TAXATION
FAR EASTERN UNIVERSITY – MANILA
ESTATE TAX (101)
Transfer tax is defined as a tax imposed on gratuitous transfer of property, rights and obligations.
Two General Ways of Transferring Ownership of Property
Onerous transfer is one where as part of the transfer process, there is a consideration or burden required from
the transferee. This kind of transfer is characterized by the exchange of values between the transferor and
transferee.
Gratuitous transfer is one where there is no burden that is imposed on or consideration required from, the
recipient or transferee.
Bilateral transfers or exchanges,
such as sale and barter. These
are referred to as “onerous
transfer”.
Unilateral transfers, such as
succession – transfer of property
upon death and donation. These
are referred to as “gratutitous
transfer”.
Kinds of Gratuitous Transfer
1. Estate Tax – Which is a kind of transfer tax imposed on gratuitous transfer of property which takes
effect upon death of the transferor. ( A tax levied upon the transfer of the net estate of a decedent to
his heirs)
2. Donor’s Tax – Which is a kind of transfer tax imposed on gratuitous transfer of property that is
completed even during the lifetime of the transferor.
On the basis, transfer tax is considered as excise tax.
Under current usage, unilateral transfers are simply referred to as “transfer” while bilateral transfers are called “exchanges”. Benefits derived from
onerous transactions are “earned or realized”, hence subject to income tax. Benefits derived from gratuitous transactions are not realized because of
the absence of an earning process. Benefits from gratuitous transactions are subject to transfer tax not income tax.
Complex transactions- are partly gratuitous and partly onerous. These transactions are commonly referred to as “transfer for less ull and adequate
consideration”. The gratuitous portion of the transaction is subject to transfer tax while the benefit from the onerous portion is subject to income tax.
PROBLEM
Problem 1: (Income tax and Transfer tax) Check the box where each of the following items is taxable:
Income tax
1. Sale of goods
X
2. Donation of goods
3. Barter of goods
X
4. Transfer of properties from a decedent to his heirs upon death
5. Transfer for less than full and adequate consideration
Transfer tax
X
X
Concept of Succession and Estate Tax
Succession – is a mode of acquisition by virtue of which the property, rights and obligation to the extent of the value of the inheritance, of a person
are transmitted through his death to another or others either by will or by operation of law. (Art. 774, Civil Code of the Philippines).
Will- an act whereby a person is permitted with the formalities prescribed by law, to control to a certain degree the disposition of his
estate, to take effect after his death (Art. 783,CCP) from the moment of the death of the decedent, the rights to the succession are
transmitted, and the possession of the hereditary property is deemed transmitted to the heir (Art. 777, CCP)
Elements of Succession
a. Decedent- the person whose property is transmitted through succession, whether or not he left a will (Art 775, CCP)
b. Heir- the person called to the succession either by the provision of a will or by operation of law (Art. 782,CCP)
c. Estate- refers to all the property, rights and obligations of a person which are not extinguished by his death (Art. 776, CCP)
Requisites of Succession
1. Death of the transferor or decedent
2. Estate or the mass of properties left by the decedent
3. Successors, beneficiaries, or heirs of the decedent
4. Executors and/or administrator
Kinds of Succession
Testate succession –
is one that takes effect
by virtue of a will
executed by a person,
known
as
the
decedents, in favor of
another
or
other
beneficiaries
(also
known as heirs) in the
form prescribed by
law.
1. Testamentary- succession which results from the designation of an heir, made in a will executed in the form prescribed
by law (Art. 779,CCP)
While the decedent may dispose of his properties in a last will and testament, he must, however, reserve some for certain
persons who are called by law as compulsory or forced heirs.
Kinds of successors in a testamentary succession
1. Legatee- an heir to a particular personal property given by virtue of a will.
2. Devisee- an heir to a particular real property given by virtue of a will.
Executor- is the person nominated by a testator to carry out the directions and request in his will and to
dispose of his property according to his testamentary provisions after his death.
Kinds of compulsory heirs:
1. Primary – those who have precedence over and exclude other compulsory heirs (i.e. legitimate children
and descendants)
2. Secondary – those who succeed only in the absence of the primary compulsory heirs (i.e. legitimate
parents and ascendants)
3. Concurring – those who succeed together with the primary or secondary compulsory heirs (i.e.
illegitimate children and descendants and surviving spouse)
Under testamentary succession, the mass of properties left by the decedent may be classified into:
1. Legitime is the portion of the testator’s property which could not be disposed of freely because the law
has reserved it for the compulsory heirs. (Art.886,CCP)
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2.
Intestate succession –
is one that is effected
by operation of law if
the transferor of the
property
did
not
execute a will
Mixed succession – is
one that is effected
partly through a will
and partly by operation
of law.
Free Portion is that part of the whole estate which the testator could dispose of freely through written
will irrespective of his relationship to the recipient.
2. Legal or Intestate- transmission of properties where there is no will, or if there is a will, the same is void or lost its
validity, or nobody succeeds in the will.
In intestate succession, the entire estate of the decedent is distributed to the heirs. The compulsory heirs in testamentary
succession are also heirs in intestate succession. However, intestate heirs include, brothers and sisters, collateral relatives
within the fifth civil degree, and the state.
Administrator is a person appointed by the court, in accordance with the governing statute, to administer and settle
intestate estate and such testate estate as no competent executor designated by the testator.
3. Mixed- transmission of properties, which is effected partly by will and partly by operation of law.
Composition of Gross Estate
The gross estate is divided into two main categories for succession purposes, the legitime and free portion as shown below:
Decedent’s Estate
To be inherited by:
Legitime
Compulsory heirs:
This portion of the estate is reserved by law specifically to compulsory heirs as provided in Table A, regardless
of whether or not a last will and testament was prepared. Refer also to Table C for the sharing of legitimes by the
compulsory heirs.
Free portion
Compulsory Heirs and/or Voluntary Heirs
As provided in the last will and testament.
