Rules on Gross Gift

Gross Gift
Gross Gift is the value of the property or right donated before any deduction.
- Actual Gifts
- Transactions deemed gifts

Composition of the Gross Gift

The classes of Donor are Citizen or Resident Alien donor (who are taxable for donations within
and outside Philippines) and NOnresident Alien donor who are taxable only for the donations
within the Philippines

Citizens or Residents All properties, real or personal, tangible or intangible,

whereversituated
Non-residents Aliens Only properties situated in the Philippines provided that, with
respect to intangible personal property, its inclusion in the
gross estate is subject to the rule of reciprocity.

Nature of Forms of Property

Real Property include buildings, ponds, canals, roads, and machinery, among other
things.
Personal Property is a class of property that can include any asset other than real estate. The
distinguishing factor between personal property and real estate, or real
property, is that personal property is movable; that is, it isn't fixed
permanently to one particular location.
Tangible property In comparison to inatngible personal property, tangible property can be
touched. Consider property such as furniture, machinery, cell phones,
and computers which can be felt compared to intangibles such as patents,
copyrights, and non-compete agreements that cannot be seen or touched.
Intangible property Is property that does not derive its value from physical attributes. Patents,
software, trademarks and license are examples of inatngible property.

Composition of the Gross Gift

Real and Tangible Intangible Personal

Personal Property Property
Within Without Within Without
Resident Citizen Donor ✓ ✓ ✓ ✓
Resident Alien Donor ✓ ✓ ✓ ✓
Non-resident citizen donor ✓ ✓ ✓ ✓
NRAD w/o reciprocity ✓ ☓ ✓ ☓
NRAD w/ reciprocity ✓ ☓ ☓ ☓
Domestic Corporation ✓ ✓ ✓ ✓
Foreign Corporation ✓ ☓ ✓ ☓

The gross gifts of a citizend or resident alien donor shall consist of

1. Real properties located within and outside the Philippines;
2. Tangible personal properties located within and outside the Philippines; and
3. Intangible personal properties located within and outside the Philippines.
The gross gift of a nonresident alien donor shall consist of
1. Real properties located in the Philippines;
2. Tangible personal properties located in the Philippines; and
3. Intangible personal properties located in the Philippines.

Rule of Reciprocity
Intangible Personal Property of a nonresident alien donor shall be exempt from Donor's Tax if
either of one or two conditions are present:
- The country where the said donor is a citizen and resident does not impose a
transfer tax on intangible personal property of Filipinos not residing in that country.
- The country where the said donor is a citizen and resident allows a similar
exmption from transfer tax on intangible personal property of Filipinos residing in
that country.
Eexempt ko si country A kasi inexempt niya ang aking citizens. Philippines will exempt
country A kasi inexempt rin niya yung citizens ng Philippines, with resepct to Donor's Taxation.

Foreign Country has a donor's taxation, example: a filipino citizen has a property in that
country, and the citizen will donate that property, the foreign country will exempt that
property. Same goes ifthey have a property here in the Philippines, dahil inexempt nila tayo,
sila rin eexempt natin.

Intangible Personal Property within Philippines

- Franchise which must be exercised in the Philippines;
- Shares, obligations or bonds issued by any corporation or sociedad anomina organized or
constituted in the Philippines in accorance with its laws;
- Shares, obligations or bonds by any foreign corporation eight-five percent (85%) of the
business of which is located in the Philippines;
- Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines;
- Shares or rights in any partnership, business or industry established in the Philippines, shall
be considered as situated in the Philippines

Sample Problem
Mr. D donated the following properties to his son who is residing in the Philippines:

House and lot in the Philippines 4,000,000

Three-door apartment in Australia 5,000,000
Shares of stock of a foreign corporation where 90% of the business
operation is in the Philippines 1,500,000
Franchise exercisable in Australia 500,000

How much is the gross gift if the donor is Resident Citizen?

House and lot in the Philippines 4,000,000
Three-door apartment in Australia 5,000,000
Shares of stock of a foreign corporation where 90% of the business
operation is in the Philippines 1,500,000
Franchise exercisable in Australia 500,000
Total Gross Gift 11,000,000

Note: Situs = Location

How much is the gross gift if the donor is a non-resident citizen?
House and lot in the Philippines 4,000,000
Three-door apartment in Australia 5,000,000
Shares of stock of a foreign corporation where 90% of the business
operation is in the Philippines 1,500,000
Franchise exercisable in Australia 500,000
Total Gross Gift 11,000,000

How much is the gross gift if the donor is a Resident Alien ?

