Transfer Tax Flashcards
(15 cards)
Karissa is the registered owner of a beachfront property in Kawayan, Quezon which she acquired in 2015. Unknown to many, Karissa was only holding the property in trust for a rich politician who happened to be her lover. It was the politician who paid for the full purchase price of the Kawayan property. No deed of trust or any other document showing that Karissa was only holding the property in trust for the politician was
executed between him and Karissa. Karissa died single on May 1, 2017 due to freak surfing accident. She left behind a number of personal properties as well as real properties, including the Kawayan property. Karissa’s sister. Karen, took charge of registering Karissa’s estate as a taxpayer and reporting income tax and VAT purposes, the rental income received by the estate from real properties. However, it was only on October 1, 2017 when Karen managed to file an estate tax return for her sister’s estate.
Should the beachfront property be included in Karissa’s gross estate?
Yes. SEC. 85. of the NIRC, provides that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. Karen’s beachfront property is registered in her name at the time of her death therefore she has ownership and it is presumed to be part of her estate.
Mr. Mayuga donated his residential house and lot to his son and duly paid the donor’s tax. In the Deed of Donation, Mr. Mayuga expressly reserved for himself the usufruct over the property for as long as he lived.
Describe the donated property from the taxation perspective.
This is a transfer in contemplation of death where said property should then be added to the gross estate of the decedent. Under Section 85(E) of the NIRC, the gross estate includes transfers in contemplation of death, and more importantly:
“Transfers where the decedent retained for life the possession or enjoyment of the property, or the right to income therefrom, shall be included in the gross estate.”
So, even if Mr. Mayuga already donated the house and lot to his son, if he retained the usufruct (i.e., the right to use/enjoy the property until death), the entire value of the property is included in his gross estate at the time of death.
Thus, the property in question is part of the estate and is subject to 6% estate tax.
Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable and sufficient consideration, a house and lot to his son. He died one year later. In the settlement of Mr. Agustin’s estate, the BIR argued that the house and lot were transferred in contemplation of death and should
therefore form part of the gross estate for estate tax purposes. Is the BIR correct?
No. The house and lot were not transferred in contemplation of death; therefore, these properties should not form part of the decedent’s gross estate.
Under the NIRC, a transfer in contemplation of death which takes effect in possession or enjoyment at or after death forms part of the gross estate except in case of a bona fide sale for an adequate and full consideration in money or money’s worth.
In the instant case, since Mr. Agustin sold the house and lot for valuable and sufficient consideration, there is no transfer in contemplation of death for estate tax purposes.
Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in China valued at P80 billion and in the Philippines, assets valued at P20
billion. For Philippine estate tax purposes, the allowable deductions and the share of his surviving spouse in their conjugal partnership amounted to P15
billion. Tong’s gross estate for Philippine estate tax purposes is:
Gross estate for tax purposes is 20B. Under the NIRC, the gross estate in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate.
In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000. The fair market value of the painting at the time of purchase was Pl million. Yuri
paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the painting, already worth P1.5 million, to his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as successor to the painting in the event of Zandro’s death. Zandro died in 2007, and Wilma succeeded to the property. Should the painting be included in the gross estate of Xavier in 2001 and thus, be subject to estate tax?
Yes. Under Section 85 of the NIRC, the gross estate shall include all property real or personal, tangible or intangible wherever situated at the time of his death. In the instant case, Xavier is he owner of the painting when he died in 2001. Accordingly, the fair market value of the painting in 2001, which was owned by Xavier at the time of his death, should be included in the gross estate of Xavier and be subject to estate tax.
it is not zandro’s - Under Section 85(B) of the NIRC, the gross estate includes property passing under a general power of appointment, but excludes property under a special (limited) power of appointment.
Cliff Robertson, an American citizen, was a permanent resident of the Philippines. He died in Miami, Florida. He left 10,000 shares of Meralco, a condominium unit at the Twin Towers Building at Pasig, Metro Manila and a house and lot in Los Angeles, California.
What assets shall be included in the Estate Tax Return to be filed with the BIR?
Under the NIRC, gross estate of citizens and residents include all property, real or personal, tangible or intangible, at the time of his death, wherever situated. Cliff Robertson being a permanent resident of the Philippines is covered by this provision thus the intangible property - 10k shares of meralco and the real properties in metro manila and california shall be included in the estate tax return to be filed with the BIR.
The value of the net estate of the decedent may be reduced by an amount of estate tax paid to a foreign country, but only in proportion to the value of property situated outside the Philippines.
State the conditions for allowing claims against the estate as deductions from the gross estate of a citizen or resident
alien for the purpose of imposing estate tax.
Under the NIRC, claims against the estate are considered as deductions from the gross estate provided that the indebtedness instrument is duly notarized and if the loan was contracted within 3 years before the death of the decedent, the administrator or the executor of the estate shall submit a statement showing the disposition of the proceeds of the loan.
In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000. The fair market value of the painting at the time of purchase was P1 million. Yuri
paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the painting, already worth P1.5 million, to his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as successor to the painting in the event of Zandro’s death. Zandro died in 2007, and Wilma succeeded to the property.
May a vanishing deduction be allowed in either or both of the estates?
A vanishing deduction is not available to both estates of Xavier and Zandro because in the case of Xavier, he acquired
the painting by purchase, and in the case of Zandro, the painting shall not be included in his gross estate; hence,
there would be no double taxation of the same property, for estate tax purposes. Moreover, the two deaths must occur
within a period of five (5) years. In this case, the death of Zandro occurred in 2007, and more than five (5) years have,
therefore, elapsed from the date of death of Xavier in 2001.
Mr. L owned several parcels, and he donated a parcel each to his two children. Mr. L acquired parcels of land
in 1975 for P200,000.00. At the time of donation, the fair market value of the two parcels of land, as determined by the CIR, was P2,300,000.00; while the
fair market value of the same properties as shown in the schedule of values prepared by the City Assessors was P2,500,000.00. What is the proper valuation of Mr. L’s gifts to his children for the purpose of computing donor’s tax?
Under the NIRC, the if the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the amount shall be the FMV as determined by the Commissioner or the FMV as determined by the Provincial, City, Municipal Assessor whichever is higher. In the instant case, the FMV at the toime fo the donation shall be the amount of the gift and it is that based on the schedule of values by teh CIty Assessors’ as it is higher that that of CIR.
After finally passing the Bar Examinations, a new lawyer was given an engagement ring worth P1,000,000.00 by a longtime significant other who happened to be one of the most junior sitting Justices of the Supreme Court. Their relationship has so far been
platonic.
Being an avid supporter of the current government, the new lawyer told the significant other that the gift would
only be accepted if all taxes due have been paid.
Is there any tax liability arising from the giving of the engagement ring? Explain briefly
Yes there is a tax liability in the form of a donor’s tax. Under the NIRC, a donor’s tax shall be levied, assessed, collected and paid upon the transfer by a person resident or non-resident of a property by gift. The tax for each calendar year shall be six percent computed on the vasis of the total gifts in excess of 250k exempt gift during the calendar year. The donor, is liable for a donor’s tax as the engagement ring is a given gratuitously in the absence of an agreement or covenant for marriage considering that the relationship has been platonic so far.
In this case, the giving of the engagement ring worth P1,000,000.00 is subject to donor’s tax of P45,000.00 which is the 6% of P750,000.00, the amount in excess of
P250,000.00 threshold for exempt gifts
In 2011, Solar Computer Corporation (Solar) purchased a proprietary membership share covered by Membership Certificate No. 8 from the Mabuhay Golf Club, Inc. for P500,000.00. On December 27, 2012, it transferred the same to David, its American consultant,
to enable him to avail of the facilities of the Club. David executed a Deed of Declaration of Trust and Assignment
of Shares wherein he acknowledged the absolute ownership of Solar over the share; that the assignment was without any consideration; and that the share was placed in his name because the Club required it to be done. In 2013, the value of the share increased to P800,000.00. Is the said assignment a “gift” and, therefore subject to gift tax? Explain
Under the NIRC, there shall be levied, assessed, collected or paid upon the transfer by a person, resident or nonresident, of a property by gift. However, Jurisprudence provides that ered as a gift for purposes of the imposition of a donor’s tax, the transfer is should be with animus donandi or donative intent, or the beneficial ownership must be transferred as well. In the instant case, Daniel’s execution of the Deed of declaration of Trust and Assignment shows that Solar Computer Corporation retained beneficial ownership of the shares. Thus, donor’s tax shall not be imposed.
Due to rising liquidity problems and pressure from its concerned suppliers, P. Corp. instituted a flash auction sale of its shares of stock. P.Corp. was then able
to sell its treasury shares to Z, Inc. an unrelated corporation, for P1,000,000.00, which was only a little below the valuation of P Corp.’s shares based on its
latest audited financial statements. In connection therewith, P Corp. sought a Bureau of Internal Revenue ruling to confirm that, notwithstanding the price
difference between the selling price of the shares and their book value, the said transaction falls under one of
the recognized exemptions to donor’s tax under the Tax Code.
a) Cite the instances under the Tax Code where gifts made are exempt from donor’s tax.
The following are the instances where gifts made are exempt from donor’s tax:
1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and
- Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited NGO, trust or philanthropic
organization or research institution or
organization, not more than 30% of said gifts shall be used by such donee for administration purposes.
Does the above transaction fall under any of the exemptions? Explain.
NO, the transaction does not fall under any of the exemptions. However, even though it was transferred for less than an adequate and full consideration in money or money’s worth the property shall still be exempt from the donor’s tax provided that a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, free from any donative intent), is be considered as made for an adequate and full consideration in money or money’s worth.
CMI School, Inc., a non-stock, non-profit corporation, donated its three parcels of idle land situated in the Municipality of Cuyapo, Nueva Ecija to SLC University,
another non-stock, non-profit corporation, in recognition of the latter’s contribution to and participation in the spiritual and educational development of the former. Is CMI School, Inc.,liable for
the payment of donor’s tax? Explain your answer.
NO. Gifts in favor of an educational and/or charitable religious, cultural or social welfare corporation, institution:
accredited NGO, trust or philanthropic organization or research institution or organization are exempt from donor’s tax, provided, however, that not more than 30% of said gifts shall be used by such donee for administration
purposes.
Miguel, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors Corporation, a Mexican company, to his legitimate son, Miguelito, who is residing in the Philippines and about to be married to a Filipino girlfriend. Mexico does not
impose any transfer tax of whatever nature on all gratuitous transfers of property. Is Miguel entitled to
the rule of reciprocity in order to be exempt from the Philippine donor’s tax? Why or why not?
NO. The reciprocity rule applies only to intangible property situated in the Philippines. In the present case, the
shares of stocks in Barack Motors Corporation are not deemed situated in the Philippines since the issuing corporation is a foreign corporation not doing business in the Philippines.
No, the rule of reciprocity under Section 104 of the NIRC does not even need to apply, because the intangible personal property (Mexican stocks) is not situated in the Philippines.
Since the donor is a non-resident alien and the property is located abroad, the donation is not subject to Philippine donor’s tax — regardless of whether Mexico imposes a transfer tax or not.
