Chapter 10

Donor’s Tax

 Donor’s Tax
Donation is an act of liberality whereby a person (donor) disposes gratuitously of a
thing or right in favor of another (donee) who accepts it (Art. 725, Civil Code).

Donor’s tax is an excise tax imposed on the privilege of transferring property by

way of a gift inter vivos based on pure act of liberality without any or less than
adequate consideration and without any legal compulsion to give.
The subject of donor’s tax is the gift or donation. Also called Gift Tax
Purpose of donor’s tax
1. To supplement estate tax
2. To prevent avoidance of income tax through the device of splitting income
among numerous donees who are usually members of a family or into
many trusts, with the donor thereby escaping the effect of the progressive
rates of income taxation

Requisites for a gift to be taxable

1. Capacity of donor to donate
The donor’s capacity shall be determined as of the time of the making of
the donation (Art. 737, NCC).

2. Donative Intent
NOTE: Donative intent is necessary only in cases of direct gift. If the gift is
indirectly taking place by way of sale, exchange or other transfer of
property as contemplated in cases of transfers for less than adequate and
full consideration (Sec. 100, NIRC), not always essential to constitute a gift.

3. Acceptance by the donee

The transfer of property by gift is perfected from the moment the donor
knows of the acceptance by the done.

4. Actual or constructive Delivery of gift

In order that the donation of an immovable may be valid, it must be made in a

public document specifying therein the property donated. The acceptance may be
made in the same Deed of Donation or in a separate public document, but it shall
not take effect unless it is done during the lifetime of the donor. If the acceptance is
made in a separate instrument, the donor shall be notified thereof in an authentic
form, and this step shall be noted in both instruments.

A gift that is incomplete because of reserved powers, becomes complete when

either:
1. the donor renounces the power; or
2. his right to exercise the reserved power ceases because of the happening
of some or contingency or the fulfilment of some condition, other than
because of the donor’s death. (RR 12-2018 TRAIN)

 Classes of Donors
1. Resident
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Domestic corporation
2. Non-resident
a. Non-resident aliens
b. Foreign corporation
NOTE: A corporation, domestic or foreign, cannot be made liable to pay
estate tax, but may be liable to pay donor’s tax.

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Table 1 Summary of properties included in gross gift

Resident Non-resident donor Non-resident donor
Classification of Property donor (no reciprocity) (with reciprocity)
Real property within Yes Yes Yes
Real property without Yes
Tangible personal property within Yes Yes Yes
Tangible personal property without Yes
Intangible personal property within Yes Yes
Intangible personal property without Yes
Intangible personal property with a situs in the Philippines:
1. Franchise which must be exercised in the Philippines;
2. Shares, obligations or bonds issued by corporations organized or
constituted in the Philippines;
3. Shares, obligations or bonds issued by a foreign corporation 85% of the
business of which is located in the Philippines;
4. Shares, obligations or bonds issued by a foreign corporation if such
shares, obligations or bonds have acquired a business situs in the
Philippines (i.e. they are used in the furtherance of its business in the
Philippines);
5. Shares, rights in any partnership, business or industry established in the
Philippines.
Note: Reciprocity clause of donor’s tax is the same as estate tax law.

 Gross Gifts
Gross gifts – All property, real or personal, tangible or intangible, that was given by
the donor to the donee by way of gift, without the benefit of any deduction (Sec. 104,
NIRC).
Net gift is the net economic benefit from the transfer that accrues to the donee.

NOTE: 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 mortgage
assumed.

Condonation/remission of debt
If the creditor condones the indebtedness of the debtor the following rules apply:
1. On account of debtor’s services to the creditor the same is in taxable
income to the debtor.
2. If no services were rendered but the creditor simply condones the debt, it
is taxable gift and not a taxable income.

Illustration 1
Mr. Wadingan was a creditor of Mr. Yao for ₱15,000. Seeing that Mr. Yao
finds it hard to provide even for his necessities, Mr. Wadingan cancelled the
indebtedness of Mr. Yao, and notified the latter thereof. How much is the
gross gift?

Answer: Gross gift ………………

Modified Textbook Reyes
₱15,000

Sale/exchange/transfer of property for insufficient consideration

GR: Where a property is transferred for less than adequate and full consideration
in money or money’s worth, the amount by which the FMV exceeds the
consideration shall be deemed a gift and is included in computing the amount of
gifts made during the calendar year. It is as if the property was donated but in
order to avoid paying donor’s tax, the donor opted to transfer the property for
inadequate consideration.

