04 chapter 5 estate tax

Taxation 2 │ESTATE TAX

FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University

Estate Tax

oImposed on the right of the deceased to transmit his/her properties to his/her legal heirs upon deathoBased on laws in force at the time of death

Estate Tax Table

Rates of Estate TaxNet Estate Estate Tax Excess

Over Not Over Tax of Plus % Over

0 200,000 Exempt 0 0

200,000 500,000 0 5% 200,000

500,000 2,000,000

15,000 8% 500,000

2,000,000

5,000,000

135,000 11% 2,000,000

5,000,000

10,000,000

465,000 15% 5,000,000

10,000,000

And over 1,215,000

20% 10,000,000

Estate Tax Table

▪ Illustration

GiesThony, a Philippine resident alien, died leaving with total net taxable estate amounting to P7,000,000. The amount of the Philippine estate tax due would be:

Estate Tax on 5,000,000465,000

Add: Estate tax on the excess (2M x 15%)300,000

Amount of the Phil estate tax due765,000

Estate Tax Credit

▪ The amount of estate taxes paid to a foreign country could be claimed as credit against the Philippine Estate Tax subject to limit, if such taxes pertain to properties which are included in the gross estate for Philippine estate tax computation .

▪ Available to avoid double taxation

▪ Applicable only to Citizens or Resident Alien decedent

▪ NOT Allowed to Non Resident Aliens

Estate Tax Credit

1. Only ONE Foreign country is involvedEstate Tax = Net Estate in Foreign Country x Philippine

Credit World Net Estate Estate Tax

Estate Tax = Actual estate tax paid to foreign country whichever is LOWER

2. TWO or MORE Foreign CountriesLimit A: Per Foreign Country

Net Estate per Foreign Country x Phil. Estate TaxEntire Net Estate

Limit B: By TotalNet Estate ALL Foreign Country x Phil. Estate Tax

Entire Net EstateOR

The Actual Estate Tax paid to Foreign Country, LOWER Value

Estate Tax CreditIllustration:

GiesThony, an unmarried resident alien of the Philippines, died leaving the following properties:

Location of Properties Net Estate Estate Tax PaidPhilippines 1,000,000United States 2,000,000 135,000Australia 3,000,000 365,000Total 6,000,000 500,000

Compute for the Philippine Net Estate Tax payable.



Limit A – Per CountryNet Estate Per Foreign Country x Philippine Estate Tax

Entire Net Estate

United States 2,000,000 x 615,000 = 205,0006,000,000

Actual vs 135,000 135,000

Australia 3,000,000 x 615,000 = 307,5006,000,000

Actual vs 365,000 307,500



Limit B – ALL Foreign CountryNet Estate ALL Foreign Country x Philippine Estate Tax

Entire Net Estate

Foreign Country5,000,000 x 615,000 = 512,5006,000,000

Actual (135,000 + 365,000) vs 500,000 500,000vs 442,500 442,500

Tax Credit 442,500



Tax Credit 442,500

Estate Tax on 5,000,000 465,000Estate Tax on excess (1,000,000 x 15% ) 150,000Total 615,000Less: Tax Credit 442,500Philippine Net Estate Tax Payable 172,500

SEATWORK: (1/2

CW)5-115-135-18

#DO IT INDIVIDUALLY#SHOW YOUR

SOLUTIONS

#WRITE THE LETTER AND THE ANSWER OF

YOUR CHOICE

Problem 5–11 B Conjugal Properties P3,400,000 Funeral expense, limit

( 200,000) Judicial expenses ( 250,000)

Claims against properties ( 550,000) Net conjugal estate

P2,400,000 Problem 5–13 A Estate tax of P5,000,000 P465,000

ANSWERS:

Problem 5–18 B

Total gross estate (P1,700,000 + P800,000) 2,500,000Less: Deductions Net taxable estate 1,500,000Net Taxable Estate 1,000,000 Estate tax on P500,000 15,000Excess P500,000 x 8% 40,000Total estate tax in the Philippines 55,000 Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000

P17,600

ANSWERS:

Estate Tax with Allocated Deductions

Illustration:

KieRish, a resident alien decedent, died due to fractured jaw. The following is the reported assets and obligations:

China PhilippinesFamily Home 4,000,000Other Properties 2,000,000 2,000,000Funeral Expense 100,000 300,000Other Charges and Obligations 400,000 600,000Donations to governments 100,000 300,000Medical expenses (within 1 year) 400,000 600,000Estate taxes paid 90,000

Properties located in China are exclusive properties of the decedent. The donation to the Philippine government is taken from his only exclusive property in the Philippines.


Computation of Net Estate:China Phil Total

Family Home 4,000,000Other Properties 2,000,000 2,000,000Gross Estate 2,000,000 6,000,000 8,000,000Less: Ordinary DeductionsELITE:

Funeral Exp(200,000] x 1/4 and 3/4 50,000 150,000Other Charges and Obligations 400,000 600,000

Transfer for Public Use 300,000Total Ordinary Deductions 450,000 1,050,000 1,500,000Net Exclusive or Net Community Estate 1,550,000 4,950,000 6,500,000Less: Special Deductions

Standard [1,000,000] x 2/8 and 6/8 250,000 750,000Family Home 1,000,000Medical Exp [500,000] x 4/10 and 6/10 200,000 300,000

Total Special Deductions 450,000 2,050,000 2,500,000Net Estate 1,100,000 2,900,000 4,000,000Less: Share of the Surviving Spouse (4,950,000 x 50%) 2,475,000Net Taxable Estate 1,525,000


Computation of Tax Credit AllowedForeign Estate Tax Paid = 90,000

Estate Tax Credit = Net Estate Foreign Country xPhil Estate Tax

World Net Estate= 1,100,000 x 97,000

4,000,000= 26,675 vs 90,000

Estate Tax Credit = 26,675


Computation of Philippine Estate Tax Payable

Estate Tax on 500,000 = 15,000Estate Tax on Excess(1,025,000 x 8%) = 82,000Philippine Estate Tax = 97,000Less: Estate Tax Credit = 26,675Philippine Estate Tax = 70,325Payable

Estate Tax of Nonresident Alien

Only properties WITHIN the Philippines are subject to Philippine estate tax.

Illustration:Assume that Brad Naipit, a married and non-resident alien decedent, left the following properties and expenses to his surviving spouse.

House and lot- France 4,000,000Business Interest- France 2,000,000Car-Baguio 1,000,000Dollar Time Deposit-Cebu City 1,000,000Franchise-Manila 1,000,000Share of Stocks- Nestle Corp (donated 3.5 years ago)1,000,000Medical Expense 600,000Actual Funeral Expense 300,000Judicial Expense 300,000

Estate Tax of Nonresident Alien WITH RECIPROCITY

Reportable Gross estate-WithinCar- Baguio 1,000,000

Less: Ordinary deductionsELITE:

Funeral Expense(200,000) x 4,000,000/10,000,000 80,000Judicial Expense(300,000) x 4,000,000/10,000,000 120,000 200,000

Net Conjugal/Community estate 800,000Less: Share of the surviving spouse (800,000x50%) 400,000Net Taxable Estate 400,000

Estate Tax:On 200,000 -On excess (200,000 x 5%) 10,000Estate Tax 10,000

Estate Tax of Nonresident Alien WITHOUT RECIPROCITY

Reportable Gross estate-WithinCar- Baguio 1,000,000Dollar Time Deposit 1,000,000Franchise 1,000,000Shares of Stocks 1,000,000 4,000,000

Less: Ordinary deductionsELITE: Funeral Expense

(200,000) x 4,000,000/10,000,000 80,000Judicial Expense(300,000) x 4,000,000/10,000,000 120,000Vanishing Deduction 313,600 513,600

Net Conjugal/Community estate 3,486,400Less: Share of the surviving spouse (3,486,400 x50%) 1,743,200Net Taxable Estate 1,743,200

Estate Tax:On 500,000 15,000On excess (1,243,200 x 8%) 99,456Estate Tax 114,456

Administrative Requirements

Value of Gross EstateExceeds Exceeds Exceeds

Requirements 20,000 200,000 2,000,0001.Notice of Death (within 2 months)Yes Yes Yes2.Estate Tax Return (w/in 6 months)No Yes Yes3.CPA Certificate (w/in 6 months) NO No Yes

Additional Requirement-Registering the estate of the decedent and getting a separate TIN for the estate

Liability for Payment of Estate Tax1.Primary Obligation- Estate through Executor or Administrator (severally liable)2.Subsidiary Obligation- the Heirs or Beneficiaries

To the extent of their obligation but in no case shall it exceed the value of their inheritance.

