Simplified Donor's Tax Reviewer

COMPILED NOTES: SABABAN, MAMALATEO & CHAVEZ

MARIVIC B. DE GRACIA TAXATION 2 MARIVIC DE GRACIA

DONOR’S TAX

transferee before the death of the transferor Transferor retains the ownership, full or naked, of the property conveyed

DONATION- is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in favour of another (done) who accepts it. (Art. 725 NCC) -A person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor provided do not constitute a demandable debt or when the gift imposes upon the done a burden which is less than the value of the thing given. (Art. 726 NCC)

Donor’s death determines the acquisition of the right to the property The transfer is revocable before the transferor’s death, the donor has reserved power to dispose the 2 property conveyed.

GR: the person who gratuitously disposes of a thing must not receive any consideration whether money, service or property on account of such transfer.

The transfer would be void if the transferor survived the transferee Being in a form of will, need not be accepted by the donee’s during the lifetime of the donor

EXCEPTION: 1. Extends to sales or exchanges for less than adequate and full consideration in money or money’s worth. (Sec. 100 NIRC)

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Acceptance requirement

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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 the ownership (full or naked) and control of the property while alive;

2. Condonation or remission of the debt, not due to rendition of service. 3. Renunciation of inheritance in favour of identified heir/s to the exclusion of other co-heirs. (Sec. 11[4] RR-2-03)

2. That before his death, the transfer should be revocable by the transferor at will ad nutum; but revocability may be provided in the donor to dispose of the properties conveyed; and

KINDS OF DONATION

If not embodied in a valid will, the donation is void 1 (Puig v. Penaflorida ) Transfer conveys no title or ownership to the

The transfer is irrevocable

CHARACTERISTICS OF DONATION MORTIS CAUSA

-only the difference between the FMV of the property and the value of the consideration which is deemed as donation.

DONATION MORTIS CAUSA Estate tax (5%-20%) Made in consideration of death without the donor’s intention to lose the thing conveyed or its free disposal in case of survival Testamentary in nature, should be embodied in a last will and testament (Art. 728 NCC)

the donor is still alive

DONATION INTER VIVOS Donor’s tax (2%-15%) Is made without such consideration but out of the donor’s generosity

3. That the transfer should be void if the transferor should survive the transferee.

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“Irrevocabilty” is a quality absolutely incompatible with the idea of conveyances mortis causa, where “revocability” is precisely the essence of the act. (Austria-Magat v. CA) 3 “Donation Mortis Causa” is not controlling; if the donation by its terms is inter vivos, this character is not altered by the fact that the donor styled it mortis causa. (Del Rosario v. Ferrer GR. 187056, Sept. 20, 2010)

Its effect is produced while

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In case of doubt, the conveyance should be deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of the property subject of the deed. (Puig v, Penaflorida)

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DONOR’S TAX/ GIFT TAX

FORMULA IN CASE OF SECOND DONATION WITHIN THE SAME CALENDAR YEAR:

-not a property tax but an excise tax imposed on the privilege of the owner to give. -imposed upon the transfer by any person, resident or non-resident, of any property by gift. (Sec. 99 NIRC) -apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. (Sec. 98 NIRC)

GROSS GIFT ALLOWED DEDUCTION/ EXEMPTION NET GIFT Add: PRIOR NET GIFTS WITHIN THE SAME CALENDAR YEAR TOTAL TAXABLE NET GIFTS Multiply: RATE___________________________________ DONOR’S TAX DUE ON TOTAL NET GIFTS 5 Less: DONOR’S TAX DUE ON PRIOR GIFTS W/IN THE SAME CY DONOR’S TAX PAYABLE Less:

FORMULA:

PERFECTION OF DONATION -it is perfected from the moment the donor knows of the acceptance by the done

GROSS GIFTS ALLOWED DEDUCTION/ EXEMPTION NET GIFTS Multiply: RATE______________________ TAXABLE NET GIFTS 4 Less: TAX CREDIT __________________ DONOR’S TAX PAYABLE Less:

