Module 2 Estate Tax
Module 2 Estate Tax
Module 2 Estate Tax
1) Citizen ☺ ☺ ☺ ☺ ☺ ☺
2) Resident Alien ☺ ☺ ☺ ☺ ☺ ☺
3) Non-resident ☺ ☺ ☺
Alien
(if there is
reciprocity)
Intangible personal property means incorporeal property which do not have any physical form,
but represents rights and privileges. Examples include bank deposits, trademarks, shares of stock,
patents, copyrights, bonds, notes, interest in a partnership, etc.
1) Properties owned by the decedent and physically present in his estate at the time of death;
3) Taxable Transfers – made during lifetime, but are in the nature of testamentary dispositions
Ex. Donation mortis causa – donation which takes effect upon the death of the donor,
and therefore partakes of the nature of a testamentary disposition.
b) Revocable transfers;
The transferor reserves the power to alter, amend, revoke, or terminate the enjoyment of
the property by the transferee, or where such power is relinquished in contemplation of
the decedent’s death.
- Whether or not such power is exercised during lifetime. If not exercised during lifetime,
it is considered exercised at the time of death.
c) Transfer with retention or reservation of certain rights over the income or enjoyment
of the property transferred;
- Transferor reserves his right to the income of the property until his death. - Transferor
reserves his right to the possession or enjoyment of the property until his death.
In all the taxable transfers above, if the transfer is a bona fide sale for adequate and full
consideration in money or money’s worth, no value (of the property transferred) shall be
included in the gross estate.
However:
1) If the transfer is not a bona fide sale for an adequate and full consideration in money or
money’s worth, there shall be included in the gross estate the excess of the FMV of the
property at the time of death over the value of the consideration received by the
decedent;
Included in gross estate = FMV of property at time of death – Consideration received
2) If transfer is fictitious, the total value of the property at time of death shall be included
in the gross estate of the decedent.
Proceeds of life insurance taken out by the decedent upon his own life shall be included in
his gross estate when:
1) His estate, his executor or administrator is the beneficiary; whether nor not the
designation of the beneficiary is revocable; or
2) The beneficiary is any other person, but the decedent retains the power to revoke the
designation.
1) Beneficiary is other than the estate, his executor or administrator, and the designation
is irrevocable;
2) Proceeds of a group insurance policy;
3) Benefits from the GSIS, SSS, accruing by reason of death.
Note: Exclusive property of the surviving spouse is EXCLUDED from the decedent’s
gross estate.
PROPERTIES OF SPOUSES
- the extent of the gross estate of the decedent shall depend upon the property relations
between the decedent and his/her spouse.
Property Regimes:
The spouses may, in a pre-nuptial agreement (marriage settlement), agree upon the regime that
shall govern their property relations.
However, in the absence of a marriage settlement, the property relations shall be governed
by: a) the CPG for those married before August, 3, 1988; or
b) the ACP for those married on or after August 3, 1988.
Conjugal Properties
1) Properties acquired by onerous title using the common funds (even if the
property is only for one of the spouses);
2) Properties obtained from the labor or work of the spouses during marriage;
5) Fruits (natural or civil), and income of the exclusive properties of each spouse;
Community Properties
1) ALL properties owned by the spouses at the time of the marriage (except
(4) above).
2) ALL properties acquired thereafter.
3) Fruits and income of community properties.
(a) Merger of the usufruct in the owner of the naked title to the property;
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor;
Note: In the three (3) cases, there is actually one transfer involved. Such transfers were
already subjected to estate tax, and taxing these would amount to double taxation.
(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,
however, that not more than 30% of the said bequests, devices, legacies, or transfers shall
be used by such institutions for administration purposes.
(e) Proceeds of life insurance and benefits received by members of the Government Service
Insurance System (“GSIS”);2
(f) Benefits received by members from the Social Security System by reason of death;3 (g)
Amounts received from the Philippine and United States governments for war damages;4 (h)
(i) Retirement benefits of employees of private firms from private pension plans approved by
the BIR;
(j) Intangible personal property located in the Philippines of a non-resident alien decedent
under the principle of reciprocity;6and
(k) Personal Equity and Retirement Account (“PERA”) assets shall not be considered assets
of the Contributor for purposes of estate taxes.7
(l) Proceeds of life insurance when the beneficiary is not the estate, the executor, or the
administrator, and the designation is irrevocable.
(m) Bank deposit in the name of the decedent on which the 6% estate tax has been withheld
and remitted by the bank to the BIR upon withdrawal by the heirs.
(n) In case of death of a health worker, public or private, who contracted COVID-19 in the
line of duty, the National Government, upon submission of the required documents, shall provide
the amount of One Million Pesos (₱1,000,000) to the heirs of the deceased health worker. Said
amount shall not be included in the gross estate of the decedent subject to estate tax. Provided, the
amount is given or to be given from February 1, 2020 and during the state of national emergency
due to COVID-19 as declared by the President.
Usufruct, use, Value shall be based on the probable life of the beneficiary in
habitation, annuity accordance with the latest Basic Standard Mortality Table
approved by the Department of Finance
Real Property FMV which is the higher of the zonal value or the assessor’s
value
Stocks listed in the Average of the lowest and highest quotes on the valuation date
stock exchange (date of death) or day nearest to the valuation date.
