B. Estate Tax 1.

Basic Principles Estate tax laws rest in their essence upon the principle that death of an individual is the generating source from which the taxing power takes its being, and that it is the power to transmit or the transmission from the dead to the living on which the tax is more immediately based. (Lorenzo v. Posadas, 64 Phil 353) 2. Definition A graduated tax imposed upon the privilege of the decedent to transmit property at death and is based on the entire net estate. Tax on the right to transmit property at death and on certain transfers which are made by the statute the equivalent of testamentary dispositions and is measured by the value of property at time of death 3. Nature It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. (Lorenzo v. Posadas, 64 Phil 353) 4. Purpose or object 1. 2. 3. 4. 5. 6. to tax the shifting of economic benefits and enjoyment of property from the dead to the living. Added income to the government Benefit received theory for services that the government renders in the distribution of the estate Privilege theory or state partnership not a right but a privilege, acquired with the protection of the state Ability to pay theory transfer assets and makes the transferee able to pay/contribute to the governmental income Redistribution of wealth theory receipt of inheritance is a contributing factor to the inequalities in wealth and income, mitigate the evils of inheritance in its original form

5. Time and Transfer of Properties Decedents interest is to its extent at the time of his death. (Sec 85(A), NIRC) Estate taxation is governed by the statute in force at the time of death of the decedent. Estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. (Sec 3, RR2-2003) TAXABLE TRANSFERS 1. Transfers Mortis Causa - Gratuitous transfers after death, either testate or intestate. 2. Transfers Inter Vivos Generally attract donors tax. However, certain transfers inter vivos are treated as testamentary dispositions and are accordingly included in the computation of the gross estate in order to arrive at the proper estate tax liability. a. Transfers in contemplation of death b. Transfer with retention or reservation of certain rights c. Revocable transfers d. Transfers of property arising under general power of appointment e. Transfers for insufficient consideration

6. Classification of Decedent The decedent may be classified into citizen, and resident alien and non-resident alien. Residence It refers to the permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that they disclose intent. (Corre v. Tan Corre, 100 Phil 321) It is, therefore, not necessarily the actual place of residence. The term residence and domicile are synonymous and are used interchangeably without distinction. (Collector v. Lara, 102 Phil 813; Velilla v. Posadas, 62 Phil 624). 7. Gross Estate vis--vis Net Estate

Gross Estate: determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. (Sec 85, NIRC) Net Estate: value of the estate after all deductions have been made against the gross estate; subject to the graduated tax rates. (Sec 6, RR 2-2003)

TAX RATES APPLICABLE (Sec 84, NIRC): If the net estate is: BUT NOT OVER OVER 200,000 200,000 500,000 500,000 2 million 2 million 5 million 5 million 10 million 10 million And Over 8. Determination of gross estate and net estate

TAX IS Exempt 0 15,000 135,000 465,000 1,215,000

PLUS 5% 8% 11% 15% 20%

OF THE EXCESS OVER 200,000 500,000 2 million 5 million 10 million

Citizen or Resident 1. Real property in the Philippines 2. Real property outside the Philippines 3. Tangible personal property in the Philippines 4. Tangible personal property outside the Philippines 5. Intangible personal property in the Philippines 6. Intangible personal property outside the Philippines Included Included Included Included Included Included

Non-resident Included Not Included Included Not Included Included, unless exempted on the basis of the principle of reciprocity Not Included

Reciprocity rule (Sec. 104, NIRC) There is reciprocity if the foreign country of which the decedent was a citizen and resident at the time of his death: did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or allowed a similar exemption from transfer tax in respect of intangible personal property owned by citizens of the Philippines not residing in that country [In sum, both states must exempt nonresidents (citizens of the other state) from transfer taxes in respect of intangible personal property.] For the reciprocity rule to apply, there must be TOTAL reciprocity. [For instance,] in the Philippines, both estate and inheritance taxes are imposed on the estate while in California only inheritance tax is imposed. The reciprocity rule may not be availed of. Reciprocity has to be total. (CIR v. Fisher, 110 Phil 686) Reciprocity in exemption does not require the foreign country to possess international personality in the traditional sense (i.e., compliance with the requisites of statehood). Thus, Tangier, Morroco (Collector v. Campos-Rueda, 42 SCRA 23) and California, a state in the American Union (Collector v. de Lara, 102 Phil 813) were held to be foreign countries within the meaning of Section 104. Collector v. Lara (102 Phil 813) When the owner of personal property, during his lifetime, extended his activities with respect to his interests so as to avail himself of the protection and benefits of the laws of the Philippines, so as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains . His property in the Philippines enjoys the protection of the government so that the right to collect the estate tax cannot be questioned. Intangible properties which are considered by law as situated in the Philippines o Franchise which must be exercised in the Philippines o Obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the

o o o

Philippines Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines Shares or rights in any partnership, business or industry established in the Philippines (Sec. 104)

9. Composition of Gross Estate (Sec 85, NIRC) The following properties and interest therein are included in the gross estate at the time of the decedents death: 1. As to resident (citizen or alien) or citizen (resident or non-resident) a. RP wherever situated b. Tangible PP wherever situated c. Intangible PP wherever situated 2. As to non-resident alien a. RP in the Philippines b. Tangible PP in the Philippines c. Intangible PP in the Philippines subject to rule of reciprocity in Section 104 NIRC (see above)

