Chapter 6 - Donor s Tax2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAX Problem 6-1 1. False – during the lifetime of the donor. 2. True 3. True 4. False – there is no consideration in donation. 5. True 6. False – It is enough that the duly representative of the incapacitated donee to receive the donation. 7. True 8. False – Real property donation must be put in writing regardless of value. 9. True 10. False – The value of donated personal property must exceed P5,000. 11. True 12. True 13. False – not gifts. 14. False – constitutes dividend income. 15. True Problem 6-2 1. False – dowry is not allowed to nonresident alien donor. 2. False – the donee’s identity is not material to make the donation valid. The donor can make donation to an unborn child. 3. True 4. True 5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines 6. True 7. True 8. True 9. False – only one-half of the share is donated. 10. False – only if the gift is on account of marriage. 11. False – only the first P100,000 is exempt. 12. False – may be subject to business tax such as VAT, custom duties, or excise tax. 13. False - When the donee is a stranger, the tax rate is 30%. 14. True 15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter vivos. Problem 6-3 1. B 2. D 3. A 4. D 5. A 6. A 7. C 8. B 9. B 10. A 11. C 12. A

Problem 6-4 1. A 2. C 3. D 4. C & A 5. A 6. C 7. D 8. A 9. A 10. D 11. C 12. D

Problem 6-5 1. C 2. D 3. A 4. B 5. A 6. D 7. A 8. A 9. C 10. A 11. C 12. D

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 41 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6-6 D Donation to his unborn grandchild

P200,000

Problem 6-7 A Zero, because the renunciation is a general renunciation. Problem 6-8

C

Gross estate Less: Standard deduction Net estate Estate tax on P2,000,000 Excess (P2,500,000 x 11%) Estate tax

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

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

P

P

P

135,000 275,000 410,000

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

P

135,000 275,000 410,000

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 not a general renunciation. Problem 6-9

B

Gross gifts (P3,500,000/2) Less: Mortgage assumed by done (P1,000,000/2) Dowry Net gifts

Husband P1,750,000 (500,000) ( 10,000) P1,240,000

Wife P1,750,000 (500,000) ( 10,000) P1,240,000

Problem 6–10 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 6–11 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

Mr. Salonga P250,000 120,000 ( 10,000) P360,000 P2,000 6,400 P8,400

Mrs. Salonga P250,000 120,000 20,000 ( 10,000) P380,000 P2,000 7,200 P9,200

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 42 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–12 D Donation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire amount of P250,000. Problem 6–13 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 6–14 D Donation between spouses during marriage time is void; hence, not subject to donor’s tax. Problem 6–15 D Wedding gift Less: Dowry Net gift – first P100,000 donor’s tax exempt

P110,000 10,000 P100,000

Net gift taxable is Problem 6–16 D 2005 gift – house and lot Less: Dowry (P10,000 – P6,000) Net gift

P - 0 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 6–17 C Donor’s tax (P50,000 x 2%)

P1,000

Problem 6–18 D P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the 6th degree of the collateral line. Problem 6–19 1. Letter C

Gross gifts, as of August 15, 200A (P150,000 x 2 lots) Less: Deductions Net gifts, August 15, 200A

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 P

2,000 4,000 6,000

2. Letter D

Wedding gifts, as of November 15, 200A Less: Deductions - dowry Net gifts, November 15, 200A 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, 200A Donor’s tax payable – November 15, 200A

P

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

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 43 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–20 C P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th collateral line for donor’s tax purposes. Problem 6–21 D Donor’s tax (P8,000,000 x 30%) Problem 6-22

P2,400,000

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 6–23 D No deduction is allowed for donations on account of birthday. Problem 6–24 B Gross gift (FMV at time of donation)

P200,000

Problem 6–25 B Donor’s tax (P200,000 x 30%)

P60,000

Problem 6–26 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 6–27 A Donor’s tax Surcharge (P100,000 x 25%) Interest (P100,000 x 20% x 6/12) Total amount due Problem 6–28

D

Taxable gift in the Philippines Donor’s tax on P3,000,000 No dowry deduction is allowed for nonresident alien donor.