House and lot in the Philippines 4,000,000
Three-door apartment in Australia 5,000,000
Shares of stock of a foreign corporation where 90% of the business
operation is in the Philippines 1,500,000
Franchise exercisable in Australia 500,000
Total Gross Gift 11,000,000

How much is the gross gift is the donor is a non-resident alien with reciprocity ?
Note: let's favor it in the Philippines, assume that there is no reciprocity para mas malaki tax.
Intangible personal property located in the Philippines is not included if with reciprocity

House and lot in the Philippines 4,000,000

Total Gross Gift 4,000,000

How much is the gross gift if the donor is a Non-resident alien without reciporcity?
House and lot in the Philippines 4,000,000
Shares of stock of a foreign corporation where 90% of the business
operations in the Philippines 1,500,000
Total Gross Gift 5,500,000

Transaction Deemed Gifts

- Transfer with insufficient consideration (section 100 of National Internal Revenue group)
- Condonation or remission of the debt, not due to rendition of service
- Renunciation of inheritance in favor of identified heir(s) to the exclusion of other co-heirs.

Transfer with Insufficient Consideration

Where property other than real property classified as capital asset is transferred for adequate
and full consideration in money or money's worth, then the amount by which the fair market
value exceeded the value consideration shall be deemed a gift and shall be included in the
amount of gifts made during the calendar year.
- Considered as sale, barter, etc. not a donation
- The consideration or amount to be paid is less than the fair market value (gift)
- Gain = Income Tax, Excess or consideration = Donor's Tax
- Applicable for transfer of property other than real property classified as capital asset,
because real property classified as capital asset is subject to capital gain tax of 6%, 6% of fair
market value- appraised, zonal value, and consideration whichever is higher.

Deemed Gift = Fair Market Value - Consideration

Exceptions
- Property transfer subject to estate tax
- Real property transfer subject to capital gains tax (real property held as capital asset)
- Property transfer in the ordinary course of business (a transaction which is a bona fide, at
arm'slength, and free from any donative intent)

Net capital gain if any, subject to capital gains tax

excess of fair market value over consideration, donor's tax

Sample Problem - Sale of Personal Property

ABC Corporation sold a personal property to XYZ Corporation for P1,000,000 while the fair
market value of the said property at the time of the transfer was P10,000,000. How much is the
gross gift?
Gross Gift = 10,000,000 - 1,000,000
= 9,000,000
How much is the donor's tax due thereon?
Donor's Tax = (9,000,000 - 250,000) x 6%
= 525,000

ABC Corporation sold a real property classified as ordinary asset to XYZ Corporation for
P1,000,000 while the fair market value of the said property at the time of the transfer was
P10,000,000. How much is the gross gift?
Gross Gift = 10,000,000 - 1,000,000
= 9,000,000
How much is the donor's tax due thereon?
Donor's Tax = (9,000,000 - 250,000) x 6%
= 525,000

Sample Problem - Sale of Personal Property, Capital Asset

ABC Corporation sold a real property classified as capital asset to XYZ Corporation for
P1,000,000 while the fair market value of the said property at the time of the transfer was
P10,000,000. How much is the gross gift and the donor's tax due thereon?
P0, the transaction is subject to 6% capital gains tax
*but if its a donation, donor's tax.

Sample Problem - Sale of Unlisted Shares for less than FMV

ABC Corporation sold a unlisted shares of stocks to XYZ Corporation fro P5,000,000 while the
fair market value of the said shares at the same time of the transfer was P10,000,000. The
shares were purchased at P1,000,000. How much is the gross gift?
Gross Gift = 10,000,000 - 5,000,000
= 5,000,000

Sample Problem - Lack of Donative Intent

ABC Corporation is already in a bad financial condition and is already trying to liquidate its
asstes. Unfortunately, no buyer wants to acquire its property at fair market value, In one
occasion, it agreed to sell to YZ Corporation, which agreed to buy, one of the latter's personal
property of P8,000,000 while the fair market value of the said property at the time of the
transfer was P10,000,000. How much is the gross gift and the donor's tax due thereon?
Binenta ng palugi = no donative intent
P0, the transaction is not subject to donor's tax because of the absence of donative intent.
Sample Problem - In contemplation of death
Mr. A sold his car to Ms. B for P100,000 only in contemplation of the latter's death. The fair
market value of the car is P1,000,000 at the time of the sale. How much is the gross gift and the
donor's tax due thereon?
P0, the transaction is subject to estate tax.

