Compiles BusTax M1 M3

FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

1st Sem
Department of Accountancy 2021-2022
BUSINESS TAXATION
MODULE 1 – SUCCESSION
SUCCESSION
Governing Law:
Republic Act No. 386 or the Civil Code of the Philippines which is effective August 1, 1950
Modes of Acquiring Ownership:
• Occupation
• Law
• Donation
• Tradition
• Intellectual Creation
• Prescription
• Succession
Definition of Terms:
1. Succession -- is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death
to another or others either by his will or by operation of law.
2. Decedent is the general term applied to the person whose property is transmitted through
succession, whether or not he left a will. If he left a will, he is also called the testator.
3. An heir is a person called to the succession either by the provision of a will or by operation
of law. Devisees and legatees are persons to whom gifts of real and personal property are
respectively given by virtue of a will.
4. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death. The inheritance of a person includes not only the property and
the transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.
5. Legitime is that part of the testator's property which he cannot dispose of because the law
has reserved it for certain heirs who are, therefore, called compulsory heirs.
6. Compulsory heirs:
a. Legitimate children and descendants, with respect to their legitimate parents and
ascendants
b. In default of the foregoing, legitimate parents and ascendants, with respect to their
legitimate children and descendants
c. The widow or widower
d. Illegitimate Children* (filiation must be proved)
7. An executor (male) or executrix (female) is the person named in a will to perform these
duties.
8. An administrator (male) or administratrix (female) is the person appointed by the probate
court to complete these tasks when there is no will or no executor or executrix has been
named in the will.
9. Accrual - The rights to the succession are transmitted from the moment of the death of the
decedent. Payment of taxes accrues from the time of death of the decedent. (RR 2-2003, as
amended)
Kinds of Succession:
1. Testamentary
2. Legal or intestate
3. Mixed
As to effectivity:
1. Inter vivos
2. Mortis Causa
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Testamentary Succession – is that which results from the designation of an heir, made in a will
executed in the form prescribed by law.
Legal or Intestate Succession
1. If a person dies without a will
2. With a void will
3. With a will which has subsequently lost its validity
4. When the will does not institute an heir to, or dispose of all the property belonging to the
testator
5. If the suspensive condition attached to the institution of heir does not happen or is not
fulfilled
6. If the heir dies before the testator
7. If the heir repudiates the inheritance, there being no substitution, and no right of accretion
takes place;
8. When the heir instituted is incapable of succeeding, except in cases provided in the Civil
Code.
Mixed Succession - is that effected partly by will and partly by operation of law.
TESTAMENTARY SUCCESSION
Wills in General –
A will is an act whereby a person is permitted, with the formalities prescribed by law, to control to
a certain degree the disposition of this estate, to take effect after his death.
The making of a will is a strictly personal act; it cannot be left in whole or in part to the discretion of
a third person, or accomplished through the instrumentality of an agent or attorney.
The testator may entrust to a third person the distribution of specific property or sums of money
that he may leave in general to specified classes or causes, and also the designation of the persons,
institutions or establishments to which such property or sums are to be given or applied.
The testator may not make a testamentary disposition in such manner that another person has to
determine whether or not it is to be operative.
When there is an imperfect description, or when no person or property exactly answers the
description, mistakes and omissions must be corrected, if the error appears from the context of the
will or from extrinsic evidence, excluding the oral declarations of the testator as to his intention;
and when an uncertainty arises upon the face of the will, as to the application of any of its
provisions, the testator's intention is to be ascertained from the words of the will, taking into
consideration the circumstances under which it was made, excluding such oral declarations.
Testamentary Capacity and Intent
• All persons who are not expressly prohibited by law may make a will.
• Persons of either sex under eighteen years of age cannot make a will.
• In order to make a will it is essential that the testator be of sound mind at the time of its
execution.
• To be of sound mind, it is not necessary that the testator be in full possession of all his
reasoning faculties, or that his mind be wholly unbroken, unimpaired, or unshattered by
disease, injury or other cause. It shall be sufficient if the testator was able at the time of
making the will to know the nature of the estate to be disposed of, the proper objects of his
bounty, and the character of the testamentary act.
• The law presumes that every person is of sound mind, in the absence of proof to the
contrary. The burden of proof that the testator was not of sound mind at the time of
making his dispositions is on the person who opposes the probate of the will; but if the
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testator, one month, or less, before making his will was publicly known to be insane, the
person who maintains the validity of the will must prove that the testator made it during a
lucid interval.
• Supervening incapacity does not invalidate an effective will, nor is the will of an incapable
validated by the supervening of capacity.
• A married woman may make a will without the consent of her husband, and without the
authority of the court.
• A married woman may dispose by will of all her separate property as well as her share of
the conjugal partnership or absolute community property
Forms of Wills
Every will must be in writing and executed in a language or dialect known to the testator.
NOTARIAL WILL
Every will, other than a holographic will, must be subscribed at the end thereof by the testator
himself or by the testator's name written by some other person in his presence, and by his express
direction, and attested and subscribed by three or more credible witnesses in the presence of the
testator and of one another.
The testator or the person requested by him to write his name and the instrumental witnesses of
the will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin, and all the pages shall be numbered correlatively in letters placed on the upper part of
each page. The attestation clause xxx.
Every will must be acknowledged before a notary public by the testator and the witnesses.
If the testator be deaf, or a deaf-mute, he must personally read the will, if able to do so; otherwise,
he shall designate two persons to read it and communicate to him, in some practicable manner,
the contents thereof.
If the testator is blind, the will shall be read to him twice; once, by one of the subscribing witnesses,
and again, by the notary public before whom the will is acknowledged.
In the absence of bad faith, forgery, or fraud, or undue and improper pressure and influence,
defects and imperfections in the form of attestation or in the language used therein shall not
render the will invalid if it is proved that the will was in fact executed and attested in substantial
compliance with all the requirements of article 805.
HOLOGRAPHIC WILL
A person may execute a holographic will which must be entirely written, dated, and signed by the
hand of the testator himself. It is subject to no other form, and may be made in or out of the
Philippines, and need not be witnessed.
In holographic wills, the dispositions of the testator written below his signature must be dated and
signed by him in order to make them valid as testamentary dispositions
In the probate of a holographic will, it shall be necessary that at least one witness who knows the
handwriting and signature of the testator explicitly declare that the will and the signature are in the
handwriting of the testator. If the will is contested, at least three of such witnesses shall be
required. In the absence of any competent witness referred to in the preceding paragraph, and if
the court deem it necessary, expert testimony may be resorted to.
When a number of dispositions appearing in a holographic will are signed without being dated, and
the last disposition has a signature and a date, such date validates the dispositions preceding it,
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whatever be the time of prior dispositions.
In case of any insertion, cancellation, erasure or alteration in a holographic will, the testator must
authenticate the same by his full signature.
When a Filipino is in a foreign country, he is authorized to make a will in any of the forms
established by the law of the country in which he may be. Such will may be probated in the
Philippines
Two or more persons cannot make a will jointly, or in the same instrument, either for their
reciprocal benefit or for the benefit of a third person.
Wills, prohibited by the preceding article, executed by Filipinos in a foreign country shall not be
valid in the Philippines, even though authorized by the laws of the country where they may have
been executed.
Activity:
Draft a Holographic Will
Witnesses to Wills
Any person of sound mind and of the age of eighteen years or more, and not blind, deaf or dumb,
and able to read and write, may be a witness to the execution of a will mentioned in Article 805 of
this Code.
The following are disqualified from being witnesses to a will:

1. Any person not domiciled in the Philippines;
2. Those who have been convicted of falsification of a document, perjury or false testimony.
If the witnesses attesting the execution of a will are competent at the time of attesting, their
becoming subsequently incompetent shall not prevent the allowance of the will.
If a person attests the execution of a will, to whom or to whose spouse, or parent, or child, a devise
or legacy is given by such will, such devise or legacy shall, so far only as concerns such person, or
spouse, or parent, or child of such person, or any one claiming under such person or spouse, or
parent, or child, be void, unless there are three other competent witnesses to such will. However,
such person so attesting shall be admitted as a witness as if such devise or legacy had not been
made or given.
Revocation of Wills and Testamentary Dispositions
A will may be revoked by the testator at any time before his death. Any waiver or restriction of this
right is void.
A revocation done outside the Philippines, by a person who does not have his domicile in this
country, is valid when it is done according to the law of the place where the will was made, or
according to the law of the place in which the testator had his domicile at the time; and if the
revocation takes place in this country, when it is in accordance with the provisions of this Code.
No will shall be revoked except in the following:

1. By implication of law; or
2. By some will, codicil, or other writing executed as provided in case of wills; or
3. By burning, tearing, cancelling, or obliterating the will with the intention of revoking it, by
the testator himself, or by some other person in his presence, and by his express direction.
If burned, torn, cancelled, or obliterated by some other person, without the express
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direction of the testator, the will may still be established, and the estate distributed in
accordance therewith, if its contents, and due execution, and the fact of its unauthorized
destruction, cancellation, or obliteration are established according to the Rules of Court.
Probate of Wills (Allowance and Disallowance of Wills)
No will shall pass either real or personal property unless it is proved and allowed in accordance
with the Rules of Court. The testator himself may, during his lifetime, petition the court having
jurisdiction for the allowance of his will. In such case, the pertinent provisions of the Rules of Court
for the allowance of wills after the testator's a death shall govern. xxx. Subject to the right of
appeal, the allowance of the will, either during the lifetime of the testator or after his death, shall
be conclusive as to its due execution.
The will shall be disallowed in any of the following cases:

1. If the formalities required by law have not been complied with
2. If the testator was insane, or otherwise mentally incapable of making a will, at the time of
its execution
3. If it was executed through force or under duress, or the influence of fear, or threats
4. If it was procured by undue and improper pressure and influence, on the part of the
beneficiary or of some other person
5. If the signature of the testator was procured by fraud
6. If the testator acted by mistake or did not intend that the instrument he signed should be
his will at the time of affixing his signature thereto
Institution of Heir
Institution of heir is an act by virtue of which a testator designates in his will the person or persons
who are to succeed him in his property and transmissible rights and obligations.
A will shall be valid even though it should not contain an institution of an heir, or such institution
should not comprise the entire estate, and even though the person so instituted should not accept
the inheritance or should be incapacitated to succeed. In such cases the testamentary dispositions
made in accordance with law shall be complied with and the remainder of the estate shall pass to
the legal heirs
The testator shall designate the heir by his name and surname, and when there are two persons
having the same names, he shall indicate some circumstance by which the instituted heir may be
known. Even though the testator may have omitted the name of the heir, should he designate him
in such manner that there can be no doubt as to who has been instituted, the institution shall be
valid.
An error in the name, surname, or circumstances of the heir shall not vitiate the institution when it
is possible, in any other manner, to know with certainty the person instituted. If among persons
having the same names and surnames, there is a similarity of circumstances in such a way that,
even with the use of other proof, the person instituted cannot be identified, none of them shall be
an heir.
Every disposition in favor of an unknown person shall be void, unless by some event or
circumstance his identity becomes certain. However, a disposition in favor of a definite class or
group of persons shall be valid.
Heirs instituted without designation of shares shall inherit in equal parts.
The preterition or omission of one, some, or all of the compulsory heirs in the direct line, whether
living at the time of the execution of the will or born after the death of the testator, shall annul the
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institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious. If
the omitted compulsory heirs should die before the testator, the institution shall be effectual,
without prejudice to the right of representation.
The share of a child or descendant omitted in a will must first be taken from the part of the estate
not disposed of by the will, if any; if that is not sufficient, so much as may be necessary must be
taken proportionally from the shares of the other compulsory heirs.
A voluntary heir who dies before the testator transmits nothing to his heirs. A compulsory heir who
dies before the testator, a person incapacitated to succeed, and one who renounces the
inheritance, shall transmit no right to his own heirs except in cases expressly provided for in this
Code
Disposition of Estate
One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor of
any person having capacity to succeed.
One who has compulsory heirs may dispose of his estate provided he does not contravene the
provisions of this Code with regard to the legitime of said heirs.
Substitution of Heirs
Substitution is the appointment of another heir so that he may enter into the inheritance in default
of the heir originally instituted.
Conditional Testamentary Dispositions and Testamentary Dispositions With a Term
The institution of an heir may be made conditionally, or for a certain purpose or cause.
The testator cannot impose any charge, condition, or substitution whatsoever upon the legitimes
prescribed in this Code. Should he do so, the same shall be considered as not imposed.
Article 873. Impossible conditions and those contrary to law or good customs shall be considered
as not imposed and shall in no manner prejudice the heir, even if the testator should otherwise
provide.
Table of Legitime and Intestate Share
Surviving heir Legitime Intestate share
Illegitimate children 1/3
1/2
Surviving spouse 1/3
1/2
(Art. 894, NCC) 1/3 free portion
Illegitimate children 1/4
1/4
Surviving spouse 1/8
1/4
Legitimate parents 1/2
1/2
(Art. 899, NCC) 1/8 free portion
1/2 (divided by number of
Legitimate children alone legitimate children) All
1/2 free portion
1/2
Legitimate parents alone All
1/2 free portion
1/2
Illegitimate parents alone All
1/2 free portion
1/2 or 1/3*,
Surviving spouse alone 1/2 or 2/3 (free portion) All
*In articulo mortis
1/2 (divided by the number of
Legitimate children (or their
children) All
descendants) alone
1/2 free portion
One legitimate child (or 1/2 1/2
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descendant) 1/4 1/2

Surviving spouse 1/4 free portion
Two or more legitimate 1/2 (divided by the number of
children (or their children) Consider spouse as 1
descendants) Equal to the share of one legitimate child and divide
Surviving spouse child estate by total number
(Art. 892, NCC) Remainder is free portion
1/2 1/2
Surviving spouse 1/2 free portion 1/2 (divided by the number of
Not entitled to anything since brothers and sisters; nephews
Brothers and sisters (nephews they are not compulsory and nieces of deceased
and nieces, in case of heirs; testator may choose to siblings divide among
deceased siblings) give them something out of themselves the share that
the free portion should have to their parents)
Activity:
Assumptions:
1. the total property is Php1 Million
2. that the legitimate child is survived with one parent.
3. Free portion is given to the legitimate child.
How much is the share in:
1. testate
2. intestate
Disinheritance
A compulsory heir may, in consequence of disinheritance, be deprived of his legitime, for causes
expressly stated by law.
Disinheritance can be effected only through a will wherein the legal cause therefor shall be
specified.
The burden of proving the truth of the cause for disinheritance shall rest upon the other heirs of
the testator, if the disinherited heir should deny it.
Disinheritance without a specification of the cause, or for a cause the truth of which, if
contradicted, is not proved, or which is not one of those set forth in this Code, shall annul the
institution of heirs insofar as it may prejudice the person disinherited; but the devises and legacies
and other testamentary dispositions shall be valid to such extent as will not impair the legitime.
Common Causes for Disinheritance
Children and Descendants Parents or Spouse
Ascendants
When a child or descendant When the parent or When the spouse has been
has been found guilty of an ascendant has been convicted convicted of an attempt
attempt against the life of the of an attempt against the life against the life of the testator,
testator, his or her spouse, of the testator, his or her his or her descendants, or
descendants, or ascendants spouse, descendants, or ascendants
ascendants
When a child or descendant When the parent or When the spouse has
has accused the testator of a ascendant has accused the accused the testator of a
crime for which the law testator of a crime for which crime for which the law
prescribes imprisonment for the law prescribes prescribes imprisonment of
six years or more, if the imprisonment for six years or six years or more, and the
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accusation has been found more, if the accusation has accusation has been found to
groundless been found to be false be false
When a child or descendant When the parent or
has been convicted of ascendant has been convicted
adultery or concubinage with of adultery or concubinage
the spouse of the testator with the spouse of the
testator
When a child or descendant When the parent or When the spouse by fraud,
by fraud, violence, ascendant by fraud, violence, violence, intimidation, or
intimidation, or undue intimidation, or undue undue influence cause the
influence causes the testator influence causes the testator testator to make a will or to
to make a will or to change to make a will or to change change one already made
one already made one already made
A refusal without justifiable Unjustifiable refusal to
cause to support the parent support the children or the
or ascendant who disinherits other spouse.
such child or descendant
Other Causes for Disinheritance
Children and Descendants Parents or Spouse
Ascendants
Maltreatment of the testator When the parents have When the spouse has given
by word or deed, by the child abandoned their children or grounds for the loss of
or descendant induced their daughters to parental authority
live a corrupt or immoral life,
or attempted against their
virtue
When a child or descendant The loss of parental authority When the spouse has given
leads a dishonorable or for causes specified in this cause for legal separation
disgraceful life Code
Conviction of a crime which The refusal to support the
carries with it the penalty of children or descendants
civil interdiction without justifiable cause
An attempt by one of the

parents against the life of the
other, unless there has been a
reconciliation between them.
Disinheritance
A subsequent reconciliation between the offender and the offended person deprives the latter of
the right to disinherit, and renders ineffectual any disinheritance that may have been made.
The children and descendants of the person disinherited shall take his or her place and shall
preserve the rights of compulsory heirs with respect to the legitime; but the disinherited parent
shall not have the usufruct or administration of the property which constitutes the legitime.
Relationship
Proximity of relationship is determined by the number of generations. Each generation forms a
degree.
A series of degrees forms a line, which may be either direct or collateral. A direct line is that
constituted by the series of degrees among ascendants and descendants. A collateral line is that
constituted by the series of degrees among persons who are not ascendants and descendants, but
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who come from a common ancestor
The direct line is either descending or ascending. The former unites the head of the family with
those who descend from him. The latter binds a person with those from whom he descends.
In the line, as many degrees are counted as there are generations or persons, excluding the
progenitor. In the direct line, ascent is made to the common ancestor. Thus, the child is one degree
removed from the parent, two from the grandfather, and three from the great-grandparent. In the
collateral line, ascent is made to the common ancestor and then descent is made to the person
with whom the computation is to be made. Thus, a person is two degrees removed from his
brother, three from his uncle, who is the brother of his father, four from his first cousin, and so
forth.
Full-blood relationship is that existing between persons who have the same father and the same
mother. Half-blood relationship is that existing between persons who have the same father, but
not the same mother, or the same mother, but not the same father.
Blood Lines
Direct Line Collateral Line
l
Descending / Ascending
1 -
~
R elat i o n s h i p
•~ GCommon
rand Parent
Ancestoir
s~
2 nd 3 rd d eg r ee
I Pa r ents
I I Aun t /Uncle
I
1 st deg r ee 4 th degr-ee
Collateral line
I You
I I 1 st Cous i n
I
?
Activity:
What is the degree of relationship with:

