Taxation 2

ESTATE TAX
FLABERT VILLASENCIO, CPA

Notre Dame of Dadiangas University

Estate Tax
oImposed on the right of the deceased to
transmit his/her properties to his/her legal
heirs upon death
oBased on laws in force at the time of death

Estate Tax Table

Rates of Estate Tax
Net Estate
Over

Not Over

Estate Tax
Tax of

Excess

Plus %

Over

200,000

Exempt

200,000

500,000

5%

200,000

500,000

2,000,000

15,000

8%

500,000

2,000,000

5,000,000

135,000

11%

2,000,000

5,000,000

10,000,000

465,000

15%

5,000,000

10,000,000

And over

1,215,000

20%

10,000,000

Estate Tax Table

Illustration
GiesThony, a Philippine resident alien, died leaving
with total net taxable estate amounting to
P7,000,000. The amount of the Philippine estate tax
due would be:
Estate Tax on 5,000,000

465,000

Add: Estate tax on the excess (2M x 15%)

300,000

Amount of the Phil estate tax due

765,000

Estate Tax Credit

The amount of estate taxes paid to a foreign country
could be claimed as credit against the Philippine
Estate Tax subject to limit, if such taxes pertain to
properties which are included in the gross estate
for Philippine estate tax computation .
Available to avoid double taxation
Applicable only to Citizens or Resident Alien
decedent
NOT Allowed to Non Resident Aliens

Estate Tax Credit

1.

Only ONE Foreign country is involved

Estate Tax = Net Estate in Foreign Country x
World Net Estate
Estate Tax

Philippine

Credit

Estate Tax = Actual estate tax paid to foreign country whichever is LOWER
2. TWO or MORE Foreign Countries
Limit A: Per Foreign Country
Net Estate per Foreign Country
x
Phil. Estate Tax
Entire Net Estate
Limit B: By Total
Net Estate ALL Foreign Country
Entire Net Estate

Phil. Estate Tax

OR
The Actual Estate Tax paid to Foreign Country, LOWER Value

Estate Tax Credit

Illustration:
GiesThony, an unmarried resident alien of the Philippines, died leaving the
following properties:
Location of Properties
Philippines
United States
Australia
Total

Net Estate
1,000,000
2,000,000
3,000,000
6,000,000

Compute for the Philippine Net Estate Tax payable.

Estate Tax Paid

135,000
365,000
500,000

Estate Tax Credit

Illustration:
Location of Properties
Net Estate Estate Tax Paid
Philippines 1,000,000
United States
2,000,000 135,000
Australia
3,000,000 365,000
Total 6,000,000 500,000
Limit A Per Country
Net Estate Per Foreign Country
Entire Net Estate
United States
6,000,000
Actualvs

2,000,000 x 615,000 =
135,000

Philippine Estate Tax

205,000

135,000

Australia
3,000,000 x 615,000 = 307,500
6,000,000
Actualvs
365,000
307,500

Estate Tax Credit

Illustration:
Location of Properties
Net Estate Estate Tax Paid
Philippines 1,000,000
United States
2,000,000 135,000
Australia
3,000,000 365,000
Total 6,000,000 500,000
Limit B ALL Foreign Country
Net Estate ALL Foreign Country
Entire Net Estate

Foreign Country
5,000,000 x 615,000 =
6,000,000
Actual (135,000 + 365,000)
vs
vs
442,500
442,500
Tax Credit 442,500

Philippine Estate Tax

512,500
500,000

500,000

Estate Tax Credit

Illustration:
Location of Properties
Net Estate Estate Tax Paid
Philippines 1,000,000
United States
2,000,000 135,000
Australia
3,000,000 365,000
Total 6,000,000 500,000
Tax Credit

442,500

Estate Tax on 5,000,000 465,000

Estate Tax on excess (1,000,000 x 15% ) 150,000
Total 615,000
Less: Tax Credit
442,500
Philippine Net Estate Tax Payable172,500

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ANSWERS:
Problem 511 B
Conjugal Properties
Funeral expense, limit
Judicial expenses
Claims against properties
Net conjugal estate

P3,400,000
( 200,000)
( 250,000)
( 550,000)
P2,400,000

Problem 513 A
Estate tax of P5,000,000

P465,000

ANSWERS:
Problem 518 B
Total gross estate (P1,700,000 + P800,000)
Less: Deductions Net taxable estate
Net Taxable Estate

2,500,000
1,500,000
1,000,000

Estate tax on P500,000

Excess P500,000 x 8%
Total estate tax in the Philippines

15,000
40,000
55,000

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs.

