chapter 5 - estate tax2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 28SUGGESTED ANSWERS

Chapter 5: ESTATE TAX

CHAPTER 5

ESTATE TAX

Problem 5–11. True 2. False – 20% of the net taxable estate 3. False – intangible property of nonresident alien decedent. 4. False – Not any claims, but legal claims substantiated with supporting documents 5. False – Not allowed to nonresident alien decedent because they are taxed only on

properties situated within. 6. False – the first P200,000 is estate tax-exempt. 7. True 8. True 9. True 10. False – If the value of the gross estate exceeds P2,000,000. 11. True 12. True

Problem 5–21. False – This is also allowed to nonresident alien decedent for their ELITE. 2. True 3. True 4. True 5. False – deductible in full 6. False – standard deduction will not reduce the inheritance. 7. False – only 30 days. 8. True 9. True 10. True 11. True 12. True

Problem 5-3 Problem 5-4

Problem 5-5

1. A 1. C 1. C2. C 2. B 2. A3. D 3. B 3. D4. A 4. D 4. A5. C 5. A 5. B6. A 6. D 6. D7. D 7. D 7. A8. B 8. C 8. C9. A 9. A 9. A10. C 10. D 10. D11. D 11. D 11. D12. D



Problem 5–6 BConjugal gross estate (P3,120,000 + P180,000) P3,300,000Funeral expense allowed (P3,300,000 x 5%) ( 165,000)Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500)Standard deduction ( 1,000,000)Net estate P 567,500

Problem 5–7 DGross estate P3,000,000Funeral expense allowed (P3,000,000 x 5%) ( 150,000)Net conjugal/community estate P2,850,000Standard deduction (1,000,000)Net estate P1,850,000Share of surviving spouse (P2,850,000 x 50%) 1,425,000Net taxable estate P 425,000

Problem 5–8 AEstate after actual deductions P1,200,000Add: Actual deductions (P150,000 + P50,000) 200,000Gross estate P1,400,000Less: Funeral expense allowed (P1,400,000 x 5%) P 70,000

Other deduction 50,000

Standard deduction 1,000,000(1,120,000

)Net taxable estate P 280,000

Problem 5–9 DExclusive Conjugal

Property – cash P1,000,000 P4,000,000Family home 800,000Transfer for public use (1,000,000)Funeral expense allowed ( 200,000)Net conjugal estate P4,600,000

Family home (P800,000/2)(400,00

0)Standard deduction (1,000,000)Net estate P3,200,000Share of surviving spouse (P4,600,000 x 50%) (2,300,000)Net taxable estate P 900,000

Problem 5–10 AGross estate P4,500,000Charges against the estate (200,000)Net conjugal estate P4,300,000Standard deduction (1,000,000)Family home (1,000,000)Net estate P2,300,000Share of surviving spouse (P4,300,000 x 50%) (2,150,000)Net estate taxable in the Philippines P 150,000

Problem 5–11 BConjugal

Properties P3,400,000Funeral expense, limit ( 200,000)Judicial expenses ( 250,000)


Chapter 5: ESTATE TAXClaims against properties ( 550,000)Net conjugal estate P2,400,000

Problem 5–12 CNet estate of P500,000 has a estate tax amounting to P15,000

Problem 5–13 AEstate tax of P5,000,000 P465,000

Problem 5–14 DNet estate Estate tax

Amounts P2,000,000 P135,000

Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86 (B), NIRC)

Problem 5–15 ANet taxable estate P10,000,000Add: Family home P1,000,000

Standard deduction 1,000,000 2,000,000Distributable estate before estate tax P12,000,000Less: Estate tax of P10,000,000 1,215,000Net distributable estate P10,785,000

Problem 5–161. Letter B Exclusive Conjugal

Real estate P2,800,000 P1,600,000Personal property 800,000Funeral expense, limit ( 200,000)Judicial expenses ( 100,000)Unpaid mortgage loan . ( 300,000)Net exclusive/conjugal state P2,800,000 P1,800,000 P4,600,000Standard deduction (1,000,000)Family home (P1,600,000/2) ( 800,000)Net estate P2,800,000Share of surviving spouse (P1,800,000 x 50%) ( 900,000)Net taxable estate P2,100,000

