Chapter 6 - Donor's Tax

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40
SUGGESTED ANSWERS
Chapter 6: DONORS TAX
CHAPTER 6
DONORS TAX
Problem 6-1
1. False during the lifetime of the donor.
2. True
3. True
4. False there is no consideration in donation.
5. True
6. False It is enough that the duly representative of the incapacitated donee to receive the
donation.
7. True
8. False Real property donation must be put in writing regardless of value.
9. True
10. False The value of donated personal property must exceed P5,000.
11. True
12. True
13. False not gifts.
14. False constitutes dividend income.
15. True
Problem 6-2
1. False dowry is not allowed to nonresident alien donor.
2. False the donees identity is not material to make the donation valid. The donor can make
donation to an unborn child.
3. True
4. True
5. False If resident alien donates, he shall be subject to donors tax in the Philippines for his
properties within and outside the Philippines
6. True
7. True
8. True
9. False only one-half of the share is donated.
10. False only if the gift is on account of marriage.
11. False only the first P100,000 is exempt.
12. False may be subject to business tax such as VAT, custom duties, or excise tax.
13. False - When the donee is a stranger, the tax rate is 30%.
14. True
15. False - excise tax the tax is imposed on the act to transfer property by way of gift inter vivos.
Problem 6-3
1. B
2. D
3. A
4. D
5. A
6. A
7. C
8. B
9. B
10. A
11. C
12. A
Problem 6-4
1. A
2. C
3. D
4. C & A
5. A
6. C
7. D
8. A
9. A
10. D
11. C
12. D
Problem 6-5
1. C
2. D
3. A
4. B
5. A
6. D
7. A
8. A
9. C
10. A
11. C
12. D
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SUGGESTED ANSWERS
Problem 6-6
D
Donation to his unborn grandchild
P200,000
Problem 6-7
A
Zero, because the renunciation is a general renunciation.
Problem 6-8
Gross estate
Less: Standard deduction
Net estate
Father
P5,500,000
1,000,000
P4,500,000
Mother
P5,500,000
1,000,000
P4,500,000
Estate tax on P2,000,000

Excess (P2,500,000 x 11%)
Estate tax
P 135,000
275,000
P 410,000
P 135,000
275,000
P 410,000
Distributable estate (P11,000,000 P820,000)

Divided by number of heirs
Share of each heir
P10,180,000
4
P 2,545,000
Donors tax on P1,000,000

Donors tax on excess (P1,545,000 x 8%)
Donors tax
P 44,000
123,600
P167,600
Note: There is donors tax on the renunciation of inheritance because the renunciation is not a
general renunciation.
Problem 6-9
Gross gifts (P3,500,000/2)

Less: Mortgage assumed by done (P1,000,000/2)
Dowry
Net gifts
Husband
P1,750,000
(500,000)
( 10,000)
P1,240,000
Wife
P1,750,000
(500,000)
( 10,000)
P1,240,000
Problem 610
A
Wedding gift (P500,000 P10,000)
Casual gift car
Total gift subject to tax
P490,000
500,000
P990,000
Donors tax on P500,000

Excess (P490,000 x 6%)
Total donors tax in the Philippines
P14,000
29,400
P43,400
Problem 611
A
Donations:
Vacation house conjugal (P500,000/2)
Car conjugal (P240,000/2)
Jewelry exclusive of Mrs. Salonga
Dowry
Net gift
Excess (P160,000 x 4%)
(P180,000 x 4%)
Total donors taxes, respectively
Mr. Salonga
P250,000
120,000
( 10,000)
P360,000
P2,000
6,400
P8,400
Mrs. Salonga
P250,000
120,000
20,000
( 10,000)
P380,000
P2,000
7,200
P9,200

