chapter 6 - donor s tax2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40SUGGESTED ANSWERS

Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAX

Problem 6-11. False – during the lifetime of the donor. 2. True 3. True 4. False – there is no consideration in donation. 5. True 6. False – It is enough that the duly representative of the incapacitated donee to receive

the donation. 7. True 8. False – Real property donation must be put in writing regardless of value. 9. True 10. False – The value of donated personal property must exceed P5,000. 11. True 12. True 13. False – not gifts. 14. False – constitutes dividend income. 15. True

Problem 6-21. False – dowry is not allowed to nonresident alien donor. 2. False – the donee’s identity is not material to make the donation valid. The donor can

make donation to an unborn child. 3. True 4. True 5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for

his properties within and outside the Philippines 6. True 7. True 8. True 9. False – only one-half of the share is donated. 10. False – only if the gift is on account of marriage. 11. False – only the first P100,000 is exempt. 12. False – may be subject to business tax such as VAT, custom duties, or excise tax. 13. False - When the donee is a stranger, the tax rate is 30%. 14. True 15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter

vivos.

Problem 6-3 Problem 6-4Problem 6-5

1. B 1. A 1. C2. D 2. C 2. D3. A 3. D 3. A4. D 4. C & A 4. B5. A 5. A 5. A6. A 6. C 6. D7. C 7. D 7. A8. B 8. A 8. A9. B 9. A 9. C

10. A 10. D 10. A11. C 11. C 11. C12. A 12. D 12. D



Problem 6-6 DDonation to his unborn grandchild P200,000

Problem 6-7 AZero, because the renunciation is a general renunciation.

Problem 6-8 CFather Mother

Gross estate P5,500,000 P5,500,000Less: Standard deduction 1,000,000 1,000,000Net estate P4,500,000 P4,500,000

Estate tax on P2,000,000 P 135,000 P 135,000Excess (P2,500,000 x 11%) 275,000 275,000Estate tax P 410,000 P 410,000

Distributable estate (P11,000,000 – P820,000) P10,180,000Divided by number of heirs 4Share of each heir P 2,545,000

Donor’s tax on P1,000,000 P 44,000Donor’s tax on excess (P1,545,000 x 8%) 123,600Donor’s tax P167,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is not a general renunciation.

Problem 6-9 BHusband Wife

Gross gifts (P3,500,000/2) P1,750,000 P1,750,000Less: Mortgage assumed by done (P1,000,000/2) (500,000) (500,000)

Dowry ( 10,000) ( 10,000)Net gifts P1,240,000 P1,240,000

Problem 6–10 AWedding gift (P500,000 – P10,000) P490,000Casual gift – car 500,000Total gift subject to tax P990,000

Donor’s tax on P500,000 P14,000Excess (P490,000 x 6%) 29,400Total donor’s tax in the Philippines P43,400

Problem 6–11 ADonations: Mr. Salonga Mrs. SalongaVacation house – conjugal (P500,000/2) P250,000 P250,000Car – conjugal (P240,000/2) 120,000 120,000Jewelry – exclusive of Mrs. Salonga 20,000Dowry ( 10,000) ( 10,000)Net gift P360,000 P380,000

Donor’s tax on P200,000 P2,000 P2,000Excess (P160,000 x 4%) 6,400

(P180,000 x 4%) 7,200Total donor’s taxes, respectively P8,400 P9,200



Problem 6–12 DDonation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire amount of P250,000.

Problem 6–13 ADonations made between a man and a woman living together as husband and wife are void, and therefore, not subject to donor’s tax.

Problem 6–14 DDonation between spouses during marriage time is void; hence, not subject to donor’s tax.

Problem 6–15 DWedding gift P110,000Less: Dowry 10,000Net gift – first P100,000 donor’s tax exempt P100,000

Net gift taxable is P - 0 -

Problem 6–16 D2005 gift – house and lot P300,000Less: Dowry (P10,000 – P6,000) 4,000Net gift P296,000

Donor’s tax on P200,000 P2,000Excess (P96,000 x 4%) 3,840Donors tax – 2005 P5,840

Problem 6–17 CDonor’s tax (P50,000 x 2%) P1,000

Problem 6–18 DP60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the 6th degree of the collateral line.

