valuation of the
property. How much are you supposed to include in the
gross estate.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
WHAT ARE CONSIDERED “INTANGIBLES”? Let’s just dissect.
1. Franchises to be exercised here in the Philippines;
2. Shares, obligations, bonds issued by Philippine corporation
or entity;
3. Shares, obligations or bonds of foreign corporations 85%
of the business of which is located in the Philippines;
4. Shares, obligations or bonds of foreign corporations with
business situs in the Philippines;
5. Shares or rights of any partnership or business or industry
established within the Philippines (You read Sec. 104 of
the Code).
ANOTHER THING WHY WE NEED TO CLASSIFY PROPERTY:
Because there are rules on situs.
1. REAL PROPERTY: The situs is where the property is
located.
2. PERSONAL PROPERTY
• GR: The thing follows the owner.
WHAT ABOUT INTANGIBLES? So, we have the rule for intangibles
(Transcriber: yun ata sa Sec.104), but normally if it is not found there,
you follow the general rule of where the owner is located.
• From 2016 TSN: Exception: But there is a provision
there in the NIRC, Section 104 that pertains to
Intangibles. It does not necessarily follow the general
rule on the situs of personal properties. xxx
BPI vs. POSADAS
G.R. No. 34583 | October 22, 1931
FACTS: This is about insurance proceeds. There was this German.
He came here in the Philippines because of a business transaction
until he met his wife, a Pinay. One day, he died here in Pinas.
Meron syang life insurance. The proceeds from the insurance were
deposited to the BPI. The BIR said that the proceeds are taxed here
in the Philippines. It will form part of the gross estate of the decedent.
The wife said that these life insurance proceeds are not supposed to
be taxed here in the Philippines because it is a personal property;
therefore it follows the residence of the decedent. And the German
comes here in the Philippines because of isolated transactions, balik-
balik lang sya.
RULING: Because the proceeds were deposited to the BPI for
purposes of administration, the money has acquired situs here in the
Philippines.
This is a weird case, just because the property is located here, and
supposed to be administered here, the Supreme Court said that it
has acquired situs here, therefore, it is included in the gross estate of
the decedent and subject to Philippine Estate Tax.
23 NOVEMBER 2017
GROSS ESTATE
COMPOSITION OF GROSS ESTATE
• GR: Gross estate comprises all of the properties of the
decedent wherever situated.
SECTION 85. Gross Estate. - 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:
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 that
part of the entire gross estate which is situated in the Philippines
shall be included in his taxable estate.
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 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
(A) Decedent's Interest. - To the extent of the interest therein
of the decedent at the time of his death;
(B) Transfer in Contemplation of Death. - To the extent of
any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of
or intended to take effect in possession or enjoyment at or
after death, or of which he has at any time made a transfer,
by trust or otherwise, under which he has retained for his
life or for any period which does not in fact end before his
death (1) the possession or enjoyment of, or the right to
the income from the property, or (2) the right, either alone
or in conjunction with any person, to designate the person
who shall possess or enjoy the property or the income
therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's
worth.
(C) Revocable Transfer. –
1. To the extent of any interest therein, of which the
decedent has at any time made a transfer
(except in case of a bona fide sale for an
adequate and full consideration in money or
money's worth) by trust or otherwise, where the
enjoyment thereof was subject at the date of his
death to any change through the exercise of a
power (in whatever capacity exercisable) by the
decedent alone or by the decedent in
conjunction with any other person (without
regard to when or from what source the
decedent acquired such power), to alter, amend,
revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's
death.
2. For the purpose of this Subsection, the power to
alter, amend or revoke shall be considered to
exist on the date of the decedent's death even
though the exercise of the power is subject to a
precedent giving of notice or even though the
alteration, amendment or revocation takes effect
only on the expiration of a stated period after the
exercise of the power, whether or not on or
before the date of the decedent's death notice
has been given or the power has been
exercised. In such cases, proper adjustment
shall be made representing the interests which
would have been excluded from the power if the
decedent had lived, and for such purpose if the
notice has not been given or the power has not
been exercised on or before the date of his
death, such notice shall be considered to have
been given, or the power exercised, on the date
of death.
(D) Property Passing Under General Power of
Appointment. - To the extent of any property passing
under a general power of appointment exercised by the
decedent: (1) by will, or (2) by deed executed in
contemplation of, or intended to take effect in possession
or enjoyment at, or after his death, or (3) by deed under
which he has retained for his life or any period not
ascertainable without reference to his death or for any
period which does not in fact end before his death (a) the
possession or enjoyment of, or the right to the income
from, the property, or (b) the right, either alone or in
conjunction with any person, to designate the persons who
shall possess or enjoy the property or the income
therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
worth.
(E) Proceeds of Life Insurance. - To the extent of the amount
receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not
the insured retained the power of revocation, or to the
extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is
expressly stipulated that the designation of the beneficiary
is irrevocable.
(F) Prior Interests. - Except as otherwise specifically provided
therein, Subsections (B), (C) and (E) of this Section shall
apply to the transfers, trusts, estates, interests, rights,
powers and relinquishment of powers, as severally
enumerated and described therein, whether made,
created, arising, existing, exercised or relinquished before
or after the effectivity of this Code.
(G) Transfers for Insufficient Consideration. - If any one of
the transfers, trusts, interests, rights or powers enumerated
and described in Subsections (B), (C) and (D) of this
Section is made, created, exercised or relinquished for a
consideration in money or money's worth, but is not a bona
fide sale for an adequate and full consideration in money
or money's worth, there shall be included in the gross
estate only the excess of the fair market value, at the time
of death, of the property otherwise to be included on
account of such transaction, over the value of the
consideration received therefor by the decedent.
(H) Capital of the Surviving Spouse. - The capital of the
surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
RESIDENTS here is similar to domicile, used interchangeable
without any distinction. It is where the resident lived during his
lifetime.
WHAT IS INCLUDED IN THE GROSS ESTATE?
(1) DECEDENT’S INTEREST
This is self-explanatory. It includes the extent of the interest therein
of the decedent at the time of his death. Practically, all properties of
the decedent at the time of his death should be included in the gross
estate.
WHAT ABOUT THE PROPERTIES THE DESCENDENT HAVE
NOT RECEIVED AT THE TIME OF HIS DEATH? As long as that
asset has already been accrued at the time of his death, regardless
of its receipt, then it should be included as part of his gross estate.
Remember that what the decedent transfers at the time of his death
are (1) properties and (2) rights, and the latter includes collectibles –
a right to collect. Take note also that the reference point is the time
of death.
(2) TRANSFER IN CONTEMPLATION OF DEATH
THREE SCENARIOS CONTEMPLATED:
(1) The descendent has at any time made a transfer, by
trust or otherwise, in contemplation of or intended to
take effect in possession or enjoyment at or after
death
This is similar to donation mortis causa. You make the
donation right now but it will take effect after the death.
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 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
(2) The decedent has at any time made a transfer, by trust
or otherwise which he has at any time made a transfer,
by trust or otherwise, under which he has retained for
his life or for any period which does not in fact end
before his death the possession or enjoyment of, or
the right to the income from the property
The decedent gives up the property and yet he retains the
right to possess or enjoy the property or his goods. In
other words, there is a right of retention, possession or
enjoyment of the property.
(3) The decedent has at any time made a transfer, by trust
or otherwise which he has at any time made a transfer,
by trust or otherwise, under which he has retained for
his life or for any period which does not in fact end
before his death the right, either alone or in
conjunction with any person, to designate the person
who shall possess or enjoy the property or the income
therefrom
The right to designate the person who will enjoy the
property is withheld by the decedent. He will be choosing
who will enjoy the property.
Remember the meaning of “in contemplation of death” in succession,
it also applies here. It means that the thought of death is the
impelling cause for the transfer.
DISTINGUISH DONATION MORTIS CAUSE AND DONATION
INTERVIVOS. The distinction is relevant because the tax implication
will be different.
GANUELAS vs. CAWED
The distinguishing characteristics of a donation mortis causa are the
following:
(1) 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;
(2) 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;
(3) That the transfer should be void if the transferor should
survive the transferee
“except in case of a bona fide sale for an adequate and full
consideration in money or money's worth” If the property is sold
and even if it is a revocable transfer, you take it out from your gross
estate.
(3) REVOCABLE TRANSFER
It refers to transfers where the transferor has reserved the right to
alter, amend, and revoke such transfer, whether in whole or in part.
“I will give this property to you, but anytime I can change this. Kung
ayaw ko na sa’yo pwede ko na ilipat sa iba.”
Take note that in case of bona fide sale, even if it’s a revocable
transfer, the transfer is still through a bona fide sale for a full and
adequate consideration, you take this out from the gross estate.
Example: Pacto De Retro Sale – it is still a bona fide sale, only with
a condition to buy back the property within a specific period.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
(4) PROPERTY PASSING UNDER GENERAL POWER OF
APPOINTMENT
This is a right to designate by will or deed the person or persons who
are to receive certain property from the estate of a prior decedent.
TYPES OF POWER OF APPOINTMENT AND EFFECT ON THE
GROSS ESTATE
(1) SPECIAL
• The done can appoint only among a restricted or
designated class of persons other than himself
⋅ Excluded in the gross estate
(2) GENERAL
• Gives the donee the power to appoint any person
he pleases, including himself, his spouse, his
estate, executor or administrator, and his
creditor, thus having a full dominion over the
property as though he owned it.
⋅ Included in the gross estate
We are talking power of appointment upon the appointee.
REQUIREMENTS:
1. The power of appointment is general in character
2. The donor must have died
3. Through a will, or by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or
after his death, or by deed under which he has retained for
his life or any period not ascertainable without reference to
his death or for any period which does not in fact end
before his death
4. There must be transfer through bona fide sale
(5) PROCEEDS OF LIFE INSURANCE
In income taxation, the tax consequence of a life insurance proceeds
is that it is excluded from the gross income if the insurer is already
dead. If he is alive, the return of the premium shall be excluded from
the gross income. The excess shall from part of the gross income
thus taxable under the regular tax rate.
POSSIBLE BENEFICIARIES AND TAX CONSEQUENCE:
1. Executor, Administrator or the estate
• Automatically forms part of the gross estate,
whether irrevocable or revocable
2. Others, e.g. heirs
• If it is revocable, it is included in the gross estate
• If it is irrevocable, it does not form part of the
gross estate
EXAMPLE: I have a life insurance policy. The beneficiaries are
Peter and his girlfriend. Since I trust Peter so much I designated him
as executor. I died. They received the money. What is the tax
consequence of the money they received?
A: As to Peter who is an executor of the estate, the life insurance
proceeds is included in the gross estate. As to his girlfriend who is
neither an executor nor administrator, it forms part of the gross estate
provided it is revocable. But if the designation of the girlfriend is
irrevocable, it is excluded in the gross estate of the decedent.
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 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
(6) PRIOR INTEREST
Q: Supposing Peter died today. Last January, Earvin Alparaque
owed him P1M and promised to pay interest. It is supposed to be
payable on December 31. What is the prior interest?
A: Interest income before death of Peter, it is part of the gross
estate. Interest income after death of Peter, it is not included in the
gross estate taking into consideration the date of death valuation
rule.
A: First, there must be a fair market value of that property transferred
and the actual value or consideration received. The difference will be
included in the Gross Estate.
Q: YES! NOW, WHAT WILL HAPPEN IF THE THREE (3)
SCENARIOS MENTIONED IS NOT APPLICABLE IN THAT
TRANSACTION? WHAT IS THE TAX CONSEQUENCE? IS IT
STILL ESTATE TAX OR SOMETHING ELSE?
A: No longer estate tax sir but some other tax.

