Taxation Law

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ESTATE TAX III. GROSS ESTATE

I. PRINCIPLES AND DEFINITION Section 85. Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the time
Def: Tax on the right to transmit property at death and on of his death of all property, real or personal, tangible or
certain transfers by the decedent during his lifetime which are made intangible, wherever situated: Provided, however, that in the
by the law equivalent of testamentary dispositions. case of a nonresident decedent who at the time of his death was
not a citizen of the Philippines, only that part of the entire gross
Note: estate which is situated in the Philippines shall be included in his
 Tax is measured by the value of the property transmitted at the taxable estate.
time of death, regardless of its appreciation or depreciation.
 The accrual of the tax is distinct from the obligation to pay the (A) Decedent's Interest. - To the extent of the interest therein of the
tax decedent at the time of his death;

II. RATES AND VALUE Note:

 For Estate Tax Purposes: Residence is the domicile of the
RATES OF ESTATE TAX (Sec 84, NIRC) person. (CIR v De Lara)
“There shall be levied, assessed, collected and paid upon the transfer  For Residents and citizens – Gross Estate includes all properties,
of the net estate as determined in accordance with Secs 85 and 86 of real or personal, tangible or intangible, wherever situated. (Sec
every decedent, whether resident or non resident of the PH, a 85, NIRC)
tax rate of 6% based on the value of such net estate”  For Non-Resident aliens:
:  GR: Gross Estate includes only properties situated in the
Rate: 6% Philippines. (Sec 85, NIRC)
Based on: Value of such net estate  XPN: With respect to Intangible Personal Property (IPP) – its
inclusion to the gross estate is the subject to the rule of
DETERMINATION OF THE VALUE OF THE ESTATE (Sec 88, NIRC) reciprocity. (Sec 104, NIRC)
(A) Usufruct. - To determine the value of the right of usufruct, use or o IPPs of the non-resident alien are exempt from the estate
habitation, as well as that of annuity, there shall be taken into tax, if the foreign country of the non-resident alien:
account the probable life of the beneficiary in accordance with a) Does not impose a transfer tax of any character on the
the latest Basic Standard Mortality Table, to be approved by IPP of Filipinos not residents of that foreign country; or
the Secretary of Finance, upon recommendation of the b) Allows a similar exemption from transfer tax in respect
Insurance Commissioner. of IPP owned by Filipinos not residents of that
foreign country.
(B) Properties. - The estate shall be appraised at its fair market value  Rule of Reciprocity does not apply, if any of the two states
as of the time of death. However, the appraised value of real or countries collects or imposes and does not exempt any
property as of the time of death shall be, whichever is higher of - transfer, death, legacy, or succession tax of any character
(CIR v Fisher)
(1) The fair market value as determined by the Commissioner, or  Reciprocity in exemption does not require the “foreign
country” to possess international personality (CIR v
(2) The fair market value as shown in the schedule of values fixed by Campos Rueda)
the Provincial and City Assessors.
 Gross estate includes: any interest or right in the nature of
Note: property, but less than title, having value or capable of having
 Properties comprising the gross estate – valued based on value, like:
the a) Dividends declared, but paid after the death
FMV as of the time of death. b) Partnership profits
 FAIR MARKET VALUE shall be: c) Right of usufruct
1) In case of Real Property:
a) FMV is determined by the Commissioner; or Intangible personal properties located in the PH: (Sec 104, NIRC)
b) FMV as shown in the schedule of values fixed by the a) Franchise, which must be exercised in the PH
Provincial and City Assessor b) Shares, obligations or bonds issued by any corporation
 Whichever is higher or sociedad anonima organized or constituted in the PH
in accordance with its laws
2) In case of Personal Property: c) Shares, obligations or bonds issued by any foreign corporation:
a) If recently acquired by the decedent – Purchase price may i. If 85% of the business of which is located in the PH.
indicate the FMV  Note: This is different from the 50% requirement in the situs
b) If not recently acquired by the decedent – There should be rules for dividends issued by foreign corp for income tax
some evidence of the FMV ii. If such shares, obligations or bonds have acquired a
business situs in the Ph
3) For Shares of Stock, FMV depends on whether the shares are d) Shares or rights in any partnership, business or industry in the
listed or unlisted in the stock exchange: Ph
a) If Unlisted:
i. Common Shares – based on their Book Value Properties not in the estate:
ii. Preferred Shares – based on their Par Value  There may be properties, which at the time of the decedent’s
death, are not in the estate because they were transferred by
b) If Listed: him during his lifetime
i. The mean between the hishest and lowest
quotation on the date of death;  These Transfers are:
ii. If none, the date nearest the death a) Transfers in contemplation of death;
b) Revocable transfers;
4) For use of usufruct c) Transfers under a general power of appointment;
 There shall be taken into account the probable life of d) Transfers for an insufficient consideration;
the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of  The value of these properties will be included in the
Finance, upon the recommendation of the Insurance determination of the gross estate for estate tax purposes.
Commissioner
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Ex. (Bar Exam 2013)
 Gross estate, for purposes of the estate tax, may exceed Facts: Mr. Agustin, 75 years old and suffering from an incurable
the actual value of his assets at the time of his death as it disease, decided to sell for valuable and sufficient consideration
includes the value of transfers of property by him during his a house and lot to his son. He died one year later.
lifetime that partake of the nature of testamentary dispositions.
In the settlement of Mr. Agustin’s estate, the BIR argued that
 These kinds of transfer have the following in common: the house and lot were transferred in contemplation of death
a) They are ostensible transfers, usually with the purpose to and should form party of the gross estate for estate tax purposes.
evade the estate tax
b) They are extension of interest; and ISSUE: is the BIR correct? NO
c) If the transfers are in fact for a bona fide consideration, then
they will not form part of the gross estate (this proviso Ruling: No. The sale of the house and lot to his son was made
is present in all the provisions regarding these transfers) for valuable and sufficient consideration, and hence is not
 Note: As long as the transfers were for a bon a deemed a transfer in contemplation of death. The tax code
fide consideration – You don’t have to add it explicitly states that the transfers for a valuable and sufficient
anymore in determining the gross estate. consideration are not considered transfers in contemplation of
death.