Sample Problem - Fictitious Consideration

Mr. A sold a parcel of land to his daughter, who is a 15-year old, unemancipated, and
unemployed. They immediately executed a deed of sale which provides that for and in
consideration of P15 million, receipt of which was duly acknowledge, Mr. A transfers, sells,
assigns, and conveys all his interest in the property to his daughter. How much is the gross gift?
P15,000,000, the sale is relatively simulated as the consideration is considered fictitious.
The sale is not valid because it is in form of donation, binenta sa daughter pero wala namang
15million na binayad yung daughter.

Summary Rule on Transfer with Insufficient Consideration

- Transfer in the ordinary course of business shall not be included as part of the gross gift;
- In transfer for insufficient consideration, the excess of the fair market value over the
payment shall be included as part of the gross gift;
- In transfer without consideration, the fair market value of the property donated shall be
included as part of the gross gift;
- Sale of real properties classified as capital assets is subject to capital gains tax; and
- Tax-free exchange under Section 40(C) is not subject to donor's tax.

Condonation of Indebtedness
Condonation of debt is an act of liberality, by virtue of which the creditor, without receiving
an equivalent, renounces the enforcement of the obligation which is extinguished in its
entirely or inthat part of aspect of the same to which the remission refers.

Simpy put, the borrower is released from an obligation by the generous act of the creditor.

Income Condonation of indebtedness in consideration of service performed to

the creditor or for
Gift Condonation of indebtedness without any consideration or by mere
liberality of the creditor
Dividends If a corporation to which a stockholder is indebted forgives the debt

Sample Problem
Mr. G borrowed P5,000,000 from Mr. F payable in two years. When the loan become due, Mr. G
was unable to pay because of business reverses brought by the pandemic. Mr. F decided to
condone the loan. How much is the gross gift?
P5,000,000, in view of the absence of the consideration for the cancellation, the entire debt is
considered as gift.
If may service, income as part of the debtor.

Sample Problem - In Exchange of Service

Mr. G borrowed P5,000,000 from Mr. F payable in two years. When the loan become due, Mr. G
was unable to pay because of business reverses brought by the pandemic. After Mr. G renders
consultancy service, Mr. F decided to condone the loan. How much is the gross gift?
P0, the cancellation of debt in exchange of service is not subject to donor's tax
Tax Implications
Donation Applicable Tax
A creditor, without any consideration from the debtor, Yes Donor's Tax
cancels the debt of the debtor. (creditor)
A creditor cancels the debt of a debtor in exchange for No Income Tax
services by the latter. (debtor)

Effect of Renunciation
Subject to Donor's Renunciation by the surviving spouse of his/her share in the capital
Tax partnership or absolute community after the dissolution of the marriage
in favor of the heirs of the deceased spouse or any other person/s is
subject to donor's tax.
Not Subject to General renunciation by an heir, including surviving spouse, of his/her
Donor's Tax share in the herediatry estate left by the decendent is not subject to
donor's tax.
Subject to Donor's Specific renunciation by an heir of his/her share in the hereditary estate
Tax left by the decedent, categorically done in favor of identified heir/s to
the exclusion or advantage of the other co-heirs in the hereditary estate.

General Renunciation - Ayaw tanggapin

Specific Renunciation - Ayaw tanggapin pero nag turo

Type of Renunciation General Specific

More than 2 heirs Exempt Taxable
Only 2 heirs Exempt Exempt
By the surviving spouse of his share in the Taxable Taxable
common properties

Tax on Giving up Your Inheritance

Juan Dela Cruz left behind three legal heirs Maria, Jesus, and Jose inheritance as follows: (1)
cash, (2) shares of stock in their sugar manufacturing corporation, (3) residential (ancestral)
house and lot and (4) the family car. If Maria renounces her inheritance in full without
specifying to whom her share of inheritance goes, is the renunciation subject to donor's tax?
No, general renunciation of inheritance is exempt from the imposition of donor's tax.

