Chapter 6 - Donor's Tax

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 28 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAX Problem 6-1 1. False – there is no consideration in donation. 2. False – during the lifetime of the donor. 3. True 4. False – It is enough that the duly representative of the incapacitated donee to receive the donation. 5. True 6. False – Real property donation must be put in writing regardless of value. 7. True 8. False – The value of donated personal property must exceed P5,000. 9. True 10. True 11. False – not gifts. 12. False – constitutes dividend income. 13. True Problem 6-2 1. True 2. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines 3. True 4. True 5. True 6. False – only one-half of the share is donated. 7. False – only if the gift is on account of marriage. 8. False – only the first P100,000 is exempt. 9. False – may be subject to business tax such as VAT, custom duties, or excise tax. 10. False - When the donee is a stranger, the tax rate is 30%. 11. True 12. False - excise tax – transfer of property by way of gift inter vivos. Problem 6-3 1.

Zero, because the renunciation is a general renunciation.

2.

P30,000 or 30% of P100,000. A third cousin is a stranger for donor’s tax purposes.

3.

The total amount of donor’s tax is P62,000, computed as follows: Relative - P200,000 (See schedular tax table) Stranger (P200,000 x 30%)

Son P2,000

Daughter-in-law P60,000

Note: Daughter-in-law is included as a relative for donor’s tax purposes. 4.

Zero. Donations between husband and wife are void and not subject to donor’s tax.

5.

Zero. Donations between a man and a woman living together as husband and wife are void and not subject to donor’s tax. (Art 87, Family Code)

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 29 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

6. P30,000 or 30% of P100,000. A gift to a priest or to Church is not exempt from gift tax. (Lladoc vs. Commissioner of Internal Revenue, L-19201, 14 SCRA, p. 292) – assume donation is made to a church established and operates within the Philippines.

7.

P600,000 or 30% of P2,000,000. There is no blood relationship between corporation, hence both are stranger from each other.

8.

P40,400 Philippine donor’s tax

P404,000

Actual donor’s tax - foreign

P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower 9.

P40,400

P40,400

P1,244,000 Philippine donor’s tax: Relative (P500,000) Stranger (P5,000,000 – P500,000) x 30% Less: Tax credit Actual donor’s tax – foreign (lower) Tax credit, limit (P1,364,000 x 500,000/5,000,000) Donor’s tax still due and payable

P 14,000 1,350,000 P120,000 136,400

P1,364,000 120,000 P1,244,00 0

10. P135,000 Donor’s tax Surcharge (P100,000 x 25%) Interest (P100,000 x 20% x 6/12) Total amount due Problem 6-4 1. C 2. D 3. C 4. A 5. A 6. A 7. A 8. B 9. B 10. A Problem 6-7

Problem 6-5 1. D 2. D 3. C 4. C 5. C 6. C 7. B 8. C 9. C 10. A

P100,000 25,000 10,000 P135,000 Problem 6-6 1. C 2. D 3. D 4. No answer. All statements are correct. 5. C 6. B 7. A 8. D

C

Gross estate Less: Standard deduction Net estate

Father P5,500,000 1,000,000 P4,500,000

Mother P5,500,000 1,000,000 P4,500,000

Estate tax on P2,000,000 Excess (P2,500,000 x 11%) Estate tax

P 135,000 275,000 P 410,000

P 135,000 275,000 P 410,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 30 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Distributable estate (P11,000,000 – P820,000) Divided by number of heirs Share of each heir

P10,180,000 4 P 2,545,000

Donor’s tax on P1,000,000 Donor’s tax on excess (P1,545,000 x 8%) Donor’s tax

P 44,000 123,600 P167,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is specifically for Daw. Problem 6-8

D

First donation: Donated value of P200,000 Excess donation (4% x P290,000) Dowry deducted Total value of first donation

Value of Donation P200,000 290,000 10,000 P500,000

Second donation: First donation – total value Excess donation (6% x 400,000) Total after dowry deducted Add: Dowry deducted in two donations (P10,000 x 2) Total Less: First donation Value of second donation

P500,000 400,000 P900,000 20,000 P920,000 500,000 P420,000

Donor’s tax P 2,000 11,600 . P13,600 P14,000 24,000 P38,000

Problem 6–9 A Wedding gift (P500,000 – P10,000) Casual gift – car Total gift subject to tax

P490,000 500,000 P990,000

Donor’s tax on P500,000 Excess (P490,000 x 6%) Total donor’s tax in the Philippines

P14,000 29,400 P43,400

Problem 6–10

D No reciprocity

Taxable gift in the Philippines

P3,000,000

With reciprocity P - 0 -

Donor’s tax on P3,000,000

P 204,000

P - 0 -

Mr. Salonga P250,000 120,000

Mrs. Salonga P250,000 120,000 20,000 ( 10,000) P380,000

Problem 6–11 A Donations: Vacation house – conjugal (P500,000/2) Car – conjugal (P240,000/2) Jewelry – exclusive of Mrs. Salonga Dowry Net gift Donor’s tax on P200,000 Excess (P160,000 x 4%) (P180,000 x 4%) Total donor’s taxes, respectively

( 10,000) P360,000 P2,000 6,400 P8,400

P2,000 7,200 P9,200

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 31 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–12 A Donations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax. Problem 6–13 D Wedding gift Less: Dowry Net gift – first P100,000 donor’s tax exempt

P110,000 10,000 P100,000

Problem 6–14 D 2005 gift – house and lot Less: Dowry (P10,000 – P6,000) Net gift

P300,000 4,000 P296,000

Donor’s tax on P200,000 Excess (P96,000 x 4%) Donors tax – 2005

P2,000 3,840 P5,840

Problem 6–15 C Donor’s tax (P50,000 x 2%)

P1,000

Problem 6–16 1.

