A look at donor and estate taxes
SIR Benjamin Franklin wrote: "... but in this world, nothing can be said to be certain, except death and taxes." From taxes withheld in paychecks to value-added taxes on department store purchases, we keep encountering them. Nevertheless, some of us probably haven't crossed paths with certain types like donor and estate taxes.
While the Covid-19 pandemic may be nearing its end, the coast isn't clear yet. This made me realize that natural phenomena or even artificial catastrophes threaten a considerable portion of society. Being well-informed on donor and estate taxation can thus provide an advantage, especially when it comes to the latter since there is a lot to consider.
In the Philippines, we cannot transfer personal or real properties to heirs without filing an estate tax return and paying the estate tax due. The imposition of estate tax arises from the privilege of conveying the properties of an individual to lawful heirs or beneficiaries upon the former's death. A donor's tax, meanwhile, is imposed on the gratuitous transfer of personal or real property between two or more individuals still alive at the time of the transfer.
Section 84 of the National Internal Revenue Code (NIRC) established a graduated schedule as the basis for estate and donor's tax computation. Tax rates ranging from 5 to 20 percent apply to a gross estate whose value is more than P200,000 whether the decedent is a resident or nonresident of the Philippines. Donor's taxes, meanwhile, are computed based on an eight-bracket schedule covering 2 to 15 percent of the net gifts for donee relatives and 30 percent for donee strangers.
Republic Act (RA) 10963, also known as "Tax Reform for Acceleration and Inclusion" (Train) Law, brought amendments to the NIRC. The law modified the once graduated systems for the taxation of estates and donation to a flat rate of 6 percent. Other significant revisions include the extension in the filing period of the return to one year from the decedent's death date from six months. In some cases, the BIR (Bureau of Internal Revenue) commissioner can grant an extension of not later than 30 days. Additionally, only gross estates exceeding P5 million will be required to have a statement of CPA certification.
The amendments include the elimination of certain deductions such as a funeral, medical and judicial expenses for the gross estate of a resident. The standard deduction was changed to P5 million from P1 million. For nonresidents, expenses, losses and indebtedness were also eliminated but are now entitled to a standard deduction of P500,000. The allowable deduction for a family home increased to P10,000,000.
As to the donor's tax, the exemption for dowries was removed. Donors can claim a standard exemption of P250,000 during the calendar year regardless of whether the donee is a relative of the donor or a stranger.
On June 30 of last year, meanwhile, President Rodrigo Durterte signed RA 11569 into law. It extended the availment of an estate tax amnesty for two years, to June 14, 2023 from June 15, 2021. This law was passed in connection with RA 11213 or the "Tax Amnesty Act," which sought to encourage those with unsettled estate tax liabilities to file and pay using the reduced 6-percent rate.
Improvements such as the period extension provide ample time for administrators or executors to file the estate tax return. The increased standard deductions eliminate the hassle and cost of accounting for excluded expenses. The lowered and uniform tax rates are substantial changes. As improvements brought by recent laws continue to emerge, we can say that demand for more efficient taxation will also continue to prevail.
Marian Joyce Delatina is the audit director of Inventor, Miranda & Associates. She is a board director of the Association of Certified Public Accountants in Public Practice's Negros Occidental chapter and chairman of its committee on chapter and membership development. The views expressed here do not necessarily reflect the opinion of these institutions.