SOLUTIONS MANUAL
TRANSFER & BUSINESS TAXATION, 2018 Edition
By: TABAG & GARCIA
CHAPTER 1 – SUCCESSION & TRANSFER TAXES
TRUE OR FALSE
1. TRUE
2. TRUE
3.
4.
5.
TRUE
FALSE
FALSE
6.
7.
TRUE
FALSE
11.
12.
FALSE
TRUE
16.
17.
TRUE
FALSE
8.
9.
10.
FALSE
TRUE
FALSE
13.
14.
15.
TRUE
TRUE
FALSE
18.
19.
20.
TRUE
TRUE
TRUE
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
D
B
B
D
B
D
D
B
D
B
B
MULTIPLE CHOICE
1. D
12. C
23. D
2. A
13. C
24. B
3. D
14. B
25. D
4. C
15. D
26. D
5. C
16. C
27. B
6. A
17. B
28. D
7. B
18. D
29. A
8. A
19. C
30. D
9. B
20. B
31. B
10. A
21. B
32. A
11. D
22. B
33. D
**Inheritance and repudiation takes effect upon death of the decedent
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
B
C
D
D
A
B
A
D**
D
D
B
CHAPTER 2 – GROSS ESTATE
PROBLEM SOLVING
(P2.1)
(1) P19,300,000
(4) P14,300,000
Citizen/ Resident
(# 1 & 2)
Family home in the Philippines
P8,000,000
Parcel land of with vacation house in Malaysia
5,000,000
Farm land in the Philippines
3,000,000
Shares of stock of a DC
2,000,000
Shares of stock of a foreign corporation the entire business of which is
500,000
in the Philippines, deposited in a bank safety deposit box in Malaysia
Receivable from a friend who has no property whatsoever
300,000
Receivables under insurance policies:
§
Life insurance with his estate as revocable beneficiary
200,000
§
Life insurance with his daughter as revocable beneficiary
300,000
§
Life insurance with his son as irrevocable beneficiary
§
Life insurance (group) taken by the employer of the decedent
§
Property insurance for loss of property
50,000
§
Accident insurance, for injury sustained
50,000
TOTAL GROSS ESTATE
P19,300,000
1|
(2) P19,300,000
(3) P11,800,000
NRA with R
(# 3)
P8,000,000
NRA w/o R
(# 4)
P8,000,000
3,000,000
3,000,000
2,000,000
500,000
300,000
300,000
200,000
300,000
50,000
50,000
P11,800,000
200,000
300,000
50,000
50,000
P14,300,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P2.2)
To Juan
To Pedro
To Maria
To Sisa
Total Gross Estate
P25,000,000
18,000,000
15,000,000
20,000,000
P78,000,000
(P2.3)
(P2.4)
Shares of stock (Frozen Co.)
[(P8M+3M)/800,000sh x 100,000 shares
P1,375,000
Shares of stock (Divergent Co..)
100,000 shares x P15**
1,500,000
Shares of stock (Lenovo Co..)
100,000 shares x P12
1,200,000
Total Gross Estate
P4,075,000
***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003)
(1)P230,0000; (2)P1,100,000; (3)P0; (4)P5,000,000; (5)P1M + [1M x (1M x 10% x 1.5)] = P1,150,000
MODIFIED IDENTIFICATION
EXERCISE A
1. Included
6. Excluded
2. Included
7. Excluded *
3. Excluded
8. Included **
4. Included
9. Excluded
5. Excluded
10. Included***
*Designated by the prior decedent
**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross estate before
deducting the same from the gross estate.
*** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly states that not
more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for
administrative purposes, the tax code still require these items to be included first in the gross estate before deducting the same for
estate tax purposes.
EXERCISE B
EXERCISE C
1.
2.
3.
4.
5.
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. FALSE
5. TRUE
MULTIPLE CHOICE
1. A
2. B
3. D
4. B
5. C
6. C
2|
P0; valid sale
P0; valid sale
P0; valid sale
P4,000,000
P6,000,000
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
FALSE
FALSE
FALSE
TRUE
TRUE
11.
12.
13.
14.
15.
FALSE
TRUE
TRUE
FALSE
FALSE
16.
17.
18.
19.
20.
TRUE
TRUE
FALSE
TRUE
FALSE
16.
17.
18.
19.
20.
21.
D
C
B
D
A
D
31.
32.
33.
34.
35.
36.
C
C
B
A
B
B
46.
47.
48.
49.
50.
51.
C
D
C
A
C
D
P10M
P20M
P5M
P10M
P0
61.
62.
63.
64.
65.
66.
A
A
A
C
D
B
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
7.
8.
9.
10.
11.
12.
13.
14.
15.
A
B
A
A
A
B
D
A
C
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
A
B
C
C
C
C
D
B
37.
38.
39.
40.
41.
42.
43.
44.
45.
D
B
B
C
C
C
B
B
B
52.
53.
54.
55.
56.
57.
58.
59.
60.
D
C
C
C
B
D
C
C
A
67.
68.
69.
70.
71.
72.
73.
74.
A
C
C
D
D
A
D
D
Supporting Computations (Multiple Choice):
(22).
Common stock-Sunchamp [(P40+39)/2] x 2,000 shares
Common stock – AgriNurture (1,500 shares x P45)
Preferred stock – Greenery (3,000 shares x P50 par value)
Car @ FMV
Real properties @ zonal value
Total Exclusion from the gross estate
P79,000
67,500
150,000
400,000
120,000
P816,500
Bank deposit in the foreign branch of a domestic bank
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Exclusion from the gross estate
P500,000
300,000
1,000,000
(23).
800,000
200,000
P2,800,000
(24).
House and lot, family home in Quezon City
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Inclusion from the gross estate
P1,500,000
300,000
1,000,000
800,000
200,000
P3,800,000
(26).
Shares of stocks, domestic corp.
(certificate kept in UK)
Shares of stocks, domestic corp.
(certificate kept in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Intangibles subject to reciprocity
P250,000
100,000
200,000
50,000
P600,000
(27).
Land & building, Philippines
House and lot, Philippines
Shares of stocks, domestic corp. (certificate kept in UK)
Shares of stocks, domestic corp. (certificate kept in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Gross Estate
3|
P2,000,000
3,500,000
250,000
100,000
200,000
50,000
P6,100,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(33).
(34).
(35).
(36).
(P12M/100,000) x 1,000 shares = P120,000
P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share
P110 x 1,000 shares = P110,000
(P140 + P80/2) x 1,000 shares = P110,000
(44).
Consideration
received
Land
P1,500,000
Shares of stock
100,000
Vintage car
50,000
Painting
250,000
INCLUSION IN THE GROSS ESTATE
(48).
FMV upon transfer
FMV upon death
P1,500,000
50,000
80,000
400,000
P2,000,000
150,000
100,000
500,000
Gross Estate
None. Valid sale
None. Valid sale
P50,000
250,000
P300,000
Includible in the Gross Estate = FMV @ time of “+” less Consideration received = P300k-P100k = P200,000
CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE
PROBLEM SOLVING
(P3.1) (Funeral Expenses)
Case A: P150,000;
(P3.2)
(P3.3)
Case B: P200,000;
Case C: P150,000;
Case D: P150,000
(Funeral Expenses)
Question # 1: Actual P300,000 vs Limit of P175,000 ; Funeral expenses = P175,000;
Question # 2: none
P0
Mourning clothing (donated by the decedent’s employer)
Expenses paid by relatives
Telecommunication charges paid by the friends
Cost of burial plot, coffin, interment fees and other funeral charges paid by
an insurance company
DEDUCTIBLE FUNERAL EXPENSE
P-nil-
(P3.4) P183,500 computed as follows:
Embalming charges
P15,000
Burial apparel of the decedent
3,500
Cost of coffin
85,000
Mourning apparel of the surviving spouse during the burial
2,000
Mourning apparel of the minor child (P12,000/6)
2,000
Snacks and drinks during the wake
12,500
Honoraria of priest for daily masses before burial
4,000
Telecommunication charges to inform relatives
10,000
Charges for death notice published in a newspaper
1,500
Cost of video footage of the burial and interment
12,000
Funeral car service during interment
4,000
Honorarium of priest who celebrated the mass during interment
2,000
Cost of tombstone
30,000
ACTUAL FUNERAL EXPENSE
P183,500
Vs. Limit (P5% of P10M)
500,000
ALLOWABLE FUNERAL EXPENSE
P183,500
NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to “medical expenses”
4|
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P3.5)
Question 1: P217,500
Question 2: P217,500
Same answer with question #1. Whether or not the estate was settled judicially is irrelevant in the
determination of allowable deduction for judicial expenses.
Solution:
Expenditures incurred for the collection of assets and payment of debts
P100,000
Attorney’s fees (1/2 were incurred after six months) P40,000 x 1/2
20,000
Accountant’s fees
25,000
Executor’s commission
15,000
Appraiser’s fees
2,500
Court fees
18,000
Cost of preserving and distributing the estate
15,000
Cost of storing or maintaining the property of the estate
12,000
Brokerage fees for selling property of the estate
10,000
Total allowable judicial expenses
P217,500
(P3.6) P265,000 computed as follows:
To the executor, for time and effort in executing the will
To a lawyer, for legal advice in carrying out the will
To an appraiser, for establishing property values
To an accountant, for estate tax return preparation
Court fees
Cost of preserving and distributing the estate
Cost of storing or maintaining the property of the estate
Brokerage fees for selling property of the estate
DEDUCTIBLE JUDICIAL EXPENSES
P30,000
80,000
70,000
30,000
18,000
15,000
12,000
10,000
P265,000
(P3.7) P2,500,000 computed as follows:
Loss due to shipwreck, two (2) months after the decedent’s death.
