Donor's Tax Reviewer

COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

DONOR’S TAX

transferee before the death of the transferor Transferor retains the ownership, full or naked, of the property conveyed

DONATION- is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in favour of another (done) who accepts it. (Art. 725 NCC) -A person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor provided do not constitute a demandable debt or when the gift imposes upon the done a burden which is less than the value of the thing given. (Art. 726 NCC)

Donor’s death determines the acquisition of the right to the property The transfer is revocable before the transferor’s death, the donor has reserved power to dispose the 2 property conveyed.

GR: the person who gratuitously disposes of a thing must not receive any consideration whether money, service or property on account of such transfer.

The transfer would be void if the transferor survived the transferee Being in a form of will, need not be accepted by the donee’s during the lifetime of the donor

EXCEPTION: 1. Extends to sales or exchanges for less than adequate and full consideration in money or money’s worth. (Sec. 100 NIRC)

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Acceptance requirement

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1. It conveys no title or ownership to the transferee before the death of the transferor; or what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive;

2. Condonation or remission of the debt, not due to rendition of service. 3. Renunciation of inheritance in favour of identified heir/s to the exclusion of other co-heirs. (Sec. 11[4] RR-2-03)

2. That before his death, the transfer should be revocable by the transferor at will ad nutum; but revocability may be provided in the donor to dispose of the properties conveyed; and

KINDS OF DONATION

If not embodied in a valid will, the donation is void 1 (Puig v. Penaflorida ) Transfer conveys no title or ownership to the

The transfer is irrevocable

CHARACTERISTICS OF DONATION MORTIS CAUSA

-only the difference between the FMV of the property and the value of the consideration which is deemed as donation.

DONATION MORTIS CAUSA Estate tax (5%-20%) Made in consideration of death without the donor’s intention to lose the thing conveyed or its free disposal in case of survival Testamentary in nature, should be embodied in a last will and testament (Art. 728 NCC)

the donor is still alive

DONATION INTER VIVOS Donor’s tax (2%-15%) Is made without such consideration but out of the donor’s generosity

3. That the transfer should be void if the transferor should survive the transferee.

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“Irrevocabilty” is a quality absolutely incompatible with the idea of conveyances mortis causa, where “revocability” is precisely the essence of the act. (Austria-Magat v. CA) 3 “Donation Mortis Causa” is not controlling; if the donation by its terms is inter vivos, this character is not altered by the fact that the donor styled it mortis causa. (Del Rosario v. Ferrer GR. 187056, Sept. 20, 2010)

Its effect is produced while

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In case of doubt, the conveyance should be deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of the property subject of the deed. (Puig v, Penaflorida)

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COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

DONOR’S TAX/ GIFT TAX

FORMULA IN CASE OF SECOND DONATION WITHIN THE SAME CALENDAR YEAR:

-not a property tax but an excise tax imposed on the privilege of the owner to give. -imposed upon the transfer by any person, resident or non-resident, of any property by gift. (Sec. 99 NIRC) -apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. (Sec. 98 NIRC)

GROSS GIFT ALLOWED DEDUCTION/ EXEMPTION NET GIFT Add: PRIOR NET GIFTS WITHIN THE SAME CALENDAR YEAR TOTAL TAXABLE NET GIFTS Multiply: RATE___________________________________ DONOR’S TAX DUE ON TOTAL NET GIFTS 5 Less: DONOR’S TAX DUE ON PRIOR GIFTS W/IN THE SAME CY DONOR’S TAX PAYABLE Less:

FORMULA:

PERFECTION OF DONATION -it is perfected from the moment the donor knows of the acceptance by the done

GROSS GIFTS ALLOWED DEDUCTION/ EXEMPTION NET GIFTS Multiply: RATE______________________ TAXABLE NET GIFTS 4 Less: TAX CREDIT __________________ DONOR’S TAX PAYABLE Less:

COMPLETION OF THE DONATION -completed by the delivery either actually or constructively of the donated property to the done. LAW GOVERNING THE IMPOSITION OF DONOR’S TAX -law in force at the time of the perfection/completion of the donation shall govern the imposition of donor’s tax. ESSENTIALS OF A TAXABLE DONATION 1. Capacity of the donor 2. Donative intent -transfer of properties from one corporation to another corporation which is connected with, subordinate to and a district or local organization or branch of the transferor corporation is not subject to donor’s tax because wanting in donative intent -required in transfers of property for less than adequate and full consideration 3. Delivery, whether actual or constructive 4. Acceptance of the gift by the donee

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TAX CREDIT- allowed only for residents and citizens of the Philippines for the donor’s taxes they paid in foreign country LIMITATIONS: a. the amount of the credit shall not exceed the same proportion of the tax against such credit is taken, which the net gifts situated within such country taxable under donor’s tax bears to his entire net gifts; b. the amount of the tax credit shall not exceed the same proportion of the tax credit shall not exceed the same proportion of the tax against such credit is taken, which the donor’s net gifts situated outside the Philippines taxable under donor’s tax bears to his entire net gifts.

GROSS GIFT FACTORS AFFECTING GROSS GIFT: 1. Citizenship and residence of the donor at the time of donation 2. Location of the property

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Deducted because it has been paid.

COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

CLASSIFICATION OF DONOR IMMOVABLE AND TANGIBLE PERSONAL PROPERTY WITHIN WITHOUT RCD RAD NRCD NRAD NRAD WITH 6 RECIPROCITY

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ALLOWED DEDUCTIONS OR EXEMPTIONS FROM THE GROSS ESTATE -tax for each calendar year shall be computed on the basis of the total net gifts made during the year.

