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TRANSFER TAX

Two types of Transfer:

1. Onerous Contract – may palitan/may kapalit


-BUSINESS TAX
Example:
Sale – Nagbenta ka ng jeep and nakatanggap ka ng money in exchange.

2. Gratuitous Transfer - for free


-TRANSFER TAX
Example:
Inheritance - May ibinigay ka na jeep and wala kang natanggap na kapalit.

Two kinds of Transfer Tax:

1. Estate Tax
2. Donor’s Tax

When do you have to pay Estate Tax/Donor’s Tax?

Estate Tax: Kapag mayroon kang ipinamana.

Donor’s Tax: Kapag mayroon kang idinonate/iniregalo.

Who will pay for the Estate Tax?

- Yung tagapagmana/ recipient.

ESTATE TAX

Estate – assets na naiwan ng tao na namatay

- Before makuha yung inheritance, need muna bayaran ang estate tax otherwise hindi
matatanggap yung asset.

Your assets can be classified into:

a. Real – mga assets na hindi nagagalaw


Ex. land, property
b. Personal – tangible asset na nagagalaw
Ex. Car, appliances, furniture, gadget, money
c. Intangible – assets with no physical substance; non-monetary, non-physical
Includes:
1. Patent
2. Franchise
3. Copyright
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4. Trademark
5. Goodwill
6. Computer Software
7. Bank Deposit – (To know if considered inside or outside of PH, The basis is the
branch)
8. Receivables – (The basis is the place of the debtor/ saan nakatira si Debtor)
9. Investment in Shares – (The basis is the company, whether Domestic or Foreign)

NOTE:
- Bank Deposit, Receivables and Investment in Shares are considered intangible in tax. In
Accounting, bank deposit is considered as cash, receivable is considered as receivable
and investment in shares is considered as investment.
- To be considered as a Domestic Company, it must be registered in SEC and most of the
owners are Filipino.

Formula for Estate Tax:

Gross Estate (Chap. 2)


- Deduction (Chap. 3)
Net Estate
X 6% (Tax Rate) (Fixed)
Estate Tax

Gross Estate – halaga ng asset na naiwan of the person who passed away

Gross Estate

Citizen or Non-Resident
Resident Alien

All included
Outside Inside

Real /
All Excluded Intangible
Personal

With Without
Included
Reciprocity Reciprocity

Excluded Included
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NOTES:

1. Ang basis whether citizen, resident or non-resident is yung taong namatay, hindi yung
taong nakatanggap.
2. If foreigner/alien, they must reside in the Philippines for 183 days or more to be
classified as a resident.
3. Situs = place
4. Reciprocity – If sa batas kung saan nakatira ang non-resident alien is may batas din
regarding Estate Tax. (In other words, kung naniningil din sila ng estate tax.)
With Reciprocity – Naniningil ang government ng alien ng estate tax
Without Reciprocity – Hindi naniningil ang government ng alien ng estate tax

Example:

Citizen/Resident:

a. Jeep in the Philippines – Included


b. Jeep in Korea – Included
c. Intangible in Japan – Included
d. Korean citizen na resident of the Philippines and may lupa sa Philippines – Included
e. Korean citizen na resident of the Philippines and may lupa sa Korea – Included

Included in Gross Estate:

1. Assets physically in the estate


- Nasa possession ng deceased person nung namatay siya

Example:

A. Mr. A has a jeep in his possession nung namatay siya.


B. Car, land, property, etc.

2. Decedents Interest
- Assets without physical substance

Example: Investments, receivables, prepaid assets (Ex. Rent paid in advance)

3. Assets not physically in the estate


- Assets not in the possession of the deceased person ; already transferred

 Transfer in Contemplation of Death


- Natransfer na ang asset because you already know na ikaw ay mamamatay na.

 Transfer with Retention of (Certain) Rights


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Example:

- May jeep si Mr. A and nirerentahan iyon ni Mr. B para ipasada and then ipinamana na ni
Mr. A kay Mr. B yung jeep, pero yung rent is kay Mr. A pa din ang punta however Mr. B
is now the possessor of the jeep. After 3 days, naaksidente si Mr. A and passed away.

