Net Estate

NE
N EX
XTT
Deductions Allowed to Estate
Sec. 86 of NIRC
 Deductions allowed to the estate of a Citizen or Resident

NIRC TRAIN
Ordinary
Deduction The value of the net estate of a resident or Section 86 (A) The following are the allowable
citizen is determined by deducting the Allowable deductions from the gross
following from the gross estate: deductions estate of a resident or citizen:
1. Standard deduction of ₱1,000,000; from the gross 1. Standard deduction of
2. Expenses, losses, indebtedness, and estate of a ₱5,000,000;
taxes citizen or 2. Claims against the estate;
a. Funeral expenses resident 3. Claims against insolvent
b. Judicial expenses persons;
c. Claims against the estate 4. Unpaid mortgage or
Special
Deduction d. Claims against insolvent persons indebtedness on property;
e. Unpaid mortgages

Property previously taxed Property previously taxed

 Deductions allowed to the estate of a Citizen or Resident

NIRC TRAIN
Ordinary
Deduction

Transfers for public use Section 86 (A) Transfers for public use
Allowable
Family home in the amount of ₱1,000,000; deductions Family home, in the increased
from the gross amount of ₱10,000,000;
Special estate of a
Deduction citizen or
resident
 Deductions allowed to the estate of a Citizen or Resident

NIRC TRAIN
Medical expenses, not Section 86 (A)
exceeding ₱500,000 Allowable
deductions
Amount received by heirs under RA No. from the gross Amounts received by heirs under
4917 (Retirement benefits of private firm estate of a RA No. 4917 (Retirement benefits
employees) citizen or of private firm employees)
resident

Special
Deduction
Allowable deductionS
- Claims against the estate

Requisites for Deductibility of Claims against the Estate

(Section 6. Computation of the Net Estate of a Decedent Who Is either a Citizen or Resident of the Philippines. Revenue
Regulation No. 12-2018. January 25, 2018)

 EXISTENCE OF LIABILITY. The liability represents a personal obligation of the deceased existing at the
time of his death;

 GOOD FAITH AND CONSIDERATION. The liability was contracted in good faith and for adequate and full
consideration in money or money’s worth;

 VALIDITY AND ENFORCEABILITY. The claim must be a debt or claim which is valid in law and enforceable
in court; and

 CONDONATION AND PRESCRIPTION The indebtedness must NOT have been condoned by the creditor
or the action to collect from the decedent must NOT have prescribed.
Allowable deductionS
- Claims against the estate

All unpaid obligations and liabilities of the decedent at the time of his death are
allowed as deductions from gross estate. Provided, however, that the following
requirements/documents are complied with/submitted:

 In case of simple loan (including advances)

 The debt instrument must be duly notarized at the time the indebtedness was incurred, except
for loans granted by financial institutions where notarization is not part of the business
practice/policy of the financial institution-lender.

 Duly notarized Certification from the creditor as to the unpaid balance of the debt, including
interest as of the time of death.

CONT.
CONT.
Allowable deductionS
- Claims against the estate

All unpaid obligations and liabilities of the decedent at the time of his death are
allowed as deductions from gross estate. Provided, however, that the following
requirements/documents are complied with/submitted:

 In case of simple loan (including advances)

 In accordance with the requirements as prescribed in existing or prevailing internal revenue

issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was
granted, as well as its latest audited balance sheet with a detailed schedule of its receivable
showing the unpaid balance of the decedent-debtor.

 A statement under oath executed by the administrator or executor of the estate reflecting the
disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to
the death of the decedent
Allowable deductionS
- Claims against the estate

All unpaid obligations and liabilities of the decedent at the time of his death are
allowed as deductions from gross estate. Provided, however, that the following
requirements/documents are complied with/submitted:

 If the unpaid obligation arose from purchase of goods or services

 Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery
receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service),
as duly acknowledged, executed and signed by decedent debtor and creditor, and statement of
account given by the creditor as duly received by the decedent debtor;

 Duly notarized Certification from the creditor as to the unpaid balance of the debt, including
interest as of the time of death.