Revocable transfers and transfers for insufficient consideration shall be included. (Sec. 4, RR 2-2003) VALUATION OF THE GROSS ESTATE (Sec. 88, NIRC) GENERAL RULE: The properties comprising the gross estate shall be valued based on FAIR MARKET VALUE (FMV) as of the time of death. Real property FMV as determined by the Commissioner OR FMV as shown in the schedule of values fixed by the provincial and city assessors, whichever is HIGHER. Shares of Stock (Sec 5, RR 2-2003) Listed shares FMV is the arithmetic mean between the highest and lowest quotation at the date of death, OR the date nearest the date of death, if none is available on the date of death itself. Unlisted shares - COMMON shares are valued based on BOOK VALUE; while PREFERRED shares are valued at PAR VALUE. Note: in determining the book value, appraisal shares shall not be considered as well as the value assigned to preferred shares, if any. Right to usufruct, use or habitation, annuity - the probable life of the beneficiary in accordance with the latest basic standard mortality table is to be taken into account, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner. 10. Items to be included in gross estate Decedents gross estate (Sec. 85): 1. 2. Decedents interest at the time of death. Transfers in contemplation of death The transfers referred to those which the motivating factor or controlling motive is the thought of death, regardless of whether the transferor was near the possibility of death or not. (Sec 85B)

Transfer with retention or reservation of certain rights (Sec. 85B) It involves cases where the owner transfers his property during life but still retains the economic benefits the possession or enjoyment of the property, or the power to designate the persons who may exercise such rights. o Exception: bona fide sale for an adequate and full consideration. Illustration: X transfers his property to Y in naked ownership and to Z in usufruct throughout Zs lifetime subject to the condition that if Z predeceases X, the property shall return to X. If X dies during Zs life, the value of the reversionary interest of X at death is includible in his gross estate (see Articles 756-757 of the Civil Code).

The transfer is taxable as intended to take effect at or after death because the possibility of reversion to X makes Zs interest conditional as long as X lives. 3. Revocable Transfers Decedents transfer of any interest by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of power by the decedent ALONE or by the decedent IN CONJUNCTION WITH ANY OTHER person, to alter, amend, revoke, or terminate such transfer, OR where such power is relinquished in contemplation of the decedents death o Exception: bona fide sale for an adequate and full consideration. The power to alter, amend or revoke shall be considered to exist on the date of the decedents death EVEN THOUGH: the exercise of the power is subject to a precedent giving of notice, or the alteration, amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedents death notice has been given or the power has been exercised. o If notice has not been given or the power has not been exercised before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. Property passing under general power of appointment

4.

Gross estate shall include any property passed or transferred under a general power of appointment exercised by the decedent: by will, or by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death, or by deed under which he has retained (for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death): the possession or enjoyment of, or the right to the income from, the property, or the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom Exception: bona fide sale for an adequate and full consideration. Two Kinds of Appointment and their Effects: Kind of Nature Appointment DONEE has power to appoint any person he chooses who General shall possess or enjoy the property without restriction DONEE must appoint successor to the property Special only within a limited group or class of persons 5.

Tax Implications Makes appointed property, for all legal intents, the property of the DONEE (includible in his estate) Not includible in the gross estate of the DONEE when he dies

Effects DONEE holds the appointed property with all the attributes of ownership, under the concept of owner DONEE holds the appointed property in trust, or under the concept of trustee

Proceeds of life insurance Amount receivable by the estate of the deceased, executor or administrator under policies TAKEN OUT BY THE DECEDENT 1. upon his OWN LIFE (WON insured retained the power of revocation) 2. receivable by ANY BENEFICIARY (Except: designation of beneficiary is irrevocable) Prior interests Apply to transfers, trusts, estates, interests, rights, powers and relinquishment of powers whether made, created, arising, existing, exercised or relinquished BEFORE or AFTER effectivity of the code Transfers for insufficient consideration Transfers that are not bona fide sales of property for an adequate and full consideration in money or moneys worth.

6. 7.

If bona fide sale no value shall be included in the gross estate [Case A] If not a bona fide sale - the excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate. [Case B] If inter vivos transfer is proven fictitious/simulated total value of the property at the time of death included in the gross estate. [Case C] The transfer of property must fall under any of the following: transfer in contemplation of death; revocable transfer; property passing under a GPA; Otherwise the tax imposed is donors tax. Case A Case B Case C FMV, transfer 2,000 1,500 2,500 FMV, death 2,500 2,000 2,000 Consideration Received 2,000 800 0 Value Included in the 0 1,200 2,000 Gross Estate Capital of the surviving spouse NOT part of the gross estate of the deceased spouse

8.

11. Deductions from estate Resident or citizen decedent GROSS ESTATE all property at the time of death, wherever situated DEDUCTIONS 1. Ordinary Deductions a) Expenses, losses, indebtedness, taxes, etc. (ELIT) funeral expenses judicial expenses claims against the estate claims of the deceased against insolvents unpaid mortgage and debt taxes losses b) vanishing deductions c) transfers for public use 2. Special Deductions a) family home b) standard deduction c) medical expenses d) amounts received under R.A. 4917 3. Share in conjugal property Non-resident alien decedent GROSS ESTATE includes only that part of gross estate located in the Philippines DEDUCTIONS 1. Ordinary Deductions a) Expenses, losses, indebtedness, taxes, etc. (ELIT) funeral expenses judicial expenses claims against the estate claims of the deceased against insolvents unpaid mortgage and debt taxes losses b) vanishing deductions c) transfers for public use 2. Share in conjugal property NOTE: To compute for total allowable deductions of the first six items above, this formula is used (Sec 7(1), RR 22003): Gross Estate, Phils. Gross Estate, World X World expenses, losses, indebted-ness, taxes etc.

