TITLE IV
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amdg
Taxation Two
Estate Tax
Estate tax is the tax on the right to transmit property at death
and on certain transfers by the decedent during his lifetime which
are made by the law equivalent of testamentary dispositions.
It accrues upon the death of the decedent.
A transmission by inheritance is taxable at the time of the
predecessors death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary. (Lorenzo
v Posadas)
The tax is measured by the value of the property transmitted at
the time of death, regardless of its appreciation or
depreciation.
The accrual of the tax is distinct from the obligation to pay
the tax.
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed,
collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent,
whether resident or nonresident of the Philippines, a tax based on
the value of such net estate, as computed in accordance with the
following scheduleOverBut not overThe tax shall bePlusOf the Excess
Over
P200kExempt
P200kP500k05%P200k
P500kP2mP15k8%P500k
P2mP5mP135k11%P2m
P5mP10mP465k15%P5m
P10mP1.215m20%P10m
Properties in the Estate
SEC. 85. Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the time of
his death of all property, real or personal, tangible or
intangible, wherever situated: Provided, however, that in the case
of a nonresident decedent who at the time of his death was not a
citizen of the Philippines, only that part of the entire gross
estate which is situated in the Philippines shall be included in
his taxable estate.
(A) Decedent's Interest. - To the extent of the interest therein
of the decedent at the time of his death;
SEC. 104. Definitions. - For purposes of this Title, the terms
"gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated:
Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case
may be, his real and personal property so transferred but which are
situated outside the Philippines shall not be included as part of
his "gross estate" or "gross gift": Provided, further, That
franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its
laws; shares, obligations or bonds by any foreign corporation
eighty-five percent (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,
shall be considered as situated in the Philippines: Provided, still
further, that no tax shall be collected under this Title in respect
of intangible personal property: (a) if the decedent at the time of
his death or the donor at the time of the donation was a citizen
and resident of a foreign country which at the time of his death or
donation 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 (b) if the laws of the foreign
country of which the decedent or donor was a citizen and resident
at the time of his death or donation allows a similar exemption
from transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country. For residents and
citizens, gross estate includes ALL properties, real or personal,
tangible or intangible, WHEREVER situated.
For non-resident aliens, gross estate includes only properties
those situated in the Philippines.
Except with respect to INTANGIBLE personal property, its
inclusion to the gross estate is the subject to the rule of
reciprocity.
If the foreign country of the non-resident alien does not impose
a transfer tax of any character on the IPP of Filipinos not
residents of that foreign country; or
The foreign country of the non-resident alien allows a similar
exemption from transfer tax in respect of IPP owned by Filipinos
not residents of that foreign country,
Then IPPs of the non-resident alien here are exempt from the
estate tax.
Reciprocity must be total. If any of the two states or countries
collects or imposes and does not exempt any transfer, death,
legacy, or succession tax of any character, reciprocity does not
apply. (CIR v Fisher)
Reciprocity in exemption does not require the foreign country to
possess international personality. (CIR v Campos Rueda)
The following, among others, are intangible personal properties
located in the Philippines:
1. Franchise which must be exercised in the Philippines
2. Shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in
accordance with its laws
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 ay foreign corporation
if such shares, obligations or bonds have acquired a business situs
in the Philippines, and
5. Shares or rights in any partnership, business or industry in
the Philippines.
Properties not in the estate There may be properties which at
the time of the decedents death are not in the estate because they
were transferred by him during his lifetime.
These transfers are:
1. Transfers in contemplation of death,
2. Revocable transfers,
3. Transfers under a general power of appointment, and
4. Transfers for an insufficient consideration.
The values of these properties will be included in the
determination of the gross estate for estate tax purposes.
As such, the gross estate, for purposes of the estate tax, may
exceed the actual value of his assets at the time of his death as
it includes the value of transfers of property by him during his
lifetime that partake of the nature of testamentary
dispositions.
These kinds of transfers have the following in common:
They are ostensible transfers, usually with the purpose to evade
the estate tax
They are extension of interests
If the transfers are in fact for a bona fide consideration, then
they will not form part of the gross estate (this proviso is
present in all the provisions regarding these transfers)
Transfers in contemplation of death(B) Transfer in Contemplation
of Death. - To the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time made a
transfer, by trust or otherwise, under which he has retained for
his life or for any period which does not in fact end before his
death (1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in
conjunction with any person, to designate the person who shall
possess or enjoy the property or the income therefrom; except in
case of a bonafide sale for an adequate and full consideration in
money or money's worth. A transfer in contemplation of death is a
transfer motivated by the thought of death, although death may not
be imminent.
The following are examples of circumstances which may be taken
into consideration in determining whether the transfer was made in
contemplation of death:
We can look at the age and state of health of the decedent at
the time of the transfer (is he terminally ill?)
Length of time between the transfer and the date of the
death.
Concurrent making of a will or making of a will within a short
time after the transfer.
But again, in the case of a bona fide sale for an adequate and
full consideration in money or moneys worth, the value of the
property transferred will not be considered in determining the
gross estate.
Revocable transfers
(C) Revocable Transfer. -(1) To the extent of any interest
therein, of which the decedent has at any time made a transfer
(except in case of a bona fide sale for an adequate and full
consideration in money or money's worth) by trust or otherwise,
where the enjoyment thereof was subject at the date of his death to
any change through the exercise of a power (in whatever capacity
exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from
what source the decedent acquired such power), t o alter, amend,
revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent's death.(2) For the purpose of this
Subsection, the power to alter, amend or revoke shall be considered
to exist on the date of the decedent's death even though the
exercise of the power is subject to a precedent giving of notice or
even though 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 decedent's death
notice has been given or the power has been exercised. In such
cases, proper adjustment shall be made representing the interests
which would have been excluded from the power if the decedent had
lived, and for such purpose if the notice has not been given or the
power has not been exercised on or 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. A revocable transfer
is a transfer where the terms of the enjoyment of the property may
be altered, amended, revoked or terminated by the decedent.
It is sufficient that the decedent had the power to revoke,
though he did not exercise the power to revoke.
Again, the same rule with bona fide sales applies.
Transfers under a General Power of Appointment
(D) Property Passing Under General Power of Appointment. - To
the extent of any property passing under a general power of
appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in
possession or enjoyment at, or after his death, or (3) 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 (a) the possession or
enjoyment of, or the right to the income from, the property, or (b)
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; except in case of a bona fide sale for an
adequate and full consideration in money or money's worth. A power
of appointment refers to the right to designate the person or
persons who will succeed the property of a prior decedent.
A general power of appointment is one which may be exercised in
favor of anybody.
Carles donated property to Andres, with a provision that Andres
can transfer the property to anyone. Andres transferred it to Iker.
The property should be included in the gross estate of Andres.
A limited power of appointment is one which may be exercised
only in favor of a certain person or persons designated by the
prior decedent.
Carles donated property to Andres, with a provision that Andres
should transfer the property to Iker, and only Iker. The value of
the property should not be included in the gross estate of
Andres.
In order that property passing under a power of appointment may
be included in the gross estate of the transferor, the power of
appointment must be a general power of appointment. Again, the bona
fide sale rule applies.
