CTT Review October 2022 - Week 1 To Week 3
CTT Review October 2022 - Week 1 To Week 3
CTT Review October 2022 - Week 1 To Week 3
TECHNICIAN REVIEW
Dr. Cedric Val R. Naranjo, CPA
Chairman
Accountancy and Finance Department
University of San Jose - Recoletos
SCHEDULE
WEEK 1
5
NATURE OF TRANSFER TAXES
⬥ Privilege Tax
⬥ Ad Valorem Tax
⬥ Proportional Tax
⬥ National Tax
⬥ Direct Tax
⬥ Fiscal Tax
6
CLASSIFICATION OF TRANSFER TAXPAYERS
AND THEIR EXTENT OF TAXATION
⬥ Residents OR Citizens – GLOBAL TRANSFERS
⬥ RC
⬥ RA
⬥ NRC
7
TYPES OF PROPERTIES
8
TYPES OF PROPERTIES
Intangible Personal Properties
a. Franchise which must be exercised in the Philippines
b. Shares, obligations or bond issued by any corporation or
sociedad anonima organized and constituted in the Philippines in
accordance with it law.
c. Shares, obligation or bonds issued by any foreign corporation,
85% of the business of which is located in the Philippines
d. Shares, obligation or bonds issued by any foreign corporation if
such shares, obligation or bonds have acquired business situs in
the Philippines
e. Shares or rights in any partnership, business or industry
established in the Philippines
9
ILLUSTRATION OF RECIPROCITY
10
EXAMPLE:
A decedent left the following properties:
⬥ Land in Italy (with P1M unpaid mortgage) P 2,000,000
⬥ Land in Laguna, Philippines 500,000
⬥ Franchise in USA 100,000
⬥ Receivable from debtor in Philippines 70,000
⬥ Receivable from debtor in USA 100,000
⬥ Bank deposits in USA 80,000
⬥ Shares of stocks in PLDT, Philippines 75,000
⬥ Shares of stocks of ABC, foreign corporation
⬥ 75% of the business in the Philippines 125,000
⬥ Other personal properties 300,000
⬥ Zonal value of the land in Laguna 750,000
Determine the GE if the decedent is a (1) RC; (2)NRA; (3) NRA with reciprocity
11
PART 1: ESTATE TAX
SUCCESSION
WHAT IS SUCCESSION? ⬥ Inheritance includes ALL the
Mode of acquisition by virtue of property, rights, and obligations
which the property, rights and of a person which are NOT
obligations to the EXTENT of the EXTINGUISHED by his death.
value of the inheritance, of a ⬥ The rights to the succession are
person are transmitted through transmitted from the moment
his death to another or other of the death of the decedent.
either by his will or by operation
of law. (Art 774, Civil Code)
13
SUCCESSION
TYPES OF SUCCESSION ELEMENTS OF SUCCESSION
⬥ Testate or Testamentary ⬥ Decedent (Testator)
Succession ⬥ Estate
⬦ With last will and ⬦ Legitime
testatment
⬦ Free portion
⬦ Types of Will: (1)
Holographic; (2) Notarial; ⬥ Heirs
(3) Codicil ⬦ Compulsory Heirs
⬥ Legal or Intestate Succession ⬦ Voluntary Heirs
⬥ Mixed Succession ⬦ Legatee or Devisee
⬥ Executor/Administrator
14
ESTATE TAX
excise tax on the right of ⬥ Governed by the statute in
transmitting property at force at the time of death of
the decedent
the time of death and on
the privilege that a ⬥ The estate tax accrues as of
person is given in the death of the decedent
controlling to a certain and the accrual of the tax is
extent the disposition of distinct from the obligation
to pay the same.
his property to take
effect upon death.
15
ESTATE TAX
NATURE:
⬥ Excise Tax
⬥ Fiscal Tax
⬥ Ad Valorem Tax
⬥ National Tax
⬥ Proportional Tax
⬥ One-time Tax
16
ESTATE TAX MODEL: SINGLE DECEDENT
ESTATE TAX MODEL: MARRIED DECEDENT
GROSS ESTATE
Consists of the totality of the value of all property of the
decedent at the time of his death, whether real or personal,
tangible or intangible, wherever situated. The items to be
included and excluded in the gross estate depend upon the
citizenship and/or residence of the decedent.
19
GROSS ESTATE
Decedent Real Property Tangible Personal Intangible Personal Property
Property
20
COMPOSITION OF GROSS ESTATE
1. Decedent’s Interest
2. Transfer in Contemplation of Death
3. Revocable Transfers
4. Property Passing Under the General Power
of Appointment
5. Proceeds of Life Insurance
6. Transfer for Insufficient Consideration
21
DECEDENT’S INTEREST
This refers to the value of any interest in property or rights in
favor of the decedent on or before his death which was
accrued and received only after decedent’s death.
⬥ Dividends Receivable
⬥ Partnership’s share
⬥ Accrued interest
22
TRANSFER IN CONTEMPLATION OF DEATH
⬥ Donations made which are motivated by the THOUGHT OF
DEATH.
⬥ It may include:
⬦ Transfer of property to take effect in possession or
enjoyment after death
⬦ Transfer of property with retention of the right of
possession or enjoyment or right over income of the
property until death
⬦ Transfer of property with retention of the right to
designate, alone or in conjunction with any person, the
person who shall enjoy the property or the income
there from
23
REVOCABLE TRANSFERS
Transfers of possessions over property during the lifetime of
the decedent, but not transfer of ownership over said
property.
24
TRANSFER UNDER GENERAL POWER OF
APPOINTMENT (GPA)
GPA enables the holder of such power to do with the
property anything which he could do as if the property were
his own.
