19 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX CHAPTER ESTATE TAX Problem 5–1 False – only P200,000 True True True True True True False – If the value of the gross estate exceeds P2,000,000 False – only 30 days 10 True Problem 5–2 A C A D D D C A D 10 A Problem 5–3 Conjugal gross estate (P3,120,000 + P180,000) Funeral expense allowed (P3,300,000 x 5%) Share of surviving spouse (P3,300,000 – P165,000) x 50% Standard deduction Net estate Net conjugal estate Less: Share of surviving spouse Standard deduction Net estate P3,300,000 ( 165,000) ( 1,567,500) ( 1,000,000) P 567,500 P2,000,000 P1,000,000 1,000,000 2,000,000 P - - Net distributable estate (P1,000,000 + P900,000) P1,900,000 Net estate of P15,000 estate tax Add: Standard deduction Net estate before standard deduction Add: Share of surviving spouse Net conjugal estate before funeral expense allowed Divided by (100% - 5%) Gross estate P 500,000 1,000,000 P1,500,000 1,500,000 P3,000,000 95% P3,157,895 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE 20 TAX Gross estate (within) Less: Prorated allowable deduction* (P1,000,000 x 5/15) Net estate – Philippines P5,000,000 333,333 P4,666,667 *If properties outside are presented, then prorate It not, then there is no deduction allowed for NRA Estate tax on P2,000,000 Add: Tax on excess (P2,666,667 x 11%) Estate tax P135,000 293,333 P428,333 40% of properties in the Philippines are intangible Tangible properties in the Philippines (P5,000,000 x 60%) Less: Allowable deduction (P1,000,000 x 5/15) x 60% Net estate – Philippines P3,000,000 200,000 P2,800,000 Estate tax on P2,000,000 Add: Tax on excess (P800,000 x 11%) Estate tax - Philippines P 135,000 88,000 P 223,000 Gross estate Less: Funeral expense Net conjugal estate Less: Share of surviving spouse (P19,800,000 x 50%) Net estate before standard Less: Standard deduction Net estate P20,000,000 200,000 P19,800,000 9,900,000 P 9,900,000 1,000,000 P 8,900,000 Estate tax on P5,000,000 Add: Tax on excess (P3,900,000 x 15%) Estate tax due P 465,000 585,000 P1,050,000 Tax credit: Limit (P1,050,000 x 40%) = P420,000 Actual allowed P100,000 Gross estate (P20,000,000 x 60%) Less: Prorated allowable deduction (P2,000,000 x 60%) Net estate before share of surviving spouse Less: Share of surviving spouse (P10,800,000 x 50%) Net estate – NRA Estate tax on P5,000,000 Add: Tax on excess (P400,000 x 15%) Philippine estate tax P12,000,000 1,200,000 P10,800,000 5,400,000 P 5,400,000 P 465,000 60,000 P 525,000 21 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–4 B Gross estate Funeral expense allowed (P3,000,000 x 5%) Standard deduction Net estate Problem 5–5 A Net estate after deductions Add: Actual deductions (P150,000 + P50,000) Gross estate Less: Funeral expense allowed (P1,400,000 x 5%) Other deduction Standard deduction Net estate Problem 5–6 P3,000,000 ( 150,000) (1,000,000) P1,850,000 P1,200,000 200,000 P1,400,000 P 70,000 50,000 1,000,000 D Property – cash Transfer for public use Funeral expense allowed Share of surviving spouse (P4,000,000 – P200,000) x 50% Standard deduction Net estate Exclusive P1,000,000 (1,000,000) Conjugal P4,000,000 ( 200,000) (1,900,000) (1,000,000) P 900,000 Problem 5–7 A Gross estate Funeral and judicial expenses Net estate before share of surviving spouse Share of surviving spouse Net estate before special deduction Standard deduction Net estate – negative Net estate taxable in the Philippines is Problem 5–8 (1,120,000) P 280,000 P1,500,000 ( 60,000) P1,440,000 ( 720,000) P 720,000 (1,000,000) ( P280,000) P - - A Properties Funeral expense Judicial expenses Claims against properties Shares of surviving spouse (P2,400,000 x 50%) Standard deduction Net estate Conjugal P3,400,000 ( 200,000) ( 250,000) ( 550,000) (1,200,000) Exclusive P2,600,000 (700,000) 