TAXATION
FAR EASTERN UNIVERSITY – MANILA
DONOR’S TAX (201)
A. Donation
1. Definition
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
2. Classification of Donations
a. From viewpoint of motive, purpose or cause
1) Simple—the cause is pure liberality
2) Remuneratory—due to past services rendered or future services or charges and burdens
3) Onerous—burdens and charges equal to the value of the thing donated
4) Modal—consideration is less than the value of the thing donated
b. Time of taking effect
1) Donation inter vivos – one made between living persons, and which is perfected from the time the donor knows of the acceptance of the done.
It is subject to donor’s tax.
2) Donation mortis causa –one which takes effect upon the death of the donor and, therefore partakes of the nature of a testamentary disposition.
It is subject to estate tax.
3. Formal Requisites of a Donation
Amount of donation
P5,000 or less
Form of donation
Oral or in writing
FORMAL REQUISITES
PERSONAL PROPERTY
More than P5,000
In writing otherwise VOID
REAL PROPERTY
Regardless of amount
In public instrument otherwise VOID
The acceptance may be made in the same instrument
(deed of donation) or in a separate public instrument.
If the acceptance is made in a separate instrument, the
donor shall be notified in authentic form.
Additional Requirement
Oral
donation
simultaneous delivery
requires
None
None
4. Essentials of a Taxable Gift
a) Capacity of the donor
b) Donative intent
c) A donee who shall accept the gift (acceptance of the gift)
d) Delivery of the gift
5. Completed Gift
a) Gift perfected and completed – it is perfected from the moment the donor knows of the acceptance of the done and it is completed by delivery to
the donee either actually or constructively of the donated property.
b) A gift that is incomplete because of reserved powers becomes complete when either,
1) the donor renounces the reserved power
2) the right to exercise the reserved power ceased because of the happening of some event or contingency or the fulfilment of some condition,
other than because of the donor’s death.
c) The donor’s tax shall not apply unless and until there is a completed gift.
6. Qualified Donors
All persons who may contract and dispose of their property may make a donation (Art. 735, Civil Code).
7. Qualified Donees
a. All those who are not specially disqualified by law therefor may accept donations (Art. 738, Civil Code).
b. Minors and others who cannot enter into a contract may become donees but acceptance shall be done through their parents or legal
representatives (Art. 741, Civil Code).
c. Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already
born (Art. 742, Civil Code).
B. Donor’s Tax
1. Definition of Donor’s Tax
Is a tax levied, assessed, collected and paid upon the transfer by any person, resident or non resident, of the property by gift.
2. Purpose/Objective of donor’s tax
a. To prevent avoidance of estate tax.
b. To compensate for loss income tax when large estate are split by donation.
2. Donor’s tax
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3. Requisites
a. There is a gratuitous transfer of property.
b. The donor and the done are both living at the time of the transfer.
C. Format of Computation (BIR Form 1800)
Total (gross) gifts
Less: Deductions (Exemptions)
Total net gifts
Add: Total prior net gifts
Total net gifts subject to tax
Tax due
Total tax due
Less: Tax credits/payments
Payments for prior gifts
Foreign donor’s tax pad
Tax paid in return previously filed, if this is an amended return
Tax payable (overpayment)
Pxxx
(xxx)
Pxxx
Xxx
Pxxx
Pxxx
Pxxx
(xxx)
(xxx)
Pxxx/(xxx)
D. Donor Tax Rates
The tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in excess of Two hundred fifty thousand pesos
(P250,000) exempt gift made during the calendar year.
E. Gross Gifts
1. Direct Gift
a. Types of properties
1) Real or immovable property
2) Tangible personal property
Examples
Land, building or similar structures, or improvements, which are fixed more or less permanently on the
ground such as monument.
Equipment, furniture, machines, paintings, jewelry, and similar property.
3) Intangible personal property
Rights and claims of the donor
Receivables or claims against another, bills and coins, bank deposits, shares of stock, bonds or
certificates of indebtedness, franchise and similar property or rights.
b. Classification of Donor
Resident Citizen
Non-Resident Citizen
Resident Alien
Non-Resident Alien
Properties located in the Philippines
Tangible
Intangible personal
Real properties
personal
properties
properties
/
/
/
/
/
/
/
/
/
/
/
/**
Properties located in a Foreign Country
Real properties
Tangible personal
properties
Intangible personal
properties
/
/
/
X
/
/
/
X
/
/
/
X
c. Rule of reciprocity (Non-resident Alien)**
1) Properties covered by reciprocity - Intangible personal property situated in the Philippines owned by non-resident alien donor.