In the absence of a will, this portion of the estate shall be distributed to “intestate heirs” based in the
order of priority as provided in Table B
Table A – Compulsory Heirs
Compulsory Heir
1. Legitimate children and their legitimate descendants
2. Surviving spouse
3. Illegitimate children and their descendants, legitimate or illegitimate
4. Legitimate parents and Legitimate ascendants (Will inherit only in default of number 1)
5. Illegitimate parents (no other descendants) – (Will inherit only in default of number 1 and
3)
Classification
Primary Compulsory
Primary Compulsory
Primary Compulsory
Secondary Compulsory
Secondary Compulsory
Table B – Order of Intestate Succession
1
2
3
4
5
6
7
Legitimate children or descendants
Legitimate parents or ascendants
Illegitimate children or descendants
Surviving spouse
Brothers and sisters, nephews and nieces
Other collateral relatives within the 5th degree
State
Table C- Legitimes
Survivor
LC
1LC
SS
2 or more
LC
SS
LC
SS
IC
LPA
LPA
IC
LPA
SS
LPA
SS
IC
IC
SS
IC
Legitime
1/2
1/2
1/4
1/2
Equal to 1
LC
1/2
1/4
1/2 of 1 LC
1/2
1/2
1/4
1/2
1/4
1/2
1/8
1/4
1/2
1/3
1/3
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Notes
Divide by the number of LC, whether they survive alone or with concurring compulsory heir (CH)
All the concurring CH get from the half free portion, the share of the SS having preference over that of the IC, whose
share may suffer reduction pro-rata because there is no preference among themselves
Whether they survive alone or with concurring CH
IC succeed in the ¼ in equal shares
Divide equally among the IC
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Survivor
SS
IP
IP
Any child
IP
SS
Legitime
1/2
1/2
Excluded
It depends
1/4
1/4
Notes
1/3 if marriage is in articulo mortis (at the point of death) and deceased spouse dies within 3 months after the marriage
Children inherit in the amounts established in the foregoing rules
Only the parents of IC are included. Grandparents and other ascendants are excluded
Collateral Relatives
Consanguinity
The relation of persons descending from the same stock or common ancestors. These person are known as blood
relatives and are said to be related by blood or consanguinity.
Which may be descending or ascending, is that which subsists between persons or whom one is descended in a
direct line from the other.
Which subsists between persons who have the same ancestors, but who not descend (or ascend) one from the
other.
Determined by the number of generations. Each generation forms a degree.
Lineal consanguinity
Collateral consanguinity
Proximity of relationship
Determining Blood Relationship
AB
CE
GK
M
DF
H
I
JL
N
Notes:
1. In the illustration, C and D are siblings. Their common parents are A and B.
2. G is the daughter of C and E; J is the son of D and F.
3. M is the son of G and K; N is the daughter of J and L.
4. A, C, G and M, in that order, are relatives in the descending direct line. From A to C is one degree; from C to G is another degree and G to M is
another degree.
5. N, J, D and B, in that order, are relatives in the ascending direct line.
6. C, G and M, are relatives of D, J and N in the collateral line.
7. G is the niece of D, D is the uncle of G; J is the nephew of C, C is the aunt of J.
8. H and I are first cousins; they are four degrees apart, H to C, C to AB, AB to D and D to I.
9. M and N are second cousins; they are six degrees apart.
10. Because of G’s marriage to K, K becomes H’s brother-in-law, H being G’s brother. They become relatives by affinity. Affinity is the
connection existing consequence of a marriage between each of the married spouse and the kindred of the other.
PROBLEMS
Problem 1: (Legitimes and Free Portion of the Estate)
A died leaving an estate valued at P24,000,000. The surviving heirs were his spouse, 2 legitimate children and 1 illegitimate child.
Required: Distribute the estate by applying the rules on legitimes.
Notes:
The legitime of the children is always ½ of the total estate regardless of the number of children
The legitime of an illegitimate child is ½ of the legitime of 1 legitimate child.
The legitime of the surviving spouse varies as shown in table C
The free portion may be given by the testator to anyone in accordance with his wishes. However, only voluntary heirs included in the
provisions of the will should be recognized.
Problem 2: Assume the same data with Problem 1, except that there is only 1 legitimate child.
Required: Distribute the estate by applying the rules on legitimes.
Problem 3: Assume the same data with Problem 2 except that the testator provided P10,000,000 to his secretary.
Required: Distribute the estate by applying the rules on legitimes.
Note:
In this case, since P10,000,000 was allotted to the secretary, the legitimes of the children and the surviving spouse were impaired. The amount of
estate left after deducting P10,000,000 will not enough to satisfy the legitimes of the compulsory heirs amounting to P18,000,000. Hence, the
amount to be given to the secretary should be modified or reduced to P6,000,000 to satisfy the legitimes.
Purpose of Estate Tax
The following theories have been used to justify the imposition of estate tax:
1. Benefit received theory – under this theory, the estate tax is paid on return for the services rendered by the state in the distribution of the
estate of the decedent and for the benefits that accrue to the estate and the heirs.
2. State partnership theory – the tax is considered the share of the state as a “passive and silent partner” in the accumulation of property.
3. Ability to pay theory – the tax is based on the fact that the receipt of inheritance creates an ability to pay and thus the receipt of
inheritance creates an ability to pay and thus to contribute to governmental income.
4. Redistribution of wealth theory – the tax is imposed to help reduce undue concentration of wealth in society to which the receipt of
inheritance is a contributing factor.
Basic Concepts in Estate Proceeding and Estate Tax
Inheritance –
Inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.
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Legitime Testate estate –
Intestate estate –
Will –
Codicil Holographic will-
Notarial will Testator –
Probate –
Reprobate –
Legatee –
Devisee –
Executor –
Executrix –
Administrator –
Administratrix –
Special proceedings –
Escheat –
Estate tax –
Gross estate –
Net estate –
(Civil Code, Art. 776)
Is that part of the testator’s property which he cannot dispose of because the law has reserved it for certain heirs
who and therefore, called compulsory heirs.
An estate of a deceased person which is settled or to be settled with a valid last will and testament.
An estate of a deceased person without a will.
An act whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the
disposition of his estate. (Civil Code, Art. 783)
A supplement or an additional to a will, made after the execution of a will and annexed to be taken as a part
thereof, by any disposition made in the original will is explained, added to or altered (Civil Code, Art. 825)
One entirely written, dated and signed in the very handwriting of the testator himself and is subject to no
required form, and may be made in or out of the Philippines, and may be made without a witness. (Civil Code,
Art. 810)
A will written in public instruments, notarized by a lawyer, signed by the testator and witnesses. (Civil Code,
Art. 805-806)
The deceased person who made a last will and testament. (Civil Code, Art. 775)
A special proceeding to establish the validity of a will. Probate is mandatory, which means that no will passes
either real or personal property unless it is proved and allowed in a proper court.
A special proceeding to establish the validity of a will previously proved in a foreign country.
