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GUIDELINES ON ESTATE AND DONOR'S TAX

by Atty. Dean Abella


A. Concept and Nature:
Estate tax is a tax on the right of the deceased person to transmit his estate to his lawful
heirs and beneficiaries. It is not a tax on property. Estate tax is held to be an excise tax
imposed on the privilege of transmitting property upon the death of the owner. The estate
tax is generated by death and accrues at the time of death. It is governed by the law in
force at the time of death notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.
B. Properties Includable In Gross Estate or Gross Gift:
1. Citizen or resident decedent or donor:
a) Real or immovable property, wherever located.
b) Personal property, tangible or intangible, wherever
located.(PD1457, 6/11/78)
2. Non-resident alien:
a) Real or immovable property located in the Philippines.
b) Tangible personal property located in the Philippines.
c) Intangible personal property with situs in the Philippines subject to the rule of
reciprocity exemption.
C. Properties Considered Situated in the Philippines:
1. Franchise which must be exercised in the Philippines.
2. Shares, obligations or bonds issued by corporation or sociedad anonima organized or
constituted in the Philippines.
3. Shares, obligations or bonds issued by a foreign corporation eighty- five per centum of
the business of, which is located in the Philippines.
4. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines.
5. Shares or rights in any partnership, business or industry established in the Philippines.
D. Composition of the Gross Estate:
1. Real and personal property, whether tangible or intangible or mixed.
2. Decedent's interest in property.
3. Proceeds of life insurance.
4. Taxable transfers.
5. Transfers for insufficient consideration.
E. Proceeds of Life Insurance:
1. Includable in gross estate:
a) Revocable beneficiary.
b) Appointed beneficiary is the estate, executor or administrator.
2. Not includable in gross estate:
a) Received from the GSIS and SSS.
F. Taxable Transfers:
1. Transfer in contemplation of death (3-year presumption repealed by
PD 1705, 8/1/80)
2. Transfer with retention or reservation of certain rights.
3. Revocable transfer.
4. Transfers of property under general power of appointment.

a) Existence of general power of appointment held by the decedent.


b) Exercise of such power by the decedent by will or by deed
intended to take effect upon death.
c) Passing of property by virtue of such death.
5. Transfers for insufficient consideration.
a) Covers only the excess of the fair market value over the value
of the consideration.
b) Transfer was made in contemplation of death, otherwise will be
subject to donors's tax,
G. Kinds of Property:
1. By Nature:
a) Real or immovable property.
b) Personal property, tangible or intangible.
2. By Ownership:
a) Exclusive capital or paraphernal property.
b) Conjugal or community property.
H. Valuation of Gross Estate or Gift:
1. Valuation date - Time of death or gift.
2. Basis of valuation:
a) Real properties (land)
1) Prior to August 31, 1969 - Comm. Act 466
2) September 1, 1969 to August 13, 1974 -R.A. 611
3) August 14, 1974 to November 24, 1976 - PD 539
4) November 25, 1976 to December 31, 1985 - PD 1054
5) January 1, 1986 - Present - PD 1994
b) Improvements
1) June 10, 1986 to February 4, 1988 - RAMO 3-86
2) February 5, 1988 to February 18, 1991 - RAMO 1-88
3) February 19, 1991 to 1994 - RAMO 2-91
4) 1994-FMV per TD (Latest TD)
c) Shares of stocks, obligations or bonds - RAMO 1-82
d) Usufruct, annuities, use or habitation - Formula using
American Tropical Experience Table. Beginning January 1, 1998,
the valuation shall take into account the probable life of
the beneficiary in accordance with the latest Basic Standard
Mortality Table.
e) Foreign currency and cash in bank - Peso value at exchange
rate at the time of death.
f) Other personal properties - Fair market value at the time of death.
I. Personal Properties:
1. Shares of stocks, bonds and securities.
2. Interest in partnerships, business or industry.
3. Cash on hand and in banks.
4. Machineries, transportation equipments, farm implements, tools,
farm animals, etc.
5. Antiques, jewelry, silverware, paintings, etchings, engravings, books,
statues, vases, oriental rugs, collection of stamps and coins.
6. Household furnitures, fixtures, appliances and other personal effects.
7. Usufruct, annuities, use or habitation.