(7) TRANSFER FOR INSUFFICIENT CONSIDERATION CAPITAL OF THE SURVIVING SPOUSE

Illustration: Q: WHAT DO YOU MEAN BY THE CAPITAL OF THE SURVIVING

SPOUSE?
Suppose Peter owns a Ferrari. Because he loves his girlfriend very
much he sold his Ferrari worth 4M for only 500K to his girlfriend. A: The capital of the surviving spouse won’t be included in the Gross
Then Peter died. What is/are the estate tax consequences? What Estate.
is/are the estate tax consequences if Peter dies right after he sold the
Ferrari? Q: CORRECT. WHY?

WHAT TYPE OF TRANSFER IS INVOLVED IN THE PROBLEM? A: Only the property of the decedent will form part of the Gross
Transfer with insufficient/inadequate consideration. Estate sir, the property of the surviving spouse (capital of the
surviving spouse) will form part of his/her own Gross Estate.
Correct. In transfers with insufficient/inadequate consideration, what
the estate tax consequences? Or will there be an estate tax Q: WHAT ARE THE PROPERTY REGIMES THAT ARE
consequence to begin with? How will we be able to determine if there APPLICABLE NOW?
will be an estate tax consequence for that transfer?
A: Absolute Community of Property (ACOP), Conjugal Partnership of
What is the type of transaction? Transfer for inadequate Gains (CPOG), and Separation of Property Sir.
consideration. Will there be an estate tax consequence for that
transfer? Yes or No? Q: WHY IS IT ESSENTIAL AGAIN?

How will you know that that transaction will have an estate tax A: Because there are different treatments of the properties
consequence? You read the codal. depending on the property regime. (Also to determine the property
owned by the decedent that will form part of his Gross Estate)
SECTION 86 (G). Transfers of Insufficient Consideration. - If any
one of the transfers, trusts, interests, rights or powers enumerated CONJUGAL ABSOLUTE
and described in Subsections (B), (C) and (D) of this Section is PARTNERSHIP OF COMMUNITY OF
made, created, exercised or relinquished for a consideration in GAINS PROPERTY
money or money's worth, but is not a bona fide sale for an adequate Property inherited or
and full consideration in money or money's worth, there shall be received as donation Exclusive Conjugal
included in the Gross Estate only the excess of the fair market value, during marriage
at the time of death, of the property otherwise to be included on Property acquired
account of such transaction, over the value of the consideration during marriage Conjugal Community
received therefor by the decedent. (other than
inheritance or
If you go back to the problem, how will you be able to determine that donation)
there will be an estate tax consequence? Aside from the fact that Property acquired
there is an inadequate consideration, how else? What is mean by from labor, industry Conjugal Community
“Subsections (B), (C) and (D) of this Section”? work or profession of
• B - Transfer in Contemplation of Death the spouse
• C - Revocable Transfer Fruits or income due
• D - Property Passing Under General Power of Appointment or derived during the Conjugal Community
marriage coming
So that means that this provision will only operate when there is a from common
transfer for inadequate consideration and it falls under the three (3) property
transfers namely: (1) Transfer in Contemplation of Death, (2) Property before the
Revocable Transfer, or (3) Property Passing under General Power of marriage or brought Exclusive Community
Appointment. to the marriage
Fruits or income due
SO IF WE GO BACK TO THE PROBLEM, WHAT WILL HAPPEN IF or received during Conjugal Exclusive
ANY OF THE THREE (3) SCENARIOS GIVEN IN THAT the marriage coming
TRANSACTION? WHAT WILL HAPPEN TO THE PROPERTY from exclusive
THAT WAS SOLD FOR INADEQUATE CONSIDERATION? property

A: Part of the amount will form part of the Gross Estate. Let’s apply the property regime with a little bit of numbers.

Q: CORRECT. HOW MUCH IS THAT PORTION?

AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA 5
 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
Problem: (B) Properties. - The estate shall be appraised at its fair market
value as of the time of death. However, the appraised value of real
Peter, Filipino, residing in Davao City. He died and left the following property as of the time of death shall be, whichever is higher of:
properties: (1) The fair market value as determined by the Commissioner,
or
1. Residential House (2) The fair market value as shown in the schedule of values
a. Acquisition Cost – P300,000 fixed by the Provincial and City Assessors.
b. FMV – P1,000,000
2. Residential Lot(Inherited during marriage) GR: The properties comprising the gross estate shall be valued
a. Acquisition Cost – P500,000 based on their fair market value as of the time of death.
b. FMV – P1,200,000
3. Personal Properties (Acquired before marriage) DETERMINATION OF THE VALUE OF THE ESTATE
a. FMV – P400,000 (1) USUFRUCT – you all know that usufruct is also included in
the gross estate. The property under usufruct is different
Compute the Gross Estate under (1) CPOG and (2) ACOP. from the usufruct itself. If you have a usufruct and there is
valuation, that is included in the gross estate.
PVD: You know how to determine the nature of the property under a. VALUATION: To determine the value of the right
CPOG and ACOP diba? Kung nakalimotan niyo, tandaan niyo nalang of usufruct, use or habitation, as well as that of
na sa CPOG, property ko + Property niya = (when we get married) annuity, there shall be taken into account the
property ko parin ang sa’kin, property niya ang sa’kanya. What we probable life of the beneficiary in accordance
earn is Conjugal. with the latest Basic Standard Mortality Table, to
be approved by the Secretary of Finance, upon
Pag ACOP naman, property ko + Property niya = Property namin. recommendation of the Insurance
Go compute. Just compute for the Gross Estate. Assume that there Commissioner.
are no deductions yet. (2) PROPERTIES – the estate shall be appraised at its fair
market value as of the time of death. However, the
ANSWERS: appraised value of real property as of the time of death
shall be, whichever is higher of:
A. Gross Estate under the CPOG a. The fair market value as determined by the
Commissioner, or
EXCLUSIVE CPOG TOTAL b. The fair market value as shown in the schedule
Residential - 1,000,000 1,000,000 of values fixed by the Provincial and City
House Assessors.
Residential Lot 1,200,000 - 1,200,000
Personal 400,000 - 400,000 Q: WHAT IF THERE IS AN APPRAISER WHO DETERMINED THE
Property VALUE OF THE ESTATE?
TOTAL 1,600,000 1,000,000 2,600,000
Remember that the valuation given by the appraiser is not
B. Gross Estate under the ACOP considered in the determination of the property to be included as part
of the gross estate.
EXCLUSIVE ACOP TOTAL
Residential - 1,000,000 1,000,000 (3) SHARES OF STOCKS
House • If unlisted
Residential Lot 1,200,000 - 1,200,000 a. Unlisted common shares are valued based
Personal - 400,000 400,000 on their book value
Property b. Unlisted preferred shares are valued at par
TOTAL 1,200,000 1,400,000 2,600,000 value.
• If listed: The fair market value shall be the
WHY DID WE NOT DIVIDE THE CPOG INTO TWO? It is because arithmetic mean between the highest and lowest
from there you will deduct the conjugal obligations of the spouses quotation at a date nearest the date of death, if
none is available on the date of death itself
and determine the share of thee surviving spouse. This will be shown
when we go to deductions. Again, when you compute for the Gross (Revenue Regulation).
Estate, do not deduct the share of the surviving spouse yet because
you will have to consider the deductions (whether exclusive, conjugal DIZON vs. CIR
or community).
FACTS: A person died and left a debt not yet paid. This is what we
25 NOVEMBER 2017 call a “Claim Against the Estate”. It is supposed to be a deduction to
the estate. But after his death, the creditors executed a compromise
Things to remember in valuation agreement wherein some debts were condoned.
1. Date of death
2. Rules set forth in Section 88 of the NIRC BIR said that the said condoned amounts should not be included in
the “Claims Against the Estate”.
SEC. 88. Determination of the Value of the Estate. –
(A) Usufruct. - To determine the value of the right of usufruct, use or RULING: NO. Those are already post-mortem developments. Post-
habitation, as well as that of annuity, there shall be taken into death developments are not included. Again, for the value of the
estate, you reckon it at the time of death in line with the “Date of
account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the Death Valuation Rule”. Any post-mortem developments are not
Secretary of Finance, upon recommendation of the Insurance considered in the valuation of the estate.
Commissioner.

