BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
CHAPTER 6
DONOR’S TAX Problem 6-1 1. False – during the lifetime of the donor. 2. True 3. True 4. False – there is no consideration in donation. 5. True 6. False – It is enough that the duly representative of the incapacitated donee to receive the donation. 7. True 8. False – Real property donation must be put in writing regardless of value. 9. True 10. False – The value of donated personal property must exceed P5,000. 11. True 12. True 13. False – not gifts. 14. False – constitutes dividend income. 15. True Problem 6-2 1. False – dowry is not allowed to nonresident alien donor. 2. False – the donee’s identity is not material to make the donation valid. The donor can make donation to an unborn child. 3. True 4. True 5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his properties within and outside the Philippines 6. True 7. True 8. True 9. False – only one-half of the share is donated. 10. False – only if the gift is on account of marriage. 11. False – only the first P100,000 is exempt. 12. False – may be subject to business tax such as VAT, custom duties, or excise tax. 13. False - When the donee is a stranger, the tax rate is 30%. 14. True 15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter vivos. Problem 6-3 1. B 2. D 3. A 4. D 5. A 6. A 7. C 8. B 9. B 10. A 11. C 12. A
Problem 6-4 1. A 2. C 3. D 4. C & A 5. A 6. C 7. D 8. A 9. A 10. D 11. C 12. D
Problem 6-5 1. C 2. D 3. A 4. B 5. A 6. D 7. A 8. A 9. C 10. A 11. C 12. D
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 41 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problem 6-6 D Donation to his unborn grandchild
P200,000
Problem 6-7 A Zero, because the renunciation is a general renunciation. Problem 6-8
C
Gross estate Less: Standard deduction Net estate Estate tax on P2,000,000 Excess (P2,500,000 x 11%) Estate tax
Father P5,500,000 1,000,000 P4,500,000
Mother P5,500,000 1,000,000 P4,500,000
P
P
P
135,000 275,000 410,000
Distributable estate (P11,000,000 – P820,000) Divided by number of heirs Share of each heir
P
135,000 275,000 410,000
P10,180,000 4 P 2,545,000
Donor’s tax on P1,000,000 Donor’s tax on excess (P1,545,000 x 8%) Donor’s tax
P 44,000 123,600 P167,600
Note: There is donor’s tax on the renunciation of inheritance because the renunciation is not a general renunciation. Problem 6-9
B
Gross gifts (P3,500,000/2) Less: Mortgage assumed by done (P1,000,000/2) Dowry Net gifts
Husband P1,750,000 (500,000) ( 10,000) P1,240,000
Wife P1,750,000 (500,000) ( 10,000) P1,240,000
Problem 6–10 A Wedding gift (P500,000 – P10,000) Casual gift – car Total gift subject to tax
P490,000 500,000 P990,000
Donor’s tax on P500,000 Excess (P490,000 x 6%) Total donor’s tax in the Philippines
P14,000 29,400 P43,400
Problem 6–11 A Donations: Vacation house – conjugal (P500,000/2) Car – conjugal (P240,000/2) Jewelry – exclusive of Mrs. Salonga Dowry Net gift Donor’s tax on P200,000 Excess (P160,000 x 4%) (P180,000 x 4%) Total donor’s taxes, respectively
Mr. Salonga P250,000 120,000 ( 10,000) P360,000 P2,000 6,400 P8,400
Mrs. Salonga P250,000 120,000 20,000 ( 10,000) P380,000 P2,000 7,200 P9,200
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 42 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problem 6–12 D Donation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire amount of P250,000. Problem 6–13 A Donations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax. Problem 6–14 D Donation between spouses during marriage time is void; hence, not subject to donor’s tax. Problem 6–15 D Wedding gift Less: Dowry Net gift – first P100,000 donor’s tax exempt
P110,000 10,000 P100,000
Net gift taxable is Problem 6–16 D 2005 gift – house and lot Less: Dowry (P10,000 – P6,000) Net gift
P - 0 P300,000 4,000 P296,000
Donor’s tax on P200,000 Excess (P96,000 x 4%) Donors tax – 2005
P2,000 3,840 P5,840
Problem 6–17 C Donor’s tax (P50,000 x 2%)
P1,000
Problem 6–18 D P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the 6th degree of the collateral line. Problem 6–19 1. Letter C
Gross gifts, as of August 15, 200A (P150,000 x 2 lots) Less: Deductions Net gifts, August 15, 200A