8. Mortgage notes, participation certificates, judgements, obligations


and action which have for their object movables or demandable
sums.
9. Goodwill, patents, and trademarks.
J. Exclusions and Exemption from the Gross Estate:
1. Exempted under Special Laws and Exemptions by Omission:
a) GSIS proceeds/benefits
b) Accruals from SSS
c) Proceeds of life insurance where the beneficiary is irrevocably
appointed.
d) Proceeds of life insurance under a group insurance taken by the
employer (Not taken out by the decedent upon his own life)
e) WAR damage payments.
f) USVA -RA 136.
g) Properties held in trust by decedent.
h) Transfer by way of bonafide sales.
i) Transfer of property to the National Government or to any of
its political subdivisions.
j) Separate property of the surviving spouse.
2. Exempted under the Tax Code:
a) Merger of usufruct in the owner of the naked title.
b) Transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary.
c) Transmission from the first heir, legatee or donee in favor of
another beneficiary in accordance with the desire of the
predecessor.
d) All bequests, devises, legacies or transfers to social
welfare,cultural and charitable institutions, no part of the net
income of which inures to the benefit of any individual, provided
that not more than 30% of which shall be used for administration
purposes (PD 507, 1974)
K. Allowable Deductions:
1. Expenses, losses, indebtedness and taxes:
a) Funeral expenses:
1) CA 466 (July 1, 1939) - 5% of gross estate
2) PD 69 (January 1, 1973) - 5% of gross estate but not exceeding
P50,000.00
3) RA 7499 (July 28, 1992)- 5% of gross estate but not exceeding
P100,000.00.
4) RA 8424 (January 1, 1998)- 5% of gross estate but not
exceeding P200,000.00
b) Judicial expenses.
c) Claims against the estate
d) Claims against insolvent persons
e) Unpaid mortgages or indebtedness
f) Unpaid taxes
g) Losses
2. Transfer for public purposes
3. Vanishing deduction (Property previously taxed)
Requisites:
a) Present decedent must have died within five (5) years from the

date of death of prior decedent or date of gift.


b) The property with respect to which deduction is claimed must
have formed part of the gross estate situated in the Philippines
of the prior decedent or taxable gift of the donor.
c) The property must be identified as the same property received
from the prior decedent or donor or the one received in exchange
therefore.
d) The estate taxes on the gift must have been finally determined
and paid.
e) No vanishing deduction on the property was allowed to the prior
estate.
PROCEDURE IN COMPUTING THE VANISHING DEDUCTION:
a) Determine the initial value of the property previously taxed; Rule - Value of "Property
previously Taxed" in computing the estate tax or donor's tax of the prior transfer or that of
the present decedent's estate, whichever is lower.
b) Deduct any mortgage or lien on the "Property Previously Taxed" paid by the present
decedent prior to his death, where such mortgage or lien was a deduction from the gross
estate of the prior decedent or gift of the donor. This is the "Initial Basis".

c) The "Initial Basis" in Step (b) shall be further reduced by the following ratio of the expenses,
losses, indebtedness, taxes or transfer for public purposes:
Initial Basis
------------- X
Gross estate

Expenses, losses, indebtedness


taxes, transfer for public use

d) Compute the final basis of PPT:


Initial Basis (Step (b) x x x
Less: Limitation (Step (c ) x x x
Final Basis (Amount subject to vanishing deduction) x x x
e) Determine the year interval between the date of death of the prior and present decedent or date
of gift and death of present decedent to find the applicable percentage deduction:
0
1
2
3
4
5

- 1 year - 100%
- 2 " - 80%
- 3 " - 60%
- 4 " - 40%
- 5 " - 20%
over - 0%

The final basis (Step (d) multiplied by the percentage deduction (Step (e) will be the vanishing
deduction allowable.

HYPOTHETICAL EXAMPLE OF COMPUTATION OF VANISHING DEDUCTION:


"A" a Filipino, married and resident of the Philippines died on July 31, 1998 leaving the following
properties:
Conjugal properties ---------------------------------- P7,000,000.00
Conjugal family home--------------------------------- 3,000,000.00
Property valued for P4,000,000 was inherited from his
father who died on June 30, 1997 together with a
mortgage loan of P1,000,000 which
was paid by "A" on April 30, 1998 ------------------- 5,000,000.00
Gross estate ------------------------------------- P15,000,000.00
Less: Deductions:
Expenses, losses, indebtedness, taxes
& transfer for public use ---------- P2,000,000
Share of surviving spouse:
Conjugal properties ------ P10,000,000
Less: Conjugal deduction
2,000,000
Net conjugal estate ------ P 8,000,000
1/2 share of surviving spouse ------------ 4,000,000
Family home ----------------------------- 1,000,000
Vanishing deduction (80%)
Inherited property -------- P 4,000,000
Less: Mortgage paid ------- 1,000,000
Initial basis [Step (b)]------ 3,000,000
Less:3,000,000 x P2,000,000 -- 400,000
15,000,000
Final basis [Step (d)] ------ P 2,600,000
80% Vanishing deduction [Step (e)] ----- 2,080,000
Total deductions ----------------------------------Net taxable estate ------------------------------------

9,080,000
P5,920,000

Computation of estate tax:


P5,000,000 ---------------- P465,000
920,000 @ 15% -------138,000
Total estate tax due

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

P 603,000

ESTATE TAX RATES: (R.A. 8424)

THE ESTATE TAX

OF EXCESS

SHALL BE

PLUS

Exempt

Below P200,000

OVER

5%

P200,000

P15,000

8%

500,000

135,000

11%

2,000,000

465,000

15%

5,000,000

1,215,000

20%

10,000,000

4. Share of the surviving spouse in the net conjugal properties


5. Family Home - Amount allowable is equivalent to the current or fair
market value or zonal value of the decedent's family home, whichever
is higher, but not exceeding P1,000,000.
a) Must not exceed the value included in the gross estate or
P1,000,000, whichever is lower.
b) The amount in excess of P1,000,000 shall be subject to estate
tax.
c) Must be the decedent's family home as certified to by the
Barangay Captain in the locality.
d) Only one (1) family home may be claimed.
6. Standard Deduction of P1,000,000.
7. Medical Expenses incurred within one year from death in an amount
not exceeding P500,000.00.
8. Amount Received by heirs under RA No. 4917.
9. Deductions allowable to a non-resident decedent who is not a citizen

of the Philippines:
a) A proportion of the expenses, losses, indebtedness and taxes:
Formula:
Phil. Gross Estate
------------------ X
World Gross estate

Expenses, losses
indebtedness & taxes

b) Transfer for public purposes


c) Vanishing deduction
d) Share of surviving spouse - Depending on the property relationship
of the husband and wife in the country where they are national.

L. Tax Credit For Estate Taxes Paid To A Foreign Country:


1. The estate tax due shall be credited with the amount of estate tax imposed by a foreign country
on property located in said foreign country and included in the decedent's gross estate in the
Philippines.
2. Limitation on credit - The amount of credit for estate tax paid to a foreign country shall not
exceed the proportion of the tax due in the Philippines which the decedent's net estate situated
within such country bears to his entire net estate.
3. The total amount of credit shall not exceed the proportion of the tax here in the Philippines
which the decedent's net estate situated outside the Philippines bears to his entire net estate.
M. Reciprocity Provision On Transfer Tax Imposition:
1. The property involved is intangible personal property.
2. The decedent or donor at the time of death or donation was a citizen and resident of a foreign
country.
3. That the foreign country did not impose a transfer tax of any character in respect of intangible
personal property owned by a Filipino citizen not residing in said foreign country, or
4. The laws of the foreign country allow a similar exemption from transfer taxes or death taxes of
every character or description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.
ADMINISTRATIVE PROVISIONS ON ESTATE TAXATION
A. Notice of Death:
1. When required:
a) In all cases of transfer subject to tax; or
b) Where, though exempt from tax, the value of the gross estate
exceeds P20,000.00
2. Time of filing:
a) Within two (2) months after the decedent's death, or
b) Within two (2) months after the executor or administrator has
qualified.
3. Who shall file notice of death:
a) Executor
b) Administrator

