DONOR’S TAX

* Incomplete gift becomes complete

when:
 NATURE OF DONOR’S TAX
> donor renounces the power
- Excise tax
- Direct tax
- Applies to both natural and juridical
persons
> donor’s right to exercise the power
- Donation is a contract
ceases because of the happening
of some event
 IMPOSITION OF DONOR’S TAX
- The moment the donor knows of the
4. Acceptance
acceptance by the done
- donor knows of the acceptance
- Donation is completed by delivery
made by the done
(actually or constructively)
- must be made during the lifetime of
the donor and done
 ELEMENTS OF DONATION
1. Capacity of the donor to make
 PURPOSE OF DONOR’S TAX
donation
2. Donative intent or intent to make a > to prevent avoidance of estate tax
gift on the part of the donor > to prevent or compensate for the loss of
- required only in direct gifts the progressive rates of income tax
when large estates are split up by gifts
NOT required in sale, exchange, or to numerous donees
transfer for inadequate
consideration  FORMALITIES
Subject to…
Donor’s tax (creditor)
Creditor cancels debt
w/o any consideration
Income tax (debtor)
Debt cancellation was  CLASSIFICATION OF DONATION
in consideration for
> As to motive or purpose:
services rendered
Final w/tax (debtor) 1. Simple (e.g., debt cancellation by
Debt cancellation of its act of pure liberality)
debtor-shareholder
2. Renumeratory (e.g., debt
Provision of Election
Contribution of cash or cancellation in consideration of
Code
in-kind to any candidate services rendered)
or political party 3. Modal (e,g., transfer for
Neither inadequate consideration)
Parent transfers PPE to
its subsidiary > As to time of taking effect (perfection):
1. Donation inter-vivos – during the
3. Delivery
lifetime of donor and done
 2. Donation mortis causa – upon
death of donor

 VOID DONATIONS  GROSS GIFT

1. made by persons who were guilty of

adultery or concubinage (may bring
action for declaration of nullity)

2. made by persons guilty of the same

criminal offense
 INCLUSIONS IN GROSS GIFTS
3. made to a public officer or his wife,
descendants, and ascendants, by 1. Direct gifts
reason of his office 2. Gifts thru creation of trust
3. Transfer for inadequate consideration
 VALUATION OF GROSS GIFTS
General: FMW of donated property at the
time of complete donation
> Donation of real property: Higher
between Zonal Value (BIR) and
Assessed Value (Provincial and City
Assessors)
> Donation of securities:

1. Traded in stock exchange

- mean between highest and
lowest quotation

2. Not traded in stock exchange

- Ordinary shares: BV of
security on valuation date
- Preferred shares: Par value
of security

 DONOR’S TAX RATE

6% in excess of P250,000
(Beginning January 1, 2018)
 5. Repudiation of inheritance WHEN (1)
the renunciation was categorically done in
favor of identified heir/s; and (2) to the
exclusion of other co-heir/s

6. Renunciation of share in common

property by the surviving spouse and
repudiation of inheritance

4. Condonation or Cancellation of Debt

- Included is payment of loan by

guarantor UNLESS the obligation is
jointly entered into by the guarantor
and the borrower with a creditor-
bank
  COMPUTATION OF DONOR’S TAX DUE
 DEDUCTION FROM GROSS GIFTS

1. <=250,000 donations during the year

2. Not-for-profit or for political subdivision
donations to NGs
3. <=30% of donations to non-profit /
NGOs are used for admin purpose

* if donor is engaged in business

- give notice of donation to RDO
w/in 30 days after receipt of
donee’s issued certificate of
donation
4. Donations made to entities
exempted under Special Laws
 DONATIONS MADE BY SPOUSES
General rules: Separate donor’s tax
Exception: gift from common property
as
– taxable one-half to each donor
spouse
 DONATIONS BETWEEN SPOUSES
General rules: Gift is NOT TAXABLE, as it is
declared void by law
Exception: moderate gifts are valid

 SPLITTING OF GIFT

- tax minimization scheme (tax

avoidance) w/c is done by spreading the
5. Encumbrances / Mortgages on gifts over numerous calendar years
property assumed by the done

6. Diminutions – reduction in value of

donated property as provided by donor

 EXEMPT FROM DONOR’S TAX (and

deductible from Gross Income of Donor)
- ALL donations and legacies and gifts
made to Philippine Red Cross to
support its purpose and objectives
 FOREIGN TAX CREDITS
 - effected partly by will and
partly by operation of law

SUCCESSION & TRANSFER TAXES

 OWNERSHIP MAY BE ACQUIRED THRU: > ELEMENTS:

1. Occupation 1. Decedent / Testator

2. Intellectual creation
3. Law *Executor – person designated in
4. Donation the will to carry out
5. Tradition the provisions
6.Contract
7. Prescription *Administrator – person appointed by
8. Succession the court if the former refused
to accept the appointment,
 TRANSFER TAXES failed to qualify under the law
- imposed upon the gratuitous disposition or the last will and testament
of private properties or rights did not appoint one
- excise tax or privilege tax
2. Inheritance / Estate
> TYPES: - property, rights, and
1. estate tax / donation mortis causa obligations not extinguished
2. donor’s tax / donation inter vivos by death
- purely personal rights are not
 SUCCESSION transmissible
- mode of acquisition by virtue of which,
the property, rights and obligations to the 3. Successor
extent of the value of the inheritance, of a
person are transmitted through his death a. Compulsory heirs
to another or others either by his will or by
operation of law

