CDD In-house CPA Review: Taxation – by: Rex B.

Banggawan, CPA, MBA

NORTHERN CPA REVIEW
TRANSFER TAXATION REVIEW
BY: REX B. BANGGAWAN, CPA, MBA
Kinds of Transfers:
1. Unilateral transfer – governed by transfer taxes
a. Succession
b. Donation
2. Bilateral transfer (exchanges – governed by income taxation)
Classification of transfer taxpayers:
a. Citizens or residents
b. Non-resident aliens

ESTATE TAXATION
Elements of succession:
a. Decedent b. Successor c. Estate
Kinds of succession:
A. Testate b. Intestate
Situs of properties:
The following are properties considered located in the Philippines:
1. franchise exercisable in the Philippines
2. shares, obligations, or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws
3. shares, obligations, or bonds issued by any foreign corporation 85% of the business
of which is located in the Philippines
4. shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired business situs in the Philippines
5. shares or rights in any partnership, business or industry established in the
Philippines
6. any personal property, whether tangible or intangible, located in the Philippines
Taxable Transfers – transfers with insufficient considerations
1. transfer in contemplation of death as distinguished from motives associated with
life
2. revocable transfers
3. properties passing under a general power of appointment
Exempt Transfers –
1. the merger of usufruct in the owner of the naked title
2. the transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicomissary
3. the transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor
4. all bequest, devises, legacies or transfers to social welfare, cultural and charitable
institution, no part of net income of which inures to the benefit of any individual;
provided, however, that not more than 30% of the said bequest, devises, legacies
or transfers shall be used by such institutions for administration purposes
Exclusion in the gross estate of a citizen or resident alien decedent:
1. proceed of irrevocable life insurance policy payable to beneficiary other than the
estate, executor or administrator
2. proceed of GSIS policy
3. separate property of the surviving spouse
4. benefit received from GSIS
5. benefit received from SSS
Gross Estate
- The properties of the decedent that passes on to his heirs upon death
- All properties existing and owned by the decedent upon his death are included at
gross estate at fair value
Gross Estate of Married Decedent:
A. Absolute community of property
B. Conjugal partnership of gains
Deduction from gross estate

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CDD In-house CPA Review: Taxation – by: Rex B. Banggawan, CPA, MBA
1. Expenses, Losses, Indebtedness and Taxes
a. Funeral expenses
b. Judicial expenses
c. Losses due to fire, storm, shipwreck or other casualty, theft, robbery or
embezzlement
d. Claims against insolvent person
e. Claims against the estate
f. Unpaid mortgage
g. Income taxes prior to death of decedent
h. Property taxes which accrued prior to death
2. transfer for public purpose (government or any political subdivisions)
3. deductions for properties previously taxed (vanishing deductions)
Vanishin
More Not more g
than than Percenta
ge
- 1 year 100%
1 year 2 year 80%
2 year 3 year 60%
3 year 4 year 40%
4 year 5 year 20%
5 year - 0%
a. initial value = (FMV at date of transfer of property or FMV at date of death) w/e
is higher
b. initial basis = initial value – mortgage paid
c. final basis = initial basis – (initial basis/gross estate) x (ELIT + transfer for
public purpose)
d. vanishing deduction = final basis x vanishing percentage

4. family home with maximum value deductible not to exceed P1,000,000.00

5. standard deduction for citizen or resident alien decedent only of P1,000,000.00
6. retirement benefit received by employees of private firms form private pension
plan approved by the BIR under RA 4917
7. medical expenses paid or incurred within 1 year prior to decedent death duly
substantiated with receipts but not to exceed P500,000.00 for citizen or resident
alien
8. net share of the surviving spouse in the conjugal partnership property or
community property as diminished by the expenses properly chargeable to such
property shall be deducted from the estate

ESTATE TAX TABLE:

Plus x%
Over Not Over of excess
over
- P Exempt - -
200,000
P 500,000 P 5% P
200,000 0 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,00 465,000 15% 5,000,000
0
10,000,00 - 1,215,000 20% 10,000,00
0 0

Estate Tax Credit Paid to a Foreign Country

BIR Reporting and Filing Requirements:

Extrajudicial Judicial Settlement
Settlement
Written Notice of Death 2 months after death 2 months after the time the
executor or administrator
qualifies

