Donors Taxation

Taxation Review

Mr. James Dane T. Adayo

Concept of Donation
A. Donation-
Act of liberality whereby a person disposes gratuitously a thing or a right in favor of another wh
o accepts it. (It must be transpired at the lifetime of the donor)

Essential requisites of Donation

1. Capacity of the donor
2. Intention
3. Delivery
4. Acceptance by the donee
5. Valid object
6. Form
B. Donors Tax-
is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonr
esident, of the property by gift (whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or intangible).

tax imposed on the exercise of the donor’s right during lifetime to transfer property to others in
the form of gift. Hence, donor’s tax is not a property tax, but it is excise tax imposed on the tra
nsfer of property by way of gift intervivos
Purposes of Donor’s Tax
1. To supplement the estate tax

2. To prevent the avoidance of income taxes. Without donor’s tax, the donor may escape the p
rogressive rates of income taxation through the simple expedient way of splitting his income a
mong numerous donees.
Elements of Taxable Donation
1. Capacity of the donor to transfer property
2. Donative intent (not an absolute requirement; required only in direct gift)
3. Delivery
The transfer of the property is completed by the delivery, either actually or constructively, of th
e donated property to the done.
4. Acceptance of the gift by the donee
The transfer of property by gift is perfected from the moment the donor knows of the acceptan
ce by the donee.
Formal Requisites
Although the law used the term “act”, the law considers donation as a “contract”, as shown by
the fact that it requires acceptance, and that the rules on obligations and contracts apply to it a
s a suppletory law (Art. 732 NCC). Being so, the required form, as provide below shall be obse
rved, otherwise, void.

Personal Property Real or registrable property

Amount of donation P5,000 or less More than P5,000 Regardless of amount

Form of Donation Oral or in writing In writing In public document

Classification of Donors
1. Citizen or Resident (RC/NCR/RA)
2. Non-resident Alien (NRA)
a. With reciprocity
b. Without reciprocity
FORMAT OF COMPUTATION (Refer also to illustrations under RR 12 – 2018)
FIRST DONATION OF THE YEAR
Gross Gift Pxxx
Less: Exemptions/Deductions (xxx)
Total Pxxx
Less: Tax Exempt Gift (under TRAIN law) (250,000)
Net Taxable Gift Pxxx
Multiply: Donor’s Tax Rate 6%
Donor’s Tax Pxxx
Less: Tax Credit (if applicable) (xxx)
Donor’s Tax Payable Pxxx
SECOND AND SUBSEQUENT DONATION WITHIN YEAR
Gross Gift, Current Pxxx
Less: Exemptions/Deductions, Current (xxx)
Total Pxxx
Add: Prior Gift(s) xxx
Total Pxxx
Less: Tax Exempt Gift (under TRAIN law) (P250,000)
Net Taxable Gift(s) xxx
Multiply: Donor’s Tax Rate 6%
Donor’s Tax xxx
Less: Tax Paid – Prior Gift(s) (xxx)
Tax Credit (if applicable) (xxx)
Donor’s Tax Payable Pxxx

The computation of the donor’s tax is on a cumulative basis over a period of one calendar year.
C. FORMAT OF COMPUTATION (Prior to R.A 10963)
  Stranger Relative
Total (gross) gifts P xxx P xxx
Less: Deductions (Exemptions) xxx xxx
Total net gifts xxx xxx
Add: Total prior net gifts xxx xxx
Total net gifts subject to tax P xxx P xxx
Tax due   P xxx
Total tax due    
Less: Tax credits/payments    
Payments for prior gifts   Xxx
Foreign donor’s tax paid   (xxx)
Tax payable (overpayment)   P xxx
C. FORMAT OF COMPUTATION Pursuant to TRAIN LAW

FOR DONATIONS MADE ON OR AFTER JANUARY 1, 2018

Regardless of the relationship of the donor and donee, the donor’s tax rate is
6% in excess of P250,000 exempt gifts.
D. DONOR’S TAX RATES (Prior to R.A 10963)
Over But not over The tax shall be Plus Of excess over
  P 100,000 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 done or beneficiary is stranger, the tax payable by the

donor shall be thirty percent (30%) of the net gifts.
Donation to Strangers
NOTE: A stranger is a person who is NOT:
1. Brother or Sister (whether whole or half blood);
2. Spouse;
3. Ancestor;
4. Lineal descendant;
5. Relative by consanguinity in the collateral line within 4 civil
degree or relationship.
D. DONOR’S TAX RATES (Prior to R.A 10963)

FOR DONATIONS MADE ON OR AFTER JANUARY 1, 2018

Regardless of the relationship of the donor and donee, the donor’s tax rate is
6% in excess of P250,000 exempt gifts.
GROSS GIFT
Transfer subject to donor’s tax:
1) Direct gift;
2) Gift through creation of a trust;
3) Condonation of debt;
4) Repudiation of inheritance if:
1. Specifically and categorically done in favor of identified heirs; and
2. To the exclusion or disadvantage of other co-heirs.
5) Renunciation by the surviving spouse of his/her share in the conjugal partnership or
absolute community after the dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/s;
6) Transfer for insufficient consideration
GROSS GIFT
Transfer subject to donor’s tax:
1) Direct gift;
2) Gift through creation of a trust;
3) Condonation of debt;
4) Repudiation of inheritance if:
1. Specifically and categorically done in favor of identified heirs; and
2. To the exclusion or disadvantage of other co-heirs.
5) Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any
other person/s;
6) Transfer for insufficient consideration
EXCEPTION : Real property classified as capital asset located in the Philippines.
FMV at the time of sale PXXX
Less: Selling Price (XXX)
Taxable Gift PXXX
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
Rule on Reciprocity
Properties covered by the rule
Basic rules
Intangible personal properties situated in the Philippines given as
gifts by non-resident alien donor.
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 reciprocity- The intangible personal properties
situated in the Philippines given as gifts by a non-resident alien
donor are subject to donor’s tax.
Transfer for Less Than Full and Adequate
Consideration
The Rule: Where property, other than real property subject to capital gains tax, is
transferred for less than an adequate and full consideration