SUGGESTED ANSWERS
Problem 612
D
Donation to girlfriend is a donation to non-relative; hence subject to donors tax the entire
amount of P250,000.
Problem 613
A
Donations made between a man and a woman living together as husband and wife are void, and
therefore, not subject to donors tax.
Problem 614
D
Donation between spouses during marriage time is void; hence, not subject to donors tax.
Problem 615
D
Wedding gift
Less: Dowry
Net gift first P100,000 donors tax exempt
P110,000
10,000
P100,000
Net gift taxable is

Problem 616
D
2005 gift house and lot
Less: Dowry (P10,000 P6,000)
Net gift
P - 0 P300,000
4,000
P296,000

Excess (P96,000 x 4%)
Donors tax 2005
P2,000
3,840
P5,840
Problem 617
C
Donors tax (P50,000 x 2%)
P1,000
Problem 618
D
P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donors tax purposes. It is the 6th
degree of the collateral line.
Problem 619
1.
2.
Letter C
Gross gifts, as of August 15, 200A (P150,000 x 2 lots)

Less: Deductions
Net gifts, August 15, 200A
P300,000
0
P300,000

Tax on excess (P300,000 P200,000) x 4%
Total donors tax
P
P
2,000
4,000
6,000
Letter D
Wedding gifts, as of November 15, 200A

Less: Deductions - dowry
Net gifts, November 15, 200A
Add: Previous, net gifts
Total net gifts
P150,000
10,000
P140,000
300,000
P440,000

Tax on excess (P440,000 P200,000) x 4%
Total donors tax
Less: Donors tax August 15, 200A
Donors tax payable November 15, 200A
2,000
9,600
P 11,600
6,000
P 5,600

SUGGESTED ANSWERS
Problem 620
C
P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th collateral
line for donors tax purposes.
Problem 621
D
Donors tax (P8,000,000 x 30%)
Problem 6-22
P2,400,000
First donation:
Donated value of P200,000
Excess donation (4% x P290,000)
Dowry deducted
Total value of first donation
Value of
Donation
P200,000
290,000
10,000
P500,000
Second donation:
First donation total value
Excess donation (6% x 400,000)
Total after dowry deducted
Add: Dowry deducted in two donations (P10,000 x 2)
Total
Less: First donation
Value of second donation
P500,000
400,000
P900,000
20,000
P920,000
500,000
P420,000
Donors tax
P 2,000
11,600
.
P13,600
P14,000
24,000
P38,000
Problem 623
D
No deduction is allowed for donations on account of birthday.
Problem 624
B
Gross gift (FMV at time of donation)
P200,000
Problem 625
B
Donors tax (P200,000 x 30%)
P60,000
Problem 626
A
Donors tax (P10,000,000 x 30%)
P3,000,000
The donation is taxable because more than 30% of it shall be used for administration purposes.
Problem 627
A
Donors tax
Surcharge (P100,000 x 25%)
Interest (P100,000 x 20% x 6/12)
Total amount due
Problem 628
Taxable gift in the Philippines

P100,000
25,000
10,000
P135,000
No reciprocity
P3,000,000
With reciprocity
P - 0 -
P 204,000
P - 0 -
No dowry deduction is allowed for nonresident alien donor.

SUGGESTED ANSWERS
Problem 628
1. Letter C
Philippine donors tax
P404,000
Actual donors tax - foreign
P120,000
Tax credit, limit (P404,000 x 500,000/5,000,000) - lower

2. Letter B
Philippine donors tax:
Relative (P500,000)
Stranger (P5,000,000 P500,000) x 30%
Less: Tax credit
Actual donors tax foreign (lower)
Tax credit, limit (P1,364,000 x 500,000/5,000,000)
Donors tax still due and payable
Problem 630
P40,400
14,000
1,350,000
P120,000
136,400
P40,400
P1,364,000
120,000
P1,244,000
Estate tax
P5,000,000
1,000,000
P4,000,000
Donors tax
P5,000,000
.
P5,000,000
Estate tax on P2,000,000