COMPLETION OF THE DONATION -completed by the delivery either actually or constructively of the donated property to the done. LAW GOVERNING THE IMPOSITION OF DONOR’S TAX -law in force at the time of the perfection/completion of the donation shall govern the imposition of donor’s tax. ESSENTIALS OF A TAXABLE DONATION 1. Capacity of the donor 2. Donative intent -transfer of properties from one corporation to another corporation which is connected with, subordinate to and a district or local organization or branch of the transferor corporation is not subject to donor’s tax because wanting in donative intent -required in transfers of property for less than adequate and full consideration 3. Delivery, whether actual or constructive 4. Acceptance of the gift by the donee

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TAX CREDIT- allowed only for residents and citizens of the Philippines for the donor’s taxes they paid in foreign country LIMITATIONS: a. the amount of the credit shall not exceed the same proportion of the tax against such credit is taken, which the net gifts situated within such country taxable under donor’s tax bears to his entire net gifts; b. the amount of the tax credit shall not exceed the same proportion of the tax credit shall not exceed the same proportion of the tax against such credit is taken, which the donor’s net gifts situated outside the Philippines taxable under donor’s tax bears to his entire net gifts.

GROSS GIFT FACTORS AFFECTING GROSS GIFT: 1. Citizenship and residence of the donor at the time of donation 2. Location of the property

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Deducted because it has been paid.



CLASSIFICATION OF DONOR IMMOVABLE AND TANGIBLE PERSONAL PROPERTY WITHIN WITHOUT RCD RAD NRCD NRAD NRAD WITH 6 RECIPROCITY

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ALLOWED DEDUCTIONS OR EXEMPTIONS FROM THE GROSS ESTATE -tax for each calendar year shall be computed on the basis of the total net gifts made during the year.

INTANGIBLE PERSONAL PROPERTY WITHIN 

1. Donor’s tax due is computed on a cumulative basis; 2. The donor’s tax due is based on the net gifts

WITHOUT 

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DONATION OF CONJUGAL PROPERTY -whether married or single -properties owned by the spouse whether under conjugal partnership or absolute community are treated as a separate donation. -husband and wife are equally regarded as a separate donor. 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 IS SUBJECT TO DONOR’S TAX. -whereas, GENERAL RENUNCIATION by an heir , including the surviving spouse, of his/her in the hereditary estate is NOT SUBJECT TO DONOR’S TAX.

VALUATION OF DONATION CASH Value or face amount of the currency

PERSONAL PROPERTY FMV at the time donation

REAL PROPERTY of

FMV fixed by the Provincial and City Assessor or the FMV as determined by the BIR, whichever is higher.

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If there is a reciprocity clause such intangible personal property located within the Philippines is NOT subject to donor’s tax, therefore not included in the gross gift.

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RCD, RAD, NRCD 

EXEMPTION OF CERTAIN GIFTS DOWRIES

NRAD -

Requisites: i. made on account of marriage and before its celebration or within 1 year thereafter ii. by parents to each of their legitimate, recognized natural, or adopted children iii. to the extent of first P10,000. GIFTS TO NATIONAL GOVERNMENT -not conducted for profit GIFTS TO POLITICAL SUBDIVISION GIFTS IN FAVOR OF: i. educational ii. charitable iii. religious iv. cultural v. social welfare corporation, institution vi. accredited nongovernmental organization vii. trust or philanthropic organization viii. research institution or organization

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Requisites: i. the entity or institution must either or any of those mentioned ii. not more than 30% of said gifts shall be used by such done for administration iii. incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students’ fee or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of incorporation. rd

Note: in case of NRA 3 requisite does not apply MORTGAGE ASSUMED BY THE DONEE If a mortgaged property is transferred as gift, BUT imposing upon the done the obligation to pay the mortgage liability, -then the net gift is measured by deducting from the FMV of the property the amount of mortgage assumed. (Sec. 11, RR 2-03) DIMINUTIONS Eg. If A donated P500,000 to B with instruction that B shall give P100,000 to SSC-R, the taxable net gift would only be P400,000.

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EXEMPTION UNDER SPACIAL LAWS: 1. donations to Philippine government for scientific, engineering and technological research, invention and development (RA 1606) 2. Donations to social welfare, cultural, and charitable organizations (PD 507; RA 1916) 3. Donations to the International Rice Research Institute (RA 2707) 4. Donations to Ramon Magsaysay Award Foundation (RA 3076) 5. Donations to Southern Philippines Development Administration (PD 690) 7. Donations to the Intramuros Administration (PD 1616)

TAX PAYABLE BY THE DONOR IF DONEE IS A STRANGER -30% of the net gifts STRANGER: a. Brother, sister (whether by whole or half-blood), legally adopted child spouse, ancestor, and lineal descendant; or th b. Relative by consanguinity in the collateral line within the 4 degree of relationship c. donation made between business organizations and those made between an individual and a business organization

PROCEDURE FOR COMPUTING NET GIFTS DONATIONS TO POLITICAL PARTY OR COALITION OF PARTIES FOR ELECTION CAMPAIGN -governed by the Election Code -Political/electoral contributions, duly reported to the COMELEC, are not subject to the payment of any gift tax.

NET GIFT- the net economic benefit from the transfer that accrues to the donee. The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the schedule of tax rates prescribed in the law.

FILING OF RETURNS AND PAYMENTS OF DONOR’S TAX (Sec. 103) The tax is imposed on the cumulative basis during the calendar year; i.e., the rates are applied on the aggregate net gifts during the calendar year, but donor’s taxes paid during the calendar year are credited against the donor’s tax due on the latest donation during the same calendar year.

Requirements: -any person making a donation unless donation is specifically exempt is required, for every donation, to accomplish under oath a donor’s tax return in duplicate.

SCHEDULAR RATES OF DONOR’S TAX IMPOSABLE ON DONATION MADE TO A DONEE WHO IS NOT A STRANGER. BUT NOT OVER P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

OVER P 100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

THE TAX SHALL BE EXEMPT 0 2,000 14,000 44,000 204,000 404,000 1,004,000

PLUS

OF THE EXCESS OVER

2% 4% 6% 8% 10% 12% 15%

P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

TIME AND PLACE OF FILING AND PAYMENT Donor’s tax return: filed within 30 days after the date the gift is made or completed, no extension allowed Tax due: paid at the same time that the return is filed/ pay as you file Place of filing: a. authorized agent bank b. revenue district officer c. revenue collection officer d. duly authorized treasurer of the city or municipality where the donor was domiciled at the time of the transfer 7 e. if there be no legal residence in the Philippines: Office of the Commissioner f. the case of gifts made by a non-resident, the return may be filed with the Philippine Embassy or consulate in the country where he is domiciled at the time of the transfer; or directly with the Office of the Commissioner 7

Office of the commissioner shall refer to the revenue District Office having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner or presently, to the revenue District Office (Sec. 13, RR 2-03)

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NOTICE OF A DONATION BY A DONOR ENGAGED IN BUSINESS -In order to be exempt from donor’s tax and to claim full deduction of the donation the following must concur: 1. ACCREDITATION- given to qualified done institution duly accredited by the Philippine Council for NGO certification Inc. 2. NOTICE OF DONATION- the donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the revenue district office which has jurisdiction over his place of the business within 30 days after receipt of the qualified done institution, which shall be attached to the notice of donation 3. CERTIFICATION OF DONATION- stating that not more than 30% of said donation for the taxable year shall be used such accredited non stock, non profit corporation for administration purposes.