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EXEMPTIONS OF CERTAIN ACQUISITIONS NOTE: The list is not exclusive.
AND TRANSMISSIONS
OTHER EXEMPTIONS SCATTERED IN THE NIRC
EXEMPTIONS DEDUCTIONS 1. Irrevocable insurance policies of the decedent;
These are properties not These are subtractions from the 2. Insurance taken by the company for its xxxx-;
considered to be included in gross estate of the deceased. 3. GSIS and SSS benefits;
determining the gross estate of 4. US veterans and administration;
the deceased. 5. US-Philippine treaty for damages suffered during World
War II;
THE FOLLOWING SHALL NOT BE TAXED 6. Transfer for bona fide sale;
7. Share of the surviving spouse;
Q: WHAT TYPE OF DECEDENTS CAN AVAIL OF THESE 8. Capital of the surviving spouse.
EXEMPTIONS?
DEDUCTIONS
There is no qualification. Hence, all types of decedents can avail of
these exemptions as long as the circumstances are applicable. DEDUCTIONS under estate taxation are similar with the principles
under income taxation. There are requisites of deductibility which
SECTION 87 (A). The merger of usufruct in the owner of the naked must be complied with as well as the substantiation requirements.
title; Also, deductions are strictly construed against the taxpayer and
liberally in favor of the government because it partakes the nature of
SECTION 87 (B). The transmission or delivery of the inheritance or a tax exemption. Hence, the taxpayer must clearly establish that he
legacy by the fiduciary heir or legatee to the fideicommissary; is entitled to a deduction and that the estate has indeed incurred
expenses.
X transferred his property by will to Z with a condition that if X dies,
the property will go to Y. What is the effect of this kind of transaction? TYPES OF DEDUCTIONS FROM GROSS ESTATE

Here, there are two transfers involve, first from X to Z and second A. ORDINARY DEDUCTION (ELIT-MTV)
from Z to Y. There is no question as to the first transfer because the a. Expenses
property will always be included in the gross estate of X by virtue of • Funeral expenses
the will. • Judicial expenses
b. Losses
As to Z to Y, you go back to our discussion regarding the power of • Casualty losses
appointment. Since the transfer to Z is merely as administrator of the • Claims against insolvent persons
property in favor of Y, the property is excluded from Z’s gross estate. c. Indebtedness
• Claims against the estate
The clear intention of X is for the property to be transferred to Y. Z is d. Transfer for public use
merely an intermediary and he does not own the property. e. Mortgage unpaid
f. Taxes
SECTION 87 (C). The transmission from the first heir, legatee or g. Vanishing deductions
donee in favor of another beneficiary, in accordance with the desire
of the predecessor; and B. SPECIAL DEDUCTIONS (SMeRFS)
1. Standard deduction
This is pretty much the same with the general power of appointment. 2. Medical expenses
3. Amount received by heir under RA 4917
SECTION 87 (D). All bequests, devises, legacies or transfers to 4. Family home
social welfare, cultural and charitable institutions, no part of the net 5. Share of the surviving spouse
income of which insures to the benefit of any individual: Provided,
however, That not more than thirty percent (30%) of the said Note: Share of the surviving spouse is not a deduction but it is
bequests, devises, legacies or transfers shall be used by such actually part of exclusion.
institutions for administration purposes.
ORDINARY DEDUCTIONS
INSTITUTIONS INVOLVE
1. Social welfare, (1) EXPENSES
2. Cultural and
3. Charitable institutions CLASSIFICATIONS OF EXPENSES
1. Funeral expenses
CONDITIONS FOR EXCLUSION: 2. Judicial expenses
1. The transfer must only be to the social welfare, cultural and
charitable institutions; (A) FUNERAL EXPENSES
2. No part of the net income of the institution insures to the
benefit of any individual; SECTION 86. For actual funeral expenses or in an amount equal to
3. Not more than 30% of the said bequests, devises, legacies five percent (5%) of the gross estate, whichever is lower, but in no
or transfers shall be used by such institutions for case to exceed Two hundred thousand pesos (P200,000);
administration purposes.
REQUIREMENTS FOR DEDUCTIBILITY
Q: HOW DO WE KNOW THAT THE INSTITUTION IS FOR SOCIAL 1. Actual funeral expense
WELFARE, CULTURAL AND CHARITABLE? Normally, these 2. 5% of the gross estate
institutions have to apply in the BIR. 3. But in no case to exceed P200,000