INTANGIBLE PERSONAL PROPERTY WITHIN 

1. Donor’s tax due is computed on a cumulative basis; 2. The donor’s tax due is based on the net gifts

WITHOUT 

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DONATION OF CONJUGAL PROPERTY -whether married or single -properties owned by the spouse whether under conjugal partnership or absolute community are treated as a separate donation. -husband and wife are equally regarded as a separate donor. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage, -IN FAVOR OF THE HEIRS OF THE DECEASED SPOUSE OR ANY OTHER PERSON IS SUBJECT TO DONOR’S TAX. -whereas, GENERAL RENUNCIATION by an heir , including the surviving spouse, of his/her in the hereditary estate is NOT SUBJECT TO DONOR’S TAX.

VALUATION OF DONATION CASH Value or face amount of the currency

PERSONAL PROPERTY FMV at the time donation

REAL PROPERTY of

FMV fixed by the Provincial and City Assessor or the FMV as determined by the BIR, whichever is higher.

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If there is a reciprocity clause such intangible personal property located within the Philippines is NOT subject to donor’s tax, therefore not included in the gross gift.

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COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

RCD, RAD, NRCD 

EXEMPTION OF CERTAIN GIFTS DOWRIES

NRAD -

Requisites: i. made on account of marriage and before its celebration or within 1 year thereafter ii. by parents to each of their legitimate, recognized natural, or adopted children iii. to the extent of first P10,000. GIFTS TO NATIONAL GOVERNMENT -not conducted for profit GIFTS TO POLITICAL SUBDIVISION GIFTS IN FAVOR OF: i. educational ii. charitable iii. religious iv. cultural v. social welfare corporation, institution vi. accredited nongovernmental organization vii. trust or philanthropic organization viii. research institution or organization

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Requisites: i. the entity or institution must either or any of those mentioned ii. not more than 30% of said gifts shall be used by such done for administration iii. incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students’ fee or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of incorporation. rd

Note: in case of NRA 3 requisite does not apply MORTGAGE ASSUMED BY THE DONEE If a mortgaged property is transferred as gift, BUT imposing upon the done the obligation to pay the mortgage liability, -then the net gift is measured by deducting from the FMV of the property the amount of mortgage assumed. (Sec. 11, RR 2-03) DIMINUTIONS Eg. If A donated P500,000 to B with instruction that B shall give P100,000 to SSC-R, the taxable net gift would only be P400,000.

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COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

EXEMPTION UNDER SPACIAL LAWS: 1. donations to Philippine government for scientific, engineering and technological research, invention and development (RA 1606) 2. Donations to social welfare, cultural, and charitable organizations (PD 507; RA 1916) 3. Donations to the International Rice Research Institute (RA 2707) 4. Donations to Ramon Magsaysay Award Foundation (RA 3076) 5. Donations to Southern Philippines Development Administration (PD 690) 7. Donations to the Intramuros Administration (PD 1616)

TAX PAYABLE BY THE DONOR IF DONEE IS A STRANGER -30% of the net gifts STRANGER: a. Brother, sister (whether by whole or half-blood), legally adopted child spouse, ancestor, and lineal descendant; or th b. Relative by consanguinity in the collateral line within the 4 degree of relationship c. donation made between business organizations and those made between an individual and a business organization

PROCEDURE FOR COMPUTING NET GIFTS DONATIONS TO POLITICAL PARTY OR COALITION OF PARTIES FOR ELECTION CAMPAIGN -governed by the Election Code -Political/electoral contributions, duly reported to the COMELEC, are not subject to the payment of any gift tax.

NET GIFT- the net economic benefit from the transfer that accrues to the donee. The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the schedule of tax rates prescribed in the law.

FILING OF RETURNS AND PAYMENTS OF DONOR’S TAX (Sec. 103) The tax is imposed on the cumulative basis during the calendar year; i.e., the rates are applied on the aggregate net gifts during the calendar year, but donor’s taxes paid during the calendar year are credited against the donor’s tax due on the latest donation during the same calendar year.

Requirements: -any person making a donation unless donation is specifically exempt is required, for every donation, to accomplish under oath a donor’s tax return in duplicate.

SCHEDULAR RATES OF DONOR’S TAX IMPOSABLE ON DONATION MADE TO A DONEE WHO IS NOT A STRANGER. BUT NOT OVER P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

OVER P 100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

THE TAX SHALL BE EXEMPT 0 2,000 14,000 44,000 204,000 404,000 1,004,000

PLUS

OF THE EXCESS OVER

2% 4% 6% 8% 10% 12% 15%

P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

TIME AND PLACE OF FILING AND PAYMENT Donor’s tax return: filed within 30 days after the date the gift is made or completed, no extension allowed Tax due: paid at the same time that the return is filed/ pay as you file Place of filing: a. authorized agent bank b. revenue district officer c. revenue collection officer d. duly authorized treasurer of the city or municipality where the donor was domiciled at the time of the transfer 7 e. if there be no legal residence in the Philippines: Office of the Commissioner f. the case of gifts made by a non-resident, the return may be filed with the Philippine Embassy or consulate in the country where he is domiciled at the time of the transfer; or directly with the Office of the Commissioner 7

Office of the commissioner shall refer to the revenue District Office having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner or presently, to the revenue District Office (Sec. 13, RR 2-03)

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COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

NOTICE OF A DONATION BY A DONOR ENGAGED IN BUSINESS -In order to be exempt from donor’s tax and to claim full deduction of the donation the following must concur: 1. ACCREDITATION- given to qualified done institution duly accredited by the Philippine Council for NGO certification Inc. 2. NOTICE OF DONATION- the donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the revenue district office which has jurisdiction over his place of the business within 30 days after receipt of the qualified done institution, which shall be attached to the notice of donation 3. CERTIFICATION OF DONATION- stating that not more than 30% of said donation for the taxable year shall be used such accredited non stock, non profit corporation for administration purposes.

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