Excess (P2,000,000 x 11%)
Total
P135,000
220,000
.
P355,000
P404,000
P404,000
Tax savings if estate tax is paid (P404,000 P355,000)
P 49,000
Gross amount of asset

Less: Standard deduction
Net amount subject to tax
Problem 631
Gross gifts made:
To L, on account of marriage
To M, on account of marriage
Total gross gifts
Less: Deductions:
Dowry for L, on account of marriage
Dowry for M, on account of marriage
Mortgage assumed by L on property donated
Net gifts
Problem 632
1. Donors tax for relatives:
Mar. 1
- To his son on account of marriage
Oct. 1
- To his daughter on account of graduation
Total
Less: Dowry
Net taxable gifts
Excess (P90,000 x 8%)
Total donors tax for donations to relatives
P500,000
200,000
P700,000
P10,000
10,000
100,000
120,000
P580,000
P 600,000
500,000
P1,100,000
10,000
P1,090,000
P 44,000
7,200
P 51,200

SUGGESTED ANSWERS
2. Donors tax for strangers:

Dec. 25
- To his god-children
Dec. 31
- To his neighbor
Total
Multiplied by donors tax rate
Donors tax for donations to strangers
Problem 633
March 30, 200B (P500,000/2)
June 28, 200B (P2,000,000/2) P10,000
Net taxable gifts
Excess (P240,000 x 8%)
Total
Donors tax paid on March 30, 200B
Excess (P50,000 x 4%)
Donors tax for donation on June 28, 200B
P400,000
100,000
P500,000
30%
P150,000
Mr. Dinero
P250,000
990,000
P1,240,000
Mrs. Dinero
P250,000
990,000
P1,240,000
P44,000
19,200
P63,200
P44,000
19,200
P63,200
( 2,000)
( 2,000)
P59,200
( 2,000)
( 2,000)
P59,200
Problem 634
Cash his son for wedding held during the year
Problem 635
To his son on account of marriage during the year
To his daughter on account of her birthday
To Garci, his brother, as renunciation of inheritance
Net gift subject to donors tax
P 200,000
P 500,000
500,000
400,000
P1,400,000
Note: No dowry is allowed for nonresident alien.

Problem 636
Taxable inadequate consideration - Personal properties (P500,000 P50,000)
Excess (P250,000 x 4%)
Donors tax for inadequate consideration
P 450,000
P 2,000
10,000
P 12,000
The inadequate consideration in the sale of real property will not be subject to donors tax
because the sale is subject to 6% final tax based on the selling price or fair market value,
whichever is higher.
Problem 637
1. December 25, 200A:
Average value per share (P500 + P450)/ 2
Multiply by number of shares
Taxable base of the gift
2.
475
1,000
P475,000
The same answer with number 1.

SUGGESTED ANSWERS
Problem 638
There is no donors tax because the donations are donation mortis causa, void donation and taxexempt donation. Specific principles:
a.
House and lot
Subject to estate tax because the transfer shall take effect upon
death of the donor (included in the last will and testament).
b.
Parejo car
The value of property donated is P200,000 and it was made orally.

The donation is null and void because personal property donated
with value exceeding P5,000 should be put in writing to become a
valid donation.
c.
Business
Revocable donation is a revocable transfer, hence, subject to estate

tax.
d.
Furniture and fixtures
Donation mortis causa is subject to estate tax.
e.
Time deposit
The amount is P100,000 given to his illegitimate daughter. This

donation is tax exempt because the first P100,000 of donation to
relatives shall not be subjected to donors tax.
Problem 639
Car consequently destroyed after delivery to his son
P 500,000
Donors tax
P14,000
Problem 640
Donations to relatives:
200B:
January 31
Car to Uncle
Less: Encumbrances assumed by the donee
Net taxable gift January 31, 2002
P300,000
50,000
P250,000
November 30

Tax on excess (P250,000 P200,000) x 4%
Donors tax for January 31 donation
House and lot to his son on account of marriage