> KINDS:
1. Testamentary / Testate
- made in a will

2. Legal / Intestate
- effected by operations of law b. Voluntary heirs – instituted in will
due to no will or will is void
c. Legal / Intestate heirs
3. Mixed
 > Devisees & Legatees
- recipients of gifts of real and
personal property

 CAUSES OF LEGAL SUCCESSION OR  COMPOSITION OF GROSS ESTATE

INTESTATORY

 KINDS OF WILLS
 WILLS
- a strictly personal act, a person is
permitted, with the formalities prescribed
by law, to control to a certain degree the
disposition of his estate to take effect
after his death
- persons prohibited by law to make a will
are those below 18 years old and those
who are not of sound mind at the time of
its execution
- if the 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
- a will shall be valid even though its
should not contain an institution of an
heir
- a married woman may make a will
without the consent of her husband, and
without 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
1. Notarial / Ordinary / Attested Will
- executed in accordance with the
formalities prescribed by Art. 804 –
808 of the New Civil Code
> Requisites:
1. in writing, and language known
by the testator
2. must be subscribed in the end
by the testator or by the
testator’s name
3. must be attested and
subscribed by 3 or more
credible, domiciled witnesses
in the Philippines in the
presence of the testator
2. Holographic will
- entirely written, dated and signed
by the hand of the testator himself.
- Codicil: supplement or addition to
a will, made after the execution of
will
- Probate of a will: court procedure
by which a will is proved to be valid
or invalid in the presence of a
witness
 FOREIGN WILLS
- if made with the formalities prescribed
by the law of the place in which he
resides, or in conformity with those
which the Philippine Civil Code
prescribes.
 REVOCATION OF WILL
- other heirs of the testator shall prove the
truth of the cause of the disinheritance, if
the disinherited heir should deny it
- children and descendants of the
disinherited heir shall take his place
and preserve the rights of the
compulsory heirs

- can be done before time of death

 MODES OF REVOKING A WILL -Art. 856 CC: A subsequent reconciliation

between the offender and the offended
- by implication of law
person deprives the latter of the right to
- by some will, codicil, other writing disinherit, and renders ineffectual any
executed as provided in case of wills disinheritance that may have been made
- by burning, tearing, cancelling, or
 RIGHT OF REPRESENTATION
obliterating the will with the intention of
revoking it, by the testator himself, or >Not available to:
by some other person in his presence,
and express direction 1. Repudiation of compulsory heir’s
inheritance
- IF w/o express direction: as long as its
contents, due execution, and the 2. Voluntary heirs
unauthorized destruction are established 3. Renunciation of voluntary heir’s
according to the Rules of Court inheritance to their heirs except
- If after making a will, the testator makes when, only if they concur with at
a second will, expressly revoking the least one uncle or aunt
first, the revocation of the second will 4. Grandnephews and grandnieces
does not revive the first will, which can
be revived only by another will or codicil 5. Illegitimated nephews and nieces
(Art. 837 CC)
 DISINHERITANCE
>Requisites:
1. effected only through a valid will
2. for a cause expressly stated by law
3. cause must be stated in the will itself
4. cause must be certain and true
5. unconditional
6. total (there is no partial disinheritance)
7. the heir disinherited must be
designated in such a manner that
there can be no doubt as to his
identity
 even though he did not
exercise the power

c. Transfers under a General Power

of Appointment
- donee is authorized to
appoint any person he
pleases

Decedent: + GE
Fiduciary heir (1st heir): + GE
Fideicommisary (2nd heir): +GE

GROSS ESTATE

 COMPOSITION OF GROSS ESTATE d. Transfers for Insufficient

Consideration
1. Property actually and physically
present at the time of his death:
> Real property
> Personal tangible property
> Shares of stock
> Bank deposit
> Dividends declared before his
death but received after death
> Partnership profit which have
accrued before his death
> Usufructuary & rights
> Interest 3. Miscellaneous Items

2. Property not physically in the estate but
are still subject to payment of estate
tax
a. Transfers in Contemplation of
Death
- disposition of property
prompted by thought of
death as a controlling
motive
b. Revocable Transfers
- terms of enjoyment may be
altered, amended, revoked or
terminated by the decedent
a. Claims against insolvent persons
- the full amount of claim or
collectible should be
included in GE
b. Proceeds of life insurance
- also proceeds of life
insurance under a group
insurance taken by the
employer are not subject to
estate tax

