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Guidelines On Estate and Donor S Tax
Guidelines On Estate and Donor S Tax
Guidelines On Estate and Donor S Tax
Abella
2. Non-resident alien:
1) Real or immovable property located in the Philippines. 2) Tangible personal property located in the Philippines. 3) Intangible personal property with situs in the Philippines subject to the rule of reciprocity exemption.
Taxable Transfers:
1) Transfer in contemplation of death (3-year presumption repealed by PD 1705, 8/1/80) 2) Transfer with retention or reservation of certain rights.
3) Revocable transfer. 4) Transfers of property under general power of appointment. a. Existence of general power of appointment held by the decedent. b. Exercise of such power by the decedent by will or by deed intended to take effect upon death. c. Passing of property by virtue of such death. 5) Transfers for insufficient consideration. a. Covers only the excess of the fair market value over the value of the consideration. b. Transfer was made in contemplation of death, otherwise will be subject to donors's tax.
Kinds of Property:
1) By Nature: a. Real or immovable property. b. Personal property, tangible or intangible. 2) By Ownership: a. Exclusive capital or paraphernal property. b. Conjugal or community property.
Personal Properties:
1) 2) 3) 4) Shares of stocks, bonds and securities. Interest in partnerships, business or industry. Cash on hand and in banks. Machineries, transportation equipments, farm implements, tools, farm animals, etc. 5) Antiques, jewelry, silverware, paintings, etchings, engravings, books, statues, vases, oriental rugs, collection of stamps and coins. 6) Household furnitures, fixtures, appliances and other personal effects. 7) Usufruct, annuities, use or habitation.
8) Mortgage notes, participation certificates, judgements, obligations and action which have for their object movables or demandable sums. 9) Goodwill, patents, and trademarks.
Allowable Deductions:
1) Expenses, losses, indebtedness and taxes: a. Funeral expenses: i. CA 466 (July 1, 1939) - 5% of gross estate ii. PD 69 (January 1, 1973) - 5% of gross estate but not exceeding P50,000.00 iii. RA 7499 (July 28, 1992)- 5% of gross estate but not exceeding P100,000.00. iv. RA 8424 (January 1, 1998)- 5% of gross estate but not exceeding P200,000.00 b. Judicial expenses. c. Claims against the estate i. Claims against insolvent persons ii. Unpaid mortgages or indebtedness iii. Unpaid taxes iv. Losses v. Transfer for public purposes vi. Vanishing deduction (Property previously taxed) d. Share of the surviving spouse in the net conjugal properties of the net conjugal properties. e. Family Home - Amount allowable is equivalent to the current or fair market value or zonal value of the decedent's family home, whichever is higher, but not exceeding P1,000,000.
f. g. h. i.
i. Must not exceed the value included in the gross estate or P1,000,000, whichever is lower. ii. The amount in excess of P1,000,000 shall be subject to estate tax. iii. Must be the decedent's family home as certified to by the Barangay Captain in the locality. iv. Only one (1) family home may be claimed. Standard Deduction of P1,000,000. Medical Expenses incurred within one year from death in an amount not exceeding P500,000.00. Amount Received by heirs under RA No. 4917. Deductions allowable to a non-resident decedent who is not a citizen of the Philippines: i. A proportion of the expenses, losses, indebtedness and taxes: Formula: Phil. Gross Estate ------------------------- X Expenses, losses, indebtedness & taxes World Gross estate ii. Transfer for public purposes iii. Vanishing deduction iv. Share of surviving spouse - Depending on the property relationship of the husband and wife in the country where they are national.
