BUSINESS AND TRANSFER TAXATION:

ESTATE TAX: GROSS ESTATE OF MARRIED DECEDENTS

Week 10 and 12 – MAY 2022

OVERVIEW AND OBJECTIVES:

1. Understand the presentation of the gross estate of the married decedent.
2. Comprehend the various property regimes applicable to spouses
3. Master the nature of each property regime
4. Be able to compute the separate and exclusive properties of the spouses under
absolute community of property and conjugal partnership of gains
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BUSINESS AND TRANSFER TAXATION

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GROSS ESTATE OF MARRIED DECEDENTS

❑ The gross estate of a married decedent is composed of:
1. The decedent’s exclusive properties.
2. The common properties of the spouses.
The gross estate of a decedent is reported as follows in the estate tax return:
PROPERTIES RELATIONS BETWEEN SPOUSES:
❑ For married decedents, the boundary between separate properties and common
properties of the spouses is important in the determination of the gross estate of the
decedent spouse.
❑ Under the Family Code – the property relation between the spouses must be
agreed upon by the spouses before their marriage and is set in their “Prenuptial
Agreement.”
❑ The properties held by the spouses shall be classified as separate or common
properties depending on the agreed regime.
BUSINESS AND TRANSFER TAXATION
COMMON TYPES OF PROPERTIES REGIMES:
1. Absolute separation of property (ASP) – Technically, all properties of the
spouses are separate properties, except those properties which they may acquire
jointly.
2. Conjugal Partnership of Gains (CPG) – All properties that accrue as a fruit of
their individual or joint labor or fruits of their properties during the marriage will
be common properties of the spouses.
3. Absolute Community of Property (ACoP) – All present properties owned by the
spouses at the date of celebration of the marriage shall become common properties
of the spouses including future fruit of their separate or joint industry or fruits of
their common properties.
BUSINESS AND TRANSFER TAXATION
Applicable property regime in default of agreement:
❑ In the absence of the agreement or when the regime agreed by the spouses is
void, marriages celebrated before August 3, 1988, shall be governed by the
conjugal partnership of gains.
❑ Marriages celebrated starting August 3, 1988, shall be governed by absolute
community of property.
Conjugal Partnership of Gains (CPG) Absolute Community of Property
(ACoP)August 3, 1988
BUSINESS AND TRANSFER TAXATION
Basic Rules in the Determination of Property Interest:
1. Common property presumption rule – Properties of the spouses are presumed
common properties unless proven to be exclusive properties of either of the spouse.
(This presumption does not apply under absolute separation of property)
2. Consistent classification rule – The sale or exchange of properties does not alter
their classification Properties acquired using separate properties are separate
properties. Likewise, properties acquired using common properties are common
properties.
3. Accruals in the value or gains on sale of properties – The increases in value or
gains on the sale of properties are fruits subject to the rules of the property regime
agreed upon by the spouses.
BUSINESS AND TRANSFER TAXATION
CONJUGAL PARTNERSHIP OF GAINS (CPG)
❑ This property relation views marriage as a partnership of gains:

❑ Since common properties begin to accrue only from the date of marriage, this
property regime is best described as prospective:
(Before marriage) (During marriage)
(----Prospective----🡪)
(Date of marriage)

BUSINESS AND TRANSFER TAXATION

CONJUGAL PARTNERSHIP OF GAINS (CPG)
❑ A detailed look:

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ILLUSTRATION: Fruits of Labor of either or both spouses.
Illustration #01:
Mr. and Mrs. Calapan were under the conjugal partnership of gains. Mrs. Calapan
is employed in a multinational company while Mr. Calapan is unemployed taking
care of their children.
During the marriage, Mrs. Calapan acquired various properties totaling P
10,000,000 from her salaries. Mr. Calapan also discovered a World War II treasure
in their backyard worth P 100,000,000. Mr. Calapan also won P 200,000,000
jackpot in the PCSO 6/49 Super Lotto.
The following are the summaries of the foregoing properties:

