Hi everyone, welcome back to my YouTube channel, this is Riaz, and in this video, we will discuss about the deductions from Dross Gifts and as well as the computation of Donor Sacks. So, if you're ready, let's start! In this video, we have discussed already the gross gift and how they are valued and we have already an idea on how to compute the donor sacks.
But in this video, we will discuss what are the items that are allowed. to be deducted from our gross gift and how do we compute donor stacks. So let us have first a sort of recap for the computation of the donor stacks. As we have mentioned, we have the current gross gift.
We will deduct the deductions allowable from the gross gift. Then we will get the current net gift and we will add all those prior net gifts made within the same year and then we will have the total net gifts then we will deduct the exemption limit the exemption threshold which is 250 000 pesos which is actually the amount or of exemption for the entire year okay and then we'll get the taxable net gifts and from the taxable net gifts we will just multiply by six percent to get the donor's tax due and if there are their taxes paid previously we will deduct those taxes from the donor's tax due to get the donor's tax due and payable. And we have discussed that already in our video about the concept of donor's tax. So the following shall be allowed to be deducted from the gross gift.
Like the income tax, the estate tax, when computing donor's tax, we also have several items which could be deducted from the gross gift to arrive with the taxable debt gift. And these are called the allowable deductions. So number one, we have the gift to the national government or to any of its political subdivisions or agency. As we have mentioned when we discussed the gross gift, donations to the national government or to any political subdivision, the local government, or to any agencies made and created by them, that is exempted from donor stacks.
That is actually correct. But in... computing donor stacks um these donations to those agencies in government organization should still be added to the gross gift but later on deducted in the deduction so here it is so it is added to the gross gift but in the deductions it will also be allowed as deductions okay also donations or gifts in favor of educational charitable religious cultural and social welfare institutions etc are also or may also be deducted from the gross gift and as i said those gifts are actually exempted by the law according to our tax code but um even though they are exempted still they should be added to the gross gift and later on claimed as deduction from the gross gift the logic or the reason for that is we just want to declare on the correct amount of donations. So again, those donations to these institutions, to non-government organizations, are subject to the 30% rule. That is, not more than 30% of such donation is used for admin purposes.
And another deduction allowed for donor stacks is mortgages, obligations, and other encumbrances on property donated. When we say encumbrances, these are are obligations or liabilities which are attached to the property or thing being donated and is assumed by the donning for example if i am the donor and i want to give you a real property but this real property was actually subjected to a mortgage i have loaned this property but i want to give you this property so what will i do is that i will give you i will donate this property to you but At the same time, I will also attach the loan or the mortgage to this property. So there is an attached liability.
And if you assume the property, you said, okay, I will accept that. So it means that you accepted the property. At the same time, you accepted that you will be responsible to pay the obligations attached to that property.
From now on, you will be the one who would pay the corresponding or the attached. mortgages of that property. So that is what is meant by encumbrances.
So anything, any obligations attached to the donated property. So those could be deducted, allowed for deduction from the gross gift and another item is that diminution of the value of the property diminution are actually amounts which diminishes the value of the property for example if i am the donor and you will be the donny and let's say i will give you this 500 000 cash but you need to give the half of that amount to the local government or to the charity because it's pandemic and we want to contribute something to the government. So that is actually a diminution.
Essentially, if you are the donny, you are not benefited with the other half of the amount. What you will gain is just the net amount after you deducted the condition, the portion that they want to be given to another person. So that is diminution in the value of the property. So those are the four items. which are allowed to be deducted from the gross gift.
Before the train law, there was actually another one, and that was a dooring, which is not allowed now. It was already repelled by the train law. Okay, so let's now discuss how to compute donor stacks. It's actually plain and simple.
