BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 28 Chapter 6: DONOR’S TAX CHAPTER DONOR’S TAX Problem 6-1 False – there is no consideration in donation False – during the lifetime of the donor True False – It is enough that the duly representative of the incapacitated donee to receive the donation True False – Real property donation must be put in writing regardless of value True False – The value of donated personal property must exceed P5,000 True 10 True 11 False – not gifts 12 False – constitutes dividend income 13 True Problem 6-2 True False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines True True True False – only one-half of the share is donated False – only if the gift is on account of marriage False – only the first P100,000 is exempt False – may be subject to business tax such as VAT, custom duties, or excise tax 10 False - When the donee is a stranger, the tax rate is 30% 11 True 12 False - excise tax – transfer of property by way of gift inter vivos Problem 6-3 Zero, because the renunciation is a general renunciation P30,000 or 30% of P100,000 A third cousin is a stranger for donor’s tax purposes The total amount of donor’s tax is P62,000, computed as follows: Relative - P200,000 (See schedular tax table) Stranger (P200,000 x 30%) Son P2,000 Daughter-in-law P60,000 Note: Daughter-in-law is included as a relative for donor’s tax purposes Zero Donations between husband and wife are void and not subject to donor’s tax Zero Donations between a man and a woman living together as husband and wife are void and not subject to donor’s tax (Art 87, Family Code) BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 29 Chapter 6: DONOR’S TAX P30,000 or 30% of P100,000 A gift to a priest or to Church is not exempt from gift tax (Lladoc vs Commissioner of Internal Revenue, L-19201, 14 SCRA, p 292) – assume donation is made to a church established and operates within the Philippines P600,000 or 30% of P2,000,000 There is no blood relationship between corporation, hence both are stranger from each other P40,400 Philippine donor’s tax P404,000 Actual donor’s tax - foreign P120,000 Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400 P1,244,000 Philippine donor’s tax: Relative (P500,000) Stranger (P5,000,000 – P500,000) x 30% Less: Tax credit Actual donor’s tax – foreign (lower) Tax credit, limit (P1,364,000 x 500,000/5,000,000) Donor’s tax still due and payable P 14,000 1,350,000 P120,000 136,400 P1,364,000 120,000 P1,244,00 10 P135,000 Donor’s tax Surcharge (P100,000 x 25%) Interest (P100,000 x 20% x 6/12) Total amount due Problem 6-4 C D C A A A A B B 10 A Problem 6-7 Problem 6-5 D D C C C C B C C 10 A P100,000 25,000 10,000 P135,000 Problem 6-6 C D D No answer All statements are correct C B A D C Gross estate Less: Standard deduction Net estate Father P5,500,000 1,000,000 P4,500,000 Mother P5,500,000 1,000,000 P4,500,000 Estate tax on P2,000,000 Excess (P2,500,000 x 11%) Estate tax P 135,000 275,000 P 410,000 P 135,000 275,000 P 410,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 30 Chapter 6: DONOR’S TAX Distributable estate (P11,000,000 – P820,000) Divided by number of heirs Share of each heir P10,180,000 P 2,545,000 Donor’s tax on P1,000,000 Donor’s tax on excess (P1,545,000 x 8%) Donor’s tax P 44,000 123,600 P167,600 Note: There is donor’s tax on the renunciation of inheritance because the renunciation is specifically for Daw Problem 6-8 D First donation: Donated value of P200,000 Excess donation (4% x P290,000) Dowry deducted Total value of first donation Value of Donation P200,000 290,000 10,000 P500,000 Second donation: First donation – total value Excess donation (6% x 400,000) Total after dowry deducted Add: Dowry deducted in two donations (P10,000 x 2) Total Less: First donation Value of second donation P500,000 400,000 P900,000 20,000 P920,000 500,000 P420,000 Donor’s tax P 2,000 11,600 P13,600 P14,000 24,000 P38,000 Problem 6–9 A Wedding gift (P500,000 – P10,000) Casual gift – car Total gift subject to tax P490,000 500,000 P990,000 Donor’s tax on P500,000 Excess (P490,000 x 6%) Total donor’s tax in the Philippines P14,000 29,400 P43,400 Problem 6–10 D Taxable gift in the Philippines Donor’s tax on P3,000,000 Problem 6–11 A Donations: Vacation house – conjugal (P500,000/2) Car – conjugal (P240,000/2) Jewelry – exclusive of Mrs Salonga Dowry Net gift Donor’s tax on P200,000 Excess (P160,000 x 4%) (P180,000 x 4%) Total donor’s taxes, respectively No reciprocity P3,000,000 With reciprocity P - - P 204,000 P - - Mr Salonga P250,000 120,000 Mrs Salonga P250,000 120,000 20,000 ( 10,000) P380,000 ( 10,000) P360,000 P2,000 6,400 P8,400 P2,000 7,200 P9,200 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 31 