25
PROCEEDS OF LIFE INSURANCE
General Rule: To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken
out by the decedent upon his own life
Exceptions:
⬥ When the designation of the third person (not the estate, executor or
administrator) beneficiary is irrevocable
⬥ The proceeds or benefits are from SSS and GSIS
⬥ The proceeds are from a group insurance taken by the employer
27
EXCLUSIONS FROM GROSS ESTATE
1. Merger of usufruct in the owner of the naked title
2. The transmission or delivery of the inheritance or legacy by fiduciary
heir or legatee to the fideicommissary
3. The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfers to social welfare, cultural,
and charitable institutions, no part of the net income of which goes
to the benefit of any individual; provided, however, that not more
than 30% of the said bequests, devises, legacies, or transfers shall be
used by such institutions for administrative purposes.
28
MERGER OF THE USUFRUCT IN THE OWNER
OF THE NAKED TITLE
29
The transmission or delivery of the
inheritance or legacy by fiduciary heir or
legatee to the fideicommissary
30
The transmission from the first heir, legatee,
or donee in favor of another beneficiary, in
accordance with the desire of the
predecessor
31
Other Exemptions and Exclusions from Gross Estate
1. Bequests to be used actually, directly, and exclusively for
educational purposes
2. Proceeds of life Insurance
a.Beneficiary is irrevocably appointed
b.Under a group insurance taken by the employer in favor of the employee
3. Transfer by way of bona fide sales
4. Properties held in trust by the decedent
5. Separate property (capital of husband or paraphernal of wife) of the
surviving spouse.
6. Exemptions due to reciprocity
Exemptions from Special Laws
1. Benefits received from SSS or GSIS
2. Benefits received from U.S Veterans Administration
3. War benefits given by the Philippine government and U.S.
government due to damages suffered during the war
4. Grants and donations to the Intramuros Administration
5. Personal Equity and Retirement Account (PERA) assets of the
contributor
GROSS ESTATE for MARRIED DECEDENT
⬥ Exclusive Properties – owned separately by the
husband/wife
⬦ Capital – exclusive property of the husband
⬦ Paraphernal – exclusive property of the wife
34
GROSS ESTATE for MARRIED DECEDENT
EXCLUSIVE PROPERTY OF THE
DECEASED
+
COMMUNAL/CONJUGAL
PROPERTIES
35
GROSS ESTATE for MARRIED DECEDENT
PROPERTY RELATIONS (in order of priority)
⬥ By marriage settlement executed before the marriage
(pre-nuptial/ante-nuptial agreement)
⬥ The regime of absolute community (for marriage August
3, 1988 and onwards)
⬥ Conjugal partnership of gains (for marriage prior to
August 3, 1988)
⬥ By the local customs (Art. 74, Family Code)
36
CONJUGAL PARTNERSHIP OF GAINS
⬥ Shall commence at the precise moment that the marriage is
celebrated.
⬥ Any stipulation, express or implied, for the commencement of the
community regime at any other time shall be void.
Notes:
• CPG shall be governed by the rules on the contract of partnership
• Administration and enjoyment shall belong to both spouses jointly
37
ABSOLUTE COMMUNITY OF PROPERTIES
⬥ Shall commence at the precise moment that the marriage is celebrated.
⬥ Any stipulation, express or implied, for the commencement of the
community regime at any other time shall be void.
Notes:
• The provisions on co-ownership
• Property acquired during the marriage is presumed to belong to the
community unless proven that it is one of those excluded
• Administration and enjoyment shall belong to both spouses jointly
38
PROPERTY CLASSIFICATION
PROPERTY CPG ACP
Properties owned BEFORE marriage EXCLUSIVE COMMUNAL, except if there
is legitimate descendants
Properties derived DURING/AFTER marriage
• From fruits, income and gains
• From exclusive properties CONJUGAL EXCLUSIVE
• From conjugal/communal properties CONJUGAL COMMUNAL
• From labor, business and practice of profession CONJUGAL COMMUNAL
• From GRATUITOUS acquisitions EXCLUSIVE EXCLUSIVE
• Exchange of Property
• Exclusive Property EXCLUSIVE EXCLUSIVE
• Conjugal/Communal Property CONJUGAL COMMUNAL
Properties for EXCLUSIVE USE of either spouse EXCLUSIVE EXCLUSIVE, except Jewelries
39
CONJUGAL ABSOLUTE
PARTNERSHIP OF COMMUNITY OF
GAINS PROPERTIES
EXC. CONJ EXC. COMM.
Cash of P100,000 owned by the decedent before the marriage
Real property amounted to P1,000,000 inherited by the decedent during
the marriage. It generated an income of P100,000 a year after.
Personal property received by the wife as gift before marriage,
P500,000. This personal property was sold by the wife during marriage
at P800,000.
A new car purchased by the decedent with cash owned before marriage
Clothes of the decedent purchased with exclusive money of the wife
Jewelry for the use of the decedent purchased from business income of
the surviving spouse
Various properties amounting to P600,000 unidentified when and by
whom acquired
Real Property of P500,000 acquired before marriage by the decedent
who has legitimate descendants by a former marriage
CONJUGAL ABSOLUTE
PARTNERSHIP OF COMMUNITY OF
GAINS PROPERTIES
EXC. CONJ EXC. COMM.
Cash of P100,000 owned by the decedent before the marriage 100k 100k
Real property amounted to P1,000,000 inherited by the decedent during 1M 100k 1.1 M
the marriage. It generated an income of P100,000 a year after.
Personal property received by the wife as gift before marriage, 500k 300k 800k
P500,000. This personal property was sold by the wife during marriage
at P800,000.
A new car purchased by the decedent with cash owned before marriage X X
Clothes of the decedent purchased with exclusive money of the wife X X
Jewelry for the use of the decedent purchased from business income of X X
the surviving spouse
Various properties amounting to P600,000 unidentified when and by 600k 600k
whom acquired
Real Property of P500,000 acquired before marriage by the decedent 500k 500k
who has legitimate descendants by a former marriage
VALUATION OF GROSS ESTATE
General Rule: Gross estate Fair Market Value at time of death
Exception: Real property Zonal value or Assessed Value whichever is higher
Shares of stocks UNLISTED- Book value (appraisal valuation no longer applicable)
COMMON
Shares of stocks UNLISTED- Par Value
PREFERRED
Shares of stocks – LISTED G.R. FMV at the time of death.
Exception: Arithmetic Mean between the highest and
lowest quotation at a date nearest at the time of
death
42
Valuations – Real Property
Valuations – Listed Shares
ALLOWABLE DEDUCTIONS
⬥ ORDINARY DEDUCTIONS
⬦ Claims against the estate
⬦ Unpaid Mortgages
⬦ Claims against insolvent persons
⬦ Losses
⬦ Transfer for Public Use
⬦ Unpaid Taxes
⬦ Property Previously Taxed (Vanishing Deduction)
⬥ SPECIAL DEDUCTIONS
⬦ Family Home
⬦ Standard Deduction
⬦ Share of Surviving Spouse 45
⬦ RA 4917
CLAIMS AGAINST THE ESTATE
⬥ Debts or demands of a pecuniary nature
⬥ Can be enforced against the deceased in his lifetime
⬥ May arise out of:
⬦ Contract
⬦ Tort
⬦ Operation of Law
46
Claims Against the Estate - REQUISITES
50
UNPAID MORTGAGES
⬥ Accommodation Loan: The value of the unpaid loan must be included as
a receivable of the estate
51
UNPAID MORTGAGES - EXAMPLE
At the time of Yatap’s death, one of the properties left to the heirs was a
commercial building with a FMV of P5,000,000. Two years before his death,
Yatap borrowed from BPI the amount of P3,000,000 and mortgaged the
commercial building. At the time of his death, there was still an unpaid
balance on the mortgage of P500,000.
For Estate tax purposes, how should the above items be treated?
52
CLASSIFICATION RULES FOR CLAIMS AGAINST THE
ESTATE AND UNPAID MORTGAGE
⬥ Family Benefit Rule
⬦ If the obligation was contracted or incurred for the benefit of the family, the
claim shall be classified as deduction against common property.
53
CLAIMS AGAINST INSOLVENT PERSONS
⬥ Receivable of the decedent on persons who are declared by competent
persons or authorities as insolvent or those whose financial liabilities
are more than their assets
⬥ REQUISITES:
⬦ The amount of claims has been included as part of the gross estate of the
decedent
⬦ The insolvency of a person or debtor is declared and proven by a competent
body
54
CLAIMS AGAINST INSOLVENT PERSONS - EXAMPLE
On December 15 of the current taxable year, Tonyo died with total
receivables, both secured and unsecured with collaterals, amounting to
P800,000. One of debtors was Siony who has an outstanding obligation to
the decedent of P150,000. The financial status of Siony that she has total
assets of P300,000 and total liabilities of P480,000.
What is the (a) gross taxable estate; and (b) allowable deduction of the
decedent?
55
LOSSES
⬥ Casualty losses incurred during the settlement of the estate. The loss
should be incurred from the time of death of the decedent up to the
settlement of the estate.
⬥ REQUISITES:
⬦ Arose from fire, storm, theft, robbery, embezzlement, shipwreck,
or other forms of calamities
⬦ Amount of loss is not compensated by insurance
⬦ Loss was incurred not after the last day of payment of estate tax
56
TRANSFER FOR PUBLIC USE
⬥ Transferred by the decedent to the government of the Philippines as
stated in his/her last will and testament.
⬥ REQUISITES:
⬦ The transfer through donation is in favor of the government of
the Philippines or any of its political subdivisions
⬦ The property shall be used exclusively for public purpose
57
UNPAID TAXES
⬥ Taxes that the decedent was subjected to while he/she was still alive
but remained unpaid up to the time of his/her death.
⬥ REQUISITES:
⬦ The tax should be accrued or incurred prior to the death of the
decedent
⬦ The tax is enforceable against the decedent at the time of
his/her death
58
UNPAID TAXES
⬥ NON-DEDUCTIBLE TAXES
⬦ Income tax on income earned or received after death
59
PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
60
PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
⬥ REQUISITES:
⬦ Property was acquired within 5 years before the death of the present
decedent
⬦ Property subject for vanishing deduction must be located within the
Philippines
⬦ The applicable estate or donor’s tax on the prior decedent should
have been paid
⬦ Property must be identified as the one received from the prior
decedent, or something acquired in exchange therefore
⬦ No vanishing deduction on the property was allowable to the estate
of the prior decedent
61
PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
Initial basis (FMV at the time of transfer or at the time of death,
whichever is lower) xxxx
Less: Mortgage PAID during the lifetime of the decedent (xxxx)
INITIAL BASIS xxxx
Less: DEDUCTIONS (Initial Basis / Gross Estate x Ordinary Deductions)
xxxx
FINAL BASIS xxxx
Multiply: Vanishing Deduction Rate (100%, 80%, 60%, 40%, 20%) %%%
VANISHING DEDUCTION XXXX
62
VANISHING DEDUCTION %
PERIOD VD Rate
Within 1 year or less 100%
More than 1 year but not more than 2 years 80%
More than 2 years but not more than 3 years 60%
More than 3 years but not more than 4 years 40%
More than 4 years but not more than 5 years 20%
63
VANISHING DEDUCTION - EXAMPLE
Ms. Gayna, single, died leaving a property she inherited 3 ½ years ago with
a fair market value of P800,000. During her father’s death, it had a value of
P750,000, and an unpaid mortgage of P100,000. P50,000 of the unpaid
mortgage was paid by the present decedent. Her gross estate, other than
her inherited property had a fair market value of P1,300,000. The total
expenses, claims against the estate, claims against insolvent person, unpaid
mortgage and transfer for public purpose amounted to P300,000.
64
FAMILY HOME
⬥ The amount is equivalent to the current fair market value of the
decedent’s family, provided that if the said current FMV exceeds
P10,000,000, the excess shall be subject to estate tax.
65
Exercises: Determine the Allowable Family Home
Status of Classification of Actual Value of Allowable FH
Decedent Property FH
67
AMOUNT RECEIVED UNDER RA 4917
Any amount received by the heirs from the employer as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917:
Provided, That the amount of the separation benefit is included in the gross
estate of the decedent.
68
DEDUCTIONS OF A NON-RESIDENT ALIEN
DECEDENT
1.Standard deduction in the amount of Php 500,000.00
2. The proportion of the total losses and indebtedness which the value of such part
bears to the value of his entire gross estate wherever situated.
A. Claims against the estate
B. Claims against the insolvent person
C. Unpaid mortgages, taxes and casualty losses
Formula:
Phil Gross Estate
World Gross Estate x Item No. 2 = Allowable Deduction
3. Property previously taxed
4. Transfers for public use
5. Net share of the surviving spouse in the conjugal property or community property.
69
Total Total Common/ Total Gross Estate
Exclusive Conjugal
Property Property
ELIT
1. Claims against the estate xx xx
2. Claims against insolvent persons xx xx
3. Unpaid mortgages xx xx
4. Taxes xx xx
5. Losses xx xx
Transfer for Public Use xx
Vanishing Deduction xx xx
Net Estate before Special Deduction xxxx xxxx xxxx
Family Home xx
Amounts received by heirs under RA 4917 xx
Standard Deduction Xx
Share of surviving spouse in conjugal assets Xx
NET ESTATE NET ESTATE
DEDUCTIONS OF A NON-RESIDENT ALIEN
DECEDENT - EXAMPLE
Mickey Mouse, a non-resident alien decedent had the following information on
properties and expenses related to his death:
72
Administrative Requirements
Notice of Death Notice of Death removed
Period to File Estate Tax Within one (1) year from date of death
Return (BIR Form 1801) Required to file when:
1. the transfer is subject to tax
2. regardless of the gross value of the estate, where the estate
consists of registered or registrable property for which Certificate
Authorizing Registration from the BIR is required as a condition
precedent to the transfer of title/ownership in the name of the
transferee, the executor, or the administrator or any of the legal
heirs, as the case may be
Any amount paid after the statutory due date of the tax, but
within the extension period shall be subject to interest but
not to surcharge.
Administrative Requirements
Posting of bond in Not exceeding double the amount of estate tax and
case of extension with such sureties as the CIR deems necessary
No extension Due to fraud
Intentional disregard of the rules
Negligence
CPA Certificate Gross value of estate exceeds Php 5 Million (Old
rule is Php 2 Million)
Information in CPA Itemized assets with corresponding gross value
Certificate Itemized liabilities
Estate tax due whether paid or still due and
outstanding
Administrative Requirements
Payment of tax No transfer of shares, obligations, or bonds without electronic
antecedent to the Certificate Authorizing Registration (e-CAR)
transfer of shares, If a bank has knowledge of the death of a person, who
bonds, or rights maintained a bank deposit account alone, or jointly with
another, it shall allow any withdrawal from the said deposit
account, subject to a final withholding tax of (6%).
Requirement for withdrawal: duly stamped received BIR Form
1904 (Application for TIN of Estate)
Enforce Action 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.
Liability of parties in Primary Liability – Executor or administrator has primary
paying estate tax obligation to pay estate tax.
Subsidiary Liability – Heir or beneficiary are liable for the
payment of that portion of the estate which his distributive
Estate Tax Amnesty
Coverage
• Estates of decedents who died on or before December 31,
2017
• With or without assessments
• Taxes have remained unpaid or have accrued as of December
31, 2017
Exceptions (not covered by Amnesty)
1.Shall have become final and executory, and
2.To properties involved in cases pending in appropriate courts
a.Falling under the jurisdiction of Presidential Commission
on Good Governance
b.Involving unexplained or unlawfully acquired wealth
c.Involving violations of Anti-Money Laundering Law
d.Tax evasion and other criminal offenses under NIRC
e.Involving felonies of frauds, illegal exactions and
transactions, and malversation of public finds and
property under the Revised Penal Code
Definition of Terms
• Basic Tax Assessed refers to the latest amount of tax
assessment issued by the BIR against the taxpayer, exclusive
of interest, penalties and surcharges
Questions?
WEEK 2 ‒ DAY 1
DONORʼS TAXATION
DONATION
⬥ Gratuitous transfer of TYPES OF DONATION
property from one As to act
⬥ Direct
living person to ⬥ Indirect
another.
As to designation
⬥ Revocable
⬥ Irrevocable
96
DONOR’S TAX
ESSENTIAL REQUISITES FORMAL REQUISITES
98
DONOR’S TAX MODEL
99
DONOR’S TAX MODEL
100
GROSS GIFT
101
VALUATION OF GROSS GIFT
General Rule: Gross GIFT Fair Market Value at time of donation
Exception: Real property Zonal value or Assessed Value whichever is higher
Shares of stocks UNLISTED- Book value (appraisal valuation no longer applicable)
COMMON
Shares of stocks UNLISTED- Par Value
PREFERRED
Shares of stocks – LISTED G.R. FMV at the time of death.
