TAXATION 2 Chapter 7 Donors Tax PDF

BUSINESS AND TRANSFER TAXATION 2019
Chapter 7
DONOR’S TAX
THE DONOR’S TAX FORMAT
The Tax Model:

Gross Gift P XXX
Less: Deductions from Gross Gift XXX
Net Gift P XXX
The Donor’s Tax Format
Particulars Stranger Relative
Personal Property P XXX,XXX P XXX,XXX

Real Property XXX,XXX XXX,XXX
Total gifts in this return P XXX,XXX P XXX,XXX
Less: Deductions XXX,XXX XXX,XXX
Total net gift in this return P XXX,XXX P XXX,XXX
Add: Prior net gift during the year XXX,XXX XXX,XXX
Total net gift subject to tax P XXX,XXX P XXX,XXX
Tax due P XXX,XXX P XXX,XXX
Aggregate Tax Due PXXX,XXX
Less: Tax credits XXX,XXX
Tax Payable or refundable PXXX,XXX
Note that the donor’s tax is imposed on the cumulative balance of net gift. The accumulation of net
gifts stops at every calendar year-end.
GROSS GIFT
Gross gift pertains to the fair value of a taxable donation.
SPECIAL CONSIDERATIONS ON GROSS GIFT

1. Valuation rules
2. Timing of valuation of donation
3. Donation of common properties
4. Donation to joint donees
5. Encumbrances on the property donated
VALUATION OF GROSS GIFT

The valuation of properties for purposes of donor’s tax follows the same rules with those of estate
taxation, namely;
A. Real Property- the higher of zonal or assessed value

B. Personal Properties- fair value
1. Shares of stock
a. If listed in the PSE- the closing price of the stocks at the date of donation
b. If not listed:
i. Preferred stocks- par value
ii. Common stocks- the book value to be determined under the
Adjusted Net Asset Value Method
2. Other Properties-
a. Newly purchased- purchase price
b. Old items- second hand value
c. Monetary Claims- the amount fixed in the contract
Chapter 7 - Donor’s Tax Page 1

TIMING OF VALUATION OF GROSS GIFT
Donation is valued at the point of completion or perfection of the donation.
Donation is perfected upon acceptance by the donee. In conditional donations, donation is

completed and perfected upon satisfaction by the donee of the terms of donation or upon waiver by
the donor of the conditions.
DONATION OF COMMON PROPERTIES

Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s tax.
Donation of conjugal or community property by the spouses is deemed ½ made by the husband
and ½ made by the wife. The husband and the wife shall file separate donor’s tax returns for the
donation.
However, 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.
DONATION TO JOINT OR SEVERAL DONEES

Donation to joint donees or several donees are split according to the number of donees. Donations
made in a single day are reported in a single donor’s tax return. Donation to relatives and
donations to a stranger shall be separately presented in the return.
ENCUMBRANCES ON THE PROPERTY

Encumbrances on the property such as mortgage, real property tax and unpaid loans thereto which
are to be transferred to, or to be assumed by, the donee shall not be deducted in the value of gross
gift. The amount to include in gross profit shall be gross interest of the donor not its net interest
thereto.
DEDUCTIONS FROM GROSS GIFT
Who can claim?

Items of Deductions from Gross Gift
Residents/Citizens Non-resident aliens
Dowry exemptions ✓ X
Obligations assumed by the done ✓ ✓
Donation to the government for public use ✓ ✓
Donation to accredited non-profit institution ✓ ✓
DOWRY EXEMPTION
Dowries or gift 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
P10,000.
Requisites of deduction:
1. Timing: Dowry must be given before the celebration of the marriage or within one year
thereafter
2. Qualified recipient: The donee must be a legitimate, a recognized natural or an adopted

child.
A recognized natural child is born outside wedlock but is acknowledged by the biological
father. A child born outside wedlock who is not acknowledged by the biological father is an
illegitimate child. Note that dowry to an illegitimate child is not deductible.

Illustration 1
Mr. and Mrs. X, citizens, donated their condo unit, a conjugal property. With a value of P
1,200,000 as dowry to their daughter, Kathlyn.
Case 1: Assume Kathlyn is a common child of Mr. and Mrs. X
The net taxable gift shall be computed as:

Mr. X Mrs. X
Gross gift P 600,000 P 600,000
Less: Dowry exemption 10,000 10,000
Net gift P 590,000 P 590,000
Mr. X shall report the following in his donor’s tax return:

Relatives Strangers
Real Property P 600,000 P -
Less: Dowry exemption 10,000 -
Net gift P 590,000 P -
Mrs. X shall report the following in his donor’s tax return:
Relatives Strangers
Real Property P 600,000 P -
Less: Dowry exemption 10,000 -
Net gift P 590,000 P -
Illustration 2
Johnny, a resident, made several donations as dowry to his son who is getting married on June 1,
2014.
January 1, 2014 P 2,000

