DONOR’S TAX

Donation = Gift Gratuitous Transfer (Free)

Made between living person (inter vivos)
Land (Gift) B
A
6%
(Donor) (Donee) Subject to Donor’s Tax
Based on total gifts in excess of 250,000
→ Excise Tax – privilege tax

Requisites:

1. Capacity of the donor

2. Donative Intent
Actual
3. Delivery → real contract
Constructive
4. Acceptance by the donee
- Perfected when the donor knows the acceptance of the donee

Forms:

≤ 5k → oral / written
Moveable
Property > 5k → written
(Personal)

Immovable ⎯ any amount → public instrument/document

(real) (Deed of Donation)

Classification of Taxpayer

w/n w/out
Resident / Citizen ✔ ✔
(RC, NRC, RA) Intangible Properties

Non-resident Alien ✔ ✖ → Financial Assets (AR, Bank Deposits, Stocks, Bonds)

(ETB, NETB) → Accounting (Patents, Franchise, Copyright, Trademark)

EXC: w/ reciprocity
→ Intangible Properties ✖ ✖
(Exempt)

Taxable Donation:
Land
1. Direct donation A B
Condo Units
2. Donation through creation of irrevocable trust A Trust B

Loan ₱100k
3. Condonation of Debt A B
Car FMV 3M 1M → Donor’s Tax
4. Transfer for insufficient consideration (SP < FMV) A B SP 2M
Cost 1.5M 500k → Income Tax
a. Personal properties
b. Real properties (except those subject to 6% CGT)

5. Specific Renunciation of Inheritance Mr. X (deceased)

Specific General
a. Unless there are only 2 heirs (exempt)
A 1M + 1M = 2M 1M + 500k = 1.5M
Estate: 3M B 1M 1M + 500k = 1.5M
C 1M – 1M = 0 1M – 1M = 0
(taxable) (exempt)

6. Renunciation by the surviving spouse on their share Mr. X (deceased)

in the conjugal or community property Separate / Exclusive Conjugal/Community
a. Whether specific of general → taxable A 1M + 1M = 2M 500k
Estate: 3M B 1M 500k
Mrs. X 1M – 1M = 0 0
A 500k
(taxable) (exempt)
Mr. X 1.5M B 500k
3M Mrs. X 500k
Mrs. X 1.5M + 500k = 2M

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

Exemptions

Under Tax Code:

a. 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.
b. 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 no more than 30% of said gifts shall be used by such donee for administration
purposes.

Under Special Laws:

a. Archives of the National Historical Institute

b. Development Academy of the Philippines
c. Integrated Bar of the Philippines
d. International Rice Research Institute
e. Intramuros Administration
f. Museum of Philippine Costumes
g. National Library
h. National Museum
i. National Commission for Culture and the Arts
j. Philippine Red Cross
k. Philippine Normal University
l. Ramon Magsaysay Foundation
m. University of the Philippines

Political Contributions (Omnibus Election Code (OEC) and Republic Act No. 7166):

As a rule, any contributions given to candidates, political parties or coalition of parties are not subject to donor’s tax as
long as the following conditions are met:

1. The contribution is for campaign purposes; and

2. The donation is duly reported to the Commission on Election (COMELEC)

The campaign contribution is subject to donor’s tax on the part of the donor, if such contributions are not reported to the
COMELEC.

Void Donations:

a. Donations between spouses, except minor gifts

b. Donations between persons who were guilty of adultery or concubinage at the time of donation
c. Donations between persons found guilty of the same criminal offense, in consideration thereof
d. Donations to a public officer or his wife, descendants or ascendants by reason of his office
e. Donations to incapacitated persons
f. Donations of future property

Valuation Methods

a. Real properties are valued at the assessed, appraised or zonal value, whichever is higher
b. Personal properties are valued at current market price or fair market value
c. Shares of stocks are valued at:
i. If traded – average of high and low price
ii. If not traded – using the BV method under RR No. 20-2020 (previously adjusted net asset method)

Rules to observe:

a. As a rule, the value of the property/right donated shall be the fair market value existing when the gift was made
(as of the time of donation).
b. The time to value is the moment when the donation has been completed and perfected (delivered and
accepted).
c. When the donation is subject to a suspensive condition, the value of the gift is to be determined only at the time
when the stipulated condition is fulfilled, subject to the time of delivery and acceptance of the gift.