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CASE DIGEST

APOLINARIA AUSTRIA-MAGAT VS. COURT OF APPEALS

PUIG v. PENAFLORIDA

On December 17, 1975, Basilisa Comerciante, mother of petitioner and one of respondents, furnished a Deed of Donation to donate her house and lot to her four children (petitioner and respondent included), provided that the funeral expenses will be deducted from the total value of the lot before it is to be divided among the children. The children signed to the same deed in acceptance to the donation. That same day, they also signed into a notarized document stating that the property and the document pertaining to the same will be under the custody of the original owner (Comerciante) for as long as she lives. On February 6, 1979, Comerciante executed a Deed of Absolute Sale over the same house and lot in favor of the petitioner, prompting the respondents to file an action against the petitioner for the annulment of the deed of sale on September 21, 1983. The lower court ruled in favor of the respondent (petitioner herein), but the Court of Appeals reversed the trial court decision.

Carmen Ubalde Vda. de Parcon died in the City of Iloilo, without forced heirs, leaving certain properties in the City and province of Iloilo. She left a will and was survived by nephews and nieces, children of her predeceased brother, Catalino Ubalde, and sister, Luisa Ubalde, married to Ariston Magbanua. Besides her will, the deceased had executed two notarial deeds of donation. One, entitled DONACION MORTIS CAUSA, was executed on November 24, 1948, in favor of her niece, Estela Magbanua. The deceased executed another deed of donation, also entitled "ESCRITURA DE DONACION MORTIS CAUSA" in favor of the same donee, Estela Magbanua Peñaflorida, conveying to her three parcels of land Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that the reservation by the donor of the right to dispose of the property during her lifetime in the deed of December 28, 1949 indicates that title had passed to the donee in her lifetime, otherwise, it is argued, the reservation would be superfluous.

TC: (1) The donation is a donation mortis causa based on the provision on the deed of donation that it would take effect upon the death of the donor. (2) The provision stating that the donor reserved the right to revoke the donation is a feature of a donation mortis causa which must comply with the formalities of a will (3) Inasmuch as the donation did not follow the formalities pertaining to wills, the same is void and produced no effect whatsoever. Hence, the sale by the donor of the said property was valid since she remained to be the absolute owner thereof during the time of the said transaction.

IS THE DONATION MORTIS CAUSA OR INTER VIVOS? The Court in its decision took to account not only the foregoing circumstance but also the fact that the deceased expressly and consistently declared her conveyance to be one of donation mortis causa, and further forbade the registration of the deed until after her death.

CA: A provision in the deed of donation in question providing for the irrevocability of the donation is a characteristic of a donation inter vivos. By those words, the donor expressly renounced the right to freely dispose of the house and lot in question. The right to dispose of a property is a right essential to full ownership. Hence, ownership of the house and lot was already with the donees even during the donor’s lifetime.

The power, as reserved in the deed, was a power to destroy the donation at any time, and that it meant that the transfer is not binding on the grantor until her death made it impossible to channel the property elsewhere.

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WHETHER OR NOT THE DEED OF DONATION WAS INTER VIVOS.

remains with the donor is the right of usufruct and not anymore the naked title of ownership over the property donated. In the case at bar, the provision in the deed of donation that the donated property will remain in the possession of the donor just goes to show that the donor has given up his naked title of ownership thereto and has maintained only the right to use (jus utendi) and possess (jus possidendi) the subject donated property.

YES. The court found that whether the donation is inter vivos or mortis causa depends on whether the donor intended to transfer ownership over the properties upon the execution of the deed. In Bonsato v. Court of Appeals, the court recalls the characteristics of a donation mortis causa,: (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 the ownership (full or naked) and control of the property while alive;

Furthermore, the act of selling the property to petitioner herein cannot be construed as a valid act of revocation of donation. A formal case ought to be filed pursuant to Art 764 which speaks of an action bearing a prescriptive period of 4 years from non compliance with the deed of donation. In this case, the 4 year prescriptive period does not even apply because none of the terms (if any) were even violated.