(B) Transfer in Contemplation of Death. (C) Revocable Transfer.

 To the extent of any interest therein of which the decedent has (1) To the extent of any interest therein, of which the decedent has
at any time made a transfer, at any time made a transfer (except in case of a bona fide sale for an
a. by trust or otherwise, in contemplation of or intended adequate and full consideration in money or money's worth)
to take effect in possession or enjoyment at or after death,
or of which he has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject
b. by trust or otherwise, under which he has retained for at the date of his death to any change through the exercise of a
his life or for any period which does not in fact end before power (in whatever capacity exerciseable)
his death a. by the decedent alone or
1. the possession or enjoyment of, or the right to the b. by the decedent in conjunction with any other person (without
income from the property, or regard to when or from what source the decedent acquired
2. the right, either alone or in conjunction with any person, such power),
to designate the person who shall possess or enjoy the
property or the income therefrom; to alter, amend, revoke, or terminate, or where any such power
is relinquished in contemplation of the decedent's death.
Except in case of a bonafide sale for an adequate and
full consideration in money or money's worth. (2) For the purpose of this Subsection,
the power to alter, amend or revoke shall be considered to exist on
Note: the date of the decedent's death even though the exercise of the
 A transfer in contemplation of death – is a transfer motivated power is subject to a precedent giving of notice or even though the
by the thought of death, although death may not be imminent. alteration, amendment or revocation takes effect only on
 The ff examples of circumstances which may be taken into the expiration of a stated period after the exercise of the power,
consideration in determining whether the transfer was made in whether or not on or before the date of the decedent's death notice
contemplation of death: has been given or the power has been exercised.
a) Look at the age and state of health of the decedent at
the time of the transfer (i.e. is he terminally ill) In such cases, proper adjustment shall be made representing
b) Length of time between the transfer and the date of the the interests which would have been excluded from the power if
death the decedent had lived, and for such purpose if the notice has not
c) Concurrent making of a will or making f a will within a short been given or the power has not been exercised on or before the
time after the transfer. date of his death, such notice shall be considered to have been given,
or the power exercised, on the date of his death.
The following transfers in contemplation of death:
a) Transfers, by trust or otherwise, in contemplation or intended Note:
to take effect (in possession or enjoyment) at or after death  REVOCABLE TRANSFER – is a transfer where the terms of
b) Transfers, by trust or otherwise, under which the decedent has the enjoyment of the property may be altered, amended,
retained for his life (or for any period which does not in fact end revoked or terminated by the decedent.
before his death) the possession or enjoyment of or the right to  It is sufficient that the decedent had the power to revoke,
income from the property, or the right to designate the person though he did not exercise the power to revoke.
who shall possess or enjoy the property or the income  Bona fide sales applies.
therefrom.
(D) Property Passing Under General Power of Appointment.
Ex. (Bar Exam 2013)
Facts: Mr. Mayuga donated his residential house and lot to his son  To the extent of any property passing under a general power of
and duly paid the donor’s tax. In the Deed of Donation, Mr. Mayuga appointment exercised by the decedent:
expressly reserved for himself the usufruct over the property for as 1. by will, or
long as he lived. 2. by deed executed in contemplation of, or intended to
take effect in possession or enjoyment at, or after his death,
Issue: Will the house and lot form part of Mr. Mayuga’s Estate? YES or
3. by deed under which he has retained for his life or any period
Ruling: Yes the donation is a transfer under which he has not ascertainable without reference to his death or for
retained for his life the possession or enjoyment of the any period which does not in fact end before his death
property. This is considered a transfer in contemplation of dean, a. the possession or enjoyment of, or the right to the income