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

Computation of Donor’s Tax

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

 ESTATE TAX Compulsory
→ entitled to legitime
Mr. X died Properties, rights, obligation
A, B, C → legitimate children, illegitimate children, surviving spouse
(decedent) → estate / inheritance (Heirs,
Voluntary
Successors)
→ mortis causa → entitled to free portion
→ last will & testament
→ subject to estate tax (taxpayer → estate)

Free
Legitime
Administrator / Executor Portion

Managed by → settlement Personally liable to file & pay

Heirs

Testamentary → w/ last will & testament

Succession Intestate / Legal → w/o last will & testament
→ by operation of law
Mixed

Intestate Succession

B3 (great grandparents)
2nd priority
C4 B2 (grandparents) (ascendants)
secondary heirs
C5 C3 (uncle/aunt) B1 (parents)

C4 (cousin) C2 (siblings) Mr. X Mrs. X (A1)

C5 C3 (niece/nephew) A1 (children)
1st priority
(descendants)
C4 A2 (grandchildren) primary heirs Counting:
LC 1 share
C5 A3 (great grandchildren) IC ½ share
SS 1 share
3rd priority

Example: Case 1: ₱1M, 4LC, 2 IC Case 2: SS, 3LC Case 2: SS, 2LC, 2IC
Count: 4 + 1 = 5 Count: 1 + 3 = 4 Count: 1+2+1 = 4
1. Mr. X died 1M  4 = 250k 1M  4 = 250k
Wife A1 200k
Only one of them can inherit
2 Children B1 200k SS 250k SS 250k
LC C1 200k A 250k
A 250k LC
2. Mr. X died single D1 200k LC B 250k B 250k
E .5 100k C 250k C 125k
w/o children → parents can inherit IC IC
F .5 100k 1M D 125k
5 1M 1M
Free
Portion
250K
Case 4: Estate ₱1M, SS, 2LC, 2IC
Legitimate w/ last will & testament
Children
A, B, C, D 125,000 each
SS 125K
E, F 62,500 each
125K
Surviving Spouse 125,000
F E
62.5K 62.5K

Format:
Inclusions
Gross Estate Exclusions
- Allowable Deduction
Net Taxable Estate
x 6%
Estate Tax Due

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

INCLUSIONS:

a. Real Property – immovables, house & land

b. Personal Property- movables Tangible – car, furniture, equipment
Intangible – Intangible Assets, FAs

Situs: w/n w/out

Resident / Citizen ✔ ✔
(RC, NRC, RA)

Non-resident Alien ✔ ✖
(ETB, NETB)

EXC: Intangible Properties

w/ reciprocity ✖ ✖

Car
c. Transfer in contemplation of death Mr. X (80 years old) A
→ Motivated by thoughts of death

d. Revocable Transfer Condo Units

Mr. X A
→ Revocable ✔
(included) Jan. 1 ✔ July 1 ✖ Dec. 31

→ Irrevocable ✖
(excluded)
(w/ transfer of ownership)

e. Transfer under General Power of Appointment (GPA)

→ GPA ✔ included
Mr. Y
Car
Mr. X General (to anyone) ✔
→ SPA ✖ excluded Specific (only to B) ✖
(w/ a right to
(special power of appointment) (intermediary / trustee)
designate the person)

f. Transfer for insufficient consideration

→ Applicable to C, D, E

FMV 1M 300K → Estate Tax

SP 700K
500K → Income Tax
Cost 200K

g. Proceeds of Life Insurance

→ Revocable (Silent); Irrevocable
Beneficiary R I
Premiums Estate,
Mr. X Sunlife
Administrator, ✔ ✔
Executor

Others ✔ ✖

h. Claims against insolvent person

→ Receivable

Gross Estate 1M 100%

Deductions (600k) Uncollectible
Net 400k

EXCLUSIONS:

a. Merger of usufruct in the owner of the naked title

Land w/ coconut trees A legal title (naked)

Mr. X
B right to the fruits (usufructuary)

→ not subject to estate tax

→ if B dies, A becomes the absolute owner

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

 b. Transmission or delivery of inheritance / legacy by the fiduciary heir / legatee to the fideicommissary

Fiduciary Heir Fideicommissary

Land Land
Mr. X died A B (14 years old)
→ preserve the land for 4 years (grandson) → After 4 years (great grandson)
→ subject to estate tax → not subject to estate tax

c. Transmission from the first heir, legatee or done in favor of another beneficiary in accordance w/ the will
if the predecessor
Land Land
Mr. X died A B
→ if B passes the CPALE, (1st heir) → exempt (2nd Heir)
A will give the land to B

→ subject to estate tax

d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions no part of
the net income of which inures to the benefit of any individual: Provided, that no more than thirty percent (30%)
of which will be used by such institutions for administrative purposes

DEDUCTIONS

a. Losses – casualty

Jan. 1 (Yr. 1) ✔ Dec. 31 (Yr. 1) ✖ Dec. 31 (Yr. 2)

deductible Not deductible 2 years

died
settlement
1 year after death
(last day of payment)