Problem 6–191. Letter C

Gross gifts, as of August 15, 200A (P150,000 x 2 lots) P300,000Less: Deductions 0Net gifts, August 15, 200A P300,000

Donor’s tax on P200,000 P 2,000Tax on excess (P300,000 – P200,000) x 4% 4,000Total donor’s tax P 6,000

2. Letter DWedding gifts, as of November 15, 200A P150,000Less: Deductions - dowry 10,000Net gifts, November 15, 200A P140,000Add: Previous, net gifts 300,000Total net gifts P440,000

Donor’s tax on P200,000 P 2,000Tax on excess (P440,000 – P200,000) x 4% 9,600Total donor’s tax P 11,600Less: Donor’s tax – August 15, 200A 6,000Donor’s tax payable – November 15, 200A P 5,600



Problem 6–20 CP30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th collateral line for donor’s tax purposes.

Problem 6–21 DDonor’s tax (P8,000,000 x 30%) P2,400,000

Problem 6-22 DValue of

First donation: Donation Donor’s taxDonated value of P200,000 P200,000 P 2,000Excess donation (4% x P290,000) 290,000 11,600Dowry deducted 10,000 .Total value of first donation P500,000 P13,600

Second donation:First donation – total value P500,000 P14,000Excess donation (6% x 400,000) 400,000 24,000Total after dowry deducted P900,000 P38,000Add: Dowry deducted in two donations (P10,000 x 2) 20,000Total P920,000Less: First donation 500,000Value of second donation P420,000

Problem 6–23 DNo deduction is allowed for donations on account of birthday.

Problem 6–24 BGross gift (FMV at time of donation) P200,000

Problem 6–25 BDonor’s tax (P200,000 x 30%) P60,000

Problem 6–26 ADonor’s tax (P10,000,000 x 30%) P3,000,000

The donation is taxable because more than 30% of it shall be used for administration purposes.

Problem 6–27 ADonor’s tax P100,000Surcharge (P100,000 x 25%) 25,000Interest (P100,000 x 20% x 6/12) 10,000Total amount due P135,000

Problem 6–28 DNo reciprocity With reciprocity

Taxable gift in the Philippines P3,000,000 P - 0 -

Donor’s tax on P3,000,000 P 204,000 P - 0 -

No dowry deduction is allowed for nonresident alien donor.



Problem 6–28

1. Letter C

Philippine donor’s tax P404,000

Actual donor’s tax - foreign P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400

2. Letter BPhilippine donor’s tax:

Relative (P500,000) P 14,000Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000

Less: Tax creditActual donor’s tax – foreign (lower) P120,000 120,000Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400

Donor’s tax still due and payableP1,244,00

0

Problem 6–30 D

Estate taxDonor’s tax

Gross amount of asset P5,000,000 P5,000,000Less: Standard deduction 1,000,000 .Net amount subject to tax P4,000,000 P5,000,000

Estate tax on P2,000,000 P135,000Excess (P2,000,000 x 11%) 220,000Donor’s tax on P5,000,000 . P404,000Total P355,000 P404,000

Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000

Problem 6–31Gross gifts made:

To L, on account of marriage P500,000To M, on account of marriage 200,000

Total gross gifts P700,000Less: Deductions:

Dowry for L, on account of marriage P10,000Dowry for M, on account of marriage 10,000Mortgage assumed by L on property donated 100,000 120,000

Net gifts P580,000

Problem 6–321. Donors tax for relatives:

Mar. 1 - To his son on account of marriage P 600,000Oct. 1 - To his daughter on account of graduation 500,000Total P1,100,000Less: Dowry 10,000Net taxable gifts P1,090,000

Donor’s tax on P1,000,000 P 44,000Excess (P90,000 x 8%) 7,200Total donor’s tax for donations to relatives P 51,200



