Chapter 16 donors PDF

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Chapter 16Introduction to Donation and Donor’s taxExercise Drills: Identification of transfer or exchangeOn the blank provided for, indicate whether the transaction is a sale, transfer inter-vivos or mortis causa. For complex transfers, indicate sale and its appropriate transfer counterpart. Leave t...

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Chapter 16 Introduction to Donation and Donor’s tax Exercise Drills: Identification of transfer or exchange On the blank provided for, indicate whether the transaction is a sale, transfer inter-vivos or mortis causa. For complex transfers, indicate sale and its appropriate transfer counterpart. Leave the space blank if the transaction is neither sale or transfer. 1 2 3 4 5 6 7 8 9 1 0 11

Revocable donation in trust Revocable donation Revocable donation pre-determined by the death of the donor Conditional donation Revocable donation in trust Conditional donation, the condition of which is waived by the donor during his lifetime Irrevocable donation in trust Waiver by the donor of his right to revoke a revocable donation Sale of personal property with fair value of P2M and cost of P1M for only P1.2M Fulfillment by the donee of the terms of a conditional donations

Transfer of personal property with fair value of P2M and cost of P1M for only P1.2M in contemplation of death 1 Cancellation of a debtor’s indebtedness by a creditor out of love 2 and affection 1 Cancellation of a debtor’s indebtedness by a creditor in 3 consideration of service rendered by the former 1 Sale of real property classified a capital asset with fair value of 4 P2M and cost of P1M for only P1.2M 1 Sale of real property classified as ordinary asset with fair value 5 of P2M and cost of P1M for only P1.2M 1 Sale of domestic stocks classified as capital asset with fair value 6 P2M and cost of P1M for only P1.2M 1 The surrender by the fiduciary heir upon his death of property 7 designated by a predecessor to a fideicommissary 1 Transfer from the first heir to the second heir in accordance with 8 the desire of a predecessor. 1 Sale of property costing P1M with fair value of P2M for only 9 P1M. Title shall not transfer until the death of the seller. Fair value at death is P1.8M 2 Sale of a property costing P1M with fair value of P2M for only 0 P1M. Title shall not transfer until death of the seller. Fair value at death is P800,000

2 1 2 2 2 3 2 4 2 5

Donation of property not owned Rendering services for a compensation Transferring of a money in consideration of a promise by the recipient for repayment Return by the trustee of the property held in trust to grantor Transfer of property for an adequate consideration

True or False 1 1. Donor’s tax is a tax on the gratuitous disposition of property by a living donor. 2. Donor’s tax is property tax. 3. Donees and benefactor of donees have the primary obligation to pay the donor’s tax. 4. The amount of donor’s tax is paid depends on the value of the property donated. 5. Donor’s tax is applicable to donation mortis causa made inter-vivos. 6. Donor’s tax is intended to minimize loopholes in both income tax and estate tax. 7. Donor’s tax is also imposed to counter evasion from business tax. 8. A donor must be at least 18 years of age to make a valid donation. 9. Donation may be implied when the transferor is not claiming the return of his property. 10. Donations, void or valid, are subject to tax. 11. The donees acceptance is required for the completion of the donation. 12. The delivery of the donor of the property to be donated perfects the contract of donation. 13. Acceptance is required even in transfers for inadequate considerations. 14. The donation of intangible personal property must be in writing. 15. The donation of tangible personal property may be made orally if the value exceeds P5,000. 16. The donation of real property must be in a public instrument. 17. The donation of intangible personal property must be made in writing if the value do no exceed P5,000 18. Donors are classified into residents or citizens and non-resident and non-resident aliens. 19. Non-resident aliens are subject to donor’s tax only on donations of tangible properties located in the Philippines. 20. The donation to a non-resident alien exempt from donor’s tax. True or False 2 1. Donations to relatives may be exempt if the amount of donation do not exceed P100,000

2. The donation to strangers may be exempt if the amount of the donation do not exceed P100,000 3. Donations by non-resident alien donors may be exempt from the Philippine donor’s tax for intangible personal properties. 4. Intangible personal properties of non-resident alien donors, regardless of their location, is subject to the rule on reciprocity exemption. 5. Aliens, residents or non-residents, are subject to donor’s tax on tangible personal properties located in the Philippines. 6. Aliens, residents or non-residents, are subject to donor’s tax on intangible personal properties located in Philippines. 7. Resident or citizen donors are taxable on donation of any property regardless of the location of the property. 8. Relatives encompass those who are within four degree of consanguinity from the donor, either in lineal or collateral line. 9. Only relatives by consanguinity are considered relatives; hence, relatives by affinity ae strangers. 10. Strangers are persons beyond the fifth grade of consanguinity in the collateral line. 11. There can be no relatives for juridical person donor. 12. A business proprietor is related to his business. 13. Donor’s tax is a local tax intended to raise money for the government. 14. The donor’s tax to stranger is 40% of the gross profit. 15. The donor’s tax to relatives is determined from a schedule of progressive tax rates. 16. The renunciation by surviving spouse of his share in the hereditary estate is always taxable to donor’s tax. 17. The general renunciation of inheritance is generally exempt from door’s tax.

