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TAXATION - Review > DONOR'S TAX > Flashcards

DONOR'S TAX Flashcards

1
Q

What is donation?

A

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.

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2
Q

What is donor’s tax?

A

It is a tax levied, assessed, collected and paid upon the transfer by any person, resident, or nonresident, of the property by gift(whether the gift is direct or indirect, real or personal, tangible or intangible.)

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3
Q

What is the purpose of donor’s tax?

A
  1. To supplement the estate tax
  2. To prevent avoidance of income tax - donor may escape progressive rates of income taxation through simple expedient way of splitting his income among numerous donees.
  3. To recoup future loss of income tax revenue
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4
Q

What are the elements/essential requisites of taxable donation?

A
  1. Capacity of donor to transfer property
  2. Intent to donate (not an absolute requirement; required only in direct gifts)
  3. Delivery, either actually or constructively
  4. Acceptance by the donee
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5
Q

When is a donation perfected?
When is donation completed?

A

Donation is perfected from the moment when the donor knows of the acceptance of the donee.

Donation is completed by delivery, either actually or constructively.

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6
Q

Explain the formal requisites of donation.

A

For a donation of properties to be valid, it must have to adhere to formalities required by law:

A. Real properties - must be in a PUBLIC INSTRUMENT

B. Personal properties

a. Intangible - must be in a public instrument
b. Tangible -
a. 5,000 OR LESS - oral or in writing
b. More than 5,000 - in writing, OTHERWISE IT IS VOID

Public instrument is a written document annotated by a lawyer.

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7
Q

What is the effect when the donation does not conform to the formal requisites of donation?

A

A donation that does not conform to the formal requisites is NOT VALID and is UNENFORCEABLE, and therefore not subject to tax.

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8
Q

What are the classification of donors for donor’s taxation?

A

A. Citizen or Resident - taxable on all
B. Non-resident Alien
a. Without reciprocity - taxable on all PH property
b. With reciprocity - taxable on tangible PH property
only

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9
Q

What is the nature of donor’s tax?

A
  1. Privilege tax
  2. Proportional tax
  3. Annual tax
  4. Ad valorem tax
  5. National tax
  6. Revenue or fiscal tax
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10
Q

Under TRAIN law, how is donor’s tax computed?

A

Regardless of the relationship of the donor and donee, the donor’s tax is 6% in excess of the 250,000 exempt gifts.

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11
Q

What is the composition of Gross gift in computing donor’s tax?

A
  1. Direct gifts
  2. Gift through creation of trusts
  3. Condonation of debts
  4. Repudiation of inheritance if:
    a. Specifically and categorically done IN FAVOR OF
    IDENTIFIED HEIRS AND
    b. TO THE EXCLUSION OF OTHER CO-HEIRS
  5. 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
  6. Transfers for insufficient consideration
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12
Q

What happens when spouses donate from their common properties?

A

The gift is taxable to one half to each donor spouse. Both spouses shall file separate donor’s tax returns.

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13
Q

What happens when there is donation between husband and wife during the marriage?

A

GR: Gift is not taxable as it is declared void by law
EX: Moderate gifts between the spouses are valid.

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14
Q

What are the exemptions or deductions from gross gift under TRAIN law?

A
  1. Gifts to the Government - the entity/agency of the government must NOT BE FOR PROFIT.
  2. Gifts to educational, charitable, religious corporations
  3. Encumbrances on the property donated assumed by the donee
  4. Diminution of gift provided by the donor
  5. Exemptions under Special laws
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15
Q

Explain the exemption of gifts to educational, charitable, and religious corporations.

A

It also includes the following:

a. Educational
b. Charitable
c. Religious
d. Cultural
e. Social Welfare
f. Accredited non-government organization - MUST BE ACCREDITED BY THE APPROPRIATE ACCREDITING AGENCY
g. Trust or Philanthropic organizations
h. Research institution or organization

Requisites:

  1. Must be NON-STOCK
  2. No dividends
  3. BoD/BoT must have NO COMPENSATION
  4. Any income derived must be dedicated to its purpose
  5. That NO MORE THAN 30% OF THE SAID GIFT SHALL BE USED FOR ADMINISTRATION PURPOSES.
  6. That the above must be explicitly stated when making the donation (DO NOT ASSUME THAT THE ABOVE EXISTS! refer to De Vera page 384)
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16
Q

What organizations are exempt under special laws in donor’s taxation?

