Solution manual transfer and business taxes by valencia CHAPTER 5 ESTATE TAX

19

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

CHAPTER 5
ESTATE TAX
Problem 5–1
1. False – only P200,000.
2. True
3. True
4. True
5. True
6. True
7. True
8. False – If the value of the gross estate exceeds P2,000,000.
9. False – only 30 days.
10. True
Problem 5–2
1. A
2. C
3. A
4. D
5. D

6. D
7. C
8. A

9. D
10. A

Problem 5–3
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

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 -

3.

Net distributable estate (P1,000,000 + P900,000)

P1,900,000

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

P 500,000
1,000,000
P1,500,000
1,500,000
P3,000,000
95%
P3,157,895


BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

5.

20

TAX

Gross estate (within)
Less: Prorated allowable deduction* (P1,000,000 x 5/15)
Net estate – Philippines

P5,000,000
333,333
P4,666,667

*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
6.

7.

8.

P135,000
293,333
P428,333

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

P3,000,000
200,000
P2,800,000

Estate tax on P2,000,000
Add: Tax on excess (P800,000 x 11%)
Estate tax - Philippines

P 135,000
88,000
P 223,000

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

P20,000,000
200,000
P19,800,000
9,900,000
P 9,900,000
1,000,000
P 8,900,000

Estate tax on P5,000,000
Add: Tax on excess (P3,900,000 x 15%)
Estate tax due

P 465,000
585,000
P1,050,000

Tax credit:
Limit (P1,050,000 x 40%) = P420,000
Actual allowed

P100,000

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

P12,000,000
1,200,000
P10,800,000
5,400,000
P 5,400,000
P 465,000
60,000

P 525,000


21

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–4
B
Gross estate
Funeral expense allowed (P3,000,000 x 5%)
Standard deduction
Net estate
Problem 5–5
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 5–6

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

D

Property – cash
Transfer for public use
Funeral expense allowed
Share of surviving spouse (P4,000,000 – P200,000) x 50%
Standard deduction
Net estate

Exclusive
P1,000,000
(1,000,000)

Conjugal
P4,000,000
( 200,000)
(1,900,000)
(1,000,000)
P 900,000

Problem 5–7
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 5–8

(1,120,000)
P 280,000

P1,500,000
( 60,000)
P1,440,000
( 720,000)
P 720,000
(1,000,000)
( P280,000)
P - 0 -

A

Properties
Funeral expense
Judicial expenses

Claims against properties
Shares of surviving spouse (P2,400,000 x 50%)
Standard deduction
Net estate

Conjugal
P3,400,000
( 200,000)
( 250,000)
( 550,000)
(1,200,000)

Exclusive
P2,600,000
(700,000)
1,200,000
(1,000,000)
P2,100,000


22

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–9
C

Net estate of P500,000 has a estate tax amounting to
Problem 5–10

P15,000

D

Amounts

Net estate
P2,000,000

Estate tax
P135,000

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 5–11
1.

2.

3.

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

Conjugal

Exclusive

P1,600,000
800,000
( 200,000)
( 100,000)
( 300,000)
( 900,000)

P2,800,000

B
Estate tax on P500,000
Estate tax on excess (P1,400,000 x 8%)
Estate tax
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

Problem 5–12
C
Tax credit P100,000 x 2M/5M)

900,000
(1,000,000)
( 800,000)
P1,900,000
P 15,000
112,000
P127,000

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

23

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–13 A
Total gross estate (P1,700,000 + P800,000)
Less: Deductions
Net taxable estate

P2,500,000
1,500,000
P1,000,000

Estate tax on P500,000
Excess P500,000 x 8%
Total estate tax in the Philippines

P15,000
40,000
P55,000

Tax credit allowed
(P800,000/ P2,500,000) x P55,000 = P17,600 vs. P20,000

P17,600

Problem 5–14
Gross estate (P2,000,000 + P180,000)
Less: Deductions:
Unpaid mortgage
Funeral expense
Judicial expense
Standard
Net estate

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

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 5–15
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

1,560,000
P 620,000
P15,000
9,600
P24,600
P2,180,000

P560,000
24,600

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)


24

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Gross estate
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

P1,900,000
P500,000
70,000

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

Problem 5–16

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.

Conjugal

Exclusive

P1,000,000

P9,000,000

(
(
(
P

200,000)
200,000)
500,000)
100,000
50,000

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


25

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–17
Taxable
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
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

P2,000,000
( 115,000)
( 5,000)
( 500,000)
( 175,304)
P1,204,696
( 602,348)
P 602,348
300,000
P 902,348
1,000,000
(P 97,652)

*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

Distributabl
e
P2,000,000
( 150,000)
(
5,000)
( 500,000)
.
P1,345,000
672,500
P 672,500
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 decedent’s
estate.
Problem 5–18
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
Note: The house and lot in New York, Quezon City is assumed family home because Don and
Dona Posamin resides in that place.


26

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

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

P1,000,000
1,500,000
300,000
600,000
450,000
50,000

P3,900,000

(1)

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

(2)

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

(3)
(5)

Estate tax due

P

(6)

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

P3,900,000

P 195,000
50,000
20,000

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

P250,000
50,000
20,000
550,000

-

0

-

870,000
P3,030,000
1,515,000
P1,515,000

(4)

(7)


27

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–19
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

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

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

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

( 350,000)
P6,190,000

3,095,000
P3,095,000

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


28

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Problem 5–20
1. Estate tax credit = P212,917
2. Estate tax payable = P224,583
Supporting computations:
a. Estate tax payable to the Philippines :
Country A
Gross estate
Unpaid mortgages
Unpaid taxes
Transfer for public use
Net of identifiable deduct.
Allocated deductions**
Net estate

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

Country B

Philippines

Entire

P2,500,000

P5,000,000

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

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

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

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

P 72,917
P 75,000
P 72,917
P145,833
P140,000
140,000

Tax credit – Limit A
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)
** Computation of allocated deductions:

P212,917

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


29

BUSINESS AND TRANSFER TAXATION

Chapter 5: ESTATE

TAX

Funeral expenses
Judicial expenses
Standard deduction allocated
Total allocated deductions

Country A
P 33,333
8,333
166,667
P208,333

Country B Philippines
P 66,667 P100,000
16,667

25,000
333,333
500,000
P416,667 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:

Estate net of identifiable
deductions per country
Divide by entire net estate
Fraction

Country A

Country B

Philippines

Entire

P1,000,000
P6,000,000
1/6

P2,000,000
P6,000,000
2/6

P3,000,000
P6,000,000
3/6

P6,000,000
P6,000,000
6/6

Problem 5–21
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

Conjugal

P2,000,000
.
P2,000,000
.
P2,000,000
P1,000,000

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 5–22
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

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