CONCEPTS OF DONATIONS AND DONOR’S TAX

Part 1: Concept of Donation

Nature of Donation

Donation – is an act of liberality whereby a person (donor) disposes gratuitously of a thing

(properties) or right in favor of another (donee), who accepts it. (Art. 725, New Civil Code of the
Philippines)
Note: person maybe natural or juridical;

Essential Elements of Donations

1. Essential reduction in the patrimony of the donee;
2. Increase in the patrimony of the donor;
3. Act of liberality (donative intent).
Note: Intent is not negated when the person donating has other intentions,
motives, or purposes which do not contradict donative intent.

Donation as a Contract
1. Donation is a contract for it complies with the essential elements of contract (consent,
object and cause);
2. Donation is perfected from the moment the donor knows of the acceptance by the donee.
(Art. 734, NCC)
3. Donation Inter Vivos is governed by the provisions on Obligations and Contracts in
suppletory (Art. 732, NCC). The governing rules are the provisions of the Law on
Donations.

2 Types of Donation (according to the effectivity of the donation):

1. Donation Inter Vivos – take effect during the lifetime of the donor and the donee (Art.
729, NCC). It is not necessary that the property will be delivered after the donor’s death,
or subject to conditions in relation to his death. The determining factor is the transfer of
title of ownership to the donee during the lifetime of the donor.
(Document – Deed of Donation)
Note: The fruits of the property from the time of the acceptance of the donation
shall pertain to the donee, unless otherwise provided by the donor. (Art. 729,
NCC)

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2. Donation Mortis Causa – take effect upon the death of the donor, rules of which is
under Succession (Art. 728, NCC)
(Document – Last Will and Testament)

Distinguishing Characteristics of Donation Mortis Causa are:

1. It conveys no title or ownership to the transferee before the death of the transferor or
what amounts to the same thing, that the transferor should retain ownership (full or
naked) and control of the property while alive;
2. That before his death, the transfer should also be revocable by the transferor at will, ad
nutum, but revocability may be provided for indirectly by means of reserved power in the
donor to dispose of the properties conveyed.
3. That the transfer should be void if the transferor should survive the transferees.
Note: In determining whether a donation is a mortis causa or inter vivos, the body
or the content of the instrument or document must be taken into account, and not the
title of the said document or instrument.

Type of Donations Inter Vivos (according to its cause):

1. Pure or Simple Donation – one where underlying cause is plain gratuity or pure
liberality.

Note: Law on Donation shall be applied under this type of donation.

Hence, illegal and impossible conditions under this donation shall be
considered as not imposed (Art. 727, NCC). On the contrary, under the
Law on Contracts, if conditions are impossible or illegal, the contract
shall be annulled under Art. 1183 of the NCC.

2. Remuneratory or Compensatory Donation – a donation which is made for the purpose

of rewarding the donee for past services, which services do not amount to a demandable
debt (Art. 726 of NCC).
Note: If it is a future service, the donation is onerous. Hence, the Law
on Contracts applies.

3. Conditional or Modal Donation – made in consideration of future services or where the

donor imposes certain conditions, limitations, or charges upon the donee, the value of
which is inferior than that of the donation given (Art. 726 NCC).

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Note 1: The presence of conditions in a donation does not affect the

donation. It is ruled that, from the moment that the donor disposes freely of
his property and such disposal is accepted by the donee, the donation
exists perfectly and irrevocably.
Note 2: Law on Contracts shall be applied up to the extent of the burden of
the conditional donations, while the excess over the burden shall be
governed by Law on Donations.
Note 3: Although the donor may impose certain conditions in the deed of
donation, the same must not be contrary to law, morals, good customs,
public order and public policy. Thus, in the case of Roman Catholic
Archbishop of Manila vs. CA, the Court ruled that the prohibition imposed
on the donation, not to sell the property within 100 years is against public
policy. The condition is considered as not imposed.
4. Onerous donation – made for a valuable consideration, the value of which is either
equal or more than the thing donated.

Note: Onerous donation is governed by the Law on Obligations and

Contracts, and not by Law on Donations.

Note 2: It is not necessary to comply with the formalities of donation under

Art. 748 and 749 of the NCC.

Perfection of Donation
1. Theory of Cognition – donation is perfected from the moment the donor knows of the
acceptance by the done (Art. 734 of the NCC).

Note 1: The donor may revoke the donation before acceptance of the donee
reached to the knowledge of the donor.