1,200,000 (1,000,000) P2,100,000 22 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–9 C Net estate of P500,000 has a estate tax amounting to Problem 5–10 P15,000 D Amounts Net estate P2,000,000 Estate tax P135,000 Nonresident alien decedent is not allowed to have standard deduction The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported (Sec 86 (B), NIRC) Problem 5–11 A Real estate Personal property Funeral expense, limit Judicial expenses Unpaid mortgage loan Share of surviving spouse (P1,800,000 x 50%) Standard deduction Family home (P1,600,000/2) Net estate Conjugal Exclusive P1,600,000 800,000 ( 200,000) ( 100,000) ( 300,000) ( 900,000) P2,800,000 B Estate tax on P500,000 Estate tax on excess (P1,400,000 x 8%) Estate tax B Real estate Personal property Funeral expense, actual Judicial expenses Unpaid mortgage loan Share of surviving spouse (P1,755,000 x 50%) Estate tax Net distributable estate Problem 5–12 C Tax credit P100,000 x 2M/5M) 900,000 (1,000,000) ( 800,000) P1,900,000 P 15,000 112,000 P127,000 Conjugal P1,600,000 800,000 ( 245,000) ( 100,000) ( 300,000) ( 877,500) Exclusive P2,800,000 877,500 ( 127,000) P3,550,500 P40,000 23 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–13 A Total gross estate (P1,700,000 + P800,000) Less: Deductions Net taxable estate P2,500,000 1,500,000 P1,000,000 Estate tax on P500,000 Excess P500,000 x 8% Total estate tax in the Philippines P15,000 40,000 P55,000 Tax credit allowed (P800,000/ P2,500,000) x P55,000 = P17,600 vs P20,000 P17,600 Problem 5–14 Gross estate (P2,000,000 + P180,000) Less: Deductions: Unpaid mortgage Funeral expense Judicial expense Standard Net estate P2,180,000 P 480,000 60,000 20,000 1,000,000 Tax on P500,000 Tax on excess P120,000 x 8% Total estate tax Gross estate Less: Ordinary deductions (P480,000 + P80,000) Estate tax Net distributable estate Problem 5–15 Cash Property Gross estate Deductions: Promissory note Funeral expense Net estate before share of surviving spouse Less: Share of surviving spouse (P1,330,000 x 50%) Net estate before special deduction Less: Standard deduction Net estate 1,560,000 P 620,000 P15,000 9,600 P24,600 P2,180,000 P560,000 24,600 584,600 P1,595,400 P 400,000 1,500,000 P1,900,000 ( 500,000) ( 70,000) P1,330,000 665,000 P 665,000 1,000,000 (P 335,000) 24 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Gross estate Less: Promissory note Funeral expense Net estate before share of surviving spouse Less: Share of surviving spouse (P1,330,000 x 50%) Net distributable estate P1,900,000 P500,000 70,000 570,000 P1,330,000 665,000 P 665,000 Problem 5–16 Gross estate (P1,000,000 + P9,000,000) Ordinary deductions: Funeral expense (limit) Judicial expense Claims against the estate Net conjugal estate before share of surviving spouse Less: Share of surviving spouse (P100,000 x 50%) Special deductions: Standard deduction Medical expense Net taxable estate Tax on P5,000,000 Tax on excess P2,550,000 x 15% Estate tax Conjugal estate Less: Ordinary deductions (actual): Funeral expense Judicial expense Claims against the estate Net conjugal estate before share of surviving spouse Less: Share of surviving spouse (P90,000 x 50%) Net share of the decedent Add: Exclusive property of the decedent Net distributable estate before estate tax Less: Estate tax Net distributable estate Divide by number of heirs (12 + 1) Share of each heir Note: The medical expense is assumed to have been paid Conjugal Exclusive P1,000,000 P9,000,000 ( ( ( P 200,000) 200,000) 500,000) 100,000 50,000 50,000 (1,000,000) ( 500,000) P7,550,000 P465,000 382,500 P847,500 P1,000,000 P210,000 200,000 500,000 910,000 90,000 45,000 P 45,000 9,000,000 P9,045,000 847,500 P8,197,500 13 P 603,576.92 P 25 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–17 Taxable Conjugal