Transfer Taxes

B. DONORS TAX
1. Define Donor’s Tax
Donor’s tax is a tax levied, assessed, collected and paid upon the transfer by any
person (whether individual or corporation), resident or nonresident, of the property by
gift.

It is a tax on the privilege of transmitting one’s property or property rights to another

or others without adequate and full valuable consideration.

2. When is Donor’s Tax imposed?

The donor’s tax is imposed when there is completed gift. The transfer of property by
gift is perfected from the moment the donor knows of the acceptance by the donee; it
is completed by the delivery, either actually or constructively, of the donated property
to the donee.

3. Why is Donor’s Tax imposed? What are the purposes of this tax?
The donor’s tax is imposed to forestall the eventuality of property owners attempting
to avoid payment of the estate tax by transferring their property to another during
their lifetime so that such estates may pass to the objects of the bounty unimpaired.

Another purpose is to prevent the avoidance of income tax through the device of
splitting income of the property among all donees, who are members of the family of
many trusts, with the donor thereby escaping the effect of the progressive rates of
income tax.

4. Define the term “net gift”

Net gift means the net economic benefit from the transfer that accrues to the donee.

5. Is the renunciation or waiver of an heir of his or her share subject to donor’s

tax?
A renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent is not subject to donor’s tax, unless specifically
and categorically done in favor of identified heir/s to the exclusion or disadvantage of
the other co-heirs in the hereditary estate.

6. Are contributions to a candidate for an elective post or to the political party of a

candidate subject to donor’s tax
No. The contributions to a candidate for an elective post and to the political party for
campaign purposed are not subject to donor’s tax provided the recipient candidates
and political parties had complied with the requirement for filing of returns of
contributions with the COMELEC as required under Section 13 of RA 7166,
otherwise known as the Omnibus Election Code.

7. What is the meaning of the term “adequate consideration”?

The term “adequate consideration” means money of equal value or some goods or
services capable of being evaluated in money. Where the consideration is fictitious,
the entire value of the property transferred is taxable.

8. Discuss the following cases:

i. Lladoc v. Commissioner of Internal Revenue, G.R. No. L-19201,
16 June 1965;
Facts: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest
of Victorias, Negros Occidental, and predecessor of the petitioner, for
the construction of a new Catholic Church in the locality. The

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 Commissioner of Internal Revenue assessed for donee's gift tax the
Catholic Parish of Victorias, of which petitioner was the priest.

The petitioner protested the assessment but was denied by the CIR. In
the petition for review, Rev. Fr. Casimiro Lladoc claimed, among others,
that at the time of the donation, he was not the parish priest in Victorias;
that there is no legal entity or juridical person known as the "Catholic
Parish Priest of Victorias," and, therefore, he should not be liable for the
donee's gift tax. It was also asserted that the assessment of the gift tax,
even against the Roman Catholic Church, would not be valid, for such
would be a clear violation of the provisions of the Constitution.

Issue: Whether or not petitioner should be liable for the assessed donee's
gift tax on the P10,000.00 donated for the construction of the Victorias
Parish Church.

Ruling:
Yes. Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and parsonages or convents,
appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious purposes. The exemption is only from the
payment of property taxes. In this case, what the Collector assessed was
a donee's gift tax; the assessment was not on the properties themselves.
A gift tax is not a property tax, but an excise tax imposed on the transfer
of property by way of gift inter vivos, the imposition of which on
property used exclusively for religious purposes, does not constitute an
impairment of the Constitution.

Therefore, the Head of the Diocese, to which the parish Victorias

pertains, is liable for the payment thereof.

ii. Bromley v. McCaughs, 280 US 124;

Facts: Bromley, a resident of the United States, brought the present suit in
the district court for Eastern Pennsylvania to recover a tax alleged to have
been illegally exacted, upon gifts made by him after the effective date of
Section 319 of the Revenue Act of 1924, as amended. This section
imposes a graduated tax "upon the transfer by a resident by gift" during
the calendar year "of any property wherever situated".

Issue: Whether or not the tax imposed upon transfers of property by gift is
a direct tax and has to be apportioned.

