BUSINESS AND TRANSFER TAXATION

Donation and Donor’s Taxation (Students’ Handouts)

Donation is the gratuitous transfer of property from one person to another.

Essential Requisites of Donation

1. Capacity of the donor
2. Intention to donate
3. Donative act or delivery
4. Acceptance by the done

Formal Requisites of Donation

A. Real properties - must be in a public instrument
B. Personal property
a. Intangible – must be in public instrument
b. Tangible
i. If the value is P5,000 and below – may be made orally
ii. If the value exceeds P5,000 – must be in writing

*An oral donation requires the simultaneous delivery of the thing or of the document representing the
right donated.

Types of Donors
1. Resident or Citizen
2. Non-resident Alien

Illustration
Mr. Kumar donated the following properties:
Philippines Abroad Total
Real properties P1,000,000 P800,000 P1,800,000
Tangible personal properties 400,000 300,000 700,000
Intangible personal properties 200,000 100,000 300,000

Types of Donees
1. Relatives
2. Strangers

DONOR’S TAX
-tax upon the gratuitous transfer of property between two or more living persons at the time of transfer
whether the transfer is direct or in trust and without regard to the type of property transferred.

Nature of Donor’s Tax

1. Privilege tax/Excise tax
2. Proportional*
3. Annual tax
4. Ad valorem
5. National tax
6. Revenue or Fiscal tax

Rationale Behind Donor’s Taxation

1. To control tax evasion of the estate tax
2. To control tax evasion on income tax
3. To recoup future loss of income tax revenue

Exclusions in Gross Gift/Exempt Donations

1. Donations to exempt donees under the NIRC and special laws
2. Donation for election campaign
3. Transfer for insufficient consideration involving real property classified as capital assets
4. General renunciation of inheritance
5. Donation with reserved powers
6. Quasi-transfers
7. Void donations
8. Foreign donations of non-resident alien donors
9. Donation of property exempt under reciprocity

Illustration – General and Specific Renunciation

Don Juan died with a net distributable estate of P1,200,000 for his children Clara, Brenda and Cedie as
heirs. Cedie renounces his P400,000 share in the net estate.

*Renunciation of the surviving spouse of his/her share in the net conjugal or communal properties upon
dissolution of the marriage is taxable regardless of whether the renunciation is specific or general.

Based on R.B.Banggawan’s Business and Transfer Taxation (2019) Page 1 of 3

BUSINESS AND TRANSFER TAXATION
Donation and Donor’s Taxation (Students’ Handouts)

Donor’s Tax Model

Gross Gift P xxx
Less: Deductions from gross gift xxx
Net Gift xxx

The Donor’s Tax Format

Particulars Stranger/Relative
Personal property P xxx
Real property xxx
Total gifts in this return xxx
Less: Deductions xxx
Total net gifts in this return xxx
Add: Prior net gift during the year xxx
Total net gifts subject to tax P xxx
Tax due P xxx
Less: Tax credits xxx
Donor’s tax payable or refundable P xxx

GROSS GIFT – fair value of a taxable donation

Special Considerations on Gross Gift
1. Valuation rules
2. Timing of valuation of donation
• Donation is valued at the point of completion/perfection (acceptance) of donation
3. Donation of common properties
4. Donation to joint donees
5. Encumbrances on the property donated

DEDUCTIONS FROM GROSS GIFT

Who can claim?
Items of Deductions from Gross Gift Residents/Citizens Non-resident aliens
1. Dowry exemptions √ X
2. Obligations assumed by the donees √ √
3. Donation to the government for public use √ √
4. Donation to accredited non-profit institution √ √

1. Dowry Exemption
• P10,000 limit
• Must be given before the celebration of marriage or one year thereafter
• The donee must be a legitimate, recognized natural or an adopted child

Illustration
Mr. and Mrs. X, citizens, donated their condo unit, a conjugal property, with a value of P1,200,000 as
dowry to the daughter, Kathlyn.

Illustration
Jhonny, a resident, made several donations as dowry to his son who is getting married on June 1, 2014.
January 1, 2014 P 2,000
June 1, 2014 5,000
March 15, 2015 2,000
July 1, 2015 5,000

4. Donation to accredited non-profit institution

Accrediting agencies:
• Department of Social Welfare and Development
• Department of Science and Technology
• Philippine Sports Commission
• National Council for Culture and Arts
• Commission on Higher Education

DONOR’S TAX RETURN

• BIR Form 1800
• Must be filed within 30 days after the donation is made
• The computation of donor’s tax is cumulative over a period of one calendar year

Based on R.B.Banggawan’s Business and Transfer Taxation (2019) Page 2 of 3

BUSINESS AND TRANSFER TAXATION
Donation and Donor’s Taxation (Students’ Handouts)

Illustration 1
A citizen donor made the following cash donations during the year:
Date Net Gift Donees
July 1, 201x P 80,000 Relatives
October 15, 201x 200,000 Relatives
50,000 Stranger
November 4, 201x 350,000 Relatives
December 1, 201x 100,000 Strangers
December 12, 201x 450,000 Relatives
January 5, 201x 270,000 Relatives

Illustration 2
Mr. Caticlan, a resident citizen, made the following donations during the year:
• February 2 – donation to his brother who is getting married, P150,000
• April 15 – donation to daughter on account of marriage, P300,000
• August 5 – donation to an accredited non-profit research institution, P400,000
• October 30 – donation of land valued at P500,000 to Mr. Caticlan’s father subject to a condition
that the latter shall assume the P150,000 unpaid real property tax on the property

Illustration 3
Mr. Andres, a non-resident citizen, made the following donations during the year:
• January 14 – P50,000 donated to his mother-in-law
• April 17 – a jewelry worth P500,000 to Mrs. Andres
• July 12 – a residential lot worth P300,000 as wedding gift to his sister and his brother-in-law
who just got married
• August 18 – P200,000 to a public school for public purpose
• December 25 – an agricultural land valued at P2,000,000 jointly to his two brothers subject to
the condition that his brothers will assume the P500,000 mortgage on the property

Illustration 4
Mr. Mamoud, a non-resident alien, made the following donations during the year:
Date of donation Property Location Value
March 24 Car Philippines P300,000
August 2 Land Argentina 600,000
October 10 Shares of stocks Philippines 200,000
November 11 Laptop Philippines 250,000
Additional information:
• The car was intended as a dowry to the daughter of Mr. Mamoud who is getting married in the
Philippines
• The stocks were given to his best friend in the Philippines
• The laptop was donated to his brother who is studying in the Philippines

FOREIGN TAX CREDIT

Limit 1: (Foreign country net gifts/World net gifts) x Philippine donor’s tax due
Limit 2: (Total foreign net gifts/World net gifts) x Philippine donor’s tax due

Illustration
A resident donor made the following donation during the year:
Date Net Gifts Location
March 5 P300,000 Philippines
April 3 100,000 Philippines
May 7 250,000 Abroad*
August 4 350,000 Philippines
*The donor paid P22,000 donor’s tax on the foreign donation.

Based on R.B.Banggawan’s Business and Transfer Taxation (2019) Page 3 of 3