Pamantasan ng Lungsod ng Valenzuela

College of Business and Accountancy

Department of Accountancy

BUSINESS AND TRANSFER TAXATION (TAX2)

Donor’s Tax

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it (Art. 725 of
the Civil Code).

Donor’s Tax (or gift tax) is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the
property by gift (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). It is a tax imposed on the exercise of the donor’s right during lifetime to transfer property to others in
the form of gift.

Note: Although the law used the term “act”, the law considers donation as a “contract”, as shown by the fact that it requires acceptance,
and that the rules on obligations and contracts apply to it as a suppletory law (Art. 732 CC).

Purposes of Donor’s Tax

1. To supplement the estate tax.
2. To prevent the avoidance of income taxes. Without donor’s tax, the donor may escape the progressive rates of income taxation
through the simple expedient way of splitting his income among numerous donees.

Elements of Taxable Donation

1. Capacity of the donor to transfer property.
2. Donative intent (not an absolute requirement; required only in direct gift)
3. Delivery. The transfer of the property is completed by the delivery, either actually or constructively, of the donated property to
the donee.
4. Acceptance of the gift by the donee. The transfer of property by gift is perfected from the moment the donor knows of the
acceptance by the donee.

Required form:
Personal Property Real or Registrable Property
Amount of Donation P 5,000 or less More than P 5,000 Regardless of amount
Form of Donation Oral or in writing In writing In public document

Classification of Donors
1. Citizen or Resident (RC/NRC/RA)
2. Non-resident Alien (NRA)
a. With reciprocity
b. Without reciprocity

FORMAT OF COMPUTATION
FIRST DONATION OF THE YEAR
Gross Gift XXX
Less: Exemptions/Deductions (XXX)
XXX
Less: Tax Exempt Gift (under TRAIN Law) (250,000)
Net Taxable Gift XXX
Multiply: Donor’s Tax Rate 6%
Donor’s Tax XXX
Less: Tax Credit (if applicable) (XXX)
Donor’s Tax Payable XXX

SUBSEQUENT DONATION(s) WITHIN THE YEAR

Gross Gift, Current XXX
Less: Exemptions/Deductions, Current (XXX)
XXX
Add: Prior Gift(s) XXX
Total XXX
Less: Tax Exempt Gift (under TRAIN Law) (250,000)
Net Taxable Gift(s) XXX
Multiply: Donor’s Tax Rate 6%
Donor’s Tax Due XXX
Less: Tax Paid – Prior Gift(s) (XXX)
Less: Tax Credit (if applicable) (XXX)
Donor’s Tax Payable XXX
NOTE: The computation of the donor’s tax is on a cumulative basis over a period of one calendar year (regardless of the relationship of
the donor and the donee).

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DONOR’S TAX RATE: 6% based on the value of the net taxable gift in excess of P 250,000

GROSS GIFT
• Transfers subject to donor’s tax:
1. Direct gift
2. Gift through creation of a 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 of 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 of any other person/s;
6. Transfer for insufficient consideration
EXCEPTION: Real property classified as capital asset located in the Philippines.

FMV at the time of sale XXX

Less: Selling Price XXX
Taxable Gift (excess of FMV over SP) XXX

COMPONENTS OF GROSS GIFT

RP TPP IPP
Donor w/in w/o w/in w/o w/in w/o
RC/NRC/RA ✓ ✓ ✓ ✓ ✓ ✓
NRA w/o Reciprocity ✓ X ✓ X ✓ X
NRA w/ Reciprocity ✓ X ✓ X X X

• Gift from Common Property

The gift is taxable one-half to each donor spouse.

• Donation between husband and wife during the marriage

GENERAL RULE: The gift is not taxable, as it is declared void by law.
EXCEPTION: Moderate gifts between the spouses are valid.

EXEMPTIONS and/or DEDUCTIONS FROM GROSS GIFT

1. Encumbrances on the property donated assumed by the donee
2. Diminution of gift provided by the donor
3. Gifts to the Government
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.
4. Gifts to educational, charitable, religious corporation etc.
a. Gifts in favor of the following entities:
i. Educational
ii. Charitable
iii. Religious
iv. Cultural
v. Social welfare
vi. Accredited non-government organization
vii. Trust or Philanthropic organization
viii. Research institution or organization
b. Not more than 30% of the said gift shall be used for administration purposes.

5. Exemption under Special / Other Laws

a. International Rice Research Institute
b. Ramon Magsaysay Foundation
c. Integrated Bar of the Philippines
d. Development Academy of the Philippines
e. National Museum
f. National Library
g. Archives of the National Historical Institute
h. Museum of Philippine Costumes
i. Intramuros Administration
j. RA 11494 otherwise known as Bayanihan to Recover as One Act (also known as Bayanihan II)

TAX CREDIT FOR DONOR’S TAX PAID TO A FOREIGN COUNTRY

• Only resident or citizen can claim tax credit
• Amount Deductible:
Whichever is lower:
a. Actual donor’s tax paid abroad
b. Limit

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• Limit:
1. Only one foreign country is involved
Net gift, foreign
x Philippine donor’s tax
Net gift, world

2. Two or more foreign countries are involved (whichever is lower if the following):

LIMIT 1 or A (Per Foreign Country):

Net gift, per foreign country
x Philippine donor’s tax
Net gift, world

LIMIT 2 or B (Total of ALL Foreign Countries involved):

Net gift, all foreign countries

x Philippine donor’s tax
Net gift, world

FILING AND PAYMENT OF RETURN

The donor’s tax return shall be filed within 30 days after the date the gift is made or completed and the tax due thereon shall be paid at
the same time that the return is filed [Sec. 15(B) of RR 12-2018]. Extension of the period to file and pay the donor’s tax return is not
applicable.

PLACE OF FILING
1. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to the following where
the donor was domiciled at the time of the transfer, or if there be no legal residence on the Philippines, with the Office of the
Commissioner:
a. An authorized agent bank
b. Revenue District Officer
c. Revenue Collection Officer or
d. Duly authorized Treasurer of the City of Municipality
2. In the case of gifts made by a nonresident, the return may be filed with: Philippine Embassy or Consulate in the country where
he is domiciled at the time of the transfer, or directly with the officer of the Commissioner.

COMPARISONS BETWEEN ESTATE TAX AND DONOR’S TAX

ESTATE TAX DONOR’S TAX
Concept Involved Succession Gift or donation
Donation Inter Vivos
Requisites of Elements 1. Death of the decedent 1. Donative intent of the donor
2. Heir or successor is alive at the time 2. Capacity or authority of the donor
of the decedent’s death and is not 3. Delivery of donated property
disqualified to inherit. 4. Acceptance by the donee
a. Compulsory Heir Additional requisite:
b. Voluntary Heir Donation must be in proper form
3. Estate / Inheritance otherwise, void

Accrual period Upon the date of death of the decedent At the time the gift or donation is made or
completed [Sec. 15(B) of RR 12-2018]
Governing Law Statute in force at the time of death of Statute in force at the time of death of the
decedent perfection/completion of donation
Tax Rate 6% net estate 6% net gifts in excess of P 250,000
Filing & Payment • Within 1 year from death • Within 30 days from donation
• Extension to file: • No extension to file
Not more than 30 days
• Pay as you file or with extension to • Pay as you file; No extension for
pay: payment
2 years (extrajudicial)
5 years (judicial)
Scope RC, NRC, RA – on estate within and RC, NRC, RA – on gifts within and
without without
NRA – on estate within NRA – on gifts within

Illustration 1
A donor made the following donations during the year:
• To Abel, a car worth P800,000
• To Jen, condominium unit worth P3,000,000 in Macau
• To Gore, GJ Company shares (domestic corp.) amounting to P250,000
• To Alexa, P100,000 worth of shares of stock of a resident foreign corporation where 90% of its operation is in the Philippines.
• To Earl, a building in Singapore valued at P5,000,000 mortgaged for P2,000,000 assumed by the donee

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• To Hananiah, parcel of land in Isabela, P1,500,000

• To Chen, P100,000 bank deposit in BPI
• To Kristine, P100,000 bank deposit in Metrobank, U.S. Branch
• To Gavrie, P500,000 cash

The donor also made the following transfer of properties within the year:
Consideration FMV at the time of
Property
Received transfer
Land 1 – Q.C. 2,000,000 3,000,000
Land 2 – Taguig 3,000,000 2,000,000
Land - - USA 5,000,000 10,000,000
Car – Manila 800,000 1,000,000
Required:
Determine the amount of gross gifts subject to donor’s tax assuming the donor is:
a. Resident citizen
b. Nonresident citizen
c. Resident alien
d. Nonresident alien with reciprocity
e. Nonresident alien without reciprocity

Illustration 2
A resident citizen made the following donations:
• On March 1, P 200,000 to his son, on account of marriage celebrated on January 1, 2023.
• On May 30, a parcel of land worth P 500,000 to his brother, subject to the condition that the donee would assume the mortgage
indebtedness in the amount of P 100,000.
• On June 30, P 300,000 to an ailing friend.
• On July 31, P 200,000 cash to Bantay Bata
• On September 30, a house and lot worth P 3,000,000 to his daughter and son in law, on account of their scheduled marriage on
December 25, 2023. A mortgage of P 600,000 will be assumed by the donees.

Required:
Determine the tax payable on:
a. March 1
b. May 30
c. June 30
d. July 31
e. September 30

Illustration 3
Mr. and Mrs. Galante, citizen and residents of the Philippines, made the following donations during 2023 calendar year:

June 6, 2023
• To their legitimate son on account of marriage, cash amounting to P 4,600,000;
• To Bea (daughter), property valued at P 2,000,000 with a mortgage of P 400,000 assumed by Bea.

October 8, 2023
• To Robert, a legitimate son of the wife by a prior marriage, P600,000

November 4, 2023
• To a charitable organization (25% of donations made were used for administrative purposes), P 1,000,000
• To Cindy, a family friend, P 400,000

Required:
Determine the donor’s tax payable of the spouses on:
a. June 6, 2023
b. October 8, 2023
c. November 4, 2023

- END OF COURSE FILE -

References
Tabag, E. D., & Garcia, E. J. (2022). Transfer & Business Taxation.