DONATION AND DONOR’S TAX

Objectives:
After this chapter, readers are expected to:
 Comprehend the essential requisites and formal requisites of donation.
 Appreciate the rationale and purpose of donor’s taxation.
 Understand the types of donor’s and their tax rules
 Be able to identify and understand those donations treated as void ab initio
 Be able to identify and distinguish relatives from strangers
 Understand the tax rules and be able to apply computational procedures applicable
to relatives and strangers
 Understand the treatment of donation of common properties
 Master the list of exempt donations and donor’s tax treatment
 Understand and master the rules on gross gift
 Appreciate the valuation rules on donation
 Master and comprehend the list of deductions from gross gift
 Comprehend the presentation and reporting of items of gross gift and deductions in
donor’s tax return
Nature of Donor’s Tax
-also called gift tax
-imposed on gratuitous transfer of real or personal, tangible or intangible property.
Purpose:
1. To prevent the circumvention of estate taxation
2. To compensate for the loss or decrease of income taxes and estate taxes when large estate
are split.
Requisites:
1. There is gratuitous transfer of property
2. Both the donor and the done are living at the time of the transfer.
Contract of Donation
Who can be Donors?
All person (natural or juridical) who may contract and dispose their property may make a
donation (art. 735, Civil Code)
Who can be Donees?
 All those who are not specially disqualified by law may accept donations. (art. 738,
Civil Code).
 Minors and others who cannot enter into contract may become doness, but
acceptance shall be done through their parents or legal representatives. (art. 741,
Civil Code)
 Donation made to conceived and unborn children may be accepted by those persons
who would legally represent them if they were already born. (art. 742, Civil Code)
When is the donation perfected?
At the moment the donor knows of the acceptance of the gift by the done. (art. 734, Civil
Code)
What are the void Donations?
1. General Rule: Donation between spouses, whether direct or indirect, during marriage.
Exception: moderate gifts which the spouses may give each other on the occasion of any
family rejoicing. (art. 87, Family Code)

The following are indirect donation to a spouse, therefore void:

 To stepchild who has no compulsory heirs other than the other spouse at the time of
donation;
 To common child who has no compulsory heirs other than the other spouse at the
time of donation;
 To the parents of other spouse;
 To the other spouse’s adopted child in cases when, at the time of donation, the only
surviving relatives of the adopted is the adopted spouse, the illegitimate children of
the adopted, and the surviving spouse of the adopted;
 To common adopted child who has no other surviving heirs (art. 190, Family Code)
2. Between persons living together as husband and wife without a valid marriage (art. 87,
Family Code);
3. Between persons guilty of concubinage or adultery at the time of donation (art. 739, Civil
code)
4. Between persons found guilty of the same criminal offense, in consideration thereof (art.
739, Civil Code)
5. Those made to public officer or his/her spouse, descendants and ascendants, by reason
of his/her office (art. 739, Civil code)
6. Donations made by persons to those who cannot inherit from them:
a. Donation to the priest who heard the confession of the donor during his last
illness, or the minister who extended spiritual aid to him during the same period;
b. Donations to the relatives of such priest or minister within 4th degree
c. Donation to the church, order chapter, community, organization, or institution to
which such priest or minister belongs;
d. Those made to a guardian with respect to donations made by a ward before the
final accounts of the guardianship have been approved, except when the guardian
is the ward’s ascendants, descendants, brother or sister;
e. Any physician, surgeon, nurse, health officer, or druggist, who took care of the
donor during his last illness (art. 740, art. 1027, Civil code)
Donation of Movables
1. Donation may be made orally or in writing.
a. If orally made, it requires the simultaneous delivery of the thing or the document
representing the right donated.
b. If in writing, it does not require simultaneous delivery of the thing donated.
2. Acceptance may be oral, in writing or tacit.
If value of the movable does not exceed P5,000 the donation may be oral or in writing, and the
acceptance may be oral, in writing or tacit.
If the value of the movable exceed P5,000 the donation and acceptance must be in writing,
otherwise the donation is void. Without such writing, the donation would be void, even if there is
simultaneous delivery (art. 748, Civil Code)
Donation of Immovables
1. Donation must be in writing and in public instrument (notarized).
2. Acceptance may be made in the same deed of donation or in separate public instrument.
 3. Acceptance must be done during the lifetime of the donor, and the latter must be notified
of the acceptance.
GROSS GIFT
-depends upon the citizenship and/or residence of the donor:
T ANGIBLE PERSONAL INT ANGIBLE
REAL PROPERT Y
DONOR PROPERT Y PERSONAL PROPERT Y
WIT HIN WIT HOUT WIT HIN WIT HOUT WIT HIN WIT HOUT
CIT IZE
N/RESI
DENT
/ / / / / /
NON- /
RESIDE
NT / X / X X
ALIEN
X
If there is
RECIPROCITY