c) Any of the legal heirs


B. Estate Tax Return:
1. When required:
a) In all cases of transfer subject to tax; or
b) Where, though exempt from tax, the gross value of the estate
exceeds P200,000.00.
c) Regardless of the gross value of the estate, where the said estate
consists of registered or registerable property.
2. Persons required to file:
a) Executor
b) Administrator
c) Anyone of the legal heirs
3. Time for filing:
a) Commonwealth Act 466 - July 1, 1939 - December 31, 1972:
1) Within six (6) months after decedent's death'
2) Within twelve (12) months after decedent's death if proceedings
form settlement was filed in court within six (6) months after
death.
b) Presidential Decree No. 69 - January 1, 1973 to December 31,
1985.
1) Within nine (9) months after decedent's death.
2) Within twenty-one (21) months after decedent's death
proceedings for settlement was filed in court within nine (9)
months after death.
d) Presidential Decree No. 1994 - January 1, 1986 to July 27, 1992.
1)Within ninety (90) days after decedent's death
e) Republic Act 7499 - July 28, 1992 to present:
1) Within six (6) months after decedent's death
4. Extension to File Return:
a) Not exceeding thirty (30) days in meritorious cases.
5. Place of Filing:
a) Office of the Commissioner of Internal Revenue
b) Office of the Revenue District Officer, Collection Officer or
authorized treasurer of the Municipality in which the decedent
was domiciled at the time of death.
C. Payment of Estate Tax:
1. Time of payment:
a) Commonwealth act 466-July 1, 1939 to December 31, 1972:
1) Estate and Inheritance taxes- Payable within nine (9)
and Twelve (12) months, respectively, after death.
2) Estate and inheritance taxes - Payable within twenty one
(21) and twenty-four (24) months, respectively, if
proceedings for settlement of estate was filed in court
within six (6) months after death.
b) Presidential Decree No. 69 - January 1, 1973 to December 31,
1985:
1) Estate tax is payable at the time the return is filed.

(Within nine (9) days or twenty-one (21) months, as the


case maybe)
c) Presidential Decree No. 1994 - January 1, 1986 to July 27, 1992:
1) Estate tax is payable at the time the return is filed (Within
ninety (90) days after death)
d) Republic Act 7499 - July 28, 1992 to present:
1) Estate tax is payable at the time the return is filed (Within
six (6) months after death)
2) Extension to pay estate tax
(1) Two (2) years - Estate is settled extrajudicially.
(2) Five (5) years - Estate settled judicially.
2. Surcharges:
1) Late filing of estate tax return - 25% of tax due per return
a) July 1, 1939 to December 31, 1972 - Discretionary or
maybe waived if:
(a) The return is voluntarily filed without notice from the
Commissioner
(b) The failure to file the return on time was due to a
reasonable cause.
2) Late payment of tax:
a. July 1, 1939 to August 1, 1980 - 5%
b. August 1, 1980 to December 31, 1985 (PD 1705)10%
c. January 1, 1986 to present (PD 1994) 25%
3. Interests:
1) July 1, 1939 to September 1, 1969 (CA 466)
a. Tax per return 12%
b. Deficiency tax 6%
2) September 1, 1969 to December 31, 1972
(RA 6110, 8/4/69)----------------------12%
3) January 1, 1973 to January 16, 1981
(PD 69, 11/24/72)----------------------14%
4) January 16, 1981 to present (PD 1773
(1/16/81)------------------------------20%
4. Place of filing of return and payment of tax:
1) Commissioner of Internal Revenue, or
2) Regional Director, Revenue District Officer or Collection Officer of
the city or municipality in which the decedent was domiciled at
the time of his death.
5. Person liable to pay estate tax:
1) Executor or administrator before distribution of estate.
2) Heir or beneficiary subsidiarily liable to the extent of his
distributive share.
DONOR'S TAX
A. Definition and Concepts:

Gift tax is an excise on the transfer by a living person to another of money or other property
without consideration.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it.