(2)That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed;

In Cuevas v. Cuevas, we ruled that when the deed of donation provides that the donor will not dispose or take away the property donated (thus making the donation irrevocable), he in effect is making a donation inter vivos. He parts away with his naked title but maintains beneficial ownership while he lives. It remains to be a donation inter vivos despite an express provision that the donor continues to be in possession and enjoyment of the donated property while he is alive. In the Bonsato case, we held that:

(3) That the transfer should be void if the transferor should survive the transferee.

For the case at bar, the phrase “hindi na mababawi” definitely exudes the character of an intervivos agreement. The other provisions therein which seemingly make the donation mortis causa do not go against the irrevocable character of the subject donation. According to the petitioner, the provisions which state that the same will only take effect upon the death of the donor and that there is a prohibition to alienate, encumber is mortis causa. The court disagrees. The said provisions should be harmonized with its express irrevocability. In Bonsato where the donation per the deed of donation would also take effect upon the death of the donor with reservation for the donor to enjoy the fruits of the land, the Court held that the said statements only mean that “after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances.

“What is most significant [in determining the type of donation] is the absence of stipulation that the donor could revoke the donations; on the contrary, the deeds expressly declare them to be “irrevocable”, a quality absolutely incompatible with the idea of conveyances mortis causa where revocability is of the essence of the act, to the extent that a testator can not lawfully waive or restrict his right of revocation.”

In Gestopa v. Court of Appeals, the Court held that the prohibition to alienate does not necessarily defeat the inter vivos character of the donation. It even highlights the fact that what

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DEL ROSARIO V. FERRER

In the case at bar, donors Leopoldo and Guadalupe Gonzales intended to make the donation irrevocable, as stated in the provisions of the Deed. Thus, the donation was on reality inter vivos. Thus, given that the donation was indeed inter vivos, Leopoldo’s subsequent assignment of his rights and interests in the property to Asuncion is void.

(Doctrine: Irrevocability of the donation is the standard that identifies the donation as inter vivos. It is a quality absolutely incompatible with the idea of conveyances mortis causa.) Spouses Leopoldo and Guadalupe Gonzales executed a document entitled “Donation Mortis Causa” in favor of their 2 children Asuncion and Emiliano, and their granddaughter Jarabini (daughter of their predeceased son, Zoilo) . The Deed of Donation stated that, “it is our will that this donation mortis causa shall be irreovocable and shall be respected by the surviving spouse.”

A donation mortis causa has the following characteristics:

Although denominated as a donation mortis causa, which in law is equivalent to a will, the deed has no attestation clause and was witnessed only by two persons.

2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; and

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 the ownership (full or naked) and control of the property while alive;

Before the death of donor Leopoldo, he executed a deed of assignment of his rights and interest in the subject property to Asuncion. subsequently, granddaughter Jarabini filed a petition for the probate of the deed of donation mortis causa in the RTC. Jarabini opposed the petition, invoking Leopoldo’s assignment of his rights to her. Decision was rendered by the RTC, ordering the registration of the property in the name of the donees in equal shares. The court ruled that the donation was one made inter vivos, thus the assignment of Leopoldo of his rights was void. CA reversed the decision of the RTC and ruled that the donation, being one given mortis causa, did not comply with the requirements of a notarial will, rendering the same void.

3. That the transfer should be void if the transferor should survive the transferee.

WHETHER OR NOT THE DONATION OF SPOUSES A AND B TO THEIR CHILDREN C AND D AND GRANDDAUGHTER E WAS A DONATION MORTIS CAUSA, AS IT WAS DENOMINATED, OR IN FACT A DONATION INTER VIVOS. The fact that the document in question was denominated as a “Donation mortis causa” is not controlling if a donation by its terms is inter vivos. Irrevocability of the donation is the standard that identifies the donation as inter vivos. It is a quality absolutely incompatible with the idea of conveyances mortis causa.

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