P100,000 25,000 10,000 P135,000 No reciprocity With reciprocity P3,000,000 P - 0P 204,000

P - 0-

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 44 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–28 1. Letter C 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 2. Letter B 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 Problem 6–30

D

P

P40,400

P40,400

14,000 1,350,000

P1,364,000

P120,000 136,400

120,000 P1,244,000

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 of asset Less: Standard deduction Net amount subject to tax

Problem 6–31 Gross gifts made: To L, on account of marriage To M, on account of marriage Total gross gifts Less: Deductions: Dowry for L, on account of marriage Dowry for M, on account of marriage Mortgage assumed by L on property donated Net gifts Problem 6–32 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 Donor’s tax on P1,000,000 Excess (P90,000 x 8%) Total donor’s tax for donations to relatives

P500,000 200,000 P700,000 P10,000 10,000 100,000

120,000 P580,000

P

600,000 500,000 P1,100,000 10,000 P1,090,000 P 44,000 7,200 P 51,200

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 45 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

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 6–33 March 30, 200B (P500,000/2) June 28, 200B (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, 200B Donor’s tax on P200,000 Excess (P50,000 x 4%) Donor’s tax for donation on June 28, 200B

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

Problem 6–34 Cash his son for wedding held during the year Problem 6–35 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 200,000 P 500,000 500,000 400,000 P1,400,000

Note: No dowry is allowed for nonresident alien. Problem 6–36 Taxable inadequate consideration - Personal properties (P500,000 – P50,000) Donor’s tax on P200,000 Excess (P250,000 x 4%) Donor’s tax for inadequate consideration

P 450,000 P 2,000 10,000 P 12,000

The inadequate consideration in the sale of real property will not be subject to donor’s tax because the sale is subject to 6% final tax based on the selling price or fair market value, whichever is higher. Problem 6–37 1. December 25, 200A: Average value per share (P500 + P450)/ 2 Multiply by number of shares Taxable base of the gift 2. The same answer with number 1.

P

475 1,000 P475,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 46 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problem 6–38 There is no donor’s tax because the donations are donation mortis causa, void donation and tax-exempt donation. Specific principles: 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 6–39 Car consequently destroyed after delivery to his son

P 500,000

Donor’s tax

P14,000

Problem 6–40 Donations to relatives: 200B: January 31 Car to Uncle Less: Encumbrances assumed by the donee Net taxable gift – January 31, 2002

P300,000 50,000 P250,000

November 30

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

Donations to strangers: 200B: June 30 Cash to Miss Rosal, a radio manager Less: Diminution of gift (P100,000 x 60%) Net taxable gift Donor’s tax for June 30 donation (P40,000 x 30%)

P

2,000 2,000 4,000

P100,000 60,000 P 40,000 P 12,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

47

Chapter 6: DONOR’S TAX

August 31

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

None

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

P400,000 - 0P400,000

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

P120,000

Total donor’s tax during 200B: 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 200B

P 35,000 132,000 P167,000

Problem 6–41 Donor’s tax on gift to stranger (P10,000 x 30%)

P 3,000

Net gift to daughter on account of marriage (P50,000 – P10,000) Add: Previous net gifts: April 1 – Gift to mother June 10 – Wedding gift to son (P50,000 – P10,000) Total net gift during the year

P 40,000 P50,000 40,000

Donor’s tax on P100,000 Donor’s tax on excess P30,000 x 2% = donor’s tax payable Oct. 31, 200A

90,000 P130,000 Tax exempt P

600

Problem 6–42 1. January 29, 200B 2.

June 1, 200A 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, 200A gift Christmas gift to son Previous gift – June 1, 200A Total net gift during 200A Tax on P200,000 Tax on excess P140,000 x 4% Total Less: Tax on previous gift

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

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

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 48 SUGGESTED ANSWERS Donor’s tax on current gift Surcharge (P8,000 x 50%) Interest (P8,000 x 20% x 4/12)

Chapter 6: DONOR’S TAX

P 4,000

P 4,000

Total amount to be paid on June 1, 200B

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 200A, 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 6–43

Relative P44,000

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 6–44 Property donated: To son - House and lot ($500,000 x P50) – P10,000 Carabaw FX – to brother-in-law

Stranger

Total P 44,000

P600,000

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

P214,667

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 ($20,000 x P50/$1) 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

P574,000

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 ($20,000 x P50/$1)

