BUSINESS TAX

QUIZ 2

CHAPTER 3 DEDUCTIONS FROM THE 3. Must be valid in law and enforceable in

GROSS ESTATE court
4. Must not have been condoned by the
creditors
ORDINARY DEDUCTIONS 5. Must not have prescribed
LOSSES, INDEBTEDNESS, and TAXES
6. Debt instrument must be notarized
LOSSES/CASUALTY LOSSES
7. If the loan was contracted 3 years before
➔ losses arising from acts of God and/or acts death, submit statement showing the
of man. disposition of the proceeds
➔ the amount deductible is the value of the NOTE: Amount deductible - the amount of debt
property lost. that will qualify in the above requirements.

Requisites for Deductibility UNPAID MORTGAGES OR INDEBTEDNESS ON

1. Arising exclusively from: PROPERTY
a. acts of God such as; ➔ The amount allowed as a deduction would
➔ fire be the outstanding debt or mortgage.
➔ storm ➔ In case unpaid mortgage is being claimed
➔ shipwreck by the state:
➔ other similar casualty ◆ verification must be made as to who
b. acts of man such as; was the beneficiary of the loans
➔ robbery proceeds
➔ theft
➔ embezzlement Requisites for Deductibility
2. Not compensated by insurance or 1. The fair market value of the mortgaged
otherwise property undiminished by the mortgage
3. Not claimed as a deduction in an income indebtedness should be included in the
tax return of the estate subject to income gross estate
tax. 2. Contracted in good faith
4. Incurred during the settlement period of the 3. For an adequate and full consideration
estate. NOTE: Amount deductible - amount of unpaid
5. Incurred not later than the last day for the mortgage
payment of the estate tax (within one year
from the date of death) Accomodation Loan
NOTE: Amount deductible - the value of the ➔ The loan proceeds went to another person
property lost. (umutang para sa iba).
➔ the value of the unpaid loan must be
INDEBTEDNESS OR CLAIMS AGAINST THE included as a receivable of the estate
ESTATE ➔ If there is a legal impediment to recognize
➔ Claims: debts or demands of pecuniary the unpaid obligation;
nature which could have been enforced ◆ it shall not be allowed as a
against the deceased in his lifetime and deduction from the gross estate.
could have been reduced to simple money ➔ NOTE: In all instances, the mortgaged
judgments. property, to the extent of the decedent’s
➔ May arise out of the following sources: interest therein, should always form part of
◆ Contract the gross estate.
◆ Tort
◆ Operation of Law TAXES
➔ Requisite: the tax must have accrued prior
Requisites for Deductibility to the death of the decedent.
1. Personal debt of the decedent existing at ➔ the following are not allowed as a
the time of his death deduction
2. Contracted in good faith and for adequate ◆ Income tax on income received
and full consideration in money or money’s after death
worth ◆ Property taxes accrued after death