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CDD In-house CPA Review: Taxation – by: Rex B. Banggawan, CPA, MBA
Filing of Estate Tax 6 months after death 6 months after death
Return
Payment of Tax Upon filing of the Upon filing of the return
return
Notice of Death is required only when:
a. the transfer is subject to tax
b. the gross value of the estate exceeds P20,000, even if tax exempt
Filing of an Estate Tax Return is required only when:
a. the transfer is subject to tax
b. the gross value of the estate exceeds P200,000, even if exempt from tax
c. when gross estate consists of registered or registrable property, irregardless of the
value of the gross estate – clearance from the BIR is a condition precedent to the
transfer of title to registrable property
Registrable Properties includes, but is not limited, to:
1. real property
2. motor vehicle
3. shares of stock
CPA Certification is required only when the value of the gross estate exceeds
P2,000,000.00. Such certification to include:
a. itemized asset of the decedent with valuation
b. itemized deductions
c. tax due and payable

ILLUSTRATIVE CASE:
Case A: TY, single resident citizen, died in 2006 and has left the following
properties:
Real properties located in the Philippines P
10,592,500
Real properties located abroad (Hong 14,407,500
Kong)
Tangible personal properties located in the 3,000,000
Philippines
Tangible personal properties located 4,000,000
abroad
Intangible personal properties located in 2,000,000
the Philippines

Items of possible deductions to gross estates were identified by a CPA as follows:

Funeral expenses (30% paid by friends and relatives) P
250,000
Judicial expenses 520,000
Medical expenses 600,000
Losses brought by a storm during the settlement of the
estate on properties in the Philippines 1,000,0
00
Claims from an insolvent non-resident alien, excluded in 400,000
gross estate
Mortgage payable 500,000
Income tax and real property tax accruing before death 100,000
Debt obligations, not notarized 250,000
Amounts receivable under RA 4917, not included in 450,000
gross estate
Transfers of personal properties located abroad to the
Philippine government, the property was not included 800,000
during the physical inventory of the estate
Additional Information:

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CDD In-house CPA Review: Taxation – by: Rex B. Banggawan, CPA, MBA
 The decedent was a head of the family. He has P4,000,000 house and lot from
which his dependent brothers and sisters, including his father and mother
currently lives
 In 2003, he received a donation from his uncle amounting to P500,000 cash which
he used to buy a car. The same was totally wrecked in an accident that killed TY.
Compute the net taxable estate:
Case B: KT and TV got married on December 31, 1999. TV died of tuberculosis in January 1, 2004. The
properties of the spouses were summarized by a certified accountant as follows:
Properties KT TV
1. Tangible personal properties brought into the P2,500,00 P1,400,00
marriage 0 0
2. Intangible personal properties brought into the 1,500,000 1,000,000
marriage
3. Real properties brought into the marriage 3,000,000 3,500,000
4. Personal properties acquired after marriage by 1,500,000 2,000,000
means of gratuitous title
5. Personal properties acquired through inheritance 800,000 500,000
or donation before marriage
6. Personal properties acquired through personal 3,000,000 3,500,000
hard work
7. Personal properties representing fruits of
properties acquired:
a. From properties brought into the marriage 200,000 250,000
b. From properties acquired through donation 300,000 450,000
after marriage
Possible deductions to gross estates were identified by the CPA as follows:
Medical Expenses P
450,000
Funeral Expenses 500,000
Judicial Expenses 300,000
Claims against insolvent persons, included in gross estate 350,000
Claims against TV’s separate property 1,000,000
Family home, part of the real property brought into the 1,500,000
marriage by KT
Additional Information:
a. Part of TV’s personal property which was brought into the marriage was a
jewelry of his mother inherited by him worth P500,000.
b. KT was a has a dependent by a prior marriage
Compute the taxable net estate assuming:
a. Conjugal partnership of gains
b. Absolute community of properties

