Philippine School of Business Administration

DONORS TAX / GIFT TAX

ATTY. MACMOD

1. Definition and characteristics of the tax.

2. Requisites of a valid donation

a. _____________________

b. _____________________

c. _____________________

d. _____________________

e. _____________________

3. Classification of Donors and composition of the gross gift:

a. Resident or Citizens of the Philippines _____________

____________________________________________

b. Not a resident not a citizens of the Phil. (NRA)

Without Reciprocity Law ________________________

With Reciprocity Law ___________________________

4. Other transactions subject to donors tax

a. ______________________________

b. ______________________________

5. Requisites of Transfer with insufficient consideration

a. _______________________________

b. _______________________________

c. _______________________________

6. Valuation of gross gift

a. Personal Property _________________

b. Real Property _____________________

7. Deduction from the gross gift:

a. Under the Tax Code:

(1) Dowries

(2) Donations to the government or any of its agencies or instrumentalities

(3) Donations to educational, charitable, religious, cultural, social welfare institution, accredited NGOs, trust on philanthropic organizations, research institutions, etc. provided that no more than 30% of the donation/gift shall be used by the donee institution for its administrative purposes; Requisites: _____________

_____________________________________________________________

H - 002Imagination is more powerful than knowledge.

- Einstein

Donors Tax

Page 2

b. Under BIR Rulings:

(1) Encumbrances on the property donated, if assumed by the donee

(2) Diminutions on the property donated specifically provided by the donor

c. Under Special Laws. Donations to the following special non-stock-non-profit institutions duly recognized by the government pursuant to a special law are exempt:

(1) International Rice Research Institute

(2) Ramon Magsaysay Award Foundation

(3) Southern Philippines Development Administration

(4) Philippines American Cultural Foundation

(5) Integrated Bar of the Philippines

(6) Development Academy of the Philippines

(7) National Social Action Council

(8) Museum of the Philippine Costumes

(9) Aqua-culture Department of South East Asia Fisheries Development Center of the Philippines

(10) Intramuros Administration

8. Formula for computation of Taxable net gift gate and gift tax due

9. Donors tax Credit (Same concept as in estate tax credit)

10. Administrative provisions

Summary of properties comprising gross gift:

Real Property Tangible Personal Intangible Personal

Citizen or Resident ALL

ALL

ALL

NRA w/ reciprocity W/in the Phils., only W/in the Phils.,only NONE

NRA w/o reciprocity W/in the Phils., only W/in the Phils., only W/in the Phils., only

Summary deductions allowed:

Citizen or resident

NRA

Dowry

Allowed

Not allowed

Gifts to the Natl Govt.

Allowed

Allowed

Gifts to educational, charitable institution etc.Allowed

Allowed

Mortgage assumed

Allowed

Allowed

Diminution

Allowed

Allowed

TAX CREDIT FOR FOREIGN DONORS TAX

In order to minimize or lessen the harsh of effect of taxing the same gift twice, the donor is allowed to claim the gift tax paid in the foreign country as a tax credit against the gift tax paid in the Philippines. It can only be claimed of Citizen or resident of the Philippines at the time the donation was made.

H - 002Donors Tax Page 3AMOUNT OF TAX CREDIT

The tax credit is the amount of donors tax paid to the foreign country, but not exceed the limit prescribed by law:

LIMIT A:

Net gifts (per foreign country)

-------------------------------------- X Philippine Donor Tax

Total Net Gifts

LIMIT B:

Net gifts (all foreign countries)

-------------------------------------- X Philippine Donors Tax

Total net gifts

DONORS TAX RATES

a. In general

If the net gifts is:

The tax

Of excess

Over

But not over

shall be Plus

over

----------------- -------------------

----------------------------------------

P 100,000

Exempt

P 100,000

200,000

0 2%

P 100,000

200,000

500,000

2,000 4%

200,000

500,000

1,000,000

14,000 6%

500,000

1,000,000

3,000,000

44,000 8%

1,000,000

3,000,000

5,000,000

204,000 10%

3,000,000

5,000,000

10,000,000

404,000 12%

5,000,000

10,000,000

1,004,000 15%

10,000,000

b. When the donee is stranger, the tax shall be 30% of the net gifts.

