1. COMPREHENSIVE SEMINAR FOR TAX AGENTS AND PRACTITIONERS Presented by: MS. ARELENE M. SINGCO Revenue Officer

2. Topics: Capital Gains Tax/EWT on Sale of Real Properties –Ordinary Asset vs. Capital Asset –Zonal Valuation –Forms, due dates, and requirements –Basic Computation Estate Tax Donor’s Tax Zonal Valuation Basic Computation Forms, due dates and requirements

3. Classification of Real Property Capital Asset Ordinary Asset

4. Capital Asset Means property held by the taxpayer (whether or not connected with his trade or business), but does not include- a) Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory if on hand at the close of the taxable year; b) Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; c) Property used in the trade or business of a character which is subject to the allowance for depreciation provided in Subsection (F) of Sec. 34 of the Code; d) Real property used in trade or business of the taxpayer.

5. Ordinary Asset Refers to all properties specifically excluded from the definition of capital assets under Sec. 39(A)(1) of the Code.

6. Sale of Real Property Capital Gains Tax/Documentary Stamp Tax – Capital Asset Expanded Withholding Tax/Documentary Stamp Tax – Ordinary Asset

7. Capital Gains Tax  It is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale.

8. Expanded Withholding Tax  It is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax due of the payee for the taxable quarter/year

9. Documentary Stamp Tax  It is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

10. Sale of Capital Asset Kind of TaxRateDeadlineForm to be used Capital Gains Tax 6% of Tax Base 30 days after each sale of property BIR Form No. 1706 Documentary Stamp Tax P15.00/ P1,000.00 of Tax Base Within 5 days after the close of the month was made, signed, accepted or transferred BIR Form No. 2000 OT

11. Sale of Capital Asset Tax Base – whichever is higher between: 1) Selling Price 2) Fair Market Value (FMV) a) FMV as determined by the Commissioner or Zonal Value b) FMV as shown in the schedule of values of the Provincial and City Assessors

12. Zonal Value The value of the real property located in each zone or area as determined by the Commissioner of Internal Revenue pursuant to Section 6(E) of the NIRC, upon consultation with competent real estate appraisers, both from the private and public sectors, adopted for purposes of computing any internal revenue tax.

13. Sale of Capital Asset Place of Filing/Payment It shall be filed and paid at Authorized Agent Bank (ABB) or Collection Agent of the RDO having jurisdiction over the place where the property is located.

14. ILLUSTRATION ON SALE OF CAPITAL ASSET Data: Area sold: 115 sq.m. Selling price - P150,000.00 FMV per Tax Dec. - P 80,500.00 Zonal Value - P1,720.00/sq.m. (P1,720.00 x 115sq.m.) - P197,800.00 Taxable Base: P197,800.00

15. ILLUSTRATION ON SALE OF CAPITAL ASSET Taxable Base: P197,800.00 Capital Gains Tax DueP 11,868.00 (P197,800.00 x 6%) Documentary Stamp Tax DueP 2,970.00 (P197,800.00/P1,000.00 x P15.00) Total Amount Due P 14,838.00

16. Sale of Ordinary Asset Kind of TaxRateDeadlineForm to be used Expanded Withholding Tax Refer to schedule of withholding tax rate On or before the 10 th day of the ff. month in w/c the withholding was made BIR Form No. 1606 Documentary Stamp Tax P15.00/ P1,000.00 of Tax Base Within 5 days after the close of the month was made, signed, accepted or transferred BIR Form No. 2000 OT

17. Sale of Ordinary Asset Withholding Tax Rate If habitually engaged 0 to 400,000(low cost/ socialized)-Exempt 0 to 500,000-1.5% 500,001 to 2M-3.0% 2M and above-5.0% If not habitually engaged-6.0%

18. Habitually Engaged (RR 6-2001) Seller is registered with HLURB or HUDCC If not registered with HLURB/HUDCC, show proof that he/it is engaged in the real estate business, such as: – Consummation of at least 6 taxable real estate transactions, regardless of amount in the preceding year

19. Sale of Ordinary Asset Tax Base – whichever is higher between: 1) Selling Price 2) Fair Market Value (FMV) a) FMV as determined by the Commissioner or Zonal Value b) FMV as shown in the schedule of values of the Provincial and City Assessors

20. Sale of Ordinary Asset Place of Filing/Payment It shall be filed and paid at Authorized Agent Bank (ABB) or Collection Agent of the RDO having jurisdiction over the place where the property is located.