Note 2: Once the donation is accepted by the donee, he becomes the absolute
owner of the property donated notwithstanding the condition imposed by the
donee; hence, donation is irrevocable.

2. Donation may be revoked by the fulfillment of resolutory conditions, or may be revoked

only for reasons provided in Articles 760, 764, and 765 of the NCC.

3. Contract of donation is different from the contract of sale, the latter is perfected by
delivery of the things and the seller must be the owner of the things at the time of
delivery, which are not present to the contract of donation. In donation, the donor must be

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the owner of the thing at the time of donation, and it is perfected by consent (donor
knows the acceptance of the donee).

Manner of Acceptance
Rule: The person making the offer (donation) may fix the time, place and manner of acceptance,
all of which must be complied (Art. 1321 of NCC).
Limitations:
1. Acceptance must be made during the lifetime of the donor and the donee. (Art. 746 NCC)
2. The donee must accept the donation personally, or through an authorized person (special
or general power), otherwise, void. (Art. 745 NCC)
3. The authorized one is obliged to make the notification and notation, either in a deed of
nation or in a separate instrument. If the acceptance is made in separate document, the
donor shall be notified thereof in authentic form, and this must be noted in both
instruments. (Art. 749 NCC)
Note: Strict and literal adherence to the requirement of “notation” in Article 749
of the Civil Code should avoided if such will result to in justice to the parties but
conversely a distortion of their intentions.

4. The donation of a movable 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 P 5,000, the donation and the
acceptance shall be made in writing, otherwise, void. (Art. 748)
5. In case of immovable, it must be made in public document, otherwise it is void.

Note 1: Donation Proper Nuptias must comply with formalities of donation.

Note 2: If the donation of personal property does not exceed P 5,000, because
need not to be written, there must be a simultaneous delivery of the thing donated,
otherwise, void. On the other hand, if the amount exceeds P 5,000, since, it is
written, no need for simultaneous delivery.

Persons Who May Give Donations

General rule: All persons who may contract and dispose of their property may donate (Art. 735
NCC), in other words, those who are capacitated to donate at the time of the donation (Art. 737
NCC), except those guardians and trustees to whom the property is entrusted (Art. 736 NCC), or
those specially disqualified by law (Art. 738 NCC).

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Note 1: Legal capacity of the donor – the donor must have the capacity of
possession of the property and to dispose at the time of donation. Hence, future
property cannot be donated, except Donation Proper Nuptias.
Note 2: At the time of donation – shall be at the time the donor knows the
acceptance of the donee. Hence, under Art. 1332 of the NCC, an offer becomes
ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.

Persons Who May Receive a Donation

General rule: Donations to incapacitated person shall be void (Art. 743).
Note: Legal capacity of the donee – it is sufficient that the donee has the juridical
capacity, the power to do acts with legal effects. Also, he must not be disqualified by
law.
Hence,
1. Minors can receive donations but acceptance shall be done through their parents or legal
representatives. (Art. 741)
2. Conceived and unborn children can also receive donation but acceptance shall be done by
those legally represent them if they were already born (Art 742).

Note: subject to provisions by Art. 41 of the Family Code of the Philippines.

The following are void donations or disqualified by law to give or receive donations (Art.
739 NCC):
1. Those made between persons who were guilty of adultery or concubinage at the time of
the donation; the action for declaration of nullity may be brought by the spouse of the
donor or donee, which preponderance of evidence is required.
2. Those made between the persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife (husband), descendants, and ascendants, by
reasons of his office;
4. Those who are incapacitated to succeed by will (Art. 740 NCC).

Incapitated to Succeed by Will (Art. 1027 of NCC):

1. The priest who heard the confession of the (donor) during his illness, or the minister of
the gospel who extended spiritual aid to him during the same period;

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2. The relatives of such priest or minister of the gospel within the fourth degree, the church,
order, chapter, community, organization, or institution to which such priest or minister
may belong;
3. A guardian with respect to (donations) made by a ward in his favor before the final
accounts of the guardianship have been approved, even if the (donor) should die after the
approval thereof; nevertheless, any (donations) made by the ward in favor of the guardian
when the latter is his ascendant, descendant, brother, sister of spouse, shall be valid.
4. Any physician, surgeon, nurse, health officer, or druggist who took care of the (donor)
during his last illness; and
5. Individuals, associations, and corporations not permitted by law to (receive donations).

