Accounting Review

TAXATION
702: Donor’s Tax
Prof. SONNIE A. RAMOS, CPA, MBA

A. FORMAT OF COMPUTATION
Stranger Relative
Total (gross) gifts Pxxx Pxxx
Less: Deductions (Exemptions) (xxx) (xxx)
Total net gifts xxx Xxx
Add: Total prior net gifts xxx xxx
Total net gifts subject to tax xxx xxx
Tax due Pxxx Pxxx
Total tax due Pxxx
Less: Tax credits/payments
Payments for prior gifts (xxx)
Foreign donor’s tax paid (xxx)
Tax payable (overpayment) Pxxx

B. DONOR TAX RATES

If the net gift is:
Over But not over The tax shall be Plus Of excess over
P100,000 Exempt
P100,000 200,000 P0 2% P100,000
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
When the donee or beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts.

C. COMPOSITION OF GROSS GIFTS

Resident or citizen donor Non-Resident Alien Donor
Personal properties Wherever situated Situated in the Philippines
Real properties Wherever situated Situated in the Philippines

D. RULE OF RECIPROCITY
Properties covered by the Intangible personal properties situated in the Philippines given as gifts by non-
rule resident alien donor.
Basic rules a. When there is reciprocity – the intangible personal properties situated in the
Philippines given as gifts by a non-resident alien donor are not subject to
donor’s tax.

b. When there is no reciprocity – the intangible personal properties situated in

the Philippines given as gifts by a non-resident alien donor are subject to
donor’s tax.

E. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION

1. The rule: Where property, other than real property subject to capital gains tax, is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by which the fair market value
of the property exceeded the value of the consideration shall, for the purpose of donor’s tax, be deemed
a gift, and shall be included in computing the amount of gifts made during the calendar year.
2. Tabular presentation of the rule on transfer for less than adequate and full consideration
Personal properties Real properties
Ordinary assets Subject to donor’s tax Subject to donor’s tax
Capital assets Subject to donor’s tax Not subject to donor’s tax

F. VALUATION OF GIFTS MADE IN PROPERTY

1. If the gift is made in property, the fair market value of the property at the time of the gift shall be considered
the amount of the gift.
2. In case of real property, the provisions in estate tax shall apply to the valuation of said real property.

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 Accounting Review
TAXATION
702: Donor’s Tax
Prof. SONNIE A. RAMOS, CPA, MBA

G. EXEMPTIONS OF CERTAIN GIFTS/DEDUCTIONS FROM GROSS GIFTS

1. Found in the Tax Code
Resident or Non-Resident
Citizen Donor Alien Donor
a. Dowries or gifts made on account of marriage Allowed Not allowed
b. Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for Allowed Allowed
profit, or to any political subdivision of the said Government
c. Gifts in favor of an educational and/or chartable, religious,
cultural or social welfare corporation, institution, accredited
Allowed Allowed
non-government organization, trust or philanthropic
organization or research institution or organization

Notes:
1) In case of gifts mode to certain institutions (no. 1 c above), in order to be exempt, not more than 30% of said gifts
shall be used by such donee for administration purposes.
2) A non-stock educational and/or charitable corporation, institution, accredited non-government organization, etc.
(no. 1 c above) is a school, college or university and/or charitable corporation, accredited non-government
organization, etc. (no. 1 c above):
a) Incorporated as a non-stock entity,
b) Paying no dividends
c) Governed by trustees who receive no compensation, and
d) Devoting all its income to the accomplishment and promotion of the purpose enumerated in its Articles
of Incorporation

2. Other deductions
Resident or Non-Resident
Citizen Donor Alien Donor
a. Encumbrance on the property donated if assumed by the donee Allowed Allowed
b. Those specifically provided by the donor as a diminution from the
Allowed Allowed
property donated

3. Exempt Donations Under Special Laws. – Donations to:

a. International Rice Research Institute (IRRI);
b. Philippine American Cultural Foundation;
c. Ramon Magsaysay Award Foundation;
d. Philippine Inventors Commission;
e. Integrated Bar of the Philippines (IBP);
f. Development Academy of the Philippines (DAP);
g. National Social Action Council;
h. Aquaculture Department of Southeast Asian Fisheries Development Center of the Philippines (SEAFDEC).