So unlike estate tax, the computation of donor stacks is straightforward and simple. You don't... don't have to memorize many complicated rules about absolute community conjugal partnership of gains you don't have to do that here okay so there's nothing like that in donor's tax it's plain straightforward and simple the tax for each calendar year shall be six percent computed on the basis of the total gifts in excess of 250 000 pesos exempt gift made during the year So before we could subject our net gift to 6%, we need to deduct the $250,000. And that $250,000 is actually an annual, I mean yearly, exemption limit.
That is according to Section 99 of the NRC as amended by Section 28A of the Republic Act 10963. So let's have an illustration. Mr. Juan de la Cruz and Macy's who... won de la cruz made the following donations out of conjugal funds and properties in 2021 as follows so we have a donation on february 14 to a a legitimate son a brand new motor vehicle with a fair market value of 170 000 an account of ace graduation from college okay and also another donation on may 17 to be a legitimate daughter on account of this marriage to be celebrated on September 25, 2021, a house and lot with a fair market value of 2 million pesos. And on June 14, another donation to C, a brother of Mrs. de la Cruz, an amount of 850,000 pesos, with a condition that C must give the 300,000 to the local government for the purchase.
purchase of necessary materials to fight COVID-19. And on December 25, another donation to D, a legitimate son, a residential house and lot with fair market value of 1.2 million but subject to a condition that D would assume the mortgage and nettedness in the amount of 400,000 pesos. So before we jump into the solution, let us first discuss this donations given.
So, by the way, these donations are all taken from the conjugal funds and properties of the husband and the wife, Mr. and Mrs. de la Cruz. So, on February 14, there was no allowed deduction. There was no, yeah, right?
On May 17, another donation, but there was no allowable deduction. But on June 14, to see the brother, the amount... donated was 850. But there was a condition that she must give the $300,000 to the local government. There was actually a diminution in the value of the property and that is amounting to $300,000. Therefore, that $300,000...
could be allowed as a deduction from the gift the 850 000 essentially c will not benefit from the 300 000 pesos he will only benefit the 850 minus 300 the net amount there okay and as for d um there was also another allowable deduction that is the mortgage encumbrances so there the amount the fair value of the property was 1.2 but um there was a mortgage to be assumed by d with an amount of 400 000 okay so let us now proceed to our solution by the way we will solve this problem we will solve this in cumulative basis and transactional basis okay so let's have here Juan and Maria and we will start with the donation made on February 14 that is to A the gross gift was 170,000 and we will split that by two so Mr. Juan will get the gross gift of 85 and Miss Maria will get 85 and there was no deduction so the The current net gift is only 85,000 pesos. And also, we will add prior net gift with May during this year. And there was none. This is the first donation made by Mr. Juan and Mrs. Maria in the year 2021. So, there was no prior net gift.
So, we will have total net gifts. Okay? And we will deduct the exemption threshold of 250. Therefore, the exemption threshold is... higher than the actual net gifts therefore there was no taxable gift at that time so mr juan and miss maria will have zero tax okay so mr juan miss maria will still be required to file donor's tax return for their donation to a but they will pay nothing because the taxable net gift is zero okay so that's it now let's go to the donation to to be which was made on may 17 gross gift was 2 million actually the entire amount was 2 million but again since it was taken out of conjugal funds we will split that by two for mr juan and miss maria so 1 million for each spouse and then we will deduct there was no deductions allowed for that donation so we will get a current net gift of 1 million pesos so So, we will also add, remember, on February 14, we have or they have a gift to A, their son. So, we will also add that prior net gift.
So, we will get total net gifts of 1,085,000 pesos. And from then, we will deduct the exemption threshold of 250,000 pesos. So, our taxable net gifts for both Juan and Maria is 1,085,000 pesos. 835 000 pesos we will just simply multiply that by six percent so therefore the donor's tax due is fifty thousand and one hundred pesos for mr juan and mrs maria now since they have a donor's tax due my sister juan and miss maria will now file again in separate they will file um separately okay mr juan will pay fifty thousand one hundred and also of Mrs. Maria.
So again, that's the tax they should be paying. So we will deduct any taxes paid previously. But again, remember in the donation to A, there was no tax paid because there was no taxable net gift.