P20,000
P17,600

Estate Tax with Allocated Deductions

Illustration:
KieRish, a resident alien decedent, died due to fractured jaw. The following is the
reported assets and obligations:
China Philippines
Family Home 4,000,000
Other Properties 2,000,000 2,000,000
Funeral Expense 100,000
300,000
Other Charges and Obligations 400,000
600,000
Donations to governments
100,000
300,000
Medical expenses (within 1 year) 400,000
600,000
Estate taxes paid 90,000
Properties located in China are exclusive properties of the decedent. The donation
to the Philippine government is taken from his only exclusive property in the
Philippines.

Estate Tax with Allocated Deductions

Computation of Net Estate:

China Phil Total

Family Home 4,000,000
Other Properties
2,000,000
2,000,000
Gross Estate 2,000,000
6,000,000
8,000,000
Less: Ordinary Deductions
ELITE:
Funeral Exp
(200,000] x 1/4 and 3/4
50,000 150,000
Other Charges and Obligations 400,000600,000
Transfer for Public Use 300,000
Total Ordinary Deductions
450,0001,050,000
1,500,000
Net Exclusive or Net Community Estate 1,550,000
4,950,000
6,500,000
Less: Special Deductions
Standard [1,000,000] x 2/8 and 6/8
250,000750,000
Family Home
1,000,000
Medical Exp [500,000] x 4/10 and 6/10
200,000300,000
Total Special Deductions
450,0002,050,000
2,500,000
Net Estate
1,100,000
2,900,000
4,000,000
Less: Share of the Surviving Spouse (4,950,000 x 50%)
2,475,000
Net Taxable Estate
1,525,000

Estate Tax with Allocated Deductions

Computation of Tax Credit Allowed
Foreign Estate Tax Paid
=
90,000
Estate Tax Credit

=
=

Estate Tax Credit

=
=

Net Estate Foreign Country

x
World Net Estate
1,100,000
x
97,000
4,000,000
26,675 vs 90,000
26,675

Phil Estate Tax

Estate Tax with Allocated Deductions

Computation of Philippine Estate Tax Payable
Estate Tax on 500,000
Estate Tax on Excess
(1,025,000 x 8%)
Philippine Estate Tax
Less: Estate Tax Credit
Philippine Estate Tax
Payable

15,000

=
=
=
=

82,000
97,000
26,675
70,325

Estate Tax of Nonresident Alien

Only properties WITHIN the Philippines are subject to Philippine estate tax.
Illustration:
Assume that Brad Naipit, a married and non-resident alien decedent, left the
following properties and expenses to his surviving spouse.
House and lot- France 4,000,000
Business Interest- France 2,000,000
Car-Baguio 1,000,000
Dollar Time Deposit-Cebu City
1,000,000
Franchise-Manila
1,000,000
Share of Stocks- Nestle Corp (donated 3.5 years ago)
Medical Expense
600,000
Actual Funeral Expense
300,000
Judicial Expense
300,000

1,000,000

Estate Tax of Nonresident Alien

WITH RECIPROCITY
Reportable Gross estate-Within
Car- Baguio 1,000,000
Less: Ordinary deductions
ELITE:
Funeral Expense
(200,000) x 4,000,000/10,000,000
80,000
Judicial Expense
(300,000) x 4,000,000/10,000,000
120,000
Net Conjugal/Community estate 800,000
Less: Share of the surviving spouse (800,000x50%)
Net Taxable Estate 400,000
Estate Tax:
On 200,000 On excess (200,000 x 5%)
Estate Tax 10,000

10,000

200,000
400,000

Estate Tax of Nonresident Alien

WITHOUT RECIPROCITY
Reportable Gross estate-Within
Car- Baguio 1,000,000
Dollar Time Deposit 1,000,000
Franchise
1,000,000
Shares of Stocks
1,000,000
4,000,000
Less: Ordinary deductions
ELITE: Funeral Expense
(200,000) x 4,000,000/10,000,000 80,000
Judicial Expense
(300,000) x 4,000,000/10,000,000 120,000
Vanishing Deduction 313,600
513,600
Net Conjugal/Community estate
3,486,400
Less: Share of the surviving spouse (3,486,400 x50%)
Net Taxable Estate
1,743,200
Estate Tax:
On 500,000 15,000
On excess (1,243,200 x 8%)
Estate Tax
114,456

99,456

1,743,200

Administrative Requirements
Value of Gross Estate
Exceeds
Exceeds
Exceeds
Requirements
20,000 200,000
1.Notice of Death (within 2 months)
2.Estate Tax Return (w/in 6 months)
3. CPA Certificate (w/in 6 months) NO

2,000,000
Yes
Yes
No
Yes
No
Yes

Yes
Yes

Additional Requirement
-Registering the estate of the decedent and getting a separate TIN for the estate
Liability for Payment of Estate Tax
1.Primary Obligation- Estate through Executor or Administrator (severally liable)
2.Subsidiary Obligation- the Heirs or Beneficiaries
To the extent of their obligation but in no case shall it exceed the value of their
inheritance.