XPN: Where property transferred is real property located in the Philippines

considered as capital asset, the transfer is not subject to donor’s tax but to a
capital gains tax, which is a final income tax of 6% of the fair market value or
gross selling price, whichever is higher, and therefore, there can be no instance
where the seller can avoid any tax by selling his capital assets below its FMV.
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Illustration 2
Mr. Viloria transferred property to Mr. Ching for a consideration of ₱20,000
when the fair market value at the time of transfer was ₱100,000. How much is
the gross gift?

Answer: Gross gift ………………

Modified Textbook Reyes
₱80,000

Renunciation of inheritance
Renunciation by the surviving spouse of his/her share in the conjugal partnership
or absolute community after the dissolution of the marriage in favor of the heir of
the deceased spouse or any other person/s is subject to donor’s tax.

General renunciation by an heir, including the surviving spouse, of his/her share in

the hereditary estate left by the decedent is not subject to donor’s tax, unless

Specifically and categorically done in favor of identified heir/s to the exclusion or

disadvantage of the other co-heirs in the hereditary estate.

 Valuation of Property Donated

1. Personal property - the fair market value of the property given at the time
of the gift shall be the value of the gross gift.
2. Real property - the fair market value as determined by the CIR (zonal
value) at the time of donation or the value fixed by the assessor (assessed
value), whichever is higher (Sec. 102, NIRC).
If there is no zonal value, the taxable base is the fair market value that
appears in the latest tax declaration. If there is an improvement, the value
of the improvement is the construction cost per building permit and or
occupancy permit plus 10% per year after year of construction, or the
market value per latest tax declaration.
3. Shares of stock - listed and traded in the local stock exchange, the fair
market value shall be the arithmetic mean between the highest and lowest
quoted price on the date of donation, and if there was no transaction on
that date, on the date nearest the date of donation.
If the shares are not listed and traded in the local stock exchange, the fair
market value shall be the book value if common shares and par value if
preferred shares.
4. Units of participation in any association, recreation or amusement
club - The fair market value of (such as golf, polo, or similar clubs), shall
be the bid price nearest the date of donation published in any newspaper
or publication of general circulation.

Illustration 3
Mr. Lee made the following donations:
o A piece of land in Manila acquired 3 years ago at ₱2,000,000. At the time
of donation, the fair market value per schedule of values of the City
Assessor was ₱1,500,000, and the zonal value fixed by the Bureau of
Internal Revenue was ₱1,800,000.
o Personal properties acquired at ₱240,000 with current market price of
₱120,000 at date of donation.
o Cash amounting to ₱60,000.
How much is the gross gift made by Mr. Lee?

Answer: Land…………………………………… ₱ 1,800,000

Personal properties………………….. 120,000
Cash…………………………………… 60,000
Gross gift……………………………..
Modified Textbook Valencia & Reyes combine
1,980,000

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 Exemption of Certain Gift

The following are exempt from donor’s tax:
1. 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, or to any
political subdivision of the said Government.
2. Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited non-government
organization, trust or philanthropic organization or research institution or
organization: Provided, however, not more than 30% of said gifts will be
used by such donee for administration purposes. For the purpose of this
exemption, a ‘non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization’ is a school,
college or university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic organization and/ or
research institution or organization, incorporated as a non-stock entity,
paying no dividends, governed by trustees who receive no compensation,
and devoting all its income, whether students’ fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of Incorporation.” (Sec.
17 of RR No. 12-2018)
3. Contribution for election campaign - Any contribution in cash or in kind to
any candidate, political party or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended. (Sec. 99 C, NIRC)

