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Tax 2 - Week 3 - Donor's Tax - Coggle Diagram

- - - - 1. Taxable Gift
      - 2. Transfers for Less Than Adequate or Full Consideration (Sec. 100) -
        
        GR - Transfer of property for inadequate consideration, the amount by which the FMV of the property exceeds the value of the consideration shall be deemed a gift subject to donor's tax (but base selling price income tax)
        
        XCPN -
        2a. Capital Real Property - Capital gains from real property under Sec. 24D (because there, higher of either gross selling price or FMV i.e., presumed gain)
        2b. Business - Transfer of property made in the ordinary course of business (must be free from donative intent) considered as made for full consideration.
        
        Requisites - Excess of FMV - over value of cosnideration subejct to donor's tax when:
        
        The transfer was for less than adequate and full consideration;
        
        Such transfer was effective during his lifetime (inter vivos); and
        
        It involves property other than real property classified as capital asset within the Philippines as defined in Sec. 24(D) (Capital Assets). [Sec. 100, NIRC]
        
        Made With Donative Intent
        
        Stock Sales (PHILAMLife v. Sec. Of Finance) - Absence of donative intent, if that be the case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is considered a donation by fiction of law.
        
        With the amendments introduced by the TRAIN effective Jan. 1, 2018, however, the donor’s tax risk has been mitigated with the inclusion of a provision in Section 100 of the Tax Code stating categorically that “a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length and free from any donative intent), will be considered as made for an adequate and full consideration in money or money’s worth”. This is a welcome relief for taxpayers intending to transfer property without any donative intent.
      - 3. Forgiveness of Indebtedness - Here, creditor desires to benefit a debtor and, without any consideration, cancels the debt.
        
        Amount Taxed - Here, the amount of the debt is considered a donation to the debtor. (Minus 250,000)
        
        Condonation or remission of debt - An act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is an essential characteristic of remission that it be gratuitous. [Dizon v. CTA, G.R. No. 140944, (2008)]
        
        Performance of Services - If a debtor renders services for a creditor who, in consideration thereof cancels the debt, income to that amount is realized by the debtor as compensation for his services.
        
        Creditor Corporation - Forgiveness of the debt is considered a payment of dividends.
      - D. Exemptions of Certain Gifts
        
        F. Computation of Tax
        
        G. Administrative Requirements (103-104)
        
        G1. Tax Returns and Payments
        
        Filing
        
        When Required (NIRC 103) -
        Every person, whether natural or juridical, resident or nonresident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible [Sec. 98, NIRC]
        
        3 more items...
        
        Consequences of Non-Payment of Donor's Tax - Can be subdivided into the following:
        
        Civil Liabilities -
        
        Interest
        
        Compromise Penalties
        
        Other Penalties
        
        Civil Liabilities -
        
        Surcharge - Can be 25% or 50%
        
        Delinquency Tax
        
        Deficiency Tax
        
        3 more items...
        
        Effect of Non-Payment - No registration of the properties in the name of the donee.
        
        General Formula -
        
        Gross Gifts - Allowable Deductions = Net Gifts
        
        Net Gifts - Exempt Gift of 250,000 = Taxable Net Gift
        
        Taxable Net Gift x 6% = Donor's Tax Due
        
        Donor's Tax Due - Tax Credit, if Any = Donor's Tax Payable
        
        Multiple Gifts in a Calendar Year -
        
        Gifts made on Certain Date - Deductions from gross gift = Net Gifts on certain date
        
        Net Gifts on certain date + Prior gifts during the year = Aggregate Net Gift
        
        Aggregate Net - Exemption of 250,000 = Taxable Net Gift
        
        Taxable Net Gift x 6% = Donor's Tax on Aggregate Gifts
        
        Donor's Tax Due - Tax Credit, if Any = Donor's Tax Payable
        
        Gross Gifts
        
        Non-Resident Aliens/Non-Resident Foreign Corporations - Only properties situated in the Philippines, provided that the inclusion of intangible personal property is subject to the rule of reciprocity
        
        Everyone Else - All properties, real or personal,
        tangible or intangible, wherever situated
        
        Net Gifts - The net economic benefit from the transfer that accrues to the donee at the time of the donation
        
        Personal Property = FMV at the time of donation [Sec. 102, NIRC]
        
        Real Property = whichever is HIGHER
        a. FMV as determined by the CIR (Zonal Value) or
        b. FMV in the latest schedule of values fixed by the provincial and city assessor (MV per Tax Declaration) [Sec. 102 in relation to Sec. 88(B), NIRC]
        
        1 more item...
        