2. Letter DEstate tax on P500,000 P 15,000Estate tax on excess (P1,600,000 x 8%) 128,000Estate tax P143,000

3. Letter B Exclusive ConjugalReal estate P2,800,000 P1,600,000Personal property 800,000Funeral expense, actual ( 245,000)Judicial expenses ( 100,000)Unpaid mortgage loan . ( 300,000)Net exclusive/conjugal estate P2,800,000 P1,755,000 P4,555,000Share of surviving spouse (P1,755,000 x 50%) ( 877,500)Estate tax ( 143,000)Net distributable estate P3,534,500



Problem 5–17 CTax credit P100,000 x 2M/5M) P40,000

Problem 5–18 ATotal gross estate (P1,700,000 + P800,000) P2,500,000Less: Deductions 1,500,000Net taxable estate P1,000,000

Estate tax on P500,000 P15,000Excess P500,000 x 8% 40,000Total estate tax in the Philippines P55,000

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000 P17,600

Problem 5–19Conjugal Exclusive Total

Real property P1,500,000Inherited property P700,000Other properties 500,000 .Gross estate P2,000,000 P700,000 P2,700,000Less: Deductions:ELITE:

Funeral expenses P 100,000Judicial expenses 80,000Claims against the estate 300,000Transfer for public use 20,000

Total deductions P 500,000 500,000Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000Less: Special deductions:

Standard deduction 1,000,000Medical expense 200,000

Net estate before share of surviving spouse P1,000,000Less: Share of surviving spouse (P1,500,000 x 50%) 750,000Net taxable estate P 250,000

Estate tax:Tax on P200,000 P - 0 -Tax on excess (P50,000 x 5%) 2,500Estate tax due P 2,500


Family home – Philippines P2,000,000Family business – Philippines 2,000,000Properties – USA . P1,000,000Gross estate P4,000,000 P1,000,000 P5,000,000Deductions:ELITE – Funeral expense 200,000 . .Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000Less: Special deduction

Std. deduction 1,000,000Family home 1,000,000

Net estate before share of surviving spouse P2,800,000Less: Share of surviving spouse (P3,800,000 x 50%) 1,900,000Net taxable estate P 900,000

Estate tax:


Chapter 5: ESTATE TAXTax on P500,000 P15,000Tax on excess (P400,000 x 8%) 32,000Estate tax due P47,000Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429Estate tax still due and payable P33,571

Supporting computation:The computation of net estate per country is as follows:

Philippines U. S. AConjugal Exclusive Total

Gross estate P4,000,000 P1,000,000 P5,000,000Funeral expense (200,000) (200,000)Family home (1,000,000) (1,000,000)Allocation of std deduction

(P1,000,000 x 4/5): (1/4) (800,000) ( 200,000) (1,000,000)Net estate P2,000,000 P 800,000 P2,800,000


Gross estate* P5,800,000 P4,200,000 P10,000,000Less Deductions:Ordinary deductions:

Funeral expenses (actual, P350,000;5% limit, P500,000; statutoryMaximum allowed, P200,000) - lowest (200,000)

Judicial expenses (500,000)Other deductions (100,000)Vanishing deductions (note 1) . ( 92,000)

Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000Special deductions:

Standard deduction (1,000,000)Family home (50% is P1,500,000) max. allowed (1,000,000)Medical expenses (actual, P600,000) max. allowed (500,000)Amount receivable under R.A. 4917 (200,000)

Net estate P6,408,000Less: Share of the surviving spouse (P5,000,000 x 50%) 2,500,000Net taxable estate P3,908,000

*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order not to increase the deduction by 50%.