Note: No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the value at the time of the decedents death of that part of his gross estate NOT situated in the Philippines. (Section 86, NIRC, Sec 7, RR 2-2003) 1. Ordinary Deductions

a.

Expenses, Losses, Indebtedness and Taxes [ELIT] [fjc cult]

FUNERAL EXPENSES (86-A1) (max. P200K) Allowable deduction is whichever is lower of the actual funeral expenses (WON paid) up to the time of interment, or an amount equal to 5% of the gross estate, but in no case to exceed P200,000. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. These must be duly supported by receipts or invoices or other evidence to show that they were actually incurred. Note: The unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold is NOT allowed to be claimed as a deduction under claims against the estate (see 1(c) below). (Sec. 6(A) (1) of RR 02-2003) Examples of funeral expenses (RR 2-2003, Sec. 6-A1) o The MOURNING APPAREL of the surviving spouse and unmarried minor children of the deceased, bought and used on the occasion of the burial o EXPENSES for the deceaseds WAKE, including food and drinks o PUBLICATION CHARGES for death notices o TELECOMMUNICATIONS EXPENSES incurred in informing relatives of the deceased o Cost of BURIAL PLOT, TOMBSTONES, MONUMENT or MAUSOLEUM but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible o INTERMENT and/or CREMATION FEES and CHARGES o All other expenses incurred for the performance of the RITES and CEREMONIES incident to interment Expenses NOT deductible as funeral expenses o Expenses incurred AFTER INTERMENT, such as for prayers, masses, entertainment, or the like o Any portion of the funeral and burial expenses BORNE or DEFRAYED by RELATIVES and FRIENDS of the deceased Illustrations: o If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount that may be deducted is only P200,000; o If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted from the gross estate as CLAIMS AGAINST THE ESTATE. JUDICIAL EXPENSES OF TESTAMENTARY AND INTESTATE PROCEEDINGS (86-A1) o Allowable deductions are expenses incurred, in the inventory-taking of the assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs, DURING THE SETTLEMENT OF THE ESTATE BUT NOT BEYOND THE LAST DAY PRESCRIBED BY LAW, or the extension thereof, FOR THE FILING OF THE ESTATE TAX RETURN (RR 2-2003, Sec. 6-A2) Examples of judicial expenses o Fees of executor or administrator o Attorneys fees o Court fees o Accountants fees o Appraisers fees o Clerk hire o Costs of preserving and distributing the estate o Costs of storing or maintaining property of the estate o Brokerage fees for selling property of the estate

Case Law: Commissioner v. CA (328 SCRA 666) The notarial fee paid for the extrajudicial settlement is deductible since such settlement effected a distribution of the estate to the lawful heirs. Attorneys fees to be deductible from the gross estate must be essential to the collection of assets, payment of debts or the distribution of property to the persons entitled to it. CLAIMS AGAINST THE ESTATE (86-A1) Claims debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. May arise out of contract, tort or operation of law. (Sec 6-A3, RR 2-2003) Provided, at the time the indebtedness was incurred, the debt instrument was duly notarized and, if the loan was contracted within 3 years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan. (Sec 86-A1) Requisites for deductibility [PVN GF](RR 2-2003, Sec. 6-A3): 1) must be a PERSONAL OBLIGATION of the deceased existing at the time of his death (except unpaid funeral expenses and unpaid medical expenses, which are classified into their own separate categories) 2) liability must have been contracted in GOOD FAITH and for adequate and full consideration in money or moneys worth 3) the claim must be a debt or claim which is VALID IN LAW and ENFORCEABLE IN COURT 4) indebtedness NOT CONDONED by the creditor or the action to collect from the decedent must NOT HAVE PRESCRIBED. Dizon v. CTA (2008) [T]he term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to , and should be made the basis of, the determination of allowable, [and post-death developments, i.e. reduction or condonation through compromise agreements entered into by the Estate with its creditors, should not be considered]. CLAIMS AGAINST INSOLVENT PERSONS (86-A1) Deductible from the gross estate, provided that the value of the decedents interest in the claim is included in the value of the gross estate. UNPAID MORTGAGES, LOSSES AND TAXES (86-A1 and Sec. 6-A5, RR 2-2003) UNPAID MORTGAGES Deductible from gross estate, provided: That the value of the decedents interest in the property encumbered by such mortgage or indebtedness is included in the value of the gross estate That the deduction shall be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or moneys worth, if such unpaid mortgages or indebtedness were founded upon a promise or an agreement. (Sec. 6-A5(a), RR 2-2003) Note: verification must be made as to who was the beneficiary of the loan proceeds. If loan is merely for the accommodation where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to its recognition as a receivable, such unpaid mortgage payable shall NOT be allowed as a deduction from the gross estate. (Sec. 6-A5, RR 2-2003) TAXES Deductible from the gross estate IF: They have accrued as of the death of the decedent They were unpaid as of the time of death Note: This deduction DOES NOT include income tax upon income received after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate. (Sec. 6-A5(b), RR 2-2003) LOSSES deductible from the gross estate if ALL of the following conditions are satisfied: The losses were INCURRED DURING the SETTLEMENT of the estate arose from FIRES, STORMS, SHIPWRECK or OTHER CASUALTIES, or from ROBBERY, THEFT or EMBEZZLEMENT are NOT COMPENSATED BY INSURANCE or otherwise are not claimed as a deduction for income tax purposes in an income tax return