(F) Prior Interests. - Except as otherwise specifically provided
therein, Subsections (B), (C) and (E) of this Section shall apply
to the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described
therein, whether made, created, arising, existing, exercised or
relinquished before or after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. - If any one of the
transfers, trusts, interests, rights or powers enumerated and
described in Subsections (B), (C) and (D) of this Section is made,
created, exercised or relinquished for a consideration in money or
money's worth, but 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 only the excess of the fair market value, at the
time of death, of the property otherwise to be included on account
of such transaction, over the value of the consideration received
therefor by the decedent. In the transfers in contemplation of
death, revocable transfer, or transfer under a GPA, the value to
include in the gross estate will be determined under the following
rules:
If the transfer was in the nature of a bona fide sale for an
adequate and full consideration in money or moneys worth, no value
will be included in the gross estate;
If the consideration received on the transfer was less than
adequate and full, the value to include in the gross estate will be
the excess of the fair market value at the time of the decedents
death over the consideration received;
If there was no consideration received on the transfer (donation
mortis causa), the value to include in the gross estate will be the
fair market value of the property at the time of the decedents
death.
When looking at transaction, ask yourself, was the consideration
insufficient?
a. If yes, then add the balance of the FMV at the time of death
and the consideration.
b. If no, then it was a bona fide sale. Dont add the value to
the gross estate.
Analysis of the cases of Zapanta, Tuason, Dizon and Vidal de
Roces
Voluntary/Compulsory
HeirTime between transfer and deathWill?Remarks
ZapantaCompulsoryNoneYesNot considered advances.
TuasonVoluntary3 yearsYesConsidered as advances, because the
donees became legatees in the will.
DizonCompulsory1 dayNoConsidered advances. The donee is a
compulsory heir.
Vidal de RocesVoluntary9 monthsYesConsidered advances. Donees
were legatees in the will
When it comes to transfers done during the lifetime of a
decedent, there is a disputable presumption that the transfers are
in contemplation of death if the recipients are compulsory
heirs.
The government presumes that one is transferring property
beforehand to escape the estate tax, and instead pay the lower
donors tax.
The case of Zapanta showed that the presumption is disputable.
There, the Court considered the gifts as not advances even if the
recipients were compulsory heirs. The reason for this was the
condition imposed upon the recipients by the decedent (they had to
pay the decedent a certain amount of rice and money during his
lifetime). It showed that the transfer was not in contemplation of
death, because the decedent in fact, would benefit from the
transfer.
The presence of a will also plays a part. In the cases of Tuason
and Vidal de Roces, the Court considered the transfers as advances
because a will was made making the transferees legatees. This
played a part in the Courts impression that there was an intention
of the decedent to minimize his gross estate.
Thus, when looking at cases like these, the totality of all the
factors and facts must be taken into consideration.
Does the government always want to consider a transfer an
advance (to be covered by the estate tax)? Not necessarily. There
are instances where they will argue for it to be considered under
the donors tax.
Life Insurance Proceeds
(E) Proceeds of Life Insurance. - To the extent of the amount
receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not the
insured retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the
designation of the beneficiary is irrevocable. Proceeds of life
insurance are paid by the insurance company directly to the
beneficiary.
Proceeds of insurance under policies taken out by the decedent
upon his life shall constitute part of the gross estate if the
beneficiary is:
1. The estate of the decedent, his executor or administrator;
or
2. A third person (not those in #1), and the designation of the
beneficiary is revocable.
The Insurance Code states that the designation of a beneficiary
is generally revocable.
Except of course, when the policy states that the designation is
irrevocable. In such cases, the proceeds are not considered as part
of the decedents estate.
So, gross estate is made up of:
1. The decedents interests at the time of his death
2. Transfers made during his lifetime (in contemplation of
death, revocable, and under a GPA), and
3. Life insurance proceeds
4. Some other stuff required by law to be included in the gross
estate in order to allow deductions (claims against insolvent
persons, unpaid mortgage, value of the family home, and the
retirement benefits under RA 4917)
Valuation of the gross estate
SEC. 88. Determination of the Value of the Estate. -(A)
Usufruct. - To determine the value of the right of usufruct, use or
habitation, as well as that of annuity, there shall be taken into
account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance
Commissioner.(B) Properties. - The estate shall be appraised at its
fair market value as of the time of death. However, the appraised
value of real property as of the time of death shall be, whichever
is higher of:(1) The fair market value as determined by the
Commissioner, or(2) The fair market value as shown in the schedule
of values fixed by the Provincial and City Assessors. The
properties comprising the gross estate shall be valued based on the
FMV as of the time of death. In case of real property, the fair
market value shall be:
1. The FMV as determined by the Commissioner; or
2. The FMV as shown in the schedule of values fixed by the
Provincial and City Assessors
Whichever is HIGHER
In case of personal property recently acquired by the decedent,
the purchase price may indicate the FMV.
In case of personal property not recently acquired, there should
be some evidence of the FMV.
For shares of stock, the FMV shall depend on whether the shares
are isted or unlisted in the stock exchange.
If unlisted Common shares based on their book value
Preferred shares based on their par value
If listed The mean between the highest and lowest quotation on
the date of death;
If none, then the date nearest the death.
For use of usufruct, there be taken into account the probable
life of the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of
Finance.
Computation for the net estate The basic equation to determine
the net taxable estate is (gross estate deductions)
The complication arises when the decedent is married at the time
of his death. Well tackle that later.
First, lets take a look at the deductions.
Deductions The deductions from the gross estate are:
1. Ordinary deductions
a. Expenses, losses, indebtedness, taxes, etc:
i. Funeral expenses
ii. Judicial expenses of testamentary or intestate
proceedings
iii. Claims against the estate
iv. Claims against the insolvent persons
v. Unpaid mortgage or indebtedness on property
vi. Taxes paid
vii. Losses
b. Transfer for public use
c. Vanishing deductions
2. Special deductions
a. Family home
b. Standard deduction of P1,000,000
c. Medical expenses
d. Amounts received by heirs under RA 4917.
These deductions are allowed for a citizen or resident of the
Philippines.
Non-resident aliens are not entitled to special deductions.
Ordinary deductions
Funeral expenses
(A) Deductions Allowed to the Estate of Citizen or a Resident. -
In the case of a citizen or resident of the Philippines, by
deducting from the value of the gross estate -(1) Expenses, Losses,
Indebtedness, and taxes. - Such amounts:(a) For actual funeral
expenses or in an amount equal to five percent (5%) of the gross
estate, whichever is lower, but in no case to exceed Two hundred
thousand pesos (P200,000); The deduction of funeral expenses is
the
Amount of actual funeral expenses, or
An amount equal to 5% of the gross estate, whichever is
LOWER,
But not to exceed P200,000.
Funeral expenses includes:
1. Mourning apparel of the surviving spouse and the unmarried
minor children of the deceased bought and used on the occasion of
the burial
2. Expenses for the deceased wakes
3. Publication charges for death notices
4. Telecommunication expenses incurred in informing relatives of
the deceased
5. Cost of burial plot, tombstones, monument or mausoleum (BUT
NOT THEIR UPKEEP)
6. Interment and/or cremation fees and charges, and
7. All other expenses incurred for the performance of the rites
and ceremonies incident to interment
These arent deductible:
Expenses incurred AFTER the interment
Expenses borne or defrayed by relatives and friends
The cut-off point is interment. Thus, the expenses for the 9th
day, thank you cards, 40th day arent included.
When some of the items which are actual funeral expenses are
covered by a memorial plan, the value of the memorial plan must be
included in the gross estate.