H. COMPUTATION OF TAXABLE NET GIFT AND THE DONOR’S TAX DUE

1. Net gift shall mean the net economic benefit from the transfer that accrues to the donee.
2. The computation of the donor’s tax is on a cumulative basis over a period of one calendar year.
3. Husband and wife are considered as separated and distinct taxpayers for purposes of donor’s tax.
4. The tax payable of the donor if the donee is a relative is based on the tabular donor’s tax rates (2% to 15%).
5. For purposes of donor’s tax, a “stranger” is a person who is NOT a:
a. brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant; or
b. relative by consanguinity in the collateral line within the fourth degree of relationship.
6. Any provision of law to the contrary notwithstanding, any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign purposes, duly reported to the commission (COMELEC)
shall not be subject to the payment of any gift tax (Sec. 13 R.A. No. 7166).
7. The donor’s tax shall not apply unless and until there is a completed gift.
8. The law in force at the time of the completion of the donation shall govern the imposition of donor’s tax.

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 Accounting Review
TAXATION
702: Donor’s Tax
Prof. SONNIE A. RAMOS, CPA, MBA

I. TAX CREDIT FOR DONOR’S TAXES PAID TO A FOREIGN COUNTRY

1)
One foreign country Limit
Net gift, foreign x Philippine donor’s tax due
Total net gifts xxx
Actual foreign donor’s tax xxx
Allowed (lower between actual and limit) xxx
2) Two or more foreign Limit (a) – By country xxx
countries Limit (b) – By total xxx
Limit [lower between limits (a) and (b)] xxx
Actual total foreign donor’s taxes xxx
Allowed tax credit (lower between allowed limit and actual total foreign xxx
donor’s taxes
3) Exercise
Mr. James Jayme, non-resident citizen donor, made the following donations on July 15, 2007:
a. To Charles, a legally adopted child, on account of marriage on July 31, 2007, property in Indonesia
(donor’s tax paid in Indonesia, P70,000), fair market value, P510,000;
b. To Adjanto, best friend in the Philippines, a property with an unpaid mortgage of P30,000 assumed by
the donee, fair market value, P230,000.

For Philippine donor’s tax purposes, how much is the allowable tax credit?

J. Filing of Return and Payment of Tax

Requirement Any individual who makes any transfer by gift (except those which are exempt from
donor’s tax) shall, for the purpose of donor’s tax, make a return under oath in
duplicate.
Contents of the donor’s The return shall set forth:
tax return a. Each gift made during the calendar year which is to be included in computing
net gifts;
b. The deductions claimed and allowable;
c. Any previous net gifts made during the same calendar year;
d. The name of the donee; and
e. Such other information as may be required by rules and regulations made
pursuant to law.
Time for filing of return The return shall be filed within 30 days after the date the gift is made. The tax
and payment of tax due thereon shall be paid at the time of filing.
Place of filing of return a. In case of resident donors:
1) Authorized agent bank;
2) Revenue District Officer;
3) Revenue Collection Officer;
4) Duly authorized Treasurer of the city or municipality where the donor was
domiciled at the time of the transfer.
b. In case of non-resident donors:
1) Philippine Embassy or Consulate where he is domiciled at the time of the
transfer, or
2) Office of the Commissioner.
Notice of donation by a The donor engaged in business shall give a notice of donation on every donation
donor engaged in worth at least P50,000 to the RDO which has jurisdiction over his place of business
business within 30 days after receipt of the qualified donee institution’s duly issued Certificate
of Donation, which shall be attached to the said Notice of Donation, stating that not
more than 30% of the said donations/gifts for the taxable year shall be used for
administration purposes.

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