taxation i notes 1

7/30/2019 Taxation I Notes 1

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Taxation I

Assignment: Chapter 2 (C to F)

Definitions

Transfer taxes are those imposed upon the gratuitous disposition of private property. They ar

taxes levied on the transmission of property from a decedent or deceased to his heirs or from a

donor to a done. Net estate means gross estate less allowable deductions and specific exemptions.

Gross estate the total value of all property, whether real or personal, tangible or intangible

(e.g., shares of stock), belonging to the decedent at the time of his death, situated within or

without the Philippines, where such decedent was a resident or citizen of the Philippines. In the

case of a non-resident alien decedent, it shall include only property situated in the Philippines.

Donation an act of liberality whereby a person disposes gratuitously of a thing or right in favor

of another who accepts it.

Gift tax tax imposed on gift or the transfer without consideration of property between two or

more persons who are living at the time the transfer is made.

Net gift means the total amount of gifts less the allowable deductions and specific exemptions Value-added tax (VAT) is a uniform tax (0% to 10%) imposed on each sale, barter, exchange

or lease of goods, properties, or services in the course of trade or business as they pass along

the production and distribution chain, the tax being limited only to the value added to such goods

properties, or services by the seller, transferor, or lessor. It is also levied on every importation of

goods, whether or not in the course of trade or business

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, lessor o

operator of the amusement place. Said gross receipts also include income from television, radio

and motion picture rights, if any. Percentage taxes are taxes measured by a certain percentage of the gross selling price or

gross value in money of goods sold, bartered, exchanged, or imported, or gross receipts or

earnings derived by any person engaged in the sale of services.

Enumerations

Kinds of death taxes

a.) Estate tax- a tax on the right of the deceased person to transmit his estate to his lawful heirs

or beneficiaries and certain transfer by the decedent during his lifetime which are made by th

law the equivalent of testamentary dispositions. It is levied upon the total net value of theproperty of a deceased person

b.) Inheritance tax- a tax on the right of the heirs or beneficiaries to receive the estate of the

deceased person. It is levied upon the part of an estate which each heir receives.

Nature of estate tax

a.) Not a direct tax on property

b.) Not a capitation tax

c.) Not laid on the property and on the transferor or the transferee

d.) Laid on the right of the decedent to transmit his estate.


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e.) It is an excise tax.

Purpose of the tax

The estate and inheritance taxes are two (2) types of death taxes.

(1) They are imposed at high rates to help reduce undue concentration of wealth in socie

to which the receipt of inheritance is a continuing factor.

(2) Their imposition is also justified on the ground that it clearly conforms to the widely

accepted principle of ability to pay since the beneficiaries receive assets which are in

the nature of unearned wealth or windfall, thereby creating an ability to pay the tax. Deductions from the gross estate.

The allowable deductions consist not the amounts permitted by law to be deducted from

the value of the gross estate. They include:

1.) Ordinary deductions They refer to such amounts for:

A.) Funeral expenses

B.) Judicial expenses of proceedings

C.) Claims against the estate

D.) Claims against insolvent persons

E.) Unpaid mortagesF.) Unpaid taxes

G.) Casualty losses

2.) Special deductions They are the other deductions provided in the law, viz:

A.) The so-called vanishing deduction ( property previously taxed)

B.) Transfers for public use

C.) Family home

D.) Standard deduction equivalent to P1,000,000

E.) Medical expenses

F.) Retirement benefits received by the heirs under R.A. No. 4917

Kinds of donationsA.) Inter vivos made between living persons to take effect during the lifetime of the donor

B.) Mortis causa- if made in the nature of a testamentary disposition, that is, it shall take effect

upon the death of the donor.

Donations not subject to donors tax

1.) Donations mortis causa are subject to estate tax as they are considered under the Tax

Code as transfers made in contemplation of death of the donor. They are governed by the laws on

succession.

2.) Donations inter vivos of the amount of 50,000 or less and those declared exempt by the

Tax Code and special laws are also not subject to donors tax.

Kinds of gift taxes

1.) Donors tax tax levied on the act of giving; it supplements the estate tax; and

2.) Donees tax- tax levied on the act of receiving; it was formerly the counterpart of

the inheritance tax which has been integrated into an estate tax.

Nature of gift tax.

1.)It is an excise (privilege) tax, Ie., a tax on the privilege of thedonee to receive. It is not a ta

on property as such because its imposition does not rest upon general ownership.


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2.)The tax is imposed without reference to the death of the donor unlike in the case of estate

tax.

Purpose of gift tax

1.)The gift tax was enacted originally to supplement the estate and inheritance taxes by

preventing their avoidance by those who give away property and money in anticipation of death,

through the taxation of gifts inter vivos without which, the property would be subjected to the said

taxes. Thus, whether the transfer takes place during life or at death, the burden of taxation would

be about the same.

2.)The donors tax is also intended to prevent the avoidance of income tax through the device

of splitting income among numerous donees with the donor thereby escaping the effect of the

progressive rates of income taxation.

Requisites of a taxable gift.

1.) Capacity of the donor to make the donation;

2.) Donative intent or intent on the part of the donor to make a gift out of

pure liberality or generously

3.) Delivery, whether actual or constructive, of the gift, and4.) Acceptance of the gift by the done.

Exemptions or deductions from gifts

The following are also deductible from the value of the property donated:

1.)Encumbrance on the property donated if assumed by the done (e.g., where the donee

of a mortgaged real property worth P500,000 assumes the mortgage indebtedness of the donor

in the amount of P100,000)

2.)Those specifically provided by the donor as a diminution from the property donated

(e.g., where the donation is subject to the condition that the done would give P50, 000 to charity

.

Nature of value-added tax

1.)VAT is a privilege tax. It is imposed not on the goods, properties, or services as such

but on the privilege of selling or importing goods or properties, or rendering services for a

consideration

2.)It is a percentage tax

3.)It is an indirect tax and the amount of tax may be shifted or passed on to the buyer,

transferee, or lessee of goods, properties, or services.

Nature of percentage taxes

1.)They are privilege taxes

2.)Like the value-added tax (VAT), they are imposed on the privilege to sell commodities or

services

3.)VAT is a percentage tax.


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taxation i notes 1

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