CHAPTER 2
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Zero. Except for the prize for winning the tournament which is subject to final income tax of 20%, all properties received are subject to transfer tax which will be paid by the donor or the estate of the decedent. Problem 2-7 1. Letter D Business liabilities Car first prize Amount of mortgage assumed Salary Amount of onerous transfer 2. Letter B Business, net of liabilities (P2,000,000 P500,000) House and lot as donation, net of mortgage (P2,000,000 P1,500,000) Farm as inheritance Amount of gratuitous transfer Problem 2-8 1. Letter A Car (P800,000 P300,000) 2. Letter D House and lot mortis causa
P 500,000 P1,000,000
Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor. Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing. (Art. 133, Civil Code) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization are tax-exempt. (Sec. 101, NIRC)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Problem 2-9 A Property left by the decedent Less: Charges against the estate Hereditary estate Problem 2-10 D Distributable estate Less: Share of 3 children (P12,000,000 x 50%) Share of surviving spouse (P6,000,000/3) Free portion Less: Share of illegitimate child per Will Free portion for the church
P 5,000,000 1,000,000 P 4,000,000 P12,000,000 P6,000,000 2,000,000 8,000,000 P4,000,000 3,000,000 P1,000,000
The share of the illegitimate child must be taken from the free portion. The Will is valid because the 50% of the hereditary estate intended to legitimate children is not impaired. Problem 2-11 B Increase in the share of C (P1,500,000 x 3/5) Problem 2-12 C Net hereditary estate Legitime of children (P5,000,000 x ) Portion for the surviving spouse (P5,000,000 x ) Free portion may be distributed to strangers Problem 2-13 B Inheritance of the spouse (P5,000,000/5) Problem 2-14 A Share of Abu = share of Surot (P12,000,000/3) Add: Share inheritance repudiated by Cuto (P4,000,000/2) Share of Surot Problem 2-15 A Hereditary estate Legitime of children (P3,000,000 x ) Portion for the spouse (P1,500,000/4) Free portion Multiplied by Legacy to the sister-in-law Problem 2-16 NOT IN THE CHOICES Hereditary estate Less: Share of parents (P3,000,000 x1/2) Share of illegitimate child (P3,000,000 x 1/4) Share of surviving spouse (P3,000,000 x 1/8) Free portion Share of the surviving spouse Add: Share from free portion (P375,000/3) Total share of the surviving spouse P900,000 P5,000,000 ( 2,500,000) ( 1,250,000) P1,250,000 P1,000,000 P4,000,000 2,000,000 P6,000,000 P3,000,000 ( 1,500,000) ( 375,000) P1,125,000 20% P 225,000 P3,000,000 P1,500,000 750,000 375,000 P 2,625,000 375,000 P375,000 125,000 P500,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Problem 2-17 D Share of Anac (P12,000,000/3) Divided by number of children of Anac Share of Cute
P4,000,000 2 P2,000,000
Problem 2-18 A Zero, because Lolo and Lola are excluded by Tatay and Nanay who are nearer to the testator. The nearer excludes the farther. Problem 2-19 D Hereditary estate, net of charges (P7,000,000 P1,000,000) Legitime of legitimate children (P6,000,000 x ) Portion for the acknowledge natural child (P3,000,000/3) x 50% Portion for the surviving spouse (P3,000,000/3) Free portion could be disposed of as legacy to the nanny P 6,000,000 ( 3,000,000) ( 500,000) ( 1,000,000) P 1,500,000
Note: The testator is still intending to give 1/4 of the free portion to the nanny, but he can give the entire amount of free portion to the nanny. Problem 2-20 C Inheritance of each child (P5,000,000/6) Problem 2-21 Gross taxable value for: 1. Capital gain tax 2. Donors tax 3. Business tax 4. Estate tax (P1,500,000 + P300,000) Problem 2-22 Cash in bank House and lot Investments in securities Total gross estate Less: Unpaid mortgage Existing loan Funeral expense Estate tax Hereditary estate Problem 2-23 Legitimate child Mario (P1,200,000 x ) Illegitimate child Maria (P600,000 x ) Surviving spouse (P600,000 x ) P 833,333
P 300,000 P 500,000 P - 0 -
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Problem 2-24 With respect to legitime: Legitimate child (P4,200,000 P200,000) x 50% Surviving spouse (P2,000,000 x ) Remaining balance (divide based on the intention of the will) Legitimate child (P1,000,000 x ) Surviving spouse (P1,000,000 x ) Problem 2-25
Gross estate Less: Deduction Net estate before share of the surviving spouse Less: Share of the surviving spouse (P1,000,000 x 50%) Net estate before estate tax Less: Estate tax Net distributable estate Estate Distribution death of Sabel Fraction of share - intestate Distribution of inheritance Death of Jess Exclusive share when Sabel died Add: Share from distributable share Distributable estate Fraction of share - testate Distribution of inheritance Dorado (child) 1/3 P161,667 Maya (child) 1/3 P161,667
Son P2,000,000
Wife P1,000,000
500,000 . P2,500,000
500,000 P1,500,000
P2,000,000 1,000,000 P1,000,000 500,000 P 500,000 15,000 P 485,000
Problem 2-26
Legitimate child 1 Legitimate child 2 Surviving spouse Illegitimate child Total
1 P2,857,143
1 P2,857,143
1 P2,857,143
P1,428,571
3.5 P10,000,000
Note: The last will and testament is void because the presence of legitimate child eliminates the parents from the inheritance. In all cases, the legitime must not be impaired by the disposition through will. Problem 2-27 1. Computation of net distributable share Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) Less: Ordinary deductions Net estate before share of surviving spouse Less: Share of surviving spouse (P57,500,000 x 50%) Net estate before standard deduction Less: Standard deduction Net taxable estate Multiplied by assumed estate tax rate Estate tax Net estate before standard deduction Less: Estate tax Net distributable estate
P60,000,000 2,500,000 P57,500,000 28,750,000 P28,750,000 1,000,000 P27,750,000 15% P 4,162,500 P28,750,000 4,162,500 P24,587,500
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 10 SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION
2. Computation of the shares of the heirs Share of legitimate son (P24,587,500 x ) Share of surviving spouse (P24,587,500 x )
P12,293,750 P12,293,750
Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of the legitime due to the presence of a legitimate child. Hence, the will becomes void. Problem 2-28
1. Computation of net distributable estate: Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) Less: Ordinary deductions: Funeral expense P 100,000 Unpaid mortgage 200,000 Allowable deduction - Standard deduction Net taxable estate Less: Estate tax (P11,900,000 x 15%) Net estate after tax Add: Standard deduction Net distributable estate Distribution of net distributable estate: Testate succession Intestate succession Mixed succession Christopher (son) P4,000,000 2,957,500 P6,957,500 Cristeta (daughter) P1,000,000 2,957,500 P3,957,500 P13,200,000 P 300,000 1,000,000
2.