BAM 208 | Business Taxation

Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

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Lesson Title: Transfer Taxes: Gross Estate – Part 1 Materials:

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Calculator, reviewer notebook,
Lesson Objectives: textbook

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At the end of this module, I should be able to:
1. Define and explore nature of gross estate References:
2. Justify the imposition of estate tax Business and Transfer Taxes by

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3. Classify of taxpayers for estate tax Enrico Tabag (latest edition)

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4. List the composition of gross estate

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5. Explain the reciprocity clause
6. Discuss intangible and tangible assets and situs rules
7.

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Productivity Tip:
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Dress the Part

So when you get up in the morning, if you know you have a long day of studying ahead of you, take a shower,
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brush your teeth, and put on clothes as if you were going to school. You will likely feel refreshed, clean, and
ready to tackle the day’s work.
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A. LESSON PREVIEW/REVIEW
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1) Introduction (2 mins)
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Welcome back to the class. Let us be acquainted with your learning.

True or False:
1. Non-resident aliens’ gross estate is composed of only properties situated in the Philippines, and
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intangible personal properties subject to the reciprocity rules.

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2. Blood relationship is the tie that exists between individuals who are descended from the same person.
3. In determining blood relatives, a straight line is the degree of relationship is the number of generations,
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not counting the older.

4. In determining blood relatives in a collateral line, the degree of relationship is the number of generations
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from a person to the common ancestor.

5. A will is the legal instrument that permits a person, the testator, to make decisions on how his estate will
be managed and distributed after his death.
6. A Notarial will refers to a written document which is dated and signed by the hand of the testator.
7. Institution of heir is an act by virtue of which a testator designates in his will the person or persons who
are to succeed him in his property and transmissible rights and obligations.

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

8. Legitime is that part of the testator’s property which cannot be given away because the law has reserved

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it for the following compulsory heirs.
9. Power of Attorney is the right created by fiction of law where the representative is raised to the place and

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degree of the person represented.
10. Collateral relationship is the tie that exists between individuals who are descended from the same person.

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2) Activity 1: What I Know Chart, part 1 (3 mins)

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What I Know Questions: What I Learned (Activity 4)

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1. What is gross estate?

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2. What is reciprocity?

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B. MAIN LESSON
1) Activity 2: Content Notes (13 mins)
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LO 1: Define and explore nature of gross estate

Gross estate consists of all the property owned by the decedent at the time of death excluding the exclusive
property of the surviving spouse. Composition of gross estate may be:
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1. Real properties
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2. Personal properties
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Inclusion of gross estate of a decedent

Resident Citizen Non-resident citizen Non-resident citizen
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(no reciprocity) (with reciprocity)

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Real Property
Within Yes Yes Yes
Without Yes No No
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Personal Property
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Tangible – within Yes Yes Yes

Tangible – without Yes No No
Intangible – within Yes Yes No
Intangible – without Yes No No

LO 2: Justify the imposition of estate tax

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 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

When property is transferred at death, the new owner accepts an adjusted basis in the property equal to the fair

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market value of the property at the time of transfer. This means that any possible appreciation in value is not
taxed, because the gain on the property was never recognized.

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LO 3: Classify of taxpayers for estate tax

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1. Resident Citizen
2. Non-resident citizen with no reciprocity

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3. Non-resident citizen with reciprocity

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LO 4: List the composition of gross estate
Gross estate includes real and personal property, tangible or intangible, wherever located in the case of citizens
and resident aliens. In case of non-resident aliens, only such property as are situated in the Philippines are
included in their gross estate.
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Some other items included in the gross estate under the NIRC are the following: decedent’s interest, transfer in
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contemplation of death, revocable transfers, property passing under general power of appointment, proceeds of
life insurance, prior interests, and transfers for insufficient consideration. Expressly excluded from the gross estate
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is the capital of the surviving spouse of a decedent.

LO 5: Explain reciprocity clause
A reciprocal agreement, also called reciprocity, is an agreement between two states that allows residents of one
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state to request exemption from tax withholding in the other (reciprocal) state.
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REPUBLIC ACT NO. 10378: AN ACT RECOGNIZING THE PRINCIPLE OF RECIPROCITY AS BASIS FOR THE GRANT
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OF INCOME TAX EXEMPTIONS TO INTERNATIONAL CARRIERS AND RATIONALIZING OTHER TAXES IMPOSED
THEREON BY AMENDING SECTIONS 28(A)(3)(a), 109, 118 AND 236 OF THE NATIONAL INTERNAL REVENUE CODE
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(NIRC), AS AMENDED, AND FOR OTHER PURPOSES

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LO 6: Intangible and tangible assets and situs rules

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A. For resident alien decedents/citizens:

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• Real or immovable property, wherever located

• Tangible personal property, wherever located
• Intangible personal property, wherever located

B. For non-resident decedent/non-citizens:

• Real or immovable property located in the Philippines
• Tangible personal property located in the Philippines
• Intangible personal property - with a situs in the Philippines such as:

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

• Franchise which must be exercised in the Philippines

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• Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
• Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located

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in the Philippines
• Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have

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acquired a business situs in the Philippines (i.e. they are used in the furtherance of its business in the
Philippines)

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• Shares, rights in any partnership, business or industry established in the Philippines

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2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)
A. Complete the table by filling up – Yes or No.
First Trial

A
Resident Citizen Non-resident citizen Non-resident citizen
(no reciprocity) (with reciprocity)
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Real Property
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Within
Without
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Personal Property
Tangible – within
Tangible – without
F

Intangible – within
O

Intangible – without
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Final Answer
Resident Citizen Non-resident citizen Non-resident citizen
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(no reciprocity) (with reciprocity)

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Real Property
Within
O

Without
Personal Property
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Tangible – within
Tangible – without
Intangible – within
Intangible – without

B. Identify if the Intangible and tangible assets and situs rules apply A. For resident alien decedents/citizens or
B. For non-resident decedent/non-citizens:

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

_____ 1. Intangible personal property, wherever located

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_____ 2. Real or immovable property located in the Philippines
_____ 3. Tangible personal property located in the Philippines

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_____ 4. Intangible personal property - with a situs in the Philippines such as:
_____ 5. Franchise which must be exercised in the Philippines

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_____ 6. Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
_____ 7. Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is

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located in the Philippines

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_____ 8. Real or immovable property, wherever located

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_____ 9. Tangible personal property, wherever located
_____ 10. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines (i.e. they are used in the furtherance of its business in
the Philippines)
A
_____ 11. Shares, rights in any partnership, business or industry established in the Philippines
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IN

C. Problem Solving.
Ana, Filipina, died in Syria leaving the following properties:
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House and Lot in Syria P1,000,000

Vacant Lot in Manila 2,000,000
Shares of stock in a domestic corp., 60% of the business is located in the Philippines 100,000
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Shares of stock in a foreign corp., 70% of the business is located in the Philippines 200,000
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Car in Manila 500,000

1. How much is the gross estate?
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2. Based on the preceding number, but assuming Ana is a non-resident alien, the gross estate is _____________.
3. Continuing the preceding number and the rule of reciprocity applies, the gross estate is _____________.
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Guided solutions:
Citizen/Resident NRA w/o NRA w/
Reciprocity Reciprocity
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House and lot in Syria

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Vacant lot in Manila

Shares of stock in a domestic corporation
Shares of stock in a foreign corporation
Car in Manila
Answers

3) Activity 4: What I Know Chart, part 2 (2 mins)

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

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4) Activity 5: Check for Understanding (5 mins)
A. Encircle the letter of your answer.

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1. One of the following is subject to estate tax on properties situated within the Philippines only
a. Resident citizen

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b. Resident alien
c. Nonresident citizen

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d. Nonresident alien

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2. The personal properties of a non-resident, not citizen of the Philippines, would not be included on the gross

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estate if:
a. The intangible personal property in the Philippines
b. The intangible personal property is in the Philippines and the reciprocity clause of the estate tax law
applies.
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c. The intangible personal property is in the Philippines
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d. The personal property is shares of stock
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3. Statement 1: As a general rule, the situs of tangible personal property is the place or country where such is
actually located at the time of the decedent’s death.
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Statement 2: The rule that the situs of intangible personal property is the domicile or residence of the owner
does not apply when the property has a situs elsewhere.
a. Only statement 1 is correct
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b. Only statement 2 is correct

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c. Both statements are correct

d. Both statements are incorrect
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4. All of the following are considered intangible in the Philippines, except:

a. Franchise which must be exercised in the Philippines
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b. Shares, obligations, or bonds issued by any corporation or Sociedad anonima organized or constituted
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in the Philippines in accordance with its laws

c. Shares, obligations, or bonds by any foreign corporation 75% of the business of which is located in the
Philippines
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d. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations, or bonds
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have acquired a business situs in the Philippines.