A STRANGER is a person who is:

a. Not a brother or sister (whether by the whole or half blood), spouse, ancestor and lineal descendant;

b. Not a relative by consanguinity in the collateral line within the fourth degree of relationship.

c. Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purpose shall be governed by Election Code, as amended.

H - 002Donors Tax

Page 4FORMAT OF COMPUTATION

a. FIRST DONATION OF THE YEAR

Gross Gift

P xxx

Less: Exemption

xxx

Taxable Net Gift

P xxx

b. Subsequent donation/s during the same year:

Gross Gifts

P xxx

Less: Exemptions (Deductions)

xxx

Net gifts

P xxx

Add: All prior net gifts during the same year xxx

Total (aggregate) net gifts

P xxx

Donors tax on the total net gifts

P xxx

Less: Donors tax on all prior net gifts

xxx

Donors tax due, this gift

P xxx

ADMINISTRATIVE PROVISIONS:

*FILING AND PAYMENT OF TAX

a. Any individual who makes any transfer by gift shall, for the purpose of the said tax make a return in duplicate. The return shall set forth:

1) Each gift made during the calendar year which is to be included in computing net gifts;

2) The deduction claimed and allowable;

3) Any previous net gifts made during the same calendar year;

4) The name of the donees; and

5) Such further information as may be required by rules and regulations made pursuant to law.

b. The donors tax return is filed within 30 days from date of each donation.

c. The tax is paid as the return is files (pay-as-you-file).

d. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to:

1) An authorized agent bank

2) Revenue District Officer

3) Revenue Collection Officer or;

4) Duly authorized Treasurer of the city or municipality

Where the donor was domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner.

e. In the case of gifts by a non-resident, the return may be filed with:

1) Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or;

2) Directly with the office of the Commissioner.

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Donors Tax Page 5f. Civil penalties and interest

1) Penalty of 25% if there is no false or fraudulent intent on the taxpayer.

2) Penalty of 50% if there is false, malice or fraudulent intent on the taxpayer.

3) Interest of 20% on the unpaid amount of tax from the date computed until fully paid.

Exercise / Problems Donors tax

a. In each of the following, determine the allowable deduction from the Gross Gift:

1. Dowry of P 100,000 given by grandfather to her granddaughter 2 wks. after the marriage.

2. Dowry by a father to his legitimate son

Before Marriage

P 8,000

During Marriage

5,000

Within 1 yr. thereafter

50,000

3. Dowry by a mother to her daughter

During the marriage

P 5,000

15 mos. after the marriage

50,000

4. Dowry by a mother to her daughters during their marriages:

Alexi

P 8,000

Maribel

20,000

Maricel

12,000

Abegael

5,000

5. Dowry out of common property of the couple to their 2 sons; 2 mos. after marriage

Jekky

P50,000

Emong

70,000

6. Donation to Philippine National Red Cross, P 100,000 but 50% was spent for office expenses alone.

7. Donation to Mla. City Hall P 300,000, but 50% was spent for office expenses.

8. Land donated w/ FMV of P 2M w/ unpaid real estate tax of P 400,000, assumed by the donee & unpaid mortgage of P 1M, all assumed by the donor.

9. Donation mortis causa of a land with FMV of P 1M left by the decedent.

10. Donation intervivos to son on account of topping the CPA Exam. Land with FMV, P 500,000 subject to the condition that a son will pay the donors tax on the said donation.

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B. DONORS TAX: MULTIPLE CHOICE THEORITICAL

1. A privilege tax imposed on onerous transfers inter vivos:

a. Gift taxb. Estate tax

c. Income taxd. Donors tax

2. An excise tax on gratuitous transfers mortis causa

a. Gift taxb. Estate tax

c. Income taxd. Donors tax

3. An excise tax on gratuitous transfer inter vivos:

a. Donors taxb. Estate tax

c. Income taxd. Donors tax

4. First statement: The donors tax shall apply, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible, even if the transfer is merely in trust.

Second statement: Any contribution in cash or in kind to any candidate, political party or coalition or parties for campaign purposes shall be subject to donors tax.

a. Both statements are correct

b. Both statements are incorrect

c. Only the first statement is correct

d. Only the second statement is correct

5. Donors tax is distinguished from the estate tax

First distinction: The rated for donors tax are lower than those for estate tax, in all cases.

Second distinction: In donors tax, the exemption is P 200,000 while in estate tax it is P 100,000.

a. Both distinctions are correct.

b. Both distinctions are wrong.

c. First distinction is correct, the second is wrong.

d. First distinction is wrong, the second is correct.

6. When the donee or beneficiary is stranger, the tax payable by the donor shall be:

a. 30% of the gross gifts

b. 30% of the net gifts

c. Based on the graduated rates with the first P 100,000 net gift exempt.

d. Based on the graduated rates with the first P 100,000 net gift exempt or 30% of the net gifts whichever is higher.

7. For donors tax purposes, one of the following is a stranger:

a. Brother or sister

c. Uncle

b. Spouse

d. Son-in-law

8. One of the following is not a relative by consanguinity in the collateral line within the fourth degree of relationship.

a. Daughter of the donors nephew

b. First cousin of the donor

c. Niece of the donor

d. Second cousin of the donor

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Donors Tax Page 7

9. Three of the following are exempt or excluded from the donors tax. Which is the exception?

a. P 200,000 cash given by a non-resident alien donor to his legitimate son who is getting married in the Philippines to a Filipina.

b. P 10,000 cash given by a resident alien donor to his legitimate son who is getting married in the Philippines.

c. Donation of a condominium in Hongkong to a Filipina by a British national not residing in the Philippines.

d. P 150,000 donation to a non-profit school.

10. First statement: Gifts in favor of an educational and/or religious organizations are exempt from donors tax.

Second statement: Gifts on account of a persons merits or services rendered are taxable whether the services are demandable debt or not.

a. Both statements are correct

c. Only first statement is correct

b. Both statement are incorrect

d. Only second statement is correct

11. All of the following except one are exempt from the gift tax under the special laws:

a. Donation to Integrated Bar of the Philippines

b. Donation to Development Academy of the Philippines

c. Donation to Philippine Institute of Certified Public Accountants

d. Donation to International Rice Research Institute

12. John sold his car to Sam. Johns car cost P 300,000 and has a fair market value of

P 400,000 at the same time of sale. The car was sold for P 200,000. For donors tax purposes, which of the following statements is correct?

a. There is taxable gift of P 300,000.

b. There is a taxable gift of P 200,000.

c. The transfer is for insufficient consideration, hence, not subject to gift tax.

d. The transfer involves a personal property, hence, not a subject to gift tax.

13. One of the following statements is false:

a. Contracts of donation between husband and wife are void in all cases.

b. The donation by Chavit to Pres. Macapagal in view of her public office is void in all cases.

c. Donations between persons guilty of adultery or concubinage are void.

d. Donations to conceived or unborn children are valid.

14. 1st statement: A donation can be both a part of the gross gift of the donor and a taxable income to the donee.

2nd statement: A donation may be exempt from donors tax but not necessarily a deduction from the donors gross income.

a. Only the 1st statement is correct.

b. Only the 2nd statement is correct.

c. Both statements are correct.

d. Both are incorrect.

H - 002Donors Tax Page 8

In the following questions choose:

a. If only the first statement is correct.

b. If only the second statement is correct.

c. If both statements are correct.

d. If both statement are incorrect.

