Train On Estate Taxation.docx

TRAIN on ESTATE TAXATION QUICK GLANCE FOR ALLOWABLE DEDUCTIONS FROM GROSS ESTATE Ordinary Deductions (Resident / Citizen) (1) Expenses, Losses, Indebtedness and Taxes (ELIT) a. Funeral Expenses

OLD

TRAIN

ELIT

LIT

Deductible

Removed / Not deductible



Actual funeral expenses or an amount equal to 5% of Gross Estate, whichever is LOWER, but in no case to exceed P 200,000.00



Not deductible: Expenses incurred AFTER interment and expenses borne or defrayed by relatives and friends.

b. Judicial Expenses of the Testamentary / Intestate Proceedings

Deductible

c. Claims Against the Estate

Deductible

Removed / Not deductible

Expenses incurred during the settlement of the estate, BUT not beyond the last day prescribed by law for the filing of the estate tax return. Deductible

Provided that at the time the indebtedness was incurred the debt instrument was duly notarized ad if the loan was contracted 3 years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of loan.

d. Claims against insolvent persons

See the requisites in the book. Deductible

Deductible

Note: The value of the decedent’s interest therein (or the full amounts of the receivables) are first included in the gross estate.

e. Unpaid Mortgages or Indebtedness on Property

The deduction from the GE shall be the uncollectible amount Deductible Provided that the property where the value of decedent’s interest

Deductible

f. Taxes

therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate. Deductible

Deductible

Provided such taxes accrued prior to the decedent’s death. Hence, the following are not deductible: a. Income tax on income received after death b. Property tax not accrued before the death c. Estate tax g. Losses

2. Property Previously Taxed / Vanishing Deductions 3. Transfers for Public Use

Deductible if:

Deductible

a. Arising from fire, storm, shipwreck, or other casualty, robbery, theft, or embezzlement, b. Not compensated by insurance or otherwise c. Not claimed as deduction in an income tax return of the estate subject to income tax d. Occurring during the settlement of the estate, and e. Occurring before the last day for the payment of the estate tax (six months after the decedent’s death or the allowed extension) Deductible

Deductible

Deductible This refers to all bequests, legacies, devised or transfers to or for the use of the Government of the RP, or any subdivision thereof, for exclusively public purpose. Deductible

Deductible

An amount equivalent to the current FMV but not to exceed Php 1,000,000.00. Must be certified by the barangay captain of the locality.

Php 10,000,000

5. Standard Deduction

Deductible

Deductible

6. Medical Expenses

1,000,000.00 Deductible

Php 5,000,000.00 Removed / Not deductible

4. Family Home

Deductible

7. Amounts Received by Heirs Under RA 4917

Medical expenses incurred by the decedent within one year prior to the death up to P 500,000.00 Deductible

Deductible

Provided that the amount is included in the Gross Estate

Ordinary Deductions (Not a Resident Not a Citizen) (1) Expenses, Losses, Indebtedness and Taxes (ELIT)

a. Funeral Expenses b. Judicial Expenses of the Testamentary / Intestate Proceedings c. Claims Against the Estate

OLD

TRAIN

Here: Apply the Formula

Same Formula

GE, Phils GE World Deductible Deductible

Removed / Not deductible Removed / Not deductible

x

World ELIT, etc

Deductible

Deductible

d. Claims against insolvent persons

Deductible

Deductible

e. Unpaid Mortgages or Indebtedness on Property

Deductible

Deductible

f. Taxes

Deductible

Deductible

g. Losses 2. Property Previously Taxed / Vanishing Deductions 3. Transfers for Public Use 4. Family Home

Deductible Deductible

Deductible Deductible

Deductible Not Allowed

Deductible Not Allowed

5. Standard Deduction

Not Allowed

Deductible

6. Medical Expenses

Not Allowed

Php 500,000.00 Not Allowed

7. Amounts Received by Heirs Under RA 4917

Not Allowed

Not Allowed

Estate-tax changes under TRAIN law By Atty. Lorna Patajo-Kapunan January 14, 2018 ON December 19, 2017, package 1 of the Tax Reform for Acceleration and Inclusion (TRAIN), otherwise known as Republic Act (RA) 10963, was signed into law. The law made several amendments to the National Internal Revenue Code of 1997 (Tax Code), specifically on personal-income taxation, passive income, estate tax, donor’s tax, value-added tax, excise tax and documentary stamp tax. The law took effect on January 1, following its complete publication in the official gazette. Below is a brief discussion of the changes under estate taxation under the Train law. I. Amendment of the Estate Tax Rate Section 22 of the TRAIN law amends Section 84 of the Tax Code, which provides for the estate-tax rate. Previously, a tax based on the value of the net estate of the decedent, whether resident or nonresident of the Philippines, was computed based on a tax schedule where an estate worth P200,000 and over was taxed from 5 percent to 20 percent. Under the TRAIN law, it will now be subject to a flat rate of 6 percent. II. Amendments on Estate Tax Deductions Section 23 of the TRAIN law amends Section 86 of the Tax Code, which provides for the computation of the net estate or, effectively, the deductions allowed to the gross estate of an individual. The TRAIN law removes funeral expenses, judicial expenses and medical expenses as allowable deductions.

Instead, the law increases the Standard Deduction to P5 million, which previously only amounted to P1 million. Only available to citizens (resident or nonresident) and resident aliens, TRAIN law now provides that nonresident aliens can avail themselves of a standard deduction, although only up to P500,000. Another TRAIN law significant change from the old tax rule is that now, family homes that are worth up to P10 million will be exempted from estate tax. Previously, only family homes worth P1 million are exempted. III. Amendments on the Procedure for Estate Tax Settlement A. Repeal of Filing of Notice of Death provision Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The repealed provision provides for when a notice of death should be filed and the period to file the same. B. Amendment on Filing of Estate Tax Return Section 25 of the TRAIN law amends Section 90 of the Tax Code, which provides for the procedural requirements for the estate-tax return. The TRAIN law requires that estate-tax returns showing a gross value exceeding P5 million must be certified by a certified public accountant. This is P3 million higher than the old tax rule, which only required CPA certifications for estate-tax returns that exceed a gross value of P2 million. The TRAIN law has also increased the period for filing of estate-tax returns from six months from the decedent’s death to one year. C. Amendment of Payment of Estate Tax by Installment Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which provides for the payment of estate tax by installment.

Under the TRAIN law, payment by installment has been particularly simplified. However, the law has provided for an implied limitation of two years for the payment of the full estate-tax liability, which was previously not contained in the old tax rule. IV. Amendment on Withdrawals from Deceased’s Bank Account Section 27 of TRAIN Law amends Section 97 of the Tax Code, which concerns allowable withdrawals from the deceased person’s account. Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The administrator of the estate or any one of the heirs may, when authorized by the commissioner, withdraw an amount not exceeding P20,000. However, the Train Law has increased allowable withdrawals from the deceased person’s account to any amount, subject to a 6-percent final withholding tax. The amendments on estate taxes were enacted with the end in view of enticing the heirs to declare the real value of their deceased kin’s estate and to pay the proper estate tax. Filing requirements have also been made simpler and filer-friendly. It remains to be seen whether collection of estate taxes will improve. But, as the saying goes, “You can bring the horse to the water, but you cannot force the horse to drink!”