Exception: Arithmetic Mean between the highest and
lowest quotation at a date nearest at the time of
donation
102
DONATION OF COMMON PROPERTIES
104
DONATIONS EXEMPT UNDER THE NIRC AND
SPECIAL LAWS
105
DONATION FOR ELECTION CAMPAIGN
106
TRANSFER FOR INSUFFICIENT CONSIDERATION
⬥ Where property, other than the real property classified as capital asset,
is transferred for less than an adequate/full consideration in money or
money’s worth, the amount by which the fair market value of the
property transferred exceeded the value of the consideration received
for such transfer, shall for purpose of donor’s tax, be deemed a gift and
included in computing the amount of gifts made during the year.
107
GENERAL RENUNCIATION OF INHERITANCE
WITH DONOR’S TAX
1. Renunciation by the surviving spouse of his/her share in the conjugal
partnership or absolute community
108
DONATION WITH RESERVED POWERS
⬥ Conditional Transfer
⬥ Revocable Transfer
109
DONATION TO ACCREDITED NON-PROFIT
ORGANIZATION
⬥ Gifts in favor of an educational and or
charitable, religious, cultural or social
welfare corporation, institution,
accredited non-government organization,
trust or philantrophic organization or
institution are exempt from donor’s tax
110
DONATION TO ACCREDITED NON-PROFIT
ORGANIZATION
⬥ REQUISITES:
⬦ Not more than 30% shall be used for
administrative purposes
⬦ Donee must be organized as a non-stock entity
compensations
111
QUASI-TRANSFERS
1. Merger of usufruct in the owner of the naked title
2. The transmission or delivery of the inheritance or legacy by fiduciary
heir or legatee to the fideicommissary
3. The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfers to social welfare, cultural,
and charitable institutions, no part of the net income of which goes
to the benefit of any individual; provided, however, that not more
than 30% of the said bequests, devises, legacies, or transfers shall be
used by such institutions for administrative purposes.
112
VOID DONATIONS
⬥ PROHIBITED UNDER THE CIVIL CODE
⬦ Donation between spouses, except minor gifts
⬦ Donation between persons who were guilty of adultery or concubinage
⬦ Donation between persons found guilty of the same criminal offense
⬦ Donations to a public officer or his/her spouse, descendants or ascendants by
reason of his office
⬦ Donations to incapacitated persons
⬦ Donations of future property
113
DEDUCTIONS FROM GROSS GIFT
114
TAX BASIS AND RATE
115
TAX CREDIT - FOREIGN TAXES PAID
⬥ Can be claimed only by donors those whose gift are taxable even if
made outside the Philippines:
o resident citizens
o non-resident citizens
o resident aliens
116
Administrative Requirements
What to File Donor’s Tax Return (BIR Form 1800)
Who shall File Any person making a donation (whether direct or indirect),
unless the donation is specifically exempt under the NIRC or
other special laws, is required, for every donation, to
accomplish under oath a donor’s tax return in duplicate. The
return shall set forth:
1. Each gift made during the calendar year which is to be
included in gifts
2. The deductions claimed and allowable
3. Any previous net gifts made during the same calendar year
4. The name of the done
5. Such further information as the Commissioner may require
When to File and Within thirty (30) days after the date the gift is made or
pay donor’s tax completed (or date of notarization) and the tax due thereon
shall be paid at the same time the returns in filed.
Administrative Requirements
Venue/Place of General Rule: In the Revenue District Office (RDO) of the
filing City/municipality where the donor is domiciled at the time of
donation or if there is no legal residence in the Philippines, with
the Office of the Commissioner (RDO-39)
Exceptions for Non-residents (NRC or NRA):
a. Philippine Embassy or Consulate in the country where he is
domiciled at the time of the transfer, or
b. Directly with the Office of the Commissioner (RDO No. 39-
South Quezon City)
Notice of Donation 1. Required in exempt donation and for full deduction for
by a person income tax purposes
engaged in 2. Donation worth at least Php 50,000.00
business 3. RDO of place of business
4. Within 30 days after receipt of Certificate of Donation from
WEEK 2
BASIS OF TAX
The tax is based on gross sales, receipts or earnings except on insurance companies where the basis of
tax is the total premium collected/paid.
"Gross receipts" means all amounts received by the prime or principal contractor, undiminished by any
amount paid to any subcontractor under a subcontract arrangement.
For the purpose of the amusement tax, the term “gross receipts” embraces all the receipts of the proprietor,
lessee or operator of the amusement place. Said gross receipts also include income from television, radio
and motion picture rights, if any.
*Effective July 1, 2020 until June 30, 2023, the rate shall
be 1%
Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 117 – Percentage tax on domestic carriers
and keepers of garage (transport of passengers) Common Carriers Tax is actual or minimum 3%
monthly gross receipts whichever is higher
Notes:
1. Applicable to the following: Note:
• Cars for rent or for hire Table of monthly or quarterly gross receipts
• Transport contractors of passengers per Unit Carrier as updated under Revenue
• Keepers of garages Regulations No. 9-2007 is suspended.
2. Does not apply to:
• Owner of bancas • Applicable to:
• Animal-drawn two-wheeled vehicles • Jeepneys for hire
3. Domestic air or sea are subject to VAT • Public utility buses
4. Transport Network Companies or Transport • Taxis
Network Vehicle System (Grab/Uber) are treated • Cars for hire
as follows:
• With Certificate of Public Convenience
(franchise) subject to 3%
• Without CPC, may be 3% or 12% VAT
depending on the gross receipts (P3M)
Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 118 – Percentage tax on Gross receipts
international carriers NOTE: If with reciprocity, it can be exempted 3%
or be subjected to lower than 3%
Sec. 119 – Tax on franchises Franchise tax is based from Gross receipts:
Notes:
1.Filing under Section 116 may be consolidated or
separately (Head Office and Branches)
2.Quarterly filing began January 1, 2018
Percentage Tax Returns
Transaction Return Deadline
Section 116 – Below P3M 2551Q 25th day after the end of each taxable
Section 117 – Common carriers Quarterly quarter
Section 118 – International carriers PT Return
Section 119 – Franchise grantees
Section 120 – Overseas dispatch
Section 121 – Banks and non-banks
Section 122 – Other non-bank financial intermediaries
Section 123 - Life insurance premiums
Section 124 – Agents of foreign insurance companies
Section 125 – Amusement Places
Section 126 – Tax on Winnings 1600-WP 20th day after the end of month
Section 127 2552 within five (5) banking days from date of
1. For tax on sale of shares of stock listed and traded through the collection
Local Stock Exchange (LSE) 1. a. within thirty (30) days from date
2. a.) For shares of stock sold or exchanged through primary of listing of shares of stock in the LSE
Public Offering – b. within five (5) banking days from
b.) For tax on shares of stock sold or exchanged through date of collection.
secondary public offering -
Special Law (e.g. PAGCOR) 2553 On or before the due date for payments
of tax as stated in the Special Law
WEEK 2 ‒ DAY 3 to 5
WEEK 3 ‒ DAY 1 to 2
INCOME TAX
KINDS OF TAXPAYERS
• The application of the following tax concepts differ in accordance with the
classification of taxpayers:
• Gross income for tax purposes
• Exclusions from gross income
• Exemptions
• Deductions
• Income tax rates
PERSON FOR TAX PURPOSES
• QUERY: WHO IS LIABLE OF INCOME TAX OF THE ESTATE FROM THE DEATH
OF THE DECEDENT UNTIL THE HEIRS RECEIVE THE PROPERTY?
• ANSWER: The estate, and it is treated as a person with juridical personality.
TRUST
• Agreement created by will or otherwise where the property of a grantor is being
transferred to the trustee or administrator for purposes of management or
conservation of the property.
• TRUSTEE refers to the person who manages and preserves the property in trust.
The trustee is also known as the fiduciary, administrator or executor.
• GRANTOR refers to the owner of the property who established the trust.
• BENEFICIARY refers to the person who will succeed to or receive the property in
trust
FINAL TAX
EXEMPT
BASIC TAX
OSD
ITEMIZED
INDIVIDUAL
PARTNERSHIP
CORPORATION ESTATES
TRUSTS
GROSS INCOME (Sec 32A)
• ALL INCOME DERIVED FROM WHATEVER SOURCE, INCLUDING, BUT NOT LIMITED
TO THE FOLLOWING:
*Thirteenth month pay and other benefits are not taxable if the
total amount received is P90,000 or less. (RA 10563; RR3-
2015)
13TH MONTH PAY AND OTHER BENEFITS
• DE MINIMIS BENEFITS – These are benefits that are considered
MINIMAL, in value, thus, when given to employees – IT IS NOT
TAXABLE
• Monetized unused vacation leave credits of private employees not
exceeding 10 days during the year.
• Monetized value of vacation and sick leave credits paid to government
officials and employees
• Medical cash allowance to dependents of employees not exceeding
P1,500 per employee per semester or P250 per month
• Rice subsidy of P2,000 or one sack of 50-kg rice per month amounting
to not more than P2,000
• Uniforms and clothing allowance not exceeding P6,000 per annum
13TH MONTH PAY AND OTHER BENEFITS
• DE MINIMIS BENEFITS
• Actual medical assistance not exceeding P10,000 per year
• Laundry allowance not exceeding P300 per month
• Employees achievement awards, which must be in the
form of a tangible personal property other than cash or
gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee
• Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per year
13TH MONTH PAY AND OTHER BENEFITS
• DE MINIMIS BENEFITS
• Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage.
• Benefits received by an employee by virtue of a collective
bargaining agreement and productivity incentive
schemes provided that the total annual monetary value
received from both CBA and productivity incentive
schemes combined do not exceed P10,000 per employee
per taxable year
REGULAR COMPENSATION INCOME
•MINIMUM WAGE INCOME EARNERS (RA 9504)
•Compensation Income of Minimum Wage Earners
in the private sector and other being paid the
statutory minimum wage.
•Compensation income of employees in the public
sector with salary that does not exceed the
statutory minimum wage in the non-agricultural
private sector.
OTHER BENEFITS
• SEPARATION PAY
• refers to the amount due to the employee who has been
terminated from service for causes authorized by law.
• Generally, it is taxable, exempt:
• The separation or termination must be due to job-threatening
sickness, death, or other physical disability; and
• The same must be due to any cause beyond the control of the
employee or official such as:
• Redundancy
• Retrenchment
• Closure of employer’s business
• Downsizing
OTHER BENEFITS
• RETIREMENT PAY
• Those received by officials and employees of private firms in
accordance with a reasonable private benefit plan maintained by
the employer.
• REQUISITE FOR EXEMPTION:
• The employer maintains a reasonable private plan
• The retiring official or employee has been in the services of the same
employer for at least 10 years
• The retiring employee is at least 50 years of age at the time of
retirement.
• This is the first time availment of retirement benefit exemption.
BUSINESS AND PROFESSIONAL
INCOME
• BUSINESS INCOME
• Arises from habitual engagement in any commercial activity
involving regular sales of goods or services by an individual or a
corporation. The income from business, legal or illegal, registered or
unregistered is TAXABLE.
• PROFESSIONAL INCOME
• Arises from the exercise of a profession or business income rom the
sales of services.
