Chapter 3 - Gross Estate2013
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 11 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
GROSS ESTATE Problem 3-1 1. True 2. False – include all properties within and outside the Philippines. 3. True 4. False – intangible personal properties 5. False – properties of nonresident aliens. The properties within and outside the Philippines of a resident alien is subject to Philippine estate tax. 6. True 7. False – common stock only; preferred stock is measured at its par value. 8. True 9. True 10. False – This is a donation mortis causa which is subject to estate tax. 11. True 12. False – only proceeds of life insurance with revocable beneficiary is included for estate tax purposes. Problem 3-2 1. True 2. False – amount receivable under R.A. 4917 shall be included as part of the gross estate subject to deduction of its entire amount reported. 3. False – only intangible properties are exempted from estate tax. 4. True 5. False – the reciprocity exemption is granted only to nonresident alien. 6. True 7. True 8. True 9. False – exclusive property. 10. True 11. True 12. True Problem 3-3 1. D 2. C 3. B 4. D 5. A 6. C 7. D 8. B 9. A 10. C 11. D 12. A
Problem 3-4 1. B 2. C 3. A 4. A 5. B 6. C 7. A 8. B 9. A 10. D 11. C 12. A
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 12 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
Problem 3-5 1.
The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)
P25,000,000. The properties left by a resident alien which are located within and outside the Philippines are required to be reported for Philippine estate tax purposes.
A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000. Therefore, the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).
Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance should be excluded from the gross estate.
Since M is a resident alien, all of his properties within and outside the Philippines should be reported as part of the gross estate for Philippine estate tax purposes. The reportable gross estate should be P11,000,000.
Zero. No amount is allowed as exemption because the rule of reciprocity is applied only on the intangibles of nonresident alien.
P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because the rule of reciprocity can now be applied.
None. The rule is to report the market value of the property at the time of the decedent’s death. The compensatory damages of P900,000 are excluded since the accrued is made to the decedent’s heirs after death. Payments for medical and funeral expenses are nontaxable because they are considered contributions from symphatizers.
Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property donated by the decedent to a nonprofit and nonstock educational institution is excluded from the gross estate. Donations to the Philippine government is included as part of the gross estate, but deductible in its full amount.
Problem 3 – 6 B At market value of P750,000. The law provides that the valuation should be at the market value of the property at the time of the owner’s death. The book value is irrelevant because the properties left by the decedent are considered under liquidating concern. Problem 3 – 7 C Business, Daly City Cars, Philippines Condominium, Philippines Mansion, Boracay, Philippines Shares of stock, Hongkong Accounts receivable Gross estate of Molina Problem 3-8 B Real property in the Philippines Personal properties in foreign country Personal properties in foreign country Amount to be included in the gross estate
P30,000,000 1,000,000 3,000,000 20,000,000 4,000,000 2,000,000 P60,000,000 P1,600,000 600,000 800,000 P3,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 13 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
Problem 3-9 A P500,000. Since the alien is nonresident all of his properties outside the Philippines are reportable for Philippine estate tax purposes. The investment in shares of stock of a resident foreign corporation with 85% business situs in the Philippines is a property within the Philippines. Problem 3-10 1. Letter A Real properties – Philippines Car – Philippines Collectibles – Philippines Franchise – Taiwan Taxable gross estate
P1,000,000 800,000 500,000 200,000 P2,500,000
2. Letter C Real properties – Philippines Car – Philippines Taxable gross estate
P1,000,000 800,000 P1,800,000
Problem 3-11 A P500,000. The gross estate shall be valued at its fair market value at the time of death. Problem 3-12 C Amount to be included in the gross estate [(P120+P150)/2] x 1,000 Problem 3-13 D Equity in SMC book value (P100,000,000 x 40%) Investment income (P20,000,000 x 40%) Amount to be included in the gross estate
P135,000 P40,000,000 8,000,000 P48,000,000
