Notes To Transfer Taxes Under Train Law.docx

TRANSFER TAXES ESTATE TAX THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX

It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. ESTATE TAX ESTATE TAX RATE OF ESTATE TAX The transfer of the net estate of every decedent, whether resident or non-resident of the Philippines, as determined in accordance with the NIRC, shall be subject to an estate tax at the rate of six percent (6%). ESTATE TAX What are included in gross estate? For citizen /resident alien decedents: a) Real or immovable property, wherever located b) Tangible personal property, wherever located c) Intangible personal property, wherever located For nonresident not citizen decedents: a) Real or immovable property located in the Philippines b) Tangible personal property located in the Philippines c) Intangible personal property - with a situs in the Philippines ESTATE TAX What are excluded from gross estate? GSIS proceeds/ benefits Accruals from SSS Proceeds of life insurance where the beneficiary is irrevocably appointed Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)

War damage payments Transfer by way of bona fide sales Transfer of property to the National Government or to any of its political subdivisions Separate property of the surviving spouse Merger of usufruct in the owner of the naked title Properties held in trust by the decedent Acquisition and/or transfer expressly declared as not taxable ESTATE TAX What will be used as basis in the valuation of property? The properties subject to Estate Tax shall be appraised based on its fair market value at the time of the decedent's death. The appraised value of the real estate shall be whichever is higher of the fair market value, as determined by the Commissioner (zonal value) or the fair market value, as shown in the schedule of values fixed by the Provincial or City Assessor. If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration. If there is an improvement, the value of improvement is the construction cost per building permit or the fair market value per latest tax declaration ESTATE TAX What are the allowable deductions for Estate Tax Purposes? For a citizen or resident alien 1. Standard deduction – A deduction in the amount of Five Million Pesos (P5,000,000.00) shall be allowed as an additional deduction without need of substantiation. 2. Claims against the estate. 3. 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 4. Unpaid mortgages, taxes and casualty losses 5. Property previously taxed 6. Transfers for public use 7. The family home - fair market value but not to exceed P10,000,000.00 8.Amount received by heirs under Republic Act No. 4917

Net share of the surviving spouse in the conjugal partnership or community property ESTATE TAX What are the allowable deductions for Estate Tax Purposes? For a nonresident alien 1. Standard deduction – P500,000.00 2. Proportion of the following deductions a. Claims against the estate. b. 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 c. Unpaid mortgages, taxes and casualty losses 3. Property previously taxed 4. Transfers for public use Net share of the surviving spouse in the conjugal partnership or community property Citizen or Resident ALIEN Gross estate:

Conjugal

-

Real property

-

Personal property

Exclusive

Total

Less: Deductions: -

Standard deduction (P5 M)

-

Claims against the estate – debt instrument was notarized; statement showing disposition of proceeds of loan, if contracted within 3years from date of death

-

Claims of the deceased against insolvent persons

-

Unpaid mortgages, taxes and casualty losses

-

Properties previously taxed (vanishing deduction)

-

Transfers for public use

-

Family home (not to exceed P10 M)

-

Amount received by heirs under RA 4917, provided such amount is included in gross estate of decedent

-

Share of the surviving spouse (50% of net conjugal estate)

Net Taxable Estate  Estate tax (6%) NONResident ALIEN Gross estate:

Conjugal

-

Real property

-

Personal property

Exclusive

Total

Less: Deductions: -

Standard deduction (P500 K)

-

Proportion of the following: 

Claims against the estate – debt instrument was notarized; statement showing disposition of proceeds of loan, if contracted within 3years from date of death



Claims of the deceased against insolvent persons



Unpaid mortgages, taxes and casualty losses

-

Properties previously taxed (vanishing deduction)

-

Transfers for public use

-

Share of the surviving spouse (50% of net conjugal estate)

Net Taxable Estate  Estate tax (6%) ESTATE TAX When to file and pay? File estate tax return and pay tax within one (1) year from

date of death.

How about installment Payments? If case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be allowed within to (2) years from the statutory date for its payment without civil penalty and interest. When is CPA Certification required? If gross estate exceeds P5 million, attach to estate tax return and itemized deductions. ESTATE TAX

a certified statement of assets

•

Tax clearance is required before any transfer of shares may be made in the name of new owners, however,

•

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall allow any withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%), without such certification from the CIR.

DONOR’S TAX THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX The donor’s tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965; 14 SCRA, 292) The donor’s tax shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee; it is completed by the delivery, either actually or constructively, of the donated property to the donee. Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor’s tax. Donations or gifts with at least P250,000 worth will be imposed a donor’s tax of 6% flat rate. This will be charged regardless of the relationship between the donor and the donee. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year: Provided, however, that a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money’s worth.

EXEMPTION OF CERTAIN GIFTS:  Gifts Made by a Resident or by a Nonresident not a Citizen of the Philippines  Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and  Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization:

Sample computation Illustration: Donations made on: January 30, 2018 March 30, 2018 August 15, 2018

– – –

P2,000,000 1,000,000 500,000

Solution/computation: Date of donation Donor’s Tax 1. January 30, 2018

Amount P2,000,000

January 30, 2018 donation Less: Exempt Gift (250,000) 1,750,000 Date of donation Donor’s Tax 2. March 30, 2018 March 30, 2018 donation Add: January 30, 2018 donation Less: Exempt Gift (250,000) Total 2,750,000 Tax Due Thereon 165,000 Less: Tax due/paid on January donation Tax Due/Payable on the March donation P 60,000 Date of donation Donor’s Tax 3. August 15,2018

2,000,000

P 105,000 Amount

1,000,000 1,000,000 2,000,000

105,000

Amount

500,000

August 15, 2018 donation Add: January 2018 donation March 2018 donation Less: Exempt Gift

500,000 2,000,000 1,000,000 (250,000)

Total 3,250,000 Tax Due Thereon 195,000 Less: Tax due/paid on Jan/March donation Tax Due/Payable on the August donation 30,000

165,000 P