Donor’s tax is an essential aspect of taxation in the Philippines that many people may not fully understand. In this guide, we will break down the key aspects of donor’s tax, including its purpose, rates, exemptions, and more.
What is Donor’s Tax?
It is an excise tax imposed on the privilege to transfer property by way of gift inter vivos based on a pure act of liberality, without any or less than adequate consideration and without any legal compulsion to give.
What is the nature of donor’s tax?
It is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos. [1]
What are the purposes of donor’s tax?
They are:
- Doner’s tax supplements the estate tax by preventing the avoidance of the latter through the device of donating the property during the lifetime of the deceased (donor); and
- It also prevents the avoidance of income taxes. Without the donor’s tax, the donor may escape the progressive rates of income taxation through the simple expedient of splitting his income among numerous donees.
What transfers are subject to donor’s tax?
The donor’s tax is imposed on donations inter vivos or those made between living persons to take effect during the lifetime of the donor.[2]
The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect. and whether the property is real or personal, tangible or intangible (NIRC; Sec. 98).
Who are liable to pay the donor’s tax?
The following shall be liable to pay donor’s tax:
- Resident Citizens (RC);
- Non-Resident Citizens (NRC);
- Resident Alien (RA);
- Non-Resident Alien (NRA);
- Domestic Corporation (DC); and.
- Foreign Corporation (FC).
Note: A corporation, whether domestic or foreign, is included since it is capable of entering into a contract of donation, through a Board Resolution.
In a donation made by the husband and wife, who pays the donor’s tax?
Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s tax. However, if what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor’s 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 and the Family Code. [3]
What is the rate of donor’s tax?
The donor’s tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in excess of two hundred fifty thousand pesos (P250,000) exempt gifts made during the year, regardless of whether the donation is made to a relative or to a stranger.
What is the rate of donor’s tax for strangers?
Six percent (6%). The rate of donor’s tax after the effectivity of TRAIN Law is fixed at six percent (6%) regardless of whether the donation is made to a relative or to a stranger.
When is the return of the donor filed and when is the donor’s tax paid?
The return of the donor shall be filed within thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the time of filing.
What is the basis in computing donor’s tax?
The basis shall be the total net gifts made during the calendar year.
What is meant by net gifts?
Net gift means the net economic benefit from the transfer that accrues to the donee.
Note: Accordingly, if a mortgaged property is transferred as a gift. but imposing upon the donee the obligation to pay the mortgage liability; then the net gift is measured by deducting from the FMV of the property the amount of mortgage assumed by the done.
What is the cumulative method for purposes of determining the tax base?
The computation of the donor’s tax is on a cumulative basis over a period of one calendar year. A separate return should be filed for each donation made on different dates during the year reflecting therein any previous gifts made on the same calendar year.
Note:
- Only one return shall be filed for several gifts made on the same date by the donor regardless of the number of donees.
- Under the cumulative method, the lax paid for the previous donation will be considered as tax credit for succeeding donations. Hence. there is no double taxation.
What are gifts exempted from Donor’s Tax?
The following gifts are exempted from the donor’s tax:
- Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit;
- Gifts in favor of an educational institution, charitable, religious, cultural, social welfare corporation, institution, accredited non-government organization, trust, philanthropic organization, or research institution or organization
- Athlete’s Prizes and Awards;
- Encumbrances on the property donated if assumed by the donee;
- Donations to entities exempted under Special Law; and
- Those specifically provided by the donor as a diminution of the property donated.
Note: TRAIN law removed the exemption of dowries or gifts made on account of marriage.
Donor’s tax in the Philippines plays a vital role in regulating and generating revenue from the transfer of properties and gifts. Understanding the rules and regulations surrounding donor’s tax is crucial to ensure compliance and avoid potential legal issues. Always consult with tax authorities or professionals for the latest information and assistance on this topic.
Source:
The National Internal Revenue Code, as amended by TRAIN Law
R.R. No. 12-2018
[1] Ladoc v. Commissioner of Internal Revenue, G.R. No. L-19201, June 16, 1965
[2] Arts. 729 and 734, The New Civil Code
[3] R.R. No. 12-2018, Sec. 14