Intangible Personal Property – means incorporeal property which do not have any physical
form, but represents rights and privileges. Examples include bank deposits, trademarks, shares of
stock, patents, copyrights, bonds, notes, interest in partnership, etc.
INTANGIBLE ASSET SITUS
RECEIVABLE (PROMISSORY NOTE) RESIDENCE OF DEBTOR
BANK DEPOSIT LOCATION OF BANK
OTHER INTANGIBLE PROPERTIES:
A. FRANCHISE, PATENTS, COPYRIGHTS,
WHERE PROPERTY IS USED OR EXERCISED
TRADEMARKS
B. INVESTMENT IN PARTNERSHIP WHERE PARTNERSHIP IS ESTABLSIHED
C. SHARES OF STOCK, BONDS, CORPORATE
OBLIGATIONS
1. DOMESTIC CORPORATION WITHIN THE PHILIPPINES
2. FOREIGN CORPORATION WITHOUT THE PHILIPPINES
EXCEPT:
i. IF >= 85% OF BUSINESS IS IN THE
WITHIN THE PHILIPPINES
PHILIPPINES
ii. IF SHARES OR BONDS HAVE
ACQUIRED A BUSINESS SITUS IN THE WITHIN THE PHILIPPINES
PHILIPPINES

Gross Gift of Husband and Wife

Husband and Wife may donate:
a. The conjugal or community properties: each spouse shall be considered a separate donor of
his or her interest in the property: ½ of the conjugal or community property donated being
a gift of the husband, and the other half of that of the wife.
b. Separate or exclusive property owned by only one spouse
OTHER TRANSACTIONS SUBJECT TO DONOR’S TAX
 Transfer for insufficient consideration (sec. 100, NIRC)
Requisites:
a. The property transferred is real or personal property, except real property classified as a
capital asset referred in section 24(D) of the Tax Code;
b. The transfer is for less than a full consideration;
c. The transfer inter-vivos.
Purpose: to prevent escape from the income tax be accepting a lower price for the property.
Tax consequences:
GIFT (SUBJECT TO DONORS TAX) INCOME (SUBJECT TO INCOME TAX)
FMV OF THE PROPERTY TRANSFERRED PRICE (CONSIDERATION) RECEIVED
LESS: PRICE (CONSIDERATION) RECEIVED LESS: COST

In transfers for insufficient consideration in the Sale of Domestic Shares of Stock:

FMV of share of stock sold, Bartered or exchanged shall be as follows:
1. If the shares are listed, but are sold, bartered, or exchanged outside the local stock
exchange, the FMV shall be:
a. The closing price on the day the shares are sold, bartered, or exchanged;
Or
b. The closing price on the day nearest to the date of sale, barter, or exchanged if
there is no sales transaction of the shares in the local stock exchange on the day it
was sold, bartered, or exchanged.
2. If the shares are not listed in the local stock exchange, the FMV shall be determined
using the ADJUSTED NET ASSET VALUE METHOD. In such method, all assets and
liabilities are adjusted to fair market values. The net adjusted asset minus the adjusted
liability values is the value of equity. For real properties, the FMV shall be the highest of
the zonal value, assessor’s value, or the independent appraiser’s value (rev. Regs. 6-
2008, 6-2013).
 Condonation or remission of debt – where the debtor did not render any service in
favor of creditor.
EXEMPT DONATIONS UNDER NIRC AND SPECIAL LAWS
Donations to the following entities are exempt:
 Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2, P.D.
292)
 Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, RA 10083)
 Development Academy of the Philippines (Sec. 12, PD 205)
 Girl Scouts of the Philippines (Sec. 11, RA 10073
 Integrated Bar of the Philippines (Sec. 3, PD 181)
 National Rice Research Institute (Art 5(2), PD 1620)
 National Commission for Culture and the Arts (Sec. 35, RA No. 10066
 National Social Action Council (Sec. 4, PD 294)
 National Water Quality Management Fund (Sec. 9, RA No. 9275)
 People’s Television Network, Incorporated (Sec. 15, RA No. 10390)
 People’s Survival Fund (Sec. 13, RA No. 10174)
 Philippine-American Cultural Foundation (Sec. 4, PD 3062)
 Philippine Normal University (Sec. 7, RA No. 9647)
 Philippine Investors Commission (Sec. 9, RA No. 3850)
 Philippine Red Cross (Sec. 5, RA no. 10072)
 Ramon Magsaysay Award Foundation (Sec. 2, RA 3676)
 Rural Farm School (Sec. 14, RA No. 10618)
 Task Force on Human Settlements (Sec. 3(b)(8), EO 419)
 Tubbataha Reefs Natural Park (Sec. 17, RA No. 10067)
 University of the Philippines (Sec. 25, RA No. 9500)
EXEMPTIONS OR DEDUCTIONS FROM GROSS GIFT
A. Dowry
a. Gifts made on account of marriage
i. Before its celebration
ii. Within 1 year thereafter
b. By parents to each of their legitimate, illegitimate or adopted children
c. To the extent of P10,000 only
Notes: a. Child does not include step-child; b. husband and wife are entitled to the dowry
exemption separately.
B. Gifts made to the national government or to any political subdivision of the
national government or to any entity created by the government which is not
conducted for profit.
C. Gifts made to educational, charitable, religious, cultural, social welfare
institutions, accredited NGO’s and trusts, philanthropic organizations, and
research institutions.
Provided:
1. The non-profit institution is a non-stock entity that pays no dividends, is governed by
trustees who do not receive any compensation and devotes all of its income to
accomplishment of its purpose; and
2. Not more than 30% of the gifts shall be used for administrative purposes.
D. Mortgage or encumbrance on the property which obligation is assumed by the
donee (RR 2-2003)
E. Those specially provided by the donor as a dimunition of the property donated
F. Campaign contributions in cash or in kind to any candidate which are duly
reported to the COMELEC (RA. 7166)
G. Donation made for the operation of the dual training system under RA. 7686
Dual Training System Act of 1994
a. Instructional delivery system of technical and vocational education and training that
combines in-plant training and in-school training based on a training plan
collaboratively designed and implemented by an accredited dual system educational
institution/training center and accredited dual system agricultural, industrial and
business establishments with prior notice and advice to the local government unit
concerned. Under this system, said establishments and the educational institution
share the responsibility of providing the trainee with the best possible job
qualifications, the former essentially through practical training and the latter by
securing an adequate level of specific, general and occupation-related theoretical
instruction.
H. Donations of cooperatives to duly accredited charitable, research and
educational institutions, and to socio-economic projects within their area of
operations
I. Donations of lands certified by the LGU to have been donated for socialized
housing purposes.
VALUATION OF GIFTS – properties shall be valued at the time the gift is made
 PROPERTY VALUATION
FMV WHICH IS THE HIGHER OF THE ZONAL
REAL PROPERTY
VALUE OR THE ASSESSOR'S VALUE
PERSONAL PROPERTY FMV AT THE TIME OF GIFT
AVERAGE OF THE LOWEST AND HIGHEST
QUOTES ON THE VALUATION DATE (DATE OF
STOCKS LISTED IN THE STOCK EXCHANGE
GIFT) OR DAY NEAREST TO THE VALUATION
DATE
FOR COMMON SHARES 1) NET ASSET VALUE OR
STOCKS NOT LISTED IN THE STOCK
2) BOOK VALUE, WHICHEVER IS HIGHER
EXCHANGE
PREFERRED SHARES - PAR VALUE
FMV IS THE DISCOUNTED AMOUNT OF THE
NOTES; ACCOUNTS RECEIVABLE
UNPAID PRINCIPAL PLUS INTEREST.
1. AT THE TIME OF DONATION, THE FMV OF
THE STOCK OPTION
2. UPON EXERCISE OF THE OPTION, THE
STOCK OPTIONS
DIFFERENCE BETWEEN THE HIGHER OF THE BV
OR FMV OF THE UNDERLYING SHARES AT THE
TIME OR EXERCISE, AND THE EXERCISE PRICE