Effects of Donations and Limitation thereon

Rule: A donor may donate all his property or part thereof.
Limitations:
1. No person may give or receive, by way of donation, more than he may give or receive by
will, otherwise it is inofficious. A donation in excess of the legitime of the compulsory
heirs is inofficious (Art. 752).
However, it shall not prevent the donations from taking effect nor shall it bar the
donee from appropriating the fruits.
2. Future properties cannot be subject of donation (Art. 751, NCC); the donor must be the
owner or has a right over the properties at the time of donation (Art. 750, NCC)
Exception: Donation Proper Nuptias.
Note: Spouses cannot donate his or her share in the absolute community or conjugal
property.
3. After donating the properties, he has sufficient means to support himself and his relatives
who need his support, otherwise, it can be petitioned by those parties affected (Art. 750,
NCC)
Note: Donation is still valid though inofficious (ex. Donation in excess of the
legitime), however, the parties affected may file for a reduction of donation.

Effects of Donation
1. When a donation is made to several persons jointly, it is understood to be equal
shares, and there shall be no right of accretion unless otherwise provided by the
donor. Right of accretion is applicable to the husband and wife if donation is made
to them jointly, unless a contrary provision is provided by the donor. (Art. 753)

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2. The donor has no liability to the donee in case of eviction and in case of hidden
defects, except when the donor acted in bad faith. (Art. 754)

3. The right to dispose of the donated properties (all) may be reserved by the donor,
if so, this becomes a donation mortis causa, hence, the law on succession applies;

However, if the reservation of disposal by the donor pertains to some of the

properties donated, such reservation is valid and does not affect the character of
the conveyance as donation intervivos. In case the donor died and did not use that
such right, the said properties shall belong to the donee (Art. 755).

4. The ownership of the property may be donated to one person and the usufruct to
another person (Art. 756);

5. The thing donated may be returned to the donor (reversion) provided this is in
favor of the donor; reversion may be stipulated in favor of third person provided
he still living, otherwise, it is void.

6. The donee is only liable to pay debts not exceeding the value of the property
donated, unless a contrary intention clearly appears. (Art. 758)

7. The donee is liable when the donation is made in fraud of creditors. (Art. 759) It is
presumed in fraud of creditors if the donor did not reserve sufficient property to
pay his debts prior to donation.

Revocation and Reduction of Donations

Rule: Donation once accepted by the donee and the donor knows of the acceptance, the donee
becomes the absolute owner of the donated thing. Thus, donation is irrevocable.
Exceptions (Art. 752, 760, 764, and 765 of the NCC):
1. Donation in excess of the limitation provided by law. Donation in excess of what the
donor can give or receive by will, or no sufficient properties for the support of himself
and for those dependent on him for support. Hence, the aggrieved party may file for a
reduction of the donation (Art. 752)

Note 1: Donation being inofficious, it does result to automatic revocation

of the donation. An action must be filed by the aggrieved party within the
prescribed period provided by law, otherwise forever valid.

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Note 2: To determine whether there is an inofficious donation, the

estimated net value of the donor’s property shall be considered at the time
of his death. Articles 908 – 910 shall be used as the basis of determination.

Note 3: Only those who at the time of the donor’s death have a right to the
legitime and their heirs and successors in interest may ask for the
reduction of inofficious donations. The right cannot be renounced during
the lifetime of the donor, either by express declaration, or by consenting to
the donation. The donee, devises and legatee, who are not entitled to the
legitime and the creditors of the deceased can neither ask for the reduction
nor avail themselves thereof.
Note 4: The prescriptive period is within 10 years from the death of the
donor-decedent.
Note 5: Reduction shall be governed by Art. 911 and 912 of NCC. If there
are two or more donations, the disposable portion is not sufficient to cover
all of them, those of the more recent dates shall be suppressed or reduced
with regard to the excess. If they are of the same date, they shall be
reduced proportionately. (Art. 773).
Note 6: The fruits shall not be returned except from the filing of the
complaint.

2. Subsequent appearance of the donor’ s children. Donations may be revoked or reduced by

the following instances:
• The donor, after the donation, should have legitimate or legitimated or illegitimate
children, even though they be posthumous (happened after death);
• The child of the donor, whom the latter believed to be dead when he made the
donation turn out to be living;
• The donor subsequently adopts a minor child. (Arr. 760)
Note 1: the revocation or the reduction as stated above should only be made for the
excess of the properties that may be freely disposed by will. (Art. 761)
Art. 752 and Art. 760 compared in relation to INOFFICOUS DONATION. In the
former, the legitime shall be determined at the time of the donor, while in the latter,
the legitime shall be determined at the time of the appearance of the children, or
adoption of the minor child.
Implications:

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• If donation is not revoked or reduced under Art. 760 because the legitime is not
affected, and the donor died suffering from financial reverses, such donation
still be revoked under Art. 752.
• If the donation is revoked or reduced under Art. 760 because the legitime is
affected, and the donor died as a richer man, Art. 752 will not be applied.
Effects of Revocation under Art. 760:
Note 2: The donee shall return the thing or pay its value if he sells the same, or if it
cannot be returned. If the same is mortgaged, the donor may pay the amount with a
right to recover from the donee. (Art. 762)
Note 3: The action for revocation or reduction shall prescribed after four years
from the birth of the first child, or from his legitimation, recognition or adoption, or
from the judicial declaration of filiation, or from the time information was received
regarding the existence of the child. The action cannot be renounced, and is
transmitted upon the death of the donor, to his legitimate and illegitimate children
and descendants (Art. 763).
Note 4: The donee shall return the fruits of the property affected only from the filing
of the complaint.

3. Non-fulfillment of conditions. The donation can be revoked by the donor when the
conditions imposed are not complied with. Thus, the donee shall return the properties.
Alienations and mortgages by the donee are void, subject to limitations under Mortgage
Law and Land Registration Laws (buyer or mortgagee in good faith). The actions shall
prescribe in 4 years from the non-compliance of the conditions, may be transmitted to the
heirs of the donor, and may be against the heirs of the donee (Art. 764 NCC)

Note 1: The donee shall return the fruits of the property which he may received
after having failed to fulfill the condition.
Note 2: “Conditions” – it does not refer to uncertain events on which the birth or
extinguishment of a juridical relations depends, but is used in the vulgar sense of
obligations and charges imposed by the donor on the donee. This ground for
revocation applies to onerous donations.

Note 3: The prescriptive period as provided in Art. 764 shall not be applied when
the donation provides for automatic reversion of the property donated in case of
violation of the condition therein, hence, judicial declaration revoking the same is
not necessary, but to determined whether the rescission is proper or not. The
prescriptive period to enforce the written contract is 10 years from the non-
compliance of the condition.

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4. Acts of ingratitude as follows: (Art. 765)

a. The donee commits an offense against the donor, its honor or property, or his
wife, or children under his parental authority;
b. The donee imputes to the donor any criminal offense unless the crime is
committed against himself, his wife or children under his parental authority;
c. The donee unduly refuses to give support to the donor where the latter is legally
or morally bound to give support to the donor.
Note: Alienation and mortgages effected before the notation of the complaint
for revocation in the Registry of Property shall subsist. Later one shall be
void. (Art. 766); however, the donor shall have a right to demand from the
donee of the value of the property alienated or mortgaged (Art. 767).
Note: The filing of complaint for revocation due to ingratitude shall be filed
within 1 year from the time the donor had knowledge of the fact of
ingratitude, otherwise prescribed (Art. 769); Without instituting the action
after the donor gained knowledge of the ingratitude, and he died, the right of
action should not be transmitted to the heirs of the donor, likewise it cannot
be brought against the heirs of donee, unless upon the death of the donee,
complaint has been filed (Art. 770).

Part 2. Law on Donor’s Tax

General Concepts and Gross Gifts
Donor’s Tax (Gift Tax) – tax levied on the gratuitous (without consideration) transfer of
properties (real or personal, tangible or intangible) or rights by the donor to the donee, who
accepts it, during the lifetime of the former.
The Donor must not only transfer the ownership but also control over the economic
benefits of the property. Conditions attached must be fulfilled first to take effect a complete
donation.
Requisites of a Valid Donation (CIDA)
1. Capacity (only for donor, not with the donee); also include juridical person
a. Title of the ownership over the property or right being donated;
b. Legal age (at least 18 years old)
c. Literacy (not deaf-mute who do not know how to write)
d. Sanity or soundness of mind (consent is not vitiated)
2. Intent (for direct donation) – adherence to legal formalities of donation
a. Oral Donation – when personal property amounts to 5,000 pesos or less,
otherwise it must be in writing.
b. In Writing – when the property is immovable regardless of the amount. It must be
in public document.

