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Business Tax Reviewer CH 1 5 PDF
Business Tax Reviewer CH 1 5 PDF
Business Tax Reviewer CH 1 5 PDF
Estate Tax
Basic Terms in Taxation
Right – The basics of human existence.Those things that
Taxation – power of the Government to impose burden upon are Necessary to live. You cannot live without these.
Eg. Right to breathe, right to live, right to vote, Freedom of speech. Etc.
the people to earn Revenue.
3 Inherent Powers of the State ( definition: Acaylar, PJ) PRivilege– Are Rights that you can live without.
1. Police Power – power to monitor people for These are things that are allowed and granted by the state.
the general welfare. These privileges can be Taxed.
Eg. Driver’s license, Professional Licenses, etc. You can live without having to drive
2. Eminent Domain – power to expropriate or be a lawyer, etc.
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Business and Transfer Taxes Notes
Estate Tax
2 PARTS OF THE ESTATE 2. Tangible personal property located within the
Philippines
~ Legitime– This is a secured portion of the estate that the law 3. Intangible personal property located within the
reserves for compulsory heirs.
Philippines unless there is reciprocity in which
~ Free Portion – Portion of the will that the testator can freely
dispose of. case it is not taxable in the Philippines.
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Business and Transfer Taxes Notes
Estate Tax
The value of any interest in property owned or been exercised on of before the date of his death,
possessed by the decedent at the time of his such notice shall be considered to have been
death such as dividends declared before his given, or the power exercised on the date of his
death but received after his death, partnership death.
profits which have accrued before his death,
usufructuary rights, etc. PROPERTY PASSING UNDER A GENERAL POWER
OF APPOINTMENT
The value of property, right or interest in the
property, transferred by the decedent during his The rule is the gross estate shall include any
lifetime which, under the law, are in the nature of property passing or transferred under a general
testamentary dispositions such as life insurance power of appointment exercised by the decedent
proceeds in favor of a revocable beneficiary.
♪ By will
TAXABLE TRANSFERS ♪ By deed to take effect in possession or
enjoyment at or after his death
Value of the property or interest in property ♪ By deed under which he has retained for
transferred by the decedent during his lifetime his life or any period not ascertainable
which is in the nature of testamentary without reference to his death or for any
disposition: period which does not in fact end before
his death
♪ Transfers in contemplation of death ♪ The possession or enjoyment of, or the
♪ Revocable transfers right to the income from the property
♪ Property passing under a general power of ♪ The right, either alone, or in conjunction
appointment with any person to designate the persons
♪ Transfer with retention or reservation of who shall possess or enjoy the property or
certain rights over the income or the income therefrom
enjoyment of the property transferred
♪ Transfer for insufficient consideration The donee of a general power of appointment
holds the appointed property with all the
Transfers in Contemplation of Death attributes of ownership thus, the appointed
property shall form part of the gross estate of the
Impelled by the thought of death, or the donee of the power upon his death.
motivating factor or controlling motive for the
transfer of the property is the thought of death Transfers with Retention and Reservation of
without regard to the state of health of the Certain Rights Over the Income or Enjoyment of
transferor. the Property Transferred
Where the enjoyment of the property transferred → If the transfer is a bona fide sale for
may be altered, amended, revoked or terminated adequate and full consideration in money
by the decedent. The revocability is not affected or money’s worth, no value shall be
by the failure of the decedent to exercise the included in the gross estate.
power to revoke during his lifetime. If the notice → If the transfer is not a bona fide sale for an
has not been given, the power to revoke has not adequate and full consideration in money
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Business and Transfer Taxes Notes
Estate Tax
or money’s worth, there shall be included EXEMPT ACQUISITIONS AND TRANSACTIONS
in the gross estate only the excess of the FROM PAYMENT OF ESTATE TAXES
fair market value of the property at the ♪ the merger of the usufruct in the owner of
time of death over the value of the the naked title
consideration received by the decedent. ♪ the transmission or delivery of the
→ If an inter vivos transfer of the decedent is inheritance or legacy by the fiduciary heir
proven to be fictitious, the total value of or legatee to the fideicommissary
the property at the time of death shall be ♪ the transmission from the first heir,
included in the gross estate. legatee or donee in favor of another
beneficiary in accordance with the desire
Reasons for Taxability of the Transfers of the predecessor
♪ all bequests, devises, legacies or transfers
It will be seen that in most of these transfers, the to social welfare, cultural and charitable
property remains substantially that of the institutions, no part of the income of which
transferor during his lifetime notwithstanding the inures to the benefit of any individual;
transfer as he still retains either the “Beneficial Provided, however, that no more than 30%
Ownership” or “Naked Title” to the property. of the said bequests, devices, legacies or
Hence, the transfer is essentially similar in transfers shall be used by such institutions
respect to a transmission by testacy or intestacy for administration purposes.
