Basic Concept of Donation and Donor's Tax

DONOR’S TAX
Basic Concept of Donation

DONOR’S TAX
Learning Objectives:
• To be able to understand the basic concept of donation.
• To be able to understand the nature of donor‟s tax.
• To be able understand the concept of gross gift.
• To be able understand and compute the net gift and the
donor‟s tax.
DONATION
Donation – an act of liberality whereby a

person disposes of gratuitously of a thing or
right in favor of another, who accepts it.
Donor – the person who transfers property.
Donee - the recipient of the property.
Note:
For donor‟s tax purposes, donation must be a donation
of property, and does not include a donation of
personal services or a donation of right to use property.
DONATION
Essential Requisites of Donation:
1. Capacity of the donor
The donor must be legally competent to make a donation.
Donation made by a minor, an insane, or by one under
hypnotic spells, force or intimidation is unenforceable.
The capacity of the donor shall be determined at the time of
making of the donation
2. Intention to donate-
The donation must be intentional or voluntary.
DONATION
Essential Requisites of Donation:
3. Donative act or delivery –
Donation is a real contract and is completed by the delivery
of the property donated.
4. Acceptance by the donee–

As a rule, no one can be compelled to accept the generosity
of another. The donee has the prerogative to accept or reject
the gratuity. The acceptance of the donee perfects the
contract of donation.
Donation is deemed perfected when the donor knows of
the acceptance of the donee.
DONATION
Formal Requisites of Donation
For donation of properties to be valid, it must adhere to certain provisions of law.
1. Real Properties -
In order that the donation of an immovable may be valid, it must be made in a
public document (Article 749. of the Civil Code)
2. Personal Properties -
• The donation of a movable may be made orally or in writing.
• An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated. (Article 748. of the Civil Code)
• If the value of the personal property donated exceeds five thousand pesos,
the donation and the acceptance shall be made in writing. Otherwise, the
donation shall be void.
• The acceptance may be made in the same deed of donation or in a separate
public document, but it shall not take effect unless it is done during the lifetime
of the donor.
• If the acceptance is made in a separate instrument, the donor shall be notified
thereof in an authentic form, and this step shall be noted in both instruments.
(Article 749. of the Civil Code)
DONATION
Types of Donors:
Residents or Citizens – taxable on all donations
within and outside the Philippines, such as
1. Resident citizen
2. Non resident citizen
3. Resident alien
Non-resident Aliens – taxable only on Philippine
donations, except intangible personal property
subject to reciprocity conditions.
DONATION
 Illustrative Problem
Mars donated the following properties:
Real properties – Philippines P2,000,000
Real properties – Abroad 1,000,000
Tangible personal properties – Philippines 800,000
Tangible personal properties–Abroad 500,000
Intangible personal properties– Philippines 600,000
Intangible personal properties–Abroad 300,000
Which of the following donations are taxable assuming
Case 1- Mars is a citizen or resident
Case 2- Mars is a non resident alien
a. Without reciprocity exemption
b. With reciprocity exemption
DONATION
Answer:
The following donations shall be taxable in each of the
following cases:
Case 1- If Mars is a citizen or resident- P5,200,000

Case 2- If Mars is a non resident alien
a. Without reciprocity exemption – P3,400,000
b. With reciprocity exemption – P 3,100,000
DONATION
Exempt Donations:
A. “In the Case of Gifts made by a Resident-
 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; and
 Gifts in favor of an educational and/or charitable,

religious, cultural or social welfare corporation,
institution, accredited non-government organization,
trust or philanthropic organization or research institution
or organization: Provided, however, not more than 30%
of said gifts will be used by such donee for
administration purposes
DONATION
 For the purpose of this exemption, a „non-profit
educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization‟ is a school, college or university and/or
charitable corporation, accredited nongovernment
organization, trust or philanthropic organization and/ or
research institution or organization, incorporated as a non
stock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting 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.”
(Sec. 17 of RR No. 12-2018)
DONATION
B. In the Case of Gifts Made by a Nonresident not a
Citizen of the Philippines
 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.
 Gifts in favor of an educational and/or charitable,

religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic
organization or research institution or organization:
Provided, however, that not more than thirty percent
(30%) of said gifts shall be used by such donee for
administration purposes. (Sec. 101 (B) of NIRC, as amended)
DONOR’S TAX
Donor’s Tax - is a tax on a donation or gift, and is imposed
on the gratuitous transfer of property between two or more
persons who are living at the time of the transfer. It shall
apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect and whether the property is real or
personal, tangible or intangible.
• The donor‟s tax is not a property tax, but is a tax imposed
on the transfer of property by way of gift.
• The donor‟s tax shall not apply unless and until there is a
completed gift.
• The law in force at the time of the completion of the
donation shall govern the imposition of the donor‟s tax.
DONOR’S TAX
Format for the Donor’s Tax:
For every taxable donation, the net gift is determined and
reported in a donor‟s tax return as follows:
Real properties PXXX