Robbery loss, seven (7) months after the decedent’s death. The decedent’s
executor was allowed by the Bureau of Internal Revenue to extend the filing
(within the period allowed by the Tax Code) **Assume Prior to TRAIN Law
Allowable Deduction
(P3.8) P2,097,000 computed as follows:
Ordinary Deductions:
Claim against insolvent person (500,000-400,000)
Unpaid taxes on the estate before death
Unpaid mortgage on the estate
Funeral expenses
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses
Unpaid loans arising from debt instruments (notarized)
Unpaid loans arising from debt instruments (not notarized). The debt
instrument was issued by a financial institution not requiring notarizations
for debt instruments issued
Casualty loss
Special Deductions:
Standard deduction
Medical expenses
Total Allowable deduction from the gross estate
5|
P500,000
2,000,000
P2,500,000
P100,000
150,000
200,000
200,000
100,000
125,000
75,000
65,000
1,000,000
82,000
P2,097,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P3.9) (Claim Against Insolvent Persons)
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable
Collectible portion (400/1,200) x 500,000
Deductible claim (Uncollectible portion)
P500,000
(166,667)
P333,333
Case C: P0. Debtor is not insolvent
Case D: P250,000
Total Assets
Taxes payable (Gov’t is a priority creditor)
Assets after deducting unpaid taxes
P1,200,000
(800,000)
P400,000
Receivable (CAIP)
Collectible (400/800) x 500,000
Deductible Claim against Insolvent Persons
P500,000
(250,000)
P250,000
(P3.10) P200,000 computed as follows:
Uncollectible receivable from Juan
Uncollectible receivable from Manuel
Total
P100,000
100,000
P200,000
(P3.11) P133,333 computed as follows:
Debtor’s Assets
Taxes payable (Gov’t is a priority creditor)
Assets after deducting unpaid taxes
P400,000
(200,000)
P200,000
Receivable (CAIP)
Collectible (200/600) x 200,000
Deductible Claim against Insolvent Persons
(P3.12) P262,500 computed as follows:
Value to take
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(750/4,500) x 562,500
Final Basis
x Vanishing rate
Vanishing Deduction
6|
P200,000
(66,667)
P133,333
P937,500
(187,500)
P750,000
(93,750)
P656,250
40%
P262,500
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P3.13) STANDARD DEDUCTION
CASE
A
B
C
D
E
PRIOR TO 2018
P1,000,000
P1,000,000
P1,000,000
P0
P0
DECEDENT DIED
ON OR AFTER JAN. 1, 2018
P5,000,000
P5,000,000
P5,000,000
P500,000
P500,000
(P3.14) MEDICAL EXPENSES – DECEDENT DIED BEFORE 2018
Case A: P500,000
Case B: P500,000
Case C: P150,000
Case D: P500,000
Case E: P0
& NOTE: Medical Expenses are no longer deductible from the GE of a decedent who died on or after Jan. 1, 2018
(P3.15) FAMILY HOME
Case A: P10,000,000
Case B: P5,000,000
Case C: P0; exclusive property of the surviving spouse
Case D: P10,000,000
Case E: P12M/2 = P6,000,000
Case F: P750,000; [ 5M + (5,000,000/2)] = P7,500,000
& NOTE: Maximum deductible Family Home for decedent who died:
o Prior to 2018 – P1,000,000
o On or after Jan. 1, 2018 – P10,000,000
(P3.16)
CASE A – Decedent died before 2018:
Question 1: P2,430,000 (Decedent: Resident Citizen)
Question 2: P2,430,000 (Decedent: Resident Alien) (same computation with Q#1).
Domestic shares of 2,000 shares inherited 6 years ago
House and lot, family home, located in Europe, inherited 2 years ago
Jewelry items, in the Philippines at the time of death
Jewelry items kept in a vault abroad
Bank deposit in a Philippine branch of a U.S. bank
Transfer for Public Use (donation to the gov’t provided in his will)
GROSS ESTATE
ORDINARY DEDUCTIONS:
Funeral expenses, Philippines (max.)
Judicial expenses, abroad
Judicial expenses, Philippines
Claims against the estate
Transfer for Public Use
Vanishing deductions (NONE; The shares were inherited 6 years ago
and the House and Lot is located abroad)
7|
P800,000
2,000,000
400,000
200,000
500,000
250,000
P4,150,000
200,000
100,000
50,000
120,000
250,000
-
(720,000)
-
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
SPECIAL DEDUCTIONS
Standard Deduction
Family Home (located abroad)
Medical Expenses
RA 4917
NET TAXABLE ESTATE
1,000,000
-
(1,000,000)
P2,430,000
CASE B – Decedent died after the effectivity of TRAIN Law:
Question 1: (P2,313,012); (Decedent: Resident Citizen)
Question 2: (P2,2313,012); (Decedent: Resident Alien) (same computation with Q#1).
Domestic shares of 2,000 shares inherited 6 years ago
House and lot, family home, located in Europe, inherited 2 years ago
Jewelry items, in the Philippines at the time of death
Jewelry items kept in a vault abroad
Bank deposit in a Philippine branch of a U.S. bank
Transfer for Public Use (donation to the gov’t provided in his will)
GROSS ESTATE
ORDINARY DEDUCTIONS:
Funeral expenses, Philippines (max.)
Judicial expenses, abroad
Judicial expenses, Philippines
Claims against the estate
Transfer for Public Use
Vanishing deductions
(Shares of stocks = None; House and Lot = the requirement that
the property must be located in the Philippines was repealed
under the TRAIN Law)
SPECIAL DEDUCTIONS
Standard Deduction (TRAIN Law)
Family Home (located abroad)
Medical Expenses
RA 4917
NET TAXABLE ESTATE
Value to take
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(1,500/4,150) x P370,000
Final Basis
x Vanishing rate
Vanishing Deduction
8|
P800,000
2,000,000
400,000
200,000
500,000
250,000
P4,150,000
120,000
250,000
1,093,012**
(1,463,012)
5,000,000
-
(5,000,000)
(P2,313,012)
P1,500,000
P1,500,000
(133,735)
P1,366,265
80%
P1,093,012**
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P3.17)
CASE A – Decedent died prior to effectivity of the TRAIN Law:
Question No. 1
TFPU
P300,000
House and Lot in Makati (Family Home)
1,500,000
Personal properties
1,500,000
Farm Lot
825,000
Claim against insolvent person
225,000
Transfer in contemplation of death
Total Gross Estate
1,500,000
P5,850,000
Allowable Deductions
Funeral expenses
(200,000)
Judicial expenses
(67,500)
TFPU
Claim against insolvent person
Unpaid mortgage on farm lot
Standard deduction
Medical expenses
(300,000)
(225,0000)
(75,000)
(1,000,000)
(225,000)
Family Home
(1,000,000)
TAXABLE NET ESTATE
P2,757,500
Question No. 2
Value to take
P575,000
Mortgage paid (P150,000-P75,000)
(75,000)
Initial Basis
500,000
Proportional deduction
(500/5,850) x 867,500
(74,145)
Final Basis
425,855
Vanishing deduction rate
20%
Vanishing Deduction***
P85,171
NET ESTATE without VD (from Q#1)
9|
P2,757,500
Vanishing Deduction***
(85,171)
TAXABLE NET ESTATE
P2,672,329
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
CASE B – Decedent died after the effectivity of the TRAIN Law:
Question No. 1
TFPU
P300,000
House and Lot in Makati (Family Home)
1,500,000
Personal properties
1,500,000
Farm Lot
825,000
Claim against insolvent person
225,000
Transfer in contemplation of death
Total Gross Estate
1,500,000
P5,850,000
Allowable Deductions
Funeral expenses
-
Judicial expenses
-
TFPU
Claim against insolvent person
Unpaid mortgage on farm lot
Standard deduction
Medical expenses
Family Home
TAXABLE NET ESTATE
Question No. 2
Value to take
(300,000)
(225,0000)
(75,000)
(5,000,000)
(1,500,000)
(P1,250,000)
P575,000
Mortgage paid (P150,000-P75,000)
(75,000)
Initial Basis
500,000
Proportional deduction
(500/5,850) x 600,000
(51,282)
Final Basis
448,718
Vanishing deduction rate
20%
Vanishing Deduction***
P89,744
NET ESTATE without VD (from Q#1)
10 |
(P1,250,000)
Vanishing Deduction***
(89,744)
TAXABLE NET ESTATE
(P1,339,744)
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(P3.18)
CASE A – Decedent died prior to effectivity of the TRAIN Law:
Question No. 1
VALUE TO TAKE (LAND)
MORTGAGE PAID
INITIAL BASIS
P1,250,000
(50,000)
1,200,000
Proportionate Deduction:
(1,200/7,800 x P900,000**)
FINAL BASIS
VANISHING DEDUCTION %
VANISHING DEDUCTION
(138,462)
P1,061,538
20%
P212,308
Correct ELIT + TFPU:
=1,200+100-100-600+300=900,000***
Question No. 2
Gross Estate
P7,800,000
ELIT
(600,000)
TFPU
(300,000)
Vanishing deduction
(212,308)
Standard deduction
(1,000,000)
Family Home
(1,000,000)
Medical expenses
(500,000)
Death benefits (RA4917)
(200,000)
Net taxable estate
P3,987,692
CASE B – Decedent died after the effectivity of the TRAIN Law:
Question No. 1
VALUE TO TAKE (LAND)
MORTGAGE PAID
INITIAL BASIS
P1,250,000
(50,000)
1,200,000
Proportionate Deduction:
(1,200/7,800 x P700,000**)
FINAL BASIS
VANISHING DEDUCTION %
VANISHING DEDUCTION
(107,692)
P1,092,307
20%
P218,462
Correct ELIT + TFPU:
=1,200k+100k-300k-600k+300k TFPU=P700,000***
11 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
Question No. 2
Gross Estate
P7,800,000
Losses, Indebtedness, Taxes (LIT)
(400,000)
TFPU
(300,000)
Vanishing deduction
(218,462)
Standard deduction
(5,000,000)
Family Home
(2,000,000)
Medical expenses (repealed under TRAIN Law)
-
Death benefits (RA4917)
(200,000)
Net taxable estate
(P318,462)
(P3.19) DECEDEND DIED PRIOR TO EFFECTIVITY OF THE TRAIN LAW:
Question No. 1
Cash in bank
Residential House and lot in Q.C. (200sq.m. x P12,000)
Agricultural land in Canada
Devised to Quezon City government (TFPU)
Common stocks of Digong Corporation (5,000 sh. X P100)
Common stocks of Mar Corporation (15,000 sh. X P50)
Preferred stocks of Gracy Inc. (3,000 sh. X P50)
Shares of stock in a foreign corporation
Car
Receivables from Miriam
RA 4917
Total Gross Estate
Questions No. 2-9:
Gross Estate (From Question No. 1)
Funeral expenses
Judicial expenses
Claims against the estate/ Indebtedness
Receivables from an insolvent person
Vanishing deduction
TFPU
Standard Deduction
Family Home
Medical expenses
RA4917
Taxable Net Estate
Estate Tax Due
12 |
P1,200,000
2,400,000
1,500,000
1,100,000
500,000
750,000
150,000
170,000
500,000
80,000
250,000
P8,600,000
P8,600,000
(190,000)
(50,000)
(500,000)
(80,000)
(1,100,000)
(1,000,000)
(400,000)
(250,000)
P5,030,000
P469,500
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7.
8.
9.
10.
11.
12.
TRUE
FALSE
TRUE
FALSE
FALSE
FALSE
13.
14.
15.
16.
17.
18.
FALSE
FALSE
TRUE
FALSE
TRUE
TRUE
19.
20.
21.
22.
23.
24.
TRUE
TRUE
TRUE
FALSE
TRUE
TRUE
25.
26.
27.
28.
29.
30.
TRUE
TRUE
FALSE
TRUE
FALSE
TRUE
MULTIPLE CHOICE
1. C
2. B
3. D
4. C
5. A
6. B
7. D
8. C
9. A
10. B
11. D
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
D
C
D
A
A
A
D
D
C
D
D
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
A
A
B
B
B
C
A
C
D
C
C
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
A
C
B
B
D
A
B&C
D
D
C
A
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
A
C
D
A
A
A
A
D
A
D
A
Supporting Computation (Multiple Choice):
(6). B
Mourning clothing of the decedent’s surviving spouse
Mourning clothing of the decedent’s dependent children
Expenses of the wake preceding the burial
Publication charges for death notices
Telecommunication expenses incurred in informing relatives of the
deceased
Cost of burial plot
Interment fees and charges
Expenses for the performance of the rites & ceremonies incident to
interment
Actual Funeral Expenses
Limit: 5% of Gross Estate (P2M x 5%)
ALLOWED (Lower Amount)
P1,500
3,200
40,000
5,000
3,000
20,000
12,000
5,000
P89,700
P100,000
P89,700
(16.) A
Real property tax for the year 2013
Notarized interest bearing promissory note
Accrued interest on the promissory note at the time of death
Income tax due for 2013
Allowable deductions
P100,000
100,000
20,000
200,000
P420,000
(22). D
Income tax from practice of profession - 2013
Income tax from practice of profession for Jan.-June ‘14
Real property taxes for 2013
Business taxes for 2013
Deductible taxes
13 |
P300,000
100,000
150,000
100,000
P650,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(39).
