DONOR’S TAX

CHAPTER 6
DONATION
- CATHERINE ACUTIM

An act of liberty whereby a

person disposes gratuitously of a
thing or right in favor of another,
who accepts it.
Art. 725, Civil Code of the Philippines
TWO KINDS OF DONATION

 1. Donation Inter-vivos- is one made between

living persons and which is perfected from the
moment the donor knows of the acceptance of
the donee. This donation is subject to donor’s
tax.
 2. Donation Mortis causa- are donations which
are to take effect upon the death of the donor
and partake the nature of testamentary
provisions governed by the rules established in
the Title on Succession under the Civil Code.
NATURE OF DONOR’S TAX

 Also called Gift Tax

 Imposed on the gratuitous transfer of real o
personal, tangible or intangible property.
 Imposed whether the transfer is in trust or
otherwise, direct or indirect.
 A tax imposed on the exercise of the donor’s
right during the lifetime to transfer property
to others in the form of gift.
 PERFECT OR COMPLETION OF
DONATION

The donor’s tax shall not

apply unless and until
there is a completed gift.
ILLUSTRATION

Johnny wanted to surprise Yessy (his girlfriend in

Cebu City) by sending her a diamond ring worth
P500,000. It was received by Yessy on January
2020. Surprised and overwhelmed with joy, she
forgot to immediately inform Johnny of her
acceptance. It was only during valentine’s day
celebration on February 2020 that Johnny was
notified of her acceptance of the gift.
Answer:
February 14, 2020
Who can be donors?

All persons who may

contract and dispose of
their property may
make a donation (Art.
735, Civil Code).
Who can be donees?

 All those who are not specially disqualified by

law may accept donations. (Art. 738, CC)
 Minors (Art. 741,CC)
 Donations made to conceived and unborn
children may be accepted by those persons
who would legally represent them if they
were already born. (Art. 742, CC)
The Law that Governs the Imposition
of Donor’s Tax

The law in force at the of

the perfection/completion
of the donation shall
govern the imposition of
donor’s tax.
ELEMENTS OF DONATION
BY: ANGELOU AGUILAR

1. Capacity of the donor to make

donation
2. Donative intent or intent to
make a gift on the part of the
donor
3. Delivery
4. Acceptance
ILLUSTATION

San Miguel Incorporated transferred a

plan asset to Bibo Corporation, a
subsidiary of San Mig. Incorporated.
Is the transfer subject to donor’s tax?
Answer:
No.
INCOMPLETE GIFT
BY: MARY CRIS ALAYA-AY

A gift that is incomplete because of

reserved powers becomes complete
when either:
 Donor renounces the power; or
 The donor’s right to exercise the power
ceases because of the happening of
some event or contingency or the
fulfillment of some condition, other than
the death of the donor .
PURPOSE OF DONOR’S TAX

To prevent avoidance of estate tax.

To prevent or compensate for the
loss or decrease of the progressive
rates of income taxes when large
estates are split up by gifts to
numerous donees.
FORMALITIES

DONATION OF MOVABLE PROPERTY

1. Donations may be oral o in writing
 If orally made, it requires the simultaneous delivery of the
thing or the document representing the right donated.
 If in writing it does not require simultaneous delivery of
the thing donated.
2. Acceptance may be oral, in writing or tacit.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall
be made in writing. Otherwise, the donation shall be
void.
DONATION OF IMMOVABLE
PROPERTY

In order that the donation of an

immovable may be valid, it must be
made in a public document, specifying
therein the property donated and the
value of the charges which the donee
must satisfy (Art. 749 NCC).
CHARACTERISTICS OF DONOR’S TAX
BY: ADRIENN BALABAG

1. The donor’s tax is not a property tax, but is a tax imposed on the transfer of
property by way of gift inter vivos.
2. Donor’s tax, being a “contract”, does not apply unless and until there is a
completed gift. It is completed by the delivery, either actually or
constructively.
3. The transfer of property by gift is perfected from the moment the donor knows
of the acceptance by the donee.
4. Donor’s tax is a direct tax because the tax is imposed on the donor and
determined with reference to all the donor’s gift.
5. Renunciation by the surviving spouse of his/her share in the conjugal
partnership or absolute community after the dissolution of the marriage is
subject to donor’s tax.
6. General renunciation by an heir, including the surviving spouse, of his/her share
in the hereditary estate left by the decedent is not subject to donor’s tax,
unless specifically and categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in the hereditary estate.
CLASSIFICATION OF DONATION

As to motive or purpose:
1. Simple
2. Renumeratory
3. Modal

As to time of taking effect (Perfection):

4. Donation inter-vivos
5. Donation mortis-causa
VALUATION OF GROSS GIFTS
BY: CHRISTY BONGGO

VALUATION OF GIFTS MADE IN PROPERTY:

