HQ11 - Estate Taxation

Northern CPAR: Taxation –  Estate Taxation

NORTHERN CPA REVIEW th

4  Floor Pelizloy Centrum, Lower Session Road, Baguio City City,, Philippines Mobile Numbers SM!R" #$%$4&$'()& * +LB- #$%(%'%&%#4 -.mail !ddress n/par0yahoo1/om

REX B. BANGGAW BANGGAWAN, AN, CPA, MBA TAXATION TRANSFER TAXATION: ESTATE TAXATION 

Succession 2 a mode o3 transmission o3 the ownership, rights, interests and obligations oer property property by reaso reason n o3 death o3 the owne ownerr in 3aor o3 /ert /ertain ain persons designated designated by the owner himsel3 or by operation o3 law1 law1 Elements: '1 5e 5e/e /ede dent nt 2 th the e pe pers rson on wh who o di died ed wh whos ose e pr prop oper erti ties es,, ri righ ghts ts an and d ob obli liga gati tion ons s ar are e transmitted %1 Su//e Su//essor ssor 2 the person person to whom the property property, rights and obligatio obligations ns o3 the de/edent will pass 61 -stat -state e 2 the properties, properties, rights rights and obligations obligations o3 the de/eden de/edentt 7inheritan/e 7inheritan/e88 Kinds of succession: '1 "estat estate e 79olunta 79oluntary8 ry8 2 su//ession su//ession is /arried out a//ording a//ording to the wishes o3 the testator testator e:pressed in a will e:e/uted in the 3orm pres/ribed by law %1 ;ntes ;ntestate tate 7;nolunta 7;noluntary8 ry8 2 su//ession su//ession without without a will or with one inalid, inalid, su//essi su//ession on will too< e=e/t by operation o3 law

  2 ta: on the priilege o3 the de/edent to transmit his estate at death to his Estate Tax  2 law3ul heirs or bene>/iaries GROSS ESTATE General Principles: '1 "he properties properties o3 /itizen /itizens s and resident resident aliens lo/ated lo/ated within within or outside outside the Philippines Philippines shall be in/luded in gross estate %1 "he properties o3 non.resident alien lo/ated within the Philippines shall be in/luded in gross estate? howeer, intangible properties  within the Philippines shall be sub@e/t to re/ipro/ity1

"here is e:emption re/ipro/ity only when '1 the 3oreign 3oreign /ountry /ountry o3 the non.res non.resident ident alien alien do not impose impose estate estate ta: ta: %1 the 3oreig 3oreign n /ountry /ountry o3 the non.resid non.resident ent alien alien to whi whi/h /h he or she is a res reside ident nt allows allows the same e:emption 3or intangible properties 3or non.residents GROSS ESTA E STATE TE COMPUTATIO Prop Pr oper erti ties es e: e:is isti ting ng at th the e po poin intt o3  AAA death "a:able trans3ers AAA -:empt trans3ers 7AAA 8 -:/lusion by law 7AAA 8 +ross estate AAA Taxa!le Transfers 2 trans3ers with insu=i/ient /onsiderations '1 transfer in contemplation of death  as distinguished 3rom moties asso/iated with li3e %1 re reo o/a /abl ble e trans trans3e 3ers rs 61 prope properties rties passin passing g under a general general power power o3 o3 appointmen appointmentt Exempt Transfers 2 no title to property 1. the merger o3 usu3ru/t in the owner o3 the nadu/iary >du/iary heir or  2. the transmiss legatee to the >dei/omissary 3. the transmission 3rom the >rst heir, legatee, or donee in 3aor o3 another bene>/iary, in a//ordan/e with the desire o3 the prede/essor (special power of appointment) Exclusion in t"e #ross estate of a citi$en or resident alien decedent !% la&: '1 all beuest, beuest, deises, deises, lega/ies lega/ies or tra trans3 ns3ers ers to so/ so/ial ial wel3are, wel3are, /ultural /ultural and /ha /harit ritabl able e institution, no part o3 net in/ome o3 whi/h inures to the bene>t o3 any indiidual? 1

Driven for real excellence! 