were incurred NOT LATER THAN THE LAST DAY FOR PAYMENT OF THE ESTATE TAX (6 months) (Sec. 6-A5(c), RR 2-2003)

b. Property Previously Taxed (Vanishing Deductions) (86-A2) Deduction allowed on the property left behind by the decedent, which he had acquired previously, by inheritance or donation. Rationale: As a previous transfer tax had already been imposed on the property, either the estate tax (if property inherited) or the donors tax (if property donated), to minimize the effects of a double tax on the same property within a short period of time, i.e. five (5) years, the law allows a deduction to be claimed on the said property. Example: Mr. A died in December 2003. In March 2003, Mr. B (Mr. As father) died and left Mr. A some properties as inheritance. May vanishing deductions be claimed as deductions in computing Mr. As net taxable estate? YES, vanishing deductions shall be allowed if the following conditions are met. REQUISITES FOR DEDUCTIBILITY: [PINID] 1) Death the present decedent (Mr. A) died within five years from the receipt of the property from a prior decedent (Mr. B) or donor; 2) Identity of the property The property with respect to which deduction is sought can be identified as the one received from the prior decedent or the donor, or as the property acquired in exchange for the original property so received. 3) Inclusion of the property The property must have formed part of the gross estate situated in the Philippines of the prior decedent, or the total amount of the gifts of the donor 4) Previous taxation of the property the donor's tax on the gift or estate tax on the prior succession (Mr. Bs succession) was finally determined and paid 5) No vanishing deduction on the property was allowed to the estate of the prior decedent . (Illustration of how this requirement may NOT be met: In the example above, if Mr. B received the same properties as a donation from Mr. C in July 2002, a vanishing deduction on the properties was claimed with respect to Mr. Bs estate. Thus, no more vanishing deduction may be claimed by Mr. As estate) Computation of vanishing deduction Using the facts above, assume that Mr. A inherited a car and a piece of land from his father Mr. B. At the time of Mr. Bs death, the FMV of the car was P120,000 and the FMV of the land was P800,000. At the time Mr. A inherited the land, it was subject to a mortgage of P80,000. Mr. A paid P70,000 of the mortgage during his lifetime (leaving a balance of P10,000). The FMV of the properties at the time of Mr. As death were P850,000 for the land and P70,000 for the car. Mr. As gross estate amounted to P3,200,000 while total deductions (excluding medical expenses, standard deductions, family home, including the above unpaid mortgage of P70,000) amounted to P600,000. 1) First, GET THE VALUE OF THE PROPERTY PREVIOUSLY TAXED (PPT): compare the values of the property at the time of the prior decedents death and at the time of the present decedents death. The lower amount shall be the initial basis. (a) in the example, the value of the PPT shall be P800,000 for the land and P70,000 for the car, for a total of P870,000 NOTE: The value used on the PPT is significant only for purposes of computing the amount of vanishing deduction. The value included in the decedents gross estate is ALWAYS the fair market value at the time of his death. Then, THE PPT VALUE SHALL BE REDUCED BY ANY PAYMENT MADE BY THE PRESENT DECEDENT ON ANY MORTGAGE or lien on the property (a) Mr. A paid P70,000 of the mortgage. Thus, P870,000 less 70,000 is P800,000 (b) The P800,000 is known as the INITIAL BASIS The INITIAL BASIS shall be FURTHER REDUCED by the SECOND DEDUCTION, an amount equal to:

2)

3)

(INITIAL BASIS / Total amount of Gross Estate) X ordinary expenses or deductions* *ordinary, thus excluding family home, medical expenses, standard deduction and amounts received under RA 4917 (a) 800,000/3,200,0008 x 600,000 equals 150,000. This will be deducted from the initial basis of P800,000, which gives a balance of P650,000 (b) The 650,000 is known as the FINAL BASIS. 4) Finally, the remaining balance shall be multiplied by the corresponding percentage: % If received by inheritance or gift: 100% within one (1) year prior to the death of the present decedent 80% More than one year but not more than two years prior to the death of the decedent 60% More than two years but not more than three years prior to the death of the decedent 40% More than three years but not more than four years prior to the death of the decedent 20% More than four years but not more than five years prior to the death of the decedent (a) Since Mr. A received the inheritance in March 2003 (within 1 year from his death in December 2003), the balance of P650,000 shall be multiplied by 100%. Thus, the allowable vanishing deduction is P650,000