Ruling: No. While taxes levied upon or collected from persons because
of their general ownership of property may be taken to be direct, a tax
imposed upon a particular use of property or the exercise of a single power
over property incidental to ownership is an excise which need not be
apportioned.

The tax imposed by Revenue Act of 1924, as amended, upon transfers of

property by gift, is not a direct tax, but an excise on the exercise of one of
the powers incident to ownership, and need not be apportioned.

9. What are the requisites of a valid donation

The essential elements of a valid donation are:
1. There must be a donor who must have the capacity to donate;
2. The donor must have the intent to donate his property to the done;

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3. There must be a done who should accept it;
4. The donation must be in writing and fully executed; and
5. There must be actual or constructive delivery of the gift to the done or to
someone else for him.

i. Abellana v. Ponce, G.R. No. 160488, 3 September 2004;

Facts: Felomina Abellana purchased from Estela Caldoza-Pacres a parcel
of agricultural lot with the intention of giving it lot to her niece, Lucila
Ponce. In the deed of sale, Felomina was designated as the buyer.
Subsequently, Felomina applied for the issuance of title in the name of her
niece. TCT No. 2874 over the lot was then issued in the name of Lucila.
The title, however, remained in the possession of Felomina who developed
the lot and paid real property taxes.

Issue: Whether or not the transaction between Felomina and Lucila is a

donation.

Ruling: No. Under Article 749 of the Civil Code, in order that the
donation of an immovable property may be valid, it must be made in a
public document, specifying therein the property donated and the value of
the charges which the donee must satisfy.

In this case, what transpired between Felomina and Lucila was a donation
of an immovable property which was not embodied in a public instrument
as required by the Civil Code. Being an oral donation, the transaction was
void. No valid title passed regardless of the intention of Felomina to
donate the property to Lucila, because the naked intent to convey without
the required solemnities does not suffice for gratuitous alienations, even as
between the parties inter se.

ii. Del Rosario v. Ferrer, 630 SCRA 683;

Facts: Spouses Leopoldo and Guadalupe Gonzales executed an
irrevocable "Donation Mortis Causa" in favor of their two children,
Asuncion and Emiliano, and their granddaughter, Jarabini covering the
spouses' 126-square meter lot and the house on it in Pandacan, Manila.
Although denominated as a donation mortis causa, which in law is the
equivalent of a will, the deed had no attestation clause and was witnessed
by only two persons. The donees, however, signified their acceptance of
the donation on the face of the document.

Guadalupe died in September 1968. A few months later, Leopoldo, the

donor husband, executed a deed of assignment of his rights and interests in
subject property to their daughter Asuncion. Leopoldo died in June 1972.
Jarabini filed a petition for the probate of the deed of donation mortis
causa". Asuncion opposed the petition, invoking his father Leopoldo's
assignment of his rights and interests in the property to her.

Issue: Whether or not the spouses Leopoldo and Guadalupe's donation to

Asuncion, Emiliano, and Jarabini was a donation mortis causa, as it was
denominated, or in fact a donation inter vivos.

Ruling: The donation is inter vivos.

The express "irrevocability" of the donation is the distinctive standard that

identifies the document as a donation inter vivos.

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 Also, the three donees signed their acceptance of the donation, which
acceptance the deed required. An acceptance clause indicates that the
donation is inter vivos, because acceptance is a requirement only for such
kind of donations. Donations mortis causa, being in the form of a will,
need not be accepted by the donee during the donor's lifetime.

iii. Arangote v. Maglunob, G.R. No. 178906, 18 February 2009;

Facts: Respondents Martin II and Romeo and their grandaunt Esperanza

Maglunob-Dailisan co-heirs of a parcel of land in Aklan as evidenced by
Original Certificate of Title (OCT) No. CLOA-1748. On 1986, Esperanza
executed an affidavit in which she renounced, relinquished, waived and
quitclaimed all her rights, share, interest and participation in the subject
property in favor of petitioner Elvira T. Arangote and her husband. On 26
March 1993, OCT No. CLOA-1748 was issued by the Secretary of the
Department of Agrarian Reform in the name of petitioner. However,
respondents constructed improvements on the lot. As a consequence, the
petitioners filed a case against the respondents for Quieting of Title,
Declaration of Ownership and Possession. Respondents countered
claiming that they co-owned the subject property with Esperanza. Thus,
Esperanza could not validly waive her rights and interest over the entire
subject property in favor of the petitioner. Respondents prayed that the
OCT issued in petitioner’s name be declared null and void insofar as their
two-thirds shares are concerned.

