10-Donors-Tax - Lecture notes 1231 PDF

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PART 10Donor's TaxNature of Donor's TaxDonation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it (Art. 725 of the New Civil Code). A donor's tax (or gift tax) is a tax levied, assessed, collected and paid upon the transfer by any ...

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PART 10

Donor's Tax Nature of Donor's Tax Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it (Art. 725 of the New Civil Code). A donor's tax (or gift tax) is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift (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). It is a tax imposed on the exercise of the donor's right during lifetime to transfer property to others in the form of gift. Hence, donor's tax is not a property tax, but it is an excise tax imposed on the transfer of property by way of gift inter vivos (RR 12-2018). Although the law used the term "act", the law considers donation as a "contract", as shown by the fact that it requires acceptance, and that the rules on obligations and contracts apply to it as a suppletory law (Art. 732 NCC). Purposes of Donor's Tax 1. To supplement the estate tax 2. To prevent the avoidance of income taxes. Without donor's tax, the donor may escape the progressive rates of income taxation through the simple expedient way of splitting his income among numerous donees. Elements of Taxable Donation 1. Capacity of the donor to transfer property 2. Donative intent (not an absolute requirement; required only in direct gift) 3. Delivery  The transfer of the property is completed by the delivery, either actually or constructively, of the donated property to the done. 4. Acceptance of the gift by the donee  The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee.

Formal Requisites Although the law used the term "act", the law considers donation as a "contract", as shown by the fact that it requires acceptance, and that the rules on obligations and contracts apply to it as a suppletory law (Art. 732 NCC). Being so, the required form, as provided below shall be observed, otherwise, void. Personal Property Amount of donation P5,000 or less Form of Donation Oral or in writing

More than P5,000 In writing

Real or registrable property Regardless of amount In public document

Classification of Donors 1. Citizen or Resident (RC/NRC/RA) 2. Non-resident Alien (NRA) a. With reciprocity b. Without reciprocity FORM AT OF COMPUTATION FIRST DONATION OF THE YEAR Gross Gift Less: Exemptions/Deductions Net Gift Multiply: Rate Donor's Tax Less: Tax Credit Donor's Tax Due/Payable

PXXX (XXX) PXXX XX% PXXX (XXX) PXXX

SECOND AND SUBSEQUENT DONATION WITHIN THE YEAR Gross Gift, Current Less: Exemptions/Deductions, Current Net Gift, Current Add: Prior Net Gift Aggregate Net Gift Multiply: Rate Donor's Tax Tax Paid – Prior Gift Tax Credit

PXXX (XXX) PXXX XX% PXXX (XXX) PXXX

Donor’s Tax Due/Payable Note: The computation of the donor's tax is on a cumulative basis over a period of one calendar year.

FOR DONATIONS MADE PRIOR TO JANUARY 1, 2018 1) If given to relatives: Over But not over

The tax shall be Exempt 0 2,000 14,000 44,000 204,000 404,000 1,004,000

Plus

Of the excess over

P100T P100T 200T 2% P100T 200T 500T 4% 200T 500T 1M 6% 500T 1M 3M 8% IM 3M 5M 10% 3M 5M 10M 12% 5M 10M 15% 10M 2) If given to strangers – 30% NOTE: A stranger is a person who is NOT: 1. Brother or Sister (whether whole or half blood); 2. Spouse; 3. Ancestor; 4. Lineal descendant; 5. Relative by consanguinity in the collateral line within 4th civil degree of relationship. · FOR DONATIONS MADE ON OR AFTER JANUARY 1, 2018 Regardless of the relationship of the donor and donee, the donor's tax rate is 6% in excess of P250,000 exempt gifts. GROSS GIFT hotel  Transfers subject to donor's tax: 1) Direct gift; 2) Gift through creation of a trust; 3) Condonation of debt; 4) Repudiation of inheritance if: 1. Specifically and categorically done in favor of identified heirs; and 2. To the exclusion or disadvantage of other co-heirs. 5) Renunciation by the surviving spouse of his/her share in the conjugal partnership

or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s; 6) Transfer for insufficient consideration EXCEPTION: Real property classified as capital asset. FMV at the time of sale Less: Selling Price Taxable Gift