Value to take/Initial Basis
Mortgage paid
Initial basis
2nd Deduction:
(850/1,000 x P100,000**)
Final Basis
X Vanishing rate
VANISHING DEDUCTION
** Mortgage P150,000 – 50,000
P900,000
(50,000)
850,000
(85,000)
P765,000
40%
P306,000
(54).
Gross Estate (Tangible property Phils.)
LIT (1,200,000 x 6,000/10,000,000)
Taxable Estate
P6,000,000
(720,000)
P5,280,000
Shares, domestic corporation
Tangible personal property
Gross Estate
LIT (500,000 x 2,000/2,500)
Taxable Estate
TAX DUE
Estate Tax Due (P1.6M x 6%)
P500,000
1,500,000
2,000,000
(400,000)
P1,600,000
(55).
P96,000
CHAPTER 4 – PROPERTY RELATIONS
PROBLEM SOLVING
P4.1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
14 |
ACP
C
C
C
C
C
C
E
E
C
C
C
E
C
E
E
CPG
E
C
C
C
E
C
E
C
E
C
C
E
E
E
E
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P4.2
Absolute Community of Property (ACoP)
(a)P12,400,000; (b)P19,500,000; (c)P9,750,000; (d)P17,150,000
Land inherited during marriage
Other personal property owned before marriage
Other personal property acquired during marriage
Total
Deductions:
Casualty loss
Funeral expenses
Judicial expenses
Unpaid Taxes
Claims against the estate
Vanishing deduction**
Net estate before special deduction and share of the
surviving spouse
Standard deduction
Medical expenses
Share of the Surviving Spouse (1,800,000/2)
NET TAXABLE ESTATE
VANISHING DEDUCTION**
Value to Take/Initial Basis
Proportional Deduction (15,000/45,000 x P1,500,000)
Final Basis
x Vanishing Deduction %
Vanishing Deduction
Exclusive
P24,000,000
Common
P16,000,000
5,000,000
P21,000,000
P24,000,000
Total
P45,000,000
(500,000)
(400,000)
(600,000)
(11,600,000)
P12,400,000
P19,500,000
(13,100,000)
P31,900,000
(5,000,000)
(9,750,000)
P17,150,000
P15,000,000
(500,000)
P14,500,000
80%
P11,600,000
Conjugal Partnership of Gains (CPG)
(a)P28,400,000; (b)P3,500,000; (c)P1,750,000; (d)P25,150,000
Land inherited during marriage
Other personal property owned before marriage
Other personal property acquired during marriage
Total
Deductions:
Unpaid Taxes
Claims against the estate
Casualty Loss
Funeral expenses
Judicial expenses
Vanishing deduction (same computation)
Net estate before special deduction and share of the
surviving spouse
Standard deduction
Medical expenses
Share of the Surviving Spouse (1,800,000/2)
NET TAXABLE ESTATE
15 |
Exclusive
P24,000,000
16,000,000
P40,000,000
Common
5,000,000
P5,000,000
Total
P45,000,000
(400,000)
(600,000)
(500,000)
(11,600,000)
P28,400,000
P3,500,000
(13,100,000)
P31,900,000
(5,000,000)
(1,750,000)
P25,150,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P4.3
Decedent died before the effectivity of the TRAIN Law
(a)P1,630,487; (b)P4,132,955
(c)P3,696,964;
(d)P321,666
Exclusive
Exclusive properties, Phils.
P2,000,000
Conjugal properties, Phils.*
ELIT**
Vanishing Deductions ***
(169,513)
Transfer for Public Use ****
(200,000)
Net Estate
P1,630,487
Share of the Surviving Spouse (4,132,955/2)
Net Taxable Estate
1st P2,000,000
P135,000
In excess of P2,000,000 @ 11%
186,666
ESTATE TAX DUE
P321,666
Common
Total
P5,000,000
(867,045)
P7,000,000
P4,132,955
P5,763,442
(2,066,478)
P3,696,964
*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines.
**ELIT:
Funeral expenses
P200,000
Judicial expenses
800,000
Claim against the estate
1,725,000
TOTAL ELIT
P2,725,000
X
7,000/22,000
ALLOWABLE ELIT
P867,045
**VANISHING DEDUCTIONS:
Value to take
P500,000
1st Deduction: Mortgage paid
Initial basis
P500,000
2nd Deduction: Proportionate deduction
(500/7,000) x (867,045 + 200,000)
(76,218)
Final Basis
P423,782
x Vanishing rate
40%
Vanishing Deduction
P169,513
****
Since the properties were already classified as exclusive and common, it should be assumed that the exclusive properties were already
inclusive of transfer for public use.
P4.4
16 |
(Decedent: Resident Alien; Single)
(a) Net Taxable estate = P49,500,000;
House and lot, USA *
Investment in stock, Philippines
Investment in stock, USA
Investment in bonds, USA
Cash in bank, Philippines
Cash on hand, Philippines
Accounts receivable (fully uncollectible)
Car, Philippines
Receivable under RA 4917
Devise to Quezon City for children’s playground**
Total Gross Estate
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2017
Loss on December 31, 2018 due to theft
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible) ***
(b)Estate tax due = P2,970,000
P20,000,000
8,000,000
10,000 000
7,000,000
3,000,000
500,000
2,000.000
8,000,000
500,000
700,000
P59,700,000
P1,200,000
800,000
700,000
2,000,000
(4,700,000)
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
Special Deductions:
Standard deduction
RA 4917
Medical expenses
Net Taxable Estate
Estate Tax Due (P49,500,000 x 6%)
*
P4.5
(5,000,000)
500,000
P49,500,000
P2,970,000
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedent’s gross estate
***Assume the debtor is an insolvent person.
(Decedent: Resident Alien)
a) Vanishing deduction = P4,560,976
b) Net Taxable estate = P44,689,024
c) Estate tax due = P2,681,341
Land
House and Lot (Family Home)
Other tangible personal properties
Claims against insolvent persons
Ordinary deductions:
Other claims against conjugal properties
Claims against insolvent persons
Unpaid mortgage**
VANISHING DEDUCTION*
Net exclusive/conjugal
Special deductions:
Standard deduction
Family Home
Medical expenses
Share of the surviving spouse
TAXABLE ESTATE
Estate Tax Due (P44,689,024 X 6%)
Exclusive
P30,000,000
Conjugal
P50,000,000
22,000,000
500,000
Total
P102,500,000
(5,000,000)
(500,000)
(3,500,000)
(4,560,976)
P25,439,024
P68,500,000
(13,560,976)
P93,939,024
(5,000,000)
(10,000,000)
(34,250,000)
P44,689,024
P2,681,341
Value to take/Initial Basis***
2nd Deduction: 25,000/102,500 x 9,000,000
Final Basis
x rate
Vanishing Deduction*
P25,000,000
(2,195,122)
P22,804,878
20%
P4,560,976
** P7,000,000 – 3,500,000 = P3,500,000
***The amount paid on the mortgage should not be considered in computing the vanishing deduction because the amount pertains to a mortgage
entered into by Pedro during his lifetime. To be deductible, the mortgage should have been assumed on the property at the time of inheritance.
P4.6
(Decedent: Resident Citizen, married)
Exclusive
Fishpond, Bulacan
Family Home, Makati
Cash in bank
Apartment (refer to item of deductions)
Claim against insolvent person
Land inherited from his father
Land received as gift
Gross Estate
17 |
P400,000
600,000
P1,000,000
Conjugal
P1,500,000
1,500,000
900,000
80,000
100,000
P4,080,000
Total
P5,080,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
Ordinary deductions:
Funeral expenses
Fire loss
Claims against insolvent persons
Unpaid mortgage (30,000-10,000)
Vanishing deduction-inheritance*
Vanishing deduction-gift**
Net exclusive/conjugal
Special deductions:
Standard deduction
Share of the surviving spouse
TAXABLE ESTATE
(20,000)
(37,000)
(185,040)
P757,960
P3,700,000
P210,000
(10,000)
P200,000
(14,960)
P185,040
20%
P37,000
Value to take/Initial Basis**
2nd Deduction: 500/5,080 x 380,000
Final Basis
x rate
Vanishing Deduction (rounded)*
P500,000
(37,400)
P462,598
40%
P185,040
6.
7.
8.
9.
10.
FALSE
TRUE
TRUE
TRUE
FALSE
11.
12.
13.
14.
15.
TRUE
TRUE
TRUE
FALSE
TRUE
8.
9.
10.
11.
12.
13.
14.
B
D
C
B
D
C
D
15.
16.
17.
18.
19.
20.
21.
D
C
D
C
C
A
D
Supporting Computations (Multiple Choice)
(No. 20 & 21)
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Income from exclusive property of the spouse
Jewelry owned before the marriage
Other properties at the time of her death
Gross Estate
P4,457,960
(1,000,000)
(1,850,000)
P1,607,960
Value to take*
Mortgage paid
Initial basis
2nd Deduction: 200/5,080 x 380,000
Final Basis
x rate
Vanishing Deduction (rounded)*
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. FALSE
5. FALSE
MULTIPLE CHOICE
1. A
2. B
3. A
4. C
5. D
6. D
7. D
18 |
(200,000)
(80,000)
(100,000)
22.
23.
24.
25.
26.
27.
28.
Exclusive
P2,500,000
1,000,000
5,000,000
B
C
D
C
B
A
D
29.
30.
31.
32.
33.
34.
35.
36.