Requisites:
a. Arising from fire, storm, shipwreck or other casualty, robbery, theft or embezzlement
b. Not compensated by insurance
c. Not claimed as deductions from income tax of the estate
d. Occurred during the settlement of the estate
e. Occurred not later than the last day for the payment of estate tax

b. Claims against the estate

→ Obligations / liabilities

c. Claims against insolvent person

→ Uncollectible portion
→ Requisites:
i. Included as part of Gross Estate (100%)
ii. Incapacity of the debtor is proven

d. Unpaid mortgages or indebtedness

→ Mortgage property (car) is included in the GE (100%)
→ Except: Accommodation Loan

e. Unpaid taxes
→ Accrued prior to the death of the decedent
→ Except
i. Any income tax upon income received after death
ii. Property taxes not accrued before death
iii. Estate tax from the transmission of his estate

f. Transfer for Public Purpose (TPP)

→ Donation to the Government (national, local)
→ Included in the Gross Estate
→ Must be contracted in the will

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

 g. Vanishing Deductions (VD)
→ Property may change hands w/n a short period of time
→ Transfer tax is imposed on each transfer (donor’s & estate)
→ Relief to the taxpayer → minimize the effect of double tax
Land Land Land Land Land
Mr. X died B C D E F
3 years 4 years 2 years 6 years
VD? N/A ✔ ✖ ✔ ✖

Formula:

1. Determine the basis

a. Initial value to take → FMV of the property Prior Estate LOWER
Initial Basis Current Estate
b. Reduce by any mortgage payment
Final 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐵𝑎𝑠𝑖𝑠
c. Reduce by 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 x all deductions (except VD)
Basis
2. Apply the corresponding %

More than Not more than Percentage

- 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%

Requisites:

a. The present decedent died within 5 years from receipt of the property from a prior decedent or donor
b. The property must be part of the taxable estate of the prior decedent, or of the taxable gift of the donor
c. The estate tax on the prior succession or the donor's tax on the gift had been finally determined and
paid
d. The property on which vanishing deduction is claimed can be identified as the one received from a prior
decedent, or from the donor, or something acquired in exchange for it
e. No vanishing deduction on the property was allowable to the estate of the prior decedent

Special Deductions

a. Family Home
→ Residential home
→ Requisites:
a. The decedent is married or Head of the family Not more than 21 years old
- provides chief support to the dependents Unmarried
Not gainfully employed

b. The family home must be the actual residential home of the decedent and his family at the time
of his death
c. Certified by the barangay captain of the locality the family home is situated
d. Located in the Philippines
e. The value of the family home is included in the gross estate
→ FMV
→ ₱10M Lower

b. Standard Deduction
→ ₱5M
→ No need for substantiation

c. Amounts received by heirs under RA 4917 (Retirement Benefit of Private Firms)

→ Included in the Gross Estate
→ Received as a consequence of death → deductible
→ Not from death → not deductible

Jan. 1 July 1 Dec. 31

Retired Death
✖ ✔

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

Net Distributable Estate
→ for actual distribution to the heirs / 3rd party

Property Relations Between Spouses (Art. 74 of the Family Code)

→ before marriage, spouses shall agree on marriage settlement / pre-nuptial agreement

Complete Separation of Property (CSP)

Property Regime Conjugal Partnership of Gains (CPG)
Absolute Community of Property (ACP)
Effectivity of Family Code
August 3, 1988
CPG ACP
before after

General Rules: marriage

exclusive conjugal
CPG Fruits, salaries, income
Note:
Exclusive = Separate
common Common/community
ACP Conjugal = Joint
Community = Joint

Special Rules:
CPG ACP

I. Property acquired BEFORE Marriage

a. Gratuitous Exclusive Community
b. Onerous Exclusive Community
c. Where the spouse has a legitimate descendant from a previous marriage Exclusive Exclusive

II. Property acquired DURING marriage

a. Gratuitous title Exclusive Exclusive
b. Onerous title Conjugal Community
c. In exchange of exclusive property Exclusive Exclusive
d. In exchange of conjugal/community property Conjugal Community
e. Fruits or income from exclusive property Conjugal Exclusive
f. Fruits or income from conjugal/ community property Conjugal Community

III. Property for personal and exclusive use of either spouse Exclusive Exclusive
(if jewelry, community under ACP; N/A to CPG)

Valuation Method (at the time of death)

a. Real properties - higher between fair market value and zonal value
b. Personal properties - fair market value
c. Shares of stocks are valued at:
i. If traded – average of high and low price
ii. If not traded – using the Book Value method

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM