Tax 302 – Business and Transfer Tax

Prepared by: Mark Paul I. Ramos, CPA, MBA

MODULE 8
Donor’s Tax

INTRODUCTION
This module discusses the concept of donation and donor’s tax. It will also tackle the
concepts on gross gifts, deductions/exemptions from gross gift and computation of the donor’s tax.
The last part of the module will discuss the administrative requirements pertaining to donor’s tax.

INTENDED LEARNING OUTCOMES

ILO 1 – Understanding the concepts of donation, gross gift, deductions/exemptions from gross gift
ILO 2 – Application of principles in the computation of donor’s tax
ILO 3 – Use of principles for filing and payment of donor’s tax

DONATION
Donation is an act of liberality whereby a person disposes gratuitously of a thing
or right in favor of another, who accepts it (Art. 725 of the Civil Code). 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 as a
suppletory law (Art. 732 CC).

NATURE OF DONOR'S TAX

A donor's tax (or gift tax) is a tax levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property by gift.

It is a tax imposed on the of the donor's right during exercise lifetime to transfer
property to others in the form of gift. Hence, donor's tax is not a property tax but an excise
tax imposed on the transfer of property by way of gift inter-vivos (RR 12-2018).

Donor's tax is a direct tax because the tax is imposed on the donor and
determined with reference to all the donor's gifts. Donor's tax applies to both natural and
juridical persons.

The term "transfer of property in trust or otherwise, direct or indirect" is used by

the law in the most comprehensive sense. It includes not only the transfer of ownership
in the fullest sense but also the transfer of any right or interest in property, but less than
the title. A transfer becomes complete and taxable only when the donor has divested
himself of all beneficiary interest in the property transferred and has no power to revest
any such interest in himself or his estate.

PURPOSE OF DONOR'S TAX

1. To prevent avoidance of estate tax. The donor's tax supplements the estate tax by
preventing the avoidance of the latter through the device of donating the property
during the lifetime of the deceased.
2. To prevent or compensate for the loss of the progressive rates of income ax when
large estates are split up by gifts to numerous donees.

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Requisites of a valid donation

For purposes of donor’s tax, the requisites of a donation are:
1. Capacity of the donor
It refers to the condition and legal competence of the donor to enter into a
contract (since "donation" is a contract). Under Article 735 of the civil code,
all persons who may contract and dispose of their property may make a
donation. Therefore, it is not enough that a person be capacitated to contract,
he must also have the capacity to dispose. Capacity of the donor is
determined at the perfection of the donation.

2. Donative intent or intent to make a gift on the part of the donor

Donative intent refers to the proper declaration of the legal owner of a property
or right to transfer ownership to another without consideration (payment).
Such intent followed by a donative act is essential to constitute a gift, and no
strained and artificial construction of a supplementary statute should be
included to tax as gift a transfer actually lacking of donative intent.

If a gift is indirect, taking place by way of sale, exchange, or other transfer of

property (transfer for inadequate consideration). donative intent is not
necessary (Section 100 NIRC). The intention to donate is known by observing
the forms required by law to make it valid.

3. Delivery of the subject matter of the gift

Donor's tax applies to a completed gift. It is completed by the law in force at
the time of the perfection or completion of the donation shall govern the
imposition of donor's tax, based on the fair market value (FMV) of the property.

INCOMPLETE GIFT
A gift that is incomplete because of reserved powers becomes complete when
either:
• Donor renounces the power; or
• The donor's right to exercise the power ceases because of the
happening of some event or contingency or the fulfillment of some
condition, other than the death of the donor.

4. Acceptance of gift by the donee

Donation is perfected not from the time of acceptance but from the time of
knowledge of the donor that the donee has accepted the same. This is
because the tax law consider donation not merely as an act of gratuitously
transferring property or right but as a "contract". Hence, there should be
"meeting of the minds" between the donor and the donee before the "donation
(contract)" is perfected. As such, delivery and acceptance is required to
consummate donation.

Article 734 of the Civil Code (CC)

The transfer is perfected from the moment the donor knows of
the acceptance by the donee.

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Acceptance must be made during the lifetime of the donor and of the donee
[Art. 746 (CC)]. Donations made to conceived and unborn children may be
accepted by those persons who would legally represent them if they were
already born (Art. 742 CC).

Completion and Perfection of Donation

The donor's tax shall not apply unless and until there is a completed gift (RR 12-
2018). The transfer of property by gift is perfected from the moment the donor knows of
the acceptance by the donee. On the other hand, it is completed by the delivery (either
actually or constructively) of the donated property to the donee.

The Law that Governs the Imposition of Donor’s Tax

The law in force at the time of the perfection/completion of the donation shall
govern the imposition of donor’s tax (Sec 12, RR 11-2018).

Formalities of a donation
The formalities required in a donation will depend on whether the property is
movable or immovable, thus if it is:
1. Movable – the donation may be made orally or in writing
An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated. If the value of the personal property
donated exceeds P5,000, the donation and acceptance shall be made in writing.
Otherwise, the donation shall be void.

2. Immovable – in order that the donation of an immovable may be valid, it must be

made in a public document, specifying therein the property donated and the value
of the charges which the donee must satisfy.

Acceptance of immovable property

To be valid, immovable property may be accepted: or
• In the same deed of donation;
• In a separate public document. The donor shall be notified thereof in
an authentic form, and this step shall be noted in both instruments.

Characteristics of Donor's Tax

1. Donor's tax is an "excise tax", not a property tax. It is a tax imposed on the "right"
or "privilege" to transfer property by way of gift inter- vivos
2. Donor's tax, being a "contract", does not apply unless and until there is a
completed gift.
3. The transfer is perfected from the moment the donor knows of the acceptance of
the donee.
4. Donor's tax is a direct tax because the tax is imposed on the donor and
determined with reference to all the donor's gifts.

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Classification of Donation
As to motive or purpose:
1. Simple. The cause is pure liberality.
2. Renumeratory. Donations made due to past services rendered or future services
or charges and burdens. Consequently, renumeratory donations are not really
donations in substance. The cause is not gratuitous, hence, not subject to donor's
tax.
3. Modal - consideration is less than the value of the thing donated.

As to time of taking effect (Perfection).

1. Donation inter-vivos. A donation which takes effect during the lifetime of the
donor and the donee.
2. Donation mortis-causa. A donation which takes effect upon death of the donor

Void Donations
Under Art. 739 of the new civil code, the following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at
the time of the donation.
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof
3. Those made to a public officer or his wife, descendants and ascendants, by
reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee and the guilt of the donor and donee may be proved
by preponderance of evidence in the same action.

Transfers subject to the gift tax

The gift tax is, and is intended to be, comprehensive. While limited to transfers of
property (no tax is payable on donated services), anything of value may be the subject of
taxable transfer. The tax applies to cash gifts and to those in the form of realty or tangible
or intangible personal property. Nor need gifts be made directly, one’s payment of one’s
child mortgage or interest on the mortgage is a gift to the child. Beyond this, any
discernible gratuitous shifting of financial advantage from one to another may constitute
a gift.

That is why, everyday classes of property such as a house, a car, jewelry, furniture,
books, cash, and intangibles such as stocks, bonds, patents, patent applications, and
real estate are all property that may be the subject of a taxable transfer.

But of course the scope of the term “property” is much broader. Partial interests
in property are also “property”. Thus, an income interest in a trust, a right to share in
future rental payments, and an option to purchase property and all interests in property
that can be the subject of a gift, notwithstanding possible difficulties of valuation are
included in the term property.

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Whenever property, or property rights or interests are gratuitously passed to or

conferred on another, the gift tax will apply to such transfers regardless of the means or
devices employed or the form of the transaction.

Dominion and control

A timing question arise with respect to gifts that take the form of something less
than an outright transfer. The key to answering the question of when a gift is made is the
determination whether the donor has relinquished dominion and control over the
property or property interest transferred.

For example, a transfer of property to another may constitute a gift.

However, if the donor retains a right to revoke it, the donor has not relinquished
control over the property and no gift has yet occurred.

If the donor should later relinquish the right to revoke, the transfer would then be
complete for gift tax purposes.

This suggests two related thought: first, the time at which the gift becomes
complete determines when it must be reported, and gift tax be paid. Second, valuation
of the gift is to be made at the time the gift becomes complete.

A gift that is incomplete because of reserve powers, becomes complete when

either (1) the donor renounces the power; or (2) his right to exercise the reserve power
ceases because of the happening of some event or contingency or the fulfillment of some
condition, other than because of the donor’s death.

Thus, if in 2015, Arbaja donated 100 shares of BMW Resources stock to Bagana,
and then in 2018 relinquished the power of revocation, the gift tax liability on the transfer
would be measured not by the lower value of the stock when it was donated, but by its
greater value when the gift became complete.

Gifts in trusts
Gift tax shall apply 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.

A trust is an arrangement created by will or an agreement under which title to

property is passed to another for conservation or investment with the income therefrom
and ultimately the principal to be distributed in accordance with the directions of the
creator as expressed in the governing instrument.

A gift in trust is a gift to the beneficiary of the trust and not to the trustee. A taxable
transfer includes not only the transfer of ownership in the fullest sense but also the
transfer of any right or interest in property, but less than title.

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Forgiveness of indebtedness
If the creditor condones the indebtedness of the debtor, the following rules shall
apply:
a. On account of debtor’s services to the creditor, the same is taxable
income to the debtor
b. If no services were rendered but the creditor simply condones the debt, it
is taxable gift not taxable income

ILLUSTRATION
Alonzo, an architect, owes Zulueta a businessman, P30,000. The latter engaged the services of the former
to remodel his house. The value of the services rendered amounted to P30,000. Accordingly, Zulueta
cancelled the debt of Alonzo.

a. Is the P30,000 value of services taxable?

- Yes, it is a simple case of indebtedness to Zulueta. Consequently, the P30,000 is taxable to
Alonzo as an income.

b. Suppose Zulueta condoned the debt of Alonzo without requiring the latter to render any service. Is
the P30,000 subject to income tax?
- The case is a matter of condonation which is purely based on the liberality of the benefactor.
Thus, it is considered as a gift which is governed by the law on donor’s taxation.

Constitutional provision on donation

Subject to conditions prescribed by law, all grants, endowments, donations, or
contributions used actually, directly, and exclusively for educational purposes shall be
exempt from tax.

This provision is not self-executory. That is why, there is still a need for an
enactment of a law by the Congress to make this effective.

It should be noted, however, that donations in favor of educational institutions

which are declared as non-profit are expressly exempt from the payment of donor’s tax,
provided that not more than 30% of said gifts shall be used by such donee for
administration purposes.

Renunciation of inheritance
A renunciation of inheritance in favor of a co-heir is not a donation for the purpose
of taxation, even if the renouncing heir says “I donate to my co-heir my share”.

The reason is that the effects of the repudiation or renunciation shall always
retroact to the moment of the death of the decedent. Therefore, the renounced share
accrues to the other heirs, so that any word to that effect, by the heir is a mere
surplusage.

On the other hand, if a renunciation is made in favor of another person not a co-
heir, there is a donation.

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In other words, if the effects of the donation are the same as what the law on
succession would provide, then there is no donation. But if the effect is to change the
distribution of the estate, then there is a donation.

A renunciation by the surviving spouse of his or 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 subject to donor’s tax.

General renunciation by an heir, including the surviving spouse, of his or her share
in the hereditary estate left by the decedent is not subject to donor’s tax, unless
specifically and categorically done in favor of identified heir(s) to the exclusion or
disadvantage of the other co-heirs in the hereditary estate.

Donation of a life insurance

When a person gets a life insurance and name a third person as his beneficiary,
and then the insurance becomes payable by death of the insured, there is a donation in
favor of the beneficiary, not in the sum received by the heir from the insurer, but in total
amount of premiums that have been paid by the insured.

1. the insured purchases a policy all the benefits of which are payable to
beneficiaries other than the insured’s estate and the insured retains no
power to change the beneficiaries or other proportionate benefits, or to
revest the economic benefits in himself or his estate and no reversionary
interest in himself or his estate
2. the insured relinquishes his assignment, by designation of a new
beneficiary, or otherwise, every power retained by him in a previously
issued policy

In this case, an additional gift results everytime a premium is paid by the insured.

Contribution for election campaign

Any contribution in cash or in kind to any candidate, political party or coalition of
parties for campaign purposes shall be governed by the Election Code, as amended.

Remuneratory donations
Remuneratory donations are those which remunerate past services which do not
constitute demandable debts. These donations are not in consideration of liberality, but
of services performed such as donations made to one who saved the donor’s life, or to
an accountant who renounces his fees for services rendered to the donor.

Since the motivating cause in remunerative donation is gratitude,

acknowledgment of favor, or desire to compensate, and not the liberality of the donor,
they are not subject to gift tax. Instead, they are income subject to income tax.

Donation of property between spouses

Every donation or grant of gratuitous advantage, direct or indirect, between the
spouses during the marriage shall be void, except moderate gifts which the spouses may

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give each other on the occasion of any family rejoicing. The prohibition shall also apply
to persons living together as husband and wife without a valid marriage.

Therefore, donation of this kind are not subject to donor’s tax.

Splitting of gift
Splitting of gift is a tax minimization scheme which is done by spreading the gift
over numerous calendar years to avail of lower tax liability.

The gift-splitting scheme is a legally permissible means to reduce or escape

totally from a possible tax liability. It is not therefore, illegal.

Other than the exemption of P250,000 of net gift per year, this scheme may no
longer be advisable on donations made effective 2018 because under the TRAIN Law
donor’s tax is now a proportional tax with a fixed rate of 6%.

It is no longer a progressive tax.

GROSS GIFT
The term gross gift includes real and personal property, whether tangible or
intangible, or mixed, wherever situated.

Composition of gross gift

The composition of gross gift will depend on the citizenship and/or residence of
the donor. If resident or citizen, he is taxable on properties situated within and without
the Philippines. However, if the donor is a non-resident alien, he shall be subject to tax
on properties donated which are located within the Philippines only.

Thus, if the donor is a citizen or resident alien, the gross gift may be composed of:
1. real property, within or without the Philippines
2. tangible personal property, within or without the Philippines
3. intangible personal property, within or without the Philippines

In case of a non-resident alien, the gross gift maybe composed of the following:
1. real property, within the Philippines
2. tangible personal property, within the Philippines
3. intangible personal property, within the Philippines, unless there is reciprocity
in which case it is not taxable

Nonresident
Classification of Resident or alien (no Nonresident alien
property citizen reciprocity) (with reciprocity)
Real property
Within Yes Yes Yes
Without Yes No No

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Personal property
Tangible within Yes Yes Yes
Tangible without Yes No No
Intangible within Yes Yes No
Intangible Yes No No
without

Rule on reciprocity
The rule on reciprocity applies if the following requisites are present:
1. the donor is a nonresident alien
2. the properties are intangible which are situated in the Philippines

No donor’s tax shall be collected in respect of intangible personal property in the

following instances:
1. if the donor at the time of donation was a citizen and resident of a foreign
country which at the time of the donation did not impose a transfer tax on
intangible personal property of the citizens of the Philippines not residing
in that foreign country
2. if the law of the foreign country of which the donor was a citizen and
resident at the time of the donation allows a similar exemption from
transfer taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that
foreign country

Intangible personal property

The following intangible personal properties are considered within the
Philippines:
1. Franchise which must be exercised within 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. Share, 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 a business situs in the Philippines
5. Shares or rights in any partnership, business or industry established in the
Philippines.

Valuation of gifts made in property

The valuation of the property donated shall be made at the time of gift which is the
time of the terminating event.

If the gift is made in property, the FMV thereof at the time of the gift shall be
considered the amount of the gift.

In case of real property, the value is whichever is higher between the FMV as
determined by the Commissioner of Internal Revenue (zonal value) or FMV as shown in
the schedule of values fixed by the Provincial and City Assessors (assessor’s value).

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Fair market value is defined as the price at which any seller will sell and any buyer
will buy, both willingly without any force or intimidation.

In the case of stocks, bonds or other securities, the following rules shall apply:
1. If listed and traded in the stock exchange, the FMV shall be the mean between
the highest and lowest quoted selling prices of the securities on the valuation
date.
2. If not listed and traded in the stock exchange, the FMV shall depend on
whether the stocks are preferred or common.

If the stocks are common, the market value shall be the book value of the security
on the date nearest the valuation date.

If the stocks are preferred, the FMV shall be the par value of the security.

Donation of conjugal or community property

Neither spouse may donate any conjugal or community property without the
consent of the other. However, either spouse may, without the consent of the other,
make moderate donations from the conjugal/community property from charity or on
occasion of family rejoicing or distress.

If the property donated is a conjugal or community property and only the husband
signed the deed of donation, there is only one donor for donor’s tax purposes, without
prejudice to the right of the wife to question the validity of the donation without her
consent, pursuant of the Civil Code of the Philippines and the Family Code of the
Philippines.

Husband and wife are considered as distinct taxpayers for donor’s tax purposes.
Thus, in case a gift is made by the spouses out of conjugal or community property, each
of them is a donor out of the respective share in the property.

ILLUSTRATION
Mr. and Mrs. Asiwa donated the following properties to their son, Wasoy:
Land in Baguio City (community) 250,000
Personal car (exclusive of husband) 120,000
Jewelry (paraphernal of wife) 80,000

The gross gift of each spouse is computed as follows:

Mr. Asiwa Mrs. Asiwa

Land in Baguio City (250,000 x ½) 125,000 125,000
Personal car 120,000 -
Jewelry - 80,000
Gross gift 245,000 205,000

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EXEMPTIONS/DEDUCTIONS FROM GROSS GIFT

Exemptions are donations or gifts which are not taxable because exempted by
law, Constitution or treaty.

Those exempted under the law are either exempt under the Code or under special
laws.

Exemptions are diminutions from gross gift for purposes of computing the net gift.

“Net gift” shall mean economic benefits from the transfer that accrues to the
donee. It is computed by subtracting the allowable deductions from the gross gift.

Deductions from gross gift

Deductible items encompass administration expenses, unpaid mortgages and
indebtedness with respect to the property, claims against the property, and accrued
expenses at termination which are assumed by the donee.

The taxable amount of a taxable distribution is the value of the property received
by the transferee reduced by any consideration provided by the transferee in accordance
with the desire of the donor, or with the agreement between him and the donee that will
result to the actual amount of benefit received by the transferee.

Thus, the following are deductible from the donor’s gross gift:
1. Mortgage or other encumbrances on the property donated which was
assumed by the donee
▪ Alipusta donated to Bayani a parcel of land worth P2,000,000 located
in Antipolo City. At the time of the donation, the property was
mortgaged to a bank for P400,000. If Bayani will assume the mortgage
indebtedness on the land, then said amount shall be deducted from
the gross gift. In that case, only P1,600,000 shall be the net gift.

2. Amount specifically provided by the donor as diminution on the property

donated
▪ Altura gave cash of P600,000 to Barracuda as a birthday gift. There is
a condition, however, that the donee shall pay Altura’s debt with
Cabredo in the amount of P65,000 which Barracuda agreed.
▪ In this case, the payment made by Barracuda to Cabredo has
diminished the economic benefit which Barracuda received from the
donor. Hence, the amount of P65,000 shall be deducted from the
gross gift.

Exempt donations under the Code

1. Donations to the government
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.

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For purposes of the exemption, it is necessary that a government entity

must be a nonprofit functionary. A governmental agency that is exercising
propriety function and subject to income tax is not a nonprofit office within the
contemplation of tax exemption.
The term “political subdivision” refers to a barangay, municipality, city,
and province. Gifts given to these municipal corporations are tax exempt if the
property donated is exclusively used for public purpose.
The exemptions (including donations falling under Number 2 below) are
allowed as deductions whether they are resident citizens, nonresident citizens,
resident aliens, or nonresident aliens.

2. Donations to nonstock and nonprofit institutions

Gifts in favor of nonprofit educational and/or charitable, religious, cultural, or
social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research institution or
organization.

Provided, however, that not more than 30% of said gifts shall be used by
such donee for administration purposes.
For purposes of this exemption, a nonprofit institution is one which is:
a. Organized as a nonstock entity
b. Paying no dividends
c. Governed by trustees who receive no compensation
d. Devoting all its income, whether student’s fees or gifts, donations,
subsidies or other forms of philanthropy, to accomplishment and
promotion of the purpose enumerated in its Articles of Incorporation.

It is important that donations must be given to nonprofit institutions

because direct gratuities to poor or otherwise worthy individuals, no matter how
much they may be inspired by charitable impulses, give rise to no deduction.
In general, the exemption is measured by the amount of money given or,
for gifts of property other than cash, by the FMV of the property given.

ILLUSTRATION
Oslie, an American residing in Seattle, USA made the following donations:

To his daughter, Jucille who is getting married on June 12 300,000

Parcel of land to Barangay Tomatarayo, Balatan, Camarines Sur, for
use as site of the barangay hall, barangay health center, day care
center and barangay plaza 400,000
Cash given to Hospicio de San Jose, a charitable institution 100,000

The net gift will be computed as follows:

To Jucille 300,000
Barangay Tomatarayo 400,000
Hospicio de San Jose 100,000
Total Gifts 800,000
Less: exemptions
Barangay Tomatarayo 400,000
Hospicio de San Jose 100,000 500,000
Net gift 300,000

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3. Exempt gift of P250,000 annually

This exemption is fixed at P250,000 for every one calendar year.

Accreditation of corporations, associations or NGOs

The Philippine Council for the Non-Government Organization (NGO) Certification
(PCNC) shall be the authorized accrediting agency to determine the qualifications of
domestic corporations or associations or NGOs organized and operated exclusively for
religious, charitable, scientific, youth and sports development, cultural or educational
purposes, or for rehabilitation of veterans, or to NGOs for accreditation as donee
institutions.

No corporations, associations or NGOs, however, shall be processed for

accreditation by the PCNC unless it has secured a valid registration with the government
agency that exercises regulatory function over such corporation, association or NGO.

The following departments are hereby designated Accrediting Entities to

determine the qualification of nonstock, nonprofit corporations, non-governmental
organizations, associations, and foundations for accreditation as qualified donee
institution, to wit:
a. DSWD for charitable and/or social welfare organizations, foundations, ad
associations including but not limited to those engaged in youth, child,
women, family, disabled persons, older persons, welfare and
development
b. DOST for organizations, associations and foundations primarily engaged
in research and other scientific activities
c. Philippine Sports Commission (PSC) for organizations, foundations, and
associations primarily engaged in sports development
d. National Council for Culture and Arts (NCAA) for organizations,
foundations and associations primarily engaged in cultural activities
e. Commission on Higher Education (CHED for organizations, foundations
and associations primarily engaged in educational activities

Donations of a co-owned property

As previously stated, a gift made by the spouses of conjugal property shall be
deemed separate donations by the husband and wife in proportion to their respective
interests. In other words, there will be two donations made and two separate
computations of donor’s taxes. However, unless the wife expressly joins in making the
donation of conjugal property, it shall be deemed to have been made by the husband
alone.