2. Donors tax for strangers:Dec. 25- To his god-children P400,000Dec. 31- To his neighbor 100,000Total P500,000Multiplied by donor’s tax rate 30%Donor’s tax for donations to strangers P150,000

Problem 6–33Mr. Dinero Mrs. Dinero

March 30, 200B (P500,000/2) P250,000 P250,000June 28, 200B (P2,000,000/2) – P10,000 990,000 990,000Net taxable gifts P1,240,000 P1,240,000

Donor’s tax on P1,000,000 P44,000 P44,000Excess (P240,000 x 8%) 19,200 19,200Total P63,200 P63,200Donor’s tax paid on March 30, 200B

Donor’s tax on P200,000 ( 2,000) ( 2,000)Excess (P50,000 x 4%) ( 2,000) ( 2,000)

Donor’s tax for donation on June 28, 200B P59,200 P59,200

Problem 6–34Cash his son for wedding held during the year P 200,000

Problem 6–35To his son on account of marriage during the year P 500,000To his daughter on account of her birthday 500,000To Garci, his brother, as renunciation of inheritance 400,000Net gift subject to donor’s tax P1,400,000

Note: No dowry is allowed for nonresident alien.

Problem 6–36Taxable inadequate consideration - Personal properties (P500,000 – P50,000) P 450,000

Donor’s tax on P200,000 P 2,000Excess (P250,000 x 4%) 10,000Donor’s tax for inadequate consideration P 12,000

The inadequate consideration in the sale of real property will not be subject to donor’s tax because the sale is subject to 6% final tax based on the selling price or fair market value, whichever is higher.

Problem 6–371. December 25, 200A:

Average value per share (P500 + P450)/ 2 P 475Multiply by number of shares 1,000Taxable base of the gift P475,000

2. The same answer with number 1.



Problem 6–38There is no donor’s tax because the donations are donation mortis causa, void donation and tax-exempt donation. Specific principles:

a. House and lot Subject to estate tax because the transfer shall take effect upondeath of the donor (included in the last will and testament).

b. Parejo carThe value of property donated is P200,000 and it was made orally.The donation is null and void because personal property donatedwith value exceeding P5,000 should be put in writing to become avalid donation.

c. BusinessRevocable donation is a revocable transfer, hence, subject to estatetax.

d. Furniture and fixtures Donation mortis causa is subject to estate tax.

e. Time deposit The amount is P100,000 given to his illegitimate daughter. Thisdonation is tax exempt because the first P100,000 of donation torelatives shall not be subjected to donor’s tax.

Problem 6–39Car consequently destroyed after delivery to his son P 500,000

Donor’s tax P14,000

Problem 6–40Donations to relatives:200B:January 31 Car to Uncle P300,000

Less: Encumbrances assumed by the donee 50,000Net taxable gift – January 31, 2002 P250,000

Donor’s tax on P200,000 P 2,000Tax on excess (P250,000 – P200,000) x 4% 2,000Donor’s tax for January 31 donation P 4,000

November 30 House and lot to his son on account of marriage P600,000Less: Dowry exemption (weeding was held beyond one year) - 0 -Net gifts P600,000Add: Previous net gifts during the year 250,000Aggregate taxable gift P850,000

Donor’s tax on P500,000 P 14,000Tax on excess (P840,000 – P500,000) x 6% 21,000Total P 35,000Less: Donor’s tax for previous gifts during the year 4,000Donor’s tax for November 30 donation P 31,000

Donations to strangers:200B:June 30 Cash to Miss Rosal, a radio manager P100,000

Less: Diminution of gift (P100,000 x 60%) 60,000Net taxable gift P 40,000

Donor’s tax for June 30 donation (P40,000 x 30%) P 12,000



August 31 Land to National Government P500,000Less: Deduction (total amount) 500,000Net taxable gift P - 0 -

Donor’s tax for August 31 donation None

October 31 Cash to non-profit organization – 40% Administrative P400,000Less: Deduction - 0 -Net taxable gift P400,000Donor’s tax for October 31 donation (P400,000 x 30%) P120,000