        Scope - Applies to residents and non-residents.
        
        Charity (NIRC 101) - Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization:
        
        Percentage Limitation - Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.
        
        Requisites for Qualified Entity -
        
        Non-stock
        
        Paying no dividends
        
        Governed by trustees who receive no compensation; and
        
        Devoting all its income to the accomplishment of the purpose enumerated in its AOI
        
        National Government (NIRC 101) - Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government;
        
        Dowries - gifts made on account of marriage and before its celebration, or within one year thereafter, by parents to each of their legitimate, recognized natural or adopted children, to the extent of P10,000
        
        Special laws - Entites exempted under special laws.
  - - - Taxable Donations -
        
        An act of the donor disposing gratuitously of a thing/right in favor of a donee; and
        
        Sales, exchanges or other transfers of properties, other than real property (defined in Sec. 24(D)) classified as capital asset within the Philippines, for less than an adequate and full consideration in money or money’s worth. [Sec. 100, NIRC]
        
        Gift Tax -
        
        Gift tax is the tax imposed on gift or the transfer without consideration of property between two or more persons who are living at the time the transfer is made.
        
        A donor’s tax is levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift. [Sec. 98(A), NIRC
        
        Non-Taxable Donations -
        
        Mortis Causa – subject to estate tax instead; governed by the laws on succession
        
        Inter vivos of the amount P250,000 or less and those declared exempt by the Tax Code and special laws
        
        Contributions to a candidate or political party for campaign purposes duly reported to COMELEC
        
        Gift to Parish Priest or Church (applies only to real property tax)
        
        Onerous donations or donations in exchange for goods/services (they are subject to income tax)
        
        Donations to a Political Candidate (RA 7166) - Not subject to donor's tax, so long as utilized in campaign. Unused campaign funds subject to income tax.
        
        Prohibition on Corporations on Campaign Contributions (RCC 35)
        
        Gift (Commissioner v. Duberstein) - A gift is something that Proceeds from a "detached and disinterested generosity," "out of affection, respect, admiration, charity or like impulses".
        
        Rate of Tax - 6%
    - - Purpose of Imposition - To prevent avoidance of income tax through the device of splitting income among numerous donees, who are usually members of a family, or into many trusts, with the donor thereby escaping the effect of the progressive rates of income tax.
      - When Imposed - Only upon a complete gift.
      - Completion and Perfection-
        
        Perfection - transfer of property by gif tis perfect from the moment the donorknows of hte acceptance byt he donee.
        
        Completion - Compelted by delivery of the property to the odonee, either actual ro constructively.
        
        Requisites for a valid and Complete Donation -
        
        Donative intent of the donor - Donative intent must be present in a direct gift. It is not, however, required in transfers of property for less than adequate and full consideration. [MAMALATEO; Sec. 100, NIRC]
        
        Capacity of the donor
        
        Delivery of the donated property
        
        Acceptance of the donee
        
        Donation must be in the proper form
        5a. Movable: orally or in writing if value is equal to or less than P5,000. Otherwise, it shall be in writing.
        5b. Immovable: must be made in a public document.
        
        Forms of Acceptance - Must be made during the lifetime of both donor and donee.
        
        Movables
        a. Not exceeding P5,000 – may be made orally
        b. Exceeding P5,000 – Acceptance shall be in writing [Art. 748, Civil Code]
        
        Immovables [Art. 749, Civil Code] –
        a. Must be in the same deed of donation; OR
        b. In a separate public document – the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments
        
        Donative Intent -
        
        Presumption - resumed present when one gives a part of ones patrimony to another without consideration.
        
        Effect of Other Motives - Donative intent is not negated when the person donating has other intentions, motives or purposes which do not contradict donative intent