Less: Dowry exemption (weeding was held beyond one year)
Net gifts
Add: Previous net gifts during the year
Aggregate taxable gift
P600,000
- 0 P600,000
250,000
P850,000

Tax on excess (P840,000 P500,000) x 6%
Total
Less: Donors tax for previous gifts during the year
Donors tax for November 30 donation
P 14,000
21,000
P 35,000
4,000
P 31,000
Donations to strangers:
200B:
June 30
Cash to Miss Rosal, a radio manager
Less: Diminution of gift (P100,000 x 60%)
Net taxable gift
Donors tax for June 30 donation (P40,000 x 30%)
2,000
2,000
4,000
P100,000
60,000
P 40,000
P 12,000

SUGGESTED ANSWERS
August 31
Land to National Government

Less: Deduction (total amount)
Net taxable gift
P500,000
500,000
P - 0 -
Donors tax for August 31 donation

October 31
None
Cash to non-profit organization 40% Administrative

Less: Deduction
Net taxable gift
P400,000
- 0 P400,000
Donors tax for October 31 donation (P400,000 x 30%)
P120,000
Total donors tax during 200B:

Total donors tax to relatives (P30,400 + P4,000)
Total donors tax to stranger (P12,000 + P120,000)
Total donors tax for the year 200B
P 35,000
132,000
P167,000
Problem 641
Donors tax on gift to stranger (P10,000 x 30%)
P 3,000
Net gift to daughter on account of marriage (P50,000 P10,000)

Add: Previous net gifts:
April 1 Gift to mother
June 10 Wedding gift to son (P50,000 P10,000)
Total net gift during the year
P 40,000
P50,000
40,000

Donors tax on excess P30,000 x 2% = donors tax payable
Oct. 31, 200A
90,000
P130,000
Tax exempt
P
600
Problem 642
1.
January 29, 200B
2.
June 1, 200A gift

Gift on account of their daughters marriage
Less: Dowry
Net gift
Tax on P200,000
Tax on excess P40,000 x 4%
Total
Surcharges (P7,200 x 50%)
Interest (P7,200 x 20% x 11/12)
December 30, 200A gift
Christmas gift to son
Previous gift June 1, 200A
Total net gift during 200A
Tax on P200,000
Tax on excess P140,000 x 4%
Total
Less: Tax on previous gift
Nilo Co
P250,000
10,000
P240,000
Nila Co
P250,000
10,000
P240,000
P 2,000
1,600
P 3,600
P 2,000
1,600
P 3,600
Nilo Co
P100,000
240,000
P340,000
Nila Co
P100,000
240,000
P340,000
P 2,000
5,600
P 7,600
3,600
P 2,000
5,600
P 7,600
3,600
P 7,200
3,600
1,320
P12,120

SUGGESTED ANSWERS
Donors tax on current gift

Surcharge (P8,000 x 50%)
Interest (P8,000 x 20% x 4/12)
P 4,000
P 4,000
Total amount to be paid on June 1, 200B
P 8,000
4,000
533
P12,533
P24,120
Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in
200A, yet they did not pay the donors tax within 30 days from the date of donation in both
occasion, hence, habitual and intentional neglect.
Problem 643
Relative
P44,000
Donors tax on property located in Japan, P1,000,000

Donors tax on property located in the Philippines
(P2,000,000 x 30%)
Computation of donors tax still due and payable:
Less: Allowable tax credit: - Actual lower than limit
Limit (P1,000,000/ P3,000,000) x P644,000
Donors tax still due and payable
Stranger
Total
P 44,000
P600,000
600,000
P644,000
P644,000
70,000
P214,667
P574,000
Problems 644
Property donated:
To son - House and lot ($500,000 x P50) P10,000
Carabaw FX to brother-in-law
Gift to
Relatives
P24,990,000
Strangers
Taxable base
.
P24,990,000
P
P
500,000
.
500,000
Philippine donors tax:

First P10,000,000
Tax on excess (P14,990,000,000 x 15%)
Total
Less: Tax credit allowed ($20,000 x P50/$1)
Donors tax rate for donation made to strangers
Net donor's tax
P 1,004,000
2,248,500
P 3,252,500
1,000,000
.
P 2,252,500
30%
150,000
Total
.
P 2,402,500
Note: Donation to common-law-wife is void. Hence, no donors tax.

