Vivos Based On Pure Act of Liberality Without Any or Less Than Adequate Consideration and Without Any

DONOR’S TAX
BASIC PRINCIPLES, CONCEPT AND DEFINITION

Donation is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in
favor of another (donee) who accepts it (Art. 725, Civil Code).
Donor’s tax is an excise tax imposed on the privilege of transferring property by way of a gift inter
vivos based on pure act of liberality without any or less than adequate consideration and without any
legal compulsion to give.
Subject of donor’s tax:

The subject of donor’s tax is the gift or donation. Article 725 of the Civil Code defines a gift or donation
as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another
who accepts it.”
The law in force at the time of the perfection/completion of the donation governs the imposition of
donor’s tax (Sec. 11, R.R. 2-2003).
Kinds of donations:
1. Donation inter vivos - a donation made between living persons. Its perfection is at the moment when
the donor knows the acceptance of the donee. It is subject to donor’s tax.
2. Donation mortis causa - a donation which takes effect upon the death of the donor. It is subject to
estate tax.
Transfers subject to donor’s tax:

1. Transfer in trust or otherwise, whether the gift is direct or indirect and whether the property is
real or personal, tangible or intangible;
2. Include not only the transfer of ownership in the fullest sense but also the transfer of any right or
interest in property, but less than title;
3. Where property, other than real property subject to capital gains tax, is transferred for less than
an adequate and full consideration in money or money’s worth, then the amount by which the FMV of
the property exceeded the value of the consideration shall, for the purpose of the donor’s tax, be
deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
4. 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 is subject to donor’s tax;
5. However, general renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in
the hereditary estate.
(Reason: In general renunciation, there is no donation since the renouncer has never become the
owner of the property/share renounced.)
6. Transfers of any right or interest. Transfers subject to donor’s tax not only include transactions
where there is a transfer of ownership, but also where there is a transfer less than title.
NATURE, PURPOSE AND OBJECT

It is an excise tax on the privilege of the donor to give or on the transfer of property by way of gift inter
vivos. It is not a property tax.
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Q: Your bachelor client, a Filipino residing in Quezon City, wants to give his sister a gift of
P500,000. He seeks your advice, for purposes of reducing if not eliminating the donor's tax on
the gift, on whether it is better for him to give all of the P500,000.00 on Christmas 2001 or to
give P250,000.00 on Christmas 2001 and the other P250,000.00 on January 1, 2020. Please
explain your advice.
A: I would advise him to split the donation. Giving the P500,000 as a one-time donation would mean
that it will be subject to a higher tax bracket under the graduated tax structure thereby necessitating
the payment of donor's tax. On the other hand, splitting the donation into two equal amounts of
P250,000 given on two different years will totally relieve the donor from the donor’s tax because the
first P250, 000 donation in the new TRAIN Law is exempt (Sec. 99, NIRC). While the donor’s tax is
computed on the cumulative donations, the aggregation of all donations made by a donor is allowed
only over one calendar year.
REQUISITES OF VALID DONATION
Requisites for a gift to be taxable [ADIC]

1. Capacity of donor to donate
The donor’s capacity shall be determined as of the time of the making of the donation (Art. 737, NCC).
2. Donative Intent
NOTE: Donative intent is necessary only in cases of direct gift. If the gift is indirectly taking place by
way of sale, exchange or other transfer of property as contemplated in cases of transfers for less than
adequate and full consideration (Sec. 100, NIRC), not always essential to constitute a gift.
3. Acceptance by the donee
4. Actual or constructive Delivery of gift

Tax treatment in case of donations made by spouses
Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s 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 donor’s tax purposes, without prejudice to the right of the
wife to question the validity of the donation without her consent pursuant to the pertinent provisions
of the Civil Code of the Philippines and the Family Code of the Philippines (Par. 1., Sec. 12, R.R. 2-2003).
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 (Sec. 11, R.R. 2-
2003).
A transfer becomes complete and taxable only when, the donor has divested himself of all beneficial
interests in the property transferred and has no power to recover any such interest in himself or his estate.
TRANSFERS WHICH MAY BE CONSTITUTED AS DONATION

Sale/exchange/transfer of property for insufficient consideration
Rule regarding transfer for less than adequate and full consideration:
GR: Where a property is transferred for less than adequate and full consideration in money or money’s
worth, the amount by which the FMV exceeds the consideration shall be deemed a gift and be included
in computing the amount of gifts made during the calendar year. It is as if the property was donated
but in order to avoid paying donor’s tax, the donor opted to transfer the property for inadequate
consideration.
XPN: Where property transferred is real property located in the Philippines considered as capital asset, the
transfer is not subject to donor’s tax but to a capital gains tax, which is a final income tax of 6% of the fair
market value or gross selling price, whichever is higher, and therefore, there can be no instance where the
seller can avoid any tax by selling his capital assets below its FMV.
CLASSIFICATION OF DONOR
Liable to pay donor’s tax:
1. Resident
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Domestic corporation
2. Non-resident
a. Non-resident aliens
b. Foreign corporation
NOTE: A corporation, domestic or foreign, cannot be made liable to pay estate tax, but may be liable
to pay donor’s tax.
DETERMINATION OF GROSS GIFT