*Long Term Deposits – with maturity of not less than 5 years, the form of which
shall be prescribed by the BSP and issued by banks only to individuals in
denominations of P10,000 and other denominations as may be prescribed by
the BSP
INTEREST INCOME
If the LTD of Individual Taxpayers is preterminated before
5 years, any previously untaxed or exempted interest
income will be subjected to the following final taxes upon
pre-termination:
HOLDING PERIOD FINAL TAX
Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%
INTEREST INCOME
FOREIGN CURRENCY DEPOSIT WITH FOREIGN
CURRENCY DEPOSITORY BANKS
CASE 4: What are the options of Juan? How much is the tax
due for each available options?
ILLUSTRATION
Leo is a married taxpayer with 4 children, below 18 years old. He is
an employee of CTT Manufacturing that paid him total taxable
compensation of P650,000.
He is also the owner of CTT Trading and Merchandising, with
following results of transactions for year 2019:
Gross Sales P 2,500,000
Less: Cost of Sales ( 1,700,000)
Gross Income 800,000
Add: Other Income 300,000
Total Income 1,100,000
Less: OpEx ( 600,000)
Net Taxable Income P 500,000
• BRANCH REMITTANCES
• Any profit remitted by a branch to its head office shall be
subject to a tax of 15% which shall be based on the total
profits applied or earmarked for remittance without any
deduction for the tax component
SPECIAL CORPORATIONS - FOREIGN
• OWNER, LESSOR OR DISTRIBUTOR OF CINEMATOGRAPHIC
FILM
• 25% of its gross income from all sources within the Philippines
• NON-RESIDENT LESSOR/OWNER OF MACHINERY,
EQUIPMENT, AIRCRAFT
• 7.5% of gross rentals or fees
• NON-RESIDENT LESSOR/OWNER OF VESSELS CHARTERED
BY PHILIPPINE NATIONALS
• 4.5% of gross rentals, lease or charter fees from leases or
charters by Filipino citizens or corporations.
EXCLUSIONS FROM GROSS INCOME
• Life Insurance
• Proceeds received by insured as return of premium
• Gifts, Bequests and Devises
• Compensation for Injuries or sickness
• Income derived by foreign government
• Income derived by the government or its political subdivisions
• Prizes and awards
• Prizes and awards in sports competition
• 13th month pay and other benefits
• GSIS, SSS, Medicare, and other contributions
• Gains from sale of bonds, debenture or other certificate of indebtedness
• Gains from redemption of shares in mutual funds.
Nature and concept
•ORDINARY
•CAPITAL
Classification of assets
• QUESTION:
• ORDINARY GAIN/LOSSES
• Arises from the sale, exchange, barter and other
disposition, including pacto de retro sales and other
conditional sales of ordinary assets.
• CAPITAL GAIN/LOSSES
• Arises from the sale, exchange and other dispositions,
including pacto de retro sales and other conditional
sales, of capital assets.
TAX TREATMENT OF ORDINARY
GAINS/LOSSES
• ORDINARY GAINS
• 100% TAXABLE
• ORDINARY LOSSES
• 100% DEDUCTIBLE
TAX TREATMENT OF CAPITAL GAINS/LOSSES
• CAPITAL GAINS
• SUBJECT TO FINAL TAX
• CAPITAL GAINS
• SUBJECT TO BASIC TAX
• Capital Gains on Other Disposition of Properties not
subject to Final Tax
IF:
CAPITAL GAIN (subject to BASIC) is HIGHER
than CAPITAL LOSS
The NET CAPITAL GAIN is TAXABLE
TAX TREATMENT OF CAPITAL GAINS/LOSSES
IF:
CAPITAL GAIN (subject to BASIC) is LOWER
than CAPITAL LOSS
The NET CAPITAL LOSS IS NON-DEDUCTIBLE
against GROSS INCOME
TAX TREATMENT OF CAPITAL GAINS/LOSSES
NOTHING! L
The NCL is FORFEITED.
SALE, EXCHANGE AND OTHER DISPOSITION OF REAL PROPERTIES
CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES
• NATURE OF 6% CGT
• Presumption of Capital Gains
• Non-consideration to the involuntariness of the sale
• EXEMPT DISPOSITIONS
• Original issuance of shares of stocks
• Exchange of stocks for services
• Worthlessness of shares
• Redemption of stocks for cancellation by issuing
corporations
• Gratuitous transfer of shares
SALE, EXCHANGE AND OTHER DISPOSITION
OF DOMESTIC STOCKS
15% of the
CAPITAL GAIN
SALE, EXCHANGE AND OTHER DISPOSITION
OF DOMESTIC STOCKS
• THE TAXABLE BASE OF CGT
• NET GAIN = SELLING PRICE LESS COST/BASIS OF THE
SHARES OF STOCKS
• FMV IS:
• Adjusted Net Assets / Outstanding Shares (RR 6-2013).
• Assets are adjusted to fair market values. The appraised
value of real property at the time of sale shall be the
highest of Zonal Value, FMV as shown in the Tax
Declaration and Valuation of the independent appraiser
SALE, EXCHANGE AND OTHER DISPOSITION
OF DOMESTIC STOCKS
CAPITAL GAIN/LOSS
COST / TAX BASIS
SALE, EXCHANGE AND OTHER DISPOSITION
OF DOMESTIC STOCKS
• THE TAXABLE BASE OF CGT
• NET GAIN = SELLING PRICE LESS COST/BASIS OF THE
SHARES OF STOCKS
• FMV IS:
• Adjusted Net Assets / Outstanding Shares (RR 6-2013).
• Assets are adjusted to fair market values. The appraised
value of real property at the time of sale shall be the
highest of Zonal Value, FMV as shown in the Tax
Declaration and Valuation of the independent appraiser
KINDS OF DEDUCTIONS
•Special Deductions
OPTIONAL STANDARD DEDUCTIONS
• Deduction that the taxpayer may elect to use instead of
using the itemized deduction.
• GUIDELINES:
• The maximum amount:
• INDIVIDUAL – 40% of gross sales or gross receipts (including all other
income)
• CORPORATION – 40% of gross income (including all other income)
• The following taxpayers are allowed to adopt the OSD
• Resident or Non-Resident Citizens
• Resident Alien
• Taxable Estate, Trusts
• Domestic and Resident Foreign Corporation
EXAMPLE: OSD
A taxpayer reported the following data in 2018:
Sales P 1,000,000
Cost of sales 600,000
Gain on sale of equipment 60,000
Interest income from bank deposits 40,000
Deductible expenses 300,000
Non-deductible expenses 200,000
Required: Compute the Net Taxable Income assuming the
taxpayer uses OSD and the taxpayer is (1) individual; (2)
corporation
ITEMIZED DEDUCTIONS
• Composition of Itemized Deductions
• Business Expenses
• Interest
• Taxes
• Losses
• Bad Debts
• Depreciation
• Depletion of oil and gas wells and mines
• Charitable and other contributions
• Research and development costs
• Pension trusts
BUSINESS EXPENSES
• REQUISITES:
• REQUISITES:
• The loss must be actually sustained in a closed a completed
transaction.
• The loss must be that of the taxpayer and incurred in
connection with trade, business or profession.
• The loss must not be compensated by insurance or other
forms of indemnity.
• The loss must be reported to the BIR within 45 days
LOSSES
• CLASSIFICATION OF LOSSES:
• Deductible Losses
• Business losses and losses from theft, robbery, or embezzlement
• Casualty losses arising from storm, fire, or shipwreck
• Net operating loss carry over (NOLCO)
• Other types of losses
• Non-deductible losses
• Losses between related parties
LOSSES
• NET OPERATING LOSS CARRY OVER (NOLCO)
• Excess of allowable deduction over gross taxable income in
a particular taxable year.
• The operating loss had not been previously offset as deduction from
gross income
• Any net loss incurred in a taxable year that the taxpayer was exempt
from income tax should not be allowed as deduction.
• The net operating loss can be carried over only for the next three
consecutive taxable years immediately following the year of the
incurrence of the loss.
LOSSES
• TAXPAYERS ENTITLED TO NOLCO
• REQUISITES:
• There must be an existing debt, which is valid, subsisting
and demandable.
• The existing debt must be ascertained to be worthless.
• The debts must be charged off within the taxable year.
• The existing indebtedness must be connected with trade,
business or exercise of profession.
• The debts must be sustained or incurred between related
parties.
BAD DEBTS (RR 25-2002)
▪ REGISTRATION CERTIFICATE
▫ Certificate of Registration as a proof that
taxpayer has complied with the registration
requirements.
▫ COR, together with the validated Registration
Fee, must be posted at a conspicuous place
in the principal place of business. 29
1
292
REGISTRATION OF BUSINESS ACTIVITY
29
4
REGISTRATION OF BUSINESS ACTIVITY
OPTIONAL VAT REGISTRATION (Sec 236 H)
▫ Any person whose general sale of goods and services (those that are
not mandatorily subject to percentage tax) do not exceed
P3,000,000, and are not required to register for VAT may elect to be
VAT-registered.
▫ Any person who is VAT registered but enters into transactions which
are exempt from VAT may opt that the VAT apply to his transactions
which would have been exempt
▫ Franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed
29
P10,000,000 derived from business covered by law granting the 5
franchise may opt for VAT registration.
VALUE ADDED TA X
D R . C E D R I C V A L R . N A R A N J O , C PA
VALUE ADDED TAX
• IS AN INDIRECT BUSINESS TAX IMPOSED AND
COLLECTED ON EVERY:
– Sale, barter, or exchange of goods or properties (Real or
Personal)
– Lease of Goods or Properties
– Rendition of services in the course of trade or business
– Importation of goods (whether or not in the course of trade or
business)
VALUE ADDED TAX
• CHARACTERISTICS:
– It is a tax on value added of a taxpayer
– It is an excise tax based on consumption
– It is a national tax, imposed by the national government
– It is collected through the tax credit method
– It is an indirect tax where tax shifting is always presumed
– It is a revenue or general tax.
TAX CREDIT METHOD
VAT PAYABLE = OUTPUT VAT – INPUT VAT
– EXEMPT transactions
VALUE ADDED TAX
TRANSAC OUTPUT INPUT VAT VAT
TION VAT PAYABLE
Subject to
12% VAT
√ √ √
Zero-Rated NEGATIVE
Sales
X √
Exempt Sales X X X
TAX BASE
• SALE OF GOODS: Gross Selling Price
Gross Sales XXX
Less: Sales Returns XXX
Sales Allowances XXX
Sales Discounts XXX XXX
Total Net Sales XXX
Add: Excise Tax, if Any XXX
GROSS SELLING PRICE XXX
TAX BASE
• SALE OF SERVICES AND LEASE OF
PROPERTIES: Gross Receipts
• TIME OF REPORTING
– For animal husbandry: livestock, feeds, and ingredients for livestock and poultry
feeds (except if ingredients which may also be used for the production or
processing of food for human consumption is vatable)
– Certification from Bureau of Animal Industry that it is NOT fit for human
consumption.
VAT-EXEMPT TRANSACTIONS -GOODS
• OTHER EXEMPT TRANSACTIONS
– AGRICULTURAL COOPERATIVES
• Sale to members – EXEMPT
• Sale to non-members – EXEMPT if the producer of the agricultural
products sold is the cooperative itself.
• Importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the
production and/or processing of their produce. - EXEMPT
• REMEMBER: Sale of agricultural products in their original state is
exempt
VAT-EXEMPT TRANSACTIONS -GOODS
• SALE OF COOPERATIVES
– Director’s Fees
• Not subject to Business Tax even if the Director is not an employee of
a corporation.