BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 19 SUGGESTED ANSWERS

Chapter 5: ESTATE TAX

CHAPTER 5

ESTATE TAX
Problem 51 False only P200,000. True True True True True True False If the value of the gross estate exceeds P2,000,000. False only 30 days. True Problem 52 1. A 2. C 3. A 4. D 5. D 6. D 7. C 8. A 9. D 10. A P3,300,000 ( 165,000) ( 1,567,500) ( 1,000,000) P 567,500 P2,000,000 P1,000,000 1,000,000 2,000,000 P - 0 P1,900,000 P 500,000 1,000,000 P1,500,000 1,500,000 P3,000,000 95% P3,157,895 P5,000,000 333,333 P4,666,667

Problem 53 1. Conjugal gross estate (P3,120,000 + P180,000) Funeral expense allowed (P3,300,000 x 5%) Share of surviving spouse (P3,300,000 P165,000) x 50% Standard deduction Net estate 2. Net conjugal estate Less: Share of surviving spouse Standard deduction Net estate 3. Net distributable estate (P1,000,000 + P900,000) 4. Net estate of P15,000 estate tax Add: Standard deduction Net estate before standard deduction Add: Share of surviving spouse Net conjugal estate before funeral expense allowed Divided by (100% - 5%) Gross estate Gross estate (within) Less: Prorated allowable deduction* (P1,000,000 x 5/15) Net estate Philippines

5.

*If properties outside are presented, then prorate. It not, then there is no deduction allowed for NRA. Estate tax on P2,000,000 Add: Tax on excess (P2,666,667 x 11%) Estate tax P135,000 293,333 P428,333

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 20 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

6.

40% of properties in the Philippines are intangible Tangible properties in the Philippines (P5,000,000 x 60%) Less: Allowable deduction (P1,000,000 x 5/15) x 60% Net estate Philippines Estate tax on P2,000,000 Add: Tax on excess (P800,000 x 11%) Estate tax - Philippines

P3,000,000 200,000 P2,800,000 P 135,000 88,000 P 223,000 P20,000,000 200,000 P19,800,000 9,900,000 P 9,900,000 1,000,000 P 8,900,000 P 465,000 585,000 P1,050,000

7.

Gross estate Less: Funeral expense Net conjugal estate Less: Share of surviving spouse (P19,800,000 x 50%) Net estate before standard Less: Standard deduction Net estate Estate tax on P5,000,000 Add: Tax on excess (P3,900,000 x 15%) Estate tax due Tax credit: Limit (P1,050,000 x 40%) = P420,000 Actual allowed

P100,000 P12,000,000 1,200,000 P10,800,000 5,400,000 P 5,400,000 P 465,000 60,000 P 525,000 P3,000,000 ( 150,000) (1,000,000) P1,850,000 P1,200,000 200,000 P1,400,000 P 70,000 50,000 1,000,000 (1,120,000) P 280,000 Conjugal P4,000,000 ( 200,000)

8.

Gross estate (P20,000,000 x 60%) Less: Prorated allowable deduction (P2,000,000 x 60%) Net estate before share of surviving spouse Less: Share of surviving spouse (P10,800,000 x 50%) Net estate NRA Estate tax on P5,000,000 Add: Tax on excess (P400,000 x 15%) Philippine estate tax

Problem 54 B Gross estate Funeral expense allowed (P3,000,000 x 5%) Standard deduction Net estate Problem 55 A Net estate after deductions Add: Actual deductions (P150,000 + P50,000) Gross estate Less: Funeral expense allowed (P1,400,000 x 5%) Other deduction Standard deduction Net estate Problem 56 D Exclusive P1,000,000 (1,000,000)

Property cash Transfer for public use Funeral expense allowed

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 21 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Share of surviving spouse (P4,000,000 P200,000) x 50% Standard deduction Net estate

(1,900,000) (1,000,000) P 900,000

Problem 57 A Gross estate Funeral and judicial expenses Net estate before share of surviving spouse Share of surviving spouse Net estate before special deduction Standard deduction Net estate negative Net estate taxable in the Philippines is Problem 58 A Conjugal P3,400,000 ( 200,000) ( 250,000) ( 550,000) (1,200,000)

