Chapter 6

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DONOR’S TAX

Problem 6-1

1. False – there is no consideration in donation. 2. False – during the lifetime of the donor. 3. True

4. False – It is enough that the duly representative of the incapacitated donee to receive the donation.

5. True

6. False – Real property donation must be put in writing regardless of value. 7. True

8. False – The value of donated personal property must exceed P5,000. 9. True

10. True

11. False – not gifts.

12. False – constitutes dividend income. 13. True

Problem 6-2 1. True

2. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines

3. True 4. True 5. True

6. False – only one-half of the share is donated. 7. False – only if the gift is on account of marriage. 8. False – only the first P100,000 is exempt.

9. False – may be subject to business tax such as VAT, custom duties, or excise tax. 10. False - When the donee is a stranger, the tax rate is 30%.

11. True

12. False - excise tax – transfer of property by way of gift inter vivos. Problem 6-3

1. Zero, because the renunciation is a general renunciation.

2. P30,000 or 30% of P100,000. A third cousin is a stranger for donor’s tax purposes. 3. The total amount of donor’s tax is P62,000, computed as follows:

Son Daughter-in-law Relative - P200,000 (See schedular tax table) P2,000

Stranger (P200,000 x 30%) P60,000

Note: Daughter-in-law is included as a relative for donor’s tax purposes.

4. Zero. Donations between husband and wife are void and not subject to donor’s tax.

5. Zero. Donations between a man and a woman living together as husband and wife are void and not subject to donor’s tax. (Art 87, Family Code)

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6.

P30,000 or 30% of P100,000. A gift to a priest or to Church is not exempt from gift tax. (Lladoc vs. Commissioner of Internal Revenue, L-19201, 14 SCRA, p. 292) – assume donation is made to a church established and operates within the Philippines.

7. P600,000 or 30% of P2,000,000. There is no blood relationship between corporation, hence both are stranger from each other.

8. P40,400

Philippine donor’s tax P404,000

Actual donor’s tax - foreign P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400 9. P1,244,000

Philippine donor’s tax:

Relative (P500,000) P 14,000

Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000 Less: Tax credit

Actual donor’s tax – foreign (lower) P120,000 120,000 Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400

Donor’s tax still due and payable P1,244,00

0 10. P135,000

Donor’s tax P100,000

Surcharge (P100,000 x 25%) 25,000

Interest (P100,000 x 20% x 6/12) 10,000

Total amount due P135,000

Problem 6-4 Problem 6-5 Problem 6-6

1. C 1. D 1. C

2. D 2. D 2. D

3. C 3. C 3. D

4. A 4. C 4. No answer. All statements are correct.

5. A 5. C 5. C 6. A 6. C 6. B 7. A 7. B 7. A 8. B 8. C 8. D 9. B 9. C 10. A 10. A Problem 6-7 C Father Mother Gross estate P5,500,000 P5,500,000

Less: Standard deduction 1,000,000 1,000,000

Net estate P4,500,000 P4,500,000

Estate tax on P2,000,000 P 135,000 P 135,000

Excess (P2,500,000 x 11%) 275,000 275,000

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Distributable estate (P11,000,000 – P820,000) P10,180,000

Divided by number of heirs 4

Share of each heir P 2,545,000

Donor’s tax on P1,000,000 P 44,000

Donor’s tax on excess (P1,545,000 x 8%) 123,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is specifically for Daw.

Problem 6-8 D

First donation: DonationValue of Donor’s tax

Donated value of P200,000 P200,000 P 2,000

Excess donation (4% x P290,000) 290,000 11,600

Dowry deducted 10,000 .

Total value of first donation P500,000 P13,600

Second donation:

First donation – total value P500,000 P14,000

Excess donation (6% x 400,000) 400,000 24,000

Total after dowry deducted P900,000 P38,000

Add: Dowry deducted in two donations (P10,000 x 2) 20,000

Total P920,000

Less: First donation 500,000

Value of second donation P420,000

Problem 6–9 A

Wedding gift (P500,000 – P10,000) P490,000

Casual gift – car 500,000

Total gift subject to tax P990,000

Donor’s tax on P500,000 P14,000

Excess (P490,000 x 6%) 29,400

Total donor’s tax in the Philippines P43,400

Problem 6–10 D

No reciprocity With

reciprocity

Taxable gift in the Philippines P3,000,000 P 0

-Donor’s tax on P3,000,000 P 204,000 P 0

-Problem 6–11 A

Donations: Mr. Salonga Mrs. Salonga

Vacation house – conjugal (P500,000/2) P250,000 P250,000

Car – conjugal (P240,000/2) 120,000 120,000

Jewelry – exclusive of Mrs. Salonga 20,000

Dowry ( 10,000) ( 10,000)

Net gift P360,000 P380,000

Donor’s tax on P200,000 P2,000 P2,000

Excess (P160,000 x 4%) 6,400

(P180,000 x 4%) 7,200

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Problem 6–12 A

Donations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax.

