IM ACCO 20173 Business and Transfer Taxes Module 2 PDF

Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE P
HILIPPINES
COLLEGE OF ACCOUNTANCY & FINANCE Taxation 2: LML / VGL / GSJ
MODULE 2: ESTATE TAXATION
OVERVIEW:
“Art. 712. Ownership is acquired by occupation and by intellectual creation.

Ownership and other real rights over property are acquired and transmitted by law, by donation,
by estate and intestate succession, and in consequence of certain contracts, by tradition. They
may also be acquired by means of prescription. (609a)”
Under the Civil Code, Article 712, the modes of acquiring ownership over
property are Occupation, Law, Donation, Tradition, Intellectual creation, Prescription and
Succession.
Under Art. 725. Donation is an act of liberality whereby a person disposes

gratuitously of a thing or right in favor of another, who accepts it. (618a). Two type of Donation,
as to time of taking effect, may be either Donation inter vivos or Donation Mortis-causa.
Donation inter vivos take effect during the lifetime of the donor which is subject to donor’s tax.
Donor’s taxation was already discussed in Module 1. While Donation mortis-causa takes effect
after death of the donor which is subject to estate tax.
Under Art. 774, Succession is a mode of acquisition by virtue of which the

property, rights and obligations to the extent of the value of the inheritance, of a person are
transmitted through his death to another or others either by his will or by operation of law. In
succession, the property (net estate) of a person who died (called decedent) is transmitted to
his heirs, successors or beneficiaries either by will or operation of law. The rights to succession
are deemed transmitted from the moment of the decedent’s death. Acquisition or transfer of
ownership over the net estate or properties of decedent to the heirs / successors, thru
succession, is subject to estate tax as provided by the Tax Code. Under the Tax Code, Sec
84,There shall be levied, assessed, collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent, whether resident or
nonresident of the Philippines, a tax based on the value of such net estate, as computed in
accordance with Sec 84.
Estate tax is imposed on the privilege to transmit property upon death. It a tax on
the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the
time of death.
On this module, we will discuss the difference between estate and donor’s tax,
concepts of succession and its elements, the classes of heirs and the different grounds for
disinheritance. Provided also in this module are the procedures for filing and payment of estate
tax due to BIR which includes the: Date and place of filing and payment of estate tax return, BIR
form for estate tax and others.
MODULE DURATION:
• November 2-30, 2020 Synchronous Meeting and Asynchronous Learning.
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• For asynchronous learning inquiries, you may reach me through messenger
group/personal message.
MODULE OBJECTIVES:
After successful Completion of this module, you should be able to:

1. Define transfer and estate tax
2. Differentiate Estate tax and donor’s tax
3. To be able to understand the concept of Succession (Elements, Requisites, Kinds /
Classification)
4. To be able to know the classes of heirs, parts of hereditary estate and the different grounds
for disinheritance.
5. To be able to understand the administrative provisions of Estate taxation which includes:
Persons required to file the estate tax return, Date and Place of filing the estate tax return,
Payment of estate tax due, Attachments to Estate Tax Return and other provisions of law. 6. To
be able to identify the classification of properties as to ownership (Exclusive or Conjugal); To
understand the rules applicable in determining the Conjugal Assets and Exclusive assets of a
married decedent and be able to apply the 2 regimes (Conjugal Partnership of Gains and
Absolute Community of Properties.
7. To compute the taxable net estate
8. To be able to know how to compute for the amount of Estate Tax Due based on the
provisions of Tax Code (both Old and New Tax Code)
9. To compute the Gross estate of decedent.
10. To determine the Allowed deductions to gross estate of decedent.
11. To know how to compute the allowed tax credits on foreign taxes paid on properties abroad
of the decedent
COURSE MATERIALS:
Under this module, the topic Estate Taxation is subdivided into five (5) lessons as
follows:
Lesson 1; Administrative Provisions and Fundamental Concepts of Estate

Taxation. Lesson 2: Laws / Rules on Taxable net Estate
Lesson 3: Estate Tax Credit and Estate Tax Return
Lesson 4: Laws / Rules Gross Estate
Lesson 5: Allowed Deduction from Gross estate
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Lesson 1: Administrative Provisions

and Fundamental Concepts of Estate Taxation
Overview:
This lesson will deal with basic ideas, informative data, enumerations,
classifications and definitions of terms related to estate taxation. As introduced, under the civil
code, succession is a mode of acquiring ownership over a property or estate of a decedent. The
gratuitous transfer of property at the decedent’s death to another person called heirs /
successors is subject to a transfer tax called estate tax.
Upon death of decedent, Estate Tax is imposed on the right of the deceased
person to transmit his/her estate to his/her lawful heirs and beneficiaries. The executor or
administrator or any of legal heirs, as the case maybe, shall file estate tax return under oath to
the BIR. This lesson will also deals with certain requirements, guidelines, in matters and
manners / procedures for filing the estate tax returns and payment of estate tax dues under the
provisions of the National Internal Revenue Code, also known as the Tax Code, enforced by
the Bureau of Internal Revenue or the BIR.
Module Objectives:

1. Define estate tax
2. Differentiate Estate tax and donor’s tax
3. To be able to understand the concept of Succession (Elements, Requisites, Kinds /
Classification)
4. To be able to know the classes of heirs, parts of hereditary estate and the different grounds
for disinheritance.
5. To be able to understand the General principles of estate taxation.
6. To be able to know the classification of estate/decedent and the situs of estate tax laws. 7. To
be able to understand the purpose of estate tax, the last will and testaments. 8. To be able to
understand the administrative provisions of Estate taxation which includes: Persons required to
file the estate tax return, Date and Place of filing the estate tax return, Payment of estate tax
due, Attachments to Estate Tax Return and other provisions of law.
Course Materials:
DEFINITION: ESTATE TAX
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Estate Tax is a tax on the right of the deceased person to transmit his/her estate
to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are
made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax
imposed on the privilege of transmitting property upon the death of the owner.
The Estate Tax is based on the laws in force at the time of death notwithstanding
the postponement of the actual possession or enjoyment of the estate by the beneficiary.
DISTINCTIONS BETWEEN THE ESTATE TAX AND THE DONOR’S TAX:
Estate Tax Donor’s Tax

1 Notice of death is required In general, notice of donation is not required.
2 CPA Certificate on the estate tax effect during the lifetime of donor.
return maybe required in certain
situations.
3 Take effect upon death of the
decedent
CPA Certificate is not required. Take
4 Tax rate is 6% of net estate Tax rate is 6% in excess of P 250,000 exempt gift
5 No exemption With exemption up to P 250,000
6 Filing of estate tax return is 6 months Fling of donor’s tax return is within 30 days
(Old Tax Code). from date of donation
Under the New Tax Code, filing is

within 1 year from death of decent.
Without extension for filing of donor’s tax
7 In general, with extension on filing of
estate tax return return
FUNDAMENTAL CONCEPTS OF ESTATE TAXATION:

Succession as defined under Art. 774 of the New Civil Code is a mode of acquisition by
virtue of which the property, rights and obligations to the extent of the value of the inheritance, of
a person are transmitted through his death to another or others either by his will or by operation
of law. The rights to succession are deemed transmitted from the moment of the decedent’s
death.
Elements of Succession:
1. Decedent who is the person who died and whose property is transmitted through
succession. It is the general term applied to the person whose property is transmitted
through succession, whether or not he left a will. The testator is the decedent whose
properties are to be transferred to his successor through a written will. A transfer of
property from a decedent without a will is called intestate. The law defined it as:
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OLLEGE OF ACCOUNTANCY & FINANCE Taxation 2: LML / VGL / GSJ
C
Art. 775. In this Title, “decedent” is the general term applied to the person whose property is
transmitted through succession, whether or not he left a will. If he left a will, he is also called the
testator. (n)
2. Successor or the heir or person to whom the property or property rights is to be
transferred. They may also be called as heirs, devisees or legatees which is defined by law
as:
Art. 782. An heir is a person called to the succession either by the provision of a will or by
operation of law.
Devisees and legatees are persons to whom gifts of real and personal property are respectively
given by virtue of a will. (n)
Death of the decedent which causes the rights to the succession are transmitted from the
moment of the death of the decedent.
3. Inheritance- refers to the properties or property rights of a decedent, which is the subject
matter of succession. Also known as Inheritance.
Kinds of Successors:
1. Compulsory heirs are those for whom the legitime is reserved by law, and who succeed
whether the testator likes it or not. They cannot be deprived by the testator of their
legitime except by disinheritance properly effected.
They may be primary or those who have precedence over and exclude other Compulsory Heirs
as in the case of Legitimate Children and Descendants (LCD); They may also be secondary or
those who succeed only in the absence of the Primary Compulsory Heirs as in the cases of
Legitimate Parents and Ascendants (LPA); Lastly, they may also be concurring o those who
succeed together with the Primary or Secondary Heirs as in the cases of Illegitimate Children
and Descendants (ICD)Surviving Spouse (SS)
2. Voluntary heirs are those other than the compulsory heirs. The devisee is the person to
whom a gift of real property is given by virtue of a will while a legatee is the person to
whom a gift of personal property (bequest) is given by virtue of a will.
KINDS OF SUCCESSION:
1. Testamentary – succession by will
2. Intestate – succession in default of a will
3. Mixed
Grounds for Disinheritance under the Civil Code;

Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his
legitime, for causes expressly stated by law. (848a)
Article 916. Disinheritance can be effected only through a will wherein the legal cause therefor
shall be specified. (849)
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Article 917. The burden of proving the truth of the cause for disinheritance shall rest upon the
other heirs of the testator, if the disinherited heir should deny it. (850)
Article 918. Disinheritance without a specification of the cause, or for a cause the truth of which,
if contradicted, is not proved, or which is not one of those set forth in this Code, shall annul the
institution of heirs insofar as it may prejudice the person disinherited; but the devises and
legacies and other testamentary dispositions shall be valid to such extent as will not impair the
legitime.
Article 919. The following shall be sufficient causes for the disinheritance of children and
descendants, legitimate as well as illegitimate:
(1) When a child or descendant has been found guilty of an attempt against the life of the
testator, his or her spouse, descendants, or ascendants;
(2) When a child or descendant has accused the testator of a crime for which the law prescribes
imprisonment for six years or more, if the accusation has been found groundless; (3) When a
child or descendant has been convicted of adultery or concubinage with the spouse of the
testator;
(4) When a child or descendant by fraud, violence, intimidation, or undue influence causes the
testator to make a will or to change one already made;
(5) A refusal without justifiable cause to support the parent or ascendant who disinherits such
child or descendant;
(6) Maltreatment of the testator by word or deed, by the child or
descendant; (7) When a child or descendant leads a dishonorable or
disgraceful life;
(8) Conviction of a crime which carries with it the penalty of civil interdiction Article 920. The
following shall be sufficient causes for the disinheritance of parents or ascendants, whether
legitimate or illegitimate:
(1) When the parents have abandoned their children or induced their daughters to live a corrupt
or immoral life or attempted against their virtue;
(2) When the parent or ascendant has been convicted of an attempt against the life of the
testator, his or her spouse, descendants, or ascendants;
(3) When the parent or ascendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation has been found to be false; (4)
When the parent or ascendant has been convicted of adultery or concubinage with the spouse
of the testator;
(5) When the parent or ascendant by fraud, violence, intimidation, or undue influence causes the
testator to make a will or to change one already made;
(6) The loss of parental authority for causes specified in this Code;
(7) The refusal to support the children or descendants without justifiable cause; (8) An attempt
by one of the parents against the life of the other, unless there has been a reconciliation
between them. (756, 854, 674a)
Article 921. The following shall be sufficient causes for disinheriting a spouse:
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(1) When the spouse has been convicted of an attempt against the life of the testator, his or her
descendants, or ascendants;
(2) When the spouse has accused the testator of a crime for which the law prescribes
imprisonment of six years or more, and the accusation has been found to be false; (3) When the
spouse by fraud, violence, intimidation, or undue influence cause the testator to make a will or
to change one already made;
(4) When the spouse has given cause for legal separation;
(5) When the spouse has given grounds for the loss of parental authority; (6)
Unjustifiable refusal to support the children or the other spouse. (756, 855, 674a)
Article 922. A subsequent reconciliation between the offender and the offended person deprives
the latter of the right to disinherit and renders ineffectual any disinheritance that may have been
made. (856)
Article 923. The children and descendants of the person disinherited shall take his or her place
and shall preserve the rights of compulsory heirs with respect to the legitime; but the
disinherited parent shall not have the usufruct or administration of the property which
constitutes the legitime. (857)
Renunciation or repudiation of Inheritance, or Share of Spouse in the Net Estate:

1.Renunciation by surviving spouse of his / her share in the conjugal estate under either the
conjugal partnership of gains or the absolute community of property, after dissolution of
marriage in favor of the heirs of the deceased spouse or any other person shall be considered a
taxable gift which is subject to donor’s tax.
2.General renunciation by heir including the surviving spouse of his / her share in the hereditary
estate left by the decedent, without favoring/ excluding any particular heir is not subject to
donor’s tax.
3.Specific renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent, categorically done in favor of identified heirs/ to the
exclusion or disadvantage of the other co-heirs in hereditary estate shall not be subject to
donor’s tax.
A person's compulsory heirs are the following:

1) legitimate children and descendants, with respect to their legitimate parents and ascendants;
2) in default of the foregoing, legitimate parents and ascendants, with respect to their legitimate
children and descendants;
3) the widow or widower; and
4) acknowledged natural children and natural children by legal fiction
5). Other illegitimate children
Classification of Estate Tax:
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1.Excise Tax- The tax is imposed on a person’s exercising his right to transmit his property for
free, at death by way of testamentary disposition or by operation of law in the absence of will
and testament.
2. Ad valorem tax- The tax is computed using a rate based on property’s value. 3. Direct tax-
The tax is directed to be paid by the person liable to such tax. Such tax cannot be shifted to
other person.
4. National Tax- The tax is imposed by the National Govt.
5. Transfer Tax
6. Personal tax
7. Graduated / Fixed rate
Purpose of Estate Tax:

1. To avoid the undue accumulation of wealth or fortune to an individual
2. To raise revenue for use of government
Justification of Imposing Estate Tax:
Based on benefit received theory

Kinds/ Classes of Decedent
1. Resident Citizen
2. Non-resident citizen
3. Resident Alien
4. Nonresident Alien
Nature or Forms of property/estate;
1. Real property- include buildings, ponds, canals, roads, and machinery, among other things.
2. Personal property- is a class of property that can include any asset other than real estate. The
distinguishing factor between personal property and real estate, or real property, is that
personal property is movable; that is, it isn't fixed permanently to one particular location
3. Tangible property- In comparison to intangible personal property, tangible property can be
touched. Consider property such as furniture, machinery, cell phones, computers, and
collectibles which can be felt compared to intangibles such as patents, copyrights, and non
compete agreements that cannot be seen or touched
4. Intangible property- is property that does not derive its value from physical attributes. Patents,
software, trademarks and license are examples of intangible property
Classification of Property / estate as to Ownership:

1. Exclusive assets of decedent
2. Conjugal assets
3. Exclusive asset of spouse
4. Paraphernal property- Those assets owned and belonging to the wife.
5. Capital Property- Those assets owned and belonging to the husband.
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Kinds of Will or testament:
1. Holographic Will
2. Ordinary Will
Codicil – refers to supplemental or additional instructions made by the testator-decedent that

modifies an existing will and testament.
Administrator-is appointed by court while Executor is the person named in the will by the
testator. ADMINISTRATIVE PROVISION OF ESTATE TAXATION:
Tax Form
BIR Form 1801 - Estate Tax Return

This BIR return is filed by:
1. The executor, or administrator, or any of the legal heirs of the decedent, whether resident or
non-resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Where though exempt from estate tax, the gross value of the estate exceeds two hundred
thousand (P200,000) pesos; or
c. Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar
property for which a clearance from the BIR is required as a condition precedent for the transfer
of ownership thereof in the name of the transferee; or
2. Documentary Requirements
Mandatory Requirements [additional two (2) photocopies of each
document]: 1. Certified true copy of the Death Certificate;
2. Taxpayer Identification Number (TIN) of decedent and heir/s;
3. Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if gross
taxable estate exceeds P20,000 for deaths occurring on January 1, 1998 up to December 31,
2017; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to January 1,
1998; 4. Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial
Settlement of the Estate, if the estate has been settled extra-judicially; c) Court order if settled
judicially; d) Sworn Declaration of all properties of the Estate;
5. A certified copy of the schedule of partition and the order of the court approving the same
within thirty (30) days after the promulgation of such order, in case of judicial settlement; 6.
Proof of Claimed Tax Credit, if applicable;
7. Certified Public Accountant (CPA) Statement on the itemized assets of the decedent,
itemized deductions from gross estate and the amount due if the gross value of the estate
exceeds five million pesos (Php5,000,000.00) for decedent’s death on or after January 1, 2018
or two million pesos (Php2,000,000.00) for decedent’s death from January 1, 1998 to
December 31, 2017;
8. Certification of the Barangay Captain for the claimed Family Home (If the family home is
conjugal property and does not exceed Php10 Million, the allowable deduction is one-half (1/2)
of the amount only);
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9. Duly Notarized Promissory Note for "Claims Against the Estate" arising from Contract of
Loan;
10. Accounting of the proceeds of loan contracted within three (3) years prior to death of the
decedent;
11. Proof of the claimed "Property Previously Taxed";
12. Proof of the claimed "Transfer for Public Use";
13. Copy of Tax Debit Memo used as payment, if applicable;
For Real Properties, if any [additional two (2) photocopies of each document]: 1. Certified true
copy/ies of the Transfer/Original/Condominium Certificate/s of Title of real property/ies (front
and back pages), if applicable;
2. Certified true copy of the Tax Declaration of real properties at the time of death, if applicable;
3. Certificate of No Improvement issued by the Assessor's Office where declared properties
have no improvement
For Personal Properties, if any [additional two (2) photocopies of each document]: 1. Certificate
of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if
applicable;
2. Photocopy of Certificate of Registration of vehicles and other proofs showing the correct
value of the same, if applicable;
3. Proof of valuation of shares of stock at the time of death, if applicable;
1. For shares of stocks not listed/not traded - Latest Audited Financial Statement of the issuing
corporation with computation of the book value per share
2. For shares of stocks listed/traded - Price index from the Philippine Stock Exchange (PSE)
/latest Fair Market Value (FMV) published in the newspaper at the time of transaction 3. For club
shares - Price published in newspapers on the transaction date or nearest to the transaction
date
4. Photocopy of Certificate of stocks, if applicable;

5. Proof of valuation of other types of personal property, if applicable;
Other Additional Requirements, if applicable:
• Special Power of Attorney (SPA), if the person transacting/processing the transfer is not a
party to the transaction and/or Sworn Statement if one of the heirs is designated as
executor/administrator;
• Certification from the Philippine Consulate if document is executed abroad • Location
Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be readily
determined from the documents submitted
• Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or his
authorized representative, if tax exempt
• BIR-approved request for installment payment of Estate tax due
• BIR-approved request for partial disposition of Estate
• Such other documents as may be required by law/rulings/regulations/etc.
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Tax Rates
(The rate applicable shall be based on the law prevailing at the time of decedent’s
death) • Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE
determined as of the time of death of decedent composed of all properties, real or personal,
tangible or intangible less allowable deductions.
• Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)
If the Net Estate is:
Who Shall File:

OverBut not Over The
Tax
Shall be Plus Of
the Excess
Over
P 200,000.00 Exempt
P 200,000.00 500,000.00 0 5% P 200,0000 500,000.00 2,000,000.00 P 15,000.00 8%
500,000.00 2,000,000.00 5,000,000.00 135,000.00 11% 2,000,000.00 5,000,000.00
10,000,000.00 465,000.00 15% 5,000,000.00 10,000,000.00 1,215,000.00 20% 10,000,000.00
The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by:
1. The executor, or administrator, or any of the legal heir/s of the decedent, whether resident or
non-resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar
property for which a clearance from the BIR is required as a condition precedent for the transfer
of ownership thereof in the name of the transferee; or
2. If there is no executor or administrator appointed, qualified, and acting within the Philippines,
then any person in actual or constructive possession of any property of the decedent. Taxpayers
who are filing BIR Form 1801 are excluded in the mandatory coverage from using the
eBlRForms (Section 2 of RR No. 9-2016)
When and Where to File and Pay

The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent's
death. In meritorious cases, the Commissioner shall have the authority to grant a reasonable
extension not exceeding thirty (30) days for filing the return.
The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office
(RDO) having jurisdiction over the place of domicile of the decedent at the time of his death. If
the decedent has no legal residence in the Philippines, the return shall be filed with the Office of
the Commissioner (RDO No. 39, South Quezon City).
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In case of a non-resident decedent with executor or administrator in the Philippines, the return
shall be filed with the AAB of the RDO where such executor/administrator is registered or is
domiciled, if not yet registered with the BIR.
When the return is filed with an AAB, taxpayer must accomplish and submit BIR-prescribed
deposit slip, which the bank teller shall machine validate as evidence that payment was received
by the AAB. The AAB receiving the tax return shall stamp mark the word “Received’’ on the
return and also machine validate the return as proof of filing the return and payment of the tax
by the taxpayer, respectively. The machine validation shall reflect the date of payment, amount
paid and transaction code, the name of the bank, branch code, teller’s code and teller’s initial.
Bank debit memo number and date should be indicated in the return for taxpayers paying under
the bank debit system.
Payments may also be made thru the epayment channels of AABs thru either their online
facility, credit/debit/prepaid cards, and mobile payments.
In case the available cash of the estate is insufficient to pay the total estate tax due, payment by
installment shall be allowed within two (2) years from the statutory date for its payment without
civil penalty and interest upon approved by the concerned BIR Official.
The due date on filing and payment of the return/tax shall depend on the applicable law at the
time of the decedent’s death.
Extension to File and Pay

When the Commissioner of Internal Revenue finds that the payment on the due date of the
estate tax or of any part thereof would impose undue hardship upon the estate or any of the
heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5)
years, in case the estate is settled through the courts, or two (2) years in case the estate is
settled extra
judicially. In such case, the amount in respect of which the extension is granted shall be paid on
or before the date of the expiration of the period of the extension, and the running of the Statute
of Limitations for assessment as provided in Section 203 of the National Internal Revenue Code
shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the
Commissioner.
If an extension is granted, the Commissioner of Internal Revenue or his duly authorized
representative may require the executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of tax and with such sureties
as the Commissioner deems necessary, conditioned upon the payment of the said tax in
accordance in the terms of extension.
The application for extension of time to file the estate tax return must be filed with the Revenue
District Officer (RDO) where the estate is required to secure its Taxpayer Identification Number
(TIN) and file the tax returns of the estate. The application shall be approved by the
Commissioner or his duly authorized representative.
Activities/Assessments:
Name;______________________________ Score:_______ Section:_________
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Identification/ Enumeration:
1.What are the allowable deductions for Estate Tax Purposes? Enumerate the requisites
for its deductibility. ( For resident and nonresident alien)
2. What will be used as basis in the valuation of property? (real, personal and
stocks) 3. What are excluded from gross estate?
4. When and where should the executor file and pay the Estate tax return? Can the heirs
withdraw the cash from bank by a decedent even without filing the estate tax return to BIR?
Explain.
5. Enumerate and explain the amendments in the Tax Code related to Estate taxation by
TRAIN law or RA 10963?
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Lesson 2: Laws on the Taxable Net Estate
Overview:
Under the Tax Code, there shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax based on the value of such
net estate, as computed in accordance with law.
Hereditary estate refers to the amount of decedent’s net estate after deducting
the expenses, losses, indebtedness, taxes and such other allowed deductions from the gross
estate of decedent, which net amount shall be subject of distribution to heirs, successors or
beneficiaries based on decedent’s last will and testament, or if none, by operation of law.
The computation of taxable net estate depends on the kind of decedent whether
resident / citizen or nonresident decedent. On this module, it will discuss the formulas for the
computation of taxable net estate of different decedents and the computation of estate tax due
under the Old and New Tax Code. It will also provide an overview of the allowed deductions
from the gross estate of different decedents.
Module Objectives:
1.To determine the tax source and tax bases different classes of decedent. 2.To know the
estate tax rates under the Old and New Tax Code for computation of estate tax due.
3. To understand the formulas in the computation of taxable net estate.
4. To be able to know how to compute for the Estate Tax Due under the Old and New Tax
Code. Course Materials:
Under the Tax Code, as amended:
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid
upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of
every decedent, whether resident or nonresident of the Philippines, a tax based on the value of
such net estate, as computed in accordance with the following schedule:
(The rate applicable shall be based on the law prevailing at the time of decedent’s
death) • Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
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There shall be an imposed rate of six percent (6%) based on the value of such NET
ESTATE determined as of the time of death of decedent composed of all properties, real or
personal, tangible or intangible less allowable deductions.
• Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)
If the Net Estate is
Over But
not
Shall be Plus Of
the Excess
The Tax
Over P 200,00
Over
500,00
P 200,000
.00
500,000 200,0000
.00
2,000,00
2,000,000
.00 0.00 P ,000,00
15,000.00 8% 500,000.00 5
5,000,000 11% 2,000,000.00 10,000,00
0.00 135,000.00

.00
10,000,000 0.00 465,000.00
15% 5,000,000.00
0.00 Exempt

0.00 0 5% P

.00 1,215,000.00
20% 10,000,000.00
Illustration of Estate Tax Return Formula, In General

Amount
Gross Estate 2,000,000
Less: Allowed Deductions 1,200,000
Taxable Net Estate 800,000
before Jan 1, 2018)
39,000*
Estate Tax due (Old law;
Assuming decedent died
* The tax base or taxable net estate is 800,000; Use the graduated tax rate table;
refer to third layer (Over 500,000 But not over 2,000,000). The excess is 300,000
(800,000 less 500,000) times 8% PLUS 15,000. Then, 24,000 + 14,000 = 39,000
Jan 1, 2018)
48,000**
Estate Tax due (New law;
Assuming decedent died after
**The tax rate is 6% of taxable net estate, thus, 800,000 times 6% is equal to
48,000.
SUMMARIZED RULES ON ESTATE TAXATION (TAX SOURCE)
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Decedent Taxable Base Taxable Source Tax Rates
Resident Citizen Taxable Net World Old tax Code: based
Estate (Gross (Both within the on Graduated tax rate
(RC) Resident Alien
Estate less Phil and table; 0% to 20%/ first
(RA) 200,000 exempt
Allowed Abroad/Foreign
Non-Resident Citizen deductions) Countries) Tax rate of 6%
(NRC)
deductions) Graduated tax rate table; 0%
Estate within the Philippines to 20%/ first 200,000 exempt
Non resident Alien Taxable Net
ONLY Tax rate of 6%
Estate (Gross Estate less Old tax Code: based on
Allowed
TAXABLE NET ESTATE for RESDIENT CITIZEN, RESIDENT ALIEN AND NON-RESIDENT
CITIZEN DECEDENT;
In case of resident citizen, resident alien and on resident citizen decedent, the
estate tax is imposed on taxable net estate situated in the Philippines and in foreign countries
and computed in accordance with graduated estate tax rates of 0% to 20% OR 6% flat rate
under the TRAIN law.
Taxable net estate is determined by gross estate -world less allowed deduction-world.
GROSS ESTATE:
Gross estate is determined by including in the estate tax return the total fair market value of all
property/ estate at their gross amounts, whether real, personal, tangible or intangible properties,
located in the Philippines and abroad.
However, there are items of assets / properties that are specified by law as exclusion from gross
estate; hence shall be disregarded or excluded in the computation of gross estate. This will be
discussed in detail in Lesson 4 Gross Estate.
ALLOWED DEDUCTIONS:
Allowed deductions is determined by including in the estate tax return the allowed deductions
from gross estate which consist of liabilities, expenses and other charges related to properties
in the Philippines and abroad of the decedent. However, there are deductions that are excluded
or not allowed to be deducted from gross estate. Unless specified by law to be excluded, such
liabilities, expenses and other charges related to properties in the Philippines and abroad of the
decedent shall be included in computation of allowed deductions.
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Composition of Allowed Deductions for Resident Citizen, Non-resident citizen and Resident Alien:
A. Ordinary Deductions:
1. Expenses, Losses, Indebtedness and Taxes (ELITE)*
2. Property Transfer for Public Purposes
3. Vanishing Deductions
4. Amount received by Heirs from Decedent’s Employer
B. Special Deductions
1. Medical Expenses*
2. Family Home*
3. Standard Deduction (SD)*
*With amendments from TRAIN law. Pls see lesson 5; Allowed Deductions for details.
C.Share of Spouse in the Net Conjugal Estate-World

This amount is determined as follows: Conjugal Assets-world less Ordinary Conjugal
deductions -world equals net Conjugal estate world multiplied by 50%.
Formula:
Conjugal estate- Phil P xxx Conjugal estate- Abroad Xx Conjugal
Estate-World P xxxx Less: Conjugal ordinary deductions-Phil X
Conjugal ordinary deductions-Abroad Xx
Net Conjugal Estate World P xxx Equity of Spouse 50%
Share of Spouse in Net Conjugal Estate World P xxx
Illustration:
Conjugal estate- Phil 1,500,000 Conjugal estate- Abroad 800,000

Exclusive estate-Phil 1,900,000 Exclusive Estate-Abroad 3, 500,000
Gross Estate-World 7,700,000 Less:
Conjugal ordinary deductions-Phil 700,000
Conjugal ordinary deductions-Abroad 250,000
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Decedent’s ordinary deductions-Phil 300,000
Decedent’s ordinary deductions-Abroad 150,000
Special Deduction 5,500,000 Share of Spouse in Net Conjugal Estate
World** 675,000
Total Allowed Deductions-World 7,575,000 Taxable Net Estate-World
125,000
Estate tax Due (Old Tax Code) P 0
Estate tax Due (New Tax Code) 7 500
Computation of Share of Spouse in Net Conjugal Estate World