 If the gift is made in property, the fair market value of the property
at the time of the gift shall be considered the amount of gift.
 In case of real property, based on the higher amount between the
FMV as determined by the BIR or FMV as shown in the schedule of
values fixed by the Provincial and City Assessors.
 If traded in the stock exchange, FMV shall be the mean between
the highest and the lowest quoted selling prices of the securities
on the valuation date.
 If not traded:
Ordinary shares – Book Value
Preferred shares – Par Value
ILLUSTRATION

Johnny wanted to surprise Yessy (his girlfriend in Cebu

City) by sending her a diamond ring worth P500,000. It
was received by Yessy on January 2020. Surprised and
overwhelmed with joy, she forgot to immediately
inform Johnny of her acceptance. It was only during
valentine’s day celebration on February 14, 2020 that
Johnny was notified of her acceptance of the gift. The
FMV of the ring on February 14, 2020 increased to
P600,000, what is the correct amount of gross gift?
Answer:
P600,000.00
GROSS GIFTS
BY: ALIMARK CAYOD-ONG

COMPOSITION OF GROSS GIFTS:

PROPERTY CITIZEN/RESIDENT NONRESIDENT ALIEN
ALIEN DONOR DONOR

Property within Included Included

(personal or real)
Property without Included Excluded
(personal or real)
Intangible property Included Included
within
Intangible without Included Excluded
RECIPROCITY RULE

 When there is reciprocity – The intangible

personal properties situated in the
Philippines given as gifts by a non-resident
alien donor are not subject to donor’s tax.
 When there is no reciprocity – The intangible
personal properties situated in the
Philippines given as gifts by a non-resident
alien donor are subject to donor’s tax.
INTANGIBLE PERSONAL PROPERTY
IN THE PHILIPPINES
1. Franchise which must be exercised in the Philippines;
2. Shares of stock, obligations or bonds issued by
corporations organized or constituted in the Philippines;
3. Shares, obligations or bonds issued by a foreign
corporation 85 percent of the business of which is
located in the Philippines;
4. Shares of stock, obligations or bonds issued by a foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines, that is, they
are used in the furtherance of its business in the
Philippines; and
5. Shares, rights in any partnership, business or industry
established in the Philippines.
COMPUTATION OF TAXABLE NET
GIFT
COMPUTATION OF TAXABLE NET GIFT CITIZEN OR NONRESIDE
RESIDENT NT ALIEN

Gross Gifts
1. Direct Gifts Pxx
2. Gift(s)though creation of trust
3. Transfer for insufficient consideration
4. Repudiation of inheritance
5. Renunciation by the surviving spouse
of his/her share in the common property.
6. Condonation of Debt
Deductions (xx)
1. Encumbrances Allowed Allowed
2. Diminutions Allowed Allowed
3. Government, charitable/educational, Allowed Allowed
etc.
Less: Exempt Gift (TRAIN Law) (P250,000)
Taxable Net Gifts Pxx
DONOR’S TAX RATE
The donor’s tax for each calendar year shall be six percent (6%)
computed on the basis of the total gifts in excess of Two Hundred
Fifty Thousand Pesos (P250,000) exempt gift made during the
calendar year.
Notes:
1.  When the gifts are made during the same calendar year but on
different dates, the donor's tax shall be computed based on the
total net gifts during the year.
2.  The relationship between the donor and the donee(s) shall not be
considered. Republic Act No. 10963 (TRAIN Law) does not
distinguish donations made to relatives, or donations made to
strangers.
  Donation made to a stranger is subject to 30% of the net gift.
Donor’s Tax Rate PRIOR to 2018
CUMULATIVE BASIS OF COMPUTING THE NET
TAXABLE GIFTS
BY: JEAN ARIANE DADOLE

Cumulative rule (under TRAIN LAW) is

applicable regardless of the
relationship of the donor and the
donee, but only as to gifts made
within the same calendar year.
ILLUSTRATION:

Juan donated the following in 2018:


January 1, 2018 – to his daughter as wedding
gift, P2,000,000

April 1, 2018 – to his father and mother as
travel cost on their Europe tour, P1,000,000.

August 15, 2018 – to his best friend for
hospitalization cost of his godson, P500,000.
SOLUTION:

January 1, 2018

Gift to daughter P2,000,000

Less: Exemption (250,000)
Taxable gift P1,750,000
Tax Rate x 6%
Donor's tax due P105,000
April 1, 2018

Gift on 1/1 P1,000,000

Gift to parents 2,000,000
Less: Exemption (250,000)
Taxable gift P2,750,000
Tax Rate x 6%
Donor's Tax due P165,000
Donor's tax paid on 1/1 (105,000)
Donor's tax to be paid P 60,000
August 15, 2018

Gift on 1/1 P1,000,000

Gift on 4/1 2,000,000
Gift on 8/15 500,000
Less: Exemption (250,000)
Taxable gift P3,250,000
Tax Rate x 6%
Donor's Tax due P195,000
Donor's tax paid as of 4/1 (165,000)
Donor's tax to be paid P 30,000
STRANGER

 A stranger is a person who is not a:

 brother, sister (whether by whole or half-
blood), spouse, ancestor and lineal
descendants; or
 relative by consanguinity in the collateral line
within the fourth degree of relationship.
Transfer for Insufficient Consideration


When property is transferred for less
than an adequate and full payment, then
the difference between the fair market
value of the property and the payment
made shall be deemed a “donation”.

