INTRODUCTION TO DONATION AND DONORS TAX

DONATION

Donation is the gratuitous transfer of property from one person to another. The person who
transfers property is called the donor and the one who receives the property is called donee.

Classification Rule

It should be recalled that the motive of the donation is the controlling rule. If the donation is
inspired by motives associated with life or by the mere generosity of the donor, it is a donation
inter-vivos subject to donors tax.
Essential Requisite of Donation
1. Capacity of the Donor
2. Intention to donate
3. Donative act or delivery
4. Acceptance by the donee
Formal Requisites of Donation
A. Real properties must be in public instrument.
B. Personal property
1. Intangible must be in a public instrument. (A public instrument is a written
document signed by a lawyer.)
2. Tangible
a. If the value is P5,000 and below may be made orally
b. If the value exceeds P5,000 must be in writing

Types of Donors

A. Resident or Citizen taxable on world donation, such as:

1. Resident citizen
2. Non-resident citizen
3. Resident alien
B. Non-resident alien taxable only on Philippine donations, except intangible
personal property subject to reciprocity conditions.

Reciprocity rule for non-resident aliens

The Philippine exempts donation of intangible personal property by non-resident alien donors if
their country also exempt the donation of intangible personal property of Filipino non-residents
therein.
Types of Donees

A. Relative include the spouse:

1. Brother, sister (whether by whole or half-blood), ancestor and lineal descendants
2. Relatives by consanguinity in the collateral line within the fourth degree of
consanguinity.
B. Strangers any person other than relatives

Great grandparents

Siblings of Grandparents
Grandparents

Uncles/Aunties Parents

1st Cousins
DONOR Brothers/Sister
s
Children Nephew/Nieces
Collateral relatives

Grandchildren Brothers or
SisterGrandchildren

Collateral relatives
Great grandchildren
Lineal Relatives

Important notes:
Lineal relatives are still considered relatives regardless of the number of the generation gap between the
donor and the done.
 When the donee is in the collateral line, only those within four generation gap (4th degree of consanguinity)
is considered relative for the purpose of donors tax.
Relatives by affinity or those relatives by virtue of marriage are strangers.
Donation made by business organization shall be considered donation to strangers.

Taxation of Donation to Relatives and Strangers

1. Donation made to relatives subject to a progressive tax.
2. Donation to strangers subject to 30% proportional tax.

The progressive Tax on Donation to Relatives

Over Not Over Basic Tax Plus % Of excess over
- 100,000 Exempt - -
100,000 200,000 P0 2% 100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 - 1,004,000 15% 10,000,000

DONORS TAX

Donors tax is a tax upon the gratuitous transfer of property between two or more living persons
at the time of the transfer.
Nature of the Donors Tax
1. Privilege Tax (excise tax)
2. Progressive
3. Annual Tax
4. Ad valorem
5. National Tax
6. Revenue or Fiscal Tax
Rationale Behind Donors Taxation
1. To control tax evasion of the estate tax.
2. To control tax evasion on income tax
3. To recoup loss of income tax
The Donors Tax Model
Gross Gift Pxx
Less: Deductions from Gross Gift xx
Net Gift xx

Gross gift pertains to the fair value of a taxable donation at the date of the perfection of the
donation.
Deductions from gross gift are the exemptions or reductions from gross gift which are allowed
by the law.
Net gift shall mean the net economic benefit from the transfer that accrues to the done.

Exclusions in Gross Gift

- Donation of properties which are not reported in gross gift or as deductions also called as
exempt donations.
1. Donation to exempt donees under the NIRC and special laws

2. Donation for election campaign

- Exemption is not automatic; it is governed by the Election Code. These donations must
be reported to the Commission on Election to be exempt from donors tax.

3. Transfer for the insufficient consideration involving real property classified as

capital asset.
- The gratuitous portion of transfers for the insufficient consideration is subject to donors
tax.