FORMULA: 1) VALUE TAKEN FOR PPT (always the lower values) LESS: MORTGAGE (OR LIEN) PAID IF ANY (1ST deduction) 2) INITIAL BASIS (IB) LESS: 2ND deduction = (IB/GE) x Ordinary Deductions 3) FINAL BASIS X RATES IN Sec 86A-2 4) VANISHING DEDUCTION in an Estate Tax Return, this is deducted from the Exclusive Properties of the decedent that form part of the gross estate. c. Transfers for Public Purpose The whole amount of all the BEQUESTS, LEGACIES, DEVISES or TRANSFERS to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes shall be deductible from gross estate, provided such amount or value had been included in the gross estate. (Sec 86-A3) Special Deductions (FSMA) FAMILY HOME (maximum of P1M) It is the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. It is deemed constituted on the house and lot from the time it is actually occupied as the family residence and considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) Temporary absence from the constituted family home due to travel or studies or work abroad, etc. does not interrupt actual occupancy. The family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. (RR 2-2003, Sec. 6D) It must be part of the ACP or CPG, or the exclusive properties of either spouse. It may also be constituted by an unmarried head of a family on his or her own property. (RR 2-2003, Sec. 6D citing Art 156, FC) For purposes of availing this deduction, a person may constitute only one family home. (RR 2-2003, Sec. 6D citing Art 161, FC) Requisites for Deductibility (RR 2-2003, Sec. 6D(b)) 1) The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the barangay captain of the locality. 2) The total value of the family home must be included as part of the gross estate of the decedent 3) Allowable deduction must be in an amount equivalent to the current FMV of the family home as declared or included in the gross estate but in no case shall the deduction exceed P1,000,000

2. .

STANDARD DEDUCTION (86-A5, Sec 6E, RR 2-2003) (P1M) An amount equivalent to One million pesos (P1,000,000) shall be deducted from the gross estate without need of substantiation.

MEDICAL EXPENSES (86-A6, Sec 6F, RR 2-2003) (max. of P500K) All medical expenses (cost of medicine, hospital bills, doctors fees, etc.) incurred (whether paid or unpaid). Requisites for Deductibility (Sec 6F, RR 2-2003): 1. The expenses were incurred by the decedent within one (1) year prior to his death 2. The expenses are duly substantiated with receipts PROVIDED, that in no case shall the deductible medical expenses exceed Five Hundred Thousand Pesos (P500,000). Note: Any amount of medical expenses incurred within one year from death in excess of P500,000 CANNOT be claimed as a deduction under Claims against the estate. (RR 2-2003, Sec. 6-F)

AMOUNTS RECEIVED BY HEIRS UNDER RA 4917 (86-A7) Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent-employee in accordance with RA No. 4917 (this law provides that retirement benefits of private employees shall not be subject to attachment, levy execution or any tax), PROVIDED that such amount is included in the gross estate of the decedent. Net share of the surviving spouse in the conjugal partnership or community property (Sec 86C, 6H, RR 22003) After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedents interest in the estate is taxed.

3.

12. Exclusions from estate Excluded Properties 1. CAPITAL of surviving spouse (Sec 85H) 2. PROCEEDS of: a. Life insurance policy taken out by the decedent upon his own life, when beneficiary is OTHER THAN the estate, executor or administrator, and designation is IRREVOCABLE (Sec. 85E) NOTE: The presumption is that the designation is REVOCABLE. b. Group life insurance policy taken out by a company for its employees, (law only speaks of policies taken out by the decedent upon his own life) Life insurance policies-issued by the GSIS to government officials or employees, as they are exempt by law from taxes of all kinds (PD 1146, as amended) Thus, the proceeds of insurance under policies taken out by the decedent upon his life shall constitute part of the gross estate if the beneficiary is: a. The estate of the decedent, his executor or administrator, or b. A third person (i.e., a person other than the estate, executor or administrator), AND the designation of the beneficiary is revocable.

c.

3. 4. 5.

Death benefits received from the SSS, accruing by reason of death (RA 1161, as amended) Amounts received from the Philippine and the U.S. Governments from the damages suffered during the last war (RA 227) Benefits received by beneficiaries residing in the Philippines under laws administered by the U.S. Veterans Administration (RA 360)

6. 7. 8. 9.

Properties held in Trust by the decedent Transfers by way of bona fide Sales (Sec. 85B and C, NIRC) Separate or exclusive property of the surviving spouse is not deemed part of the gross estate of the decedent spouse. (Sec. 85, NIRC) Net estates which are not in excess of P200,000 are exempt from estate tax. (Sec. 84, NIRC)

13. Tax credit for estate taxes paid in a foreign country Tax Credit It is a remedy against international double taxation. To minimize the onerous effect of taxing the same property twice, tax credit against Philippine estate tax is allowed for estate taxes paid to foreign countries. Who may avail of tax credit? Only the estate of a decedent who was a citizen or a resident of the Philippines at the time of his death can claim tax credit for any estate tax paid to a foreign country. Amount Allowable as tax credit (Sec 86E) General Rule: The estate tax imposed by the Philippines shall be credited with the amounts of any estate tax imposed by the authority of a foreign country. Limitations: a. The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated within such country taxable under the NIRC bears to his entire net estate; (PER COUNTRY BASIS) and b. The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated outside the Philippines taxable under the NIRC bears to his entire net estate. (OVERALL BASIS) Illustration: Assume: Net Estate Philippines (reduced by all allowable deductions, except standard deduction) Country G Net Estate Country H Net Estate Tax paid/incurred: Philippines Country G Country H

P1,050,000 300,000 150,000 15,000 5,000 1,400 The

(b) Net taxable estate is P500,000 (1,050,000 + 300,000 + 150,000 1,000,000 standard deduction). Philippine estate tax on P500,000 is P15,000 Solution Limitation A: (c) To get tax credit per country under Limitation A, this formula is followed: Net Estate in a Particular Country Net Estate Worldwide