June 1, 2014 5,000
March 15,2015 2,000
July 1, 2015 5,000
The net gift on each donation shall be computed as follows:
Date Gross Gift Deduction Net Gift

January 1, 2014 P 2,000 P 2,000 P 0
June 1, 2014 5,000 5,000 0
March 15, 2015 2,000 2,000 0
July 1, 2015 5,000 - 5,000
Note:
1. Dowries are deductible up to a total of P10,000 so long as they are made before or
within one year from the celebration of the marriage.
2. The remaining P1,000 unused dowry exemption cannot be deducted with the \july 1,
2015 donation since this is already beyond one year from the celebration of the
marriage.
Illustration 3
Mr. Bombay, a non-resident Indian citizen, donated P 50,000 in cash for his daughter who is
getting married in the Philippines.
The net gift shall be P 50,000. Dowry exemption is allowed only to resident or citizen donors to the
exclusion of non-resident aliens.

OBLIGATIONS ASSUMED BY THE DONEE
Obligations on the donated property which are assumed by the donee are diminutions to the
gratuity accruing to the donee. These are onerous assignment of debt and are not gratuity; hence,
deductible to the value of the donation.
DONATION TO THE GOVERNMENT FOR PUBLIC USE

Gifts made to or for the use of the National Government or any entity create dby any of its
agencies which is not conducted for profit or to any political subdivision of the said government
are exempt from donor’s tax.
DONATION TO ACCREDITED NON-PROFIT INSTITUTION

Gifts in favor of an educational and or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philantrophic organization or
institution are exempt from donor’s tax.
Requisites for exemption

1. Not more than 30% of said gift shall be used by such donee for administrative purposes.
2. The donee entity must be organized as a non-stock entity
3. The donee entity do not pay dividends
4. The donee entity’s board of trustees earn no compensation
5. The donee entity must devote all its income, donation, subsidies, or other forms of
philantrophy to the accomplishment and promotion of its purposes enumerated in its
Articles of Incorporation
In practice, donee entities are accredited by the applicable government agency. Donations to
accredited donee institutions are exempt. Donations to non-accredited donee institutions are
taxable.
ACCREDITING AGENCIES
Previously, the accreditation of donee institutions was handled by the Philippine Council for NGO
Certification (PCNC). Effective November 16, 2007, the accreditation function was transferred by
Executive Order No. 671 to the following government entities;
1. Department of Social Welfare and Development- for charitable and or social welfare
organizations, foundations and associations including but not limited to those engaged in
youth, child, women, family, disabled persons, older persons, welfare and development\
2. Department of Science and Technology- for research and other scientific activities
3. Philippine Sports Commission- for sports development
4. National Council for Culture and Arts- for cultural activities
5. Commission on Higher Education- for educational activities
GRATUITOUS DONATIONS TO ASSOCIATIONS

Associations do not qualify as exempt donee institutions under Sec. 101 (A) (3) of the NIRC.
Hence, endowments or gifts received by associations are not exempt from donor’s tax. All
donations to associations for tax purposes must be covered by a donor’s tax return.
DIMINUTION OF GIFTS AS SPECIFIED BY THE DONOR

The donor may specify that a portion of the donation will be given to another person other than the
donee. Diminution is not exempt from donor’s tax. It is merely a deduction against the original
donation but it is in itself another form of donation from the same donor which may be subject to
donor’s tax.
DONOR’S TAX RETURN

Any person making a donation (whether direct or indirect), unless the donation is specifically
exempt under the Code or other special laws, is required, for every donation, to accomplish under
oath a donor’s tax return in duplicate.
Note that the law requires duplicate copies. In practice, the return is filed in triplicate copies. Two
copies will be taken by the BIR. One copy will be for the taxpayer’s copy.

Filling Date
The return is filed within 30 days after the donation is made. A separate return is required for
donations made at different dates during the year reflecting therein any previous net gift made in
the same year.
Only one return is required for donations made at a single day even if made to several donees. If
the donation is a conjugal or communal property, each spouse shall file separate return
corresponding to their respective share in the conjugal or community property.
Content of the donor’s tax return
The return shall set forth:

1. Each gift made during the calendar year which is to be included in computing net gifts;
2. The deductions claimed allowable;
3. Any previous net gifts made during the same calendar year;
4. The name of the donee;
5. Relationship of the donor to the donee; and
6. Such further information as the Commissioner may require.
Where to file the return?
Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax
paid to:
a. An authorized agent bank
b. Revenue district officer
c. Revenue collection officer
d. Duly authorized treasurer of the city or municipality where the donor is domiciled
e. Office of the Commissioner, if the taxpayer has no legal residence in the Philippines
DONOR’S TAX COMPUTATION AND REPORTING
The computation of the donor’s tax is on a cumulative basis over a period of one calendar year.
The net gift of every taxable donation during the year is determined and the additional tax is
computed and is reported and paid to the government within 30 days from day the gift is made or
completed.
INTEGRATED ILLUSTRATIONS
Integrated Illustration 1
Mr. Caticlan, a resident citizen, made the following donations during the year:
 February 2- donation to his brother who is getting married, P 150,000
 April 15- donation to daughter on account of marriage, P 300,000
 August 5- donation to an accredited non-profit research institution, P 400,000
 October 30- donation of land valued at P 500,000 to Mr. Caticlan’s father subject to a
condition that the latter shall assume the P 150,000 unpaid real property tax on the property
The net taxable gift for each donation shall be:
Date Gross gift- Deductions Net Gift