P1,500,000 ( 60,000) P1,440,000 ( 720,000) P 720,000 (1,000,000) ( P280,000) P - 0 Exclusive P2,600,000 (700,000) 1,200,000 (1,000,000) P2,100,000 P15,000 Net estate P2,000,000 Estate tax P135,000

Properties Funeral expense Judicial expenses Claims against properties Shares of surviving spouse (P2,400,000 x 50%) Standard deduction Net estate Problem 59 C Net estate of P500,000 has a estate tax amounting to Problem 510 Amounts D

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 511 1 A . Real estate Personal property Funeral expense, limit Judicial expenses Unpaid mortgage loan Share of surviving spouse (P1,800,000 x 50%) Standard deduction Family home (P1,600,000/2) Net estate 2 . B Estate tax on P500,000 Estate tax on excess (P1,400,000 x 8%) Estate tax P 15,000 112,000 P127,000 Conjugal P1,600,000 800,000 ( 200,000) ( 100,000) ( 300,000) ( 900,000) Exclusive P2,800,000

900,000 (1,000,000) ( 800,000) P1,900,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 22 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

3 .

B Real estate Personal property Funeral expense, actual Judicial expenses Unpaid mortgage loan Share of surviving spouse (P1,755,000 x 50%) Estate tax Net distributable estate

Conjugal P1,600,000 800,000 ( 245,000) ( 100,000) ( 300,000) ( 877,500)

Exclusive P2,800,000

877,500 ( 127,000) P3,550,500 P40,000 P2,500,000 1,500,000 P1,000,000 P15,000 40,000 P55,000 P17,600

Problem 512 C Tax credit P100,000 x 2M/5M) Problem 513 A Total gross estate (P1,700,000 + P800,000) Less: Deductions Net taxable estate Estate tax on P500,000 Excess P500,000 x 8% Total estate tax in the Philippines Tax credit allowed (P800,000/ P2,500,000) x P55,000 = P17,600 vs. P20,000 Problem 514 Gross estate (P2,000,000 + P180,000) Less: Deductions: Unpaid mortgage Funeral expense Judicial expense Standard Net estate Tax on P500,000 Tax on excess P120,000 x 8% Total estate tax Gross estate Less: Ordinary deductions (P480,000 + P80,000) Estate tax Net distributable estate Problem 515 Cash Property Gross estate Deductions: Promissory note Funeral expense Net estate before share of surviving spouse Less: Share of surviving spouse (P1,330,000 x 50%) Net estate before special deduction Less: Standard deduction Net estate Gross estate P560,000 24,600

P2,180,000 P 480,000 60,000 20,000 1,000,000

1,560,000 P 620,000 P15,000 9,600 P24,600 P2,180,000 584,600 P1,595,400 P 400,000 1,500,000 P1,900,000 ( ( 500,000) 70,000) P1,330,000 665,000 P 665,000 1,000,000 (P 335,000) P1,900,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 23 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Less: Promissory note Funeral expense Net estate before share of surviving spouse Less: Share of surviving spouse (P1,330,000 x 50%) Net distributable estate

P500,000 70,000

570,000 P1,330,000 665,000 P 665,000

Problem 516 Gross estate (P1,000,000 + P9,000,000) Ordinary deductions: Funeral expense (limit) Judicial expense Claims against the estate Net conjugal estate before share of surviving spouse Less: Share of surviving spouse (P100,000 x 50%) Special deductions: Standard deduction Medical expense Net taxable estate Tax on P5,000,000 Tax on excess P2,550,000 x 15% Estate tax Conjugal estate Less: Ordinary deductions (actual): Funeral expense Judicial expense Claims against the estate Net conjugal estate before share of surviving spouse Less: Share of surviving spouse (P90,000 x 50%) Net share of the decedent Add: Exclusive property of the decedent Net distributable estate before estate tax Less: Estate tax Net distributable estate Divide by number of heirs (12 + 1) Share of each heir Note: The medical expense is assumed to have been paid. Problem 517 Conjugal property - real estate Ordinary deductions: Funeral expenses, limit (P2,300,000 x 5%) Judicial expenses Unpaid mortgage Vanishing deduction* Net estate before share of surviving spouse Less: Share of surviving spouse (50%) Net estate before exclusive property Taxable P2,000,000 ( 115,000) ( 5,000) ( 500,000) ( 175,304) P1,204,696 ( 602,348) P 602,348 Distributable P2,000,000 ( 150,000) ( 5,000) ( 500,000) . P1,345,000 672,500 P 672,500 Conjugal P1,000,000 ( ( ( P 200,000) 200,000) 500,000) 100,000 50,000 Exclusive P9,000,000