Conjugal estate- Phil 1,500,000 Conjugal estate- Abroad 800,000 Conjugal
Estate-World 2,300,000 Less: Conjugal ordinary deductions-Phil 700,000
Conjugal ordinary deductions-Abroad 250,000 Net Conjugal Estate World
1,350,000 Equity of Spouse 50%
Share of Spouse in Net Conjugal Estate World** 675,000
TAXABLE NET ESTATE FOR NON-RESIDENT ALIEN DECEDENT;
In case of Nonresident alien decedents, estate tax is imposed on taxable net

estate situated in the Philippines ONLY and computed in accordance with graduated estate tax
rates of 0% to 20% OR 6% flat rate under the TRAIN law.
Taxable net estate is determined by gross estate -Phil only less allowed deduction-Phil
only.
GROSS ESTATE:
Gross estate is determined by including in the estate tax return the total fair market value of all
property/ estate at their gross amounts, whether real, personal, tangible or intangible properties,
located in the Philippines only.
However, there are items of assets / properties that are specified by law as exclusion from gross
estate; hence shall be disregarded or excluded in the computation of gross estate. This will be
discussed in detail in Lesson 4 Gross Estate.
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ALLOWED DEDUCTIONS:
Allowed deductions is determined by including in the estate tax return the allowed deductions
from gross estate which consist of liabilities, expenses and other charges related to properties
in the Philippines only of the decedent. However, there are deductions that are excluded or not
allowed to be deducted from gross estate. Unless specified by law to be excluded, such
liabilities, expenses and other charges related to properties in the Philippines only of the
decedent shall be included in computation of allowed deductions.
Composition of Allowed Deductions for Non-resident Alien:

A. Ordinary Deductions:
1. Expenses, Losses, Indebtedness and Taxes (ELITE)*
2. Property Transfer for Public Purposes
3. Vanishing Deductions
*With amendments from TRAIN law. Pls see lesson 5; Allowed Deductions for details.
B.Share of Spouse in the Net Conjugal Estate-Phil only (Applicable only if the Nonresident Alien
is married)
This amount is determined as follows: Conjugal Assets-Phil only less Ordinary Conjugal
deductions -Phil only equals net Conjugal estate-Phil only multiplied by 50%.
Formula:
Conjugal estate- Phil P xxx Less: Conjugal ordinary deductions-Phil X
Net Conjugal Estate -Phil only P xxx Equity of Spouse 50%
Share of Spouse in Net Conjugal Estate-Phil only P xxx * Under TRAIN law,
Standard deduction is allowed for NRA amounting to P 500,000
Illustration:
Using the same data above, except that the decedent is a Nonresident Alien (married):
CASE A: Before TRAIN law

Conjugal estate- Phil 1,500,000 Exclusive estate-Phil 1,900,000 Gross
Estate-Phil only 3,400,000 Less:
Conjugal ordinary deductions-Phil 700,000
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Decedent’s ordinary deductions-Phil 300,000 Special Deduction* 0
Share of Spouse in Net Conjugal Estate World** 400,000 Total Allowed
Deductions-Phil only 1,400,000 Taxable Net Estate-World 2,000,000
Estate tax Due (Old Tax Code) 135,000
Read:
https://www.slideshare.net/flabert1/01-chapter-1-and-2-taxation-2?next_slideshow=
1 Activities/Assessments:
The following data are available for a decedent in 2019:

Conjugal estate- Phil 1,500,000 Exclusive estate-Phil 1,900,000
Spouse’s exclusive property 1,000,000 Conjugal ordinary deductions-Phil
700,000
Decedent’s ordinary deductions-Phil 300,000
Compute the estate tax due of the decedent in 2019.

Conjugal estate- Phil
Exclusive estate-Phil
Gross Estate-Phil only
Less:
Conjugal ordinary deductions-Phil
Decedent’s ordinary deductions-Phil
Special Deduction*
Share of Spouse in Net Conjugal Estate World**
Total Allowed Deductions-Phil only
Taxable Net Estate-World
Estate tax Due
.**Computation of Share of Spouse in Net Conjugal Estate
World Conjugal estate- Phil
Less: Conjugal ordinary deductions-Phil
Net Conjugal Estate Phil only
Equity of Spouse
Share of Spouse in Net Conjugal Estate**
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Lesson 3: Estate Tax Credit
Overview:
It is the duty of the decedent’s executor or administrator to file the estate tax
return of the decedent, comply with certain requirements or procedures for filing the estate tax
return and pay the corresponding estate tax payable to the BIR.
As discussed in the previous lessons, estate tax due is computed based on

taxable net estate of decedent using the graduated tax rate table or the flat rate of 6%. After
computing the estate tax due, the decedent’s executor or administrator shall determine how
much tax credit can be deducted directly from the Estate tax due computed to arrive at Estate
tax payable after tax credit.
Estate tax credit composed of Philippines estate tax paid in the original estate tax
return (in case of amended estate tax return) and foreign estate tax paid. The latter is subject to
limitations provided by Sec 86 of the Tax Code. On this module, we will discuss the components
of estate tax credit and how to compute the limits of foreign estate tax paid and determining the
estate tax payable to BIR under the Old and New Tax code.
Module Objectives:
1. To learn the laws on estate tax credit under the Tax Code
2. The identify the components of Estate Tax Credit
3. To know how to compute the limits or allowed tax credits on foreign taxes paid on
properties abroad of the decedent
4. To compute the Estate tax payable / still due under the Old and New Tax Code of
different kinds of decedents
Course Materials:
Sec 86 of the Tax Code provides that:

(E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate
tax imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to
each of the following limitations:
(a) 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 estate situated
within such country taxable under this Title bears to his entire net estate; and
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(b) 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 estate situated outside the Philippines taxable
under this Title bears to his entire net estate.
ESTATE TAX CREDIT:
Estate tax credit refers to amount of estate taxes imposed by the authority of the
Philippine Govt and / or by foreign country upon the decedent’s net estate situated therein, that
is allowed by law as a direct deduction from the Philippine estate tax due on decedent’s entire
taxable net estate.
The components of estate tax credit are as follows:
1. Philippines estate tax paid in the original estate tax return (in case of amended estate
tax return) and
2. foreign estate tax paid – This pertains to estate tax of any character and descriptions
imposed by the authority of foreign country upon decedent’s net estate located
therein.
SUMMARY OF RULE on TAX CREDIT FOR DECEDENT:

Estate Tax credit Resident Citizen; Non estate tax return (in case of amended
resident Citizen OR estate tax return)
Resident Alien Yes, allowed as Tax Credit Yes, allowed
Non resident Alien Decedent as Tax Credit
Philippines estate tax paid in the original

ESTATE TAX PAID Limit A:
Foreign estate tax paid Yes, Foreign Country 1

allowed as Tax Credit but NO
subject to limit.
LIMITATIONS OF FOREIGN
estate -World (before Tax Due Lower
Foreign Country Standard = Formula Limit
1 Deduction*) Vs
DIVIDED by Foreign Country Actual estate

2 tax
x Phil paid
Taxable net
= PLUS
estate
Taxable Net estate Whichever is
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Taxable Net Deduction) Limit paid
estate Foreign x Phil Vs =
Taxable net
Country 2 estate Whichever is
estate -World
Tax Due
(before Actual estate Lower
= Formula
DIVIDED by Standard tax
Allowed Tax Credit per LIMIT A =Lower in Foreign Country 1 PLUS Lower Foreign
Country 2
Limit B:
Foreign Country 1
Taxable Net (before = Formula Country 1 and
estate Foreign DIVIDED by Standard Limit Country 2
Country 1+ Deduction) Vs =
Foreign x Phil Whichever is
Country 2 Taxable net estate Lower is equal
Actual estate
estate -World Tax Due to LIMIT B
tax paid in
Allowed TAX Credit = Lower between the amounts in LIMIT A and LIMIT B. *Under the Old
Tax Code, Standard deduction allowed for RC, NRC and RA decedent is P 1,000,000. After
TRAIN law, the Standard deduction allowed for RC,NRC and RA decedent was increased to P
5,000,000.
Illustration 1:
In 2019, A, resident citizen, has the following taxable net estate before standard deduction
(SD): Year 2019 Phil Canada USA
Net Estate 6,000,000.00 3,000,000.00 1,000,000.00
Estate Tax Paid 12,000.00 82,000.00 35,000.00
Compute the Estate tax payable of A for 2019.
Solutions:
The estate tax payable of A is as follows:
Taxable net estate-Phil before SD 6,000,000
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Taxable net estate-Canada before SD 3,000,000
Taxable net estate-USA before SD 1,000,000 Taxable
Net Estate-World before SD 10,000,000 Less:
Standard Deduction (SD) 5,000,000 Taxable Net
Estate 5,000,000
Estate tax due (at 6%) 300,000 Less: Estate tax

Credit:
Philippine Estate Tax 12,000 112,000
paid Foreign Tax Credit*
Estate Tax Payable 176,000
Computation of limit for foreign estate tax paid:

Limit A;
Canada:
Limit Actual Lower 3M / 10M * 300,000=90,000 vs 82,000 82,000
USA
LIMIT A: 112,000
LIMIT B:
Canada and USA
Allowed Estate Tax Credit for Foreign Estate Tax paid:
Limit A LIMIT B Lower 112,000 vs 117,000 112,000
Read:
1 https://www.slideshare.net/flabert1/04-chapter-5-estate-tax
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In 2017, A, resident citizen, has the following taxable net estate before standard deduction
(SD): Year 2019 Phil Canada USA
Net Estate 6,000,000.00 3,000,000.00 1,000,000.00
Estate Tax Paid 12,000.00 82,000.00 35,000.00
Compute the Estate tax payable of A for 2017.
Solutions:
The estate tax payable of A is as follows:
Taxable Net Estate
Estate tax due (at Graduated tax rate)