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Note: The amount deductible is whichever is lower between 5% of
the gross or P200,000.
Before you can deduct the actual funeral expenses, you must first
determine the gross estate first because 5% of which you have to
look into in determining the proper amount of funeral expenses.
ACTUAL FUNERAL EXPENSES are those expenses actually
incurred in connection with the interment or burial of the deceased.
Illustration:
Before the deceased died, he was brought to the hospital particularly
in the ICU. But, later on, he died. Are the medical expenses included
as part of the funeral expenses?
NO. Funeral expenses presuppose that someone is already dead.
Also, even if the person is already dying, there is a specific amount
allowed to be deducted for medical expenses.
PRINCIPLES TO REMEMBER
1. The funeral expenses are not required to be paid. Pweded
naman siya utangin.
2. If the funeral expenses exceeded the threshold limit of
P200,000, the excess cannot be deducted anymore.
Q: WHAT IF THE FUNERAL EXPENSES ARE NOT YET PAID AND
IT EXCEEDED THE THRESHOLD, CAN I CLAIM THE UNPAID
FUNERAL EXPENSES AS PART OF THE INDEBTEDNESS?
NO. The excess of the funeral expenses cannot be deducted as part
of the indebtedness. What is only allowed is up to the threshold limit.
Whatever excess of such ceiling cannot be claimed as deduction
anymore even from other types of deductions.
The term ACTUAL FUNERAL EXPENSES is not confined with its
ordinary meaning (Revenue Regulation).
SPECIFIC FUNERAL EXPENSES WHICH MAY BE ALLOWED AS
DEDUCTIONS
1. The mourning apparel of the surviving spouse and
unmarried minor children of the deceased, bought and
used on the occasion of the burial
2. Expenses for the deceased’s wake, including food and
drinks
3. Publication charges for death notices
4. Telecommunication expenses incurred in informing
relatives of the deceased;
5. Cost of burial plot, tombstones, monument or mausoleum
but not their upkeep. In case the deceased owns a family
estate or several burial lots, only the value corresponding
to the plot where he is buried is deductible;
6. Interment and/or cremation fees and charges; and
7. All other expenses incurred for the performance of the rites
and ceremonies incident to interment (RR 2-2003).
(B) JUDICIAL EXPENSES
SECTION 86. For judicial expenses of the testamentary or intestate
proceedings;
JUDICIAL EXPENSES for purposes of taxation includes the
inventory-taking of assets comprising the gross estate, their
administration, the payment of debts of the estate, as well as the
distribution of estate among the heirs. In short, these deductible
expenses are expenses incurred during the settlement of the estate
but not beyond the last day prescribed by law, or the extension
thereof, for filing of the estate tax return (Revenue Regulations No.
02-2003).
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
ALLOWABLE JUDICIAL DEDUCTIONS
1. Fees of executor or administrator;
2. Attorney's fees;
3. Court fees;
4. Accountant's fees;
5. Appraiser's fees;
6. Clerk hire;
7. Costs of preserving and distributing the estate;
8. Costs of storing or maintaining property of the estate; and
9. Brokerage fees for selling property of the estate.
CIR vs. CA
G.R. No. 123206
FACTS: There was this person who was a World War II veteran. He
survived the war and became old and he became insane. During his
lifetime, his property was placed under the guardianship of the
Philippine National Bank. Eventually, he died. But after his death, the
PNB did not file an estate tax return but instead required the heirs to
execute an extrajudicial settlement of the estate. Her sister became
the administratix of his property. Nagbigay ang BIR ng deficiency
estate tax. Her sister paid the tax but thereafter she filed an action to
claim a refund of the taxes that she has paid. According to her, all the
taxes she has paid or a portion of it should be returned to the estate
of the deceased. There were two items in contention:
1. Notarial fees. The BIR said it should not be deducted
because there are no judicial proceedings to begin
with. Walang kaso so walang judicial expense.
2. Attorney's fees paid. The BIR argued that the
guardianship proceedings began when the deceased
was still alive.
RULING:
(1) This is an allowable deduction. The notarial fees are part of the
judicial expenses because according to the SC, the expense is a
necessary contribution for the settlement of the estate. There is no
need for a case to be filed, it is enough that you spend something for
the distribution or the administration of the estate or the settlement
of the estate.
(2) The SC said here you are allowed to deduct the attorney's fees
even if it was spent or incurred when he was still alive because
anyway, the purpose of that guardianship proceeding is to distribute
the properties later on. Still it is a necessary expense because it
contributed to the settlement of the estate. This ruling of the SC with
regard to the attorney's fees is weird mainly because it was filed
before the deceased actually died.
It must be substantiated with proof, and if the judicial expenses are
still unpaid, the cost of expenses must be supported by a sworn
statement of account issued and signed by the creditor.
05 DECEMBER 2017
(2) LOSSES
CLASSIFICATION
(a) Casualty Losses
(b) Claims against Insolvents
(A) CASUALTY LOSSES
SECTION 86 (a)(1). There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated for by
insurance or otherwise, and if at the time of the filing of the return
such losses have not been claimed as a deduction for the income tax
purposes in an income tax return, and provided that such losses
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Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
were incurred not later than the last day for the payment of the estate
tax as prescribed in Subsection (A) of Section 91.
REQUIREMENTS FOR DEDUCTIBILITY
1. The losses must be incurred during the estate settlement.
2. After death but before the payment of the estate tax.
3. The losses must arise from casualties.
• Fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement.
4. Said loss is not compensated by insurance or otherwise
5. The losses must not have been claimed as deductions
from the gross income for income tax purposes.
• REASON: Because casualty losses can be
claimed as deduction for income tax purposes.
6. Such losses were not incurred later than the last day of
payment for the estate tax.
• 6 months from the date of death
(B) CLAIMS AGAINST INSOLVENTS
SECTION 86 (a)(1)(d). For claims of the deceased against insolvent
persons where the value of decedent's interest therein is included in
the value of the gross estate;
Q: WHY DO WE CONSIDER THIS AS A LOSS?
If we talk about the context of income taxation, claims against
insolvents are actually Bad Debts. The essence of the bad debts is
that you cannot claim from it anymore. That’s why it’s on the part of
the estate. Hence, this is similar to Bad Debts in income taxation.
REQUIREMENTS FOR DEDUCTIBILITY
1. The value of the claim shall be included in the gross
estate.
• Add it first in the gross estate, before you claim it
as deduction
2. It must be shown that the debtors are incapable of paying
their indebtedness
• The principles of income taxation are also
applicable in estate taxation. The estate must be
able to prove the debt can no longer be collected.
(3) INDEBTEDNESS / CLAIMS AGAINST THE ESTATE
SECTION 86 (a)(1)(c). For claims against the estate: Provided, that
at the time the indebtedness was incurred the debt instrument was
duly notarized and, if the loan was contracted within three (3) years
before the death of the decedent, the administrator or executor shall
submit a statement showing the disposition of the proceeds of the
loan;
CLAIMS AGAINST INSOLVENT CLAIMS AGAINST THE
ESTATE
The deceased is the CREDTOR The deceased is the DEBTOR.
Since he died, the estate will
now become liable for the
obligations of the deceased.
This is different from the claims against insolvent. Why? Because
when you talk about claims against insolvent, you are talking of the
estate of the CREDITOR. In this case, the deceased is the debtor.
Since he died, the estate will now become liable for the obligations of
the deceased.
REQUIREMENTS FOR DEDUCTIBILITY
1. It is a personal obligation of the deceased.
• Exception: Unpaid obligations incurred incident
to his death.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
• Example: funeral expenses, judicial expenses,
medical expenses
2. It is contracted in good faith and with adequate and full
consideration.
3. The debt must be valid and enforceable.
4. It must not be condoned by the creditor.
5. It must not have been prescribed.
Problem:
A is indebted to B worth P100,000. Before A could pay the obligation,
he died. After the death of A, B condoned the obligation since A and
B are good friends. B reduced the debt to P50,000. Is the obligation
of A deductible from the estate?
YES. The entire P100,00 is deductible. The debt must have been
condoned BEFORE the death of the decendent. If the condonation is
done AFTER the death of the decendent, it doesn’t matter anymore.
RULE: Post-mortem developments are not considered in the taxable
estate of the deceased.
DIZON vs. CTA and CIR
G.R. No. 140944 | April 30, 2008
ISSUE: Whether the actual claims of the creditors may be FULLY
allowed as deductions from the gross estate of Jose despite the fact
that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors.
RULING: YES
As held in Propstra v. U.S., where a lien claimed against the estate
was certain and enforceable on the date of the decedent's death, the
fact that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for
estate tax purposes. These pronouncements essentially confirm the
general principle that post-death developments are not material in
determining the amount of the deduction.
We express our agreement with the date-of-death valuation rule.xxx
Therefore, the claims existing at the time of death are significant
to, and should be made the basis of, the determination of allowable
deductions.
SUBSTANTIATION REQUIREMENTS
• (file to the BIR in claiming the deduction)
A. SIMPLE LOAN
a. The debt instrument must have been notarized, even if it is
a promissory note.
• Exception: when you talk about financial
institution, these financial institutions do not
require that the promissory notes be notarized.
b. Creditor Certification which must be notarized. The creditor
would certify how much is the unpaid obligation of the
decedent.
c. There must be a proof of financial capacity of the creditor
at the time the loan was demanded. Meron creditor’s
certification, meron pa ring proof of financial capacity on
the part of the creditor.
B. PURCHASE OF GOODS OR SERVICES
a. There must be pertinent documents pertaining to the
purchase. In this regard, I think notarization of document is
no longer required
b. Duly notarized certification of the creditor as to the unpaid
balance
c. The certified true copy of the latest audited balance sheet
of the creditor.
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Take note also of the requirement when the debt was contracted
within 3 years from the date of death. There must be a certification or
statement under oath executed by the administrator or the executor
reflecting the disposition of the loan proceeds.
(4) TAXES
If you think deeper about it, taxes are part of your indebtedness. Only
that indebtedness is in favor of the government.
SECTION 86 (a)(1)(e) For unpaid mortgages upon, or any
indebtedness in respect to, property where the value of decedent's
interest therein, undiminished by such mortgage or indebtedness, is
included in the value of the gross estate, but not including any
income tax upon income received after the death of the decedent, or
property taxes not accrued before his death, or any estate tax.
NOT DEDUCTIBLE TAXES FROM THE GROSS ESTATE
1. Income tax upon income received after the death of the
decedent
2. Property taxes not accrued before his death, or
3. Any estate tax
These are accrued taxes AFTER the death of the decedent. Take
note of the post-mortem developments not considered in determining
the net taxable estate.
DEDUCTIBLE TAXES FROM THE GROSS ESTATE
1. Income taxes upon income received before the decedent’s
death. Hindi nabayaran na income tax.
2. Property taxes accrued before the decedent’s death
(5) MORTGAGED UNPAID
Mortgage unpaid is also a part of indebtedness.
SECTION 86 (a)(1)(e) For unpaid mortgages upon, or any
indebtedness in respect to, property where the value of decedent's
interest therein, undiminished by such mortgage or indebtedness, is
included in the value of the gross estate, but not including any
income tax upon income received after the death of the decedent, or
property taxes not accrued before his death, or any estate tax.
REQUIREMENTS FOR DEDUCTIBILITY
1. The property mortgaged must be included in the gross
estate.
2. That value included in the Gross Estate must be up to the
value of the decedent’s interest in the property.
3. In case the unpaid mortgage payable is being claimed by
the estate, verification must be made as to who was the
beneficiary of the loan proceeds.
4. Deduction is limited to the extent that they were contracted
bona fide and for an adequate and full consideration
(6) TRANSFER FOR PUBLIC USE
SECTION 86 (a)(3) Transfers for Public Use. - The amount of all
the bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines, or any political
subdivision thereof, for exclusively public purposes.
TRANSFERS FOR PUBLIC USE are those bequest, legacies, or
devises. Meaning the deceased must have executed a will and
apportioned the property in favor of the government. The purpose
must be for public purpose.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
REQUIREMENTS FOR DEDUCTIBILITY
1. The disposition must be through a last will and testament.
The government is just a voluntary heir. So kelangan ng
will.
2. The disposition takes effect after the death of the decedent
(mortis causa)
3. It is in favor of the government of the Philippines or any of
its political subdivisions (Atty. D: I think this would include
GOCCs)
4. The property must be exclusively for public use.
5. The value of the property must be included in the gross
estate.
Q: WHAT ABOUT GOCCS? IS IT CONSIDERED A POLITICAL
SUBDIVISION OF THE GOVERNMENT? *no answer given
(7) VANISHING DEDUCTIONS
Also known as “Property Previously Taxed”.
NATURE OF THE DEDUCTION: This is a diminishing deduction
allowed against the gross estate which the decedent previously
acquired gratuitously.
The amount of deduction depends upon the holding period.
Situation:
Let’s say A owns a rest house. A donated the property to B. Within
the 5-year period, B died. The donation was subject to donor’s tax.
Due to the death of B, the estate of B is subjected to another set of
transfer tax which is estate tax. Essentially, you still have transfer tax.
Observation:
Sandali lang nahawakan ni B ang property and he has to pay the tax
again. It’s too budernsome. That’s why the reason for the rule is to
ease the harshness brought by double taxation due to excessive
transfer of property.
REQUIREMENTS FOR DEDUCTIBILITY
1. The property transferred to the decedent must be situated
in the Philippines.
• If this property is found abroad, there is no
vanishing deduction to speak of.
2. The property must have been transferred by a prior decent
through succession or donation.
• The transfer must be through a gratuitous
transfer. If this is a bona fide sale, there is NO
vanishing deduction.
3. The decedent (transferee) must have died within 5 years
from the receipt of the property involved.
• In the situation previously discussed, B must
have died within 5 years for his estate to claim
vanishing deduction.
Q: WHAT IS THE IMPLICATION OF THE 5-YEAR PERIOD?
The 5-year period determines the percentage of deduction to be
applied against the property.
EXAMPLE: If the property was received within one year from the
