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ERG 201 Donors Tax Ans
ERG 201 Donors Tax Ans
A. Donation
1. Definition
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
2. Classification of Donations
a. From viewpoint of motive, purpose or cause
1) Simple—the cause is pure liberality
2) Renumeratory—due to past services rendered or future services or charges and burdens
3) Onerous—burdens and charges equal to the value of the thing donated
4) Modal—consideration is less than the value of the thing donated
5. Completed Gift
a) Gift perfected and completed – it is perfected from the moment the donor knows of the acceptance of the done and it is completed by delivery to
the donee either actually or constructively of the donated property.
b) A gift that is incomplete because of reserved powers becomes complete when either,
1) the donor renounces the reserved power
2) the right to exercise the reserved power ceased because of the happening of some event or contingency or the fulfilment of some condition, other
than because of the donor’s death.
c) The donor’s tax shall not apply unless and until there is a completed gift.
6. Qualified Donors
All persons who may contract and dispose of their property may make a donation (Art. 735, Civil Code).
7. Qualified Donees
a. All those who are not specially disqualified by law therefor may accept donations (Art. 738, Civil Code).
b. Minors and others who cannot enter into a contract may become donees but acceptance shall be done through their parents or legal
representatives (Art. 741, Civil Code).
c. Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already
born (Art. 742, Civil Code).
B. Donor’s Tax
1. Definition of Donor’s Tax
Is a tax levied, assessed, collected and paid upon the transfer by any person, resident or non resident, of the property by gift.
1. For Relatives:
2. For Strangers:
A
B C
D E F
G H I J
K L M N O
P Q R S T U
V W X Y Z aa bb
K Donor
G,D,B and A Ascendants (Direct Line)
P, Q, V, W and X Descendants (Direct Line)
L Brother or Sister (Collateral Line)
R Nephew or Niece (Collateral Line)
Y Grandnephew or Grandniece (Collateral Line)
H Uncle or Aunt (Collateral Line)
M First cousin (Collateral Line)
E Granduncle or Grandaunt (Collateral Line)
3) Intangible personal property Receivables or claims against another, bills and coins, bank deposits, shares of stock, bonds or
Rights and claims of the donor certificates of indebtedness, franchise and similar property or rights.
b. Classification of Donor Properties located in the Philippines Properties located in a Foreign Country
Tangible
Intangible personal Tangible personal Intangible personal
Real properties personal Real properties
properties properties properties
properties
Resident Citizen / / / / / /
Non-Resident Citizen / / / / / /
Resident Alien / / / / / /
Non-Resident Alien / / /** X X X
2) Basic Rules
When there is reciprocity - The intangible personal property of non-resident alien situated in the Philippines are not included in the gross gift
When there is no reciprocity - The intangible personal property of non-resident alien situated in the Philippines are included in the gross gift
2. Indirect Gifts
a. Transfer for Less Than Adequate and Full Consideration
Rule: Where a property, other than a real property subject to capital gain tax, is transferred for less than an adequate and full consideration
in 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 donor’s tax, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
Exceptions:
1) Real properties classified as capital assets transferred for less than adequate and full consideration (Capital Gains Tax)
2) Where the owner was compelled to sell his property to minimize his losses.
Exercise:
Determine if the transfer of property is subject to donor’s tax otherwise indicate what applicable tax apples.
FMV of Consideration Applicable Tax
Property Received
Transactions Transferred
1. Computer equipment used in business and transferred to his cousin. P 30,000 P 40,000 RIT
2. Computer equipment for personal use and transferred to his cousin P 50,000 P 40,000 DT
3. Building for rent, sold to his best friend. P 25,000,000 P 23,000,000 DT
PAReX TAX 201 DONOR’S TAX Page 3 of 9
PHILIPPINE ACCOUNTANCY REVIEW FOR EXCELLENCE
RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.
SAMPALOC, MANILA
TEL # (02) 244 6342
TAXATION E.J. GARCIA / J. CO
4. Building for rent, sold to his uncle. P 25,000,000 P 30,000,000 RIT
5. House and lot sold to his sister. P 5,000,000 P 3,000,000 CGT
6. Car for his personal use. P 5,000,000 P 3,000,000 DT
7. Car used in business. P 400,000 P 300,000 DT
b. Forgiveness of Debt
Cancellation and forgiveness of may result into payment of income tax or donor’s tax.
