BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
28SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
CHAPTER 5
ESTATE TAX
Problem 5–11. True
2. False – 20% of the net taxable estate
3. False – intangible property of nonresident alien decedent.
4. False – Not any claims, but legal claims substantiated with supporting documents
5. False – Not allowed to nonresident alien decedent because they are taxed only on properties situated within.
6. False – the first P200,000 is estate tax-exempt. 7. True
8. True 9. True
10. False – If the value of the gross estate exceeds P2,000,000. 11. True
12. True Problem 5–2
1. False – This is also allowed to nonresident alien decedent for their ELITE. 2. True
3. True 4. True
5. False – deductible in full
6. False – standard deduction will not reduce the inheritance. 7. False – only 30 days.
8. True 9. True 10. True 11. True 12. True
Problem 5-3 Problem 5-4 Problem 5-5
1. A 1. C 1. C 2. C 2. B 2. A 3. D 3. B 3. D 4. A 4. D 4. A 5. C 5. A 5. B 6. A 6. D 6. D 7. D 7. D 7. A 8. B 8. C 8. C 9. A 9. A 9. A 10. C 10. D 10. D 11. D 11. D 11. D 12. D
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
29SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 5–6 B
Conjugal gross estate (P3,120,000 + P180,000) P3,300,000
Funeral expense allowed (P3,300,000 x 5%) ( 165,000)
Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500)
Standard deduction ( 1,000,000)
Net estate P 567,500
Problem 5–7 D
Gross estate P3,000,000
Funeral expense allowed (P3,000,000 x 5%) ( 150,000)
Net conjugal/community estate P2,850,000
Standard deduction (1,000,000)
Net estate P1,850,000
Share of surviving spouse (P2,850,000 x 50%) 1,425,000
Net taxable estate P 425,000
Problem 5–8 A
Estate after actual deductions P1,200,000
Add: Actual deductions (P150,000 + P50,000) 200,000
Gross estate P1,400,000
Less: Funeral expense allowed (P1,400,000 x 5%) P 70,000
Other deduction 50,000
Standard deduction 1,000,000 (1,120,000)
Net taxable estate P 280,000
Problem 5–9 D
Exclusive Conjugal
Property – cash P1,000,000 P4,000,000
Family home 800,000
Transfer for public use (1,000,000)
Funeral expense allowed ( 200,000)
Net conjugal estate P4,600,000
Family home (P800,000/2) (400,000)
Standard deduction (1,000,000)
Net estate P3,200,000
Share of surviving spouse (P4,600,000 x 50%) (2,300,000)
Net taxable estate P 900,000
Problem 5–10 A
Gross estate P4,500,000
Charges against the estate (200,000)
Net conjugal estate P4,300,000
Standard deduction (1,000,000)
Family home (1,000,000)
Net estate P2,300,000
Share of surviving spouse (P4,300,000 x 50%) (2,150,000)
Net estate taxable in the Philippines P 150,000
Problem 5–11 B
Conjugal
Properties P3,400,000
Funeral expense, limit ( 200,000)
Judicial expenses ( 250,000)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
30SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Claims against properties ( 550,000)
Net conjugal estate P2,400,000
Problem 5–12 C
Net estate of P500,000 has a estate tax amounting to P15,000
Problem 5–13 A
Estate tax of P5,000,000 P465,000
Problem 5–14 D
Net estate Estate tax
Amounts P2,000,000 P135,000
Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86 (B), NIRC)
Problem 5–15 A
Net taxable estate P10,000,000
Add: Family home P1,000,000
Standard deduction 1,000,000 2,000,000
Distributable estate before estate tax P12,000,000
Less: Estate tax of P10,000,000 1,215,000
Net distributable estate P10,785,000
Problem 5–16
1. Letter B Exclusive Conjugal
Real estate P2,800,000 P1,600,000
Personal property 800,000
Funeral expense, limit ( 200,000)
Judicial expenses ( 100,000)
Unpaid mortgage loan . ( 300,000)
Net exclusive/conjugal state P2,800,000 P1,800,000 P4,600,000
Standard deduction (1,000,000)