TAX by Rex B. Banggaan, CPA, MBA

th

TAX – 6  Batch – HQ11-1

Northern CPAR: Taxation –  Estate Taxation

%1 61 41 )1 D1

proided, howeer, that not more than 6# o3 the said beuest, deises, lega/ies or trans3ers shall be used by su/h institutions 3or administration purposes separate property o3 the suriing spouse pro/eed o3 irreo/able li3e insuran/e poli/y payable to bene>/iary other than the estate, e:e/utor or administrator pro/eeds o3 group insuran/e tats 3rom +S;S bene>t re/eied 3rom SSS

 'aluation of t"e Estate: '1 Usufruct 2 /onsider into a//ount the probable li3e o3 the bene>/iary in a//ordan/e with the latest Basi/ Standard Mortality "able1 7same rule apply with annuity8 %1  Properties 2 the estate shall be appraised at its 3air alue as at the time o3 death1 Eoweer, the appraised alue o3 the property as o3 the time o3 death shall be whi/heer is higher o3 a1 Fair mared by the Barangay Captain o3 the lo/ality where the 3amily home is situated 41 dedu/tion /annot e:/eed whi/heer is higher between the zonal or assessed alue at the time o3 death and P',###,###1## )1 it is a dedu/tion 3rom either /ommon or personal property or separate properties o3  the de/edent ET TA1A2+E ESTATE Unmarried decedent

Real Properties Personal Properties +ross -state

P ::,:::,:::. ::,:::,:::. P ::,:::,:::.

rdinary 5edu/tions Funeral -:penses ther 5edu/tions Spe/ial 5edu/tions Family Eome Standard 5edu/tions Medi/al -:penses Net "a:able -state

P

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7

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 Marrie /eceent Separate

Real property Personal property Gross Estate

Orinar%   /euctions& Funeral -:penses ther 5edu/tions et Estate after  O( Special  /euctions Family Eome

Common P P :,:::,:::1:: :,:::,:::1:: :::,:::1   :::,:::1 :: :: P P x*xxx*xxx3xx  x*xxx*xxx3xx 

:::,:::1:: :::,:::1   :,:::,:::1 :: :: P P x*xxx*xxx3xx  x*xxx*xxx3xx 

Total

P ::,:::,:::1::   :::,:::1 :: P x*xxx*xxx3xx 

7

:,:::,:::1 ::8 P x*xxx*xxx3xx 

7

:::,:::1: :8 7 ',###,###1 ##8 7 :::,:::1: :8 Px*xxx*xxx3xx   7 :,:::,:::1: :8 Px*xxx*xxx3xx 

  Standard 5edu/tions   Medi/al -:penses et Estate Less Share o3 suriing spouse :H Taxa!le net estate ESTATE TA1 TA2+E: Plus x4

4

Driven for real excellence! 

TAX by Rex B. Banggaan, CPA, MBA

th

TAX – 6  Batch – HQ11-1

Northern CPAR: Taxation –  Estate Taxation

O/er

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ot O/er

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-:empt

of excess o/er  .

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Tax Credit for Estate Tax Paid to a )orei#n Countr%: /laimable only by indiidual whose ta:able estate /omprise o3 properties within and outside the Philippines 7/itizens and resident alien8 the dedu/tible ta: /redit shall be 01ic1e$er is lo0er  o3 the amounts as /omputed by the 3ollowing limits 7! and B8 similar to dedu/tible ta: /redit in in/ome ta:ation  A3 Total tax credit per forei#n countr%  "he dedu/tible amount per 3oreign /ountry shall be whiche'er is lower   between the a/tual estate ta: paid to the 3oreign /ountry and the amount representing what the net 3oreign estate on that /ountry bears to the total net estate multiplied by the Philippine estate ta:

"o illustrate

:

Net estate on a 3oreign /ountry Net world estate

 s1

Philippine estate ta: due

 !/tual amount paid 23 Total prorated tax credit for all forei#n countr% 

"o illustrate

"otal 3oreign net estate

:

Philippine estate ta:

Net world estate 2IR Reportin# and )ilin# Re,uirements:

Iritten Noti/e o3 5eath Filing o3 -state Return Payment o3 "a:

"a:

Extra5udicial Settlement % months a3ter death

D months a3ter death Jpon >ling o3 the return

 6udicial Settlement

% months a3ter the time the e:e/utor or administrator uali>es D months a3ter death Jpon >ling o3 the return

 7"ere to 0le. '1 !uthorized !gent Bandu/iary heir or legatee to the >dei/omissary d1 "he transmission 3rom the >rst heir, legatee, or donee in 3aor o3 another bene>/iary, in a//ordan/e with the desire o3 the prede/essor D1 ;1 ;n ta:able trans3ers, the alue to in/lude in gross estate is the 3air alue o3 the property at the time o3 death, any /onsideration gien by the /ounterparty is treated as an obligation dedu/tible to gross estate 6

Driven for real excellence! 

