DONOR'S TAX, Frequently Asked Questions*
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1. Who are required to file the Donor’s Tax Return?
Every person, whether 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.
2. What donations are tax exempt?
A. In the Case of Gifts made by a Resident
• Dowries or donations made on account of marriage before its celebration or within one year thereafter, by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first P10,000
• 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
• Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philantrophic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes
B. In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines
• 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
• Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philantrophic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes
C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC as amended)
• In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country.
• Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following limitations:
- The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated within such country taxable under this Title bears to his entire net gifts; and
- The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the donor's net gifts situated outside the Philippines taxable under this title bears to his entire net gifts.
3. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time will be considered the amount of gift
In case of real property, the taxable base is the fair market value as determined by the Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest schedule of values fixed by the provincial and city assessor (MV per Tax Declaration), whichever is higher
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 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.
4. For purposes of Donor’s Tax, what does the term “Net Gift” mean?
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. 11, RR No. 2-2003)
5. Under R.A. No. 7166, any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes shall not be subject to the payment of any gift tax. What instance will it be subject to Donor’s Tax?
Those contributions in cash or in kind NOT duly reported to the Commission on Elections (COMELEC) shall not be subject to donor’s tax.
Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or in kind for campaign purposes shall be governed by R.A. No. 7166 or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to the contrary notwithstanding any contribution in cash or kind to any candidate or political party or coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to the payment of any gift tax (donor’s tax). Accordingly, the BIR can impose donor’s tax on contributions of this nature. (Q-14, RMC No. 63-2009)
6. For purposes of Donor’s Tax, is a legally adopted child considered stranger?
A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger. (sec. 10, RR No. 2-2003)
7. For purposes of Donor’s Tax, are donations between businesses considered donations made between strangers?
Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. (sec. 10, RR No. 2-2003)
8. Are gratuitous donations to Homeowners’ Associations subject to Donor’s Tax?
Gifts, donations, and other contributions received by the Homeowners’ Associations (Associations) are subject to the payment of donor’s tax pursuant to Section 98 and 99 of the Tax Code, as amended. Endowment or gifts received by such associations are not exempt from donor’s tax considering that gifts to Associations are not qualified for exemption under Section 101(A)(3) of the Tax Code. (II, RMC No. 53-2013)
9. Is an onerous donation or donation in exchange for goods, services or use or lease of properties to Homeowners’ Association subject to Donor’s Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on their income of whatever kind and character. In this regard, contributions to associations in exchange for goods, services and use of properties constitute as other assessments/charges from activity in exchange for the performance of a service, use of properties or delivery of an object. As such, these fees are income on the part of the associations that are subject to income tax under Section 27 of the Tax Code, as amended. (III, RMC No. 53-2013)
10. What is the proper treatment for transactions involving transfer of property other than real property referred to in Section 24 (D) for less than adequate and full consideration?
Where property, other than real property referred to in Section 24 (D) of the NIRC, as amended, is transferred for less than adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of Donor’s Tax, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec. 101, NIRC, as amended)
11. What entities are considered 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:
Rural Farm School (Sec. 14, R.A. No. 10618)
People’s Television Network, Incorporated (Sec. 15, R.A. No. 10390)
People’s Survival Fund (Sec. 13, R.A. No. 10174)
Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083)
Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
Philippine Red Cross (Sec. 5, R.A. No. 10072)
Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
Philippine Normal University (Sec. 7, R.A. No. 9647)
University of the Philippines (Sec. 25, R.A. No. 9500)
National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
Philippine Investors Commission (Sec. 9, R.A. No. 3850)
Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
International Rice Research Institute (Art. 5(2), PD 1620)
Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
National Social Action Council (Sec. 4, P.D. 294)
Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2, P.D. 292)
Development Academy of the Philippines (Sec. 12, PD 205)
Integrated Bar of the Philippines (Sec. 3, PD 181)
*Source, bir.gov.ph
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