Solution manual transfer and business taxes by valencia CHAPTER 6 DONOR s TAX

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 6: DONOR’S TAX

CHAPTER 6

DONOR’S TAX
Problem 6-1
1. False – there is no consideration in donation.
2. False – during the lifetime of the donor.
3. True
4. False – It is enough that the duly representative of the incapacitated donee to receive the
donation.
5. True
6. False – Real property donation must be put in writing regardless of value.
7. True
8. False – The value of donated personal property must exceed P5,000.
9. True
10. True
11. False – not gifts.
12. False – constitutes dividend income.
13. True
Problem 6-2
1. True
2. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his
properties within and outside the Philippines
3. True
4. True

5. True
6. False – only one-half of the share is donated.
7. False – only if the gift is on account of marriage.
8. False – only the first P100,000 is exempt.
9. False – may be subject to business tax such as VAT, custom duties, or excise tax.
10. False - When the donee is a stranger, the tax rate is 30%.
11. True
12. False - excise tax – transfer of property by way of gift inter vivos.
Problem 6-3
1.

Zero, because the renunciation is a general renunciation.

2.

P30,000 or 30% of P100,000. A third cousin is a stranger for donor’s tax purposes.

3.

The total amount of donor’s tax is P62,000, computed as follows:
Relative - P200,000 (See schedular tax table)
Stranger (P200,000 x 30%)

Son
P2,000

Daughter-in-law
P60,000

Note: Daughter-in-law is included as a relative for donor’s tax purposes.

4.

Zero. Donations between husband and wife are void and not subject to donor’s tax.

5.

Zero. Donations between a man and a woman living together as husband and wife are void
and not subject to donor’s tax. (Art 87, Family Code)


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 6: DONOR’S TAX

6.

P30,000 or 30% of P100,000. A gift to a priest or to Church is not exempt from gift tax.
(Lladoc vs. Commissioner of Internal Revenue, L-19201, 14 SCRA, p. 292) – assume
donation is made to a church established and operates within the Philippines.

7.

P600,000 or 30% of P2,000,000. There is no blood relationship between corporation, hence
both are stranger from each other.

8.

P40,400
Philippine donor’s tax

P404,000

Actual donor’s tax - foreign

P120,000

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower
9.

P40,400

P40,400

P1,244,000
Philippine donor’s tax:
Relative (P500,000)
Stranger (P5,000,000 – P500,000) x 30%
Less: Tax credit
Actual donor’s tax – foreign (lower)
Tax credit, limit (P1,364,000 x 500,000/5,000,000)
Donor’s tax still due and payable

P
14,000
1,350,000
P120,000
136,400

P1,364,000
120,000
P1,244,00
0

10. P135,000
Donor’s tax
Surcharge (P100,000 x 25%)
Interest (P100,000 x 20% x 6/12)
Total amount due
Problem 6-4
1. C
2. D
3. C
4. A
5. A
6. A
7. A
8. B
9. B
10. A
Problem 6-7

Problem 6-5
1. D
2. D
3. C
4. C
5. C

6. C
7. B
8. C
9. C
10. A

P100,000
25,000
10,000
P135,000
Problem 6-6
1. C
2. D
3. D
4. No answer. All statements are correct.
5. C
6. B
7. A
8. D

C

Gross estate
Less: Standard deduction
Net estate

Father
P5,500,000
1,000,000
P4,500,000

Mother
P5,500,000
1,000,000
P4,500,000

Estate tax on P2,000,000
Excess (P2,500,000 x 11%)
Estate tax

P 135,000
275,000
P 410,000

P 135,000
275,000
P 410,000


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Chapter 6: DONOR’S TAX

Distributable estate (P11,000,000 – P820,000)
Divided by number of heirs
Share of each heir

P10,180,000
4
P 2,545,000

Donor’s tax on P1,000,000
Donor’s tax on excess (P1,545,000 x 8%)
Donor’s tax

P 44,000
123,600
P167,600

Note: There is donor’s tax on the renunciation of inheritance because the renunciation is
specifically for Daw.
Problem 6-8

D

First donation:
Donated value of P200,000
Excess donation (4% x P290,000)
Dowry deducted
Total value of first donation