Issue: Whether or not the petitioners are the lawful owners of the
property.

Ruling: No, the respondents are the lawful owners of the property.

There are three requisites for the validity of a simple donation of a real
property, to wit: (1) it must be made in a public instrument; (2) it must be
accepted, which acceptance may be made either in the same Deed of
Donation or in a separate public instrument; and (3) if the acceptance is
made in a separate instrument, the donor must be notified in an authentic
form, and the same must be noted in both instruments.

In this present case, the Affidavit, which is tantamount to a Deed of

Donation, met the first requisite, as it was notarized; thus, it became a
public instrument. Nevertheless, it failed to meet the aforesaid second and
third requisites. The acceptance of the said donation was not made by the
petitioner and her husband either in the same Affidavit or in a separate
public instrument. As there was no acceptance made of the said donation,
there was also no notice of the said acceptance given to the donor,
Esperanza. Therefore, the Affidavit executed by Esperanza which was the
sole basis of petitioner’s claim to the subject property is null and void.

iv. Pirovano vs. CIR, GR No. L-19865, 31 July 1965;

Facts: De la Rama Steamship Co. insured the life of said Enrico Pirovano,
who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies and
designated itself as the beneficiary of the policies.

After Enrico Pirovano died, the Board of Directors of De la Rama

Steamship Co. adopted a resolution granting and setting aside, out of the
proceeds expected to be collected on the insurance policies taken on the

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 life of said Enrico Pirovano for equal division among the four minor
children of the deceased. Mrs. Estefania R. Pirovano, in behalf of her
children, executed a public document formally accepting the donation;
and, on the same date, the Company through its Board of Directors, took
official notice of the formal acceptance.

The majority stockholders of the Company voted to revoke the resolution

approving the donation in favor of the Pirovano children.

As a consequence, the petitioners brought an action for the recovery of the

amount. The RTC held that the donation was valid and remunerative in
nature. The Commissioner of Internal Revenue assessed donees' gift tax
against each of the petitioners.

Issue: Whether or not the donation is taxable.

Ruling: Yes. Section 111 of the Tax Code which provides that where
property is transferred for less, than an adequate and full consideration in
money or money's worth, then the amount by which the value of the
property exceeded the value of the consideration shall be deemed a gift for
tax purposes.

Pirovano's successful activities as officer of the De la Rama Steamship

Co. cannot be deemed consideration for the gift to his heirs, since the
services were rendered long before the Company ceded the value of the
life policies to said heirs; cession and services were not the result of one
bargain or of a mutual exchange of promises.

10. How are gifts made in property valued?

 If the gift is in the form of real property, the value of the real property for
donor’s tax purposes should be the higher between the fair market value as
determined by the Commissioner (zonal value) or the fair market value as
shown in the schedule of values fixed by the Provincial and City Assessors. In
the case of improvement, the basis is the fair market value as appearing in the
latest Tax Declaration at the time of the donation.

 If the gift is in the form of property other than real property, then the amount
of the gift shall be the fair market value thereof at the time of the gift.

11. What are the Exempt Donations?

a. Gifts Made by a Resident:
i. Are Dowries exempt from donor’s tax?
No, dowries are not anymore exempt from donor’s tax under the
TRAIn Law.

ii. What are the conditions for 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 be exempt?
1. The donee must be the National Government or any entity
created by any of its agencies which is not conducted for profit,
or to any political subdivision; and
2. The gift was made to or for the use of the National Government
or an entity created by any of its agencies or political
subdivision

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 iii. What are requisites for exemption form donor’s tax of gifts in
favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research
institution or organization?