One who is given personal property through a will. (Civil Code, Art. 782)
One who is given real property in a will. (Civil Code, Art. 782)
The person named in the will who is entrusted to implement its provisions. (Rules of Court, Rule 78)
A female executor.
The person entrusted with the care, custody and management of the estate of a decedent until the estate is
partitioned and distributed to the heirs, legatees and devisees, if any. (Rules of Court, Rule 78)
A female administrator.
A remedy by which a party seeks to establish a status, a right, or a particular fact. (Rules of Court, Rule 1, Sec.
3 [c]). Among the subject matters of special proceedings are escheat and settlement of estate of deceased
persons. (Rules of Court, Rule 72, Sec. 1)
A proceeding whereby the state, by virtue of its sovereignty, steps in and claims the real or personal property of
a person who dies intestate leaving no heir. In the absence of a lawful owner, a property is claimed by the state
to forestall an open “invitation to self-service by the first comers”. (Republic vs. CA, G.R. No. 143483)
A tax on the transfer of the net estate of the decedent. (Tax Reform Act of 1997, Sec. 84)
The total value of all property belonging to the decedent at the time of death, wherever situated. (Tax Reform
Act of 1997, Secs. 85, 104)
Gross estate less allowable deductions and exemptions. (Tax Reform Act of 1997, Secs. 84, 85 and 86)
A. FORMAT OF COMPUTATION (BIR form 1801)
Real properties excluding family home
Personal properties
Family home
Taxable transfers
Gross estate
Less: Deductions
Estate after deductions
Less: Special deductions
Family home
Standard deduction
Net Estate
Less: Share of Surviving Spouse (Net Conjugal Estate divided by 2)
Taxable net estate
Tax due
Less: Tax credits/payments
Foreign estate tax paid (tax credit)
Tax paid in return previously filed (if this is an amended return)
Tax payable
Exclusive
P xxx
xxx
xxx
xxx
P xxx
( xxx )
xxx
Common
P xxx
xxx
xxx
xxx
P xxx
( xxx )
xxx
Total
P xxx
Xxx
Xxx
Xxx
P xxx
(
xxx )
xxx
(
(
xxx )
xxx )
Xxx
( xxx )
P xxx
P xxx
(
xxx )
(xxx )
Xxx
B. ESTATE TAX RATES
There shall be levied, assessed, collected and paid upon the transfer of the net estate of every decedent, whether resident or non-resident of the
Philippines, a tax at the rate of six percent 6% based on the value of such net estate.
C. TAXABILITY OF THE ESTATE IN GENERAL
1. Classification of a Decedent
a. Resident Citizen
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b. Non-Resident Citizen
c. Resident Alien
d. Non-Resident Alien
2. Types of Properties
a. Real or immovable property
b. Tangible personal property
c. Intangible personal property Rights and claims of the decedent existing at the time of death
3. Taxability of the estate in accordance to the classification of a decedent and type of property
Classification of Decedent
Properties located in the Philippines
Properties located in a Foreign Country
Tangible
Intangible
Intangible
Tangible
Real
Real
personal
personal
personal
personal
properties
properties
properties
properties
properties
properties
Resident Citizen
/
/
/
/
/
/
Non-Resident Citizen
/
/
/
/
/
/
Resident Alien
/
/
/
/
/
/
Non-Resident Alien
/
/
/*
X
X
X
4. Rule of reciprocity (Non-resident Alien)*
a. Properties covered by reciprocity
Intangible personal property situated in the Philippines owned by non-resident alien decedent.
Reciprocity can take place when the foreign country where the non-resident alien was a citizen and resident:
- Does not have any kind of death taxes
- Has death tax but allows exemption to non-resident Filipinos
b. Basic Rules
When there is reciprocity - The intangible personal property of non-resident alien situated in the Philippines are not included in the gross estate
When there is no reciprocity - The intangible personal property of non-resident alien situated in the Philippines are included in the gross estate
c. Intangible properties considered situated in the Philippines
The following shall be considered as situated in the Philippines (among others):
1) Franchise which must be exercised in the Philippines;
2) Shares, obligations or bonds issued by any corporation or sociedad anonima organized and constituted in the Philippines in accordance with its
law;
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 any foreign corporation if such shares, obligations or bonds have acquired a business situs in the
Philippines;
5) Shares or rights in any partnership, business or industry established in the Philippines.
D. COMPOSITION OF THE GROSS ESTATE OF A DECEDENT
Gross estate (SEC. 85) - 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 non-resident 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.
1. Properties owned and possessed by the decedent
2. Properties transferred (Taxable Transfers)
These are properties which at the time of the death of the decedent are not part of the decedent’s assets because these were already
transferred by him during his lifetime.
The values of these properties will be included in determining the value of the gross estate even though such properties are not anymore the
part of the assets of the decedent.
a. Transfer in Contemplation of Death
Transfer in contemplation of death is a transfer of property motivated by the thought of death, althought death may not be imminent.
Examples of a transfer made in contemplation of death
1) When the transferor of property is at an advanced age.
2) When the transferor of property is terminally ill or with incurable disease.
3) When a person concurrently makes a will and transfer a property.
Examples of motives that preclude a transfer from the category of one made in contemplation of death (Motives associated with life)
1) To relieve donor from the burden of management
2) To save income or property taxes
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3)
4)
5)
6)
7)
To settle family litigate and un-litigated disputes
To provide independent income for dependents
To see the children enjoy the property while the donor is alive
To protect the family from hazards of business operations, and
To reward services rendered
b. Revocable Transfer.
A revocable transfer is a transfer where the enjoyment of the property maybe altered, amended or revoked.
c. Property Passing Under General Power of Appointment
d. Transfers of Property for an Insufficient Consideration
e. Transfer with retention or reservation of certain rights (possession or enjoyment of, or the right to the income from the property, or the
right to designate a person who may exercise such right)
3. Interests
a. Proceeds of Life Insurance
1). 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.
2) The following are also not taxable:
a) proceeds/benefits coming from SSS
b) proceeds/benefits coming from GSIS.
c) the proceeds coming from group insurance.
3) When the designation of the beneficiary is not stated or is not clear, the Insurance Code assumes revocable designation.
b. Claims against insolvent persons
1) Claims of the deceased against insolvent persons where the value of decedent's interest therein is included in the value of the gross estate
2) The full amount of the claims is included in the gross estate.
3) The uncollectible amount of the claims is deducted from the gross estate.
c. Amount received by heirs under R.A. No. 4917
1). Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with
Republic Act No. 4917. It shall also be allowed as deduction from the gross estate provided, that such amount is included in the gross estate
of the decedent.
