1. TRANSFER TAXES

2. What IS TRANSFER TAX?
A Transfer Tax is any tax levied on the passing of title to property.

3. Difference between income and transfer tax:
INCOME TAX
TRANSFER TAX
Tax on:
income
Transfer of property
Rates are:
Higher:
Individuals - 5% to 32%
Corporations – 32%
Lower:
Estate tax – 5% to 20%
Donor’s tax - 2% to 15%
Exemptions
more
lesser

4. MODES OF transferRING OWNERSHIP:
OCCUPATION
SUCCESSION
DONATION
PRESCRIPTION
INTELLECTUAL CREATION

5. OCCUPATION
Things appropriable by nature which are without an owner, such as animals that are the object of hunting and fishing, hidden treasure and abandoned movables, are acquired by occupation. (Art. 713 of the Civil Code)

6. PRESCRIPTION of actions
Art Actions prescribe by the mere lapse of time fixed by law.

7. INTELLECTUAL CREATION
Art By intellectual creation, the following persons acquire ownership: (1) The author with regard to his literary, dramatic, historical, legal, philosophical, scientific or other work; (2) The composer; as to his musical composition; (3) The painter, sculptor, or other artist, with respect to the product of his art; (4) The scientist or technologist or any other person with regard to his discovery or invention. (n)

8. DONATION
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. (Art. 725,CC) When a person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor, provided they do not constitute a demandable debt, or when the gift imposes upon the donee a burden which is less than the value of the thing given, there is also a donation. (Art. 726,CC)

9. SUCCESSION
Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. (Art. 774,CC)

10. ESTATE TAX

11. What is estate tax?
Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

12. When to file estate tax return (bir Form no. 1801)?
If the death occurred:
Prior to January 1, 1998
The Gross Estate exceeds P3,000
On or after January 1, 1998
The Gross Estate exceeds P20,000

13. What is succession?
Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. (Art. 774,CC)

14. When is the right of succession transmitted?
The rights to the succession are transmitted from the moment of the death of the decedent. (Art. 777, CC)

15. WHAT ARE THE TYPES OF SUCCESSION?
Art Succession may be:
TESTAMENTARY
LEGAL
MIXED
Valid Will
Yes
None
Partial
Estate called
Testate
Intestate
Mixed
Acceptor
Devisee/Legatee
Heir
Succession
By will
By operation of law
Partly by will, part by law
Note: The term legatee is often used to denote those who inherit under a will without any distinction between real property and personal property, but technically, a devisee inherits real property under a will.

16. Who is a decedent?
Is the person whose property is transmitted through succession, whether or not he left a will. If he left a will, he is also called the testator. (Art. 775, CC)

17. FILIPINO AND RESIDENT ALIEN DECEDENT NON-RESIDENT ALIEN DECEDENT
What are the types of decedent and what are included in their gross estate?
FILIPINO AND RESIDENT ALIEN DECEDENT
NON-RESIDENT ALIEN DECEDENT
All real, tangible/intangible personal property wherever situated.
All real and tangible personal property situated in the Philippines.
Intangible personal property with a situs in the Philippines unless exempted on the basis of reciprocity.

18. Transfer in contemplation of death Revocable transfer
GROSS ESTATE
INCLUSIONS
Decedent’s interest
Transfer in contemplation of death
Revocable transfer
Transfer under GPA
Proceeds of life insurance
Transfers for insufficient consideration
Prior interests

19. DECEDENT’S INTEREST To the extent of the interest in property of the decedent at the time of his death.

20. Transfer in contemplation of death
Transfers impelled by the thought of an impending death, without regard of the state of health of the transferor.

21. Revocable transfers
A transfer whereby the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent alone or in conjunction with any other person, or where any such power is relinquished in the contemplation of the decedent’s death.

22. Transfers for insufficient consideration
Amount includible in the GE is the excess of the FMV at the time of death over the value of consideration received.

23. Property passing under GPA
What is General Power of Appointment?
The power to designate, without restrictions, the persons who shall receive, succeed to, possess or enjoy the property or its income received from the estate of a prior decedent.
How is GPA exercised?
GPA is exercised by:
Will
Deed executed in contemplation of death
Deed during an executors lifetime.

