Topic 13 - may arise from fires, storms, shipwreck, or

Allowable Deductions from Gross Estate other casualties, or from robbery, theft or
embezzlement and may be claimed as deduction.
- in the computation of net taxable estate, the gross - provided that, such losses are not
estate of the decedent shall be reduced by compensated for by the insurance, or if insured,
- Ordinary deductions only the amount to the extent not covered for by
-special deductions the insurance may be claimed
- share of the surviving spouse -such losses have not been claimed as a
Residents and Non-resident deduction for the income tax purposes in an income
citizen alien tax return.
Ordinary deductions
THE LAST DAY OF FILING ESTATE TAX
Losses, Indebtedness and Yes Yes
taxes
RETURN IS ONE YEAR AFTER THE DEATH
Transfer for public use Yes Yes OF THE DECEDENT.
Vanishing deductions Yes Yes Example.
Special deductions Juan married to Maria, died on Feb 10, 2020
Family home( max 10m) Yes No
Standard deductions (max Yes Yes (500k)
leaving a total estate of 25000000 of which
5m 17000000 were classified as communal, while the
Benefits received under Yes No 8000000 were exclusive to Juan. The following
RA. 4917 losses were incurred.
Share of surviving spouse Yes Yes
Office building(C) – July 31 2020 – 970000 non
deductible
Points to remember
PersonalGadgets (E) – July 31 2020 – 120000
1. Deductions related to exclusive properties are
deductible
deducted from the exclusive properties, and
Vehicle (E) – Feb 15 2021 – 500000
deductions related to conjugal;/communal
Non deductible
properties are also deducted from such. If not
Apartment (C) – Nov 17 2020 – 900000
traceable then it is deduced to
Only 500000 deductibles to communal
conjugal/communal
- the loss from office building was claimed as an
2. Deductions which are not unattributable to
itemized deduction on his income tac for the year
whether exclusive or conjugal are presumed
2020, all other losses were claimed for estate tax
deductible from conjugal property.
- the vehicle was insured for an amount of 200000
3. All deductions must be duly substantiated, except
- apartment building was also insured of 400000
the Standard Deductions.
INDEBTEDNESS
- are any amount of debts which remains unpaid
upon the death of the decedent.
CLAIMS AGAINST THE ESTATE
- these are obligations of the decedent to creditors
which rain unpaid upon the death of the decedent.
- the indebtedness was duly notarized and, if the
loan was contracted within 3 years before death
LOSSES, INDEBTEDNESS AND TAXES
of decedent, the administrator shall submit a
Losses – incurred during the settlement of the
statement showing the disposition of the proceeds
estate. The loss can only be deducted if happened
of the loan
after the death of the decedent but before the
- a verification as to the beneficiary of the proceeds
filing of estate tax return. Pertains to any
must be made.
properties which are included in the gross estate of
- in case of accommodation only, the amount must
decedent.
also be claimed as receivable included in the gross
estate
 Example:
Juan is a resident of Pasig who died due to accident on march
25. 2021. On his death creditors claimed repayments for
Juan’s outstanding obligations which were as follows,
Creditor Purpose Date Amount
Pedro House renovation- July 13, 2016 1000000
communal
Maria Exclusive farm Sept 31 2020 1400000
ABC bank Hospitalization of Feb 15 2021 2500000
wife
DEF bank accommodation Nov 4 2020 1000000

CLAIMS AGAINST INSOLVENT PERSONS

- these are loans or obligations of a debtor to the
decedent which remains unpaid and which for the
court found the related debtor insolvent.
- for the claims of the deceased against insolvent
persons where the value of the decedent’s
interest therein is included in the value of gross
estate.
UNPAID MORTGAGES TOPIC 14
- unpaid mortgages or any indebtedness shall be TRANSFER FOR PUBLIC USE AND
limited to the extent that they were contracted in VANISHING DEDUCTIONS
money or money’s worth
- for unpaid mortgages in respect to a property, the TRANSFER FOR PUBLIC USE
value of decedent’s interest therein must be - these are donations and contributions, by virtue of
included in the gross estate, undiminished by such death to:
mortgage or indebtedness. -government or its political subdivisions
- can be deducted, provided that the fair value -nongovernmental organizations
of the decedent where the mortgage is attached -charitable and religious institutions
in included in the decedent’s gross estate
ACCRUED AND UNPAID TAXES Provided that not more than 30% ae used for
- taxes must have accrued but not paid as of the administrative purposes and the income of such
time of death institutions does not inure to the benefit of
The following are not deductible private individuals- such as distribution of
- income tax for income received after death profits through dividends. And properties must
- property tax not accrued prior t death also be included in the gross estate o the
- estate tax decedent.