BUSINESS AND TRANSFER TAXATION

ILLUSTRATION: Fruits of Labor of either or both spouses.
Illustration #02:
Before their marriage on November 1, 1987, Mr. and Mrs. Negros had properties
respectively of P 1,000,000 car and P 2,000,000 residential lot. Mr. and Mrs.
Negros married without agreement on a property regime.
During their marriage, Mr. and Mrs. Negros acquired properties respectively
totaling P 500,000 and P 800,000 from their separate labor. Mrs. Negros also sold
her residential lot for P 5,000,000 cash.
Shown below are the separate and common properties of the spouses:
BUSINESS AND TRANSFER TAXATION
ILLUSTRATION: Fruits of Labor of either or both spouses.
Illustration #02:
Note:
❑The spouses are under CPG by default because they married before August 3,
1988, and did not agree to a property regime.
❑Transformation of properties by sale or exchange does not change their
classification. Hence, the P 2 million of the cash is still a separate property since
the P 2 million lot where it came from is a separate property.
❑Under CPG, all fruits form part of the common property. Hence, the P 3 million
cash gained from the sale of the lot (i.e. P5M-2M) is a common property.
BUSINESS AND TRANSFER TAXATION
ABSOLUTE COMMUNITY OF PROPERTIES (ACoP)
❑ Under ACoP, marriage is viewed as a union of the properties of the spouses at
the time of marriage including fruits of their labor and industries in the marriage.
❑ Special feature of ACoP:
1. Retrospective feature. All properties which the spouses owned before the
marriage which they brought into the marriage will become common properties.
Exception:
a. Properties of the spouse with descendant/s in a prior marriage.
b. Properties for exclusive personal use of either spouse, except jewelry
2. Prospective feature. All properties which the spouse may acquire during the
marriage from their separate and joint labor or industry are common properties.
Exception:
a. Gratuitous acquisition received by either spouses.
b. Fruits of exclusive property.
c. Properties acquired for exclusive personal use of either spouse, except jewelry.
BUSINESS AND TRANSFER TAXATION
ABSOLUTE COMMUNITY OF PROPERTIES (ACoP)
❑Special feature of ACoP (Cont.):
(Before marriage) (During marriage)
(<----Retrospective----) (----Prospective--🡪)
(Date of marriage)

❑ Spouse with descendants in a prior marriage:

❑The absolute community of property does not retroact if there are affected
descendants from a prior marriage.
❑Reserved by the law as separate properties.

❑Intended to protect the interest of the descendants.

BUSINESS AND TRANSFER TAXATION
ILLUSTRATION:
Ms. Beauty Fool, 20 years old, married Don Mario Montero Montemayor
Milagroso, a wealthy 65 – year old businessman known for his alias “Mr. 4M.”
Mr. 4M had a child with his deceased wife in a prior marriage.
Ms. Beauty brought into marriage properties totaling P 50,000. Mr. 4M also
brought into the marriage properties totaling P 70,000,000. During the marriage,
Ms. Beauty accumulated P 300,000 from her salaries.
Mr. M can no longer work at his age, so he is totally dependent on the fruits of his
properties. His properties earned P 11,000,000 during the marriage.
❑The following shows an analysis of the properties of either spouse:

BUSINESS AND TRANSFER TAXATION

SUMMARY OF RULES: Spouse with descendant in a prior marriage
❑Properties for exclusive personal use, except jewelry:
Under ACoP, properties for the exclusive personal use of either spouses, except
jewelry, are always exclusive property whether they are acquired before or during
the marriage. ❑Jewelry acquired before marriage will become common property.
BUSINESS AND TRANSFER TAXATION
ILLUSTRATION:
Mr. and Mrs. Quezon had the following personal properties: Acquired before
marriage:
• Tuxedo of Mr. Quezon P 3,000
• Wristwatch of Mr. Quezon 2,000
• Car 800,000
• Gown of Mrs. Quezon 40,000
Acquired during marriage:
• Earrings and necklace of Mrs. Quezon 150,000
• Cellphones 50,000
• Louis Vuitton bag of Mrs. Quezon 150,000
• Clothes, shoes, and underwear of Mr. Quezon 60,000
• Clothes, shoes, and underwear of Mrs. Quezon 80,000
Required: Compute for the separate and common properties of the spouses:
BUSINESS AND TRANSFER TAXATION
ILLUSTRATION (cont.):
The following are the exclusive and communal properties of the spouses:
Note:
1. The price of the property has nothing to do with the property classification.
2. Note that the cars and cell phones cannot be classified as properties for the
exclusive personal use of either spouse. 3. Properties for the exclusive personal use
of either spouse, other than jewelry, are separate property even if: a. They are
acquired from fruits of labor or industry of either spouse or from fruits of common
properties. b. They are acquired before or during the marriage.
BUSINESS AND TRANSFER TAXATION
SEPARATE PROPERTIES ACQUIRED DURING MARRIAGE:
❑Properties received by way of gratuitous title:
Similar to Conjugal Partnership of Gains, properties received by way of gratuitous
title such as donation or inheritance during marriage is a separate property unless
designated by the donor or decedent to be both for spouses.
❑Fruits, Income, or Gains:
- Fruits of labor and industry of either spouse are common properties. - Fruits of
properties (Fruits follow principal):
Fruit of separate property is a separate property.
Fruit of common property is a common property.
BUSINESS AND TRANSFER TAXATION
Summary of Rules : Absolute Community of Property (ACoP)BUSINESS AND
TRANSFER TAXATION
ILLUSTRATION:
Mr. Ato, a married decedent under the ACP, received the following properties by
gratuitous title:
Before marriage During marriage
Residential lot – gift to Mr. Ato P 2,000,000
Commercial lot – gift to Mrs. Ato - P 5,000,000 Income of residential lot 400,000
800,000 Income of commercial lot - 1,400,000 Income from own labor – Mr. Ato
200,000 800,000 Income from own labor – Mrs. Ato 300,000 800,000
Compute for the summary of the properties of the spouses:
BUSINESS AND TRANSFER TAXATION
ILLUSTRATION: (Answer)
Mr. Ato, a married decedent under the ACP, received the following properties by
gratuitous title:
Exclusive Properties Common
Mr. Ato Mrs. Ato Properties
Residential lot – gift to Mr. Ato P P 2,000,000 Commercial lot – gift to Mrs. Ato -
5,000,000
Income of residential lot 1,200,000 Income of commercial lot - 1,400,000
Income from own labor – Mr. Ato 1,000,000 Income from own labor – Mrs. Ato
____________ ______________ 1,100,000 P____________ P 6,400,000 P
5,300,000
• All properties acquired before marriage are community or common properties.
This includes those acquired by own labor or by gratuitous acquisition
(retrospective).
• Inheritance of gift during marriage is a separate property, unless designated for
both spouses. • The income of properties follows the classification of their source.
Labor/Industry income is common.
BUSINESS AND TRANSFER TAXATION
SELF-TEST EXERCISES: True or False
1. The spouses can stipulate the conjugal partnership of gains as their property
regimes even in the current time.
2. The property regime of the spouses may be agreed upon during the marriage. 3.
In default of agreement as to the property relation between the spouses, the
absolute separation of property is presumed.
4. Fruits accruing during the marriage are conclusively are conclusively presumed
common while fruits accruing before the marriage are conclusively presumed
exclusive.
5. The absolute community of property applies on fruits prospectively from the
date of marriage. 6. The conjugal partnership of gains operates retrospectively and
prospectively.
7. Properties exclusive personal use of either spouse are exclusive properties under
absolute community of properties.
8. All fruits, accruing before or after the marriage, are conjugal properties.
9. Fruits accruing from common properties are common properties under conjugal
partnership of gains. 10.Fruits accruing from separate properties are common
properties under conjugal partnership of gains.
M&F Architects 2020
BUSINESS AND TRANSFER TAXATION

FOOD FOR THOUGHT

All successful people are big dreamers. They imagine what their future could be,
ideal in every respect, and then they work every day toward their distant vision,
that goal or purpose.
Brian Tracy
###
Sir A J. May 2022

BUSINESS AND TRANSFER TAXATION:

INTRODUCTION TO DONOR’S TAX
Week 13 and 14 – JUNE 2022

OVERVIEW AND OBJECTIVES:

1. Comprehend the essential requisites and formal requisites of donation 2.
Appreciate the rationale and purpose of donor’s taxation
3. Understand the types of donor’s and their tax rules
4. Understand the treatment of donation of common properties 5. Understand the
rules of renunciation of inheritance
BUSINESS AND TRANSFER TAXATION

DONATION
❑ A donation is a gratuitous transfer of property from one living person (donor) to
another (donee) ❑ Donation inter vivos

ESSENTIAL REQUISITES OF DONATION:

1. Capacity of the Donor. The donor must be legally competent to make a
donation.
▪ A donation made by a minor, an insane, or by one under hypnotic spells, force,
and intimidation is unenforceable.
▪ The donor’s capacity shall be determined as of the time of making of the
donation (Art. 737, Civil Code)
2. Intention to donate. The donation must be intentional or voluntary. 3. Donative
act or delivery. Donation is a real contract and is completed by the delivery of the
property to be donated.
4. Acceptance by the donee. No one shall be compelled to accept the generosity of
another. The donee has the prerogative to accept and reject the gratuity.
BUSINESS AND TRANSFER TAXATION
FORMAL REQUISITES OF DONATION:
For a donation of properties to be valid, it must have to adhere to certain
formalities required by law:

BUSINESS AND TRANSFER TAXATION

TYPES OF INTER-VIVOS DONATION
1. Direct Donation. A direct donation is one made by the donor directly to the
donee.
2. Intention to donate. An indirect donation involves the transfer of property by the
donor in favor of the donee but under the supervision of another party. This is
called donation in trust.
▪ The designation of donation in trust may either be:
a. Revocable – this is not completed donation and is not taxable.
b. Irrevocable – this is a completed donation; hence taxable.
BUSINESS AND TRANSFER TAXATION
Illustration 1 – Revocable donation.
Mr. Grantor made a revocable donation of a boarding house worth P 10,000,000 in
favor of his son, Melvin. The boarding house shall be managed by Trustee
Corporation. Mr Grantor specified that P 200,000 annual income of the trust shall
be transferred to Melvin. The trustee made payment of P 200,000 to Melvin during
the year.
The P 10,000,000 revocable donation of a boarding house is not subject to donor’s
tax. The P 200,000 transfer of income of the property to Melvin is a taxable
donation of Mr. Grantor.
BUSINESS AND TRANSFER TAXATION
Illustration 2 – Irrevocable donation.
Assuming the same facts in the preceding problem, except that the donation is
designated by Mr. Grantor as irrevocable.
The P 10,000,000 irrevocable donation of a boarding house is subject to donor’s
tax. The P 200,000 transfer of income of the property to Melvin is a deduction to
the income of the taxable trust. The same shall be treated as income of Melvin and
is not a donation subject to Donor’s tax.
BUSINESS AND TRANSFER TAXATION
TYPES OF DONORS
A. Resident or Citizen. Taxable on global donations, such as 1. resident citizen
2. non-resident citizen
3. resident alien
B. Non-resident alien. Taxable only on Philippine donations, except intangible
personal property subject to reciprocity conditions.
▪ Reciprocity rule for non-resident aliens – The Philippines exempts donations of
intangible personal property by non-resident alien donors if their country also
exempts the donations of intangible personal properties by Filipino non-residents
therein.
▪ Under the TRAIN Law, a donation to any donee is now subject to a flat 6% tax.
BUSINESS AND TRANSFER TAXATION
Summary of rules on taxable donation:
BUSINESS AND TRANSFER TAXATION
Illustration 1
Mr. Kumar donated the following properties:
Philippines Abroad Total
Real properties P 1,000,000 P 800,000 P 1,800,000 Tangible personal properties
400,000 300,000 700,000 Intangible personal properties 200,000 100,000 300,000
Total P 1,600,000 P 1,200,000 P 2,800,000
The following shall be the taxable donation in each of the following cases: If
Kumar is a The taxable donation is
1. Resident or citizen donor P 2,800,000
2. Non-resident alien
- With reciprocity exemption P 1,400,000
- Without reciprocity exemption P 1,600,000
BUSINESS AND TRANSFER TAXATION
DONOR’S TAX
❑ DONORS TAX is a tax upon the gratuitous transfer of property between two or
more living persons at the time of transfer whether the transfer is direct or trust and
without regard to the type of property transferred. ❑ NATURE OF DONOR’S
TAX:
1. Privilege tax – a donor’s tax is a tax upon the privilege to transfer property
gratuitously during the lifetime of the donor.
2. Proportional tax – donor’s tax is based on fixed percentage of net gift. 3. Annual
tax – donor’s tax is imposed on yearly net gifts of donors in excess of P 250,000.
4. Ad valorem – donor’s tax depends upon the value of the property donated. 5.
National tax – donor’s tax is imposed by the National government. 6. Revenue or
fiscal tax – donor’s tax is intended to provide the government income.
BUSINESS AND TRANSFER TAXATION
RATIONALE OF DONOR’S TAX
1. To control tax evasion of the estate tax. 2. To control tax evasion on income tax.
3. To recoup the future loss of income of tax revenue.
BUSINESS AND TRANSFER TAXATION

FOOD FOR THOUGHT

All successful people are big dreamers. They imagine what their future could be,
ideal in every respect, and then they work every day toward their distant vision,
that goal or purpose.
Brian Tracy
###

Sir A J. June 2022