So we will just deduct zero. And then donor's tax, is 50,100. So now let's go to the donation to C. On June 14, Mr. Juan and Mrs. Maria again donated to C. The amount was 850,000 pesos.
Remember C was a brother of Mrs. Maria and he was given a cash of 850,000 pesos. So we will just split that by two. So Mr. Juan will have a donation to C of 425 and so will Mrs. Maria. And remember there was a condition that C will give The 300,000 to the local government to purchase necessary materials for the fight of COVID-19.
So there was actually a diminution in the value of the property donated. the thing the needed so you will deduct that was 300 so again we will split that by 2 so both the gross gift in the deductions are split into two you might be asking what if the proper or thing donated was taken or donated out of the exclusive property of the husband or the wife then of course since it's exclusive you don't have to split the donation by two because it would be exclusive so for example if Juan donated the entire 850 out of his exclusive property then Juan will be the one to declare that gift and not Maria okay because again Assumption-wise, that was an exclusive property of Juan. But in this case, since the fund, the cash, was taken out of conjugal funds, so we will just split that by two.
Okay? So we will get the current net gift of P275,000. And we will add the prior net gift.
Remember the gift to A and to B, the P85,000 and the P1,000,000. We will add that here. So our total... net gifts is 1,360,000 pesos and we will now deduct the exemption threshold of 250 to get taxable net gifts.
Okay, that's it. It's a repetition of the process. You just accumulate every net gifts from the prior to current.
Just accumulate from January to February and so on until you finish the entire year. If there is certainly a donation, every month so after we get taxable net gifts we'll just simply multiply that by six percent and then we'll get our donor's tax due but remember there was a donor's tax payment previously of 50,100 okay so we will deduct that so therefore on June 14 the donor's tax payable joint payable is only 16,500 pesos okay that's it actually you can get this 16,500 pesos by simply multiplying 275 by 6%. If you multiply 275 by 6%, you will get 16,500. That's a shortcut.
I'm showing you this because this is how it is presented in the Bayer form, in the 1800 Bayer form. So this is how it is presented. It should be presented like this, but you can't.
And have a shortcut if you are, for example, if you are in school solving for problems like quizzes, exams, you can actually just multiply this by 6% and you will get 16,500. That's it. Okay.
Now, let's have the final, the last gift made during the year, which was today on December. Okay. So, the gift was actually 1,200,000 real property.
And we will just split that as what we did in our first. three gifts and we will deduct the mortgage the encumbrance assumed by um the so 600 minus 200 we will get a current net gift of 400 000 pesos and again we will add all those prior net gifts remember 85 000 pesos plus 1 million plus 275 000 in the previous three gifts so we will add 1 360 000 to get the total net gift so we will get 1,760 for Mr. Juan and Ms. Maria. Now we will also again deduct the exemption threshold of 250,000 pesos to get the taxable net gifts. Okay, that's 1,510,000. And multiply that by 6%.
This is actually a repetition. Again, just a repetition of the process. Okay, current net gifts, add prior net gifts, then deduct the exemption of 250,000, multiply by 6% just.
See? it plain simple and straightforward and we will get the donor's tax due okay uh there were actually donations or being donors taxes paid previously number one the fifty thousand one hundred that was a donation to me and number two that was sixteen thousand five hundred to donation to c or a total of sixty six thousand six hundred this donor's tax previously paid this was the donor's tax due in the previous computation if you're going to go back with this video so the donor stocks due and payable for mr juan miss maria will be 24 000 pesos that's it or you can just simply multiply the 400 000 by six percent that's it four thousand six percent you will get 24 000 that's the shortcut okay but again this is how i presented because this is how it is uh shown in the vr phone form 1800 the donor's tax return so that's it for donor's tax so if you like this video give me a thumbs up and if you're new to this channel please subscribe click the bell so you'll be notified whenever we upload new videos and i will see you in our next topic bye