CONT.
CONT.
Allowable deductionS
- Claims against the estate

All unpaid obligations and liabilities of the decedent at the time of his death are
allowed as deductions from gross estate. Provided, however, that the following
requirements/documents are complied with/submitted:

 If the unpaid obligation arose from purchase of goods or services

 Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of
its receivable showing the unpaid balance of the decedent-debtor.
Allowable deductionS
- Claims against the estate

All unpaid obligations and liabilities of the decedent at the time of his death are
allowed as deductions from gross estate. Provided, however, that the following
requirements/documents are complied with/submitted:

 Where the settlement is made through the Court in a testate or intestate

proceeding
 Pertinent documents filed with the Court evidencing the claims against the estate, and the Court
Order approving the said claims, if already issued, in addition to the documents mentioned in the
preceding paragraphs
 DIZON VS. CTA (G.R. NO. 140944)

FACTS:
Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was filed. The probate
court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose Fernandez.

An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency
estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This was subsequently
reduced by CTA to Php 37.42 million. The CA affirmed the CTA’s ruling, hence, the instant petition.

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross
estate, no estate tax was due. On the other hand, respondents argue that since the claims of the Estate’s creditors
have been condoned, such claims may no longer be deducted from the gross estate of the decedent.
 DIZON VS. CTA (G.R. NO. 140944)

ISSUE:
Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose despite the
fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate
with its creditors
 DIZON VS. CTA (G.R. NO. 140944)

HELD:
Following the US Supreme Court’s ruling in Ithaca Trust Co. v. United States, the Court
held that post-death developments are not material in determining the amount of
deduction. This is because estate tax is a tax imposed on the act of transferring property
by will or intestacy and, because the act on which the tax is levied occurs at a discrete
time, i.e., the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of the that time. This is the date-of-death valuation
rule.
 DIZON VS. CTA (G.R. NO. 140944)

HELD:
The Court, in adopting the date-of-death valuation principle, explained that:
 First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax
burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.

 Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been
enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the
time of death are significant to, and should be made the basis of, the determination of allowable deductions.
Allowable deductionS
- CLAIMS AGAINST AN
INSOLVENT PERSON

Requisites for deductibility.

For purposes of estate taxation, a judicial declaration of insolvency is not

required but:
• The incapacity of the debtor to pay his obligation should be proven.
• The full amount owed by the insolvent must first be included in the
decedent’s gross estate and the amount uncollectible shall be allowed
as deduction.
• If the insolvent could only pay partial amount, the full amount owed
shall be included in the gross estate, and the amount uncollectible shall
be allowed as a deduction
Allowable deductionS
- Unpaid mortgages, taxes and
casualty losses

In case unpaid mortgage is being claimed by the estate:

• Verification must be made as to who was the beneficiary of the loan proceeds.
• If the loan is found to be merely an accommodation loan, the value of the
unpaid loan must be included as receivable of the estate.
• If the is a legal impediment to recognize the same as receivable of the estate,
said unpaid obligation/mortgage payable shall not be allowed as a deduction
from the gross estate.
Allowable deductionS
- Unpaid mortgages, taxes and
casualty losses

TAXES
- These are taxes that accrued prior to the death of the decedent.

The following are not allowed as deductions;

1. Income tax on income received after death
2. Property taxes accrued after death
3. Estate tax
Allowable deductionS
- Unpaid mortgages, taxes and
casualty losses
CASUALTY LOSSES
- includes storms, shipwreck or other casualties, or from robbery, theft or
embezzlement.