Multiple Choice-Theory-Part 1 1. Which is an incorrect statement? a. Donor’s tax is imposed on donation inter-vivos b. Estate tax is imposed on donation mortis causa c. Income tax imposed on onerous transaction d. None of these 2. Donor’s tax is not intended to a. Raise money for the government b. Regroup government loss on future tax revenue c. Control tax evasion of income tax d. Provide a system of business regulation 3. Who is the one directly liable to the payment of donor’s tax?

a. b. c. d.

The donor The done The person in possession of the property upon discovery of the donation Any of these

4. Which of these donation is subject to donor’s tax? a. Irrecoverable donations b. Transfer in contemplation of death c. Transfer under special power of appointment d. Transfer under general power of appointment 5. Which of the ff. donation is not subject to donor’s tax? a. Donation intended by the donor to see his children enjoy the property while he still lives. b. Donation intended by the donor to reward services rendered by the done c. Donation intended by the donor to settle family disputes d. Donation intended to take effect upon the death of decedent 6. Which is subject to donor’s tax? a. Merger of usufruct in the owner of the naked title b. Delivery of the property by the trustee to the beneficiary c. Support payment to children d. Cancellation of indebtedness of a debtor out of gratuity 7. Which is not required in a contract of donation? a. Legal capacity of the done b. Acceptance by the done c. Delivery d. Intention to donate 8. Which is not required in taxation of transfers for less than adequate and full consideration. a. Intention of the donor b. Acceptance of the done c. Delivery d. A and B 9. What is the required from in the donation of real property? a. Written agreement b. Public instrument c. Oral agreement d. A or B

10. The donation of share of stocks must be in a. Writing b. Writing if the value exceeds P5,000 c. A public instrument d. Any form 11. Which is a correct statement? a. Donation of tangible personal property not exceeding P5,000 can be made orally b. Donation of intangible personal property exceeding P5,000 may be made in writing. c. The donation of tangible personal property worth P5,000 or more must be in writing d. The donation of real property must be in writing 12. Which donor is subject to tax on global donation? a. Mexican donor, residing in Africa b. American donor, residing in America c. Japanese donor, residing in the Philippines d. Chinese donor, residing in Japan 13. Which is taxable only in Philippines donation? a. Filipino residing in Jolo, Sulu, Philippines b. A Filipino citizen, residing in Canada c. An Australian citizen, residing in the Philippines d. An Italian citizen, residing in the United Arab Emirates 14. Which of the ff. donated properties of a non-resident alien donor may exempt from donor’s tax? a. Investment in domestic stocks b. Condominium unit c. Cars d. None of these 15. Which is a donation made to a stranger? a. Personal donation to a charitable entity b. Corporate donation to an individual entity c. Corporate donation to a non-profit entity d. All of these Multiple Choice-Theory-Part 2 1. Which is a relative? a. Best friend b. Boy friend

c. Adopted daughter d. Father in law 2. Which is the ff. donees is a stranger? a. Republic of the Philippines b. First cousin c. Niece d. Siblings 3. Who is not a relative to the donor? a. Half-brother b. Granddaughter of the donor’s sister c. Great grandson d. God son 4. Which is a stranger? a. Sister of the donor’s grandfather b. Daughter of the donor’s first cousin c. Son of the donor’s niece d. All of these 5. Donation to him is subject to 30% donor’s tax a. Donation to grandparents b. Donation to half-brothers c. Donation to step-sisters d. Donation to adopted brother 6. The ff. donation is subject to progressive donor’s tax a. Donation to a foster child b. Donation to a recognized natural son c. Donation to brother-in-law d. Donation to adopted brother 7. Statement 1: Donations to residents or citizens are subject to donor’s tax. Statement 2: Donations to non-resident aliens are exempt from donor’s tax. Which is correct? a. Statement 1 b. Statement 2 c. Both statements d. Neither statement