1. Donee is incorporated as a non-stock, non-profit entity, paying

no dividends;
2. Governed by trustees;
3. Trustees receive no compensation;
4. Donee devotes all its income, whether students' fees or gifts,
donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in
its Articles of Incorporation; and
5. Not more than 30% of the donation is used for administrative
purposes.

b. Gifts Made by a Nonresident not a Citizen of the Philippines:

i. When are 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
exempt from donor’s tax?
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 by a nonresident
alien are exempt from donor’s tax.

ii. When are gifts in favor of an educational and/or charitable,

religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic
organization or research institution or organization exempt from
donor’s tax?
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, foundation, trust or
philanthropic organization or research institution or organization:
Provided, however, That, not more than thirty percent of said gifts
shall be used by such donee for administration purposes.

12. Is there any credit allowed to resident or citizen for donor’s tax paid to a
Foreign Country?
The donor’s tax imposed by the NIRC upon a donor who was a citizen or a resident at
the time of donation shall be credited with the amount of any donor’s taxes of any
character and description imposed by the authority of a foreign country.

13. What is Donor’s tax rate according to the old Tax Code and according to RA
10963
Old Tax Code
Under the old Tax Code, Donation made to a stranger is subject to 30% of the net
gift. A stranger is a person who is not a:
 brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendants; or
 relative by consanguinity in the collateral line within the fourth degree of
relationship.

In case the donation is made to a relative, the net gift is subjected to the following tax
rates:
Net Gift But not The Plus Of the

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 Tax Shall
Over Over Excess Over
be
       50,000.00 exempt    
     50,000.00    100,000.00 1.50%        50,000.00
   100,000.00    200,000.00 P     750.00 3%    100,000.00
   200,000.00    500,000.00     3,750.00 5%    200,000.00
   500,000.00 1,000,000.00  18,750.00 8%    500,000.00
1,000,000.00 3,000,000.00   58,750.00 10% 1,000,000.00
3,000,000.00 5,000,000.00 258,750.00 15% 3,000,000.00
5,000,000.00 and over 558,750.00 20% 5,000,000.00

Under the TRAIn Law

Republic Act No. 10963 (TRAIN Law) does not distinguish donations made to
relatives, or donations made to strangers. 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 (P250,000) exempt gift made during the calendar year.

14. How is the donor’s tax computed according to the old tax Code and to RA 10963
TRAIn Law
Gross gift xxx
Less: exempt gifts 250,000
Net gift xxx
Multiply by rate donor's tax rate 6%
Donor's tax xxx

NIRC
Gross gift xxx
Less: exempt gifts xxx
Net gift xxx

*if the donee is a strange, the donor's tax is equal to 30% of the net gift
* if the donee is a relative of the donor, the net gift is subject to the tax
rates in schedular donor's tax table
The Of the Excess
Net Gift Over But not Over Plus
Tax Shall be Over
50,000.00 exempt
50,000.00 100,000.00 1.50% 50,000.00

100,000.00 200,000.00 P     750.00 3% 100,000.00

200,000.00 500,000.00 3,750.00 5% 200,000.00
500,000.00 1,000,000.00 18,750.00 8% 500,000.00
1,000,000.00 3,000,000.00 58,750.00 10% 1,000,000.00
3,000,000.00 5,000,000.00 258,750.00 15% 3,000,000.00
5,000,000.00 and over 558,750.00 20% 5,000,000.00

15. A donor made the following donations:

January 30, 2018 – P2,000,000
March 30, 2018 – 1,000,000
August 15, 2018 – 500,000
a. Compute the donor’s tax due according to RA 10963
January 30, 2018 donation
Gross gift 2,000,000.00
Less: Exempt gifts 250,000.00
Net gift 1,750,000.00
Multiply by donor's tax rate 6%
Donor's tax 105,000.00

March 30, 2018 donation

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 Gross gift 1,000,000.00
Add: donations previously made 2,000,000.00
Total 3,000,000.00
Less: Exempt gifts 250,000.00
Net gift 2,750,000.00
Multiply by donor's tax rate 6%
Tax due thereon 165,000.00
Less: Tax paid/due on January donation 105,000.00
Tax still due on the March donation 60,000.00

August 15, 2018

Gross gift 500,000.00
Add: donations made previously 3,000,000.00
Total 3,500,000.00
Less: Exempt gifts 250,000.00
Net gift 3,250,000.00
Multiply by donor's tax rate 6%
Donor's tax 195,000.00
Less: Tax paid/due on January and March donations 165,000.00
Tax still due on the August donation 30,000.00

b. Would there be a difference if the donor was a father who gifted his
daughter during their wedding on January?
No, there will be no difference if the donor was a father who gifted his
daughter during their wedding on January.

