DONORS TAX

Definition of Donation or GiftIt is an act of liberality, whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. For donor's tax purposes, a donation must be a transfer of property.Donor disposes the thing or rightDonee accepts the donationKinds of donationsinter vivos it is made between living persons to take effect during the lifetime of the donation - this donation is subject to donor's taxmortis causa it is made in the nature of a testamentary disposition , that is, it shall take effect upon the death of the donor - this donation shall be subject to estate taxElements of DonationConsent donation is perfected only from the donor knows of the acceptance by the donee and must be made during the lifetime of the parties.Object all present property of the donor or part thereof, provided he reserves, in full ownership or in usufruct, sufficient means for the support of himself or relatives supported by the donor. - donations can't comprehend future propertyCause donative intent is not at all essential Formalities donation of a movable may be made orally or in writing - if the value of personal property donated exceeds 5,000 pesos, donation and acceptance shall be made in writing. Otherwise the donation shall be void - immovable donation must be made in public document to be valid

Elements of DonationRequisites of taxable giftsCapacity of the donorDonative intentDelivery of the subject matter of the gift. Acceptance of the gift by the doneePersons who may give or receive a donationAll persons who may contract and dispose of their property may make a donationExcept for the following:Guardians and trustees cannot donate the property entrusted to themDonations to minors and incapacitated personsHusband and wife cannot donate any conjugal or community property without the consent of the otherVoid DonationsThose made between persons who were guilty of adultery or concubinage at the time of donation Those made between persons found guilty of the same criminal offense, in consideration thereofThose made between the spouses during the marriage, except moderate giftsThose made between persons living together as husband and wife without a valid marriage Those made to a public officer or his wife, descendants and ascendants, by reason of his officeDonor's or gift taxGift tax is tax imposed on gift or the transfer without consideration of property between two or more persons who are living at the time the transfer is made.Donor's tax is an excise (privilege) taxIt shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, whether the property is real or personal,tangible or intangibleKinds of gift taxesDonors Tax or tax levied on the act of giving, it supplements the estate tax, it supplements the estate tax; andDonees Tax or tax levied on the act of receiving; It was formerly the counterpart of the inheritance tax which Is now called estate tax. Purposes of Gift TaxTo prevent their avoidance by those who give away property and money in anticipation of death through taxation of gifts inter vivos.To prevent the avoidance of income tax through the device of splitting income among numerous donees with the donor.DISTINCTIONS BETWEEN DONORS & ESTATE TAXDONORS TAXESTATE TAXTRANSMIT PROPERTYDURING LIFETRANSMIT PROPERTY UPON DEATHLOWER TAX RATESHIGHER TAX RATES100,000 EXEMPTION200,000 EXEMPTIONNOTICE OF DONATION NOT REQUIREDNOTICE OF DEATH REQUIREDNO EXTENSTION OF PAYMENTEXTENSION MAY BE GRANTEDQuiz1-2. What are the 2 types of donation?3-4. Give 2 differences of the donors tax from the estate tax5-6. Give the 2 kinds of gift tax 7-10.What are the elements of donation? 11. Who are subject to gift tax?12. Give 1 void donation.Gross GiftResident Citizen, Non-Resident Citizen and Resident Alien DonorsGross gift shall include all of his property wherever situated 1. Real/immovable property (anything attached to the soil with permanence) 2. Tangible personal property (can be seen and touched) 3. Intangible personal property (franchise, shares, obligations, bonds or partnership established in the Philippines, shares obligations or bonds issued by foreign corporation 85% of business of which is located in the Philippines 4. Personal property classified as capital asset is transferred for less than adequate and full consideration in money or money's worth. The amount By which the FMV of the property exceeded the value of the consideration shall be deemed a giftIllustrationJenny is planning to buy a new diamond ring, sold her old gold ring to her friend Anson, for P50,000. Her old ring was acquired in 2007 for P35,000. It's FMV at the time of sale is P100,000.Gift GainFMV P100,000 Selling Price P50,000Less: Consideration 50,000 Less: Cost 35,000Deemed Gift P 50,000 Gain P15,000Gross GiftNon-Resident Alien Donor/Non-Resident Foreign Corporation DonorGross gift shall include only his/its property located in the Philippines Inclusion of intangible personal property is subject to reciprocity rule and shall not be included in the following cases: 1. If the donor at the time of his donation was a resident of a foreign country which at the time of donation did not impose a transfer tax of any character in respect of intangible property of Philippine citizens not residing in that foreign country; or 2. If the laws of the foreign country of which the donor was a resident at the time of donation allow a similar exemptions for Philippine citizens not residing in that foreign country.VALUATION OF PROPERTYIf the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift.In case of real property, the taxable base is the fair market value as determined by the Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest schedule of values of the provincial and city assessor (MV per Tax Declaration), whichever is higher

Deductions from Gross GiftGifts made by Resident/Citizen DonorDowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized naturalized or adopted children to the extent of the first P10,000.

Deductions from Gross GiftGifts made by Resident/Citizen DonorGifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said GovernmentGifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposeDeductions from Gross GiftGifts made by Resident/Citizen DonorEncumbrances on the property donated if assumed by the donee in the deed of donation

Those specifically provided by the donor as diminution of the property donated.

Deductions from Gross GiftGifts made by Non-Resident Alien Donor All those enumerated for the resident/citizen donor exemptions except for the gifts made on account of marriage of children.Net GiftDonor's tax is computed based on the net giftNet gift is arrived at by subtracting from the gross gift exemptions or deductions allowedThe computation of donor's tax is on a cumulative basis over a period of one calendar yearFirst donation for a calendar yearGross Gift xxxLes: Exemption xxxNet Gift XxxDonor's Tax XxxCumulative BasisGross Gift, This Date xxxLes: Exemption xxxNet Gift, This Date xxxAdd: All Prior Net Gift xxxAggregate Net Gift. xxx

Donor's Tax on Aggregate Net Gift xxxLes: Donor's Tax on All Prior Net Gifts xxxDonor's Tax on the Net Gift, this Date xxx

TAX RATESNet Gift OverBut not OverThe TaxShall bePlusOf the Excess Over100,000.00exempt100,000.00200,000.0002%100,000.00200,000.00500,000.00P 2,000.004%200,000.00500,000.001,000,000.0014,000.006%500,000.001,000,000.003,000,000.0044,000.008%1,000,000.003,000,000.005,000,000.00204,000.0010%3,000,000.005,000,000.0010,000,000.00404,000.0012%5,000,000.0010,000,000.00and over1,004,000.0015%10,000,000.00NotesRate applicable shall be based on the law prevailing at the time of donation.

NotesWhen the gifts are made during the same calendar year but on different dates, the donor's tax shall be computed based on the total net gifts during the year.Donation made to a stranger is subject to 30% of the net gift. A stranger is a person who is not a: -brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or -relative by consanguinity in the collateral line within the fourth degree of relationship.Any contribution in cash or kind to any candidate, political party or coalition of parties for campaign purposes, shall be governed by the election code, as amended.

Mr. Polo

Tax Credit for Donor's Taxes Paid to a Foreign Country In General, the tax imposed upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country.

Limitations on Tax CreditThe amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated within such country taxable under this Title bears to his entire net gifts; andNet Gift (each foreign country) X Phil. Donor's Tax = Tax Credit Limit Entire Net Gift

Limitations on Tax CreditThe total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the donor's net gifts situated outside the Philippines taxable under this title bears to his entire net gifts. Net Gift (all foreign country) X Phil. Donor's Tax = Tax Credit Limit Entire Net Gift

Under limitationThe allowable tax credit is the lower amount between the tax credit limit and the donor's tax paid to the foreign countryLimitation is in addition to limitation (a)Where donor's taxes have been paid to more than one country, the allowable tax credit is the lower amount between the tax credit limit computed under (a) and that computed under (b)Limitations on Tax CreditFiling and Payment of Donor's TaxDonor's tax return shall be filed within thirty (30) days after the date the gift is made or completedTax due shall be paid at the same time the return is filedIt shall be filed and paid to an authorized agent bank, the RDO,RCO or duly authorized treasurer of the city or municipality where the donor was domiciled or if there be no legal residence in the Philippines, with the Office of the CommissionerFor non-residents, the return may be filed with the Phil. Embassy or Consulate where he is domiciled or directly with the Office of the CommissionerUse an eBIR Form 1800 version July 1999