21. ILLUSTRATION ON SALE OF ORDINARY ASSET Data: Area sold: 500 sq.m. Selling price - P500,000.00 FMV per Tax Dec. - P600,000.00 Zonal Value - P1,400.00/sq.m. (P1,400.00 x 500sq.m.) - P700,000.00 Taxable Base: P700,000.00

22. ILLUSTRATION ON SALE OF ORDINARY ASSET Taxable Base: P700,000.00 Seller is not habitually engaged in real estate business: EWT Tax Due P 42,000.00 (P700,000.00 x 6%) Documentary Stamp Tax Due P 10,500.00 (P700,000.00/P1,000.00 x P15.00) Total Amount DueP52,500.00

23. ILLUSTRATION ON SALE OF ORDINARY ASSET Taxable Base: P700,000.00 Seller is habitually engaged in real estate business: EWT Tax Due P 21,000.00 (P700,000.00 x 3%) Documentary Stamp Tax Due P 10,500.00 (P700,000.00/P1,000.00 x P15.00) Total Amount DueP31,500.00

24. Estate Tax

25.  It 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.

26. Definition Real property- includes land, building, improvement, trees, machineries and construction of all kinds adhered to the soil, etc. and real rights or equity in immovable property, left by the deceased as of the time of de

27. Definition Tangible Personal Property – includes jewelry, car and appliances, paintings and other movable property which can be perceived by the human senses and which can be transported from one place to another. Intangible Personal Property – includes deposits in banks, shares of stock, trademark, patented copyright, and the like which do not have physical form, hence, cannot be perceived by the human senses.

28. Definition Exclusive Property – that property owned solely by each spouse and acquired by gratuitous title and other acquisition using exclusive money of the husband and/or wife. Communal Property – that property brought into marriage and property acquired during the marriage by both husband and wife whose marriage was solemnized on or after August 4, 1988, the effectivity of the New Family Code, in the absence of pre- nuptial agreement.

29. Definition Conjugal Property – that property which is acquired by both husband and wife during marriage solemnized before August 4, 1988, as revised by the New Family Code, including fruits thereof.

30. Composition of Gross Estate As to Resident or Non-Resident Citizen/Resident Alien a) Real or Immovable Property – wherever situated b) Tangible Personal Property – wherever situated c) Intangible Personal Property– wherever situated As to Non-Resident Alien a) Real or Immovable Property – within the Phils. b) Tangible Personal Property – within the Phils. c) Intangible Personal Property – within the Phils. (unless exempted under reciprocity clause)

31. Valuation of Gross Estate Real properties as of the time of the decedent’s death shall be, whichever is higher between: a) FMV as determined by the Commissioner or Zonal Value b) FMV as shown in the schedule of values of the Provincial and City Assessors

32. Valuation of Gross Estate For unlisted common shares, they are valued based on their book value. For unlisted preferred shares, they are valued at par value. For shares which are listed in the stock exchanges, the FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.