Personal properties XXX
Total Gifts/Gross gift PXXX
Less: deductions XXX
Net Gift PXXX
Add: Prior net gift during the year XXX
Total net gift subject to tax PXXX
Tax due XXX
Less: Tax credits XXX
Tax payable or refundable PXXX
DONOR’S TAX
Note: Donor‟s tax is imposed on the cumulative balance of net gift. The
accumulation of net gifts stops at every calendar year.
Gross gift – pertains to the fair value of a taxable donation at the date of
the perfection of a donation.
Deductions - from gross gifts are exemptions or reductions from gross

gifts which are allowed by law.
Net gift – shall mean the net economic benefit from the transfer that
accrues to the donee. Accordingly, 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. (Sec. 12 of RR No. 12-2018)
VALUATION OF GROSS GIFT
What are the bases in the valuation of property?
 The properties comprising the gift/donation shall be
valued based on their fair market value as of the time
of donation.
 If the property is a real property, the fair market value
thereof as of the time of donation shall be, whichever is
the higher of –
1. The fair market value as determined by the
Commissioner, or
2. The fair market value as shown in the schedule of
values fixed by the provincial and city assessors.
 In the case of shares of stocks, the fair market value shall depend
on whether the shares are listed or unlisted in the stock exchanges.
 Unlisted Shares
a. Unlisted common shares are valued based on their book value
b. Unlisted preferred shares are valued at par value.
-In determining the book value of common shares, appraisal surplus shall
not be considered as well as the value assigned to preferred shares, if there
are any.
 Shares listed in the stock exchanges -the fair market value shall
be the arithmetic mean between the highest and lowest quotation at
a date nearest the date of donation, if none is available on the date
of donation.
What is the proper treatment for transactions involving
transfer of property other than real property referred to in
Section 24 (D)(NIRC) for less than adequate and full
consideration?
 Where property, other than real property referred to in Section
24(D) of the NIRC, as amended, is transferred for less than an
adequate and full consideration in money or money's worth,
then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the
purpose of the tax imposed by this Chapter (Donor’s Tax), be
deemed a gift, and shall be included in computing the amount
of gifts made during the calendar year: Provided, however,
that a sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a bona fide, at
arm‟s length, and free from any donative intent) will be
considered as made for an adequate and full consideration in
money or money‟s worth. (Sec. 16, RR No. 12-2018)
COMPUTATION OF DONOR‟S TAX
TAX RATES:
The rate applicable shall be based on the law prevailing at the time of
donation:
 · Effective January 1, 2018 and onwards (Republic Act (RA) No.
10963/TRAIN)
 Rate - The donor‟s tax for each calendar year shall be six percent (6%)
computed on the basis of the total gifts in excess of Two Hundred Fifty
Thousand Pesos (P250,000) exempt gift made during the calendar
year.
Notes:
1. When the gifts are made during the same calendar year but on different
dates, the donor's tax shall be computed based on the total net gifts during
the year.
2. The relationship between the donor and the donee(s) shall not be
considered. Republic Act No. 10963 (TRAIN Law) does not distinguish
donations made to relatives, or donations made to strangers.
End of Presentation
GOD BLESS YOU!
Sources:
Ballada, Win / (2020) Transfer and Business Taxation/ Domdane Publishers (prescribed textbook)
Banggawan, Rex, / Business and Transfer Taxation/ Real Excellence Publishing
Internet Sources:
https://www.bir.gov.ph/index.php/legal-matters/guide-to-philippines-tax-law-research.html
https://www.bir.gov.ph/index.php/tax-code.html
https://www.bir.gov.ph/index.php/tax-information/donor-s-tax.html

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DONOR’S TAX

Basic Concept of Donation

• To be able to understand the basic concept of donation.

• To be able to understand the nature of donor‟s tax.

• To be able understand the concept of gross gift.

• To be able understand and compute the net gift and the

Donation – an act of liberality whereby a

4. Acceptance by the donee–

Case 1- If Mars is a citizen or resident- P5,200,000

 Gifts in favor of an educational and/or charitable,

 Gifts in favor of an educational and/or charitable,

Real properties PXXX

Deductions - from gross gifts are exemptions or reductions from gross

GOD BLESS YOU!

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