FMV at the time of sale PXXX

Less: Selling Price (XXX)
Taxable Gift PXXX
2. Tabular presentation of the rule on transfer for less than full and adequate
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
Exercises: Determine the amount to be included in the gross gifts:
  FMV, time of Consideration Amount included in the
transfer received gross gifts
a. Pieces of jewelry used by the P500,000 P200,000  
transferor for personal use
b. Car sold by a dealer P800,000 P500,000  
c. Furniture sold by furniture dealer P500,000 P600,000  
d. Lot leased as parking space P1,000,000 P 700,000  
e. Residential house and lot P 1,500,000 P 800,000  
Valuation of Gifts Made in Property
Property Donated Valuation
Gifts made in property Fair market value at the time of gift
Real property Provisions in estate tax shall apply to the valuation of the
said property
Exemptions of Certain Gifts/ Deductions from Gross Gifts

  Resident or Citizen Non-Resident Alien

Donor 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 profit, or to any political subdivision of the    
said government. Allowed Allowed
c. Gifts in favor of an educational and/or charitable,    
religious, cultural or social welfare corporation, institution,    
accredited non-government organization, trust or    
philanthropic organization or research institution or    
Organization Allowed Allowed
Exemptions of Certain Gifts/ Deductions from Gross Gifts
  Resident or Citizen Non-Resident Alien
Donor Donor
a. Dowries or gifts made on account of marriage Allowed Not allowed
(prior to Train law)
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 profit, or to any political subdivision of the    
said government. Allowed Allowed
c. Gifts in favor of an educational and/or charitable,    
religious, cultural or social welfare corporation, institution,    
accredited non-government organization, trust or    
philanthropic organization or research institution or    
Other exclusions/exempt donations
Organization Allowed Allowed
1. Donation for election campaign 5. Quasi transfers
2. General renunciation of inheritance 6. Foreign donation of NRAs
3. Donation with reserved powers 7. Donations on the property with
4. Void donations encumbrances assumed by the donee
8. Exemption under special laws
a. IRRI, IBP, RMF, DAP etc.
Illustration
Illustration
Donation between husband and wife during the marriage

General Rule: The gift is not taxable, as it is declared void by the law
Exception: Moderate gifts between the spouses are valid.

Gift from Common Property – the gift is taxable one – half to each donor spouse.

Husband and wife are considered separate taxpayers for the purposes of
donors tax.

However, if the property transferred is a conjugal/common property and only

the husband signed the deed of donation, there is only one donor for tax
Purposes, without prejudice to the right of the wife to question the validity of
the donation.
Tax Credit for Donor’s Taxes Paid to a Foreign Country

1. One foreign country Limit

Net gift, foreign
Philippine tax due
Total net gifts X xxx
Actual foreign donor’s tax xxx
Allowed (lower between actual and limit)
xxx
Limit (a) – By country xxx
2. Two or more foreign   Limit (b)- By total xxx
countries   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 donor’s taxes xxx
 
 
 
Exercises
Prior to TRAIN LAW
Mr. Dennis Mallorca, non-resident citizen donor, made the following donations on July 15, 2014:
a. To Fernando, a legally adopted child, on account of marriage on July 31, 2014, property in Indonesia
(donor’s tax paid in Indonesia P25,000) fair market value, P510,000
b. To Felix, best friend in the Philippines, a property with an unpaid mortgage of P30,000 assumed by the
donee, fair market value P70,000
 
For Philippine donor’s tax purposes, how much is the tax payable after the allowable tax credit?
Pursuant to TRAIN LAW
Mr. Dennis Mallorca, non-resident citizen donor, made the following donations on July 15, 2018:
a. To Fernando, a legally adopted child, on account of marriage on July 31, 2018, property in Indonesia
(donor’s tax paid in Indonesia P25,000) fair market value, P510,000
b. To Felix, best friend in the Philippines, a property with an unpaid mortgage of P30,000 assumed by the
donee, fair market value P70,000
 
For Philippine donor’s tax purposes, how much is the tax payable after the allowable tax credit?
Donation between husband and wife during the marriage

General Rule: The gift is not taxable, as it is declared void by the law
Exception: Moderate gifts between the spouses are valid.

Husband and wife are considered separate taxpayers for the purposes of
donors tax.

However, if the property transferred is a conjugal/common property and only

the husband signed the deed of donation, there is only one donor for tax
Purposes, without prejudice to the right of the wife to question the validity of
the donation.
Filing of return and Payment of Tax
1. 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 at least in
duplicate.
2. Contents of the The return shall set forth:
donor’s tax return a. Each gift made during the calendar year which is to be included in computing
the 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.
3. Time for filing of The return shall be filed within 30 days after the date the gift is made. The tax due
return and payment of thereon shall be paid at the time of filing. (No extension)
tax
NOTE: Unlike in estate taxation, extension of the period to file and pay the donor’s tax return is not allowed.
Filing of return and Payment of Tax
4. Place of filing a. In case of resident donors;
Return 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.
a. 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.
5. Notice of donation The donor engaged in business shall give a notice of donation on every donation
by a donor engaged worth at least P50,000 to the RDO which has jurisdiction over his place of
in 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 not more than 30% of the said donations/gifts for the taxable
year shall be used for administration purposes.