33. Allowable Deductions (citizen of resident decedent) 1. Expenses, losses, indebtedness, and taxes a. Funeral expenses - an amount equal to 5% of the gross estate, whichever is lower, but in no case to exceed P200,000. b. Judicial expenses of the testamentary or intestate proceedings - expenses incurred during the settlement of estate c.Claims against the estate d.Claims against insolvent person e. Unpaid Mortgages, Taxes & Casualty Losses

34. Allowable Deductions (citizen or resident decedent) continued…. 2. Property Previously Taxed or Vanishing Deduction 3. Transfer for Public Use 4. Family Home - Current FMV of the decedent’s family home but not to exceed P1M 5. Standard Deduction - P1M 6. Medical Expenses - Not to exceed P500,000/within 1 year before death 7. Amt received by heirs under RA 4917 8. Net Share of Surviving Spouse

35. Estate Tax RateDeadlineForm to be used Refer to Estate Tax Table applicable at the time of decedent’s death Jan. 1, 1998 to present – within 6 months from decedent’s death BIR Form No. 1800

37. Place of Filing/Payment It shall be filed and paid at Authorized Agent Bank (ABB) or Collection Agent of the RDO having jurisdiction over the place of residence of the decedent at the time of his/her death.

38. Take Note! Notice of death shall be filed within two (2) months from date of death When the gross estate exceeds Two Million Pesos (P2,000,000.00), it shall be supported with a statement duly certified by a Certified Public Accountant (CPA)

39. ILLUSTRATIVE PROBLEMS

40. ILLUSTRATION 1 (Decedent is an unmarried head of family) Real and Personal properties P5,000,000.00 Family Home 2,000,000.00 Gross Estate P 7,000,000.00 Less: Deductions Ordinary Deductions: Funeral Expenses P 200,000.00 Other Deductions 1,300,000.00 P1,500,000.00 Special Deductions: Family Home P1,000,000.00 Standard Deductions 1,000,000.00 Medical Expenses 500,000.00 2,500,000.00 Total Deduction P4,000,000.00 Net Taxable Estate P3,000,000.00 Estate Tax Due P 245,000.00

41. ILLUSTRATION 2 (Decedent is a married man with surviving spouse) Exclusive Conjugal Total Conjugal Properties Real Properties P5,000,000.00 P5,000,000.00 Exclusive Properties Family Home P2,000,000.00 Other Exclusive Properties 2,500,000.00 4,500,000.00 Gross Estate P4,500,000.00 P5,000,000.00 P9,500,000.00 Less: Deductions Ordinary Deductions: Conjugal Deductions Funeral Expenses (P 200,000.00) ( 200,000.00) Other Deductions (1,300,000.00) (1,300,000.00) Total Conjugal Deductions (P1,500,000.00) (P1,500,000.00) Net Conjugal Estate P3,500,000.00 Special Deductions: Family Home (1,000,000.00) Standard Deductions (1,000,000.00) Medical Expenses ( 500,000.00) Total Deductions (P4,000,000.00) Net EstateP5,500,000.00 Less: ½ Share of Surviving Spouse (P3,500,000.00/2) (1,750,000.00) Net Taxable EstateP3,750,000.00 Estate Tax DueP 327,500.00

42. ILLUSTRATION 3 (Decedent is a married man with surviving spouse) Exclusive Conjugal Total Conjugal Properties Family Home P2,000,000.00 Other Real Properties 5,000,000.00P7,000,000.00 Exclusive Properties P2,000,000.00 2,000,000.00 Gross Estate P2,000,000.00 P7,000,000.00 P9,000,000.00 Less: Deductions Ordinary Deductions: Conjugal Deductions Funeral Expenses (P 200,000.00) ( 200,000.00) Other Deductions (1,300,000.00) (1,300,000.00) Total Conjugal Deductions (P1,500,000.00) (P1,500,000.00) Net Conjugal Estate P5,500,000.00 Special Deductions: Family Home (1,000,000.00) Standard Deductions (1,000,000.00) Medical Expenses ( 500,000.00) Total Deductions (P4,000,000.00) Net EstateP5,000,000.00 Less: ½ Share of Surviving Spouse (P5,500,000.00/2) (2,750,000.00) Net Taxable EstateP2,250,000.00 Estate Tax DueP 162,500.00

43. Donor’s Tax

44.  It is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer.

45. Composition of Gross Gift Citizens/resident Donor a) Real or Immovable Property – wherever situated b) Tangible Personal Property – wherever situated c) Intangible Personal Property– wherever situated Non-resident alien Donor a) Real or Immovable Property – located in the Phils. b) Tangible Personal Property – located in the Phils. c) Intangible Personal Property – located in the Phils. unless exempted under the principle of reciprocity