Stocks not listed in For common shares: Book value on the valuation date (date of
any local exchange death), or on the date nearest the valuation date.
Notes; accounts FMV is the discounted amount of the unpaid principal plus
receivable interest.
Units of participation FMV is the bid price on the date of death or nearest the date of
in any association, death published in any newspaper or publication of general
recreation, or circulation.
amusement club (also
called
proprietary shares)
Cash in bank in local The peso value of the balance at the date of death.
or foreign currency
I. ORDINARY DEDUCTIONS
A) CLUT (Claims, Losses, Unpaid Mortgages, Taxes, etc.)
1) Claims against the estate – consist of the bona fide unpaid personal obligations of the
decedent of a pecuniary nature. These can arise from contract, tort, or by operation of
law. These must be incurred in good faith by the decedent during his lifetime, and can
be enforced11 against the estate by his creditors.
These include personal obligations of the decedent at the time of his death except
unpaid obligations incurred incidental to his death such as funeral or medical
expenses.
(A)If the claim arises from the purchase of goods or services by the decedent, the
following must be submitted:
1) Documents evidencing the purchase (invoices, receipts, statements of
accounts);
2) Creditor’s certification as to the unpaid balance of the debt, including
interest; and
3) Certified true copy of the latest audited balance sheet of the creditor
showing the unpaid balance of the decedent.
(B) If the claim is in the form of a loan, the following requirements must be
complied with:
1) the instrument must be notarized except if it is not the business practice
of the financial institution-lender to notarize such instruments;
2) notarized certification from the creditor as to the unpaid balance of the
debt, inclusive of interest;
3) proof of financial capacity of the creditor to lend the amount at the time
the loan was granted;
4) if the loan was contracted within 3 years prior to the death of the
decedent, a statement under oath executed by the
administrator/executor
of the estate stating the disposition of the proceeds of the loan.
3) Unpaid mortgages – the unpaid mortgage or indebtedness is deductible from the gross
estate provided that the decedent’s interest in the property, gross of the mortgage, is
included in the gross estate.
- if the loan is an accommodation loan where the loan proceeds went to another person,
the value of the unpaid loan must be included in the gross estate as a receivable.
1) Transfers made to the government or any political subdivision for public purposes; or
(a) The present decedent must have acquired the property by inheritance or donation
within five (5) years prior to his death;
(b) The property acquired formed a part of the gross estate of the prior decedent, or of the
taxable gift of the donor;
(c) The estate tax on the prior estate, or the donor’s tax on the gift must have been paid;
and
(d) The estate of the prior decedent has not previously availed of the vanishing deduction.
(a) The death of the present decedent, and the death of the prior decedent if the property
previously taxed (“PPT”) was acquired by inheritance, or
(b) The death of the present decedent, and the date of the gift, if the PPT was acquired
by donation.
2. FMV of the PPT at the date of donation, or FMV of the PPT in the estate of the present
decedent if the PPT was donated.
(b) Deduct any mortgage or lien on the PPT which was paid by (xxx) the present decedent,
where such mortgage or lien was used as a deduction in the computation of the estate
tax of the prior decedent, or as a deduction in determining the donor's tax.
(c) Prorate the ordinary deductions and subtract from the net value:
A) FAMILY HOME
- Must be included in the gross estate.
- The deduction is only for one family home which must be the actual residential home of
the decedent as certified to by the barangay captain.
- Lower of:
1) FMV of the family home;
a) If family home is exclusive property of the decedent: FMV
b) If family home is conjugal property: FMV/2
c) If family land is exclusive while the family house is conjugal:
FMV of land + FMV of house/2
d) If family land is conjugal while family house is exclusive:
FMV of land/2 + FMV of house
OR
2) ₱10,000,000.
B) STANDARD DEDUCTION
1) ₱5,000,000 for estates of citizens and resident aliens; ₱500,000 for estates of non
resident aliens.
2) Substantiation not required.
III. SHARE OF THE SURVIVING SPOUSE IN THE NET CONJUGAL PROPERTIES - Share of the
surviving spouse is not subject to estate tax and must therefore be deducted from the
gross estate of the decedent.
A. CLUT √ *
1) Claims against the estate √ √
2) Claims against insolvent persons √ √
3) Unpaid mortgages √
√
4) Taxes
√ √
5) Losses
√
C. Vanishing Deduction √ √
D. Family Home √ X
*For the estate of a non-resident alien, the allowable CLUT deduction shall be prorated based on
the size of the gross estate in the Philippines relative to his entire worldwide gross estate, as
follows:
Philippine Gross Estate x CLUT
Worldwide Gross Estate
II. If the decedent was married, how do we allocate the deductions between the
exclusive and conjugal properties?
