ESTATE TAX
Discussion #1
PROPERTY
● Ownership
● Estate = property ng patay
TRANSFERRING PROPERTY
● How is ownership transferred?
○ Gratuitous
■ Here, the cause of the contract is liberality (without exchange for
anything)
■ Transferring the property through
● Donation
○ 2 kinds:
■ Donation inter vivos
● Donation of property takes effect during
the lifetime of the donor.
● Donor’s tax (dor inter vivos)
■ Donation mortis causa
● The donation which takes effect upon
the death of the donor.
● Estate tax (for mortis causa)
● Succession / Inheritance
○ 2 kinds:
■ Testate succession
● May last will and testament
● By operation of last will and testament,
subject to limitations
● 2 ways:
○ Notarial
■ Not handwritten.
■ May
witnesses
na
signatory
■ May notary public
○ Holographic will
■ Isusulat nung mismong
donor
■ Intestate succession
● Walang last will and testament
● operation of law
○ Onerous
■ Here the cause has valuable consideration. May kapalit.
■ There is an exchange of titles over things (emphasis supplied).
■ Income Tax (Section 24)
● Capital gains tax - 6% of the fair market value or the gross
selling price, whichever is higher.
- If the property is a capital asset used in the
business.
● Ordinary Tax (Section 24,1b)
- If ordinary asset and NOT used in business
- For individuals
- If corporation: NOT Ordinary tax but Corporate
tax.
Discussion #2
ESTATE TAX
● Computation
○ Gross estate - Deduction = Net estate
○ See Section 6 of RR 12-2018
● Gross Estate
○ Means all properties left by the decedent at his time of death.
○ If you are single (not married) and you die, that is your property. If you are
married, mayroon nang complication.
■ In this case, kailangan na determine kung aling properties belong to
you exclusively and which properties are part of the conjugal
property.
● Bakit?
○ Kasi di kasama sa computation ng Gross Estate mo
yung conjugal property.
● Gross Estate, how determined
○ See discussion on Property Relations
○ Community property
■ Value of the estate divided by two lang yung taxable (50% ng
property).
○ Exclusive Property
■ 100% of value of the property taxable
Discussion #3
● A tax the heirs will have to pay through the estate of the decedent
● PURPOSE: tax on the PRIVILEGE TO TRANSFER THE PROPERTY OF THE
PERSON UPON HIS DEATH.
● This is NOT a tax on the fact that a person dies.
● This is also NOT a tax on the privilege to receive the property. This is inheritance
tax if so.
In this course, we will undertake to determine the TOTAL AMOUNT PAYABLE.
How much is Estate Tax?
● 6%
● You have to settle this within 1 year from the death of the decedent in order for
you not to incur penalty fees. Settling means not merely paying. It means
PAYING THE COMPLETE AMOUNT.
● Process of getting the property.
○ Compute the tax
○ Go to the bank
○ Pay.
○ No intervention of BIR is needed in order to pay.
○ Go to BIR AFTER this and get a clearance because the registry of the
property will not transfer the property to you unless you pay the correct
amount of estate tax.
● What to bring to the BIR?
○ Estate Tax Return
■ Document filed to pay Estate Tax.
■ Here, you list down all the properties of the decedent, which the
heirs will divide among themselves.
■ This is essentially a contract among the heirs of the decedent on
how they will divide the properties among themselves.
○ As a matter of requirement, kailangang may kasama itong
EXTRAJUDICIAL SETTLEMENT OF ESTATE
Computation
I. Net Taxable Estate
PART 1: Computation of Net Taxable Estate
A. Gross Estate - deductions = Net estate
NOTE:
1. Gross Estate = 2(a) + 2(b) + 2(c) + 2(d) + 2(e)
a. Categories of Properties for taxation purposes:
i.
Real properties excluding family home
ii. Family home
iii. Personal properties
iv.
Taxable Transfer
v. Business Interest
2. Magkahiwalay ang exclusive sa conjugal property doon sa form.
3. Deductions
a. Ordinary
b. Special
B. Net Estate - Share of the Surviving Spouse = Net taxable estate
II. Estate Tax Due
A. Net taxable estate * 6% = Estate tax due
B. Estate tax due - Tax Credits or Payments = Tax Payable
NOTE:
1. Tax Credits or Payments only apply when the decedent has
property abroad. We will discuss this later on in the course.