46. Deductions from Gross Gift (including tax-exempt donations) Dowries or gift by parents to children on account of marriage, before its celebration, or within 1 year thereafter to the extent of P10,000.00. Gifts to the national government or any of its agencies Gifts made in favor of an educational, and/or charitable, religious, cultural or social welfare corporation, foundation, trust or philanthropic organization or research institution or organization, provided that not more than 30% of said gifts shall be used for administration purposes

47. Deductions from Gross Gift (including tax-exempt donations) Encumbrance on the property donated if assumed by the donee in the deed of donation; Those specifically provided by the donor as a condition of the donation which will diminish the value of the property received by the donee; Exempt donation under special laws

48. Donation DoneeKind of TaxRateDeadlineForm to be used StrangerDonor’s Tax 30% of the net gift/s Within 30 days after the date the gift is made BIR Form No. 1800 RelativeDonor’s Tax Refer to Donor’s Tax Table applicable at the time of donation Within 30 days after the date the gift is made BIR Form No. 1800

49. Valuation of Gross Gift If the gift is made in property, the FMV at the time of donation. In case of real property, the value of the gross gift at the time of donation shall be, whichever is higher between: 1) FMV as determined by the Commissioner or Zonal Value 2) FMV as shown in the schedule of values of the Provincial and City Assessors

50. Definition Stranger – is a person who is not a: a) Brother, sister (whether by whole or half- blood), spouse, ancestor and lineal descendant; or b) Relative by consanguinity in the collateral line within the fourth degree of relationship.

52. Place of Filing/Payment It shall be filed and paid at Authorized Agent Bank (ABB) or Collection Agent of the RDO having jurisdiction over the place where the donor is domiciled at the time of the transfer.

53. Take Note! Gifts made during the same calendar year are collated and the donor’s tax computed on the total gifts during the year. A separate return shall be filed for each gift made on different dates during the year reflecting therein any previous net gifts made during the same calendar year. Only one return shall be filed for several gifts made by the donor to different donees on the same date.

54. Take Note! If the gift involves conjugal/community property, each spouse shall file separate return corresponding to his/her respective share in the conjugal/community property. This rule will also apply in the case of co-ownership over the property.

55. ILLUSTRATIVE PROBLEMS

56. ILLUSTRATION 1 Data: Gifts given by Mr. A, single, to a friend for taxable year 2011: FMV – P500,000.00 Zonal Value – P600,000.00 Value of Gross gift -P600,000.00 Donor’s Tax DueP180,000.00 (P600,000.00 x 30%)

57. ILLUSTRATION 2 Data:Gifts given by Mr. A, single, to relatives for taxable year 2011: FMV – P500,000.00 Zonal Value – P600,000.00 Value of Gross giftP600,000.00 Tax on P500,000.00 - P 14,000.00 Excess (P100,000.00 x 6%) - 6,000.00 Donor’s Tax DueP 20,000.00

58. ILLUSTRATION 3 Data:Gifts given by Mr. A, single, to relatives for taxable year 2011: On January 12, 2011 FMV – P500,000.00 Zonal Value – P600,000.00 Value of Gross gift -P600,000.00 Tax on P500,000.00 - P 14,000.00 Excess (P100,000.00 x 6%) - 6,000.00 Donor’s Tax DueP 20,000.00

59. ILLUSTRATION 3(cont.) Data:On February 25, 2011 FMV – P 300,000.00 Zonal Value – P 450,000.00 Value of Gross gift P 450,000.00 Add: Prior gift – 1/12/11 600,000.00 Total gifts P1,050,000.00 Tax on P1,000,000.00 - P 44,000.00 Excess (P50,000.00 x8%) - 4,000.00 Total Donor’s Tax DueP 48,000.00 Less: Tax paid – 1/12/11 20,000.00 Donor’s tax due – 2/25/11P 28,000.00

60. End