D
A
C
B
D – P205,032
A
A
D
Conjugal
500,000
200,000
300,000
P8,800,000
1,000,000
P1,700,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(No. 22 & 23)
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Jewelry owned before the marriage
Other properties at the time of her death
Gross Estate
Exclusive
P2,500,000
Common
1,000,000
5,000,000
500,000
300,000
1,000,000
P7,800,000
P2,500,000
(No. 24)
Conjugal properties
Conjugal Deductions:
Funeral and judicial expenses (no longer allowed)
Casualty losses
Unpaid taxes
Claim against the estate
Net Conjugal properties
Divide
Share of the Surviving Spouse
P20,000,000
(3,500,000)
(2,000,000)
(4,500,000)
P10,000,000
2
P5,000,000
(No. 25)
Real property, Philippines
Real property, USA
Funeral expenses
Judicial expenses (200,000 – 50,000)
Claim against insolvent persons
Unpaid taxes
Balance
Standard Deductions
Medical expenses (max.allowed)
Family Home (P1,500,000/2)
Share of the surviving spouse (P8,550,000/2)
Net Taxable Estate
P4,000,000
5,000,000
(200,000)
(150,000
(50,000)
(50,000)
P8,550,000
(1,000,000)
(500,000)
(750,000)
(4,275,000)
P2,025,000
Real property, Philippines
Real property, USA
Funeral expenses
Judicial expenses
Claim against insolvent persons
Unpaid taxes
Balance
Share of the surviving spouse (P80,000,000/2)
Standard Deduction
Medical expenses
Family Home (P15,000,000/2)
Net Taxable Estate
P40,000,000
50,000,000
(5,000,000)
(5,000,000)
P80,000,000
(40,000,000)
(5,000,000)
(7,500,000)
P27,500,000
(No. 26)
19 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(No. 27)
Exclusive
Conjugal real properties
Conjugal family home
Exclusive properties
Total
Ordinary Deductions:
Funeral expenses
Actual P300,000 x 25% = P75,000
Limit = 5% x P9M = P450,000
Casualty losses (from excl.property)
Miscellaneous deductions (P1M x 75%)
Net
Special Deductions:
Standard Deductions
Medical expenses (P500,000 x 50%)
Family Home (1,500,000/2)
Share of the surviving spouse (5,675,000/2)
Net Taxable Estate
(No. 28)
P6,500,000
P9,000,000
(75,000)
(100,000)
P2,400,000
(750,000)
P5,675,000
(825,000)
P8,075,000
(1,000,000)
(250,00)
(750,000)
(2,837,500)
P3,275,000
Exclusive
P2,400,000
P2,400,000
Common
1,600,000
500,000
P2,100,000
(200,000)
(100,000)
P1,800,000
P900,000
CONJUGAL PARTNERSHIP OF GAINS
Exclusive
Common
Properties-Land
P2,400,000
Other personal property owned before marriage
1,600,000
Other personal property acquired during marriage****
P500,000
Gross Estate
P4,000,000
P500,000
Ordinary Deductions
Funeral expenses
(200,000)
Judicial expenses
(100,000)
Vanishing Deductions*****
(1,120,000)
Net Estate Before Special Deductions
P2,880,000
200,000
Standard deductions
Medical expenses
Share of the surviving spouse (P200,000/2)
Share of surviving spouse (P1,800,000/2)
****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common.
Value to take
20 |
Total
ABSOLUTE COMMUNITY OF PROPERTY
Properties-Land
Other personal property owned before marriage
Other personal property acquired during marriage
Gross Estate
Funeral expenses
Judicial expenses
Net conjugal before special deductions
Share of surviving spouse (P1,800,000/2)
(No. 29)
P2,500,000
P2,500,000
Common
P5,000,000
1,500,000
Total
P4,500,000
P3,080,000
(1,000,000)
(500,000)
(100,000)
P1,480,000
P1,500,0 00
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(1,500/4,500) x 300,000
Final Basis
x Vanishing rate
Vanishing Deduction
P1,500,000
(100,000)
P1,400,000
80%
P262,500
(No. 30)
Real property given as gift by his uncle during the marriage 4 ½ years before
the present decedent's death
Land inherited during the marriage from an aunt who died 6 years before the
present decedent's death
Cash income from the real property received as gift
Total exclusive property
(No. 30 to 36)
Real properties inherited before the marriage from his father who died 3 years
before the present decedent's death
House built on the inherited land using communal fund
Real properties received by the surviving spouse before the marriage
Real properties acquired by the spouses during the marriage
Personal properties acquired during the marriage
Total Community property
Real property given as gift by his uncle during the marriage 4 ½
years before the present decedent's death
Land inherited during the marriage from an aunt who died 6 years
before the present decedent's death
Cash income from the real property received as gift
Real properties inherited before the marriage from his father who
died 3 years before the present decedent's death
House built on the inherited land using communal fund
Real properties received by the surviving spouse before the
marriage
Real properties acquired by the spouses during the marriage
Personal properties acquired during the marriage
Claim against an insolvent person
Total
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid liability
Claim against insolvent person
Unpaid mortgage – inherited land
Loss (car)
Unpaid realty tax
Vanishing deduction on real property received as gift*
Vanishing deduction on real property inherited**
Subtotal
Net estate b4 Special deductions & share of the SS
Share of the surviving spouse
Special deductions
F. Home (P500k + 900k)/2
Medical expenses
Net Taxable Estate
21 |
*****
1,500,000
500,000
100,000
P2,100,000
P500,000
900,000
1,800,000
1,500,000
1,000,000
P5,700,000
Exclusive
1,500,000
Community
Total
500,000
100,000
P500,000
900,000
1,800,000
P2,100,000
1,500,000
1,000,000
50,000
P5,750,000
P7,850,000
(100,000)
(150,000)
(250,000)
(50,000)
(100,000)
(300,000)
(30,000)
(175,032)*
(205,032)
P1,894,968
(157,529)**
(1,107,529)
P4,642,471
(1,312,561)
6,537,439
(2,321,236)
(1,000,000)
(700,000)
(200,000)
P2,316,203
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
(No. 32)
Value to take/initial basis
2nd deduction: 1,000/7,850 x P980,000
Final Basis
VD rate
Vanishing deduction
P1,000,000
(124,840)
P875,160
20%
P175,032*
Value to take/initial basis
2nd deduction: 300/7,850 x P980,000
Final Basis
VD rate
Vanishing deduction
P300,000
(37,452)
P262,548
60%
P157,529**
(No. 34)
CHAPTER 5 – ESTATE TAX CREDIT AND DISTRIBUTABLE ESTATE
PROBLEM SOLVING
P5.1
CASE A – Decedent died in 2017:
(1)P200,000
(2)P0; not allowed
Total Net Estate before special deductions
Less: Standard deduction
Net Taxable estate
P10,000,000
(1,000,000)
P9,000,000
Estate Tax Due – Tax Table; [P465,000 + (4M x 15%)]
Estate tax credit: Lower between (4/10 x P1,065,000) vs P200,000
Estate tax payable
CASE B – Decedent died in 2018:
(1)P120,000
(2)P0; not allowed
Total Net Estate before special deductions
Less: Standard deduction
Net Taxable estate
P1,065,000
(200,000)
P865,000
P10,000,000
(5,000,000)
P5,000,000
Estate Tax Due (P5M x 6%)
Estate tax credit: Lower between (4/10 x P300,000) vs P200,000
Estate tax payable
P300,000
(120,000)
P180,000
P5.2
Net Taxable Estate
Estate Tax Due
Estate tax credit
Estate tax payable after tax credit
Net Taxable Estate
Limit 1:
Canada: 500/2,000 x P135,000
USA: 500/2,000 x P135,000
Limit 2:
1,000/2,000 x P135,000
ALLOWED TAX CREDIT
22 |
P2,000,000
P135,000
(67,500)
P67,500
P2,000,000
Limit
P33,750
33,750
P67,500
Actual
P150,000
110,000
Allowed
P33,750
33,750
P67,500
260,000
67,500
P67,500
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P5.3
Net Taxable Estate
Estate Tax Due (P20M x 6%)
Estate tax credit
Estate tax payable after tax credit
P20,000,000
P1,200,000
(260,000)
P940,000
Net Taxable Estate
Limit 1:
Canada: 5,000/20,000 x P1,200,000
USA: 5,000/20,000 x P1,200,000
P2,000,000
Limit
P300,000
300,000
Limit 2:
10,000/20,000 x P1,200,000
ALLOWED TAX CREDIT
P600,000
Actual
P150,000
110,000
Allowed
P150,000
110,000
P260,000
260,000
260,000
P260,000
P5.4
(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770
(c ) Net Distributable Estate = P4,427,230
House and lot, USA *
Investment in stock, Philippines
Investment in stock, USA
Investment in bonds, USA***
Cash in bank, Philippines
Cash on hand, Philippines
Accounts receivable
Car, Philippines
Legacy in favor of Philippine National Red Cross**
Devise to Quezon City for children’s playground**
Total Gross Estate
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
Medical expenses
NET TAXABLE ESTATE
Estate Tax Due
Estate Tax Credit
Limit: [(3,200/5,970) x 307,700 = P164,930
Actual: P250,000
ESTATE TAX DUE AFTER ESTATE TAX CREDIT
P2,000,000
800,000
1,000 000
700,000
300,000
50,000
200.000
800,000
50,000
70,000
P5,970,000
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(1,000,000)
(500,000)
P3,570,000
P307,700
(164,930)
P142,770
NOTE:*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedent’s gross estate; *** Considered as Estate “within”
23 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
TOTAL GROSS ESTATE (Refer above)
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
Medical expenses
Estate Tax Due after tax Credit
NET DISTRIBUTABLE ESTATE
MULTIPLE CHOICE
1. B
2. C
3. D
4. C
5.
6.
7.
8.
C
C
C
A
9.
10.
P5,970,000
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(500,000)
(142,770)
P4,427,230
D
A
Supporting Computations:
No.5
Estate tax due (for P4M)
Estate tax credit (3/4 x P355,000) vs P80,000
Estate tax payable
P355,000
(80,000)
P275,000
No. 6
Estate tax due for P1,000,000; [P15,000 + (P500,000 x 8%)]
Less: Estate tax credit
Estate tax payable
Limit 1:
Singapore: 300/1,000 x P55,000
USA: 100/1,000 x P55,000
Limit 2:
400/1,000 x P55,000
ALLOWED TAX CREDIT (LOWER AMOUNT)
No. 7
24 |
P55,000
(20,500)
P34,500
Limit
P16,500
5,500
Actual
P30,000
4,000
Allowed
P16,500
4,000
P20,500
P22,000
34,000
22,000
P20,500
Assume the decedent died before effectivity of the TRAIN Law
Gross Estate
P10,000,000
Deductions (assume inclusive of Standard deduction)
(5,000,000)
Share of the surviving spouse (5,000,000 x 60% x 50%)
(1,500,000)
Net taxable estate
P3,500,000
Tax Due (Tax Table); [P135,000 + (P1.5M x 11%)
P300,000
Estate tax credit (2.8/3.5 x P300,000) vs P124,500
(124,500)
Estate tax payable
P175,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000
Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 8
Estate tax due (for P500,000)
Less: Estate tax credit
Estate tax payable
P71,000
(41,417)
P29,583
Limit 1:
Japan: 300/1,200 x P71,000
USA: Exclude for purposes of computing Limit 1
HK: 450/1,200 x P71,000
Limit 2: (Include USA)
700/1,200 x P71,000
ALLOWED TAX CREDIT (LOWER AMOUNT)
Limit
P17,750
26,625
Actual
P20,000
45,000
Allowed
P17,750
26,625
P44,375
P41,417
65,000
41,417
P41,417
No. 9 and 10
Property inherited
Property acquired through own labor
Funeral expenses
Judicial expenses
Claims against the estate
Notarized
Not notarized
Standard deduction
Net Taxable/Distributable estate
Net Taxable
P1,400,000
3,600,000
(200,000)
(200,000)
Net Distributable
P1,400,000
3,600,000
(240,000)
(200,000)
(40,000)
(1,000,000)
P3,560,000
(40,000)
(20,000)
P4,500,000
CHAPTER 6 – DONOR’S TAX
ERRATUM:
Cumulative Basis of Computing the Net Taxable Estate
2018 Onwards
PRIOR to 2018
DISREGARD THIS STATEMENT:
Cumulative rule is applicable regardless of the relationship of the donor and the donee but
only is far as gifts made within the same calendar year.