The value of the memorial plan plus other actual funeral
expenses will give an aggregate which will be compared with the 5%
limitation and with P200k.
Judicial expenses of the testamentary/intestate proceedings
(b) For judicial expenses of the testamentary or intestate
proceedings; These are the expenses incurred during the settlement
of the estate,
BUT not beyond the last day prescribed by law for the filing of
the estate tax return (within 6 months from the date of death), or
the extension period allowed.
These judicial expenses include
1. Fees of the executor or administrator
2. Attorneys fees
3. Court fees
4. Accountants fees
5. Appraisers fees
6. Clerk hire
7. Costs of preserving and distributing the estate
8. Costs of storing or maintaining property of the estate
9. Brokerage fees for selling property of the estate
Expenses on extrajudicial settlement of the estate are allowed
as deductions. They come within the meaning of administration
expenses.
The notarial fee paid for the extrajudicial settlement is
deductible since such settlement effected a distribution of the
decedents estate to his lawful heirs. (CIR v CA & Pajonar)
In that case, the notarial fees and the guardianship fee of the
attorney were considered deductibles.
Expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible.
Expenses for the improvement and renovation of the decedents
residential house were allowed as a deductible. (Testate Estate of
Felix de Guzman v de Guzman-Carillo)
Admin expenses should be those which are necessary for the
management of the estate, for protecting it against destruction or
deterioration, and possible for the production of fruits.
Attorneys fees paid by the heirs to their respective lawyers
arising from conflicting claims are not deductible as judicial
expenses. These shall be separately borne by them.
Claims against the estate
c) For claims against the estate: Provided, That at the time the
indebtedness was incurred the debt instrument was duly notarized
and, if the loan was contracted within three (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;
Claims means debts or demands of a pecuniary nature which could
have been enforced against the deceased in his lifetime and could
not have been reduced to simple money judgments.
In other words, if enforceable against him when he was alive,
the obligations will be claims against his estate when he shall be
dead.
So, an obligation that has prescribed during his lifetime, or
that was unenforceable against him, will not be a claim against his
estate when he shall be dead.
Requisites:
1. The liability must represent a personal obligation of the
deceased at the time of his death (except unpaid obligations
incurred incident to his death and unpaid medical expenses
classified as a deduction),
2. The liability was contracted in good faith and for adequate
and full consideration,
3. The claim must be a debt or claim which is valid in law and
enforceable in court
4. The indebtedness must not have been condoned by the creditor
during the lifetime of the decedent, or the actions to collect must
not have prescribed.
Regarding the 4th requisite, if the debts were condoned AFTER
the decedents death, the debts are deductible, following the
date-of-death valuation rule. (Dizon v CTA)
If the claim arose out of a debt instrument, the debt instrument
must be notarized.
EXCEPT for loans granted by financial institutions where
notarization is not part of the business practice or policy of the
institution.
If the loan was contracted within 3 years before the death of
the decedent, the admin or executor must submit a statement showing
the disposition of the proceeds of the loan.
If a monetary claim against the decedent did not arise out of a
debt instrument, the requirement of a notarized debt instrument
does not apply.
There is no requirement to add the amount to the gross estate
(as compared to claims against insolvent persons/mortgage). This is
a DIRECT DEDUCTION.
Claims against insolvent persons
(d) For claims of the deceased against insolvent persons where
the value of decedent's interest therein is included in the value
of the gross estate;
Claims against insolvent persons are deductions from the gross
estate
SUBJECT to the condition that the full amounts of the
receivables are first included in the gross estate.
The deduction from the gross estate will be the uncollectible
portion.Unpaid mortgage or indebtedness on property
(e) For unpaid mortgages upon, or any indebtedness in respect
to, property where the value of decedent's interest therein,
undiminished by such mortgage or indebtedness, is included in the
value of the gross estate, but not including any income tax upon
income received after the death of the decedent, or property taxes
not accrued before his death, or any estate tax. The deduction
herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or
agreement, be limited to the extent that they were contracted bona
fide and for an adequate and full consideration in money or money's
worthWhen a person leaves property encumbered by a mortgage or
indebtedness, his gross estate must include the fair market value
of the property, undiminished by the mortgage or indebtedness.
The mortgage or indebtedness will be claimed as a deduction from
the gross estate.
Pique died leaving real property with a FMV of P1m, subject to a
mortgage in the amount of P600k. Before he can deduct the P600k, he
has to include the total FMV of his property to the gross
income.
If the loan is merely an accommodation loan, where the proceeds
of the loan went to another person, the value of the unpaid loan
must be included in the receivable of the estate.
In the cases of claims against insolvent persons and unpaid
mortgage/indebtedness on property, it is imperative that the values
of each are first added to the gross estate.
These are called zero-sum computations. They dont really benefit
the heirs because these transactions werent supposed to be part of
the gross estate anyway.
Taxes Taxes are deductions from the gross estate if such taxes
accrued prior to the decedents death.
Those that accrued after the decedents death are not deductions
from gross estate.
These taxes can NOT be deducted:
1. Income tax on income received after death
2. Property taxes not accrued before death
3. Estate tax
LossesThere shall also be deducted losses incurred during the
settlement of the estate arising from fires, storms, shipwreck, or
other casualties, or from robbery, theft or embezzlement, when such
losses are not compensated for by insurance or otherwise, and if at
the time of the filing of the return such losses have not been
claimed as a deduction for the income tax purposes in an income tax
return, and provided that such losses were incurred not later than
the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91. Losses are deductible from the gross
estate if:
1. Arising from fire, storm, shipwreck, or other casualty,
robbery, theft or embezzlement
2. Not compensated by insurance or otherwise
3. Not claimed as a deduction in an income tax return of the
estate subject to income tax
4. Occurring during the settlement of the estate, and
5. Occurring before the last day for the payment of the estate
tax (6 months after the decedents death, or the allowed
extension)
Example: Dude died January 1, 2010. A fire razed his house on
March 1, 2010. His estate was settled January 1, 2012. He can claim
a deduction (within 6 months!)
Dude died January 1, 2010. A fire razed his house on January 1,
2011.
He cant claim a deduction.
Transfers for public use
(3) Transfers for Public Use. - The 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. Transfers for public use
mean dispositions in a last will and testament, or a transfer to
take effect after death, in favor of the Government of the
Philippines, or any political subdivision thereof, for exclusively
public purposes.
You can deduct the value of the property transferred to the
government.
Vanishing deductions(2) Property Previously Taxed. - An amount
equal to the value specified below of any property forming a part
of the gross estate situated in the Philippines of any person who
died within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to
his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior
decedent by gift, bequest, devise or inheritance, or which can be
identified as having been acquired in exchange for property so
received:One hundred percent (100%) of the value, if the prior
decedent died within one (1) year prior to the death of the
decedent, or if the property was transferred to him by gift within
the same period prior to his death;Eighty percent (80%) of the
value, if the prior decedent died more than one (1) year but not
more than two (2) years prior to the death of the decedent, or if
the property was transferred to him by gift within the same period
prior to his death;Sixty percent (60%) of the value, if the prior
decedent died more than two (2) years but not more than three (3)
years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his
death;Forty percent (40%) of the value, if the prior decedent died
more than three (3) years but not more than four (4) years prior to
the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;Twenty
percent (20%) of the value, if the prior decedent died more than
four (4) years but not more than five (5) years prior to the death
of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;These deductions shall be
allowed only where a donor's tax or estate tax imposed under this
Title was finally determined and paid by or on behalf of such
donor, or the estate of such prior decedent, as the case may be,
and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate
of such prior decedent, and only to the extent that the value of
such property is included in the decedent's gross estate, and only
if in determining the value of the estate of the prior decedent, no
deduction was allowable under paragraph (2) in respect of the
property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining
the donor's tax, or the estate tax of the prior decedent, which was
paid in whole or in part prior to the decedent's death, then the
deduction allowable under said Subsection shall be reduced by the
amount so paid. Such deduction allowable shall be reduced by an
amount which bears the same ratio to the amounts allowed as
deductions under paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under said paragraph (2) bears to the
value of the decedent's estate. Where the property referred to
consists of two or more items, the aggregate value of such items
shall be used for the purpose of computing the deduction. Property
may change hands within a very short period of time by reason of
the early death of the owner who received it by inheritance or by
donation (gift).