ILLUSTRATION
On January 5, 2020, Pepe and Pilar, husband and wife, donated a community property worth
P800,000 to their son, Felipe on account of marriage. On February 14, the spouses donated a house and
lot worth P3,000,000 to their son, Bantay. The property is mortgaged at P300,000 which was assumed by
the donee. Compute the taxable net gifts and taxes payable on Pepe and Pilar.

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ANSWERS
Pepe Pilar
Donation to Felipe:
Gross gift (800,000 x ½) 400,000 400,000
Less: exemption/deduction - -
Net gift 400,000 400,000
Less: exempt gift 250,000 250,000
Taxable gift 150,000 150,000
Rate of tax 6% 6%
Tax due and payable 9,000 9,000

Pepe Pilar
Donation to Bantay:
Gross gift (3,000,000 x ½) 1,500,000 1,500,000
Less: exemption/deduction (300,000/2) 150,000 150,000
Net gift 1,350,000 1,350,000
Add: Net gift, January 5 400,000 400,000
Total net gift 1,750,000 1,750,000
Less: exempt gift: 250,000 250,000
Taxable gift 1,500,000 1,500,000
Rate of tax 6% 6%
Tax due on total gifts 90,000 90,000
Less: Tax paid on January 5 donations 9,000 9,000
Tax payable 81,000 81,000

Prizes and awards given to athletes

Donations given in the form of prizes and awards are given to athletes in
international sports tournament and competitions, held in the Philippines or abroad, and
sanctioned by their national sports associations are exempt from the payment of donor’s
tax.

Other tax exempt gifts (under special laws)

a. Donations to Rural Farm School (RA 10618)
b. Donations to People’s Television Network Inc (RA 10390)
c. Donations to People’s Survival Fund (RA 10174)
d. Donations to Aurora Pacific Economic Zone and Freeport Authority (RA
1008)
e. Donations to Girl Scouts of the Philippines (RA 10073)
f. Donations to Philippine Red Cross (RA 10072)
g. Donations to Tubbataha Reefs Natural Park (RA 10067)
h. Donations to Philippine Normal University (RA 9647)
i. Donations to University of the Philippines (RA 9500)
j. Donations to National Water Quality Management Fund (RA 9275)
k. Donations to Aquaculture Department of the Southeast Asian Fisheries
Development Center of the Philippines (PD 292)
l. Donations to international Rice Research Institute (RA 1620)
m. Donations to the Philippine Inventor’s Commission (RA 3850)
n. Donations to the Integrated Bar of the Philippines (PD 181)

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o. Donations to the Development Academy of the Philippines (PD 205)

p. Donations to the Philippine-American Cultural Foundation (RA 3062)
q. Donations to the Ramon Magsaysay Award Foundation (RA 3676)
r. Donations to the Philippine Health Insurance Corporation
s. Donations to the Intramuros Administration (PD 1616)
t. Donations to the Southern Philippines Development Administration
u. Donations to the National Museum, Library, and the archives of the
National Historical Institute (PD 373)
v. Donations to the National Commission on Culture and Arts (NCAA)
w. Donations to the Task Force on Human Settlement on the donation of
equipment, materials and services (EO 419)
x. Donations of Imported Articles under the Bayanihan to Heal as One Act (RA
11469)

COMPUTATION OF DONOR’S TAX

Cumulative system of computation

For purposes of gift tax, the computation of the base is cumulative, ie. to arrive at
the taxable base, all the gifts previously made in the same calendar year must be added
to the present gift. However, the gift taxes paid on the previous donations are allowed as
tax credits on the tax due.

Thus, the formulas in computing donor’s tax are as follows:

a. First donation during the year: b. Succeeding donations/s during the year:
Gross gift Xxx Gross gift Xxx
Less: Xxx Less: Xxx
exemption/deduction exemption/deduction
Net gift Xxx Net gift Xxx
Less: exempt gift 250,000 Add: Prior net gift(s) during Xxx
Taxable gift Xxx the calendar year
Rate of tax 6% Total net gifts Xxx
Tax due Xxx Less: exempt gift 250,000
Less: Tax credits Taxable gift Xxx
Foreign donor’s tax Xxx Rate of tax 6%
paid
Tax due Xxx
Tax paid in previously
paid return (if this is an Less: Tax credits
amended return) Xxx Xxx Payments for prior gifts Xxx
Tax payable xxx during the year
Foreign donor’s tax Xxx
paid
Tax paid in previously
paid return (if this is an
amended return) Xxx Xxx
Tax payable Xxx

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Donor’s tax rate

The tax for each calendar year shall be computed on the basis of the total net gifts
made during the calendar year at a tax rate of 6% after deducting the exemption of
P250,000 (every calendar year) from the net gift.