 Entities Exempted from Donor’s Tax under Special Laws

The list below consists of entities considered Donor’s Tax exempt under special
laws including, but not limited to the following:
1. Rural Farm School (Sec. 14, R.A. No. 10618)
2. People’s Television Network, Incorporated (Sec. 15, R.A. No. 10390)
3. People’s Survival Fund (Sec. 13, R.A. No. 10174)
4. Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No.
10083)
5. Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
6. Philippine Red Cross (Sec. 5, R.A. No. 10072)
7. Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
8. National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
9. Philippine Normal University (Sec. 7, R.A. No. 9647)
10. University of the Philippines (Sec. 25, R.A. No. 9500)
11. National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
12. Philippine Investors Commission (Sec. 9, R.A. No. 3850)
13. Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
14. Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
15. International Rice Research Institute (Art. 5(2), PD 1620)
16. Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
17. National Social Action Council (Sec. 4, P.D. 294)
18. Aquaculture Department of the Southeast Asian Fisheries Development
Center (Sec. 2, P.D. 292)
19. Development Academy of the Philippines (Sec. 12, PD 205)
20. Integrated Bar of the Philippines (Sec. 3, PD 181)

 Donor’s Tax Formula and Rate

The donor’s tax for each calendar year shall be 6% computed on the basis of the
total gifts in excess ₱250,000 exempt gift made during the calendar year.

The computation of the donor’s tax is on a cumulative basis over a period of one
calendar year. (Sec 12, RR 2-2003)

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 On the first donation of the year:

Gross gifts …….……………………………. xx

Less: Deduction…………………….……… (xx)
Net gifts…..…………………………………… xx
Less: Exempt gift…….………….………….. (250,000)
Net gifts subject to tax..………………….. xx
X Tax rate 6%
Donor’s tax………………………………… xx

 On subsequent donation during the year:

Gross gifts on this date……….…………… xx

Less: Deduction…………………….……… (xx)
Net gifts…..………………………………… xx
Add: Prior net gifts………………………… xx
Total net gifts…………..………………… xx
Less: Exempt gift…….………….………… (250,000)
Net gifts subject to tax..………………… xx
X Tax rate 6%
Donor’s tax………………………………… xx
Less: Donor’s tax paid on prior net gifts…. (xx)
Donor’s tax on this date…………………
http://www.scribd.com/doc/33337629/UP08-Tax-01-amp-02
xx
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 mortgage
assumed. (Sec. 12 of RR No. 12-2018)

 Deductions from Gross Gifts

The following are deductible from gross gifts of a citizen or resident alien of the
Philippines in order to arrive at the taxable net gifts:
1. Mortgage or other encumbrances on the property donated if assumed by
the donee in the deed of donation. (Sec. 11, RR 2-2003)
2. Amount specifically provided by the donor as diminution on the property
donated.

Illustration 4
Mr. Cultura, Filipino residing in Philippines made the following donations:
₱ 225,000 - Cash given to Give a Life Charity Foundation
60,000 - To his daughter, Myra who is getting married
150,000 - Parcel of land to Barangay Sulucan, Angat, Bulacan, for use
as site of the barangay health center, and day care center.
How much is the deduction from gross gift?

Answer: Gross gift ………………………………………. ₱60,000

Less: …………………………………………… ----------
Net gift…………………………………………..
Modified Textbook Ampongan
60,000

Mortgage or other encumbrances on the property donated if assumed by the

donee in the deed of donation

Illustration 5
Ms. Herradura donated to Mr. Elmer, her boyfriend, a car amounting to
₱500,000. The car has an unpaid mortgage of ₱225,000. Mr. Elmer agreed to
assume payment for the martgage. How much is the deduction from gross
gift?

Answer: Gross gift ………………………………………. ₱ 500,000

Less: mortgage assumed by the donee (225,000)
Net gift…………………………………………..
Modified Textbook Valencia
275,000

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Amount specifically provided by the donor as diminution on the property

donated

Illustration 6
Mr. Asis donated ₱600,000 to Mr. Lacandazo on condition that the latter will
give ₱120,000 of the total gift to the charity. How much is the deduction from
gross gift?

Answer: Gross gift………………………………………. ₱ 600,000

Less: diminution provided by the donor (120,000)
Net gift………………………………………….
Modified Textbook Valencia
480,000
tp://www.scribd.com/doc/33337629/UP08-Tax-01-amp-02
http://www.lawphil.net/statutes/repacts/ra1969/ra_6110_1969.html

Illustration 7
Mr. Delfino made the following donations:

June 8
o To a legitimate son, on account of marriage, ₱165,000.
o To Minda, a friend, property with a mortgage thereon of ₱550,000
assumed by the friend. Fair market value of the property, ₱990,000
July 5
o To a legitimate daughter for her birthday, ₱165,000.
o To Glenn, a friend, ₱22,000
How much is the donor’s tax payble by Mr. Delfino on July 5?

