INSTITUTO NG PANGANGALAKAL AT PAGTUTUOS

Subject Code: ACT 26

Subject Title: Business Taxation
No. of Units: 3

MODULE 4:
NET TAXABLE ESTATE AND ESTATE TAX
I. PRE-TEST / ACTIVITY
1. The share of the surviving spouse in the estate shall be deducted equal to ½ of the gross conjugal
property.
a. True
b. False

2. Under the absolute community of property regime, property acquired during the marriage by gratuitous
title by the spouse, and the fruits as well as the income thereof are the property of such spouse.
a. True
b. False

II. CONTENT
A. NET TAXABLE ESTATE AND ESTATE TAX
There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE determined as
of the time of death of decedent composed of all properties, real or personal, tangible or intangible less
allowable deductions. (RA 10963 TRAIN law)

 Resident decedent was single at the time of his death

Illustration 1
Mr. Ilagan died a head of family, a citizen of the Philippines and a resident of Marikina City. He left
the following properties, with their respective fair market values and charges thereon:
Piece of land and house thereon (family home) in the
Philippines………………………………………………………… ₱ 6,125,000
Car in the Philippines……………………………………………. 375,000
Personal properties in the house in Marikina City…………….. 500,000
Bank deposit in the Philippines…………………………………. 10,375,000
Bank deposit in the United States………………………………. 312,500
Claim against an insolvent person…………………………….. 62,500
Funeral expenses………………………………………………… 225,000
Judicial expenses………………………………………………… 125,000
Claims against the estate………………………………………… 375,000
How much is the net taxable estate and the estate tax?

 Non-resident alien decedent was single at the time of his death

Illustration 2
Mr. Kimmel a citizen and resident of Sydney Australia died leaving properties and obligations in
Australia and in the Philippines. Data on his properties and obligations follows:
Properties in the Philippines…………………………………….. ₱1,500,000
Properties in Australia……………………………………………. 4,500,000
Funeral expenses in Australia………………………………….. 375,000
Unpaid obligations in Australia…………………………………. 1,050,000
Medical expenses in the Philippines…………………………… 300,000
How much is the net taxable estate and the estate tax?

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B. PROPERTY RELATIONS BETWEEN SPOUSES
The property relationship between husband and wife shall be governed in the following order: (Sec 74 &
75 Family Code of the Philippines) [Link]
1. By marriage settlements executed before the marriage;
2. By the provisions of the Family Code; and
3. By the local custom.

The future spouses may, in the marriage settlements, agree upon the regimes:
1. Absolute community
2. Conjugal partnership of gains
3. Complete separation of property
4. Any other regime.

In the absence of a marriage settlement, or when the regime agreed upon is void,
1. The system of absolute community of property shall govern marriages contracted on or after August
3, 1988, the effectivity of the Family Code of the Philippines (EO No. 209); or
2. The system of conjugal partnership of gains shall govern marriages contracted before August 3,
1988.

C. ABSOLUTE COMMUNITY OF PROPERTY

The gross estate of a decedent who was married and under the system of absolute community of property
shall consist of:
1. The exclusive properties of the decedent; and
2. The community properties.

Table 1 Classification of properties under absolute community of property

a) Property acquired before the marriage, in general Community
b) Property acquired during the marriage, in general Community
c) Property acquired by inheritance or gift before the marriage (because of letter a) Community
d) Property acquired by inheritance or gift during marriage (Unless letter e) Exclusive
e) Property acquired by inheritance or gift during the marriage and the giver stated
that the property should be community Community
f) The income from property in (letter d) Exclusive
g) The income from property in (letter e) Community
h) Jewelry by whom and acquired during marriage Community
i) Clothes of the decedent (exclusive and personal use) except jewelry Exclusive
j) Property owned before marriage #2 when there is legitimate descendant of
marriage #1 Exclusive
k) Property owned before marriage #2 when there is no legitimate descendant of
marriage #1 (because of letter a) Community

The following shall be excluded from the community property:

1. Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the
income thereof, if any, unless it is expressly provided by the donor, testator or grantor that they shall
form part of the community property;
2. Property for personal and exclusive use of either spouse, however jewelry shall form part of the
community property;
3. Property acquired before the marriage by either spouse who has legitimate descendants by a former
marriage, and the fruits as well as the income, if any, of such property.

Property acquired during the marriage is presumed to belong to the community; unless it is proved that it is
one of those excluded therefrom. (The Family Code of the Philippines Art. 91-93)

Illustration 3
Mr. Trinidad died married, leaving the following properties:
Land inherited before the marriage………………………………. ₱1,900,000
Cash income from the land inherited ……………………………. 38,000
Cash received as gift during the marriage……………………….. 380,000
Interest income on the cash received as gift……………………… 14,250
Property unidentified as to when any by whom acquired………… 475,000
Clothes of the decedent purchased with spouse’s income……….. 95,000
How much is the gross estate under the system of absolute community of property?

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 Charges and Obligations of the Absolute Community
 Debts and obligations which cannot be identified as those of exclusive properties shall be presumed to
be community debts and obligations.
 Debts and obligations on exclusive properties, which were already charges on the properties at the time
they were acquired (e.g., by inheritance or gift), shall continue to be debts and obligations of exclusive
properties.
 The special deductions of family home, standard deduction, and amount receivable under RA 4917 are
deductions from the total of the gross estate consisting of exclusive and communal properties.
 All other deductions have to be classified into community or exclusive. As a general rule, the
classification of a deduction will follow the classification in the gross estate of the property to which
the deduction is related.

Illustration 4
Mr. Giron, a citizen and resident of the Philippines, under the system of absolute community of property
during the marriage, died on September 2022, leaving properties and obligations that follow:
Property owned by Mr. Giron before the marriage…………. ₱3,750,000
Property owned by Mrs. Giron before the marriage………… 2,500,000
Property received by Mr. Giron as inheritance on March 2022 (during the
marriage)……………………………………. 4,000,000
Real property acquired thru the labor of Mr. and Mrs. Giron during the
marriage (family home)…………………………… 2,625,000
Medical expenses……………………………………………… 43,750
Funeral expenses……………………………………………… 375,000
Judicial expenses for the settlement of the estate………… 100,000
Unpaid obligations (not including unpaid mortgage)……… 43,750
Unpaid mortgage on property inherited…………………….. 250,000
The property received as inheritance was part of the gross estate of the prior decedent at a fair market value
of ₱1,375,000 with a mortgage on it at that time of ₱375,000, during his lifetime, he paid ₱125,000. Compute
the net taxable estate and the estate tax.

D. CONJUGAL PARTNERSHIP OF GAINS

The gross estate of a decedent who was married and under the conjugal partnership of gains shall consist of:
1. The exclusive properties of the decedent; and
2. The conjugal properties.
The deductions from the gross estate of a decedent who was married and under the property relationship of
conjugal partnership of gains with the spouse shall consist of:
1. Deductions from exclusive properties; and
2. Deductions from conjugal properties.

The following are exclusive properties of each spouse:

1. That which is brought to the marriage as his or her own;
2. That which each acquires during the marriage by gratuitous title;
3. That which is acquired by right of redemption, by barter, or by exchange with property belonging to
only one of the spouses; and
4. That which is purchased with exclusive money of the wife or of the husband. All the rest are considered
conjugal properties.

Table 2 Summary of classification of properties

Property Absolute Community Conjugal Partnership
1. Property acquired before the
marriage or brought to the Community Exclusive
marriage
2. Fruits or income in (No.1) Community Conjugal
3. Property acquired during the Community Conjugal
marriage
4. Fruits or income in (No.3) Community Conjugal
5. Property acquired by inheritance
or gift before the marriage Community Exclusive
(gratuitous title)
6. Fruits or income in (No.5) Community Conjugal
7. Property acquired by inheritance
or gift during marriage (gratuitous Exclusive Exclusive
title)
8. Fruits or income in (No.7) Exclusive Conjugal

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 Illustration 5
Mr. Tecson died married, leaving the following properties:
Land inherited before the marriage………………………………. ₱2,500,000
Cash income from the property inherited……………………….. 50,000
Cash received as gift during the marriage……………………….. 500,000
Interest income on the cash received as gift…………………….. 18,750
Property unidentified as to when and by whom acquired……… 625,000
Clothes of the decedent purchased with spouse’s income……. 125,000
How much is the gross estate under the system of conjugal partnership of gains?

Charges against conjugal properties:

1. Debts and obligations contracted during the marriage;
2. Debts before the marriage of either spouse insofar as they have redounded to the benefit of the family.

Debts and obligations which cannot be identified as those of exclusive properties shall be presumed to be
conjugal debts and obligations.

Debts and obligations on exclusive properties, which were already charges on the properties at the time they
were acquired (e.g. by inheritance or gift) shall continue to be debts and obligations of exclusive properties.

Vanishing deductions is always a deduction from exclusive property.

The special deductions of standard deduction, family home, and amounts under RA 4917 are deductions from
the total gross estate, consisting of exclusive and conjugal properties.

All other deductions have to be classified into conjugal or exclusive. As a general rule, the classification of a
deduction will follow the classification in the gross estate of the property to which the deduction is related.

A deduction from the gross estate of the married person under the property relationship of conjugal
partnership of gains with his spouse is the share of the surviving spouse in the net conjugal estate.

Illustration 6
Mr. Isaac, married, a citizen and resident of the Philippines died on October 1, 2022, leaving properties and
obligations with their fair market values as follows:
Properties:
Car inherited from the father who died in 2012………………………………….. ₱375,000
Real property (family home) acquired during the marriage and thru his own efforts 437,500
Cash received as gift from his father in 2009………………………………........ 11,300,000
Real property (land) purchased out of cash inherited from his mother in 2009 250,000
Other real property acquired during the marriage (unidentified as to whose effort
resulted in the acquisition)……………………………………………………….. 750,000
Obligations and charges:
Medical expenses in 2022…………………………………………………………. 125,000 SD
Funeral expenses…………………………………………………………………… 150,000 C
Judicial expenses………………………………………………………………….. 250,000 C
Claims against conjugal properties……………………………………………….. 131,250 C
Claim against an insolvent………………………………………………………… 12,500 C
Unpaid mortgage on car (constituted by the father on a loan for father’s pleasure trip) 12,500 E
How much is the net taxable estate and the estate tax?

E. ESTATE TAX RETURN

Who Shall File – The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by:
1. The executor, or administrator, or any of the legal heir/s of the decedent, whether resident or non-
resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar property
for which a clearance from the BIR (Certificate Authorizing Registration) is required as a
condition precedent for the transfer of ownership thereof in the name of the transferee; or
2. If there is no executor or administrator appointed, qualified, and acting within the Philippines, then any
person in actual or constructive possession of any property of the decedent.
Taxpayers who are filing BIR Form 1801 are excluded in the mandatory coverage from using the eBlRForms
(Section 2 of RR No. 9-2016)

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When and Where to File and Pay – The Estate Tax Return shall be filed within one (1) year from the
decedent's death. In meritorious cases, the Commissioner shall have the authority to grant a reasonable
extension not exceeding thirty (30) days for filing the return.

The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO)
having jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no
legal residence in the Philippines, the return shall be filed with the Office of the Commissioner (RDO No. 39,
South Quezon City).

In case of a non-resident decedent with executor or administrator in the Philippines, the return shall be filed
with the AAB of the RDO where such executor/administrator is registered or is domiciled, if not yet registered
with the BIR.

When the return is filed with an AAB, taxpayer must accomplish and submit BIR-prescribed deposit slip,
which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB
receiving the tax return shall stamp mark the word “Received’’ on the return and also machine validate the
return as proof of filing the return and payment of the tax by the taxpayer, respectively. The machine
validation shall reflect the date of payment, amount paid and transaction code, the name of the bank, branch
code, teller’s code and teller’s initial. Bank debit memo number and date should be indicated in the return for
taxpayers paying under the bank debit system.

Payments may also be made thru the e-payment channels of AABs thru either their online facility,
credit/debit/prepaid cards, and mobile payments.

In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment
shall be allowed within two (2) years from the statutory date for its payment without civil penalty and
interest upon approved by the concerned BIR Official.

The due date on filing and payment of the return/tax shall depend on the applicable law at the time of the
decedent’s death.

Mandatory Requirements – [additional two (2) photocopies of each document]:

1. Certified true copy of the Death Certificate;
2. Taxpayer Identification Number (TIN) of decedent and heir/s;
3. Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if gross taxable
estate exceeds ₱20,000 for deaths occurring on January 1, 1998 up to December 31, 2017; or if the
gross taxable estate exceeds ₱3,000 for deaths occurring prior to January 1, 1998;
4. Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial Settlement of the
Estate, if the estate has been settled extra-judicially; c) Court order if settled judicially; d) Sworn
Declaration of all properties of the Estate;
5. A certified copy of the schedule of partition and the order of the court approving the same within thirty
(30) days after the promulgation of such order, in case of judicial settlement;
6. Proof of Claimed Tax Credit, if applicable;
7. Certified Public Accountant (CPA) Statement on the itemized assets of the decedent, itemized
deductions from gross estate and the amount due if the gross value of the estate exceeds five million
pesos (₱5,000,000) for decedent’s death on or after January 1, 2018 or two million pesos
(₱2,000,000) for decedent’s death from January 1, 1998 to December 31, 2017;
8. Certification of the Barangay Captain for the claimed Family Home (If the family home is conjugal
property and does not exceed ₱10 Million, the allowable deduction is one-half (1/2) of the amount
only);
9. Duly Notarized Promissory Note for "Claims Against the Estate" arising from Contract of Loan;
10. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent;
11. Proof of the claimed "Property Previously Taxed";
12. Proof of the claimed "Transfer for Public Use";
13. Copy of Tax Debit Memo used as payment, if applicable;

Extension to File and Pay – When the Commissioner of Internal Revenue finds that the payment on the due
date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs,
he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the
estate is settled through the courts, or two (2) years in case the estate is settled extra-judicially. In such
case, the amount in respect of which the extension is granted shall be paid on or before the date of the
expiration of the period of the extension, and the running of the Statute of Limitations for assessment as
provided in Section 203 of the National Internal Revenue Code shall be suspended for the period of any such
extension.

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 Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud
on the part of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner of Internal Revenue or his duly authorized representative may
require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount,
not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in accordance in the terms of extension.

The application for extension of time to file the estate tax return must be filed with the Revenue District
Officer (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the
tax returns of the estate. The application shall be approved by the Commissioner or his duly authorized
representative.

F. PAYMENT OF ESTATE TAX AS PREREQUISITE TO TRANSFER SHARES, BONDS OR

RIGHTS
There shall not be transferred to any new owner in the books of any corporation, sociedad anonima,
partnership, business, or industry organized or established in the Philippines any share, obligation, bond or
right by way of gift inter vivos or mortis causa, legacy or inheritance, unless a eCAR is issued by the
Commissioner or his duly authorized representative.

G. WITHDRAWAL FROM THE BANK DEPOSIT ACCOUNT/S OF A DECEASED DEPOSITOR

The executor, administrator, or any of the legal heir/s may withdraw from the said deposit account within one
(1) year from the date of the decedent’s death provided that prior to withdrawal, the tax identification number
of the estate of the decedent and BIR Form No. 1904 duly stamped received by the concerned Revenue District
Office shall be presented to the bank.

It is further clarified that for joint accounts, the FWT shall be based on the share of the decedent in the joint
bank deposit/s.

To certify the withholding of the 6% FWT, the bank shall issue BIR Form No. 2306 (Certificate of Final Tax
Withheld at Source). Thereafter, the bank shall file the quarterly return on the final tax withheld and remit the
same on or before the last day of the month following the close of the quarter when the tax was withheld.

All withdrawal slips shall contain a (1) sworn statement by any one of the surviving joint depositor/s to the
effect that all of the other joint depositors are still living at the time of withdrawal, and (2) a statement that
the withdrawal is subject to 6% FWT.

In case the bank deposit is already declared for estate tax purposes and indicated in the eCAR issued by the
concerned RDO, it shall no longer be subject to the 6% FWT. (RMC No. 62 – 2018)

H. NET DISTRIBUTABLE ESTATE

The net taxable estate on which the estate tax rates are applied is not the same as the net distributable estate.
The net taxable estate is the result of the formula under the NIRC: Gross estate less deductions equals net
taxable estate. The net distributable estate refers to the gross estate reduced by the actual diminution from the
estate.

Net taxable estate and net distributable estate may be at different amounts because of deductions to arrive at
net taxable estate which are paper deductions but do not physically diminish the gross estate.

Illustration 7
The taxpayer was married and under the system of absolute community of property. He died on February 02.
He left the following properties and charges thereon:
Personal properties owned for ten years and before marriage……… ₱1,100,000
Real property received as gift six years ago and during marriage…. 5,500,000
Personal and real properties acquired during marriage…………….. 4,400,000
Actual funeral expenses……………………………………………. 550,000
Judicial expenses on April 01……………………………………… 220,000
Judicial expenses on October 06…………………………………… 132,000
Loss of property on March 06………………………………........... 110,000
Loss of property on November 16 following year………………… 220,000
How much is the estate tax and net distributable estate? Modified Textbook Reyes

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III. ACTIVITY
Problem 1
Classify the following as exclusive or conjugal property under Absolute Community of Property (ACP) and
Conjugal Partnership of Gains (CPG) Write C in the space provided if the property is classified as common
property and write E if the property is classified as exclusive.
ACP CPG
1. Personal belongings used exclusively by the decedent
2. Lot acquired before the marriage by the surviving spouse
(surviving spouse had a previous marriage and legitimate
children in that previous marriage)
3. Commercial building owned before marriage
4. Income from commercial building in item no. 3
5. House and lot inherited during marriage
6. Residential house built using the salary of the surviving spouse
during the marriage (House was built on the exclusive lot of
the decedent)
7. Cash representing income earned during the marriage from the
decedent's exclusive property
8. Jewelry inherited before the marriage by the decedent.
9. Property inherited during marriage
10. Income on property described in item no. 9

Problem 2
Mr. Perez, a citizen and resident of the Philippines, under the system of absolute community of property during
the marriage, died leaving the following properties and obligations:
Real property (family home) acquired during the marriage………………….. ₱3,800,000 C
Real property owned by Mr. Perez before the marriage……………………… 375,000 C
Real property received as gift from the mother seven years ago, and during the
marriage………………………………………………………………………. 10,393,750 E
Cash income from the property received as gift……………………………… 6,250 E
Real property inherited from the father ten years ago, and before the
marriage………………………………………………………………………… 250,000 C
Funeral expenses………………………………………………………………. 62,500
Judicial expenses for the settlement of the estate…………………………….. 125,000
Unpaid medical expenses……………………….…………………………….. 87,500
Obligations incurred during the marriage…………………………………….. 387,500 -C
Compute the following:
1. Total exclusive properties
2. Total community properties
3. Total estate after ordinary deductions
4. The share of the surviving spouse
5. Net taxable estate
6. Estate tax

Problem 3
A resident alien decedent, head of the family, died in 2023 leaving the following:
Car in Baliwag City………………………………………. ₱ 5,000,000
Cash in Metrobank Baliwag City…………………………. 15,000,000
Cash in BPI Baliwag City………………………………… 10,000,000
Cash in BDO Baliwag City………………………………. 12,000,000
House and lot in Baliwag City (Family Home)..…………. 30,000,000
House and lot in Tagaytay City ..………………………… 8,000,000
House and lot in Baguio City ..…………………………… 7,000,000
Medical expenses…………………………………………. 3,000,000
Funeral expenses…………………………………………. 1,000,000
Judicial expenses…………………………………………. 1,500,000
Claim against the estate…………………………………… 3,000,000
Losses (50% were incurred more than one year after death) 4,000,000
Compute the following:
1. Estate tax
2. Net distributable estate

IV. REFERENCES
Tabag, Enrico D. and Garcia, Earl Jimson R., Transfer & Business Taxation, 2022