Chapter 6: DONOR’S TAX Problem 6–12 A Donations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax Problem 6–13 D Wedding gift Less: Dowry Net gift – first P100,000 donor’s tax exempt P110,000 10,000 P100,000 Problem 6–14 D 2005 gift – house and lot Less: Dowry (P10,000 – P6,000) Net gift P300,000 4,000 P296,000 Donor’s tax on P200,000 Excess (P96,000 x 4%) Donors tax – 2005 P2,000 3,840 P5,840 Problem 6–15 C Donor’s tax (P50,000 x 2%) P1,000 Problem 6–16 C Gross gifts, as of August 15, 2002 (P150,000 x lots) Less: Deductions Net gifts, August 15, 2002 P300,000 P300,000 Donor’s tax on P200,000 Tax on excess (P300,000 – P200,000) x 4% Total donor’s tax P D P 2,000 4,000 6,000 Wedding gifts, as of November 15, 2002 Less: Deductions - dowry Net gifts, November 15, 2002 Add: Previous, net gifts Total net gifts P150,000 10,000 P140,000 300,000 P440,000 Donor’s tax on P200,000 Tax on excess (P440,000 – P200,000) x 4% Total donor’s tax Less: Donor’s tax – August 15, 2002 Donor’s tax – November 15, 2002 P Problem 6–17 D Donor’s tax (P8,000,000 x 30%) Problem 6–18 2,000 9,600 P 11,600 6,000 P 5,600 P2,400,000 D No deduction is allowed for donations on account of birthday Problem 6–19 B Gross gift (FMV at time of donation) Problem 6–20 B Donor’s tax (P200,000 x 30%) P200,000 P60,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 32 Chapter 6: DONOR’S TAX Problem 6–21 A Donor’s tax (P10,000,000 x 30%) P3,000,000 The donation is taxable because more than 30% of it shall be used for administration purposes Problem 6–22 D Estate tax P5,000,000 1,000,000 P4,000,000 Donor’s tax P5,000,000 P5,000,000 Estate tax on P2,000,000 Excess (P2,000,000 x 11%) Donor’s tax on P5,000,000 Total P135,000 220,000 P355,000 P404,000 P404,000 Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000 Gross amount asset Less: Standard deduction Net amount subject to tax Problem 6–23 Donors tax for relatives: Mar - To his son on account of marriage Oct - To his daughter on account of graduation Total Less: Dowry Net taxable gifts P 600,000 500,000 P1,100,000 10,000 P1,090,000 Donor’s tax on P1,000,000 Excess (P90,000 x 8%) Total donor’s tax for donations to relatives P 44,000 7,200 P 51,200 Donors tax for strangers: Dec 25 - To his god-children Dec 31 - To his neighbor Total Multiplied by donor’s tax rate Donor’s tax for donations to strangers P400,000 100,000 P500,000 30% P150,000 Problem 6–24 March 30, 2005 (P500,000/2) June 28, 2005 (P2,000,000/2) – P10,000 Net taxable gifts Donor’s tax on P1,000,000 Excess (P240,000 x 8%) Total Donor’s tax paid on March 30, 2005 Donor’s tax on P200,000 Excess (P50,000 x 4%) Donor’s tax for donation on June 28, 2005 Problem 6–25 Cash his son for wedding held during the year Mr Dinero P250,000 990,000 P1,240,000 Mrs Dinero P250,000 990,000 P1,240,000 P44,000 19,200 P63,200 P44,000 19,200 P63,200 ( 2,000) ( 2,000) P59,200 ( 2,000) ( 2,000) P59,200 P 200,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 33 Chapter 6: DONOR’S TAX Problem 6–26 To his son on account of marriage during the year To his daughter on account of her birthday To Garci, his brother, as renunciation of inheritance Net gift subject to donor’s tax P 500,000 500,000 400,000 P1,400,000 Note: No dowry is allowed for nonresident alient Problem 6–27 Real estate (P1,000,000 – P100,000) Personal properties (P500,000 – P50,000) Total taxable gifts (inadequate consideration) Donor’s tax on P1,000,000 Excess (P350,000 x 8%) Donor’s tax for inadequate consideration P 900,000 450,000 P1,350,000 P 44,000 28,000 P 72,000 Problem 6–28 Correction: The date for requirement No should be November 5, 2005 instead of November 5, 2002 December 25, 2005: Average value per share (P500 + P450)/ Multiply by number of shares Taxable base of the gift P 475 1,000 P475,000 The same answer with number Problem 6–29 There is no donor’s tax because the donations are donation mortis causa, void donation and tax- exempt donation Properties: a House and lot Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament) b Parejo car The value of property donated is P200,000 and it was made orally The donation is null and void because personal property donated with value exceeding P5,000 should be put in writing to become a valid donation c Business Revocable donation is a revocable transfer, hence, subject to estate tax d Furniture and fixtures Donation mortis causa is subject to estate tax e Time deposit The amount is P100,000 given to his illegitimate daughter This donation is tax exempt because the first P100,000 of donation to relatives shall not be subjected to donor’s tax Problem 6–30 Car consequently destroyed after delivery to his son Donor’s tax Problem 6–31 Donations to relatives: P 500,000 