Less: Estate tax Credit:
Philippine Estate Tax paid
Foreign Tax Credit*
Estate Tax Payable
Computation of limit for foreign estate tax paid:

Limit A;
Canada:
Limit Actual Lower vs
USA
LIMIT A:
LIMIT B:
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Canada and USA
Allowed Estate Tax Credit for Foreign Estate Tax paid:
Limit A LIMIT B Lower vs

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Lesson 4: Laws / Rules on Gross Estate
Overview:
One of the functions of the executor / administrator is to gather and make a list of
inventories of the decedent’s property or estate on the date of the latter’s death. This is to
determine the Gross estate of decedent for the purpose of computing the estate tax due. Gross
estate consists of all properties owned by decedent at the time of his death excluding the
exclusive properties of the surviving spouse. It also includes the assets deemed owned by the
decedent at the time of his death.
On this module, we will discuss the composition of gross estate for purpose of
computing the taxable net estate subject to estate tax, valuation of properties of decedent and
those assets that are exempted, excluded and included in the computation gross estate.
Included on this module is the discussion of two regimes / property relations between spouses
to determine the classification of property as to ownership (conjugal or exclusive property)
Module Objectives:
1. To know the applicable rules on the properties included on the Gross Estate of a
decedent
2. To determine the properties / estate excluded on the Gross estate of decedent.
3. To learn the Valuation of the Properties of the Estate of decedent.
4. To be able to identify the classification of properties as to ownership (Exclusive or
Conjugal)
5. To understand the rules applicable in determining the Conjugal Assets and
Exclusive assets of a married decedent and be able to apply the 2 regimes
(Conjugal Partnership of Gains and Absolute Community of Properties.
6. Determine the value of Gross Estate
Course Materials:
Basis in the Valuation of Property:

The properties comprising the gross estate shall be valued based on their fair market value as of
the time of decedent’s death.
1. If the property is a real property, the appraised value thereof as of the time of death shall be,
whichever is the higher of –
a. The fair market value as determined by the Commissioner, or
b. The fair market value as shown in the schedule of values fixed by the provincial and city
assessors.
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2. In the case of shares of stocks, the fair market value shall depend on whether the shares are
listed or unlisted in the stock exchanges.
• Unlisted common shares are valued based on their book value while unlisted
preferred shares are valued at par value. In determining the book value of
common shares, appraisal surplus shall not be considered as well as the value
assigned to preferred shares, if there are any. On this note, the valuation of
unlisted shares shall be exempt from the provisions of RR No. 6-2013, as
amended.
• For shares which are listed in the stock exchanges, the fair market value shall be
the arithmetic mean between the highest and lowest quotation at a date nearest
the date of death, if none is available on the date of death itself.
3. The fair market value of units of participation in any association, recreation or amusement
club (such as golf, polo, or similar clubs), shall be the bid price nearest the date of death
published in any newspaper or publication of general circulation.
4. To determine the value of the right to usufruct, use or habitation, as well as that of annuity,
there shall be taken into account the probable life of the beneficiary in accordance with the latest
basic standard mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.(Sec. 5, RR No. 12-2018)
5. Other property- The Measured at fair value at the time of death.
GROSS ESTATE:
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the 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 estate
which is situated in the Philippines shall be included in his taxable estate.
GROSS ESTATE -WORLD FOR RESDIENT CITIZEN, RESIDENT ALIEN AND NON
RESDIENT CITIZEN DECEDENTS:
For resident alien decedents/citizens, gross estate shall include:
• Real or immovable property, wherever located
• Tangible personal property, wherever located
• Intangible personal property, wherever located
The composition of gross estate shall be to the extent of decedent’s interest, the total fair market
value of all properties, whether personal, real, intangible, whether exclusive asset of decedent or
conjugal asset of couple (in case the decedent is married) whether Assets still owned, or Assets
deemed owned located in the Philippines and in foreign countries..
However, there are properties or property transfer which under the provisions of estate tax laws
are exempt from estate tax and therefore shall be excluded from taxable gross estate -world.
GROSS ESTATE -PHIL ONLY: NON RESDIENT ALIEN DECEDENTS: For Non resident alien,
the composition of gross estate shall be to the extent of decedent’s interest, the total fair market
value of all properties, whether personal, real, intangible, whether
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exclusive asset of decedent or conjugal asset of couple (in case the decedent is married)
whether Assets still owned, or Assets deemed owned located in the Philippines only. For
non-resident decedent/non-citizens, gross estate includes:
• Real or immovable property located in the Philippines
• Tangible personal property located in the Philippines
• Intangible personal property - with a situs in the Philippines such as: •
Franchise which must be exercised in the Philippines
• Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
• Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is
located in the Philippines
• Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines (i.e. they are used in the furtherance of
its business in the Philippines)
• Shares, rights in any partnership, business or industry established in the Philippines
Reciprocity Clause / Law for intangible personal property:
However, in respect of intangible personal property situated in the Phil of nonresident alien
decedent, no estate tax shall be collected if the following conditions have been complied with; 1.
If the foreign country of which he is a citizen and resident at the time of his death, did not
impose death tax of any character in respect to intangible personal property of citizens of the
Philippines not residing in that foreign country.
2. If estate tax laws of foreign country of which the decedent is citizen and a resident at
the time of his death, allows a similar exemption from death tax of any character in
respect to intangible personal property owned by citizen of the Philippines not
residing on that foreign country.
Intangible personal property with a situs in the Philippines such as:
1. franchise which must be exercised in the Philippines;
2. Shares of stock, obligations or bonds issued by corporations organized or
constituted in the Philippines;
3. Shares, obligations or bonds issued by a foreign corporation 85 percent of the
business of which is located in the Philippines;
4. Shares of stock, obligations or bonds issued by a foreign corporation if such
shares, obligations or bonds have acquired a business situs in the Philippines,
that is, they are used in the furtherance of its business in the Philippines; and
5. Shares, rights in any partnership, business or industry established in the
Philippines.
Amounts received by Heirs under RA 4917:

Refers to the amount received by heirs from the decedent’s employer as a
separation benefit or as a consequence of death of decedent-employee in accordance with RA
4917.
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This amount is allowed as deduction from gross estate provided the amount
received by heir is included first as part of gross estate. For married decedent, this is a conjugal
asset and the same time, conjugal deduction.
EXCLUSIONS/EXEMPTIONS FROM GROSS ESTATE:

There are three groups of properties or property transfer which are expressly exclude/exempted
from the declaration of the decedent’s gross estate:
I. Exemptions from Estate Tax under NIRC
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of inheritance or legacy by fiduciary heir or legatee to
the fidei-commissary heir
3. All bequest, devises, legacies or property transfer to social welfare, cultural,
charitable institutions, no part of net income of which inures to the benefit of
any individual provided that no more than 30% of said property shall be used
by such institutions for administrative purposes.
4. The transmission from first heir, legatee or done in favor of another beneficiary,
in accordance with the desire / will of the predecessor.
II. Exemptions from Estate tax Under Special Laws

1. GSIS proceeds/ benefits by reason of deaths
2. Accruals from SSS by reason of death
3. Benefits from US veterans Administration (RA 360)
4. War damage payments
5. Retirement benefits from RA 4917
6. Proceeds of life insurance where the third party beneficiary is irrevocably
appointed
7. Proceeds of life insurance under a group insurance taken by employer (not
taken out upon his life).
III. Exclusions from Gross Estate under NIRC

1. Capital asset or exclusive asset of surviving spouse
2. Properties abroad in case of non resident alien decedent.
3. Intangible personal property in the Philippines in case of non resident alien
decedent with reciprocity clause.
INCLUSION IN THE GROSS ESTATE:

In general, the property included in the gross estate are the following:
1.Assets Still owned by decedent- These are property still in possession and owned by the
decedent, physically, included in the inventory of asset at his death, to the extent of decadent’s
interest or equity over that property whether owned exclusively by decedent ,owned jointly by
couple or to other person.
2.Assets Deemed Owned- Properties formerly owned by decedent but were transferred to other
persons during his lifetime by way of any taxable transfer covered by estate tax. The property
transfer are death related transfers and partake of nature of testamentary dispositions: a.
Property transfer in contemplation of death or mortis causa
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Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in contemplation of or intended 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, under which he has retained for his life or for any period which
does not in fact end before his death (1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the property or the income therefrom; except
in case of a bona fide sale for an adequate and full consideration in money or money's worth.
b. Property transfer subject to revocation
Revocable Transfer under the Tax Code. -

(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in
money or money's worth) by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change through the exercise of a power (in
whatever capacity exercisable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the
decedent acquired such power), to alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of
the power is subject to a precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a stated period after
the exercise of the power, whether or not on or before the date of the decedent's
death notice has been given or the power has been exercised. In such cases,
proper adjustment shall be made representing the interests which would have been
excluded from the power if the decedent had lived, and for such purpose if the
notice has not been given or the power has not been exercised on or before the
date of his death, such notice shall be considered to have been given, or the power
exercised, on the date of death.
c. Property transfer passing under a general power of appointment- refers to any gift or property
transfer by a donor-decedent during his lifetime, the ownership of which passing from the actual
owner through him (decedent -transferor) to another person-donee under a general power of
appointment given to and exercised by the donor-decedent.
• Property Passing Under General Power of Appointment. - To the extent of any

property passing under a general power of appointment exercised by the
decedent: (1) by will, or
(2) by deed executed in contemplation of, or intended to take effect in possession
or enjoyment at, or after his death, or
(3) by deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period which does not in
fact end before his death
a. the possession or enjoyment of, or the right to the income from, the
property, or
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b. (b) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or
the income therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's worth.
Example; Mr Xin is the owner of building. He issued a general power of appointment to King,
authorizing him to gratuitously transfer the building to anyone he likes. King donate the building
to Wei as donation mortis causa. Later, Xin and King died. Thus, the transfer of building will be
part of King’s gross estate although the building has new possessor or owner which cannot be
taken away by others.
Limited Power of appointment refers to restricted authority or power exercisable in favor of or to

appoint certain person or beneficiary or successor who shall succeed to the property entrusted
to another person for safekeeping and future transfer.
d. Property transfer for insufficient considerations- refers to transfer of property for insufficient
consideration made by decedent during his lifetime; considered covered by and subject to estate
tax if shown to have been made by way of transfer enumerated and described in subsections B,
C and D of Sec 85 of the Tax Code.
Transfers for Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or
powers (enumerated and described in Subsections (B), (C) and (D) of Section 85 of Tax Code)
is made, created, exercised or relinquished for a consideration in money or money's worth, but
is not a bona fide sale for an adequate and full consideration in money or money's 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 to be included on account of such transaction, over the value of
the consideration received therefor by the decedent.
e. Life insurance proceeds:
Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or
to the extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
Non taxable life insurance proceeds (excluded in gross estates) are as follows:
• If beneficiary is third person and irrevocably designated under private insurance
policy
• Insurance proceeds from GSIS or SSS
• If coming from the employer’s group of insurance plan taken out by employer on
employee’s life, whoever is the beneficiary, whether designated as revocable or
irrevocable
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If designation of the beneficiary is not stated as revocable or irrevocable, the insurance law
presumes it to be revocable.
REGIME / PROPERTY RELATIONS BETWEEN SPOUSES