- However, this rule does not apply to the sale of real property classified as capital asset. It
must be noted, that exemption applies only to real properties subject to the 6% capital
gains tax. Hence, the exemption does not extend to:
a. Sale of real properties classified as ordinary asset
b. Sale of personal or movable property

4. General renunciation of inheritance

- It occurs when an heir or the surviving spouse renounces his or her share in the hereditary
estate of a decedent in favor of no particular co-heir. A general renunciation is a
repudiation of inheritance which cannot be imputed as a donation.
Type of Renunciation General Specific
Renunciation with more than 2 heirs Exempt Taxable
Renunciation with only 2 heirs Exempt Exempt
Renunciation by the surviving spouse of his share in Taxable Taxable
the common properties

5. Donation with reserved power (Incomplete Transfers)

- Incomplete transfers are transfer of property wherein ownership will transfer only upon
the happening of a future event which is specified by the donor. Examples: conditional
donation and revocable transfer.
- Donors tax shall not apply unless and until there is a completed gift.
 6. Quasi-transfers
- It involves delivery of property to another person but will never results in transfer of
ownership thereto. These ares not subject to donors tax.

7. Void donations
- Void donation includes those prohibited by law and those with defects on their execution.

8. Foreign donation of non-resident alien donors

- Donations of property situated in a foreign country by non-resident alien (NRA) donors
are not subject to donors tax.

9. Donation of property exempt under reciprocity.

The reciprocity rule
No tax shall be imposed in respect of intangible personal property donation of NRA
donors if:
a. The donor at the time of the donation was a citizen and resident of a foreign country
which at the time of his death or donation did not wimpose a transfer tax of any
character in respect of intangible personal property of citizens of the Philippines not
residing therein.
b. The law of the foreign country of which the donor was a citizen and resident at the
time of donation allows a similar exemption from transfer tax of every character in
respect of intangible personal property of citizens of the Philippines not residing
therein.

Examples of Taxable Donations

1. Direct donation of property
a. Transfer of property in the name of another person
b. Transfer of personal property coupled with delivery of the same
2. Donation in trust, if irrevocable
3. Specific renunciation of inheritance, unless there are only two heirs
4. Renunciation by the surviving spouse of his share in the conjugal or community property
5. Transfer inter-vivos for insufficient consideration of any property other than real property
capital asset.

Exempt Donations under special law

a. International Rice Research Institute
b. Philippine American Cultural Foundation
c. Ramon Magsaysay Award Foundation
d. Philippine Investors Commission
e. Integrated Bar of the Philippines
f. Development Academy of the Philippines
g. National Social Action Council
h. Acquaculture Department of Southeast Asian Fisheries Development Center of the Philippines

Computation of Taxable Net Gift and the Donors Tax Due (Important Notes)
1. Net gift shall mean the net economic benefit from the transfer that accrues to the donee.
2. The computation of the donors tax is on cumulative basis over a period of one calendar
year.
3. Husband and wife are considered as separate and distinct tax payers for purposes of donors
tax.
4. With the exception of the moderate donations for charity or on occasion of family rejoicing,
neither spouse may donate any community property or conjugal property without the consent
of the other.
5. Every donation between the spouses during the marriage shall be void except for moderate
gifts, which the spouse may give each other on the occasion of any family rejoicing, and
donation mortis causa.
6. If what was donated was a conjugal or community property and only the husband signed the
deed of donation, there is only one donor for donors tax purposes, without prejudice to the
right of the wife to question the validity of the donation without her consent pursuant to the
pertinent provisions of the Civil Code of the Philippines and the Family Code of the
Philippines.
7. Renunciation of the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse
or any person/s is subject to donors tax.
8. General renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the deceased is not subject to donors tax, unless specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of the co-
heirs in the hereditary estate.
9. The tax payable of the donor if the donee is a relative is based on the tabular donors tax rate.
10. For the purpose of the donors tax, a stranger is a person who is NOT a:
a. brother, sister, (whether by whole or half blood), spouse, ancestor, and lineal
descendants; or
b. relative by consanguinity in the collateral line within the fourth degree of relationship.
11. Any provisions of law to the contrary notwithstanding, any contribution in cash or in kind of
any candidate, political party or coalition of parties for campaign purposes, duly reported to
the commission (COMELEC) shall not be subject to the payment of any gift tax.
12. The donors tax shall not apply unless and until there is a completed gift.
13. The law in force at the time of the completion of the donation shall govern the imposition of
donors tax.