Answer:
June 8
Gross gifts (Personal property)……… ₱ 165,000
Gross gifts (Real property)…………… 990,000
Total gross gifts………………………… 1,155,000
Less: Mortgage assumed by donee…. (550,000)
Net gifts………………………………… 605,000
Less: Exempt gift…….………….……. (250,000)
Net gifts subject to tax..……………. 355,000
X Tax rate 6%
Donor’s tax…………………………… 21,300

July 5
Gross gifts (Personal property)…….. ₱ 165,000
Gross gifts (Personal property)…….. 22,000
Total gross gifts………………………. 187,000
Add: Prior net gifts……………………. 605,000
Total net gifts…………..……………. 792,000
Less: Exempt gift…….………….…….. (250,000)
Net gifts subject to tax..……………. 542,000
X Tax rate 6%
Donor’s tax…………………………….. 32,520
Less: Donor’s tax paid on prior net gifts (21,300)
Donor’s tax on this date……………… Modified Textbook Reyes
11,220

Donation of property between spouses

Every donation or grant of gratuitous advantage, direct or indirect, between the
spouses during the marriage shall be void, except moderate gifts which the
spouses may give each other on the occasion of any family rejoicing. The
prohibition shall also apply to persons living together as husband and wife without
a valid marriage. (Art. 87, Family Code of the Philippines)

Donation of conjugal or community property

Husband and wife are considered as separate and distinct taxpayer’s 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

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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 of the Philippines and the Family Code of the Philippines. (Sec. 12,
ibid.)

Illustration 8
Mr. and Mrs. Montoya donated cash of ₱630,000 to their son on account of
marriage. How much is the donor’s tax by the husband and wife?

Answer:
Mr. Montoya Mrs. Montoya
Gross gifts………………………… ₱ 315,000 ₱ 315,000
Less: Exempt gift…….………….… (250,000) (250,000)
Net gifts subject to tax..………… 65,000 65,000
X Tax rate 6% 6%
Donor’s tax………………………..
Modified Textbook Reyes
3,900 3,900

Illustration 9
Luis-Fernando Vega, a citizen and resident of Mexico, donated the following:
₱ 280,000 - Legitimate son, Filipino, on account of marriage
40,000 - Daughter-in-law, on account of marriage
12,000 - For the renovation of Sta. Monica de Angat Church
How much is the donor’s tax payable by Mr. Vega assuming no reciprocity?

Answer:
Gross gifts (280,000 + 40,000)……… 320,000
Less: Exemption gift…………….…… (250,000)
Net gifts subject to tax..…………… 70,000
X Tax rate 6%
Donor’s tax……………………………
Modified Textbook Ampongan
4,200

 Donor’s Tax Credit

A situation may arise when the property given as a gift is located in a foreign
country and the donor may be subject to donor’s tax twice on the same property:
first, by the Philippine government and second, by the foreign government where
the property is situated.

The remedy of claiming a tax credit is, therefore, aimed at minimizing the burden
some effect of double taxation by allowing the taxpayer to deduct his foreign tax
from his Philippine tax, subject to the limitations provided by law. http://www.scribd.com/doc/33337629/UP08-Tax-01-amp-02

Tax credit for donor’s tax may be claimed only by a citizen or resident of the
Philippines. (Sec. 101 C, NIRC)

Table 2 Formulas for donor’s tax credit

One foreign country only

Tax Credit = Net gift, foreign country X Philippine

Net gift, world Donor’s tax
Or
Actual donor’s tax paid to the foreign country, whichever is lower

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Two or more foreign countries

Limitation A (per country): See above formula

Limitation B (by total):

Tax Credit = Net gift, all foreign country X Philippine
Net gift, world Donor’s tax
Or
Actual donor’s tax paid to all foreign country, whichever is lower
http://www.scribd.com/doc/33337629/UP08-Tax-01-amp-02

Note: The computation of the donor’s tax credit is the same as the computation for estate tax
credit.

Illustration 10
Mr. Estoya is a citizen of the Philippines. He made the following donations:
o To daughter, property in India, with a fair market value of ₱120,000, and
India donor’s tax payment of ₱5,400.
o To son, property in Japan, with a fair market value of ₱240,000 and Japan
donor’s tax payment of ₱7,900.
o To granddaughter, property in the Philippines with a fair market value of
₱240,000.
How much is the donor’s tax due after tax credit?