Vanishing deduction:

Cash, initial value allowed to take P500,000Less: Proportionate deductions:

Funeral expense P200,000Judicial expense 500,000Other obligations 100,000

Total P800,000(P800,000 x P500,000/P10,000,000) 40,000

Final basis P460,000Multiplied by vanishing deduction rate 20%Vanishing deduction P 92,000



Problem 5–22Gross estate (P2,000,000 + P180,000) P2,180,000Less: Deductions:

Unpaid mortgage P 480,000Funeral expense 60,000Judicial expense 20,000Standard 1,000,000 1,560,000

Net estate P 620,000

Tax on P500,000 P15,000Tax on excess P120,000 x 8% 9,600Total estate tax P24,600

Gross estate P2,180,000Less: Ordinary deductions (P480,000 + P80,000) P560,000

Estate tax 24,600 584,600Net distributable estate P1,595,400

Problem 5–23Cash P 400,000Property 1,500,000Gross estate P1,900,000Deductions:

Promissory note ( 500,000)Funeral expense ( 70,000)

Net conjugal estate P1,330,000Less: Standard deduction 1,000,000Net estate P 330,000Less: Share of surviving spouse (P1,330,000 x 50%) 665,000

Net taxable estate(P335,000

)

Gross estate P1,900,000Less: Promissory note P500,000

Funeral expense 70,000 570,000Net estate before share of surviving spouse P1,330,000Less: Share of surviving spouse (P1,330,000 x 50%) 665,000Net distributable estate P 665,000


Gross estate (P1,000,000 + P9,000,000) P1,000,000 P9,000,000 P10,000,000Ordinary deductions:

Funeral expense (limit) (200,000) ( 200,000)Judicial expense (200,000) ( 200,000)Claims against the estate (500,000) ( 500,000)

P 100,000Net conjugal estate P9,100,000Special deductions:

Standard deduction (1,000,000)


Chapter 5: ESTATE TAXMedical expense ( 500,000)

Net estate P7,600,000Less: Share of surviving spouse (P100,000 x 50%) 50,000Net taxable estate P7,550,000

Tax on P5,000,000 P465,000Tax on excess P2,550,000 x 15% 382,500Estate tax P847,500

Conjugal estate P1,000,000Less: Ordinary deductions (actual):

Funeral expense P210,000Judicial expense 200,000Claims against the estate 500,000 910,000

Net conjugal estate before share of surviving spouse P 90,000Less: Share of surviving spouse (P90,000 x 50%) 45,000Net share of the decedent P 45,000Add: Exclusive property of the decedent 9,000,000Net distributable estate before estate tax P9,045,000Less: Estate tax 847,500Net distributable estate P8,197,500Divide by number of heirs (12 + 1) 13Share of each heir P 603,576.92

Note: The medical expense is assumed to have been paid.

Problem 5–25Taxable Distributable

Conjugal property - real estate P2,000,000 P2,000,000Ordinary deductions:

Funeral expenses, limit (P2M + P300,000) x 5% ( 115,000) ( 150,000)Judicial expenses ( 5,000) ( 5,000)Unpaid mortgage ( 500,000) ( 500,000)Vanishing deduction* ( 175,304) .

Net conjugal estate P1,204,696 P1,345,000Add: Exclusive property – personal property inherited 300,000 300,000Net estate before special deduction P1,504,696 P1,645,000Less: Standard deduction 1,000,000 .Net estate before share of surviving spouse P 504,696 P1,645,000Less: Share of surviving spouse (P1,204,696 x 50%) 602,348

(P1,345,000 x 50%) 672,500Net taxable/distributable estate (P 97,652) P 972,500Divide by number of compulsory heirs 3Inheritance of each heir P 324,167

Vanishing deduction:*Value taken P300,000Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) 80,870Final basis P219,130Multiply by percentage of vanishing deduction – one year ago 80%Vanishing deductions P175,304



Problem 5–26The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be:

1. Computation of net estate:Communal Exclusive Total

Residential house and lot P 3,500,000Building apartment 10,000,000Income of apartment 3,000,000Deposit in Equitable Bank 5,000,000Agricultural land P 800,000Family car 550,000Other personal properties 1,000,000Claim against insolvent person 100,000 .Total gross estate P23,150,000 P 800,000 P23,950,000Less: Ordinary deductions:

ELIT:Funeral expenses – maximum 200,000Judicial expenses 600,000Claims against the estate 600,000Claims against insolvent person 100,000Unpaid mortgage 300,000

Transfer for public use . 200,000 2,000,000Net estate before special deductions P21,650,000 P 300,000 P21,950,000Less: Special deductions:

Standard deduction 1,000,000Family home – maximum 1,000,000Medical expenses – maximum 500,000

Net estate P19,450,000Less: Share of surviving spouse (P21,650,000 x 50%) 10,825,000Net taxable estate P 8,625,000

2. Computation of estate tax:For the first P5,000,000 P 465,000Excess (P3,625,000 x 15%) 543,750Estate tax due P1,008,750

3. Computation of net distributable estate: Communal Exclusive Total

Residential house and lot P 3,500,000Building apartment 10,000,000Income of apartment 3,000,000Deposit in equitable bank 5,000,000Agricultural land P 800,000Family car 550,000Other personal properties 1,000,000Claims against insolvent person 100,000 .


Chapter 5: ESTATE TAXTotal gross estate P23,150,000 P 800,000 P23,950,000Less: Actual deductions:

Funeral expense – actual 350,000Judicial expenses 600,000Claims against the estate – actual 800,000Claims against insolvent person 100,000Unpaid mortgage 300,000Transfer for public use . 200,000 2,350,000

Net estate before share of surviving spouse P21,300,000 P300,000 P21,600,000Share of surviving spouse (P21,300,000 x 50%) 10,650,000Net estate before estate tax P10,950,000Less: Estate tax 1,008,750Net distributable estate P 9,941,250

4. Distribution of the net distributable estate:

Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:

Legitime:To two legitimate children (P9,941,250 x 50%) P 4,970,625To legally surviving spouse (P4,970,625/2) 2,485,313To illegitimate child (P2,485,313 x 50%) 1,242,656

Free portion:To church – based on Will 1,242,656

Total P 9,941,250

Problem 5-27Estate tax:Gross estateHouse and lot, Baguio City P1,000,000House and lot, Quezon City – family home* 1,500,000Grocery store, Baclaran 300,000Inventory (P700,000 – P300,000) x 450/300 600,000Cash sales 450,000Claims against insolvent persons 50,000 P3,900,000Ordinary deductions:

Funeral (P3,900,000 x 5%) P 195,000Claims against insolvent persons 50,000Unpaid income taxes 20,000 ( 265,000)

Net estate before special deductions P3,635,000Special deductions:

Family home (P1,500,000/2) P 750,000Medical expenses 500,000Standard deductions 1,000,000 (2,250,000)

Net estate P1,385,000Less: Share of surviving spouse (P3,635,000 x 50%) 1,817,500Net taxable estate (P 432,500)

Estate tax due P - 0 -

Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin reside in that place.

Net distributable estate:


Chapter 5: ESTATE TAXGross estate P3,900,000Actual deductions:

Funeral P250,000Claims against insolvent persons 50,000Unpaid income taxes 20,000Medical expense 550,000 870,000

Net estate before share of spouse P3,030,000Share of surviving spouse (P3,030,000 x 50%) 1,515,000Net distributable estate P1,515,000

Problem 5–281. Estate tax

House and lot (family home) P3,000,000Time deposit – principal amount 2,000,000Accrued interest 2004: (P2,000,000 x 12% x 12/12) 240,000

2005: (P2,000,000 x 12% x 10/12) 200,000Car 1,000,000Claims against insolvent person 100,000Gross estate P6,540,000Ordinary deductions:

Funeral expense, limit P 200,000Judicial 50,000Claims against insolvent person 100,000 ( 350,000)

Net estate before special deductions P6,190,000Special deductions:

Standard deductions P1,000,000Medical expense, limit 500,000

Family home, limit 1,000,000(2,500,000

)Net estate P3,690,000Less: Share of surviving spouse (P6,190,000 x 50%) 3,095,000Net taxable estate P 595,000