Bakit isasama?

Even though Mr. B is now the possessor, yung rent is napupunta pa rin kay Mr. A, may
karapatan pa rin siya.

 Revocable Transfer

Revocable – icancel; bawiin ; nagtransfer pero pwede bawiin

Example:

A. Sinabi kay Mr. A ng doctor na hanggang next week na lamang siya so ipinamana ni Mr.
A sa anak niya ang kanyang jeep however after a few weeks, fake news daw pala kaya
binawi ni Mr. A sa kanyang anak ang jeep.

 Transfer with General Power of Appointment


- May asset kang tinransfer sa isang tao pero nung tinransfer mo siya sa isang tao, may
habilin ka sa tao na yun, which is ang itransfer din ang asset mo sa ibang tao.

Example:

A. Special/Specific Appointment - Si Mr. A (husband) may jeep, namatay siya and then
ipinamana niya yon kay Mrs. B (wife) and then ang habilin (condition) mo sa kanya is
ipamana iyon kay C (son) kapag dumating siya sa right age.
B. General Appointment - Si Mr. A (husband) may jeep, namatay siya and then ipinamana
niya yon kay Mrs. B (wife) and then ang habilin (condition) mo sa kanya is ipamana iyon
kahit kanino.

What if namatay ang spouse na nagmana? (For the examples above, si Mrs. B)

- Masasama ang asset sa gross estate ni wife kapag general appointment kasi siya ang
considered na may ari. Kapag special appointment, excluded siya kasi hindi naman
talaga sa kanya designated ang asset and siya lang ang considered na tagapagtago.

 Transfer for Insufficient Consideration

- Ikaw ay nagbebenta kaya lang ibinebenta mo siya sa price na napakababa and kulang yung
consideration (what you get in exchange, like money) na natatanggap mo.
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Example:

A. Mr. A has a jeep and ibinenta niya kay Mr. B (son) ang jeep niya for the price of
Php.1.00 pero ang fair value of the jeep sa market is Php. 10.00.

In form, this is considered as a sale but the intention is parang inheritance/gift na siya. If
hindi mo siya ibinenta, Php.10.00 dapat ang masasama sa iyong gross estate kaso
ibinenta mo siya sa halagang Php. 1.00 so ayan na lang dapat however hindi pa rin lusot
iyon because the insufficiency na Php. 9.00 will still be included in the gross estate. So:

Consideration Php. 1.00


+ Insufficiency Php. 9.00
Included in the GE Php. 10.00

How do you compute for the insufficiency?


Difference between the consideration received/selling price, compared to the fair value
at the time of death.

Kailan nagkakaroon ng insufficiency?


Look for:
Fair Value at the time of transfer < SP Without insufficient consideration
Fair Value at the time of transfer > SP With insufficient consideration

*FV at the time of transfer is only for testing while FV at the time of death ang imiminus.
(based kay sir)

Example:
A. Si Mr. A nagbenta ng jeep. The selling price is Php. 10.00, the fair value at the time
of transfer is Php. 11.00, the fair value at the time of death is Php. 12.00. How much
insufficient consideration will be included? Php. 2.00 (12.00 – 10.00)
B. Selling Price is Php. 10.00, fair value at the time of transfer is Php. 9.00, fair value at
the date of death, Php. 13.00. How much will be included in the insufficiency? None.

 Claims against Insolvent Person


- Karapatang mag-collect ; receivables pero insolvent (walang pambayad) ang person.

HOWEVER: Kapag isinama mo na siya sa gross estate, isasama mo rin siya sa deduction. May
receivable ka pero hindi mo macollect so parang wala ka ring asset.

So:

Claims against an insolvent person is included in the gross estate. (TOTAL AMOUNT)

Claims against an insolvent person is not included in the net estate. (Nabawas na)
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 Proceeds of Life Insurance

Insurance is divided into:

A. Property Insurance – Car, House


B. Life Insurance – Investment, Savings

*You will pay every year for Insurance Premium.

Life Insurance

Estate
Others (3rd
Executor
Person)
Administrator

Included Revocable Irrevocable

Included Excluded

NOTES:

- The proceeds will go to the beneficiary.


