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TRANSFER TAXES

TRANSFER TAXES. What IS TRANSFER TAX?. A Transfer Tax is any tax levied on the passing of title to property. Difference between income and transfer tax:. MODES OF transferRING OWNERSHIP :. OCCUPATION.

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TRANSFER TAXES

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  1. TRANSFER TAXES

  2. What IS TRANSFER TAX? A Transfer Tax is any tax levied on the passing of title to property.

  3. Difference between income and transfer tax:

  4. MODES OF transferRING OWNERSHIP:

  5. OCCUPATION Things appropriable by nature which are without an owner, such as animals that are the object of hunting and fishing, hidden treasure and abandoned movables, are acquired by occupation. (Art. 713 of the Civil Code)

  6. PRESCRIPTION of actions Art. 1139. Actions prescribe by the mere lapse of time fixed by law.

  7. INTELLECTUAL CREATION Art. 721. By intellectual creation, the following persons acquire ownership: (1) The author with regard to his literary, dramatic, historical, legal, philosophical, scientific or other work; (2) The composer; as to his musical composition; (3) The painter, sculptor, or other artist, with respect to the product of his art; (4) The scientist or technologist or any other person with regard to his discovery or invention. (n)

  8. DONATION Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. (Art. 725,CC) When a person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor, provided they do not constitute a demandable debt, or when the gift imposes upon the donee a burden which is less than the value of the thing given, there is also a donation. (Art. 726,CC)

  9. SUCCESSION Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. (Art. 774,CC)

  10. ESTATE TAX

  11. What is estate tax? Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

  12. When to file estate tax return (bir Form no. 1801)? If the death occurred:

  13. What is succession? Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. (Art. 774,CC)

  14. When is the right of succession transmitted? The rights to the succession are transmitted from the moment of the death of the decedent. (Art. 777, CC)

  15. WHAT ARE THE TYPES OF SUCCESSION? Art. 778. Succession may be: Note: The term legatee is often used to denote those who inherit under a will without any distinction between real property and personal property, but technically, a devisee inherits real property under a will.

  16. Who is a decedent? Is the person whose property is transmitted through succession, whether or not he left a will. If he left a will, he is also called the testator. (Art. 775, CC)

  17. What are the types of decedent and what are included in their gross estate?

  18. GROSS ESTATE

  19. DECEDENT’S INTEREST To the extent of the interest in property of the decedent at the time of his death.

  20. Transfer in contemplation of death Transfers impelled by the thought of an impending death, without regard of the state of health of the transferor.

  21. Revocable transfers A transfer whereby the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent alone or in conjunction with any other person, or where any such power is relinquished in the contemplation of the decedent’s death.

  22. Transfers for insufficient consideration Amount includible in the GE is the excess of the FMV at the time of death over the value of consideration received.

  23. Property passing under GPA What is General Power of Appointment? The power to designate, without restrictions, the persons who shall receive, succeed to, possess or enjoy the property or its income received from the estate of a prior decedent. How is GPA exercised? GPA is exercised by: • Will • Deed executed in contemplation of death • Deed during an executors lifetime.

  24. Proceeds of life insurance Will form part of the GE only if when:

  25. What will be used as basis in the valuation of property?

  26. Merger of usufruct in the owner of the naked title Illustration: A is the owner of the fishpond, has two sons B and C. C his the right of usufruct of the fishpond but B will have the title of the fishpond upon A’s death. When A died – the fishpond will be included in GE and title passes to B. However, C shall have the possession. In case C died – transfer of possession is exempt from estate tax.

  27. FEDEICOMMISARY SUBSTITUTION Illustration: A dies and entrusted B, fiduciary, to transfer the ownership of a lot to C, fedeicommisary, when C reaches legal age. The transfer from A to B is subject to estate tax but the transfer from B to C not subject to estate tax.

  28. Deductions:

  29. Non-resident alien elit formula: Formula: Phil. Gross Estate X World ELIT World Gross Estate

  30. FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased.

  31. Funeral expenses:

  32. Funeral expenses: The amount deductible is the lowest among the following: • actual funeral expenses • 5% of the gross estate • P200,000

  33. Judicial expenses are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return.

  34. JUDICIAL EXPENSES: • Executor/administrator fees • Attorney’s fees • Court fees • Accountant’s fees • Appraiser’s fees • Clerk hire • Cost of preserving and distributing the estate • Brokerage fees for selling estate • Expenses for extra-judicial settlement

  35. Claims against:

  36. UNPAID MORTGAGE Requisite: • Value of the property included in the Gross Estate • Deduction shall be limited to the extent of the mortgage contracted

  37. TAXES

  38. LOSSES Requisites: • Arising from calamity, or casualty; • Not compensated by insurance; • Not claimed as deduction in an ITR of the taxable estate; • Occurring during the settlement; and • Occurring before the last day for the payment of the estate tax

  39. Transfers for public use Requisites: • Value in included in gross estate • Disposition is in a last will/testament • To take effect after death • In favor of the government, or any political subdivision, also contemplates bequests/devices/transfers to social welfare, cultural and charitable institutions • For public purposes.

  40. FAMILY HOME It is the dwelling house, including the land it is situated, where the family reside as certified by the Barangay Captain of the locality. Requisites: • the decedent’s family home. • certified to by the barangay captain of the locality where it is located. • Maximum of P1,000,000 • Total value must be included in the Gross Estate

  41. Medical expenses Requisites to be deductible: • incurred within one year prior to his death • Substantiated with receipts • Maximum of P500,000

  42. Vanishing deductions Are deductions allowed for properties which are already subjected to transfer taxes. The purpose is to minimize the effect of double taxation within a short period of time since the same property will be again subjected to tax in the form of estate tax. Requisites to be deductible: • the present decedent died within 5 years from prior transfer. • property must be located in the Philippines. • property formed part of the taxable estate/taxable gift. • estate tax/donor’s tax must have been paid. • property must be identified as the one received from the prior decedent, or something acquired in exchange therefor. • No vanishing deduction was allowed to the estate of the prior decedent.

  43. Standard deduction P1,000,000 without need of substantiation.

  44. Estate tax Formula: Gross Estate (Sec. 85) Less: (1) Deductions (Sec. 86) (2) Net share of the SS in the CP Net Taxable Estate X Tax rate (Sec. 84) Estate Tax due Less: Tax Credit [if any] (Sec. 86[E] or 110[B] Estate Tax Due, if any

  45. What is estate tax credit? Is a remedy against international double taxation to minimize th onerous effect of taxing the same property twice. WHO MAY AVAIL? Only the estate of a citizen o resident alien at the time of the death can claim for any estate taxes paid to a foreign country.

  46. What amount of estate tax credit may be claimed?

  47. Effective January 1, 1998 up to Present

  48. Who are liable to pay estate tax?

  49. FILING OF NOTICE OF DEATH

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