DONOR’S TAX

Donation Donor’s Tax (Gift Tax)

 An act of liberality  A tax levied, assessed, collected & paid upon the
transfer by any person, resident or nonresident
 One person disposes gratuitously of a thing or of the property by gift.
right for another, who accepts it.
 Imposed on the exercise of the donor’s right
 Law consider it as a “contract”, because it during lifetime to transfer property
requires acceptance
 It is an excise tax imposed on the transfer of
 It is a formal contract property by way of gift inter-vivos
 Perfected when donor knows of the acceptance by  A direct tax
the donee.
 Applies to both natural & judicial persons
 Completed by delivery

Elements of Donation

Capacity to make Donation Donative intent or intent Delivery Acceptance

to make gift on the part
 Legal competence of of the donor  Donor’s tax applies  There is “meeting of
donor to enter into a to a completed gift. minds”
contract.  Proper declaration
of the legal owner to  Perfected when donor  Delivery &
 Also have the transfer ownership knows of the acceptance is
capacity to dispose to another w/out acceptance by the required to
consideration donee. consummate donation.
 Capacity is
determined at the  Required only in a  Completed by  Acceptance must be
perfection of the direct gifts delivery made during the
donation. lifetime of the donor
& the donee.

INCOMPLETE GIFTS Purpose of Donor’s Tax

A gift that is incomplete because of reserved power a) To Prevent Avoidance of Estate Tax
becomes complete when either:
b) To Prevent or Compensate for the loss of the
1. Donor renounces the power, or progressive rate of income tax when large estates
are split up by gifts to numerous donees.
2. The donor’s right to exercise the power ceases.

Characteristics of Donor’s Tax

1. An Excise tax 2. A contract

 Imposed on the “right” or 3. Perfected when donor knows of

“privilege” to transfer the acceptance by the donee.
property by way of gift  Completed by delivery, either
inter-vivos actual or constructively

4. A Direct Tax 5. Renunciation by the surviving 6. General renunciation by heir of

spouse of his/her sahre in the his/her share in the hereditary
 Imposed on the donor, and conjugal partnership or absolute estate is NOT subject to tax.
community after the dissolution of
 Determined with reference to  Unless specifically &
the marriage is subject to donor’s
all the donor’s gift categorically done in favor of
tax.
identified heirs to the
exclusion/disadvantage of the
other co-heir.

Classification of Donation

As to Motive or Purpose As to Time of Taking Effect (Perfection)

1. Simple - cause is pure liberality

2. Renumeratory - donation made due to past services 1. Donation Inter-vivos

rendered or future services or charges or
burdens. 2. Donation Mortis Causa

 Not really donations in substance

 Cause is not gratuitous

 Not subject to donor’s tax

3. Modal - consideration is than the value of the

thing donated.
 DONOR’S TAX

Donation of Movable Property Donation of Immovable Property

 It can be made orally or in writing  Must be in public document

 Oral donation required the simultaneous delivery  If does not comply with the formalities required
by law it is deemed VOID.
 Personal property donated does exceed P5,000: it
must be in writing, otherwise it is VOID

SUMMARY OF FORMAL REQUIREMENTS

Personal Property Real or Registrable Property

Amount ≤ P5,000 > P5,000 Regardless of amount it should be

in a PUBLIC INSTRUMENT
Form of Donation Oral/Writing In writing

GROSS GIFTS

Valuation of Gross Gifts

As a Rule: Donor’s tax should be based on the FMV Stock & Bonds
of the property donated at the time the donation
is perfected.  Traded in the Stock Exchange: FMV is mean between
the highest & the lowest quoted selling price on
the valuation date.

Real Property: valued based on the higher amount  Not Traded in the Stock Exchange:
between:
a) Ordinary shares: MV shall be the book value or the
1. FMV by CIR security on valuation date, or on the date nearest
to valuation date
2. FMV by Provincial assessor
b) Preferred shares: MV is the par value

Composition of Gross Gifts

Property Citizen/Resident Alien Nonresident Alien

 Property w/in (personal or real) Included Included

 Property w/out (personal or real) Included Excluded

 Intangible property within Included Included**

 Intangible w/out Included Excluded

**Reciprocity Rule applies to donations by a nonresident alien when the properties are intangible properties
which are located within the Philippines

Intangible Personal Properties Located w/in the Philippines

1. Franchise which must be exercised w/in the Philippines

2. Shares, obligations or bonds issued by any corporation/sociedad anonima organized in the Philippines

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 foreign corporation if such have acquired business situs in
the Philippines, and

5. Share or rights in any partnership, business or industry established in the Philippines

Computation of Taxable Net Gift Format of Computation

GROSS GIFTS First Donation of the Year

1. Direct Gifts P xx Gross Gift P xx

2. Gifts through creation of trust Exemption/deductions (xx)

3. Transfer for insufficient consideration P xx

4. Repudiation of inheritance Tax Exempt Gift (250T)

5. Renunciation by the surviving spouse Net Taxable Gift P xx

Of his/her share in the common property Multiply by: 6%

6. Condonation of debt Donor’s Tax P xx

DEDUCTIONS ( xx) Tax Credit (if applicable) (xx)

 DONOR’S TAX

1. Encumbrances Donor’s Tax Payable P xx

2. Diminution

3. Gov’t., charitable/educational, etc. Second & Subsequent Donation w/in the year

Less: Exempt Gift (TRAIN LAW) (250K) Gross Gift current P xx

TAXABLE NET GIFTS P xx Exemption/deductions (xx)

P xx

Donations made on or after January 1, 2018 Add: Prior Gift(s) xx

 Regardless of the relationship of the donor and Total P xx

donee, the donor’s tax rate is 6% in excess of
P250,000 exempt gifts. Tax Exempt Gift (250T)

Net Taxable Gift P xx

Multiply by: 6%

Donor’s Tax due P xx

Tax paid - prior gifts (xx)

Tax Credit (if applicable) (xx)

Donor’s Tax Payable P xx

For Donations Made Prior to January 1, 2018

If given to relatives

Over But Not Over The Tax shall be

- P100,000 Exempt

P100,000 200,000 2% of the excess over P100,000

200,000 500,000 P2,000 + 4% of the excess over P200,000

500,000 1M P14,000 + 6% of the excess over P500,000

1M 3M P44,000 + 8% of the excess over P1M

3M 5M P204,000 + 10% of the excess over P3M

5M 10M P404,000 + 12% of the excess over P5M

10M P1,004,000 + 15% of the excess over P10M

If given to Strangers - 30%

Contribution for Election Campaign Donations Made by a Foreign Corporation

 Shall be governed by the Election Code, not  It is subject to donor’s tax is the property
subject to donor’s tax. donated is located in the Philippines.

 If 85% of the business of the foreign corporation

is located in the Philippines, the donation may
Splitting Gift be taxed in the Philippines subject to the rule
of reciprocity.
 A tax minimization scheme

 Done by spreading the gifts over numerous

calendar years to avoid higher tax due

DEDUCTIONS FROM THE GROSS GIFTS

Exempt Gifts Deductions from the Gross Gifts

 Not treated as exclusions from the gross gifts  Same with the enumeration for exempt gifts
of the donor.
 Deductible from the gross gifts in order to
 Deductible from the gross gifts in order to arrive at taxable net gifts
arrive at taxable net gifts.

 Same amount shall be presented in the gross gifts

of the donor.