- Know who will be the beneficiary:
- Executor – lawyer hired that will manage your estate and will distribute your estate; with
last will testament
- Administrator – lawyer that will manage your estate; without last will testament
- But if ang beneficiary is yung anak/asawa mismo, ang bagsak niya is sa others.
- Revocable – pwede icancel ; irrevocable – wala nang bawian

Excluded from the Gross Estate:

1. Exclusive property of Surviving Spouse


- Ang pagmamay-ari ng asawa

Example:

- Si Mr. A is may asawa (Mrs. B) and jeep, and then he passed away. Yung jeep is binili ni
Mr. A bago pa sila naging mag-asawa ni Mrs. B. Si Mrs. B is may make up. And then
meron silang common property. Nag-ipon sila and then nagbigay ng Php. 500,000.00
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each. So kasama ang jeep sa gross estate, common property is included and excluded
ang make up sa gross estate.

Common Property – asset na hati ang mga may-ari

Exclusive Property - asset na solo ang pagmamay-ari

T/F

Common property is included in the gross estate. TRUE

2. Group Insurance
3. Page 41 - 43

Deductions

Claims against
insolvent person

Losses

CLIT

Indebtedness

Ordinary TP

Taxes

Vanishing

Tax Deduction Standard

Special Family Home

Share of Spouse Retirement

Important to remember:

1. The 10 items that can be deducted. (given above)


2. How much can be deducted from those.
3. Requirements that must be met.

ORDINARY DEDUCTIONS

- Regular
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A. CLIT

1. Claims against Insolvent Person

Claims – Receivables

Kung ang receivable mo ay sa isang tao na insolvent, pwedeng ideduct siya. Isasama mo siya
sa Gross Estate and then isasama mo siya sa Deduction. Hindi mo siya pwedeng ignore na
lang because there are instances na ang tinatanong is magkano ang GE or Deduction.

Requirements:

a. INCAPACITY – hindi kaya Example:


magbayad, hindi pwedeng ayaw
lang magbayad kasi capable pa rin A/R from insolvent person Php.10 - GE
siya kapag ganun.
Amount collectible (Php.7) - D
b. GOOD FAITH – no violence
Amount na kaya lang bayaran Php.3
c. NOT ILLEGAL
d. INCLUDED IN GROSS ESTATE

How much? Amount included in Deductions: Php. 7.00


/ Amount Uncollectible

X Not the total Receivable

Note: The only amount that must be included in the deduction is yung hindi na macocollect,
while in the Gross Estate naman, yung pinaka A/R mo in total.

2. Losses
Hindi ito yung loss na nalugi ka, ito
Requirements: is yung loss na nawala. You can
claim as deduction yung value of
a. Casualty losses – calamities; acts of Man and God.
the asset lost.
b. Included in Gross Estate
c. Not Insured - Since babayaran ka ni Ins. Comp, nabawi mo lang so wala talagang loss.
d. Not Claimed as Deduction for Income Tax
e. Happen during settlement
Settlement – payment ; panahon na magbabayad ng Estate Tax

How much?
Kung ano ang ginamit sa GE ayon na rin so kung
- Value of Asset Lost Fair Value doon, fair value din dito.
Example:

- Nung buhay pa si Mr. A, ang price ng car niya is Php. 10.00 and then nung namatay siya
is nandoon pa rin ang car niya so included in the gross estate. However before
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mabayaran ang estate tax is lumindol and nabagsakan ng building so naging loss na
siya, it can be claimed as allowable deduction. (YES)
- Nung buhay pa si Mr. A, may kotse siya and binaha iyon. Kapag pumanaw siya, hindi na
iyon pwede maisama as part of the Estate Tax since bago pa siya pumanaw is treated
as loss na ang car niya. (NO)
- What if nangyari siya after the payment of Estate Tax? Cannot be na. (NO)

3. Indebtedness (utang)
Ibabawas daw sa asset mo ito.
Requirements:

a. Personal Obligation (to give/ to deliver) [If real obligation – to do; Hindi kasama]
b. Good Faith
c. Not Illegal

How much?