A
  1. International Rice Research Institute
  2. Ramon Magsaysay Foundation
  3. Integrated Bar of the Philippines
  4. Development Academy of the Philippines
  5. National Museums
  6. National Libraries
  7. Archives of National Historical Institute
  8. Museum of Philippine Costumes
  9. Intramuros Administration
  10. RA 11494 – All donations of personal computers, laptops, tablets or similar equipment for use in teaching and learning in public schools, starting from the effectivity of the Act on September 15, 2020 up to December 19, 2020.
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17
Q

What does Net Gift mean in donor’s taxation?

A

It shall mean the NET ECONOMIC BENEFIT from the donation that accrues to the donee.

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18
Q

Who can claim tax credit for donor’s tax?

A

Only Residents or Citizens can claim tax credit.

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19
Q

Explain tax credit for donor’s tax.

A

Only Residents or Citizens can claim tax credit.

Amount deductible is the LOWER BETWEEN:
A. ACTUAL DONOR’S TAX PAID
B. LIMIT

The LIMIT depends on how many countries are involved. Its formula is:

A. ONLY 1 FOREIGN COUNTRY INVOLVED

(Net gift foreign / Net gift world) x PH donor’s tax

B. 2 OR MORE FOREIGN COUNTRIES INVOLVED - the limit is the LOWER between LIMIT 1 and LIMIT 2:

Limit 1 (PER FOREIGN COUNTRY)
(Net gift PER foreign / Net gift world) x PH donor tax
Limit 2(Total of ALL foreign countries involved)
(Net gift ALL foreign / Net gift world) x PH donor's tax
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20
Q

When should donor’s tax return be filed under TRAIN law?

A

Donor’s tax return shall be filed WITHIN 30 DAYS AFTER THE DATE THE GIFT IS MADE OR COMPLETED and the tax due thereon shall be paid at the same time that the return is filed.

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21
Q

When should donor’s tax return be filed under TRAIN law?

A

Donor’s tax return shall be filed WITHIN 30 DAYS AFTER THE DATE THE GIFT IS MADE OR COMPLETED and the tax due thereon shall be paid at the same time that the return is filed. (Pay as you file)

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22
Q

Are extensions allowed for the payment of donor’s tax?

A

No.

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23
Q

Where should donor’s tax return be filed?

A
  1. The return shall be filed and paid to the following where the donor is domiciled at the time of transfer, or if there be no legal residence in the PH, with the Office of the Commissioner:
    a. Authorized agent bank
    b. Revenue District Officer
    c. Revenue Collection Officer
    d. Duly authorized Treasurer of the City or municipality
  2. In the case of gifts made by nonresidents, it may be filed with the Philippine Embassy or consulate in the country where he is domiciled, or directly with the office of the Commissioner
24
Q

For a donation to be valid, when must acceptance of the donation be made?

A

During the lifetime of the donor and donee.

25
Q

Can donations be made to unborn children? How?

A

Yes. Donations to conceived and unborn children may be accepted by those persons who would legally represent them if they were already born.

26
Q

When a corporation condones its shareholder’s debt, is this a donation?

A

No, it shall be treated as a dividend and therefore subject to income tax on dividends (FWT).

27
Q

When a debt is condoned because of service performed, does donation occur?

A

No. This amounts to payment of income.

28
Q

Are contributions in cash or in kind to political candidates/coalition of parties for campaign purposes subject to donor’s tax?

A

No. 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.

29
Q

Is sale of a residential house and lot for LESS than adequate and full consideration subject to donor’s tax on the difference between the selling price and fair value?

