AE 17

TRANSFER & BUSINESS TAXES

MODULE 6: DONOR’S TAX

NATURE OF DONOR’S TAX

Donation is an act of liberality whereby a person disposes gratuitously of a things or right in favor of another, who accepts it (Art.
725 of the Civil Code). A donor’s tax (or gift tax ) is tax levied, assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift (whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible).

It is a tax imposed on the exercise of the donor’s right during the lifetime of transfer property to others in the form of gift. Hence,
donor’s tax is not a property tax, but it is an excise tax imposed on the transfer of property by way of gift inter-vivos (RR 12-
2018)

Although the used the term “act”, the law considers donation as a “contract”, as shown by the fact that it requires acceptance, and
that the rules on obligations and contracts apply to it as suppletory law (Art. 732, CC)

PURPOSES OF DONOR’S TAX

1. TO SUPPLEMENT THE ESTATE TAX

2. TO PREVENT THE AVOIDANCE OF INCOME TAXES. WITHOUT DONOR’S TAX, THE DONOR, MAY ESCAPE
THE PROGRESSIVE RATES OF INCOME TAXATION THROUGH SIMPLE EXPEDIENT WAY OF SPLITTING HIS
INCOME AMONG NUMEROUS DONEES.

ELEMENT OF TAXATION DONATION

1. C-apacity of the Donor to transfer property

2. I-ntent/Donative Intent
3. D-elivery
4. A-cceptance

FORMAL REQUISITES

Although the law used the term “act”, the law consider donation as “contract” as shown by the fact that it requires acceptance and
that the rules on obligations and contract apply to it as suppletory law. (Art. 732 CC). Being so, the required form, as provided
below shall be observed, otherwise, void.

Personal Property Real or registrable

property
Amount of Donation P 5,000 or less More than P 5,000 Regardless of the amount

Form of Donation Oral or in writing In writing In public instrument

CLASSIFICATION OF DONORS

1. Citizen or Resident (RC/NRC/RA)

2. Non-resident Alien (NRA)
a. With reciprocity
b. Without reciprocity

DONOR’S TAX RATE

RA 10963 (Train Law) simplifies the computation of donor’s tax due, from seven (7) bracket schedule with rates ranging from 2%
to 15% (donations made to relatives) and 30% (for donations made to strangers), to single rate of 6% based on the value of the
net taxable gift (in excess of P 250,000) as presented in the foregoing format of the computing the donor’s tax due, regardless of
the relationship between the donor and the donee.

Gross Gift

I. Transfer subject to donor’s Tax:

 1. Direct Gift
2. Gift through creation of a trust
3. Condonation of debt
4. Repudiation of inheritance if:
a. Specifically and categorically done in favor of identifiedheirs; and
b. To the exclusion or disadvantage of other co-heirs

Gross Gift

5. Renunciation by the surviving spouse of his/her share in 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

6. Transfer for insufficient consideration

EXCEPTION: Real property classified as capital asset in the Philippines

FMV at the time of sale P XXXX

Less: Selling Price XXXX
Taxable Gift (excess of FMV over SP) P XXXX

COMPONENTS OF GROSS GIFT

RP TPP IPP
Donor w/in w/o w/in w/o w/in w/o

RC/NRC/RA / / / / / /

NRA without reciprocity / X / X / X

NRA with reciprocity / X / X X X

Gross Gift

II. Gift from Common Property - gift is taxable one-half to each donor spouse
III. Donation between husband and wife during the marriage

General Rule: The gift is not taxable, as it is declared void by law

Exception: Moderate gift between spouses are valid.

FORMAT OF COMPUTATION

FIRST YEAR OF DONATION

Gross Gift P XXX
Less: Exemptions/Deductions XXX
XXX
Less: Tax Exempt Gift (under the TRAIN Law) 250,000
Net Taxable Gift XXX
Multiply: Donor’s Tax Rate 6%
Donor’s Tax P XXX
Less: Tax Credit (if applicable) XXX
Donor’s Tax Payable P XXX

FORMAT OF COMPUTATION

SUBSEQUENT DONATION(S) WITHIN THE YEAR

Gross Gift P XXX
Less: Exemptions/Deductions,Current XXX
XXX
Add: Prior Gift(s) XXX
Total XXX
Less: Tax Exempt Gift (under the TRAIN Law) 250,000
Net Taxable Gift XXX
Multiply: Donor’s Tax Rate 6%
Donor’s Tax Due P XXX
Less: Tax Paid-Prior Gifts XXX
Tax Credit (if applicable) XXX
Donor’s Tax Payable P XXX

TRANSFER & BUSINESS TAXES

MODULE 7: EXEMPTION AND DEDUCTIONS FROM GROSS GIFT

Exemptions and/or Deductions from Gross Gift

1. Encumbrances on the property donated assumed by the donee

2. Diminution of gift provided by the donor
3. Gifts to the Government - 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.
4. Gifts to educational, charitable, religious corporation, etc.