1. Your child
2. Your brother or sister
3. Child of your 1st cousin
4. Your BF or GF
Order of Succession in Legal or Intestate Succession

• Descending Direct Line
• Ascending Direct Line
• Illegitimate Children
• Surviving Spouse
• Collateral Relatives
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• The State
Incapacity to Succeed
The following are incapable of succeeding:
1. The priest who heard the confession of the testator during his last illness, or the minister of
the gospel who extended spiritual aid to him during the same period;
2. The relatives of such priest or minister of the gospel within the fourth degree, the church,
order, chapter, community, organization, or institution to which such priest or minister may
belong;
3. A guardian with respect to testamentary dispositions given by a ward in his favor before the
final accounts of the guardianship have been approved, even if the testator should die after
the approval thereof; nevertheless, any provision made by the ward in favor of the guardian
when the latter is his ascendant, descendant, brother, sister, or spouse, shall be valid;
4. Any attesting witness to the execution of a will, the spouse, parents, or children, or any one
claiming under such witness, spouse, parents, or children;
5. Any physician, surgeon, nurse, health officer or druggist who took care of the testator
during his last illness;
6. Individuals, associations and corporations not permitted by law to inherit.
Incapacity to Succeed by Reason of Unworthiness
The following are incapable of succeeding by reason of unworthiness:
1. Parents who have abandoned their children or induced their daughters to lead a corrupt or
immoral life, or attempted against their virtue
2. Any person who has been convicted of an attempt against the life of the testator, his or her
spouse, descendants, or ascendants
3. 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
4. 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
5. Any person convicted of adultery or concubinage with the spouse of the testator
6. Any person who by fraud, violence, intimidation, or undue influence should cause the
testator to make a will or to change one already made
7. 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
8. Any person who falsifies or forges a supposed will of the decedent.
END
Reference: Republic Act No. 386 or the Civil Code of the Philippines
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MODULE 2 – ESTATE TAX
Estate Tax – tax on the privilege of the decedent to transmit his estate at death to his lawful heirs or
beneficiaries.
Notes:
1. Estate tax return (BIR Form 1801) is filed and estate tax is paid to the BIR for the purpose of
acquiring an electronic Certificate Authorizing Registration (e-CAR). The e-CAR is proof that
appropriate taxes was paid.
2. Estate tax is one of the one-time-transaction (ONETT) under BIR rules.
Rate of Estate Tax
The net estate of every decedent, whether resident or non-resident of the Philippines, shall be
subject to an estate tax at the rate of six percent (6%).
Alternative Taxation of Bank Deposits
At the option of the executor, administrator or heirs, bank deposits of decedents may be subjected
to 6% final tax within one (1) year from decedent’s death. If the bank deposits were subjected to
final tax, the deposits shall no longer form part of the gross estate of the decedent (hence not
reportable in estate tax return). The bank shall issue BIR Form 2306 certifying that 6% final tax was
withheld on the deposits.
Notes:
1. In case of joint deposits, only that share or interest of decedent is subject to either final tax
or estate tax.
2. In all cases, the final tax withheld shall not be refunded but may be credited from the tax due
in instances where the bank deposit account subjected to final tax has been actually included
in the gross estate declared in the estate tax return of the decedent
THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX. – The statute in force at the time of
death of the decedent governs the imposition of tax. The estate tax accrues as of the death of the
decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death
of the decedent, succession takes place and the right of the State to tax the privilege to transmit the
estate vests instantly upon death.
FORMAT IN COMPUTING ESTATE TAX:

Exclusive Com/Conj Total
Gross estate Pxxx Pxxx Pxxx
Less: Deductions* (xxx) (xxx) (xxx)
Net estate before share of surviving spouse xxx xxx xxx
Less: Share of surviving spouse - (xxx) (xxx)
Net estate before special deductions xxx xxx xxx
Less: Special deductions
Family home* (xxx)
Standard deduction* (xxx)
Net taxable estate** Pxxx
Estate Tax due Pxxx

Less: Estate tax credit (xxx)
Estate Tax payable xxx
*With changes in TRAIN law.
**Note: Net taxable estate is different from Net Distributable Estate where in the latter is the amount
consisting of gross estate less the “actual expenses, charges and payments from the gross estate”.
Deductions therefrom may include non-deductible expenses and the tax due.
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ILLUSTRATION ON APPLICATION OF NET TAXABLE ESTATE AND NET DISTRIBUTABLE ESTATE

Nicanor, single and Filipino citizen, died in February 14, 2019. He is survived by his parents. The list of his
properties is given below:
• House and lot (family home) – Php 5,000,000
• Cash in bank – Php 5,000,000
• Personal properties – Php 5,000,000
During settlement of estate, the following information was known:
1. Funeral and judicial expenses – Php 1,000,000
2. Medical expenses – Php 5,000,000
3. Claims against the estate – Php 2,000,000
4. Losses as a result of the fire – Php 2,000,000
Compute the Net Taxable Estate and the Net Distributable Estate
Net Taxable Estate Net Distributable Estate
Gross estate Php 15,000,000 Gross estate Php 15,000,000
Deductions: Deductions:
Claims Against the Estate (2,000,000) Funeral and judicial expenses (1,000,000)
Losses (2,000,000) Medical expenses (5,000,000)
Standard Deduction (5,000,000) Claims Against the Estate (2,000,000)
Family Home (5,000,000) Losses (2,000,000)
Estate tax due (60,000)
Net Taxable Estate Php 1,000,000 Net Distributable Estate Php 4,940,000
Estate Tax Rate 6% To be divided between the heirs of the decedent in
Estate Tax Due Php 60,000 accordance with the rules on distribution of shares
Gross Estate of Married Decedents

Conjugal partnership Absolute community of
of gains properties
Exclusive properties of the decedent Included Included
Exclusive properties of the surviving spouse Excluded Excluded
Common properties Included Included
Composition of the Gross Estate

Residents and citizens (RC, NRC, RA) All properties wherever situated:
1. Real
2. Personal
3. Tangible
4. Intangible
Non-resident aliens (NRA) Only properties situated in the Philippines,
provided that, with respect to intangible personal
property, its inclusion in the gross estate is subject
to the rule of reciprocity
TYPES OF PROPERTIES:
1. Real Properties – immovable properties
2. Tangible Personal Properties – movable properties
3. Intangible Personal Properties
a. Franchise which must be exercised in the Philippines
b. Shares, obligations or bond issued by any corporation or sociedad anonima organized
and constituted in the Philippines in accordance with it law.
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c. Shares, obligation or bonds issued by any foreign corporation, 85% of the business of
which is located in the Philippines
d. Shares, obligation or bonds issued by any foreign corporation if such shares, obligation
or bonds have acquired business situs in the Philippines.
e. Shares or rights in any partnership, business or industry established in the Philippines
Rule on reciprocity under Section 104 or the Tax Code:
No tax shall be collected in respect of intangible personal property:
a. if the decedent at the time of his death or the donor at the time of the donation was a citizen
and resident of a foreign country which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
b. if the laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or death taxes of
every character or description in respect of intangible personal property owned by citizens of
the Philippines not residing in that foreign country.
COMPOSITION OF GROSS ESTATE UNDER THE TAX CODE:

1. Decedent’s interest - To the extent of the interest therein of the decedent at the time of his
death. This refers to the value of any interest in property or rights in favor of the decedent on
or before his death which was accrued and received only after decedent’s death.
Examples:
a. Dividends declared on or before the death of the stockholder, and received by the estate
after death.
b. Partnership’s profit earned prior to death of the partner, received by the estate after the
partner’s death
c. Accrued interest and rents on or before the time of death, but collection was made after
death.
2. Transfer in contemplation of death –
General Rule: To the extent of any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of or intended to take effect in
possession or enjoyment at or after death, or of which he has at any time made a transfer, by
trust or otherwise, under which he has retained for his life or for any period which does not in
fact end before his death (1) the possession or enjoyment of, or the right to the income from
the property, or (2) the right, either alone or in conjunction with any person, to designate the
person who shall possess or enjoy the property or the income therefrom
Exception: In case of a bonafide sale for an adequate and full consideration in money or
money's worth, the transfer is NOT in contemplation of death
Circumstances in determining whether the transfer is in contemplation of death:
a. Age of the decedent at the time the transfer was made
b. Decedent’s health as he knew it at or before the time of the transfer
c. Interval between the transfer and the decedent’s death
d. The amount of property transferred on proportion to the amount of property retained
e. The relationship of the donor and done
f. The existence of a desire to pm the part of the decedent to escape or avoid payment of
estate tax
Note: The transfer is motivated by the thought of impending death although death may
not be imminent. The controlling motive is the thought of death
3. Revocable transfer –
To the extent of any interest therein, of which the decedent has at any time made a
transfer by the decedent alone or by the decedent in conjunction with any other person, to
alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation
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of the decedent's death.