Vanishing Deduction
Requisites: 1) Present decedent must have died within five (5) years from the date of death of prior decedent or date of gift. 2) The property with respect to which deduction is claimed must have formed part of the gross estate situated in the Philippines of the prior decedent or taxable gift of the donor. 3) The property must be identified as the same property received from the prior decedent or donor or the one received in exchange therefore. 4) The estate taxes on the gift must have been finally determined and paid. No vanishing deduction on the property was allowed to the prior estate. PROCEDURE IN COMPUTING THE VANISHING DEDUCTION: 1) Determine the initial value of the property previously taxed; Rule Value of "Property previously Taxed" in computing the estate tax or donor's tax of the prior transfer or that of the present decedent's estate, whichever is lower. 2) Deduct any mortgage or lien on the "Property Previously Taxed" paid by the present decedent prior to his death, where such mortgage or lien was a deduction from the gross estate of the prior decedent or gift of the donor. This is the "Initial Basis". 3) The "Initial Basis" in Step (b) shall be further reduced by the following ratio of the expenses, losses, indebtedness, taxes or transfer for public purposes:
4) Compute the final basis of PPT: Initial Basis (Step (b) x x x Less: Limitation (Step (c ) x x x Final Basis (Amount subject to vanishing deduction) x x x
0 1 2 3 4 5
5) Determine the year interval between the date of death of the prior and present decedent or date of gift and death of present decedent to find the applicable percentage deduction: - 1 year - 100% - 2 " - 80% - 3 " - 60% - 4 " - 40% - 5 " - 20% over - 0%
The final basis (Step (d) multiplied by the percentage deduction (Step (e) will be the vanishing deduction allowable. HYPOTHETICAL EXAMPLE OF COMPUTATION OF VANISHING DEDUCTION: "A" a Filipino, married and resident of the Philippines died on July 31, 1998 leaving the following properties: Conjugal properties -------------------------------------------------------------------------------- P7,000,000.00 Conjugal family home------------------------------------------------------------------------------- 3,000,000.00 Property valued for P4,000,000 was inherited from his father who died on June 30, 1997 together with a mortgage loan of P1,000,000 which was paid by "A" on April 30, 1998 ------------------------------------------------------------- 5,000,000.00 Gross estate -------------------------------------------------------------------------------------- P15, 000,000.00 Less: Deductions: Expenses, losses, indebtedness, taxes & transfer for public use ------------------------------------------------------------------P2,000,000.00 Share of surviving spouse: Conjugal properties -------------------------------------------------------------------------P10,000,000.00 Less: Conjugal deduction ---------------------------------------------------------------------- 2,000,000.00 Net conjugal estate --------------------------------------------------------------------------- P 8,000,000.00 1/2 share of surviving spouse -----------------------------------------------------------------P 4,000,000.00 Family home
----------------------------------------------------------------------------------------1,000,000.00 Vanishing deduction (80%) Inherited property ----------------------------------------------------------------------------P 4,000,000.00 Less: Mortgage paid ----------------------------------------------------------------------------- 1,000,000.00 Initial basis [Step (b)]---------------------------------------------------------------------------- 3,000,000.00 Less: 3,000,000 x P2,000,000 -------------------------------------------------------------------- 400,000.00 15,000,000.00 Final basis [Step (d)] --------------------------------------------------------------------------P 2,600,000.00 80% Vanishing deduction [Step (e)] ---------------------------------------------------------- 2,080,000.00 Total deductions -------------------------------------------------------------------------------- P 9,080,000.00 Net taxable estate -------------------------------------------------------------------------------- P 5,920,000.00 Computation of estate tax: P5,000,000 ---------------------------------- P465,000.00 920,000 @ 15% ------------------------- 138,000.00 Total estate tax due ------------------------------- P 603,000.00
ESTATE TAX RATES: (R.A. 8424) THE ESTATE TAX SHALL BE Exempt 0 P15,000 135,000 465,000 1,215,000 PLUS Below P200,000 5% 8% 11% 15% 20% OF EXCESS OVER 0 P200,000 500,000 2,000,000 5,000,000 10,000,000
2) Limitation on credit - The amount of credit for estate tax paid to a foreign country shall not exceed the proportion of the tax due in the Philippines which the decedent's net estate situated within such country bears to his entire net estate. 3) The total amount of credit shall not exceed the proportion of the tax here in the Philippines which the decedent's net estate situated outside the Philippines bears to his entire net estate.
b) Presidential Decree No. 69 - January 1, 1973 to December 31, 1985. Within nine (9) months after decedent's death. Within twenty-one (21) months after decedent's death proceedings for settlement was filed in court within nine (9) months after death. c) Presidential Decree No. 1994 - January 1, 1986 to July 27, 1992. Within ninety (90) days after decedent's death d) Republic Act 7499 - July 28, 1992 to present: Within six (6) months after decedent's death Extension to File Return: Not exceeding thirty (30) days in meritorious cases. Place of Filing: a) Office of the Commissioner of Internal Revenue b) Office of the Revenue District Officer, Collection Officer or authorized treasurer of the Municipality in which the decedent was domiciled at the time of death.