Family home (P1,600,000/2) ( 800,000)
Net estate P2,800,000
Share of surviving spouse (P1,800,000 x 50%) ( 900,000)
Net taxable estate P2,100,000
2. Letter D
Estate tax on P500,000 P 15,000
Estate tax on excess (P1,600,000 x 8%) 128,000
Estate tax P143,000
3. Letter B Exclusive
Conjugal
Real estate P2,800,000 P1,600,000
Personal property 800,000
Funeral expense, actual ( 245,000)
Judicial expenses ( 100,000)
Unpaid mortgage loan . ( 300,000)
Net exclusive/conjugal estate P2,800,000 P1,755,000 P4,555,000
Share of surviving spouse (P1,755,000 x 50%) ( 877,500)
Estate tax ( 143,000)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
31SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 5–17 C
Tax credit P100,000 x 2M/5M) P40,000
Problem 5–18 A
Total gross estate (P1,700,000 + P800,000) P2,500,000
Less: Deductions 1,500,000
Net taxable estate P1,000,000
Estate tax on P500,000
P15,000
Excess P500,000 x 8% 40,000
Total estate tax in the Philippines P55,000
Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000
P17,600
Problem 5–19
Conjugal Exclusive Total
Real property P1,500,000 Inherited property P700,000 Other properties 500,000 . Gross estate P2,000,000 P700,000 P2,700,000 Less: Deductions: ELITE: Funeral expenses P 100,000 Judicial expenses 80,000
Claims against the estate 300,000
Transfer for public use 20,000
Total deductions P 500,000 500,000
Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000
Less: Special deductions:
Standard deduction 1,000,000
Medical expense 200,000
Net estate before share of surviving spouse P1,000,000 Less: Share of surviving spouse (P1,500,000 x 50%) 750,000
Net taxable estate P 250,000
Estate tax:
Tax on P200,000 P 0
-Tax on excess (P50,000 x 5%) 2,500
Estate tax due P 2,500
Problem 5–20
Conjugal Exclusive Total
Family home – Philippines P2,000,000
Family business – Philippines 2,000,000
Properties – USA . P1,000,000
Gross estate P4,000,000 P1,000,000 P5,000,000
Deductions:
ELITE – Funeral expense 200,000 . .
Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000
Less: Special deduction
Std. deduction 1,000,000
Family home 1,000,000
Net estate before share of surviving spouse P2,800,000 Less: Share of surviving spouse (P3,800,000 x 50%) 1,900,000
Net taxable estate P 900,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
32SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Tax on P500,000 P15,000
Tax on excess (P400,000 x 8%) 32,000
Estate tax due P47,000
Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429
Estate tax still due and payable P33,571
Supporting computation:
The computation of net estate per country is as follows:
Philippines U. S. A
Conjugal Exclusive Total
Gross estate P4,000,000 P1,000,000 P5,000,000 Funeral expense (200,000) (200,000) Family home (1,000,000) (1,000,000) Allocation of std deduction (P1,000,000 x 4/5): (1/4) (800,000) ( 200,000) (1,000,000) Net estate P2,000,000 P 800,000 P2,800,000 Problem 5–21
Conjugal Exclusive Total
Gross estate* P5,800,000 P4,200,000 P10,000,000
Less Deductions:
Ordinary deductions:
Funeral expenses (actual, P350,000;
5% limit, P500,000; statutory
Maximum allowed, P200,000) - lowest (200,000)
Judicial expenses (500,000)
Other deductions (100,000)
Vanishing deductions (note 1) . ( 92,000)
Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000
Special deductions:
Standard deduction (1,000,000)
Family home (50% is P1,500,000) max. allowed (1,000,000)
Medical expenses (actual, P600,000) max. allowed (500,000)
Amount receivable under R.A. 4917 (200,000)
Net estate P6,408,000
Less: Share of the surviving spouse (P5,000,000 x 50%) 2,500,000
Net taxable estate P3,908,000
*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order not to increase the deduction by 50%.