 SITUS OF TANGIBLE & INTANGIBLE
PROPERTY
 VALUATION OF GROSS ESTATE
General: FMV at the time of death
Real Property: higher between Zonal
Value (BIR) and Assessed Value
(Provincial and City Assessors)
Shares of stock:
1. Traded in stock exchange
- mean between highest and
lowest quotation
2. Not traded in stock exchange
- Ordinary shares: BV of
security on valuation date
- Preferred shares: Par value
of security
Units of participation in associations:
- bid price nearest the date of
death published in any
newspaper or publication for
general circulation
Rights of usufruct: in accordance with
the latest Basic Standard Mortality Table
taking into account the probable life of the
beneficiary, to be approved by the
Secretary of Finance upon
recommendation of the Insurance
Commissioner
 EXEMPTIONS AND EXCLUSIONS FROM
THE GROSS ESTATE
1. Exclusive property of the surviving
spouse
2. Property outside of the Philippines of a
NRA
3. Intangible personal property in the
Philippines of a NRA under reciprocity
law
4. Merger of usufruct in the owner of the
naked title
Decedent: + GE
1st heir: Excluded in GE
2nd heir: + GE
5. Special Power of Appointment
- donee can appoint only from a
restricted or designated class of
persons other than himself
Decedent: + GE
1st heir: Excluded in GE
2nd heir: + GE
6. Transmission or delivery of the
inheritance or legacy by the fiduciary
heir or legatee
- same with SPA except:
1. The substitution must not go
beyond one degree from the
heir originally instituted
2. The fiduciary and the
fideicommissary must be
both living at the time of
testator’s death
7. Proceeds of life insurance and benefits
received by members of the GSIS
8. Accruals and benefits received by
members from the SSS by reason of
death
9. Amounts received from Philippines and
United States governments for war
damages

10. Amounts received from United States
Veteran Administration
11. Payments from the Philippines of US
government to the legal heirs of
deceased WW2 veterans and
deceased civilians for
supplies/services furnished to the US
and Philippine Army
12. Retirements/benefits of officials or
employees of a private firm
13. PERA assets of the decedent-
contributor
14. Compensation paid to private and public
health workers who have contracted
COVID-19 in case of death, the said
amount shall not be included as part of
the gross estate of the decedent subject
to estate tax as provided under RA 11494
or the Bayanihan to Recover as One Act
 ESTATE TAX RATE
6% of net estate
- cash installment: within two years from
the date of the filing of the estate tax
return using the payment form (BIR form
0605) or a payment form dedicated for
this transaction for succeeding
installment payments after filing the first
payment through the estate tax return
 PLACE OF FILING THE RETURN
1. RC,RA - where the decedent was
domiciled at the time of his
death
2. NRC,NRA - where executor or
administrator is registered OR the
Revenue District Officer having
jurisdiction over the executor or
administrator’s legal residence OR
secured from the Office of the
Commissioner through RDO #39
South Quezon City
 LIABILITY FOR THE PAYMENT OF
ESTATE TAX
- estate tax shall be paid by the
executor or administrator before
the delivery of the distributive
share in the inheritance to any heir
or beneficiary

 FILING OF ESTATE TAX RETURN

- Primary: executor or administrator

- Secondary: any of the heirs

 TIME FOR FILING OF THE ESTATE TAX

RETURN
- within 1 year from the decedent’s death
- extension: within 30 days
 TIME FOR PAYMENT OF THE ESTATE
TAX

- paid at the time the return is filed

- extension: within 5 years if judicial OR
within 2 years if extrajudicial
 > not have been condoned by
creditor or must not have been
prescribed
> must be duly notarized, except for
financial institutions
> statement under oath if contracted
w/in 3 years prior to decedent’s
death

3. Taxes
- unpaid taxes accrued before
decedent’s death

Not allowed:
> income tax on income received
after death

DEDUCTIONS FROM GROSS ESTATE

> property taxes accrued after death
 ORDINARY DEDUCTIONS > estate tax
1. Losses
Requisites: 4. Claims against insolvent persons

> arising from fortuitous events and Requisites:

acts of man > proven incapacity of the debtor to
> not compensated by insurance pay
> not claimed as a deduction in an > amount uncollectible shall be AD
income tax return of the estate
subj. to income tax Assets x Receivable
> incurred during settlement period Liabilities

2. Indebtedness/Claims against estate 5. Transfer for Public Use

- dispositions in last will and
- provided the decedent benefitted testament in favor of NG and
the loan proceeds, otherwise, LGUs
accommodation loan only included
in GE but can’t be claimed as AD 6. Vanishing Deductions(Received or
Inherited Property previously taxed)
Requisites:
> personal obligation of decedent
existing at the time of his death
> contracted in good faith and for
adequate and full consideration
> valid in law and enforceable in
court
 3. Amounts received by heirs under RA
4917 (n/a to NRA)

 SPECIAL DEDUCTIONS “An act providing that Retirement

Benefits of Employees of Private firms
1. Standard Deductions shall not be subject to Attachment,
Levy, Execution, or Any tax
RC, NRC, RA: ₱ 5M whatsoever”

NRA: ₱500K 4. Net Share of Surviving Spouse

2. Family Home (n/a to NRA) - ½ of conjugal property (net of

Requisites: ordinary deductions)
> decedent was married or single
and head of family
> family home and land are owned
by decedent
> family home must be the actual
residential home of decedent at the
time of his death
> AD: lower of FMV of family home
and ₱10M
> if family home or land are
conjugal, divide FMV by two