50,000 (1,000,000) ( 500,000) P7,550,000 P465,000 382,500 P847,500 P1,000,000

P210,000 200,000 500,000

910,000 90,000 45,000 P 45,000 9,000,000 P9,045,000 847,500 P8,197,500 13 P 603,576.92 P

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 24 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Add: Exclusive property personal property inherited Net estate before special deduction Less: Standard deduction Net estate Divide by number of compulsory heirs Inheritance of each heir *Value taken Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) Final basis Multiply by percentage of vanishing deduction one year ago Vanishing deductions

300,000 P 902,348 1,000,000 (P 97,652)

300,000 P 972,500 . P 972,500 3 P 324,167 P300,000 80,870 P219,130 80% P175,304

Note: The inherited property is exclusive because the problem states that it is the decedents estate. Problem 518 1. P3,900,000 2. P 265,000 3. P2,250,000 4. P1,817,500 5. P - 0 - or (P432,500) 6. P - 0 7. P1,515,000 Supporting computations (Problem 5-18):
Gross estate House and lot, Baguio City House and lot, Quezon City family home* Grocery store, Baclaran Inventory (P700,000 P300,000) x 450/300 Cash sales Claims against insolvent persons Ordinary deductions: Funeral (P3,900,000 x 5%) Claims against insolvent persons Unpaid income taxes Net estate before share of surviving spouse Less: Share of surviving spouse (P3,635,000 x 50%) Net estate before special deductions Special deductions: Family home (P1,500,000/2) Medical expenses Standard deductions Net estate Estate tax due Gross estate Actual deductions: Funeral Claims against insolvent persons Unpaid income taxes Medical expense Net estate before share of spouse Share of surviving spouse (P3,030,000 x 50%) Net distributable estate P1,000,000 1,500,000 300,000 600,000 450,000 50,000 P 195,000 50,000 20,000

P3,900,000

(1)

( 265,000) P3,635,000 1,817,500 P1,817,500

(2) (4)

P 750,000 500,000 1,000,000

(2,250,000) (P 432,500) P 0 -

(3) (5) (6)

P3,900,000 P250,000 50,000 20,000 550,000

870,000 P3,030,000 1,515,000

P1,515,000

(7)

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 25 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

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

Problem 519 1. P6,540,000 2. P350,000 3. P2,500,000 4. P595,000 5. P22,600 6. P3,047,400 7. P761,750

Supporting computations (Problem 5-19): House and lot (family home) Time deposit principal amount Accrued interest 2004: (P2,000,000 x 12% x 12/12) 2005: (P2,000,000 x 12% x 10/12) Car Claims against insolvent person Gross estate Ordinary deductions: Funeral expense, limit Judicial Claims against insolvent person Net estate before share of surviving spouse Less: Share of surviving spouse (P6,190,000 x 50%) Net estate before special deductions Special deductions: Standard deductions Medical expense, limit Family home, limit Net estate Tax on P500,000 Tax on excess (P95,000 x 8%) Estate tax Gross estate Actual deductions: Funeral expense Judicial expense Claims against insolvent person Net distributable estate before share of surviving spouse Less: Share of surviving spouse (P6,140,000 x 50%) Net actual estate Less: Estate tax Net distributable estate Divided by number of heirs (intestate succession) Share of each heir P3,000,000 2,000,000 240,000 200,000 1,000,000 100,000 P6,540,000 P 200,000 50,000 100,000

