TAX 103 August 3, 2012

Donors Tax

Definition and Concepts:

Gift tax is an excise on the transfer by a living person to another of money or other property without consideration. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.

What Constitutes A "Gift" For Gift Tax Purposes?

1. Transfer of property without consideration.2. It also includes sales, exchanges and other dispositions of property for a consideration to the extent that the value of the property transferred exceeds the value in money or money's worth of the consideration received therefor.

Concept of Consideration
1. Consideration must be measurable in money or money's worth. Mere legal consideration is not sufficient.2. The consideration must flow to the donor, mere detriment to the donee does not satisfy the purpose of the statute.

 Marriage is not a consideration reducible to money value. If a person transfers a property to a trust in consideration of marriage, a gift is made because no money consideration flows to the transferor/donor. Donative intent on the part of the tranferor is not an essential element for the imposition of the gift tax to the transfer. When Does The "Gift" Occur? A gift occurs when the donor surrenders CONTROL over the property. If the donor retains an unlimited power to revoke the gift, it is clear that no gift has occurred.

Commissioner V. Wemyss (324 U.S. 303, 1945)

Requisites of A Taxable Gift: 1. Capacity of the donor 2. Donative intent 3. Acceptance by the donee, and 4. Delivery of the gift to the donee, actually or constructively. Kinds of Donation: 1. Inter-vivos2. Mortis causa

Persons Subject to Donor's Tax: (Same as in estate tax)1. Before September 1, 1969 - Only donation made by individual is subject to donor's tax.2. On or after September 1, 1969 (RA 6110) Donation made by all persons, whether natural or juridical, is subject to donor's tax. Gross Gifts: 1. Composition -(Same as in estate tax)2. Valuation - At the time the gift was made (Same as in estate tax)

Deductions from the Gross Gift: 1. Dowries or gifts by parents to children on account of marriage, before its celebration or w/n 1 year thereafter to the extent of P10,000.2. Gifts to the National Government or any of its agencies.3. Gifts made in favor of an educational, and/or charitable, religious, cultural or social welfare corp., foundation, trust or philanthropic organization or research institution or organization.4. Encumbrance on the property donated if assumed by the donee in the deed of donation.5. Those specifically provided by the donor as a condition of the donation which will diminish the value of the property received by the donee.6. Exempt donation under special laws.

Relatives for donor's tax purposes: a) Spouse, ancestor and lineal descendant b) Brother, sister (whether by whole or half blood) c) Relatives by consanguinity in the collateral lines within the fourth degree of relationship.

Tax Payable by the Donor:

January 1, 1998 to present (RA 8424) a) On gifts made in favor of relativescomputed based on graduated rates. b) On gifts made in favor of strangers- computed at 30% of the net gifts.

Rates of Donor's Tax (RA 8424) Donations to Relatives (Graduated Table)

The Donors Tax Shall be EXEMPT 0 2,000 14,000 44,000 204,000 404,000 1,004,000

Of excess PLUS 2% 4% 6% 8% 10% 12% 15% over P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

Sample Problem of Donors Tax:

Mr. Joseph Ramos, single, made the following donations: a) Jan. 15, 1999 - to his brother, Jun, P100,000b) March 10, 1999 - to Clara, his sister, P250,000c) Sept. 8, 1999 - to his girlfriend, Loi, a brand new car worth P600,000d) Oct. 25, 1999 - to his father, Carlos, a vacant lot worth P1,000,000 w/ FMV of P800,000 and zonal value of P1,500,000e) Nov. 12, 1999 - to Luis, his brother-in-law, P200,000f) Feb 14, 2000 - to his mother, Maria, P300,000

ANSWER
Date Donation Amount Tax Duea) 1/15/99 Cash 100,000 Exemptb) 1/15/99 Cash 100,000 3/10/99 Cash 250,000 350,000
Tax on 200,000 is 2,000 +(150,000x4%) 6,000 8,000 Less:Tax on prev. donation 0

8,000

c) 9/8/99 Cash 600,000-Stranger Tax Due: 600,000 X 30% 180,000 d) 10/25/99 Lot (ZV) 1,500,000 3/10/99 Cash 250,000 1/15/99 Cash 100,000 Total donation 1,850,000 Tax on:1,000,000 44,000 850,000 x 8% 68,000Total Tax Due 112,000 Less:Tax on previous donation 8,000 104,000

e) 11/12/99 Cash 200,000 - Stranger Tax Due 200,000 x 30% 60,000 f) 2/14/2000 Cash 300,000 Tax On: 200,000 2000 100,000 x 4% 4000 6,000 Note: Letter (f) was donated in year 2000 therefore; this is not included in the cumulative total for 1999's donations.

Administrative Requirements:
A.Donors Tax Return B.Payment of Donors Tax C.Surcharges D.Interest

1. State the following information/data: a) Each gift made during the calendar year b) Deductions claimed and allowable c) Previous net gifts during the same CY d) Name of donee and address e) Other pertinent information2. Time of filing: January 1, 1998 to present- Within 30 days after each donation- No Extension3. Place of filing of donor's tax return a) Commissioner of Internal Revenue b) Revenue District Officer, Collection Officer or duly authorized Treasurer of the municipality where the donor was domiciled at the time of donation.

Payment of Donor's Tax: 1. Donor's tax should be paid at the time the return is filed or within thirty (30) days after the date of gift.2. Extension to pay tax may be granted not exceeding six (6) months. Effective January 1, 1998 (RA 8424), no extension for the payment of the donor's tax shall be granted.