Introduction to Donor - Business taxation summary PDF

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**Introduction to Donor’s tax Note: Donation to the Donee is subject to 6% tax What are the essential requisites of Donation?** Answer:  Capacity of the donor – Competent. Intention to donate – it must be voluntary. There’s no implied donation Donative act or delivery – donation is completed by t...

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Introduction to Donor’s tax Note: Donation to the Donee is subject to 6% tax 1. What are the essential requisites of Donation? Answer:  Capacity of the donor – Competent. 

Intention to donate – it must be voluntary. There’s no implied donation



Donative act or delivery – donation is completed by the delivery of the property donated



Acceptance by the donee – the donee has the prerogative to accept or reject the gratuity. The donation is deemed perfected when the donor knows of the acceptance of the donee.

“Note: Without this attribute, it is not a donation. However, in transfer for insufficient consideration, the acceptance by the donee is not condition to taxation. “ 2. What are the requisites of Donation? Answer:  Real property – Public instrument 

Tangible personal property –



Oral (exceeds 5,000) Written (do not exceeds 5,000) Intangible personal property – Public instrument

3. What are the types of inter-vivos donation? 

Direct donation – one made by the donor directly to the donee.



Indirect donation – transfer of property by the donor in favor of the donee but with supervision of “donation in trust” (Revocable – not taxable; Irrevocable taxable)

4. What are the nature of donors tax 

Privilege tax – tax of privilege to transfer



Proportional tax – fixed percentage of net gift

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Annual tax – imposed yearly on yearly net gifts of donors in excess of 250,000

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National tax – imposed by the national government\



Revenue or Fiscal government income

tax

–

intended

to

provide

5. Rationale of Donor’s tax 

To control tax evasion of estate tax – a person may transfer his property while he’s still alive to avoid estate tax



To control evasion from income tax:



Selling price < Fair market value = donation To recoup future loss of income tax revenue

6. What are the exempt donations? Answer:  Donation to under NIRC and Special Laws 

Donation for election campaign



Transfers for insufficient consideration involving real property classified as capital asset



General renunciation of inheritance

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Donation with reserved powers

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Donation to the government for public use



Donation to accredited non-profit institution



Quasi-transfer



Void donations

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Foreign donations of non-resident alien donors

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Donation of property exempt under reciprocity

Answer: for other properties, the insufficient consideration is a gift to the extent of the difference between the FV and the SP. However in the absence of the donative intent (excludes the sale forced by circumstances) the same shall be exempt. 10.

7. Explain the exemption of Donation for election campaign. Answer: The exemption is in cash or any kind, and applicable to any candidate, political party or coalition of parties for campaign purposes. 8. Explain the exemption of transfer for insufficient consideration involving real property classified as capital asset. Answer: Gratuitous portion of transfers for insufficient consideration is subject to donor’s tax. Note that this rule does not apply to the sale of real property classified as capital asset – subject to 6% CGT based on gross selling price or FMV whichever is higher. Note: This exemption applied only to real properties subject to 6% CGT It does not apply to sale of real properties classified as ordinary asset and sale of personal/movable property. Vacant and unused lot is Capital asset Investment in shares of stock – personal property subject to 15% CGT Building and equipment is an ordinary asset. 9. Explain transfer for insufficient consideration of other properties.

Explain the exemption of General Renunciation.

Answer: it occurs when an heir or the surviving spouse renounces his or her own share in the heredity estate of the decedent in favor of no particular coheir . However renunciation by the surviving spouse of his/her share in net conjugal or communal properties upon dissolution of the marriage is taxable donation regardless of whether it is specific/general renunciation. “Note: to be exempt, the renunciation of inheritance must not be done categorically in favor of an identified heir to the exclusion of other heirs.- specific renunciation” 11. Incase Specific renunciation in case of only two heirs. Answer: same effect as general renunciation, thus exempt from donor’s tax. 12.

Illustrate the rules on renunciation Types General Renunciation w/ more exempt than 2 heir Renunciation w/ only 2 exempt heirs Renunciation by Taxable surviving spouse in share of his common property

Specific Taxable Exempt Taxable

13. Explain the exemption the Donation reserved powers (incomplete transfer)

with

Answer: the donor’s tax shall not apply unless and until there is a completed gift. Incomplete transfer are not subject to tax upon delivery of the property. They are taxable upon completion and perfection of the donation.



The donee entity does not pay dividends.

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The donee entity’s board of trustees earns no compensation.



The donee entity must devote all its income, donations, subsidies, or other form of Philanthropy to the accomplishment and promotion of its purposes enumerated in AOI.

14. When is the time when incomplete transfer becomes complete? Answer:  when the donor renounces the power 

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 b’cause of the donor’s death.

Note:  Direct donation to beneficiaries of aids are subject to donor’s tax.

17.

What are the accrediting agencies?