and thus should form part of his gross income from, the property, or
b. the right, either alone or in conjunction with any person,
Note: in case of a bona fide sale for an adequate and to designate the persons who shall possess or enjoy
full consideration in money or money’s worth – the value of the the property or the income therefrom;
property transferred will not be considered in determining the gross
estate except in case of a bona fide sale for an adequate and
full consideration in money or money's worth.
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No
POWER OF APPOINTMENT – the right to designate the person/s (F) Prior Interests.
who will succeed the property of a prior decedent. Subsections (B), (C) and (E) of this Section shall apply to
the transfers, trusts, estates, interests, rights, powers
Kinds of Power of Appointment: and relinquishment of powers, as severally enumerated and
1. GENERAL POWER OF APPOINTMENT – one which may be described therein, whether made, created, arising, existing,
exercised in favour of anybody. exercised or relinquished before or after the effectivity of this Code.
 In order that property passing under a power of
appointment may be included in the gross estate of the Except as otherwise specifically provided therein,
transferor, the power of appointment must be a GENERAL
POWER OF APPOINTMENT (G) Transfers of Insufficient Consideration.
If any one of the transfers, trusts, interests, rights or
Ex. Carles donated property to Andres, with a provision that Andres powers enumerated and described in Subsections (B), (C) and (D)
can transfer the property to anyone. Andres transferred it to Iker. of this Section is made, created, exercised or relinquished
 The property should be included in the gross estate for a consideration in money or money's worth, but is not a bona
of fide sale for an adequate and full consideration in money or money's
Andres. worth, there shall be included in the gross estate only the excess of
the fair market value, at the time of death, of the property otherwise
2. LIMITED POWER OF APPOINTMENT – one which may to be included on account of such transaction, over the value of
be exercised only in favour of a certain person/s designated by the consideration received therefor by the decedent.
the prior descendant.
Note:
Ex. Carles donated property to Andres, with a provision that Andres  In the transfers in contemplation of death, revocable transfer,
can transfer the property to anyone. Andres transferred it to Iker. or transfer under a GPA – The value to include in the
 The value of the property should not be included in the gross gross estate will be determined under the following rules:
estate of Andres a) If the transferor was in the nature of a bona fide sale for an
adequate and full consideration in money or money’s worth
 Bona fide sales applies – No value will be included in the gross estate.
b) If the consideration received on the transfer was less
(E) Proceeds of Life Insurance. than adequate and full – the value to include in the gross
 To the extent of the amount receivable by the estate of estate will be the excess of the FMV at the time of the
the deceased, his executor, or administrator, as insurance decedent’s death over the consideration received.
under policies taken out by the decedent upon his own c) If there was no consideration received on the
life, irrespective of whether or not the insured retained the transfer (Donation mortis causa) – the value to include in
power of revocation, or to the extent of the amount the gross estate will be the FMV of the property at the
receivable by any beneficiary designated in the policy of time of the decedent’s death
insurance, except when it is expressly stipulated that the
designation of the beneficiary is irrevocable.  When look at the transaction, ask yourself, was
the consideration sufficient?
Note:  If Yes – add the balance of the FMV at the time of death and
 Proceeds of Life insurance under policies taken out by the the consideration.
decedent upon his life – shall constitute part of the gross estate  If No – it was a bona sale. Don’t add the value to the gross
if the beneficiary is: estate.
a) The estate of the decedent, his executor or administrator
as such; or (H) Capital of the Surviving Spouse.
 Here, it doesn’t matter if irrevocable or not. As long as The capital of the surviving spouse of a decedent shall not, for the
the beneficiary is the estate of the decedent, or his executor purpose of this Chapter, be deemed a part of his or her gross estate.
or administrator – you include that in the gross estate.

