lOMoARcPSD|19218813 Introduction of Estate Tax Business and Transfer Taxation (University of Pangasinan) Studocu is not sponsored or endorsed by any college or university Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com) lOMoARcPSD|19218813 Marc Mervyn Lopez 03-2122-031410 3BSA-02 Answer the following Questions: 1. 2. 3. 4. Discuss the guide talked about by your teacher in solving estate tax List and explain each the items to be included in the gross estate List and explain each the items to be excluded in the gross estate Craft a narrative illustration depicting the gross estate inclusions and exclusions Estate Tax - is tax on the right of the deceased person to transmit estate to the lawful heirs and beneficiaries. 1. Resident or Citizen - within and without the Philippines. Residents and Citizens w/in Philippines w/out Philippines Real Properties Tangible Personal Properties Intangible Personal Properties a. Resident Citizen a. Non-Resident Citizen a. Resident Aliens 2. Non-resident aliens - within the Philippines only. Non-resident aliens Real Properties Tangible Personal Properties Intangible Personal Properties w/ reciprocity w/out reciprocity Formula: Gross Estate Less: Allowed Deductions Net Estate Multiply: Estate Tax Rate Estate Tax Due xxx xxx xxx 6% xxx Inclusions: Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com) lOMoARcPSD|19218813 Marc Mervyn Lopez 03-2122-031410 3BSA-02 1. Transfer in contemplation of death 2. Revocable Transfers, including conditional transfers. 3. Transfer with retention of certain rights 4. Property passing under general power. 5. Estate, executor, or administrator is beneficiary. 6. Inventory count of existing properties at the point of death Transfer in contemplation of death Donations made by decedent during his lifetime which are motivated by the thought of his death. Revocable Transfers, including conditional transfers. Transfer of possession but not ownership. Therefore, it is subject to estate tax unless the transferor waives his right to revoke the transfer. Transfer with retention of certain rights This the transfer wherein the transferor retains some the possession or enjoyment of property. For example: Mrs. Gerardin transferred one-hectare of land in favor of her daughter, Gorbulev. She, however, reserved for herself the enjoynment of 250m² or 0.25 hectare until her death. The land was P1,000. Gross Estate: P250 (1,000*1/4). Property passing under general power of appointment. It is included in the gross estate of decedent. General power enables the holder of power to do with the property anything which he could do as if the property were his own. Estate, executor, or administrator is beneficiary Estate, executor, or administrator is beneficiary, regardless of whether revocable or irrevocable designation. Inventory count of existing properties at the point of death Decreases in the property of the decedent after death are added back because these were present at the point of death. On the other hand, increases in the property of the decedent are excluded because these were not present at the point of death. Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com) lOMoARcPSD|19218813 Marc Mervyn Lopez 03-2122-031410 3BSA-02 Exclusions: 1. Transfers of properties not owned by the decedent - One cannot transfer properties he or she does not own. Properties not owned by the decedent are not part of his/her donation mortis causa. 2. Transfers legally excluded - There are properties that are owned by the decedent at the point of death. These properties naturally form part of his/her donation mortis causa to the heirs but are exempted by the law from estate taxation. Transfer of properties not owned by the decedent 1) Merger of the usufruct in the owner of the naked title 2) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary 3) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor 4) Proceeds of irrevocable life insurance policy payable to beneficiary other than the estate, executor, or administrator 5) Properties held in trust by the decedent. 6) Separate properties of the surviving spouse of the decedent 7) Transfer by way of bona fide sales Merger of the usufruct in the owner of the naked title Transfer of property appointed trustee by predecessor is a mere return of capital and does not constitute to estate tax. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary Fiduciary heir will not be subject to estate tax. Example: Mr. Pagodna Co died leaving an inheritance of house and lot to his only grandson, Sukona Co from his favorite daughter Estata. Because C was a minor, Mr. Pagodna Co appointed Estata, as fiduciary of inheritance. Before transferriung the property to Sukona Co, Estata died. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor Example: Mr. Gorbulev devised a piece of land to Francia as the first heir and thereafter to Anji as the second heir. Francia subsequently died transmitting the property to C in accordance with Mr. Gorbulev’s will. Proceeds of irrevocable life insurance policy payable to beneficiary other than the estate, executor, or administrator if transfer is not stated if stated or not it will assume that the transfer is revocable subject to estate tax. However, if the decedent did not replace the beneficiary until his death it shall be deemed irrevocable exempt from state tax. Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com) lOMoARcPSD|19218813 Marc Mervyn Lopez 03-2122-031410 3BSA-02 Estate, executor, or administrator as beneficiary is subject to estate tax as mentioned in the inclusions part discussed above. Properties held in trust by the decedent. Properties held in trust at the point of death of decedent are not owned by him. Thus, it will not be part of his gross estate. Separate properties of the surviving spouse of the decedent Separate properties of the surviving spouse are not a property of decedent. In consequence it will not be form part of his gross estate. Transfer by way of bona fide sales This transfer is not a gratuitous but a mere sale. Hence, it will not be part of gross estate. Legal exclusions The following are the list of properties owned by the decedent at the point of death which naturally forms part of the hereditary estate but are not subject to estate tax by law: 1) Proceeds of group insurance taken out by a company for its employees 2) Proceed of GSIS policy or benefits from GSIS 3) Accruals from SSS 4) United States Veterans Administration (USA) benefits - RA 136 5) War damage payments 6) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of net income of which insures to the benefit of any individual; provided, however, that not more than 30% of the said bequest, devises, legacies, or transfers shall be used by such institutions for administration purposes. 7) Acquisitions and/or transfers expressly declared as non-taxable by law. 8) Bank deposits withdrawn from the decedent account during the settlement of the estate. *Note: The first five (5) above mentioned in Legal Exclusions are exempt so as long the heirs or administrators can prove that the properties were acquired using these exempt properties. Sample Problem: Mr. Shawn a Filipino Resident died on December 31, 2003, leaving a bunch of properties to his most favorite daughter Gido; Cash 100 Car in Philippines 250 Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com) lOMoARcPSD|19218813 Marc Mervyn Lopez 03-2122-031410 3BSA-02 Condominium Unit in Korea Building in Japan Land in Australia Land in Canada Land in Philippines Shares in foreign corporations 65% of the business of which situated in the Philippines Claims from resident debtors Proceeds from SSS 400 200 300 500 850 525 700 1,000 Additional Information: 75% of cash were given to his secretary before his death. Car in Philippines, barrowed from his ex-girlfriend. Land in Canada was held usufructuary. Solution: Cash Condominium Unit in Korea Building in Japan Land in Australia Land in Philippines Shares in foreign corporations 65% of the business of which situated in the Philippines Claims from resident debtors Gross Estate Car in Philippines Cash Land in Canada Proceeds from SSS Exclusions 25 400 200 300 850 525 700 3,000 250 75 500 1,000 1,825 Downloaded by Wendy Dionisio (dionisiowendy101104@gmail.com)
