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Income Taxation on Individuals (Notre Dame of Marbel University)
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CHAPTER 3
Substantiation Requirements
DEDUCTIONS FROM THE GROSS ESTATE
1. Ordinary Deductions
2. Special Deductions
3. Share of Surviving spouse, if decedent
is married.
Deductions
-
Non-resident Alien
Ordinary Deductions
✓
✓
✓
LITe
Vanishing
Deductions
TFPU
✓
✓
✓
**proportional
✓
✓
✓
5M
500k
✓
NA
✓
✓
NA
✓
Special Deductions
✓
✓
✓
Standard
Deductions
Family
Home
RA 4917
Share of Surviving
Spouse
**LITe ×
c. Transfer for Public Use – transfers in
favor of the government for public use
𝑮𝑬 𝒘/𝒊𝒏
d. Vanishing Deductions (property
previously taxed) – when the property
is previously subject to transfer tax
𝑮𝑬 𝑾𝒐𝒓𝒍𝒅
ORDINARY DEDUCTIONS
Requisites:
1. Death – present decedent died within 5
years from death of prior decedent or date
of gift
2. Identity of property – one received from
prior decedent or from a donor
3. Location- Philippines
4. Inclusion of the property – must have form
part of the gross estate within 5 years prior
to present decedent or from a donor
5. Previous taxation of the property –
determined and paid
6. No previous vanishing deduction on
property
LITe (losses, indebtedness, taxes, etc.)
a. Losses – amount deductible is the
value of property lost
Casualty Losses
▪ Acts of God – storm,
earthquake
▪ Acts of Man – robbery
Requisites:
▪
▪
▪
▪
Simple Loan and Unpaid
obligations arose from purchase of
goods or services
Creditor(signatories):
Corporations – president/VP
Partnerships – any of the
general partners
Individual – signed by him
Sole Proprietorship – owner of
business
*must not related to borrower
Decedent
Citizen/
Residents
valid in law
must not been condoned by creditor
Arising exclusively from casualty losses.
Not compensated by insurance
Not claimed as a deduction from ITR of
the estate subject to income tax
Incurred during settlement period –
period prescribed by law to file and
pay estate tax
b. Indebtedness or claims against the
estate
Claims
- debts or demands enforced during
lifetime of the deceased
- personal obligation existing at the
time of his death
- sources: contract, tort, law
RATES
Period from receipt up to decedents death
Within 1 year
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
Value to take(w/ever is lower)
Less: Mortgage Paid
Initial Basis
Less: Proportional Deduction
𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑏𝑎𝑠𝑖𝑠
× LITe + TFPU
𝑔𝑟𝑜𝑠𝑠 𝑒𝑠𝑡𝑎𝑡𝑒
Final Basis
× Vanishing Deduction Rate
%
Vanishing Deductions
Requisites:
▪
▪
represents personal obligation at the
time of death
contracted in good faith
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Rate
100%
80%
60%
40%
20%
xxx
xxx
xxx
xxx
xxx
xxx
lOMoARcPSD|43612528
SPECIAL DEDUCTIONS
a. Standard Deductions
- Deducted without qualification or
requisites
Citizen or Residents – 5,000,000
Non-resident Alien – 500,000
b. Family Home
- Dwelling house, where the
decedent and his family stays
permanently
- Amount: whichever is lower of 10M
and FMV at the time of death
- Unmarried head of Family
o Wala asawa
o w/ parents, siblings,
children(not more than
21yrs) – incapacitated
- Beneficiaries of family home
o Husband or wife or head of
the family
o Parents, children,
ascendants, descendants
Limitation: only one family home
c. Amounts received by heirs
- Amount received in accordance
to the death of the decedent,
provided it is part of its gross estate.
Net share of surviving spouse
- ½ or 50% of conjugal property.
Estate Taxation
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lOMoARcPSD|43612528
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CHAPTER 4
PROPERTY RELATIONS
• Applicable only to married persons
• Used to distinguished conjugal or
community property from an exclusive
property
• Governed in the following order
1. Marriage settlements
executed before marriage
2. Provisions of law
3. Local custom
Exclusive Property under ACoP (excluded
from community property)
1. Property acquired during marriage
thru gratuitous title unless the donor,
testator or grantor expressly provided
that it be part of community property.
Art. 92(1) of the Family Code
*fruits or income shall depend on the
classification of principal or source of
it.
Exclusive Property – fruits are exclusive
From labor – always form part of the
conjugal property
Types of Property Relations
1. Absolute community property (ACoP)
after August 8, 1988
2. Conjugal partnership property (CPG)
before August 8, 1988
3. Complete separation of property
4. Any other regime
2.