( 350,000) P6,190,000 3,095,000 P3,095,000

P1,000,000 500,000 1,000,000

2,500,000 P 595,000 P 15,000 7,600 P 22,600 P6,540,000

P250,000 50,000 100,000

( 400,000) P6,140,000 3,070,000 P3,070,000 22,600 P3,047,400 4 P 761,850

Problem 520 1. Estate tax credit = P212,917 2. Estate tax payable = P224,583

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 26 SUGGESTED ANSWERS
Chapter 5: ESTATE TAX

Supporting computations:

a. Estate tax payable to the Philippines :

Gross estate Unpaid mortgages Unpaid taxes Transfer for public use Net of identifiable deductions Allocated deductions** Net estate

Country A P1,200,000 (200,000) . P1,000,000 (208,333 ) P 791,667

Country B P2,500,000 (500,000) . P2,000,000 (416,667) P1,583,333

Philippines P5,000,000 (2,000,000) P3,000,000 (625,000) P2,375,000

Entire P8,700,000 (200,000) (500,000) (2,000,000) P6,000,000 (1,250,000) P4,750,000

b. Computation of Philippines estate tax: Tax on P2,000,000 Tax on excess (P2,750,000 x 11%) Total Less: Tax credit allowed* Estate tax payable to the Philippine Government c. Computation of tax credit: Limit A: Country A: [P437,500 x (P791,667/ P4,750,000)] - lower Actual payment to country A Tax credit allowed for country A Country B: (P437,500 x P1,583,333/ P4,750,000) Actual payment to country B Tax credit allowed for country B Tax credit Limit A P 72,917 P 75,000

P135,000 302,500 P437,500 212,917 P224,583

P 72,917 P145,833 P140,000 140,000 P212,917

Limit B: Total net estate foreign [(P791,667 + P1,583,333)/ P4,750,000] x P437,500 Total actual estate tax payments foreign (P75,000 + P140,000) lower Tax credit Limit B *Tax credit allowed (the lower of limit A or B)

P218,750 P215,000 P215,000 P212,917

** Computation of allocated deductions:

Funeral expenses Judicial expenses Standard deduction allocated Total allocated deductions Country A P 33,333 8,333 166,667 P208,333 Country B P 66,667 16,667 333,333 P416,667 Philippines P100,000 25,000 500,000 P625,000 Entire P 200,000 50,000 1,000,000 P1,250,000

Note: The above deductions are allocated because they are not specifically identified as deductions from a specific country. The allocation is computed by multiplying the fraction of the estate after identifiable deduction with the allocable deductions. The fraction per country is computed as follows: Country A Country B Philippines Entire Estate net of identifiable deductions per country P1,000,000 P2,000,000 P3,000,000 P6,000,000 Divide by entire net estate P6,000,000 P6,000,000 P6,000,000 P6,000,000 Fraction 1/6 2/6 3/6 6/6

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Problem 521 Cash Shares of stock (P100 x 100,000 shares) Insurance proceeds Transfer in contemplation of death Total gross estate Ordinary deduction Transfer for public use Net estate before share of spouse Less: Share of surviving spouse (P800,000 x 50%) Net estate before special deduction Less: Standard deduction Net estate Estate tax on P2,000,000 Tax on excess (P2,000,000 x 11%) Total estate tax Less: Tax credits on tax previously paid (P34,840 + P204,000) Transfer tax still due Problem 522 Estate tax on P5,000,000 Estate tax on excess (P3,000,000 x 15%) Estate tax Add: Surcharges willful neglect (P585,000 x 50%) Interest for 4 years (P585,000 x 20% x 4) Total amount to be paid Conjugal P2,000,000 . P2,000,000 . P2,000,000 P1,000,000 Exclusive P10,000,000 1,000,000 3,000,000 P14,000,000 (10,000,000) P 4,000,000 1,000,000 P 5,000,000 1,000,000 P 4,000,000 P135,000 220,000 P355,000 238,840 P116,160 P 135,000 450,000 P 585,000 P292,500 468,000 760,500 P1,345,500