Donors' Tax.docx

TAXATION Donor’s Tax

ATTY. MACMOD, C.P.A.

LECTURE NOTES 1.

Definition and characteristics of the tax.

2.

Requisites of a valid donation a. _____________________ b. _____________________ c. _____________________ d. _____________________ e. _____________________

3.

Classification of Donor’s and composition of the gross gift: a. Resident or Citizens of the Philippines _________________________________________ ________________ b. Not a resident – not a citizens of the Phil. (NRA) Without Reciprocity Law _____________________________________ With Reciprocity Law ___________________________

4.

Other transactions subject to donor’s tax a. ______________________________ b. ______________________________

5.

Requisites of Transfer with insufficient consideration a. _______________________________ b. _______________________________ c. _______________________________

6.

Valuation of gross gift a. Personal Property _________________ b. Real Property _____________________

7.

Deduction from the gross gift: a. Under the Tax Code: (1) Dowries (2) Donations to the government or any of its agencies or instrumentalities (3) Donations to educational, charitable, religious, cultural, social welfare institution, accredited NGO’s, trust on philanthropic organizations, research institutions, etc. provided that no more than 30% of the donation/gift shall be used by the donee institution for its administrative purposes; Requisites: _____________________________________ _____________________________________ ______________________________ b.

c.

Under BIR Rulings: (1) Encumbrances on the property donated, if assumed by the donee (2) Diminutions on the property donated specifically provided by the donor Under Special Laws. Donations to the following special non-stock-non-profit institutions duly recognized by the government pursuant to a special law are exempt: (1) International Rice Research Institute (2) Ramon Magsaysay Award Foundation (3) Southern Philippines Development Administration (4) Philippines American Cultural Foundation (5) Integrated Bar of the Philippines (6) Development Academy of the Philippines (7) National Social Action Council (8) Museum of the Philippine Costumes (9) Aqua-culture Department of South East Asia Fisheries Development Center of the Philippines

(10) Intramuros Administration 8.

Formula for computation of Taxable net gift gate and gift tax due 9. Donor’s tax Credit (Same concept as in estate tax credit) 10. Administrative provisions Summary of properties comprising gross gift: Real Tangible Property Personal Citizen or Resident ALL ALL NRA w/ W/in the W/in the reciprocity Phils., only Phils.,only NRA w/o W/in the W/in the reciprocity Phils., only Phils., only Summary deductions allowed: Dowry Gifts to the Nat’l Gov’t. Gifts to educational, charitable institution etc. Mortgage assumed by donee Diminution

Intangible Personal ALL NONE W/in the Phils., only

Citizen or resident Allowed Allowed

NRA none Allowed

Allowed Allowed Allowed

Allowed Allowed Allowed

TAX CREDIT FOR FOREIGN DONOR’S TAX In order to minimize or lessen the harsh of effect of taxing the same gift twice, the donor is allowed to claim the gift tax paid in the foreign country as a tax credit against the gift tax paid in the Philippines. It can only be claimed of Citizen or resident of the Philippines at the time the donation was made. AMOUNT OF TAX CREDIT The tax credit is the amount of donor’s tax paid to the foreign country, but not exceed the limit prescribed by law: LIMIT A: Net gifts (per foreign country) ---------------------------------- X Philippine Donor’ Tax Total Net Gifts LIMIT B: Net gifts (all foreign countries) ----------------------------------- X Philippine Donor’s Tax Total net gifts DONOR’S TAX RATES a. In general If the net gifts is: But not Over over P 100,000 P100,000 200,000 200,000 500,000 500,000 1,000,000 1,000,000 3,000,000 3,000,000 5,000,000 5,000,000 10,000,000 b.

The tax shall be Exempt 0 2,000 14,000 44,000 204,000 404,000

Plus — 2% 4% 6% 8% 10% 12%

Of excess over — P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000

When the donee is stranger, the tax shall be 30% of the net gifts. A STRANGER is a person who is: a. Not a brother or sister (whether by the whole or half blood), spouse, ancestor and lineal descendant; b. Not a relative by consanguinity in the collateral line within the fourth degree of relationship.

c.

Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purpose shall be governed by Election Code, as amended.

FORMAT OF COMPUTATION a. FIRST DONATION OF THE YEAR Gross Gift Less: Exemption Taxable Net Gift b.

Subsequent donation/s during the same Gross Gifts Less: Exemptions (Deductions) Net gifts Add: All prior net gifts during the same year Total (aggregate) net gifts Donor’s tax on the total net gifts Less: Donor’s tax on all prior net gifts Donor’s tax due or payable

5) b. c.