date of death, you are allowed to deduct 100% of the value of the
property as determined by law. If the decedent died more than 1 year
but before 2 years, it is 80%. If more than 2 years but less than 3
years, that’s 60%. The value of the property diminishes by 20% each
year. More than 5 years, there is no more vanishing deduction to
speak of.
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PERIOD RATE
0-1 year 100%
1-2 years 80%
2-3 years 60%
3-4 years 40%
4-5 years 20%
4. The property must have formed part of the gross estate of
the deceased.
5. The property must also form part of the gross estate or
the gross gift of the prior decedent or the donor and also
the taxes should have been paid.
• Prior donor’s or estate taxes must have been
paid.
6. The property must not have been subjected to a previously
vanishing deduction.
Q: WHAT ABOUT NON-RESIDENT ALIENS?
Non-resident aliens are allowed ordinary deductions. All principles
under ordinary deductions are also applicable to non-resident aliens’
decedent. Only that, these deductions must have been incurred
within the Philippines.
SPECIAL DEDUCTIONS
(1) STANDARD DEDUCTION
SECTION 86 (A)(5). Standard Deduction. - An amount equivalent
to One million pesos (P1,000,000).
Automatic 1 million pesos deduction. What if the gross estate is only
500,000, can we deduct the standard deduction? Then, wala ka nang
estate tax na babayaran.
(2) MEDICAL EXPENSES
SECTION 86 (A)(6) Medical Expenses. - Medical Expenses
incurred by the decedent within one (1) year prior to his death which
shall be duly substantiated with receipts: Provided, That in no case
shall the deductible medical expenses exceed Five Hundred
Thousand Pesos (P500,000).
REQUIREMENTS FOR DEDUCTIBILITY
1. The medical expenses were incurred by the decedent.
2. It must have been incurred within 1 year prior to his death.
3. It must be supported by receipts. (Substantiation rule)
4. The amount must not exceed P500,000.
• Actual or P500,000 whichever is lower.
Q: IS IT NECESSARY FOR THE MEDICAL EXPENSES TO BE
ACTUALLY RELATED TO THE CAUSE OF DEATH OF THE
DECEDENT?
It is not required by law. So even if the decedent died of a heart
attack and the medical expenses were incurred for other illness, it
may be claimed as a special deduction. Actually this is one of the
(tax avoidance?) cases that may be availed of by the estate.
(3) RA 4917 OR RETIREMENT BENEFITS
SECTION 86 (A)(7) Amount Received by Heirs Under Republic
Act No. 4917. - Any amount received by the heirs from the decedent
- employee as a consequence of the death of the decedent-
employee in accordance with Republic Act No. 4917: Provided, That
such amount is included in the gross estate of the decedent.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
REQUIREMENTS FOR DEDUCTIBILITY
1. There must be a retirement plan approved by the BIR.
2. Number of years: 10 years
3. Age requirement: Not less than 50 years old
4. It must have been availed of only once.
5. The amount of the retirement benefit received must be
included as part of the gross estate.
6. This must not have been claimed as a deduction in your
income taxation.
(4) FAMILY HOME
SECTION 86 (A)(4) The Family Home. - An amount equivalent to
the current fair market value of the decedent's family home:
Provided, however, That if the said current fair market value exceeds
One million pesos (P1,000,000), the excess shall be subject to estate
tax.
As a sine qua non condition for the exemption or deduction, said
family home must have been the decedent's family home as certified
by the barangay captain of the locality.
REQUIREMENTS FOR DEDUCTIBILITY
1. The family home must be the actual residential home of
the decedent and his family at the time of his death.
2. The actual residency must be certified by the barangay
captain of the locality where the family home is situated.
3. The total value of the family home must be included in the
gross estate of the decedent.
4. The amount to be deducted is either the fair market value
or 1 million, whichever is lower.
With regards to the requirement of barangay certification, I think if the
family home is situated abroad, you cannot claim it as part of your
family home.
SHARE OF THE SURVIVING SPOUSE
SECTION 86 (C). Share in the Conjugal Property. - The net share
of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property
shall, for the purpose of this Section, be deducted from the net estate
of the decedent.
NET ESTATE
Net estate not exceeding P200,000 is exempt from estate tax.
But what if the net taxable estate, let’s just say, meron syang
320,000? What’s the net taxable estate? It is more than P200,000
but not over P550,000, and then you look at the fixed amount. The
tax shall be 0 + 5% of the excess of P200,000.
SECTION 86. Computation of Net Estate. - For the purpose of the
tax imposed in this Chapter, the value of the net estate shall be
determined:
(E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be credited with
the amounts of any estate tax imposed by the authority of a foreign
country.
(2) Limitations on Credit. - The amount of the credit taken under
this Section shall be subject to each of the following limitations:
a. The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent's
net estate situated within such country taxable under this
Title bears to his entire net estate; and
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b. The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the
Philippines taxable under this Title bears to his entire net
estate.
GR: The estate tax imposed by the Philippines shall be credited with
the amounts of any estate tax imposed by the foreign country.
If estate taxes are paid abroad, the taxpayer may deduct it from his
estate tax liabilities here in the Philippines, subject to limitations.
ADMINISTRATIVE MATTERS
SECTION 89. Notice of Death to be Filed. - In all cases of transfers
subject to tax, or where, though exempt from tax, the gross value of
the estate exceeds Twenty thousand pesos (P20,000),the executor,
administrator or any of the legal heirs, as the case may be, within two
(2) months after the decedent's death, or within a like period after
qualifying as such executor or administrator, shall give a written
notice thereof to the Commissioner.
First thing you should do when somebody in your family dies is to file
a notice of death.
PRINCIPLES TO REMEMBER
1. WHERE TO FILE THE NOTICE OF DEATH: With the
RDO of the residence of the decedent at the time of his
death.
2. WHO FILES IT: The executor, administrator or any of the
legal heirs.
3. WHEN SHOULD IT BE FILED: Within 2 months from the
date of death or from the time the executor was appointed.
4. If the decedent has income-generating properties, short-
term income tax return should also be filed with the BIR
5. The notice of death is mandatory.
• EXC: It is no longer required if the gross estate
of the deceased does not exceed P20,000.
SECTION 90. Estate Tax Returns. - (A) Requirements. - In all
cases of transfers subject to the tax imposed herein, or where,
though exempt from tax, the gross value of the estate exceeds Two
hundred thousand pesos (P200,000), or regardless of the gross
value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of
stock or other similar property for which a clearance from the Bureau
of Internal Revenue is required as a condition precedent for the
transfer of ownership thereof in the name of the transferee, the
executor, or the administrator, or any of the legal heirs, as the case
may be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of
his death, or in case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate in determining
the estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross value
exceeding Two million pesos (P2, 000,000) shall be supported with a
statement duly certified to by a Certified Public Accountant containing
the following:
(a) Itemized assets of the decedent with their corresponding
gross value at the time of his death, or in the case of a
nonresident, not a citizen of the Philippines, of that part of
his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section
86; and
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
(c) The amount of tax due whether paid or still due and
outstanding.
(B) Time for Filing. - For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate tax return required
under the preceding Subsection (A) shall be filed within six (6)
months from the decedent's death.
A certified copy of the schedule of partition and the order of the court
approving the same shall be furnished the Commissioner within thirty
(30) days after the promulgation of such order.
(C) Extension of Time. - The Commissioner shall have authority to
grant, in meritorious cases, a reasonable extension not exceeding
thirty (30) days for filing the return.
(D) Place of Filing. - Except in cases where the Commissioner
otherwise permits, the return required under Subsection (A) shall be
filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or
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.
ESTATE TAX RETURN
• GR: The estate tax return must be filed by the executor or
administrator.
• EXC: When the gross estate of the decedent does not
exceed P200,000.
• EXC to EXC: Even if the gross estate will not exceed
200,000, an estate tax return should still be filed when the
gross estate consists of registered or registrable
properties, such as real property, motor vehicle, shares of
stock or other similar property for which a clearance from
the BIR is required as a condition precedent for the
transfer of ownership thereof in the name of the transferee.
• WHO FILES: The executor, administrator or any of the
legal heirs.
• WHEN FILED: It should be filed within 6 months from the
date of death.
CERTIFICATION BY A CERTIFIED PUBLIC ACCOUNTANT
• WHEN IS IT REQUIRED: It is only required if the gross
estate of the decedent exceeds P2,000,000.
• CONTENTS OF THE CPA CERTIFICATE
1. Itemized assets of the decedent with their
corresponding gross value at the time of his
death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his gross
estate situated in the Philippines;
2. Itemized deductions from gross estate allowed in
Section 86; and
3. The amount of tax due whether paid or still due
and outstanding.
• Who files the estate tax return?
EXTENSION OF TIME TO FILE THE ESTATE TAX RETURN
• There can be an extension of time to file the estate tax
return for a period not exceeding 30 days.
• WHERE APPLICATION FOR EXTENSION BE FILED:
Under the Revenue Regulation, it must be filed with the
RDO (dili nako masabtan si Sir L)
WHERE ESTATE TAX RETURN BE FILED
• FOR RESIDENTS
1. Authorized agent bank;
2. RDO of the domicile of the decedent at the
time of his death
3. Collection Officer
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
4.Duly authorized treasurer of the city or
municipality in which the decedent was
domiciled at the time of his death or
5. In any other place where the CIR permits the
estate tax return to be filed.
• FOR NON-RESIDENT ALIENS
1. With the Office of the Commissioner in Quezon
City.
SEC. 91. Payment of Tax. - (A) Time of Payment. - The estate tax
imposed by Section 84 shall be paid at the time the return is filed by
the executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds that the
payment on the due date of the estate tax or of any part thereof
would impose undue hardship upon the estate or any of the heirs, he
may extend the time for payment of such tax or any part thereof not
to exceed five (5) years, in case the estate is settled through the
courts, or two (2) years in case the estate is settled extrajudicially.
In such case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the period of
the extension, and the running of the Statute of Limitations for
assessment as provided in Section 203 of this Code shall be
suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the
taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the
executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems
necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.
(C) Liability for Payment. - The estate tax imposed by Section 84
shall be paid by the executor or administrator before delivery to any
beneficiary of his distributive share of the estate. Such beneficiary
shall to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of the estate tax as
his distributive share bears to the value of the total net estate.
For the purpose of this Chapter, the term 'executor' or
'administrator' means the executor or administrator of the decedent,
or if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or
constructive possession of any property of the decedent.
PAYMENT OF ESTATE TAX
• GR: The estate tax shall be paid at the time the return is
filed.
EXTENSION OF TIME OF PAYMENT
• The time of payment may be extended but the time will
depend whether the estate is settled judicially or extra-
judicially.
1. EXTRA-JUDICIALLY: the extension of payment
is as much as 2 years.
2. JUDICIALLY: the extension shall be as much as
5 years.
• GROUND FOR EXTENSION: When the Commissioner
finds that the payment on the due date of the estate tax or
of any part thereof would impose undue hardship upon the
estate or any of the heirs.
• WHEN APPLICATION FOR EXTENSION FILED: Within 6
months from the date of death of the decedent.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
MARCOS II vs. CA
ISSUE: Is the court approval of the probate or settlement necessary
for the estate taxes to be collected from the estate?
RULING: Court approval is not necessary because the purposes of
the two proceedings are different. The probate proceeding is just to
determine whether or not the will has all the formalities required by
law. There is also nothing in the NIRC that provides that the probate
or estate must first be approved by the court before the estate taxes
may be enforced and collected.
WHO HAS THE PRIMARY RESPONSIBILITY FOR THE PAYMENT
OF ESTATE TAX? It is the executor or administrator. The
heirs/beneficiaries will be subsidiarily liable as to the payment of
estate tax only up to the extent of their distributive share.
Please take note also of the definition of executor or administrator. It
includes those who are in possession of any property of the
decedent.
07 DECEMBER 2017
CHAPTER II
DONORS TAXATION
SECTION 98. Imposition of Tax. -(A) There shall be levied,
assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed as
provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.
DONOR’S TAX is an excise tax imposed on the privilege of
transferring property by way of a gift inter vivos based on pure act of
liberality without any or less than adequate consideration and without
any legal compulsion to give.
So kung estate tax, may mamatay. Ito naman this is just a transfer
that will take effect within the lifetime of the donor. This is again an
excise tax. What is being taxed by the government is the right or
privilege of transferring property for free.
SCOPE OF DONOR’S TAXATION
• First of all, it only applies to DONATION INTER VIVOS. It
applies only to complete and perfected donation.
• Donation becomes perfected upon the knowledge of the
donor of the acceptance of the donee, Dapat makabalo
ang donor na gidawat niya ang regalo.
• It is completed upon DELIVERY. Kailangan ibigay muna
niya ang gamit.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.
It does not matter how it is given as long as it is given without any
consideration then there would be a donor’s tax implication.
The type of property is also immaterial the law says “whether the
property is real or personal, tangible or intangible”. Basically all types
of properties can be donated as long as it is:
1. Valid;
2. Capable of pecuniary estimation;
3. It is given out of liberality;
4. Within the commerce of men
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
WHEN DOES DONOR’S TAX APPLY? It will only apply when there
is a donation and (you have to remember this) it applies when there
is a completed gift. There must be a perfected and completed gift.