Value of
Donation
P200,000
290,000
10,000
P500,000

Second donation:
First donation – total value
Excess donation (6% x 400,000)
Total after dowry deducted
Add: Dowry deducted in two donations (P10,000 x 2)
Total
Less: First donation
Value of second donation

P500,000
400,000
P900,000
20,000
P920,000
500,000
P420,000

Donor’s tax
P 2,000
11,600
.
P13,600
P14,000
24,000
P38,000

Problem 6–9
A
Wedding gift (P500,000 – P10,000)

Casual gift – car
Total gift subject to tax

P490,000
500,000
P990,000

Donor’s tax on P500,000
Excess (P490,000 x 6%)
Total donor’s tax in the Philippines

P14,000
29,400
P43,400

Problem 6–10

D

Taxable gift in the Philippines
Donor’s tax on P3,000,000
Problem 6–11
A
Donations:
Vacation house – conjugal (P500,000/2)
Car – conjugal (P240,000/2)
Jewelry – exclusive of Mrs. Salonga
Dowry
Net gift
Donor’s tax on P200,000

Excess (P160,000 x 4%)
(P180,000 x 4%)
Total donor’s taxes, respectively

No reciprocity
P3,000,000

With reciprocity
P - 0 -

P 204,000

P - 0 -

Mr. Salonga
P250,000
120,000

Mrs. Salonga
P250,000
120,000
20,000
( 10,000)
P380,000

( 10,000)
P360,000
P2,000
6,400
P8,400

P2,000
7,200
P9,200


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Chapter 6: DONOR’S TAX

Problem 6–12
A
Donations made between a man and a woman living together as husband and wife are void,
and therefore, not subject to donor’s tax.
Problem 6–13
D
Wedding gift
Less: Dowry
Net gift – first P100,000 donor’s tax exempt

P110,000
10,000
P100,000

Problem 6–14
D
2005 gift – house and lot

Less: Dowry (P10,000 – P6,000)
Net gift

P300,000
4,000
P296,000

Donor’s tax on P200,000
Excess (P96,000 x 4%)
Donors tax – 2005

P2,000
3,840
P5,840

Problem 6–15
C
Donor’s tax (P50,000 x 2%)

P1,000

Problem 6–16
1.

2.

C

Gross gifts, as of August 15, 2002 (P150,000 x 2 lots)
Less: Deductions

Net gifts, August 15, 2002

P300,000
0
P300,000

Donor’s tax on P200,000
Tax on excess (P300,000 – P200,000) x 4%
Total donor’s tax

P

D

P

2,000
4,000
6,000

Wedding gifts, as of November 15, 2002
Less: Deductions - dowry
Net gifts, November 15, 2002
Add: Previous, net gifts
Total net gifts

P150,000
10,000
P140,000
300,000

P440,000

Donor’s tax on P200,000
Tax on excess (P440,000 – P200,000) x 4%
Total donor’s tax
Less: Donor’s tax – August 15, 2002
Donor’s tax – November 15, 2002

P

Problem 6–17
D
Donor’s tax (P8,000,000 x 30%)
Problem 6–18

2,000
9,600
P 11,600
6,000
P 5,600
P2,400,000

D

No deduction is allowed for donations on account of birthday.
Problem 6–19
B
Gross gift (FMV at time of donation)
Problem 6–20
B

Donor’s tax (P200,000 x 30%)

P200,000
P60,000


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 6: DONOR’S TAX

Problem 6–21
A
Donor’s tax (P10,000,000 x 30%)

P3,000,000

The donation is taxable because more than 30% of it shall be used for administration
purposes.
Problem 6–22

D
Estate tax
P5,000,000
1,000,000
P4,000,000

Donor’s tax

P5,000,000
.
P5,000,000

Estate tax on P2,000,000
Excess (P2,000,000 x 11%)
Donor’s tax on P5,000,000
Total

P135,000
220,000
.
P355,000

P404,000
P404,000

Tax savings if estate tax is paid (P404,000 – P355,000)

P 49,000

Gross amount asset
Less: Standard deduction
Net amount subject to tax

Problem 6–23
1. Donors tax for relatives:
Mar. 1
- To his son on account of marriage
Oct. 1