The excess shall be subjected to donor's
tax.
Donor’s Tax for sale or exchanges not though the
local stock exchange of domestic corporations
BY: ZHAINNAH DELA CRUZ

The intention of the provision is o

discourage the parties to a sale
from manipulating their selling
price in order to save on income
taxes.
ILLUSTRATION:

Manny , a resident citizen, sold in 2018 shares

of stocks of Pinoy Company, a closely held
domestic corporation, with the following
data:

Selling price on a direct sale to Cynthia Villar P3,000,000

FMV of the shares of stock at the time of the sale P 3,500,000
Purchase Price of the shares P2,200,000
Question 1: How much is the applicable capital gains tax?
Question 2: How much is the donor’s tax due?
Solution:
Question 1: P120,000
Selling price P3,000,000
Cost (2,200,000)
Capital Gain P800,000
CGT Rate ` 15%
Capital Gains Tax P120,000

Question 2: P15,000
FMV at the time of sale P3,500,000
Selling Price (3,000,000)
Insufficient Consideration = gift P500,000
Less: Tax Exempt (P250,000)
Amount subject to donor’s tax P250,000
Donor’s Tax Rate under RA10963 6%
Donor’s Tax Due P15,000.00
Renunciation of share in common property by the
surviving spouse and inheritance
BY: MARIVIC DIOQUINO

Renunciation by the surviving spouse of his/her share

in the conjugal partnership or absolute community
after the dissolution of the marriage is subject to
donor’s tax.
General renunciation by an heir, including the surviving
spouse, of his/her share in the hereditary estate left
by the decedent is not subject to donor’s tax, unless
specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of
the other co-heirs in the hereditary estate.
ILLUSTRATION
Johnny Johnny Yes Papa died on November 1, 2018 with net
conjugal estate of P20,000,000
Before deducting the share of the surviving spouse. Johnny Johnny
Yes Papa’s wife waived/renounced the following in favor of their
only child, Adrian:
 Her share in the community property
 Her share in the “hereditary estate” left by Johnny Johnny Yes
Papa.
Question 1: How much is the donor’s tax due on the renunciation
of Mrs. Papa of her “share in the community property”?
Question 2: How much is the donor’s tax due on the renunciation
of Mrs. Papa of her share in the “hereditary estate”?
Answers:

Question 1: How much is the donor’s tax due

on the renunciation of Mrs. Papa of her
“share in the community property”?
Answer: P585,000 ; [(10M-250k)x6%)]

Question 2: How much is the donor’s tax due

on the renunciation of Mrs. Papa of her
share in the “hereditary estate”?
Answer: P0.00
CONDONATION or CANCELLATION OF
INDEBTEDNESS

Condonation o remission of debt is a

mode of extinguishing an obligation.
There is no condonation of indebtedness
or donation in the following cases:
 Condonation is due to the rendition of
service.
 Condonation was made by a corporation
in favor of its shareholders.
PAYMENT OF LOAN BY THE GUARANTOR
BY: ENERIO

A “guarantee”, as a rule is gratuitous

unless stated otherwise.
CONTRIBUTION FO ELECTION
CAMPAIGN

Any contribution in cash or in kind to any

candidate, political party or coalition of
parties for campaign purposes, shall be
governed by the Election Code, hence,
not subject to donor’s tax (RE 2-2003).
ILLUSTRATION FOR SPLITTING OF
GIFTS
VOID DONATIONS

Art. 739. The following donations shall be void:

 (1) Those made between persons who were
guilty of adultery or concubinage at the time of
the donation;
 (2) Those made between persons found guilty of
the same criminal offense, in consideration
thereof;
 (3) Those made to a public officer or his wife,
descedants and ascendants, by reason of his
office.
EXEMPT GIFTS

Exemptions are not to be

treated as exclusions
from the gross gifts of
the donor.
DEDUCTIONS FROM THE GROSS GIFTS
BY: PHOEBE GAIL GALENZOGA

 Gifts made to or the use of the National Government or any

entity created by any of its agencies which is not conducted
for profit.
 Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
non-government organization, trust or philanthropic
organization, research institution or organization: Provided
however, that not more than 30% of said gifts shall be
used by such donee for administration purposes.
 Encumbrances
 Donations not exceeding P250,000 in one year (regardless of
the relationship).
 Donations made to entities as exempted under Special Laws.
ILLUTRATION:

In 2018, Cassie made donations to Mikoy and

Marga, son and daughter-in-law, on account
of marriage, of a real property with a fair
market value of P2,000,000. The property
was mortgaged for P300,000 assumed by the
donees.