Requisites for Deductibility:

• Arising exclusively from:
o Acts of God such as fire, storm, shipwreck and other similar casualty
o Acts of man such as robbery, theft, embezzlement
• Not compensated by insurance or otherwise
• Not claimed as a deduction in an income tax return of the estate subject to
income tax
• Incurred during the settlement of the estate:
Under the train law, 1 year from date of death or the extension (to file) which
is not more than 30 days after the lapse of 1 year period
Allowable deductionS
Property Previously Taxed
(Vanishing Deductions)
VANISHING DEDUCTIONS

Purpose:

To minimize the effects of a double taxation  on the same property within a
short period of time.
Allowable deductionS
- Property Previously Taxed
(Vanishing Deductions)

Requisites:
    a) Present decedent must have died within five (5) years from the date of
death of prior decedent or date of gift.
    b) The property with respect to which deduction is claimed must  have
formed part of the gross estate situated in the Philippines of the prior
decedent or taxable gift of the donor.
   c) The property must be identified as the same property received from the
prior decedent or donor or the one received in exchange therefore.
   d) The estate taxes on the gift must have been finally determined and paid.
   e) No vanishing deduction on the property was allowed to the prior estate.
Allowable deductionS
6- Transfers for Public Use

TRANSFER FOR PUBLIC USE means dispositions in a last will and testament, or to
a transfer to take after death, in favor of the Government of the Philippines,
or any political subdivision thereof, for exclusively public purposes.
Allowable deductionS
- Family Home

The family home is the dwelling house, including the land on which it is situated where the
husband and wife, or head of the family and members of the family reside, as certified to by the
barangay captain of the locality, The family home is deemed constituted on the house and lot
from the time it is actually occupied as a family residence and is considered as such for as long as
any of its beneficiaries actually resides therein.
Allowable deductionS
- Family Home

Requisites:

1. The decedent must be married or single head of the family

2. It must be the actual residential home of the decedent and his family ate the time of his death,
as certified by the barangay captain where the family home is located
3. The total value of the family home must be included in the gross estate of the decedent
4. Allowable deduction must be in an amount equivalent to the current fair market value of the
family home as declared in the gross estate, or the extent of the decedent’s interest (whether
conjugal/community or exclusive property) whichever is lower but not exceeding Php
10,000,000.00
Allowable deductionS
- 8Amount Received by Heirs22

Retirement benefits received by employees of private firms in accordance with a reasonable

benefit plan maintained by the employer are EXEMPT from all taxes, provided that the retiring
employee has been in the services of the same employer for at least 10 years and is not less
than 50 years old at the time of his retirement.

The amount must:

• have been received by the heirs of the decedent-employee as a consequence of the latter’s
death, and
• included in the gross estate of the descendent.
 Deductions Allowed to Nonresident aliens
NIRC
The value of the net estate of a
non-resident is determined by
deducting the following from the
gross estate:
1. Expenses, losses,
indebtedness, and taxes in
proportion to the value of the
entire gross estate situated in
the Philippines;
2. Property previously taxed;
3. Transfers for public use
Section 86 (B) Allowable
deductions from the gross estate
of a non-resident
TRAIN
For Non-residents:
1. Standard deduction in the
amount of ₱500,000
2. Value of
• Claims against the estate
• Claims against insolvent
person
• Unpaid mortgages
In proportion to the value of
the entire gross estate
situated in the Philippines
3. Property previously taxed
4. Transfer for public use
 Deductions Allowed to Nonresident aliens

NIRC TRAIN
No deduction shall be allowed in Section 86 (D) Miscellaneous Miscellaneous provision is
the case of a nonresident not a provision for nonresidents deleted.
citizen of the Philippines, unless
the executor, administrator, or
anyone of the heirs, as the case
may be, includes in the return
required to be filed under Section
90 the value at the time of his
death of that part of the gross
estate of the nonresident not
situated in the Philippines.
Exemption of Certain
Acquisitions and
Transmissions.
Sec. 87 of NIRC
Exemption of certain
acquisitions and transmissions
Sec. 87 of NIRC

The following shall not be taxed:

Merger of usufruct in the owner of the naked title

Transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary

Transmission from the first heir, legatee or donee in favor of another beneficiary,
in accordance with the desire of the predecessor

CONT.
CONT.
Exemption of certain
acquisitions and transmissions
Sec. 87 of NIRC

The following shall not be taxed:

All bequests, devises, legacies or transfers to social welfare, cultural and

charitable institutions, no part of the net income of which insures to the
benefit of any individual
 Provided, however, That not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used by such institutions for
administration purposes.
ESTATE TAX RETURNS
AND PAYMENT OF TAX
Secs. 90 and 91 of NIRC
ESTATE TAX
RETURNS
An estate tax return under oath is required by law to be filed by
the executor, administrator, or any of the legal heirs:

Where the gross value of the estate exceeds P200,000 though

exempt from the estate tax; or

Regardless of the gross value of the estate, where the said

estate consists of registered or registrable real property, such as
real property (land, bank accounts, others with definite records),
motor vehicle, shares of stock or other similar property for which
a clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the
name of the transferee.
ESTATE TAX
RETURNS WHEN TO FILE

The return shall be filed within 6 months from the decedent’s

death. (NIRC)

The filing of estate tax returns shall be within one (1) year from
the decedent’s death. (TRAIN)

The Commissioner shall have the authority to grant, in

meritorious cases, a reasonable extension not exceeding 30 days
for filing the return.
ESTATE TAX
RETURNS Where to file

Except in cases where the Commissioner otherwise permits, the

return shall be filed with:

* if the decedent is a resident

a) an authorized agent bank
b) Revenue District Officer
c) Revenue Collection Officer
d) duly authorized treasurer of the city or municipality where
the decedent was domiciled at the time of his death, or

CONT.
CONT.
ESTATE TAX
RETURNS Where to file

Except in cases where the Commissioner otherwise permits, the

return shall be filed with:

* if the decedent is a non-resident

a) with the Revenue District Office where his
executor/administrator is registered
b) with the Revenue District Office having jurisdiction over
the residence of the executor/administrator
e) with the Office of the Commissioner if the decedent has
no executor or administrator
ESTATE TAX
RETURNS copies

The return shall be filed in triplicate, two (2) for the BIR and
one (1) copy for the taxpayer.
ESTATE TAX
RETURNS PAYMENT

Upon filing return, the estate tax due shall be paid to the
Authorized Agent Bank (AAB) where the return is filed. In
places where there are no AABs, payment shall be made
directly to the Revenue Collection Officer or duly Authorized City
or Municipal Treasurer who shall issue Revenue Official Receipt
(BIR Form No. 2524) therefor.
ESTATE TAX
RETURNS Extension for Payment

Extension is allowed in meritorious cases when the

Commissioner finds that the payment of the esate tax on the
due date would impose undue hardships upon the estate or any
heir :
 
At most 2 years – if estate extrajudicially settled
At most 5 years – if estate judicially settled
ESTATE TAX
RETURNS Extension for Payment

NOTE: The taxpayer must not be guilty of

a) negligence
b) intentional disregard of the rules and
regulations, or
c) fraud

The taxpayer may also be required to pay a bond not exceeding

double the amount of tax and with such sureties, as the
Commissioner deems necessary
ESTATE TAX
RETURNS NEW
NEW PROVISION
PROVISION UNDER
UNDER TRAIN
TRAIN LAW
LAW

Payment by installment of estate tax

In case the available cash of the estate is insufficient to pay the total estate tax
due, payment by installment shall be allowed within two (2) years from the
statutory date of payment, without civil penalty and interest.
ESTATE TAX
RETURNS Liability for Payment
of Estate Tax

• Primarily Liable : Executor or administrator - before

delivery to any beneficiary of his distributive shares. After due
payment, the executor or administrator shall be discharged
from personal liability.

• Subsidiarily Liable : Beneficiary - to the extent of his

distributive share, liable for the portion of the estate tax as his
distributive share bears to the value of the total net estate.
 If Gross Estate >5M, additional requirement
under TRAIN LAW

Must submit a certificate of an independent CPA stating:

Itemized assets of the decedent with corresponding gross value at the time of his
death; or if NRA, that part of his gross estate situated in the Philippines
Itemized deductions from the gross estate
Amount of tax due, whether paid or still due and outstanding
Thank you!

Reporter: Dy, Angelica Joyce B. (3B