A

No. The sale is subject to Capital Gains Tax, since the residential house and lot is a capital asset. The whole amount will still be subject to tax, including the difference between selling price and fair value since the tax base is whichever is higher between the:

a. Selling price
b. FMV/Assessed Value
c. Zonal Value

30
Q

Abdul sold a car to Ibrahim worth 1,000,000 for only 100,000. However, before being able to pay the corresponding donor’s tax on the difference, Abdul died. Is the car to be included in his gross estate?

A

Yes, since Abdul has not yet paid the donor’s tax. Had he paid it, the car would not be included in his gross estate.

31
Q

Abdul sold a house and lot NOT USED in business to Ibrahim worth 1,000,000 for only 100,000. However, before being able to pay the corresponding donor’s tax on the difference, Abdul died. Is the property to be included in his gross estate?

A

No donor’s tax applies here. Also, no estate tax applies. The proper tax here is capital gains tax of 6% on the 1,000,000 fair value of the capital asset.

Identify first whether the real property is used in business or not. If NOT USED IN BUSINESS, a CGT will always apply. If it was used in business, there will be a donor’s tax on the difference between the selling price and the FMV or Assessed Value.

32
Q

T or F

Encumbrance on the property donated, if assumed by the donor is deductible for donor’s tax purpose.

A

False. It must be the donee who assumes the encumbrance. (Net economic benefit received)

33
Q

T or F
A donation by a foreign corporation of its own shares of stock to resident employees is not subject to gift tax but may be subjected to income tax.

A

True.

34
Q

What happens when there is a general renunciation of an heir or the surviving spouse, of his or her share in the hereditary estate left by the decedent, NOT in favor of any identified heirs and NOT to the exclusion/disadvantage of other co-heirs?

A

When the two conditions are not present, the repudiation/renunciation causes it to be a non-taxable gift.

35
Q

Gifts made in properties shall be appraised at its?

A

Fair market value as of the TIME OF DONATION, not when the donor’s tax return is filed.

36
Q

What is the definition of splitting of gift?

A

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

37
Q

Mr. Abdul, a Pakistani residing in Iran donated some properties located in the Philippines and is curious as to what can be deducted in arriving at his NET GIFTS subject to donor’s tax. Which of the following CANNOT be claimed as deduction?

a. Gifts made to or for the use of the National Government
b. Gifts in favor of an educational institution
c. Both a and b
d. Neither a nor b

A

D. Since A and B are ALREADY EXEMPT IN THE FIRST PLACE, THUS CANNOT BE CLAIMED AS DEDUCTION.

38
Q

What exemptions/deductions are available to NRAs when computing donor’s tax?

A

Same with Residents and Citizens

  1. Gifts to Government
  2. Gifts to educational, charitable, religious, etcetera
  3. Encumbrances on gift assumed by donee
  4. Diminution of gift provided by the donor.
39
Q

Abdul wants to donate to the victims of Typhoon Yolanda. What can he do to avoid paying donor’s tax?

A

His donation must be coursed through the proper government/charitable institution to avoid paying donor’s tax.

40
Q

T or F
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 provisions of the Civil Code of the Philippines and the Family Code of the Philippines.

A

True.

41
Q

Don Abdul died with a net distributable estate of 1,200,000 for his children Abdullah, Mohammed and Ibrahim. Ibrahim renounces his 400,000 share in the net estate IN FAVOR OF NO PARTICULAR ASSIGNEE. What kind of renunciation occurred? What is its effect?

A

General renunciation of inheritance. This kind of reallocation is exempt from donor’s tax.

42
Q

Don Abdul died with a net distributable estate of 1,200,000 for his children Abdullah, Mohammed and Ibrahim. Ibrahim renounces his 400,000 share in the net estate IN FAVOR OF Abdullah to the exclusion of Mohammed. What kind of renunciation occurred? What is its effect?

A

Specific renunciation of inheritance. This is a constructive donation subject to donor’s tax. It is as if Ibrahim accepted his inheritance from Don Abdul and then transferred the inheritance to Abdullah.

43
Q

Don Abdul died with a net distributable estate of 1,200,000 for his children Abdullah and Ibrahim. Ibrahim renounces his 400,000 share in the net estate IN FAVOR OF NO PARTICULAR ASSIGNEE. What kind of renunciation occurred? What is its effect?