2) R.A. No. 4917 is entitled ‘An Act providing that retirement benefits of employees of private firms shall not be subject to attachment, levy,
execution, or any tax whatsoever’.
d. Family Home
The family home refers to the dwelling house , including the land on which it is situated, where the husband and the wife, or an unmarried
person who is the head of the family and members of the family reside, as certified by the Barangay Captain of the locality.
e. Prior interest/Decedent’s Interest
Refers to the value of any interest in property or rights accrued in favor of the decedent on or before his death which have been received only
after his death. (Sec. 85 (A) NIRC)
As a rule, the interest must exist at the time of the decedent’s death to be included as part of the gross estate.
Examples
1. Dividends declared on or before the death of the stockholder, and received by the estate after said stockholder’s death.
2. Partnership’s profit earned prior to death of the partner, received by the estate after the partner’s death.
3. Accrued interest and rents on or before the time of death, but collection was made after death.
Exercises:
a. Determine which of the following transactions are taxable transfers.
Transaction
1) Property transferred inter vivos, transferor is of advanced age and died within 3 years after the date of transfer.
2) Property sold for adequate and full consideration, transferor/seller died after one day because of incurable disease.
3) Property sold for P1, 000,000. The FMV of the property sold was P 1,100,000.
4) Property transferred, transferor has the right to take back the property.
5) Property transferred, transferor has the right to take back the property. The transferor has waived the right before he died.
6) Property transferred, the transferee has the power to appoint or transfer to anybody the said property.
7) Property transferred, the transferee has the power to appoint or transfer to anybody the said property as designated by the
transferor.
8) Property transferred, the transferor has the right to the income of the property transferred while he is still alive.
9) Property donated, Donor’s tax paid. In the deed of donation, the donor expressly reserved for himself the usufruct over the
property
1. ESTATE TAX
Answer
Revocable transfer
(yes)
Page 6 of 15
b. Determine the value to be included in the gross estate for each of the cases below.
Case
FMV, time of transfer
Consideration received
1
2
3
4
5
P2,000,000
P2,000,000
P2,000,000
P2,000,000
P2,000,000
P
P
P
P
1,500,000
2,000,000
None
3,000,000
1,500,000
FMV, time of death
Amount included in the
gross estate
P1,700,000
P1,000,000
P1,700,000
P3,500,000
P1,200,000
c. Identify which of the following cases of proceeds of life insurance will be included in the gross estate.
1) Proceeds of life insurance, daughter of the insured was irrevocably designated as beneficiary of the life insurance.
2) Proceeds of life insurance, wife of the insured was revocably designated as beneficiary of the life insurance.
3) Proceeds of life insurance, the beneficiary’s designation was not stated in the insurance policy.
4) Proceeds of life insurance, the administrator of the estate was revocably designated as beneficiary of the life insurance.
5) Proceeds of life insurance, the executor of the estate was irrevocably designated as beneficiary of the life insurance.
6) Benefits received from SSS, beneficiary was irrevocably designated as beneficiary.
7) Benefits from GSIS, beneficiary was revocably designated as beneficiary.
8) Proceeds of life insurance, the estate was designated as beneficiary of it.
9) Proceeds of life insurance from group insurance.
D. GROSS ESTATE OF MARRIED DECEDENTS
1. Properties included in the gross estate of the married decedent
Conjugal partnership of gains
Exclusive properties of the decedent
Included
Exclusive properties of the surviving spouse
Not included
Common properties
Included
Absolute community of properties
Included
Not included
Included
2. Common types of property regimes:
a. Absolute separation of property (ASP)- All properties of the spouses are separate properties, except those properties which they may acquire
jointly.
b. Conjugal partnership of gains (CPG)- All properties that accrues as fruit of their individual or joint labor and fruits of their properties during the
marriage will be common properties of the spouses.
c. Absolute community of property (ACP)- All present properties owned by the spouses at the date of celebration of the marriage shall become
common properties of the spouses including future fruit of their separate or joint industry or fruits of
their common properties.`
3. In the absence of pre-nuptial agreement - (Date of Marriage):
Before August 3, 1988
Conjugal partnership of gains
On or after August 3, 1988
Absolute community of properties
4. Separate property of the Husband and Wife
Capital Property
Paraphernalia Property
Property owned solely by the husband
Property owned solely by the wife
Capital/ Paraphernalia Property (exclusive property) of surviving spouse – The capital/ paraphernalia of the surviving spouse of a decedent
shall not be deemed a part of the gross estate of the decedent.
5. Conjugal partnership of gains
Exclusive Properties
a. Properties brought into the marriage as either of the spouse’s own.
a.
Conjugal Properties
Properties acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition is for the
partnership or for only one of the spouses.
b. Properties acquired by gratuitous (or lucrative) title during marriage.
b. Properties obtained from labor, industry, work or profession of either
or both of the spouses.
c. Properties acquired by right or redemption or by exchange with
other property belonging to only one of the spouses.
c. The fruits, natural, industrial or civil, due or received during the
marriage from the common property, as well as the net fruits from
the exclusive property of each spouse.
d. Properties acquired with the exclusive money of either spouse.
d. The share of either spouse in the hidden treasure which the law
awards to the finder or owner of the property where the treasure is
found.
1. ESTATE TAX
e.
Properties acquired through occupation such as fishing and hunting.
f.
Livestock existing upon the dissolution of the partnership in excess
of the number of each kind brought to the marriage by of either
spouse.
g.
Properties acquired by chance, such as winnings from gambling and
betting.
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6. Absolute community of properties
Exclusive Properties
a. Properties acquired during the marriage by gratuitous (or lucrative)
title by either spouse, and the fruits as well as the income thereof, if
any, unless it is specifically provided by the donor, testator or grantor
that they shall form part of the community.
Community Properties
a. All properties owned by spouses at the time of the celebration of
marriage or acquired thereafter.
b. Property for personal and exclusive use of either spouse, however,
jewelry shall form part of the community property.
c. Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage and the fruits as well
as the income, if any, of such property.
7. Summary: Similarities between Conjugal Partnership of Gain (CPOG) and Absolute Community of Property (ACOP)
Property
CPOG
ACOP
a. Property inherited or received as donation during marriage
Exclusive property
Exclusive property
b. Property acquired during the marriage (other than inheritance or donation)
Conjugal property
Community property
c. Property acquired from labor, industry, work or profession of spouses
Conjugal property
Community property
under ACOP, “JEWELRY” shall be considered community property even if they are for the exclusive use of either spouse.