2. Tax Credits of Payments:
a. Foreign Estate Tax Paid
b. Tax paid in return previously filed, if the return being filed is
an amended return
C. Tax Payable + Penalties = Total Amount Payable
NOTE:
1. Penalties:
a. Surcharge
b. Interest
c. Compromise
III. Net Share of Surviving Spouse
Step 1: Add all conjugal properties.
Step 2: Deduct ordinary deductions to get NET CONJUGAL PROPERTY.
Step 3: Divide NET CONJUGAL PROPERTY by 2.
Step 4: The quotient is called the Net share of the surviving spouse.
IV. Ordinary Deductions
● For Filipino Citizens and Resident Aliens
● Not Applicable to:
○ Non-resident aliens
● Computation of Net Estate (TRAIN LAW)
Ordinary deductions
● Ordinary Deductions are obligations left by the decedent at the time of death
which will have to be taken from the estate and directly reduced from estate tax.
a. NOTE: “At the time of death” so kapag nabayaran na BEFORE death, di
na sya kasama.
● Kinds of Ordinary Deductions:
A. Claims Against Estate
● Under the Revenue Regulation, the meaning of “claim” somehow expanded. It is
expanded to include other pecuniary demands or money claims enforced against
the deceased.
● Requisites for deductibility of claims against the estate
Evidentiary requirement
● Ex. B borrowed money from A in the amount of 1,000,000 pesos. Dapat
notaryado. Otherwise, di sya made-deduct.
○ XPN: kapag financial institution sya at notarization is not part of the
business practice/policy of the financial institution-lender.
● 2 pieces of evidence required:
○ Notarized promissory note
○ Notarized Sworn certification signed by the president of the corporation or
the individual if lender is not a corporation.
B. Claim of Deceased Against Insolvent Persons
●
○ Here, ang deceased ang creditor.
● A credit is an asset kasi kaya dapat syang included sa gross estate. Also note na
insolvent persons ang debtor dito.
C. Unpaid Mortgage or any indebtedness in respect of property included in Gross
Estate, Taxes, Casualty Loss
● Ex. Upaid mortgages: sangla
● Ex. indebtedness in respect of property: di nabayarang workers na nag-paint ng
bahay
● Evidentiary requirements:
a. For unpaid mortgage
■ Registered in the registry of deeds
■ Notarized mortgage
b. Indebtedness:
■ Anything that can prove that debt has been paid AFTER the debt.
■
● Unpaid taxes at the time of the death of the decedent
● What about taxes due after the death?
○ No longer the obligation of the decedent since
succession takes place after the death of the
decedent. Hence, it is no longer the decedent’s
obligation. Therefore, this is no longer deductible.
■
● Ex. Pedro owns a house and a lot worth 10,000,000 and
20,000,000, respectively. 10 days after he died, the house
burned. Here, you have to declare the amount of 30,000,000
(pinagsama). Of course, deductible ang 10,000,000 (amount
ng nasunog na bahay).
○ What if nasunog after 1 year?
■ Di na included. What is the remedy? Dont
include the house anymore kasi nasunog na.
● Special Deductions:
1. Standard Deduction of 5 million (1 million prior to TRAIN Law)
●
● Applicable to:
○ Citizens
○ Resident Alien
● Not applicable to:
○ Non-resident Alien. In wose case, 500,000 lang ang
deduction.
2. Property previously taxed on property located in the Philippines
● Vanishing deductions
○ Deductions vanishing after 5 years
○ If A inherited house and lot from B (his father) worth 10
million pesos. This property was inherited by B from C, A’s
grandfather.
■ For A to avail of this deduction, B must have died
within 5 years from C’s death.
● Ex. 2022 today, 2015 namatay si B, 2013
namatay si C.
● Requirements / Requisites for deductibility
○
● Evidentiary requirements:
○ Kailangan ipakita mo na kasama sya sa gross estate ng
unang decedent.
● How do we compute this?
○
○
○ Ex.
■
■
■
■
Value of the property: 1,000,000
Namatay si C (grandpa) in March 2019
Namatay si B (tatay) in April 2019
Here, 100% of the final basis ang deduction. Here,
hindi 1,000,000 ang ide-deduct. I-compute mo muna
kung magkano yung vanishing deduction.
● How?
○ Phase 1: Compute first the net estate of
the father.
■ Step 1: determine the value of
the property at the time C died.
■ Step 2: determine the value of
the property at the death of B.
■ Step 3: determine which one is
the lower amount. ‘Yun ang
susundin for the purposes of
vanishing deduction.
■ Step 4: lower value minus
obligations of C paid by B.
■ Product nito ay called INITIAL
BASIS.