Computation of tax credit allowed:
Limit 1: (P24.990M/ P25.490M) x P2,402,500
P2,335,373
Allowed: Actual, lower amount ($20,000 x P50/$1)
P1,000,000

SUGGESTED ANSWERS
Problems 645
Assume donations are made to strangers:
Total net gifts
Philippine donors tax (P10,000,000 x 30%)
Tax credit:
Limit (P3,000,000 x 5/10)
Actual lower
Donors tax payable
Assume donations are made to relatives:
Philippine donors tax
Tax credit:
Limit (P1,004,000 x 5/10)
Actual lower
Donors tax payable
Problems 646
1. Gross gifts subject to donors tax
a. No donation
2.
b.
Donation to stranger daughter-in-law (P2,000,000/2)
c.
Donation to son on account of marriage relative

(P5,000,000/2)
d.
Donation to Philippine government not subject to

Donors tax
e.
Donation to religious group considered stranger

(P1,000,000/2)
f.
Donation mortis causa not subject to donors tax
g.
Donation to NGOs generally not subject to donors tax
h.
Donation to political party not subject to donors tax
P10,000,000
P3,000,000
P1,500,000
( 400,000)
P2,600,000
P1,004,000
P502,000
( 400,000)
P 604,000
Don
Dona
P1,000,000
P1,000,000
2,500,000
2,500,000
500,000
500,000
Exclusive donations by Don:

a. Donation to secretary stranger
b. Donation to wife null and void
c. Donation to relative father
Total amount of gross gifts subject to donors tax
200,000
P4,300,000
.
P4,000,000
Donors tax
Donation to relatives:
Donation to son on account of marriage relative
(P5,000,000/2) P10,000
Donation to relative father
Total net gifts
P2,490,000
200,000
P2,690,000
P2,490,000
P 44,000
135,200
P179,200
P 44,000
119,200
P163,200
Tax on P1,000,000
Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%)
Total donors tax due donation to relatives
100,000

SUGGESTED ANSWERS
Donation to strangers:
Donation to stranger daughter-in-law (P2,000,000/2)
Donation to religious group considered stranger
(P1,000,000/2)
Donation to secretary stranger
Total amount donation to strangers
Multiplied by donors tax rate to strangers
Total donors tax due donation to strangers
Total amount of donors tax
Problems 647
Donors tax
1. Dec. 30, 200A:
Relative - on account of sons marriage
(P300,000/2) P10,000)
Tax on P100,000
Tax on excess (P40,000 x 2%) donors tax due
3.
4.
P1,000,000
500,000
100,000
P1,600,000
30%
P 480,000
P 659,200
500,000
.
P1,500,000
30%
P 450,000
P 613,200
Don
Dona
P140,000
Exempt
P800
P140,000
Exempt
P800
P50,000
30%
P15,000
P50,000
30%
P15,000
P100,000
30%
P 30,000
P100,000
30%
P 30,000
P25,000
Exempt
P25,000
Exempt
Stranger god son (P100,000/2)

Church (P200,000/2)
Total
Multiplied by applicable donors tax rate
Donors tax due
P 50,000
100,000
P150,000
30%
P 45,000
P 50,000
100,000
P150,000
30%
P 45,000
June 30, 200B:

Relative son on account of marriage (dowry already taken)
(P2,000,000 P400,000)/2
Add: Previous net gifts to relatives Mar. 31, 200B
Total net gifts
P800,000
25,000
P825,000
P800,000
25,000
P825,000
P14,000
19,500
P33,500
P14,000
19,500
P33,500
P250,000
250,000
P500,000
P250,000
250,000
P500,000
Stranger daughter-in-law (P100,000/2)

Donors tax due
2.
P1,000,000
Jan. 1, 200B:
Stranger Chinese government (P200,000/2)
Donors tax due
March 31, 200B:
Relatives nephew (P50,000/2)
Donors tax
Tax on P500,000
Tax on excess (P325,000 x 6%)
Total donors tax payable June 30, 200B
5.
Oct. 30, 200B:

Void donation husband and wife
6.
Dec. 30, 200B:

Relatives:
Son (P500,000/2)
Daughter (P500,000/2)
Total net gifts to relatives Dec. 30, 200B
Add: Previous net gifts to relatives during 200B:

SUGGESTED ANSWERS
March 31, 200B: Relatives nephew (P50,000/2)

June 30, 200B:
Relative son on account of marriage (dowry already taken)
(P2,000,000 P400,000)/2
Total net gifts to relatives as of Dec. 30, 200B
Tax on P1,000,000
Tax on excess (P325,000 x 8%)
Total
Less: Donors tax previously paid 200B (Relatives)-June 30, 200B
Donors tax payable as of Dec. 30, 200B relatives
Stranger daughter-in-law (P100,000/2)
Donors tax due
25,000
25,000
800,000
P1,325,000
800,000
P1,325,000
P44,000
26,000
P70,000
P33,500
P36,500
P44,000
26,000
P70,000
P33,500
P36,500
P50,000
30%
P 15,000
P50,000
30%
P 15,000


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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 40

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Estate tax on P2,000,000

Distributable estate (P11,000,000 P820,000)

Donors tax on P1,000,000

Gross gifts (P3,500,000/2)

Donors tax on P500,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Net gift taxable is

Donors tax on P200,000

Gross gifts, as of August 15, 200A (P150,000 x 2 lots)

Donors tax on P200,000

Wedding gifts, as of November 15, 200A

Donors tax on P200,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Taxable gift in the Philippines

No dowry deduction is allowed for nonresident alien donor.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Actual donors tax - foreign

Tax credit, limit (P404,000 x 500,000/5,000,000) - lower

Estate tax on P2,000,000

Tax savings if estate tax is paid (P404,000 P355,000)

Gross amount of asset

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

2. Donors tax for strangers:

Note: No dowry is allowed for nonresident alien.

The same answer with number 1.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

House and lot

The value of property donated is P200,000 and it was made orally.

Revocable donation is a revocable transfer, hence, subject to estate

Furniture and fixtures

Donation mortis causa is subject to estate tax.

The amount is P100,000 given to his illegitimate daughter. This

Donors tax on P200,000

House and lot to his son on account of marriage

Donors tax on P500,000

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Land to National Government

Donors tax for August 31 donation

Cash to non-profit organization 40% Administrative

Donors tax for October 31 donation (P400,000 x 30%)

Total donors tax during 200B:

Net gift to daughter on account of marriage (P50,000 P10,000)

Donors tax on P100,000

June 1, 200A gift

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Donors tax on current gift

Total amount to be paid on June 1, 200B

Donors tax on property located in Japan, P1,000,000

Philippine donors tax:

Note: Donation to common-law-wife is void. Hence, no donors tax.

Allowed: Actual, lower amount ($20,000 x P50/$1)

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Donation to stranger daughter-in-law (P2,000,000/2)

Donation to son on account of marriage relative

Donation to Philippine government not subject to

Donation to religious group considered stranger

Donation mortis causa not subject to donors tax

Donation to NGOs generally not subject to donors tax

Donation to political party not subject to donors tax

Exclusive donations by Don:

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Stranger god son (P100,000/2)

Chapter 6 - Donor's Tax

Chapter 6 - Donor's Tax