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Understanding Donor's Tax and Regulations

Oct 4, 2024

Lecture Notes on Donor's Tax

Introduction

  • Donor's Tax: Tax on donations inter vivos (between living persons).
    • Prevents avoidance of estate tax through lifetime donations.
    • A gift is a voluntary transfer without consideration.
  • Governed by law at the time of donation perfection (completion).

Definition and Nature

  • Donor's Tax: Levied on transfer of property by gift.
    • Applies whether direct/indirect, real/personal, tangible/intangible.
  • Nature: An excise tax on the privilege of giving, not a property tax.
    • Tax applies only once the gift is complete.

Purpose

  • Supplement Estate Tax: Supports tax collection on property transfers.
  • Prevent Income Tax Avoidance: Stops income splitting among family/trusts.

Requisites for Valid Donation (Article 725, New Civil Code)

  1. Capacity of Donor: Legal competence to contract.
  2. Intent to Donate: Clear intent to transfer without consideration.
  3. Delivery: Actual or constructive.
  4. Acceptance by Donee: Must be acknowledged, can be documented separately.

Donations to Unborn Children

  • Can be accepted by legal representatives.
  • Minors require acceptance by parents/legal reps.

Transfers Considered as Donations

  1. Transfer for Insufficient Consideration: Below market value is a gift.
  2. Condonation of Debt: Considered a gift if no service rendered by debtor.
  3. Gifts Out of Gratitude: No economic consideration.
  4. Renunciation in Favor of Heirs: Different tax implications.

Classification of Donors

  • Citizens/Residents: All properties (domestic/foreign) subject to tax.
  • Non-Resident Aliens: Only real/tangible properties in the Philippines taxed.
  • Reciprocity Rule: Exempts certain properties from tax.

Determining Gross Gift

  • Resident/Citizen: All gifts considered.
  • Non-Resident Alien: Only Philippine-situated properties.

Valuation

  • Real Property: Higher of fair market or assessed value.
  • Tax Credit: For donor's taxes paid abroad by residents/citizens.

Deductions from Gross Gifts

  1. Encumbrance Assumed by Donee
  2. Diminution Provided by Donor
  3. Donations to Government/NGOs

Tax-Exempt Donations

  • To government or non-profit entities.
  • Restrictions on administrative usage (30% rule).

Donor's Tax Rate and Filing

  • Flat Rate: 6% on net gifts exceeding 250,000 pesos.
  • Filing Requirement: Within 30 days of gift completion.

Calculation Example

  • Gross taxable donation varies by donor's residence status.

BIR Form 1800

  • Details required for filing include date of donation, donor/donee information, total net gifts.
  • Calculation involves subtraction of deductions and application of tax credits.

Conclusion

  • Timely filing prevents penalties.

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