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TAX 103

August 3, 2012

Donors Tax

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Definition and Concepts:

Gift tax is an excise on the transfer

by a living person to another of

money or other property withoutconsideration.

Donation is an act of liberality

whereby a person disposesgratuitously of a thing or right in

favor of another, who accepts it.

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What Constitutes A "Gift" For

Gift Tax Purposes?

1. Transfer of property without

consideration.2. It also includessales, exchanges and otherdispositions of property for a

consideration to the extent that the

value of the property transferredexceeds the value in money or

money's worth of the consideration

received therefor.

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Concept of Consideration

1. Consideration must be

measurable in money or money's

worth. Mere legal consideration isnot sufficient.2. The considerationmust flow to the donor, mere

detriment to the donee does notsatisfy the purpose of the statute.

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Commissioner V. Wemyss (324

U.S. 303, 1945) Marriage is not a consideration reducible to

money value. If a person transfers a property to a

trust in consideration of marriage, a gift is made

because no money consideration flows to the

transferor/donor. Donative intent on the part ofthe tranferor is not an essential element for the

imposition of the gift tax to the transfer.

When Does The "Gift" Occur?

A gift occurs when the donor surrendersCONTROL over the property. If the donor retains

an unlimited power to revoke the gift, it is clear

that no gift has occurred.

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Requisites of A Taxable Gift:

1. Capacity of the donor

2. Donative intent3. Acceptance by the donee, and

4. Delivery of the gift to the donee, actually or

constructively.

Kinds of Donation:

1. Inter-vivos2. Mortis causa

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Persons Subject to Donor's Tax:

(Same as in estate tax)1. Before September 1,1969 - Only donation made by individual issubject to donor's tax.2. On or after September1, 1969 (RA 6110) Donation made by all

persons, whether natural or juridical, is subject

to donor's tax.

Gross Gifts:

1. Composition -(Same as in estate tax)2.Valuation - At the time the gift was made (Same

as in estate tax)

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Deductions from the Gross Gift:

1. Dowries or gifts by parents to children on account

of marriage, before its celebration or w/n 1 year

thereafter to the extent of P10,000.2. Gifts to theNational Government or any of its agencies.3. Giftsmade in favor of an educational, and/or charitable,

religious, cultural or social welfare corp., foundation,

trust or philanthropic organization or researchinstitution or organization.4. Encumbrance on theproperty donated if assumed by the donee in the

deed of donation.5. Those specifically provided bythe donor as a condition of the donation which willdiminish the value of the property received by the

donee.6. Exempt donation under special laws.

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Relatives for donor's tax

purposes: a) Spouse, ancestorand lineal descendant b)Brother, sister (whether by whole

or half blood) c) Relatives byconsanguinity in the collateral

lines within the fourth degree of

relationship.

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Tax Payable by the Donor:

January 1, 1998 to present (RA

8424)a) On gifts made in favor of relatives-computed based on graduated

rates.b) On gifts made in favor ofstrangers- computed at 30% ofthe net gifts.

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Rates of Donor's Tax (RA 8424)

Donations to Relatives (Graduated Table)

The Donors

Tax

Of excess

Shall be PLUS over

EXEMPT

0 2% P100,0002,000 4% 200,000

14,000 6% 500,000

44,000 8% 1,000,000204,000 10% 3,000,000

404,000 12% 5,000,000

1,004,000 15% 10,000,000

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Sample Problem of Donors Tax:

Mr. Joseph Ramos, single, made the following

donations:

a) Jan. 15, 1999 - to his brother, Jun, P100,000b)March 10, 1999 - to Clara, his sister, P250,000c)Sept. 8, 1999 - to his girlfriend, Loi, a brand new

car worth P600,000d) Oct. 25, 1999 - to his father,Carlos, a vacant lot worth P1,000,000 w/ FMV of

P800,000 and zonal value of P1,500,000e) Nov. 12,1999 - to Luis, his brother-in-law, P200,000f) Feb14, 2000 - to his mother, Maria, P300,000

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ANSWERDate Donation Amount Tax

Duea) 1/15/99Cash 100,000 Exemptb) 1/15/99Cash 100,000 3/10/99Cash 250,000

350,000Tax on 200,000 is

2,000 +(150,000x4%) 6,000 8,000Less:Tax on

prev. donation 0 8,000

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c) 9/8/99 Cash 600,000-Stranger

Tax Due: 600,000 X30% 180,000d) 10/25/99 Lot (ZV)1,500,000 3/10/99 Cash250,000 1/15/99Cash 100,000 Totaldonation 1,850,000

Tax on:1,000,000 44,000 850,000 x8% 68,000Total Tax Due 112,000

Less:Tax onprevious donation 8,000104,000

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e) 11/12/99 Cash 200,000 - Stranger

Tax Due 200,000 x30% 60,000f) 2/14/2000 Cash 300,000

Tax On:

200,000 2000

100,000 x4% 4000 6,000

Note: Letter (f) was donated in year 2000

therefore; this is not included in the cumulativetotal for 1999's donations.

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Administrative Requirements:

A.Donors Tax Return

B.Payment of Donors TaxC.Surcharges

D.Interest

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1. State the following information/data: a) Eachgift made during the calendar year b)Deductions claimed and allowable c) Previousnet gifts during the same CY

d) Name of donee and address e) Otherpertinent information2. Time of filing: January1, 1998 to present- Within 30 days after each

donation- No Extension3. Place of filing of donor'stax return a) Commissioner of InternalRevenue b) Revenue District Officer, CollectionOfficer or duly authorized Treasurer of the

municipality where the donor was domiciled at thetime of donation.

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Payment of Donor's Tax:

1. Donor's tax should be paid at the time the

return is filed or within thirty (30) days after thedate of gift.2. Extension to pay tax may begranted not exceeding six (6) months. Effective January 1, 1998 (RA 8424), noextension for the payment of the donor's taxshall be granted.