Under the TRAIn Law, the relationship between the donor and done is not
considered. The exemption of dowries or the gifts made on account of
marriage was also removed.

In this case, the fact that the father made the gift on account of his daughter’s
wedding is will not be considered in computing the donor’s tax.

16. What are the rules on the following:

a. Due date
The donor’s tax return shall be filed within thirty (30) days after the date the
gift is made or completed.

b. Place of filing
Unless the Commissioner otherwise permits, the return shall be filed and the
tax paid to an Accredited Agent Bank, the Revenue District Officer and
Revenue Collection Officer having jurisdiction over the place where the donor
is domiciled at the time of the transfer, or if there be no legal residence in the
Philippines, with the Office of the Commissioner. In the case of gifts made by
a non-resident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner. For this purpose, the term
“OFFICE OF THE COMMISSIONER” shall refer to the Revenue District
Office (RDO) having jurisdiction over the BIR-National Office Building
which houses the Office of the Commissioner, or presently, to the Revenue
District Office No. 39-South Quezon City.

c. Payment
The donor’s tax due shall be paid at the same time that the return is filed.

17. Discuss the case of Philamlife Company vs. SOF, GR No. 210987, 24 November
2014

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Facts: The Philippine American Life and General Insurance Company (Philamlife) used
to own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare).
Philamlife's Class A shares were sold through competitive bidding for USD 2,190,000, or
PhP 104,259,330 based on the prevailing exchange rate at the time of the sale, to STI
Investments, Inc., who emerged as the highest bidder.

After the sale Philamlife filed an application for a certificate authorizing registration/tax
clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division
to facilitate the transfer of the shares. It was informed that it needed to secure a BIR
ruling in connection with its application due to potential donor’s tax liability. In
compliance, Philamlife, requested a ruling to confirm that the sale was not subject to
donor’s tax, pointing out, in its request, the following: that the transaction cannot attract
donor’s tax liability since there was no donative intent and,ergo, no taxable donation; that
the shares were sold at their actual fair market value and at arm’s length; that as long as
the transaction conducted is at arm’s length––such that a bona fide business arrangement
of the dealings is done inthe ordinary course of business––a sale for less than an adequate
consideration is not subject to donor’s tax; and that donor’s tax does not apply to sale of
shares sold in an open bidding process.

The Commissioner on Internal Revenue denied Philamlife’s request. As determined by

the CIR, the selling price of the shares thus was lower than their book value based on the
financial statements of PhilamCare as of the end of 2008. As such, the CIR held, donor’s
tax became imposable on the price difference pursuant to Sec. 100 of the National
Internal Revenue Code which provides that where property, other than real property
referred to in Section 24(D), is transferred for less than an adequate and full consideration
in money or money’s worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year.

Issue: Whether or not the price difference in Philam’s sale of shares in PhilamCare is
subject to donor’s tax.

Ruling: Yes, the price difference is subject to donor's tax.

The absence of donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation, the
difference in price is considered a donation by fiction of law.

18. Integration:
a. This year, Celia donated P110,000.00 to her friend Vicky who got
married. Celia gave no other gift during the calendar year. What is the
donor’s tax implication on the donation? What is the tax payable if the
gift was made in January of 2016?

The donation made in 2016 is subject to a donor’s tax of 30% of the donation
because the donee is considered a stranger.

The donor’s tax is computed pursuant to the provisions of the 1997 Tax Code,
it being the existing law at the time the donation was made.
110,000.0
Donation 0
Multiply by donor's tax rate 30%
Donor's tax 33,000.00

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b. X, a multinational corporation doing business in the Philippines, donated
100 shares of stock of said corporation to Mr. Y, its resident manager in
the Philippines.
i. What is the tax liability, if any, of X corporation?
X Corporation has no tax liability on the donation made.