SUMMARY OF DEDUCTIONS/EXEMPTIONS
DONOR
EXEMPTION/DEDUCTION CITIZENS/RESIDENT NON-RESIDENT
ALIENS ALIENS
DOWRY / X
GIFTS TO GOVERNMENT / /
GIFTS TO NON-PROFIT ORGANIZATIONS / /
MORTGAGE ASSUMED BY DONEE / /
DIMUNITION OF GIFT PROVIDED BY THE DONOR / /
OTHER / /

DONOR’S TAX FORMAT:

GROSS GIFT P XXX
LESS: ALLOWED DEDUCTIONS XXX
NET GIFT XXX
TIMES: TAX RATE
DONOR’S TAX XXX
COMPUTATION OF DONOR’S TAX
A. the donor’s tax is computed on the basis of the net gifts made
during a calendar year. The net gifts is determined by
subtracting from the gross gift amount of exemption or
deduction allowed by law.
1. If the done is not a stranger – the tax payable by the donor
shall be computed using the tax table below
a. Not a stranger means a person is a:
i. Brother, sister (whether whole or half blood),
spouse, ancestor and lineal descendant; or
ii. Relative consanguinity in the collateral line
within the 4th degree of relationship
If the net gift is:

OVER BUT NOT OVER TAX SHALL BE PLUS OF EXCESS OVER

- 100,000.00 EXEMPT -
100,000.00 200,000.00 - 2% 100,000.00
200,000.00 500,000.00 2,000.00 4% 200,000.00
500,000.00 1,000,000.00 14,000.00 6% 500,000.00
1,000,000.00 3,000,000.00 44,000.00 8% 1,000,000.00
3,000,000.00 5,000,000.00 204,000.00 10% 3,000,000.00
5,000,000.00 10,000,000.00 404,000.00 12% 5,000,000.00
10,000,000.00 ABOVE 1,004,000.00 15% 10,000,000.00
2. If the done is a stranger – the tax payable shall be 30% of
the net gifts
B. Gift taxes due on donations to strangers are computed
separately from gift taxes due on donations to non-strangers
C. Gift taxes are computed on a cumulative basis over a period of
1 calendar year
DONOR’S TAX RETURN
Who files?
Any individual who makes any transfer by gift.
Note: no return is required if the transfer is exempt from donor’s tax, like donations to the national
Government or to non-profit institutions.
Time of filing?
Within thirty (30) days from the date the gift is made.
Time of payment?
At the time of filing the return.
Where to file?
a. If donor is a resident donor (citizen or resident alien) – with the Authorized
Agent Bank, Revenue District Office, collection officer or duly authorized
treasurer of the city or municipality where the donor is domiciled at the time of
transfer, or with the office of the commissioner if donor has no legal residence.
b. If donor is non-resident donor (non-resident alien) – with the Philippine
Embassy or Consulate in the country where he is domiciled at the time of
transfer; or directly with the office of commissioner (RDO no. 39).
Contents of the donor’s tax return
The return shall set forth:
1. Each gift made during the calendar year which is to be included in computing net gifts;
2. The allowed deductions claimed;
3. Any previous net gifts made during the same calendar year;
4. The name of the done; and
5. Such further information as may be required (sec. 103 (A), NIRC).
Credit for foreign donor’s tax paid
 - Available only to resident donors (citizen or resident aliens donors)
- Subject to limits
Limits

