An overview of donor and inheritance taxes
SIR Benjamin Franklin wrote, “…but in this world nothing can be said as certain, save death and taxes.” From taxes withheld from paychecks to value-added taxes on purchases at department stores, we encounter them all the time. Still, some of us probably haven’t come across certain types like donor and estate taxes.
While the Covid-19 pandemic is coming to an end, the coast is not yet clear. It made me realize that natural phenomena or even man-made disasters threaten a considerable part of society. Being knowledgeable about donor and estate taxation can therefore be an advantage, especially when it comes to the latter as there is a lot to consider.
In the Philippines, we cannot transfer personal or real estate assets to heirs without filing an estate tax return and paying the estate tax due. The imposition of inheritance tax arises from the privilege of passing an individual’s property to heirs or legitimate beneficiaries upon the death of the individual. A donor’s tax, on the other hand, is imposed on the free transfer of movable or immovable property between two or more people still alive at the time of the transfer.
Section 84 of the National Internal Revenue Code (NIRC) established a graduated scale as the basis for calculating estate and donor tax. Tax rates ranging from 5 to 20% apply to a gross estate with a value over P200,000, whether the deceased is a resident or non-resident of the Philippines. Donor taxes, meanwhile, are calculated on the basis of an eight-tier scale covering 2 to 15% of net donations for parent donors and 30% for foreign donors.
Republic Act (RA) 10963, also known as the “Tax Reform for Acceleration and Inclusion” (Train) Act, made changes to the NIRC. The law changed the formerly graduated inheritance and gift tax systems to a flat rate of 6%. Other significant revisions include extending the period for filing the statement to one year from the date of death of the deceased from six months. In some cases, the Commissioner of the BIR (Bureau of Internal Revenue) may grant an extension of up to 30 days. Additionally, only gross estates exceeding 5 million pesos will need to have a CPA certification statement.
The changes include the elimination of certain deductions such as funeral, medical and court expenses for a resident’s gross estate. The standard deduction has been increased from 1 million pesos to 5 million pesos. For non-residents, expenses, losses and debts have also been eliminated but are now entitled to a standard deduction of 500,000 pesos. The deduction allowed for a family home has increased to P10,000,000.
As for the donor’s tax, the exemption from dowries has been abolished. Donors can claim a standard exemption of 250,000 pesos during the calendar year, whether the donee is a relative of the donor or a foreigner.
Meanwhile, on June 30 last year, President Rodrigo Durterte signed into law RA 11569. He extended the benefit of an estate tax amnesty for two years, from June 14, 2023 to June 15, 2021. This law was passed as part of RA 11213 or the “Tax Amnesty Act”, which was intended to encourage people whose inheritance tax was unpaid. bonds to be deposited and paid using the reduced rate of 6%.
Improvements such as the extension of the period give administrators or executors ample time to file the tax return. Increased standard deductions eliminate the hassle and cost of accounting for excluded expenses. Reduced and flat tax rates are substantial changes. As the improvements made by recent laws continue to emerge, we can say that the demand for more efficient taxation will also continue to prevail.
Marian Joyce Delatina is the audit manager of Inventor, Miranda & Associates. She is a board member of the Negros Occidental Chapter of the Association of Certified Public Accountants in Public Practice and Chair of its Chapter and Membership Development Committee. The opinions expressed here do not necessarily reflect the opinion of these institutions.