15. 1st statement: Donative intent as a request of a valid donation is absolute.

2nd statement:An inofficious donation is voidable.

16. 1st statement:As a general rule all persons who may contract and dispose of their property may donate.

2nd statement:Minors can be a donor or a donee

17. 1st statement:A person can donate all his present property unconditionally.

2nd statement: No person may receive or give by way of donation more than he may give or receive.

18. 1st statement:The pay as you file system is not followed in donors taxation.

2nd statement:All onerous donations are not subjected to donors tax.

19. 1st statement:Renunciation of ones share in the legitime is a taxable gift.

2nd statement:Gift splitting is a form of tax evasion.

20. 1st statement:Donation of a personal property worth P 5,000 must be in writing.

2nd statement:Donation of a real property is valid if made in writing even if not notarised.

C. Multiple Choice Problems

Donors Tax: Multiple Choice Problems

Turkina, a Filipina princess made the following donations.

a. To Zaida, a land worth P 450,000 in Cubao.

b. To Hejia, jewelry worth P 100,000 in Hongkong.

c. To Shahida, PLDT shares amounting to P 150,000.

d. To Haida, a building in Italy P 1,600,000 mortgaged for P 50,000 assumed by the donee.

e. To Goliath, land in Pampanga worth P 300,000.

f. P 300,000 cash, PNB New York to Charlie

She has also transferred the following properties:

Selling Price

FMV

Car, MakatiP 200,000P 300,000

Car, USA 300,000

200,000

Land, Philippines1,000,000 2,000,000

21. If she is resident Alien her gross gift is:

a. P 2,100,000

b. P 1,950,000c. P 2,950,000d. P 3,000,000

22. If she is a NRA non-resident Egyptian, and there is reciprocity law, her gross gift is:

a. P 850,000

b. P 650,000c. P 1,050,000d. P 700,000

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Questions 23 to 26 are based on the following data:

Mr. and Mrs. Lapu-Lapu, made the following donations:

1/25/2006 To Magellan, their legitimate son, on account of marriage last 1/20/2003,

car worth P 400,000, with P 200,000 mortgage, was assumed by the donee.

5/31/2006 To Napoleon, brother of Mr. Lapu-Lapu, his capital property worth P 200,000 on account of marriage 6 months ago of Napoleon with a condition that the donee will pay the donors tax thereon.

7/15/2006 To Donita, daughter of Mrs. Lapu-Lapu by former marriage, on account of her marriage 12 months ago, Mrs. Lapu-Lapus paraphernal property worth

P 100,000.

8/20/2006 To Donita on account of the same marriage conjugal car of the couple worth

P 400,000, with P 200,000 unpaid mortgage, assumed by Donita. And

P 500,000 worth of land to their four sons on account of their graduation, 20% of which was owned by their kumpare who agreed to donate his share thru a public document.

23. The gift tax due of Mr. Lapu-Lapu as of May 31, 2006 is:

a. P 8,000

b. P 7,000

c. P 7,200

d. P 6,600

24. The gift tax of Mrs. Lapu-Lapu as of July 15, 2006 is:

a. P 3,600

b. P 2,600

c. P 2,800

d. P 4,000

25. The gift taxes due of Mr. and Mrs. Lapu-Lapu on August 20, 2006:

a. P 69,000 & P 18,800

b. P 17,000 & P 18,800

c. P 54,000 & P 15,800

d. P 54,000 & P 18,800

26. The gift tax due of their kumpare is:

a. P 30,000

b. P 10,000

c. P 45,000

d. P 15,000

Questions 27 & 28 are based on the following data:

Mr. Pinya, made the following donations for the year 2006:

April 15 To Natalie, legally adopted child on acct. of marriage last week, car worth

P 710,000 in Philippines.