○ Phase 2: determine final basis
■ Initial basis divided by total gross
estate. After this, multiply it by B’s
claim against the estate, claim
against insolvent person unpaid
mortgages, transfer for public
use.
■ Product nito ay called FINAL
BASIS.
○ Phase 3: Determine the value of
vanishing property.
■ Final basis multiplied by rates for
vanishing deduction. (100% ito sa
example since namatay si B
within 1 year)
3. Transfer for public use
● If the transfer was done before the death of the decedent, it should
no longer be part of the gross estate.
● If A donated the property through will to the government (at the time
of his death), kailangan itong kasama sa gross estate pero
deducted.
4. The family home (not qualified)
● If the decedent left a property, and this is where the family resides,
10,000,00 pwede i-deduct.
○ Medyo complicated kapag conjugal property.
■ Ex. Value of house: 30 million.
■ Conjugal property ang house so 15 million kay
husband, 15 million kay wife.
● Here, pag namatay si husband, 10 million lang
ang ide-deduct. Same for wife.
■ What if 10 million ang value ng house?
● 5M kay husband; 5M kay wife.
○ Here, 5M lang i-deduct pag namatay si
husband. 5M lang din kay wife.
D. Unpaid Taxes
● Ex. Upaid mortgages: sangla
● Ex. indebtedness in respect of property: di nabayarang workers na nag-paint ng
bahay
● Evidentiary requirements:
a. For unpaid mortgage
■ Registered in the registry of deeds
■ Notarized mortgage
b. Indebtedness:
■ Anything that can prove that debt has been paid AFTER the debt.
● Unpaid taxes at the time of the death of the decedent
● What about taxes due after the death?
No longer the obligation of the decedent since succession takes place after the death of
the decedent. Hence, it is no longer the decedent’s obligation. Therefore, this is no
longer deductible.
D. Losses Incurred during Settlement of the Estate
● Ex. Pedro owns a house and a lot worth 10,000,000 and 20,000,000,
respectively. 10 days after he died, the house burned. Here, you have to declare
the amount of 30,000,000 (pinagsama). Of course, deductible ang 10,000,000
(amount ng nasunog na bahay).
a. What if nasunog after 1 year?
■ Di na included. What is the remedy? Dont include the house
anymore kasi nasunog na.
E. Civil Liability for Tortious Acts Committed before Marriage
● RR 12-2018: RR No 12-2018.pdf (bir.gov.ph)
● Deductible as ordinary deduction
F. Transfer for Public Use
● If the transfer was done before the death of the decedent, it should no longer be
part of the gross estate.
● If A donated the property through will to the government (at the time of his
death), kailangan itong kasama sa gross estate pero deducted.
G. Property Previously Taxed on property located in the Philippines (Vanishing
Deduction)
● Vanishing deductions
○ Deductions vanishing after 5 years
○ If A inherited house and lot from B (his father) worth 10 million pesos. This
property was inherited by B from C, A’s grandfather.
■ For A to avail of this deduction, B must have died within 5 years
from C’s death.
● Ex. 2022 today, 2015 namatay si B, 2013 namatay si C.
● Requirements / Requisites for deductibility
● Evidentiary requirements:
○ Kailangan ipakita mo na kasama sya sa gross estate ng unang decedent.
● How do we compute this?
Ex.
●
●
●
●
Value of the property: 1,000,000
Namatay si C (grandpa) in March 2019
Namatay si B (tatay) in April 2019
Here, 100% of the final basis ang deduction. Here, hindi 1,000,000 ang
ide-deduct. I-compute mo muna kung magkano yung vanishing deduction.
○ How?
■ Phase 1: Compute first the net estate of the father.
● Step 1: determine the value of the property at the time C
died.
● Step 2: determine the value of the property at the death of B.
● Step 3: determine which one is the lower amount. ‘Yun ang
susundin for the purposes of vanishing deduction.
● Step 4: lower value minus obligations of C paid by B.
● Product nito ay called INITIAL BASIS.
■ Phase 2: determine final basis
● Initial basis divided by total gross estate. After this, multiply it
by B’s claim against the estate, claim against insolvent
person unpaid mortgages, transfer for public use.
● Product nito ay called FINAL BASIS.
■ Phase 3: Determine the value of vanishing property.
● Final basis multiplied by rates for vanishing deduction.
(100% ito sa example since namatay si B within 1 year)
V. Special Deductions
A. Standard Deduction
● Standard Deduction of 5 million (1 million prior to TRAIN Law)
● Applicable to:
○ Citizens
○ Resident Alien
● Not applicable to:
○ Non-resident Alien. In wose case, 500,000 lang ang deduction.