PXXX (XXX) PXXX

COMPONENTS OF GROSS GIFT RP Donor w/in w/o RC/NRC/RA ✓ ✓

TPP w/in ✓

NRA w/o Reciprocity NRA w/ Reciprocity

✓ ✓

✓ ✓

X X

w/o ✓

IPP w/in ✓

w/o ✓

X X

✓ ✓

X X

 Gift from Common Property - the gift is taxable one-half to each donor spouse.  Donation between husband and wife during the marriage GENERAL RULE: The gift is not taxable, as it is declared void by law. EXCEPTION: Moderate gifts between the spouses are valid. Husband and wife are considered as separate and distinct taxpayer's for purposes of the donor's tax. However, if what was donated is a co community property and only the husband signed the deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the Philippines. EXEMPTIONS OR DEDUCTIONS FROM GROSS GIFT 1) Dowry Exemption NOTE: Applicable only to donations made prior to January 1, 2018. This particular deduction/exemption was repealed by RA No. 10963, otherwise known as the TRAIN Law. Requisites: 1) Gift made on account of marriage; 2) Given before its celebration or within 1 year thereafter; 3) Given to legitimate, recognized natural or adopted children; 4) Amount of exemption is P10,000 per donor per child.

2) Gifts to the Government - 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. 3) Gifts to educational, charitable, religious corporation etc. Requisites: 1) Gifts in favor of the following entities: i. Educational ii. Charitable iii. Religious iv. Cultural v. Social welfare vi. Accredited non-government organization; vii. Trust or Philanthropic organization; viii. Research institution or organization; 2) Not more than 30% of the said gift shall be used for administration purposes. 4) Encumbrances on the property donated assumed by the done 5) Diminution of gift provided by the donor 6) Exemption under Special Laws 1. International Rice Research Institute 2. Ramon Magsaysay Foundation 3. Integrated Bar of the Philippines 4. Development Academy of the Philippines 5. National Museum 6. National Library 7. Archives of the National Historical Institute 8. Museum of Philippine Costumes 9. Intramuros Administration NOTE: For purposes of the donor's tax, "NET GIFT" shall mean the net economic benefit from the transfer that accrues to the donee. (RR No. 2-2003) Exemption or deduction Dowry Gifts to the Government Gifts to educational, charitable, religious etc. Encumbrances on gift assumed by donee Diminution of gift provided by donor

RC/NRC/RA ✓ ✓ ✓ ✓ ✓

NRA X ✓ ✓ ✓ ✓

TAX CREDIT FOR DONOR'S TAX PAID TO A FOREIGN COUNTRY  Only resident or citizen can claim tax credit  Amount Deductible: a. Actual estate tax paid abroad b. Limit

whichever is lower

 Limit: 1) Only one foreign country is involved Net Gift, foreign World Net Gift

X

Philippine Donor's Tax

2) Two or more foreign countries are involved (whichever is lower of the following): Limit 1 or A - Per Foreign Country Net Gift, per foreign country World Net Gift

X

Philippine Donor’s Tax

X

Philippine Donor’s Tax

Limit 1 or B - By Total Net Gift all foreign countries World Net Gift

DEADLINE FOR FILING OF RETURN - within 30 days from date of donation. NOTE: No allowed extension. DEADLINE FOR PAYMENT – pay as you file. PLACE OF FILING a. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to the following where the donor was domiciled at the time of the transfer, or if there be no legal residence on the Philippines, with the Office of the Commissioner: 1) An authorized agent bank 2) Revenue District Office 3) Revenue Collection Officer or 4) Duly authorized Treasurer of the City or municipality b. In the case of gifts made by a nonresident, the return may be filed with:

Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or Directly with the officer of the Commissioner. TABLE 6-2: COMPARISONS BETWEEN ESTATE TAX AND DONOR'S TAX (NIRC as amended by RA 10963 otherwise known as TRAIN Law) ESTATE TAX DONOR'S TAX Succession Concept Involved Gift or donation Donation inter vivos Donation mortis causa 1.Death of the decedent 1. Donative intent of the donor; Requisites or 2.Heir or successor is alive at the 2. Capacity or authority of the donor; Elements time of the decedent's death and is 3. Delivery of donated property; 4. Acceptance by the donee; not disqualified to inherit. Additional requisite: 2.1 compulsory heir Donation must be in proper form 2.2voluntaryheir otherwise, void (Refer to Page 443) 3.Estate/Inheritance Accrual Period

upon the date of death of the decedent

at the time the gift or donation is made or perfected

Governing Law

statute in force at the time of death of decedent

| statute in force at the time of the perfection/completion of donation

Tax Rate Filing & Payment

     

Scope

QUIZZER

6% net estate Within one (1) year from death extension to file: not more than 30 days pay as you file or with extension to pay: 2 years (extrajudicial) 5 years (if judicial)

RC, NRC, RA - on estate within and without NRA - on estate within



6% net gifts in excess of P250.000 Within 30 days from donation



No extension to file

 

pay as you file no no extension for payment



RC, NRC, RA-on gifts within and without

Choose the letter of the correct answer. 1. An act of liberality whereby one disposes gratuitously a thing or right in favor of another who accepts it a. succession c. donation b. occupation d. tradition  Answer: C 2. It is a tax imposed on the exercise of the donor's right during lifetime to transfer property to others in the form of gift a. Estate Tax c. Property Tax b. Donor's Tax d. Income Tax  Answer: B 3.

Which of the following statements is correct? a. A transfer is gratuitous or without consideration and accordingly qualifies as a donation, if no economic benefit measurable in money or money's worth flowed to the transferor from the transferee. b. A gratuitous transfer is always subject to donor's tax. c. A donation on which the donor's tax was not paid is not a valid donation. d. Title to the donated real property can be transferred to the donee in the Register of Deeds even if the donor's tax on the donation had not been paid.  Answer: A

4. Which of the following constitutes "Gift" for Gift Tax purposes? a. Transfer of property without consideration. b. Sales, exchanges and other dispositions of property for a consideration to the extent that the value of the property transferred exceeds the value in money or money's worth of the consideration received therefor. c. Both "a" and "b" d. Neither "a" nor "b"  Answer: C

5. Donor's tax is: a. A property tax b. A personal tax  Answer: D

c. A business tax d. An excise tax

6. Donor's tax is a(n) I. Excise tax II. Direct Tax III. Personal Tax IV. Property tax a. I and II only b. I, II and III only

c. I, II and IV only d. I, II, III and IV

 Answer: A 7. Statement 1: A gift occurs when the donor surrenders control over the property. Statement 2: If the donor retains an unlimited power to revoke the gift, it is clear that gift has occurred. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect  Answer: A  The gift in statement 2 is a revocable gift, an incomplete gift, not subject to donor's tax. 8. A gift that is incomplete because of reserved powers, becomes complete when either: I. The donor renounces the power; or II. 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 donor's death. a. Only I is correct b. b. Only Il is correct c. C. Both I and II are correct d. d. Both I and II are incorrect  Answer: C

9. The common characteristic of transfer taxes is that the transfer of property: a. Is onerous. b. Takes effect during the lifetime of the transferor. c. Takes effect upon the death of the transferor. d. is gratuitous.  Answer: B

10. A tax imposed on the gratuitous transfer of property between two or more persons who are living at the time the transfer is made a. estate tax c. income Tax b. donor's tax d. transfer tax  Answer: B 11. One of the following is not a distinction between donation inter vivos and donation mortis · causa. a. Donation inter vivos takes effect during the lifetime of the grantor while donation mortis causa takes effect after the death of the grantor. b. Donation inter vivos is subject to donor's tax while donation mortis causa is subject to estate tax. c. Donation inter vivos requires a public document while donation mortis causa may not require a public document. d. Donation inter vivos is valued at fair market value at the time the property is given while donation mortis causa is valued at the fair market value at the time of the death of grantor.  Answer: C 12. The following are the requisites of a donation for purposes of the donor's tax, except one. a. Capacity of the donor b. Capacity of the donee c. Delivery of the subject matter or gift, d. Donative intent  Answer: B 13. Statement 1: Donor's tax shall be levied, assessed, collected and paid upon the transfer of property by any person, resident or non-resident, as a gift. Statement 2: The donor's tax 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 in tangible. a. Only 1 is correct b. Only II is correct c. Both I and II are correct d. Both I and II are incorrect  Answer: C 14. Statement 1: "Consideration" means money or equal value or some goods or service capable of being evaluated in money.