(Article 75 of the Family Code of the Philippines)
“The future spouses may, in the marriage settlements, agree upon the regime of absolute
community, conjugal partnership of gain, complete separation of property, or any other regime.
In the absence of a marriage settlement, or when the regime agreed upon is void, the system of
absolute community of property as established in this Code shall govern.”
A property regime is the set of rules agreed upon by the parties, before getting married, which
would govern their property relations during the course of their married life. The laws of the
Republic of the Philippines recognize three kinds of property regimes namely: 1. Regime of
Conjugal Partnership of Gain
2. Regime of Absolute Community of Property
3. Regime of Complete Separation of Properties
In the absence of a marriage settlement (pre-nuptial agreement) or when there is such but is
void. One of the three property regimes will apply depending on when the person is married.
Regime of Conjugal Partnership of Gains

If there is no pre-nuptial agreement during the celebration of marriage and such marriage took
place on or before August 3, 1988 the regime of conjugal partnership of gains applies. Under the
regime of conjugal partnership of gains, the husband and wife place in a common fund the
proceeds, products, fruits and income from their separate properties and those acquired by
either or both spouses through their efforts or by chance, and, upon dissolution of the marriage
or of the partnership, the net gains or benefits obtained by either or both spouses shall be
divided equally between them, unless otherwise agreed in the marriage settlements. (Family
Code of the Philippines, Article 106). All their income, gains, fruits will be the common
properties of the spouses.
All the properties they acquire before getting married will be their own exclusive
properties. What the man owns is his own, what the woman owns is her own. Those properties
acquired before marriage will not form part of their common properties during marriage, but the
fruits and income of such exclusive properties will form part of the common properties.
Regime of Absolute Community of Property

If there is no pre-nuptial agreement during the celebration of marriage and such
marriage took place after August 3, 1988 the regime of absolute community of property regime
applies.
The community property shall consist of all the property owned by the spouses at
the time of the celebration of the marriage or acquired thereafter. (Family Code of the
Philippines, Article 91)
This is the current governing property regime in the absence of a pre-nuptial
agreement since 1988 is already past due. This is the property regime wherein the properties of
both spouses will be combined. Both of them will become owners of the properties that each of
them had brought into marriage.
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“Art. 75. The future spouses may, in the marriage settlements, agree upon the
regime of absolute community, conjugal partnership of gains, complete separation of property,
or any other regime. In the absence of a marriage settlement, or when the regime agreed upon
is void, the system of absolute community of property as established in this code shall govern.”
Absolute community of property. This means that every piece of property you
have or have acquired before and after your marriage forms part of your absolute community of
property. This can be found under Article 91 of the Family Code, which provides: “Art. 91.
Unless otherwise provided in this chapter or in the marriage settlements, the community
property shall consist of all the property owned by the spouses at the time of the celebration of
the marriage or acquired thereafter.”
In relation thereto, not every piece of property that you and your husband have
forms part of your absolute community. Thus, the exemptions therein are enumerated under
Article 92 of the same law, viz:
“Art. 92. The following shall be excluded from the community property:
(1) Property acquired during the marriage by gratuitous title 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;
(2) Property for personal and exclusive use of either spouse. However, jewelry shall form part of
the community property;
(3) 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.”
Article 92 states that inherited or donated pieces of property acquired during the marriage, as
well as their fruits and income, do not form part of the absolute community of property. In other
words, this means that such inherited or donated property to one of the spouses, belong to him
or her only.
Regime of Complete Separation of Properties

Separation of property may refer to present or future property or both. It may be
total or partial. In the latter case, the property not agreed upon as separate shall pertain to the
absolute community. (Family Code of the Philippines, Article 144)
Each spouse shall own, dispose of, possess, administer and enjoy his or her own
separate estate, without need of the consent of the other. To each spouse shall belong all
earnings from his or her profession, business or industry and all fruits, natural, industrial or civil,
due or received during the marriage from his or her separate property. (Family Code of the
Philippines, Article 144)
This is a property regime wherein both spouses needs to have an agreement in
order to put on effect or else absolute community of property regime will apply. Separation of
properties may be total or partial.
CLASSIFICATION GUIDELINES UNDER THE REGIME OF CONJUGAL PARTNERSHIP OF

GAINS (CPOG) AND ABSOLUTE COMMUNITY OF PROPERTY (ACOP):
Properties CPOG ACOP
a. Assets and income earned before unless proven otherwise.
celebration of marriage, in general Exclusive Conjugal
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b. Assets and income earned during contribution to either spouses
marriage, in general unless proven
otherwise. Conjugal Conjugal
c. Exceptions: Assets acquired during
marriage by way of: c.1. Gift, donation,
during marriage from Exclusive Exclusive

exclusive properties in
letter c.1 to c.5 are:
Exclusive Exclusive
c.2. Inheritance, devise, Exclusive

legacy, bequest to either
spouse c.3. Purchased
from exclusive money by Conjugal
either spouse c.4. d.Exceptions; Personal Exclusive Exclusive
Exchanged with exclusive
money by either spouse effects acquired before Exclusive Exclusive
c.5. Redeemed with
exclusive money by either marriage: d.1. Personal Exclusive
spouse.
effect if jewelry in general
However, the related Exclusive
income/ fruits earned
e.Exceptions; Personal effects acquired
during marriage:
d.1. Personal effect if jewelry in general

d.2. Other personal effects (except
jewelry) Exclusive Exclusive
marriage by either spouse who has
legitimate descendants by a former
Conjugal Exclusive
d.2. Other personal effects (except

jewelry) Conjugal Conjugal Conjugal Exclusive
Exceptions: Property acquired before
marriage and its fruits and income.Exclusive Exclsuive
Read:
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King, a Filipino, married to Risa in 2003, died on April 2016. The inventory of properties of the
couple are as follows:
a. Townhouse and lot in Manila acquired from conjugal funds of P 1,650,000
b. Farm lot in Laguna inherited by husband P 850,000
c. Land in Novaliches brought to the marriage by husband; P 450,000
d. Fishpond in Bulacan donated to wife in 2005; P 960,000
e. Time deposit in the name of husband and wife; P 120,000
f. Time deposit in the name of husband and his brother; P 65,000
g. Jewelry brought into marriage by wife; P 135,000
h. Proceeds of insurance, revocable, payable to wife; P 250,000
i. Proceeds of GSIS life insurance policy; P 150,000
j. Proceeds of private life insurance policy where the beneficiary is the sister and silent
as to designation; P 300,000
k. Cash, representing rental income from fishpond in Bulacan; P 180,000
l. Employee benefits under RA 4917; P 500,000
Required:
Compute the following:

A. Under CPOG, determine the:
a.1. Taxable gross estate of decedent and
a.2. The exclusive property of wife.
B. Under ACOP; determine the:
b.1. Taxable gross estate of decedent and
b.2. Exclusive property of wife.
Answer Sheet:
The exclusive ACOP
property of wife Taxable gross estate of decedent
CPOG
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Lesson 5: Laws / Rules on Allowed Deductions
Overview:
The executor or administrator make a list or inventory of all liabilities, expenses

and charges related to decedent’s property / estate on the date of the latter’s death. The factors
needed n the determination of gross estate which was presented in previous lesson shall
likewise be observed in knowing the proper amount of allowed deductions from the gross
estate.
After the value of the gross estate has been established, the total amount of
allowed deductions (expenses, liabilities and charges) must be known that will be deducted from
the gross estate (real, personal, tangible and intangible) to arrive at the taxable net estate.
Based on the taxable net estate, we can now determine the estate tax due of the decedent.
Module Objectives:
1.To be able to know the provisions of Tax Code on Allowed deductions from Gross Estate. 2.
To identify all the components of allowed deductions from Gross estate. 3. To determine the
nondeductible expenses/charges and liabilities from the Gross estate. 4. To determine the
requisites for the deductibility of each allowed deductions from Gross Estate 5. To compute the
allowed vanishing deductions.
6. To compute the taxable net estate and the estate tax due under the Old and New Tax
Code. Course Materials:
Allowed deductions refers to total amount of liabilities, expenses and charges

permitted or authorized by law as reduction from the decedent’s gross estate in order to arrive at
the amount of taxable net estate.
Illustration of Estate Tax Return:

Gross Estate (Yr 2019) 15,000,000
Less: Allowed Deductions 13,000,000
Taxable Net Estate 2,000,000
Estate Tax Due (at 6%) 120,000

00,000
Less: Estate Tax Credit 1
Estate Tax payable 20,000
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RULE I: ALLOWED DEDUCTIONS- WORLD FOR RESIDENT CITIZEN, NON RESIDENT