24. Proceeds of life insurance
Will form part of the GE only if when:
Revocable/Irrevocable
Beneficiary is the estate, executor, administrator.
Revocable only
Others

25. What will be used as basis in the valuation of property?
REAL PROPERTY
FMV as determined by the CIR, or FMV fixed by assessors
No zonal value: FMV in latest tax declaration
SHARES OF STOCK
Listed shares – average of the highest and lowest quotation at the date of death, if not available, date nearest to death.
Unlisted shares – Common stocks: Book Value
Preferred stocks: Par value
PERSONAL PROPERTY
FMV

26. GE EXCLUSIONS
First P200,000 of net estate
merger of usufruct in owner of naked title;
Fideicommisary substitution;
transmission from first heir/legatee/ donee in favor of another beneficiary, in accordance with the predecessor’s will; and
Bequests/devices/legacies/transfers to social welfare/cultural/charitable institutions; GSIS/SSS proceeds/ benefits
Proceeds of life insurance where the beneficiary is irrevocably appointed or under a group insurance taken by employer (not taken out upon his life)
War damage payments
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Acquisition and/or transfer expressly declared as not taxable or bona fide sales

27. Merger of usufruct in the owner of the naked title
Illustration: A is the owner of the fishpond, has two sons B and C. C his the right of usufruct of the fishpond but B will have the title of the fishpond upon A’s death. When A died – the fishpond will be included in GE and title passes to B. However, C shall have the possession. In case C died – transfer of possession is exempt from estate tax.

28. FEDEICOMMISARY SUBSTITUTION
Illustration: A dies and entrusted B, fiduciary, to transfer the ownership of a lot to C, fedeicommisary, when C reaches legal age. The transfer from A to B is subject to estate tax but the transfer from B to C not subject to estate tax.

29. FILIPINO AND RESIDENT ALIEN
Deductions:
FILIPINO AND RESIDENT ALIEN
NON-RESIDENT ALIEN
Expenses, losses, indebtedness, taxes, etc. (ELIT-FJCCULT: funeral, judicial, claims vs. estate/insolvents, mortgages, taxes, losses)
Transfer for public use
Vanishing deduction
Family home
Standard deduction
Medical expenses
Retirement benefits received by heirs under RA 4917
Share of Surviving Spouse
Expenses, losses, indebtedness, taxes, etc. (FJCCULT)

30. Non-resident alien elit formula:
Formula: Phil. Gross Estate X World ELIT World Gross Estate

31. FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased.

32. Funeral expenses: Deductible Non-deductible Mourning apparel
Wake Expenses
Communication and publication
Cost of burial plot, tombstones, monuments, and mausoleum
Interment/cremation fees and charges
All other expenses incident to the interment
Expenses incurred after interment
Portion of funeral expense defrayed by relatives and friends

33. Funeral expenses:
The amount deductible is the lowest among the following:
actual funeral expenses
5% of the gross estate
P200,000

34. Judicial expenses are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return.

35. JUDICIAL EXPENSES: Executor/administrator fees Attorney’s fees
Court fees
Accountant’s fees
Appraiser’s fees
Clerk hire
Cost of preserving and distributing the estate
Brokerage fees for selling estate
Expenses for extra-judicial settlement

36. Claims against:
ESTATE - debt/demand of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.
INSOLVENT PERSONS
Requisites:
Instrument must be notarized.
Contracted within 3 years before death.
Statement showing disposition of loan.
Included in gross estate
Debtors incapacity is proven

37. UNPAID MORTGAGE Requisite:
Value of the property included in the Gross Estate
Deduction shall be limited to the extent of the mortgage contracted

38. TAXES Deductible: Not deductible: taxes due at the time of death
income tax on income received after death
property taxes not accrued before death
estate tax

39. Arising from calamity, or casualty; Not compensated by insurance;
LOSSES
Requisites:
Arising from calamity, or casualty;
Not compensated by insurance;
Not claimed as deduction in an ITR of the taxable estate;
Occurring during the settlement; and
Occurring before the last day for the payment of the estate tax

40. Transfers for public use
Requisites:
Value in included in gross estate
Disposition is in a last will/testament
To take effect after death
In favor of the government, or any political subdivision, also contemplates bequests/devices/transfers to social welfare, cultural and charitable institutions
For public purposes.