Note: the power to alter, amend or revoke shall be considered to exist on the date of the
decedent's death and shall be considered to have been given, or the power exercised, on
the date of his death.
Example:
Transfer with retention of interest (no full conveyance of ownership of property)
4. Property passing under general power of appointment –
General Rule: To the extent of any property passing under a general power of appointment
exercised by the decedent through the following modes:
a. by will, or
b. by deed executed in contemplation of, or intended to take effect in possession or
enjoyment at, or after his death, or
c. by deed under which he has retained for his life or any period not ascertainable
without reference to his death or for any period which does not in fact end before his
death
• the possession or enjoyment of, or the right to the income from, the property,
or
• the right, either alone or in conjunction with any person, to designate the
persons who shall possess or enjoy the property or the income therefrom
Exception: In case of a bona fide sale for an adequate and full consideration in money or
money's worth, it won’t pass under the general power of appointment.
Note: GPA is simply the right to designate the person who will succeed to the property of the
prior decedent, in favor of anybody, including himself, his estate, his creditors or the creditors
of his estate.
5. Proceeds of life Insurance –
General Rule: To the extent of the amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies taken out by the decedent upon his
own life
Exceptions:
a. When the designation of the third person (not the estate, executor or administrator)
beneficiary is irrevocable
b. The proceeds or benefits are from SSS and GSIS
c. The proceeds are from a group insurance taken by the employer
Include in the gross estate if the beneficiary is:

a. Revocable
b. Estate, his administrator or his executor
Notes:
1. When the designation of the beneficiary is not stated or is not clear, the Insurance
Code assumes revocable designation. In addition, proceeds of life insurance taken out
by the decedent on his own life, when included in the gross estate, shall be an
exclusive property if the premiums were paid out of exclusive funds and shall be a
conjugal property if the premiums were paid out of conjugal funds.
2. If the beneficiary who was irrevocably designated caused the death of the insured, the
designation is considered revocable unless acted in self-defense.
3. Proceeds from property insurance are part of the gross estate (considered as interest)
6. Transfer for insufficient consideration - If any one of the transfers, trusts, interests, rights or
powers is made, created, exercised or relinquished for a consideration in money or money's
worth, but is not a bona fide sale for an adequate and full consideration in money or money's
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worth, there shall be included in the gross estate only the excess of the fair market value, at
the time of death, of the property otherwise to be included on account of such transaction,
over the value of the consideration received therefor by the decedent.
Notes:
a. If the transfer is a bona fide sale for an adequate and full consideration in money or
money’s worth, not part of the gross estate.
b. If there was no consideration, the value to be included in the gross estate shall be fair
market value of the property at the time of decedent’s death.
c. If consideration is less than the FMV, include in the gross estate the excess of FMV at the
time of death over the consideration (BUT also include as part of the gross estate the
consideration received)
The following are deductions but must be added to gross estate before being allowed as deduction:
7. Claims of the deceased against Insolvent Persons - a claim against an insolvent person must
be reported as part of the gross estate in the full amount of the receivable. This should be
reported as an exclusive or a conjugal property depending on whether the claim is derived
from an exclusive or a conjugal property.
8. Value of Mortgaged Property (undiminished by mortgaged or indebtedness)
9. Property Previously Taxed
10. Family Home
11. Amount Received by Heirs under R.A. No. 4917 - This amount received from decedent’s
employer as a consequence of the death of the decedent-employee shall be included in the
gross estate of the decedent which will be deducted from gross estate.
EXEMPTIONS OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

1. The merger of usufruct in the owner of the naked title
2. The transmission from the first heir, legatee or donee or in favor of another beneficiary in
accordance with the desire of the predecessor
3. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary
4. All bequests, devises, legacies or transfers to social welfare, cultural, and charitable
institutions, no part of the net income of which goes to the benefit of any individual;
provided, however, that not more than 30% of the said bequests, devises, legacies, or
transfers shall be used by such institutions for administrative purposes.
OTHER EXEMPTIONS AND EXCLUSIONS FROM GROSS ESTATE
1. Bequests to be used actually, directly, and exclusively for educational purposes
2. Proceeds of life Insurance
a. Beneficiary is irrevocably appointed
b. Under a group insurance taken by the employer in favor of the employee
3. Transfer by way of bona fide sales
4. Properties held in trust by the decedent
5. Separate property (capital of husband or paraphernal of wife) of the surviving spouse.
6. Exemptions due to reciprocity
EXEMPTIONS FROM SPECIAL LAWS
1. Benefits received from SSS or GSIS
2. Benefits received from U.S Veterans Administration
3. War benefits given by the Philippine government and U.S. government due to damages
suffered during the war
4. Grants and donations to the Intramuros Administration
5. Personal Equity and Retirement Account (PERA) assets of the contributor
6. Compensation of public and private health care workers due to death from COVID-19
(Php1M) – RA 11494 or the Bayanihan to Recover as One Act
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VALUATION OF THE GROSS ESTATE TRAIN (RR 12-2018)

General Rule: Gross estate Fair Market Value at time of death
Exception: Real property Zonal value or Assessed Value whichever is higher
Shares of stocks UNLISTED-COMMON Book value (appraisal valuation no longer applicable)
Shares of stocks UNLISTED-PREFERRED Par Value

Shares of stocks – LISTED G.R. FMV at the time of death.
Ex: Arithmetic Mean between the highest and
lowest quotation at a date nearest at the time of
death
CLUB SHARES Bid price nearest the date of death published in any
newspaper or publication of general circulation
RIGHT TO US Probable life of the beneficiary will be taken into
UFRUCT consideration in accordance with latest mortality
rate to be approved by Secretary of DOF upon
recommendation of Insurance Commissioner
DEDUCTIONS BY RC, NRC, RA

Losses
There shall also be deducted losses incurred during the settlement of the estate arising:
1. From fires, storms, shipwreck, or other casualties, or
2. From robbery, theft or embezzlement
Such losses are:

1. Not compensated for by insurance or other forms of indemnity
2. At the time of the filing of the return such losses have not been claimed as a deduction for
income tax purposes in an income tax return
3. Incurred not later than the last day for the payment of the estate tax
Claims Against the Estate
The word “claims” is generally construed to mean debts or demands of a pecuniary nature which
could have been enforced against the deceased in his lifetime and could have been reduced to simple
money judgements. Claims against the estate or indebtedness in respect of property may arise out
of:
1. Contract
2. Tort
3. Operation of Law
Requisites of Claims against the Estate