PROBLEM SOLVING
P6.1
TO
Abel
Jen
Gore
Alexa
Earl
Hananiah
Chen
Kristine
Gavrie
Land 1**
Land 2***
Land 3****
Car
GROSS GIFT
25 |
A
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
200,000
P16,550,000
B
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
200,000
P16,550,000
QUESTION
C
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
200,000
P16,550,000
D
P800,000
E
P800,000
-
250,000
100,000
1,500,000
500,000
200,000
P3,000,000
1,500,000
100,000
500,000
200,000
P3,450,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
*The question is “gross gifts”, hence, disregard the mortgage.
**Sale of Land #1 is a transfer with insufficient consideration. However, unlike in Estate Taxation, Transfer with insufficient
consideration for donor’s tax purposes is not taxable if the property donated is a real property classified as capital asset
subject to capital gains tax.
*** Sale of Land # 2 is considered bonafide or valid sale.
****Sale of Land #3 is a transfer with insufficient consideration. Nonetheless, the sale is subject to donor’s tax because the
property was not subjected to capital gains tax. Capital gains tax on real properties are applicable only on sale of real
properties classified as capital assets located in the Philippines.
P6.2
ITEM
A
B
C
D
E
F
Car, Alabang
Car, Malaysia
Land Cebu
GROSS GIFT
Q#A
P4,500,00
1,000,000
1,500,000
2,000,000
3,000,000
500,000
200,000
200,000
P12,900,000
Q#B
P4,500,00
3,000,000
200,000
P7,700,000
P6.3
(a)
(b)
(c)
(d)
P6.4
(a)P0;
None; subject to CGT not donor’s tax
CGT = P2.5M x 6% = P150,000
Donor’s tax = (P2.5M – P1.5M) x 6% = P60,000 TRAIN Law
CGT = P0
(b)P5,000;
(c)P10,000;
(d)P43,000
P6.5
Cash to his son on account of marriage
Cash to PPCRV for 2013 election
Jewelry to his auntie
Shoes and bags to his girlfriend
Books to the City of Makati
Second hand car to his first cousin
Brand new SUV to his second cousin (subject to revocation)
Shares of stocks of a domestic corp. to his best friend
Car to his daughter (a donation mortis causa)
Forgiven a loan due from his brother(50,000-25,000)
Sports equipment to his brother in law
Parcel of land to the Philippine government for public use
Gross Gifts
NOTE:
§
§
§
§
26 |
Relatives
P50,000
46,000
Strangers
30,000
20,000
500,000
25,000
P621,000
150,000
75,000
1,000,000
P1,275,000
Cash to PPCRV. Not considered as donation under the tax code. It is subject to the rules and regulations of the COMELEC under the
election code of the Philippines.
Books for the City of Makati AND Land for Public Use. Although the donations are exempt, should be considered in the determination of
“gross gifts”
Gift subject to revocation is not a gift.
Donation mortis causa is a donation subject to estate tax, not donor’s tax.
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P6.6 – Donations were made Prior to effectivity of the TRAIN Law
a) March 1 = P2,000
b) May 30 = P18,000
c) June 30 = P90,000
d) July 31 = P0; exempt
e) September 30 = P447,200
Solution:
Gross Gifts
Dowry
Net taxable gift
Donor’s Tax Due/ Payable (Tax Table) – March 1
P200,000
P200,000
P2,000
Gross gift
Less: Mortgage assumed by the donee
Add: Prior net gift
Taxable gift – May 30
P500,000
(100,000)
200,000
P600,000
Donor’s Tax Due
Less: Tax paid
Donor’s tax payable-May 30
P20,000
(2,000)
P18,000
Donor’s tax payable-June 30
(P300,000 x 30%)
P90,000
Donor’s tax payable-July 31 (Bantay Bata)
Gross Gift
Dowry
Mortgage assumed
Prior net gift
Taxable gift
Tax Due
Less: Tax Payments
Tax Payable
> 1 year after celebration
P0
September 30
Relative
P1,500,000
(10,000)
(300,000)
600,000
P1,790,000
P107,200
(20,000)
P87,200
Stranger
P1,500,000
(300,000)
Total
P1,200,000
@30%
P360,000
360,000
P447,200
P6.7 – Donations were made after the effectivity of TRAIN Law
a) March 1 = Exempt
b) May 30 = P21,000
c) June 30 = P90,000
d) July 31 = P0; exempt
e) September 30 = P447,200
Solution:
Gross Gifts – March 1
Less: Tax exempt gift
Net taxable gift
Donor’s Tax Due/ Payable – March 1
27 |
P200,000
(250,000)
PExempt
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
Gross gift – May 30
Less: Mortgage assumed by the donee
Add: Prior net gift
Total Gifts as of May 30
Less: Tax Exempt gift
Taxable gift – May 30
x
Donor’s Tax Due
Less: Tax paid
Donor’s tax payable-May 30
P500,000
(100,000)
200,000
P600,000
(250,000)
P350,000
6%
P21,000
P21,000
Gross gift – June 30
P300,000
Add: Prior net gift
Total gifts as of June 30
Less: Tax Exempt gift
Taxable gift – June 30
x
Donor’s Tax Due
Less: Tax paid as of May 30
Donor’s tax payable-June 30
600,000
900,000
(250,000)
P650,000
6%
P39,000
(21,000)
P18,000
Gross gift – September 30
Less: Mortgage assumed by the donees
Add: Prior net gift
Total gifts as of June 30
Less: Tax Exempt gift
Taxable gift – Sept. 30
x
Donor’s Tax Due
Less: Tax paid as of June 30
Donor’s tax payable-Sept. 30
P6.8 – Donations were made before and after effectivity of TRAIN Law
1) January 15, 2017 = P32,000
2) April 1, 2017 = P6,000
3) December 25, 2017 = P0
4) March 30, 2018 = P0
5) May 25, 2018 = P0, exempt
Solution
Gross Gifts-Jan. 1, 2017
Less: Encumbrance
Taxable gift
Donor’s tax due/payable-Jan. 1, 2017 (Tax Table)
Gross gift – April 1, 2017
Add: Prior net gift
Taxable gift
Donor’s Tax Due (Tax Table)
Less: Tax paid
Donor’s tax payable-Apr. 1, 2014
December 25, 2014
28 |
Apply cumulative rule regardless of the
relationship between the donor and the donee
P3,000,000
(600,000)
900,000
P3,300,000
(250,000)
P3,050,000
6%
P183,000
(39,000)
P144,000
P1,000,000
(200,000)
P800,000
P32,000
P100,000
800,000
P900,000
P38,000
(32,000)
P6,000
P0; exempt
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
March 30, 2018
Gross gift
Less: Tax exempt gift
Taxable net gift
P100,000
(250,000)
P-
Use calendar year for donor’s tax purposes
May 25, 2018
Gross gift - church
Deductions
Add: Prior net gift
Less: Tax exempt gift
Taxable gift
Tax Due
P200,000
(200,000)
100,000
(250,000)
P0
P0; exempt
P6.9
1)
2)
3)
June 6, 2018 = P0; exempt
October 8, 2018 = P2,160
November 4, 2018 = P240
Gross Gift (P460k + 20K)/2
Dowry
Mortgage assumed
Net gift
Less: Tax exempt gift
Net Taxable gifts – June 6
Donor’s Tax Payable
Gross Gift
Dowry
Prior Net Gift
Total net gifts
Less: Tax exempt gift
Donor’s Tax Due
Tax Paid-June 6
Donor’s Tax Payable
Gross Gifts (charitable org.; exempt)
To a family friend
Prior net gifts
Tax exempt gift
Taxable gift
Donor’s Tax Due
Less: Donor’s tax paid
Donor’s Tax Payable
29 |
June 6, 2018
Husband
P240,000
(2,000)
P238,000
(250,000)
(P12,000)
P0
October 8, 2018
Husband
P30,000
238,000
P268,000
(250,000)
P18,000
x6%
P1,080
P1,080
November 4, 2018
Husband
P2,000
268,000
(250,000)
P20,000
@6%
P1,200
(1,080)
P120
Wife
P240,000
(2,000)
P238,000
(250,000)
(P12,000)
P0
Total
Wife
P30,000
238,000
P268,000
(250,000)
P18,000
x6%
P1,080
P1,080
Total
Wife
Total
P2,000
268,000
(250,000)
P20,000
@6%
P1,200
(1,080)
P120
P0
P2,160
P240
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P6.10 (1)P6,000
(2)P0
(3)P36,000
Gross Gifts
Mortgage assumed
Net Gift
Less: Exempt gift
Net Taxable gift
Donor’s Tax Due
Feb. 15, 2018
Mr.Macariola
P200,000
(50,000)
P150,000
(250,000)
PP0; exempt
Gross Gifts
Prior net gift
Net gift
Less: Tax exempt gift
Net Taxable Gift
Donor’s Tax Due @ 6%
Donor’s tax paid
Donor’s Tax Payable
March 30, 2018
Mr.Macariola
P200,000
150,000
P350,000
(250,000)
P100,000
6,000
P6,000
Gross Gifts
Prior net gift
Net gift
Less: tax exempt gift
Net Taxable gift
Donor’s Tax Due
Gross Gifts (P400k+P400k)/2
Less: Mortgage assumed
Prior net gift
Net gift
Less: tax exempt gift
Net Taxable Gift
x
Donor’s Tax Due
Less: Donor’s Tax Paid
Donor’s Tax Payable
October 12, 2018 - CLIFFORD
Gross gift
Less: Tax exempt gift
Net Taxable gift
Tax Due
30 |
(4)P30,000
June 1, 2018
Mr.Macariola
P-
October 12, 2018
Mr.Macariola
P400,000
(50,000)
350,000
P700,000
(250,000)
P450,000
6%
P27,000
(6,000)
P21,000
Mrs.Macariola
P200,000
(50,000)
P150,000
(250,000)
PP0; exempt
Total
Mrs.Macariola
Total
P-
P-
P6,000
Mrs.Macariola
P100,000
150,000
250,000
(250,000)
P0
P0
Total
Mrs.Macariola
P400,000
(50,000)
250,000
P600,000
(250,000)
P350,000
6%
P21,000
(6,000)
P15,000
Total
P0
P36,000
P100,000
(250,000)
P0
P0; exempt
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
TRUE OR FALSE
1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. TRUE
6. TRUE
MULTIPLE CHOICE
1. A
2. A
3. C
4. C
5. B
6. D
7. D
8. D
9. D
10. C
11. B
12. A
7.
8.
9.
10.
11.
12.
FALSE
TRUE
FALSE
FALSE
TRUE
FALSE
13.
14.
15.
16.
17.
18.
FALSE
FALSE
FALSE
FALSE
FALSE
FALSE
19.
20.
21.
22.
23.
24.
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE
25.
26.
27.
28.
29.
30.
TRUE
TRUE
FALSE
TRUE
FALSE
FALS E
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
C
D
B
D
A
B
C
D
C
A
D
C
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
C
D
P2,250,000
D
D
C
A
C
D
A
A
B
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
P36,000
B
C
D
A
A
C
B
B
B
D
C
49.
50.
51.
52.
53.
54.
55.