8. Difference between Conjugal Partnership of Gains (CPOG) and Absolute Community of Property (ACOP)
Property
CPOG
a. Property before marriage or brought to the marriage
Exclusive property
b. Fruits or income due or derived during the marriage coming from exclusive property
Conjugal property
ACOP
Community property
Exclusive property
Exercise:
a. Mr. Hames , a married decedent left the following properties. Determine the taxable gross estate of Mr. Hames.
EXCLCONJCPG
CPG
1. Cash owned by his wife before the marriage.
P2,000,000
2. Cash owned by Mr. Hames before the marriage.
5,000,000
3. Real property inherited by Mr. Hames during the marriage.
6,000,000
4. Real property inherited by his wife during the marriage.
4,000,000
5. Personal property received by his wife as gift before the marriage.
400,000
6. Personal property received by Mr. Hames as gift before the marriage.
2,000,000
7. Property acquired by Mr. Hames using his cash owned before the marriage.
600,000
8. Clothes of Mr. Hames purchased with his wife’s exclusive money.
500,000
9. Jewelry purchased with the exclusive cash of the surviving spouse.
1,000,000
10. Jewelry inherited during the marriage by the surviving spouse.
1,000,000
11. Jewelry inherited before the marriage by the the surviving spouse.
1,000,000
12. Unidentified property.
1,200,000
13 Cash representing the income earned during the marriage from the exclusive
2,000,000
property of Mr. Hames.
14. Cash representing the income earned during the marriage from the common
2,000,000
property of the spouses.
Total
EXCLACP
COMMACP
E. EXCLUSIONS AND EXEMPTIONS FROM THE GROSS ESTATE
1. Exemptions
a. The merger of the usufruct in the owner of the naked title.
1) When the same person becomes a usufructuary and owner of the naked title, it makes him/her the absolute owner of the property.
2) USUFRUCT – the legal right to use and enjoy the benefits and profits of something belonging to another.
3) Two persons involved in usufruct:
USUFRUCTUARY – the person who has the right of enjoying the use and the fruits of the property belonging to another.
OWNER OF THE NAKED TITLE – the person who is vested the ownership, dominion, or title of the property under the usufruct
agreement.
He is NOT the absolute owner of the property.with respect to the right of the usufructuary.
b. The transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary.
1) The transfer is from fiduciary heir to the fideicommissary
2) LEGACY– a gift or bequest by WILL of a person.(Personal Property)
3) DEVISE – a TESTAMENTARY disposition of real property.
4) LEGATEE –the person to whom a legacy in a will is given of personal property.
5) FIDUCIARY HEIR – the FIRST HEIR of the property.
6) FIDEICOMMISSARY – the SECOND HEIR whose relationship to the fiduciary heir must be one degree of generation (a parent and a child)
c. The transmission from the first heir, legatee, or donee infavor of another beneficiary, in accordance with the desire of the predecessor.
The second transfer as desired by the predecessor
There is only one transfer from the testator
d. All bequest, devices, legacies or transfer to social welfare, cultural and charitable institutions,
1) no part of the net income of which inures to the benefit of any individual and
1. ESTATE TAX
Page 8 of 15
Provided, however, that
2) not more than 30% of such bequest, devises ,legacies or transfer shall be used for administrative purposes.
The government agency which is empowered to determine the exemption is the BIR. To enable it to exercise such power, the value of transfer to social
welfare, cultural and charitable institutions should be included in the gross estate. While the Tax Codes includes this item in the exempt acquisition
and transmissions, it is actually considered a deduction from the gross estate.
2. Exclusions
a. Amounts received as war damages
b. Amounts received from the United States Veterans Administration
c. Benefits received from the GSIS
d. Benefits received from the SSS
e. Retirement benefits of employees of private firm (R.A. 4917)
f. Intangible personal property of a non-resident alien decedent under the reciprocity clause
g. Grants and donations to the Intramuros Administration.
h. Proceeds of life insurance where the beneficiary is irrevocably appointed
i. Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)
j. Transfer by way of bona fide sales
k. Transfer of property to the National Government or to any of its political subdivisions
l. Separate property of the surviving spouse
m. Properties held in trust by the decedent
n. Acquisition and/or transfer expressly declared as not taxable
F. DETERMINATION OF THE VALUE OF THE ESTATE
1. Usufruct
Usufruct is valued In accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon the
recommendation of the Insurance Commissioner.
2. Property
a. Generally it is valued at its fair market value at the time of decedent’s death
b. Real property is valued at the Higher between the zonal value (BIR) vs. assessed value (Provincial and City assessor)
c. Personal properties –
Recently purchase – Purchase price
Not recently purchase – Pawn value x 3
d. Securities (Shares of stock)
1.
Shares of stock traded in the local stock exchange- Mean between the highest and lowest quotations on valuation date or on a date
nearest the valuation date.
2.
Shares of stock not traded in the local stock exchange
a) Common (ordinary) share – book value per share of issuing corporation.
b) Preferred (preference) share – Par Value
Exercise
a. A decedent died leaving the following properties. Determine the Philippine gross estate:
Resident
/Citizen
NRA-No
Reciprocity
NRA-With
Reciprocity
House and lot, USA, FMV, time of death P4,000,0000, cost, P2.000,000
House and lot, Philippines, FMV, time of death, P2,500,000;
Value per tax declaration, time of death, P2,000,000
Furniture and appliances, Philippines, Pawn value time of death, P500,000
Car, Japan, purchase price, P1,800,000
Preference Shares, Philippines, sold for P300,000 1 day before death, FMV, date of sale,
P250,000 Par value, date of death, P350,000 (Reason of death, car accident).
Bonds, issued by a Philippine Corporation, cost, P450,000;
Ordinary shares of stock, issued by a foreign corporation, 80% of the business is located in
the Philippines, par value, time of death, P500,000; book value, time of death, P600,000
Proceeds of life insurance, Philippines (the estate is the designated beneficiary) , P1,800,000
Total
b. (Value of Shares of Stock - Adjusted Net Asset Method) Mrs. A died leaving 2,000 shares of stocks of ABC Corporation, a closely held
corporation, as part of her estate. The balance sheet of ABC Corporation is shown below together with the fair values of its assets and liabilities:
Book
Fair
Assessed
Zonal
Independent
values
values
values
values
appraisal
Cash
P2,000,000
P2,000,000
Equipment
1,000,000
1,200,000
Land A
4,000,000
P5,000,000 P10,000,000
P12,000,000
Land B
4,000,000
4,400,000
8,000,000
7,000,000
Building A
2,000,000
6,000,000
Building B
1,000,000
3,900,000
Investment
3,000,000
2,600,000
Assets
P17,000,000
Liabilities
P7,000,000
Each share of stock of ABC Corporation has a par value of P1,000. Mrs. A purchased the shares at P1,200/share. ABC Corporation has 20,000
shares outstanding.