a. The liability represents a personal obligation of the deceased existing at the time of his death,
except: unpaid obligations incurred incident to his death such as unpaid funeral expenses and
unpaid medical expenses
b. The liability was contracted in good faith and for adequate and full consideration in money or
money’s worth.
c. The claim must be a debt or claim which is valid in law and enforceable in court
d. The indebtedness must not have been condoned by the creditor or the action to collect from
the decedent must not have been prescribed.
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Substantiation Requirements
In Case of Simple Loan (Advances) Obligation arose from purchase (goods/service)
G.R. Debt instrument is notarized 1. Sales invoice or
Exception: loans granted by financial institution 2. Delivery receipt or
where notarization is not part of the business 3. Contract of service or
practice/policy 4. Acknowledgement receipt or
5. Statement of Account
Notarized Certificate from creditor of unpaid Notarized Certificate from creditor of unpaid
balance of debt with interest. balance of debt with interest.
Signatories: Signatories:
1. Corporation – President or Vice- 5. Corporation – President or Vice-President
President or principal officer or principal officer
2. Partnership – Any General Partners 6. Partnership – Any General Partners
3. Bank – Branch Manager 7. Bank – Branch Manager
4. Individual – creditor himself 8. Individual – creditor himself
G.R. Signatory must not be a relative of G.R. Signatory must not be a relative of decedent
decedent within 4th civil degree (consanguinity within 4th civil degree (consanguinity or affinity)
or affinity) Except: Promissory note or evidence of
Except: Promissory note or evidence of indebtedness was filed within the RDO of the
indebtedness was filed within the RDO of the borrower within fifteen (15) days from execution
borrower within fifteen (15) days from thereof
execution thereof
Proof of financial capacity of creditor to lend or 1. Certified true copy of the latest audited
Declaration of Capacity (if non-resident, the FS with detailed schedule of receivable of
certification must be authenticated by the tax unpaid balance AND
authority of the country where he is a resident) 2. Certified true copy of updated latest
subsidiary ledger/records
If required to file ITR, the Audited financial
statements with detailed schedule of
receivable showing the unpaid balance
Claims of the deceased against Insolvent Persons
Claims of the deceased against insolvent persons as defined under R.A. 10142 otherwise known as
the Financial Rehabilitation and Insolvency Act (FRIA) of 2010 and other existing laws, where the
value of the decedent’s interest therein is included in the value of the gross estate.
Essential Requirements
1. The amount of said claims has been initially included as part of his gross estate
2. The incapacity of the debtor to pay his debt is proven not merely alleged
Unpaid mortgages OR indebtedness of property
To be deductible, the property mortgaged must be part of the gross estate at fair market value gross
of any unpaid mortgage. However, if the decedent owns less than all of the property covered by a
mortgage, only a proportionate amount is deductible.
Unpaid Taxes
General Rule: Taxes which have accrued as of the death of the decedent which were unpaid as of the
time of death
Exceptions:
1. Income tax upon income received after death
2. Property taxes not accrued before his death
3. Estate tax due from the transmission of his estate
Transfer for Public Use
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The amount of all bequests, legacies, devices, or transfers to or for the use of the Government of the
Republic of the Philippine, or any political subdivision thereof, shall be deductible from gross estate
as long as the said amount is used exclusively for public purposes.
Transfer of Property made by a married decedent must have a written consent from the other
spouse, however, if the property transferred is not conjugal/absolute the said TPU is deductible from
the exclusive portion of the estate.
Note: The transfer of property for Public Use should be through a testamentary succession not
merely oral
Vanishing Deductions (Property Previously Taxed)
If the same property is included in the gross estate of the present decedent its value may be
deducted in computing the net taxable estate, subject to the following conditions:
a. The present decedent died/donor made the donation within five years from receipt of the
property (transfers through gratuitous transfer).
b. The property from which a vanishing deduction that is being claimed must be located in the
Philippines
c. An estate or donor’s tax must have been actually paid on such property
d. The property on which vanishing deduction is being claimed must be identified as the one
received from the prior decedent or donor
e. No similar deduction must have been allowed for same property in the estate of the prior
decedent.
RATES:
• 100% - if not more than 1 year
• 80% - if more than 1 year but not more than 2 years
• 60% - if more than 2 years but not more than 3 years
• 40% -if more than 3 years but not more than 4 years
• 20% - if more than 4 years but not more than 5 years
Value to take P xxx

Less: Mortgage paid by present decedent xxx
Initial basis (IB) xxx
Less: Proportional deduction (Initial Basis/Gross Estate x Deductions xxx
Final basis xxx
Rate xxx
Vanishing deduction Xxx
Standard Deduction
A deduction in the amount of Php 5,000,000 shall be allowed for either a citizen or resident (RCD,
NRCD, RAD) without the need of substantiation.
Family Home
The amount is equivalent to the current fair market value of the decedent’s family, provided that if
the said current FMV exceeds Php 10,000,000, the excess shall be subject to estate tax.
Note: RR 2-2003 and RR 12-2018 defines “Family Home” as the dwelling house, including the land on
which it is situated, where the husband and wife, or a head of the family, and members of their
family reside, as certified by the Brgy. Captain of the locality. The family home is deemed constituted
on the house and lot from the time it is actually occupied as a family residence and is considered as
such for as long as any of its beneficiaries actually resides therein.
Notes:
1. FH is characterized by permanency. Actual occupancy is not considered interrupted or
abandoned in case of temporary absence due to travel or studies or work abroad.
2. A person may constitute only one family home.
a. Husband and wife – legally married man and woman
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b. Unmarried head of a family – an unmarried or legally separated with one or both

parents, or siblings, or with natural or legally adopted children living with and
dependent upon him/her for chief support, where the siblings are not more than 21
years old, unmarried and not gainfully employed or where such siblings or children
regardless of age are incapable of self-support because of mental or physical defect.
Conditions for the allowance of FAMILY HOME as deduction

a. The family home must be the actual residential home of the decedent and his family at the
time of his death, as certified by the Barangay Captain of the locality where the family home is
situated;
b. The total value of the family home must be included as part of the gross estate of the
decedent; and
c. Allowable deduction must be in an amount equivalent to the current fair market value of
the family home as declared or included in the gross estate, or the extent of the decedent’s
interest (whether conjugal/community or exclusive property), whichever is lower, but not
exceeding P10,000,000.
Amount Received by the Heirs Under R.A. 4917

Any amount received by the heirs from the decedent - employee as a consequence of the death of
the decedent-employee in accordance with Republic Act No. 4917: Provided, That the amount of the
separation benefit is included in the gross estate of the decedent.
The following items refer to the amount received by the heirs which are not subject to any tax under
this special law:
1. Retirement benefits received by officials and employees of private firms
2. Separation pay of official or employee due to death, sickness or other physical disability or for
any cause beyond the control of the said official.
SHARE OF THE SURVIVING SPOUSE
The share of the surviving spouse in the conjugal or communal property, net of the obligations
properly chargeable therein, shall be deducted from such amount to arrive at the net estate. The
share of the surviving spouse in the net conjugal or net community property is 50% of the net estate.
The term “capital of surviving spouse” refers to the separate property of the surviving spouse which
is not part of the gross estate. The exclusive property is a property specifically identified and
belonging exclusively to either of the spouse, while a conjugal property is a property that belong to
both of the spouses.
Note: Under the Family Code, the property owned by the husband is called husband’s capital, while
the property owned by the wife is called wife’s paraphernal (Art. 109, Family Code).
DEDUCTIONS BY NRA
1. Standard deduction in the amount of Php 500,000.00
2. The proportion of the total losses and indebtedness which the value of such part bears to the
value of his entire gross estate wherever situated.
✓ Claims against the estate
✓ Claims against the insolvent person
✓ Unpaid mortgages, taxes and casualty losses
Formula:
Phil Gross Estate
World Gross Estate x Item No. 2 = Allowable Deduction
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3. Property previously taxed

4. Transfers for public use
5. Net share of the surviving spouse in the conjugal property or community property.
PROPERTY RELATIONSHIPS
The property relations between husband and wife shall be governed in the following order:
1. By marriage settlement executed before the marriage (pre-nuptial/ante-nuptial agreement)
2. The regime of absolute community (for marriage August 3, 1988 and onwards)
3. Conjugal partnership of gains (for marriage prior to August 3, 1988)
4. By the local customs (Art. 74, Family Code)
Notes:
• In the absence of any contract or marriage settlement executed before celebration of a
marriage, either the conjugal or absolute community of properties shall govern the property
ownership of the husband and wife
• Modifications are valid if made before the celebration of marriage
• Must be registered with the Local Civil Registry where the marriage contract is recorded to
bind third persons
• Stipulations/Agreements is void if marriage does not take place except stipulations that do
not depend upon the celebration of the marriage are valid
• Donations of future properties shall be governed by rules on testamentary succession/wills
CIVIL CODE OF THE PHILIPPINES (before August 3, 1988)

1. Conjugal Partnership of Gains (Relative Community of Properties)
Shall commence at the precise moment that the marriage is celebrated. Any stipulation, express or
implied, for the commencement of the community regime at any other time shall be void.
Notes:
• CPG shall be governed by the rules on the contract of partnership in all that is not in
conflict with that is expressly determined by the spouses
• Administration and enjoyment shall belong to both spouses jointly
Exclusive properties Conjugal properties

a. Properties brought into the marriage as his a. Properties acquired by onerous title during the
or her own marriage at the expense of the common fund,
whether the acquisition be for the partnership, or
for only one of the spouses
b. Properties acquired by gratuitous title b. Properties obtained from labor, industry, work or
during the marriage profession of either or both of the spouses
c. Properties acquired by right of redemption c. The fruits (natural, industrial or civil), due or
or by exchange with other property received during the marriage from the common
belonging to only one of the spouses property, as well as the net fruits from the
exclusive property of each spouse
d. Properties acquired with exclusive money d. The share of either spouse in the hidden treasure
of either spouse. which the law awards to the finder or owner of the
property where the treasure is found
e. Properties acquired through occupation such as
fishing and hunting
f. Livestock existing upon the dissolution of the
partnership in excess of the number of each kind
brought to the marriage by either spouse
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g. Properties acquired by chance, such as winnings

from gambling and betting
FAMILY CODE OF THE PHILIPPINES (August 3, 1988 or after)