8. Statement 1: Donations of non-resident aliens to resident citizens are exempt. Statement 2: Donations of non-resident aliens to non-resident aliens are exempt. Which statement is correct? a. Statement 1 b. Statement 2 c. Both statements d. Neither statement 9. In donor’s taxation, which is not considered in determining taxability of donations? a. Tax classification of the donor b. Location of the property c. Relationship of the done to the donor d. A and B 10. The donation of non-resident alien donor is exempt from donor’s tax if the property is a. Located abroad. b. A real property located abroad c. An intangible property located in the Philippines. d. Located in the Philippines at the date of donation 11. Donation to the following is not exempt from donor’s tax? a. Donation to the International Rice Research Institute b. Donation to a government-owned and controlled corporation c. Donation to the Integrated Bar of the Philippines d. Donation to the Philippine Inventor’s Commission 12. Donation to the following is not exempt? a. Philippine Institute of Certified Public Accountant b. Intramuros Administration c. Development Academy of the Philippines d. Ramon Magsaysay Award Foundation

13. Which is not excluded in gross gift? a. Donation to politicians or political parties b. Donations between spouses c. Donation with reserved powers d. Foreign donations of resident aliens

14. The donation by a corporate donor is

a. b. c. d.

Always subject to donor’s tax Presumed always made to a stranger Presumed always made to a relative Taxable at either the progressive donor’s tax or the proportional tax

15. Statement 1: Any person, natural or juridical, resident or non-resident who transfers or causes to the transfer property by gift shall file an estate tax return. Statement 2: Donation is taxable, whether made in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal

Which is correct? a.

Statement

1 b. Statement 2 c. Both statements d. Neither statement

16. Which of these is taxable in the Philippines? a. Donations made abroad b. Donations made in the Philippines c. Donations of property situated in the Philippines d. All of these 17. Donation of foreign properties is exempt from tax if the donor is a a. Resident citizen b. Resident alien c. Non-resident citizen d. Non-resident alien 18. Which is subject to a reciprocity exemption on donor’s tax? a. Donation of intangible personal property situated in the Philippines by a nonresident citizen. b. Donation of intangible personal property situated in the Philippines by a resident alien c. Donation of intangible personal property situated in the Philippines by a nonresident alien d. All of these

19. When the reciprocity rule applies, which of these is subject to donor’s tax to a nonresident alien donor? Property Location a. Cash Philippines b. Land Japan c. Car Philippines d. Franchise Japan 20. Which is incorrect? a. Donations of non-resident aliens involving properties located abroad to residents of the Philippines are exempt from donor’s tax b. Renunciation of inheritance by an heir to another is not subject to donor’s tax c. Gifts are reckoned on an annual basis. The donor’s tax is determined for the whole gift throughout the year d. Donation by a non-resident citizen to a non-resident to a non-resident alien is exempt from donor’s tax 21. Which of the following donation may be exempt? a. Donation of a resident alien of its properties located abroad to a non-resident alien b. Donation of non-resident alien of intangible properties located in the Philippines to a non-resident alien c. Donation of a non-resident alien of real properties located in the Philippines to a resident alien d. Donation of an intangible properties located in the Philippines by resident aliens 22. Statement 1: For purpose of the donor’s tax, second degree cousins are strangers to each other Statement 2: Encumbrance on the property donated, if assumed by the donor, is deductible for donor’s tax purposes a. True, True b. True, False c. False, True d. False, False 23. Statement 1: Donation between husband and wife during the marriage is generally void Statement 2: Donation can be made to conceived or unborn children a. True, True b. True, False c. False, True d. False, False 24. Which is incorrect? a. Donor’s tac shall not apply until and unless there is a completed gift b. Donation is perfected from the moment the done accepts delivery

c. Donation is completed at the moment the donor makes delivery d. Donor’s tax is a tax on the transfer of property at death

Multiple Choice – Problems: Part I 1. Mr. Metro sold his stock investments with a tax basis of P1,000,000 and fair value of P2,000,000 for only P1,200,000. Compute the amount of gratuity subject to donor’s tax. a. P0 b. P 200,000 c. P 800,000 d. P 1,000,000 2. Mr. Berto sold his family home for P2,000,000. His family home was acquired 10 years ago for P1,000,000. At the date of sale, his property had a fair value of P2,500,000. Compute the gratuity subject to donor’s tax. a. P 0 b. P 500,000 c. P 1,000,000 d. P 1,500,000 3. On June 4, 2014, Mr. Momoy donated a car worth P800,000 to Mr. Palaboy subject to the condition that Mr. Palaboy must graduate college on not later than October 2014. Palaboy graduated from this course. The property was now worth P700,000. The same was purchased by Mr. Momoy at a cost of P1,000,000.