CITIZEN AND RESIDENT ALIEN:
In the case of resident/ citizen decedent, the composition / inclusion in their

allowed deductions shall be, to the extent of their interest at the time of their deaths, the total
value of the liabilities, expenses and charges incurred within and without the Philippines,
related to decedent’s deaths, or to their properties.
However, there are liabilities, expenses and charges which under the provisions
of tax law are disallowed or nondeductible and therefore are excluded from the allowed
deductions-world.
The following are deductions within and without the Philippines that can be
claimed by estate of citizen or resident decedent:
1.Ordinary deductions- World**

a. Expenses, Losses Indebtedness and Taxes (ELIT)
b. Vanishing Deduction (VD)
c. Property Transfer to Government for Public Use
d. Amount received by decedent’s heir from decedent’s employer per RA 4917 (ARBHFDE)
2. Special Deductions- World**

a. Medical expenses
b. Standard Deductions
c. Family Home Allowance
3. Share of spouse in the Net Conjugal estate-World: Computed by the following formula:
= (Conjugal Assets -world LESS Ordinary Conjugal deductions-world*) x 50%
*ELIT and ARBHFDE are considered conjugal deductions.
**With amendments from TRAIN law. For details, please see the subsequent discussions on
INCLUSION TO ALLOWED DEDUCTIONS.
RULE II: ALLOWED DEDUCTIONS- Phil only FOR NON RESIDENT ALIEN:
In the case of non resident alien decedent, the composition / inclusion in their
allowed deductions shall be, to the extent of their interest at the time of their deaths, the total
value of the liabilities, expenses and charges incurred within the Philippines only, related to
decedent’s deaths, or to their properties.
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However, there are liabilities, expenses and charges which under the provisions
of tax law are disallowed or nondeductible and therefore are excluded from the allowed
deductions-Phil only.
The following are deductions within and without the Philippines that can be
claimed by estate of citizen or resident decedent:
1.Ordinary deductions- World

a. Expenses, Losses Indebtedness and Taxes (pro rata)
Formula:
a.1. Under the Old Tax Code:
= (Phil. Gross Estate divided by Total Gross Estate) X ELITE-World
a.2. Under the New Tax Code;
= (Phil. Gross Estate divided by Total Gross Estate) X LITE-World
b. Vanishing Deduction (VD)

c. Property Transfer to Government for Public Use
2. Special Deductions
a. Standard Deductions (SD)
a.1. Under the Old Tax Code, No allowed standard deduction
a.2. Under the New Tax Code, allowed SD is P 500,000
3. Share of spouse in the Net Conjugal Estate-Phil only: Computed by the following formula:
=(Conjugal Assets -Phil only LESS Ordinary Conjugal deductions-Phil only*) x 50%
*ELIT are considered conjugal deductions.
EXCLUSION FROM THE ALLOWED DEDUCTIONS
These are the items of liabilities, expenses and charges related or not to the
decedent’s death or properties which under the tax law are disallowed or non deductible:
1. On exclusive asset of surviving spouse, in case of married decedent

2. O exclusive or conjugal asset abroad of decedent in case of nonresident alien
decedent
3. Property or estate exempt from estate tax
4. Indebtedness incurred accrued after death of decedent
5. Liabilities, expenses and other charges on property not declared in the gross estate 6.
On exclusive or conjugal assets in the Phil classified as intangible personal property of
nonresident alien under reciprocity clause between his country and the Philippines.
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INCLUSION IN THE ALLOWED DEDCUTIONS:

ORDINARY DEDUCTIONS:
1.EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELITE)
These are ordinary deductions representing the total and itemized amounts of the
following charges against the decedent’s estate:
a. Funeral expenses (Under the New Tax Code, Funeral Expenses is no longer allowed
as deductions from the gross estate).
b. Judicial expenses. (Under the New Tax Code, Judicial Expenses is no longer allowed
as deductions from the gross estate.)
c. Claims against the Estate
d. Claims against Insolvent person
e. Unpaid Mortgages
f. Unpaid taxes
g. Casualty loss
If there are no breakdown or details on ELITE, such as when the amount is given in
total, then in case of married decedent, this item is deemed conjugal deduction.
However, if the items of the ELITE are given, the items no “a” and “b” are deemed
conjugal deductions; whereas the item “c” to “g” maybe classified as either conjugal or
exclusive depending on the problem data.
Funeral Expenses:
For actual funeral expenses or in an amount equal to five percent (5%) of the
gross estate, whichever is lower, but in no case to exceed Two hundred thousand pesos
(P200,000) – Under the Old tax Code.
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They
include: 1. The mourning apparel of the surviving spouse and unmarried minor children of the
deceased bought and used on the occasion of the burial;
2. Expenses for the deceased’s wake, including food and drinks;
3. Publication charges for death notices;
4. Telecommunication expenses incurred in informing relatives of the deceased; 5. Cost of burial
plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a
family estate or several burial lots, only the value corresponding to the plot where he is buried is
deductible;
6. Interment and/or cremation fees and charges; and
7. All other expenses incurred for the performance of the rites and ceremonies incident to
interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like
are not deductible. Any portion of the funeral and burial expenses borne or defrayed by
relatives and friends of the deceased are not deductible. Actual funeral expenses shall mean
those which are actually incurred in connection with the interment or burial of the deceased.
The expenses must be duly supported by official receipts or invoices or other evidence to show
that they were actually incurred. (Sec 6 (A)(1) of RR 2-2003)
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Under the New Tax Code, Funeral Expenses is no longer allowed as deductions
from the gross estate
Judicial Expenses
For judicial expenses of the testamentary or intestate proceedings. (Allowed
deduction under the Old tax Code).
Expenses allowed as deduction under this category are those incurred in the
inventory-taking of assets comprising the gross estate, their administration, the payment of
debts of the estate, as well as the distribution of the estate among the heirs. In short, these
deductible items are expenses incurred during the settlement of the estate but not beyond the
last day prescribed by law, or the extension thereof, for the filing of the estate tax return.
Judicial expenses may include:
1. Fees of executor or administrator;
2. Attorney’s fees;
3. Court fees;
4. Accountant’s fees;
5. Appraiser’s fees;
6. Clerk hire;
7. Costs of preserving and distributing the estate;
8. Costs of storing or maintaining property of the estate; and
9. Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under “Judicial
Expenses” should be supported by a sworn statement of account issued and signed by the
creditor. (Sec 6 (A)(2) of RR 2-2003)
Under the New Tax Code, Judicial Expenses is no longer allowed as deductions
from the gross estate
Claims against the estate
Refers to financial obligations / indebtedness due from the estate / decedent
payable to the creditor.
For claims against the estate: Provided, That at the time the indebtedness was
incurred the debt instrument was duly notarized and, if the loan was contracted within three (3)
years before the death of the decedent, the administrator or executor shall submit a statement
showing the disposition of the proceeds of the loan
Requisites for Deductibility of Claims against the Estate –
• The liability represents a personal obligation of the deceased existing at the time of death; •
The liability was contracted in good faith and for adequate and full consideration in money’s
worth;
• The claim must be a debt or claim which is valid in law and enforceable in court; and • The
indebtedness must not have been condoned by the creditor or the action to collect from the
decedent must not have prescribed.
Claims Against insolvent persons

Refers to financial obligations collectibles due to the decedent; payable by the
debtors to the decedent.
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Claims of the deceased against insolvent persons where the value of the
decedent’s interest therein is included in the value of the gross estate.
Unpaid Mortgages/ Unpaid Taxes and casualty Losses:
For unpaid mortgages upon, or any indebtedness in respect to, property where
the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is
included in the value of the gross estate, but not including any income tax upon income
received after the death of the decedent, or property taxes not accrued before his death, or any
estate tax. The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited
to the extent that they were contracted bona fide and for an adequate and full consideration in
money or money's worth.
There shall also be deducted losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated for by insurance or otherwise, and if at
the time of the filing of the return such losses have not been claimed as a deduction for the
income tax purposes in an income tax return, and provided that such losses were incurred not
later than the last day for the payment of the estate tax as prescribed in Subsection (A) of
Section 91.
2. VANISHING DEDCUTIONS
Refers to ordinary deductions related to a property which was previously
subjected to transfer tax during the decedent’s lifetime. This deductible item is given as a relief
or consolation for having to pay a death tax on his property which has been recently and
previously subjected to Philippine tax or donor’s tax within a relatively short period of time.
Under Sec 86 of the Tax Code, provides the following:
Property Previously Taxed. - An amount equal to the value specified below of any
property forming a part of the gross estate situated in the Philippines of any person who died
within five (5) years prior to the death of the decedent, or transferred to the decedent by gift
within five (5) years prior to his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior decedent by gift, bequest,
devise or inheritance, or which can be identified as having been acquired in exchange for
property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not
more than two (2) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred to
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Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
These deductions shall be allowed only where a donor's tax or 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, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in the decedent's gross estate, and only
if in determining the value of the estate of the prior decedent, no deduction was allowable under
paragraph (2) in respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien 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 decedent's death, then
the deduction allowable under said Subsection shall be reduced by the amount so paid. Such
deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise
deductible under said paragraph (2) bears to the value of the decedent's estate. Where the
property referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
FORMULA FOR VANISHING DEDUCTIONS:
Illustration:
A resident decedent had the following data on the date of his death in Nov 14, 2013:
• FMV of the Other property is P 3.5M

• FMV of property received as gift; P 500,000
• Unpaid mortgages assumed by decedent is 100,000
• Only 85% of mortgage was paid by decedent during his lifetime
• The property gift was valued at P 385,000 when received from the donor. •
ELITE, including unpaid mortgage on the gift is 900,000
• Property transferred to govt for public purposes is P 60,000
Computation of vanishing Deductions:
death vs FV at time received)
385,000
Fair Market Value (lower
between the FV at time of
Less: Mortgage PAID (100,000 x 85%) 85,000 Initial basis