Statement 2: Donative intent is required only in indirect gift. a. Only 1 is correct b. Only Il is correct c. Both I and II are correct d. Both I and II are incorrect  Answer: A  Donative intent is required only in direct gifts. 15.

Which of the following donations inter vivos may not require that it be in writing? a. Donation of personal (movable) property, the value of which exceeds P5,000. b. Donation of personal (movable) property, the value of which is P5,000. c. Donation of real (immovable) property, the value of which is less than P5,000. d. Donation of real (immovable) property, the value of which exceeds P5,000.  Answer: B

16. Which of the following statements is correct? a. Donation of immovable property may be made orally or in writing. b. If the value of the real property donated exceeds P5,000, the donation and the acceptance shall be made in writing, otherwise, the donation shall be void. c. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. d. All of the above  Answer: C  Choices "a" and "b" are incorrect. Donation of immovable property shall be made in a public document, regardless of amount. 17. Which of the following statements regarding donation of an immovable property is correct? a. The donation must be made in a public document specifying therein the properly donated. b. The acceptance may be made in the same Deed of Donation or in a separate public instrument, but it shall not take effect unless it is done during the lifetime of the donor c. 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. d. All of the above  Answer: D 18. For the donation to be considered valid, acceptance of the donation must be made: a. During the lifetime of the donor only. b. During the lifetime of the donee only.

c. During the lifetime of the donor and the donee. d. None of the choices.  Answer: C . 19. When is the donation perfected? a. The moment the donor knows of the acceptance by the donee b. The moment the thing donated is delivered, either actually or constructively, to the donee c. Upon payment of the donor's tax d. Upon execution of the deed of donation  Answer: A 20. Which of the following statements is correct? a. Donation is perfected not from the time of acceptance but from the time of knowledge of the donor that the donee has accepted the donation. b. Acceptance must be made during the lifetime of the donor and of the donee. c. Donations made to conceived and tanbom children may be accepted by those persons who would legally represent them if they were already bom. d. All of the above  Answer: D 21. Which is not true? a. The donation is perfected only from the moment the donor knows of the acceptance by the donee. b. Vitiated consent renders the donation voidable. c. Acceptance may be made after the lifetime of the donor. d. The donee must accept the donation personally or through an authorized person; otherwise the donation shall be void.  Answer: C 22. Which of the following transactions is deemed a taxable gift? a. Condonation or remission of a debt b. Sale of residential house and lot for less than adequate and full consideration in money or money's worth c. Both (a) and (b) d. Neither (a) nor (b)  Answer: A  "B" is a bona fide sale or valid sale, not a gift.

23. 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.  Answer: D  The employer-corporation shall treat the premium payment in letter "D" as operating expenses, not a gift. 24. Which of the following is false? a. Donor's tax applies also to juridical persons b. For purposes of donor's tax, second cousins are strangers to each other c. Encumbrance on the property donated, if assumed by the donor is deductible for donor's tax purposes d. As a rule, donation between husband and wife during the marriage is void  Answer: C  To be deductible, the encumbrance or obligation shall be assumed by the donee.

25. Which of the following is subject to donor's tax? a. Those made between persons who were guilty of adultery or concubinage at the time of the donation. b. Those made to conceived and unborn children. c. Those made to a public officer by reason of his office. d. Those made between husband and wife during their marriage.  Answer: B 26. Statement 1: In all cases, void donations are not subject to donor's tax. Statement 2: Every donation between the spouses during the marriage shall be void. a. Only 1 is correct b. Only Il is correct c. Both I and II are correct d. Both I and II are incorrect  Answer: A  Moderate gifts between husband and wife during family rejoicing or family mourning is a valid gift, subject to donor's tax. 27. Which of the following statements is correct? a. Donation is perfected not from the time of acceptance but from the time of knowledge

of the donor that the donee has accepted the donation. b. Acceptance must be made during the lifetime of the donor and...