Case C: On October 15, 2006, Benjamin, a Filipino citizen and a resident of Manila, died
intestate leaving his wife “Diana” and his two illegitimate children, Aubrey and Barbara.
The estate of the deceased consisted of the following:
 Real property – conjugal
 House and lot (family home) – Manila. This property has an assessed value of
P2,500,000 at the time of death but valued in the zonal valuation of the BIR for
P2,900,000.
 Personal property – conjugal
 The total value was placed at P1,600,000.
 Included in the P1,600,000 are proceeds of an irrevocable life insurance policy of
P100,000 from Phil-Am Life Insurance Company taken by Benjamin with Barbara as
the beneficiary. The premiums were paid out of conjugal property of the spouses.
The following deductions were claimed by the heirs:
a) Funeral expenses P 100,000
b) Unpaid loans, notarized 75,000
c) Losses incurred during the settlement of the estate 25,000

Compute the taxable net estate: ______________

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CDD In-house CPA Review: Taxation – by: Rex B. Banggawan, CPA, MBA
DONOR’S TAXATION

Essential Requisites of donation:

1. Capacity of the donor
2. Intention to Donate*
3. Donative Act – actual or constructive (i.e.: execution of a public instrument)
delivery
4. Acceptance by the donee
*required only in direct donation but not with indirect donation as in the case of
transfer with insufficient consideration.

Types of Donor:
A. Citizen or Resident Alien
Properties transferred regardless of location (i.e.: within or outside the Philippines)
is taxable under Donor’s Taxation.
B. Non-resident Alien
Only properties within the Philippines are subject to Donor’s Tax.

Note: Husband and wife are deemed to be separate donors with respect to donated
common properties

Which properties are considered located in the Philippines?

For purposes of Donor’s Taxation the following are situated in the Philippines:
1. franchises which must be exercised in the Philippines
2. share, obligations, or bonds issued by any corporation or sociedad anonima
organized in the Philippines in accordance with its laws
3. share, obligations, or bonds issued by any foreign corporation 85% of the business
of which is located in the Philippines
4. share, obligations, or bonds which have acquired situs in the Philippines
5. any personal property, whether tangible or intangible, located in the Philippines
Types of Donees:
1. Relatives – includes
a. brother or sister (whether half or whole blood), spouse, ancestor or lineal
descendants
b. a relative by consanguinity in the collateral line within the fourth degree of
relationship
2. Stranger – other than relatives

Mode of Execution of Donation:

A. Real or immovable property – public instrument is required
B. Personal property
a. Tangible –
i. P5,000 and below in value – oral may do
ii. More than P5,000 in value – donation and acceptance should be in writing
b. Intangible – execution public instrument

Exempt Donation under Special Laws:

1. International Rice Research
2. Ramon Magsaysay Award Foundation
3. National Health Insurance (R.A. 7875 – National Health Insurance Act of 1995)
4. National Commission on Indigenous People (R.A. 8371 – The Indigenous People
Right Act of 1997)
5. Donations in accordance with the R.A. 9003 – Ecological Solid Waste Management
Act of 2000.
6. Donations to the Pollution Adjudication Board under R.A. 8749 – The Philippine
Clean Air Act of 1999.
7. Southern Philippines Development Administration
8. Philippine American Cultural Foundation
9. Integrated Bar of the Philippines
[Link] Academy of the Philippines
[Link] Social Action Council
[Link] of Philippine Costumes
[Link]-Culture Department of SouthEast Asia Fisheries Development Center of the
Philippines
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[Link] Administration
[Link] Inventor’s Commission

Deductions from Gross Gifts:

1. Gifts made to non-profit organization, foundation or trust:
Example: educational, charitable, religious, cultural, social welfare, philanthropic
organization, research institution and accredited non-government organization.
Provided that, not more than 30% of said gifts are used by the above entities for
administrative purposes
2. Dowry exemption of P10,000
Requisites:
a. Made by parent residents to each of their legitimate, recognize natural child
or adopted children
b. Before celebration of marriage or 1 year thereafter
3. 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
4. Other deductions (mortgage or liabilities assumed on the property)

Tax Rates:
A. Gift to Relatives
Over Not Over Plus %
Excess Over
- 100,000 Exempt
100,000 200,000 0 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 - 1,004,000 15% 10,000,000

B. Gift to Strangers – 30% final tax

Note: when resident or citizen donor’s are taxed on donation abroad, they are also
entitled to claim donor’s tax credit