To provide relief to the burdened taxpayer, vanishing deductions
are allowed to reduce the gross estate.
Vanishing deductions are allowed when:
1. The present decedent died within 5 years from receipt of the
property from a prior decedent or donor;
2. The property on which the vanishing deduction is being
claimed must be located in the Philippines
3. The property must have formed part of the taxable estate of
the prior decedent, or of the taxable gift of the donor
4. The estate tax on the prior succession or the donors tax on
the gift must have been finally determined and paid
5. The property must be identified as the one received from the
prior decedent or donor, or something acquired in exchange
therefore
6. No vanishing deduction on the property was allowable to the
estate of the prior decedent
How do we compute?
Step 1: Get the basis. Either the value of the property in the
prior estate/value used for donors tax purposes OR the value of the
property in the present estate, whichever is LOWER.
Step 2: The Step 1 value will be reduced by any payment made by
the present decedent on any mortgage or lien on the property (when
such mortgage/lien was used as a deduction on the prior dead guys
estate, or gift of the donor)
Step 3: The Step 2 value shall be further reduced by:
Step 2 value
xExpenses, losses, indebtedness, taxes and transfers for Gross
Estate
public use
This is done to prevent double deduction.
Step 4: Look at the chart below and multiply to get the value
which you can actually deduct.
%If received by inheritance or gift
100Within one year prior to death of the decedent
80More than one year but not more than two years
60More than two years but not more than 3 years
40More than 3 years but not more than 4 years
20More than 4 years but not more than 5 years
Example
Che inherited land from his pop with a fmv of P500k when
inherited. Two and a half years later, Che died. The FMV of the
land was P600k at that time. The gross estate, on which the land
was part, was P2m. deductions from the gross estate (not including
the family home, medical expenses, standard deduction or RA 4917
receivable) amounted to P400k. Whats the vanishing deduction?
Step 1: Get the lower value. -( P500k
Step 2: No mortgage mentioned, so (
P500k
Step 3: P500k
xP400k=
P100k
P2m
Basis of the vanishing deduction (500k-100k) =P400k
Vanishing deduction (60% of P400k) = P240
Special deductions
Family Home
(4) The Family Home. - An amount equivalent to the current fair
market value of the decedent's family home: Provided, however, That
if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax. As a sine
qua non condition for the exemption or deduction, said family home
must have been the decedent's family home as certified by the
barangay captain of the locality. The deduction is an amount
equivalent to the current FMV of the decedents family home.
BUT the maximum is P1m only.
Do not forget to add the amount of the family home to the gross
estate. Kasama yan! Zero-sum? Yes, but only to the extent of P1m.
Lugi yung rich folk. The deduction will be allowed when the famly
home is certified to be as such by the barangay captain of the
locality where it is located.
For a person married at the time of death, and who was under a
system of conjugal partnership or absolute community, the deduction
for the family home is of the FMV, but should not exceed P1m, if
such family home was conjugal property or community property.
(Remember this!)
Standard deduction(5) Standard Deduction. - An amount equivalent
to One million pesos (P1,000,000). Do not forget to deduct P1m
every time! Its standard!
Medical expenses(6) Medical Expenses. - Medical Expenses
incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts: Provided, That in
no case shall the deductible medical expenses exceed Five Hundred
Thousand Pesos (P500,000). All medical expenses incurred (whether
paid or unpaid) within ONE YEAR before the death of the decedent
shall be allowed as a deduction, PROVIDED,
that the same are duly substantiated with official receipts, and
The total amount, whether paid or unpaid, does NOT exceed
P500k.
If its more than P500k, can you deduct it as a claims against
the estate? No. See requisites of claims against the estate.
Amounts receivable under RA 4917
(7) Amount Received by Heirs Under Republic Act No. 4917. - Any
amount received by the heirs from the decedent - employee as a
consequence of the death of the decedent-employee in accordance
with Republic Act No. 4917: Provided, That such amount is included
in the gross estate of the decedent. Retirement benefits received
by employees of private firms in accordance with a reasonable
benefit plan maintained by the employer are EXEMPT from all taxes,
provided that the retiriing employee has been in the services of
the same employer for at least 10 years and is not less than 50
years old at the time of his retirement.
The amount must:
have been received by the heirs of the decedent-employee as a
consequence of the latters death, and
included in the gross estate of the descendent. (important!)
Deductions from the gross estate with ceilings
Funeral expenses
Actual funeral expenses, or
5% of the gross estate; or
P200kWhichever is the LOWEST
Medical expenses
Actual medical expenses, or
P500kWhichever is LOWER
Family home
FMV, or
P1mWhichever is LOWER
Deductions for a NON-RESIDENT, NOT CITIZEN of the
Philippines
(B) Deductions Allowed to Nonresident Estates. - In the case of
a nonresident not a citizen of the Philippines, by deducting from
the value of that part of his gross estate which at the time of his
death is situated in the Philippines:(1) Expenses, Losses,
Indebtedness and Taxes. - That proportion of the deductions
specified in paragraph (1) of Subsection (A) of this Section which
the value of such part bears to the value of his entire gross
estate wherever situated;(2) Property Previously Taxed. - An amount
equal to the value specified below of any property forming part of
the gross estate situated in the Philippines of any person who died
within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to
his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior
decedent by gift, bequest, devise or inheritance, or which can be
identified as having been acquired in exchange for property so
received:One hundred percent (100%) of the value if the prior
decedent died within one (1) year prior to the death of the
decedent, or if the property was transferred to him by gift, within
the same period prior to his death;Eighty percent (80%) of the
value, if the prior decedent died more than one (1) year but not
more than two (2) years prior to the death of the decedent, or if
the property was transferred to him by gift within the same period
prior to his death;Sixty percent (60%) of the value, if the prior
decedent died more than two (2) years but not more than three (3)
years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his
death;Forty percent (40%) of the value, if the prior decedent died
more than three (3) years but not more than four (4) years prior to
the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; andTwenty
percent (20%) of the value, if the prior decedent died more than
four (4) years but not more than five (5) years prior to the death
of the decedent, or if the property was transferred to him by gift
within the same period prior to his death.These deductions shall be
allowed only where a donor's tax, or estate tax imposed under this
Title is finally determined and paid by or on behalf of such donor,
or the estate of such prior decedent, as the case may be, and only
in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such
prior decedent, and only to the extent that the value of such
property is included in that part of the decedent's gross estate
which at the time of his death is situated in the Philippines; and
only if, in determining the value of the net estate of the prior
decedent, no deduction is allowable under paragraph (2) of
Subsection (B) of this Section, in respect of the property or
properties given in exchange therefore. Where a deduction was
allowed of any mortgage or other lien in determining the donor's
tax, or the estate tax of the prior decedent, which was paid in
whole or in part prior to the decedent's death, then the deduction
allowable under said paragraph shall be reduced by the amount so
paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the amount otherwise
deductible under paragraph (2) bears to the value of that part of
the decedent's gross estate which at the time of his death is
situated in the Philippines. Where the property referred to
consists of two (2) or more items, the aggregate value of such
items shall be used for the purpose of computing the deduction.(3)
Transfers for Public Use. - The amount of all 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. A non-resident decedent who was
not a citizen of the Philippines at the time of death, with
properties within and outside the Philippines, is subject to tax
only on his estate within the Philippines.