VANISHING DEDUCTIONS
-known as property previously taxed, are allowed to
be deducted from the decedent’s gross estate but the
amount to be deducted are diminished depending on
the years gap from the prior transfer.
- to minimize the effects of double tax on the same
property within a short period of time

Conditions
-there is a property forming a part of the gross estate
of the present decedent situated in the Philippines
-the present decedent acquired the property by
inheritance or donation within 5 years prior to
his death
-the property was previously taxed upon inheritance
or gift

TOPIC 15
STANDARD DEDUCIONS, FAMILY HOME
AND BENEFITS RECEIVED UNDER RA. 4917

Amount of vanishing deductions Special deductions- only residents and citizens

-the amount deducted as vanishing deductions may have the privilege of claiming special deductions
be claimed as follows depending on the interval - with RA 10963, non-resident aliens could now
between the prior transfer to the death of the current enjoy a standard deduction of 500000 while others
decedent. could deduct an amount of 5000000 (resident
More than Not more than Percentage citizens, resident aliens, non-resident citizens)
0 1 years 100% -standard deductions may be deducted without the
1 year 2 years 80 need of substantiation.
2 years 3 years 60
3 years 4 years 40 Family home- must be the actual residential home
4 years 5 years 20 of the decedent and his family at the time of his
5 years xx 0 death, as certified by the Brgy. Captain
- the family home is at fair value at the time of his
death, must be declared and included in the gross
estate of the decedent
- the amount deductible must be equivalent to the
current fair market value of the decedent’s family
home, but not to exceed ten million pesos
- if the family home is conjugal property, it must
be divided by two

BENEFITS RECEIVED UNDER RA 4917

RETIREMENT BENEFITS ACT

- an act that provides any retirement benefits by

employer to their employees upon retirement, death
or voluntary resignation will be exempted to tax
- however despite being exempted from the tax, the
amount must be fully included in the gross estate
-also the same amount must be deducted from the
gross estate under special deductions.