300,000 Less: pro rata share in Allowed Deductions
(Initial basis divided by Gross estate) x Allowed

deductions / ELITE + PTFPU)
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(300,000 / 4,000,000) X (960,000) 72,000
Final basis 228,000
Rate of vanishing Deduction 60%
Allowed Vanishing Deductions 136,800
3. Transfers for Public Use. –
The amount of all the bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines, or any political subdivision thereof, for
exclusively public purposes.
4. Amount received by Heirs under RA 4917
Amount Received by Heirs Under Republic Act No. 4917. - Any amount received
by the heirs from the decedent - employee as a consequence of the death of the decedent
employee in accordance with Republic Act No. 4917: Provided, That such amount is included in
the gross estate of the decedent.
SPECIAL DEDCUTIONS:
a. Medical expenses
Under the Old Tax Code, medical expenses is allowed deductions from gross
estate.
Medical Expenses incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts: Provided, That in no case shall the
deductible medical expenses exceed Five Hundred Thousand Pesos (P500, 000).
All medical expenses (cost of medicines, hospital bills, doctor’s fees, etc.)
incurred (whether paid or unpaid) within one (1) year before the death of the
decedent shall be allowed as a deduction provided that the same are duly
substantiated with official receipts. For services rendered by the decedent’s
attending physicians, invoices, statements of account duly certified by the hospital,
and such other documents in support thereof and provided, further, that the total
amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand
Pesos (P500,000).
Under the New Tax Code (TRAIN Law), medical expenses is no longer allowed
deductions from gross estate.
b. Standard Deductions
b.1. For Resident/ Citizen decedent:
Under the Old tax Code, a deduction in the amount of One Million Pesos
(P1,000,000.00) shall be allowed as an additional deduction without need of
substantiation
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Under the New tax Code, a deduction in the amount of Five Million Pesos
(P5,000,000.00) shall be allowed as an additional deduction without need of
substantiation
b.2. For Non resident Alien decedent:
Under the Old tax Code, no deduction is allowed. (No standard deduction is
allowed for Nonresident alien decedent)
Under the New tax Code, a deduction in the amount of Five Hundred Pesos
(P500,000.00) shall be allowed as an additional deduction without need of
substantiation.
c. Family Home Allowance
Under the Old Tax Code; 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
One million pesos (P1, 000,000), the excess shall be subject to estate tax. As a sine qua non
condition for the exemption or deduction, said family home must have been the decedent's
family home as certified by the barangay captain of the locality.
Under the New Tax Code, 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 Ten million pesos (₱10,000,000), the excess shall be subject to estate
tax.
Illustration A: Unmarried decedent but Head of the Family
Old tax Code:
Case 1 Case 2
FMV of family home 800,000 3,000,000 Book value 500,000 4,000,000
Maximum limit 1,000,000 1,000,000 Deductible family home allowance
800,000 1,000,000
Illustration A: Married decedent
Old tax Code:
Case 1 Case 2
FMV of family home 1,800,000 3,000,000 Book value 1,500,000 4,000,000
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Maximum limit 1,000,000 1,000,000 Deductible family home allowance
900,000 1,000,000
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Codal Reference:
Republic Act No. 8424 – effective January 1, 1998

Republic Act No. 10963 – effective January 1, 2018
Sec. 22 to 27 of the Tax Reform Acceleration and Inclusion Act (TRAIN
Law) Sec. 84 to Sec. 97 of the National Internal Revenue Code (NIRC) of
1997
1. Q1.0. RC, a resident citizen, died on November 2, 2018. When is the deadline for
filing notice of death as required by tax code?________________________
Q1.1. RC, a resident citizen, died on November 2, 2018. When is the deadline for filing
of estate tax return as required by tax code?________________________
__________2. Which of the following statements is not required to accompany the estate
tax return?
a. Itemized assets with corresponding value
b. Itemized deductions from gross estate
c. Estate tax due
d. Itemized income and expenses of decent
3. RC, a resident citizen, died on November 2, 2018. A notice of death and a CPA
certificate, respectively, are required if the gross estate exceeds---
____________________________
4. RC, a resident citizen, died on November 2, 2017. A notice of death and a CPA
certificate, respectively, are required if the gross estate exceeds---
_____________________________
True or False:
131

HILIPPINES
C
___________5. A. The liability of the heir in the payment of the estate tax shall in no
case exceeds the value of his share in the inheritance.
B. The heir has the primary obligation to pay estate taxes.
___________6. A. When there are two executors, they are jointly liable for payment of
estate tax.
B. When there are two executors, they are joint and severally liable for payment of
estate tax.
7. The Commissioner of Internal revenue may extend the time of payment of estate tax
in case the estate is settled Judicially for _____ yrs OR extra judicially for ______ yrs.
8. In 2017, RC died. what is the maximum amount of cash that may be withdrawn from
the decedent's bank?___________________________
9. In 2018, RC died. what is the maximum amount of cash that may be withdrawn from
the decedent's bank account?___________________________
10. RC died on Jan 25, 2017 in Makati, the main office of the company where he worked
for 30 years. RC resides in Pasig City. RC has properties located in Manila. On July 27, 2017,
the executor filed the estate tax return in Manila. Per tax return, the amount due is P 40,000.
Based on the given facts, what is the total amount payable to BIR?
11. If required, notice of death of decedent should be given to BIR within __________
12. RC died on Jan 2017, non resident alien with properties located in Manila. RC
resides in USA. The court appointed G, an administrator, living in Pasig City, to settle the estate
of RC. Where will the estate tax return be filed?________________________.
________________13. A. Executor is the person nominated by the testator to carry out

the directions and request in his will.
B. Devisee is an heir to a particular real property given by virtue of a will.
Problem Solving: Mr A and Mrs B, both resident citizen, had the following data on death
of Mr A:
132

HILIPPINES
Amount
Exclusive property of husband 6,000,000.00 Other Exclusive property of wife 1,600,000.00
Paraphernal property of wife 600,000.00 Conjugal property of couple 5,200,000.00 Common
property of Husband; jointly with a friend 800,000.00 The equity of his friend is 60% only
Deductions on property of husband 1,290,000.00 Deductions on property of wife 560,000.00
Deductions on conjugal property
(Includes funeral expense of P 100,000 and Judicial expenses of P 50,000) 1,400,000.00 Deductions
on common property with a friend 550,000.00
Special Deductions:
Medical expenses (Actual medical expenses is P 600,000)
Family Home-Conjugal (FV of Family Home is P 3,000,000)
Standard deduction
________________14. What is the estate tax due if Mr A died in 2017? ( for 3
points) ________________15. What is the estate tax due if Mr A died in 2018? ( for
4 points) ________________THANK YOU!!!__________________
TAX TABLE FOR ESTATE TAX (UNTIL December 31, 2017 ONLY)
Over But not Over Tax shall be Plus

P 0 P 200,000 Exempt 0
P 200,000 P 500,000 P 0 5%
P 500,000 P 2,000,000 P 15,000 8%
P 2,000,000 P 5,000,000 P 135,000 11%
P 5,000,000 P 10,000,000 P 465,000 15%
P 10,000,000 AND OVER P 1,215,000 20%
RATE OF ESTATE TAXE (EFFECTIVE JAN 1, 2018)

The estate tax is 6% of total taxable net estate
Answer Sheet:
1. 6. 11.
2. 7. 12.
3. 8. 13.
4. 9. 14.
5. 10. 15.
133

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Republic of the Philippines

MODULE 2: ESTATE TAXATION

“Art. 712. Ownership is acquired by occupation and by intellectual creation.

Under Art. 725. Donation is an act of liberality whereby a person disposes

Under Art. 774, Succession is a mode of acquisition by virtue of which the

Republic of the Philippines

After successful Completion of this module, you should be able to:

Lesson 1; Administrative Provisions and Fundamental Concepts of Estate

Lesson 3: Estate Tax Credit and Estate Tax Return

Lesson 4: Laws / Rules Gross Estate

Lesson 5: Allowed Deduction from Gross estate

Republic of the Philippines

MODULE 2: ESTATE TAXATION

Lesson 1: Administrative Provisions

After successful Completion of this module, you should be able to:

DEFINITION: ESTATE TAX

Republic of the Philippines

DISTINCTIONS BETWEEN THE ESTATE TAX AND THE DONOR’S TAX:

Estate Tax Donor’s Tax

Under the New Tax Code, filing is

FUNDAMENTAL CONCEPTS OF ESTATE TAXATION:

Republic of the Philippines

1. Testamentary – succession by will

2. Intestate – succession in default of a will

Grounds for Disinheritance under the Civil Code;

Republic of the Philippines

Republic of the Philippines

Renunciation or repudiation of Inheritance, or Share of Spouse in the Net Estate:

A person's compulsory heirs are the following:

Classification of Estate Tax:

Republic of the Philippines

Purpose of Estate Tax:

Justification of Imposing Estate Tax:

Based on benefit received theory

Classification of Property / estate as to Ownership:

Republic of the Philippines

Codicil – refers to supplemental or additional instructions made by the testator-decedent that

testator. ​ADMINISTRATIVE PROVISION OF ESTATE TAXATION:

BIR Form 1801​ - Estate Tax Return

Republic of the Philippines

4. Photocopy of Certificate of stocks, if applicable;

Republic of the Philippines

If the Net Estate is:

Who Shall File:

When and Where to File and Pay

Republic of the Philippines

Extension to File and Pay

Name;______________________________ Score:_______ Section:_________

Republic of the Philippines

stocks) 3. What are excluded from gross estate?

Republic of the Philippines

MODULE 2: ESTATE TAXATION

Code. ​Course Materials:

Under the Tax Code, as amended:

Republic of the Philippines

Illustration of Estate Tax Return Formula, In General

Republic of the Philippines

Republic of the Philippines

C.Share of Spouse in the Net Conjugal Estate-World

testator. ADMINISTRATIVE PROVISION OF ESTATE TAXATION:

BIR Form 1801 - Estate Tax Return

Name;__________________________ Score:_ Section:_______

Code. Course Materials:

Sec 86 of the Tax Code provides that:

ESTATE TAX CREDIT:

• Property Passing Under General Power of Appointment. - To the extent of any

marriage and its fruits and income.Exclusive Exclsuive