What Constitutes A "Gift" For Gift Tax Purposes?


1. Transfer of property without consideration.
2. It also includes sales, exchanges and other dispositions of property for a consideration to the
extent that the value of the property transferred exceeds the value in money or money's worth of
the consideration received therefor.
Concept of Consideration:
1. Consideration must be measurable in money or money's worth. Mere legal consideration is not
sufficient.
2. The consideration must flow to the donor, mere detriment to the donee does not satisfy the
purpose of the statute.
Commissioner V. Wemyss (324 U.S. 303, 1945)
Marriage is not a consideration reducible to money value. If a person transfers a property to a trust
in consideration of marriage, a gift is made because no money consideration flows to the
transferor/donor. Donative intent on the part of the tranferor is not an essential element for the
imposition of the gift tax to the transfer.
When Does The "Gift" Occur?
A gift occurs when the donor surrenders CONTROL over the property. If the donor retains an
unlimited power to revoke the gift, it is clear that no gift has occurred.
ty referred to in Section 24(D) and Section 27(D)(5) of the NIRC).
B. Requisites of A Taxable Gift:
1.
2.
3.
4.

Capacity of the donor


Donative intent (Except gift under Section 93 NIRC)
Acceptance by the donee, and
Delivery of the gift to the donee, actually or constructively.

C. Kinds of Donation:
1. Inter-vivos
2. Mortis causa
3. Indirect donation (Except real property referred to in Section 24(D) and Section 27(D)(5) of the
NIRC).

D. Persons Subject to Donor's Tax:


(Same as in estate tax)
1. Before September 1, 1969 - Only donation made by individual is
subject to donor's tax.
2. On or after September 1, 1969 (RA 6110) Donation made by all person, whether natural or
juridical, is subject to donor's tax.
E. Gross Gifts:
1. Composition -(Same as in estate tax)
2. Valuation - At the time the gift was made (Same as in estate tax)
F. Deductions from the Gross Gift:
1. Dowries or gifts by parents to children on account of marriage, before
its celebration or within one (1) year thereafter to the extent ofP10,000.
2. Gifts to the National Government or any of its agencies.
3. Gifts made in favor of an educational, and/or charitable, religious,
cultural or social welfare corporation, foundation, trust or
philanthropic organization or research institution or organization.
4. Encumbrance on the property donated if assumed by the donee in the deed of donation.
5. Those specifically provided by the donor as a condition of the donation which will diminish the
value of the property received by the donee.
6. Exempt donation under special laws.
G. Tax Payable by the Donor:
1. On or before December 31, 1972:
a) Donor's and donee's gift taxes were imposed based on graduated rates.
b) Gifts made during previous year or years are collated to the
present gift and the gift tax computed on the total gift.
2. January 1, 1973 to January 15, 1981 (PD 69)
a) Donor's tax was imposed on graduated rates.
b) Gifts made during the previous year or years are computed separately.
c) Donor's tax computed on the total gifts made during each calendar year.
d) Collation of gifts are made only on gifts made during the same calendar year.
3. January 16, 1981 to July 27, 1992 (PD 1773)
a) Tax payable by the donor in favor of relatives are computed based on the
graduated rates.
b) Tax payable by the donor in favor of stranger is computed at 20% or based on
graduated rates, whichever is higher.
c) Gifts made during the same calendar year are collated and the donor's tax
computed on the total gifts during the calendar year.
4. July 28, 1992 to December 31, 1997 (RA 7499)
a) Tax payable by the donor on gifts made in favor of relatives is computed based
on graduated rates.
b) Tax payable by the donor on gifts made in favor of strangers is
computed at 10% of the net gifts.
5. January 1, 1998 to present (RA 8424)
a) Tax payable by the donor on gifts made in favor of relatives is computed based
on graduated rates.
b) Tax payable by the donor on gifts made in favor of strangers is computed at

30% of the net gifts.