1. ESTATE TAX
Page 9 of 15
Required: How much is shares of stock shall be included in Mrs. A’s gross estate?
G. DEDUCTIONS FROM THE GROSS ESTATE:
1. Ordinary Deductions
Items of Deductions
a. Claims against the estate
Claims against insolvent persons
Unpaid mortgage
b. Transfer for public purpose
c. Property previously taxes (Vanishing
Deductions)
2. Special Deductions
Items of Deductions
a. Family home
b. Standard deduction
c. Amount received under R.A. 4917
3. Others
Item/s of Deductions
a. Share of Surviving Spouse
Resident alien or citizen decedent
Deductible -100%
Deductible
Deductible
Non-resident alien decedent
Deductible – Proportion
Phil. GE
x (C +C+ U)
World GE
Deductible
Deductible
Resident alien or citizen decedent
Deductible (P10,000,000)
Deductible (P5,000,000)
Deductible
Non-resident alien decedent
Not Deductible
Deductible (P500,000)
Not Deductible
Resident alien or citizen decedent
Deductible
Non-resident alien decedent
Deductible
H. DEDUCTIONS AMPLIFIED
Deductions
Indebtedness (Claims against
the estate)
These are the obligations of
the decedent which is
enforceable against him while
he is still alive and can be
enforced against his estate
upon his death.
Requisites for deductibility
Amount and items deductible
a. The liability represents a personal
obligation of the deceased existing at the
time of his death
b. The liability was contracted in good faith
and for adequate and full consideration
in money or money’s worth
c. The claim must be a debt or claim which
is valid in law and enforceable in court
d. The indebtedness must not have been
condoned by the creditor or the action to
collect from the decedent must not have
prescribed.
Debts or demands of pecuniary nature which
could have been enforced against the deceased
in his lifetime and could have been reduced to
simple money terms
Deducted
from
Common
property if
connected to
common
Exclusive
property if
connected to
exclusive
Claims against the estate or indebtedness in
respect of property may arise out of the
following sources:
1. Contract
2. Tort
3. Operation of law
e. If the claim was based on a debt
instrument, such instrument must be
NOTARIZED. (Except loans granted
by financial institutions where
notarization is not part of the business
practice of the financial institution
lender.)
Claims against insolvent
persons
This shall be deductible but
the full amount of the claim
must first be included in the
gross estate. Only the
uncollectible portion shall be
allowed as deductions.
Unpaid mortgage
1. ESTATE TAX
f. If a loan was incurred within 3 years
before the decedent death, the
administrator, or executor is required to
render a statement showing the
disposition of the loan proceeds.
a. The value of the claims is included in the
gross estate.
b. The debtors are incapable of paying their
debts.
a. The fair market value of the mortgaged
property undiminished by such
mortgage or indebtedness has been
included as part of the gross estate
b. The mortgage indebtedness was
contracted in good faith and for an
adequate and full consideration
Claims that are not collectible
Amount of unpaid mortgage
Common
property if
connected to
common
Exclusive
property if
connected to
exclusive
Common
property if
connected to
common
Exclusive
property if
connected to
exclusive
Page 10 of 15
2. Transfer for Public Use
a. Amount deductible
b. Requisites for deduction
c. Deducted from
Amount of all bequesst, legacies, devises or transfer to or for the use of the Government of the Philippines, or any
political subdivision for exclusively public purpose.
1. The disposition must be
a. testamentary in character (in the last will and testament) or
b. by way of donation mortis causa (should take effect after death)
c. executed by the decedent before his death.
2. In favor of the Government of the Philippines or any of its political subdivisions.
3. Exclusive for public purpose.
4. The value of the property given is included in the gross estate.
Exclusive property
3. Property Previously Tax (Vanishing Deduction) - This is a deduction derived from a property that was previously subjected to transfer tax.
a. Requisites for deduction
The present decedent must have died within five (5) years from the receipt of the property from a
1. Death
prior decedent or donor.
The property involved must have been a property transferred by a prior decedent or donor to the
2. Identity of the Property
present decedent or the property acquired in exchange for the original property so received.
The property must have formed part of the prior decedent’s gross estate situated in the
3. Inclusion of the Property
Philippines or been included in the total amount of the gifts of the donor made within 5
years prior to the present decedent’s death.
The estate tax on the prior succession must have been finally determined and paid by the prior
4. Previous taxation of the property
decedent. The same applies to gifts, in that donors must have taken care of the donor’s tax.
5. No previous vanishing deduction on the The vanishing deduction on the property must not have been claimed by the previous estate
involving the same property.
property
b. Rates of vanishing deduction – If the present decedent died within the following period after the date of prior decedent’s death or after the date
of donation:
More than
But not more than
The rate is
1 year
100%
1 year
2 years
80%
2 years
3 years
3 years
4 years
60%
40%
4 years
5 years
5 years
-
20%
0%
c. Format of computation
Value to take***
Less Mortgaged paid by the current decedent
Initial basis
Less: Proportional Deductions Initial basis x Claims-estate-insolvent plus unpaid mortgage plus TPU)
Gross estate
Final Basis
Multiply by Rate of Vanishing Deduction
Vanishing Deduction
Xxx
(xxx)
Xxx
(xxx)
Xxx
%
Xxx
*** Value taken is the LOWER between the fair market value of the property in the gross estate of the prior decedent or the fair market value of the
gift and the fair market value of the same property in the gross estate of the present decedent.
Notes:
1. Under conjugal partnership of gains vanishing is a deduction from exclusive property.
2. Under absolute community of property, vanishing deduction may be deducted from exclusive property or community property.
Exercise:
a. Ms. Khris Gayna, single, died leaving a property she inherited 3 ½ years ago with a fair market value of P800,000. During her father’s death,
it had a value of P750,000, and an unpaid mortgage of P100,00. P50,000 of the unpaid mortgage was paid by the present decedent.
Her gross estate, other than her inherited property had a fair market value of P1,300,000. The total expenses, claims against estate,
claims against insolvent, unpaid mortgage and transfer for public purpose amounted to P300,000.
