EPARTMENT OF ACCOUNTANCY

HOLY ANGEL UNIVERSITY

INTRODUCTION TO
DONOR’S TAX
DONATION
Art. 725. Donation is an act
of liberality whereby a
person disposes
gratuitously of a thing or
right in favor of another,
who accepts it.
-Civil Code
DONATION
- Is the gratuitous transfer
of property from one
living person (donor) to
another (done)
Essential Requisites of Donation Formal Requisites of Donation

a) Capacity of the donor Property Required Formality

Real Property Public Instrument
b) Intention to donate
Tangible Personal
Property
c) Donative act or delivery
Amount exceeding 5
Written
d) Acceptance by the donee (not considered 000
in transfers for insufficient Amount not
Oral
consideration) exceeding 5 000
Intangible Personal
Public Instrument
Property
 TYPES OF INTER-VIVOS DONATION

A. Direct Donation – donation is made by the donor directly to the

done

B. Indirect Donation – involves transfer of property by the donor in

favor of the done but under the supervision of a trust. It can either
be:

1. Revocable – not completed donation, therefore not taxable

2. Irrevocable – completed donation; thus, taxable

 TYPES OF DONORS

Resident or citizen – taxable on global donations, such as

- resident citizen
- non-resident citizen
- resident alien
Non-resident alien – taxable only on Philippine donations,
except intangible personal property subject to reciprocity rule
 Summary rules on Taxable Donations
Real Properties Tangible Personal Intangible Personal
Properties Properties
1. Residents/ Yes Yes Yes
Citizens (Within and Abroad)
2. NRA Without reciprocity
i. Within Yes Yes Yes
ii. Abroad No No No
2. NRA With reciprocity
i. Within Yes Yes No
ii. Abroad No No No
DONOR’ 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 in trust and
without regard to the type of property transferred.
S
TAX
NATURE OF DONOR’S TAX

a) Privilege tax
RATIONALE
TAXATION
OF DONOR’S

b) Proportional tax a) To control tax evasion of the

c) Annual tax estate tax
d) Ad valorem b) To control tax evasion on income
e) National tax tax
f) Revenue or fiscal tax c) To recoup future loss of income
tax revenue
EXEMP a. Donations to exempt donees under NIRC and special laws
b. Donations for election campaign

T
c. Transfers for insufficient consideration involving real
property classified as capital assets
d. General Renunciation of inheritance
GIFTS e. Donations with reserved powers
f. Donation to the government for public use
g. Donation to accredited non-profit institution
h. Quasi-transfers
i. Void Transfers
j. Foreign Donation of non-resident alien donors
k. Donations of property exempt under reciprocity
EXEMP Donations to exempt donees under NIRC and special laws

T
GIFTS
1. Aquaculture Department of the Southeast Asian Fisheries Development Center
2. Aurora Pacific Economic Zone and Freeport Authority
3. Development Academy of the Philippines
4. Girl Scout of the Philippines
5. Integrated Bar of the Philippines
6. International Rice Research Institute
7. National Commission for Culture and the Arts
8. National Social Action Council
9. National Water Quality Management Fund
10. People’s Television Network, Incorporated
EXEMP Donations to exempt donees under NIRC and special laws

T 11. People’s Survival Fund

12. Philippine-American Cultural Foundation
GIFTS 13. Philippine Normal University
14. Philippine Investor Commission
15. Philippine Red Cross
16. Ramon Magsaysay Award Foundation
17. Rural Farm School
18. Task Force on Human Settlements
19. Tubbataha Reefs Natural Park
20. University of the Philippines
EXEMP Donations for election campaign

T 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

GIFTS Code, as amended. Exemption is not automatic. These donations must be

reported to the Commission on Elections to be exempt from donor’s tax.

Supporting political candidates or parties making campaign donation to

them during elections is an exercise of one’s political freedom – a
constitutionally vested right. Hence, it is not subject to taxation.
EXEMP Transfers for insufficient consideration involving real
property classified as capital assets
T – this is only applicable real property classifies as
GIFTS capital assets, they are exempt from donor’s tax
because they are already subjected to capital gains tax
(double taxation is not allowed); for other properties,
the difference between the fair value and the selling
price is subject to donor’s tax
EXEMP General Renunciation of inheritance
– occurs when a heir or the surviving spouse renounces his/her
T share in hereditary estate of a decedent in favor of no particular
coheir. A General Renunciation is a repudiation of inheritance

GIFTS which cannot be imputed as a donation.

Type of Renunciation General Specific

Renunciation with more than 2 heir Exempt Taxable
Renunciation with only 2 heirs Exempt Exempt
Renunciation by the surviving Taxable Taxable
spouse of his share in the common
properties
EXEMP Donations with Reserved Powers

T – transfer of ownership depends on the

GIFTS happening of a future event. It may either
be a:
- Conditional donation
- Revocable transfers
EXEMP Donation to the Government for Public Use

T – gifts made to or for the use of national

GIFTS government or any entity created by any of its
agencies which are not conducted for profit or
to any political subdivision of the said
government are exempt from donor’s tax
EXEMP Donation to accredited non-profit institution

T – in order to be exempt, it has to meet the following requirements:

1. Not more than 30% of the gift will be used for administrative

GIFTS purposes
2. The donee entity is a non-stock entity
3. The donee does not pay dividends
4. The donee entity’s board of trustees does not earn
compensation
5. The donee must devote all its income to the accomplishment
and
promotion of its purposes
EXEMP Donation to accredited non-profit institution

T ACCREDITING AGENCIES
1. Department of Social Welfare and Development – for

GIFTS 2.
charitable and social welfare organizations
Department of Science and Technology – for research and
other scientific activities
3. Philippine Sports Commission – for sports development
4. National Council for Culture and Arts – for cultural activities
5. Commission on Higher Education – for educational activities
EXEMP Quasi-transfers
T – involve delivery of property to another person

GIFTS but will never result in transfer of ownership

thereto. These are not subject to donor’s tax.
EXEMP
T Void Donations

GIFTS – Void donations are invalid donations. These

includes those prohibited by the law and those
with defects in their execution. Void Donations
are not objects of taxation.
EXEMP
Foreign Donation of Non-resident Alien
T Donors

GIFTS – donations of property situated in a foreign

country by non-resident alien donors are not
subject to donor’s tax.
EXEMP
Donations of property exempt under
T Reciprocity

GIFTS - donations of intangible property by non-

resident alien are exempt if the reciprocity
rule applies.
Diminution of Gift as
specified by the Donor

The Donor may specify that a portion of the

donation will be given to another person
other than the donee. Diminution is not
exempt from donor’s tax. It is merely a
deduction against the original donation but
it is in itself another form of donation from
the same donor which may be subject to
donor’s tax.
Taxable Donation
Donations that do not qualify among those
exemption criteria are subject to tax.
Example:
1. Direct donation of property
2. Donation in trust, if irrevocable
3. Specific renunciation of inheritance, unless there
are only two heirs
4. Renunciation by the surviving spouse of his share
in the conjugal or community property
5. Transfer inter-vivos for insufficient consideration
of any property other than real property capital
asset
Reference
• Business and Transfer Taxation
2019 edition by Rex Banggawan