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05 chapter 6 donor's tax

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05 chapter 6 donor's tax

  1. 1. Taxation 2 │ DONOR’S TAX FLABERT VILLASENCIO, CPA Notre Dame of Dadiangas University
  2. 2. Donation oAn act of gratuitously transferring property or rights motivated by the liberality of the giver in favor of the receiver oThe transfer includes not only the transfer of ownership but also the passage of control over the economic benefits of the property
  3. 3. Donation KKiinnddss o off D Doonnaattiioonn MMoorrttiiss C Caauussaa IInntteerr V Viivvooss 1. Subject to Estate Tax 2. Donor retains ownership before his death 3. The transfer is revocable by the donor at will 4. The transfer is void if the donee dies ahead before the donor 1. Subject to Estate Tax 2. Donor retains ownership before his death 3. The transfer is revocable by the donor at will 4. The transfer is void if the donee dies ahead before the donor 1. Subject to Donor’s Tax 2. Takes effect during the 1. Subject to Donor’s Tax 2. Takes effect during the lifetime of the donor. lifetime of the donor.
  4. 4. Essentials of Donation 1. Capacity of the Donor o Refers to the condition and legal competence of the donor to enter into a valid contract o The donor must be capacitated (not necessary for donee) 1. Donative Intent o The declaration of the transfer of ownership by the owner without consideration a) Oral Donation- any personal property with value less than 5,000, with simultaneous delivery of the thing b) In Writing- the value of personal property exceeds 5,000 whose donation and acceptance must be in writing, otherwise it is void. c) Public Instrument- any donation which involves real property
  5. 5. Essentials of Donation 3. Delivery of the Gift o The delivery may be Actual or Constructive o Completion of the gift requires physical delivery or delivery of the instrument o Donor’ tax does not apply until there is a completed gift (no reservation over the gift) 4. Acceptance of the Gift o Acknowledgement of the thing donated o It is perfected from the moment the donor has known the acceptance by the donee and completed by the delivery
  6. 6. Gross Gift ▪ The value of the property or right donated subject to donor’s tax before any deduction Classifications of Donor 1.Citizen or Resident Alien- taxable for donations within and outside Philippines 2.Nonresident Alien- taxable only for the donations within the Philippines
  7. 7. Gross Gift Illustration: TiaKemi donated all his properties to his relatives in the Philippines. Property A in Baguio to Mr. Angkin 1,500,000 Property B in Canada to Mr. Amin 2,500,000 Total 4,000,000 1.If TiaKemi is a resident, how much is the Gross Taxable Donation? 2.If TiaKemi is a nonresident, how much is the Gross Taxable Donation? 1.Answer: 4,000,000 2.Answer:1,500,000
  8. 8. Gross Gift Summary Application GROUP OF DONORS AND TAXABLE DONATIONS DONOR Gross Gift’s Location Within Philippines Outside Philippines A. Citizen or Resident • Real Property • Tangible Personal Property • Intangible Personal Property Taxable Taxable Taxable Taxable Taxable Taxable B. Nonresident Alien • Real property • Tangible Personal Property • Intangible Personal Property Taxable Taxable Taxable* None None None
  9. 9. Conjugal Donation oHusband and Wife cannot transfer by virtue of sale or donation any conjugal or communal property WITHOUT CONSENT from the other, unless it is a moderate donations for charity or on occasion of family rejoicing oSpouses are considered as SEPARATE DONOR of the conjugal property oUnless, the wife expressly joins in making the donation, it is presumed to have been done by the husband oDonations made between husband and wife during marriage are void, except as cited in item 1. oDonation Mortis Causa is valid subject to Estate Tax.