5. Which of the following item is considered situated outside the Philippines?
a. Franchise in the name of the decedent which is exercised in the Philippines
b. Share of stock holdings of decedent in a foreign corporation whose business is 90% done in the
Philippines
c. Bond certificate issued by a domestic corporation owned by a non-resident decedent
d. Foreign currency deposited in bank outside the Philippines

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

B. Identification. Write the letter of your answer.

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A non-resident alien left the following properties at the time of his death:
a. Bank deposit, Canada

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b. Bank deposit, BDO-Manila
c. Car in Quezon City

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d. Investment in bonds, PLDT
e. Investment in stocks, IBM, USA

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f. House and lot, USA

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6. The country of the non-resident alien decedent does not impose a transfer or death tax of any character with

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respect to intangible personal property of citizens of the Philippines not residing in that foreign country. What
properties will be included in the Philippine gross estate of the non-resident alien decedent?
Answer: _________________________________

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7. Using the same data in the preceding number, assuming the decedent is a resident alien, and his country does
not impose transfer taxes to Filipino not residing therein, the Philippines gross income should include:
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Answer: _________________________________
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C. LESSON WRAP-UP
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1) Activity 6: Thinking about Learning (5 mins)

Work tracker. Congratulations! You have finished the module for today! Shade the number of the module that
you finished.
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Period 1 Period 2 Period 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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How do you feel today?

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I feel (unsatisfactory/satisfactory/excellent) because _______________________________________________________________.

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What are your challenges in learning the concepts in this module? If you do not have challenges, what is your
best learning for today?
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______________________________________________________________________________________________________________________
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______________________________________________________________________________________________________________________

What are the questions/thoughts you want to share to your teacher today?
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________

FAQs
1. What are excluded from gross estate?

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

• GSIS proceeds/ benefits

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• Accruals from SSS
• Proceeds of life insurance where the beneficiary is irrevocably appointed

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• Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)
• War damage payments

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• Transfer by way of bona fide sales
• Transfer of property to the National Government or to any of its political subdivisions

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• Separate property of the surviving spouse

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• Merger of usufruct in the owner of the naked title

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• Properties held in trust by the decedent
• Acquisition and/or transfer expressly declared as not taxable

KEY TO CORRECTIONS
Review A
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True or False:
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1. Non-resident aliens’ gross estate is composed of only properties situated in the Philippines, and
intangible personal properties subject to the reciprocity rules. T
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2. Blood relationship is the tie that exists between individuals who are descended from the same person. T
3. In determining blood relatives, a straight line is the degree of relationship is the number of generations,
not counting the older. T
F

4. In determining blood relatives in a collateral line, the degree of relationship is the number of generations
O

from a person to the common ancestor. T

5. A will is the legal instrument that permits a person, the testator, to make decisions on how his estate will
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be managed and distributed after his death. T

6. A Notarial will refers to a written document which is dated and signed by the hand of the testator. F,
R

Holographic
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7. Institution of heir is an act by virtue of which a testator designates in his will the person or persons who
are to succeed him in his property and transmissible rights and obligations. T
8. Legitime is that part of the testator’s property which cannot be given away because the law has reserved
O

it for the following compulsory heirs. T

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9. Power of Attorney is the right created by fiction of law where the representative is raised to the place
and degree of the person represented. F, Right of representation
10. Collateral relationship is the tie that exists between individuals who are descended from the same person.
F, Blood relationship

Activity 1 and 4.
Questions: What I Learned (Activity 4)

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

1. What is gross estate? Gross estate consists of all the property owned by the decedent at the time of

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death excluding the exclusive property of the surviving spouse.
2. What is reciprocity? A reciprocal agreement, also called reciprocity, is an agreement between two

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states that allows residents of one state to request exemption from tax
withholding in the other (reciprocal) state.

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Activity 3.

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A.

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Resident Citizen Non-resident citizen Non-resident citizen

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(no reciprocity) (with reciprocity)
Real Property
Within Yes Yes Yes
Without Yes
A No No
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Personal Property
Tangible – within Yes Yes Yes
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Tangible – without Yes No No

Intangible – within Yes Yes No
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Intangible – without Yes No No

Check if the student is improving his knowledge level.
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B.
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1. A 7. B
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2. B 8. A
3. B 9. A
4. B 10. B
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5. B 11. B
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6. B
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C.
Citizen/Resident NRA w/o NRA w/
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Reciprocity Reciprocity
House and lot in Syria P1,000,000
Vacant lot in Manila 2,000,000 P2,000,000 P2,000,000
Shares of stock in a domestic corporation 100,000 100,000
Shares of stock in a foreign corporation 200,000
Car in Manila 500,000 500,000 500,000
Answers P3,800,000 P2,600,000 P2,500,000

This document is the property of PHINMA EDUCATION

 BAM 208 | Business Taxation
Student Activity Sheet Module #3

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

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Activity 5.
1. D

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2. B
3. C

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4. C
5. D

C
6. Property C

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7. Properties A, B, C, D, E, F

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A
M
IN
PH
F
O
TY
R
PE
O
PR

This document is the property of PHINMA EDUCATION