P1,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 49 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Problems 6–45 Assume donations are made to strangers: Total net gifts Philippine donor’s tax (P10,000,000 x 30%) Tax credit: Limit (P3,000,000 x 5/10) Actual – lower Donor’s tax payable Assume donations are made to relatives: Philippine donor’s tax Tax credit: Limit (P1,004,000 x 5/10) Actual – lower Donor’s tax payable Problems 6–46 1. Gross gifts subject to donor’s tax a. No donation b. Donation to stranger – daughter-in-law (P2,000,000/2) c. Donation to son on account of marriage – relative (P5,000,000/2)

P10,000,000 P3,000,000 P1,500,000 ( 400,000) P2,600,000 P1,004,000 P502,000

( 400,000) P 604,000

Don

Dona

P1,000,000

P1,000,000

2,500,000

2,500,000

500,000

500,000

d. Donation to Philippine government – not subject to Donor’s tax e. Donation to religious group – considered stranger (P1,000,000/2) f.

Donation mortis causa – not subject to donor’s tax

g.

Donation to NGOs – generally not subject to donor’s tax

h.

Donation to political party – not subject to donor’s tax

Exclusive donations by Don: a. Donation to secretary – stranger b. Donation to wife – null and void c. Donation to relative – father Total amount of gross gifts subject to donor’s tax

200,000 P4,300,000

. P4,000,000

2. Donor’s tax Donation to relatives: Donation to son on account of marriage – relative (P5,000,000/2) – P10,000 Donation to relative – father Total net gifts

P2,490,000 200,000 P2,690,000

P2,490,000

P 44,000 135,200 P179,200

P 44,000 119,200 P163,200

Tax on P1,000,000 Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) Total donor’s tax due – donation to relatives

100,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 50 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX

Donation to strangers: Donation to stranger – daughter-in-law (P2,000,000/2) Donation to religious group – considered stranger (P1,000,000/2) Donation to secretary – stranger Total amount – donation to strangers Multiplied by donor’s tax rate to strangers Total donor’s tax due – donation to strangers Total amount of donor’s tax Problems 6–47 Donor’s tax 1. Dec. 30, 200A: Relative - on account of son’s marriage (P300,000/2) – P10,000) Tax on P100,000 Tax on excess (P40,000 x 2%) – donor’s tax due

3.

4.

P1,000,000

500,000 100,000 P1,600,000 30% P 480,000 P 659,200

500,000 . P1,500,000 30% P 450,000 P 613,200

Don

Dona

P140,000 Exempt P800

P140,000 Exempt P800

P50,000 30% P15,000

P50,000 30% P15,000

P100,000 30% P 30,000

P100,000 30% P 30,000

P25,000 Exempt

P25,000 Exempt

Stranger – god son (P100,000/2) Church (P200,000/2) Total Multiplied by applicable donor’s tax rate Donor’s tax due

P 50,000 100,000 P150,000 30% P 45,000

P 50,000 100,000 P150,000 30% P 45,000

June 30, 200B: Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 Add: Previous net gifts to relatives – Mar. 31, 200B Total net gifts

P800,000 25,000 P825,000

P800,000 25,000 P825,000

P14,000 19,500 P33,500

P14,000 19,500 P33,500

P250,000 250,000 P500,000

P250,000 250,000 P500,000

Stranger – daughter-in-law (P100,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due 2.

P1,000,000

Jan. 1, 200B: Stranger – Chinese government (P200,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due March 31, 200B: Relatives – nephew (P50,000/2) Donor’s tax

Tax on P500,000 Tax on excess (P325,000 x 6%) Total donor’s tax payable – June 30, 200B 5. Oct. 30, 200B: Void donation – husband and wife 6. Dec. 30, 200B: Relatives: Son (P500,000/2) Daughter (P500,000/2) Total net gifts to relatives – Dec. 30, 200B Add: Previous net gifts to relatives during 200B:

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 51 SUGGESTED ANSWERS March 31, 200B: Relatives – nephew (P50,000/2) June 30, 200B: Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 Total net gifts to relatives as of Dec. 30, 200B Tax on P1,000,000 Tax on excess (P325,000 x 8%) Total Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B Donor’s tax payable as of Dec. 30, 200B – relatives Stranger – daughter-in-law (P100,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due

Chapter 6: DONOR’S TAX

25,000

25,000

800,000 P1,325,000

800,000 P1,325,000

P44,000 26,000 P70,000 P33,500 P36,500

P44,000 26,000 P70,000 P33,500 P36,500

P50,000 30% P 15,000

P50,000 30% P 15,000