Administrative Requirements
Surcharges, Interests and Penalties
- imposed in the event of violation of the law, criminal penalties and civil
liabilities.
Payment of Estate Tax by Installment
- may be allowed provided:
1.A clearance shall be released only with respect to the property on which
tax has been paid
2.Any amount paid after the due date shall be subject to applicable penalty
3.If the late payment has been approved by the Commissioner or his
representative, the penalty shall only be the interest.
4.The Commissioner may enforce action against the estate after the due
date of the estate tax provided that all the applicable laws and required
procedures are observed.

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ANSWERS:
Problem 56 B

Conjugal gross estate (P3,120,000 + P180,000)

Funeral expense allowed (P3,300,000 x 5%)
Share of surviving spouse
(P3,300,000 P165,000) x 50%
Standard deduction
Net estate

P3,300,000
( 165,000)
( 1,567,500)
( 1,000,000)
P 567,500

ANSWERS:
Problem 59 D

Exclusive

Property cash
P1,000,000
Family home
Transfer for public use
(1,000,000)
Funeral expense allowed
Net conjugal estate
Family home (P800,000/2)
Standard deduction
Net estate
Share of surviving spouse (P4,600,000 x 50%)
Net taxable estate

Conjugal

P4,000,000
800,000
( 200,000)
P4,600,000
(400,000)
(1,000,000)
P3,200,000
(2,300,000)
P 900,000

ANSWERS:
Problem 514 D
Amounts

Net estate Estate tax

P2,000,000 P135,000

Nonresident alien decedent is not allowed to have

standard deduction. The funeral expense is not deductible
because no part of gross estate located outside the
Philippines is reported. (Sec. 86 (B), NIRC)

ANSWERS:
Problem 517 C
Tax credit P100,000 x (2M/5M)

P40,000

Problem 519

Conjugal
P1,500,000

Real property
Inherited property
Other properties
500,000
Gross estate
P2,000,000
Less: Deductions:
ELITE:
Funeral expenses
100,000
Judicial expenses
80,000
Claims against the estate
300,000
Transfer for public use
20,000
Total deductions
500,000
Net conjugal/exclusive estate
P1,500,000
Less: Special deductions:
Standard deduction
Medical expense
Net estate before share of surviving spouse
Less: Share of surviving spouse (P1,500,000 x 50%)
Net taxable estate
Estate tax: Tax on P200,000 P - 0 Tax on excess (P50,000 x 5%) 2,500
Estate tax due
P 2,500

Exclusive

Total

P700,000
P700,000

P2,700,000

P700,000

500,000 \
P2,200,000
1,000,000
200,000
P1,000,000
750,000
P 250,000

Problem 520
Family home Philippines
Family business Philippines
Properties USA
.
Gross estate
Deductions: ELITE
Funeral expense
Net conjugal/exclusive
Less: Special deduction
Std. deduction

Conjugal

Exclusive

P4,000,000

P1,000,000
P1,000,000

P5,000,000

200,000
P3,800,000

P1,000,000

P4,800,000

P2,000,000
2,000,000

Family home
Net estate before share of surviving spouse
Less: Share of surviving spouse (P3,800,000 x 50%)
Net taxable estate
Tax on P500,000
Tax on excess (P400,000 x 8%)
Estate tax due
Less: Estate tax credit allowed (P47,000 x 8/28) lower
Estate tax still due and payable

Total

1,000,000

P15,000
32,000
P47,000
13,429
P33,571

1,000,000
P2,800,000
1,900,000
P 900,000

Problem 521
Gross estate*
Less Deductions:
Ordinary deductions:
Funeral expenses

(actual, P350,000; 5% limit, P500,000; statutory

Maximum allowed, P200,000) - lowest

Judicial expenses
Other deductions
Vanishing deductions
Net conjugal/exclusive estate
Special deductions:
Standard deduction
Family home (50% is P1,500,000)
max. allowed

Conjugal

P5,800,000

(200,000)
(500,000)
(100,000)
P5,000,000

Medical expenses (actual, P600,000) max. allowed

Amount receivable under R.A. 4917
Net estate
Less: Share of the surviving spouse (P5,000,000 x 50%)
Net taxable estate

Exclusive

P4,200,000

( 92,000)
P4,108,000

Total

10,000,000

9,108,000
(1,000,000)
(1,000,000)
(500,000)
(200,000)
P6,408,000
2,500,000
P3,908,000