ILLUSTRATIVES
Case A: Zoos made several gifts to friends and relatives during 2007 as follows:
Date Recipient Amount
January 1, 2007 Monkey (brother) P150,000 in property
March 20, 2007 Baboon (first cousin) 70,000 in money
April 15, 2007 Gorilla (sister) 100,000 in money
May 10, 2007 Cat (girl friend) 300,000
June 30, 2007 Tarsier (ex-girlfriend) 50,000 as additional tips for
services
August 10, 2007 Chimpanzee P200,000 for her incoming
(daughter) marriage on December 10,
2008
Required:
1. How much donor’s tax will be paid on the March 20, 2007 donation?
a. P 800 c. P2,800
b. P1,800 d. P21,000
2. How much is the donor’s tax to be paid on April 15, 2007 donation; on May 10,
2007 donation?
a. P4,000; P0 c. P6,800; P90,000
b. P4,000; P90,000 d. P6,800; P14,400
3. The amount of donor’s tax to be paid for the August 10, 2007 donation is?
a. P6,000 c. P8,400
b. P7,800 d. P9,200
Case B: Zus and Cat got married on February 14, 2005. Zus has a dependent, Zev-Len,
by a prior marriage with Len-Len Alvarez. During the year, Zus made a dowry to for Zev-

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Len in property worth P5,000,000. Zev-Len is scheduled for a wedding within 15 months.
This property was part of those that were brought by Zus into his new marriage.
1. How much is the donor’s tax for Zeus and Cat respectively?
a. P163,200; P750,000 c. P403,000; P0
b. P164,000; P750,000 d. P404,000; P0
2. Assuming that Zev-Len is a common child by Zus and Cat and the property is a
common property, how much donor’s tax is payable by Zus and Cat respectively in
the donation?
3. Compute the donor’s tax for Zus and Cat if the property donated is a communal
property of Zus and Cat and Zev-Len is their common child.
a. P163,200; P163,200 c. P164,000; P750,000
b. P163,200; P750,000 d. P164,000; P163,200
4. What if the property donated comes from the common property of Zus and Cat to
Zev-Len, a child by a prior marriage of Zus?
a. P163,200; P163,200 c. P403,000; P0
b. P163,200; P750,000 d. P404,000; P0

Case C: Henrieta donated the following properties:

Land situated in Los Angeles, California, U.S.A. P 250,000
Land and building in Jolo, Sulu 175,000
Car registered in the State of California, U.S.A. 225,000
Jewelries in the Philippines 45,000
Shares of stock in a corporation based in U.S.A. 60,000
Accounts receivable, debtor is in the Philippines 25,000

Required:
1. If Henrieta is a resident citizen, the gross gift is –
a. P780,000 c. P245,000
b. P295,000 d. P220,000

2. The gross gift of Henrieta if she is a nonresident alien without reciprocity is –

a. P780,000 c. P245,000
b. P295,000 d. P220,000

3. The gross gift if Henrieta is a nonresident alien with reciprocity is –

a. P780,000 c. P245,000
b. P295,000 d. P220,000

Case D: A non-resident citizen has paid the following gift taxes abroad (all made to relatives):
Date of Items transferred Foreign Donor’s Tax
Donation Paid
February 3, Personal property in Japan P13,600 (in Japan)
2006 (P300,000)
March 4, 2006 Personal property in Hong Kong P11,000 (in Hong
(P200,000) Kong)
September 3, Real property in the Philippines -
2006 (P250,000)
December 1, Intangible personal property in
2006 Japan (P250,000) P9,100 (in Japan)
How much total foreign tax is creditable?
a. P0 c. P28,600
b. P31,500 d. P33,700

Case E: Mr. and Mrs. Romero gave the following donations –

4/16/2007 To Tado, brother of Mr. Romero, on account of marriage, cash worth
P300,000.
11/2/2007 Additional donation to Tado, P200,000.
1/15/2008 Property worth P400,000 to Lala, daughter.
Required:
1. The gift tax due on Mr. Romero, on April 16, 2007 is –
a. P6,000 c. P1,000
b. P800 d. Exempt
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2. The donor’s tax payable by Mr. Romero on November 2, 2007 is –

a. P3,000 c. Exempt
b. P4,000 d. P3,200

3. The gift tax payable by Mr. Romero on January 15, 2008 is –

a. P2,000 c. P1,000
b. P10,000 d. None

4. The donor’s tax due on Mrs. Romero on November 2 is –

a. P3,000 c. P30,000
b. Exempt d. P27,000

“Opportunities are disguised as hard work so most people do not recognize

them.”
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