property - real estate Ordinary deductions: Funeral expenses, limit (P2,300,000 x 5%) Judicial expenses Unpaid mortgage Vanishing deduction* Net estate before share of surviving spouse Less: Share of surviving spouse (50%) Net estate before exclusive property Add: Exclusive property – personal property inherited Net estate before special deduction Less: Standard deduction Net estate Divide by number of compulsory heirs Inheritance of each heir P2,000,000 ( 115,000) ( 5,000) ( 500,000) ( 175,304) P1,204,696 ( 602,348) P 602,348 300,000 P 902,348 1,000,000 (P 97,652) *Value taken Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) Final basis Multiply by percentage of vanishing deduction – one year ago Vanishing deductions Distributabl e P2,000,000 ( 150,000) ( 5,000) ( 500,000) P1,345,000 672,500 P 672,500 300,000 P 972,500 P 972,500 P 324,167 P300,000 80,870 P219,130 80% P175,304 Note: The inherited property is exclusive because the problem states that it is the decedent’s estate Problem 5–18 P3,900,000 P 265,000 P2,250,000 P1,817,500 P - - or (P432,500) P - P1,515,000 Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin resides in that place 26 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Supporting computations (Problem 5-18): Gross estate House and lot, Baguio City House and lot, Quezon City – family home* Grocery store, Baclaran Inventory (P700,000 – P300,000) x 450/300 Cash sales Claims against insolvent persons Ordinary deductions: Funeral (P3,900,000 x 5%) Claims against insolvent persons Unpaid income taxes Net estate before share of surviving spouse Less: Share of surviving spouse (P3,635,000 x 50%) Net estate before special deductions Special deductions: Family home (P1,500,000/2) Medical expenses Standard deductions Net estate P1,000,000 1,500,000 300,000 600,000 450,000 50,000 P3,900,000 (1) ( 265,000) P3,635,000 1,817,500 P1,817,500 (2) (2,250,000) (P 432,500) (3) (5) Estate tax due P (6) Gross estate Actual deductions: Funeral Claims against insolvent persons Unpaid income taxes Medical expense Net estate before share of spouse Share of surviving spouse (P3,030,000 x 50%) Net distributable estate P3,900,000 P 195,000 50,000 20,000 P 750,000 500,000 1,000,000 P250,000 50,000 20,000 550,000 - - 870,000 P3,030,000 1,515,000 P1,515,000 (4) (7) 27 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–19 P6,540,000 P350,000 P2,500,000 P595,000 P22,600 P3,047,400 P761,750 Supporting computations (Problem 5-19): House and lot (family home) Time deposit – principal amount Accrued interest 2004: (P2,000,000 x 12% x 12/12) 2005: (P2,000,000 x 12% x 10/12) Car Claims against insolvent person Gross estate Ordinary deductions: Funeral expense, limit Judicial Claims against insolvent person Net estate before share of surviving spouse Less: Share of surviving spouse (P6,190,000 x 50%) Net estate before special deductions Special deductions: Standard deductions Medical expense, limit Family home, limit Net estate P3,000,000 2,000,000 240,000 200,000 1,000,000 100,000 P6,540,000 P 200,000 50,000 100,000 P1,000,000 500,000 1,000,000 Tax on P500,000 Tax on excess (P95,000 x 8%) Estate tax Gross estate Actual deductions: Funeral expense Judicial expense Claims against insolvent person Net distributable estate before share of surviving spouse Less: Share of surviving spouse (P6,140,000 x 50%) Net actual estate Less: Estate tax Net distributable estate Divided by number of heirs (intestate succession) Share of each heir ( 350,000) P6,190,000 3,095,000 P3,095,000 2,500,000 P 595,000 P 15,000 7,600 P 22,600 P6,540,000 P250,000 50,000 100,000 ( 400,000) P6,140,000 3,070,000 P3,070,000 22,600 P3,047,400 P 761,850 28 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5–20 Estate tax credit = P212,917 Estate tax payable = P224,583 