Chapter 6 - Donor's Tax

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAXProblem 6-11. False – there is no consideration in donation.2. False – during the lifetime of the donor.3. True4. False – It is enough that the duly representative of the incapacitated donee to receive the

donation.5. True6. False – Real property donation must be put in writing regardless of value.7. True8. False – The value of donated personal property must exceed P5,000.9. True10. True11. False – not gifts.12. False – constitutes dividend income.13. True

Problem 6-21. True2. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his

properties within and outside the Philippines3. True4. True5. True6. False – only one-half of the share is donated.7. False – only if the gift is on account of marriage.8. False – only the first P100,000 is exempt.9. 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. True12. False - excise tax – transfer of property by way of gift inter vivos.

Problem 6-3

1. Zero, because the renunciation is a general renunciation.

2. P30,000 or 30% of P100,000. A third cousin is a stranger for donor’s tax purposes.

3. The total amount of donor’s tax is P62,000, computed as follows:

Son Daughter-in-lawRelative - P200,000 (See schedular tax table) P2,000Stranger (P200,000 x 30%) P60,000

Note: Daughter-in-law is included as a relative for donor’s tax purposes.

4. Zero. Donations between husband and wife are void and not subject to donor’s tax.

5. 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)

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6. 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.

7. P600,000 or 30% of P2,000,000. There is no blood relationship between corporation, hence both are stranger from each other.

8. 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

9. P1,244,000

Philippine donor’s tax: Relative (P500,000) P 14,000 Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000Less: Tax credit Actual donor’s tax – foreign (lower) P120,000 120,000 Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400Donor’s tax still due and payable P1,244,00

0

10. P135,000

Donor’s tax P100,000Surcharge (P100,000 x 25%) 25,000Interest (P100,000 x 20% x 6/12) 10,000 Total amount due P135,000

Problem 6-4 Problem 6-5 Problem 6-61. C 1. D 1. C2. D 2. D 2. D3. C 3. C 3. D4. A 4. C 4. No answer. All statements are correct.5. A 5. C 5. C6. A 6. C 6. B7. A 7. B 7. A8. B 8. C 8. D9. B 9. C10. A 10. A

Problem 6-7 C Father Mother

Gross estate P5,500,000 P5,500,000Less: Standard deduction 1,000,000 1,000,000 Net estate P4,500,000 P4,500,000

Estate tax on P2,000,000 P 135,000 P 135,000Excess (P2,500,000 x 11%) 275,000 275,000 Estate tax P 410,000 P 410,000

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Chapter 6: DONOR’S TAXDistributable estate (P11,000,000 – P820,000) P10,180,000Divided by number of heirs 4 Share of each heir P 2,545,000

Donor’s tax on P1,000,000 P 44,000Donor’s tax on excess (P1,545,000 x 8%) 123,600 Donor’s tax 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:Value of

Donation Donor’s tax Donated value of P200,000 P200,000 P 2,000 Excess donation (4% x P290,000) 290,000 11,600 Dowry deducted 10,000 . Total value of first donation P500,000 P13,600

Second donation: First donation – total value P500,000 P14,000 Excess donation (6% x 400,000) 400,000 24,000 Total after dowry deducted P900,000 P38,000 Add: Dowry deducted in two donations (P10,000 x 2) 20,000 Total P920,000 Less: First donation 500,000 Value of second donation P420,000

Problem 6–9 AWedding gift (P500,000 – P10,000) P490,000Casual gift – car 500,000 Total gift subject to tax P990,000

Donor’s tax on P500,000 P14,000Excess (P490,000 x 6%) 29,400 Total donor’s tax in the Philippines P43,400

Problem 6–10 D No reciprocity With

reciprocityTaxable gift in the Philippines P3,000,000 P - 0 -

Donor’s tax on P3,000,000 P 204,000 P - 0 -

Problem 6–11 A Donations: Mr. Salonga Mrs. SalongaVacation house – conjugal (P500,000/2) P250,000 P250,000Car – conjugal (P240,000/2) 120,000 120,000Jewelry – exclusive of Mrs. Salonga 20,000Dowry ( 10,000) ( 10,000)Net gift P360,000 P380,000

Donor’s tax on P200,000 P2,000 P2,000Excess (P160,000 x 4%) 6,400 (P180,000 x 4%) 7,200 Total donor’s taxes, respectively P8,400 P9,200

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Problem 6–12 ADonations 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 P110,000Less: Dowry 10,000 Net gift – first P100,000 donor’s tax exempt P100,000

Problem 6–14 D 2005 gift – house and lot P300,000Less: Dowry (P10,000 – P6,000) 4,000 Net gift P296,000

Donor’s tax on P200,000 P2,000Excess (P96,000 x 4%) 3,840 Donors tax – 2005 P5,840

Problem 6–15 C Donor’s tax (P50,000 x 2%) P1,000

Problem 6–16 1. C

Gross gifts, as of August 15, 2002 (P150,000 x 2 lots)Less: DeductionsNet gifts, August 15, 2002

Donor’s tax on P200,000Tax on excess (P300,000 – P200,000) x 4%Total donor’s tax

P300,000 0 P300,000

P 2,000 4,000 P 6,000

2. DWedding gifts, as of November 15, 2002Less: Deductions - dowryNet gifts, November 15, 2002Add: Previous, net giftsTotal net gifts

Donor’s tax on P200,000Tax on excess (P440,000 – P200,000) x 4%Total donor’s taxLess: Donor’s tax – August 15, 2002Donor’s tax – November 15, 2002

P150,000 10,000 P140,000 300,000 P440,000

P 2,000 9,600 P 11,600 6,000 P 5,600

Problem 6–17 DDonor’s tax (P8,000,000 x 30%) P2,400,000

Problem 6–18 DNo deduction is allowed for donations on account of birthday.

Problem 6–19 B Gross gift (FMV at time of donation) P200,000

Problem 6–20 B Donor’s tax (P200,000 x 30%) P60,000

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Problem 6–21 ADonor’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 DEstate tax Donor’s tax

Gross amount asset P5,000,000 P5,000,000Less: Standard deduction 1,000,000 . Net amount subject to tax P4,000,000 P5,000,000

Estate tax on P2,000,000 P135,000Excess (P2,000,000 x 11%) 220,000Donor’s tax on P5,000,000 . P404,000Total P355,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000

Problem 6–23 1. Donors tax for relatives:

Mar. 1 - To his son on account of marriage P 600,000Oct. 1 - To his daughter on account of graduation 500,000 Total P1,100,000Less: Dowry 10,000 Net taxable gifts P1,090,000

Donor’s tax on P1,000,000 P 44,000Excess (P90,000 x 8%) 7,200 Total donor’s tax for donations to relatives P 51,200

2. Donors tax for strangers:Dec. 25 - To his god-children P400,000Dec. 31 - To his neighbor 100,000 Total P500,000Multiplied by donor’s tax rate 30% Donor’s tax for donations to strangers P150,000

Problem 6–24 Mr. Dinero Mrs. Dinero

March 30, 2005 (P500,000/2) P250,000 P250,000June 28, 2005 (P2,000,000/2) – P10,000 990,000 990,000 Net taxable gifts P1,240,000 P1,240,000

Donor’s tax on P1,000,000 P44,000 P44,000Excess (P240,000 x 8%) 19,200 19,200 Total P63,200 P63,200Donor’s tax paid on March 30, 2005 Donor’s tax on P200,000 ( 2,000) ( 2,000) Excess (P50,000 x 4%) ( 2,000) ( 2,000)Donor’s tax for donation on June 28, 2005 P59,200 P59,200

Problem 6–25 Cash his son for wedding held during the year P 200,000

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Chapter 6: DONOR’S TAXProblem 6–26 To his son on account of marriage during the year P 500,000To his daughter on account of her birthday 500,000To Garci, his brother, as renunciation of inheritance 400,000 Net gift subject to donor’s tax P1,400,000

Note: No dowry is allowed for nonresident alient.

Problem 6–27Real estate (P1,000,000 – P100,000) P 900,000Personal properties (P500,000 – P50,000) 450,000 Total taxable gifts (inadequate consideration) P1,350,000

Donor’s tax on P1,000,000 P 44,000Excess (P350,000 x 8%) 28,000 Donor’s tax for inadequate consideration P 72,000

Problem 6–28Correction: The date for requirement No. 2 should be November 5, 2005 instead of November 5, 2002.

1. December 25, 2005:Average value per share (P500 + P450)/ 2Multiply by number of sharesTaxable base of the gift

P 475 1,000 P475,000

2. The same answer with number 1.

Problem 6–29There is no donor’s tax because the donations are donation mortis causa, void donation and tax- exempt donation.Properties:a. House and lot

b. Parejo car

c. Business

d. Furniture and fixtures

e. Time deposit

Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament).