Reciprocity can take place when the foreign country where the non-resident alien was a citizen and resident:
- Does not have any kind of donor’s taxes
- Has donor’s tax but allows exemption to non-resident Filipinos
2) Basic Rules
When there is reciprocity - The intangible personal property of non-resident alien situated in the Philippines are not included in the gross gift
When there is no reciprocity - The intangible personal property of non-resident alien situated in the Philippines are included in the gross gift
3) Intangible properties considered situated in the Philippines
The following shall be considered as situated in the Philippines (among others):
a) Franchise which must be exercised in the Philippines;
b) Shares, obligations or bonds issued by any corporation or sociedad anonima organized and constituted in the Philippines in accordance with its
law;
c) Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines;
d) Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the
Philippines;
e) Shares or rights in any partnership, business or industry established in the Philippines.
2. Indirect Gifts
a. Transfer for Less Than Adequate and Full Consideration
•
Rule: Where a property, other than a real property subject to capital gain tax, is transferred for less than an adequate and full consideration
2. DONOR’S TAX
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in 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 donor’s tax, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Provided,
however, that a sale, exchange or other transfer of property made in the ordinary course of business (a transaction which is a bon fide,
at arm’s length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or
money’s worth.
Ordinary Assets
Personal Property
Real Property
DT
DT
Capital Assets
Personal Property
Real Property
DT
CGT
Exceptions:
1) Real properties classified as capital assets transferred for less than adequate and full consideration (Capital Gains Tax)
2) Where the owner was compelled to sell his property to minimize his losses.
Exercise:
Determine if the transfer of property is subject to donor’s tax otherwise indicate what applicable tax apples.
FMV of
Consideration
Property
Received
Transactions
Transferred
1. Computer equipment used in business and transferred to his cousin.
P
30,000
P
40,000
2. Computer equipment for personal use and transferred to his cousin
P
50,000
P
40,000
3. Building for rent, sold to his best friend.
P 25,000,000
P 23,000,000
4. Building for rent, sold to his uncle.
P 25,000,000
P 30,000,000
5. House and lot sold to his sister.
P 5,000,000
P 3,000,000
6. Car for his personal use.
P 5,000,000
P 3,000,000
7. Car used in business.
P
400,000
P
300,000
Applicable Tax
b. Forgiveness of Debt
Cancellation and forgiveness of may result into payment of income tax or donor’s tax.
Norma/Regularl Income tax - when the debtor performs services for the creditor, who in return cancels the debt of the debtor. The debtor is
subject to income tax.
Donor’s tax – when the creditor without any consideration received from the debtor cancels the debt of the debtor. The creditor is liable to donor’s
tax.
Final Withholding Tax on Passive Income – When a corporation forgives the debt of a stockholder. It results to a payment of dividends subject
to final withholding tax on passive income.
3. Renunciation by Heir of Inheritance
Rules:
1) General renunciation (in favor of all heirs)
a) General renunciation by an heir of his share in the hereditary estate in favor of all the heirs – not subject to donor’s tax
b) General renunciation by the surviving spouse of his or her share in the in the conjugal or absolute community after the dissolution of the
estate in favor of the heirs of the deceased or any other person – subject to donor’s tax
2) Specific renunciation (in favor of one or more of the heirs but not all heirs)
a) Specific renunciation by an heir of his share in the hereditary estate in favor of one or more of the heirs - subject to donor’s tax
4. Gifts Through creation of a Trust
5. Others
a. Donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services.
b. Transfers a property to a trust in consideration of marriage. (Commissioner V. Wemyss (324 U.S. 303, 1945).
F. Valuation of Gifts Made in Property
1.
2.
If the gift is made in property, the fair market value of the property at the time of the gift shall be considered the amount of the gift.
In case of real property, the provisions in estate tax shall apply to the valuation of said real property.
G. Exemption of Certain Gifts/Deductions from Gross Gift
Exemption or deduction
Gifts to the government
Gifts to educational, charitable, religious, etc.
Encumbrances on gift assumed by donee.
Diminution of gift provided by donor
Diminution of gift – refers to the decrease in the value of property donated as a result of a condition
made by the donor to the donee.