P14,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 34 Chapter 6: DONOR’S TAX 2006: January 31 November 30 Car to Uncle Less: Encumbrances assumed by the donee Net taxable gift – January 31, 2002 P300,000 50,000 P250,000 Donor’s tax on P200,000 Tax on excess (P250,000 – P200,000) x 4% Donor’s tax for January 31 donation P House and lot to his son on account of marriage Less: Dowry exemption (weeding was held beyond one year) Net gifts Add: Previous net gifts during the year Aggregate taxable gift P600,000 - P600,000 250,000 P850,000 Donor’s tax on P500,000 Tax on excess (P840,000 – P500,000) x 6% Total Less: Donor’s tax for previous gifts during the year Donor’s tax for November 30 donation P 14,000 21,000 P 35,000 4,000 P 31,000 P Donations to strangers: 2006: June 30 Cash to Miss Rosal, a radio manager Less: Diminution of gift (P100,000 x 60%) Net taxable gift August 31 P100,000 60,000 P 40,000 Donor’s tax for June 30 donation (P40,000 x 30%) P 12,000 Land to National Government Less: Deduction (total amount) Net taxable gift P500,000 500,000 P - - Donor’s tax for August 31 donation October 31 2,000 2,000 4,000 None Cash to non-profit organization – 40% Administrative Less: Deduction Net taxable gift P400,000 - P400,000 Donor’s tax for October 31 donation (P400,000 x 30%) P120,000 Total donor’s tax during 2006: Total donor’s tax to relatives (P30,400 + P4,000) Total donor’s tax to stranger (P12,000 + P120,000) Total donor’s tax for the year 2006 Problem 6–32 Net gift to daughter on account of marriage (P50,000 – P10,000) Add: Previous net gifts: P 35,000 132,000 P167,000 P 40,000 P50,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 35 Chapter 6: DONOR’S TAX April – Gift to mother June 10 – Wedding gift to son (P50,000 – P10,000) Total net gift during the year 40,000 90,000 P130,000 Tax exempt P 600 Donor’s tax on P100,000 Donor’s tax on excess P30,000 x 2% Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000 Problem 6–33 January 29, 2006 June 1, 2005 gift Gift on account of their daughter’s marriage Less: Dowry Net gift Tax on P200,000 Tax on excess P40,000 x 4% Total Surcharges (P7,200 x 50%) Interest (P7,200 x 20% x 11/12) December 30, 2005 gift Christmas gift to son Previous gift – June 1, 2005 Total net gift during 2005 Tax on P200,000 Tax on excess P140,000 x 4% Total Less: Tax on previous gift Donor’s tax on current gift Surcharge (P8,000 x 50%) Interest (P8,000 x 20% x 4/12) Nilo Co P250,000 10,000 P240,000 Nila Co P250,000 10,000 P240,000 P 2,000 1,600 P 3,600 P 2,000 1,600 P 3,600 Nilo Co P100,000 240,000 P340,000 Nila Co P100,000 240,000 P340,000 P 2,000 5,600 P 7,600 3,600 P 4,000 P 2,000 5,600 P 7,600 3,600 P 4,000 Total amount to be paid on June 1, 2006 P 7,200 3,600 1,320 P12,120 P 8,000 4,000 533 P12,533 P24,120 Note: The surcharge is willful neglect (50%) because Mr and Mrs Co donated twice already in 2005, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect Problem 6–34 Donor’s tax on property located in Japan, P1,000,000 Donor’s tax on property located in the Philippines (P2,000,000 x 30%) Total donor’s tax in the Philippines Computation of donor’s tax still due and payable: Total donor’s tax in the Philippines Less: Allowable tax credit: - Actual lower than limit Limit (P1,000,000/ P3,000,000) x P644,000 Donor’s tax still due and payable Problems 6–35 Relative P44,000 Stranger Total P 44,000 P600,000 600,000 P644,000 P644,000 70,000 P214,667 P574,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 36 Chapter 6: DONOR’S TAX Property donated: To son - House and lot ($500,000 x P50) – P10,000 Carabaw FX – to brother-in-law Gift to Relatives P24,990,000 Taxable base P24,990,000 Philippine donor’s tax: First P10,000,000 Tax on excess (P14,990,000,000 x 15%) Total Less: Tax credit allowed Donors tax rate for donation made to strangers Net donor's tax P 1,004,000 2,248,500 P 3,252,500 1,000,000 P 2,252,500 Strangers P P 500,000 500,000 P 30% 150,000 Total P 2,402,500 Note: Donation to common-law-wife is void Hence, no donor’s tax Computation of tax credit allowed: Limit 1: (P24.990M/ P25.490M) x P2,402,500 P2,335,373 Allowed: Actual, lower amount P1,000,000 ... Donor s tax Problem 6 31 Donations to relatives: P 500,000 P14,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 34 Chapter 6: DONOR S TAX 20 06: January 31 November... P404,000 Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000 Gross amount asset Less: Standard deduction Net amount subject to tax Problem 6 23 Donors tax for relatives: Mar - To his son... P3,000,000) x P644,000 Donor s tax still due and payable Problems 6 35 Relative P44,000 Stranger Total P 44,000 P600,000 60 0,000 P644,000 P644,000 70,000 P214 ,66 7 P574,000 BUSINESS AND TRANSFER TAXATION