REQUIRED: Determine the donor’s tax due.

SOLUTION

Gross Gift P2,000,000

Less: Mortgage assumed by the donees (300,000)
Net gifts P1,700,000
Less: Exempt Gift (250,000)
Net gift subject to tax P1,450,000
Donor’s Tax Rate 6%
Donor’s Tax Due P87,000
LIMIT B or LIMIT 2: IF THERE ARE > 1
FOREIGN COUNTRIES
BY: WARREN GAPOL

Net Gifts, foreign country

Net Gifts, world X Philippine
Donor’s Tax Due = ₱xxx (Limit)
Versus

Actual Tax paid, foreign country =₱xxx (Actual)

Allowed Tax Credit (Lower amount) =₱xxx (Tax cr.)
 STEP 1 - Compute limit 1 per country as
shown above.
 STEP 2 – Compute limit 2 (Include all foreign
countries) using the following formula:
Net gifts all foreign countries Philippine ₱xxx
Net gifts, world X Donor’s Tax = (Limit)
Versus
Actual Tax Paid, all foreign countries = ₱xxx (Actual)
Limit 2 (Lower Amount) = ₱xxx (Limit B)

 STEP 3 - Choose the lower amount between Limit 1 and

Limit 2
Limit 1 (From step 1) ₱xxx
Limit 2 (From step 2) ₱xxx
Allowed Tax Credit (Lower amount) ₱xxx
ILLUSTRATION 1

In 2018, a resident citizen taxpayer made the

following gifts to his relatives:
Philippines USA UK ITALY
Gross gift ₱750,000.00 ₱500,000.00₱250,000.00 ₱500,000.00
Deduction ₱250,000.00₱200,000.00₱150,000.00 ₱150,000.00
Tax paid ₱25,000.00₱12,000.00 ₱10,000.00

Question: How much is the donor’s tax payable

after Tax Credit?
 
 Tax Credit computed as follows:
LIMIT 1: DEDUCTIBLE
USA: ₱300,000 / ₱1,250,000 x ₱60,000 ₱14,400
Paid ₱25,000
Allowed ₱14,400

UK: ₱100,000 / ₱1,250,000 x ₱60,000 4,800

Paid 12,000
Allowed 4,800

ITALY: ₱350,000 / ₱1,250,000 x ₱60,000 16,800

Paid 10,000
Allowed 10,000
TOTAL – LIMIT 1 ₱29,200
LIMIT 2: ₱36,000
P750,000(₱1,250,000 x ₱60,000) ₱36,000
Actual (25,000 + 12,000 + 10,000) 47,000

 L1 = ₱29,200 vs L2 = ₱36,000; Lower amount is L1.

 Tax Credit: L1 = ₱29,200

 
ILLUSTRATION 2
BY: LEA GARCIA

In 2018, a resident citizen taxpayer made the

following gifts to his relatives:
Philippines USA UK ITALY
Gross gift ₱750,000.00 ₱500,000.00 ₱250,000.00 ₱500,000.00
Deduction ₱250,000 ₱200,000.00 ₱150,000.00 ₱150,000.00
Tax paid ₱25,000.00 ₱12,000.00 ₱10,000.00

Question: How much is the donor’s tax payable

after Tax Credit?
Answer: P30,800.00
ADMINISTRATIVE PROVISIONS
BY: DARLENE HERNANDEZ

 (A) Requirements. – Any person making a donation (whether direct or

indirect), unless the donation is specifically exempt under the NIRC or
other special laws, is required, for every donation, to accomplish under
oath a donor’s tax return in duplicate. The return shall set forth:
 1. Each gift made during the calendar year which is to be included in
gifts;
 2. The deductions claimed and allowable;
 3. Any previous net gifts made during the same calendar year;
 4. The name of the donee; and
 5. Such further information as the Commissioner may require.
 (B) Time and place of filing and payment. – The donor’s tax return shall
be filed within thirty (30) days after the date the gift is made or
completed and the tax due thereon shall be paid at the same time that
the return is filed.
CIVIL PENALTIES AND INTEREST

1. Penalty of 25% if there is no false or

fraudulent intent on the taxpayer.
2. Penalty of 50% if there is false, malice or
fraudulent on the taxpayer.
3. Interest on the unpaid amount of tax from
the date computed until fully paid.
Interest rate:
 Under TRAIN Law - 12%
 Prior to 2018 - 20%