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 ◆ Estate tax from the transmission of the donor, or something acquired in
his estate exchange therefore.
NOTE: Amount Deductible - unpaid taxes that 5. No vanishing deduction on the property
accrued before the decedent's death. was allowable to the estate of the prior
decedent.
CLAIMS AGAINST INSOLVENT PERSON
➔ receivables due or owing from persons who Vanishing Deduction Rates
are not financially capable of meeting their Period (form receipt Rate
obligations up to the decedent’s
➔ these are claims by the decedent during his death)
lifetime that are not collectible
➔ Insolvent: person whose properties are not Within one year 100%
sufficient to satisfy, whether fully or
partially, his debt(s). More than 1 year but 80%
not more than 2 years
Requisites for Deductibility
1. The incapacity of the debtor to pay his More than 2 years but 60%
obligation should be proven. not more than 3 years
2. The full amount owed by the insolvent first
be included in the decedent’s gross estate. More than 3 years but 40%
The amount uncollectible shall be allowed not more than 4 years
as a deduction.
More than 4 years but 20%
3. If the insolvent could only pay a partial
not more than 5 years
amount, the full amount owed shall be
included in the gross estate, and the
amount uncollectible shall be allowed as a Amount Deductible: Pro-forma computation of
deduction. Vanishing Deduction
NOTE: Amount deductible - the amount of
claims/receivable that cannot be collected Value to Take Pxxx
the lower amount
VANISHING DEDUCTIONS between FMV at the time
● referred to as a deduction for property of death vs FMV at the
previously taxed time of inheritance or
● It is the amount allowed to reduce the donation
taxable estate of a decedent where a
property included in his gross estate was Less. Mortgage Paid (xxx)
previously received by him, either: by the present decedent
1. from a prior decedent by way of on mortgaged assumed
(1st Deduction)
inheritance; or
2. from a donor by way of gift or Initial Basis Pxxx
donation
● Vanishing deduction is allowed as a Less. Proportional (xxx)
deduction from the gross estate to deduction (2nd
minimize the effect of or as a remedy Deduction)
against indirect double taxation.
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑏𝑎𝑠𝑖𝑠
x (LIT + TFPU)
Requisites for Deductibility: 𝐺𝑟𝑜𝑠𝑠 𝑒𝑠𝑡𝑎𝑡𝑒
1. The decedent died within 5 years from
receipt of the property from a prior Final Bais xxx
decedent or donor.
x Vanishing Deduction %
2. The property on which the vanishing Rate
deduction is being claimed is located in the
Philippines. Vanishing Deduction Pxxx
3. The property must have formed part of the
taxable estate of the prior decedent or the
taxable gift of the donor and the transfer tax TRANSFER FOR PUBLIC USE
relative thereto have been paid. ● Transfers for Public Use (TFPU) are
4. The property on which vanishing deduction dispositions in a last will and testament or
is being taken must be identified as the one transfers to take effect after death in favor
received from the prior decedent, or from
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 of the government of the Philippines or any
political subdivisions
● It is exclusively for public purposes
Requisites for deductibility:
1. Given to the Government of the Philippines
(National or local).
2. Must be testamentary in character.
3. By way of donation mortis causa executed
by the decedent before his death.
4. Exclusively for public purpose.
NOTE: Net effect is zero.
SPECIAL DEDUCTIONS
STANDARD DEDUCTION
● If the decedent is a citizen or resident:
➔ the standard deduction is
P5,000,000
● If the decedent is a nonresident alien:
➔ the standard deduction is P500,000
AMOUNT RECEIVED BY HEIRS UNDER RA
4917
● Any amount received by heir(s) from
the decedent’s employer as a
consequence of the death of the
decedent-employee in accordance with
RA 4917, provided such amount is
included as part of the gross estate of
the decedent.
SHARE OF THE SURVIVING SPOUSE
● The amount deductible is the net share of
the surviving spouse in the conjugal
partnership property.
● 50% of the conjugal property after
deducting obligations chargeable to such
property.
● This is to ensure that only the decedent;s
interest in the estate is taxed.

FAMILY HOME CHAPTER 4: PROPERTY RELATIONS

● The dwelling house, including the land on
which it is situated, where the husband and PROPERTY RELATIONS
wife, or head of the family, and members of ● It is only applicable to married persons.
the family reside, as certified to by the ● It is used to distinguish a conjugal or
Barangay Captain of the locality. community property from an exclusive
property.
REQUISITES FOR DEDUCTIBILITY ● Under Article 74 of the Family code, the
1. The decedent was married or single, was a relationship between husband and wife
head of the family. shall be governed in the following order:
2. The family home as well as the land on 1. By marriage settlements executed
which it stands must be owned by a before the marriage
decedent. 2. By the provisions of law
3. by the local custom
➔ The fair market value of the family
home should have been included in
the computation of the decedent’s LAW GOVERNING PROPERTY RELATIONS
gross estate. Date of Governing Property
3. The family home must be the actual Marriage Law Relationship
residential home of the decedent and his (if no
family at the time of his death, as certified agreement)
to by the Barangay Captain of the locality
where the family home is situated Before August Civil Code CPG
4. Allowable Deduction must be in an amount 3, 1988
equivalent to the current fair market value
of the family home as declared or included On or After Family Cod ACoP
in the gross estate, or to the extent of the August 3,
decedent’s interest. 1988