How much is the vanishing deduction?
I. SPECIAL DEDUCTIONS
1. Family Home - The family home refers to the dwelling house, including the land on which it is situated, where the husband and the wife, or an
unmarried person who is the head of the family and members of the family reside, as certified by the Barangay Captain of the locality.
Conditions for the allowance of family home deduction from the gross estate:
a. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain
of the locality the family home is situated
1. ESTATE TAX
Page 11 of 15
b. The total value of the family home must be included as part of the gross estate of the decedent, and
c. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross
estate, or to the extent of the decedent’s interest (whether conjugal/community or exclusive), whichever is lower, but not exceeding P10,000,000.
Deductible amount
Classification of family home
Amount deductible
a. Exclusive property
Full value included in the gross estate or P10,000,000 whichever is lower
b. Conjugal/community property
c. Partly exclusive property, partly conjugal/community property
One-half (1/2) of the value included in the gross estate or P10,000,000
whichever
is lower
Exclusive part
(full value included in the gross estate)
Conjugal/Community part (1/2 x value included in the gross estate)
Total
Total or P10,000,000 whichever is lower
Exercises: Determine the allowable family home deduction.
FMV at the Time of Death of the Decedent
1. Exclusive family home
P 800,000
2. Exclusive family home
P 1,200,000
3. Common family home
P 1,200,000
4. Common family home
P 3,600,000
5. Exclusive family home (Decedent is single)
P 800,000
6. Exclusive lot
P 400,000
Common house
P 28,000,000
xxx
xxx
xxx
Deductible Amount
2. Standard DeductionAmount deductible
The amount deductible is P5,000,000 (citizen or a resident) P500,000 (nonresident) without any required substantiation
3. Amount Received by Heirs Under R.A. No. 4917
Amount deductible and Requisites
Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent employee in accordance
with Republic Act No. 4917 is allowed as deduction provided that the amount of the separation benefit is included as part of the gross
estate of the decedent
Amount Received By Heirs Under R.A. No. 4917
1. RA No. 4917 is entitled “an act providing the retirement benefits of employees of private firms shall not be subject to attachment, levy,
execution, or any tax whatsoever”
2. The amount received by heirs from decedent’s employer as a consequence of the death of the decedent employee is included in the gross
estate of the decedent
3. The amount above is also allowed as deduction from gross estate
J. OTHER DEDUCTIONS
1. Share of the Surviving Spouse- applicable only to married decedents
Gross Conjugal / community properties
Less: Conjugal / community deductions
Net conjugal/community properties (NCP)
Share of surviving spouse (1/2 x NCP)
Xxx
(xxx)
Xxx
Xxx
K. DEDUCTIONS FROM THE EXCLUSIVE OR CONJUGAL/COMMUNAL RPOPERTY UNDER THE
FAMILY CODE
a. Support of spouses, their common children and legitimate children of either spouse
b. All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the conjugal
partnership of gain or community, or by both spouses, or by one spouse with the consent of the other.
c. Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been
benefited
d. All taxes, liens, charges and expenses, including major and minor repairs, upon the conjugal/community property
e. All taxes and expenses for mere preservation made during the marriage upon the separate property of either spouse used by the
family
f. Expenses to enable either spouse to commence or complete a professional or vocational course, or other activity for selfemployment
g. Ante nuptial debts of either spouse insofar as they have rebounded to the benefit of the family
h. Value of what is donated or promised by both spouses in favor of their legitimate children for the exclusive purpose of
commencing or completing a professional or vocational course or other activity for self-improvement
i. Expenses of litigation between the spouses unless the suit is found to be groundless
j. Ante-nuptial debts of either spouse that did not redound to the benefit of the family
k. Support of illegitimate children of either spouse
l. Liabilities incurred by either spouse by reason of crime or quasi-delict
m. Loss during the marriage in any game of chance, betting, Sweepstakes, or any other kind of gambling whether permitted or
prohibited by law
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Conj/Comm
Exclusive
Exclusive
Exclusive
Exclusive
L. NET DISTRIBUTABLE ESTATE
1. ESTATE TAX
Page 12 of 15
1. Net distributable estate vs Net taxable estate
Net distributable estate
The result after the reduction of the gross estate by actual expenses or
payments
Net taxable estate
The result of the application of the law under estate taxation
Variance between them can be traced to deductions which do not involve
payment like vanishing deductions, standard deduction, and family
home. Where the actual amount of payment or expenses is higher than
allowed like funeral expenses or medical expenses.
Gross estate:
Real or immovable property
Tangible personal property
Intangible personal property
Transfer in contemplation of death
Revocable transfers
Transfer under the general power of appointment
Proceeds of life insurance
Exclusion such as SSS, GSIS, etc
Allowable deductions:
Claims against the estate
Claims against insolvent person
Transfer for public purpose
Vanishing deduction
Standard deduction
Family home
Net Taxable Estate
Distributable Net Estate
Included
Included
Included
Included
Included
Included
Included
Not included
Included
Included
Included
Not included
Not included
Not included
Included
Included
Actual
Actual
Actual
As computed
P5,000,000/P500,000
With limit
Actual
Actual
Actual
Not considered
Not considered
Not considered
Actual
As computed
Pxxx
Pxxx
Not considered
As computed
Amount received under RA 4917
Share of surviving spouse
NET TAXABLE ESTATE
Estate Tax Due
DISTRIBUTABLE NET ESTATE
* within the settlement period only
(xxx)
Pxxx
The rules in classifying property into conjugal and exclusive property are the same for purposes of computing the net distributable estate. For net
taxable estate purposes, standard deduction is a special deduction, which means that it is neither conjugal nor exclusive deduction. For net
distributable estate purposes, it is a conjugal deduction.
M. TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY
A tax credit is allowed to the estate of a citizen or resident alien decedent for estate tax paid to foreign countries pertaining to properties
which are part of the present estate.
1. Entitled to tax credit
Resident alien or Citizen decedents
2. Deducted from estate tax due
The estate tax imposed in the Tax Code shall be credited with the amounts of any estate tax imposed by the authority of a foreign country.