Norma/Regularl Income tax - when the debtor performs services for the creditor, who in return cancels the debt of the debtor. The debtor is
subject to income tax.
Donor’s tax – when the creditor without any consideration received from the debtor cancels the debt of the debtor. The creditor is liable to donor’s
tax.
Final Withholding Tax on Passive Income – When a corporation forgives the debt of a stockholder. It results to a payment of dividends subject
to final withholding tax on passive income.
2) Specific renunciation (in favor of one or more of the heirs but not all heirs)
a) Specific renunciation by an heir of his share in the hereditary estate in favor of one or more of the heirs - not subject to donor’s tax
5. Others
a. Donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services.
b. Transfers a property to a trust in consideration of marriage. (Commissioner V. Wemyss (324 U.S. 303, 1945).
b. 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.
c. Gifts in favor of an educational and/or charitable , religious, cultural or social welfare, corporation, institution, accredited non-
government organization, trust or philanthropic organization or research institution or organization
Requisites:
1) not more than 30% of said gift shall be used by such donee for administration purposes.
Note:
A Non-stock educational and/or charitable corporation, institution, accredited non-government organization, etc. is a school, college or
university and/or charitable corporation, accredited non-government organization etc.:
a. Incorporated as non stock entity
b. Paying no dividends
2. Other Deductions
a. Encumbrance on the property donated if assumed by the done
b. Those specifically provided by the donor as diminution from the property donated
(RMC 30-2016) 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. Only those donations/contributions that have been
utilized/spent “during” the campaign period as set by the COMELEC are exempt from donor’s tax. Donations utilized before or after the
campaign period are subject to donor’s tax.
Exercises:
1. Mr. and Mrs. Bagayao made the following gifts in the years 2013, 2014, 2015 and 2016:
Gifts Date Given Amount Deductible Amount
1. Cash, to their son Ivan, who is getting married on December 31, 2016 03-31-15 P 5,000
2. Cash, to their son Ivan and to their future daughter in-law, Ms. C.A. 12-03-16 P 20,000
3. Jewelry, to their daughter in-law, Ms. C.A. 01-01-16 P 50,000
4. Land, to their daughter and son in-law who got married December 1, 2014. 12-01-15 P 500,000
5. Car, to their daughter and son in-law who got married December 1, 2014 12-31-16 P 1,000,000
6. Car, to their niece Bamby, who is getting married January 1, 2017. 11-01-16 P 50,000
7. Horse, to their driver Antonio, on account of his birthday on December 1, 2015. 03-03-16 P 120,000
8. Cash, to their son Ivan and to their future daughter in-law, Ms. C.A 05-17-16 P 300,000
Compute the deductible dowry of Mr. Bagayao,
a. a resident citizen, for calendar years 2013, 2014. 2015 and 2016?
b. a non-resident alien, for calendar years 2013, 2014. 2015 and 2016?
2. Determine the gross gift and the deduction from each of the following transactions below.
Transactions Gross gift Deduction
1. Land donated, cost P1,000,000; fair market value P1,500,000. It had an unpaid mortgage of P300,000. P1,500,000 P300,000
2. Land donated, cost P1,000,000; zonal value P1,500,000. It had an unpaid mortgage of P300,000. The P1,500,000 P300,000
H. Void Donations/Gifts
1. Under Art. 739 of the new civil code, the following donations shall be void:
a. Those made between persons who were guilty of adultery or concubinage at the time of the donation.
b. Those made between persons found guilty of the same criminal offense, in consideration thereof.
c. Those made to a public officer or his wife, descendants and ascendants, by reason of his office.
In the case referred to in No.1. a., the action for declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the
donor and donee may be proved by preponderance of evidence in the same action.
Exceptions:
1) Moderate gifts, which the spouse may give each other on the occasion of any family rejoicing.