Administrative Requirements

Surcharges, Interests and Penalties- imposed in the event of violation of the law, criminal

penalties and civil liabilities.

Payment of Estate Tax by Installment- may be allowed provided:

1.A clearance shall be released only with respect to the property on which tax has been paid2.Any amount paid after the due date shall be subject to applicable penalty3.If the late payment has been approved by the Commissioner or his representative, the penalty shall only be the interest.4.The Commissioner may enforce action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are observed.

SEATWORK: (1/2

CW)5-6 5-19

5-9 5-20

5-14 5-21

5-17

#DO IT BY PAIR #SHOW YOUR SOLUTIONS

#WRITE THE LETTER AND THE ANSWER OF

YOUR CHOICE

Problem 5–6 B Conjugal gross estate (P3,120,000 + P180,000) P3,300,000 Funeral expense allowed (P3,300,000 x 5%) ( 165,000) Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500) Standard deduction

( 1,000,000) Net estate P 567,500

ANSWERS:

Problem 5–9 D Exclusive Conjugal

Property – cash P1,000,000 P4,000,000 Family home

800,000 Transfer for public use (1,000,000) Funeral expense allowed ( 200,000) Net conjugal estate P4,600,000 Family home (P800,000/2)

(400,000) Standard deduction (1,000,000)

Net estate P3,200,000 Share of surviving spouse (P4,600,000 x 50%) (2,300,000) Net taxable estate P 900,000

ANSWERS:

Problem 5–14 D Net estate Estate tax

Amounts P2,000,000 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)

ANSWERS:

Problem 5–17 C

Tax credit P100,000 x (2M/5M) P40,000

ANSWERS:

Problem 5–19 Conjugal Exclusive Total Real property P1,500,000 Inherited property P700,000 Other properties 500,000 Gross estate P2,000,000 P700,000 P2,700,000 Less: Deductions: ELITE: Funeral expenses 100,000 Judicial expenses 80,000 Claims against the estate 300,000 Transfer for public use 20,000 Total deductions 500,000

500,000 \Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000 Less: Special deductions: Standard deduction 1,000,000 Medical expense 200,000 Net estate before share of surviving spouse P1,000,000 Less: Share of surviving spouse (P1,500,000 x 50%)

750,000 Net taxable estate P 250,000 Estate tax: Tax on P200,000 P - 0 - Tax on excess (P50,000 x 5%) 2,500 Estate tax due P 2,500

Problem 5–20 Conjugal Exclusive Total Family home – Philippines P2,000,000 Family business – Philippines 2,000,000 Properties – USA . P1,000,000 Gross estate P4,000,000 P1,000,000 P5,000,000 Deductions: ELITE – Funeral expense 200,000 Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000 Less: Special deduction Std. deduction 1,000,000 Family home 1,000,000 Net estate before share of surviving spouse P2,800,000 Less: Share of surviving spouse (P3,800,000 x 50%)

1,900,000 Net taxable estate P 900,000

Tax on P500,000 P15,000 Tax on excess (P400,000 x 8%) 32,000 Estate tax due P47,000 Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429 Estate tax still due and payable P33,571

Problem 5–21 Conjugal Exclusive Total

Gross estate* P5,800,000 P4,200,000 10,000,000 Less Deductions: Ordinary deductions: Funeral expenses (actual, P350,000; 5% limit, P500,000; statutory

Maximum allowed, P200,000) - lowest (200,000) Judicial expenses (500,000) Other deductions (100,000) Vanishing deductions ( 92,000) Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000 Special deductions: Standard deduction (1,000,000) Family home (50% is P1,500,000) max. allowed (1,000,000) Medical expenses (actual, P600,000) max. allowed (500,000) Amount receivable under R.A. 4917

(200,000) Net estate P6,408,000 Less: Share of the surviving spouse

(P5,000,000 x 50%) 2,500,000 Net taxable estate P3,908,000

04 chapter 5 estate tax

Education

Transcript of 04 chapter 5 estate tax