Due to this, the estate in the Philippines is allowed deductions
for:
1. Expenses, losses, indebtedness, taxes, etc, computed by:
Gross Estate, PhilippinesxWorld expenses, losses,
indebtedness,
Gross Estate, World
taxes, funeral expenses, judicial
expenses, etc
It does not matter where the expenses are paid or incurred. On
the total of the items, the formula provided by law will be
applied.
Moreover, it also doesnt matter if you can pinpoint specifically
where the expenses were incurred, you have to use the formula.
2. Transfers for public use of property in the Philippines
3. Vanishing deduction on property in the Philippines
A non-resident, not citizen is NOT allowed:
1. Deduction for family home
2. Standard deduction
3. Deduction for medical expenses
4. Deduction for amount receivable under RA 4917
D) Miscellaneous Provisions. - No deduction shall be allowed in
the case of a nonresident 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 the value at the time of his death of that part of the gross
estate of the nonresident not situated in the Philippines. No
deduction shall be allowed for a non-resident alien unless the
executor, administrator or anyone of his heirs, includes in the
return required to be filed under Sec. 90 the value at the time of
the decedents death that part of his gross estate not situated in
the Philippines. (Needed for the formula specified above)
Net Estate Computation of Married Persons
Section 85 (H) Capital of the Surviving Spouse. - The capital of
the surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
Section 86 (C) Share in the Conjugal Property. - the net share
of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property
shall, for the purpose of this Section, be deducted from the net
estate of the decedent.Gross estate
The gross estate of a decedent who was married and who was under
the system of absolute community of property during the marriage
consists of:
1. The EXCLUSIVE properties of the decedent, and
2. The COMMUNITY properties
The exclusive properties are:
1. Property acquired during the marriage by gratuitous title
(inheritance/donation) by either spouse, and the fruits as well as
the income thereof
a. Unless the donor, testator or grantor states that they will
be part of the community property
2. Property for personal and exclusive use of either spouse
a. But jewelry will form part of the community property
3. Property acquired BEFORE the marriage by either spouse who
have legitimate descendants by a former marriage, and the fruits as
well as the income of such property
Community property will consist of all properties owned by the
spouses at the time of the celebration marriage or acquired
thereafter (presumed to belong to the community)
The family home constituted by the husband and wife is community
property.
Proceeds of life insurance taken out by the decedent on his own
life, when includible in the gross estate, will be exclusive
property if the premiums were paid out of exclusive funds.
They will be community property if the premiums were paid out of
community funds.
A claim against an insolvent person will be included in the
gross estate as exclusive or community depending on whether the
claim is for exclusive or community property.
Deductions from gross estate
The same rules and ceilings which were discussed on the part of
deductions will apply
The following are the community/conjugal deductions:
1. Funeral expenses and judicial expenses
2. Special deductions of family home, standard deduction,
medical expenses and amounts receivable under RA 4917
3. Those obligations contracted during the marriage which are
presumed to have benefited the family (debts incurred during the
marriage, etc)
The following are exclusive deductions:1. Debts before the
marriage by either spouse that did NOT redound to the benefit of
the family
2. Support of the illegitimate children of either spouse
3. Liabilities incurred by either spouse of a crime
So, how do we get the net estate of a married person?
Step 0: Know which are community/conjugal and which are
exclusive
Step 1: Get the net conjugal estate (gross conjugal estate
conjugal deductions)
Step 2: Get the decedents share (net conjugal estate/2)
Step 3: Get the gross estate of the decedent (decedents share +
exclusive properties)
Step 4: Get his net estate (gross estate of the decedent
exclusive & special deductions)
Step 5: Once you reach step 4, yun na yon! Thats the decedents
taxable estate.
Mao, a citizen and resident of the Philippines, was married
under the system of absolute community of property during the
marriage. He died leaving the following properties and
obligations:
Real properties inherited from his father 10 years ago and
before the marriage P200k
Real property received as a gift from the mother 7 years
ago,
during the marriage
P1.115m
Cash income from the property received as gift
P5k
Real property owned by Mrs. Mao before the marriage
P300k
The family home
P500k
Medical expenses
P70k
Funeral expenses
P50k
Judicial expenses for settlement of estate
P100k
Obligations incurred during the marriage
P150k
Debt of Mao before the marriage
P120k
Step 0: Determine what are conjugal/community and what are
exclusive
Step 1: Get the net conjugal estate (gross conjugal estate
conjugal deductions)
(P200k + P300k +500k) - (P50k + P100k + P150k) = P700k
Step 2: Get the decedents share (Step 1s NCE/2)
P700k/2 = P350k
Step 3: Get the gross estate of the decedent (decedents share +
exclusive properties)
P350k + P1.115m + P5k = P1.47m
Step 4: Get his net estate (Gross estate decedent exclusive
deductions & special
deductions)
P1.47m (P120k + P250k + P70k + P1m) = P30k
Step 5: The net taxable estate is P30k. Check the schedular
rate, and youll find out that his estate is tax exempt!
Tips:
Do not forget the limitations and ceilings imposed by the
general rule of deductions.
Family home only up to P1m.
Funeral expenses only up to P200k whatevers lower of the actual
expense and 5% of the gross estate (exclusive + conjugal)
Medical expenses not to exceed P500k
Remember that only of the family home is counted as a special
deduction (since half belongs to the still living spouse).
And also remember that if the value of the family home (once
halved) is above P1m, the deduction allowed is still P1m because of
the ceiling imposed by law.
Dont forget to subtract the standard deduction. Its not usually
given as part of the facts but you still have to deduct that.
Medical expenses are special deductions and are deducted from
the gross estate of the decedent. Funeral deductions are conjugal
deductions and are deducted from the gross conjugal/community
estate.
Exemption from Estate Tax
SEC. 87. Exemption of Certain Acquisitions and Transmissions. -
The following shall not be taxed:(A) The merger of usufruct in the
owner of the naked title;(B) The transmission or delivery of the
inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;(C) The transmission from the first heir, legatee
or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and(D) All bequests, devises, legacies
or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which insures to the
benefit of any individual: Provided, however, That not more than
thirty percent (30%) of the said bequests, devises, legacies or
transfers shall be used by such institutions for administration
purposes. The following are exempt from estate tax:
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommisary
3. Transmission from the 1st heir, legatee or donee in favor of
another beneficiary in accordance with the desire of the
predecessor, and
4. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of the net
income inures to the benefit of any individual, provided that not
more than 30% of the said bequests, devises, legacies or transfers
shall be used by such institutions for the administration
purposes
Tax Credit for Foreign Estate TaxE) Tax Credit for Estate Taxes
paid to a Foreign Country. -(1) In General. - The tax imposed by
this Title shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country.(2) Limitations on
Credit. - The amount of the credit taken under this Section shall
be subject to each of the following 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 this Title bears to his entire net estate; 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 this
Title bears to his entire net estate. To minimize the onerous
effect of taxing the same property twice, a tax credit against
Philippine estate tax is allowed for estate taxes paid to foreign
countries.One foreign country
What you paid to the foreign countryTax Credit Limit = Net
foreign estatex Tax here in the Philippines
Entire Net Estate
Between what you paid to the foreign country and the tax credit
limit here, you choose whatevers lower as what you can credit.