To Daylan, his daughter, car in USA worth P 300,000. They paid $ 200 donors tax in the US ($1 P 45)

July 20 To Tiffany niece in Manila, P 200,000 worth of personal property.

To Nora, legitimate daughter on acct. of marriage in Cebu, July 18, 2005 car, worth P 400,000 but mortgaged for P 200,000, of which was assumed by the donee.

27. The gift tax due after credit on April 15, 2006 is:

a. P 30,800

b. P 35,000

c. P 44,000

d. P 33,000

28. The gift tax due on July 20, 2006 is:

a. P 40,000

b. P 36,000

c. P 84,000

d. P 80,000

H - 002Donors Tax

Page 1029. Mr. Romano donated a total amount P 500,000, to the Quezon City Hall and to a charitable institution TAHANAN NI GLORIA. Upon inquiry, it was verified that the charitable institutions total receipts from donation amounted to P 10M and its total administrative expenses reached P 4M. Mr. Romano can claim a total deduction / exemption of:

a. P 250,000

b. P 500,000

c. P 200,000

d. P None

30. During the current year, Mr. and Mrs. Reyes, non-resident citizens, donated the following:

Sept. 25:To Bea a legitimate child, on account of marriage, last month a conjugal property located in the Philippines, FMV, P 400,000.

To Jessica niece of Mr. Reyes, on account of marriage, a property located in the USA exclusively owned by the husband, FMV, P 150,000 (gift tax in USA, P 5,500)

Oct. 9 :To Gail, a legitimate child, conjugal property in the Philippines, FMV,

P 100,000.

The gift tax payable on the September 25 gifts of the husband is:

a. P 7,600

b. P 2,600

c. P 4,247

d. P 3,353

31. Using the data in no. 30, the gift tax payable on the October 9 gift of the husband is :

a. P 9,600.00

b. P 5,907.00c. P 1,660.63d. P 4,600.00

32. Using the data in no. 30. The gift tax payable of the wife is:

a. P 1,800.00

b. P 3,600.00c. P 13,200.00d. P 3,460.63

33. On July 18, 2006, Mr. Jecky gave a property with a fair market value of P 550,000 to Mikey, a legitimate son, and Rose, Mikeys bride, on account of their marriage celebrated on January 3, 2006. The donors tax payable is:

a. P 87,100

b. P 38,000

c. P 84,100

d. P 15,800

34. Mr. Porontong made the following gifts to his relatives:

Phiis.

USA UK Italy

Gross gift P 750,000P 500,000P 250,000P 500,000

Deductions

250,000 200,000 150,000 150,000

Tax paid

25,000 12,000 10,000

The gift tax due after credit is:

a. P 35,600

b. P 25,600

c. P 33,520

d. P 39,000

35. In 2006, Maynard made the following gifts:

1. On June 1, 2005, P150,000 to Karen, his daughter, on account of her marriage celebrated on May 1, 2004.

2. On July 10, 2005, a parcel of land worth, P180,000 to his father, subject to the condition that the father would assume the mortgage indebtedness of Maynard in the amount of P40,000.

3. On September 30, 2005, P150,000 dowry to his daughter Gina, on account of her schedules marriage on October 25, 2007, and another wedding gift worth P20,000 on November 23, 2005.

How much is the total net gifts?

a. P500,000

c. P430,000

b. P450,000

d. P460,000

Donors Tax

Page 11

36. Who is not subject to the donors tax?

a. An individual making a donation.

b. A corporation making a donation.

c. A partnership making a donation.

d. An employer who pays premiums on the life insurance of its employee.

37. J. C. gave a property with a fair market value of P200,000, with unpaid mortgage of P20,000 still assumed by the donor, to Jay his son, and Jays bride Tina, on account of her marriage 13 months ago.

The allowable deduction is:

a. P10,000

c. P40,000

b. P20,000

d. P 0

38. The donors tax due based on the above problem is:

a. P32,000

c. P 2,000

b. P30,000

d. P31,800

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