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3. Delivery – actual or constructive

4. Acceptance – acknowledgement either personally or through their representatives. This
is the time the contract of donation is perfected.
Void Donations
1. Future properties
2. Object of donation must not be contrary to law, moral, public order and public policy
3. Legal Formalities not followed
4. Donation between persons who were guilty of adultery or concubinage at the time of
donation
5. Donation between persons found guilty of the same criminal offense in consideration
thereof.
6. Those made to public officer or his wife, descendants, and ascendants, by reasons of his
office.
7. Every donation between husband and wife during the marriage, except moderate gifts
which the spouses may give each other on the occasion of any family rejoicing.
8. Indirect donation of spouses
Remunerative Donations – rewards past services as an expression of gratitude, happiness, and
or generosity.
1. Donor’s Tax – without pre-existing contract.
2. Income Tax – with existing contract
3. Estate Tax – the impelling cause Is the death.
Condonation or Remission – cancellation of debt.
1. Donor’s tax – without rendering services.
2. Income Tax – with rendering of services
3. Estate tax – the impelling cause is the death.
Motive that preclude the category of a transfer in contemplation of death
1. To see the children, enjoy the property while the donor is still alive
2. To save on income taxes
3. To save property taxes
4. To make dependents financially independent
5. To see the family carry on the business in the family home
6. To settle family disputes
7. To relieve the taxpayer of the burden of the management
Donor is the payor of donor’s tax.
Valuation – same as estate tax
Taxpayer Classification and Tax Situs -same as estate tax

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Purposes of Gift Tax – (1) To avoid payment of estate taxes; (2) To compensate for the loss of
income tax when large estates are split by donation
Transfer for Inadequate Consideration, the excess of the FMV at the time of donation over
the consideration received. Excluded is the real property classified as capital asset, subject to
final tax. If the transfer is revocable, in contemplation of death, or under general power of
appointment, it will be classified under estate tax.
Renunciation of Inheritance, subject to donor’s tax if specifically, and categorically done in
favor of identified heir(s) or any other person (s) to the exclusion or disadvantage of the other co-
heirs in the hereditary estate.
Conjugal Donation, to be divided into two if consent is given by both spouses, if not, will be
out of exclusive property of the spouses.
Basis of Donor’s Tax – Net gifts in excess of P 250,000 during the calendar year;
Donation to Relatives and Strangers – 6% of the basis of donor’s tax.
Donation to political partisan activities – shall be governed by the Election Code.

Exemptions from Gross Gift

1. 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 subdivisions of the said
Government;
2. Gifts in favor of non-profit educational, charitable, religious, cultural, or social welfare
institution, accredited non- government organization, trust or philanthropic organization
or research institution. Provided, however, that not more than 30% of said gifts shall
be used by such donee for administration purposes.
3. Encumbrance on the property;
4. Dimunition in the value of the property.

Donation Exempt by Special Laws

1. International Rice Research Institute
2. Ramon Magsaysay Award Foundation
3. Southern Philippines Development Administration
4. Philippines American Cultural Foundation
5. Integrated Bar of the Philippines
6. Development Academy of the Philippines
7. National Social Action Council
8. Museum of Philippine Costumes

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9. Aqua-culture Department of South East Asia Fisheries Development Center of the

Philippines
10. Intramuros Administration

Administrative Provisions
Time of filing: Return must be filed within 30 days from the time of donation and payment shall
be made upon filing of the return;
Place of Filing: Except in cases where the Commissioner otherwise permits, the return shall be
filed and the tax paid to an (1) an authorized agent bank; (2)Revenue District Officer; (3)
Revenue Collection Officer; (4) duly authorized Treasurer of the city or municipality where the
donor was domiciled at the time of the transfer or if there’s no legal residence in the Philippines,
with the Office of the Commissioner:
In the case of gifts made by a non-resident, the return may be filed with: (1) Philippine
Embassy or Consulate in the country where he is domiciled at the time of transfer, or (2) directly
with the Officer of the Commissioner.

Tax Credit – same as estate tax

References:

Tabag, E. and Garcia,J. (2019). Transfer and Business Taxation, Mandaluyong City: Millennium
Books, Inc. .
Banggawan, R. (2019). Transfer and Business Taxes. Baguio: Real Excellence Publishing, Inc.
Ampongan, Taxation Reviewer, 2016 Edition
RA 10963, Tax Reform for Accelaration and Inclusion (TRAIN LAW); Source: Internet
National Internal Revenue Code of the Philippines (RA 8424); Source: Internet
Revenue Regulations 12-2018 and 13-2018; Source: Internet
Dascil, NIRC of the Philippines as amended: annotated 5th edition, 2018;
Justice Dimaampao, Tax Principles and Remedies, 2011 edition;
Tabag, CPA Reviewer in Taxation, 2019 edition;
New Civil Code of the Philippines

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