- To his daughter on account of graduation
Total
Less: Dowry
Net taxable gifts

P 600,000
500,000
P1,100,000
10,000
P1,090,000

Donor’s tax on P1,000,000
Excess (P90,000 x 8%)
Total donor’s tax for donations to relatives

P 44,000
7,200
P 51,200

2. Donors tax for strangers:
Dec. 25
- To his god-children
Dec. 31
- To his neighbor
Total
Multiplied by donor’s tax rate
Donor’s tax for donations to strangers

P400,000
100,000

P500,000
30%
P150,000

Problem 6–24
March 30, 2005 (P500,000/2)
June 28, 2005 (P2,000,000/2) – P10,000
Net taxable gifts
Donor’s tax on P1,000,000
Excess (P240,000 x 8%)
Total
Donor’s tax paid on March 30, 2005
Donor’s tax on P200,000
Excess (P50,000 x 4%)
Donor’s tax for donation on June 28, 2005
Problem 6–25
Cash his son for wedding held during the year

Mr. Dinero
P250,000
990,000
P1,240,000

Mrs. Dinero
P250,000
990,000
P1,240,000

P44,000
19,200

P63,200

P44,000
19,200
P63,200

( 2,000)
( 2,000)
P59,200

( 2,000)
( 2,000)
P59,200
P 200,000


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Chapter 6: DONOR’S TAX

Problem 6–26
To his son on account of marriage during the year
To his daughter on account of her birthday
To Garci, his brother, as renunciation of inheritance
Net gift subject to donor’s tax

P 500,000

500,000
400,000
P1,400,000

Note: No dowry is allowed for nonresident alient.
Problem 6–27
Real estate (P1,000,000 – P100,000)
Personal properties (P500,000 – P50,000)
Total taxable gifts (inadequate consideration)
Donor’s tax on P1,000,000
Excess (P350,000 x 8%)
Donor’s tax for inadequate consideration

P 900,000
450,000
P1,350,000
P 44,000
28,000
P 72,000

Problem 6–28
Correction:
The date for requirement No. 2 should be November 5, 2005 instead of November 5, 2002.
1.

2.

December 25, 2005:
Average value per share (P500 + P450)/ 2
Multiply by number of shares

Taxable base of the gift

P

475
1,000
P475,000

The same answer with number 1.

Problem 6–29
There is no donor’s tax because the donations are donation mortis causa, void donation and
tax- exempt donation.
Properties:
a. House and lot
Subject to estate tax because the transfer shall take effect upon
death of the donor (included in the last will and testament).
b.

Parejo car

The value of property donated is P200,000 and it was made
orally. The donation is null and void because personal property
donated with value exceeding P5,000 should be put in writing to
become a valid donation.

c.

Business

Revocable donation is a revocable transfer, hence, subject to
estate tax.

d.

Furniture and fixtures

Donation mortis causa is subject to estate tax.

e.

Time deposit

The amount is P100,000 given to his illegitimate daughter. This
donation is tax exempt because the first P100,000 of donation to
relatives shall not be subjected to donor’s tax.

Problem 6–30
Car consequently destroyed after delivery to his son
Donor’s tax
Problem 6–31
Donations to relatives:

P 500,000
P14,000


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Chapter 6: DONOR’S TAX

2006:
January 31

November 30

Car to Uncle
Less: Encumbrances assumed by the donee
Net taxable gift – January 31, 2002

P300,000
50,000
P250,000

Donor’s tax on P200,000
Tax on excess (P250,000 – P200,000) x 4%
Donor’s tax for January 31 donation

P

House and lot to his son on account of marriage
Less: Dowry exemption (weeding was held beyond one year)
Net gifts
Add: Previous net gifts during the year
Aggregate taxable gift

P600,000

- 0 P600,000
250,000
P850,000

Donor’s tax on P500,000
Tax on excess (P840,000 – P500,000) x 6%
Total
Less: Donor’s tax for previous gifts during the year
Donor’s tax for November 30 donation

P 14,000
21,000
P 35,000
4,000
P 31,000

P

Donations to strangers:
2006:
June 30
Cash to Miss Rosal, a radio manager
Less: Diminution of gift (P100,000 x 60%)
Net taxable gift