B. Family Home
● If the decedent left a property, and this is where the family resides,
10,000,00 pwede i-deduct.
○ Medyo complicated kapag conjugal property.
■ Ex. Value of house: 30 million.
■ Conjugal property ang house so 15 million kay
husband, 15 million kay wife.
● Here, pag namatay si husband, 10 million lang
ang ide-deduct. Same for wife.
■ What if 10 million ang value ng house?
● 5M kay husband; 5M kay wife.
○ Here, 5M lang i-deduct pag namatay si
husband. 5M lang din kay wife.
C. Amount Received by Heir Under R.A. 4917
● Deduct mo lang lods
Property Regime
Discussion
● In this discussion, the validity of marriage is presumed.
○ Again, for the purposes of this discussion lang ni Atty. Chua.
● Note:
○ The Family Code took effect on August 5, 1988. Hence, for cases before
the stated date, the governing law is Article 119 of the Civil Code, to wit:
“
Article 119. The future spouses may in the marriage settlements
agree upon absolute or relative community of property, or upon
complete separation of property, or upon any other regime. In the
absence of marriage settlements, or when the same are void, the
system of relative community or conjugal partnership of gains as
established in this Code, shall govern the property relations
between husband and wife.
”
● GENERAL RULE: Once you get married, the DEFAULT RULE is system of
absolute community.
○ Absolute community (Article 91,FamCode)
■ A property regime which says that all the properties you hold at the
time of marriage belongs to the community.
● Ex. Nathaniel is a lawyer and he got married at the age of
35. He has a house and a Volvo and he also owns a
business worth 70 Miliion and he is also earning income. He
met X (girl) and he married her. She doesn’t have much but
a 100,000 pesos in her bank account.
● Here, lahat ng properties ni Nathaniel also belongs to X and
X’s 100,000 also belongs to Nathaniel.
■ Exception:
● Except for properties which are excluded:
○ Those set forth in Article 92 of FamCode:
■ Inherited properties DURING marriage
■ Personal properties exclusively used by either
spouse like toothbrush, clothing.
● Q: Exempted ba ang jewelry?
● A: No. Community property pa rin yan.
■ Properties of the spouse who was married
before and has descendants + fruits and
income from that property
■ etc…
■ Liability of Community: (Art. 94)
● All debts, with the consent of the other spouse
● All debts, without the consent of the other spouse so long as
it benefitted the family.
● All taxes and expenses for the preservation of property.
● Antenuptial (before marriage) debts so long as it benefitted
the family.
○ Conjugal partnership of gains
■ A property regime stipulated in the marriage settlement. In the
presence of this stipulation, di na regime of absolute community
ang masusunod.
● Ex. Nathaniel is a lawyer and he got married at the age of
35. He has a house and a Volvo and he also owns a
business worth 70 Miliion and he is also earning income. He
met X (girl) and he married her. She doesn’t have much but
a 100,000 pesos in her bank account.
○ Here, lahat ng properties ni Nathaniel, kay Nathaniel
pa rin. Lahat din ng properties ni X, kay X pa rin. Pero
yung GAINS/INCOME from those properties, sa
conjugal partnership na.
○ What about properties acquired AFTER marriage?
■ PRESUMPTION: sa conjugal partnership na.
NOT exclusive sa isang spouse lang.
● Exceptions: those set forth in Article 109 of FamCode
(properties owned EXCLUSIVELY by each spose).
○ Those properties brought to the marriage as his or her
own
○ All properties bartered for using the property of the
spouse.
○ Etc…
● See also conjugal partnership of spouse (Article 117).
○ Complete separation of all properties
■ A regime na hiwalay lahat ng properties, including gains.
● Ex. Nathaniel is a lawyer and he got married at the age of
35. He has a house and a Volvo and he also owns a
business worth 70 Miliion and he is also earning income. He
met X (girl) and he married her. She doesn’t have much but
a 100,000 pesos in her bank account.
○ Here, hiwalay na hiwalay talaga pati gains. Kay
Nathaniel lahat ng properties nya at gains therefrom.
Kay X lahat ng properties ni X and gains therefrom.
● Property Regime WITHOUT Marriage (A147 to ??)
○ Wages and salaries = owner together equally
○ Property ownership = governed by law on co-ownership
○ Presumption: lahat ng properties nila ay pinaghirapan nila TOGETHER.