Phil. Estate Tax

Tax Credit

(d) The result after applying the formula above is compared to the tax actually paid for each foreign country . (e) The lower of the two amounts for each foreign country will be added to get the total tax credit allowed under

Limitation A. Amount Allowed (whichever is lower) Country G (300/1500 x 15,000) Actually paid to Country G Country H (150/1500 x 15,000) Actually paid to Country H Tax credit allowed under Limitation A Solution Limitation B: Net Estate in all Foreign Countries Net Estate Worldwide 3,000 5,000 1,500 1,400 P 4,400 1,400 3,000

Phil. Estate Tax

Tax Credit

The result after applying the formula above is compared to the tax actually paid in total to foreign countries. The lower of the two amounts will be added to get the total tax credit allowed under Limitation B. Amount Allowed (Lower)

450/1500 x 15,000 Total foreign income taxes paid Tax credit allowed under Limitation B

4,500 6,400 P 4,500

Compare the tax credit allowed under Limitation A and Limitation B. The lower of the two amounts is the final allowable tax credit. In this case, the amount computed under Limitation A (4,400) is lower, thus it becomes the final allowable tax credit. If there is only one foreign country involved, both Limitations will yield the same answer. To get the tax credit allowable, use the formula in Limitation A. The resulting amount will be compared to the actual tax paid to the foreign country. The lower amount will be the final allowable tax credit. (Source: Reyes, Income Tax Law and Accounting) 14. Exemption from certain acquisitions and transmissions Exempt Transfers [MTTB] (Sec. 87) a. Merger of the usufruct in the owner of the naked title b. Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fideicommissary c. Transmission from the first heirs, legatees or donees in favor of another beneficiary in accordance with the desire of the testator d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the income of which inures to the benefit of any individual, provided that not more than 30% of the said bequests, devises, legacies or transfers shall be used for administrative purposes 15. Filing of notice of death A written Notice of Death must be given to the BIR: within two (2) months after the death of the decedent or within a period after the executor or administrator or executor qualifies as such. In all cases of transfers subject to tax or where, though exempt from tax, the gross value of the estate exceeds P20,000. (Sec. 89). 16. Estate Tax Return 1. When required (Sec 90A) a. When the estate is subject to estate tax, OR b. When, though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos

(P200,000), OR c. Regardless of the gross value of the estate, when the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee.

2. Contents (Sec 90A) The executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth: a. The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; b. The deductions allowed from gross estate in determining the net taxable estate; and c. Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes. d. For estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) - there must be a statement duly certified to by a Certified Public Accountant containing the following: Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; Itemized deductions from gross estate allowed in Section 86; and The amount of tax due whether paid or still due and outstanding. 2. When filed (Sec 90B) General Rule: Filed within six (6) months from the decedent's death. Exception: The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return (Sec 90C) 3. Where filed (Sec 90D) Except in cases where the Commissioner otherwise permits, the return shall be filed with: () an authorized agent bank (AAB), () or Revenue District Officer (RDO), () Collection Officer, or () duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death, or () if there be no legal residence in the Philippines, with the Office of the Commissioner. Payment of Estate Tax (Sec 91) 1. When paid (Sec 91A) At the time the return is filed by the executor, administrator or the heirs. Note: executor or administrator means the executor or administrator of the decedent, or if there is none appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent. (Sec 91C) 2. Extension of Payment (Sec 91B) The Commissioner may allow an extension of payment, if he finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs: () extension not to exceed five (5) years, in case the estate is settled judicially, () or two (2) years in case the estate is settled extrajudicially. Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If extension granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a BOND in such amount, not exceeding DOUBLE the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.

3.

Effects of granting an extension Payment of the amount in respect of which the extension is granted on or before the date of the expiration of the period of the extension Suspension of the running of statute of limitations for deficiency assessment for the period of any extension Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to interest but not to surcharge.

Q: Can estate tax be paid in installments? Yes. In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid. (Sec 9F, RR 2-2003) Q: Who are liable for the payment of estate taxes? (Sec 91C) Primarily, the estate, through the executor or administrator. Payment shall be made before the delivery of the distributive share in the inheritance to any heir or beneficiary. If there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining properties/share in the inheritance to the heir or beneficiary. Subsidiarily, heirs or beneficiaries, for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance. Marcos II v. Court of Appeals (1997): Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent, xxx in proportion to their share in the inheritance C. Donors tax 1. Basic Principles The donors tax is imposed on donations inter vivos or those made between living persons to take effect during the lifetime of the donor. It supplements the estate tax by preventing the avoidance of the latter through the device of donating the property during the lifetime of the deceased. It shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee; it is completed by delivery, either actually or constructively, of the donated property, to the donee. Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donors tax. (Sec 11, RR 22003) 2. Definition A donors tax is levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift. (Sec. 98A) It shall 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. 98B) 3. Nature Donors tax is not a property tax but a tax imposed on the transfer of property by way of gift inter vivos. (Sec 11, RR 2-2003, citing Lladoc v CIR (1965)) 4. Purpose or object To supplement estate tax; To prevent avoidance of income tax through the device of splitting income among numerous donees, who are usually members of a family or into many trusts, with the donor thereby escaping the effect of the progressive rates of income tax. 5. Requisites of valid donation A donation is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in favor

of another (donee) who accepts it. (Art. 725, NCC) In order that the donation of an immovable may be valid, it must be made in a public document specifying therein the property donated. The acceptance may be made in the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. (Sec 11, RR 2-2003)