Answer:
Net gift, India …………..…………………………… ₱ 120,000
Net gift, Japan……..………………………………. 240,000
Net gift, Philippines……………………………….. 240,000
Net gift, world……………………………………… 600,000
Less: Exempt gift…….………….………………….. (250,000)
Net gifts subject to tax..……………………………. 350,000

Donor’s tax (350,000 x 6%)………………………. 21,000

Less: Donor’s tax credit (schedule 1)………….… (12,100)
Donor’s tax due…………………..………………... 8,900

Schedule 1 – Donor’s tax credit

Limitation A: Lower
India, donor’s tax paid……………………….. ₱ 5,400
Formula: (*70,000/350,000 x ₱21,000)……. 4,200 ₱ 4,200
120/600X 250,000 = 50,000 (120,000 - 50,000)*
Japan, donor’s tax paid……………………….. 7,900
Formula: (**140,000/350,000 x ₱21,000)……… 8,400 7,900
Total……………………………………………………………….. 12,100
240/600X 250,000 = 100,000 (240,000 - 100,000)**

Limitation B:
All foreign donor’s tax paid………………………. 13,300
Formula: (210,000/350,000 x ₱21,000)………… 12,600 12,600

Allowed…………………………………………………………………..
Modified Textbook Reyes
12,100

 Filing of Return and Payment of Tax

Who Shall File

The Donor’s Tax Return (BIR Form No. 1800) shall be filed in triplicate by any
person, natural or juridical, resident or non-resident, who transfers or causes to
transfer property by gift, whether in trust or otherwise, whether the gift is direct or
indirect and whether the property is real or personal, tangible or intangible.

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Taxpayers who are filing BIR Form no. 1800 are excluded in the mandatory
coverage from using the eBlRForms (Section 2 of RR No. 9-2016).

When and Where to File and Pay

The Donor’s Tax Return (BIR Form No. 1800) shall be filed within thirty (30) days
after the date the gift (donation) is made.

The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue
District Office having jurisdiction over the place of domicile of the donor at the time
of the donation, or if there is no legal residence in the Philippines, with the Office of
the Commissioner of Internal Revenue, (Revenue District Office No. 39, South
Quezon City). In case of gifts made by a non-resident alien, the return may be filed
with RDO No. 39, or with the Philippine Embassy or Consulate in the country
where he is domiciled at the time of donation.

A separate return shall be filed by each donor for each gift (donation) made
on different dates during the year reflecting therein any previous net gifts
made in the same calendar year. Only one return shall be filed for several
gifts (donations) by a donor to the different donees on the same date.

If the gift (donation) involves conjugal/community property, each spouse shall file
separate return corresponding to his/her respective share in the
conjugal/community property donated. This rule shall likewise apply in the case of
co-ownership over the property being donated.

When the return is filed with an AAB, taxpayer must accomplish and submit BIR-
prescribed deposit slip, which the bank teller shall machine validate as evidence
that payment was received by the AAB. The AAB receiving the tax return shall
stamp mark the word “Received” on the return and also machine validate the
return as proof of filing the return and payment of the tax by the taxpayer,
respectively. The machine validation shall reflect the date of payment, amount paid
and transactions code, the name of the bank, branch code, teller’s code and
teller’s initial. Bank debit memo number and date should be indicated in the return
for taxpayers paying under the bank debit system.

Payments may also be made thru the epayment channels of AABs thru either their
online facility, credit/debit/prepaid cards, and mobile payments.

For transactions covered by one (1) Deed of Sale/Exchange/Donation involving

one (1) to three (3) properties, the taxpayer can avail of the fast lane pursuant to
Revenue Memorandum Circular (RMC) No. 43-2018, as amended by RMC No.
107-2018. Payments amounting to twenty thousand pesos (₱20,000.00) and below
shall be paid in cash while payments above twenty thousand pesos (₱20,000.00)
shall be made through Manager’s Check or Cashier’s Check to the Revenue
Collection Officer of the RDO concerned.

Notice of donation – To be exempt from donor’s tax and to claim full deduction of
the donation given to qualified and duly accredited donee institutions, a donor
engaged in business shall give a notice of donation for every donation worth at
least ₱50,000 within 30 days after the receipt of the qualified donee institution’s
duly issued Certificate of Donation.