Compute the gratuity subject to donor’s tax. a. P 0 b. P 700,000 c. P 800,000 d. P 1,000,000 4. In 2009, Don Bosco transferred a lot to Basco but revocable within five years. The property had fair value of P2,000,000 at that time. Don Bosco did not revoke the property. In 2012, Don Bosco waived his right to the property in favor of Basco. The property had a fair value of P2,500,000 in 2012 and P3,000,000 in 2014. Compute the gratuity subject to donor’s tax. a. P 0 b. P 2,000,000 c. P 2,500,000 d. P 3,000,000 5. Intending to motivate his brother Jay, Alex transferred a commercial lot valued at P2,000,000 for only P1,000,000 subject to the condition that Jay must become a lawyer

in 5 years. Jay passed the Philippine Bar Examinations on the fourth year. The property was worth P2,500,000 at that time. Compute the amount of gratuity subject to donor’s tax.

6.

7.

8.

9.

a. P 500,000 b. P 1,000,000 c. P 1,500,000 d. P 2,500,000 Mr. John Hay, a resident alien, sold a residential lot with fair value of P6,000,000 for only P3,000,000. He acquired the property 20 years ago for only P500,000. Compute the amount subject to donor’s tax. a. P 0 b. P 2,500,000 c. P 3,000,000 d. P 6,000,000 ABC Holdings sold a building to DEF Company, a wholly owned subsidiary of ABC Holdings, for P2,000,000. The building had a book value of P1,500,000 but with a fair market value of P5,000,000 at the date of sale. What is the amount subject to donor’s tax? a. P 500,000 b. P 2,000,000 c. P 3,000,000 d. P 3,500,000 Which is correct with respect to the above transaction? a. The gratuity is subject to progressive tax. b. The gratuity is subject to final income tax. c. The gratuity is a gift made between strangers subject to progressive donor’s tax. d. The gratuity is a gift subject to a proportional donor’s tax Mrs. Anderson had the following information regarding her inheritance from her deceased husband where she and the other three children were the only heirs: Share from communal properties Share in the net distributable estate

P 1,200,000 300,000

If Mrs. Anderson renounces both shares categorically in favor of the youngest child, what amount is subject to donor’s tax? a. P 0 b. P 300,000 c. P 1,200,00 d. P 1,500,000 10. In the immediately preceding problem, if Mrs. Anderson renounces both shares in favor of all the heirs, what is the amount subject to donor’s tax?

a. b. c. d.

P0 P 300,000 P 1,200,000 P 1,500,000

Multiple-Choice – Problems: Part 2 1. On May 2, 2015, Uno donated the following properties: Donee Property and location Dos Car, in Somalia Tres Business interest, in the USA Quatro Cash, in the Philippines Zinco Land, in the Philippines Total

Value P 600,000 400,000 300,000 900,000 P 2,20,000

Compute the taxable donation if Uno is a non-resident citizen. a. b. c. d.

P0 P 900,000 P 1,200,000 P 2,200,000

2. Compute the taxable donation if Uno is a non-resident alien. a. P 0 b. P 900,000 c. P 1,200,000 d. P 2,200,000 3. Compute the taxable donation if Uno is a non-resident alien and assuming the reciprocity condition applies a. P 0 b. P 900,000 c. P 1,200,000 d. P 1,500,000 4. A donor transferred the following properties: Property Donee Location Car Resident citizen Philippines Cash Stocks Land Total

Non-resident citizen Philippines Non-resident alien Abroad Resident alien Abroad

Value P 300,000 200,000 150,000 250,000 P 900,000

Compute the amount subject to donor’s tax if the donor is a resident alien. a. b. c. d.

P0 P 400,000 P 500,000 P 900,000

5. Compute the amount subject to donor’s tax if the donor is a non-resident alien. a. P 0 b. P 400,000 c. P 500,000 d. P 900,000 6. A Mexican donor who lives in the USA made the following donations: Deposit in Philippine banks Shares of stocks in a non-resident foreign corporation Business interest in the Philippines Total

P5,000,000 2,000,000 3,000,000 P10,000,000

Compute the donation subject to tax. a. b. c. d.

P0 P 3,000,000 P 8,000,000 P 10,000,000

7. In the immediately preceding problem, compute the donation assuming the reciprocity rule applies. a. P 0 b. P 3,000,000 c. P 8,000,000 d. P 10,000,000 8. Anjo, a resident citizen, donated P100,000 cash to his second cousin abroad. Which is correct? a. The donation is subject to progressive tax b. The donation is exempt because it does not exceed P100,000 c. The donation is subject to a 30% tax because it is a donation made to a stranger. d. The donation made to a non-resident is subject to a 30% tax

9. Mr. Swastika, a Russian citizen residing n Ukraine...