Vanishing deduction:
Cash, initial value allowed to take P500,000
Less: Proportionate deductions:
Funeral expense P200,000 Judicial expense 500,000 Other obligations 100,000 Total P800,000 (P800,000 x P500,000/P10,000,000) 40,000 Final basis P460,000
Multiplied by vanishing deduction rate 20%
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
33SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 5–22 Gross estate (P2,000,000 + P180,000) P2,180,000 Less: Deductions: Unpaid mortgage P 480,000 Funeral expense 60,000 Judicial expense 20,000 Standard 1,000,000 1,560,000 Net estate P 620,000 Tax on P500,000
P15,000 Tax on excess P120,000 x 8% 9,600
Total estate tax P24,600
Gross estate
P2,180,000
Less: Ordinary deductions (P480,000 + P80,000) P560,000
Estate tax 24,600 584,600
Net distributable estate P1,595,400
Problem 5–23
Cash P 400,000 Property 1,500,000 Gross estate P1,900,000 Deductions: Promissory note ( 500,000) Funeral expense ( 70,000)
Net conjugal estate P1,330,000
Less: Standard deduction 1,000,000
Net estate P 330,000
Less: Share of surviving spouse (P1,330,000 x 50%) 665,000
Net taxable estate (P335,000)
Gross estate
P1,900,000
Less: Promissory note P500,000
Funeral expense 70,000 570,000
Net estate before share of surviving spouse P1,330,000
Less: Share of surviving spouse (P1,330,000 x 50%) 665,000
Net distributable estate P 665,000
Problem 5–24
Conjugal Exclusive Total
Gross estate (P1,000,000 + P9,000,000) P1,000,000 P9,000,000 P10,000,000
Ordinary deductions:
Funeral expense (limit) (200,000) ( 200,000)
Judicial expense (200,000) ( 200,000)
Claims against the estate (500,000) ( 500,000)
P 100,000
Net conjugal estate P9,100,000
Special deductions:
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
34SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Medical expense ( 500,000)
Net estate P7,600,000
Less: Share of surviving spouse (P100,000 x 50%) 50,000
Net taxable estate P7,550,000
Tax on P5,000,000 P465,000
Tax on excess P2,550,000 x 15% 382,500
Estate tax P847,500
Conjugal estate
P1,000,000
Less: Ordinary deductions (actual):
Funeral expense P210,000
Judicial expense 200,000
Claims against the estate 500,000 910,000
Net conjugal estate before share of surviving spouse P 90,000
Less: Share of surviving spouse (P90,000 x 50%) 45,000
Net share of the decedent P 45,000
Add: Exclusive property of the decedent 9,000,000
Net distributable estate before estate tax P9,045,000
Less: Estate tax 847,500
Net distributable estate P8,197,500
Divide by number of heirs (12 + 1) 13
Share of each heir P 603,576.92
Note: The medical expense is assumed to have been paid.
Problem 5–25
Taxable Distributable
Conjugal property - real estate P2,000,000 P2,000,000
Ordinary deductions:
Funeral expenses, limit (P2M + P300,000) x 5% ( 115,000) ( 150,000)
Judicial expenses ( 5,000) ( 5,000)
Unpaid mortgage ( 500,000) ( 500,000)
Vanishing deduction* ( 175,304) .
Net conjugal estate P1,204,696 P1,345,000
Add: Exclusive property – personal property inherited 300,000 300,000
Net estate before special deduction P1,504,696 P1,645,000
Less: Standard deduction 1,000,000 .
Net estate before share of surviving spouse P 504,696 P1,645,000
Less: Share of surviving spouse (P1,204,696 x 50%) 602,348
(P1,345,000 x 50%) 672,500
Net taxable/distributable estate (P 97,652) P 972,500
Divide by number of compulsory heirs 3
Inheritance of each heir P 324,167
Vanishing deduction:
*Value taken P300,000
Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) 80,870
Final basis P219,130
Multiply by percentage of vanishing deduction – one year ago 80%
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
35SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 5–26
The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be:
1. Computation of net estate:
Communal Exclusive Total
Residential house and lot P 3,500,000
Building apartment 10,000,000
Income of apartment 3,000,000
Deposit in Equitable Bank 5,000,000
Agricultural land P 800,000
Family car 550,000
Other personal properties 1,000,000
Claim against insolvent person 100,000 .