Requisites:

a. Educational
b. Charitable
c. Religious
d. Cultural
e. Social Welfare
f. Accredited Non-Government Organization
g. Trust or Philanthropic Organization
h. Research Institution or Organization

Exemptions under Special Laws/Other Laws

1. International Rice Research Institute

2. Ramon Magsaysay Foundation
3. Integrated Bar of the Philippines
4. Development Academy of the Philippines
5. National Museum
6. National Library
7. Archives of the National Historical Institute
8. Museum of Philippine Costumes
9. Intramuros Administration
10. RA 11494 otherwise known as Bayanihan to Recover as One Act (also known as Bayanihan II)

NOTE: For purposes of the donor’s tax, NET GIFT shall mean the net economic benefit from the transfer that accrues to the
donee.

Exemption or deduction RC/NRC/RA NRA

Encumbrances on gift assumed by donee / /

Diminution of gift provided by the debtor / /
Gifts to Government / /
Gifts to educational, charitable, religious, etc. / /

Tax Credit for Donor’s Tax Paid to a Foreign Country

*Only resident or citizen can claim tax credit

 Amount deductible
a. Actual Amount Paid Abroad
b. Limit
Whichever is Lower
*Limit

1. Only one foreign country is involved

Net Gift Foreign X Philippine Donor’s Tax

World Net Gift

2. Two or more foreign country is involved

Limit 1 or A- Per Foreign Country

Net Gift Foreign X Philippine Donor’s Tax

World Net Gift

Limit 1 or B - By Total
Net Gift Foreign X Philippine Donor’s Tax
World Net Gift

FILING AND PAYMENT OF RETURN

The Donor’s Tax return shall be filed within 30 days after the date of gift is made or completed and the tax due
thereon shall be paid at the same time that the return is filed (Sec.15 (B) of RR 12-2018)

Note: Unlike in estate taxation, extension of the period to file and pay the donor’s tax return is not applicable.

Place of Filing
1. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to the
following where the donor was domiciled at the time of the transfer, or if there be no legal residence on the Philippines, with the
Office of the Commissioner:

a. An authorized agent bank

b. Revenue District Officer
c. Revenue Collection Officer
d. Duly Authorized Treasurer of the City or Municipality

2. In case of gifts made by non-resident, the return may filed with: Philippine Embassy or Consulate in the Country where there
is domiciled at the time of the transfer, or directly with the officer of the Commissioner.

COMPARISON BETWEEN ESTATE AND DONOR’S TAX

ESTATE TAX DONOR’S TAX
Concept Involved Succession Gifts or Donation
Donation Mortis Causa Donation Inter-Vivos
Requisites or Elements 1. Death of the Decedent 1. Donative Intent of the donor
2. Heir or successor is alive at the time 2. Capacity or authority of the donor
of decedent’s death and is not 3. Delivery of donated property
disqualified to inherit 4. Acceptance by the donee
2.1 Compulsory Heirs Additional requisite:
2.2 Voluntary Heirs Donation must be in proper form,
3. Estate/Inheritance otherwise, VOID.

Accrual Period Upon the date of death of the At the time the gift or donation is made or
decedent completed (Sec. 15 (B) of RR12-2018)

Governing Law Statute in force at the time of death of
decedent
Tax Rate Filing & Payment  6% of net taxable estate
 Within 1 year from death
 Extension to file:
 Not more than 30 days
 Pay as you file or with extension to
pay; 2 years (extrajudicial), 5 years
(judicial)
Statute in force at the time of the
perfection/completion of donation
 6% net gifts in excess of P 250,000
 Within 30 days from donation
 No extension to file
 Pay as you file
 No extension for payment

Scope RC, NRC, RA - on estate within or RC, NRC, RA - on gifts and without
without NRA- on gifts within
NRA- on estate within