41. FAMILY HOME
It is the dwelling house, including the land it is situated, where the family reside as certified by the Barangay Captain of the locality.
Requisites:
the decedent’s family home.
certified to by the barangay captain of the locality where it is located.
Maximum of P1,000,000
Total value must be included in the Gross Estate

42. Medical expenses Requisites to be deductible:
incurred within one year prior to his death
Substantiated with receipts
Maximum of P500,000

43. Vanishing deductions
Are deductions allowed for properties which are already subjected to transfer taxes. The purpose is to minimize the effect of double taxation within a short period of time since the same property will be again subjected to tax in the form of estate tax.
Requisites to be deductible:
the present decedent died within 5 years from prior transfer.
property must be located in the Philippines.
property formed part of the taxable estate/taxable gift.
estate tax/donor’s tax must have been paid.
property must be identified as the one received from the prior decedent, or something acquired in exchange therefor.
No vanishing deduction was allowed to the estate of the prior decedent.

44. Standard deduction
P1,000,000 without need of substantiation.

45. Estate tax Formula:
Gross Estate (Sec. 85) Less: (1) Deductions (Sec. 86) (2) Net share of the SS in the CP Net Taxable Estate X Tax rate (Sec. 84) Estate Tax due Less: Tax Credit [if any] (Sec. 86[E] or 110[B] Estate Tax Due, if any

46. What is estate tax credit?
Is a remedy against international double taxation to minimize th onerous effect of taxing the same property twice. WHO MAY AVAIL? Only the estate of a citizen o resident alien at the time of the death can claim for any estate taxes paid to a foreign country.

47. What amount of estate tax credit may be claimed?
ONE COUNTRY
MORE THAN ONE COUNTRY
THE LOWER AMOUNT BETWEEN:
Estate tax paid to the foreign country
NTE, foreign country X Phil.ET
NTE, world
(NTE - Net Taxable Estate)
Limit A. Whichever is lower between:
Estate tax paid to foreign country
NTE, foreign country X Phil. estate tax
Limit B. Whichever is lower between:
total estate taxes paid to all foreign countries
NTE outside Phil. X Phil. estate tax

48. Effective January 1, 1998 up to Present
Over
But not Over
The Tax Shall be
Plus
Of the Excess Over
P 200,00.00
Exempt
P200,000.00
500,000.00 5%
P 200,000.00
2,000,000.00
P 15,000.00 8%
5,000,000.00
135,000.00
11%
10,000,000.00
465,000.00
15%
1,215,000.00
20%

49. Who are liable to pay estate tax?
PRIMARILY LIABLE:
Estate thru the administrator or executor. When there are 2 or more administrators or executors, they are solidarily liable.
SECONDARILY LIABLE:
The heir or beneficiary up to the point of inheritance.

50. FILING OF NOTICE OF DEATH
WHO FILES:
The executor, administrator or any of the legal heirs
WHEN TO FILE:
Within 2 months after decedent’s death, or within a like period after qualifying executor or administrator
TO WHOM FILED:
CIR

51. Filing of estate tax returns
WHEN TO FILE:
Within 6 months from decedent’s death, except in meritorious cases, the CIR may grant extension of not more than 30 days
MANDATORY FILING:
Transfers subject to estate tax.
GE exceeds P200,000.
Regardless of value when BIR Clearance is needed for valid transfer of ownership.
WHERE TO FILE:
AAB
RDO
City/Muncipal Treasurer
If there is no legal residence, the CIR
Philippine embassy/consulate

52. Payment of tax Due to undue hardship, CIR may extend time for payment:
GENERAL RULE:
Time return is filed
EXCEPTION:
Due to undue hardship, CIR may extend time for payment:
Judicial settlement – not to exceed 5 years
Extra-judicial settlement – not to exceed 2 years.
He may also require a bond not exceeding twice the amount of the tax.
RESTRICTION:
No extension shall be allowed when taxes are assessed for reason of:
Negligence
Intentional disregard of rules and regulations
Fraud

53. Distribution of estate
Upon payment of tax, the estate tax clearance shall be issued to the administrator by the CIR or RDO having jurisdiction over the estate. The clearance shall serve as authority to distribute the inheritance to any heir or beneficiary.
In case of installment payments, the clearance shall be released only with respect to the property the tax has been paid.