P300,000 0 P300,000
Donor’s tax on P200,000 Tax on excess (P300,000 – P200,000) x 4% Total donor’s tax
P P
2,000 4,000 6,000
2. Letter D
Wedding gifts, as of November 15, 200A Less: Deductions - dowry Net gifts, November 15, 200A Add: Previous, net gifts Total net gifts
P150,000 10,000 P140,000 300,000 P440,000
Donor’s tax on P200,000 Tax on excess (P440,000 – P200,000) x 4% Total donor’s tax Less: Donor’s tax – August 15, 200A Donor’s tax payable – November 15, 200A
P
2,000 9,600 P 11,600 6,000 P 5,600
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 43 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problem 6–20 C P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th collateral line for donor’s tax purposes. Problem 6–21 D Donor’s tax (P8,000,000 x 30%) Problem 6-22
P2,400,000
D
First donation: Donated value of P200,000 Excess donation (4% x P290,000) Dowry deducted Total value of first donation
Value of Donation P200,000 290,000 10,000 P500,000
Second donation: First donation – total value Excess donation (6% x 400,000) Total after dowry deducted Add: Dowry deducted in two donations (P10,000 x 2) Total Less: First donation Value of second donation
P500,000 400,000 P900,000 20,000 P920,000 500,000 P420,000
Donor’s tax P 2,000 11,600 . P13,600 P14,000 24,000 P38,000
Problem 6–23 D No deduction is allowed for donations on account of birthday. Problem 6–24 B Gross gift (FMV at time of donation)
P200,000
Problem 6–25 B Donor’s tax (P200,000 x 30%)
P60,000
Problem 6–26 A Donor’s tax (P10,000,000 x 30%)
P3,000,000
The donation is taxable because more than 30% of it shall be used for administration purposes. Problem 6–27 A Donor’s tax Surcharge (P100,000 x 25%) Interest (P100,000 x 20% x 6/12) Total amount due Problem 6–28
D
Taxable gift in the Philippines Donor’s tax on P3,000,000 No dowry deduction is allowed for nonresident alien donor.
P100,000 25,000 10,000 P135,000 No reciprocity With reciprocity P3,000,000 P - 0P 204,000
P - 0-
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 44 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problem 6–28 1. Letter C Philippine donor’s tax
P404,000
Actual donor’s tax - foreign
P120,000
Tax credit, limit (P404,000 x 500,000/5,000,000) - lower 2. Letter B Philippine donor’s tax: Relative (P500,000) Stranger (P5,000,000 – P500,000) x 30% Less: Tax credit Actual donor’s tax – foreign (lower) Tax credit, limit (P1,364,000 x 500,000/5,000,000) Donor’s tax still due and payable Problem 6–30
D
P
P40,400
P40,400
14,000 1,350,000
P1,364,000
P120,000 136,400
120,000 P1,244,000
Estate tax P5,000,000 1,000,000 P4,000,000
Donor’s tax P5,000,000 . P5,000,000
Estate tax on P2,000,000 Excess (P2,000,000 x 11%) Donor’s tax on P5,000,000 Total
P135,000 220,000 . P355,000
P404,000 P404,000
Tax savings if estate tax is paid (P404,000 – P355,000)
P 49,000
Gross amount of asset Less: Standard deduction Net amount subject to tax
Problem 6–31 Gross gifts made: To L, on account of marriage To M, on account of marriage Total gross gifts Less: Deductions: Dowry for L, on account of marriage Dowry for M, on account of marriage Mortgage assumed by L on property donated Net gifts Problem 6–32 1. Donors tax for relatives: Mar. 1 - To his son on account of marriage Oct. 1 - To his daughter on account of graduation Total Less: Dowry Net taxable gifts Donor’s tax on P1,000,000 Excess (P90,000 x 8%) Total donor’s tax for donations to relatives
P500,000 200,000 P700,000 P10,000 10,000 100,000
120,000 P580,000
P
600,000 500,000 P1,100,000 10,000 P1,090,000 P 44,000 7,200 P 51,200
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 45 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
2. Donors tax for strangers: Dec. 25- To his god-children Dec. 31- To his neighbor Total Multiplied by donor’s tax rate Donor’s tax for donations to strangers
P400,000 100,000 P500,000 30% P150,000
Problem 6–33 March 30, 200B (P500,000/2) June 28, 200B (P2,000,000/2) – P10,000 Net taxable gifts Donor’s tax on P1,000,000 Excess (P240,000 x 8%) Total Donor’s tax paid on March 30, 200B Donor’s tax on P200,000 Excess (P50,000 x 4%) Donor’s tax for donation on June 28, 200B
Mr. Dinero P250,000 990,000 P1,240,000
Mrs. Dinero P250,000 990,000 P1,240,000
P44,000 19,200 P63,200
P44,000 19,200 P63,200
( 2,000) ( 2,000) P59,200
( 2,000) ( 2,000) P59,200
Problem 6–34 Cash his son for wedding held during the year Problem 6–35 To his son on account of marriage during the year To his daughter on account of her birthday To Garci, his brother, as renunciation of inheritance Net gift subject to donor’s tax
P 200,000 P 500,000 500,000 400,000 P1,400,000
Note: No dowry is allowed for nonresident alien. Problem 6–36 Taxable inadequate consideration - Personal properties (P500,000 – P50,000) Donor’s tax on P200,000 Excess (P250,000 x 4%) Donor’s tax for inadequate consideration
P 450,000 P 2,000 10,000 P 12,000
The inadequate consideration in the sale of real property will not be subject to donor’s tax because the sale is subject to 6% final tax based on the selling price or fair market value, whichever is higher. Problem 6–37 1. December 25, 200A: Average value per share (P500 + P450)/ 2 Multiply by number of shares Taxable base of the gift 2. The same answer with number 1.
P
475 1,000 P475,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 46 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problem 6–38 There is no donor’s tax because the donations are donation mortis causa, void donation and tax-exempt donation. Specific principles: a.
House and lot
Subject to estate tax because the transfer shall take effect upon death of the donor (included in the last will and testament).
b.
Parejo car
The value of property donated is P200,000 and it was made orally. The donation is null and void because personal property donated with value exceeding P5,000 should be put in writing to become a valid donation.
c.
Business
Revocable donation is a revocable transfer, hence, subject to estate tax.
d.
Furniture and fixtures
Donation mortis causa is subject to estate tax.
e.
Time deposit
The amount is P100,000 given to his illegitimate daughter. This donation is tax exempt because the first P100,000 of donation to relatives shall not be subjected to donor’s tax.
Problem 6–39 Car consequently destroyed after delivery to his son
P 500,000
Donor’s tax
P14,000
Problem 6–40 Donations to relatives: 200B: January 31 Car to Uncle Less: Encumbrances assumed by the donee Net taxable gift – January 31, 2002
P300,000 50,000 P250,000
November 30
Donor’s tax on P200,000 Tax on excess (P250,000 – P200,000) x 4% Donor’s tax for January 31 donation
P
House and lot to his son on account of marriage Less: Dowry exemption (weeding was held beyond one year) Net gifts Add: Previous net gifts during the year Aggregate taxable gift
P600,000 - 0 P600,000 250,000 P850,000
Donor’s tax on P500,000 Tax on excess (P840,000 – P500,000) x 6% Total Less: Donor’s tax for previous gifts during the year Donor’s tax for November 30 donation
P 14,000 21,000 P 35,000 4,000 P 31,000
Donations to strangers: 200B: June 30 Cash to Miss Rosal, a radio manager Less: Diminution of gift (P100,000 x 60%) Net taxable gift Donor’s tax for June 30 donation (P40,000 x 30%)
P
2,000 2,000 4,000
P100,000 60,000 P 40,000 P 12,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
47
Chapter 6: DONOR’S TAX
August 31
Land to National Government Less: Deduction (total amount) Net taxable gift
P500,000 500,000 P - 0 -
Donor’s tax for August 31 donation October 31
None
Cash to non-profit organization – 40% Administrative Less: Deduction Net taxable gift
P400,000 - 0P400,000
Donor’s tax for October 31 donation (P400,000 x 30%)
P120,000
Total donor’s tax during 200B: Total donor’s tax to relatives (P30,400 + P4,000) Total donor’s tax to stranger (P12,000 + P120,000) Total donor’s tax for the year 200B
P 35,000 132,000 P167,000
Problem 6–41 Donor’s tax on gift to stranger (P10,000 x 30%)
P 3,000
Net gift to daughter on account of marriage (P50,000 – P10,000) Add: Previous net gifts: April 1 – Gift to mother June 10 – Wedding gift to son (P50,000 – P10,000) Total net gift during the year
P 40,000 P50,000 40,000
Donor’s tax on P100,000 Donor’s tax on excess P30,000 x 2% = donor’s tax payable Oct. 31, 200A
90,000 P130,000 Tax exempt P
600
Problem 6–42 1. January 29, 200B 2.
June 1, 200A gift Gift on account of their daughter’s marriage Less: Dowry Net gift Tax on P200,000 Tax on excess P40,000 x 4% Total Surcharges (P7,200 x 50%) Interest (P7,200 x 20% x 11/12) December 30, 200A gift Christmas gift to son Previous gift – June 1, 200A Total net gift during 200A Tax on P200,000 Tax on excess P140,000 x 4% Total Less: Tax on previous gift
Nilo Co P250,000 10,000 P240,000
Nila Co P250,000 10,000 P240,000
P 2,000 1,600 P 3,600
P 2,000 1,600 P 3,600
Nilo Co P100,000 240,000 P340,000
Nila Co P100,000 240,000 P340,000
P 2,000 5,600 P 7,600 3,600
P 2,000 5,600 P 7,600 3,600
P 7,200 3,600 1,320 P12,120
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 48 SUGGESTED ANSWERS Donor’s tax on current gift Surcharge (P8,000 x 50%) Interest (P8,000 x 20% x 4/12)
Chapter 6: DONOR’S TAX
P 4,000
P 4,000
Total amount to be paid on June 1, 200B
P 8,000 4,000 533 P12,533 P24,120
Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in 200A, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect. Problem 6–43
Relative P44,000
Donor’s tax on property located in Japan, P1,000,000 Donor’s tax on property located in the Philippines (P2,000,000 x 30%) Total donor’s tax in the Philippines Computation of donor’s tax still due and payable: Total donor’s tax in the Philippines Less: Allowable tax credit: - Actual lower than limit Limit (P1,000,000/ P3,000,000) x P644,000 Donor’s tax still due and payable
Problems 6–44 Property donated: To son - House and lot ($500,000 x P50) – P10,000 Carabaw FX – to brother-in-law
Stranger
Total P 44,000
P600,000
600,000 P644,000 P644,000 70,000
P214,667
Gift to Relatives P24,990,000
Taxable base
. P24,990,000
Philippine donor’s tax: First P10,000,000 Tax on excess (P14,990,000,000 x 15%) Total Less: Tax credit allowed ($20,000 x P50/$1) Donors tax rate for donation made to strangers Net donor's tax
P 1,004,000 2,248,500 P 3,252,500 1,000,000 . P 2,252,500
Strangers P P
500,000 . 500,000
P
30% 150,000
P574,000
Total
. P 2,402,500
Note: Donation to common-law-wife is void. Hence, no donor’s tax. Computation of tax credit allowed: Limit 1: (P24.990M/ P25.490M) x P2,402,500
P2,335,373
Allowed: Actual, lower amount ($20,000 x P50/$1)
P1,000,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 49 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Problems 6–45 Assume donations are made to strangers: Total net gifts Philippine donor’s tax (P10,000,000 x 30%) Tax credit: Limit (P3,000,000 x 5/10) Actual – lower Donor’s tax payable Assume donations are made to relatives: Philippine donor’s tax Tax credit: Limit (P1,004,000 x 5/10) Actual – lower Donor’s tax payable Problems 6–46 1. Gross gifts subject to donor’s tax a. No donation b. Donation to stranger – daughter-in-law (P2,000,000/2) c. Donation to son on account of marriage – relative (P5,000,000/2)
P10,000,000 P3,000,000 P1,500,000 ( 400,000) P2,600,000 P1,004,000 P502,000
( 400,000) P 604,000
Don
Dona
P1,000,000
P1,000,000
2,500,000
2,500,000
500,000
500,000
d. Donation to Philippine government – not subject to Donor’s tax e. Donation to religious group – considered stranger (P1,000,000/2) f.
Donation mortis causa – not subject to donor’s tax
g.
Donation to NGOs – generally not subject to donor’s tax
h.
Donation to political party – not subject to donor’s tax
Exclusive donations by Don: a. Donation to secretary – stranger b. Donation to wife – null and void c. Donation to relative – father Total amount of gross gifts subject to donor’s tax
200,000 P4,300,000
. P4,000,000
2. Donor’s tax Donation to relatives: Donation to son on account of marriage – relative (P5,000,000/2) – P10,000 Donation to relative – father Total net gifts
P2,490,000 200,000 P2,690,000
P2,490,000
P 44,000 135,200 P179,200
P 44,000 119,200 P163,200
Tax on P1,000,000 Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) Total donor’s tax due – donation to relatives
100,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 50 SUGGESTED ANSWERS Chapter 6: DONOR’S TAX
Donation to strangers: Donation to stranger – daughter-in-law (P2,000,000/2) Donation to religious group – considered stranger (P1,000,000/2) Donation to secretary – stranger Total amount – donation to strangers Multiplied by donor’s tax rate to strangers Total donor’s tax due – donation to strangers Total amount of donor’s tax Problems 6–47 Donor’s tax 1. Dec. 30, 200A: Relative - on account of son’s marriage (P300,000/2) – P10,000) Tax on P100,000 Tax on excess (P40,000 x 2%) – donor’s tax due
3.
4.
P1,000,000
500,000 100,000 P1,600,000 30% P 480,000 P 659,200
500,000 . P1,500,000 30% P 450,000 P 613,200
Don
Dona
P140,000 Exempt P800
P140,000 Exempt P800
P50,000 30% P15,000
P50,000 30% P15,000
P100,000 30% P 30,000
P100,000 30% P 30,000
P25,000 Exempt
P25,000 Exempt
Stranger – god son (P100,000/2) Church (P200,000/2) Total Multiplied by applicable donor’s tax rate Donor’s tax due
P 50,000 100,000 P150,000 30% P 45,000
P 50,000 100,000 P150,000 30% P 45,000
June 30, 200B: Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 Add: Previous net gifts to relatives – Mar. 31, 200B Total net gifts
P800,000 25,000 P825,000
P800,000 25,000 P825,000
P14,000 19,500 P33,500
P14,000 19,500 P33,500
P250,000 250,000 P500,000
P250,000 250,000 P500,000
Stranger – daughter-in-law (P100,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due 2.
P1,000,000
Jan. 1, 200B: Stranger – Chinese government (P200,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due March 31, 200B: Relatives – nephew (P50,000/2) Donor’s tax
Tax on P500,000 Tax on excess (P325,000 x 6%) Total donor’s tax payable – June 30, 200B 5. Oct. 30, 200B: Void donation – husband and wife 6. Dec. 30, 200B: Relatives: Son (P500,000/2) Daughter (P500,000/2) Total net gifts to relatives – Dec. 30, 200B Add: Previous net gifts to relatives during 200B:
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 51 SUGGESTED ANSWERS March 31, 200B: Relatives – nephew (P50,000/2) June 30, 200B: Relative – son on account of marriage (dowry already taken) (P2,000,000 – P400,000)/2 Total net gifts to relatives as of Dec. 30, 200B Tax on P1,000,000 Tax on excess (P325,000 x 8%) Total Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B Donor’s tax payable as of Dec. 30, 200B – relatives Stranger – daughter-in-law (P100,000/2) Multiplied by applicable donor’s tax rate Donor’s tax due
Chapter 6: DONOR’S TAX
25,000
25,000
800,000 P1,325,000
800,000 P1,325,000
P44,000 26,000 P70,000 P33,500 P36,500
P44,000 26,000 P70,000 P33,500 P36,500
P50,000 30% P 15,000
P50,000 30% P 15,000
