BULLET NOTES ON DONOR'S TAX

 Donation is an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another, who accepts it.

 Two kinds:
o Inter vivos – is one which takes effect during the lifetime of the donor and are
subject to donor’s tax.
o Mortis causa – takes effect upon the death of the donor and partakes of the
nature of testamentary provisions. These are governed by the rules established
in the Titles on Succession (Art. 728) and are accordingly subject to estate
tax.

Purpose of gift tax

 To prevent avoidance of estate tax.
 To compensate for loss of income tax when large estates are split by donation.

Formalities of a donation
 Movable property - the donation may be made orally or in writing. However, if the
value of the personal property donated exceeds P5,000, the donation and the
acceptance shall be made in writing. Otherwise, the donation shall be void.
 Immovable property – to 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.

Nature of Donor’s Tax

 A tax on the privilege of the donor to give; it is not a property tax but is a tax
imposed on the transfer of property by way of gift during the lifetime of the donor.
 The donor’s tax shall not apply unless and until there is a completed gift.
 It is an excise tax imposed upon the right of a person to transfer property
gratuitously during his lifetime.

Essentials of a Taxable Donation

 Donation takes place only when there is a concurrence of the following:
o Capacity of the donor.
o Donative intent.
o Delivery of the gift - Completed.
o Acceptance by the donee – Perfected.

 Note:
 The transfer of property is completed by delivery, either actually
or constructively, of the donated property to the donee.
 The transfer of property by gift is perfected from the moment
the donor knows of the acceptance of the donee.
 The composition and valuation of gross gift is the same as the
composition and valuation of gross estate.

Classification of Donors
 Residents and Citizen – taxable globally
 Non-resident Alien:
o With reciprocity
o Without reciprocity

Donor’s Tax Rate:

 6% on Net Gifts in excess of P250,000
TAXATION BULLET NOTES – DONOR’S TAX Compiled by Vhin

Computation of Donor’s Tax

 On first donation:
Gross Gift xx
Less: Deductions from Gross Gift (xx)
Net Gift xx
Less: P250,000 (xx)
Taxable Net Gifts xx
Multiplied by 6% 6%
Donor’s Tax Due and Payable xx
Less: Tax Credit (xx)
Donor’s Tax Payable xx

 On subsequent donation:
Gross Gift Made this Month xx
Less: Deductions from Gross Gift (xx)
Net Gift, Current xx
Add: All Prior Net Gift within the Year xx
Aggregate Net Gifts xx
Less: P250,000 (xx)
Taxable Net Gifts xx
Multiplied by 6% 6%
Donor’s Tax Due xx
Less: Donor’s Tax Paid on Prior Gifts (xx)
Tax Credits (xx)
Donor’s Tax Due and Payable xx

Gross Gift
 Direct Gift (donor to donee).
 Gift through creation of trust.
 Condonation of debt.
 Repudiation of inheritance if:
o Specifically and categorically done in favor of identified heirs; and
o To the exclusion or disadvantage of other co-heirs.
 Renunciation by the surviving spouse of his/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.
 Transfer for insufficient consideration, provided that it is not in contemplation of
death, revocable transfer or transfer under general power of appointment. Otherwise,
it will be subject to estate tax.

o Rules to observe:
 As a rule, the value of the property/right donated shall be the fair
market value existing when the gift was made (as of the time of
donation).
 The time to value is the moment when the donation has been completed
and perfected (delivered and accepted).
 When the donation is subject to a suspensive condition, the value of the
gift is to be determined only at the time when the stipulated condition
is fulfilled, subject to the time of delivery and acceptance of the gift.
 The amount by which the fair market value of the property transferred
exceeded the value of the consideration received for such transfer, shall
for purpose of donor’s tax, be deemed a gift and included in computing
the amount of gifts made during the year.
 Even if the sale, exchange or other transfer of property is for an
insufficient consideration, the same will still be considered made for
adequate and full consideration provided that such transfer is made in
the ordinary course of business, i.e.,
 A bona fide transaction
 At arm’s length and
 Free from donative intent

o Valuation Methods:
TAXATION BULLET NOTES – DONOR’S TAX Compiled by Vhin

 Real properties are valued at the assessed value or zonal value,

whichever is higher.
 Personal properties are valued at current market price or fair market
value.
 Right to use or usufructuary is valued based on the Basic Standard
Mortality Rate Table (BSMT) with the consideration of the present value
using the prevailing market interest rate at the time of donation.
 Shares of stocks are valued at:
 If traded – at closing
 If not traded – using the adjusted net asset

Donation Between husband and wife

 Gift from common property – the gift is taxable one-half to each donor spouse.
 General Rule: Donation between husband and wife is not taxable as it is declared
void by law.
 Exception: Moderate gifts between the spouse are valid.
 Husband and wife are considered as separate and distinct taxpayers for purposes of
the donor’s tax. However, if what was 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 to the pertinent provision of the Civil Code of
the Philippines and the Family Code of the Philippines.