Total gross estate P23,150,000 P 800,000 P23,950,000
Less: Ordinary deductions:
ELIT:
Funeral expenses – maximum 200,000
Judicial expenses 600,000
Claims against the estate 600,000
Claims against insolvent person 100,000
Unpaid mortgage 300,000
Transfer for public use . 200,000 2,000,000
Net estate before special deductions P21,650,000 P 300,000 P21,950,000
Less: Special deductions:
Standard deduction 1,000,000
Family home – maximum 1,000,000
Medical expenses – maximum 500,000
Net estate P19,450,000
Less: Share of surviving spouse (P21,650,000 x 50%) 10,825,000
Net taxable estate P 8,625,000
2. Computation of estate tax:
For the first P5,000,000 P 465,000
Excess (P3,625,000 x 15%) 543,750
Estate tax due P1,008,750
3. Computation of net distributable estate:
Communal Exclusive Total
Residential house and lot P 3,500,000
Building apartment 10,000,000
Income of apartment 3,000,000
Deposit in equitable bank 5,000,000
Agricultural land P 800,000
Family car 550,000
Other personal properties 1,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
36SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Total gross estate P23,150,000 P 800,000 P23,950,000
Less: Actual deductions:
Funeral expense – actual 350,000
Judicial expenses 600,000
Claims against the estate – actual 800,000 Claims against insolvent person 100,000
Unpaid mortgage 300,000
Transfer for public use . 200,000 2,350,000
Net estate before share of surviving spouse P21,300,000 P300,000 P21,600,000 Share of surviving spouse (P21,300,000 x 50%) 10,650,000
Net estate before estate tax P10,950,000
Less: Estate tax 1,008,750
Net distributable estate P 9,941,250
4. Distribution of the net distributable estate:
Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:
Legitime:
To two legitimate children (P9,941,250 x 50%) P 4,970,625
To legally surviving spouse (P4,970,625/2) 2,485,313
To illegitimate child (P2,485,313 x 50%) 1,242,656
Free portion:
To church – based on Will 1,242,656
Total P 9,941,250
Problem 5-27
Estate tax:
Gross estate
House and lot, Baguio City P1,000,000
House and lot, Quezon City – family home* 1,500,000
Grocery store, Baclaran 300,000
Inventory (P700,000 – P300,000) x 450/300 600,000
Cash sales 450,000
Claims against insolvent persons 50,000 P3,900,000
Ordinary deductions:
Funeral (P3,900,000 x 5%) P 195,000
Claims against insolvent persons 50,000
Unpaid income taxes 20,000 ( 265,000)
Net estate before special deductions P3,635,000
Special deductions:
Family home (P1,500,000/2) P 750,000
Medical expenses 500,000
Standard deductions 1,000,000 (2,250,000)
Net estate P1,385,000
Less: Share of surviving spouse (P3,635,000 x 50%) 1,817,500
Net taxable estate (P 432,500)
Estate tax due
P 0
-Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin reside in that place.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
37SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Gross estate P3,900,000
Actual deductions:
Funeral P250,000
Claims against insolvent persons 50,000
Unpaid income taxes 20,000
Medical expense 550,000 870,000
Net estate before share of spouse P3,030,000
Share of surviving spouse (P3,030,000 x 50%) 1,515,000
Net distributable estate P1,515,000
Problem 5–28
1. Estate tax
House and lot (family home) P3,000,000
Time deposit – principal amount 2,000,000
Accrued interest 2004: (P2,000,000 x 12% x 12/12) 240,000
2005: (P2,000,000 x 12% x 10/12) 200,000
Car 1,000,000
Claims against insolvent person 100,000
Gross estate P6,540,000
Ordinary deductions:
Funeral expense, limit P 200,000
Judicial 50,000
Claims against insolvent person 100,000 ( 350,000)
Net estate before special deductions P6,190,000
Special deductions:
Standard deductions P1,000,000
Medical expense, limit 500,000
Family home, limit 1,000,000 (2,500,000)
Net estate P3,690,000