February 2 P150,000- P0 P 150,000
April 15 P300,000- P10,000 dowry 290,000
August 5 P400,000- P400,000 0
October 30 P500,000- P150,000 350,000

The cumulative gift tax and the tax on each donation shall be:
Cumulative Net Cumulative

Date Net Gift Previous Tax Tax Payable
Gift Tax Due
February 2 P 150,000 P 150,000 P 1,000 P 0 P 1,000
April 15 290,000 440,000 11,600 1,000 10,600
August 5 0 0 - - -
October 30 350,000 790,000 31,400 11,600 19,800
Note: The donor’s tax payables are due 30 days from the date of donation.
FOREIGN TAX CREDIT
Residents and citizens with foreign donation may be subjected to foreign donor’s tax. To minimize
international double taxation, our tax law allows for a credit for taxes paid in a foreign country.
Foreign tax credit is computed depending on whether a single foreign country or multiple foreign
countries is involved.
Foreign Tax Credit Limit: One foreign country
The foreign tax credit shall be the lower of the actual foreign donor’s tax paid and the following
limit:
x Philippine donor’s tax due
Foreign tax credit Limit: Multiple foreign countries
The tax credit limit for each country is individually determined first using the foregoing
computations.
The final foreign tax credit shall be the lower of the total of the donor’s tax credit allowable per
country and the world donor’s tax credit limit computed as:
x Philippine donor’s tax due
-o0o-
Problem
On February 21, 2016 Mr. DENNIS TAN, a citizen of the Philippines, donated to Mr. EDGAR
TAN a legitimate child on account of marriage, property in the Philippines with a fair market value
of P160,000, and to Ms. FELY BANIAGA a friend, property in located in Sydney Australia, with a
fair market value of P150,000 and a mortgage value of P 50,000 which was assumed by Ms. FELY
BANIAGA, Mr. DENNIS TAN paid a donor's tax of P 15,000 to Sydney Australia.
Required:
1. Compute the Net Gift.
2. Compute the Donor's Tax Due.
3. Prepare the Donor's Tax Return.
4. When and where to file the return?

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BUSINESS AND TRANSFER TAXATION 2019

THE DONOR’S TAX FORMAT

The Tax Model:

The Donor’s Tax Format

Particulars Stranger Relative

Personal Property P XXX,XXX P XXX,XXX

SPECIAL CONSIDERATIONS ON GROSS GIFT

VALUATION OF GROSS GIFT

A. Real Property- the higher of zonal or assessed value

Chapter 7 - Donor’s Tax Page 1

Donation is valued at the point of completion or perfection of the donation.

Donation is perfected upon acceptance by the donee. In conditional donations, donation is

DONATION OF COMMON PROPERTIES

DONATION TO JOINT OR SEVERAL DONEES

ENCUMBRANCES ON THE PROPERTY

DEDUCTIONS FROM GROSS GIFT

Who can claim?

2. Qualified recipient: The donee must be a legitimate, a recognized natural or an adopted

Chapter 7 - Donor’s Tax Page 2

Case 1: Assume Kathlyn is a common child of Mr. and Mrs. X

The net taxable gift shall be computed as:

Mr. X shall report the following in his donor’s tax return:

January 1, 2014 P 2,000

The net gift on each donation shall be computed as follows:

Date Gross Gift Deduction Net Gift

Chapter 7 - Donor’s Tax Page 3

DONATION TO THE GOVERNMENT FOR PUBLIC USE

DONATION TO ACCREDITED NON-PROFIT INSTITUTION

Requisites for exemption

GRATUITOUS DONATIONS TO ASSOCIATIONS

DIMINUTION OF GIFTS AS SPECIFIED BY THE DONOR

DONOR’S TAX RETURN

Chapter 7 - Donor’s Tax Page 4

Content of the donor’s tax return

The return shall set forth:

Where to file the return?

DONOR’S TAX COMPUTATION AND REPORTING

The net taxable gift for each donation shall be:

Date Gross gift- Deductions Net Gift

Chapter 7 - Donor’s Tax Page 5

Cumulative Net Cumulative

FOREIGN TAX CREDIT

Foreign Tax Credit Limit: One foreign country

Foreign tax credit Limit: Multiple foreign countries

x Philippine donor’s tax due

Chapter 7 - Donor’s Tax Page 6

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