- Value of Debt

Example:

- Asset Php. 20.00 - Gross Estate


Debt (Php. 3.00) - Deduction
Natitirang maipapamana Php. 17.00

Babayaran mo pa rin yung debt na Php. 3.00 however kukunin siya sa Php. 20.00 na
asset. Ibabawas yung Php. 3.00 kasi hindi naman na siya sa iyo and nabayaran na.

4. Taxes (unpaid)
Eto yung mga tax na hindi nabayaran noong
Requirements: buhay pa yung namatay.

DO NOT include taxes:


a. Incurred after death
b. Estate Tax (Hindi mo talaga to maisasama since deduction palang rito, wala pa to)

How much?

- Value of the unpaid tax incurred BEFORE death

Example:

- May parlor si Ms. A so may income tax siyang binabayaran since may kita siya.
However bago pa dumating ang period ng bayaran for income tax, pumanaw na si Ms.
A. So yung income tax na hindi pa nababayaran before mawala si Ms. A can be included
as an allowable deduction. (YES)
- Pwede rin ba ibawas yung income tax na naincur ng parlor ni Ms. A after death? (NO)
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B. TP (TRANSFER FOR PUBLIC USE)


Kung magkano raw ang sinama
- Ibinibigay mo ang iyong asset sa government
sa GE, yun din ang isasama
Requirements: dito so kung FV doon, dito rin
ganun.
- Asset donated to government
- Effective on death
- Included in Gross Estate

How much?

- Value of asset transferred (sasabihin daw sa problem)

Example:

- May naiwan na business si Mrs. A and isa itong school. After death, ibinigay niya iyon sa
government and ginawa itong public school. (YES)
- Ibinigay ni Mrs. A ang school sa government before death. (NO) Wala na kasi sa
possession ni Mrs. A ang school by the time na pumanaw siya.
- Value of school is Php. 100.00 – included in the Gross Estate; eto rin yung amount na
isasama sa Deductions.

C. VANISHING DEDUCTION
- Property previously taxed
- Yung ipinamana is ipapamana rin sa iba.
- Nabayaran na previously ng Estate Tax

Requirements:

1. Within 5 years - From the time that the previous owned died and the present owner died
2. Identified – Specific asset lamang ang masusubject to Vanishing Deduction; isa lang
3. Inside Philippines
4. Included in the Gross Estate
5. Previous Estate Tax is paid
6. No Vanishing Deduction on Previous Estate Tax

Vanishing Deduction Rate:

0 – 1 year 100%
1 – 2 years 80%
2 – 3 years 60%
3 – 4 years 40%
4 – 5 years 20%
5 years – above 0%
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How much?

1. Value to Take - The basis is the Amount

FV at the time of death of previous owner


vs. FV at the time of death of present owner
Select whichever is lower

2. Compute Initial Basis - basis of Vanishing Deduction Step 2 Example: (#1)

Asset inherited Php. 100


Value to take (Step 1)
Less: Mortgage Assume - utang na ipinasa ; liability Hindi nabayaran (Php. 10)
Initial Basis Php. 90
Yung Php. 10 yung pwede
3. Compute Second Deduction
ibawas.
(#2)
Initial Basis (Step 2)
X CLIT + TP Pwede ba ipamana ang
Gross Estate (Chapter 3)
bagay na nakasanla? YES.
4. Compute Final Basis

Initial Basis (Step 2) NOTE:


Less: Second Deduction (Step 3)
Step 3:
Final Basis
-Yung Gross Estate is in
5. Compute Vanishing Deduction total ang ididivide.
Final Basis (Step 4)

X Vanishing Deduction Rate

Vanishing Deduction

NOTE: Yung sa bibilangin na years is for the present owner lang.

Example: Mr. A – Grandfather ; Mr. B – Father ; Mr. C – Son

1. Nung nakuha ni Mr. B kay Mr. A yung tricycle, nagbayad siya ng Estate Tax. Now,
pumanaw si Mr. B so ipapamana niya iyon kay Mr. C. So para hindi double ang naging
Estate Tax on the tricycle, babawasan siya with the use of Vanishing Deduction.

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