The requisites of a valid donation are: 1. The donor must have CAPACITY (Art 735, CC) at time of the making of donation (Art. 737, CC) 2. There must be an INTENT TO DONATE 3. The donee must ACCEPT the donation A gift that is incomplete because of reserved powers, becomes complete when either: (a) the donor renounces the power OR (b) his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other than because of the donors death. (Sec 11, RR 2-2003) Note: Renunciation by a surviving spouse of his/her share in the CPG or ACP after the dissolution of marriage in favor of the heirs or any other person is SUBJECT to donors tax. IF: general renunciation by ANY heir, NOT subject to donors tax UNLESS it is specifically and categorically done in favor of IDENTIFIED heirs to the exclusion of other co-heirs. (Sec 11, RR 2-2003) 6. Transfers which may be constituted as donation a. Sale/exchange/transfer of property for insufficient consideration Where property, other than real property that has been subjected to the final capital gains tax, is transferred for less than an adequate and full consideration in money or moneys worth, then the amount by which the FMV of the property at the time of the execution of the Contract of Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec 11, RR 2-2003) b. Condonation/remission of debt where the debtor did not render service in favor of the creditor However, real property considered capital assets under the Tax Code are excepted from this rule. (Sec 100 in relation to Sec 24(d)) Under Section 24(d), the fair market value itself, if higher than the gross selling price, is the base for computing the capital gains tax imposed upon the sale of such capital assets. Thus, what the seller avoids in the payment of the donors tax, it pays for in the capital gains tax. 7. Transfer for Less than Adequate and Full Consideration Where property, other than real property under Sec. 24(D), is transferred for less than an adequate and full consideration in money or moneys worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec 100) 8. Classification of Donor (Sec 98A) 1. 2. Citizens or Residents of the Philippines all properties located not only within the Philippines but also in foreign countries. Nonresident Alien all real and tangible properties within the Philippines, and intangible personal property, unless there is reciprocity, in which case it is not taxable

Q: What are the intangible properties which are considered by law as situated in the Philippines? (Sec 104) 1. Franchise which must be exercised in the Philippines. 2. Obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines. 3. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines. 4. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines. 5. Shares or rights in any partnership, business or industry established in the Philippines.

Rule on Reciprocity (Sec 104) There is reciprocity if the foreign country of which the decedent was a citizen and resident at the time of his death: 1. Did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or 2. Allowed a similar exemption from transfer tax in respect of intangible personal property owned by citizens of the Philippines not residing in that country.

This rule applies to the transmission by gift of intangible personal property located or with a situs within the Philippines of a nonresident alien. 9. Determination of gross gift (Sec 98) Gifts of real property and personal property wherever situated belonging to the donor who is either a resident or citizen at the time of the donation; and Gifts of real and tangible personal property situated in the Philippines, and intangible personal property with a situs in the Philippines unless exempted on the basis of reciprocity, belonging to the donor who is a non-resident alien at the time of the donation

10. Composition of Gross Gift Gross gift shall pertain to all donations inter vivos: (1) Whether the transfer is in trust or otherwise; (2) Whether the gift is direct or indirect; (3) Whether the property is real or personal, tangible or intangible. (Sec 98B) Resident or Citizen Real property in the Philippines Tangible or Intangible Personal Properties (Within or without the Philippines) Non resident Alien Real Property in the Philippines Tangible or Intangible Personal Properties (Within the Philippines) Except: Reciprocity (Sec 104)

11. Valuation of gifts made in property (Sec 102) If the gift is made in property, the fair market value at that time will be considered the amount of gift. Real Property taxable base = FMV as determined by the Commissioner of BIR (Zonal Value) or FMV as shown in the latest schedule of values of the provincial and city assessor (Market Value per Tax Declaration), whichever is higher. If there is no zonal value, the taxable base is the FMV that appears in the latest tax declaration. (Sec 88B)

Improvement Value of improvement is the construction cost per building permit and/or occupancy permit plus 10% per year after year of construction, or the FMV per latest tax declaration.

How to Compute for Donors Tax? This general formula shall be followed: Gross gifts made Less: Deductions from the gross gifts Net gifts made Multiplied by applicable rate Donors tax on the net gifts

If there were several gifts made during the year, this formula is followed: Gross gifts made on this date Less: Deductions from the gross gifts Net gifts made on this date Add: all prior net gifts during the year Aggregate net gifts Multiplied by applicable rate Donors tax on the aggregate net gifts Less: donors tax paid on prior net gifts Donors tax due on the net gifts to date TAX RATES APPLICABLE The applicable donors tax rate is dependent upon the relationship between the donor and the donee. 1. If the donee is a stranger to the donor, the tax rate is equivalent to 30 % of the net gifts. A stranger for purposes of the donors tax a. a person who is not a brother, sister (whether by whole or half-blood), spouse, ancestor or lineal descendant, or b. a person who is not a relative by consanguinity in the collateral line within the fourth degree of relationship. (Sec. 99(B)) Note that donations made between business organizations and those made between an individual and a business organization shall be considered as donations made to a stranger. (Sec 10B, RR 2-2003) 2. If the donee is not a stranger to the donor , the tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year (Sec 99A): But not Over 100,000 200,000 500,000 1M 3M 5M 10M Tax Is Exempt 0 2,000 14,000 44,000 204,000 404,000 1,004,000 Plus Of the Excess Over

Over 0 100,000 200,000 500,000 1M 3M 5M 10M

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

100,000 200,000 500,000 1M 3M 5M 10M

Note: A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, a donation to him shall not be considered as a donation made to a stranger. (Sec 10B, RR 2-2003) 12. Tax credit for donors taxes paid in a foreign country (Sec 101C) A situation may arise when the property given as a gift is located in a foreign country and the donor may be subject to donors tax twice on the same property: first, by the Philippine government and second, by the foreign government where the property is situated. The remedy of claiming a tax credit is, therefore, aimed at minimizing the burdensome effect of double taxation by allowing the taxpayer to deduct his foreign tax from his Philippine tax, subject to the limitations provided by law.