Valid modification
- Must be made before celebration of
marriage
- Shall be in writing signed by parties
- Shall not prejudice third person
Law Governing Property Relations
Void – stipulations for future marriage if it
doesn’t happen
Valid – stipulations that doesn’t depend on
the happening of marriage
Conjugal Property – owned by both husband
and Wife
Exclusive Property – owned by either
husband (capital) or by the wife
(paraphernal)
-
Property for personal and exclusive
use of either of the spouse. Art. 92(2) of the
Family Code
3. Property acquired before marriage by
either spouse who has legitimate
descendants from a former marriage.
Exclusive and Common Property under ACoP
Property
Classification
Before marriage
All properties owned and brought
community
During marriage
Acquired thru onerous transfer
community
Acquired thru gratuitous transfer
exclusive
Acquired thru gratuitous transfer
community
where the donor stated it shall
form part of community property
Acquired using common fund
community
For personal and exclusive use
exclusive
Except, jewelry
community
*under ACoP, the fruit shall depend on the classification of the
principal
ABSOLUTE COMMUNITY OF PROPERTY
-
Community Property: Consist of ALL
property owned by the spouses at the
time of celebration or acquired
thereafter.
The spouses become co-owners of all
property they bring into the marriage
or acquired by both of them during
marriage
Commence at the moment of
celebration
Generally: Property belongs to the
community
Exceptions: Unless proven to be
exclusive property
CONJUGAL PARTNERSHIP OF GAINS
- Husband and wife place in a common
fund the fruits or income acquired by
them through their efforts, and, upon
dissolution of marriage, the net
income or gains shall be divided
equally between them.
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Exclusive Property under CPG
- All properties acquired before
marriage
8. The value of what is donated in favor
of their children to complete self
improvement activity
9. Litigations between spouses, unless the
suit is groundless:
1. If brought t the marriage as his or her
own
2. Acquires during the marriage by
gratuitous title
3. Acquired by right or redemption or by
exchange with property belonging to
only one of the spouses.
4. Purchased with exclusive money of the
wife or of the husband.
✓ Obligations during marriage –
conjugal deductions.
✓ Obligations before marriage –
exclusive unless it benefits the
family.
✓ Other deductions are either
conjugal or exclusive depends on
where it is related or chargeable
✓ Loss – borne by the loser; winnings –
conjugal
✓ Fines and damages of either
spouse is imposed against exclusive
property.
CONJUGAL PROPERTY – CPG
- All properties during marriage, unless
otherwise stated
1. Acquired through onerous title during
the marriage using common fund
2. Obtain by the efforts of either or both
the spouses.
3. Fruits received regardless of the
classification of the principal
4. Hidden treasure discovered during
marriage
5. Property acquired by occupation such
as hunting or fishing
6. Livestock existing upon dissolution less
the number of each kind brought to
the marriage
7. Acquired by chance such as winning.
However, losses shall be borne by
loser-spouse.
CONJUGAL DEDUCTIONS (CGP & ACP)
1. The support of the spouses.
2. All obligations contracted during
marriage.
3. Obligations of either spouse without
the consent of the other to the extent
of where the family benefited.
4. Taxes, charges, and expenses upon
conjugal property.
5. Taxes and expenses during marriage
for preservation of their separate
property.
6. Expenses of either spouse for
vocational or self improvement
7. Debts before marriage of either
spouse insofar as it benefited the
family.
*always an exclusive deduction under CPG
*transfer for public use shall be classified as
exclusive deduction unless stated
COMPLETE SEPARATION OF PROPERTY
- Spouses shall governed by complete
separation of property if agreed in the
marriage settlements.
o Each spouse – fruits from his or
her separate property and
earnings from his or her
professions.
o Solidary – all expenses in
proportion to their income or
FMV of their separate property
and all their liability for family
expenses.
PROPERTY REGIME OF UNIONS WITHOUT
MARRIAGE
CAPACITATED TO MARRY
Wages and salaries shall be
owned by them in equal shares
Property acquired by both of
them thru their effort is subject
to co-ownership
Neither of them can dispose the
property without the consent of
the other during cohabitation
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INCAPACITATED TO MARRY
only the property acquired thru
actual joint contribution of
money or in proportion to their
respective contribution; if silent equally
The share of any party who is
married to another shall accrue
to the ACP or CPP if existing
under valid marriage.
lOMoARcPSD|43612528
CHAPTER 5
ESTATE TAX CREDIT AND DISTRIBUTABLE ESTATE
Allowable Deductions – deductions from the
gross estate
Tax Credit – deductions from estate tax itself
Estate Tax Credit
- Taxpayer’s right to deduct from the
tax due the amount of tax it has paid
to a foreign country.
- Not applicable for non-resident alien
Philippine Estate Tax Due
Estate Tax Due
Less: Tax Credit
Phil. Estate Tax Due
xxx
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Computation of Estate Tax Credit
Net Taxable Estate – result of application of
the law in estate taxation
Net Distributable Estate – amount from gross
estate consisting all properties in the
possession and control of the decedent at
the time of death and actual expenses.
Estate Taxation
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