Wedding gift P110,000

Less: Dowry 10,000

Net gift – first P100,000 donor’s tax exempt P100,000

2005 gift – house and lot P300,000

Less: Dowry (P10,000 – P6,000) 4,000 Net gift P296,000 Donor’s tax on P200,000 P2,000 Excess (P96,000 x 4%) 3,840 Donors tax – 2005 P5,840 Problem 6–15 C Donor’s tax (P50,000 x 2%) P1,000 Problem 6–16 1. C

Gross gifts, as of August 15, 2002 (P150,000 x 2 lots) Less: Deductions

Net gifts, August 15, 2002 Donor’s tax on P200,000

Tax on excess (P300,000 – P200,000) x 4% Total donor’s tax

P300,000 0 P300,000 P 2,000 4,000 P 6,000 2. D

Wedding gifts, as of November 15, 2002 Less: Deductions - dowry

Net gifts, November 15, 2002 Add: Previous, net gifts Total net gifts

Donor’s tax on P200,000

Tax on excess (P440,000 – P200,000) x 4% Total donor’s tax

Less: Donor’s tax – August 15, 2002 Donor’s tax – November 15, 2002

P150,000 10,000 P140,000 300,000 P440,000 P 2,000 9,600 P 11,600 6,000 P 5,600 Problem 6–17 D Donor’s tax (P8,000,000 x 30%) P2,400,000 Problem 6–18 D

No deduction is allowed for donations on account of birthday.

Problem 6–19 B

Gross gift (FMV at time of donation) P200,000

Problem 6–20 B

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Problem 6–21 A

Donor’s tax (P10,000,000 x 30%) P3,000,000

The donation is taxable because more than 30% of it shall be used for administration purposes.

Estate tax Donor’s tax

Gross amount asset P5,000,000 P5,000,000

Less: Standard deduction 1,000,000 .

Net amount subject to tax P4,000,000 P5,000,000

Estate tax on P2,000,000 P135,000

Excess (P2,000,000 x 11%) 220,000

Donor’s tax on P5,000,000 . P404,000

Total P355,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000 Problem 6–23

1. Donors tax for relatives:

Mar. 1 - To his son on account of marriage P 600,000

Oct. 1 - To his daughter on account of graduation 500,000

Total P1,100,000

Less: Dowry 10,000

Net taxable gifts P1,090,000

Donor’s tax on P1,000,000 P 44,000

Excess (P90,000 x 8%) 7,200

Total donor’s tax for donations to relatives P 51,200

2. Donors tax for strangers:

Dec. 25 - To his god-children P400,000

Dec. 31 - To his neighbor 100,000

Total P500,000

Multiplied by donor’s tax rate 30%

Donor’s tax for donations to strangers P150,000

Problem 6–24

Mr. Dinero Mrs. Dinero

March 30, 2005 (P500,000/2) P250,000 P250,000

June 28, 2005 (P2,000,000/2) – P10,000 990,000 990,000

Net taxable gifts P1,240,000 P1,240,000

Donor’s tax on P1,000,000 P44,000 P44,000

Excess (P240,000 x 8%) 19,200 19,200

Total P63,200 P63,200

Donor’s tax paid on March 30, 2005

Donor’s tax on P200,000 ( 2,000) ( 2,000)

Excess (P50,000 x 4%) ( 2,000) ( 2,000)

Donor’s tax for donation on June 28, 2005 P59,200 P59,200

Problem 6–25

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Problem 6–26

To his son on account of marriage during the year P 500,000

To his daughter on account of her birthday 500,000

To Garci, his brother, as renunciation of inheritance 400,000

Net gift subject to donor’s tax P1,400,000

Note: No dowry is allowed for nonresident alient. Problem 6–27

Real estate (P1,000,000 – P100,000) P 900,000

Personal properties (P500,000 – P50,000) 450,000

Total taxable gifts (inadequate consideration) P1,350,000

Donor’s tax on P1,000,000 P 44,000

Excess (P350,000 x 8%) 28,000

Donor’s tax for inadequate consideration P 72,000

Problem 6–28 Correction:

The date for requirement No. 2 should be November 5, 2005 instead of November 5, 2002. 1. December 25, 2005:

Average value per share (P500 + P450)/ 2 Multiply by number of shares

Taxable base of the gift

P 475 1,000 P475,000 2. The same answer with number 1.

Problem 6–29

There is no donor’s tax because the donations are donation mortis causa, void donation and tax- exempt donation.

Properties: a. House and lot b. Parejo car

c. Business

d. Furniture and fixtures e. Time deposit

Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament). The value of property donated is P200,000 and it was made orally. The donation is null and void because personal property donated with value exceeding P5,000 should be put in writing to become a valid donation.