D
D
A
B
A
B
A
Supporting computation:
No. 27. None of the choices
Gross Gifts (5M/2)
Less: Tax Exempt Gift
Net taxable gift
P2,500,000
(250,000)
P2,250,000
No. 30. Prior to TRAIN Law
Net gift – Feb. 29
Less: Donation to the government
Net taxable gift – Feb. 29
P500,000
(P500,000)
P-; exempt
Gross gift April 1
Mortgage assumed by the donee
Net Taxable Gift
Donor’s Tax Due (Old Tax Table)
P1,000,000
(500,000)
P500,000
P14,000,
Net gifts, May 31
PNG-April 1
Cumulative Net gift, May 31
TAX DUE (Tax Table):
1st P5M
In excess of P5M @ 12%
Total
Less: Donor’s tax April 1
Donor’s tax payable, May 31
P5,000,000
500,000
P5,500,000
31 |
P404,000
60,000
P464,000
(14,000)
P450,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 31. TRAIN Law
Net gift – Feb. 29
Less: Donation to the government
Net taxable gift – Feb. 29
P500,000
(P500,000)
P-; exempt
Gross gift April 1
Mortgage assumed by the donee
Net Gift
Less: Tax exempt gift
Net Taxable Gift
Donor’s Tax Due
P1,000,000
(500,000)
P500,000
(250,000)
P250,000
P15,000,
Net gifts, May 31
PNG-April 1
Cumulative Net gift, May 31
Less: Tax exempt gift
Net taxable gift
x
Total
Less: Donor’s tax paid April 1
Donor’s tax payable, May 31
P5,000,000
500,000
P5,500,000
(250,000)
P5,250,000
6%
P315,000
(15,000)
P300,000
No. 32-34. PRIOR TO TRAIN LAW
NG (3/1)
Tax Due (P25,000 x 2%)
GG (5/1)
Dowry
PNG 3/1
NG
Tax Due
Tax Paid 3/1
D.T. Payable
GG (7/1)
PNG 3/1 and 5/1
TNG
Tax Due
Total Taxes Paid 7/1
No. 35. TRAIN LAW
Net gifts of the spouses, March 1
Divide by
Net gift, Mr. Mapagbihay, March 1
Tax exempt gift
Taxable net gift, Mr. Mapagbigay
Donor’s Tax Due, Mr. Mapagbigay
32 |
Husband
125,000
P500
Wife
125,000
P500
P100,000
(10,000)
125,000
P215,000
P100,000
(10,000)
125,000
P215,000
P2,600
(500)
P2,100
P2,600
(500)
P2,100
100,000
100,000
215,000
215,000
P315,000
P315,000
6,600
6,600
P13,200
P500,000
2
P250,000
(250,000)
P0
P0
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 36.
Net gifts of the spouses, May 1
Add: Prior net gift, March 1
Cumulative net gift
Divide by
Cumulative Net gift, Mrs Mapagbigay
Less: Tax exempt gift
Cumulative taxable net gift
x
Donor’s tax due
Less: Donor’s tax paid, March 1
Donor’s Tax Payable
P400,000
500,000
P900,000
2
P450,000
(250,000)
P200,000
6%
P12,000
P12,000
Total gifts of the spouses (P1.1M/2)
Less: Exempt gifts
Net Taxable gift
x
Donor’s tax due per spouse
Total donor’s tax due of the spouses
Mr.
Mrs.
P550,000
P550,000
(250,000)
(250,000)
P300,000
P300,000
6%
6%
P18,000
P18,000
P36,000
No. 37.
No. 38. PRIOR TO TRAIN LAW
Gross gifts, Feb. 25, 2013 (P500,000/2)
Dowry
Net Taxable Gift
Donor’s Tax Due per spouse (Tax Table)
P250,000
(10,000)
P240,000
P3,600
No. 39.
Mr. :
D. Tax Payable= P75,000/2 x 30% = P11,250
Mrs. :
Gross gifts, June 9 (P75,000/2)
Dowry
Prior net gift – Feb.
Total taxable gift, June 9
Donor’s tax due
Donor’s tax paid, Feb.
Donor’s Tax Payable-June 9
P37,500
(10,000)
240,000
P267,500
P4,700
(3,600)
P1,100
No. 40.
Mr. :
Gross gifts, Dec. 25 (P750,000 x 60%) /2
Prior net gift – Feb.
Total taxable gift, June 9
Donor’s tax due
Donor’s tax paid, Feb.
Donor’s Tax Payable-June 9
33 |
P225,000
240,000
P465,000
P12,600
(3,600)
P9,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
Mrs. :
Gross gifts, Dec. 25 (P750,000 x 60%) /2
Donor’s tax rate
Donor’s tax payable, Dec. 25
P225,000
30%
P67,500
Gross gifts, Dec. 25 (P750,000 x 40%)
Donor’s tax rate
Donor’s tax payable, Dec. 25
P300,000
30%
P90,000
No. 41.
No. 42. PRIOR TO TRAIN LAW
Gross gift-Jan. 24
Mortgage assumed by the donee
Taxable net gift
DONOR’s TAX DUE
1st P1M
In excess of P1M; P500,000 x 8%
Donor’s tax due/payable
P2,000,000
(500,000)
P1,500,000
P44,000
40,000
P84,000
No. 43. PRIOR TO TRAIN LAW
Gross gift-Nov. 30
Add: prior net gift
Taxable net gift
DONOR’s TAX DUE:
1st P5M
In excess of P5M; P1M x 12%
Total
Tax paid, Jan. 24
TAX CREDIT
Actual
Limit = 4.5/6 x P524,000
Allowed
Donor’s tax payable
No. 44. TRAIN LAW
Gross gift-Jan. 24
Mortgage assumed by the donee
Net gift
Less: tax exempt gift
Taxable Net Gift
Donor’s Tax Rate (TRAIN Law)
Donor’s tax due/payable
34 |
P4,500,000
1,500,000
P6,000,000
P404,000
120,000
P524,000
(84,000)
400,000
393,000
(393,000)
P47,000
P2,000,000
(500,000)
P1,500,000
(250,000)
P1,250,000
6%
P75,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 45. TRAIN LAW
Net gift-Nov. 30
Net gift-Jan. 24
Cumulative Net gift
Less: tax exempt gift
Taxable Net Gift
Donor’s Tax Rate (TRAIN Law)
Total donor’s tax due
Less: Donor’s tax paid-Jan. 24
Allowable Donor’s tax credit:
Limit = 4.5/6 x P345,000 = P258,750
Vs. Actual = 400,0000
Donor’s tax due/payable
P4,500,000
1,500,000
P6,000,000
(250,000)
P5,750,000
6%
P345,000
(75,000)
(258,750)
P11,250
CHAPTER 7 – BUSINESS TAXES
MULTIPLE CHOICE
1. A
2. D
3. D
4. D
5. D
6. B
7.
8.
9.
10.
11.
12.
C
D
C
C
D
13.
14.
15.
16.
17.
18.
C
B
C
A
D
C
19.
20.
21.
22.
23.
24.
D
D
A
D
C
C
25.
26.
27.
28.
29.
D
C
A
A
C
CHAPTER 8 – VALUE ADDED TAX
PROBLEM SOLVING
P8.1 – ERRATUM: Determine the applicable business tax correct of the following:
Residential Units:
Case A
OPT
Case B
Exempt
Case C
Exempt
Case D
Vat
Commercial Units:
Case E
Vat
Case F
OPT
Case G
OPT
Case H
Vat
P8.2
Case A
Case B
Case C
Case D
X
X
V
V
Case E
Case F
Case G
Case H
V
X
V (0%)
V
Case I
Case J
V
X (OPT)
P8.3
a)
b)
c)
d)
35 |
nil
Vat Payable = P134,400 x 3/28 = P14,400
Vat Payable = OV P201,600 x 3/28 – Input Vat P14,400 = P7,200
nil
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P8.4
Cash Sales
Sales on account
Transactions deemed sale (22,400+16,800+19,040+8,960)
Total sales subject to vat
x
Output Vat
Less: Input vat (P291,200 x 3/28)
Vat Payable
P660,800
246,400
67,200
P974,400
3/28
P104,400
(31,200)
P73,200
P8.5
OUTPUT:
Sales (P8M – 400,000) x 12%
Sales from consignment (March and Feb.)
(20+10) x P10,000 x 12%
Transactions deemed sales
January 8 consignment (20 x P10,000) x 12%
Goods withdrawn
Goods taken as payment to creditors
INPUT VAT
Purchase of goods, supplies, freight/insurance)
Capital goods (P1,100,000 x 12%) / 48 mos.
VAT PAYABLE
P912,000
36,000
24,000
6,000
3,600
P981,600
82,080
2,750
(84,830)
P896,770
P8.6
Sale of school supplies
Sale of gift items
Sales subject to output vat
x
Output Vat
Less:
§
Input vat on purchases directly attributable to vatable sales
(Purchase of school supplies and gift items)
P1,344,000 x 3/28
§
Input vat on purchases attributable to vatable and nonvatable
sales (Purchase of computers)
P448,000 x 3/28 x (2,400/3,600)**
§
Purchase of office supplies used in vatable and non-vatable
transactions from non-vat registered suppliers
Vat Payable
**Total Vatable Sales net of vat = P2,400,000
Non-vatable sales = P1,200,000
Total Sales, net (vatable and non-vatable) = P3,600,000
P1,680,000
1,008,000
P2,688,000
3/28
P288,000
P144,000
P32,000
nil
(176,000)
P112,000
P8.7
36 |
Output Vat (P896,000 x 3/28)
Less: Input vat
P96,000
§
P224,000 x 3/28
§
P112,000 x 3/28 x 80%
§
P2,240 x 3/28 x 80%
Vat Payable
(24,000)
(9,600)
(192)
P62,208
Note:
The input vat on capital goods is not amortized because the
acquisition cost is not more than P1M.
The ratio of vatable sales to total sales = 80%
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P8.8
(a)
Total Input Vat (P374,000 + 69,848 + 154,000 + 55,000) x 3/28 =
P69,948
(b)
Output vat (P330,000 + P274,996) x 3/28
P64,821
Less: Input vat (P374,000 + 69,848 + 154,000) x 3/28
(69,984)
Vat Payable
(P5,163)
Note:
§
Sale to export oriented enterprise is considered export sale subject to 0% vat only if more than 70% of its annual
production is actually exported.
§
The input vat on purchase of goods intended for export may be refunded, deducted from output vat or converted to
a tax credit certificate.
P8.9
(a) P28,800
(b) P12,600
Output Vat (P350,000 x 12%)
Less:
§
Input vat on importation:
CIF (cost, insurance, freight) value
Charges/expenses incurred in claiming the goods:
Wharfage
Arrastre
Customs duty
Brokerage fee and documentary stamps
Facilitation expense = bribe; illegal payment; not included in
the computation
Marine cargo insurance
Total
x
§
Input vat on Freight from customs to warehouse
Vat Payable
P42,000
P229,195
1,540
2,295
4,090
330
2,550
P240,000
12%
(28,800)
(600)
P12,600
P8.10
(a)
1st Quarter
(b)
2nd Quarter
37 |
Output Vat (P3M x 12%)
INPUT VAT:
Purchases (P1.2M x 12%)
Purchase of machinery (P2.5M x 12%) / 36 x 3mos.