Total donor’s tax during 200B:

Total donor’s tax to relatives (P30,400 + P4,000) P 35,000Total donor’s tax to stranger (P12,000 + P120,000) 132,000Total donor’s tax for the year 200B P167,000

Problem 6–41Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000

Net gift to daughter on account of marriage (P50,000 – P10,000) P 40,000Add: Previous net gifts:

April 1 – Gift to mother P50,000June 10 – Wedding gift to son (P50,000 – P10,000) 40,000 90,000

Total net gift during the year P130,000

Donor’s tax on P100,000 Tax exemptDonor’s tax on excess P30,000 x 2% = donor’s tax payable

Oct. 31, 200A P 600

Problem 6–421. January 29, 200B

2. June 1, 200A gift Nilo Co Nila CoGift on account of their daughter’s marriage P250,000 P250,000Less: Dowry 10,000 10,000Net gift P240,000 P240,000

Tax on P200,000 P 2,000 P 2,000Tax on excess P40,000 x 4% 1,600 1,600Total P 3,600 P 3,600 P 7,200Surcharges (P7,200 x 50%) 3,600Interest (P7,200 x 20% x 11/12) 1,320

P12,120

December 30, 200A gift Nilo Co Nila CoChristmas gift to son P100,000 P100,000Previous gift – June 1, 200A 240,000 240,000Total net gift during 200A P340,000 P340,000

Tax on P200,000 P 2,000 P 2,000Tax on excess P140,000 x 4% 5,600 5,600Total P 7,600 P 7,600Less: Tax on previous gift 3,600 3,600


Chapter 6: DONOR’S TAXDonor’s tax on current gift P 4,000 P 4,000 P 8,000Surcharge (P8,000 x 50%) 4,000Interest (P8,000 x 20% x 4/12) 533

P12,533Total amount to be paid on June 1, 200B P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in 200A, yet they did not pay the donor’s tax within 30 days from the date of donation in both occasion, hence, habitual and intentional neglect.

Problem 6–43Relative Stranger Total

Donor’s tax on property located in Japan, P1,000,000 P44,000 P 44,000Donor’s tax on property located in the Philippines

(P2,000,000 x 30%) P600,000 600,000Total donor’s tax in the Philippines P644,000

Computation of donor’s tax still due and payable:Total donor’s tax in the Philippines P644,000Less: Allowable tax credit: - Actual lower than limit 70,000

Limit (P1,000,000/ P3,000,000) x P644,000 P214,667Donor’s tax still due and payable P574,000

Problems 6–44Gift to

Property donated: Relatives Strangers TotalTo son - House and lot ($500,000 x P50) – P10,000 P24,990,000Carabaw FX – to brother-in-law P 500,000

. .Taxable base P24,990,000 P 500,000

Philippine donor’s tax:First P10,000,000 P 1,004,000Tax on excess (P14,990,000,000 x 15%) 2,248,500Total P 3,252,500Less: Tax credit allowed ($20,000 x P50/$1) 1,000,000Donors tax rate for donation made to strangers . 30% .Net donor's tax P 2,252,500 P 150,000 P 2,402,500

Note: Donation to common-law-wife is void. Hence, no donor’s tax.

Computation of tax credit allowed:Limit 1: (P24.990M/ P25.490M) x P2,402,500 P2,335,373

Allowed: Actual, lower amount ($20,000 x P50/$1) P1,000,000



Problems 6–45Assume donations are made to strangers:

Total net gifts P10,000,000

Philippine donor’s tax (P10,000,000 x 30%) P3,000,000Tax credit:

Limit (P3,000,000 x 5/10) P1,500,000

Actual – lower( 400,000

)Donor’s tax payable P2,600,000

Assume donations are made to relatives:Philippine donor’s tax P1,004,000Tax credit:

Limit (P1,004,000 x 5/10) P502,000Actual – lower ( 400,000)

Donor’s tax payable P 604,000

Problems 6–461. Gross gifts subject to donor’s tax Don Dona

a. No donation

b. Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000

c. Donation to son on account of marriage – relative(P5,000,000/2) 2,500,000 2,500,000

d. Donation to Philippine government – not subject toDonor’s tax

e. Donation to religious group – considered stranger(P1,000,000/2) 500,000 500,000

f. Donation mortis causa – not subject to donor’s tax

g. Donation to NGOs – generally not subject to donor’s tax

h. Donation to political party – not subject to donor’s tax

Exclusive donations by Don:a. Donation to secretary – stranger 100,000b. Donation to wife – null and voidc. Donation to relative – father 200,000 .