A

In this case, where the effect of the renunciation is the same whether specific or general, is EXEMPT from donor’s tax. Abdullah will still receive Ibrahim’s share since there are no other heirs.

44
Q

Don Abdul died with a net distributable estate of 1,200,000 for his wife Abdullah, and children Mohammed and Ibrahim. Abdullah renounces her 400,000 share in the net estate IN FAVOR OF NO PARTICULAR ASSIGNEE. What kind of renunciation occurred? What is its effect?

A

General renunciation of inheritance. This kind of reallocation is exempt from donor’s tax.

45
Q

Don Abdul died with a net distributable estate of 1,200,000 for his wife Abdullah, and children Mohammed and Ibrahim. Abdullah renounces her 400,000 share in the net estate IN FAVOR OF Ibrahim. What kind of renunciation occurred? What is its effect?

A

Specific renunciation of inheritance. This is a constructive donation subject to donor’s tax. It is as if Abdullah accepted his inheritance from Don Abdul and then transferred the inheritance to Ibrahim.

46
Q

Don Abdul died with a net distributable estate of 1,200,000 for his wife Abdullah, and children Mohammed and Ibrahim. Abdullah also renounces her share in the common properties of 1,000,000 in favor of her children. How shall the renunciation of Abdullah be treated?

A

The renunciation of Abdullah of her share in the common properties shall be treated as a taxable donation. This is because her share pertains exclusively to her, and therefore she is donating it, without regard to the renunciation being specific or general.

47
Q

What are the void donations under the Civil Code?

A

a. Donation between spouses, except minor gifts
b. Donation between persons who were guilty of adultery or concubinage
c. Donations between persons found guilty of the same criminal offense, in consideration thereof
d. Donations to a public officer or his wife, descendants or ascendants by reason of his office
e. Donations to incapacitated persons
f. Donations of future property

48
Q

What does Animo dodandi mean?

A

It means “with intent to make a gift”

49
Q

T or F
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 and not the tax code.

A

True.

50
Q

T or F
The general renunciation of the surviving spouse of his/her share in the COMMON/CONJUGAL PROPERTY in favor of another person or the other heirs is not subject to donor’s tax.

A

False. Renunciation of share in common property is always subject to donor’s tax.

51
Q

T or F
Renunciation of the share in Common/Conjugal property of a surviving spouse is always subject to donor’s tax.

A

True.

52
Q

Explain the instances wherein a renunciation of an inheritance becomes subject to donor’s tax.

A

To be subject to donor’s tax, the two conditions below must be present:

  1. Renunciation was made expressly in favor of an heir
  2. To the exclusion or disadvantage of another heir.
53
Q

Explain the surcharges and interest that may accrue when paying donor’s taxes.

A

If the donor’s tax return was filed and/or paid after the due date, surcharges and interest on the internal revenue tax will be imposed as follows:

A. SURCHARGES
50% - false or fraudulent return is willfully filed
- willful neglect to file return on time

25% - failure to file any return and pay tax due thereon
- return is not filed with proper internal revenue
officer
- failure to pay on time any deficiency as shown in
the notice of assessment

B. INTEREST - 12% PER ANNUM computed from the date prescribed for payment until amount is fully paid.

54
Q

Abdul, resident of Sulu, donated to Masjid a property located in Zamboanga. The deed of donation was signed in the residence of Masjid in Tawi-tawi. The donor’s tax return must be filed where?

A

Donor’s tax returns must be filed where the donor is DOMICILED AT THE TIME OF TRANSFER, therefor it must be filed in Sulu.

55
Q

T or F
Only one return shall be filed for several gifts by a donor to many different donees on the same date.

A

True. There shall be one return per every date of donation regardless of the number of donees.

56
Q

T or F
Like Estate taxation, the filing of donor’s tax return can also be extended under meritorious cases.

A

FALSE. No extension is allowed for filing of donor’s tax return.

TAXATION - Review (23 decks)

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