  10. 10. Conjugal Donation Illustration: Mr and Mrs Galante, spouses and citizens of the Philippines, donated to their legitimate daughter the following properties: Vacation House (conjugal property- Hong Kong 1,500,000 Car (conjugal property)- Phil 750,000 Jewelry (exclusive property of Mrs.Galante) 475,000 Total 2,725,00 The Gross Gift of the Spouses are computed as: Mr. Galante Mrs.Galante Vacation House (1,500,000/2) 750,000 750,000 Car (750,000/2) 375,000 375,000 Jewelry 475,000 Gross Gift per Spouse 1,125,000 1,600,00
  11. 11. Valuation of Donation General Valuation: The Value existing at the TIME THE GIFT IS MADE. oCash Gifts- at Face Amount oPersonal Property- the Fair Market Value oReal Property- FMV by the City Assessor or by the BIR, higher oTransfer for Inadequate Consideration- the excess of the fair market value (personal property), however if it is a real property, it is not subject to donor’s tax but subject to final tax. oNet Gift- the amount of mortgage assumed is deducted from the fair market value of the property
  12. 12. Deductions from Gross Gifts Classifications of Donors Citizen or Resident Nonresident Deductible Items Alien 1.Dowries Yes No 2.Encumbrances Yes Yes 3.Diminution Yes Yes 4.To Government Yes Yes 5.To NGO Yes Yes
  13. 13. Deductions from Gross Gifts 1. Dowries- gift given by natural or adopting parents on account of marriage o A deduction of 10,000 is allowed provided that the gift is given before the wedding or within one year after the celebration. Illustration: On January 1, 2014, Mr and Mrs Mayaman donated a house and lot, a conjugal property, at fair market value of 620,000 to their legitimate son on account of his marriage on January 15, 2014. The net gift of each spouse is: Mr. Mayaman Mrs.Mayaman Gross Gift (620,000/2) 310,000 310,000 Less: Deductions 10,000 10,000 Net Gift of each Spouse 300,000 300,000
  14. 14. Deductions from Gross Gifts 2. Encumbrance Assumed by the Donee- a claim or liability attached to a property such as mortgage, security interests, cost of rights and unpaid taxes – Allowed as a deduction once assumed by the donee. Illustration: Miss Tapia donated to Mr Gomez, her boyfriend, a car amounting to 400,000. The car has an unpaid mortgage of 180,000. Mr Gomez agreed to assume payment for the mortgage. The Net Gift of Miss Tapia would be: Gross Gift-Car 400,000 Less: Deduction (Mortgage assumed) 180,000 Net Gift 220,000
  15. 15. Deductions from Gross Gifts 3. Diminution of Gift Provided by the Donor – refers to the decrease in the value of the property donated as a result of a condition made by the donor to the donee Illustration: Rista donated 300,000 to Huthut on condition that the latter will give 60,000 of the total gift to the charity. The net gift of Rista would be: Gross Gift 300,000 Less: Deduction- diminution to charity 60,000 Net Gift 240,000
  16. 16. Deductions from Gross Gifts 4. Donations to the National Government- gifts made for the use of the National Government, or any entity created by any of its agencies not constructed for profit – Deductible at 100% of the gift (Donation during Election must be reported ti Comelec) Illustration: Don Pepot donated his 100 hectares land valued at the date of donation at 1,000,000 as follows: National Government 500,000 Solano Local Government 300,000 Mar Roxas, friend 200,000 The Net Gift of Don Pepot would be: Gross Gift 1,000,000 Less: Deductions (500,000+300,000) 800,000 Net Gift 200,000
  17. 17. Deductions from Gross Gifts 5. Donation to Non Profit Organizations- donations to educational, charitable, religious, cultural, social welfare, accredited NGOs and other related agencies are allowed as exemption as long as that not more than 30% of the donation shall be used for administrative purposes. Illustration: Mr. Eloh Canoe, a nonresident alien, donated 1,000,000 to an accredited NGO. Compute for the Net Gift. a. If not more than 30% Gross Gift 1,000,000 Less: Deduction 1,000,000 Net Gift - b. If more than 30% Gross Gift 1,000,000 Less: Deduction - Net Gift 1,000,000
  18. 18. S E A T W O R K : ( 1 / 2 C W ) 6-6 6-9 6-10 6-11 6-15 6-16 6-24 #DO IT BY PAIR #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE
  19. 19. Tax Exempt Donations 1. The first 100,000 of the net gift to relatives every year. 2. Donations given to the following: a) Ramon Magsaysay Award Foundation b) Philippine Inventor’s Commission c) Philippine-American Cultural Foundation d) International Rice Research Institute e) Integrated Bar of the Philippines f) Development Academy of the Philippines g) National Museum, National Library, and the archives of the National Historical Institute h) National Social Action Council i) Southern Philippines Development Administration j) Task Force on Human Settlement k) Intramuros Administration l) Irrevocable donations of American-owned private lands m) Aqua-culture Development of the Southeast Asian Fisheries Development Center of the Philippines n) Museum of Philippine Costumes o) Donations of Foreign Origin p) Gratuitous transfer by a religious corporation
  20. 20. Donor’s Tax ▪ Imposed on the transfer of property by way of gift intervivos ▪ The tax shall not apply until there is completed gift ▪ Computation is on a cumulative basis over one calendar year Formula: 1. On the first donation Gross gifts xxx Less: Exemptions (deducitons) if applicable xxx Net taxable Gifts xxx Multipy by applicable tax rates xxx Donor’s Tax Due xxx 2. On Subsequent donations within same calendar year Gross gifts xxx Less: Exemptions (deducitons) if applicable xxx Net taxable Gifts xxx Add: All previous Net gifts during the year xxx Aggregate Net Gifts xxx Donor’s Tax on the Aggregate Net Gift xxx Less: Donor’s Tax on Previous Net Gifts xxx Donor’s Tax Due, Current xxx
  21. 21. Rates of Donor’s Tax 1. Gifts to Relatives- in general, the donor’s tax for each year shall be computed on the basis of the total net gifts made during the calendar year Net Gift Tax Plus Of the Excess Over Not Over Shall Be % Over - 100,000 exempt - - 100,000 200,000 - 2% 100,000 200,000 500,000 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 & above 1,004,000 15% 10,000,000
  22. 22. Rates of Donor’s Tax 2. Gift to Stranger- the tax payable by the donor shall be 30% of the net gift. For purposes of Taxation, a stranger is a person who is NOT a: 1. Brother, sister, (whether by whole or half blood). Spouse, ancestor and lineal descendant; or 2. Relative by consanguinity in the collateral line within the fourth degree relationship ▪ For Donor’s tax purposes, the children of the first cousin of the donor are considered strangers.