See example in donors tax part.
If tax is paid to 2 or more foreign countries:
Limitation A: see above
Limitation B: Tax Credit Limit = Total foreign net estate
x Tax here in the Philippines
Entire Net Estate
Between limitation A and B, you choose whatevers lower as your
credit.
Admin Provisions
SEC. 89. Notice of Death to be Filed. - In all cases of
transfers subject to tax, or where, though exempt from tax, the
gross value of the estate exceeds Twenty thousand pesos (P20,000),
the executor, administrator or any of the legal heirs, as the case
may be, within two (2) months after the decedent's death, or within
a like period after qualifying as such executor or administrator,
shall give a written notice thereof to the Commissioner. A notice
of death must be filed within two months after the decedents
death:
1. In all cases of transfers subject to tax, or
2. When exempt, the value of the estate exceeds P20,000
SEC. 90. Estate Tax Returns. -
(A) Requirements. - In all cases of transfers subject to the tax
imposed herein, or where, though exempt from tax, the gross value
of the estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where 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, 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:(1) 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;(2) The
deductions allowed from gross estate in determining the estate as
defined in Section 86; and(3) 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.Provided, however, That
estate tax returns showing a gross value exceeding Two million
pesos (P2,000,000) shall be supported with a statement duly
certified to by a Certified Public Accountant containing the
following:(a) 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;(b) Itemized
deductions from gross estate allowed in Section 86; and(c) The
amount of tax due whether paid or still due and outstanding.(B)
Time for Filing. - For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate tax return
required under the preceding Subsection (A) shall be filed within
six (6) months from the decedent's death.A certified copy of the
schedule of partition and the order of the court approving the same
shall be furnished the Commissioner within thirty (30) after the
promulgation of such order. (C) Extension of Time. - The
Commissioner shall have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the
return. (D) Place of Filing. - Except in cases where the
Commissioner otherwise permits, the return required under
Subsection (A) shall be filed with an authorized agent bank, or
Revenue District Officer, 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.
An estate tax return is required to be filed when the estate
is:
1. Subject to estate tax,
2. Exempt from estate tax, but the gross estate exceeds
P200,000
3. Regardless of the amount of the gross estate, where the said
gross estate consists of registered or registerable property, motor
vehicle or shares of stock, or other similar property for which
clearance from the BIR is required as a condition precedent for the
transfer of ownership thereof in the name of the transferee.
The return shall be under oath and shall include the
following:
1. Value of the gross estate at the time of the decedent (for
non-resident aliens, the value of the gross estate here in the
Philippines)
2. Deductions allowed from the gross estate
3. Whatevers necessary to establish the correct estate tax
If the estate tax return shows that the gross estate exceeds
P2,000,000, it should be accompanied by a statement certified by a
CPA. See codal.
The estate tax return should be filed within 6 months after the
decedents death.
The BIR can extend this, but not more than 30 days.
A return need not be complete in all particulars. It is
sufficient if it complies substantially with the law. There is
substantial compliance when:
The return is made in good faith and is not false or
fraudulent;
It covers the entire period involved; and
It contains information as to the various items of income,
deductions and credits with such definiteness as to permit the
computation and assessment of the tax. (CIR v Gonzales)
Where the return was made on the wrong form, it was held that
the filing thereof did not start the running of the period of
limitations, and where the return was very deficient, there was no
return at all. (same case)
SEC. 91. Payment of Tax. -
(A) Time of Payment. - The estate tax imposed by Section 84
shall be paid at the time the return is filed by the executor,
administrator or the heirs.
(B) Extension of Time. - When the Commissioner 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, 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. In such case, the amount in respect of which the
extension is granted shall be paid on or before the date of the
expiration of the period of the extension, and the running of the
Statute of Limitations for assessment as provided in Section 203 of
this Code shall be suspended for the period of any such
extension.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 an extension is 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.
(C) Liability for Payment. - The estate tax imposed by Section
84 shall be paid by the executor or administrator before delivery
to any beneficiary of his distributive share of the estate. Such
beneficiary shall to the extent of his distributive share of the
estate, be subsidiarily liable for the payment of such portion of
the estate tax as his distributive share bears to the value of the
total net estate.For the purpose of this Chapter, the term
"executor" or "administrator" means the executor or administrator
of the decedent, or if there is no executor or administrator
appointed, qualified, and acting within the Philippines, then any
person in actual or constructive possession of any property of the
decedent. Estate tax shall be paid at the time the return is
filed.
The Commissioner may extend the payment of such tax.
It should not exceed 5 years in case of judicial settlement, and
2 years if extrajudicial settlement.
The running of the period of limitation for assessment shall be
suspended for the period of such extension.
The estate tax shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of the
estate.
Where there are two or more executors, all of them are severally
liable for the payment of the estate tax. (CIR v Gonzales)
The inheritance tax, although charged against the account of
each beneficiary, should be paid by the executor or
administrator.
Such beneficiary shall be subsidiarily liable for the payment of
such tax to the extent of his share
Claims for income tax need not be filed with the committee on
claims and appraisals in the course of testate proceedings, and the
amount thereof may be collected after the distribution of the
decedents estate among his heirs, who shall be liable in proportion
to their share in the inheritance. (Government v Pamintuan)
The government, in collecting unpaid taxes accruing before the
death of the decedent, has two ways of collecting the said taxes.
(CIR v Pineda)
1. By going after all the heirs and collecting from each one of
them the amount of the tax proportionate to the inheritance
received.
2. By subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due the
estate. (or, go against one heir for the entire tax, subject to the
heirs right of contribution from his co-heirs.)
Miscellaneous Provisions
SEC. 92. Discharge of Executor or Administrator from Personal
Liability. - If the executor or administrator makes a written
application to the Commissioner for determination of the amount of
the estate tax and discharge from personal liability therefore, the
Commissioner (as soon as possible, and in any event within one (1)
year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the
return is filed, but not after the expiration of the period
prescribed for the assessment of the tax in Section 203 shall not
notify the executor or administrator of the amount of the tax. The
executor or administrator, upon payment of the amount of which he
is notified, shall be discharged from personal liability for any
deficiency in the tax thereafter found to be due and shall be
entitled to a receipt or writing showing such discharge.SEC. 93.
Definition of Deficiency. - As used in this Chapter, the term
"deficiency" means:(a) The amount by which the tax imposed by this
Chapter exceeds the amount shown as the tax by the executor,
administrator or any of the heirs upon his return; but the amounts
so shown on the return shall first be increased by the amounts
previously assessed (or collected without assessment) as a
deficiency and decreased by the amount previously abated, refunded
or otherwise repaid in respect of such tax; or(b) If no amount is
shown as the tax by the executor, administrator or any of the heirs
upon his return, or if no return is made by the executor,
administrator, or any heir, then the amount by which the tax
exceeds the amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts previously assessed
or collected without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise repaid in respect
of such tax.SEC. 94. Payment Before Delivery by Executor or
Administrator. - No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any party
interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.SEC. 95.