Juan Dela Cruz left behind three legal heirs Maria, Jesus, and Jose inheritance as follows: (1)
cash, (2) shares of stock in their sugar manufacturing corporation, (3) residential (ancestral)
house and lot and (4) the family car. If Maria renounces her inheritance in full in favor of Jesus,
is the renunciation subject to donor's tax?
Yes, specific renunciation of inheritance shall be subject to six percent (6%) donor's tax in
excess of the 250,000 annual gift threshold

Partial Renunciation of Inheritance

This happens when an heir waives his/her share in an identified property but not to the entire
set of properties of the decedent. Such scenario will result to an unequal share of heirs in the
decedent's property.

Hence, donor's tax shoul be computed based on the value of the share the heir has foregone
in favor of other heirs. (RMC No. 94-2021)
Example:
Decedent left the following properties:
Residential property 3,000,000
Commercial Property 2,400,000
Agricultural Property 2,100,000
Heir A waived his share from the commercial and agricultural property.
Heir B waived his share from the residential and agricultural property.
Heir C waived his share from the residential and commercial property.
How much is the donor's tax?
Heir A Heir B Heir C Total
Total Value of supposed shares 2,500,000 2,500,000 2,500,000 7,500,000
Value of property received 3,000,000 2,400,000 2,100,000 7,500,000
Subject to Donor's Tax (Gross Gift) (500,000) 100,000 400,000
Exempt - (250,000) (250,000)
Amount Subject to 6% - - 150,000
Multiply by: Donor's Tax Rate - - 6%
Donor's Tax - - 9,000 9,000

Effect of Renunciation
Subject to Donor's Renunciation by the surviving spouse of his/her share in the conjugal
Tax partnership or absolute community after the dissolution of the marriage
in favor of the heirs of the deceased spouse or any other person/s is
subject to donor's tax.
Not subject to General renunciation by an heir, including surviving spouse, of his/her
donor's tax share in the hereditary estate left vy the decedent is not subject to
donor's tax.
Subject to Donor's Specific renunciation by an heir of his/her share in the hereditary estate
Tax left by the decedent, categorically done in favor of identified heir/s to
the exclusion or advantage of the other co-heris in the herediatry estate.
Subject to Donor's Partial renunciation or waiver of share in an dentified property but not to
Tax the entire set of properties of the decedent.

Exclusion from Gross Gift

The following property transfers or transactions shall be treated as non taxable transfer and
shall not be part of the computation of gross profit:
- Donations of property situated without the Philippines in case of non resident
alien donor.
- Donation of intangible personal property in the Philippines if provided for under
- Donation or property transfer during the lifetime subject to estate tax; namely:
- Property donation Mortis-causa
- Property transfer in contemplation of death
- Property transfer subject to revocation
- Property transfer passing under a general power of appointment, if death related;
- Property transfer for inadequate considerations, if death related.
- Sale or exchange of real property held as capital asset subject to capital gain tax under Sec 24.
- Transfer of property by way of bona fide, arm's length transactions and thos made in the
ordinary course of business
- Gratuitous rendition of service by a person to another.
- Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by election code
Valuation of Gifts
The properties comprising the gift/donation shall be valued based on their fair market value
as of the time of donation. (time of completion)

January 1, 2022 Mr. B, an OFW, sent a diamond ring to Ms. G, a resident of QC, through
a forwarder, J&T.
February 14, 2022 Ms. G received the ring. Unfortunately, Ms. G forgot to inform Mr. B that
she already received the gift.
December 25, 2022 Ms. G informed Mr. B of the receipt of the ring

January 1 Mr. B, an OFW, sent a diamond ring to Ms. G, a resident of QC, through 5,000,000
2022 a forwarder, J&T.
February Ms. G received the ring. Unfortunately, Ms. G forgot to inform Mr. B that 5,300,000
14, 2022 she already received the gift.
Dec 25, Ms. G informed Mr. B of the receipt of the ring 5,100,000
2022
How much is the value of the gross gift?
Dec 25, Ms. G informed Mr. B of the receipt of the ring 5,100,000
2022

Property Valuation at the time of gift

Cash Value or face amount
Personal Property Fair market value at time of gift
Real Property Higher between fair market value fixed by the Provincial City Assessor
or the fair market value as determined by the BIR Commissioner.
Shares of Stocks

Listed Fair market value shall be the arithmetic mean between the highest and
lowest quotation at a date nearest the date of donation, if none is
available on the date of gift itself.