Tax on P500,000 P 15,000Tax on excess (P95,000 x 8%) 7,600Estate tax P 22,600

2. Net distributable estateGross estate P6,540,000Actual deductions:

Funeral expense P250,000Judicial expense 50,000Claims against insolvent person 100,000 ( 400,000)

Net distributable estate before share of surviving spouse P6,140,000Less: Share of surviving spouse (P6,140,000 x 50%) 3,070,000Net actual estate P3,070,000Less: Estate tax 22,600Net distributable estate P3,047,400

3. Distribution of inheritanceNet distributable estate P3,047,400Divided by number of heirs (intestate succession) 4Share of each heir P 761,850



Problem 5–291. Estate tax credit = P215,0002. Estate tax payable = P222,500

Supporting computations:a. Estate tax payable to the Philippines :

Country A Country B Philippines EntireGross estate P1,200,000 P2,500,000 P5,000,000 P8,700,000Unpaid mortgages (200,000) (200,000)Unpaid taxes (500,000) (500,000)

Transfer for public use . .(2,000,000

) (2,000,000)Net of identifiable deductions P1,000,000 P2,000,000 P3,000,000 P6,000,000Allocated deductions** (172,500) (358,750) (718,750) (1,250,000)Net estate P 827,500 P1,641,250 P2,281,250 P4,750,000

** Computation of allocated deductions:Country A Country B Philippines Entire

Funeral expenses P 27,600 P 57,400 P115,000 P 200,000Judicial expenses 6,900 14,350 28,750 50,000Standard deduction allocated 138,000 287,000 575,000 1,000,000Total allocated deductions P172,500 P358,750 P718,750 P1,250,000

Note: The above deductions are allocated because they are not specifically identified asdeductions from a specific country. The fraction per country is computed as follows:

Country A Country B Philippines EntireGross state per country P1,200,000 P2,500,000 P5,000,000 P8,700,000Divide by entire gross estate P8,700,000 P8,700,000 P8,700,000 P8,700,000Fraction 13.80% 28.70% 57.50% 100%

b. Computation of Philippines estate tax:Tax on P2,000,000 P135,000Tax on excess (P2,750,000 x 11%) 302,500Total P437,500Less: Tax credit allowed* 215,000Estate tax payable to the Philippine Government P222,500

c. Computation of tax credit:Limit A:Country A: [P437,500 x (P827,500/P4,750,000)] P 76,217Actual payment to country A – lower P 75,000 P 75,000

Country B: (P437,500 x P1,641,250/P4,750,000) P151,167


Chapter 5: ESTATE TAXActual payment to country B – lower P140,000 140,000

Tax credit – Limit A P215,000

Limit B:Total net estate – foreign

[(P2,468,750)/P4,750,000] x P437,500 P227,385Total actual estate tax payments – foreign

(P75,000 + P140,000) – lower P215,000Tax credit – Limit B P215,000

*Tax credit allowed (the lower of limit A or B)P215,00

0


Cash P2,000,000Shares of stock (P100 x 100,000 shares) P10,000,000Insurance proceeds 1,000,000Transfer in contemplation of death . 3,000,000Total gross estate P2,000,000 P14,000,000 P16,000,000Less: Ordinary deduction – Transfer for public use . 10,000,000 10,000,000Net estate before special deduction P2,000,000 P 4,000,000 P 6,000,000Less: Standard deduction 1,000,000Net estate P 5,000,000Less: Share of surviving spouse (P2,000,000 x 50%) 1,000,000Net taxable estate P 4,000,000

Estate tax on P2,000,000 P135,000Tax on excess (P2,000,000 x 11%) 220,000Total estate tax P355,000Less: Tax credits on tax previously paid (P34,840 + P204,000) 238,840Transfer tax still due P116,160

Problem 5–31Estate tax on P5,000,000 P 135,000Estate tax on excess (P3,000,000 x 15%) 450,000Estate tax P 585,000Add: Surcharges – willful neglect (P585,000 x 50%) P292,500

Interest for 4 years (P585,000 x 20% x 4) 468,000 760,500Total amount to be paid P1,345,500

chapter 5 - estate tax2013

Documents