LECTURE 5: DONORS TAX

I. Nature of Donors Tax a tax on the privilege of the donor to give; it is not a property tax but is a tax
imposed on the transfer of property by way of gift during the life time of the donor. The donors tax shall not
apply unless and until there is a completed gift. It is an excise tax imposed upon the right of a person to
transfer property gratuitously during his lifetime.

II. Essentials of a Taxable Donation

Donation takes place only when there is a concurrence of the following:

1. Capacity of the donor

2. Donative intent
3. Delivery of the gift - Completed
4. Acceptance by the donee - Perfected

Note:
a. The transfer of property is completed by delivery, either actually or constructively, of the
donated property to the donee.
b. The transfer of property by gift is perfected from the moment the donor knows of the
acceptance of the donee.
c. The composition and valuation of gross gift is the same as the composition and valuation
of gross estate.

III. Classification of Donors

1. Residents and Citizen taxable globally
2. Non-resident Alien:
a. With reciprocity
b. Without reciprocity

IV. Computation of Donors Tax

On first donation:
Gross Gift xx
Less: Deductions from gross gift (xx)
Net gift xx
Times the Applicable rate* %
Donors tax due and payable xx
Less: Tax Credit (xx)
Donors Tax Payable xx

On subsequent donation:
Gross gift made this month xx
Less: Deductions from gross gift (xx)
Net gifts, current xx
Add: ALL prior net gift w/in the year xx
Aggregate net gifts xx
Times applicable Tax rate %
Donors Tax Due xx
Less: Donors Tax paid on prior gifts (xx)
Tax Credits (xx)
Donors Tax Due and Payable xx

1. Who are Relatives?

a. Brothers, sisters (whether by whole or half-blood), spouse, ancestors and lineal
descendants.
b. Legally adopted children are considered as relatives, hence they are entitled to the same
rights, privileges and obligations of legitimate children, as provided by law.
c. Relative by consanguinity (by blood) in the collateral within fourth degree of relationship.
2. Remember
a. ONLY gifts to relatives are computed using the cumulative basis.
b. Donation to strangers (beyond 4th degree) is computed using individual basis since the rate
will be the same regardless of the amount.
c. The classification of taxpayers are still the same in estate tax.
d. The reciprocity rule shall also be considered for intangible personal property of Non-
Resident Aliens in computing gross gift.
LECTURE 5: DONORS TAX

V. Gross Gift
1. Direct Gift (donor to donee)
2. Gift through creation of trust
3. Condonation of debt
4. Repudiation of inheritance if:
a. Specifically and categorically done in favor of identified heirs; and
b. To the exclusion or disadvantage of other co-heirs.
5. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or
any other person/s
6. Transfer for insufficient consideration, provided that it is not in contemplation of death,
revocable transfer or transfer under general power of appointment. Otherwise, it will be subject
to estate tax.

7. Rules to observe:
a. As a rule, the value of the property/right donated shall be the fair market value existing when
the gift was made (as of the time of donation).
b. The time to value is the moment when the donation has been completed and perfected
(delivered and accepted).
c. When the donation is subject to a suspensive condition, the value of the gift is to be
determined only at the time when the stipulated condition is fulfilled, subject to the time of
delivery and acceptance of the gift.

8. Valuation Methods:
a. Real properties are valued at the assessed value or zonal value, whichever is higher.
b. Personal properties are valued at current market price or fair market value.
c. Right to use or usufructuary is valued based on the Basic Standard Mortality Rate Table
(BSMT) with the consideration of the present value using the prevailing market interest rate
at the time of donation.
d. Shares of stocks are valued at:
i. If traded Closing price
ii. If not traded using the adjusted net asset method

VI. Donation Between husband and wife

Gift from common property the gift is taxable one-half to each donor spouse.
General Rule: Donation between husband and wife is not taxable as it is declared void by law.
Exception: Moderate gifts between the spouse are valid.
Husband and wife are considered as separate and distinct taxpayers for purposes of the donors tax.
However, if what was donated is a conjugal or community property and only the husband signed the
deed of donation, there is only one donor for donors tax purposes, without prejudice to the right of the
wife to question the validity of the donation without her consent pursuant to the pertinent provision of
the Civil Code of the Philippines and the Family Code of the Philippines.

VII. Political Contributions (Omnibus Election Code (OEC) and Repulic Act No. 7166)
1. As a rule, any contributions given to candidates, political parties or coalition of parties are not subject
to donors tax as long as the following conditions are met:
2. The contribution is for campaign purposes; and
3. The donation is duly reported to the Commission on Election (COMELEC)
4. The campaign contribution is subject to donors tax on the part of the donor, if such contributions are
not reported to the COMELEC.

VIII. Exemptions and Deductions

DEDUCTION RESIDENTS OR NON-RESIDENT

CITIZENS ALIENS

1. Dowries or gift made on account

marriage of a son or daughter, legitimate,
illegitimate or legally adopted, to the
YES NO
extent of P10,000 per child per marriage.
The gift must be made before marriage or
within one year thereafter.

2. Gifts to the National Government, its

YES YES
political subdivisions or any entity created
LECTURE 5: DONORS TAX

by any of its agencies which is not

conducted for profit

3. Gifts in favor of educational, charitable,

religious, cultural and social welfare YES YES
institutions, etc. (subject to 30% rule)

4. Encumbrance on property donated

YES YES
assumed by the done (mortgages, if any)

5. Diminution in the value of property YES YES

Exemptions under Special Laws

1. International Rice Research Institute
2. Ramon Magsaysay Foundation
3. Integrated Bar of the Philippines
4. Development Academy of the Philippines
5. National Museum
6. National Library
7. Archives of the National Historical Institute
8. Musuem of Philippine Costumes
9. Intramuros Administration

IX. Destroyed Donations

1. Donors tax accrues upon the completion of the donation, meaning upon delivery.
2. Gifts destroyed after they have been delivered are considered as valid donations. Thus, even if it had
been destroyed already, the donation shall be subject to donors tax still.
3. Total destruction has nothing to do with the donors tax liability when the thing donated is already
delivered.

X. Tax Rates Applicable

1. If given to relatives, 2% - 15% tabular tax
2. If given to stranger, 30%.
Note: A stranger is a person who is NOT:
a. A brother or sister (whether whole or half-blood)
b. Spouse
c. Ancestor
d. Lineal descendant
e. Relative by consaguinity in the collateral line within 4th civil degree of relationship

XI. Tax credit for donors tax paid to a foreign country

1. Who can claim? Only citizen or resident alien decedent.
2. Amount Deductible, whichever is lower:
a. Actual estate tax paid abroad
b. Limit
3. Limitations on tax credit:
a. Only one country is involved

Net gift (per Foreign Country) x Philippine donors tax

Total net gift

b. Two or more foreign countries are involved

Limit 1: per country

Net gift (per Foreign Country) x Philippine donors tax

Total net gift

Limit 2: Total Foreign Country

Net gift (all Foreign Countries) x Philippine donors tax

Total net gift

XII. Deadline for Filing of return

1. The deadline for the filing of donors tax return (BIR Form 1800) will be 30 days after the donation
was made.
LECTURE 5: DONORS TAX

2. The payment for donors tax shall be the same day as of that the day the return was filed (Pay-as-
You-File System)
3. When the Commissioner gives an extension, the payment of the tax due may be made on such day
as extended by the CIR, but not to exceed six (6) months.
4. The filing of returns for donors tax is with the Revenue District Office or duly authorized collection
(e.g. City Treasurer) in which the donor resided at the time of transfer.
5. If there is no legal residence in the Philippines, filing should be made with the Office of the
Commissioner on Internal Revenue.

XIII. Attachments
1. Based on the BIR Form 1800, the following documents shall be attached:
2. Sworn statement of the relationship of the donor to the donee;
3. Proof of tax claimed tax credit, if applicable;
4. Certified true copy of the Original/Transfer/Condominium Certificate of Title (OCT, TCT, CCT) of the
donated property (for real properties);
5. Certified true copy of the latest Tax Declaration of lot and/or improvement, if applicable (for market
value purposes);
6. Certificate of No Improvement issued by the Assessors Office where the donated real property/ies
have not declared improvements, if applicable;
7. Proof of valuation of shares of stock at the time of donation, if applicable;
8. For listed stocks newspaper clippings/certification issued by the Stock Exchange as to the value
of per share
9. For unlisted stocks latest audited Financial Statements of the issuing corporation with the
computation of the book value per share.
10. Proof of valuation of other types of personal properties, if applicable;
11. Proof of claimed deductions, if applicable; and
12. Proof of the Tax Debit Memo used as payment.