P xxx xxx P xxx

d.

year: P xxx xxx P xxx P

xxx xxx

P

xxx

P

xxx xxx

ADMINISTRATIVE PROVISIONS: *FILING AND PAYMENT OF TAX a. Any individual who makes any transfer by gift shall, for the purpose of the said tax make a return in duplicate. The return shall set forth: 1) Each gift made during the calendar year which is to be included in computing net gifts; 2) The deduction claimed and allowable; 3) Any previous net gifts made during the same calendar year; 4) The name of the donees; and

Such further information as may be required by rules and regulations made pursuant to law.

The donor’s tax return is filed within 30 days from date of each donation. The tax is paid as the return is files (pay-as-youfile). Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to: 1) An authorized agent bank 2) Revenue District Officer 3) Revenue Collection Officer or; 4) Duly authorized Treasurer of the city or municipality

Where the donor was domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner. e. In the case of gifts by a non-resident, the return may be filed with: 1) Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or; 2) Directly with the office of the Commissioner. f.

Civil penalties and interest 1) Penalty of 25% if there is no false or fraudulent intent on the taxpayer. 2) Penalty of 50% if there is false, malice or fraudulent intent on the taxpayer. 3) Interest of 20% on the unpaid amount of tax from the date computed until fully paid.

- done –

EXERCISE/PROBLEMS a.

In each of the following, determine the allowable deduction from the Gross Gift:

10. Donation intervivos to son on account of topping the CPA Exam. Land with FMV, P 500,000 subject to the condition that a son will pay the donor’s tax on the said donation.

1.

Dowry of P 100,000 given by grandfather to her granddaughter 2 wks. after the marriage.

2.

Dowry by a father to his legitimate son Before Marriage P 8,000 During Marriage 5,000 Within 1 yr. thereafter 50,000

B. DONOR’S TAX: MULTIPLE CHOICE – THEORITICAL 1. A privilege tax imposed on onerous transfers inter vivos: a. Gift tax c. Income tax b. Estate tax d. Donor’s tax

3.

Dowry by a mother to her daughter During the marriage 15 mos. after the marriage

2.

An excise tax on gratuitous transfers mortis causa a. Gift tax c. Income tax b. Estate tax d. Donor’s tax

4.

Dowry by a mother to her daughters during their marriages: Alexi P42,000 Maribel 50,000 Maricel 22,000 Abegael 55,000

3.

An excise tax on gratuitous transfer inter vivos: a. Donee’s tax c. Income tax b. Estate tax d. Donor’s tax

4.

First statement: The donor’s tax shall apply, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible, even if the transfer is merely in trust.

5.

6.

P

5,000 50,000

Dowry out of common property of the couple to their 2 sons; 2 mos. after marriage Jekky P150,000 Emong 170,000 Donation to Philippine National Red Cross, P100,000 but 50% was spent for office expenses alone.

7.

Donation to Mla. City Hall – P 300,000, but 50% was spent for office expenses.

8.

Land donated w/ FMV of P 2M w/ unpaid real estate tax of P 400,000, ¼ assumed by the donee & unpaid mortgage of P 1M, all assumed by the donor.

9.

Donation mortis causa of a land with FMV of P 1M left by the decedent and given inter vivos car worth p250,000 pledged for p100,000,30% assumed by the donee.

Second statement: Any contribution in cash or in kind to any candidate, political party or coalition or parties for campaign purposes shall be subject to donor’s tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct 5.

Donor’s tax is distinguished from the estate tax First distinction: The rates for donor’s tax are lower than those for estate tax, as a rule. Second distinction: In donor’s tax, the exemption is P200,000 while in estate tax it is P 100,000. a. Both distinctions are correct. b. Both distinctions are wrong.

c. d. 6.

7.

8.

9.

First distinction is correct, the second is wrong. First distinction is wrong, the second is correct.

When the donee or beneficiary is stranger, the tax payable by the donor shall be: a. 30% of the gross gifts b. 30% of the net gifts c. Based on the graduated rates with the first P100,000 net gift exempt. d. Based on the graduated rates with the first P100,000 net gift exempt or 30% of the net gifts whichever is higher.

In the following questions choose: a. If only the first statement is correct. b. If only the second statement is correct. c. If both statements are correct. d. If both statement are incorrect. 15. 1st statement: 2nd

Donative intent as a requisite of a valid donation is absolute. statement: An inofficious donation is voidable.

16. 1st statement:

For donor’s tax purposes, one of the following is a stranger: a. Brother or sister c. Uncle b. Spouse d. Son-in-law

2nd statement:

One of the following is a relative by consanguinity in the collateral line in the third degree of relationship. a. Daughter of the donor’s nephew b. First cousin of the donor c. Niece of the donor d. Second cousin of the donor

17. 1st statement:

Three of the following are exempt or excluded from the donor’s tax. Which is the exception? a. P200,000 cash given by a non-resident alien donor to his legitimate son who is getting married in the Philippines to a Filipina. b. P10,000 cash given by a resident alien donor to his legitimate son who is getting married in the Philippines. c. Donation of a condominium in Hongkong to a Filipina by a British national not residing in the Philippines. d. P150,000 donation to a non-profit school.