  23. 23. Rates of Donor’s Tax Illustration: May 10 Gross Gift (Antique) 100,000 Mr Santiago Baldado donated the following during 2013: Jan 5 House and lot to Francis, his legitimate son, 1,000,000 Less: Deduction - Net Taxable Gift 100,000 Add: All previous net gifts 1,290,000 Aggregate Net Gifts 1,390,000 Donor’s Tax on 1,000,000 44,000 Tax on excess (290,000 x 8%) 31,200 Donor’s Tax on the aggregate net gifts 75,200 less: Donor’s tax , previous 67,200 Donor’s tax, current 8,000 Apr 30 Gross Gift: (Cash) 50,000 less: Net Gift on Deduction- account Diminution of marriage 10,000 40,000 Multiply by Donor’s Tax Rate (Stranger) 30% Donor’s Tax on the Gift 12,000 Mar 15 Car to Maria, his legitimate daughter on 300,000 Jan 5 Gross Gift (House and Lot) 1,000,000 account of her birthday Less: Deduction- Dowry 10,000 Net Taxable Gift 990,000 Donor’s Tax on 500,000 14,000 Tax on Excess (490,000x6%) 29,400 Donor’s Tax, Current 43,400 Apr 30 Cash to Susan, his secretary, on account 50,000 Mar 15 Gross Gift (Car) 300,000 of her birthday. On condition that 10,000 shall be given to charity. Less: Deduction - Net Taxable Gift 300,000 Add: All previous net gifts 990,000 Aggregate Net Gifts 1,290,000 Donor’s Tax on 1,000,000 44,000 Tax on excess (290,000 x 8%) 23,200 Donor’s Tax on the aggregate net gifts 67,200 less: Donor’s tax , previous 43,400 Donor’s tax, current 23,800 May 10 Antique items to Tokmo, his uncle, on 100,000 account of gratitude The Donor’s Tax of Mr Baldado would be:
  24. 24. S E A T W O R K : ( 1 / 2 C W ) PROBLEM 6-19 #DO IT INDIVIDUALLY #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE
  25. 25. Problem 6–19 1. Letter C Gross gifts, as of August 15, 200A (P150,000 x 2 lots) P300,000 Less: Deductions 0 Net gifts, August 15, 200A P300,000 Donor’s tax on P200,000 P 2,000 Tax on excess (P300,000 – P200,000) x 4% 4,000 Total donor’s tax P 6,000
  26. 26. 2. Letter D Wedding gifts, as of November 15, 200A 150,000 Less: Deductions - dowry 10,000 Net gifts, November 15, 200A 140,000 Add: Previous, net gifts 300,000 Total net gifts 440,000 Donor’s tax on P200,000 2,000 Tax on excess (P440,000 – P200,000) x 4% 9,600 Total donor’s tax 11,600 Less: Donor’s tax – August 15, 200A 6,000 Donor’s tax payable – November 15, 200A 5,600
  27. 27. Tax Credits 1. Only ONE Foreign country is involved Tax Credit= Net Donations in Foreign Country x Donor’s Tax World Net Donations OR Donor’s Tax = Actual Donor’s tax paid to foreign country whichever is LOWER 2. TWO or MORE Foreign Countries Limit A: Per Foreign Country Net Donations per Foreign Country x Donor’s Tax Entire Net Donations OR Donor’s Tax = Actual Donor’s tax paid to foreign country whichever is LOWER Limit B: By Total Net Donations ALL Foreign Country x Donor’s Tax Entire Net Donations OR The Actual Donor’s Tax paid to Foreign Country, LOWER Value
  28. 28. Tax Credits Illustration: The following were donations made by Mr Galante, a Filipino, to his relative for the taxable year 2014: Donation of Property which are located in: Foreign Country A 300,000 Foreign Country B 200,000 Philippines 500,000 Total Donations 1,000,000 Foreign Donor’s Tax Foreign Country A 10,600 Foreign Country B 10,000 How much is the Tax Credit and the Donor’s Tax Due?
