DEDUCTIONS
Classifications
1. Ordinary Deductions- they consist of expenses, losses, indebtedness, and taxes or more specifically such amounts for:
a. Funeral expenses
b. Judicial expenses of proceedings
c. Claims against the estate
d. Claims against insolvent persons
e. Unpaid mortgages
f. Unpaid taxes
g. Casualty losses
2. Vanishing Deductions (property previously taxed)
3. Transfers for public use
4. Family home
5. Standard deduction equivalent to 1 million
6. Medical expenses
7. Retirement benefits under RA 4917
8. Share of surviving spouse in the conjugal or community property
Tuesday, July 21, 2009
Sunday, July 19, 2009
Gross Estate
Gross Estate
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, whenever situated. Provided, than in case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of his entire gross estate which is situated in the Philippines shall be included in his taxable estate. (sec 85)
The Gross Estate of the Decedent Includes
a. Property owned by the decedent at the time of his death
b. Property formerly owned by the decedent but which were no longer owned by him at the time of his death;
c. Property transferred during his lifetime upon which the donor’s tax would have applied; and
d. Property which he never owned during his lifetime.
Under section 85, the following items comprise the decedent’s gross estate:
A. Decedent’s Interest- this refers to all property owned by the decedent- real or personal, tangible or intangible- including shares of stock in corporations- at the time of his death.
B. Transfer in Contemplation of Death- this refers to property formerly owned by the decedent but were no longer owned by him at the time of his death.
It contemplates a situation where the transferor during his lifetime, transfers property in contemplation of or intended to take effect in possession or enjoyment at or after his death. Or where the transferor retains for life the possession or enjoyment, or the right to the income from the property, or the right to designate the person who shall possess or enjoy the property or the income therefrom. At the time of his death, therefore, the decedent no longer owned the property, but still applying sec. 85(b) of the tax code, such property forms part of his gross estate.
C. Revocable Transfer- this refers to property that had been transferred but the transferor, personally or through another person, retained for life the right to alter, amend, revoke, or terminate the enjoyment by the transferee of the property transferred.
Here, a property no longer owned by the decedent still forms part of his gross estate. This is another situation where estate tax applies to transfer of property made during the lifetime of the transferor. If the donor’s tax had been paid, it is simply credited to the amount of estate tax due.
D. Property Passing Under General Power of Appointment
Under this paragraph, a property which the decedent never owned in his lifetime now forms part of his gross estate. There are three persons involved here. The transferor, the first transferee, and the second transferee. The first transferee is the decedent.
If authority is granted by the transferor to the first transferee to determine the person, who, upon the latter’s death, would next possess or enjoy the property transferred, his authority emanates from a general power of appointment. But if the transferor himself had determined beforehand who upon the death of the first transferee, would next possess or enjoy the property, then the authority of the first transferee emanated from a special power of appointment.
Although the decedent never formally owned it, property passing under a general power of appointment forms part of his gross estate because his absolute authority to choose the next transferee, upon his death, is a badge of ownership.
If the transferor died, the same property would form part of his (transferor) gross estate under sec. 85 (a) of the tax code.
E. Proceeds of Life Insurance- this contemplates a situation where a person insures his own life If the beneficiary is his estate, represented by his administrator, executor or heir- irrespective of whether the designation of said beneficiary is revocable or irrevocable- proceeds therefrom form part of his gross estate.
But if the beneficiary is a third person, proceeds of life insurance form part of the gross estate of the decedent only if the designation of said beneficiary is revocable.
F. Transfer for Insufficient Consideration- where the transfers in contemplation of death, revocable transfers, and general power of appointment are made, created, exercised or relinquished for less than the adequate or full consideration, the difference between the FMV of the subject property at the time of death and the value of the consideration received therefore forms part of the decedent’s gross estate subject to estate tax.
Exemptions/ Exclusions from Gross Estate:
1. The merger of usufruct in the naked title
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
3. The transmission from the first heir, legatee or done in favor of another beneficiary, in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfer to social welfare, cultural and charitable institution, no part of the net income of which inures to the benefit of any individual, provided that not more than 30% of said bequest, devises or legacies or transfers shall be used by such institution for administrative purposes.
Exemptions from Estate Tax Under Special Laws.
1. Benefits received by members from GSIS, SS by reason of death;
2. Proceeds of GSIS life insurance
3. Benefits received by beneficiaries residing in the Philippines under laws administered by the US Veterans Administration.
4. Amounts received from the Philippines and the US Governments for damages suffered during WWII.
5. Retirement benefits of officials and employees of private firms if included in gross estate.
6. Proceeds of group insurance.
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, whenever situated. Provided, than in case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of his entire gross estate which is situated in the Philippines shall be included in his taxable estate. (sec 85)
The Gross Estate of the Decedent Includes
a. Property owned by the decedent at the time of his death
b. Property formerly owned by the decedent but which were no longer owned by him at the time of his death;
c. Property transferred during his lifetime upon which the donor’s tax would have applied; and
d. Property which he never owned during his lifetime.
Under section 85, the following items comprise the decedent’s gross estate:
A. Decedent’s Interest- this refers to all property owned by the decedent- real or personal, tangible or intangible- including shares of stock in corporations- at the time of his death.