RC/NRC/RA
NRA
1. Found in the Tax Code
2. DONOR’S TAX
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a. 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.
b. 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
Requisites:
1) not more than 30% of said gift shall be used by such donee for administration purposes.
Note:
A Non-stock educational and/or charitable corporation, institution, accredited non-government organization, etc. is a school, college or
university and/or charitable corporation, accredited non-government organization etc.:
a.
Incorporated as non stock entity
b.
Paying no dividends
c.
Governed by trustees who receive no compensation and
d.
Devoting all its income to the accomplishment and promotion of the purpose enumerated in its Articles of
Incorporation
2. Other Deductions
a. Encumbrance on the property donated if assumed by the donee
b. Those specifically provided by the donor as diminution from the property donated
3. Exempt Donations Under Special Laws
Donation to:
a. International Rice Research Institute (IRRI)
b. Philippine American Cultural Foundation
c. Ramon Magsaysay Award Foundation
d. Philippine Inventors Commission
e. Integrated Bar of the Philippines (IBP)
f. Development Academy of the Philippines (DAP)
g. National Social Action Council
h. Department of Southeast Asian Fisheries Development Center of the Philippines
i. National Museum
j. National Library
k. Archives of the National Historical Institute
l. Museum of Philippine Costumes
m. Intramuros Administration
n. Gifts and donation to the University of the Philippines (R.A. 9500).
o. Contributions to the National Book Trust Fund (R.A.9521).
p. Donation to qualified foster care agencies (R.A. 10165).
q.
Any contribution in cash or in kind to any candidate, political party, or coalition of parties for campaign purposes, shall be exempt from
donors tax (RA No. 7166)
(RMC 30-2016) Any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes, duly
reported to the Commission shall not be subject to the payment of any gift tax. Only those donations/contributions that have been
utilized/spent “during” the campaign period as set by the COMELEC are exempt from donor’s tax. Donations utilized before or after the
campaign period are subject to donor’s tax.
Note: Exempt Gifts
Exemptions are not to be treated as exclusion from the gross gifts of the donor. They partake the nature of deductions and are, therefore,
deductible from the gross gifts in order to arrive at taxable net gifts. Hence, same amount shall likewise be presented in the gross gifts of
the donor.
Exercises:
1. Determine the gross gift and the deduction from each of the following transactions below.
1. Real property donated, cost P1,000,000; fair market value P2,000,000 with unpaid mortgage of P400,000
assumed by the donee.
2. Real property donated, cost P1,000,000; zonal value P1,500,000; assessed value P2,000,000; appraisal
value P3,000,000 with unpaid mortgage of P400,000 assumed by the donor
3. Real property donated valued at P2,000,000 with unpaid real esate tax of P150,000 not assumed by the
donee.
4. Real property donated valued at P1,500,000, the donee agreed to assume the applicable donor’s tax of
P450,000
5. Personal property donated valued at P200,000, the donor provided that P10,000 of the property donated
be transferred by the donee to a social wefare organization
6. Personal property donated valued at P220,000, the donor did not provide any diminution on the property
donated
7. Real property used as parking space of the factory sold for P3,000,000; fair market value P4,000,000
8. Vehicle donated to Ramon Magsaysay Award foundation valued at P300,000
Gross gift
P2,000,000
Deduction
P400,000
P2,000,000
0
P2,000,000
0
1,500,000
0
P200,000
P10,000
P220,000
0
P1,000,000
P300,000
P300,000
H. Void Donations/Gifts
1. Under Art. 739 of the new civil code, the following donations shall be void:
2. DONOR’S TAX
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a. Those made between persons who were guilty of adultery or concubinage at the time of the donation.
b. Those made between persons found guilty of the same criminal offense, in consideration thereof.
c. Those made to a public officer or his wife, descendants and ascendants, by reason of his office.
In the case referred to in No.1. a., the action for declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the
donor and donee may be proved by preponderance of evidence in the same action.
2. Under Art. 87 of the new family code:
a. Every donation between the spouses, whether direct or indirect during the marriage shall be void.
Exceptions:
1) Moderate gifts, which the spouse may give each other on the occasion of any family rejoicing.
2) Donation mortis causa.
b. Between persons living together as husband and wife without a valid marriage.