b) A 3rd person (not in those in (a)), and the designation of

the
beneficiary is revocable. Case: Transferee Time Was What did the SC say?
 Here, Life insurance proceeds are excluded, provided: (Voluntary between there a
or transfer will?
i. Irrevocable, and and death
Compulsary
ii. Payable to beneficiary other than estate, Heir)
executor,
administrator Zapant Compulsory None Yes Not considered
a v advances.
 The Insurance Code states that the designation of a beneficiary Posada
is generally revocable. s Not part of the Gross
 Except when the policy states that the designation is Estate
irrevocable. In such cases, the proceeds are not Tuason Voluntary 3 years Yes Considered
v Advances because
considered as part of the decedent’s estate.
Posada the donees became
s the legatees in the will.
 Life insurance proceeds must be taken out by the decedent.
 Not included in the computation of Gross income if the Part of the Gross
proceeds are from: Estate
a) Company Policy Dizon v Compulsory 1 day No Considered advances.
b) GSIS, or Posada The donee is a
s compulsory heir.
c) SSS
 It must stem from life insurance to be included in the gross Part of the Gross
estate. Estate
 If Accident insurance, not included in the gross estate. Vidal de Voluntary 9 mos Yes Considered advances.
Roces v The donee were
Posada legatees in the will
s
Part of the Gross
Estate
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No When it comes to transfers done during the lifetime of a (2) For claims against the estate: Provided, That at the time the
decedent, there is a disputable presumption that the transfers indebtedness was incurred the debt instrument was duly
are in contemplation of death if the recipients are compulsory notarized and, if the loan was contracted within (3) years before the
heirs death of the decedent, the administrator or executor shall submit a
 The government presumes that one is transferring statement showing the disposition of the proceeds of the loan.
property beforehand to escape the estate tax, and
instead pay the lower donor’s tax Note:
 In Zapanta v Posadas, It showed that the presumption is CLAIMS – debts or demands of a pecuniary nature which could have
disputable. been enforced against the deceased in his lifetime and could
 The court considered the gifts as not advances even if the have been reduced to simple money judgments.
recipients are compulsory heirs.  If enforceable against him when he was alive – The
 The reason was the condition imposed upon the obligations will be claims against his estate when he dies.
recipients by the decedent (they had to pay the decedent  An obligation that has prescribed during his lifetime, or that
a certain amount of rice and money during his lifetime). was unenforceable against him – will not be a claim against
 It showed that the transfer was not in contemplation of his estate when he shall be dead.
death because the decedent in fact, would benefit
from the transfer REQUISITES:
 The presence of a will also play a part. a) The liability must represent a personal obligations of
 In cases of Tuason and Vidal de Roces, the court considered the deceased at the time of his death (Except unpaid
the transfers as advances because a will was made obligations incurred incident to his death and unpaid
making the transferees legatees. This played a part in medical expenses classified as a deduction)
the courts impression that there was an intention of the b) The liability was contracted in good faith and for adequate and
decedent to minimize his gross estate. full consideration
 Thus, when looking at cases like these, the totality of all c) The claim must be a debt or claim which is valid in law
the factors and facts must be taken into consideration. and enforceable in court, and
 Does the govt always want to consider a transfer an d) The indebtedness must not have been condoned by
advance (to be covered by the estate tax)? Not necessarily. the creditor during the lifetime of the decedent, or the
There are instances where they will argue for it to be actions to collect must not have prescribed.
considered under the donor’s tax.  If the debts were condoned AFTER THE
DECEDENT’S DEATH – the deaths are deductible, following
In summary, Gross Estate is made up of: the date-of- death- valuation rule
a) The decedent’s interests at the time of his death
b) Transfers made during his lifetime (in contemplation of death,  If the claim arose out of a debt instrument – the
revocable, and under a GPA) debt instrument must be notarized
c) Life insurance proceeds  EXCEPT for loans granted by financial institutions
d) Some other stuff required by law to be included in the where notarization is not part of the business practice or
gross estate in order to allow deductions (claims against policy of the institution
insolvent persons, unpaid mortgage, value of the family
home, and the retirement benefits under RA 4917)  If the loan was contracted within 3 years before the death
of the decedent – the admin or executor must submit a
IV. COMPUTATION FOR NET ESTATE statement showing the disposition of the proceeds of the loan

