Transfer Taxes (Estate and Donor's)

Question 1

What are the possible combinations of present tax and previous tax to claim vanishing deductions?

Answer 1

Present Tax: Estate Tax

Previous Tax: Either Estate or Donor’s Tax

*The previous tax must be a tax on gratuitous transfer*

Question 2

How do you compute initial basis for vanishing deductions?

Answer 2

Lower of (1) FV date of inheritance, or (2) FV date of death of decedent

Less: Mortgage paid

= Initial Basis

Question 3

How do you compute final basis for vanishing deductions?

Answer 3

IB

Less: IB/GE * (ELIT + TPU)

= Final Basis

Question 4

From the final basis, how do you compute the deductible vanishing deductions?

Answer 4

Final Basis * Applicable rate

Question 5

What are the applicable rates for vanishing deductions?

Answer 5

• 100% : Not more than 1 year from time of inheritance
• 80% : Not more than 2 years from time of inheritance
• 60% : Not more than 3 years from time of inheritance
• 40% : Not more than 4 years from time of inheritance
• 20% : Not more than 5 years from time of inheritance”

Question 6

May vanishing deductions be claimed a second time on property already subjected to vanishing deductions before?

Answer 6

No. No two successive vanishing deductions.

Question 7

When is notice of death required to be filed with BIR?

Answer 7

“Gross estate exceeds 20,000 Notice of death filed within 2 months from date of death”

Question 8

When is Estate Tax Return required to be filed?

Answer 8

“1. Gross estate exceeds 200,000 OR 2. Regardless of value of GE, if gross estate contains registrable property Filed within 6 months from date of death.”

Question 9

When is payment of Estate Tax Return?

Answer 9

General rule: Pay as you file

Question 10

May extension of payment of ETR be granted?

Answer 10

“Yes, in meritorious cases, a 30-day extension may be granted. But if payment of estate tax will cause undue hardship on the estate, payment may be settled judicially or extrajudicially. Judicial: 5 years from date of death Extrajudicial: 2 years from date of death”

Question 11

When is CPA Certificate required to accompany the estate tax return?

Answer 11

When gross estate exceeds 2,000,000.

Question 12

“Decedent A’s Gross Estate consists of old clothes amounting to 18,000 pesos. Notice of death? ETR? CPA Certificate?”

Answer 12

“1. No 2. No 3. No”

Question 13

“Decedent B’s Gross Estate consists of old jewelry and clothes amounting to 150,000 pesos Notice of death? ETR? CPA Certificate?”

Answer 13

“1. Yes 2. No 3. No”

Question 14

“Decedent C’s Gross Estate consists of an old car amounting to 180,000. Notice of death? ETR? CPA Certificate?”

Answer 14

“1. Yes 2. Yes 3. No”

Question 15

“Decedent D’s Gross Estate consists of agricultural land amounting to 190,000. Notice of death? ETR? CPA Certificate?”

Answer 15

“1. Yes 2. Yes 3. No”

Question 16

“Decedent E’s Gross Estate consists of jewelry, furniture, and appliances amounting to 200,000. Notice of death? ETR? CPA Certificate?”

Answer 16

“1. Yes 2. No (does not exceed 200,000) 3. No.”

Question 17

“Decedent F’s Gross Estate consists of jewelry, furniture, and old clothes amounting to 240,000. Notice of death? ETR? CPA Certificate?”

Answer 17

“1. Yes 2. Yes 3. No”

Question 18

“Decedent G’s Gross Estate consists of house and lot and old clothes amounting to 2.4M. Notice of death? ETR? CPA Certificate?”

Answer 18

“1. Yes 2. Yes 3. Yes”

Question 19

Two kinds of donation?

Answer 19

“1. Donation mortis causa - takes effect upon death of the donor (partakes of the nature of a testamentary disposition) - subject to ESTATE TAX 2. Donation inter vivos - takes effect during lifetime of the donor - subject to DONOR’S TAX”

Question 20

Is donor’s tax a progressive, proportional, or regressive tax?

Answer 20

Progressive and proportional.

Question 21

When is donor’s tax progressive?

Answer 21

When donor and donee are relatives (not strangers)

Question 22

When is donor’s tax proportional?

Answer 22

When donor and donee are strangers (fixed rate: 30%)

Question 23

(T/F) Gross gift of NRC includes gifts within and without the Philippines.