Less: Share of surviving spouse (P6,190,000 x 50%) 3,095,000
Net taxable estate P 595,000
Tax on P500,000
P 15,000
Tax on excess (P95,000 x 8%) 7,600
Estate tax P 22,600
2. Net distributable estate
Gross estate P6,540,000
Actual deductions:
Funeral expense P250,000
Judicial expense 50,000
Claims against insolvent person 100,000 ( 400,000)
Net distributable estate before share of surviving spouse P6,140,000
Less: Share of surviving spouse (P6,140,000 x 50%) 3,070,000
Net actual estate P3,070,000
Less: Estate tax 22,600
Net distributable estate P3,047,400
3. Distribution of inheritance
Net distributable estate P3,047,400
Divided by number of heirs (intestate succession) 4
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
38SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 5–29
1. Estate tax credit = P215,000
2. Estate tax payable = P222,500
Supporting computations:
a. Estate tax payable to the Philippines :
Country A Country B Philippines Entire
Gross estate P1,200,000 P2,500,000 P5,000,000 P8,700,000
Unpaid mortgages (200,000) (200,000)
Unpaid taxes (500,000) (500,000)
Transfer for public use . . (2,000,000) (2,000,000)
Net of identifiable deductions P1,000,000 P2,000,000 P3,000,000 P6,000,000
Allocated deductions** (172,500) (358,750) (718,750) (1,250,000)
Net estate P 827,500 P1,641,250 P2,281,250 P4,750,000
** Computation of allocated deductions:
Country A Country B Philippines Entire
Funeral expenses P 27,600 P 57,400 P115,000 P 200,000
Judicial expenses 6,900 14,350 28,750 50,000
Standard deduction allocated 138,000 287,000 575,000 1,000,000
Total allocated deductions P172,500 P358,750 P718,750 P1,250,000
Note: The above deductions are allocated because they are not specifically identified as
deductions from a specific country. The fraction per country is computed as follows:
Country A Country B Philippines Entire
Gross state per country P1,200,000 P2,500,000 P5,000,000 P8,700,000
Divide by entire gross estate P8,700,000 P8,700,000 P8,700,000 P8,700,000
Fraction 13.80% 28.70% 57.50% 100%
b. Computation of Philippines estate tax:
Tax on P2,000,000 P135,000
Tax on excess (P2,750,000 x 11%) 302,500
Total P437,500
Less: Tax credit allowed* 215,000
Estate tax payable to the Philippine Government P222,500
c. Computation of tax credit:
Limit A:
Country A: [P437,500 x (P827,500/P4,750,000)] P 76,217
Actual payment to country A – lower P 75,000 P 75,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
39SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Actual payment to country B – lower P140,000 140,000
Tax credit – Limit A
P215,000
Limit B:
Total net estate – foreign
[(P2,468,750)/P4,750,000] x P437,500 P227,385
Total actual estate tax payments – foreign
(P75,000 + P140,000) – lower P215,000
Tax credit – Limit B P215,000
*Tax credit allowed (the lower of limit A or B)
P215,000
Problem 5–30
Conjugal Exclusive Total
Cash P2,000,000
Shares of stock (P100 x 100,000 shares) P10,000,000
Insurance proceeds 1,000,000
Transfer in contemplation of death . 3,000,000
Total gross estate P2,000,000 P14,000,000 P16,000,000
Less: Ordinary deduction – Transfer for public use . 10,000,000 10,000,000
Net estate before special deduction P2,000,000 P 4,000,000 P 6,000,000
Less: Standard deduction 1,000,000
Net estate P 5,000,000
Less: Share of surviving spouse (P2,000,000 x 50%) 1,000,000
Net taxable estate P 4,000,000
Estate tax on P2,000,000
P135,000
Tax on excess (P2,000,000 x 11%) 220,000
Total estate tax P355,000
Less: Tax credits on tax previously paid (P34,840 + P204,000) 238,840
Transfer tax still due P116,160
Problem 5–31
Estate tax on P5,000,000 P 135,000
Estate tax on excess (P3,000,000 x 15%) 450,000
Estate tax P 585,000
Add: Surcharges – willful neglect (P585,000 x 50%) P292,500
Interest for 4 years (P585,000 x 20% x 4) 468,000 760,500