2) Donation mortis causa.
b. Between persons living together as husband and wife without a valid marriage.
g. Parents who have abandoned their children or induced their daughters to lead a corrupt or immoral life, or attempted against their virtue;
h. Any person who has been convicted of an attempt against the life of the testator, his or her spouse, descendants, or ascendants;
i. Any person who has accused the testator of a crime for which the law prescribes imprisonment for six years or more, if the accusation has been
found groundless;
j. Any heir of full age who, having knowledge of the violent death of the testator, should fail to report it to an officer of the law within a month,
unless the authorities have already taken action; this prohibition shall not apply to cases wherein, according to law, there is no obligation to
make an accusation;
k. Any person convicted of adultery or concubinage with the spouse of the testator;
l. Any person who by fraud, violence, intimidation, or undue influence should cause the testator to make a will or to change one already made;
m. Any person who by the same means prevents another from making a will, or from revoking one already made, or who supplants, conceals, or
alters the latter's will;
n. Any person who falsifies or forges a supposed will of the decedent. (756, 673, 674a)
2. If what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor’s tax
purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions
of the Civil Code of the Philippines and the Family Code of the Philippines.
K. Splitting of Gift
1. A tax minimization scheme which is done by spreading the gift over numerous calendar years to avail of lower tax liability.
2. This scheme is legally permissible, means to reduce or escape totally from a possible tax liability.
3. The splitting method is applicable if the donor makes two or more donations during different calendar years. Under the splitting method, since the
donations are made during different calendar years, it is not required to include all donations in the last return.
Amount Deductible:
Limit
Net gift, foreign x Philippine donor’s tax due Allowed Tax
Total net gifts credit (lower
between
actual and
Actual
limit)
Foreign donor’s tax
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Allowed
Limit Limit
(a) - By country xxx
(lower between limit
Limit (b) -limit
(a) and By total
(b) xxx
Limit B – By Total
Exercise:
Mr. Toby Co a non-resident citizen donor, made the following donations on July 15, 2016:
a. To Gorco Co Martin, his teacher, a land with zonal value of P2,000,000 and with an unpaid realty tax of P50,000 based on the land’s value per
real property tax declaration of P3,300,000.
b. To Albert, a legally adopted child, who will be married on March 31, 2017, a condominium unit in Zamboanga, fair market value, P2,510,000.
How much is the Philippine donor’s tax payable after the allowable tax credit?
2. Tax Form
BIR Form 1800-Donor’s Tax Return
25% surcharge Penalty of 25% if there is no false or fraudulent intent on the taxpayer.
50% surcharge Penalty of 50% if there is false, malice, fraudulent intent on the taxpayer.
20% interest Interest of 20% on the unpaid amount of tax from the date computed until fully paid.
Comprehensive Problems
Compute the donors tax payable of Ms. Maria Isabela Freshviter for the year 2015.
January 1, 2015 Gave their legally adopted son and future daughter in law who will be married on March 4, 2016, P15,000.
February 14,2015 Mr. Bigay gave Mrs Bigay a Rolex watch purchased for P750,000 as Valentines gift. Amount is not moderate.
April 9,2015 To the Development Academy of the Philippines (DAP), Land in Tagaytay, value per real property tax declaration,
P600,000; zonal value,P500,000.
May1, 2015 Sold their rest house and car to Mr. Bigay’s sister, P3,000,000 and P300,000 respectively. The rest house had a cost of
P1,000,000 five years ago, a zonal value of P4,000,000 and an assessed value of P3,000,000. The car has a fair market
value of P500,000
August 9,2015 Sold their condominium unit for P3,000,000, fair market value P2,500,000.
December 25, 2015 Donated a common land to the provincial government of Nueva Vizcaya, Fair market value P600,000. It will be used as
a public playground for Vizcayano children.
Mr. and Mrs Bigay donated chairs to St. Louis School. A school operated by the Diocese of Bayombong, Nueva
Vizcaya. pawn value, P150,000.
Mr. and Mrs Bigay gave a land to Mrs. Bigay’s brother, fair market value P600,000. This land was mortgage by the
spouses for P300,000 and paid P100,000 before giving it to Mrs. Bigay’s brother. Mr. and Mrs Bigay will assume the
unpaid mortgage.
March 4,2016 Gave their legally adopted son and daughter in law a land with a fair market value of P1,500,000 on account of the
marriage of the two. The land has an unpaid real property tax of PP50,000. This will be assumed by the donees
April 28, 2016 To their daughter who secretly got married last December 25,2015. P500,000.
Compute the donor’s tax payable of Mr. and Mrs Bigay for years 2015 and 2016.