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Understanding Donor's Tax and Deductions

Feb 17, 2025

Notes on Deductions from Dross Gifts and Computation of Donor's Tax

Introduction

  • Presenter: Riaz
  • Topic: Deductions from Dross Gifts and Donor's Tax Computation
  • Objective: Discuss allowable deductions and compute donor's tax.

Recap on Donor's Tax Computation

  1. Gross Gift: Current amount of the gift.
  2. Deductions: Subtract allowable deductions from the gross gift to find net gift.
  3. Prior Net Gifts: Add any prior net gifts made within the same year.
  4. Exemption Limit: Deduct the exemption threshold of 250,000 pesos.
  5. Taxable Net Gifts: Amount after exemption.
  6. Donor's Tax Due: Multiply taxable net gifts by 6%.
  7. Adjustments: Subtract any previously paid taxes.

Allowable Deductions from Gross Gifts

  1. Gifts to Government: Donations to the national government or any political subdivision.
    • Exempt but must be included in gross gift for deduction purposes.
  2. Educational and Charitable Institutions:
    • Donations to educational, charitable, religious, cultural, and social welfare institutions.
    • Subject to 30% rule for admin expenses.
  3. Mortgages and Obligations:
    • Deduct liabilities attached to the donated property.
    • Example: Donating a mortgaged property with obligations to pay.
  4. Diminution of Value:
    • Amounts that decrease the value of the property.
    • Example: Donor requires recipient to pay a portion to a charity.

Changes in Allowable Deductions

  • The previous deduction for "dooring" is no longer allowed under the TRAIN law.

Simple Computation of Donor's Tax

  • Tax Rate: 6% on gifts exceeding 250,000 pesos per year.
  • Reference: Section 99 of the NRC and amended by Section 28A of Republic Act 10963.

Example Calculation

  1. Donations by Mr. Juan and Mrs. Maria in 2021:
    • Feb 14:
      • Donation to son: Vehicle worth 170,000 pesos.
      • No deductions: Net gift = 85,000 pesos each.
      • No taxable gift due to below exemption limit.
    • May 17:
      • Donation to daughter: House worth 2 million pesos.
      • Current net gift = 1,000,000 pesos each.
      • Taxable net gift = 1,085,000 pesos.
      • Donor's tax due = 50,100 pesos.
    • June 14:
      • Donation to brother: Cash of 850,000 pesos with a condition to pay 300,000 to local government.
      • Diminution of value = 300,000 pesos.
      • Current net gift = 275,000 pesos each.
      • Taxable net gift = 1,360,000 pesos; donor's tax payable = 16,500 pesos after deducting previous tax.
    • Dec 25:
      • Donation: 1.2 million pesos real property subject to 400,000 pesos mortgage.
      • Current net gift = 400,000 pesos each.
      • Taxable net gift = 1,510,000 pesos; donor's tax due = 24,000 pesos after deducting previous taxes.

Conclusion

  • Donor's tax computation is straightforward: current net gifts + prior net gifts - exemption.
  • Important to maintain accurate records of gifts and deductions.

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Full transcript