2.

C

Gross gifts, as of August 15, 2002 (P150,000 x 2 lots) Less: Deductions Net gifts, August 15, 2002

P300,000 0 P300,000

Donor’s tax on P200,000 Tax on excess (P300,000 – P200,000) x 4% Total donor’s tax

P

D

P

2,000 4,000 6,000

Wedding gifts, as of November 15, 2002 Less: Deductions - dowry Net gifts, November 15, 2002 Add: Previous, net gifts Total net gifts

P150,000 10,000 P140,000 300,000 P440,000

Donor’s tax on P200,000 Tax on excess (P440,000 – P200,000) x 4% Total donor’s tax Less: Donor’s tax – August 15, 2002 Donor’s tax – November 15, 2002

P

Problem 6–17 D Donor’s tax (P8,000,000 x 30%) Problem 6–18

2,000 9,600 P 11,600 6,000 P 5,600 P2,400,000

D

No deduction is allowed for donations on account of birthday. Problem 6–19 B Gross gift (FMV at time of donation) Problem 6–20 B Donor’s tax (P200,000 x 30%)

P200,000 P60,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 32 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–21 A Donor’s tax (P10,000,000 x 30%)

P3,000,000

The donation is taxable because more than 30% of it shall be used for administration purposes. Problem 6–22

D Estate tax P5,000,000 1,000,000 P4,000,000

Donor’s tax P5,000,000 . P5,000,000

Estate tax on P2,000,000 Excess (P2,000,000 x 11%) Donor’s tax on P5,000,000 Total

P135,000 220,000 . P355,000

P404,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000)

P 49,000

Gross amount asset Less: Standard deduction Net amount subject to tax

Problem 6–23 1. Donors tax for relatives: Mar. 1 - To his son on account of marriage Oct. 1 - To his daughter on account of graduation Total Less: Dowry Net taxable gifts

P 600,000 500,000 P1,100,000 10,000 P1,090,000

Donor’s tax on P1,000,000 Excess (P90,000 x 8%) Total donor’s tax for donations to relatives

P 44,000 7,200 P 51,200

2. Donors tax for strangers: Dec. 25 - To his god-children Dec. 31 - To his neighbor Total Multiplied by donor’s tax rate Donor’s tax for donations to strangers

P400,000 100,000 P500,000 30% P150,000

Problem 6–24 March 30, 2005 (P500,000/2) June 28, 2005 (P2,000,000/2) – P10,000 Net taxable gifts Donor’s tax on P1,000,000 Excess (P240,000 x 8%) Total Donor’s tax paid on March 30, 2005 Donor’s tax on P200,000 Excess (P50,000 x 4%) Donor’s tax for donation on June 28, 2005 Problem 6–25 Cash his son for wedding held during the year

Mr. Dinero P250,000 990,000 P1,240,000

Mrs. Dinero P250,000 990,000 P1,240,000

P44,000 19,200 P63,200

P44,000 19,200 P63,200

( 2,000) ( 2,000) P59,200

( 2,000) ( 2,000) P59,200 P 200,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 33 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–26 To his son on account of marriage during the year To his daughter on account of her birthday To Garci, his brother, as renunciation of inheritance Net gift subject to donor’s tax

P 500,000 500,000 400,000 P1,400,000

Note: No dowry is allowed for nonresident alient. Problem 6–27 Real estate (P1,000,000 – P100,000) Personal properties (P500,000 – P50,000) Total taxable gifts (inadequate consideration) Donor’s tax on P1,000,000 Excess (P350,000 x 8%) Donor’s tax for inadequate consideration

P 900,000 450,000 P1,350,000 P 44,000 28,000 P 72,000

Problem 6–28 Correction: The date for requirement No. 2 should be November 5, 2005 instead of November 5, 2002. 1.

2.

December 25, 2005: Average value per share (P500 + P450)/ 2 Multiply by number of shares Taxable base of the gift

P

475 1,000 P475,000

The same answer with number 1.

Problem 6–29 There is no donor’s tax because the donations are donation mortis causa, void donation and tax- exempt donation. Properties: a. House and lot Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament). b.

Parejo car

The value of property donated is P200,000 and it was made orally. The donation is null and void because personal property donated with value exceeding P5,000 should be put in writing to become a valid donation.

c.

Business

Revocable donation is a revocable transfer, hence, subject to estate tax.

d.