Unused input vat as of end of 2017
Vat Payable
Output Vat (4.8M x 12%)
Input Vat
Purchases (P3M x 12%)
Unused input vat on capital goods (P2.5M x 12%-25,000)
Excess Input vat
P360,000
(144,000)
(25,000)
(125,000)
P66,000
P576,000
(360,000)
(275,000)
(P59,000)
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P8.11
Output vat (P336,000 x 12%)
Input vat:
On purchases (P112,000 x 3/28)
Transitional input vat:
Higher between 2% of beg. Invty vs. P10,000
Vat Payable
P40,320
(12,000)
(10,000)
P18,320
P8.12
(a)
(b)
P3,400
P80,000
Output vat (P800,000 x 12%)
Less: Input Vat
Presumptive I.V (P85,000 x 4%)
Purchased of olive oil (P67,200 x 3/28)
Purchased of can containers (P25,000 x 12%))
Payments for paper labels (P12,000 x 12%)
Purchased of cardboard for boxes (P8,960 x 3/28)
Payments for hauling services
Vat Payable
P96,000
(3,400)
(7,200)
(3,000)
(1,440)
(960)
nil
P80,000
P8.13
Output vat (672,000 x 3/28)
P72,000
Less: Input Vat
Purchased of bottles (P22,400 x 3/28)
(2,400)
Purchased of can containers (P50,000 x 12%)
(6,000)
Payments for paper labels (P5,600 x 3/28)
(600)
Purchased of cardboard for boxes (P3,360 x 3/28)
(360)
Payments for hauling services (P60,000 x 12%)
(7,200)
Vat Payable
P55,440
& The taxpayer (processor of fruits) is not entitled to presumptive vat
P8.14
Subject to Value Added Tax
Hotel rooms (P1.8M x 12%)
Dining Hall:
Sale of food and refreshments (P2.2M x 12%)
Sale of wine, beer and liquor (P950,000 x 12%)
Other revenues (P700,000 x 12%)
Subject to Percentage Tax (Amusement Tax)
Disco:
Sale of food and refreshments (P1.6M x 18%)
Sale of wine, beer and liquor (P1.2M x 18%)
TOTAL BUSINESS TAXES
38 |
P216,000
264,000
114,000
84,000
288,000
216,000
P1,182,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P8.15
OUTPUT VAT based on collections
(15M + 10M + 5M)
INPUT VAT on purchases from:
Alpha (P12M – 1.2M) x 12%
Bravo (non-vat reg.)
Charlie (P4M – 1M) x 12%
Delta (P2M x 12%)
Vat Payable
P3,600,000
(1,296,000)
(360,000)
(240,000)
P1,704,000
P8.16
Output vat ((P4M – 2.5M) x 12%
Less: input vat (P800,000 x 12%)
Vat Payable
P180,000
(96,000)
P84,000
P8.17
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale
Nov. 2015
Lot A: P25,000 x 12%; P25,000 x 12%
P3,000
Lot B: P200,000 x 12%
24,000
Lot C: P40,000 x 12%; P20,000 x 12%
4,800
Vat Payable
P31,800
Dec. 2015
P3,000
2,400
P5,400
P8.18
a)
b)
Output vat September 2018 = P3M x 12% = P360,000
The sale is a Deferred sale. Ratio of initial payments over SP is 30%.
Output vat January 2019 = P0
P8.19
Room charges
Laundry services
Food and beverages
Corkage
Handling charges for providing telephone,
telex, cable or fax services
Cake shop sales
Total
Vat rate
Output Vat for the month
P1,000,000
25,000
1,500,000
15,000
4,500
80,000
P2,624,500
12%
P314,940
TRUE OR FALSE
SET A
1. T
6. F
11. F
16.
2. F
7. F
12. F
17.
3. F
8. F
13. F
18.
4. T
9. T
14. F
19.
5. T
10. T
15. F
20.
*Sale of Gold to BSP Prior to 2018 = 0% vat; Beg. Jan. 1, 2018 = Vat exempt
39 |
T
F
F
T*
T
21.
22.
23.
24.
25
F
F
T
F
T
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
SET B
1. T
2. T
3. T
4. F
5. F
MULTIPLE CHOICE
1. D
2. C
3. A
4. D
5. D
6. D
7. D
8. D
9. A
10. C
11. C
12. A
13. A
14. D
15. C
16. C
17. A
18. D
19. D
20. D
6.
7.
8.
9.
10.
F
F
F
T
F
11.
12.
13.
14.
15.
F
F
T
F
T
16.
17.
18.
19.
20.
T
T
T
F
F
21.
22.
23.
24.
25
T
T
T
T
F
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
C
A
C
C
D
C
D
B
C
B
A
D
A
B
B
B
B
B
C
A
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
B
C
D
D
B
D
D
C
C
D
B
C
B
D
D
C
A
B
C
A
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
B
B
C
D
A
C
B
D
A
D
D
A
D
B
C
D
C
D
C
B
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
D
A
B
D
D
B
C
D
C
D
Supporting Computations/explanations:
No. 12
“III” is exempt only if contribution per member is not more than P15,000.
No. 20
Output Vat (P2,805,500 +P1,524,000) x 12%
P519,540
Input vat (P1,102,200+P1,012,500) x 12%
(253,746)
Vat Payable
P265,780
No. 21
Output Vat, 3rd quarter (P150,000 x 12%)
Input vat, 3rd quarter (P120,000 x 12%)
Deferred input vat – previous quarter
Vat Payable (Carry-over)
P18,000
(14,400)
(6,000)
(P2,400)
No. 37
AR, July 1
Billings, July-Sept.
AR, Sept. 30
Collections
Output vat @ 12%
Input vat on purchases @ 12%
Vat Payable
40 |
P180,000
850,000
(120,000)
P910,000
109,200
(57,600)
P51,600
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 38
Output vat (P5.5M x 12%)
Input vat on materials
Vat Payable September
P660,000
(180,000)
P480,000
Output vat (P10M x 12%)
Input vat on materials
Input vat on capital goods
(P3Mx12%) /60 mos.
Vat Payable June 30
P1,200,000
(480,000)
(36,000)
No. 39
P684,000
No. 41
Sales, shares held as inventory
Cos of shares, held as inventory
Gross income
Vat rate
Output vat
Les: Input vat
Supplies expense
Rent expense
Vat payable
P5,000,000
(2,000,000)
3,000,000
12%
P360,000
12,000
24,000
(36,000)
P324,000
No. 49
Domestic sales (P600,000 x 12%)
Add: Transaction deemed sales
Jan. 4 consignment (P200,000 x 12%)
Goods consumed on Fe. 27 (P50,000 x 12%)
Property dividends (P150,000 x 12%)
Total Output Vat
P72,000
24,000
6,000
18,000
P120,000
No. 66 & 67
Output vat (P592,480 x 3/28)
Less: Input Vat
Purchases of goods (P100,000 x 12%)
Purchases of services (P20,000 x 12%)
Transitional input vat
VAT Payable
P63,480
P12,000
2,400
4,800
(19,200)
P44,280
No. 72
Output Vat for October 2014 = P3M x 12 = P360,000
v Ratio of Initial Pay’t over Gross S.P. = P900,000/P3,000,000 = 30%
v If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale which is treated as Cash Sale.
Therefore, the entire output vat is due on the month of sale.
No. 73
Output Vat for 2015 = P0;
41 |
The entire output vat was paid in 2014
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 74
Downpayment
1st installment payment
Total (vat inclusive)
Less: VAT (P224,000 x 3/28)
Initial Payment (exclusive of vat)
Divide by contract Price (P1,120,000 x 3/28)
Ratio of Initial Payment over SP
Output vat for 2017 (P200,000 x 12%)
P112,000
112,000
224,000
(24,000)
P200,000
1,000,000
20%
P24,000
No. 75
VAT ON CASH SALE:
(ZV is higher than SP) (P600,000 x 12%)
VAT ON DEFERRED SALE:
(Ratio of Initial payment over SP > 25%
(Deferred Sale)
(Treated as cash sale; SP is higher than FMV)
[(P336,000/1.12) x 12%]
TOTAL OUTPUT VAT
P72,000
36,000
P108,000
No. 78 and 79
Output vat (P336,000 x 3/28)
Input vat (56,000 + 11,200) x 3/28 x 300/500
Vat Payable
P36,000
(4,320)
P31,680
No. 80
OUTPUT VAT (P896,000 x 3/28)
INPUT VAT
Purchases of goods, vat business, vat included
(P224,000 x 3/28)
MIXED Transactions:
Purchases of supplies, for vat & non vat business
[(112,000 x 3/28) x (800,000/1,000,000)]
Purchase of depreciable asset, for use in vat and non vat business
[(P2,240 x 3/28) x (800,000/1,000,000)]
VAT PAYABLE
P96,000
(24,000)
(9,792)
P62,208
No. 81 and 82
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28
Export sales (zero rated)
INPUT VAT
Purchases of goods, supplies and services for domestic sales and for export (374,000 + 69,848
+ 154,000 + 55,000) x 3/28
Vat Payable
P64,821
0
(69,948)
(P5,127)
No. 83
Raw Materials (P560,000 x 3/28) x 400,000/1M
Supplies (P448,000 x 3/28) x 400,000/1M
Equipment (P300,000 x 12% x 400,000/1M)
INPUT VAT ATTRIBUTED TO EXPORT SALES
42 |
P24,000
19,200
14,400
P57,600
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
CHAPTER 9 – OTHER PERCENTAGE TAXES
PROBLEM SOLVING
P9.1
1. A
2. F
3. F
4. A
5. A
6. F
7. C
8. C*
9. C
10. A
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
A
A
A
A
C
C
C
A
C**
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
C
A
A
A
C
A
C
F
F
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
A
C
C
A
A
A
B
F
A
F
41.
42.
43.
44.
45.
A
E
A
F
A
*#8: Assume the taxpayer is a domestic common carrier transporting passengers by land
#7-9: Assume the taxpayer is a domestic common carrier by land
**Franchise tax of 5% under PD1869; related SC decision
P9.2
1)
2)
P9.3
3% OPT on vat exempt sales (GR<3,000,000 & non-vat registered) =P1,275,000 x 3% = P38,250
Business Tax Due = P0; The taxpayer opted to be taxed at 8% (qualified) which is in lieu of the Basic Income Tax
Due and Business Tax Due under Section 116 of the Tax Code, as amended under TRAIN Law.
Erratum: Change the OPEX to P425,000
1) Gross sales/receipts and other non-operating income = P1.8M + (570,000/95%) = P2.4M
Business Tax = P2.4M x 3% under Sec. 116 = P72,000
2)
Business Tax Due = P0; The taxpayer opted to be taxed at 8% (qualified) which is in lieu of the Basic Income Tax
Due and Business Tax Due under Section 116 of the Tax Code, as amended under TRAIN Law.
3)
VAT = P2.4M x 12% = P288,000
1)
Gross sales/receipts and other non-operating income = P1,275,000
Business Tax = P1,275,000 x 3% under Sec. 116 = P38,250
The compensation income is not subject to business tax.
2)
Business Tax Due = P0; The taxpayer opted to be taxed at 8% (qualified) which is in lieu of the Basic Income Tax
Due and Business Tax Due under Section 116 of the Tax Code, as amended under TRAIN Law.
P9.4
P9.5
Gross receipts-passenger operations by land
P240,000
(P8,000,000 x 3% CCT)
Gross receipts cargo operations
450,000
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat)
240,000
Total business taxes
P930,000
& The basis of business tax in this particular problem shall be collections because the taxpayer is engaged in sale of
services.