Total amount of gross gifts subject to donor’s tax P4,300,000 P4,000,000

2. Donor’s taxDonation to relatives:

Donation to son on account of marriage – relative(P5,000,000/2) – P10,000 P2,490,000 P2,490,000

Donation to relative – father 200,000Total net gifts P2,690,000

Tax on P1,000,000 P 44,000 P 44,000Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) 135,200 119,200Total donor’s tax due – donation to relatives P179,200 P163,200



Donation to strangers:Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000Donation to religious group – considered stranger

(P1,000,000/2) 500,000 500,000Donation to secretary – stranger 100,000 .Total amount – donation to strangers P1,600,000 P1,500,000Multiplied by donor’s tax rate to strangers 30% 30%Total donor’s tax due – donation to strangers P 480,000 P 450,000

Total amount of donor’s tax P 659,200 P 613,200

Problems 6–47Donor’s tax Don Dona1. Dec. 30, 200A:

Relative - on account of son’s marriage(P300,000/2) – P10,000) P140,000 P140,000

Tax on P100,000 Exempt ExemptTax on excess (P40,000 x 2%) – donor’s tax due P800 P800

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000Multiplied by applicable donor’s tax rate 30% 30%Donor’s tax due P15,000 P15,000

2. Jan. 1, 200B:Stranger – Chinese government (P200,000/2) P100,000 P100,000Multiplied by applicable donor’s tax rate 30% 30%Donor’s tax due P 30,000 P 30,000

3. March 31, 200B:Relatives – nephew (P50,000/2) P25,000 P25,000Donor’s tax Exempt Exempt

Stranger – god son (P100,000/2) P 50,000 P 50,000Church (P200,000/2) 100,000 100,000Total P150,000 P150,000Multiplied by applicable donor’s tax rate 30% 30%Donor’s tax due P 45,000 P 45,000

4. June 30, 200B: Relative – son on account of marriage (dowry already taken)

(P2,000,000 – P400,000)/2 P800,000 P800,000Add: Previous net gifts to relatives – Mar. 31, 200B 25,000 25,000Total net gifts P825,000 P825,000

Tax on P500,000 P14,000 P14,000Tax on excess (P325,000 x 6%) 19,500 19,500Total donor’s tax payable – June 30, 200B P33,500 P33,500

5. Oct. 30, 200B:Void donation – husband and wife

6. Dec. 30, 200B:Relatives:Son (P500,000/2) P250,000 P250,000Daughter (P500,000/2) 250,000 250,000Total net gifts to relatives – Dec. 30, 200B P500,000 P500,000Add: Previous net gifts to relatives during 200B:


Chapter 6: DONOR’S TAXMarch 31, 200B: Relatives – nephew (P50,000/2) 25,000 25,000June 30, 200B:Relative – son on account of marriage (dowry already taken)

(P2,000,000 – P400,000)/2 800,000 800,000Total net gifts to relatives as of Dec. 30, 200B P1,325,000 P1,325,000

Tax on P1,000,000 P44,000 P44,000Tax on excess (P325,000 x 8%) 26,000 26,000Total P70,000 P70,000Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B P33,500 P33,500Donor’s tax payable as of Dec. 30, 200B – relatives P36,500 P36,500

Stranger – daughter-in-law (P100,000/2) P50,000 P50,000Multiplied by applicable donor’s tax rate 30% 30%Donor’s tax due P 15,000 P 15,000

chapter 6 - donor s tax2013

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