Supporting computations: a Estate tax payable to the Philippines : Country A Gross estate Unpaid mortgages Unpaid taxes Transfer for public use Net of identifiable deduct Allocated deductions** Net estate P1,200,000 (200,000) P1,000,000 (208,333) P 791,667 Country B Philippines Entire P2,500,000 P5,000,000 (500,000) P2,000,000 (416,667) P1,583,333 (2,000,000) P3,000,000 (625,000) P2,375,000 P8,700,000 (200,000) (500,000) (2,000,000) P6,000,000 (1,250,000) P4,750,000 b Computation of Philippines estate tax: Tax on P2,000,000 Tax on excess (P2,750,000 x 11%) Total Less: Tax credit allowed* Estate tax payable to the Philippine Government c Computation of tax credit: Limit A: Country A: [P437,500 x (P791,667/ P4,750,000)] - lower Actual payment to country A Tax credit allowed for country A Country B: (P437,500 x P1,583,333/ P4,750,000) Actual payment to country B Tax credit allowed for country B P135,000 302,500 P437,500 212,917 P224,583 P 72,917 P 75,000 P 72,917 P145,833 P140,000 140,000 Tax credit – Limit A Limit B: Total net estate – foreign [(P791,667 + P1,583,333)/ P4,750,000] x P437,500 Total actual estate tax payments – foreign (P75,000 + P140,000) – lower Tax credit – Limit B *Tax credit allowed (the lower of limit A or B) ** Computation of allocated deductions: P212,917 P218,750 P215,000 P215,000 P212,917 29 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Funeral expenses Judicial expenses Standard deduction allocated Total allocated deductions Country A P 33,333 8,333 166,667 P208,333 Country B Philippines P 66,667 P100,000 16,667 25,000 333,333 500,000 P416,667 P625,000 Entire P 200,000 50,000 1,000,000 P1,250,000 Note: The above deductions are allocated because they are not specifically identified as deductions from a specific country The allocation is computed by multiplying the fraction of the estate after identifiable deduction with the allocable deductions The fraction per country is computed as follows: Estate net of identifiable deductions per country Divide by entire net estate Fraction Country A Country B Philippines Entire P1,000,000 P6,000,000 1/6 P2,000,000 P6,000,000 2/6 P3,000,000 P6,000,000 3/6 P6,000,000 P6,000,000 6/6 Problem 5–21 Cash Shares of stock (P100 x 100,000 shares) Insurance proceeds Transfer in contemplation of death Total gross estate Ordinary deduction – Transfer for public use Net estate before share of spouse Less: Share of surviving spouse (P800,000 x 50%) Net estate before special deduction Less: Standard deduction Net estate Conjugal P2,000,000 P2,000,000 P2,000,000 P1,000,000 Estate tax on P2,000,000 Tax on excess (P2,000,000 x 11%) Total estate tax Less: Tax credits on tax previously paid (P34,840 + P204,000) Transfer tax still due Problem 5–22 Estate tax on P5,000,000 Estate tax on excess (P3,000,000 x 15%) Estate tax Add: Surcharges – willful neglect (P585,000 x 50%) Interest for years (P585,000 x 20% x 4) Total amount to be paid Exclusive P10,000,000 1,000,000 3,000,000 P14,000,000 (10,000,000) P 4,000,000 1,000,000 P 5,000,000 1,000,000 P 4,000,000 P135,000 220,000 P355,000 238,840 P116,160 P 135,000 450,000 P 585,000 P292,500 468,000 760,500 P1,345,500 ... 870,000 P3,030,000 1 ,51 5,000 P1 ,51 5,000 (4) (7) 27 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5 19 P6 ,54 0,000 P 350 ,000 P2 ,50 0,000 P5 95, 000 P22,600 P3,047,400 P761, 750 Supporting computations... P560,000 24,600 58 4,600 P1 ,59 5,400 P 400,000 1 ,50 0,000 P1,900,000 ( 50 0,000) ( 70,000) P1,330,000 6 65, 000 P 6 65, 000 1,000,000 (P 3 35, 000) 24 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX. .. 877 ,50 0 ( 127,000) P3 ,55 0 ,50 0 P40,000 23 BUSINESS AND TRANSFER TAXATION Chapter 5: ESTATE TAX Problem 5 13 A Total gross estate (P1,700,000 + P800,000) Less: Deductions Net taxable estate P2 ,50 0,000