What will happen if the donation is burdened with conditions? What
are the type conditions? SUSPENSIVE and RESOLUTORY
conditions.
ELEMENTS OF A VALID DONATION
1. Capacity of donor to donate
2. Donative intent
a. If the donation will take affect after the death of
the donor, we do not apply the rules on donor’s
taxation but estate taxation.
3. Acceptance by the donee
4. Actual or constructive delivery of gift
5. Formalities must be followed
a. It will entirely depend on the type of property.
b. REAL PROPERTY – it must be in a public
instrument for purposes of VALIDITY.
c. PERSONAL PROPERTY – GR: Verbal donation
is allowed, Provided: It does not exceed P2,000
and there must be a simultaneous delivery of the
property donated.
i. EXC: If it exceeds Php2,000, donation
must be in writing, otherwise it is void.
CLASSIFICATION OF DONORS
1. Citizens
2. Resident alien
3. Non-resident alien
GROSS GIFT
(1) TRANSFERS FOR INADEQUATE CONSIDERATION
ONEROUS DONATIONS it’s partly with a consideration. In other
words, there is a transfer of property for less than adequate and full
consideration.
Situation 1:
A sell to B his condominium. FMV= Php 4M, Price= 100K. What is
the tax implications? Is there a donor’s tax to begin with? Let’s read
Sec. 100
SECTION 100. Transfer for Less Than Adequate and full
Consideration. - Where property, other than real property referred to
in Section 24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which
the fair market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.
It will entirely depend on the classification of the condominium that
was given. We go back to Income Taxation; there are 2 TYPES OF
ASSETS. 1) Ordinary Assets and 2) Capital Assets.
If you look at Sec. 100, “Where property, other than real property
referred to in Section 24(D)”, anong meron sa section 24(D) na yan?
Section 24. Income Tax Rates. (D) Capital Gains from Sale of Real
Property. – (1) In General. - The provisions of Section 39(B)
notwithstanding, a final tax of six percent (6%) based on the gross
selling price or current fair market value as determined in accordance
with Section 6(E) of this Code, whichever is higher, is hereby
imposed upon capital gains presumed to have been realized from the
sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
sales and other forms of conditional sales, by individuals, including
estates and trusts: Provided, That the tax liability, if any, on gains
from sales or other dispositions of real property to the government or
any of its political subdivisions or agencies or to government-owned
or controlled corporations shall be determined either under Section
24 (A) or under this Subsection, at the option of the taxpayer.
(2) Exception. - The provisions of paragraph (1) of this Subsection to
the contrary notwithstanding, capital gains presumed to have been
realized from the sale or disposition of their principal residence by
natural persons, the proceeds of which is fully utilized in acquiring or
constructing a new principal residence within eighteen (18) calendar
months from the date of sale or disposition, shall be exempt from the
capital gains tax imposed under this Subsection: Provided, That the
historical cost or adjusted basis of the real property sold or disposed
shall be carried over to the new principal residence built or acquired:
Provided, further, That the Commissioner shall have been duly
notified by the taxpayer within thirty (30) days from the date of sale or
disposition through a prescribed return of his intention to avail of the
tax exemption herein mentioned: Provided, still further, That the said
tax exemption can only be availed of once every ten (10) years:
Provided, finally, that if there is no full utilization of the proceeds of
sale or disposition, the portion of the gain presumed to have been
realized from the sale or disposition shall be subject to capital gains
tax. For this purpose, the gross selling price or fair market value at
the time of sale, whichever is higher, shall be multiplied by a fraction
which the unutilized amount bears to the gross selling price in order
to determine the taxable portion and the tax prescribed under
paragraph (1) of this Subsection shall be imposed thereon.
It refers to REAL PROPERTIES in the Philippines classified as
CAPITAL ASSETS.
WHAT IS THE EFFECT?
• If the real property situated in the Philippines is classified
as a CAPITAL ASSET and it is transferred to another
person for less than adequate and full consideration, there
is NO DONOR’S TAX implication.
• So what is the tax consequence? It will be subjected to
capital gains tax of 6% based on FMV or selling price,
whichever is higher.
Situation 2:
A is Real Estate Broker (REB) and the condominium is part of his
estate. If you’re a REB and you have real properties for sale, you call
it you’re estate.
What is the donor’s tax implication? You based it from FMV less
the consideration received. That would be you tax base later on.
TAX BASE = FMV – consideration received
Take note that scenario applies only to real properties situated in the
Philippines. For the other properties, you apply the general rule. If
there would be transfers for less than adequate and full
consideration, there would be a donor’s tax implication.
CONDONATIONS
Is that a donation in the context of the law on taxation? It really
depends on the situation whether it will be subjected to donor’s tax. If
there is no consideration at all, then probably there is a donor’s tax
implication. But what if the condonation was for an exchange of a
service? It becomes income already. There is no donor’s tax
implication.
What if ang private entity mag conduct ng-Sportfest, and magkuha
sila ng sponsor, so ano yan? Is it a donation or income? So you
should know the definition of donation in the first place.
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
RENUNCIATION OF INHERITANCE BY AN HEIR
To determine if there is a donor’s tax implication will depend whether
the renunciation is:
(a) SPECIFIC or
(b) GENERAL IN NATURE.
If the renunciation is SPECIFIC is for specific heir, there will be a
donor’s tax implication. But if the renunciation is GENERAL IN
NATURE, there is NO DONOR’S TAX implication because it is as if
that property did not passed through that person who renounced the
inheritance.
I think the Cassasola and De Leon books gave a good explanation
for that matter.
DONATION PROPTER NUPTIAS is also a taxable donation. There
will be donor’s tax implication for that.
NET GIFT
Donor’s Tax Computation:
Gross Gift – Exemptions = Net Gift
Tax base for the Donor’s tax: Net Gift.
GROSS GIFT
RULE UNDER ESTATE TAX
• GR: All properties of the decedent, regardless of type,
wherever situated, form part of the gross estate.
• EXC: If the decedent is a non-resident alien, then only
those properties within the Philippines will form part of the
gross estate.
That principle also applies to DONOR’S TAXATION.
• GR: All donations of properties, wherever situated, are part
of the gross gift.
• EXC: If the donor is a non-resident alien. Consider only
those gifts involving properties situated here in the
Philippines.
SECTION 104. Definitions. - For purposes of this Title, the terms
"gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated: Provided,
however, That where the decedent or donor was a nonresident
alien at the time of his death or donation, as the case may be, his
real and personal property so transferred but which are situated
outside the Philippines shall not be included as part of his
"gross estate" or "gross gift" xxx
FACTORS TO CONSIDER
1. Residence
2. Nationality
3. Location of the property
HOW DO YOU VALUE THE GROSS GIFT? Fair market value at the
time of donation.
SECTION 102. Valuation of Gifts Made in Property. - If the gift is
made in property, the fair market value thereof at the time of the gift
shall be considered the amount of the gift.
In case of real property, the provisions of Section 88(B) shall apply to
the valuation thereof.
1. FOR PERSONAL PROPERTY: Fair market value at the time of
gift shall be the value of the gross gift.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
2. FOR REAL PROPERTY:
a. Fair market value as determined by the CIR (zonal
value) at the time of donation; or
b. The value fixed by the assessor (assessed value),
whichever is higher.
EXEMPTIONS
CLASSIFICATIONS OF DONOR
1. Residents and Citizens
2. Non-resident aliens
RESIDENTS AND CITIZENS
EXEMPTIONS UNDER SECTION 101 (A) OF THE NIRC
1. Dowries
2. Donations to the National Government or any of its political
agencies
3. Donations to Educational and/or Charitable, Religious,
Cultural, Social welfare corporations, Accredited NGOs,
Trust or Philanthropic organizations, Research institutions
or organizations.
(1) DOWRIES
SECTION 101. Exemption of Certain Gifts. The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
(1) Dowries or gifts made on account of marriage and before
its celebration or within one year thereafter by parents to
each of their legitimate, recognized natural, or adopted
children to the extent of the first P10,000.
REQUIREMENTS FOR EXEMPTION
1. The gift must be given on account of marriage either
before the celebration or one year thereafter;
2. The gift must be given by the parent;
3. The gift must be given to the legitimate, recognized
natural, or adopted child; and
4. The maximum of exemption is P10, 000 only.
TEST: A and B are married. They have a son named X. X is married
to Y. A and B decided to give X and Y, an amount of P100, 000. How
much is the total exemption of spouses A and B?
WHAT IS THE PRESUMPTION IF BOTH SPOUSES GIVE A
DONATION? It is presumed to be conjugal in nature. Diba hati sila.
So, it is as if there are two donations. There are two donors (A and
B). There are also two donees (X and Y).
HOW MUCH IS THE EXEMPTION? P10,000 kay A and P10,000 kay
B, all because they have donated to X, their son. There’s no
exemption as to Y because she’s not a child of A and B.
In fact, there are four (4) donations given in the problem:
1. A donating to X
2. B donating to X
3. A donating to Y
4. B donating to Y
For each donation, there will be a separate computation; there will be
a separate donor’s tax return to be filed.
So, since there are 4 donations involved, 4 times magbayad ng
donor’s tax. Kanya-kanya magbayad si A and B. It is PER PERSON.
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
(2) DONATIONS TO THE NATIONAL GOVERNMENT OR ANY OF
ITS POLITICAL AGENCIES
SECTION 101. Exemption of Certain Gifts. The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
(2) Gifts made to or for the use of 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;
For so long that the gift is made to or for the use of the National
Government or any entity created by any of its agencies or to any
political subdivision of the said Government, which is not conducted
for profit, such donation is exempt from donor’s tax.
(3) DONATIONS TO ACCREDITED INSTITUTIONS
SECTION 101. Exemption of Certain Gifts. The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
(3) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthropic
organization or research institution or organization:
Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of this
exemption, a 'non-profit educational and/or charitable
corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or
research institution or organization' is a school, college or
university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic
organization and/or research institution or organization,
incorporated as a non-stock entity, paying no dividends,
governed by trustees who receive no compensation, and
devoting all its income, whether students' fees or gifts,
donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
INSTITUTIONS COVERED
1. Educational
2. Charitable
3. Religious
4. Cultural or Social welfare corporations
5. Accredited NGOs
6. Trust or Philanthropic organizations
7. Research institutions or organizations
REQUIREMENTS FOR EXEMPTION
1. Not more than thirty percent (30%) of said gifts shall be
used by such donee for administration purposes;
2. The institution is among the listed entities; it is a non-stock
non-profit entity governed by trustees who receive no
compensation and devoting all its income to the
accomplishment and promotion of its primary purposes;
3. The donation must be used actually, directly, and
exclusively for its purpose;
4. The donee is a qualified entity.
TAKE NOTE:
• Definition of “charitable institutions”. It is in the Lung Center
vs. Quezon City and CIR vs. St. Lukes cases.
• Test of Charity.
OTHER EXEMPTIONS OF GIFTS FROM DONOR’S TAX
1. Donations made by non-resident aliens when the property
is situated outside the Philippines. It is excluded from gross
gift.
AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA
2. Contributions in cash or in kind made to any candidate or
political party or coalition of parties for campaign purposes.
SECTION 13 of R.A.7166. Any provision of law to the contrary
notwithstanding any contribution in cash or in kind to any candidate
or political party or coalition of parties for campaign purposes, duly
reported to the Commission shall not be subject to the payment
of any gift tax.
You have to report the donation to the COMELEC.
3. Donation for athlete’s prizes and awards (R.A. 7549, Sec.
1)
REQUIREMENTS
1. The donation must be for athlete’s prizes and awards;
2. Given to athletes in local and international sports
tournaments and competitions;
3. Held in the Philippines or abroad;
4. Sanctioned by their respective national sports
associations.
4. Assistance made under the “Adopt-a-School Program”
(R.A. 8525)
NON-RESIDENT ALIENS
SECTION 101. Exemption of Certain Gifts. - The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the
Philippines. - (1) Gifts made to or for the use of 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) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, foundation, trust or
philanthropic organization or research institution or organization:
Provided, however, that not more than thirty percent (30%) of said
gifts shall be used by such donee for administration purposes.
In short, walang dowry. Yung lang ang pinagkaiba.
TAX CREDITS
SECTION 101 (C) Tax Credit for Donor's Taxes Paid to a Foreign
Country. – (1) In General. - The tax imposed by this Title upon a
donor who was a citizen or a resident at the time of donation shall be
credited with the amount of any donor's tax of any character and
description imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under
this Section shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the net gifts
situated within such country taxable under this Title
bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken,
which the donor's net gifts situated outside the
Philippines taxable under this title bears to his entire net
gifts.
This applies to residents and citizens only (not to non-resident
alien). This is because these donors are taxed on gifts within and
without the Philippines. Donor’s taxes paid to foreign countries for
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
donations made thereat may be claimed as a tax credit. It is a peso-
for-peso deduction from the donor’s tax liabilities of the taxpayer.
REQUIREMENTS TO AVAIL OF THE TAX CREDIT FOR DONOR’S
TAXES PAID TO A FOREIGN COUNTRY:
1. The donor is a Filipino Citizen or resident alien at the time
of the donation;
2. The donor’s taxes are imposed by and paid to the authority
of a foreign country; and
3. The amount of tax credit is subject to limitations as
provided.
Take note that affinity is not included. So if the donation is given to
an in-law then it is as if the donation is given to a stranger and you
apply the 30% tax rate. Ganun lang siya kadali.
The problem is when you donate someone who is not a stranger:
• Within the meaning of the donor’s tax law, the first
P100,000 is tax-exempt.
• In estate tax, the first P200,000 is tax-exempt.
Normally, when we talk about estate tax planning, they would do
some sort of a gift splitting.