Political Contributions (Omnibus Election Code (OEC) and Republic Act No. 7166)
 As a rule, any contributions given to candidates, political parties or coalition of
parties are not subject to donor’s tax as long as the following conditions are met:
o The contribution is for campaign purposes; and
o The donation is duly reported to the Commission on Election (COMELEC)
 The campaign contribution is subject to donor’s tax on the part of the
donor, if such contributions are not reported to the COMELEC.

Exemptions and Deductions

Non-
Residents or
Deductions Resident
Citizens
Aliens
Gifts to the National Government, its political subdivisions
or any entity created by any of its agencies which is not YES YES
conducted for profit
Gifts in favour of educational, charitable, religious, cultural
YES YES
and social welfare institutions, etc. (subject to 30% rule)
Encumbrance on property donated assumed by the done
YES YES
(mortgages, if any)
Diminution in the value of property YES YES

Exemptions under Special Laws

 International Rice Research Institute
 Ramon Magsaysay Foundation
 Integrated Bar of the Philippines
 Development Academy of the Philippines
 National Museum
 National Library
 Archives of the National Historical Institute
 Museum of Philippine Costumes
 Intramuros Administration

Destroyed Donations
 Donor’s tax accrues upon the completion of the donation, meaning upon delivery.
 Gifts destroyed after they have been delivered are considered as valid donations.
Thus, even if it had been destroyed already, the donation shall still be subject to
donor’s tax.
TAXATION BULLET NOTES – DONOR’S TAX Compiled by Vhin

 Total destruction has nothing to do with the donor’s tax liability when the thing
donated is already delivered.

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

 Who can claim? Only citizen or resident alien decedent.
 Amount deductible, whichever is lower:
o Actual estate tax paid abroad

Limit
 Limitations on tax credit:

 Only one country is involved

[Net gift (per Foreign Country) ÷ Total net gift] x Philippine

donor’s tax

 Two or more foreign countries are involved

 Limit 1: per country

[Net gift (per Foreign Country) ÷ Total net gift]x Philippine

donor’s tax

 Limit 2: Total Foreign Country

[Net gift (all Foreign Countries)÷ Total net gift]x Philippine

donor’s tax

Deadline for Filing of return

 The deadline for the filing of donor’s tax return (BIR Form 1800) will be 30 days after
the donation was made.
 The payment for donor’s tax shall be the same day as of that the day the return was
filed (Pay-as-You-File System).
 When the Commissioner gives an extension, the payment of the tax due may be made
on such day as extended by the CIR, but not to exceed six (6) months.
 The filing of returns for donor’s tax is with the Revenue District Office or duly
authorized collection (e.g. City Treasurer) in which the donor resided at the time of
transfer.
 If there is no legal residence in the Philippines, filing should be made with the Office
of the Commissioner on Internal Revenue.

Attachments
 Based on the BIR Form 1800, the following documents shall be attached:
o Sworn statement of the relationship of the donor to the donee.
o Proof of tax claimed tax credit, if applicable.
o Certified true copy of the Original/Transfer/Condominium Certificate of Title
(OCT, TCT, CCT) of the donated property (for real properties).
o Certified true copy of the latest Tax Declaration of lot and/or improvement, if
applicable (for market value purposes).
o Certificate of No Improvement issued by the Assessor’s Office where the
donated real property/ies have not declared improvements, if applicable.
o Proof of valuation of shares of stock at the time of donation, if applicable.
o For listed stocks – newspaper clippings/certification issued by the Stock
Exchange as to the value of per share.
o For unlisted stocks – latest audited Financial Statements of the issuing
corporation with the computation of the book value per share.
o Proof of valuation of other types of personal properties, if applicable.
o Proof of claimed deductions, if applicable.
o Proof of the Tax Debit Memo used as payment.