18. 1st statement:

10. First statement: Gifts in favor of an educational and/or religious organizations are exempt from donor’s tax. Second statement: Gifts on account of a person’s merits or services rendered are taxable whether the services are demandable debt or not. a. Both statements are correct b. Both statement are incorrect c. Only first statement is correct d. Only second statement is correct 11. All of the following except one are exempt from the gift tax under the special laws: a. Donation to Integrated Bar of the Philippines b. Donation to Development Academy of the Philippines c. Donation to Philippine Institute of Certified Public Accountants d. Donation to International Rice Research Institute 12. John sold his car to Sam. John’s car cost P300,000 and has a fair market value of P400,000 at the same time of sale. The car was sold for P200,000. For donor’s tax purposes, which of the following statements is correct? a. There is taxable gift of P300,000. b. There is a taxable gift of P200,000. c. The transfer is subject to capital gains tax d. The transfer involves a personal property, hence, not a subject to gift tax. 13. One of the following statements is false: a. Contracts of donation between husband and wife are void always. b. The donation by a businessman to a govt officer in view of his public office is void ab ibnitio. c. Donations between persons guilty of adultery or concubinage are void. d. Donations to conceived or unborn children are valid. 14. 1st statement: A donation can be both a part of the gross gift of the donor and a taxable income to the donee. 2nd statement: A donation may be exempt from donor’s tax but not necessarily a deduction from the donor’s gross income. a. Only the 1st statement is correct. b. Only the 2nd statement is correct. c. Both statements are correct. d. Both are incorrect.

2nd statement:

2nd statement: 19. 1st statement: 2nd statement: 20. 1st statement: 2nd statement: C.

As a general rule all persons who may contract and dispose of their property may donate. Minors can be a donor or a donee A person can donate all his present property unconditionally. No person may receive or give by way of donation more than he may give or receive. The pay as you file system is not followed in donor’s taxation. Donations by juridical persons are deemed made by a stranger. Renunciation of one’s share in the legitime is a taxable gift. Gift splitting is a form of tax evasion. Donation of a personal property worth P 50,000 must be notarized. Donation of a real property is valid if made in writing even if not notarised.

Multiple Choice – Problems Donor’s Tax: Multiple Choice Problems Turkina, a Filipina princess made the following donations. a. To Zaida, a land worth P 450,000 in Cubao. b. To Hejia, jewelry worth P 100,000 in Hongkong. c. To Shahida, PLDT shares amounting to P 150,000. d. To Haida, a building in Italy P 1,600,000 mortgaged for P 50,000 assumed by the donee. e. To Goliath, land in Pampanga worth P 300,000. f. P 300,000 cash, PNB New York to Charlie g. P200,000 receivable,50% condoned by Turkina She has also transferred the following properties: Selling Price FMV Car, Makati P 200,000 P 300,000 Car, USA 300,000 200,000 Res. Land,Mla. 1,000,000 2,000,000

21. If she is resident Alien her gross gift is: a. P 2,100,000 c. P 3,100,000 b. P 1,950,000 d. P 3,000,000 22. If she is a NRA non-resident Egyptian, and there is reciprocity law, her gross gift is: a. P 850,000 c. P 1,050,000 b. P 950,000 d. P 700,000 Questions 23 to 26 are based on the following data: Mr. and Mrs. Lapu-Lapu, made the following donations: 1/25/2012 – To Magellan, their legitimate son, on account of marriage last 1/20/2011, car worth P400,000, with P 200,000 mortgage, ½ was assumed by the donee. 5/31/2012 – To Napoleon, brother of Mr. Lapu-Lapu, his capital property worth P 200,000 on account of marriage 6 months ago of Napoleon with a condition that the donee will pay the donor’s tax thereon. 7/15/2012 –

To Donita, daughter of Mrs. Lapu-Lapu by former marriage, on account of her marriage 12 months ago, Mrs. Lapu-Lapu’s paraphernal property worth P 100,000.

