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Donor’s Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. It shall 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.
Requisites of Valid Gift: ADIC • acceptance by the donee • delivery, whether actual constructive, of the subject gift • donative intent • capacity of the donor or
Kinds of Donations: • Donation inter vivos: a donation made between living persons; perfection is at the moment when the donor knows of the acceptance of the donee (except immovable properties); subject to donor’s tax • Donation mortis causa: a donation which takes effect upon the death of the donor; subject to estate tax.
Who are required to file the Donor’s Tax Return? Every person, whether natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.
When to file Donor’s Tax? Within thirty days (30) after the date the gift (donation) is made. A separate return will be filed for each gift (donation) made on the different dates during the year reflecting therein any previous net gifts made during the same calendar year. If the gift (donation) involves conjugal/community/property, each spouse will file separate returns corresponding to his/ her respective share in the conjugal/community property. This rule will also apply in the case of coownership over the property.
When to pay the tax? Pay at the time of filing (payas-you-file system). BIR Form 1800 – Donor’s Tax Return
TAX RATES on Net Gift: (Effective January 1, 1998 to present) q Relative: Graduated Rates Net Gift Over But not Over Tax shall be Plus Of Excess Over 100, 000 exempt 100, 000 200, 000 0 2% 100, 000 200, 000 500, 000 2, 000 4% 200, 000 500, 000 1, 000 14, 000 6% 500, 000 1, 000 3, 000 44, 000 8% 1, 000 3, 000 5, 000 204, 000 10% 3, 000 5, 000 10, 000 404, 000 12% 5, 000 10, 000 And over 1, 004, 000 15% 10, 000 q. Stranger: 30%
Who is a Stranger? A stranger is a person who is not a: • brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or • relative by consanguinity in the collateral line within the fourth degree of relationship (up to first cousin).
GROSS GIFTS Gifts may be real or personal properties. Personal may be tangible, intangible or mixed. Inclusions: • Citizens or residents: all properties within and without • Non-resident alien: - all real and tangible properties within, and - intangible personal properties, unless there is reciprocity.
Items deemed Gifts or Donations: § Condoned or remitted debt § Transfer made in trust to another person § Property, other than real personal property transferred for less than adequate or full consideration. § Renunciation by the surviving spouse of his conjugal partnership or absolute community in favor of the heirs.
Valuation: § Personal property: FMV at time of donation. § Real property: • FMV as determined by the CIR (Zonal Value) or FMV in the latest schedule of values of the prov’l or city assessor (MV per Tax Declaration), whichever is HIGHER. • If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration. • If there is an improvement, the value of improvement is the construction cost per building permit and or occupancy permit plus 10% per year after year of construction, or the market value per latest tax declaration.
What donations are tax exempt? Ø Dowries or donations made on account of marriage before its celebration or within one year thereafter, by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first P 10, 000; Ø Donations to persons not strangers of not more than P 100, 000 per year; Ø 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 subdivision of the said Government; Ø Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philantrophic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes; Ø Encumbrances on the property donated if assumed by the donee in the deed of donation; and
Ø Donations made to the following entities as exempted under special laws: • Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines; • Development Academy of the Philippines • Integrated Bar of the Philippines • International Rice Research Institute • National Social Action Council • Ramon Magsaysay Foundation • Philippine Inventor’s Commission • Philippine American Cultural Foundation • Task Force on Human Settlement on the donation of equipment, materials and services
What is the treatment for exemptions? Exemptions are not to be treated as exclusions but they partake as deductions and therefore, deductible from gross gifts in order to arrive at taxable net gifts.
What is a Non-Profit Educational and /or Charitable Corporation? It is one which incorporated as a nonstock entity paying no dividends, governed by trustees who received no compensation, and devoting all its accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.
Net Gift § The net economic benefit from the transfer that accrues to the donee. § Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee 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.
Formula: On First Donation of a Year: Gross Gift Less: Deduction/Exemption Net Gift Multiply by Tax Rate Donor’s Tax On Subsequent Donations during the Year: XXX (XXX) XXX XX% XXX Gross Gift Less: Deduction/Exemption Net Gift Add: All prior Net Gifts Total Net Gift Multiply by Tax Rate Donor’s Tax on Total Net Gifts Less: DT on All prior Net Gifts Donor’s Tax XXX (XXX) XXX XXX XX% XXX XXX
What is Donor’s Tax Credit? A situation may arise when the property given as a gift is located in a foreign country and the donor may be subject to donor’s tax twice on the same property – Philippine government and foreign country where property is located.
Who are entitled to claim credits? Only resident and citizen donors.
Formula: The allowable tax credit is the lower amount between the actual tax donor’s tax paid and the tax credit limit under formula (a) and (b). a. For donor’s taxes paid to one foreign country b. For donor’s taxes paid to two or more foreign country NG – 1 FC X Philippine Donor’s Tax NG - total = Tax credit limit NG – all FC X Philippine Donor’s Tax NG - total = Tax credit limit
Limitations on tax credit: • The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent’s net gifts situated within such country taxable under the NIRC bears to his entire net gift; and • The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent’s net gift situated outside the Philippines taxable under the NIRC bears to his entire net gift.