Answer:  Department of Social welfare and development 15. Explain the exemption government for public use.

of

Donation

to

the

Answer: gifts made to or for the use of the national government or any entity created by any of its agency which are not conducted for profit or to any political subdivision are exempt. “Note: Donation to government owned and controlled corporation is not exempt from donor’s tax” 16. Explain the exemption of donation to accredited non-profit organization.

The donee entity must be organized as a non-stock entity.

Department of Science and Technology



Philippine sports Commission



National Council for culture and arts



Commission on higher education.

18.

Explain Gratuitous donation to Associations.

Answer: Associations do not qualify as exempt donee institutions. Thus Subject to Donor’s tax. 19.

Explain the exemption of Quasi-transfer.

Answer: involve transfer of property but will never results in transfer of ownership. Thus not subject to donor’s tax.

Requisites for exemption:  Not more than 30% of said gift shall be used by such done for administrative purpose 



20. 

What are Void donations under Civil Code? Donation between spouses, except minor gifts



Donation between persons who were guilty of adultery at the time of donation

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Donation between persons found guilty of the same criminal offense, in consideration thereof

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Donation to a public officer or his wife, descendants or ascendants by reason of his office.



Donation to incapacitated persons



Donation of future property.

void

donation

with

defects

at



Donation by a person who has no legal title to the property



Oral or written donation of real property or intangible personal property





The laws of the foreign country of which the donor was a citizen and resident at the time of donation allows similar exemption from transfer tax.

24. Explain the Diminution of gift as Specified by the donor

 21. What are execution?

intangible personal property of citizen of the Phil. Not residing therein.

Donation refused by the donee.

22. What is foreign donation of non-resident alien donors? Answer: Donation of property situation in a foreign country by non-resident alien donors are not subject to donor’s tax. 23. Explain the donation of property exempt under reciprocity rule. Answer: No tax shall be imposed with respect to intangible personal property donations of NRA donors if:  The donor at the time of the donation was a citizen and a resident of a foreign country which at the time of his death or donation did not impose transfer tax of any character in respect of

Answer: the donor may specify that a portion of the donation will be given to another person other than the donee. Not exempt in donor’s tax, merely a deduction from original donation but itself is another form of donation. 25.

What are taxable donations?



Direct donation



Donation in trust; if irrevocable



Specific Renunciation of inheritance; unless there’s two heirs



Renunciation by the surviving spouse of his share in the conjugal or community property



Transfer inter-vivos for insufficient consideration of any property other than real property capital asset.

Chapter 17 – Donor’s tax 1. What is the basis of imposition of Donor’s tax? Answer: it is imposed based on annual net gifts. Tax paid within 30 days after every donation. 2. What is the donor’s tax rate? Up to 250,000 – exempt Excess above 250,000 – 6%

“Note: the accumulation of donation stops at the end of very calendar year. “ 3. What are the valuation of net gift? Answer:  Valuation rules

6. Explain the properties.



Timing valuation



Donation of Common Properties



Encumbrances of the property donated

Answer:  Real property – higher between zonal value or FMV Personal property: 

Shares of stock  If listed – average high and low price (not weighted average price)  If not listed:



valuation of Donation of common

Answer: donation of conjugal or common property by the spouses is deemed ½ made by the husband and ½ made by the wife. The husband and wife shall file separate donor’s tax returns for the donation.

4. Explain the Valuation rules of property donated



Answer: Donation is valued at the point of completion or perfection – acceptance of the done, of the donation. In conditional donation, the perfection of donation happens upon fulfillment of condition of the donee or waiver of condition of donor.

“Note: this rule applies to donation of co-owned property.” 7. Explain the encumbrances on the property donation assumed by the donee. Answer: Obligations on the donated property which are assumed by the done are diminutions to the gratuity accruing to the donee. These are onerous transfer therefore, deducted from the value of donation. 8. Filing date of Donor’s tax

o

Preferred stock – par value

o

Common stock – book value

Answer: BIR form 1800 filed within 30 days after the donation is made. A separate return is required for donations made at different dates during the year reflecting therein any previous net gifts made in the same year. Only one return is required for donations made on single day even if it is made to several donees.

Other properties  Newly purchased – purchase price  Old items – second hand  Monetary contract

claims

–

amount fixed

5. Explain the timing of valuation of gifts.

in

the

9. Donation tax computation. Answer: the computation of donor’s tax is on cumulative basis over a period of one calendar year.

10.

Foreign tax credit.

Answer:  Foreign tax credit: One foreign currency Lower between actual foreign donor’s tax paid and:

foreign country net gifts x Philippine dono r ' stax due World net gifts 

Foreign tax Credit: multiple foreign countries Lower between total of the donor’s tax credit allowable per country:

per foreign net gifts x Philippine dono r ' s tax due World net gifts And:

total foreign net gifts ' x Philippines Donor s tax due world net gifts

Donors tax payable: Total Donor’s tax due Less: Foreign tax credit Philippine donor’s tax paid Donor’s tax payable xx

xx (xx) (xx)

11. Explain tax credit that is limited to residents or citizens Answer: it must be noted that only resident and citizen donors can only claim foreign tax credit....