B. Transfer in Contemplation of Death- this refers to property formerly owned by the decedent but were no longer owned by him at the time of his death.
It contemplates a situation where the transferor during his lifetime, transfers property in contemplation of or intended to take effect in possession or enjoyment at or after his death. Or where the transferor retains for life the possession or enjoyment, or the right to the income from the property, or the right to designate the person who shall possess or enjoy the property or the income therefrom. At the time of his death, therefore, the decedent no longer owned the property, but still applying sec. 85(b) of the tax code, such property forms part of his gross estate.
C. Revocable Transfer- this refers to property that had been transferred but the transferor, personally or through another person, retained for life the right to alter, amend, revoke, or terminate the enjoyment by the transferee of the property transferred.
Here, a property no longer owned by the decedent still forms part of his gross estate. This is another situation where estate tax applies to transfer of property made during the lifetime of the transferor. If the donor’s tax had been paid, it is simply credited to the amount of estate tax due.
D. Property Passing Under General Power of Appointment
Under this paragraph, a property which the decedent never owned in his lifetime now forms part of his gross estate. There are three persons involved here. The transferor, the first transferee, and the second transferee. The first transferee is the decedent.
If authority is granted by the transferor to the first transferee to determine the person, who, upon the latter’s death, would next possess or enjoy the property transferred, his authority emanates from a general power of appointment. But if the transferor himself had determined beforehand who upon the death of the first transferee, would next possess or enjoy the property, then the authority of the first transferee emanated from a special power of appointment.
Although the decedent never formally owned it, property passing under a general power of appointment forms part of his gross estate because his absolute authority to choose the next transferee, upon his death, is a badge of ownership.
If the transferor died, the same property would form part of his (transferor) gross estate under sec. 85 (a) of the tax code.
E. Proceeds of Life Insurance- this contemplates a situation where a person insures his own life If the beneficiary is his estate, represented by his administrator, executor or heir- irrespective of whether the designation of said beneficiary is revocable or irrevocable- proceeds therefrom form part of his gross estate.
But if the beneficiary is a third person, proceeds of life insurance form part of the gross estate of the decedent only if the designation of said beneficiary is revocable.
F. Transfer for Insufficient Consideration- where the transfers in contemplation of death, revocable transfers, and general power of appointment are made, created, exercised or relinquished for less than the adequate or full consideration, the difference between the FMV of the subject property at the time of death and the value of the consideration received therefore forms part of the decedent’s gross estate subject to estate tax.
Exemptions/ Exclusions from Gross Estate:
1. The merger of usufruct in the naked title
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
3. The transmission from the first heir, legatee or done in favor of another beneficiary, in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfer to social welfare, cultural and charitable institution, no part of the net income of which inures to the benefit of any individual, provided that not more than 30% of said bequest, devises or legacies or transfers shall be used by such institution for administrative purposes.
Exemptions from Estate Tax Under Special Laws.
1. Benefits received by members from GSIS, SS by reason of death;
2. Proceeds of GSIS life insurance
3. Benefits received by beneficiaries residing in the Philippines under laws administered by the US Veterans Administration.
4. Amounts received from the Philippines and the US Governments for damages suffered during WWII.
5. Retirement benefits of officials and employees of private firms if included in gross estate.
6. Proceeds of group insurance.
Estate Tax
Definition of Estate Tax- Tax imposed on the transmission of properties of the decedent upon his death to his lawful heirs and beneficiaries.
Purpose of Estate Tax- To avoid the undue accumulation or concentration of wealth on some individuals, and to raise revenue for the support of the government.
Rates of Estate Tax
| Over | But not Over | The Tax Shall Be | Plus | Of Excess Over |
| - | P200,000 | EXEMPT | - | - |
| P200,000 | P500,00 | 0 | 5% | P200,000 |
| P500,000 | P2,000,000 | 15,000 | 8% | P500,000 |
| P2,000,000 | P5,000,000 | 135,000 | 11% | P2,000,000 |
| P5,000,000 | P10,000,000 | 465,000 | 15% | P5,000,000 |
| P10,000,000 | And Over | 1,215,000 | 20% | P10,000,000 |
Formula:
Gross Estate
Less Deductions
Equals: NET ESTATE
Less: Exemptions (First 200,000, Sec. 84)
Equals: Taxable Net Estate
Times: Rate Sec. 84
Equals: Estate Tax Due
Less: Tax Credit (if Any)
Taxpayer
Estate Tax applies to the following taxpayers:
1. Resident Citizen
2. Nonresident Citizen
3. Resident Alien
4. Nonresident Alien
If the decedent is a resident citizen, non resident citizen and resident alien, the estate tax applies to all the property of the decedent located within and without the Philippines.
If the decedent is a nonresident alien, the estate tax law applies only to the property of the decedent deemed located in the Philippines as determined under the tax code.
Sunday, July 12, 2009
Note: No classes today July13, 2009, but submit this assignment on Wednesday July 15, 2009 on an intermediate pad.
1. What are the different kinds of transfer taxes imposed under the tax code. Briefly define each.
2. Distinguish inheritance tax from estate tax.3. Who are the taxpayers liable for the payment of estate tax.
4. What is the purpose of Estate Tax?
5. Give atleast 2 theories used in justifying the imposition of estate tax and briefly explain each.
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