2. Absolute Community of Properties
Shall commence at the precise moment that the marriage is celebrated. Any stipulation, express or
implied, for the commencement of the community regime at any other time shall be void.
Notes:
• The provisions on co-ownership shall apply to the ACP between the spouses in all matters
• Property acquired during the marriage is presumed to belong to the community unless
proven that it is one of those excluded
• Administration and enjoyment shall belong to both spouses jointly
Exclusive properties Community Properties
a. Properties acquired during the marriage a. All properties owned by spouses at the time of the
by gratuitous (or lucrative) title by either celebration of marriage or acquired thereafter
spouse, and the fruits as well as the
income thereof, if any, unless it is
specifically provided by the donor,
testator or grantor that they shall form
part of the community
b. Property for personal and exclusive use of b. Jewelries
either spouse
c. Property acquired before the marriage by
either spouse who has legitimate
descendants by a former marriage, and
the fruits as well as the income, if any, of
such property
DISSOLUTION OF CPG AND ACP

1. Upon the death of either spouse
2. When there is a decree of legal separation
3. When the marriage is annulled or declared void
4. In case of judicial separation of property during the marriage
3. Regime of Separation of Property

• Separation of property may refer to present or future property or both. It may be total or
partial. In the latter case, the property not agreed upon as separate shall pertain to the
absolute community
• Each spouse shall own, dispose of, possess, administer and enjoy his or her own separate
estate without need of the consent of the other
• To each spouse shall belong the all earnings from his/her profession, business or industry
and all fruits due or received during the marriage from his/her separate property
• Both spouses shall bear the family expenses in proportion to their income, or in case of
insufficiency or default thereof, to the current market value of their separate properties
• The liabilities of the spouses to creditors for family expenses shall be solidary
PROPERTY REGIME OF UNIONS WITHOUT MARRIAGE

Persons Without Legal Impediment to Marry or Other Cases (With Legal Impediment to Marry)
Under a Void Marriage
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1. Wages and salaries owned equally Only the properties acquired by both of the
2. Property acquired by both of them parties through their actual joint contribution of
through their work or industry shall be money, property or industry shall be owned by
governed by the rules on co-ownership them in common in proportion to their
respective contributions (including joint deposits
and evidences of credit).
Presumption on acquisition of properties: Presumption is equal if there is no proof
obtained through joint efforts and owned equally.
The contribution of the other part who did not

participate in the acquisition of any property is the
efforts consisted in the care and maintenance of
the family and of the household
Party in Void Marriage: 1. Party in a Valid Marriage - share shall
1. Party in good faith – his/her share is accrue to the absolute community or
his/her conjugal partnership existing in such
2. Party in bad faith – share shall be forfeited valid marriage
in favor of their common children. In 2. Party in bad faith who is not validly
default or if waived, the share shall belong married – share shall be forfeited in
to the innocent party. Forfeiture shall take favor of their common children. In
place upon termination of the default or if waived, the share shall
cohabitation belong to the innocent party. Forfeiture
shall take place upon termination of the
cohabitation
TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY:

- Only citizens and resident aliens can be claim foreign tax credits
- The deductible tax credit shall be whichever is lower of the amounts as computed by the
following statutory formula (Limit A or Limit B)
Limit A – Only one foreign country
Step 1. Compute the limit.

Step 2. Get the actual tax paid in foreign country.
Step 3. Get the lower amount.
Net estate, foreign country Philippine Estate Tax Due

Net estate, world X = Php xxx (Limit)
Versus
Actual tax paid, foreign country = Php xxx (Actual)
Allowable tax credit =Php xxx (Lower)
Limit B – More than one foreign country
Step 1. Compute the Limit A per foreign country.

Step 2. Compute Limit B (see below)
Step 3. Get the lower amount.
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Net estate, all foreign countries Philippine Estate Tax Due

Net estate, world X = Php xxx (Limit)
Versus
Actual tax paid, all foreign countries = Php xxx (Actual)
Lower Amount (not yet the allowable tax credit) =Php xxx (Limit B)
COMPUTATION OF ESTATE TAX

ILLUSTRATION – DECEDENT IS SINGLE
Facts: Nicanor is a single:
Real and Personal Properties Php 14,000,000
Family Home 9,000,000
Deductions:
Funeral Expenses 200,000
Other Valid Deductions 2,000,000
Medical expenses 500,000
Compute the net taxable estate and estate tax due:

SOLUTION:
Gross Estate Php 23,000,000
Less: Ordinary Deductions:
Funeral Expense 0
Other Valid Deductions 2,000,000
Special Deductions:
Standard Deduction 5,000,000
Medical Expenses 0
Total Deductions 16,000,000
Net Taxable Estate Php 7,000,000
Multiply by rate 6%
Estate Tax Due Php 420,000
ILLUSTRATION – DECEDENT IS MARRIED
Facts: Nicanor is a married man with surviving spouse:

Conjugal Properties:
Exclusive Properties 5,000,000

Conjugal Deductions:
Funeral Expenses 200,000
Other Conjugal Deductions 2,000,000
Special Deduction of Medical Expenses 500,000
Compute the net taxable estate and estate tax due:
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SOLUTION
Exclusive Conjugal Total
Conjugal Real and Personal 14,000,000 14,000,000
Properties
Conjugal Family Home 30,000,000 30,000,000
Exclusive Properties 5,000,000 ._____________ 5,000,000
Gross Estate 5,000,000 44,000,000 49,000,000
Less: Ordinary Deductions:
Funeral Expense 0
Other Conjugal Deductions 2,000,000
Special Deductions:
Standard Deduction 5,000,000
Medical Expenses 0
Total Deductions 17,000,000 17,000,000
Net Estate 32,000,000
Less: Share of Surviving Spouse (50%) (P 44M-2M)/2 21,000,000
Net Taxable Estate 11,000,000
Multiply by rate 6%
Estate Tax Due Php 660,000
ILLUSTRATION – BANK DEPOSITS
Facts: Nicanor, single, who died in 2020 has left the following bank deposits:
1. Bank of the Pelepens with account no. CA12345 – Php 5 Million
2. Bank of Macabibi with account no. SA54321– Php 5 Million
Compute the estate tax if the executor or administrator or heirs will:

1. opt for 6% final withholding tax (without e-CAR)
2. opt for regular/ordinary process of obtaining e-CAR (estate is subject to 6% estate tax)
3. savings if the executor or administrator or heirs will opt for ordinary process with BIR
SOLUTIONS:
6% final tax 6% estate tax
Bank of the Pelepens P 5,000,000 Bank of the Pelepens P 5,000,000
Final tax rate 6% Bank of Macabibi 5,000,000
Final tax on deposits Php 300,000 Total Gross Estate P 10,000,000
Less: Standard 5,000,000
Bank of the Macabibi P 5,000,000 Deduct
Final tax rate 6% Net estate P 5,000,000
Final tax on deposits Php 300,000 Estate tax rate 6%
Estate tax due Php 300,000
Total final tax Php 600,000 Notes:
Net cash received Php 9,400,000 1. The BIR will issue two (2) e-CARs, one for
Note: No longer needed to report to BIR as part each bank. The e-CAR will be presented
of gross estate because the Bank will just to the Bank which will then release the
withhold final tax on the deposits. deposits to the executor, administrator
or heirs.
2. Savings under regular process is Php
300,000.00 (Php 600,000-Php 300,000)
Administrative TRAIN
Requirements
Notice of Death Notice of Death removed
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Period to File Estate Tax Within one (1) year from date of death
Return (BIR Form 1801) Required to file when:
1. the transfer is subject to tax
2. regardless of the gross value of the estate, where the estate consists of
registered or registrable property for which Certificate Authorizing
Registration from the BIR is required as a condition precedent to the
transfer of title/ownership in the name of the transferee, the executor,
or the administrator or any of the legal heirs, as the case may be
Registrable Properties include, but is not limited, to:

1. real properties
2. motor vehicles
3. shares of stocks
4. guns
Venue/Place of filing General Rule: In the Revenue District Office (RDO) of the City/municipality
where the decedent is domiciled at the time of death
Exceptions for Non-residents (NRC or NRA):
a. In case executor or administrator is registered with the BIR – venue
is the RDO where the executor or administrator is registered
b. In case the executor or administrator is unregistered – venue is
RDO where the legal residence of the executor or administrator is
c. In case there is no executor or administrator – venue is the Office
of the Commissioner of Internal Revenue thru RDO No. 39 – South
Quezon City
Note: The CIR has power to allow different venue in the filing of tax returns
Extension of time to file In meritorious cases, a reasonable extension for filing the return, not
estate tax return exceeding 30 days shall be granted by the BIR Commissioner or any
authorized Revenue Officer
Time for payment General Rule: At the time the return is filed (Pay as you file)
Extension of time to When the Commissioner finds that the payment of the estate tax or any
pay estate tax part thereof would impose hardship upon the estate or any of the heirs, he
may extend the time of such tax or any part thereof –
- Not to exceed five (5) years in case the estate is settled through the
courts
- Two (2) years in case estate is settled extra-judicially
Any amount paid after the statutory due date of the tax, but within the
extension period shall be subject to interest but not to surcharge.
Posting of bond in case Not exceeding double the amount of estate tax and with such sureties as
of extension the CIR deems necessary
No extension Due to fraud
Intentional disregard of the rules
Negligence
CPA Certificate Gross value of estate exceeds Php 5 Million (Old rule is Php 2 Million)
Information in CPA Itemized assets with corresponding gross value
Certificate Itemized liabilities
Estate tax due whether paid or still due and outstanding
Installment payment Cash Installment Partial Disposition of Estate and
Application of Proceeds to Estate
Tax
Payment shall be made within two Disposition refer to the
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BUSINESS TAXATION
years from the date of filing of the conveyance of property with

estate tax return equivalent cash consideration
Estate tax return shall be filed Estate tax return shall be filed
within one (1) year from the date within one (1) year from the date
of decedent’s death of decedent’s death
Frequency (monthly/quarterly/ The written request shall be
semi-annually or annually), approved by the BIR with
deadline and amount of each undertaking that the proceeds
installment shall be indicated in shall be exclusively used for the
the return subject to BIR prior payment of estate tax due
approval
No penalties shall be imposed The estate tax due shall be
during the installment period allocated in proportion to the
value of each property. E-CAR shall
be issued for the property
intended to be disposed of
In case of lapse of the two-year In case of failure to pay total estate
period without payment of the tax due out of the proceeds, the
entire tax due, the remaining estate tax due shall be
balance shall be due and immediately due and demandable
demandable with penalties with penalties reckoned from the
reckoned from the deadline of deadline of filing of return
filing
Payment of tax No transfer of shares, obligations, or bonds without electronic Certificate
antecedent to the Authorizing Registration (e-CAR)
transfer of shares,
bonds, or rights If a bank has knowledge of the death of a person, who maintained a bank
deposit account alone, or jointly with another, it shall allow any withdrawal
from the said deposit account, subject to a final withholding tax of (6%).
Requirement for withdrawal: duly stamped received BIR Form 1904

(Application for TIN of Estate)
Enforce Action The Commissioner may enforce action against the estate after the due
date of the estate tax provided that all the applicable laws and required
procedures are observed.
Liability of parties in Primary Liability – Executor or administrator has primary obligation to pay
paying estate tax estate tax.
Subsidiary Liability – Heir or beneficiary are liable for the payment of that
portion of the estate which his distributive share bears to the value of the
total net estate.
References:
1. National Internal Revenue Code of 1997, as amended
2. R.A. 10963 or the Tax Reform for Acceleration and Inclusion Act
3. Revenue Regulations No. 12-2018
4. Family Code of the Philippines
5. Civil Code of the Philippines
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MODULE 3 – DONOR’S TAX
DONATION is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it.
DONOR’S TAX is a tax imposed on the gratuitous transfer of property between two or more persons
who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect and whether the property is real or personal.
Notes:
1. Donor’s tax return (BIR Form 1800) is filed and donor’s tax is paid to the BIR for the purpose of
acquiring an electronic Certificate Authorizing Registration (e-CAR). The e-CAR is proof that
appropriate taxes was paid.
2. Donor’s tax is one of the one-time-transaction (ONETT) under BIR rules.
3. Contributions for election campaign are governed by the Omnibus Election Code.
4. Computation of donor’s tax is on a cumulative basis over a period of one calendar year.
5. Donation of real property is subject to Documentary Stamp Tax (P15/P1,000 plus P15 on
fraction).
RATE OF DONOR’S TAX
The donor’s tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts
in excess of Two Hundred Fifty Thousand Pesos (Php 250,000.00) exempt gift made during the
calendar year.
Net Gift shall mean the economic benefit from the transfer that accrues to the done. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon the done the obligation to pay the
mortgaged liability, then the net gift is measured by deducting from the fair market value of the
property the amount of mortgaged assumed.
THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX
The donor’s tax is not a property tax, but is imposed on the transfer of property by way of gift inter
vivos. The donor’s tax shall not apply unless and until there is a completed gift. The transfer of property
by gift is perfected from the moment the donor knows of the acceptance by the done; it is completed
by delivery, either actually or constructively, of the donated property to the done. Thus, the law in
force at the time of the perfection/completion of the donation shall govern the imposition of the
donor’s tax.
Note: Acceptance by donee may be made in the same Deed or separate public document and should
be done during lifetime of the donor
ESSENTIAL REQUISITES OF DONATION:
1. Capacity of the donor
2. Intention to Donate - required only in direct donation but not with indirect donation (implied) as in
the case of transfer with insufficient consideration.
3. Donative Act – actual or constructive (i.e.: execution of a public instrument) delivery
4. Acceptance by the done
KINDS OF DONATION:
1. Inter Vivos – donation between living individuals
2. Mortis Causa – takes effect upon the death of the donor
TYPES OF DONOR:
Classification of donor was effectively removed under the TRAIn law as all are subject to 6% tax.
INCLUSION/EXCLUSION in Gross Gift
Location of Property RC, NRC, RA NRA
Within the Philippines Include Include
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Outside the Philippines Include Exclude

Note: Rule of Reciprocity on Intangible Personal Properties in Estate Tax applies in Donation.
NATURE OF DONATION:
a. There is a transfer of properties (real or personal, tangible or intangible) directly or indirectly in
trust or otherwise.
b. The transfer is gratuitous (without consideration).
c. The donation is made inter-vivos.
MODE OF EXECUTION OF DONATION/FORMALITIES:
A. Real or immovable property – execution of a public instrument (Deed of Donation)
B. Personal property
a. Tangible
i. P5,000 and below in value – oral is allowed
ii. More than P5,000 in value – donation and acceptance should be in writing (for
validity)
b. Intangible – execution of public instrument
VALUATION OF THE GROSS GIFT TRAIN (RR 12-2018)
General Rule: Gross gift Fair Market Value at time of donation
Exceptions: Real property Zonal value or Assessed Value
Shares of stocks UNLISTED-COMMON Book value (appraisal valuation applies)
Shares of stocks UNLISTED-PREFERRED Par Value

Shares of stocks – LISTED G.R. FMV at the time of donation.
Ex: Arithmetic Mean between the highest
and lowest quotation at a date nearest at
the time of donation
CLUB SHARES Bid price nearest the date of donation
published in any newspaper or publication
of general circulation
RIGHT TO USUFRUCT Probable life of the beneficiary will be taken
into consideration in accordance with latest
mortality rate to be approved by Secretary
of DOF upon recommendation of Insurance
Commissioner
TRANSFERS WITH DONOR’S TAX RELATED TO ESTATE
1. 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 is subject to donor’s tax.
2. Renunciation of distributive share specifically and categorically done in favor of identified heir/s
to the exclusion or disadvantage of the other co-heirs in the hereditary estate.
TRANSFERS WITHOUT DONOR’S TAX RELATED TO ESTATE

General renunciation by an heir, including the surviving spouse, of his/her distributive share in the
hereditary estate left by the decedent is not subject to donor’s tax
TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION
1. With Donor’s Tax
Where property, other than the real property classified as capital asset, is transferred for less than an
adequate/full consideration in money or money’s worth, the amount by which the fair market value of
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the property transferred exceeded the value of the consideration received for such transfer, shall for
purpose of donor’s tax, be deemed a gift and included in computing the amount of gifts made during
the year.
2. Without Donor’s Tax