Formula: Gross Estate – Deduction = Net Taxable Estate  If a monetary claim against the decedent did not arise out of a
debt instrument – The requirement of a notarized debt
DEDUCTIONS from Gross Estate are: does not apply
1. Ordinary Deductions
a) Expenses, Losses, Indebtedness, Taxes, etc:  There is no requirement to add the amount to the gross estate
i. Standard Deduction (as compared to claims against insolvent persons/mortgage)
ii. Claims against the estate This is a DIRECT DEDUCTION.
iii. Claims against the insolvent persons
iv. Unpaid mortgage or indebtedness on property (3) For claims of the deceased against insolvent persons
v. Taxes paid where the value of decedent’s interest therein is included in the
vi. Losses value of the gross estate.
b) Transfer for public use
c) Vanishing Deductions Note:
 Claims against insolvent persons are deductions from the gross
2. Special Deductions estate
a) Family Home  Subject to the condition that the full amounts of the
b) Standard deduction of P 1,000,000 receivables are first included in the gross estate.
c) Medical Expenses  The deduction from the gross estate will be the
d) Amounts received by heirs under RA 4917 uncollectible portion
Note: These deductions are allowed for a resident of the Ph. NRA are
(4) For unpaid mortgages upon, or any indebtedness in respect
not entitled to special deductions.
to, property where the value of decedent’s interest therein,
undiminished by such mortgage or indebtedness, is included in
Sec. 86. Computation of Net Estate. the value of the gross estate, but not including any income tax
For the purpose of the tax imposed in this Chapter, the value of the upon income received after the death of the decedent, or
net estate shall be determined: property taxes not accrued before his death, or any estate tax.
(A) Deductions Allowed to the Estate of a Citizen or a Resident The deduction herein allowed in the case of claims against the
estate, unpaid mortgages or any indebtedness shall, when founded
In the case of a citizen or resident of the Philippines, by deducting upon a promise or agreement, be limited to the extent that
from the value of the gross estate they were contracted bona fide and for an adequate
(1) Standard Deduction - An amount equivalent to (₱5,000,000). and full consideration in money or money’s worth.
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No
 The mortgage or indebtedness will be claimed as a VANISHING DEDUCTIONS
deduction from the gross estate
 If the loan is merely an accommodation loan, where (5) Property Previously Taxed.
the proceeds of the loan went to another person – the value of An amount equal to the value specified below of any property
the unpaid loan must be included in the receivable of the estate forming part of the gross estate situated in the Philippines of
 In the cases of claims against insolvent persons and unpaid any person who died within (5) years prior to the death of the
mortgage/indebtedness on property – it is imperative that the decedent, or transferred to the decedent by gift within (5) years
values of each are first added to the gross estate. prior to his death, where such property can be identified as
 These are called ZERO-SUM COMPUTATIONS. They do not having been received by the decedent from the donor by gift, or
really benefit the heirs because these transactions from such prior decedent by gift, bequest, devise or inheritance,
were not supposed to be part of the gross estate. or which can be identified as having been acquired in exchange
for property so received:
Ex. Pique died leaving real property with a FMW of P 1M, subject to a
mortgage in the amount of P 600K. "(100%) of the value, if the prior decedent died within (1) year prior
 Before he can deduct the P 600K, he has to include to the death of the decedent, or if the property was transferred
the total FMV of his property to the gross income. to him by gift, within the same period prior to his death;

TAXES "(80%) of the value, if the prior decedent died more than (1) year but
 Taxes are deductions from thegross estate if such taxes accrued not more than (2) years prior to the death of the decedent, or if the
prior to the decedent’s death (RR 2-2003) property was transferred to him by gift within the same period prior
 Those that accrued after the decedent’s death are not to his death;
deductions from gross estate
 These taxes cannot be deducted: " (60%) of the value, if the prior decedent died more than (2) years
a) Income tax on income received after death but not more than (3) years prior to the death of the decedent, or if
b) Property taxes not accrued before death the property was transferred to him by gift within the same period
c) Estate Tax prior to his death;