C. Payment of Estate Tax: Time of payment: a) Commonwealth act 466-July 1, 1939 to December 31, 1972: Estate and Inheritance taxes- Payable within nine (9) and Twelve (12) months, respectively, after death. Estate and inheritance taxes - Payable within twenty one (21) and twenty-four (24) months, respectively, if proceedings for settlement of estate was filed in court within six (6) months after death. b) Presidential Decree No. 69 - January 1, 1973 to December 31, 1985: Estate tax is payable at the time the return is filed. (Within nine (9) days or twenty-one (21) months, as the case may be) c) Presidential Decree No. 1994 - January 1, 1986 to July 27, 1992: Estate tax is payable at the time the return is filed (Within ninety (90) days after death) d) Republic Act 7499 - July 28, 1992 to present: Estate tax is payable at the time the return is filed (Within six (6) months after death) Extension to pay estate tax a) Two (2) years - Estate is settled extrajudicially. b) Five (5) years - Estate settled judicially. Surcharges: a) Late filing of estate tax return - 25% of tax due per return July 1, 1939 to December 31, 1972 - Discretionary or maybe waived if a) The return is voluntarily filed without notice from the Commissioner b) The failure to file the return on time was due to a reasonable cause. b) Late payment of tax:
July 1, 1939 to August 1, 1980 - 5% August 1, 1980 to December 31, 1985 (PD 1705)10% January 1, 1986 to present (PD 1994) 25% Interests: a) July 1, 1939 to September 1, 1969 (CA 466) Tax per return 12% Deficiency tax 6% b) September 1, 1969 to December 31, 1972 (RA 6110, 8/4/69)----------------------12% c) January 1, 1973 to January 16, 1981 (PD 69, 11/24/72)----------------------14% d) January 16, 1981 to present (PD 1773, 1/16/81)------------------------------20% Place of filing of return and payment of tax: a) Commissioner of Internal Revenue, or b) Regional Director, Revenue District Officer or Collection Officer of the city or municipality in which the decedent was domiciled at the time of his death. Person liable to pay estate tax: a) Executor or administrator before distribution of estate b) Heir or beneficiary subsidiarily liable to the extent of his distributive share.
DONOR'S TAX
Definition and Concepts:
Gift tax is an excise on the transfer by a living person to another of money or other property without consideration. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
Concept of Consideration:
1. Consideration must be measurable in money or money's worth. Mere legal consideration is not sufficient. 2. The consideration must flow to the donor, mere detriment to the donee does not satisfy the purpose of the statute. Commissioner V. Wemyss (324 U.S. 303, 1945) Marriage is not a consideration reducible to money value. If a person transfers a property to a trust in consideration of marriage, a gift is made because no money consideration flows to the transferor/donor. Donative intent on the part of the tranferor is not an essential element for the imposition of the gift tax to the transfer.
Kinds of Donation:
1. Inter-vivos 2. Mortis causa 3. Indirect donation (Except real property referred to in Section 24(D) and Section 27(D)(5) of the NIRC).
Gross Gifts:
1. Composition -(Same as in estate tax) 2. Valuation - At the time the gift was made (Same as in estate tax)
c. Relatives by consanguinity in the collateral lines within the fourth degree of relationship.
c) 9/8/99
Tax on: 200,000 ================ 2,000 150,000 x 4% ============ 6,000 8,000 Less: Tax on previous donation (donation a)============ 0000 8,000 Cash 600,000 (Stranger)
Tax Due: 600,000 x 30%========== 180,000 d) 10/25/99 3/10/99 1/15/99 Lot Cash Cash 1,500,000 (ZV) (father) 250,000 100,000 1,850,000
Tax on: 1,000,000 ============== 44,000 850,000 x 8% ============ 68,000 112,000 Less: Tax on previous donation (donation a + b) 8,000 104,000 e) 11/12/99 Cash 200,000 (Stranger) Tax Due: 200,000 x 30% ========== 60,000 300,000 (brother-in-law) Tax On: 200,000 ================
f) 2/14/2000 2,000
Cash
100,000 x 4% =========== 4,000 6,000 Note: Letter (f) was donated in year 2000 therefore; this is not included in the cumulative total for 1999's donations. ADMINISTRATIVE REQUIREMENTS ON DONOR'S TAX A. Donor's Tax Return: 1. Requirements (State the following information/data): a. Each gift made during the calendar year b. Deductions claimed and allowable c. Previous net gifts during the same calendar year d. Name of donee and address e. Other pertinent information 2. Time of filing: a. Before December 31, 1972: On or before March 1 following the close of the calendar year. b. January 1, 1973 to December 31, 1997 Within thirty (30) days after each donation. Extension not exceeding thirty (30) days maybe granted. c. January 1, 1998 to present Within thirty (30) days after each donation- No Extension 3. Place of filing of donor's tax return a. Commissioner of Internal Revenue b. Revenue District Officer, Collection Officer or duly authorized Treasurer of the municipality where the donor was domiciled at the time of donation. B. Payment of Donor's Tax:
1. Donor's tax should be paid at the time the return is filed or within thirty (30) days after the date of gift. 2. Extension to pay tax may be granted not exceeding six (6) months. Effective January 1, 1998 (RA 8424), no extension for the payment of the donor's tax shall be granted. C. Surcharges: (Same as estate tax) D. Interest: (Same as estate tax)