3. Donations made to persons who are incapable of succeeding:
a. The priest who heard the confession of the testator during his last illness, or the minister of the gospel who extended spiritual aid to him during
the same period;
b. The relatives of such priest or minister of the gospel within the fourth degree, the church, order, chapter, community, organization, or institution
to which such priest or minister may belong;
c. A guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship have been
approved, even if the testator should die after the approval thereof; nevertheless, any provision made by the ward in favor of the guardian when
the latter is his ascendant, descendant, brother, sister, or spouse, shall be valid;
d. Any attesting witness to the execution of a will, the spouse, parents, or children, or any one claiming under such witness, spouse, parents, or
children;
e. Any physician, surgeon, nurse, health officer or druggist who took care of the testator during his last illness;
f. Individuals, associations and corporations not permitted by law to inherit.
The following are incapable of succeeding by reason of unworthiness:
g. Parents who have abandoned their children or induced their daughters to lead a corrupt or immoral life, or attempted against their virtue;
h. Any person who has been convicted of an attempt against the life of the testator, his or her spouse, descendants, or ascendants;
i. Any person who has accused the testator of a crime for which the law prescribes imprisonment for six years or more, if the accusation has been
found groundless;
j. Any heir of full age who, having knowledge of the violent death of the testator, should fail to report it to an officer of the law within a month,
unless the authorities have already taken action; this prohibition shall not apply to cases wherein, according to law, there is no obligation to
make an accusation;
k. Any person convicted of adultery or concubinage with the spouse of the testator;
l. Any person who by fraud, violence, intimidation, or undue influence should cause the testator to make a will or to change one already made;
m. Any person who by the same means prevents another from making a will, or from revoking one already made, or who supplants, conceals, or
alters the latter's will;
n. Any person who falsifies or forges a supposed will of the decedent. (756, 673, 674a)
I. Donation of a Common Property
1. With the exception of moderate donations for charity or on occasions of family rejoicing, neither spouse may donate any community property or
conjugal property without the consent of the other.
2. 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 donor’s tax
purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions
of the Civil Code of the Philippines and the Family Code of the Philippines.
J. Donations made by a Foreign Corporation
Donation of a foreign corporation of its own shares of stock in favor of a resident employee is not subject to donor’s tax (BIR Ruling No. 18-87,
January 26, 1987). Because it should be assumed that such were given to the resident employee in consideration of his services to the
corporation. Likewise, the same shall constitute taxable compensation to the recipient.
K. Splitting of Gift
1. A tax minimization scheme which is done by spreading the gift over numerous calendar years to avail of lower tax liability.
2. This scheme is legally permissible, means to reduce or escape totally from a possible tax liability.
3. The splitting method is applicable if the donor makes two or more donations during different calendar years. Under the splitting method, since the
donations are made during different calendar years, it is not required to include all donations in the last return.
L. Computation of Taxable Net Gift and the Donors Tax Due
1.
2.
3.
4.
5.
6.
Net gift shall mean the net economic benefit from the transfer that accrues to the donee.
The computation of the donor’s tax is on a cumulative basis over a period of one calendar year.
Husband and Wife are considered as separate and distinct taxpayers for purposes of donors tax.
The tax payable of the donor if the donee is (whether relative or stranger) 6% in excess of P250,000.
The donors tax shall not apply unless and until there is a completed gift.
The law in force at the time of the completion of the donation shall govern the imposition of donor’s tax.
2. DONOR’S TAX
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M. Tax Credit for Donor’s Taxes Paid to a Foreign Country
Only resident alien or citizen can claim tax credit (Because, they are the only ones tax worldwide. A non-resident alien is not taxed for his
donations in foreign jurisdictions).
Amount Deductible:
1.
Limit
a. Actual donor’s tax paid abroad
b. Limit
One foreign country
Net gift, foreign
Total net gifts
Whichever
lower
is
Allowed Tax
credit (lower
between actual
and limit)
x Philippine donor’s tax due
Actual
Foreign donor’s tax
2.