a. Object of donation is a real property classified as capital asset
b. If the sale, exchange or other transfer of property is even for an insufficient
consideration, the same will still be considered made for adequate and full
consideration provided that such transfer is made in the ordinary course of business,
i.e.,:
✓ A bona fide transaction;
✓ At arm’s length; and
✓ Free from donative intent.
EXEMPT DONATION UNDER SPECIAL LAWS:
1. Aqua-Culture Department of SouthEast Asia Fisheries Development Center of the Philippines
2. Development Academy of the Philippines
3. Donations in accordance with the R.A. 9003 – Ecological Solid Waste Management Act of 2000.
4. Donations to the Pollution Adjudication Board under R.A. 8749 – The Philippine Clean Air Act of
1999.
5. Integrated Bar of the Philippines
6. International Rice Research Institute
7. Intramuros Administration
8. Museum of Philippine Costumes
9. National Commission on Indigenous People (R.A. 8371 – The Indigenous People Right Act of 1997)
10. National Health Insurance (R.A. 7875 – National Health Insurance Act of 1995)
11. National Social Action Council
12. Philippine American Cultural Foundation
13. Philippine Inventor’s Commission
14. Ramon Magsaysay Award Foundation
15. Southern Philippines Development Administration
16. Magna Carta for the Poor (RA 11291) – Donation related to National Poverty Reduction Plan (NPRP)
17. Donation of real and personal properties to farmer and fisherfolk cooperatives and enterprises (RA
11321 or Sagip Saka Act)
DONATIONS UNDER THE BAYANIHAN TO HEAL AS ONE ACT (RA No. 11469)
Donations to the following:
1. National Government or any entity created by any of its agencies (including public hospitals)
which is not conducted for profit, or to any political subdivision of the government including
fully-owned government corporations
2. Accredited non-stock, non-profit corporations, institutions, foundations, NGO
• Educational
• Charitable
• Religious
• Cultural
• Social welfare
• Trust or philanthropic organizations
• Research institutions or organizations
3. Private hospitals and/or non-stock, non-profit educational and/or charitable, religious, cultural
or social welfare corporation, institution, foundation, non-government organization (even if
non-accredited), trust or philanthropic organization and/or research institution
4. Local private corporations, civic organizations, and/or international organizations/institutions*
provided that they shall:
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• Actually, directly and exclusively distribute and/or transfer said donations/gifts to,
• Partner as conduit/logistical machinery with, accredited NGOs and/or national
government or any entity created by any of its agencies which is NOT conducted for
profit or any political subdivision
TYPE OF DONATIONS:
1. Cash
2. Donations of all critical or needed healthcare equipment or supplies in combatting COVID
3. Relief goods such as, but not limited to food packs (rice, canned goods, noodles, etc.) and water
4. Use of property, whether real or personal (shuttle service, use of lots/buildings
DONATIONS UNDER THE BAYANIHAN TO RECOVER AS ONE ACT (RA No. 11494)
Coverage – All donations of personal computers, laptops, tablets, or similar equipment (i.e. mobile
phone, printer) for use in teaching and learning in PUBLIC schools, starting from the effectivity of the
Act on September 15, 2020 up to December 19, 2020.
Valuation - The amount of donation shall be based on the actual acquisition cost of personal
computers, laptops, tablets, or similar equipment donated. If the personal computers, laptops, tablets,
or similar equipment donated had already been used, its depreciated value shall be taken into
consideration.
EXEMPT GIFTS BY RC, NRC, RA, NRA
1. 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
2. Gifts made to non-profit organization, foundation or trust:
Non-profit organization – an organization that:
a. is organized as a non-stock entity
b. pays no dividends
c. governed by trustees with no compensation
d. and devoting all income to the accomplishment of its purposes
For example: educational, charitable, religious, cultural, social welfare, trust or philanthropic
organization, research institution and accredited non-government organization.
Provided that, not more than 30% of said gifts are used by the above entities for administrative
purposes (i.e.: to be verified by BIR)
TAX CREDIT FOR DONOR’S TAX PAID TO A FOREIGN COUNTRY
- Can be claimed only by donors those whose gift are taxable even if made outside the Philippines:
a. resident citizens
b. non-resident citizens
c. resident aliens
- The allowed creditable donor’s tax paid to a foreign country shall be subject to limit similar to the
limitations in foreign tax credit in income taxation and estate tax.
FILING OF RETURN AND PAYMENT OF TAX
➢ For every donation, the Donor’s tax return shall be filed by the donor unless the donation is
specifically exempt under the NIRC or other special laws within 30 days from the date of gift. The
tax due thereon is to be paid at the time of filing the return.
➢ For donations made by husbands and wife out of their common property, the donation is deemed
made by each; hence, both shall prepare separate Donor’s Tax Return and claim separate
deductions. If what was donated is a conjugal or community property, only the person who signed
the Deed is subject to donor’s tax without prejudice to the right of the other spouse to question
the validity of the donation without her consent.
Filing Requirements:
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A return under oath in duplicate which shall set forth the following:
a. each gift made during the calendar year which is to be included in computing net gifts
b. the deductions claimed and allowable
c. any previous net gifts made during the same calendar year
d. the name of the donee; and
e. such further information as may be required by rules and regulations made pursuant to law
VENUE/PLACE OF FILING
General Rule: DOMICILE OF THE DONOR
Exceptions:
1. If donor has no legal residence in the Philippines, venue is with the Office of Commissioner
thru RDO 39-South Quezon City
2. Donation by non-resident may be filed at Philippine Embassy or Consulate in the country
where donor is domiciled at the time of the transfer OR directly to the Office of the CIR thru
RDO 39-South Quezon City
Notice of Donation by a person engaged in business –

1. Required in exempt donation and for full deduction for income tax purposes
2. Donation worth at least Php 50,000.00
3. RDO of place of business
4. Within 30 days after receipt of Certificate of Donation from donee institution
ILLUSTRATION 1:
Nicanor donated one of his real properties to Inday. Zonal value is Php 5 Million while Assessed value is
Php 3,000,000.00. Inday accepted the donation.
Compute the donor’s tax and the documentary stamp tax.
Zonal value – Php 5 Million

Assessed value – Php 3 Million
Gross gift (higher of the two) Php 5,000,000.00

Less: Exempt gift 250,000.00
Net Gift Php 5,750,000.00
Rate x 6%
Donor’s Tax Php 285,000.00
Gross gift Php 5,000,000.00

Rate x P15/P1,000.00
Documentary Php 75,000.00
ILLUSTRATION 2:
Nicanor made the following donations for the year 2020:
o January 30, 2020 – Php 2,000,000
o March 30, 2020 – Php 1,000,000
o August 15, 2020 – Php 500,000
Compute the donor’s tax payable on:

a. January 30, 2020
b. March 30, 2020
c. August 15, 2020
Solutions:
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Date of Donation Amount

1. January 30, 2020 2,000,000
Donation 2,000,000
Less: Exempt Gift 250,000
Net Gift 1,750,000
Donor’s Tax Due 105,000
Less: Tax paid 0______.
Donor’s Tax Payable 105,000
2. March 30, 2020 1,000,000

Donation 1,000,000
Add: Prior gift 2,000,000
Net Gift 2,750,000
Less: Tax paid 0________
3. August 15, 2020 500,000

Donation 500,000
Add: Prior gift - January 2,000,000
Prior gift - March 1,000,000
Net Gift 3,250,000
Less: Tax paid 165,000
END
References:
1. National Internal Revenue Code of 1997, as amended
2. R.A. 10963 or the Tax Reform for Acceleration and Inclusion Act
5. Civil Code of the Philippines
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FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

whatever be the time of prior dispositions.

The following are disqualified from being witnesses to a will:

No will shall be revoked except in the following:

The will shall be disallowed in any of the following cases:

Heirs instituted without designation of shares shall inherit in equal parts.

descendant) 1/4 1/2

An attempt by one of the

who come from a common ancestor

What is the degree of relationship with:

Order of Succession in Legal or Intestate Succession

MODULE 2 – ESTATE TAX

FORMAT IN COMPUTING ESTATE TAX:

Estate Tax due Pxxx

ILLUSTRATION ON APPLICATION OF NET TAXABLE ESTATE AND NET DISTRIBUTABLE ESTATE

Gross Estate of Married Decedents

Composition of the Gross Estate

COMPOSITION OF GROSS ESTATE UNDER THE TAX CODE:

of the decedent's death.

Include in the gross estate if the beneficiary is:

EXEMPTIONS OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

VALUATION OF THE GROSS ESTATE TRAIN (RR 12-2018)

Shares of stocks UNLISTED-PREFERRED Par Value

DEDUCTIONS BY RC, NRC, RA

Such losses are:

Requisites of Claims against the Estate

Value to take P xxx

b. Unmarried head of a family – an unmarried or legally separated with one or both

Conditions for the allowance of FAMILY HOME as deduction

Amount Received by the Heirs Under R.A. 4917

3. Property previously taxed

CIVIL CODE OF THE PHILIPPINES (before August 3, 1988)

Exclusive properties Conjugal properties

g. Properties acquired by chance, such as winnings

FAMILY CODE OF THE PHILIPPINES (August 3, 1988 or after)

DISSOLUTION OF CPG AND ACP

3. Regime of Separation of Property

PROPERTY REGIME OF UNIONS WITHOUT MARRIAGE

The contribution of the other part who did not

TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY:

Limit A – Only one foreign country

Step 1. Compute the limit.

Net estate, foreign country Philippine Estate Tax Due

Actual tax paid, foreign country = Php xxx (Actual)

Allowable tax credit =Php xxx (Lower)

Limit B – More than one foreign country

Step 1. Compute the Limit A per foreign country.

Net estate, all foreign countries Philippine Estate Tax Due

Actual tax paid, all foreign countries = Php xxx (Actual)

COMPUTATION OF ESTATE TAX

Compute the net taxable estate and estate tax due:

Facts: Nicanor is a married man with surviving spouse:

Exclusive Properties 5,000,000

Compute the net taxable estate and estate tax due:

Compute the estate tax if the executor or administrator or heirs will:

Registrable Properties include, but is not limited, to: