Unit 4.2: Donor's Tax Flashcards
What is a donation?
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it (Art. 725).
[T/F] Donor’s tax, instead of being a property tax, is an excise tax imposed on the transfer of property by way of gift inter-vivos.
True.
What is donor’s tax?
A donor’s tax or gift tax is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift.
This tax is imposed on the exercise of the donor’s right during lifetime to transfer property to others gratuitiously.
Which of the following statements are false?
a. DT applies to both natural and juridical persons.
b. DT is a direct tax because the tax is imposed on the donor and determined with reference to all the donor’s gifts.
c. Donation includes not only the transfer of ownership in the fullest sense but also the transfer of any right or interest in property but less than the title.
d. A transfer becomes complete and taxable only when the donor has divested herself of all beneficiary interest in the property transferred and has no power to revest such in herself or her estate.
All statements are true.
When is the transfer of property by gift perfected and when is it completed?
The transfer is perfected the moment the donor knows of the acceptance by the donee.
It is completed by the delivery (either actually or constructively) of the donated property to the donee.
What is the applicable donor’s tax rate under the TRAIN Law?
Under TRAIN Law (RA 10963), the tax rate is 6% in excess of 250,000.
What are the elements/requisites of a donation?
- Capacity of the donor to make a donation
- Donative intent/intent to make a gift on the part of the donor.
- Delivery
- Acceptance
Elaborate on the “capacity of the donor to make donation” as one of the requisites.
- the condition and legal competence of the donor to enter into a contract (as donation = contract).
- all persons who may contract AND dispose of their property may donate.
- capacity is determined at the perfection of the donation.
What is meant by “donative intent”?
Donative intent refers to the proper declaration of the legal owner (of a property or right) to transfer ownership to another without consideration. This intent should be followed by a donative act to constitute a gift.
The intention is known by observing the forms required by law to make it valid.
When is donative intent required for a donation to count?
Donative intent is required only in direct gifts; if indirect* it is not necessary.
- taking place by way of sale, exchange, or other transfer of property (for inadequate consideration)
A firm transferred a plant asset to its subsidiary. Is the transfer subject to donor’s tax?
No. Due to the relationship between the two, the transfer is not subjected to DT because of wanting in “Donative Intent”. Intent, followed by a donative act, is essential to constitute a gift.
A credit merely desires to benefit a debtor. Without any consideration from the debtor, he cancels the debt. Should the amount condoned be considered as a donation made by the creditor?
Yes; donative intent is present when a creditor cancels a debt without any consideration. it was done by the creditor with a pure act of liberality.
O Corp. cancels the debt of its debtor-shareholder, because of a good thing done by the latter. Should the amount canceled by the creditor be considered as a donation?
No, this is equivalent to a declaration of dividend. It is income subject to 10% FWT on the shareholder.