Note: Investment income is considered because there is significant controlling interest. Problem 3-14 B Business establishments Accrued income (P200,000 x 5 months) Time deposit for 10 years Accrued interest (P30,000,000 x 12% x 10/12) 5% equity in Jollibee Corporation Car and mansion donated mortis causa to his son Gross estate
P10,000,000 1,000,000 30,000,000 3,000,000 5,000,000 20,000,000 P69,000,000
The dividend is excluded because the declaration was made after death. Problem 3-15 A Commercial building Rental income earned (P200,000 x 5 months) Common shares (P120 + P130)/2 = P125 x 200,000 shares Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000 Reportable gross estate Problem 3-16 B Revocable donation to the Ramon Magsaysay Foundation Family home Nontaxable benefits under R.A. 4917 Transfers in contemplation of death
P10,000,000 1,000,000 25,000,000 2,000,000 P38,000,000 P1,000,000 1,000,000 500,000 2,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 14 SUGGESTED ANSWERS Donation to the government Total reportable gross estate
Chapter 3: GROSS ESTATE
Problem 3-17 D Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The P200,000 is also excluded because such amount in on account of physical injury and accrued after death. Problem 3-18 A P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable. Problem 3-19 D There is no inadequate consideration because the sale of real property classified as capital asset is subject to a final capital gains tax of 6% based on the selling price or fair market value, whichever is higher. Note: If the cash P100,000 cash payment made by the son is available at the time of death; then the amount should be included as part of the gross estate. Problem 3-20 C Fair market value – date of death Less: Selling price received by Singsong Amount included in the gross estate
P2,000,000 1,300,000 P 700,000
Problem 3-21 C P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be included as part of the gross estate. Problem 3-22 B Family home to Cell, his daughter (Cancer used the house until his death) Commercial building to Cyst, his son (Cancer received the rental income) Shares of stock to Aids, his wife (Evidenced by oral donation) Amount reportable for estate tax purposes
P 4,000,000 6,000,000 3,000,000 P13,000,000
Problem 3-23 D The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident Filipino, his properties located outside the Philippines are reportable in the Philippines because he is a Filipino citizen. Problem 3-24 B Condominium in Makati as a fiduciary heir Cash as bequest to the University of the Philippines Amount to be excluded from reportable gross estate
P5,000,000 2,000,000 P7,000,000
Problem 3-25 A Zero. Only nonresident alien shall be subject to reciprocity. Problem 3-26 B P4,000,000 value of condominium located in the Philippines. Intangible properties are not subject to estate tax in the Philippines when there is reciprocity and the decedent who owns them is a nonresident alien.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 15 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
Problem 3-27 D P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are governed by absolute community property relation; hence, to be included as part of the gross estate. Problem 3-28 1. Letter C Property brought into marriage before August 3, 1988 shall be classified as an exclusive property but its fruits shall be classified as part of the conjugal property. The exclusive gross estate is P12,000,000. 2. Letter A Marriage on or after August 3, 1988 shall be governed by the absolute community regime of property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property brought into marriage including its fruits shall be classified as part of the absolute community property. Problem 3-29 1. Conjugal partnership of gains = A Conjugal properties: Accum. income from boarding house P3,000,000 Personal properties acquired during marriage 5,000,000 Exclusive property – boarding house inherited from his parents during marriage Total gross estate
P 8,000,000 4,000,000 P12,000,000
2. Absolute community of property = C Absolute community properties: Personal properties acquired during marriage Farm land brought into marriage by his wife Exclusive properties Boarding house inherited from his parents during marriage Accum. income from boarding house Total gross estate
P5,000,000 6,000,000 P4,000,000 3,000,000
P11,000,000 7,000,000 P18,000,000
Problem 3-30 Case 1 – Include. The donation is conditional. The donor reserved the power to own the car until the latter passes the CPA exam. Case 2 – Include. The donation is revocable because the donor controls and enjoys the property for himself until his death. Case 3 – Exclude. The donation is complete because control over the property by the donor ended after 3 years. Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee upon the death of the donor. Case 5 – Exclude. The P60,000 (P80,000 – P20,000) is subject to donor’s tax at the time of sale. Case 6 – Include. The sale is in contemplation of death. The P900,000 is subject to income tax. Case 7 – Exclude. The sale of real property is subject to a final tax of 6% based on the selling price or fair market value, whichever is higher. Case 8 – Include. The transfer is an inheritance to be received at the time of death as evidenced by a Will. \