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.

Revocable donation is a revocable transfer, hence, subject to estate tax.

Donation mortis causa is subject to estate tax.

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 P 500,000

Donor’s tax P14,000

Problem 6–31 Donations to relatives:

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Chapter 6: DONOR’S TAX2006:January 31

November 30

Car to UncleLess: Encumbrances assumed by the doneeNet taxable gift – January 31, 2002

Donor’s tax on P200,000Tax on excess (P250,000 – P200,000) x 4%Donor’s tax for January 31 donation

House and lot to his son on account of marriageLess: Dowry exemption (weeding was held beyond one year)Net giftsAdd: Previous net gifts during the yearAggregate taxable gift

Donor’s tax on P500,000Tax on excess (P840,000 – P500,000) x 6%TotalLess: Donor’s tax for previous gifts during the yearDonor’s tax for November 30 donation

P300,000 50,000 P250,000

P 2,000 2,000 P 4,000

P600,000 - 0 - P600,000 250,000 P850,000

P 14,000 21,000 P 35,000 4,000 P 31,000

Donations to strangers:2006:June 30

August 31

October 31

Cash to Miss Rosal, a radio managerLess: Diminution of gift (P100,000 x 60%)Net taxable gift

Donor’s tax for June 30 donation (P40,000 x 30%)

Land to National GovernmentLess: Deduction (total amount)Net taxable gift

Donor’s tax for August 31 donation

Cash to non-profit organization – 40% AdministrativeLess: DeductionNet taxable gift

Donor’s tax for October 31 donation (P400,000 x 30%)

P100,000 60,000 P 40,000

P 12,000

P500,000 500,000 P - 0 -

None

P400,000 - 0 - P400,000

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

P 35,000 132,000 P167,000

Problem 6–32 Net gift to daughter on account of marriage (P50,000 – P10,000)Add: Previous net gifts: P50,000

P 40,000

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Chapter 6: DONOR’S TAX April 1 – Gift to mother June 10 – Wedding gift to son (P50,000 – P10,000)Total net gift during the year

Donor’s tax on P100,000Donor’s tax on excess P30,000 x 2%

40,000 90,000 P130,000

Tax exemptP 600

Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000

Problem 6–33 1. January 29, 2006

2. June 1, 2005 gift Nilo Co Nila Co Gift on account of their daughter’s marriage P250,000 P250,000Less: Dowry 10,000 10,000 Net gift P240,000 P240,000

Tax on P200,000 P 2,000 P 2,000Tax on excess P40,000 x 4% 1,600 1,600 Total P 3,600 P 3,600 P 7,200Surcharges (P7,200 x 50%) 3,600Interest (P7,200 x 20% x 11/12) 1,320

P12,120

December 30, 2005 gift Nilo Co Nila Co Christmas gift to son P100,000 P100,000Previous gift – June 1, 2005 240,000 240,000 Total net gift during 2005 P340,000 P340,000

Tax on P200,000 P 2,000 P 2,000Tax on excess P140,000 x 4% 5,600 5,600 Total P 7,600 P 7,600Less: Tax on previous gift 3,600 3,600 Donor’s tax on current gift P 4,000 P 4,000 P 8,000Surcharge (P8,000 x 50%) 4,000Interest (P8,000 x 20% x 4/12) 533

P12,533Total amount to be paid on June 1, 2006 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 Relative Stranger Total

Donor’s tax on property located in Japan, P1,000,000Donor’s tax on property located in the Philippines (P2,000,000 x 30%)Total donor’s tax in the Philippines

P44,000

P600,000

P 44,000

600,000 P644,000

Computation of donor’s tax still due and payable:Total donor’s tax in the PhilippinesLess: Allowable tax credit: - Actual lower than limit Limit (P1,000,000/ P3,000,000) x P644,000Donor’s tax still due and payable

P214,667

P644,000 70,000

P574,000

Problems 6–35

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Chapter 6: DONOR’S TAXGift to

Property donated: Relatives Strangers Total To son - House and lot ($500,000 x P50) – P10,000Carabaw FX – to brother-in-law

Taxable base

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

P24,990,000

. P24,990,000

P 1,004,000 2,248,500 P 3,252,500

1,000,000 . P 2,252,500

P 500,000 . P 500,000

30% P 150,000

. 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

Allowed: Actual, lower amount

P2,335,373

P1,000,000

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Chapter 6 - Donor's Tax

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