6. Relatives for donor's tax purposes:
a) Spouse, ancestor and lineal decedent
b) Brother, sister (whether by whole or half blood)
c) Relatives by consanguinity in the collateral lines within the fourth degree of
relationship.
H. Rates of Donor's Tax (RA 8424)
a) Donations to Relatives (Graduated Table)

THE DONORS TAX

SHALL BE

OF EXCESS

PLUS

OVER

2%

P100,000

2,000

4%

200,000

14,000

6%

500,000

44,000

8%

1,000,000

204,000

10%

3,000,000

404,000

12%

5,000,000

1,004,000

15%

10,000,000

Exempt

b) Donations to Stranger - 30%


Sample Problem of Donor's Tax
Mr. Joseph Ramos, single made the following donation's
a) January 15, 1999 - to his brother, Jun, P100,000
b) March 10, 1999 - to Clara, his sister, P250,000
c) Sept 8, 1999 - to his girlfriend, Loi, a brand new car worth P 600,000
d) Oct 25, 1999 - to his father, Carlos, a vacant lot worth P1,000,000
w/ FMV of P800,000 and zonal value of P1,500,000
e) Nov 12, 1999 - to Luis, his brother in law, P 200,000
f) Feb 14, 2000 - to his mother, Maria, P 300,000
Answer:
Date

Donation

a) 1/15/99 Cash
b) 1/15/99 Cash
3/10/99 Cash

Amount Tax Due


100,000

Exempt

100,000
250,000
350,000

Tax on :200,000 2,000


150,000 x 4% 6,000
8,000
Less:Tax on previous
donation -c) 9/8/99 Cash

8,000

600,000-Stranger

Tax Due: 600,000


X 30%
180,000
d) 10/25/99 lot (ZV)1,500,000
3/10/99 Cash
250,000
1/15/99 Cash
100,000
Total donation 1,850,000
Tax on:1,000,000
44,000
850,000 x 8% 68,000
Total Tax Due
112,000
Less:Tax on previous
donation 8,000

104,000

e) 11/12/99 Cash 200,000 - Stranger


Tax Due

200,000
x 30%
60,000

f) 2/14/2000 Cash 300,000


Tax On: 200,000
100,000 x 4%

2000
4000

6,000

Note: Letter (f) was donated in year 2000 therefore; this is not included in the cumulative total for
1999's donations.

ADMINISTRATIVE REQUIREMENTS ON DONOR'S TAX


A. Donor's Tax Return:
1. Requirements (State the following information/data):
a) Each gift made during the calendar year
b) Deductions claimed and allowable
c) Previous net gifts during the same calendar year
d) Name of donee and address
e) Other pertinent information
2. Time of filing:
a) Before December 31, 1972:
1) On or before March 1 following the close of the calendar year.
b) January 1, 1973 to December 31, 1997
1) Within thirty (30) days after each donation.
2) Extension not exceeding thirty (30) days maybe granted.
c) January 1, 1998 to present
1) Within thirty (30) days after each donation- No Extension
3. Place of filing of donor's tax return
a) Commissioner of Internal Revenue
b) Revenue District Officer, Collection Officer or duly authorized
Treasurer of the municipality where the donor was domiciled
at the time of donation.
B. Payment of Donor's Tax:
1. Donor's tax should be paid at the time the return is filed or within
thirty (30) days after the date of gift.
2. Extension to pay tax may be granted not exceeding six (6) months.
Effective January 1, 1998 (RA 8424), no extension for the
payment of the donor's tax shall be granted.
C. Surcharges:
(Same as estate tax)

D. Interest:
(Same as estate tax)