Duties of Certain Officers and Debtors. - Registers of Deeds shall
not register in the Registry of Property any document transferring
real property or real rights therein or any chattel mortgage, by
way of gifts inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the tax fixed in
this Title and actually due thereon had been paid is show, and they
shall immediately notify the Commissioner, Regional Director,
Revenue District Officer, or Revenue Collection Officer or
Treasurer of the city or municipality where their offices are
located, of the non payment of the tax discovered by them. Any
lawyer, notary public, or any government officer who, by reason of
his official duties, intervenes in the preparation or
acknowledgment of documents regarding partition or disposal of
donation inter vivos or mortis causa, legacy or inheritance, shall
have the duty of furnishing the Commissioner, Regional Director,
Revenue District Officer or Revenue Collection Officer of the place
where he may have his principal office, with copies of such
documents and any information whatsoever which may facilitate the
collection of the aforementioned tax. Neither shall a debtor of the
deceased pay his debts to the heirs, legatee, executor or
administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been paid is
shown; but he may pay the executor or judicial administrator
without said certification if the credit is included in the
inventory of the estate of the deceased.SEC. 96. Restitution of Tax
Upon Satisfaction of Outstanding Obligations. - If after the
payment of the estate tax, new obligations of the decedent shall
appear, and the persons interested shall have satisfied them by
order of the court, they shall have a right to the restitution of
the proportional part of the tax paid.SEC. 97. Payment of Tax
Antecedent to the Transfer of Shares, Bonds or Rights. - 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 a certification from the Commissioner that the
taxes fixed in this Title and due thereon have been paid is
shown.If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with another,
it shall not allow any withdrawal from the said deposit account,
unless the Commissioner has certified that the taxes imposed
thereon by this Title have been paid: Provided, however, That the
administrator of the estate or any one (1) of the heirs of the
decedent may, upon authorization by the Commissioner, withdraw an
amount not exceeding Twenty thousand pesos (P20,000) without the
said certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint depositors
are still living at the time of withdrawal by any one of the joint
depositors and such statement shall be under oath by the said
depositors.Donors Tax
SEC. 98. Imposition of Tax. -(A) There shall be levied,
assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed
as provided in Section 99.(B) The 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
intangible. Gifts and donors tax will be levied, assessed,
collected and paid upon the transfer by any person, resident or
nonresident, of property by gift
The property can be real or personal, tangible or intangible
The transfer can be in trust or otherwise
The gift can be direct or indirect
The donors tax 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 the 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. (RR 02-03)Gross giftsSEC. 104.
Definitions. - For purposes of this Title, the terms "gross estate"
and "gifts" include real and personal property, whether tangible or
intangible, or mixed, wherever situated: Provided, however, That
where the decedent or donor was a nonresident alien at the time of
his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the
Philippines shall not be included as part of his "gross estate" or
"gross gift": Provided, further, That franchise which must be
exercised in the Philippines; shares, obligations or bonds issued
by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws; shares, obligations or
bonds by any foreign corporation eighty-five percent (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, shall be considered as
situated in the Philippines: Provided, still further, that no tax
shall be collected under this Title in respect of intangible
personal property: (a) if the decedent at the time of his death or
the donor at the time of the donation was a citizen and resident of
a foreign country which at the time of his death or donation 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 (b) if the laws of the foreign
country of which the decedent or donor was a citizen and resident
at the time of his death or donation allows a similar exemption
from transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign count There are two kinds
of donors (similar to estate tax):
1. The resident or citizen of the Philippines, and
2. The non-resident, not citizen of the Philippines
If the donor is a resident or a citizen of the Philippines,
gross gifts would consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
If the donor is non-resident, not citizen of the Philippines,
gross gifts would consist of:
1. Real estate located in the Philippines
2. Tangible personal property located in the Philippines
3. Intangible personal property located in the Philippines,
subject to the reciprocity clause (Similar to the rules for estate
tax, see discussion there for what constitutes intangible
property)
a. If donor at the time of the donation was a citizen and
resident of a foreign country which at the time of the donation did
not impose a transfer tax of any character in respect of intangible
personal property of Filipino citizens not residing in that
country, or
b. If the laws of the foreign country of which the donor was a
citizen and resident at the time of donation allow a similar
exemption from transfer taxes of every character in respect of
intangible personal property owned by citizens of the Philippines
not residing in that country
A donation made by a corporation to the heirs of a deceased
office out of gratitude for his past services is subject to the
donees gift tax. It is not subject to deduction for the value of
said services which do not constitute a recoverable debt. (Pirovano
v CIR, the heirs here wanted to consider it remuneratory so it wont
be taxed as a gift. In this case, the donees were the ones who were
made liable to pay, not the donor) A donation for a political
candidate is subject to donors tax. (ACCRA v CIR, wherein the ACCRA
partners claimed that political and electoral contributions were
not subject to donors tax)Also to be considered as gifts are the
following:
1. Transfers for insufficient consideration
2. Cancellation of indebtedness
Transfers for insufficient consideration
SEC. 100. Transfer for Less Than Adequate and Full
Consideration. - Where property, other than real property referred
to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by
which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year. A transfer of real
property will be considered a donation/gift and subject to the
donors tax when:
1. The transfer was for less than adequate and full
consideration,
2. Such transfer was effective during his life time (inter
vivos), and3. Other than real property in Sec 24 (d), i.e. the
property was not subject to final capital gains tax (capital
asset).
In cases like this, the amount by which the value of the
property exceeded the consideration received shall be considered a
donation.
Mos sold to Jango for P100k a property which had a FMV of P280k.
the P180k will be considered a donation and thus subject to the
tax.
With re: #3, what are the implications if the real property sold
was a capital asset as against an ordinary asset?
For example, the real property had a cost of P100, a FMV of
P200, but sold for only P170.
If it were classified as a capital asset, it will be taxed 6% of
the FMV (remember, the base is either the consideration or the FMV,
whichever is higher).
If it were classified as an ordinary asset, it will be taxed
twice. First, it will be taxed for income tax purposes (tax base of
P70). Second, it will be taxed for donors tax (tax base of P30). In
this case, donors tax will be attracted unwittingly.
Cancellation of indebtedness
If a creditor desires to benefit a debtor, and without any
consideration therefore, cancels the debt (and the debtor accepts),
the amount of the debt is a donation by the creditor to the
debtor.
Value of the gifts
SEC. 102. Valuation of Gifts Made in Property. - If the gift is
made in property, the fair market value thereof at the time of the
gift shall be considered the amount of the gift. In case of real
property, the provisions of Section 88(B) shall apply to the
valuation thereof. The fair market value of the property
donated/given at the time of the donation shall be the value of the
gross gifts.
Deductions from gross giftsSEC. 101. Exemption of Certain Gifts.
- The following gifts or donations shall be exempt from the tax
provided for in this Chapter: (A) In the Case of Gifts Made by a
Resident. -(1) Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter by parents to
each of their legitimate, recognized natural, or adopted children
to the extent of the first Ten thousand pesos (P10,000):(2) 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; and(3)
Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthropic organization or
research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. For the purpose of the
exemption, a 'non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization' is a school, college or university and/or charitable
corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no
dividends, governed by trustees who receive no compensation, and
devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of
Incorporation. These exemptions of certain gifts should be taken to
mean the deductions allowed by law to arrive at the taxable net
gifts.