NOTE:
● Amount Deductible - the lower between the TYPES OF PROPERTY RELATIONS OR
Actual Interest and the 10,000,000 limit. MARRIAGE SETTLEMENTS (ART. 75 FC)
● Actual Interest: 1. Absolute Community of Property (ACoP)
○ Purely Exclusive - 100% FMV 2. Conjugal Partnership of Gains (CPG)
○ Purely Common Property 3. Complete Separation of property
100%FM/2 4. Any other regime
○ Mixed - Exclusive Property +
Common Property NOTE:
● Conjugal Property - owned by both spouse

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 ● Exclusive Property - owned either by the
husband or by the wife
➔ Capital - exclusive property of the
husband
➔ Paraphernal - exclusive property of
the wife
ABSOLUTE COMMUNITY OF PROPERTY
(ACoP)
● In general, provisions on co-ownership
shall apply to the absolute community of
property between the spouses.
● The spouses become co-owners of all
property they bring into marriage and those
acquired by each other or both of them
during marriage.
COMMUNITY PROPERTY UNDER ACoP
● Property will be presumed to belong to the
community, unless it can be proven to be
exclusive property.
1. All properties owned by the
spouses at the time of celebration
of the marriage (properties before
marriage)
2. Acquired thereafter, unless proven
otherwise, as well as the fruits or
income thereof.
EXCLUSIVE PROPERTY UNDER ACoP
● Property acquired during the marriage is
presumed to belong to the community,
unless it is proved that it is one of those
excluded.
1. Property acquired during marriage
by gratuitous title by spouse, as well
as the fruits or income thereof.
➔ unless it is expressly
provided by the donor,
testator or grantor that they
shall form part of the
community property
2. Property for personal and exclusive
use of either spouse
➔ jewelry shall form part of the
community property
3. Property acquired before the
marriage by either spouses who
have legitimate descendants by the
former marriage, and the fruits as
well as the income.
EXCLUSIVE AND COMMON PROPERTY
UNDER ACOP
Exclusive and Common Property under ACoP
Property Classification
Acquired BEFORE marriage:
ALL properties owned before Community
marriage or brought to the
marriage
Acquired DURING marriage:
Property acquired during marriage Community
Property acquired during marriage Exclusive
through gratuitous transfer
(inheritance or donation)
Property acquired during marriage Community
through gratuitous transfer
(inheritance or donation) where the
donor, testator or grantor provided
that they shall form part of the
community property
Property acquired using common Community
fund
Property for personal and exclusive Exclusive
use
Except, Jewelry Community
NOTE: The fruit or income of the property shall
follow the source.
CONJUGAL PARTNERSHIP OF GAINS
● The husband and wife place in a common
fund the proceeds, products, fruits and
income from their separate properties and
those acquired by either or both spouses
through their efforts or by chance.
● Upon dissolution of the marriage or the
partnership, the net gains or benefits
obtained by either or both spouses shall be
divided equally, unless otherwise agreed in
the marriage settlements.
CONJUGAL PROPERTY - CPG
● All properties acquired during the marriage,
whether the acquisition appears to have
been made, contracted or registered in the
name of one or both spouses, is presumed
to be conjugal, unless the contrary
provided.
1. Those acquired by onerous titles
during marriage at the expense of
the common fund.
2. Those obtained from labor,
industry, work or profession of
either or both spouses.
3. The fruits or income due or received
during marriage from common and
exclusive property of each spouse
➔ NOTE: ALL fruits are
common
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 4. The share in the hidden treasure SUMMARY
discovered during the marriage.
ACoP CPG
5. Property acquired by occupation by
spouses or by either of them. 1. Property before or Community Exclusive
➔ EX. hunting or fishing brought into marriage
6. Livestock existing upon dissolution
if the partnership in excess of the 2. Fruits of #1 Community Conjugal
number of each kind brought to the
marriage by either spouses. 3. Property acquired
during marriage:
7. Those acquired by chance
➔ EX. winnings from gambling a. through Exclusive* Exclusive
or betting donation or
➔ NOTE: losses there form inheritance
shall be borne exclusively i. fruits Exclusive Conjugal
by the loser-spouse.
b. through Community Conjugal
labor/industry/
EXCLUSIVE PROPERTY UNDER CPG
profession
1. That which is brought to the i. fruits Community Conjugal
marriage as his or her own
(properties before marriage) c. using exclusive Exclusive Exclusive
2. That which each acquired during property
marriage by gratuitous title i. fruits Exclusive Conjugal
3. That which is acquired by right of
redemption d. using common Community Conjugal
property
➔ by barter or by exchange
i. fruits Community Conjugal
4. That which is purchased with
exclusive money of the wife or of 4. Property for personal Exclusive Exclusive
the husband and exclusive use