Gross gifts – All property, real or personal, tangible or intangible, that was given by the donor to the
donee by way of gift, without the benefit of any deduction (Sec. 104, NIRC).
Net gift is the net economic benefit from the transfer that accrues to the donee.
NOTE: If a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay
the mortgage liability, then the net gift is measured by deducting from the fair market value of the property
the amount of mortgage assumed.
COMPOSITION OF GROSS GIFT

Included in the gross gifts:
1. For resident (RC, NRC, RA)
a. Real property wherever situated (within & without the Philippines);
b. Personal property wherever situated, tangible or intangible.
2. For non-resident (NRA);
a. Real property situated within the Philippines;
b. Personal property:
i. Tangible property situated within the Philippines
ii. Intangible personal property with situs in the Philippines unless exempted on the basis of
reciprocity
TAX CREDIT FOR DONOR’S TAXES PAID IN A FOREIGN COUNTRY

The donor’s tax imposed by the NIRC upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor’s taxes of any character and description
imposed by the authority of a foreign country.
Only donors who are citizens or residents at the time of the donation are entitled to claim tax credit.
Limitations on tax credit:

The following are the limitations to the tax credit:
1. The amount of credit shall not exceed the same proportion of the tax against such credit is taken,
which the net gifts situated within such country taxable under Philippine laws bears to the entire net
gifts (Per country basis)
2. The amount of the tax credit shall not exceed the same proportion of the tax against which such
credit is taken, which the donor’s net gifts situated outside the Philippines taxable under Philippine
laws bears to his entire net gifts (Overall basis)
EXEMPTIONS OF GIFTS FROM DONOR’S TAX

Transactions exempt from donor’s tax:
1. Donation for political campaign purposes (Sec. 99[C], NIRC
2. Certain gifts made by residents (Sec. 101[A], NIRC)
3. Certain gifts made by non-resident aliens Sec. 101[B], NIRC)
4. Donation of intangibles subject to reciprocity (Sec. 104, NIRC)
5. Donation for athlete’s prizes and awards (R.A. 7549)
6. Donation under the “Adopt-a-School Program” (R.A. 8525)
7. Exemption under other special laws.
Gifts made by a resident (RC, NRC, RA) that are considered exempt from donor’s tax:
1. Specific exemption - net gifts of the amount of P100,000 or less are exempt
2. Dowries or gifts made on account of marriage and before its celebration or made within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent
of the first Ten thousand pesos (P10,000) each parent
3. 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
4. Gifts in favor of: [CARTER-CuPS]
a. Charitable
b. Accredited NGOs
c. Religious
d. Trust foundations
e. Educational institutions
f. Research institutions
g. Cultural foundations
h. Philanthropic organizations
i. Social welfare corporations
VALUATION OF GIFTS MADE IN PROPERTY

1. Personal property - the fair market value of the property given at the time of the gift shall be the
value of the gross gift.
2. Real property - the fair market value as determined by the CIR (zonal value) at the time of donation
or the value fixed by the assessor (assessed value), whichever is higher (Sec. 102).
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 the improvement is the construction cost per building permit and
or occupancy permit plus 10% per year after year of construction, or the market value per latest tax
declaration.
Requisites for the exemption of gifts made to the CARTER-CuPS (Sec. 101, NIRC)
1. Donee is incorporated as a non-stock, non-profit entity, paying no dividends;
2. Governed by trustees;
3. Trustees receive no compensation;
4. Donee devotes all its income, whether students' fees or gifts, donation, subsidies or other forms of
philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation; and
5. Not more than 30% of the donation is used for administrative purposes.
Formula in computing taxable donation:

1. On the first donation of the year
Gross Gift
Less: deductions/exemption
------------------------------------------
Net gift
x Tax rate
------------------------------------------
Donor’s tax
Donor Tax - TRAIN also simplifies the payment of donor’s taxes to a single tax rate of 6% of net donations
is imposed for gifts above P250,000 yearly regardless of relationship to the donor.

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DONOR’S TAX

BASIC PRINCIPLES, CONCEPT AND DEFINITION

Subject of donor’s tax:

Transfers subject to donor’s tax:

NATURE, PURPOSE AND OBJECT

REQUISITES OF VALID DONATION

Requisites for a gift to be taxable [ADIC]

4. Actual or constructive Delivery of gift

TRANSFERS WHICH MAY BE CONSTITUTED AS DONATION

DETERMINATION OF GROSS GIFT

COMPOSITION OF GROSS GIFT

TAX CREDIT FOR DONOR’S TAXES PAID IN A FOREIGN COUNTRY

Limitations on tax credit:

EXEMPTIONS OF GIFTS FROM DONOR’S TAX

VALUATION OF GIFTS MADE IN PROPERTY

Formula in computing taxable donation:

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