Answer 23

“TRUE. When the NIRC was amended, the Donor’s and Estate taxes were not touched. Thus, residents or citizens, for donor’s and estate tax purposes, are taxed on gross gift/estate WITHIN AND WITHOUT the Philippines. Non-resident aliens are taxed only on gross gifts wtihin the Philippines.”

Question 24

Who are relatives for purposes of donor’s tax (4)?

Answer 24

“1. Spouse 2. Ancestor / lineal descendant 3. Brother / sister (whole or half blood) 4. Collateral relative, within 4th degree of consanguinity **A brother / sister is technically a collateral relative as well.”

Question 25

(T/F) Siblings are second degree collateral relatives.

Answer 25

True.

Question 26

(T/F) First degree cousins are fourth degree collateral relatives to each other.

Answer 26

True.

Question 27

(T/F) Donations on account of marriage by non-resident aliens are deductible from gross gift.

Answer 27

False. Dowry deductions are allowed only on gifts from residents and citizens.

Question 28

Dowries given to whom may be claimed as deductions from gross gift?

Answer 28

“Children who are: 1. Legitimate 2. Recognized natural 3. Legally adopted (raised to status of legitimate children)”

Question 29

(T/F) Additional exemptions for income tax may be claimed for illegitimate children who are not natural.

Answer 29

True.

Question 30

(T/F) Dowry deductions may be claimed for donations given to children who are not natural.

Answer 30

False. Must be recognized natural.

Question 31

When may dowry deductions be claimed?

Answer 31

“Before, during, or within one year after the marriage. (Note: the one year rule is AFTER marriage, not before).”

Question 32

What amount of dowry deductions may be claimed?

Answer 32

Max 10,000 pesos per parent, per marriage of the child.

Question 33

When is donor’s tax return filed and paid?

Answer 33

Within 30 days after gift is made. No extension.

Question 34

Exclusive properties under CPG (4)

Answer 34

[KEY: OGRE]

1. That which is brought to the marriage as his or her own;
2. That which each acquires during the marriage by gratuitous title (through pure liberality, as in donation and testate/intestate succession). The fruits and income, however, shall pertain to conjugal property.
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.

NOTE: Fruits, rents, or interests received during marriage, coming from exclusive properties of the spouses, form conjugal property.

Question 35

(T/F) The exclusive property of the surviving spouse is not part of the gross estate of the decedent.

Answer 35

True.

Question 36

(T/F) Under the absolute community of property, jewelry for personal and exclusive use of the wife shall belong to the wife.

Answer 36

False. Belongs to community property of the husband and wife.

Question 37

Exclusive properties under ACP (3)

Answer 37

[KEY: LPG]

1. 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.
2. Property for personal and exclusive use of either spouse. However, jewelry shall form part of the community property;
3. Property acquired during the marriage by gratuitous title (by donation and by testate/intestate succession) 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;

Question 38

The amount to be included in the gross estate of A is _______.

Answer 38

P100,000

Question 39

One of the following is not an exemption or exclusion from the gross estate.

Answer 39

C.

Question 40

A died leaving a farm land. In his will, he transferred ownership thereof to B but subject to the condition that C will have the right to use the land for a period of ten years.

In the seventh year, C died, surrendering his right over the land to B.

Comment.

Answer 40

Tax-exempt transfer (merger of usufruct in owner of naked title)

Question 41

Written notice shall be given to the CIR if the gross estate exceeds _______.

Answer 41

Php 20,000

Question 42

In which of the following cases will proceeds of life insurance be includible in the gross estate?

CASE 1

• Beneficiary: Estate
• Designation: Whether revocable or irrevocable

CASE 2

• Beneficiary: Executor
• Designation: Whether revocable or irrevocable

CASE 3

• Beneficiary: Administrator
• Designation: Whether revocable or irrevocable

CASE 4

• Beneficiary: 3rd person
• Designation: Only if revocable

Answer 42

In all mentioned cases, proceeds of life insurance are includible in gross estate.

Question 43

As a rule, estate tax return should be filed under oath if the gross estate exceeds ___________.

Answer 43

200,000.

Question 44

(T/F) If the estate contains registrable property, such as real property, motor vehicle, shares of stock, or other similar property from which a clearance from BIR is required as a condition for transfer of ownership, estate tax return should be filed under oath regardless of the value of the gross estate.

Answer 44

True.

Question 45

Analyze:

(T/F) Fruits and income of exclusive property shall belong to the spouses.