EXCLUSIVE AND CONJUGAL PROPERTY except Jewelry Community -

UNDER CPG
Exclusive and Conjugal Property under CPG
Property
Acquired BEFORE marriage:
ALL properties owned before
marriage or brought to the
marriage
Acquired DURING marriage:
Property acquired through onerous
title using common fund
Property acquired during marriage
through gratuitous transfer
(inheritance or donation)
Property acquired using exclusive
fund
NOTE: The fruit or income of the property shall be
classified as conjugal property.
*NOTE: If the donor/testator expressly provided
that it shall form part of the community property,
then it is common.
Classification
COMPLETE SEPARATION
● The property relations during the marriage
is governed by the regime of separation of
Exclusive property.
● To each spouse shall belong all earnings
from his or her profession, business or
industry and all fruits due or received
during the marriage from his or her
separate property.
Conjugal
CHAPTER 5: ESTATE TAX CREDIT
Exclusive AND DISTRIBUTABLE ESTATE
ESTATE TAX CREDIT
Exclusive ● It is a deduction from Philippine estate tax
itself.
● It refers to the taxpayer’s right to deduct
from the tax due the amount of tax it has
paid to a foreign country.
● This deduction is allowed to lessen the
harshness of international double taxation.
● Nonresident alien decedents are not
entitled to estate tax credit.

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 ➔ Reason: the properties of STEP 3
nonresident alien decedents ● Choose the lower amount between Limit A
located abroad or with situs abroad and Limit B
are excluded in the computation of
gross estate subject to estate tax in Limit A (Step 1) Pxxx
the Philippines.
Limit B (Step 2) Pxxx
PHILIPPINE ESTATE TAX DUE
● In determining the allowable estate tax Lower Amount: Pxxx
credit, the estate tax due in the Philippines Allowed Tax Credit
shall be computed first based before the
estate tax credit may be deducted, as
follows: NET DISTRIBUTABLE ESTATE
● The amount arrived at from gross estate
consisting of all properties in the
Estate Tax Due Pxx possession and control of the decedent at
the time of death and actual expenses,
Less. Tax credit for foreign (xx) charges, and payments from the gross
estate taxes paid estate.
(the lower between estate tax paid
abroad and the limit)

Philippine Estate Tax Pxx

Payable

STATUTORY FORMULA FOR THE

COMPUTATION OF ESTATE TAX CREDIT
LIMIT 1 or LIMIT A - IF THERE IS ONLY ONE (1)
FOREIGN COUNTRY

𝑁𝑒𝑡 𝑒𝑠𝑡𝑎𝑡𝑒, 𝑓𝑜𝑟𝑒𝑖𝑔𝑛 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 Pxxx

𝑥 𝑃𝐻 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥 𝐷𝑢𝑒
(limit)
𝑁𝑒𝑡 𝑒𝑠𝑡𝑎𝑡𝑒, 𝑤𝑜𝑟𝑙𝑑

VS. Actual Tax Paid, foreign country Pxxx

(actual)

Lower Amount: Allowed Tax Credit Pxxx

(tax
credit)

LIMIT 2 or LIMIT B - IF THERE IS MORE THAN

ONE FOREIGN COUNTRY
STEP 1
● Compute limit 1 per foreign country

STEP 2
● Compute limit 2 using the following formula

𝑁𝑒𝑡 𝑒𝑠𝑡𝑎𝑡𝑒, 𝑓𝑜𝑟𝑒𝑖𝑔𝑛 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 Pxx

𝑥 𝑃𝐻 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥 𝐷𝑢𝑒
(limit)
𝑁𝑒𝑡 𝑒𝑠𝑡𝑎𝑡𝑒, 𝑤𝑜𝑟𝑙𝑑

VS. Actual Tax Paid, all foreign countries Pxx

(actual)

Lower Amount: Limit B Pxx

(limit
B)

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