TAX RATES WHAT DO YOU MEAN BY GIFT SPLITTING? This is the process
of splitting the gifts over numerous calendar years to avail of the
Effective January 1, 1998 to present (Republic Act No. 8424) lower donor’s tax rates.

SECTION 99. Rates of Tax Payable by Donor. - (A) In General. - So spread out. Donate ka ng donate to avail of the donor’s tax
The tax for each calendar year shall be computed on the basis of the exemption. Is it tax evasion? NO. Because you are availing of a
total net gifts made during the calendar year in accordance with the legal means of avoiding tax. Paano ba yan ginagawa?
following schedule: If the net gift is:
DONOR’S TAX IS AN ANNUAL TAX. In each and every donation,
THE TAX OF THE you are required to submit a donor’s tax return and it is on a
BUT NOT cumulative basis for a single year.
OVER SHALL PLUS EXCESS
OVER
BE OVER
P 100,000 Exempt Example: In 2017, I will donate P100, 000, it is exempt from donor’s
P 100,000 200,000 0 2% P100,000 tax. So if mag-donate ako ng December 31 at January 1 of the next
P200,000 500,000 2,000 4% 200,000 year ng P100,000, kahit 1 day lang ang pagitan, I can avail of the tax
exemption. So what people do is every year donate sila ng donate ng
P500,000 1,000,000 14,000 6% 500,000
tig-P100,000 so exempt siya sa tax. Then the remaining property pag
P1,000,000 3,000,000 44,000 8% 1,000,000
mamatay siya will be subjected to a lower estate tax. That is a tool
P3,000,000 5,000,000 204,000 10% 3,000,000 for estate planning.
P5,000,000 10,000,000 404,000 12% 5,000,000
P10,000,000 1,004,000 15% 10,000,000 ADMINISTRATIVE MATTERS

