TAXATION OF DONATIONS
By Euney Marie J. Mata-Perez on December 13, 2018
Advent is the time for giving. Thus, it is a good time to be reminded of the taxes imposed on donations and the tax benefits of making them.
Republic Act No. 10963 or TRAIN 1 (RA 10963) introduced several amendments to our National Internal Revenue Code (Tax Code) favoring donations. RA 10963 decreased the donor’s tax to a flat rate of 6 percent of total gifts in excess of P250,000 made during the calendar year. The new 6 percent rate replaced the graduated rates ranging from 2 percent to 15 percentt and the exorbitant 30 percent donor’s tax if donations were made to strangers (those who are not siblings, spouses, ascendants, descendants or relatives within the 4th degree of consanguinity). Thus, there is no more need to distinguish if the donee is a “stranger” or not.
Transfers of property (other than real property) made for less than adequate consideration are no longer automatically subject to donor’s tax. RA 10963 amended Section 100 of the Tax Code to provide that a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm’s length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money’s worth, and thus, not subject to donor’s tax.
Donations of real property, however, are now subject to documentary stamp taxes (DST). RA 10963 amended Section 196 of the Tax Code to include conveyances by way of donation to be subject to the DST rate of 1.5 percent. Since there is no “selling price” or monetary consideration in donations, the DST is calculated based on the fair value of the real property donated, as determined in Section 6(E) of the Tax Code. This value is higher than the fair market value as determined by the Commissioner of Internal Revenue or the fair market value as shown in the schedule of values of the Provincial or City Assessors.
A person making the donation is required to file the donor’s tax return and pay the donor’s tax within 30 days form the date of donation. The computation of the donor’s tax is on a cumulative basis over a period of one calendar year. Husband and wife are considered separate and distinct taxpayers for purposes of the donor’s tax.
Donations, however, are exempt from donor’s tax if they are (1) 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 government; or (2) made 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 (Qualified Donee Institutions), provided that not more than 30 percent of said gifts shall be used by the Qualified Donee Institution for administration purposes.
Donations by a taxpayer are among the allowable deductions in the Tax Code, to the extent of 10 percent of taxable net income with respect to individual taxpayers and 5 percent with respect to corporate taxpayers. However, donations to accredited and Qualified Donee Institutions are fully deductible.
To be exempt from donor’s tax and to claim full deduction of the donation given to Qualified Donee Institutions duly accredited, the donor engaged in business shall give a notice of donation on every donation worth at least P50,000) to the Revenue District Office (RDO) which has jurisdiction over his place of business within 30 days after receipt of the Qualified Donee Institution’s duly issued Certificate of Donation, which shall be attached to the said Notice of Donation, stating that not more than 30 percent of the said donation/gifts for the taxable year shall be used by the Qualified Donee Institution for administration purposes.
Donor’s tax are calculated based on the fair market value of the property at the time of the donation. It has been settled in Revenue Regulations No. 12-2018 (the consolidated estate and donor’s tax regulations incorporating the amendments introduced by RA 10963) that for real property, the valuation shall be based on the provisions of Section 6(E) of the Tax Code mentioned above. Thus, there is no need to have the property appraised by an independent appraisal, a requirement imposed under Revenue Regulations No. 6-2013 in case of sale or transfer of shares.
The donor’s tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos. The donor’s tax shall not apply unless and until there is a completed gift — donation is accepted, donor is notified of acceptance, and the delivery of the gift, actually or constructively, is completed. Donations involving real property must be documented in a public or notarized instrument. The acceptance of the donation must also be made in a public instrument.
The law in force at the time of the perfection or completion of the donation shall govern the imposition of the donor’s tax. Thus, donations made prior to Jan. 1, 2018, the effectivity of RA 10963, are still subject to the old rates.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at email@example.com or visit MTF website at www.mtfcounsel.com
From The Manila Times website on December 13, 2018