  29. 29. Tax Credits Illustration: Donation of Property which are located in: Foreign Country A 300,000 Foreign Country B 200,000 Philippines 500,000 Total Donations 1,000,000 Foreign Donor’s Tax Foreign Country A 10,600 Foreign Country B 10,000 Limit A: Country A= 300,000 x 44,000 = 13,200 1,000,000 vs = 10,600 10,600 Country B=200,000 x 44,000= 8,800 1,000,000 vs = 10,000 8,800 Total 19,400 Limit B: vs Total Foreign: 500,000 x 44,000 = 22,000 19,400 1,000,000
  30. 30. Tax Credits Illustration: Donation of Property which are located in: Foreign Country A 300,000 Foreign Country B 200,000 Philippines 500,000 Total Donations 1,000,000 Limit A: Country A= 300,000 x 44,000 = 13,200 1,000,000 vs = 10,600 10,600 Country B=200,000 x 44,000= 8,800 1,000,000 vs = 10,000 8,800 Total 19,400 Limit B: vs Total Foreign: 500,000 x 44,000 = 22,000 19,400 1,000,000 Tax on 1,000,000 44,000 Less: Tax Credit 19,400 Donor’s Tax Still Due 24,600
  31. 31. S E A T W O R K : ( 1 / 2 C W ) PROBLEM 6-29 #DO IT BY PAIR #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE
  32. 32. Problem 6–29 1. Letter C 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 2. Letter B Philippine donor’s tax: Relative (P500,000) P 14,000 Stranger (P5,000,000 – P500,000) x 30% 1,350,000 1,364,000 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 P1,244,000
  33. 33. Filing of Returns and Payment of Tax The return shall consist of: 1.Each gift made during the calendar year that is to be included in the computation of gift tax 2.The deductions claimed and allowable 3.Any previous net gifts made during the same calendar year 4.The name of the donee 5.Other information required by rules and regulations pursuant to the law Filing of Return- within 30 days after the gift is made - pay as you file, unless with extension not more than six months
  34. 34. Attachments to the Donor’s Tax Return 1. Sworn statement of the relationship of the donor to the donee 2. Proof of claimed tax credit, if applicable 3. Certified true copy if the Original/ Transfer/Condominium Certificate Title of the donated property, if applicable 4. Certified true copy of the latest tax declaration of lot and/or improvement, if applicable 5. Certificate of No Improvement issued by the Assessor’s Office where the donated real properties have not declared improvements, if applicable 6. Proof of valuation of shares of stock at the time of donation if applicable a) For Listed Stocks- newspaper clippings/ certificate issued by SEC as to value of the shares b) For Unlisted Stocks- latest audited Financial Statements of the issuing corporation with computation of the book value per share 7. Proof of valuation of other types of personal properties, if applicable 8. Proof of claimed deductions, if applicable 9. Proof of Tax Debit Memo used as payment , if applicable
  35. 35. Penalties 1. 25% Surcharge- shall be imposed on the following violations: a) Failure to file any return on or before the due date b) Filing a return with a person or office other than those with whom it is required to be filed c) Failure to pay the full or partial amount of tax shown on the return or the full amount of tax due for which no return is required to be filed on or before the due date d) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment No Surcharge of 25% shall be imposed if: a) The donor’s tax return is filed voluntarily b) Without notice from the BIR Commissioner c) It is shown that there was a reasonable cause for failure to file the return d) The failure to file the return was not due to wilful neglect.
  36. 36. Penalties 2. 50% Surcharge- shall be imposed on the following violations: a) Willful neglect to file thee return within the period prescribed by the Code or by rules and regulations b) The return filed is false or fraudulent 2. Interest- at the rate of 20% per annum shall be imposed on the basic unpaid amount of tax from the date prescribed for the payment until the amount is fully paid
  37. 37. S E A T W O R K : ( 1 / 2 C W ) #DO IT BY PAIR #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE

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