Transfers for less than adequate and full consideration

Where property, other than real property (capital assets), is transferred for less
than adequate and full consideration in money or money’s worth, then the amount by
which the FMV of the property at the time of the execution of the contract exceeded the
value of the agreed or actual consideration or selling price shall be deemed a gift, and
shall be included in computing the amounts of gifts made during the calendar year.

However, a sale, exchange, or other transfer of property made in the ordinary

course of business (a transaction which is bona fide, at arm’s length, and free from any
donative intent) will be considered as made for an adequate and full consideration in
money or money’s worth.

The rule applies on transfer of any property for insufficient consideration, except
transfers of real properties which are classified as capital assets.

The reason is that their sales or transfers of real property capital assets are
already subject to 6% capital gains tax based on the FMV or gross selling price, whichever
is higher.

Moreover, transfers for insufficient consideration are subject to donor’s tax if they
are made bona fide. If the transfers are in contemplation of death, revocable or under
general power of appointment, they are subject to estate tax.

Donative intent is necessary only in cases of direct gift. if the gift is indirectly taking
place by way of sale, exchange or other transfer of property as contemplated in Section
100, donative intent is not necessary. Therefore, in transfers for insufficient
consideration, intent is not necessary to constitute a donation.

Tax credit for donor’s taxes paid to a foreign country

Tax credit for donor’s taxes paid to a foreign country has the same application as
the estate taxes paid to a foreign country.

The limitations imposed on tax credits are expressed in the following formulas:

Formula 1: Single foreign country

Net gift in foreign country Philippine Tax
X =
Entire net gift donor’s tax Credit

Formula 2: Multiple foreign country (whichever is lower is the tax credit)

Net gift per foreign countries
Philippine gift
X
tax
Entire net gift

OR

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 Tax 302 – Business and Transfer Tax
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Net gift all foreign countries Philippine gift

X
Entire net gift tax

ILLUSTRATION
Alalay made the following donations during the year:
March 5 To Bagalay, legitimate child on account of marriage, bank deposit with Banco de
Oro worth P600,000

To Calalay, adopted son, car in Canada worth P400,000. Donor’s tax paid in
Canada is P20,000

August 3 To Dalalay, nephew in Manila, property worth P250,000

Compute the donor’s taxes due after tax credit.

Answers

Donor – Alalay
Donation – March 5

To Bagalay (Philippines) 600,000

To Calalay (Canada) 400,000
Net gift 1,000,000
Less: exempt gift 250,000
Taxable gift 750,000
Rate of tax 6%
Tax due 45,000
Less: Tax credits
Tax paid, Canada 20,000
Limit (400k/1M x 45,000) 18,000
Allowed 18,000
Tax payable 27,000

Donation – August 3

Gift to Dalalay 250,000

Net gift March 5 1,000,000
Total net gift 1,250,000
Less: exempt gift 250,000
Taxable gift 1,000,000
Rate of tax 6%
Tax due 60,000
Less: Tax credits
Tax paid, March 5 27,000
Tax paid, Canada 20,000
Limit (400k/1.25M x 60,000) 19,200
Allowed 19,200
Tax payable 13,800

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FILING OF RETURN AND PAYMENT OF GIFT TAX

Requirements
Any individual who makes any further transfer by gift shall, for the purpose of said
tax, make a return (BIR Form 1800) under oath in duplicate. The return shall set forth:
1. Each gift made during the calendar year which is to be included in
computing net gifts
2. The deductions claimed and allowable
3. Any previous net gifts made during the same calendar year
4. The name of the donee, and
5. Such further information as may be required by rules and regulations made
pursuant to law.

Time and place of filing and payment

1. Time of filing and payment
The return shall be filed within 30 days after the date the gift is made and the
tax due thereon shall be paid at the time of filing.

2. Place of filing and payment

Except in cases where the Commissioner otherwise permits, the return shall
be filed and the tax paid to an authorized bank, the Revenue District Officer,
Revenue Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the transfer, or if
there be no legal residence in the Philippines, with the Office of the
Commissioner.

In the case of gifts made by a nonresident, the return may be filed with the
Philippine Embassy or Consulate in the country where he is domiciled at the
time of the transfer, or directly with the Office of the Commissioner.

Documentary requirements
The following requirements must be submitted upon field of office audit of the tax
case before the Tax Clearance Certificate/Certificate of Authorizing Registration can be
released:
1. Duly notarized Original Deed of Donation
2. TIN of Donor and Donee
3. Proof of claimed tax credit, if applicable
4. Duly notarized original Special Power of Attorney (SPA) for the transacting
party if the person signing is not one of the parties to the Deed of Donation
5. Validated return and Original Official Receipt/Deposit Slip as proof of
payment; for no payment return, copy of the Acknowledgment Receipt of
return filed thru eBIRforms.

