$%&'()%*$ +,*',&
(-,*$./- 0 1'$)*/$$ (,2,()%*3 45!6 /7898:; 1<= (,1,> 0 >,-?),
CHAPTER 1 – SUCCESSION & TRANSFER TAXES TRUE OR FALSE 1. TRUE 6. TRUE 11. FALSE 16. 2. TRUE 7. FALSE 12. TRUE 17. 3. FALSE* 8. FALSE 13. TRUE 18. 4. FALSE 9. TRUE 14. TRUE 19. 5. FALSE 10. FALSE 15. FALSE 20. *The taxpayer for estate tax purposes is the estate as a juridical person. MULTIPLE CHOICE 1. D 12. C 23. D 34. 2. A 13. C 24. B 35. 3. D 14. B 25. D 36. 4. C 15. D 26. D 37. 5. C 16. C 27. B 38. 6. A 17. B 28. D 39. 7. B 18. D 29. A 40. 8. A 19. C 30. D 41. 9. B 20. B 31. B 42. 10. A 21. B 32. A 43. 11. D 22. B 33. D 44. **Inheritance and repudiation takes effect upon death of the decedent
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TRUE FALSE TRUE TRUE TRUE
D B B D B D D B D B B
Edition)
45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55.
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B C D D A B A D** D D B
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CHAPTER 2 – GROSS ESTATE PROBLEM SOLVING (1) P19,300,000 (P2.1)
(2) P19,300,000
(3) P11,800,000
(4) P14,300,000 Citizen/ Resident (# 1 & 2) P8,000,000 5,000,000 3,000,000 2,000,000
Family home in the Philippines Parcel land of with vacation house in Malaysia Farm land in the Philippines Shares of stock of a domestic corporation deposited in a bank safety deposit box in Malaysia Shares of stock of a foreign corporation the entire business of which is in the Philippines, Philippines , deposited in a bank safety deposit box in Malaysia Receivable from a friend who has no property whatsoever Receivables under insurance policies: Life insurance policy, taken by the decedent on his own ! life, with his estate as revocable beneficiary Life insurance policy, taken by the decedent, with his ! daughter as revocable beneficiary Life insurance policy, taken by the decedent on his own ! life, with his son as irrevocable beneficiary Life insurance (group) taken by the employer of the ! decedent, with the estate as revocable beneficiary Property insurance, for a loss of property ! Accident insurance, insuranc e, for injury sustained s ustained ! TOTAL GROSS ESTATE
NRA with R
NRA w/o R
(# 3) P8,000,000
(# 4) P8,000,000
3,000,000
3,000,000 2,000,000
500,000
500,000
300,000
300,000
300,000
200,000
200,000
200,000
300,000
300,000
300,000
-
-
-
-
-
-
50,000 50,000 P19,300,000
50,000 50,000 P11,800,000
50,000 50,000 P14,300,000
(P2.2) To Juan To Pedro To Maria To Sisa Total Gross Estate
P25,000,000 18,000,000 15,000,000 20,000,000 P78,000,000
(P2.3) Shares of stock (Frozen Co.) [(P8M+3M)/800,000sh x 100,000 shares Shares of stock (Divergent Co..) 100,000 shares x P15** Shares of stock (Lenovo Co..) 100,000 shares x P12 Total Gross Estate
P1,375,000 1,500,000 1,200,000 P4,075,000
***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003)
(P2.4)
4#
(1)P230,0000; (2)P1,100,000; (3)P0;
Transfer
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(4)P5,000,000; (5)P1M + [1M x (1M x 10% x 1.5)] = P1,150,000
Taxation(2015
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MODIFIED IDENTIFICATION IDENTIFICATION EXERCISE A 1. Included 6. Excluded 2. Included 7. Excluded * 3. Excluded 8. Included ** 4. Included 9. Excluded 5. Excluded 10. Included*** *Designated by the prior decedent **Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross gross estate before deducting the same from the gross estate. *** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly states that not more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for administrative purposes, the tax code still require these items to be included first in the gross estate before deducting the same for estate tax purposes. EXERCISE B
EXERCISE C 1. 2. 3. 4. 5.
P0; valid sale P0; valid sale P0; valid sale P4,000,000 P6,000,000
TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. FALSE 5. TRUE
1. 2. 3. 4. 5.
6. 7. 8. 9. 10.
FALSE FALSE FALSE TRUE TRUE
11. 12. 13. 14. 15.
FALSE TRUE TRUE FALSE FALSE
16. 17. 18. 19. 20.
TRUE TRUE FALSE TRUE FALSE
16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
D C B D A D A B A C C C D B D
31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45.
C B A B B D C B C C C B C B C
46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.
D C C D D D C C C B D C C A A
P10M P20M P5M P10M P0
MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
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A B D B C C A B A A A B D A C
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61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75.
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A A C D B A C C D D D A D D B
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Supporting Computations (Multiple Choice): (22). Bank deposit in the foreign branch of a domestic bank Bank deposit in Makati branch of a foreign bank Shares of stock issued by a domestic corporation (certificate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao
P500,000 300,000 1,000,000 800,000 200,000
Total Exclusion from the gross estate
P2,800,000
House and lot, family home in Quezon City Bank deposit in Makati branch of a foreign bank Shares of stock issued by a domestic corporation (certificate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao
P1,500,000 300,000 1,000,000
Total Inclusion from the gross estate
P3,800,000
(23).
800,000 200,000
(25). Shares of stocks, domestic corp. (certificate kept in UK) Shares of stocks, domestic corp. (certificate kept in Phils.) Franchise exercised in the Phils. Receivables, debtor is from Phils.
P250,000
Intangibles subject to reciprocity
P600,000
100,000 200,000 50,000
(26).
(32). (33). (34). (35). (43).
Land & building, Philippines House and lot, Philippines Shares of stocks, domestic corp. (certificate kept in UK) Shares of stocks, domestic corp. (certificate kept in Phils.) Franchise exercised in the Phils. Receivables, debtor is from Phils.
P2,000,000 3,500,000 250,000 100,000 200,000 50,000
Gross Estate
P6,100,000
(P12M/100,000) x 1,000 shares = P120,000 P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share P110 x 1,000 shares = P120,000 (P140 + P80/2) x 1,000 shares = P110,000 Consideration FMV upon transfer received Land P1,500,000 P1,500,000 Shares of stock 100,000 50,000 Vintage car 50,000 80,000 Painting 250,000 400,000 INCLUSION IN THE GROSS ESTATE
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FMV upon death P2,000,000 150,000 100,000 500,000
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Gross Estate None. Valid sale None. Valid sale P50,000 250,000 P300,000
Garcia
CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE PROBLEM SOLVING
(P3.1)
(Funeral Expenses) Case Case Case Case
(P3.2)
A: B: C: D:
P150,000 P200,000 P150,000 P150,000
P0 Mourning clothing (donated by the decedent’s employer ) Expenses paid by relatives Telecommunication charges paid by the friends Cost of burial plot, coffin, interment fees and other funeral charges paid by an insurance company DEDUCTIBLE FUNERAL EXPENSE
(P3.3) P183,500
P-nil-
computed as follows:
Embalming charges Burial apparel of the decedent Cost of coffin Mourning apparel of the surviving spouse during the burial Mourning apparel of the minor child (P12,000/6) Snacks and drinks during the wake Honoraria of priest for daily masses before burial Telecommunication charges to inform relatives Charges for death notice published in a newspaper Cost of video footage of the burial and interment Funeral car service during interment Honorarium of priest who celebrated the mass during interment Cost of tombstone ACTUAL FUNERAL EXPENSE Vs. Limit (P5% of P10M) ALLOWABLE FUNERAL EXPENSE
P15,000 3,500 85,000 2,000 2,000 12,500 4,000 10,000 1,500 12,000 4,000 2,000 30,000 P183,500 500,000 P183,500
NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to “medical expenses”
(P3.4)
(Claim Against Insolvent Persons) Case A: P100,000 Case B: P333,333 computed as follows: Receivable Collectible portion (400/1,200) x 500,000
P500,000 (166,667)
Deductible claim (Uncollectible portion) Case C: P0.
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P333,333
Debtor is not insolvent
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CaseD: P0. Debtor is not insolvent Total Assets Taxes payable (Gov’t is a priority creditor)
P1,200,000 (800,000)
Assets after deducting unpaid taxes
P400,000
Receivable (CAIP) Collectible (400/800) x 500,000
P500,000 (250,000)
Deductible Claim against Insolvent Persons
P250,000
(P3.5) P133,333
computed as follows:
Debtor’s Assets Taxes payable (Gov’t is a priority creditor)
P400,000 (200,000)
Assets after deducting unpaid taxes
P200,000
Receivable (CAIP) Collectible (200/600) x 200,000
P200,000 (66,667)
Deductible Claim against Insolvent Persons
P133,333
(P3.6) P2,097,000
computed as follows:
Ordinary Deductions: Claim against insolvent person (500,000-400,000) Unpaid taxes on the estate before death Unpaid mortgage on the estate Funeral expenses Actual = P182,000 + 37,500 = P 219,500 Limit = P5M x 5% = P250,000 Maximum = P200,000 Judicial expenses Unpaid loans arising from debt instruments (notarized) Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued by a financial institution not requiring notarizations for debt instruments issued Casualty loss Special Deductions: Standard deduction Medical expenses Total Allowable deduction from the gross estate
P100,000 150,000 200,000 200,000
100,000 125,000 75,000
65,000 1,000,000 82,000 P2,097,000
(P3.7) Question 1: P217,500 Question 2: P217,500 Same answer with question #1. Whether or not the estate was settled judicially is irrelevant in the determination of allowable deduction for judicial expenses.
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Solution: Expenditures incurred for the collection of assets and payment of debts Attorney’s fees (1/2 were incurred after six months) P40,000 x 1/2 Accountant’s fees Executor’s commission Appraiser’s fees Court fees Cost of preserving and distributing the estate Cost of storing or maintaining the property of the estate Brokerage fees for selling property of the estate Total allowable judicial expenses
(P3.8) P265,000
P217,500
computed as follows:
To the executor, for time and effort in executing the will To a lawyer, for legal advice in carrying out the will To an appraiser, for establishing property values To an accountant, for estate tax return preparation Court fees Cost of preserving and distributing the estate Cost of storing or maintaining the property of the estate Brokerage fees for selling property of the estate DEDUCTIBLE JUDICIAL EXPENSES
(P3.9) P2,500,000
P30,000 80,000 70,000 30,000 18,000 15,000 12,000 10,000 P265,000
computed as follows:
Loss due to shipwreck, two (2) months after the decedent’s death. Robbery loss, seven (7) months after the decedent’s death. The decedent’s executor was allowed by the Bureau of Internal Revenue to extend the filing (within the period allowed by the Tax Code) of estate tax return due to a meritorious reason Allowable Deduction
(P3.10) P262,500
P937,500 (187,500) P750,000
Final Basis x Vanishing rate
P656,250 40%
Vanishing Deduction
P262,500
P2,500,000
(93,750)
STANDARD DEDUCTION Case Case Case Case Case
C#
P500,000 2,000,000
computed as follows:
Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (750/4,500) x 562,500
(P3.11)
P100,000 20,000 25,000 15,000 2,500 18,000 15,000 12,000 10,000
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A: P1,000,000 B: P1,000,000 C: P1,000,000 D: P0 E: P0 Business
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(P3.12)
MEDICAL EXPENSES Case Case Case Case Case
(P3.13)
A: B: C: D: E:
P500,000 P500,000 P150,000 P500,000 P0
FAMILY HOME Case A: P1,000,000 Case B: P500,000 Case C: P0 Case D: P500,000 Case E: P600,000 Case F: P750,000; [ (1M/2) + (500,000/2)]
(P3.14) P1,550,000
computed as follows:
Funeral expenses Actual P 300,000 – 120,000 = P180,000 Limit = P3M x 5% = P150,000 Standard deduction Medical expenses Total amount deductible from the gross estate
P150,000
1,000,000 400,000 P1,550,000
(P3.15) Question 1: P2,430,000 (Decedent: Resident Citizen) Question 2: P2,430,000 (Decedent: Resident Alien) (same computation with Q#1). Domestic shares of 2,000 shares inherited 6 years ago House and lot, family home, located in Europe, inherited 2 years ago Jewelry items, in the Philippines at the time of death Jewelry items kept in a vault abroad Bank deposit in a Philippine branch of a U.S. bank Transfer for Public Use GROSS ESTATE ORDINARY DEDUCTIONS: Funeral expenses, Philippines (max.) Judicial expenses, abroad Judicial expenses, Philippines Claims against the estate Transfer for Public Use Vanishing deductions SPECIAL DEDUCTIONS Standard Deduction Family Home Medical Expenses RA 4917 NET TAXABLE ESTATE
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P800,000 2,000,000 400,000 200,000 500,000 250,000 P4,150,000 200,000 100,000 50,000 120,000 250,000 1,000,000 -
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(720,000)
(1,000,000) P2,430,000
Garcia
(P3.16)
Question 1: P2,757,500 computed as follows: GROSS ESTATE: TFPU House & lot in Makati, F. Home Personal properties Farm lot Claim against an insolvent debtor Transfer in contemplation of death DEDUCTIONS: Funeral expenses Judicial expenses TFPU CAIP Unpaid mortgage on the farm lot Standard Medical expenses F.Home
P300,000 1,500,000 1,500,000 825,000 225,000 1,500,000
P5,850,000
200,000 67,500 300,000 225,0000 75,000 1,000,000 225,000 1,000,000
(3,092,500)
TAXABLE NET ESTATE Question 2: P2,672,330 computed as follows: GROSS ESTATE: TFPU House & lot in Makati, F. Home Personal properties Farm lot Claim against an insolvent debtor Transfer in contemplation of death DEDUCTIONS: Funeral expenses Judicial expenses TFPU CAIP Unpaid mortgage on the farm lot VANISHING DEDUCTIONS** Standard Medical expenses F.Home TAXABLE NET ESTATE Value to Take Less: Mortgage paid (150,000-75,000) Initial Basis Less: Proportionate Deduction (500/5,850 x P867,500
E#
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P2,757,500
P300,000 1,500,000 1,500,000 825,000 225,000 1,500,000
P5,850,000
200,000 67,500 300,000 225,0000 75,000 (85,170) 1,000,000 225,000 1,000,000
(3,177,670) P2,672,330
P575,000 (75,000) P500,000 (74,145)
Final Basis x Vanishing Deduction Rate
P425,855 20%
VANISHING DEDUCTION
P85,170**
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(P3.17)
Question 1: P426,000 computed as follows: VTT Land Mortgage paid
P1,250,000 (50,000)
Initial Basis 2nd Deduction 1,200/8,000 x 900,000 *
1,200,000
Final Basis x Vanishing Deduction Rate
1,065,000 40%
Vanishing Deduction *1,200+100-100600+300=P900,000
P426,000
(135,000)
Question 2: P4,174,000 computed as follows: GE P8,000,000 ELIT (600,000) TFU (300,000) VD (426,000) Stndrd (1,000,000) FHome (1,000,000) Med Exp (500,000) TNE
P4,174,000
TRUE OR FALSE 1. 2. 3. 4. 5. 6.