LOSSES "(40%) of the value, if the prior decedent died more than (3) years
but not more than (4) years prior to the death of the decedent, or if
There shall also be deducted losses incurred during the settlement of the property was transferred to him by gift within the same period
the estate arising from fires, storms, shipwreck, or other casualties, prior to his death; and
or from robbery, theft or embezzlement, when such losses are
not compensated for by insurance or otherwise, and if at the time of "(20%) of the value, if the prior decedent died more than (4) years
the filing of the return such losses have not been claimed as a but not more than (5) years prior to the death of the decedent, or if
deduction for the income tax purposes in an income tax return, the property was transferred to him by gift within the same period
and provided that such losses were incurred not later than the prior to his death.
last day for the payment of the estate tax as prescribed in
Subsection (A) of Section "These deductions shall be allowed only where a donor’s tax, or
91. estate tax imposed under this Title was finally determined and paid
by or on behalf of such donor, or the estate of such prior decedent,
Note: as the case may be, and only in the amount finally determined as the
LOSSES are deductible from the gross estate if: value of such property in determining the value of the gift, or
a) Arising from fire, storm, shipwreck, or other casualty, robbery, the gross estate of such prior decedent, and only to the extent that
theft or embezzlement the value of such property is included in the decedent’s gross estate,
b) Not compensated by insurance or otherwise and only if in determining the value of the estate of the prior
c) Not claimed as a deduction in an income tax return of the decedent, no deduction was allowable under paragraph (5) in
estate subject to income tax respect of the property or properties given in exchange therefor.
d) Occurring during the settlement of the estate; and
e) Occurring before the last day for the payment of the estate tax Where a deduction was allowed of any mortgage or other lien
(6mos after the decedent’s death, or the allowed extension) in determining the donor’s tax, or the estate tax of the prior
decedent, which was paid in whole or in part prior to the
Ex. decedent’s death, then the deduction allowable under said
Leo Mhessi died Jan 1, 2010. A fire razed his mansion on March 1, Subsection shall be reduced by the amount so paid. Such deduction
2010. His estate was settled Jan 1, 2012 allowable shall be reduced by an amount which bears the same
 He can claim a deduction (within 6mos) ratio to the amounts allowed as deductions under paragraphs (2),
(3), (4), and (6) of this Subsection as the amount otherwise
Luis Shuarez died Jan 1, 2010. A fire razed his shanty on Jan 1, 2011. deductible under said paragraph (5) bears to the value of the
 He cannot claim a deduction. decedent’s estate.

(6) Transfers for Public Use Where the property referred to consists of two or more items,
The amount of all bequests, legacies, devises or transfers to or the aggregate value of such items shall be used for the purpose
for the use of the Government of the Republic of the Philippines, or of computing the deduction.
any political subdivision thereof for exclusively public purposes.
Note:
Note:  Property may change hands within a very short period of time
TRANSFERS FOR PUBLIC USE – dispositions in a last will by reason fo the early death of the owner who received it
and testament, or a transfer to take effect after death, in favour of by inheritance or by donation (gift)
the Government of the Philippines, or any political subdivision  To provide relief to the burdened taxpayer – vanishing
thereof, for exclusively public purposes. deductions are allowed to reduce the gross estate.
 Vanishing deductions are allowed when:
 You can deduct the value of the property transferred to a) The present decedent died within 5 years from receipt of the
the government property from a prior decedent or donor
b) The property on which the vanishing deduction is
being claimed must be located in the Ph
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c) The property must have formed part of the taxable estate of
No the prior decedent, or of the taxable gift of the donor "(1) Standard Deduction - An amount equivalent to Five
hundred thousand pesos (₱500,000);

d) The estate tax on the prior succession or the donor’s tax "(2) That proportion of the deductions specified in paragraphs
on the gift must have been finally determined and paid (2), (3), and (4) of Subsection (A) of this Section which the value of
e) The property must be identified as the one received from the such part bears to the value of his entire gross estate wherever
prior decedent or donor, or something acquired in exchange situated;
f) No vanishing deduction on the property was allowable to the
estate of the prior decedent "(3) Property Previously Taxed - x x x