Who may claim tax credit? Tax credit for donors tax may be claimed only by a resident citizen, non-resident citizen and resident alien. Q: What are the limitations on the tax credit?

1. NET GIFT (foreign country) ENTIRE NET GIFTS 2. NET GIFT(all foreign countries) ENTIRE NET GIFTS

PHIL TAX

DONORS

PHIL DONORS TAX

Note: The computation of the donors tax credit is the same as the computation for estate tax credit. 13. Exemptions of gifts from donors tax (Sec 101) In the case of gifts made by a RESIDENT (Sec 101A): 1. Dowries or donations made: a. On account of marriage b. Before its celebration or within one year thereafter c. By parents to each of their legitimate, recognized natural, or adopted children d. To the extent of the first P10,000. e. However, this exemption may not be availed of by a non-resident not a citizen of the Philippines. Can both parents making a donation to a child in consideration of marriage avail of the P10,000 deduction? Yes. If both spouses made the gift, then the gift is taxable one-half to each donor spouse. Separate donors tax returns must be filed; husband and wife are considered as separate and distinct taxpayers for purposes of donors tax. (Section 12, RR 2-2003) However, where there is failure to prove that the donation was actually made by both spouses, the donation is taxable as an exclusive act of the husband (Tang Ho v. BTA, 97 Phil 890), without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the provisions of the Civil Code and the Family Code. (Section 12, supra) 2. 3. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization, Provided not more than 30% of said gifts will be used by such donee for administration purposes.

In the case of gifts made by a NONRESIDENT (Sec 101B): 1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government 2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes

Note: Donations made to entities exempted under special laws, e.g.: o Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines o Development Academy of the Philippines o Integrated Bar of the Philippines o International Rice Research Institute o National Museum o National Library o National Social Action Council o Ramon Magsaysay Foundation o Philippine Inventors Commission o Philippine American Cultural Foundation o Task Force on Human Settlement on the donation of equipment, materials and services 14. Persons liable Every person, whether natural or juridical, resident or non-resident, who transfers or causes to transfer

property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. (Sec 98) Donors Tax Return (Sec 103) A. Contents of the Donors Tax Return, which shall be made under oath, in duplicate (Sec 103A): 1. Each gift made during the calendar year which is to be included in computing net gifts; 2. The deductions claimed and allowable; 3. Any previous net gifts made during the same calendar year; 4. The name of the donee; 5. Relationship of the donor to the donee; 6. Such further information as the Commissioner may require. When Filed (Sec 103B) Filed within thirty (30) days after the date the gift is made or completed. The tax due thereon shall be paid at the same time that the return is filed. Where Filed and Paid (Sec 103B) Unless the Commissioner otherwise permits, it shall be filed and the tax paid to: a. An authorized agent bank b. The Revenue District Officer c. Revenue Collection Officer or d. Duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer, or e. If there be no legal residence in the Philippines, with the Office of the Commissioner. In the case of gifts made by a non-resident, the return may be filed with: a. The Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or b. Directly with the Office of the Commissioner.

B.

C.

15. Tax Basis The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar. (Sec. 99) Net Gifts The net economic benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is measured by deducting from the fair market value of the property the amount of the mortgage assumed. (Section 11, RR 2-2003) ILLUSTRATION 1. P100,000 donation to son by parents on account of marriage: Husband Net Taxable Gift: P50,000 10,000 = P40,000 Tax Due: None, since P40,000 is below P100,000

2.

Wife same as above P100,000 donation to son and daughter-in-law by parents on account of marriage: Husband Gift pertaining to the son o Net Taxable Gift: P25,000 10,000 = P15,000 o Tax Due: None, since P15,000 is below the P100,000 threshold

Gift pertaining to the daughter-in-law o Net Taxable Gift: P25,000 o Tax Due: P25,000 x 30% = P7,500

Wife same as above Donations to donees not considered strangers for tax purposes were made on: P 2,000,000 P 1,000,000 P 500,000 After the second donation January Donation - P2,000,000 March Donation - 1,000,000 Total P3,000,000 P 204,000 After the third donation January Donation - P2,000,000 March Donation - 1,000,000 August Donation 500,000 Total P3,500,000 P254,000

January 30, 2002 March 30, 2002 August 15, 2002

Net Taxable Gift

After the first donation 2,000,000

Corresponding Donors Tax (refer to schedule) Tax Due / Payable

124,000

124,000

Donors Tax P 204,000 Less: Tax Previously Paid 124,000 Tax Due P80,000

Donors Tax P 254,000 Less: Tax Previously paid (124k+80k) 204,000 Tax Due P50,000