Revocable donation is a revocable transfer, hence, subject to estate tax.

Donation mortis causa is subject to estate tax.

The amount is P100,000 given to his illegitimate daughter. This donation is tax exempt because the first P100,000 of donation to relatives shall not be subjected to donor’s tax.

Problem 6–30

Car consequently destroyed after delivery to his son P 500,000

Problem 6–31

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2006: January 31

November 30

Car to Uncle

Less: Encumbrances assumed by the donee Net taxable gift – January 31, 2002

Tax on excess (P250,000 – P200,000) x 4% Donor’s tax for January 31 donation

House and lot to his son on account of marriage

Less: Dowry exemption (weeding was held beyond one year) Net gifts

Add: Previous net gifts during the year Aggregate taxable gift

Tax on excess (P840,000 – P500,000) x 6% Total

Less: Donor’s tax for previous gifts during the year Donor’s tax for November 30 donation

P300,000 50,000 P250,000 P 2,000 2,000 P 4,000 P600,000 0 -P600,000 250,000 P850,000 P 14,000 21,000 P 35,000 4,000 P 31,000 Donations to strangers: 2006: June 30 August 31 October 31

Cash to Miss Rosal, a radio manager Less: Diminution of gift (P100,000 x 60%) Net taxable gift

Donor’s tax for June 30 donation (P40,000 x 30%) Land to National Government

Less: Deduction (total amount) Net taxable gift

Donor’s tax for August 31 donation

Cash to non-profit organization – 40% Administrative Less: Deduction

Net taxable gift

Donor’s tax for October 31 donation (P400,000 x 30%)

P100,000 60,000 P 40,000 P 12,000 P500,000 500,000 P 0 -None P400,000 0 -P400,000 P120,000 Total donor’s tax during 2006:

Total donor’s tax to relatives (P30,400 + P4,000) Total donor’s tax to stranger (P12,000 + P120,000) Total donor’s tax for the year 2006

P 35,000 132,000 P167,000 Problem 6–32

Net gift to daughter on account of marriage (P50,000 – P10,000)

Add: Previous net gifts: P50,000

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April 1 – Gift to mother

June 10 – Wedding gift to son (P50,000 – P10,000) Total net gift during the year

Donor’s tax on excess P30,000 x 2%

40,000 90,000 P130,000 Tax exempt P 600

Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000

Problem 6–33 1. January 29, 2006

2. June 1, 2005 gift Nilo Co Nila Co

Gift on account of their daughter’s marriage P250,000 P250,000

Less: Dowry 10,000 10,000 Net gift P240,000 P240,000 Tax on P200,000 P 2,000 P 2,000 Tax on excess P40,000 x 4% 1,600 1,600 Total P 3,600 P 3,600 P 7,200 Surcharges (P7,200 x 50%) 3,600 Interest (P7,200 x 20% x 11/12) 1,320 P12,120

December 30, 2005 gift Nilo Co Nila Co

Christmas gift to son P100,000 P100,000

Previous gift – June 1, 2005 240,000 240,000

Total net gift during 2005 P340,000 P340,000

Tax on P200,000 P 2,000 P 2,000

Tax on excess P140,000 x 4% 5,600 5,600

Total P 7,600 P 7,600

Less: Tax on previous gift 3,600 3,600

Donor’s tax on current gift P 4,000 P 4,000 P 8,000

Surcharge (P8,000 x 50%) 4,000

Interest (P8,000 x 20% x 4/12) 533

P12,533

Total amount to be paid on June 1, 2006 P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in 2005, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect.

Problem 6–34

Relative Stranger Total Donor’s tax on property located in Japan, P1,000,000

Donor’s tax on property located in the Philippines (P2,000,000 x 30%)

Total donor’s tax in the Philippines

P44,000

P600,000

P 44,000 600,000 P644,000 Computation of donor’s tax still due and payable:

Total donor’s tax in the Philippines

Less: Allowable tax credit: - Actual lower than limit Limit (P1,000,000/ P3,000,000) x P644,000

Donor’s tax still due and payable P214,667

P644,000 70,000 P574,000

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Gift to

Property donated: Relatives Strangers Total To son - House and lot ($500,000 x P50) – P10,000

Carabaw FX – to brother-in-law Taxable base

Philippine donor’s tax: First P10,000,000

Tax on excess (P14,990,000,000 x 15%) Total

Less: Tax credit allowed

Donors tax rate for donation made to strangers Net donor's tax

P24,990,000 . P24,990,000 P 1,004,000 2,248,500 P 3,252,500 1,000,000 . P 2,252,500 P 500,000 . P 500,000 30% P 150,000 P 2,402,500 . Note: Donation to common-law-wife is void. Hence, no donor’s tax.

Computation of tax credit allowed:

Limit 1: (P24.990M/ P25.490M) x P2,402,500 Allowed: Actual, lower amount

P2,335,373 P1,000,000