Two or more foreign country
Limit (a) - By country
Limit (b) - By total
xxx
xxx
Limit (lower between limits a and b)
xxx
Actual total foreign donor's taxes
xxx
Limit A – Per Foreign Country
Net Gift, per foreign country x
World Net Gift
Limit B – By Total
Net Gift all foreign countries
World Net Gift
Allowed Tax
Credit (lower
between
actual
and
allowed limit)
Philippine Donor’s Tax
x
Philippine Donor’s Tax
N. Filing of Return and Payment of Tax
1. Requirement
Any individual who makes any transfer by gift (except those which are exempt from donor’s tax) shall, for the purpose of donor’s tax, make a
return under oath in duplicate
2. Tax Form
BIR Form 1800-Donor’s Tax Return
3. Contents of the donor’s tax return
The return shall set forth:
a. Each gift made during the calendar year which is to be included in computing net gifts
b. The deductions claimed and allowable
c. Any previous net gifts made during the same calendar year
d. The name of the donee and
e. Such other information as may be required by rules and regulations made pursuant to law
f.
4. Time for filing of return and payment of tax
The return shall be filed within 30 days after the date the gift is made. The tax due thereon shall be paid at the time of filing
5. Place of filing of return
a. In case of resident donors:
1. Authorized agent bank
2. Revenue District Officer
3. Revenue Collection Officer
4. Duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer
b. In case of non-resident donors:
1. Philippine Embassy or Consulate where he is domiciled at the time of the transfer or
2. Office of the Commissioner
3.
6. Notice of donation by a donor engaged in business
The donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the RDO which has jurisdiction over
his place of business within 30 days after receipt of the qualified donee institution’s duly issued Certificate of Donation, which shall be attached
to the said Notice of Donation, stating that not more than 30% of the said donations/gifts for the taxable year shall be used for administration
purposes.
2. DONOR’S TAX
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7. Civil Penalties and Interest
25% surcharge
50% surcharge
Interest
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
Problem 1: Determine whether or not the following is subject to donor’s tax (Yes/No)
1. Husband donated conjugal property with the consent of the wife to charity event (charitable institution’s administration expenses exceed 30%
of the gift
2. Wife donated community property without the consent of the husband on occasion of their legitimate child’s birthday (amount of gift is
moderate)
3. Husband donated conjugal property, only the husband signed the Deed of Donation
4. Husband gifted his wife a diamond ring on occasion of her birthday
5. Wife gifted her husband a branded shirt of account of his birthday (amount is moderate)
6. Husband transferred some of his exclusive property to his wife, transfer to take effect after his death
7. Surviving spouse renounced his share in the conjugal partnership if favour of all the heirs in the hereditary estate
8. Surviving spouse renounced his share inthe community in favour of htis youngest son
9. Taxpayer donated to the campaign fund of a candidate, duly reported to the COMELEC
10. Donee failed to indicate his acceptance of the donation before the transferor died
11. Donee signified his acceptance of the donated property known to the donor before he died, delivery of the donated property done after the
transferor died
Yes
Yes
Yes
No
Yes
No
Yes
Yes
No
No
Yes
Problem 2: Don and Dona H, Filipino citizens, made conjugal donations during the year as follows:
20X1:
November 30
To their son on account of marriage, P300,000
To their daughter-in-law on account of marriage P100,000
December 30
To their friend P600,000 on condition that the latter will give P120,000 of the total gift to charity. (Diminution)
20X2:
January 1
To Liberal Party (exclusive money of Don), P500,000
To Philippine Government, P1,000,000
To Chinese Government, P200,000
March 31
To their nephew on account of graduation, P50,000
To their godson on account of marriage, P100,000
To their church, P200,000
June 30
To their daughter, real property, P1,000,000 subject to suspensive condition of passing the CPA Exam. Their daughter
intends to take the exam in 20X3
To their son, house and lot on account of marriage last year November 30, 20X1, P2,000,000 subject to a mortgage of
P400,000 assumed by their son
October 30
To each other, P1,000,000 car from Dona to Don and P2,000,000 worth of jewelries from Don to Dona on account of
marriage anniversary
December 30
To Ramon Magsaysay Foundation P500,000
To their son, P500,000
To their daughter-in-law, P100,000
To their daughter, P500,000
Required: Compute the amount of donor’s tax still due of Don on:
1. November 30, 20X1
2. December 30, 20X1
3. January 1, 20X2
4. March 31, 20X2
5. June 30, 20X2
6. October 30, 20X2
7. December 30, 20X2
Problem 3
Net gift, Philippines
P200,000
Net gift, United States
150,000
Net gift, Japan
50,000
Gift tax paid, United States
4,000
Gift tax paid, Japan
3,500
Required: Assumed a resident citizen donor, compute the gift tax due after tax credit is
END
2. DONOR’S TAX
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