The deductions allowed for a resident or citizen donor:1.
Dowries or gifts made on account of marriage and before its
celebration, or within one year thereafter, by parents to each of
their legitimate, recognized natural or adopted children
a. Only to the extent of P10,000b. Remember, this article only
covers gifts of a parent to his/her child, not a parent to his
future son-in-law/daughter-in-law. If the gift is given to a future
son-in-law/daughter-in-law, no deductions will be allowed because
the latter are considered strangers. (ouch naman!)
2. 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 in favor of educational and/or charitable, religious,
cultural or social welfare corporations, institutions, accredited
NGOs, trust or philanthropic organizations, research institutions
or organizations, provided that not more than 30% of said gifts
shall be used by such donee for administration purposes
Deductions from the gross gifts by husband and wife
For deductions from gross gifts made by husband and wife, out of
community/conjugal property, each donor has his or her own
deductions. Their donations will be distributed equally among them.
(1/2)
However, if what was donated is a conjugal or community property
and only the husband signed the deed of donation, there is only one
donor for donors 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. Each of the
spouses is entitled to a maximum deduction of P10,000 for donation
on account of marriage.
Example Husband and wife donated P400k to son and
daughter-in-law, on account of marriage out of community property.
How do we break this down?
Gross gift byGross gift toDeductionKind of doneeNet GiftTax Rate
(see schedule)Donors Tax
Father P200kSon ( P100kP10kNon-stranger90kExempt0
Daughter-in-law ( P100kNoneStranger100k30%30k
Mother P200kSon ( P100kP10kNon-stranger90kexempt0
Daughter-in-law ( P100knoneStranger100k30%30k
Deductions for a non-resident, not citizen donor
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of
the Philippines. -(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, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. Same as the resident or citizen
donor EXCEPT that they arent allowed deductions for gifts on
account for marriage
Other deductions
The BIR ahs allowed the following as deductions from gross gifts
to arrive at net gifts:
1. Encumbrance on the property donated, if assumed by the
donee
2. Those specifically provided by the donor as a diminution of
the property donated.
Example Lhizavhel donated land which was subject to a mortgage
to Chlahrihvel. The FMV of the land was P1m, but the mortgage was
P400k. Chlahrihvel agreed to assume the mortgage, hence the
deduction of P400k is allowed. The net gift is P600k. Tax rates
Payable by Donor
SEC. 99. Rates of Tax Payable by Donor. -
(A) In General. - The tax for each calendar year shall be
computed on the basis of the total net gifts made during the
calendar year in accordance with the following schedule:If the net
gift is:
OverBut not overThe tax shall bePlusOf Excess over
P100kExempt
P100k200k02%P100k
200k500k2k4%200k
500k1m14k6%500k
1m3m44k8%1m
3m5m204k10%3m
5m10m404k12%5m
10m1.004m15%10m
(B) Tax Payable by Donor if Donee is a Stranger. - When the
donee or beneficiary is stranger, the tax payable by the donor
shall be thirty percent (30%) of the net gifts. For the purpose of
this tax, a "stranger", is a person who is not a:(1) Brother,
sister (whether by whole or half-blood), spouse, ancestor and
lineal descendant; or(2) Relative by consanguinity in the
collateral line within the fourth degree of relationship.(C) Any
contribution in cash or in kind to any candidate, political party
or coalition of parties for campaign purposes shall be governed by
the Election Code, as amended. The tax rate for donors are
illustrated in the table above.
However, if donee or beneficiary is a stranger, the tax payable
by the donor shall be 30% of the net gifts.
A stranger is a person who is NOT a:
1. Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant, or
2. Relative by consanguinity in the collateral line within the
4th degree of relationship.
Donation made between business organizations and those made
between an individual and a business organization shall be
considered as donation made to a stranger. (RR 02-03) The basic tax
formula is as follows:
On the first donation of a calendar year
Gross gifts
Less: Deductions from these gross gifts
Net Gifts
X Donors tax rate
Donors tax due on the net gifts
On a subsequent donation in the same calendar year
Gross gifts made on this date
Less: Deductions from these gross gifts
Net gifts made on this date
Plus: All prior net gifts given with the same calendar year
Aggregate net gifts
Donors tax on aggregate net gifts
Less: Donors tax on all prior net gifts within the same calendar
year
Donors tax due on the net gifts of this dateExample
Mr. and Mrs. Lumbat are Filipino residents. On Jan 3, 2010, they
donated a lot with a FMV of P2m to their child, Zombie, and his
wife, Honka Monka on account of their marriage. On June 3, 2010,
they donated P200k to Mr. Lumbats brother, Piggie Boy.
Mr. LumbatMrs. Lumbat
Jan 3,
2010Non-strangerStrangerTotalNon-strangerStrangerTotal
Gross gifts made:
To Zombie, 500k500k500k500k
To Honka Monka, 500k500k500k500k
Total500k500k1m500k500k1m
Deduction:
For account of marriage10k010k10k010k
Net gifts made490k500k990k490k500k990k
Donors tax13,600
(use schedule)150,000
(use 30%)
163,600
13,600
(use schedule)150,000
(use 30%)
163,600
June 3, 2010
Gross gifts made:
To Piggie Boy100k100k100k100k
Total100k100k100k100k
Deduction:0
Net gifts made on this date100k0100k0100k100k
Add: All prior net gifts within the year490k500k490k500k
Aggregate net gifts590k500k490k600k
Donors tax on aggregate net gifts19,400150,00013,600180,000
Less: Donors tax on all prior net gifts within the
year13,600150,00013,600150,000
Donors Tax Due5,80005,800030,00030,000
Donors Tax Return
SEC. 103. Filing of Return and Payment of Tax. -(A)
Requirements. - any individual who makes any transfer by gift
(except those which, under Section 101, are exempt from the tax
provided for in this Chapter) shall, for the purpose of the said
tax, make a return under oath in duplicate. The return shall se
forth:(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; and(5) Such further information as
may be required by rules and regulations made pursuant to law.(B)
Time and Place of Filing and Payment. - The return of the donor
required in this Section shall be filed within thirty (30) days
after the date the gift is made and the tax due thereon shall be
paid at the time of filing. Except in cases where the Commissioner
otherwise permits, the return shall be filed and the tax paid to an
authorized agent bank, the Revenue District Officer, Revenue
Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the
transfer, or if there be no legal residence in the Philippines,
with the Office of the Commissioner. In the case of gifts made by a
nonresident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the
transfer, or directly with the Office of the Commissioner. The
donors tax return must be filed within 30 days after the date of
the donation.
On all donations of one date, only one donors tax return is
required.
In case of husband and wife as donors the donors tax return of
the husband will be apart of the donors tax return of the wife.
Where to file? See codal.
When and where to pay? The donors tax will be paid at the time
the return is filed, and with the office where the return is
filed.
Donors tax credit
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. -(1)
In General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited
with the amount of any donor's tax of any character and description
imposed by the authority of a foreign country.(2) Limitations on
Credit. - The amount of the credit taken under this Section shall
be subject to each of the following 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 net gifts situated within such country taxable
under this Title bears to his entire net gifts; 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 donor's net gifts
situated outside the Philippines taxable under this title bears to
his entire net gifts. Only resident or citizen donors are allowed
donors