How do we compute: "(4) Transfers for Public Use - The amount of all bequests, legacies,
devises or transfers to or for the use of the Government of the
STEP 1: GET THE BASIS. Republic of the Philippines or any political subdivision thereof,
Either the value of the property, whichever is lower. for exclusively public purposes.
1. in the prior estate/value used for donor’s tax purposes, or
2. in the present estate "(C) Share in the Conjugal Property - The net share of the surviving
spouse in the conjugal partnership property as diminished by
STEP 2: Step 1 value will be reduced by any payment made by the the obligations properly chargeable to such property shall,
present decedent on any mortgage or lien on the property for the purpose of this Section, be deducted from the net
(When such mortgage/lien was used as a deduction on the prior estate of the decedent.
dead guy’s estate, or gift of the donor)
"(D) Tax Credit for Estate Taxes Paid to a Foreign Country -
STEP 3:
STEP 2 VALUE x Expenses, losses, indebtedness "(1) In General - The tax imposed by this Title shall be credited with
GROSS ESTATE taxes and transfers for public use the amounts of any estate tax imposed by the authority of a foreign
country.
This is done to prevent double deduction.
"(2) Limitations on Credit. - The amount of the credit taken
STEP 4: look at the chart below and multiply to get the value which under this Section shall be subject to each of the following
you can actually deduct. limitations:

% If received by inheritance or gift "(a) The amount of the credit in respect to the tax paid to any
100 Within 1 year prior to death of the decedent country shall not exceed the same proportion of the tax against
80 More than 1 year but not more than 2 years which such credit is taken, which the decedent’s net estate situated
60 More than 2 year but not more than 3 years within such country taxable under this Title bears to his entire
40 More than 3 year but not more than 4 years net estate; and
20 More than 4 year but not more than 5 years
"(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which
V. SPECIAL DEDUCTIONS the decedent’s net estate situated outside the Philippines taxable
under this Title bears to his entire net estate."

(7) The Family Home. - An amount equivalent to the current

fair market value of the decedent’s family home: Provided,
however, That if the said current fair market value exceeds
(₱10,000,000), the excess shall be subject to estate tax
The deduction is an amount equivalent to the current FMV of
the decedent’s family home VI. NET ESTATE COMPUTATION OF MARRIED PERSONS
 But maximum is P 1M only VII. GROSS ESTATE
 Do not forget to add the amount of the family home to the VIII. EXEMPTION FROM ESTATE TAX
gross estate IX. NOTICE OF DEATH
 The deduction will be allowed when the family home X. ESTATE TAX RETURNS
is certified to be as such by the barangay captain fo XI. PAYMENT OF TAX
the locality where it is located XII. MISCELLANEOUS PROVISIONS
 For a person married at the time of death, and who
was under a system of conjugal partnership or
absolute community – the deduction for the famil
home is ½ of FMV, but should not exceed P 1M, if
such family jhome was conjugal property or community
property "Sec. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights - x x x.

"If a bank has knowledge of the death of a person, who maintained a

bank deposit account alone, or jointly with another, it shall allow any
. withdrawal from the said deposit account, subject to a
final withholding tax of six percent (6%). For this purpose, all
(8) Amount Received by Heirs Under RA 4917 - Any withdrawal slips shall contain a statement to the effect that all
amount received by the heirs from the decedent’s of the joint depositors are still living at the time of withdrawal by
employee as a consequence of the death of the decedent- any one of the joint depositors and such statement shall be under
employee in accordance with RA 4917: Provided, That such oath by the said depositors."
amount is included in the gross estate of the decedent.
Section 28. Section 99 of the NIRC, as amended, is hereby
"(B) Deductions Allowed to Nonresident Estates - In the case of further amended to read as follows:
a nonresident not a citizen of the Philippines, by deducting from
the value of that part of his gross estate which at the time of his
death is situated in the Philippines:
 Taxation Law
2

DONOR’S TAX 2. In 2011, Solar Corp purchased a proprietary membership share

covered by Membership Cert. No. 8 from the Mabuhay
Sec 98. Imposition of Tax Golf Club, Inc. for P 500,00.
(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property On Dec 27, 2012, it transferred the same to David, its American
by gift, a tax, computed as provided in Section 99. Citizen

(B) The tax 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.