(T/F) Donations made by the decedent during lifetime but to take effect upon his death shall be exempt from estate tax.

Answer 45

1. False. This is true only under CPG.
2. False. Donations mortis causa are includible in the gross estate.

Question 46

Analyze:

(T/F) Property brought to the marriage by either spouse shall belong to both spouses.

(T/F) The share of the surviving spouse in the conjugal property is part of the gross estate of the decedent.

Answer 46

1. False. This is true only under ACP.
2. True.

Question 47

Analyze:

(T/F) Taxation of the estate shall be governed by the statute or law in force at the time of distribution of the estate to the heirs.

(T/F) Succession takes place upon the determination of the respective share of the heirs in the estate of the decedent.

Answer 47

1. False. Law in force at the time of death.
2. False. Takes place upon death

Question 48

Analyze:

1. The family home includes the house and lot where the house stands.
2. The value of the house and lot where it stands, if a family home, is deductible from the estate of the decedent.

Answer 48

1. True
2. False. Deductible only up to 1M.

Question 49

Analyze:

1. When exclusive property is sold during the marriage, the proceeds become property of the spouses.
2. The legal heirs of the decedent must be determined first before the correct estate tax may be ascertained.

Answer 49

1. False. Only true if CPG.
2. False. The right of the State to tax the estate vests instantly upon death of the decedent.

Question 50

Analyze:

1. Under ACP, property acquired before marriage by either spouse including fruits and income shall belong to both spouses.
2. Unless stipulated, the property relations shall be governed by CPG for marriages celebrated on or before August 3, 1988.

Answer 50

1. False, if may legal descendants from a former marriage.
2. False. Before Aug. 3, 1988 - CPG. On or after Aug. 3, 1988 - ACP.

Question 51

Analyze:

1. The cost of burial plot, tombstone, monument or mausoleum, mourning apparel, expenses of the wake, and notices are deductible from gross estate as funeral expenses.
2. Expenses incurred for the performance of the rites and ceremonies incident to interment and those incurred after interment are part of funeal expense.

Answer 51

1. False. Only up to 5% GE, 200,000, or actual, whichever is lowest.
2. False. Only funeral expenses incurred up to date of interment.

Question 52

(T/F) The administrator or executor shall submit a statement showing the disposition of the loan proceeds if the claims against the estate was contracted within five years before the death of the decedent.

Answer 52

False. Three years before the death of the decedent.

Question 53

(T/F) If the property is inherited before marriage, it will belong to both spouses, while if it is inherited during marriage, it will be exclusive property.

Answer 53

First clause: True, if ACP

Second clause: True, under both ACP and CPG

Question 54

(T/F) The court may authorize the distribution of the estate to an heir if in its sound discretion it believes that the heir badly needs his share.

Answer 54

False. The CIR is authorized to do this, not the courts.

Question 55

(T/F) The administrator or any of the heirs, may however, upon authorization of the BIR, withdraw from the decedent’s bank deposits P20,000 without the required certification that the estate tax has been paid.

Answer 55

True.

Question 56

Analyze:

1. Unpaid mortgage indebtedness is deductible from the gross estate, provided that the said property subject to indebtedness is included in the gross estate, net of the mortgage indebtedness.
2. A donation inter-vivos by the decedent to the PH government a few months before his death is a deduction from the gross estate.

Answer 56

1. False. Gross of mortgage indebtedness
2. False. Subject to donor’s taxation.

Question 57

Analyze:

1. A died giving B power to appoint a person who will inherit A’s house and lot. B, however, can only choose among C, D, E, and F. B decided to transfer the property to C, in B’s will, when he was old already. The transfer from B to C is subject to estate tax.
2. During A’s lifetime, he decided to give B as gift his car subject to the condition that if B does not become a CPA within 3 years, A shall revoke the transfer. In the second year, A died. The car can no longer form part of A’s gross estate.

Answer 57

1. False. This is a special power of appointment, not subject to estate tax.
2. False. As of the time A died, it was still a revocable transfer, subject to estate tax.

Question 58

Intangible personal property considered to be situated in the PH

Answer 58

• Franchise which must be exercised in the Philippines;
• Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws;
• Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines
• Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; and
• Shares or rights in any partnership, business or industry established in the Philippines

Question 59

May non-resident aliens claim standard deduction?

Answer 59

No. No special deductions for NRA.

Question 60

Transfers for public use are generally exclusive deductions.

Answer 60

Okay!