TOPIC 16
SHARE OF THE SURVIVING SPOUSE
- for single and unmarried decedent, the NET 11,370,000
computation of estate tax is simple and TAXABLE
ESTATE
straightforward as there is no need to determine The net taxable estate is now subject to estate tax
whether properties or deductions are exclusive or which is 6%.
communal.
- however, for married decedent, the share of the TOPIC 17
surviving spouse from the conjugal or communal ESTATE TAX COMPUTATION- FOR SINGLE
property is allowed as deduction from total gross DECEDENTS
estate to arrive at net taxable estate.
-according to Sec. 84 of National Internal Revenue
EXAMPLE Code, as amended by Ra 10963. Rate of estate tax.
- juan is married to maria, died leaving the ff: There shall be levied, assessed, collected ad paid
Family home, exclusive to juan– 13,000,000 upon the transfer of the net estate as determined in
Other exclusive properties- 7.600.000 accordance with sections 85 and 86 of every
Communal properties- 15,000,000 decedent, whether resident or non-resident of the
Deductions claimed: Philippines, a tax at the rate of 6% based on the
Unpaid obligations- 1,500,000 value of such net estate.
Losses on communal propertied occurred 3 months
after death due to fire with 1000 insurance- 500,000 ILUSTRATION
Donation mortis causa to city of Makati from Juan, single, a citizen of the Philippines and a
exclusive properties- 780,000 resident of BOHOL, died on Jan 26 2021, leaving
exclusive communal total
the ff:
Family home 13,000,000 13,000,000 Agricultural land, inherited form the father FV was
Other exclusive 7,600,000 7,600,000 10m two years ago – 12,000,000
properties Personal properties - 3,600,000
Communal 15,000,000 15,000,000 Family home – 7,000,000
properties Claims against Pedro(insolvent) – 1,000,000
Total 20,600,000 15,000000 35,600000 Proceeds of life insurance, the estate being the
Ordinary beneficiary – 1,400,000
deductions Deductions claimed:
Unpaid -1,500,000 -1,500,000
obligations - unpaid assumed was 1,000,000 – 400,000
Losses on -400,000 -400,000 -other obligations two years ago- 550,000
communal Accrued and unpaid taxes at the time of his death –
properties 300,000
Transfer for -780,000 -780,000
public use Losss incurred on his farm in Bohol march 3 2021 –
350,000
ESTATE 19,820,000 13,100,000 32,920,000 Donation to charity- 500,000
AFTER
ORDINARY
DEDUCTIONS COMPUTATION OF GROSS ESTATE
Special
deductions Agricultural land 12,000,000
Standard -5,000,000 Personal Properties 3,600,000
deduction Family home 7,000,000
Family home- -10,000000 Claims against pedro 1,000,000
exclusive
property Proceeds of life insurance 1,400,000
Share of the -6,550,000 Total gross estate 25,000,000
surviving spouse Ordinary deductions
(13,100,000/2) Losses incurred din Bohol -350,000
 Unpaid mortgage -400,000 Exclusive personal properties- 10,600,000
Other obligations -550,000 Exclusive real properties inherited from his mother
Claims against pedro -1,000,000
1 ½ years ago – 5,000,000
Accrued and unpaid taxes -300,000
Communal properties – 11,400,000
Donation to charity -500,000
Deductions claimes
TOTAL LIT AND PUBLIC (3100000)
TRANSFER
Unpaid mortgages 800,000, now – 200,000
Vanishing deductions (7,600,000) Unpaid obligations – 1,500,000
-Fv time of transfer 10,000,000 – Losses on communal properties, occurred 3 months
mortgage paid by Juan 200,000 after the death due to fire with 100,00 insurances –
Initial basis= 9,400,000
Less: Deductible portion of lit and 500,000
tpu (9400,000/25,000,000 x 3,100,000) Donation mortis causa, exclusive – 780,000
1,165,600 exclusive communal total
Final basis = 8234,400 Family home 13,000,000 13,000,000
Rate 60%
Vanishing deductions= 4,490,640 Exclusive 10,600,000 10,600,000
personal
properties
NET ESTATE AFTER ORDINARY 16,959,360 Exclusive 5,000,000 5,000,000
DEDUCTIONS personal
LESS; standard deduction -5,000,000 properties-
Family home -7,000,000 inherited
Communal 11,400,000 11,400,000
NET TAXABLE ESTATE 4,959,360 properties
ESTATE TAX RATE 6% GROSS 15,600,000 24,400,000 40,000,000
ESTATE TAX DUE AND 297,561.60 ESTATE
PAYABLE Ordinary
deductions
Unpaid 200,000
mortgage
Unpaid 1,500,000 1,500,000
obligations
Losses on 400,000 400,000
communal
properties
Donation to 780,000 780,000
Makati
ORDINARY 980,000 1,900,000 2,880,000
DEDUCTION
S
TOPIC 18 Vanishing 3,266,560
ESTATE TAX FOR MARRIED DECEDENT deduction
Initial basis-
Legal basis – according to sec. 84 of the National mortgage paid
(5,000,000 –
Internal Revenue Code, as amended y RA. 10963 600,000) =
Rate of estate tax. There shall be levied, assessed, 4,400,000
collected ad paid upon the transfer of the net estate Less:
4400,000/
as determined in accordance with sections 85 and 40,000,000 x
86 of every decedent, whether resident or non- 2,880,000
resident of the Philippines, a tax at the rate of (316,800)
FINAL BASIS
6% based on the value of such net estate.
– 4,083,200 X
80% applied
ILLUSTRATION rate =
3,266,560
ESTATE after 33,853,440
Family home, communal – 13,000,000 ordinary
 deductions Philippines Hungary Total
Standard 5,000,000
deduction
Family home 6,500,000
13,000,000 /2
Share of the 11,250,000
surviving
spouse
22500,000 / 2
NET 11,103,440
TAXABLE
ESTATE 6%
RATE
ESTATE TAX 666,206.40
DUE

TOPIC 19
ESTATE TAX FOR NON RESIDENT ALIEN
DECEDENT

Legal basis – according to sec. 84 of the National

Internal Revenue Code, as amended y RA. 10963
Rate of estate tax. There shall be levied, assessed,
collected ad paid upon the transfer of the net estate
as determined in accordance with sections 85 and
86 of every decedent, whether resident or non-
resident of the Philippines, a tax at the rate of
6% based on the value of such net estate.