Exclusi Conjugal/ Total Gross
ve Community Estate
Properti Properties
es
A. CLUT √ √
1) Claims against the estate √ √
2) Claims against insolvent persons √ √
3) Unpaid mortgages
√ √
4) Taxes
5) Losses √ √
C. Vanishing Deduction √ √
xxxxx xxxxx
Net estate before Special Deductions xxxxx
D. Family Home √
E. Standard Deduction √
F. Amounts received by heirs under RA 4917 √
Limits:
(B) Net Estate (in all Foreign Countries) x Philippine Estate Tax
Entire Net Estate
Rules:
1) If there is only one (1) foreign country, only Limit (A) is used.
2) If there are ≥ two (2) foreign countries, use both Limits
Who files?
The executor or administrator, or any of the legal heirs.
Time of filing?
Within 1 year from death of decedent.
Time of filing can be extended for another 30 days or less in meritorious cases. The
application for the extension of time to file the estate tax return must be filed with the
Revenue District Office (“RDO”) where the estate is required to secure its TIN and file its
tax returns. This request shall be approved by the Commissioner or his duly authorized
representative.
Where filed?
1) If decedent was a resident – the administrator or executor shall register the estate and
secure a new TIN therefor from the RDO where the decedent was domiciled at the time
of his death.
2) If decedent was a non-resident (whether citizen or alien) – the TIN for the estate
shall be secured from, and the estate tax return shall be filed with:
3) In case of “No Payment Return”, the return shall be filed with the Revenue District
Office (“RDO”) having jurisdiction over the place of domicile of the decedent at the
time of death. If the decedent has no legal residence in the Philippines, the return shall
be filed with the Office of the Commissioner (RDO No. 39, South Quezon City).
When paid?
- Estate tax is paid at the time the return is filed (pay as you file).
When the Commissioner finds that the payment on the due date of the estate tax or any
part thereof would impose undue hardship upon the estate or any of the heirs, he may
extend the time for payment of such tax or any part thereof not to exceed five (5) years
in case the estate is settled through the courts, or two (2) years in case the estate is
settled extrajudicially.
The application for extension of time to pay the estate tax shall be filed with the RDO
where the estate is required to secure its TIN and file its estate tax return. This request
shall be approved by the Commissioner or his duly authorized representative.
Any amount paid after the statutory due date of the tax, but within the extension
period, shall be subject to interest but not to surcharges.
Payment by Installment
In case of insufficiency of cash for the immediate payment of the total estate tax due, the
estate may be allowed to pay the estate tax due through the following options:
a. The estate tax return shall be filed within one (1) year from the date of
decedent’s death;
b. The cash installments shall be made within two (2) years from the date of filing
of the estate tax return;
e. In case of the lapse of 2 years without the entire estate tax due being paid, the
remaining balance thereof shall be due and demandable subject to the applicable
penalties and interest reckoned from the prescribed deadline for filing the
return, and payment of the estate tax.
(2) Partial Disposition of Estate and Application of its Proceeds to the Estate Tax
Due
a. The estate tax return shall be filed within one (1) year from the date of
decedent’s death;
b. The written request for the partial disposition15 of the estate shall be approved by
the BIR. The said request shall be filed, together with a notarized undertaking
that the proceeds thereof shall be exclusively used for the payment of the total
estate tax due;
c. The computed estate tax due shall be allocated in proportion to the value of
each property;
d. The estate shall pay to the BIR the proportionate estate tax due of the property
intended to be disposed of;
f. In case of failure to pay the total estate tax due out of the proceeds of the said
disposition, the estate tax due shall be immediately due and demandable subject
to the applicable penalties and interest reckoned from the prescribed deadline
for filing the return and payment of the estate tax. This is without prejudice to
the withholding of the issuance of the eCARs on the remaining properties until
the payment of the remaining balance of the estate tax due, including the
penalties and interest.
2) An heir shall be subsidiarily liable but only to the extent of his share in the net estate.
The estate tax clearance (CAR) issued by the Commissioner or the RDO having jurisdiction
over the estate will serve as the authority to distribute the remaining or distributable
properties or shares in the inheritance to the heirs or beneficiaries.
There shall not be transferred to any new owner in the books of any corporation, sociedad
anonima, partnership, business, or industry organized or established in the Philippines any
share, obligation, bond, or right by way of gift inter vivos or mortis causa, legacy, or
inheritance, unless an eCAR is issued by the Commissioner or his duly authorized
representative.
The executor, administrator, or any of the legal heirs may be allowed to withdraw from a
bank deposit of the decedent within 1 year from the date of death. The amount withdrawn
shall be subject to a 6% final withholding tax.
For joint accounts, the 6% final withholding tax shall be based on the share of the
decedent in the joint bank deposit.
The bank is required to file the prescribed quarterly return on the final tax withheld on or
before the last day of the month following the close of the quarter during which the
withholding was made. In all cases, the final tax withheld shall not be refunded. However,
such final tax may be credited from the estate tax due in instances when the bank deposit
subjected to such final withholding tax has been included in the gross estate in the estate
tax return.
In instances where the bank deposit accounts have been duly included in the gross estate
of the decedent, and the estate tax due thereon paid, the executor, administrator, or any of
the legal heirs shall present the eCAR issued for the said estate prior to withdrawal. Such
withdrawal shall no longer be subject to the withholding imposed under Section 97 of the
Tax Code.