transer and succession tax Flashcards
(26 cards)
is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition
Estate Tax
is it a tax on the property transfer?
It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.
tax form of estate tax?
BIR Form 1801 - Estate Tax Return
tax rates os estate tax?
(The rate applicable shall be based on the law prevailing at the time of decedent’s death)
Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE determined as of the time of death of decedent composed of all properties, real or personal, tangible or intangible less allowable deductions.
Processing and Issuance of Approved ONETT Computation Sheet (OCS) of Tax Due On Estate of the Decedent
For Real Properties– personal prop
Mandatory Requirements:
CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds five million pesos (₱ 5,000,000) for decedent’s death on or after January 1, 2018 or two million pesos (₱ 2,000,000) for decedent’s death from January 1, 1998 to December 31, 2017
Duly notarized Promissory Note for “Claims Against the Estate” arising from Contract of Loan; (One (1) original copy and two (2) photocopies)
Proof of valuation of shares of stock at the time of death:
a. For shares of stocks not listed/not traded - Latest Audited Financial Statement of the issuing corporation with computation of the book value per share;
b. For shares of stocks listed/traded - Price index from the PSE/latest FMV published in the newspaper at the time of transaction;
c. For club shares - Price published in newspapers on the transaction date or nearest to the transaction date
who shall file estate tax?
- The executor, or administrator, or any of the legal heir/s of the decedent, whether resident or non-resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee; or
- If there is no executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent.
- What are included in gross estate?
A. For resident alien decedents/citizens:
Real or immovable property, wherever located
Tangible personal property, wherever located
Intangible personal property, wherever located
- What are included in gross estate?
B. For non-resident decedent/non-citizens:
Real or immovable property located in the Philippines
Tangible personal property located in the Philippines
Intangible personal property - with a situs in the Philippines such as:
Franchise which must be exercised in the Philippines
Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in the Philippines
Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines (i.e. they are used in the furtherance of its business in the Philippines)
Shares, rights in any partnership, business or industry established in the Philippines
What will be used as basis in the valuation of property?
The properties comprising the gross estate shall be valued based on their fair market value as of the time of decedent’s death.
If the property is a real property, the appraised value thereof as of the time of death shall be, whichever is the higher of –
The fair market value as determined by the Commissioner, or
The fair market value as shown in the schedule of values fixed by the provincial and city assessors.
What are excluded from gross estate?
GSIS proceeds/ benefits
Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably appointed
Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable
What will be used as basis in the valuation of shares of stock?
the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges.
Unlisted common shares are valued based on their book value while unlisted preferred shares are valued at par value. In determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any. On this note, the valuation of unlisted shares shall be exempt from the provisions of RR No. 6-2013, as amended
For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.
The fair market value of units of participation in any association, recreation or amusement club (such as golf, polo, or similar clubs), shall be the bid price nearest the date of death published in any newspaper or publication of general circulation.
What are the allowable deductions for Estate Tax Purposes?
For dates of deaths occurring January 1, 2018 to present (RA No. 10963/TRAIN Law)
A. For a citizen or resident alien
(Please note that the allowable deductions will vary depending on the law applicable at the time of the decedent’s death)
:
Standard Deduction — An amount equivalent to Five million pesos (₱5,000,000.00)
Claims against the estate -
Requisites for Deductibility of Claims against the Estate –
The liability represents a personal obligation of the deceased existing at the time of death;
The liability was contracted in good faith and for adequate and full consideration in money’s worth;
The claim must be a debt or claim which is valid in law and enforceable in court; and
The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed.
3. Claims of the deceased against insolvent persons where the value of the decedent’s interest therein is included in the value of the gross estate
- Unpaid mortgages, taxes and casualty losses
- Property previously taxed - An amount equal to the value specified below of any property forming part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so received:
“One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to him by gift, within the same period prior to his death;
“Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
“Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
“Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and
“Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death.
“These deductions shall be allowed only where a donor’s tax, or estate tax imposed under Title III of NIRC was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate, and only if in determining the value of the estate of the prior decedent, no deduction was allowable under this item in respect of the property or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the donor’s tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent’s death, then the deduction allowable this item shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under items (2), (3), (4), and (6) of this Subsection as the amount otherwise deductible under this item bears to the value of the decedent’s estate. Where the property referred to consists of two or more items, the aggregate value of such items shall be used for the purpose of computing the deduction.
- Transfers for Public Use
- The Family Home - An amount equivalent to the current fair market value of the decedent’s family home: Provided, however, that if the said current fair market value exceeds Ten million pesos (₱10,000,000.00), the excess shall be subject to estate tax
If the family home is conjugal property and does not exceed (₱10,000,000.00), the allowable deduction is one-half (1/2) of the amount only.
- Amount Received by Heirs Under Republic Act No. 4917
Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917: Provided, that such amount is included in the gross estate of the decedent.
- Net share of the surviving spouse in the conjugal partnership or community property
What are the allowable deductions for Estate Tax Purposes?
For dates of deaths occurring January 1, 2018 to present (RA No. 10963/TRAIN Law)
B. For a non-resident alien:
- Standard Deduction – An amount equivalent to Five hundred thousand pesos (₱500,000)
- Losses and indebtedness -
2.1. Claims against the estate
2.2. Claims of the deceased against insolvent persons where the value of the decedent’s interest therein is included in the value of the gross estate
2.3. Unpaid mortgages, taxes and casualty losses
- Property previously taxed
- Transfers for Public Use
- Net share of the surviving spouse in the conjugal partnership or community property
Valuation of Estate
The estate shall be valued at its?
s fair market value (FMV) as of the time of death.
However, the value of real property as of the time of death shall be whichever is higher of:
1. The zonal value as determined by the Commissioner; or
2. The FMV as shown in the schedule of values fixed by the Provincial or City
Assessors.
Gross Estate for citizens shall includ…
all properties of the decedent at the time of
death, real or personal (except bank deposits already withdrawn and subjected to final withholding tax
of 6%), tangible or intangible, wherever situated but excluding the exclusive properties of
the surviving spouse. For resident alien and non-resident alien, it shall include the
property/ies situated in the Philippines
Justification for the Imposition of Estate Ta
- Benefit-Received Theory. The law considers the service rendered by the government in the distribution of the estate of the decedent, ether by law or in accordance with his wishes. 2. Privilege or State Partnership Theory. Under this theory, inheritance is not a right, but a privilege granted by the Stet and legatees have been acquired only with the protection of the State. 3. Ability to Pay Theory. Receipt of inheritance, which is an unearned wealth or windfall, are place assets into the hands of the heirs and beneficiaries. 4. Redistribution of Wealth Theory. The receipt of inheritance is a contributing factor to the inequalities in wealth and incomes.
When and Where to File and Pay
The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent’s death. In meritorious cases, the Commissioner shall have the authority to grant a reasonable extension not exceeding thirty (30) days for filing the return.
The return shall be filed electronically in any of the available electronic platforms
What are the types of transfer taxes?
Donor’s Tax: Imposed on gratuitous transfers during a donor’s lifetime. - inter vivos
Estate Tax: Imposed on gratuitous transfers upon death. –mortis causa
What is the nature of transfer taxes?
Privilege Tax: Tax on the privilege of transferring.
Ad Valorem Tax: Based on the value of the property.
Proportional Tax: Levied at a flat 6% rate.
What is succession?
The transmission of property, rights, and obligations due to a person’s death.
What are the elements of succession?
Decedent: The deceased person whose estate is transferred.
Heir: The person inheriting the estate.
Estate: The properties, rights, and liabilities transferred.
What are the types of heirs?
Compulsory Heirs: Entitled to a portion by law (e.g., legitimate children).
Voluntary Heirs: Receive inheritance through a will.
Intestate Heirs: Inherit by law when no valid will exists.
What are the types of succession?
Testamentary: Based on a will.
Intestate: By operation of law (no valid will).
Mixed: Combination of testamentary and intestate.