Furniture and fixtures

Donation mortis causa is subject to estate tax.

e.

Time deposit

The amount is P100,000 given to his illegitimate daughter. This donation is tax exempt because the first P100,000 of donation to relatives shall not be subjected to donor’s tax.

Problem 6–30 Car consequently destroyed after delivery to his son Donor’s tax Problem 6–31 Donations to relatives:

P 500,000 P14,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 34 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

2006: January 31

November 30

Car to Uncle Less: Encumbrances assumed by the donee Net taxable gift – January 31, 2002

P300,000 50,000 P250,000

Donor’s tax on P200,000 Tax on excess (P250,000 – P200,000) x 4% Donor’s tax for January 31 donation

P

House and lot to his son on account of marriage Less: Dowry exemption (weeding was held beyond one year) Net gifts Add: Previous net gifts during the year Aggregate taxable gift

P600,000 - 0 P600,000 250,000 P850,000

Donor’s tax on P500,000 Tax on excess (P840,000 – P500,000) x 6% Total Less: Donor’s tax for previous gifts during the year Donor’s tax for November 30 donation

P 14,000 21,000 P 35,000 4,000 P 31,000

P

Donations to strangers: 2006: June 30 Cash to Miss Rosal, a radio manager Less: Diminution of gift (P100,000 x 60%) Net taxable gift

August 31

P100,000 60,000 P 40,000

Donor’s tax for June 30 donation (P40,000 x 30%)

P 12,000

Land to National Government Less: Deduction (total amount) Net taxable gift

P500,000 500,000 P - 0 -

Donor’s tax for August 31 donation October 31

2,000 2,000 4,000

None

Cash to non-profit organization – 40% Administrative Less: Deduction Net taxable gift

P400,000 - 0 P400,000

Donor’s tax for October 31 donation (P400,000 x 30%)

P120,000

Total donor’s tax during 2006: Total donor’s tax to relatives (P30,400 + P4,000) Total donor’s tax to stranger (P12,000 + P120,000) Total donor’s tax for the year 2006 Problem 6–32 Net gift to daughter on account of marriage (P50,000 – P10,000) Add: Previous net gifts:

P 35,000 132,000 P167,000 P 40,000 P50,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 35 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

April 1 – Gift to mother June 10 – Wedding gift to son (P50,000 – P10,000) Total net gift during the year

40,000

90,000 P130,000 Tax exempt P 600

Donor’s tax on P100,000 Donor’s tax on excess P30,000 x 2% Donor’s tax on gift to stranger (P10,000 x 30%)

P 3,000

Problem 6–33 1. January 29, 2006 2.

June 1, 2005 gift Gift on account of their daughter’s marriage Less: Dowry Net gift Tax on P200,000 Tax on excess P40,000 x 4% Total Surcharges (P7,200 x 50%) Interest (P7,200 x 20% x 11/12) December 30, 2005 gift Christmas gift to son Previous gift – June 1, 2005 Total net gift during 2005 Tax on P200,000 Tax on excess P140,000 x 4% Total Less: Tax on previous gift Donor’s tax on current gift Surcharge (P8,000 x 50%) Interest (P8,000 x 20% x 4/12)

Nilo Co P250,000 10,000 P240,000

Nila Co P250,000 10,000 P240,000

P 2,000 1,600 P 3,600

P 2,000 1,600 P 3,600

Nilo Co P100,000 240,000 P340,000

Nila Co P100,000 240,000 P340,000

P 2,000 5,600 P 7,600 3,600 P 4,000

P 2,000 5,600 P 7,600 3,600 P 4,000

Total amount to be paid on June 1, 2006

P 7,200 3,600 1,320 P12,120

P 8,000 4,000 533 P12,533 P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in 2005, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect. Problem 6–34 Donor’s tax on property located in Japan, P1,000,000 Donor’s tax on property located in the Philippines (P2,000,000 x 30%) Total donor’s tax in the Philippines Computation of donor’s tax still due and payable: Total donor’s tax in the Philippines Less: Allowable tax credit: - Actual lower than limit Limit (P1,000,000/ P3,000,000) x P644,000 Donor’s tax still due and payable

Problems 6–35

Relative P44,000

Stranger

Total P 44,000

P600,000

600,000 P644,000 P644,000 70,000

P214,667 P574,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 36 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX Property donated: To son - House and lot ($500,000 x P50) – P10,000 Carabaw FX – to brother-in-law

Gift to Relatives P24,990,000

Taxable base

. P24,990,000

Philippine donor’s tax: First P10,000,000 Tax on excess (P14,990,000,000 x 15%) Total Less: Tax credit allowed Donors tax rate for donation made to strangers Net donor's tax

P 1,004,000 2,248,500 P 3,252,500 1,000,000 . P 2,252,500

Strangers P P

500,000 . 500,000

P

30% 150,000

Total

. P 2,402,500

Note: Donation to common-law-wife is void. Hence, no donor’s tax. Computation of tax credit allowed: Limit 1: (P24.990M/ P25.490M) x P2,402,500

P2,335,373

Allowed: Actual, lower amount

P1,000,000