Hurdling tax obligations (III)-A A +A
Real Estate Updates
Monday, September 30, 2013
VALUATION of gift of real property and computation of donor's tax
In case of real property, the valuation shall be the appraised value as of the time of death whichever is higher of:
1. Fair Market Value as determined by the BIR Commissioner.
2. Fair Market Value as shown in the Schedule of Values fixed by the Provincial and City Assessors.
The computation of Donor’s Tax Payable in an outline form is as follows:
GROSS GIFT x x x x
LESS: ALLOWABLE DEDUCTIONS x x x x
NET GIFT x x x x
LESS: P 100,000.00 EXEMPTIONS x x x x
TAXABLE NET GIFT x x x x
MULTIPLIED BY: APPLICABLE TAX RATES x x x x
AMOUNT OF DONOR’S TAX DUE x x x x
Classification of Donee/Net Gift Computation
A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to the said child shall not be considered a donation made to a stranger. Donation between business organizations and those made between an individual and a business organization shall be considered as a donation made to a stranger.
For purposes of the donor’s tax, “Net Gift” shall mean the net economic benefit from the transfer that accrues to the donee. 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 fair market value of the property the amount of mortgaged assumed.
Any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the Code or other special laws, is required, for every donation, to accomplish under oath a donor’s tax return in duplicate. The return shall indicate the following:
1. Each gift made during the calendar year, which is to be included in computing “Net Gifts.”
2. The deductions claimed and allowable.
3. Any previous gifts made during the same calendar year.
4. The name of the donee.
5. The relationship of the donor to the donee.
6. Such other information as may be required by the rules and regulations made pursuant to law.
Filing of the Return and Payment of the Tax
The rule on the filing of the return and the payment of the tax is as follows:
1. The return shall be done by any individual who makes a transfer of gift except those which are exempted from the tax. It shall contain the information that was mentioned earlier.
2. The return shall be filed within thirty (30) days after the date the gift is made and tax due thereon shall be paid at the time of filing. Among the documents to be attached are: Sworn statement of donor’s relation to the donee, Certificate of No Improvement issued by the Assessor’s Office, Certified true copy of the Tax Declaration of lot and improvement on or closest to the date of donation, and if applicable, proof of valuation of shares of stock at the time of donation.
3. The tax shall be paid with any Authorized Agent Bank (AAB), Revenue District Officer (RDO), duly authorized Treasurer of the City or Municipality where the donor is domiciled at the time of transfer; if the transferor has no legal residence in the Philippines, it shall be filed with the Office of the BIR Commissioner.
4. Gifts made by non-resident alien, the return may be filed with the Philippine Embassy or Consulate where he is domiciled at the time of transfer.
Going back to the earlier question that was commonly asked, what is the more advantageous mode of transferring real properties, by sale or through donation? Our answer is neither. Both these modes of transferring real property have its own reason and nature, and thus, it cannot be compared when speaking of advantages or even disadvantages. To be sure, sale or donation can never be alternatives in real property disposal, because a sale is always for a consideration while donation is a gratuitous transfer. (For more clarifications, questions, comments and queries email me at email@example.com)
Published in the Sun.Star Baguio newspaper on September 30, 2013.