(B) Tax Payable by Donor if Donee is a Stranger. - When the

donee or beneficiary is stranger, the tax payable by the donor shall
be thirty percent (30%) of the net gifts.
For the purpose of this tax, a "stranger", is a person who is not a: (1)
Brother, sister (whether by whole or half-blood), spouse, ancestor
and lineal descendant; or (2) Relative by consanguinity in the
collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party
or coalition of parties for campaign purposes shall be governed by
the Election Code, as amended.
For the donor’s tax rate, you have to identify the person receiving the
gift.
TYPES OF DONEES UNDER NIRC
1. Strangers
2. Those that are not strangers (Relatives)
WHY IS IT IMPORTANT TO CLASSIFY ACCORDING TO THE
TYPE OF DONEES? Because it will have an effect on the tax rates.
1. If the donation is given to a stranger, the donor’s tax
rate is pegged at 30%. Always yan.
2. If the donee is not a stranger, then you apply the donor’s
tax table. If the donation is to someone who is not a
stranger normally, the donor’s tax is smaller.
A "STRANGER", is a person who is NOT a:
1. Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
2. Relative by consanguinity in the collateral line within the
fourth degree of relationship.
SEC. 103. Filing of Return and Payment of Tax. -(A)
Requirements.- any individual who makes any transfer by gift (except
those which, under Section 101, are exempt from the tax provided for
in this Chapter) shall, for the purpose of the said tax, make a return
under oath in duplicate.
The return shall set forth:
(1) Each gift made during the calendar year which is to be
included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar
year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and
regulations made pursuant to law.
(B) Time and Place of Filing and Payment. - The return of the donor
required in this Section shall be filed within thirty (30) days after the
date the gift is made and the tax due thereon shall be paid at the time
of filing.
Except in cases where the Commissioner otherwise permits, the
return shall be filed and the tax paid to an authorized agent bank, the
Revenue District Officer, Revenue Collection Officer or duly
authorized Treasurer of the city or municipality where the donor was
domiciled at the time of the transfer, or if there be no legal residence
in the Philippines, with the Office of the Commissioner.
In the case of gifts made by a nonresident, the return may be filed
with the Philippine Embassy or Consulate in the country where he is
domiciled at the time of the transfer, or directly with the Office of the
Commissioner.

AMPARO_DULAY_ESTILLORE_GUMBOC_IBAY_MORTEJO_NARCA 17
 FIRST EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017 2018
DONOR’S TAX RETURN administrator without said certification if the credit is included in the
• WHEN FILED: Within 30 days after the date the gift is inventory of the estate of the deceased.
made. Normally this is from the date of notarization.
• WHEN PAYED: The pay-as-you-file system is also
applicable. The donor’s tax is paid every time the donor’s ★★ end ★★
tax return is filed with the BIR.

In each and every donation, there has to be a donor’s tax return to be

filed. Donor’s tax is an annual tax, so as time goes by sige kag
donate, sige kag submit ng donor’s tax return mo. And then the
entries in your donor’s tax return s cumulative in nature.

SAMPLE FORMAT:

Current Donation P xxx

Add: Previous Donations + xxx
Total Donations xxx

Donor’s Tax (Use tax table) xxx

Less: Donor’s tax previously paid - xxx
Donor’s tax due and payable P xxx

WHERE IS THE DONOR’S TAX RETURN MAY BE FILED

• The return shall be filed and the tax paid to an:
1. Authorized agent bank,
2. The Revenue District Officer,
3. Revenue Collection Officer; or
4. Duly authorized Treasurer of the city or
municipality where the donor was domiciled at
the time of the transfer.

WHAT ABOUT NON-RESIDENTS?

• File with the Office of the Commissioner (Quezon City) or
the Philippine Embassy or Consulate of the place where
the alien resides at the time of the donation.

PROHIBITION OF TRANSFER UNTIL THE DONOR’S TAX HAS

BEEN PAID: The Registers of Deeds shall not register in the
Registry of Property any document transferring real property or real
rights therein or any chattel mortgage, by way of gifts inter vivos or
mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the tax fixed in this Title and actually due thereon
had been paid.

SECTION 95. Duties of Certain Officers and Debtors. - Registers

of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any
chattel mortgage, by way of gifts inter vivos or mortis causa, legacy
or inheritance, unless a certification from the Commissioner that the
tax fixed in this Title and actually due thereon had been paid is show,
and they shall immediately notify the Commissioner, Regional
Director, Revenue District Officer, or Revenue Collection Officer or
Treasurer of the city or municipality where their offices are located, of
the nonpayment of the tax discovered by them.

Any lawyer, notary public, or any government officer who, by reason

of his official duties, intervenes in the preparation or acknowledgment
of documents regarding partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have the duty of furnishing
the Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his
principal office, with copies of such documents and any information
whatsoever which may facilitate the collection of the aforementioned
tax.

Neither shall a debtor of the deceased pay his debts to the heirs,
legatee, executor or administrator of his creditor, unless the
certification of the Commissioner that the tax fixed in this Chapter
had been paid is shown; but he may pay the executor or judicial

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