TAX by Rex B. Banggaan, CPA, MBA

th

TAX – 6  Batch – HQ11-1

Northern CPAR: Taxation –  Estate Taxation

;;1 ;n ta:able trans3ers, i3 the 3air alue at the time o3 death is lesser than the /onsideration gien, no alue is in/luded in gross estate ;;;1 ;n ta:able trans3ers, i3 at the date o3 trans3er the 3air alue is higher than the /onsideration re/eied, the 3air  alue at the time o3 death is in/luded in gross estate regardless o3 whether at the time o3 death the alue o3 the property is lower than the /onsideration gien Ihi/h is /orre/tK a1 ; only

b1 ; and ;; only

/1 ;; and ;;; only

d1 ;; only

(1 "he re/ipro/ity on e:emption o3 intangible properties lo/ated in the Philippines o3 non.resident aliens may apply on the 3ollowing /onditions, e:/ept when the 3oreign /ountry where the non.resident alien is a /itizen a1 do not hae an estate ta: law1 b1 has estate ta: only to residents or /itizens therein1 /1 has estate ta: only to properties o3 a /itizen thereon regardless o3 nature1 d1 has no in/ome ta: imposed on in/ome earned by the estate but imposes trans3er ta:es1 &1 -en i3 physi/ally e:isting at the time o3 death, the 3ollowing are not in/luded in gross estate, e:/eptK a1 Properties arising 3rom pro/eeds o3 a li3e insuran/e irreo/ably designated to the wi3e b1 Bene>ts re/eied 3rom +S;S /1 Bene>ts /laimed by the suriing spouse as arising 3rom +S;S poli/y but no adeuate do/uments /ould be presented in support thereo3  d1 Separate properties o3 the suriing spouse $1 A made the following transfers inter – vivos to the following: 2 C ( P P P Cost '##,### '##,### '##,### FM9, time o3 trans3er '4#,### '4#,### &#,### Consideration re/eied '##,### '##,### '##,### FM9, time o3 death o3 ! '%#,### (#,### '%#,### "he amount to be in/luded in the gross estate o3 ! is a1 P4'#,### b1 P'##,### /1 P'6#,###

E

P '##,### &#,### # $#,### d1 P''#,###

'#1"he gross estate o3 this de/edent shall be /omprised o3 properties situated in the Philippines only a1 Filipino residing in the Philippines? /1 Filipino residing in the JS? b1  !meri/an residing in the Philippines? d1 !meri/an residing in the JS1 ''1ne o3 the 3ollowing is not in/luded in the gross estate o3 a /itizen de/edent a1 Land situated outside the Philippines? /1 ;nestment in sto/< in a apanese /orporation? b1 Car situated within the Philippines? d1 Bene>ts re/eied 3rom group insuran/e1 '%1For estate ta: purposes, the rule o3 re/ipro/ity applies ;1 Ihen the de/edent is a non.resident alien? ;;1 Iith respe/t to intangible personal properties situated in the Philippines? a1 nly ; is /orre/t? /1 Both ; and ;; are /orre/t? b1 nly ;; is /orre/t? d1 Neither ; nor ;; are /orre/t1 '61ne o3 the 3ollowing is not an intangible personal property situated in the Philippines a1 Shares, obligations or bonds issued by any /orporation or so/iedad anonima organized or /onstituted in the Philippines in a//ordan/e with its laws? b1 Shares, obligations or bonds issued by any 3oreign /orporation &) o3 the business o3 whi/h is lo/ated in the Philippines? /1 Shares, obligations or bonds issued by any 3oreign /orporation i3 su/h shares, obligations or bonds hae a/uired business situs in the Philippines? d1 Shares, obligations or bonds issued by a non.resident 3oreign /orporation1 '41For estate ta: purposes, one o3 the 3ollowing is not an intangible personal property1 a1 !//ounts re/eiable? /1 Ban< deposit? 7

Driven for real excellence! 

TAX by Rex B. Banggaan, CPA, MBA

th

TAX – 6  Batch – HQ11-1

Northern CPAR: Taxation –  Estate Taxation

b1 ;nestment in sto/