Note: Sec. 99. Rate of Tax Payable by Donor -

 Donor’s tax will be levied, assessed, collected and paid
upon the transfer by any person, resident or non-resident, (A) In General. - The tax for each calendar year shall be six percent
of the property by gift, a tax, computed as provided in Sec 99 (6%) computed on the basis of the total gifts in excess of Two
 The property can be real or personal, tangible or intangible hundred fifty thousand pesos (₱250,000) exempt gift made
 The transfer can be in trust or otherwise during the calendar year.
 The gift can be direct or indirect
 The donor’s tax shall not apply unless and until there is a (B) Any contribution in cash or in kind to any candidate,
completed gift. political party or coalition of parties for campaign purposes shall be
 The transfer of property b gift is perfected from the governed by the Election Code, as amended.
moment the donor knows of the acceptance by the donee
 It is completed by the delivery, either actually or constructively,
of the donated property of the done. Thus, the law in force at
the time of the perfection/completion of the donation
shall govern the imposition of the donor’s tax (RR 2-2003)
 A gift that is incomplete because of reserved powers becomes
complete when either:
a. The donor renounces the power or
b. His right to exercise the reserved power ceases because of
the happening of some event or contingency or Sec. 100. Transfer for Less Than Adequate and Full Consideration
the fulfillment of some condition, other than because - Where property, other than real property referred to in
of the donor’s death Section
24(D), is transferred for less than an adequate and full consideration
IMPLICATIONS OF RENUNCITATION (RR 2-2003) in money or money’s worth, then the amount by which the fair
market value of the property exceeded the value of
the
Renunciation by the surviving Subject to donor’s tax consideration shall, for the purpose of the tax imposed by this
spouse of his share in Chapter, be deemed a gift, and shall be included in computing
the conjugal partnership or the amount of gifts made during the calendar year: Provided,
absolute community after however, That a sale, exchange, or other transfer of property
dissolution of the marriage in made in the ordinary course of business (a transaction which is
favor of the heirs General Not subject to donor’s tax a bona fide, at arm’s length, and free from any donative intent),
renunciation by an heir, including will be considered as made for an adequate and full consideration in
the surviving spouse, of share in money or money’s worth.
the hereditary estate left by
decedent Subject to donor’s tax
Renunciation by an heir,
including the surviving spouse,
of share in the hereditary estate Sec. 101. Exemption of Certain Gifts - The following gifts
to a specified and identified heir or donations shall be exempt from the tax provided for in this
to the exclusion or disadvantage Chapter:
of the other co-heirs
"(A) In the Case of Gifts Made by a Resident -
i.e.
1. In the settlement of estate of Mr. Barbera who died intestate, "(1) Gifts made to or for the use of the National Government or any
his wife renounced her inheritance and her share of entity created by any of its agencies which is not conducted for
the conjugal property in favor of their children. The BIR profit, or to any political subdivision of the said Government; and
determined that there was a taxable gift and thus assessed Mrs
Barbera as a donor. "(2) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution,
Was BIR correct? YES (2013 Bar) accredited nongovernment organization, trust or philanthropic
 Renunciation by the surviving spouse of his share on organization or research institution or organization: Provided,
the Conjugal Partnership or Absolute Community after however, That not more than thirty percent (30%) of said gifts
dissolution of the marriage in favor of the heirs is subject to shall be used by such donee for administration purposes. For
donor’s tax the purpose of this exemption, a ‘non-profit educational and/or
 While General renunciation by an heir, including the charitable corporation, institution, accredited nongovernment
surviving spouse, of share in the hereditary estate left by organization, trust or philanthropic organization and/or
decedent is not subject to donor’s tax research institution or organization’ is a school, college or
 Unless specifically and categorically done in favor university and/or charitable corporation, accredited
of identified heirs to the exclusion or disadvantage of nongovernment organization, trust or philanthropic
the other co-heirs in the hereditary estate. organization and/ or research institution or organization,
 Here, the renunciation was specifically made in favor of the incorporated as a nonstock entity, paying no dividends, governed by
children. Hence, Donor’s tax can be assessed on Mrs Barbara. trustees who receive no compensation, and devoting all its income,
 Taxation Law
2
whether students’ fees or gifts, donation, subsidies or other
forms of philanthropy, to the accomplishment and promotion
 Taxation Law
2
of the purposes enumerated in its Articles of Incorporation.