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 16 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
Case 9 – Exclude. No transfer tax is to be paid because the property was transferred at the desire of the predecessor, H. S has no power or control to appoint other successor. Case 10 – Include. The transfer is a general power of appointment. Case 11 – Exclude. Subject to donor’s tax because the actual transfer is inter vivos. The transfer of proceeds of life insurance is deemed complete at during the life-time of the donor. Case 12 – Incude. Include as part of the gross estate if the beneficiary is revocable or the decedent’s estate, his administrator or his executor. Problem 3-31 Real properties in the Philippines Car in the Philippines Accounts receivable Time deposit Accrued interest on time deposit (P300,000 x 12% x 5/12) Claims against insolvent person Gross estate Problem 3-32 Shares of stock – Japanese Corporation – 85% of business in the Philippines Time deposit in Equitable-PCI Bank Investments in bonds in Jollibee Corporation Gross estate Problem 3-33 House and lot Investment in property Car Furniture Gross estate
P2,000,000 800,000 500,000 300,000 15,000 35,000 P3,650,000 P120,000,000 500,000,000 4,000,000 P624,000,000 P6,000,000 2,000,000 600,000 300,000 P8,900,000
Problem 3-34 1. Listed in the local exchange Common (P190/2) x 10,000 shares 2. Not listed in the local exchange Total stockholders’ equity Less: Liquidating value of preferred stock (P110 x 60,000 shares) Revaluation surplus Total book value to common shares Divided by outstanding common shares Book value per share Multiplied by number of Mr. Tulog’s investment in common shares Value of securities as part of gross estate Problem 3-35 Real estate properties Time deposit – principal amount Accrued interest on time deposit (P2,000,000 x 12% x 8/12) Tangible personal properties Other intangible properties Gross estate \
P 950,000 P15,000,000 6,600,000 200,000 P 8,200,000 100,000 P 82 P
P 3,000,000 2,000,000 160,000 1,000,000 500,000 P 6,660,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 17 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
Problem 3-36 1. Accrued interest (P1,000,000 x 6% x 9/12) Transfers in contemplation of death – car Additions to the reportable gross estate
P 45,000 1,500,000 P1,545,000
2. Family home Time deposit Proceeds of life insurance received by his wife Claims against insolvent person Additions to the reportable gross estate (see 1) Total gross estate
P2,000,000 1,000,000 500,000 200,000 1,545,000 P5,245,000
Problem 3-37 Properties: Acquired by decedent prior to marriage Acquired by surviving spouse prior to marriage Inherited by decedent during the marriage Acquired during the marriage Income derived from property inherited by surviving spouse during the marriage Time deposit Accrued interest Total gross estate of the decedent
P600,000 800,000 1,000,000
P600,000 700,000 800,000 1,000,000
450,000 850,000 90,000 P3,790,000
850,000 90,000 P4,040,000
Problem 3-38 1. Filipino or resident alien
Within Outside Total Condominium P5,000,000 P5,000,000 Commercial building P10,000,000 10,000,000 Shares of stock – nonresident foreign corp. 3,000,000 3,000,000 Business transferred to his son, the decedent enjoys the income until his death 8,000,000 8,000,000 Investments in lands: Fair market value at time of death 5,000,000 2,000,000 7,000,000 Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 2,000,000 Proceeds of property insurance 3,000,000 7,000,000 10,000,000 Cash in bank 2,500,000 4,000,000 6,500,000 Franchises 1,500,000 2,000,000 3,500,000 Total gross estate P27,000,000 P28,000,000 P55,000,000 2. Nonresident alien without reciprocity Condominium Business transferred to his son, the decedent enjoys the income until his death Investments in lands: Fair market value at time of death Proceeds of life insurance, estate irrevocable beneficiary Proceeds of property insurance Cash in bank Franchises Total gross estate ‘
Within P5,000,000 8,000,000 5,000,000 2,000,000 3,000,000 2,500,000 1,500,000 P27,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 18 SUGGESTED ANSWERS Chapter 3: GROSS ESTATE
3. Nonresident alien with reciprocity Condominium Business transferred to his son, the decedent enjoys the income until his death Investments in lands: Fair market value at time of death Total gross estate
Within P5,000,000 8,000,000 5,000,000 P18,000,000