Unlisted - Book value if common stocks

- Par value if preferred Stocks
Units of Bid price nearest the date of gift published in any newspaper or
participation publication of general circulation.

Gift Purchased on Installment

- installment price is not equivalent to cash price and fair market value
- cash price is equivalent to fair maket value

Mr. D bought a Chevy Car for his son. The car was purchased at an installment price of
P1,050,000 payable in four equal installment of P262,500. The cash price at the date of
purchases was P900,000. How much is the gross gift?
P900,000, the cash price represents the fair market value

Second Hand Value

Mr. D donated a Chevy Car 2012 model to his son. The car was purchased five years ago at
P2,000,000. At the date of donation, the car has a resale value of P1,000,000. How much is the
gross gift?
P1,000,000, the fair market value at the time of the donation.
Valuation of Real Property
If the property is a real property, the fair market value thereof as of the time of donation shall
be, whichever is the higher of:
- The fair market value as determined by the Commissioner (zonal value), or
- The fair market value as shown in the schedule of values fixed by the provincial and city
assessors. (appraised value)

Mr. M donated a parcel of land to his son as follows:

Zonal Value as determined by city assessors 3,000,000
Fair market value as determined by the commissioner of internal revenue 2,500,000
Fair market value as determined by independent real property appraisers. 3,300,000
How much is the gross gift?
Zonal Value as determined by city assessors (higher) 3,000,000
Fair market value as determined by the commissioner of internal revenue 2,500,000

Valuation of Stocks
In the case of shares of stocks, the fair market value shall depend on whether the shares are
listed or unlisted in the stock exchanges.

Unlisted Listed
Unlisted common shares are valued For shares which are lsited in the stock exchanges,
based on their book value while unlisted the fair market value shall be the arithmetic mean
preferred shares are vaued at par value. between the highest and lowest quotation at a date
of donation, if none is available on the date of
donation.

Valuation of Unlisted Shares

Mr. D donated his 100,000 shares of DRL corporation. At the time of the donation, DRL has
outstanding shares of 1,000,000 with P10 par value and reatined earnings amounting to
P5,000,000. How much is the gross gift?

Gross Gift = (Capital Stock + Retained Earnings/No. of shares) x Donated Shares

= (10,000,000 + 5,000,000)/1,000,000 x 100,000
= P15/share x 100,000
= 1,500,000

Mr. D donated his 100,000 shares of DRL Corporation. Assuming DRL Corporation has net assets
of P15,000,000 including the following and has issued 1,000,000 ordinary shares. How much is
the gross gift?
Book Value Fair Market Value
Land 2,000,000 2,500,000
Building 1,500,000 2,000,000
Investment in Equity 1,000,000 1,500,000
- kahit anong mangyare, stick to book value

Gross Gift = (Book value of net assets/No. of shares) x donated shares

= 15,000,000/1,000,000 x 100,000
= 15/share x 100,000
= 1,500,000
Valuation of Traded Shares (listed)
Donor donated his 10,000 shares of DRL Corporation. The shares were traded in the Philippines
Stock Exchange with a Fair Market Value of P400 per share and book value of P450. How much
is the gross gift?
Gross Gift = 10,000 shares x 400/sh
= 4,000,000

On Saturday, the Donor donated his 10,000 shares of DRL Corporation. The shares were traded
on Friday in the Philippine Stock Exchange with the highest and lowest quotations per share
of P600 and P400, respectively. The weighted average traded price is P550 and the book value
of the share is P450. How much is the gross gift?
Gross Gift = 10,000 shares x (600 + 400)/2
= 10,000 shares x 500
= 5,000,000

Valuation of Units of Participation

The fair market value of units of participation in any association, recreation or amusement
club (such as golf, polo, or similar clubs), shall be the bid price nearest the date of donation
published in any newspaper or publication of general circulation.

Valuation of Right to Usufruct

To determine the value of the right to usufruct, use or habitation, as well as that of annuity,
there shall be taken into account the probable life of the beneficiary in accordance with the
latest basic standard mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.