Foreign corporations effecting a donation are subject to donor's tax

only if the property donated is located in the Philippines. However, if
85% of the business of the foreign corporation is located in the
Philippines or the shares donated have acquired business situs in the
Philippines, the donation may be taxed in the Philippines subject to the
rule of reciprocity.

In this case, there is no showing that 85% of the business of the

foreign corporation is located in the Philippines or the shares donated
have acquired business situs in the Philippines.

Therefore, X Corporation incurs no liability.

ii. Assuming the shares of stocks were given to Mr. Y in

consideration of his services to the corporation, what are the tax
implications?
If the shares of stocks were given to Mr. Y in consideration of his
services to the corporation, the value of the stocks will form part Mr.
Y’s taxable income because it is a compensation for services rendered
under an employer-employee relationship subject to income tax.

The value of the stocks shall also form part of X Company’s

deductible expense it being a necessary and ordinary expense incurred
in carrying out its business. X Company, however, must have withheld
taxes on the compensation for it to be allowed as a deduction.

c. Mr. Bill, Canadian citizen and a resident of Ontario, sent a gift check of
$20, 000.00 to his future daughter-in-law who is marrying his only son in
the Philippines.
1. Is the donation by Mr. Bill subject to tax?
No, the donation by Mr. Bill is not subject to tax.

A donor who is a nonresident alien is subject to donor’s tax

only on properties located within the Philippines.

In this case, the gift is presumed to be located in Canada and

not in the Philippines.

Therefore, Mr. Bill is not subject to tax.

d. In the settlement of the estate of Mr. B who died intestate, his wife
renounced her inheritance and her share of the conjugal property in
favor of their children. The BIR determined that there was a taxable gift
and thus assessed the wife as a donor. Was the BIR correct?
Yes, the BIR is correct.

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 whereas general renunciation by an heir, including the surviving

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 spouse, of his/her share in the hereditary estate left by the decedent is not
subject to donor’s tax, unless specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate.

In this case, the wife renounced his share in conjugal property and share in the
inheritance specifically and categorically in favor of their children.

Therefore, the gift made by the wife is subject to donor’s tax.

e. Mr. and Mrs Jose, both Filipino citizens, are owners of a residential
house and lot in Baguio. After the recent wedding of their son, the
spouses donated the real property to them. At the time of donation, the
real property has a FMV of P2M.
1. Are the spouses subject to income tax for the value of the
real property donated to them?
No, the spouses are not subject to income tax.

Under the National Internal Revenue Code, gifts are excluded

from the gross income.

The property received by the spouses is a gift which must be

excluded in the computation of gross income.

Therefore, the spouses are not subject to income tax for the
value of the real property donated to them.

2. Is the gift subject to donor’s tax?

Yes, the gift is subject to donor’s tax.

It is a tax on the privilege of transmitting one’s property or

property rights to another or others without adequate and full
valuable consideration.

Here, the property is transferred by the spouse transferred the

property without consideration.

Therefore, the transfer of the property is subject to donor’s tax.

f. Ace Corporation bought a parcel of land situated at Pateros and donated

it to the Municipal Government of Pateros for the sole purpose of
devoting the land as a relocation site for the less fortunate constituents of
said municipality, in accordance therewith, the Municipal Government of
Pateros issued to the beneficiaries Certificates of Award giving them the
respective areas where their houses are erected. Through an ordinance,
the municipal government ordained that the lots be awarded to the
awardees be finally transferred and donated to them. Determine the tax
consequence of the foregoing dispositions with respect to Ace
Corporation, the Municipal Government of Pateros, and the
occupants/beneficiaries.

With respect to Ace Corporation, it is not subject to tax because the donation
is made to a political subdivision of the government and under the law, gifts
made to a political subdivision of the government is not subject to donor’s tax.

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 The National Government or any of its political subdivisions are exempt from
taxes. Thus, the municipal government of Pateros is not subject to tax on the
dispositions made.