8/20/12 conjugal car of the couple worth P 400,000, with P 200,000 unpaid mortgage, ½ assumed by Donita. And P 500,000 worth of land to their four sons on account of their graduation, 20% of which was owned by their kumpare who agreed to donate his share thru a public document.

a. P 9,600.00 c. P 1,660.63 b. P 5,907.00 d. P 4,600.00 32. Using the data in no. 30. The gift tax payable of the wife is: a. P 1,800.00 c. P 13,200.00 b. P 3,600.00 d. P 3,460.63

23. The gift tax due of Mr. Lapu-Lapu as of May 31, 2012 is: a. P 8,000 c. P 7,200 b. P 7,000 d. P 6,600

33. On July 18, 2015, Mr. Jecky gave a property with a fair market value of P 550,000 to Mikey, a legitimate son, and Rose, Mikey’s bride, on account of their marriage celebrated on January 3, 2015. The donor’s tax payable is: a. P 87,100 c. P 84,100 b. P 38,000 d. P 15,800

24. The gift tax of Mrs. Lapu-Lapu as of July 15, 2012 is: a. P 3,600 c. P 2,800 b. P 2,600 d. P 4,000 25. The gift taxes due of Mr. and Mrs. Lapu-Lapu on August 20, 2012: a. P 69,000 & P 18,800 c. P 54,000 & P 15,800 b. P 17,000 & P 18,800 d. P 54,000 & P 18,800 26. The gift tax due of their kumpare is: a. P 30,000 c. P 45,000 b. P 10,000 d. P 15,000 Questions 27 & 28 are based on the following data: Mr. Pinya, made the following donations for the year 2012: April 15 –

To Natalie, legally adopted child on acct. of marriage last week, car worth P 710,000 in Philippines. – To Daylan, his daughter, car in USA worth P 300,000. They paid $ 200 donor’s tax in the US ($1 – P 45)

July 20

–

To Tiffany niece in Manila, P 200,000 worth of personal property. – To Nora, legitimate daughter on acct. of marriage in Cebu, July 18, 2008 car, worth P 400,000 but mortgaged for P 200,000, ½ of which was assumed by the donee.

27. The gift tax due after credit on April 15, 2012 is: a. P 30,800 c. P 44,000 b. P 35,000 d. P 33,000 28. The gift tax due on July 20, 2012 is: a. P 40,000 c. P 84,000 b. P 36,000 d. P 80,000 29. Mr. Romano donated a total amount P 500,000, 40% to the Quezon City Hall and 60% to a charitable institution TAHANAN NI GLORIA. Upon inquiry, it was verified that the charitable institution’s total receipts from donation amounted to P 10M and its total administrative expenses reached P 4M. Mr. Romano can claim a total deduction / exemption of: a. P 300,000 c. P 200,000 b. P 500,000 d. P None 30. During the current year, Mr. and Mrs. Reyes, non-resident citizens, donated the following: Sept. 25: To Bea a legitimate child, on account of marriage, last month a conjugal property located in the Philippines, FMV, P 400,000. To Jessica niece of Mr. Reyes, on account of marriage, a property located in the USA exclusively owned by the husband, FMV, P 150,000 (gift tax in USA, P 5,500) Oct. 9 :

To Gail, a legitimate child, conjugal property in the Philippines, FMV, P 100,000.

The gift tax payable on the September 25 gifts of the husband is: a. P 7,600 c. P 4,247 b. P 2,600 d. P 3,353 31. Using the data in no. 30, the gift tax payable on the October 9 gift of the husband is:

34. Mr. Porontong made the following gifts to his relatives: Phils. USA UK Italy Gross gift P750,000 P500,000 P250,000 P500,000 Deductions 250,000 200,000 150,000 150,000 Tax paid — 25,000 12,000 10,000 The gift tax due after credit is: a. P 35,600 c. P 33,520 b. P 25,600 d. P 39,000 35. In 2014, Maynard made the following gifts: 1. On June 1, 2014, P150,000 to Karen, his daughter, on account of her marriage celebrated on May 1, 2010. 2. On July 10, 2014, a parcel of land worth, P180,000 to his father, subject to the condition that the father would assume the mortgage indebtedness of Maynard in the amount of P40,000. 3. On September 30, 2014, P150,000 dowry to his daughter Gina, on account of her scheduled marriage on October 25, 2015, and another wedding gift worth P20,000 on November 23, 2014. How much is the total net gifts? a. P500,000 c. P430,000 b. P450,000 d. P300,000 36. Who is not subject to the donor’s tax? a. An individual making a donation. b. A corporation making a donation. c. A partnership making a donation. d. An employer who pays premiums on the life insurance of its employee. 37. J. C. gave a property with a fair market value of P200,000, with unpaid mortgage of P20,000 still assumed by the donor, to Jay his son, and Jay’s bride Tina, on account of her marriage 13 months ago. The allowable deduction is: a. P10,000 c. P40,000 b. P20,000 d. P 0 38. The donor’s tax due based on the above problem is: a. P32,000 c. P 2,000 b. P30,000 d. P31,800 “Whether you know it or not, today you are placing an order for your tomorrows from the catalogue of the Universe. Your predominant thoughts and feelings today are creating a frequency that is automatically determining your life tomorrow. Feel good now and for the rest of the day, and make your tomorrows magnificent.” -The Secrets by Rhonda Byrne