upon the death of the owner. In order to be
exempted from the purview of the taxing
provisions, the transfer by inter vivos must be
absolute and outright with no strings attached VALUATION OF THE ESTATE
whatsoever by the decedent. ♪ Valuation Date- time of death
♪ Basis of Valuation- fair market value,
PROCEEDS OF LIFE INSURANCE which is the price which a property will
bring when it is offered for sale by one
Proceeds of life insurance under policies taken who desires, but is not obligated to sell
out by the decedent upon his own life shall be and is bought by one who is under not
included in his gross estate in the following cases: necessity of buying it
♪ Valuation of Usufruct- probable life of the
♪ when the beneficiary is the estate of the beneficiary in accordance with the latest
deceased, his executor or administrator Basic Standard Mortality Table
whether or not the deceased retained the ♪ Valuation of Real Property -
power of revocation
♪ when the beneficiary is other than the 1) FMV as determined by the Commissioner; or
estate of the deceased, his executor or 2) FMV as shown in the schedule of values fixed
administrator and the decedent retained by the Provincial or City Assessors
the power of revocation
♪ Valuation of Personal Properties- FMV at
CLAIMS AGAINST INSOLVENT PERSONS the time of the decedent’s death
Are receivables due or owing from persons who
are not financially capable of meeting their DEDUCTIONS FROM THE GROSS ESTATE
obligations. The receivables shall be included in
the gross estate at their full amount. The estate tax is computed based on the net
estate. The net estate is determined by
CAPITAL OF THE SURVIVING SPOUSE subtracting from the gross estate the deductions
The gross estate of a married decedent shall authorized by law.
consist of the following:
A)Funeral Expenses
♪ conjugal or community properties
♪ exclusive properties The limit is the actual funeral expenses or the
amount equal to 5% of the gross estate,
The capital of the surviving spouse shall not be whichever is lower, but in no case to exceed
deemed part of the gross estate. P200,000.
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Business and Transfer Taxes Notes
Estate Tax
Funeral expenses include the expenses for the a) Decedent died within five (5) years from
mourning clothing of the spouse and unmarried receipt of the property from a prior decedent or
minor children, fees and charges for masses, donor;
rites, ceremonies incident to the interment, b) Property on which vanishing deduction is
expenses of interment, and the cost of the coffin, being claimed must be located in the Philippines;
burial plot, tombstone, mausoleum or niche. The c) Property must have formed part of the taxable
cost of obituary notices, flowers and expenses of estate of the prior decedent, or of the taxable gift
the wake preceding the burial are also part of of the donor;
funeral expenses. Expenses incurred after burial d) Estate tax on the prior succession or the
can no longer be deducted. donor’s tax on the gift must have been finally
determined and paid;
B) Judicial Expenses e) Property on which vanishing deduction is
being taken must be identified as the one
Refers primarily to court expenses and expenses received from the prior decedent or from the
of administration. The expenses of donor, or something acquired in exchange
administration include those actually and therefore.
necessarily incurred in the administration of the f) No vanishing deduction on the property was
estate. allowable to the estate of the prior decedent
G) Family Home
The purpose is to minimize the effect of a double Notice of death (Sec. 89) in all cases of transfers
taxation on the same property within a short subject to tax, or if exempt from tax, the gross
period of time value of the estate exceeds P20,000.00 must be
filed two (2) months after the decedent’s death or
Conditions: after qualifying as executor or administrator.
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Business and Transfer Taxes Notes
Estate Tax
If gross value exceeds P2,000,000.00 the return Sec. 95 – The Register of Deeds shall not register
shall be supported by a statement duly certified transfer of real property or real rights by way of
to by a CPA: gifts inter vivos or mortis causa unless tax is
shown to have been paid.
• itemized assets
• itemized deductions from gross estate Sec. 97 – No transfer of shares, obligations, bonds
• amount of tax due whether paid or in the books of a new corporation by way of gifts
outstanding inter vivos or mortis causa unless there is a
certification that the taxes have been paid.
Time for filing: 6 months from the decedent’s
death The lawyer preparing the document relating to
partition or disposition shall furnish the
Extension of time: Commissioner has authority to Commissioner, Regional Director, RDO with such
grant in meritorious cases a reasonable extension copies to facilitate collection
not exceeding 30 days.
The debtor of the deceased shall not pay his
Place of filing: Authorized agent bank, RDO, debts to the heirs unless there is a Certification
Collection officer, duly authorized treasurer of that the taxes have been paid.
city/municipality where decedent was domiciled
or if there be no legal residence in the Philippines, A bank where deposit is maintained by decedent
with the Office of the commissioner. shall not allow withdrawal unless there is a
Certification that the taxes have been paid.
IX. Payment of Estate Tax
Some BIR Rulings
Time of Payment: at the time the return is filed by
executor, admin, and heir BIR 423-87 (Life Insurance)
Extension: When Commissioner finds that The taxability of insurance proceeds will depend
payment would impose undue hardship on estate on whether the designation of the beneficiary is
or heirs, he may grant an extension revocable or irrevocable. If revocable, the
proceeds form part of the Gross Estate even if
the decedent- insured failed to revoke. But if the
• not exceeding 5 years, if estate is settled
designation is irrevocable, proceeds of the life
through the courts
insurance vest upon the beneficiary immediately
• not exceeding 2 years, if estate is settled and they no longer form part of the decedent’s
extrajudicially gross estate.
No extension in cases of assessment by reason of BIR 186-81
negligence, intentional disregard of rules and
regulations or fraud on part of taxpayer. Receivables as well as expected tax refunds at
the time of death of the decedent form part of
Who pays : Executor, administrator before the gross estate.
delivery to beneficiary.
• Beneficiary subsidiarily liable to the extent BIR 095-98
of distributive share.
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Business and Transfer Taxes Notes
Estate Tax
The estate tax shall be appraised at its FMV as of
the time of death or as of 6 months thereafter at
the election of the executor or administrator.
However the appraised value of real property as
of the time of death or at the election of the
executor or administrator as of 6 months after
death shall either be (a) the current and FMV as
shown in the schedule of values by the provincial
or city assessor or (b) the FMV as determined by
the CIR, whichever is higher.
BIR 011-86
BIR 066-98
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