DEDUCTIONS ALLOWED
 Standard deduction – 500,000
 Proportion of LIT deductions which the
value of such part bears to the value of his
entire gross estate wherever situated
 Vanishing deductions
 Transfer for public use
 Share of the surviving spouse in the
communal property

ILLUSTRATION
Family home 13000000 13000000

Personal 7000000 10600000 17600000

properties
Other real 4000000 4000000
properties
Cash deposits 2400000 3000000 5400000

GROSS 9400000 30600000 40000000

ESTATE
Deductions
claimed
Unpaid 800000 800000
mortgage on
family home
Other unpaid 1500000 500000 2000000
obligations

Losses in 1200000 2000000 3200000

personal
property
Estate tax 1000000 1000000
paid in
Hungary
WORLD LIT 6000000

ORDINARY 6000000
DEDUCTIO (9400000
N /40000000)
World lit x = 1410000
phil. Gross
estate/ world
gross estate
Standard 500000
deduction
Net taxable 7490000
estate
Rate X6%
ESTATE 449,400
DUE AND
PAYABLE
 TOPIC 20
COMPUTATION OF ESTATE TAX

Legal basis – according to sec. 84 of the National Internal Revenue Code, as amended by RA. 10963
Rate of estate tax. There shall be levied, assessed, collected ad paid upon the transfer of the net estate as
determined in accordance with sections 85 and 86 of every decedent, whether resident or non-resident of
the Philippines, a tax at the rate of 6% based on the value of such net estate

ILLUSTRATION

Philippines Japan Total

Family home communal 13000000 13000000
Exclusive personal properties 7000000 10600000 17600000
Other personal properties, exc 4000000 4000000

Cash deposits, exc 2400000 3000000 5400000

Investments, communal 5000000 8000000 13000000

GROSS ESTATE 9400000 18000000 17600000 8000000 53000000

Npaid mortgage on family home -800000 -800000

Other unpaid obligations -1500000 -500000 -3200000

Loess on personal properties -1200000 -2000000 -3200000

ESTATE AFTER ORDINARY 8200000 15700000 15600000 7500000 47000000

DEDUCTIONS
Standard deduction -5000000

Family home, communal -6500000

13000000/ 2
Share of the surviving spouse -11600000
15700000+7500000/2
NET TAXABLE ESTATE 23,900000
TAX RATE 6%
ESTATE TAX DUE 1,434,000
ESTATE TAX CREDIT 1000000
ESTATE TAX DUE AND 434,000
PAYABLE

TAX CREDIT
PHILIPPINES JAPAN TOTAL
 GROSS ESTATE 27400000 25600000 53000000
ORDINARY -3500000 -2500000 -600000
DEDUCTIONS
FAMILYHOME -6500000 -6500000
STANDARD -2500000 -2500000 -500000
DEDUCTIONS
SHARE OF THE -7850000 -3750000 -11600000
SPOUSE
NET TAXABLE 7050000 16850000 23900000
ESTATE

NET TAXBALE ESTATE IN JAPAN/TOTAL NET TAXABLE ESTATE X ESTATE TAX DUE =
LIMIT
16,8500000/ 23,900,000 X 1,434,000 = 1,011,000 IS GREATER THAN THE 1,000,000 LIMIT

TOPIC 21 CONCEPT OF DONATION Donative intent

ELEMENTS AND VOID DONATIONS
Four elements
Capacity of the donor
- he has the right to transfer or dispose the property
(he owns the property donated)
- he is mentally capable of entering into donation
being a real contract (involved delivery)
- does not deprive his legal heirs
It not necessary that the donee is capacitated at the
time of donation as long as the guardian, in favor of
the donee, is capacitated.
- donation must be construed strictly and is not
presumed
- the donative intent is evidenced by complying
certain legal requirements.
-donation of real properties must be in
public instrument (notarized and registered)
-donation of real properties: if the amount is
not more than 5,000, may be done orally. But a
concurrent delivery of the thing must be made.
- if the amount is more than 5,000 must
be in writing, whether is public or private
instrument.
- donative intent is only necessary for direct gifts
- donative intent is not necessary for indirect gifts