August 31

P100,000
60,000
P 40,000

Donor’s tax for June 30 donation (P40,000 x 30%)

P 12,000

Land to National Government
Less: Deduction (total amount)
Net taxable gift

P500,000
500,000
P - 0 -

Donor’s tax for August 31 donation
October 31

2,000
2,000
4,000

None

Cash to non-profit organization – 40% Administrative
Less: Deduction
Net taxable gift

P400,000
- 0 P400,000

Donor’s tax for October 31 donation (P400,000 x 30%)

P120,000

Total donor’s tax during 2006:
Total donor’s tax to relatives (P30,400 + P4,000)
Total donor’s tax to stranger (P12,000 + P120,000)
Total donor’s tax for the year 2006
Problem 6–32
Net gift to daughter on account of marriage (P50,000 –
P10,000)
Add: Previous net gifts:

P 35,000
132,000
P167,000
P 40,000
P50,000


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Chapter 6: DONOR’S TAX

April 1 – Gift to mother
June 10 – Wedding gift to son (P50,000 – P10,000)
Total net gift during the year

40,000

90,000
P130,000
Tax exempt
P
600

Donor’s tax on P100,000
Donor’s tax on excess P30,000 x 2%
Donor’s tax on gift to stranger (P10,000 x 30%)

P 3,000

Problem 6–33
1.
January 29, 2006
2.

June 1, 2005 gift
Gift on account of their daughter’s marriage
Less: Dowry
Net gift
Tax on P200,000
Tax on excess P40,000 x 4%
Total
Surcharges (P7,200 x 50%)
Interest (P7,200 x 20% x 11/12)
December 30, 2005 gift
Christmas gift to son

Previous gift – June 1, 2005
Total net gift during 2005
Tax on P200,000
Tax on excess P140,000 x 4%
Total
Less: Tax on previous gift
Donor’s tax on current gift
Surcharge (P8,000 x 50%)
Interest (P8,000 x 20% x 4/12)

Nilo Co
P250,000
10,000
P240,000

Nila Co
P250,000
10,000
P240,000

P 2,000
1,600
P 3,600

P 2,000
1,600
P 3,600

Nilo Co
P100,000

240,000
P340,000

Nila Co
P100,000
240,000
P340,000

P 2,000
5,600
P 7,600
3,600
P 4,000

P 2,000
5,600
P 7,600
3,600
P 4,000

Total amount to be paid on June 1, 2006

P 7,200
3,600
1,320
P12,120

P 8,000
4,000
533

P12,533
P24,120

Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in
2005, yet they did not pay the donor’s tax within 30 days from the date of donation in both
occasion, hence, habitual and intentional neglect.
Problem 6–34
Donor’s tax on property located in Japan, P1,000,000
Donor’s tax on property located in the Philippines
(P2,000,000 x 30%)
Total donor’s tax in the Philippines
Computation of donor’s tax still due and payable:
Total donor’s tax in the Philippines
Less: Allowable tax credit: - Actual lower than limit
Limit (P1,000,000/ P3,000,000) x P644,000
Donor’s tax still due and payable

Problems 6–35

Relative
P44,000

Stranger

Total
P 44,000

P600,000

600,000

P644,000
P644,000
70,000

P214,667
P574,000


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Chapter 6: DONOR’S TAX
Property donated:
To son - House and lot ($500,000 x P50) – P10,000
Carabaw FX – to brother-in-law

Gift to
Relatives
P24,990,000

Taxable base

.
P24,990,000

Philippine donor’s tax:
First P10,000,000
Tax on excess (P14,990,000,000 x 15%)

Total
Less: Tax credit allowed
Donors tax rate for donation made to strangers
Net donor's tax

P 1,004,000
2,248,500
P 3,252,500
1,000,000
.
P 2,252,500

Strangers
P
P

500,000
.
500,000

P

30%
150,000

Total

.
P 2,402,500

Note: Donation to common-law-wife is void. Hence, no donor’s tax.
Computation of tax credit allowed:
Limit 1: (P24.990M/ P25.490M) x P2,402,500

P2,335,373

Allowed: Actual, lower amount

P1,000,000