The occupants or beneficiaries will be liable for real property taxes as owners
of the lot after the disposition by the municipality of Pateros. Real property
tax is a direct tax on ownership of lands and buildings or other improvements
thereon not specially exempted.

g. A corporation wanted to donate P5M as prize money for the world

professional billiard championship to be held in the Philippines. Since the
Billiards Sports Federation of the Philippines does not recognize the
event, it was held under the auspices of International Professional
Billiards Association, Inc. Is the corporation subject to donor’s tax on its
donation?

Yes, the corporation is subject to donor’s tax on its donation.

Donations made qualified-donee institutions are exempt from donor’s tax.

Here, the event is not recognized by the Billiards Sports Federation of the
Philippines. Thus, the donation cannot be considered as a gift made to a
qualified donee institution.

Therefore, the corporation is subject to donor’s tax on its donation.

h. On December 2018, a corporation donated a piece of vacant lot situated

in Mandaluyong to an accredited and duly registered non-stock, non-
profit educational institution to be used by the latter in building a sports
complex for students.
1. May the donor claim in full as deduction from its gross
income for the taxable year 2018 the amount of the donated
lot equivalent to its FMV/Zonal value at the time of
donation?
No, the donor cannot claim the in full as deduction from its
gross income for the taxable year 2018 the amount of the
donated lot equivalent to its FMV/Zonal value at the time of
donation.

Under the Tax Code, the deduction of any charitable

contribution of property other than money shall be based on the
acquisition cost of said property.

Here, the donation is a piece of vacant lot. Thus, the deductible

amount must be based on its acquisition cost and not of the fair
market value at the time of the donation.

2. In order that donations to non-stock, non-profit

educational institution may be exempt from the donor’s gift
tax, what conditions must be met by the done?
In order that donations to non-stock, non-profit educational
institution may be exempt from the donor’s gift tax, the donee
must not use more than thirty percent the gifts for
administration purposes.

i. Are contributions to a candidate subject to donor’s tax? On the part of

the contributor, is it allowable as a deduction from gross income?

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 No, the contributions to a candidate in an election is not subject to donor’s tax.
Any contribution in cash or in kind to any candidate, political party or
coalition of parties for campaign purposes shall be governed by the Election
Code, as amended.

On the part of the contributor, the contributions made to a candidate in an

election is not allowed as deduction from gross income. Under the Tax Code,
an expense may be deductible from the gross income if it is incurred or paid
during the taxable year and is ordinary and necessary to carry out the business,
trade, or profession of the taxpayer. Contributions to a political candidate is
not an ordinary and necessary expense for the conduct of the donor’s business,
trade, or exercise of profession. Thus, such contribution is not deductible from
the gross income.

j. Ken owns a commercial lot which he bought many years ago for P1M. It
is now worth P20M although the zonal value is only P15M. He donates
one-half pro indiviso interest in the land to his son on December 31, 2018,
and the other one-half pro indiviso interest to the same son on January 2,
2019.
i. How much is the value of the gift in 2018 and 2019 for purpose of
computing the donor’s tax?
The gifts made in 2018 and 2019 for donor’s tax purposes are valued
at 7.5 million each based on the zonal value of 15 million.

The value a real property for gift tax purposes is the higher between
the fair market value as determined by the Commissioner or the fair
market value as shown in the schedule of values fixed by the
Provincial and City Assessors at the time of the donation.

Here, only the fair market value as determined by the Commissioner

which is the zonal value of 15 million is given.

Thus, the zonal value is presumed to be the higher between the two
amounts and must be used as the value of the property for donor’s tax
purposes.

ii. The Revenue District Officer questions the splitting of the

donations into 2018 and 2019. He says that since there were only 2
days separating the 2 donations, the 2 donations they should be
treated as one, having been made within 1 year. Is he correct?
No, the Revenue District Officer is not correct.
The computation of the donor’s tax is on a cumulative basis over a
period of one calendar year.

Ken made the donation on 2018 and 2019. The donations were made
in two calendar years regardless of the fact that only two days
separated the two donations.

Therefore, the donations should not be treated as one.

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