Delivery of the gift
- as a real contract, there must be a delivery of the
gift so that the donation is completed
- delivery of the gift completes the donation, hence
the imposition of the tax shall accrue
- upon delivery, the donor’s tax shall accrue
Delivery may be done through:
-actual delivery – delivery of a thing from hand to
hand if it is movable
- constructive delivery
- traditio symbolica- key, title
- traditio longa mano- pointing out the
thing
- traditio brevu mano- property already in
the hands of the donee at the time of donation
- tradition constitutum possesorium-
Donor alienated a thing belonging to him, but
continues in possession thereof under a different
title.
Acceptance of the gift
- the donation is perfected once the gift is accepted
by the donee
- if the donation is in writing, the acceptance may
be made in the same instrument of donation or in
separate paper.
- acceptance by a guardian in favor of the ward
maybe done
- the donation is only perfected upon the knowledge
of the donor of the acceptance of the donee
- the donee cannot be compelled to accept gifts; he
has right to refuse so
VOID AND INEFFECTIVE DONATION
1. those not perfected in accordance with the forms
and solemnities of the law.
2. those made with property outside the commerce
of man.
3. those made with future property except those
provided in marriage settlement
4. those made to persons specially disqualified
5. by reason of possible undue influence.
DONATION BY THE HUSBAND AND WIFE
- donation made by the husband and the wife from
communal or conjugal is valid, provided they
concur to the basic elements of donation
- in such case, the gift is taxable one-half to each
donor spouse
- neither spouse can donate a conjugal or communal
property without the consent of the other.
- but any of the spouse may donate properties from
his or her exclusive properties, without the rights of
legal heirs.
DONATION BETWEEN HUSBAND AND WIFE
-declared void by law
- every donation or grant of gratuitous
advantage, direct or indirect, between the
spouses during the marriage shall be void, except
moderate gifts which the spouses give each other
on the occasion of any family rejoicing. The
prohibition shall also apply to the persons living
together as husband and wife without a valid
marriage. Art. 87 of the family code.
- to prevent the weaker spouse being influenced by
the stronger spouse
- to protect creditors
TOPIC 22
DONOR’S TAX
Nature of donor’s tax
- donor’s tax is a tax on the privilege of the donor to
give.
- it is a transfer tax which accrues only upon the
transfer of the thing donated.
- not a property tax, but it is a tax imposed on the
transfer of the property by way of gifts during the
lifetime of the donor.
- it is an excise tax imposed upon the right of a
person to transfer property gratuitously during his
lifetime.
CLASSIFICATION OF DONORS
 Residents and citizens – taxable globally
 Non-resident alien – only in the Philippines
o With reciprocity – in respect to
intangible properties
 o Without reciprocity – in respect to
intangible properties
PROFORMA COMPUTATION OF DONOR’S
TAX
Gross gift (current)
Less: Deductions from gross gift
Current net gift
Add: prior net gifts
Total net gifts
Less: exemption threshold (250,000)
Taxable net gifts
Tax rate (6%)
Donor’s tax due
Less: donor’s tax paid previously
Donor’s tax due and payable
GROSS GIFT
 Direct gift (donor to donee)
 Gift through creation of trust (indirect)
 Condonation of debt
 Repudiation of inheritance if:
o Specifically, and categorically done
in favor of identified heirs
o Exclusion or disadvantage of other
co-heirs
 Renunciation by the surviving spouse of
his/her share in the conjugal partnership or
absolute community after the dissolution of
the marriage in favor of the heirs of the
deceased spouse or any other person/s
 Transfer of personal properties for
insufficient consideration: provided that it is
not in contemplation of death, revocable
transfer or transfer under general power of
rappointment, otherwise, it will be subject to
estate tax.
If the sale, exchange or transfer was made in the
ordinary course of business (bona fide, at arm’s
length, and free from any donative intent), it
shall be treated as a valid sale with full of
adequate consideration in money or money’s
worth.
VALUATION OF GROSS GIFT
1. as a rule, the value of the thing donated shall
be the fair market value when the gift was made
(as of the time of donation)
2. 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.
o Real properties are valued at their Fair
market value (appraised or assessed
value) at the time of donation
o Personal properties are valued at their
fair values
o Cash donations are valued at face value
o Stocks are valued under the rules of
prescribed by Rev. Reg. 6-2008, and
Rev. Reg. 20-2020
o Usufructuary rights are valued in
consideration of the basic standard
mortality table
GIFTS EXEMPTED FROM DONOR’S TAX
UNDER SPECIAL LAWS
o Gifts made to or for the use of 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
o Gifts in of an educational and/or charitable,
religious, cultural, or social welfare
corporation, institution, accredited non-
government organization, trust or
philanthropic organization or research
institution: provided, however that not more
than 30% of said gifts shall be used by such
donee for administration purposes
DESTROYED DONATIONS
- gifts destroyed after they have been delivered
are considered as valid donations. Thus, even if
it had been destroyed already, the donation shall
be subject to donor’s tax still.
- total destruction has nothing to do with the
donor’s tax liability when the thing donated is
already delivered.