3. Limitations on credit
Amount Deductible
a. Actual Estate tax paid abroad
b. Limit
Limit
If there is only one foreign country involved
Net Estate, foreign
World Net Estate
x Philippine Estate Tax Due
Two or more foreign countries are involved (whichever is lower of the following):
Limit A- Per Foreign Country
World Net Estate
x Philippine Estate Tax Due
Limit B- All Foreign Countries
World Net Estate
x Philippine Estate Tax Due
Exercise
The following data are made available from the estate of a resident citizen decedent:
Net estate, Philippines
Net estate, USA (after paying P32,000 estate tax)
Net estate, Korea(before paying P200,000 estate tax)
Net estate, Australia
1. ESTATE TAX
P2,500,000
268,000
300,000
(100,000)
Page 13 of 15
1. How much is the allowable estate tax credit?
2. Assuming that the net estate in Australia is P400,000 and estate taxes paid was 60,000, How much is the allowable estate tax credit?
3. Assuming that all foreign net assets are located in only one foreign country and foreign estate tax paid was P800,000, How much is the allowable
estate tax credit?
N. ADMINISTRATIVE PROVISIONS
1. Estate Tax Returns
a. Tax form
b. Estate tax returns are filed
BIR Form 1801 – Estate Tax Return
1. In all cases of transfer subject to tax;
2. Where the said estate consists of registered or registrable property (regardless of the value of the gross estate).
a) Real Property
b) Motor Vehicle
c) Shares of Stock
c. Person/s who will file the returns
1. Executor
2. Administrator
3. Any of the legal heirs
d. Items shown in the returns
1. The value of the gross estate of the decedent at the time of his death, or in case of non-resident alien of that part of his gross estate situated in
the Philippines
2. The deductions allowed from the gross estate
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
e. Period when the returns are filed
Within 12 months (1 year) after the decedent’s death
f. Returns to be supported with statements certified by a CPA
When the estate tax returns show a gross value exceeding P5,000,000
g. Contents of the statements certified by a CPA
1. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in case of non resident alien, of that part of his
estate situated in the Philippines
2. Itemized deductions
3. The amount of tax due whether paid or still due and outstanding
h. Period when a certified copy of the schedule of partition and the order of the court ordering the same be filed
Within 30 days after the promulgation of such order
i. Extension period for filing the returns
The commissioner can, in meritorious cases, extend the filing of returns for a period not exceeding 30 days
j. Place where the returns can be filed
1) In case of resident decedent:
a) Accredited agent bank
b) Revenue district office
c) Collection officer
d) Duly authorized Treasurer of the city of municipality where the decedent was domiciled at the time of death
2) In case of non-resident decedent:
a) Revenue District Office where the executor or administrator is registered;
b) Revenue District Office having jurisdiction over the executor or administrator’s legal residence
c) Office of the Commissioner [Office of the BIR Commissioner (RDO No. 39- South Quezon City) if the estate does not have an
executor or administrator in the Philippines]
2. Payment of Tax
a. Time of payment of estate tax
At the time the estate tax returns are filed
b. Extension of time of payment od estate tax
1) Estate is settled through the courts – not to exceed 5 years
2) Estate is settled extra-judicially – not to exceed 2 years
c. Extension of payment of estate tax not allowed
When there is:
1. Negligence
2. Intentional disregard of rules and regulations
3. Fraud on the part of the taxpayer
d. Payment by installment
In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be allowed within two (2) years
from the statutory date for its payment without civil penalty and interest.
e. Liability for payment
1. The estate tax shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or
beneficiary.
2. Where there are two or more executors or administrators, all of whom are severally liable for the payment of tax.
3. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary
liability for the payment of that portion of the estate tax which his distributive share bears to the value of the total net asset.
3. Acts Requiring Certification from the Commissioner that the Estate Tax has been Paid
Acts requiring certification
1. Delivery of distributive shares to the heirs.
2. Registration in the registry of Deeds of transfer of inherited real property or real rights.
1. ESTATE TAX
Page 14 of 15
3.
4.
5.
Payments of debt by decedent’s debtor to the heirs, legatees, executor or administrator of the creditor-decedent.
Transfer of inherited shares, rights or bonds.
Withdrawal from decedent’s bank deposit (it shall allow any withdrawal from the said deposit account, subject to a final withholding tax of
six percent (6%).
4. Civil Penalties and Interest
Subject to interest but not to
surcharge
25% surcharge
50% surcharge
interest
Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to
interest but not to surcharge.
Penalty of 25% if there is no false or fraudulent intent on the taxpayer.
Penalty of 50% if there is false, malice, fraudulent intent on the taxpayer.
Interest of double the legal interest rate per annum on the unpaid amount of tax from the date computed until
fully paid.
PROBLEMS
1. An unmarried non-resident alien, died intestate on November 2, 20x1. The following data were provided by his estate:
House and lot, USA (family home)
P2,000,000
Investment in stock, Philippines
800,000
Investment in stock, USA
Investment in bonds, USA (85% of the business of the USA
Corp. is in the Phils.)
1,000,000
700,000
Cash in bank, Philippines
300,000
Cash on hand, Philippines
Accounts receivable from a debtor who resides in USA (fully
uncollectible)
50,000
200,000
Car, Philippines
800,000
Actual funeral expenses
150,000
Judicial expenses
300,000
Unpaid Philippine income tax for income in 20x0
120,000
Loss on December 31, 20x1 due to theft of cash on hand
10,000
Loss on sale of a portion of investment in stock, Phils.
20,000
Devise to Quezon City for children's playground
70,000
Medical expenses
Required:
1. How much was the Philippine gross estate?
2. How much was the total deductions from the Philippine gross estate?
3. How much was the net taxable estate in the Philippines?
4. How much was the estate tax payable in the Philippines?
2. The decedent is an unmarried head of family with the following data:
500,000
Real and personal properties
P2,000,000
Family home
900,000
Amount received by heirs under R.A. 4917
400,000
Claims against insolvent debtors
200,000
Ordinary deductions:
Funeral expenses (40% paid by relatives)
200,000
Judicial expenses (includes P50,000 incurred for the benefit of heir)
300,000
Losses (30% compensated by insurance)
100,000
Unpaid taxes (includes P5,000 income tax on income earned by the estate)
20,000
Unpaid mortgage on real property
30,000
Medical expenses
Required: How much is the net estate?
3. The decedent is a married man with a surviving spouse with the following data:
Conjugal real properties
Conjugal family home
Exclusive properties
Conjugal ordinary deductions :
Funeral expenses
Other deductions
Exclusive deductions
Medical expenses (including unpaid hospital bills amounting to
P200,000 incurred two (2) years before death)
Required: How much is the taxable net estate?
600,000
P5,000,000
1,500,000
2,500,000
150,000
1,300,000
500,000
500,000
END
1. ESTATE TAX
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