NET GIFT (PER FOREIGN COUNTRY) PHILIPPINE

X
a. TOTAL NET GIFTS DONOR'S TAX
NET GIFTS (IN ALL FOREIGN COUNTRY) PHILIPPINE
X
b. TOTAL NET GIFTS DONOR'S TAX

RULES:
1. If there is only one foreign country, only limit A is used.
2. If there are two or more foreign countries, use both limits
 DONOR’S TAX
1. FOR DONOR’S TAX PURPOSES, WHO AMONG THE FOLLOWING IS/ARE
STRANGERS TO YOU?
i. The grandson of the daughter of your grandson
ii. The grandfather of the mother of your grandmother
iii. The brother of the father of your grandfather
iv. The grandson of the sister of your brother
a. I and ii
b. Iii and iv
c. Iii only
d. Iv only
2. A. the gifts perfected from the moment the donor effects the delivery either actually or
constructively of the property donated.
B. donor’s tax is a property tax imposed on the property transferred by way of gift inter-
vivos
a. true, true b. true, false c. false, true d. false,false
3. A. for purposes of the donor’s tax, second degree cousins are stranger to each other.
B. encumbrance on the property donated, if assumed by the donor is deductible for
donor’s tax purposes
a. true, true b. true, false c. false, true d. false,false
4. A. where real property is transferred during lifetime for less than adequate and full
consideration in money or money’s worth, then the amount by which the value of the property
exceeded the value of consideration shall for the purpose of the donor’s tax, be deemed gift.
B. gifts of conjugal property made by both spouses shall be considered as having been
made one-half by the husband and the other half by the wife and is taxable ½ to each donor
spouse.
a. true, true b. true, false c. false, true d. false,false
5. A, if the value of the movable property donated is P5,000 or more the donation and the
acceptance shall be made in writing, otherwise the donation shall be void.
B. regardless of the value of the immovable property donated, the donation and the
acceptance shall be made in writing, otherwise the donation shall be void.
a. true, true b. true, false c. false, true d. false,false
6. The donation of a movable property may be made
a. orally b. writing c. either A or B d. neither A or B
7. Using the preceding number, the donation and acceptance should be made in writing is
the value of the property donated is
a. Less than P5,000 b. P5,000 or less c. P5,000 or more d. more than P5,000
8. donation which takes effect upon death of the donor
a. Donation mortis causa
b. Partakes of the nature of testamentary disposition
c. Shall be governed by the law on succession
d. All of the above
 9. A donation which is intended by the donor to take effect during his lifetime
a. Shall be subject to donor’s tax using tax table for donation or fixed 30%
b. Shall be in writing if the value exceeds P5,000
c. Donation inter-vivos
d. All of the above
10. the donation of an immovable property shall be made
a. In writing
b. In public instrument
c. Either a or b
d. Orally
11. using the preceding number, acceptance by the done may be made
a. In the same deed of donation
b. In separate document
c. Either a or b
d. Orally
12. I. dowries or gifts made on account of family celebration, on or before its celebration, or
within one year thereafter, by parents to each their legitimate, recognized naturalor adopted
children, to the extent of first P10,000 shall be exempt from donor’s tax.
II.donations in favour or an educational and/or charitable, religious, cultural or social
welfare corporations, institutions, accredited non-government organization, trust
philanthropic organization or research institution or organization provided that no amount
of said gifts shall be used by the done for administration purposes shall be exempt from
donor’s tax.
a. true, true b. true, false c. false, true d. false,false
13. A. as a rule, donation between husband and wife during marriage is void
B. donation can be made to conceived or unborn children
a. true, true b. true, false c. false, true d. false,false
14. h made a donation of property with a FMV of P1,000,000 to his legitimate daughter I
and to J on December 25, 2017 on account of I’s marriage to J celebrated February 14, 2017
Determine the Donor’s Tax Due

15. Mr. and Mrs. K, made the following donations of conjugal funds of properties in 2017
(unless stated otherwise), as follows:
a. February 14: to L, a legitimate son, a piece of land with FMV of P400,000 on account
of L’s graduation from college
b. May 14: to M, a legitimate daughter on account of M’s marriage to be celebrated on
December 25, 2017, house and lot with FMV of P1,000,000
c. June 14: to N, Brother of Mrs. K, P200,000
d. September 14: to O, the efficient and beautiful secretary of Mr. K for taking care or
Mr. K while mrs. K is vacationing in USA, jewelry worth P300,000
e. October 14: to P, the honest and good looking driver of Mrs. K who accompanied
Mrs. K on her trip to and from USA, a necklace worth P500,000
f. December 14: to Q, the daughter of O on account of Q’s birthday, pieces of jewelry
inherited by MR. K during marriage, with FMV of P400,000
 g. December 25: to R, a legitimate son, a residential house and lot with FMV of
P1,200,000 but subject to the condition that R would assume the mortgage
indebtedness in the amount of P400,000
Determine the donor’s tax due on each donation

References
 Rex B. Banggawan, CPA, MBA. Business and Transfer Taxation (2017). Real Excellence
Publishing . Manila
 Atty. Jack L.A. De Vera, CPA, Quicknotes in Taxation, CPA Review School of the
Philippines, Sampaloc, Manila.
 Tax Review Handouts for CPA Examination

Prepared by:

IVAN RUZZEL C. PESINO, CPA

Instructor I

Reviewed by:

KARLO PEDRO L. MEDROSO, CPA, MBA

Program Director, BS Accountancy