43 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
P9.6
1)
Taxpayer is non-vat registered
Gross receipts
P2,400,000
Add: AR, beginning
500,000
Less: AR, end
(600,000)
Collections
2,300,000
x
3%
Business Taxes under
P69,000
Sec. 116
& The basis of business tax in this particular problem shall be collections because the taxpayer is engaged in sale of
services.
& The taxpayer is non-vat registered and the total gross receipts ≤ P3,000,000, hence, subject to 3% OPT under
Section 116 of the Tax Code, as amended.
2)
Taxpayer is vat registered
Gross receipts
P2,400,000
Add: AR, beginning
500,000
Less: AR, end
(600,000)
Collections
2,300,000
x
12%
Business Taxes under Sec.
P276,000
116
& The basis of business tax in this particular problem shall be collections because the taxpayer is engaged in sale of
services.
& Although the total gross receipts ≤ P3,000,000, the taxpayer is vat registered. Hence, subject to 12% vat
P9.7
1)
Income tax due = P400,000
§
GR Passenger operations-Phils.
§
GR cargo operations-Phils.
Total
GPB rate
Income Tax Due
P10,000,000
6,000,000
16,000,000
2.5%
P400,000
2)
Income tax due using preferential tax rate of 2% per treaty = P320,000
§
GR Passenger operations-Phils.
P10,000,000
§
GR cargo operations-Phils.
6,000,000
Total
16,000,000
GPB rate
2%
Income Tax Due
P320,000
3)
Business tax due = 3% CCT on cargo operations originating in the Philippines
= 3% x P6M = P180,000
P9.8
44 |
1.
P0. Not subject to business tax but subject to a capital gains tax of P7,500.
[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 15%CGT under TRAIN Law = P7,500 CGT
2.
P0. Not subject to business tax as well as income tax (CGT). The transaction resulted to a loss amounting
to P75,000, hence, not subject to CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
3.
5.
Subject to P6,000 value added tax
[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 12% = P6,000
A dealer in securities is subject to 12% value added tax based on gross income
Subject to OPT (stock transaction tax) of P720 computed as follows:
P120,000 x .006 (TRAIN Law) = P720
OPT = 5,000 shares x P18 x .006 = P540
1.
2.
P3,000 OPT.
P100 OPT.
1.
2.
3.
4.
P1,053,000 OPT (amusement tax).
P5,850,000 x 18% = P1,053,000
P720,000 OPT.
P4M x 18% = P720,000
P55,500 OPT.
P1,850,000 x 3% = P55,500
P198,000 VAT.
(P1850,000 x 12%) – (P224,000 x 3/28)] = P198,000
4.
P9.9
ratio=10/35=28.5%; IPO rate= 2%; Tax due on=P150,000 x 2% = P3,000
P20,000 x .005 = P100
P9.10
P9.11 Change the No. of the Problem from 917 to 9-11.
1. P501,250 computed as follows:
Interest and commission income from lending activities with
maturity of 3 years
Interest and commission income from lending activities with
maturity of 5 years
Interest and commission income from lending activities with
maturity of 7 years
Other income from rentals of facilities and other assets
Income from financial leasing (remaining maturity is more
than 5 yrs)
Dividends and equity shares in net income of subsidiaries
Net trading gain (loss)
Total Gross Receipts Tax
2.
st
%
5%
Business Tax
P200,000
3,500,000
5%
175,000
6,000,000
1%
60,000
775,000
1,200,000
7%
1%
54,250
12,000
500,000
(150,000)
0%
NA
P501,250
2 Quarter
P2,800,000
nd
%
5%
Business Tax
P140,000
3,300,000
5%
165,000
7,200,000
1%
72,000
825,000
950,000
7%
1%
57,750
9,500
400,000
175,000
0%
7%
1,750
P446,000
P446,000
Interest and commission income from lending activities with
maturity of 3 years
Interest and commission income from lending activities with
maturity of 5 years
Interest and commission income from lending activities with
maturity of 7 years
Other income from rentals of facilities and other assets
Income from financial leasing (remaining maturity is more
than 5 yrs)
Dividends and equity shares in net income of subsidiaries
Net trading gain net of loss (P325,000-150,000)
Total Gross Receipts Tax
45 |
1 Quarter
P4,000,000
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
TRUE OR FALSE
1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. FALSE
6. FALSE
7. FALSE
8. TRUE
9. TRUE
10. FALSE
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
TRUE
FALSE
FALSE
TRUE
TRUE
TRUE
FALSE
FALSE
TRUE
FALSE
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
FALSE
TRUE
TRUE
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
FALSE
#4. False. Shall be either 0%vat or vat exempt only
#6. False. Shall be whichever is higher. However, the application of minimum quarterly receipts has been suspended.
#7.False, CCT is based only on GR from cargo operations.
#9. True. For business tax purposes only; sources within for income tax purposes
#13. False. Shall be from the government
#14. True. i.e., Radio/television broadcasting companies whose GR exceeds the vat threshold of P10M preceding
year.
MULTIPLE CHOICE
1. B
21. D
41. A
61. A
81. C
2. D
22. A
42. A
62. C
82. C
3. D
23. A
43. A
63. B
83. D
4. C
24. A
44. D
64. A
84. D
5. D*
25. B
45. C
65. A
85. D
6. C
26. A
46. A
66. D
86. C
7. A
27. B
47. D
67. D
87. A
8. A
28. D
48. B
68. B
88. C
9. D
29. B
49. A**
69. C
10. A
30. C
50. B
70. D
11. A
31. A
51. B
71. B
12. A
32. C
52. C
72. C
13. C
33. D
53. C
73. A
14. D
34. B
54. C
74. B
15. A
35. D
55. B
75. A
16. B
36. D
56. B
76. B
17. C
37. D
57. A
77. B
18. D
38. D
58. C
78. A
19. B
39. A
59. C
79. C
20. B
40. C
60. A
80. C
*Items I and II are not subject to business taxes while item III is subject to Sec. 117 instead of Sec. 116
**Change the rate of 10% to 2%
Supporting Computations:
No. 6
OPT on sale of refined sugar and cooking oil = (P500,000 + 500,000) x 3% = P30,000
No. 7
(P280,000 + P220,000) x 3% = P15,000
No. 8
(P50,000 + 100,000 – 75,000) x 3% = P2,250
46 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 9
Gross receipts (refer to #6)
x vat rate
Output vat
Input vat (P11,200 x 3/28)
Vat Payable
No. 10
No. 19
No. 20
No. 21
No. 22
No. 23
No. 26
No. 27
No. 28
No. 29
No. 30
P75,000
12%
P9,000
(1,200)
P7,800
VAT Payable = (P1,350,000 + 625,000 – 1,200,000) x 12% = P93,000
P6.5M x 12% vat = P780,000
P660,00 x 3% = P19,800
(P400,000 + P100,000) x 12% = P60,000; shall be based on collections
CCT = (P800,000 + 400,000) x 3% = P36,000
CCT = [(100,00-18,000) + (165,000-13,500) + 90,000 + 35,500] x 3% = P10,770
P10M x 2.5% = P250,000
P10M x 1.5% = P150,000
exempt
B
(P10M x 40%) 3% = P120,000
No. 37
AR, beg.
Revenues (P4M + P1M)
AR, end
Gross receipts
Vat rate
Business tax due
P600,000
5,000,000
(960,000)
P4,640,000
12%
P556,800
No. 38
Covered by the Franchise
AR, beg.
Revenues
AR, end
Gross receipts
Franchise tax rate
Business tax due
Total Business Taxes
No. 39
No. 45
No. 46
P600,000
4,000,000
(800,000)
P3,800,000
2%
P76,000
P176,800
NOT Covered by the Franchise
AR, beg.
Revenues
AR, end
Gross receipts
Franchise tax rate
Business tax due
P---1,000,000
(160,000)
P840,000
12%
P100,800
2017 = P9M x 3% = P270,000; 2018 = P12M x 3% = P360,000
P3M x 10% = P300,000
Output vat (P5M x 12%)
Input Vat
§
P300,000 x 12%
§
P800,000 x 12% x 5/8
Vat Payable
P600,000
(36,000)
(60,000)
P504,000
No. 48
Statement 2 is False. The rate shall be 4% (twice the rate of Section 123 NIRC)
47 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 54
OPT%
Interest income from lending activities from
inst1uments with remaining terms of:
Five years and less
More than five years
Dividends & equity shares from subsidiaries
Rental income
Net trading gains
Total Gross Receipts Tax
GRT
5,000,000
3,000,000
1,000,000
500,000
300,000
5%
1%
0%
7%
7%
P250,000
30,000
0
35,000
21,000
P336,000
P880,000
220,000
660,000
110,000
30,000
220,000
OPT%
7%
7%
7%
7%
0%
7%
GRT
P61,600
15,400
46,200
7,700
0
15,400
700,000
800,000
5%
1%
35,000
8,000
P189,300
No. 55
Rentals from safety deposit boxes
Net foreign exchange gains
Net trading gains from trading of securities
Trust fees
Dividends from domestic corporations
Other service fees
Interest income from lending activities from
inst1uments with remaining terms of:
Five years and less
More than five years
Total Gross Receipts Tax
No. 56
Interest income with maturity of less than 5 years (P500,000 x 5%)
Rentals (P500,000 x 7%)
Net trading loss = none; if net trading gain, tax is 7%
Gross receipt tax (GRT)
P25,000
35,000
P60,000
No. 57
Interest income with maturity of less than 5 years (P1M x 5%)
Rentals (P500,000 x 7%)
Net trading gain
[200,000 – (100,000 net trading loss previous month) x 7%]
Gross receipt tax (GRT)
P50,000
35,000
7,000
P92,000
No. 58
Interest withheld and paid (P100,000 x 5 years x 1%)
Adjusted amount of tax due to pretermination (P100,000 x 5 years x 5%)
Tax Payable
(P5,000)
25,000
P20,000
No. 60
No. 61
No. 62
No. 68
No. 69
No. 69
P2M x 10% = P200,000
[(P500,000 x 12%)-(300,000x12%)] = P24,000
P2M x 2% = P40,000
P7.5M x 18% = P1,350,000
P5M x 18% = P900,000
P1M x 3% = P30,000
48 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia
No. 73
No. 74
Amusement tax = exempt
Amusement tax = (P5M + 3M) x 10% = P800,000
No. 76
Double = P200 bet/P20 per ticket = 10 tickets;
10 tickets x P180 net winnings per ticket x 4% = P72
Ordinary (winner take all) = P500 bet/P50 per ticket = 10 tickets;
= 10 tickets x P950 net winnings per ticket x 1% = P950
Forecast = Bet P1,000/20 per ticket = 50 tickets
= 50 tickets x P80 net winnings per ticket x 4% = P160
TOTAL = P1,182
No. 82
No. 83
No. 84
No. 86
No. 87
No. 88
OPT = P350,000 x .005 = P1,750
none; subject to CGT
Vat = (P1.5M – P1M) x 12% = P60,000
(120,000 – 30,000) x ½ x P30 x 1% = P13,500; Ratio = 45/75 = 60%; IPO rate = 1%
(2,000 x P25 x 4% = P2,000;
Ratio = 2/75 = 2.67%; IPO rate = 4%
(6,000 x P40 x .005% = P1,200
49 |
Transfer & Business Taxation(2018 Edition) by Tabag and Garcia