For real properties – additional 2 copies of each document

6. Certified true copy/ies of the Original/Transfer/Condominium Certificate
of Title of the donated property, if applicable

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7. Certified true copy/ies of the Tax Declaration at the time or nearest to the
date of the transaction issued by the Local Assessor’s Office for land and
improvement, if applicable
8. “Certificate of No Improvement” issued by the Assessor’s Office, if
applicable

For personal properties, if any – additional 2 copies of each document

9. Proof of valuation of shares of stocks at the time of the donation, if
applicable
a. For shares of stock listed/traded – value at the time of donation or
closing rate nearest to the date of donation
b. For shares of stock not listed/not traded – Audited Financial
Statement of issuing corporation nearest to the date of donation
with computation of book value per share
c. For club shares – transaction value on the date of donation as
published in the newspaper

10. Proof of valuation of other types of personal properties, if applicable

11. Certificate of deposit/investment/indebtedness/stocks for donated cash
or securities
12. Certificate of registration of motor vehicle, if any

Other additional requirements, if applicable

Additional 2 copies of the following documents:
1. Duly notarized original Special Power of Attorney (SPA), if the person
transacting/processing the transfer is not a party to the transaction
2. Certification from the Philippine Consulate if document is executed
abroad
3. Location Plan/Vicinity map, if zonal value cannot be readily determined
from the documents submitted
4. Certificate of Exemption/BIR ruling issued by the Commissioner of Internal
Revenue or his authorized representative, if tax exempt
5. Such other documents as may be required by law/rulings/regulations, etc.

Civil penalties
In addition to the tax required to be paid, the following penalties shall be imposed:
1. 25% surcharge in case of failure to:
a. File the return and pay the tax or installment due on or before the
due date
b. File a return with a person or office other than those with whom it is
required to be filed, unless authorized by the Commissioner
c. Pay on time the full or part of the 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. Pay the deficiency tax within the time prescribed for its payment in
the notice of assessment

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2. 50% penalty in case of

a. Willful neglect to file the return in time
b. False or fraudulent return is willfully filed

3. Interest of 12% from the due date until paid. In no case shall the deficiency
and delinquency interest under Section 249 (B and C) of the NIRC, as
amended, be imposed simultaneously.

4. Compromise penalty as provided under applicable rules and regulations.

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MODULE EXERCISES
True or False
1. Donor's tax shall apply, whether the gift is direct or indirect, and whether the property is
real or personal, tangible or intangible, even if the transfer is merely in trust
2. Any person making a donation, unless the donation is specifically exempt under the Tax
Code or other special laws, is required, for every donation, to accomplish under oath a
donor's tax return.
3. Donation is a transfer of property for a consideration other than money.
4. As a rule, all persons who may contract to dispose of their property may donate.
5. Donor's tax is imposed to all natural and artificial persons.
6. The gross gifts of citizen or resident donor will include all properties donated, regardless
of location.
7. Minors can be a donor or a donee
8. Under the TRAIN law. the 6% donor's tax rate shall apply regardless of the relationship of
the donor and the donee (relative or stranger).
9. Donation inter-vivos is subject to estate tax while donation mortis causa is subject to
donor's tax.
10. Donor's tax is a liability of the donee.
11. A donation on which the donor's tax is not paid is a valid donation.
12. Any contribution in cash or in kind to a candidate, political party or coalition of parties for
campaign purposes shall be subject to donor's tax.
13. Donation on account of marriage is not taxable if the marriage did not actually take place
14. Agreement between the donor and the donee that the latter shall pay the donor's tax is
binding on the BIR.
15. In donor's tax, the exemption is P250,000 while in estate tax, the exemption is P100,000.
16. The donor's tax return is filed within thirty (30) days from the date of completion of the
donation
17. Donation of a personal property worth P5,000 must be in writing.
18. Donation of real property worth P3,000 need not be in writing.
19. Contracts of donation between husband and wife are void in all cases.
20. Donation to a senator in view of his public office is void in all cases
21. Donations between persons guilty of adultery or concubinage are void.
22. Donations to conceived or unborn children are valid.
23. A donation can be both part of the gross gift of the donor and a taxable income to the
donee.
24. A donation may be exempt from donor's tax but not necessarily a deduction from the
donor's gross income.
25. Reciprocity clause is applied to non-resident alien donating real property.

Reference:

Tabag, E.D and Garcia, E. J. (2025), Transfer & Business Taxation

Ampongan, O. E. G. (2021), Transfer, Business & Local Taxation (with Practice Set) 13/e

Bureau of Internal Revenue, Value-Added Tax, [Link]

[Link]

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