TRUE TRUE TRUE TRUE TRUE FALSE
7. 8. 9. 10. 11. 12.
TRUE TRUE TRUE FALSE FALSE FALSE
13. 14. 15. 16. 17. 18.
FALSE FALSE TRUE FALSE TRUE TRUE
19. 20. 21. 22. 23. 24.
TRUE TRUE TRUE FALSE TRUE TRUE
25. 26. 27. 28. 29. 30.
TRUE TRUE FALSE TRUE FALSE TRUE
MULTIPLE CHOICE 1. C 2. D 3. D 4. C 5. B 6. B 7. D 8. C 9. A 10. B
11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
C B A A A D D C D P650,000
21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
A A B B B C A C D C
31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
C A C B B D A D D D
41. 42. 43. 44. 45. 46. 47. 48. 49. 50.
C A A C D A A A B D
Supporting Computation (Multiple Choice): (6). Mourning clothing of the decedent’s surviving spouse Mourning clothing of the decedent’s dependent children Expenses of the wake preceding the burial Publication charges for death notices
!5 #
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P1,500 3,200 40,000 5,000 by
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Telecommunication expenses incurred in informing relatives of the deceased Cost of burial plot Interment fees and charges Expenses for the performance of the rites & ceremonies incident to interment Actual Funeral Expenses
3,000 20,000 12,000 5,000 P89,700
Limit: 5% of Gross Estate (P2M x 5%) ALLOWED (Lower Amount)
P100,000 P89,700
(14.) Real property tax for the year 2013 Notarized interest bearing promissory note Accrued interest on the promissory note at the time of death Income tax due for 2013 Allowable deductions
P100,000 100,000 20,000 200,000 P420,000
(20). Income tax from practice of profession - 2013 Income tax from practice of profession for Jan.-June ‘14 Real property taxes for 2013 Business taxes for 2013
P300,000 100,000 150,000 100,000
Deductible taxes
P650,000
(37). Value to take/Initial Basis Mortgage paid
P900,000 (50,000)
Initial basis 2nd Deduction: (850/1,000 x P100,000**) Final Basis X Vanishing rate VANISHING DEDUCTION
850,000 (85,000) P765,000 40% P306,000
** Mortgage P150,000 – 50,000 (49). Shares, domestic corporation Tangible personal property Gross Estate ELIT (500,000 x 2,000/2,500) Taxable Estate TAX DUE 1 st P500,000 In excess of P500,000 = (1,100,00 x 8%) Estate Tax Due
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P500,000 1,500,000 2,000,000 (400,000) P1,600,000 P15,000 88,000 P103,000
Ed ition)
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(50). Gross Estate (Tangible property Phils.) ELIT (1,200,000 x 6,000/10,000,000)
P6,000,000 (720,000)
Taxable Estate
P5,280,000
CHAPTER 4 – PROPERTY RELATIONS PROBLEM SOLVING
P4.1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
ACP C C C C E C E C E E
CPG E C E E E E E E E E
P4.2 Land inherited during marriage Other personal property owned before marriage Other personal property acquired during marriage Total Deductions: Funeral expenses Judicial expenses Vanishing deduction** Net estate before special deduction and share of the surviving spouse Standard deduction Medical expenses Share of the Surviving Spouse (1,800,000/2)
Exclusive P2,400,000
Common
Total
P1,600,000 500,000 P2,400,000
P2,100,000
P4,500,000
(200,000) (100,000) (1,120,000) P1,280,000
P1,800,000
P3,080,000 (1,000,000) (500,000) (900,000)
NET TAXABLE ESTATE
P680,000
VANISHING DEDUCTION** Value to Take/Initial Basis Proportional Deduction (1,500/4,500 x P300,000) Final Basis x Vanishing Deduction % Vanishing Deduction
P1,500,000 (100,000) P1,400,000 80% P1,120,000
Since the problem is silent as to the type of the marriage settlement but one of the requirements is to compute for “community property”, ACP should be used. The term “community” property is applicable to ACP.
!4 #
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P4.3 (a)P1,624,773 (b)P4,132,955
(c)P3,691,250
Exclusive properties Conjugal properties* ELIT** Vanishing Deductions *** Transfer for Public Use **** Net Estate Share of the Surviving Spouse (4,132,955/2) Net Taxable Estate 1 st P2,000,000 In excess of P2,000,000 @ 11%
(d)P321,038 Exclusive
Common
Total
P2,000,000
(175,227) (200,000) P1,624,773
P5,000,000 (867,045)
P7,000,000
P4,132,955
P5,757,728 (2,066,478) P3,691,250
P135,000 186,038
ESTATE TAX DUE P321,038 *The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines. **ELIT: Funeral expenses Judicial expenses Claim against the estate
P200,000 800,000 1,725,000
TOTAL ELIT X
P2,725,000 7,000/22,000
ALLOWABLE ELIT
P867,045
**VANISHING DEDUCTIONS: Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (500/7,000) x 867,045 Final Basis x Vanishing rate
P500,0 00 P500,000 (61,932) P438,068 40%
Vanishing Deduction P175,227 **** Since the properties were already classified as exclusive and common, it should be assumed that the exclusive properties were already inclusive of transfer for public use.
P4.4 (Decedent: Resident Citizen) a) Vanishing deduction = P1,676,200 b) Net exclusive property of the decedent = P7,200,000 c) Net community property = P19,300,000 d) Net Taxable estate = P14,850,000 e) Estate tax due = P 2,185,000
!@ #
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Exclusive properties Ordinary Deductions : Conjugal properties Funeral expenses Judicial expenses Claims against conjugal properties Claims against exclusive properties* Legacy-local government (Tr. for Public Use) ** VANISHING DEDUCTION*** Net exclusive/conjugal Special Deductions : Standard deduction Medical expenses Amount received under RA4917 Share of the surviving spouse (P19.3M/2)
Exclusive P10,000,000
Conjugal
Total
20,000,000 (200,000) (300,000) (200,000) (400,000) (723,800) (1,676,200)
-
P7,200,000
P19,300,000
P30,000,000 (200,000) (300,000) (200,000) (400,000) (723,800) (1,676,200) P26,500,000 (1,000,000) (500,000) (1,500,000) (9,650,000)
NET TAXABLE ESTATE
P14,850,000
ESTATE TAX DUE (Refer to the Tax Table)
P2,185,000
*From the information provided in the problem, the amount of P400,000 as “claim against exclusive property” should pertain to the unpaid mortgage on the land inherited. Therefore, the present decedent paid P100,000 on the original amount of the mortgage (P500,000). This should be taken into consideration in computing the vanishing deduction. ** LEGACY AGAINST EXCLUSIVE PROPERTIES Legacy means bequest or inheritance of personal properties. The deductible legacy/devised (bequests) under the tax code are: Transfer for “public use” (Rule: Include both in the “Gross Estate” as well as in the “Deductions from the ! Gross Estate) ; and Bequests to charitable institutions wherein not more than 30% of the bequest was used for administrative ! purposes (Rule: Same as transfer for public use)
!A #
TRANSFER FOR PUBLIC USE Value to take Mortgage Paid (refer to explanation above ) Initial basis 2nd Deduction: 2,900/30,000 x P1.1M Final Basis x rate
P3,000,000 (100,000) P2,900,000 (106,333) P2,793,667 60%
Vanishing Deduction***
P1,676,200
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P4.5
(Decedent: Resident Alien)
(a) Net Taxable estate = P3,570,000;
(b)Estate tax due = P307,700
House and lot, USA * Investment in stock, Philippines Investment in stock, USA Investment in bonds, USA Cash in bank, Philippines Cash on hand, Philippines Accounts receivable (fully uncollectible) Car, Philippines Legacy in favor of Philippine National Red Cross** Devise to Quezon City for children’s playground**
P2,000,000 800,000 1,000 000 700,000 300,000 50,000 200.000 800,000 50,000 70,000
Total Gross Estate Ordinary Deductions : Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to theft Legacy in favor of Philippine National Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully uncollectible) *** Special Deductions: Standard deduction Medical expenses
P5,970,000 P150,000 300,000 120,000 10,000 50,000 70,000 200,000
(900,000) (1,000,000) (500,000)
Net Taxable Estate Estate Tax Due (Refer to the Tax Table)
P3,570,000 P307,700
*Family home is not allowed as a deduction for single decedent **To be deductible, the legacy/devise should be included first in the decedent’s gross estate ***Assume the debtor is an insolvent person.
P4.6
(Decedent: Resident Alien) a) Vanishing deduction = P441,463 b) Net Taxable estate = P3,200,000 c) Estate tax due = P386,739 Land House and Lot, furniture and appliances Other tangible personal properties Amount received under RA4917 Claims against insolvent persons Ordinary deductions: Funeral expenses Judicial expenses Other claims against conjugal properties Claims against insolvent persons Unpaid mortgage** VANISHING DEDUCTION* Net exclusive/conjugal
!6 #
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Exclusive P3,000,000
Conjugal P5,000,000 1,200,000 1,000,000 50,000
Total
P10,250,000
(200,000) (100,000) (500,000) (50,000) (350,000) (441,463) P2,208,537
Taxation(2015
Ed ition)
P6,400,000
by
Tabag
P8,608,537
and
Garcia
Special deductions: Standard deduction Medical expenses Share of the surviving spouse TAXABLE ESTATE
(1,000,000) (120,000) (3,200,000) P4,288,537
Estate Tax Due
P386,739
Value to take/Initial Basis*** 2nd Deduction: 2,500/10,250 x 1,200,000
P2,500,000 (292,683)
Final Basis x rate
P2,207,317 20%
Vanishing Deduction* P441,463 ** P700,000 – 350,000 = P350,000 ***The amount paid on the mortgage should not be considered in computing the vanishing deduction because the amount pertains to a mortgage entered into by Pedro during his lifetime. To be deductible, the mortgage should have been assumed on the property at the time of inheritance. TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. FALSE 5. FALSE
6. 7. 8. 9. 10.
MULTIPLE CHOICE 1. 2. 3. 4. 5. 6.
7. 8. 9. 10. 11. 12.
FALSE FALSE TRUE TRUE FALSE
11. 12. 13. 14. 15. 13. 14. 15. 16. 17. 18.
Supporting Computations (Multiple Choice) (No. 22 & 23) Gross Estate: Rest House in Batangas Car Commercial land Income from the commercial land Income from exclusive property of the spouse Jewelry owned before the marriage Other properties at the time of her death Gross Estate
!B #
Transfer
FALSE TRUE TRUE FALSE TRUE 19. 20. 21. 22. 23. 24.
Exclusive P2,500,000 1,000,000 5,000,000
Business
Conjugal
500,000 200,000 300,000 1,000,000 P8,800,000
&
25. 26. 27. 28. 29. 30.
Taxation(2015
P1,700,000
Ed ition)
by
Tabag
and
Garcia
(No. 24 & 25) Gross Estate:
Exclusive
Rest House in Batangas Car Commercial land Income from the commercial land Jewelry owned before the marriage Other properties at the time of her death
P2,500,000
Gross Estate
P2,500,000
Common 1,000,000 5,000,000 500,000 300,000 1,000,000 P7,800,000
(No. 26) Conjugal properties Conjugal Deductions: Funeral expenses Actual = P45,000 Limit = (P500,000 + 200,000) x 5% = 35,000 Judicial expenses Claim against the estate
P200,000
Net Conjugal properties Divide Share of the Surviving Spouse
P100,000 2 P50,000
(35,000)
(20,000) (45,000)
(No. 27)
!C #
Real property, Philippines Real property, USA Funeral expenses Judicial expenses (200,000 – 50,000) Claim against insolvent persons Unpaid taxes
P4,000,000 5,000,000 (200,000) (150,000 (50,000) (50,000)
Balance Standard Deductions Medical expenses (max.allowed) Family Home (P1,500,000/2) Share of the surviving spouse (P8,550,000/2) Net Taxable Estate
P8,550,000 (1,000,000) (500,000) (750,000) (4,275,000) P2,025,000
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
(No. 28) Exclusive Conjugal real properties Conjugal family home Exclusive properties
Common P5,000,000 1,500,000
Total
P2,500,000
Total Ordinary Deductions: Funeral expenses Actual P 300,000 x 25% = P75,000 Limit = 5% x P9M = P450,000 Casualty losses (from excl.property) Miscellaneous deductions (P1M x 75%) Net Special Deductions: Standard Deductions Medical expenses (P500,000 x 50%) Family Home (1,500,000/2) Share of the surviving spouse (5,675,000/2) Net Taxable Estate
P2,500,000
P6,500,000
P9,000,000
(75,000)
(100,000) (750,000) P5,675,000
P2,400,000
(825,000) P8,075,000 (1,000,000) (250,00) (750,000) (2,837,500) P3,275,000
(No. 29) ABSOLUTE COMMUNITY OF PR OPERTY Properties-Land Other personal property owned before marriage Other personal property acquired during marriage Gross Estate Funeral expenses Judicial expenses Net conjugal before special deductions
Exclusive P2,400,000
Common 1,600,000 500,000
P2,400,000
P2,100,000 (200,000) (100,000) P1,800,000
Share of surviving spouse (P1,800,000/2)
P900,000
(No. 30) CONJUGAL PARTNERSHIP OF GAINS Exclusive
Common
Properties-Land Other personal property owned before marriage Other personal property acquired during marriage**** Gross Estate Ordinary Deductions Funeral expenses Judicial expenses Vanishing Deductions*****
P2,400,000 1,600,000
Net Estate Before Special Deductions Standard deductions Medical expenses Share of the surviving spouse (P200,000/2)
P2,880,000
P4,000,000
Total
P500,000 P500,000
P4,500,000
(200,000) (100,000) (1,120,000) 200,000
P3,080,000 (1,000,000) (500,000) (100,000)
Share of surviving spouse (P1,800,000/2) ****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common.
!D #
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
P1,480,000
Garcia
Value to take 1st Deduction: Mortgage paid
P1,500,0 00 -
Initial basis 2nd Deduction: Proportionate deduction (1,500/4,500) x 300,000
P1,500,000
Final Basis x Vanishing rate Vanishing Deduction
P1,400,000 80% P262,500
(100,000)
*****
CHAPTER 5 – ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE PROBLEM SOLVING P5.1 (1)P200,000 (2)P0; not allowed Net Taxable Estate
P10,000,000
Estate Tax Due [P465,000 + (5M x 15%)] Estate tax credit (4/10 x P1,215,000) vs P200,000 Estate tax payable
P1,215,000 (200,000) P1,015,000
Net Taxable Estate
P2,000,000
P5.2
Estate Tax Due Estate tax credit
P135,000 (67,500)
Estate tax payable after tax credit Net Taxable Estate Limit 1: Canada: 500/2,000 x P135,000 USA: 500/2,000 x P135,000
P67,500 P2,000,000 Limit P33,750 33,750
Actual P150,000 110,000
Allowed P33,750 33,750 P67,500
Limit 2: 1,000/2,000 x P135,000 ALLOWED TAX CREDIT
P67,500
260,000
67,500 P67,500
P5.3
ASSUME: ESTATE TAX PAID U.S.A. = P250,000 (a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770 (c ) Net Distributable Estate = P4,427,230
!E #
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
House and lot, USA * Investment in stock, Philippines Investment in stock, USA Investment in bonds, USA*** Cash in bank, Philippines Cash on hand, Philippines Accounts receivable Car, Philippines Legacy in favor of Philippine National Red Cross** Devise to Quezon City for children’s playground**
P2,000,000 800,000 1,000 000 700,000 300,000 50,000 200.000 800,000 50,000 70,000
Total Gross Estate Ordinary Deductions : Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to theft Legacy in favor of Philippine National Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully uncollectible) Special Deductions: Standard deduction Medical expenses
P5,970,000 P150,000 300,000 120,000 10,000 50,000 70,000 200,000
(900,000) (1,000,000) (500,000)
NET TAXABLE ESTATE
P3,570,000
Estate Tax Due Estate Tax Credit Limit: [(3,200/5,970) x 307,700 = P164,930 Actual: P250,000
P307,700 (164,930)
ESTATE TAX DUE AFTER ESTATE TAX CREDIT P142,770 NOTE:*Family home is not allowed as a deduction for single decedent **To be deductible, the legacy/devise should be included first in the decedent’s gross estate *** Considered as Estate “within” TOTAL GROSS ESTATE (Refer above) Ordinary Deductions : Funeral expenses Judicial expenses Unpaid Philippine income tax for income in 2011 Loss on December 31, 2012 due to theft Legacy in favor of Philippine National Red Cross Devise to Quezon City for children’s playground Accounts receivable (fully uncollectible)
45 #
P5,970,000 P150,000 300,000 120,000 10,000 50,000 70,000 200,000
(900,000)
Special Deductions: Standard deduction Medical expenses Estate Tax Due after tax Credit
(500,000) (142,770)
NET DISTRIBUTABLE ESTATE
P4,427,230
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
P5.4 Real property, Philippines Claim Against Insolvent Persons Real property, USA Real property, Japan Net estate, Malaysia Total Gross Estate (common) Funeral expenses (maximum) Judicial expenses (P200,000-100,000) Claim against insolvent persons Unpaid taxes
P4,000,000 50,000 3,000,000 2,000,000 (1,000,000) P8,050,000 (200,000) (100,000) (50,000) (50,000)
Net estate before special deductions X (Share of the surviving spouse)
P7,650,000 1/2
Net estate of the decedent in the conjugal properties Standard Deduction Family Home Medical Expenses
P3,825,000 (1,000,000) (1,000,000) (500,000)
NET TAXABLE ESTATE
P1,325,000
TAX DUE: 1ST P500,000 In excess of P500,000 @ 8% ESTATE TAX DUE Estate Tax Credit (None; No Estate Tax Payments abroad) ESTATE TAX PAYABLE
4! #
P15,000 66,000 P81,000 ---P81,000
Total Gross Estate (common; as computed above) Funeral expenses (actual) Judicial expenses (actual) Claim against insolvent persons Unpaid taxes
P8,050,000 (300,000) (200,000) (50,000) (50,000)
Net estate before special deductions X (Share of the surviving spouse)
P7,450,000 1/2
Net estate of the decedent in the conjugal properties Standard Deduction Family Home Medical Expenses (actual) Estate Tax NET DISTRIBUTABLE ESTATE
P3,725,000 ----------(650,000) (81,000) P2,994,000
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7.
B C D C C C C
8. 9. 10. 11. 12. 13. 14.
A D A D D A D
15. 16. 17. 18. 19. 20. 21.
A C C A D A C
Supporting Computations: No.5 Estate tax due (for P4M) Estate tax credit (3/4 x P355,000) vs P80,000 Estate tax payable
22. 23. 24. 25. 26. 27. 28.
C A C D C A B
29. 30. 31. 32.
C D A B
P355,000 (80,000) P275,000
No. 6 Estate tax due (for P500,000) Less: Estate tax credit
P55,000 (20,500)
Estate tax payable
P34,500
Limit 1: Singapore: 300/1,000 x P55,000 USA: 100/1,000 x P55,000 Limit 2: 400/1,000 x P55,000 ALLOWED TAX CREDIT (LOWER AMOUNT)
Limit P16,500 5,500
Actual P30,000 4,000
Allowed P16,500 4,000 P20,500
P22,000
34,000
22,000 P20,500
No. 7 Gross Estate Deductions Share of the surviving spouse (5,000,000 x 60% x 50%)
P10,000,000 (5,000,000) (1,500,000)
Net taxable estate Tax Due Estate tax credit (2.8/3.5 x P300,000) vs P124,500 Estate tax payable
P3,500,000 P300,000 (124,500) P175,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000 Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000 No. 8
44 #
Estate tax due (for P500,000) Less: Estate tax credit
P71,000 (41,417)
Estate tax payable
P29,583
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
Limit 1: Japan: 300/1,200 x P71,000 USA: Exclude for purposes of computing Limit 1 HK: 450/1,200 x P71,000 Limit 2: (Include USA) 700/1,200 x P71,000 ALLOWED TAX CREDIT (LOWER AMOUNT)
Limit P17,750 26,625
Actual P20,000 45,000
Allowed P17,750 26,625 P44,375
P41,417
65,000
41,417 P41,417
No. 9 and 10 Property inherited Property acquired through own labor Funeral expenses Judicial expenses Claims against the estate Notarized Not notarized Standard deduction
Net Taxable P1,400,000 3,600,000 (200,000) (200,000)
Net Distributable P1,400,000 3,600,000 (240,000) (200,000)
(40,000) (1,000,000)
(40,000) (20,000) -
P3,560,000
P4,500,000
Net Taxable/Distributable estate
CHAPTER 6 – DONOR’S TAX PROBLEM SOLVING
P6.1 ITEM
Q#1
A B C D E* F G H I Land 1** Land 2*** Land 3**** Car GROSS GIFT
Q#2
P800,000 3,000,000 250,000 100,000 5,000,000 1,500,000 100,000 100,000 500,000 5,000,000 200,000 P16,550,000
P800,000 3,000,000 250,000 100,000 5,000,000 1,500,000 100,000 100,000 500,000 5,000,000 200,000 P16,550,000
Q#3 P800,000 3,000,000 250,000 100,000 5,000,000 1,500,000 100,000 100,000 500,000 5,000,000 200,000 P16,550,000
Q#4
Q#5
P800,000
P800,000
-
250,000 100,000
1,500,000 500,000 200,000 P3,000,000
1,500,000 100,000 500,000 200,000 P3,450,000
*The question is “gross gifts”, hence, disregard the mortgage. **Sale of Land #1 is a transfer with insufficient consideration. However, unlike in Estate Taxation, Transfer with insufficient consideration for donor’s tax purposes is not taxable if the property donated is a real property classified as capital asset subject to capital gains tax.
4@ #
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
*** Sale of Land # 2 is considered bonafide or valid sale. ****Sale of Land #3 is a transfer with insufficient consideration. Nonetheless, the sale is subject to donor’s tax because the property was not subjected to capital gains tax. Capital gains tax on real properties are applicable only on sale of real properties classified as capital assets located in the Philippines.
P6.2 ITEM A B C D E F Car, Alabang Car, Malaysia Land Cebu
Q#1 P4,500,00 1,000,000 1,500,000 2,000,000 3,000,000 500,000 200,000 200,000 -
Q#2 P4,500,00 3,000,000 200,000 -
GROSS GIFT
P12,900,000
P7,700,000
P6.3 1.P0
2.P5,000
3.P10,000
43,000
P6.4 Donation-Red Cross (exempt under a special law)* Donation to Manila City Hall * Mortgage on the land (400,000 x ! ) Total deductions from the gross gifts
P100,000 300,000 100,000 P500,000
*Exempt donations which partake the nature of deductions and are, therefore , deductible from the gross gifts to arrive at taxable net gifts.
P6.5 Relative P50,000 46,000
Stranger
Cash to his son on account of marriage Cash to PPCRV for 2013 election Jewelry to his auntie Shoes and bags to his girlfriend 30,000 Books to the City of Makati 20,000 Second hand car to his first cousin 500,000 Brand new SUV to his second cousin (subject to revocation) Shares of stocks of a domestic corp. to his best friend 150,000 Car to his daughter (a donation mortis causa) Forgiven a loan due from his brother(50,000-25,000) 25,000 Sports equipment to his brother in law 75,000 Parcel of land to the Philippine government for public use 1,000,000 Gross Gifts P621,000 P1,275,000 NOTE: Cash to PPCRV. Not considered as donation under the tax code. It is subject to the rules and regulations of ! the COMELEC under the election code of the Philippines.
4A #
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
! ! !
Books for the City of Makati AND Land for Public Use. Although the donations are exempt, should be considered in the determination of “gross gifts” Gift subject to revocation is not a gift. Donation mortis causa is a donation subject to estate tax, not donor’s tax.
P6.6 a) b) c) d) e)
March 1 = P2,000 May 30 = P18,000 June 30 = P90,000 July 31 = P0 September 30 = P447,200
Solution Gross Gifts Dowry
P200,000 -
Net taxable gift Donor’s Tax Due/ Payable – March 1
P200,000 P2,000
Gross gift Less: Mortgage assumed by the donee Add: Prior net gift
P500,000 (100,000) 200,000
Taxable gift – May 30
P600,000
Donor’s Tax Due Less: Tax paid
P20,000 (2,000)
Donor’s tax payable-May 30
P18,000
Donor’s tax payable-June 30 (P300,000 x 30%)
P90,000
Donor’s tax payable-July 31 (Bantay Bata)
1 year after celebration
P0
September 30 Gross Gift Dowry Mortgage assumed Prior net gift Taxable gift Tax Due Less: Tax Payments Tax Payable
46 #
Transfer
&
Relative P1,500,000 (10,000) (300,000) 600,000
Stranger P1,500,000 (300,000)
P1,790,000
P1,200,000 @30% P360,000
P107,200 (20,000) P87,200
Business
Taxation(2015
Ed ition)
360,000
by
Tabag
Total
P447,200
and
Garcia
P6.7 1) January 15, 2012 = P32,000 2) April 1, 2012 = P6,000 3) December 25, 2012 = P0 4) March 30, 2013 = P30,000 5) May 25, 2013 = P0 Solution Gross Gifts-Jan. 1, 2014 Less: Encumbrance Taxable gift
P1,000,000 (200,000) P800,000
Donor’s tax due/payable-Jan. 1, 2014
P32,000
Gross gift – April 1, 2014 Add: Prior net gift Taxable gift
P100,000 800,000 P900,000
Donor’s Tax Due Less: Tax paid Donor’s tax payable-Apr. 1, 2014
P38,000 (32,000) P6,000
December 25, 2014
P0
March 30, 2015 P100,000 x 30%
P30,000
May 25, 2015 Gross gift Deductions Taxable gift
The rule that gift of not more than P100,000 is exempt is applicable only to donations made to relatives.
P200,000 (200,000) P0
Tax Due
P0
P6.8 1) 2)
October 8, 2015 = P9,800 November 4, 2015 = P1,200 June 6, 2015 Gross Gift Dowry Mortgage assumed Taxable gift Donor’s Tax Payable
4B #
Transfer
&
Business
Husband P240,000 (10,000) (2,000)
Wife P240,000 (10,000) (2,000)
P228,000
P228,000
P3,120
P3,120
Taxation(2015
Ed ition)
by
Tabag
Total
P6,240
and
Garcia
October 8, 2015 Gross Gift Dowry Prior Net Gift Taxable gift Donor’s Tax (Tax Table) Tax Paid-June 6 Donor’s Tax Payable
P228,000 @30
P248,000
(3)P69,800
Gross Gifts Dowry (beyond 1 year) Mortgage assumed Taxable gift Donor’s Tax Payable
Gross Gifts Prior net gift
March 30, 2015 Mr.Macariola P200,000 150,000
Gross Gifts Dowry Prior net gift Taxable gift Donor’s Tax Donor’s tax paid
Wife P7,000 (5,000) P2,000 @30 P600
Total
Mrs.Macariola P200,000 (50,000) P150,000 P1,000
Total
Mrs.Macariola P-
Total
Transfer
&
Business
P1,200
P2,000
P350,000 8,000 (1,000) P7,000 June 1, 2015 Mr.Macariola P-
P7,000
Mrs.Macariola P100,000 (10,000) 150,000 240,000 P3,600 (1,000)
Donor’s Tax Payable
4C #
P9,800
(4)P30,000 Feb. 15, 2015 Mr.Macariola P200,000 (50,000) P150,000 P1,000
Taxable gift Donor’s Tax Donor’s tax paid Donor’s Tax Payable
Total
P3,920 (3,120) P800
November 4, 2015 Husband P7,000 (5,000) P2,000 @30 P600
Donor’s Tax Payable (2)P2,600
Wife P30,000 (10,000) 228,000
P9,0000
Gross Gifts (strangers) Exempt Prior Net Gift Taxable gift
P6.9 (1)P7,000
Husband P30,000 ---
Total
2,600 Taxation(2015
Ed ition)
by
Tabag
P2,600 and
Garcia
October 12, 2015 Mr.Macariola
Gross Gifts Dowry (claimed June 1) Mortgage assumed Prior net gift Taxable gift
Donation to Stranger P200,000 (50,000)
Donation to a Relative P200,000 -
150,000 @30%
Donor’s Tax Donor’s tax paid Donor’s Tax Payable Total
Mrs.Macariola
P45,000 P54,000
Total
Donation to a Relative P400,000 (50,000) 240,000 590,000
350,000 550,000 P17,000 (8,000) P9,000
P19,400 (3,600) P15,800
P69,800
Gift Tax of Clifford P100k@30% = P30,000
P6.10 ------ (For Estate Tax)
TRUE OR FALSE 1. TRUE 2. TRUE 3. FALSE 4. TRUE 5. TRUE 6. TRUE MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
A A C C B D D D D C
7. 8. 9. 10. 11. 12.
FALSE TRUE FALSE FALSE TRUE FALSE
13. 14. 15. 16. 17. 18.
FALSE FALSE FALSE FALSE FALSE FALSE
19. 20. 21. 22. 23. 24.
FALSE FALSE FALSE FALSE FALSE TRUE
25. 26. 27. 28. 29. 30.
TRUE TRUE FALSE TRUE FALSE FALSE
11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
D B C D B D A B C D
21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
C A D C C D C D B B
31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
C D A B D C B D D A
41. 42. 43. 44. 45. 46. 47. 48. 49. 50.
B A A C B B D D A C
Supporting computation: No. 18. If the sale is considered fictitious, the entire value at the date of sale is subject to donor’s tax. No. 21. Letter “a” – onerous transfer Letter “b” - To be considered valid donation, the renunciation should be specifically and categorically done in favor of identified heir(s) to the exclusion or disadvantage of the other co-heir(s) in the hereditary estate. Letter “c” – gratuitous transfer, subject to donor’s tax
4D #
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
No. 24. Donation to Gross Gifts (2M/2) /2 Less Dowry Net taxable gift
Pedro P500,000 (10,000) P490,000
Clara P500,000 P500,000
No. 27. DONEE Son D. in Law Gross Gifts (5M/2) Less Dowry
P2,500,000 (10,000)
-
Net taxable gift
P2,490,000
-
NG (3/1) Tax Due (P25,000 x 2%)
Husband 125,000 P500
Wife 125,000 P500
GG (5/1) Dowry PNG 3/1
P100,000 (10,000) 125,000
P100,000 (10,000) 125,000
NG
P215,000
P215,000
Tax Due Tax Paid 3/1
P2,600 (500)
P2,600 (500)
D.T. Payable
P2,100
P2,100
100,000 215,000
100,000 215,000
P315,000 6,600
P315,000 6,600
No. 31-33.
GG (7/1) PNG 3/1 and 5/1 TNG Tax Due Total Taxes Paid 7/1
P13,200
No. 38. Taxable gift
4E #
P300,000
Tax Due Tax Credit P4,500 vs. (200/300 x P6,000=P4,000)
P6,000 (4,000)
D.T.Pyable
P2,000
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
CHAPTER 7 – BUSINESS TAXES MULTIPLE CHOICE 1. 2. 3. 4. 5. 6.
A D D D D C
7. 8. 9. 10. 11. 12.
B C D C A C
13. 14. 15. 16. 17. 18.
D C B C A D
19. 20. 21. 22. 23. 24.
C D D A D C
25. 26. 27. 28. 29. 30.
A* D C** A A C
* The end-useR (person using the comm unication facility is the one liable for OCT, not the communication company. **3% CCT is applicable only to domestic carriers transporting passengers by land, not by air or sea.
CHAPTER 8 – VALUE ADDED TAX ERRATUM: Page 257, Question#2 of Illustration 18 Case B. Change the following # Question2: Answer: P108,000 change to P372,000. # INPUT VAT Transfer costs (From BOC to the importer’s warehouse in Isabela)(P6,000,000 x 5%) x 12% #
(300,000) (36,000)
Page 258, Case B of Illustration 19 . Change the following data: Freshko, a manufacturer of sard ines has the following data for the month of June: Sales, sardines, (net)
P12,000,000
Change to P10,000,000
PROBLEM SOLVING P8.1 Case A Case B Case C Case D
E E E V
P8.2 Case A Case B Case C Case D
X X V V
Case E Case F Case G Case H
V X V (0%) V
Case I Case J
V X
P8.3 a) b) c) d)
@5 #
nil Vat Payable = P134,400 x 3/28 = P14,400 Vat Payable = OV P201,600 x 3/28 – Input Vat P14,400 = P7,200 nil
Transfer
&
Business
Taxation(2015
Ed ition)
by
Tabag
and
Garcia
P8.4 Cash Sales Sales on account Transactions deemed sale (22,400+16,800+19,040+8,960) Total sales subject to vat x Output Vat Less: Input vat (P291,200 x 3/28) Vat Payable
P660,800 246,400 67,200 P974,400 3/28 P104,400 (31,200) P73,200
P8.5 OUTPUT: Sales (P8M – 400,000) x 12% Sales from consignment (March and Feb.) (20+10) x P10,000 x 12% Transactions deemed sales January 8 consignment (20 x P10,000) x 12% Goods withdrawn Goods taken as payment to creditors INPUT VAT Purchase of goods, supplies, freight/insurance) Capital goods (P1,100,000 x 12%) / 48 mos. VAT PAYABLE
P912,000 36,000
24,000 6,000 3,600
P981,600
82,080 2,750
(84,830) P896,770
P8.6 Sale of school supplies Sale of gift items Sales subject to output vat x Output Vat Less: Input vat on purchases directly attributable to vatable ! sales (Purchase of school supplies and gift items) P1,344,000 x 3/28 Input vat on purchases attributable to vatable and ! nonvatable sales (Purchase of computers) P448,000 x 3/28 x (2,400/3,600)** Purchase of office supplies used in vatable and non! vatable transactions from non-vat registered suppliers Vat Payable
P1,680,000 1,008,000 P2,688,000 3/28 P288,000
P144,000
P32,000 nil
(176,000) P112,000
**Total Vatable Sales net of vat = P 2,400,000 Non-vatable sales = P1,200,000 Total Sales, net (vatable and non-vatable) = P3,600,000
@! #
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P8.7 Output Vat (P896,000 x 3/28) Less: Input vat ! ! !
P224,000 x 3/28 P112,000 x 3/28 x 80% P2,240 x 3/28 x 80%
Vat Payable
P8.8
P96,000
(24,000) (9,600) (192)
Note: The input vat on capital goods is not amortized because the acquisition cost is not more than P1M. The ratio of vatable sales to total sales = 80%
P62,208
Assume amounts are vat inclusive (a) Total Input Vat (P374,000 + 69,848 + 154,000 + 55,000) x 3/28 =
P69,948
(b) Output vat (P330,000 + P274,996) x 3/28 Less: Input vat (P374,000 + 69,848 + 154,000) x 3/28
P64,821 (64,055)
Vat Payable P766 Note: Sale to export oriented enterprise is considered export sale subject to 0% vat only if more than 70% of its annual production is actually exported
P8.9 (a) P28,800 (b) P12,600 Output Vat (P350,000 x 12%) Less: Input vat on importation: ! CIF (cost, insurance, freight) value Charges/expenses incurred in claiming the goods: Wharfage Arrastre Customs duty Brokerage fee and documentary stamps Facilitation expense Marine cargo insurance
P42,000
P229,195 1,540 2,295 4,090 330 2,550
Total x
P240,000 12%
Input vat on Freight from customs to warehouse Vat Payable
(28,800) (600) P12,600
!
P8.10 (a) 1st Quarter
Output Vat (P3M x 12%) INPUT VAT: Purchases (P1.2M x 12%) Purchase of machinery (P2.5M x 12%) / 36 x 3mos. Unused input vat as of end of 2014 Vat Payable
@4 #
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P360,000 (144,000) (24,500) (125,000) P66,500
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(b) 2nd Quarter
Output Vat (4.8M x 12%) Input Vat Purchases (P3M x 12%) Unused input vat on capital goods (P2.5M x 12%-24,500) Excess Input vat
P576,000 (360,000) (275,500) (P59,500)
P8.11 Output vat (P336,000 x 12%) Input vat: On purchases (P112,000 x 3/28) Transitional input vat: Higher between 2% of beg. Invty vs. P10,000
P40,320
(10,000)
Vat Payable
P18,320
(12,000)
P8.12 (a) P3,400 (b) P80,000 Output vat (P800,000 x 12%) Less: Input Vat Presumptive I.V (P85,000 x 4%) Purchased of olive oil (P67,200 x 3/28) Purchased of can containers (P25,000 x 12%)) Payments for paper labels (P12,000 x 12%) Purchased of cardboard for boxes (P8,960 x 3/28) Payments for hauling services
P96,000
Vat Payable
P80,000
(3,400) (7,200) (3,000) (1,440) (960) nil
P8.13 Output vat (672,000 x 3/28) Less: Input Vat Pres. Input vat on purchased of fruits from farmers @ 4% Purchased of bottles (P22,400 x 3/28) Purchased of can containers (P50,000 x 12%) Payments for paper labels (P5,600 x 3/28) Purchased of cardboard for boxes (P3,360 x 3/28) Payments for hauling services (P60,000 x 12%) Vat Payable
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Taxation(2015
P72,000 (8,000) (2,400) (6,000) (600) (360) (7,200) P47,440
Ed ition)
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P8.14 Subject to Value Added Tax Hotel rooms (P1.8M x 12%) Dining Hall: Sale of food and refreshments (P2.2M x 12%)
P216,000 264,000
Sale of wine, beer and liquor (P950,000 x 12%) Other revenues (P700,000 x 12%)
114,000 84,000
Subject to Percentage Tax (Amusement Tax) Disco: Sale of food and refreshments (P1.6M x 18%) Sale of wine, beer and liquor (P1.2M x 18%)
288,000 216,000
TOTAL BUSINESS TAXES
P1,182,000
P8.15 OUTPUT VAT based on collections (15M + 10M + 5M) INPUT VAT on purchases from: Alpha (P 12M – 1.2M) x 12% Bravo (non-vat reg.) Charlie (P4M – 1M) x 12% Delta (P2M x 12%) Vat Payable
P3,600,000 (1,296,000) (360,000) (240,000) P1,704,000
P8.16 Output vat ((P4M – 2.5M) x 12% Less: input vat (P800,000 x 12%) Vat Payable
P180,000 (96,000) P84,000
P8.17 Ratio of Initial Payment over Selling Price: Lot A = 50/250 = 20% ; Installment Sale Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale Lot C = 60/300 = 20%; Installment Sale Nov. 2015 Lot A: P25,000 x 12%; P25,000 x 12% P3,000 Lot B: P200,000 x 12% 24,000 Lot C: P40,000 x 12%; P20,000 x 12% 4,800 Vat Payable P31,800
Dec. 2015 P3,000 2,400 P5,400
P8.18 a) b)
@A #
Output vat September 2015 = P3M x 12% = P360,000 The sale is a Deferred sale. Ratio of initial payments over SP is 30%. Output vat January 2016 = P0
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P8.19 Room charges Laundry services Food and beverages Corkage Handling charges for providing telephone, telex, cable or fax services Cake shop sales Total Vat rate Output Vat for the month
P1,000,000 25,000 1,500,000 15,000 4,500 80,000 P2,624,500 12% P314,940
TRUE OR FALSE SET A 1. 2. 3. 4. 5.
T F F T T
6. 7. 8. 9. 10.
F F F T T
11. 12. 13. 14. 15.
F F F F F
16. 17. 18. 19. 20.
T F F T T
21. 22. 23. 24. 25
F F T F F
SET B 1. 2. 3. 4. 5.
T T T F F
6. 7. 8. 9. 10.
F F F T F
11. 12. 13. 14. 15.
F F T F T
16. 17. 18. 19. 20.
T T T F F
21. 22. 23. 24. 25
T T T T F
21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
C A C C D C D B C B A D A B B B B B C A
41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.
B C D D B D D C C D B C B D D C A B C A
61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80.
B B C D A C B D A D D A D B C D C D C B
81. 82. 83. 84. 85. 86. 87. 88. 89. 90.
D A B D D B C D C D
MULTIPLE CHOICE 1. D 2. C 3. A 4. D 5. D 6. D 7. D 8. D 9. A 10. C 11. C 12. A 13. A 14. D 15. C 16. C 17. A 18. D 19. D 20. D
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Supporting Computations/explanations: No. 12 “III” is exempt only if contribution per member is not more than P15,000. No. 20 Output Vat (P2,805,500 +P1,524,000) x 12% P519,540 Input vat (P1,102,200+P1,012,500) x 12% (253,746) Vat Payable P265,780 No. 21 Output Vat, 3rd quarter (P150,000 x 12%) Input vat, 3 rd quarter (P120,000 x 12%) Deferred input vat – previous quarter Vat Payable (Carry-over)
P18,000 (14,400) (6,000) (P2,400)
No. 37 AR, July 1 Billings, July-Sept. AR, Sept. 30 Collections Output vat @ 12% Input vat on purchases @ 12% Vat Payable
P180,000 850,000 (120,000) P910,000 109,200 (57,600) P51,600
Output vat (P5.5M x 12%) Input vat on materials Vat Payable September 2014
P660,000 (180,000) P480,000
No. 38
No. 39 Output vat (P10M x 12%) Input vat on materials Input vat on capital goods (P3Mx12%) /60 mos. Vat Payable June 30, 2014
P1,200,000 (480,000) (36,000) P684,000
No. 41 Sales, shares held as inventory Cos of shares, held as inventory
P5,000,000 (2,000,000)
Gross income Vat rate
3,000,000 12%
Output vat Les: Input vat Supplies expense Rent expense
P360,000 12,000 24,000
Vat payable
(36,000) P324,000
No. 49
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Domestic sales (P600,000 x 12%) Add: Transaction deem ed sales Jan. 4 consignment (P200,000 x 12%) Goods consumed on Fe. 27 (P50,000 x 12%) Property dividends (P150,000 x 12%) Total Output Vat
P72,000 24,000 6,000 18,000 P120,000
No. 66 & 67 Output vat (P592,480 x 3/28) Less: Input Vat Purchases of goods (P100,000 x 12%) Purchases of services (P20,000 x 12%) Transitional input vat
P63,480 P12,000 2,400 4,800
(19,200)
VAT Payable
P44,280
No. 72 Output Vat for October 2014 = P3M x 12 = P360,000 # Ratio of Initial Pay’t over Gross S.P. = P900,000/P3,000,000 = 30% # If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale which is treated as Cash Sale. Therefore, the entire output vat is due on the month of sale. No. 73 Output Vat for 2015 = P0;
The entire output vat was paid in 2014
No. 74 Downpayment 1st installment payment Total (vat inclusive) Less: VAT (P224,000 x 3/28) Initial Payment (exclusive of vat) Divide by contract Price (P1,120,000 x 3/28)
P112,000 112,000 224,000 (24,000) P200,000 1,000,000
Ratio of Initial Payment over SP Output vat for 2014 (P200,000 x 12%)
20% P24,000
VAT ON CASH SALE: (ZV is higher than SP) (P600,000 x 12%) VAT ON DEFERRED SALE: (Ratio of Initial payment over SP 25% (Not qualifying under installment method) (Treated as cash sale; SP is higher than FMV) [(P336,000/1.12) x 12%]
P72,000
No. 75
TOTAL OUTPUT VAT
36,000
P108,000
No. 78 and 79 Output vat (P336,000 x 3/28) Input vat (56,000 + 11,200) x 3/28 x 300/500 Vat Payable
@C #
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Taxation(2015
P36,000 (4,320) P31,680
Ed ition)
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