Chapter 4 - Property Relations

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(40).

B
Shares, domestic corporation P500,000
Tangible personal property 1,500,000
Gross Estate 2,000,000
Prorated LIT (500,000 x 2,000/2,500) (400,000)
Standard deduction (500,000)
Taxable Estate P1,100,000
TAX DUE
Estate Tax Due (P1.1M x 6%) P66,000

CHAPTER 4 – PROPERTY RELATIONS

PROBLEM SOLVING
P4.1
ACP CPG
1. C E
2. C C
3. C C
4. C C
5. C E
6. C C
7. E E
8. E C
9. C C
10. C C
11. C C
12. E E
13. C E
14. E C (All fruits or incomes are common property under CPG. Hence, the
property purchased shall be classified as common.
15. E E

P4.2
Absolute Community of Property (ACoP)
a) P12,400,000
b) P19,500,000
c) P9,750,000
d) P17,150,000

Exclusive Common Total


Land inherited during marriage P24,000,000
Other personal property owned before marriage P16,000,000
Other personal property acquired during marriage 5,000,000
Total P24,000,000 P21,000,000 P45,000,000
Deductions:
Casualty loss (500,000)
Funeral expenses (no longer allowed under TRAIN Law) -
Judicial expenses (no longer allowed under TRAIN Law) -
Unpaid Taxes (400,000)
Claims against the estate (600,000)
Vanishing deduction** (11,600,000) (13,100,000)

10 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


Net estate before special deduction and share of the P12,400,000 P19,500,000 P31,900,000
surviving spouse
Standard deduction (5,000,000)
Medical expenses (no longer allowed under TRAIN Law) -
Share of the Surviving Spouse (19,500,000/2) (9,750,000)
NET TAXABLE ESTATE P17,150,000

VANISHING DEDUCTION**
Value to Take/Initial Basis P15,000,000
Proportional Deduction (15,000/45,000 x P1,500,000) (500,000)
Final Basis P14,500,000
x Vanishing Deduction % 80%
Vanishing Deduction P11,600,000

Conjugal Partnership of Gains (CPG)


e) P28,400,000
f) P3,500,000
g) P1,750,000
h) P25,150,000

Exclusive Common Total


Land inherited during marriage P24,000,000
Other personal property owned before marriage 16,000,000
Other personal property acquired during marriage 5,000,000
Total P40,000,000 P5,000,000 P45,000,000
Deductions:
Unpaid Taxes (400,000)
Claims against the estate (600,000)
Casualty Loss (500,000)
Funeral expenses -
Judicial expenses -
Vanishing deduction (same computation) (11,600,000) (13,100,000)
Net estate before special deduction and share of the P28,400,000 P3,500,000 P31,900,000
surviving spouse
Standard deduction (5,000,000)
Medical expenses -
Share of the Surviving Spouse (3,500,000/2) (1,750,000)
NET TAXABLE ESTATE P25,150,000

11 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


P4.3 Decedent: Non-resident alien
a) P1,621,396
b) P4,451,136
c) P3,346,964
d) P200,818
Exclusive Common Total
Exclusive properties, Phils. P2,000,000
Conjugal properties, Phils.* P5,000,000 P7,000,000
LIT** (548,864)
Vanishing Deductions *** (178,604)
Transfer for Public Use **** (200,000)
Net Estate P1,621,396 P4,451,136 P6,072,532
Share of the Surviving Spouse (4,451,136/2) (2,225,568)
Standard deduction (500,000)
Net Taxable Estate P3,346,964
x Estate Tax Rate 6%
Estate Tax Due P200,818
*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines.
**LIT:
Funeral expenses P-
Judicial expenses -
Claim against the estate 1,725,000
TOTAL ELIT P1,725,000
X 7,000/22,000
ALLOWABLE ELIT P548,864

***VANISHING DEDUCTIONS:
Value to take P500,000
1st Deduction: Mortgage paid -
Initial basis P500,000
2nd Deduction: Proportionate deduction
(500/7,000) x (548,864 + 200,000) (53,490)
Final Basis P446,510
x Vanishing rate 40%
Vanishing Deduction P178,604
**** Since the properties were already classified as exclusive and common, it should be assumed that the exclusive properties were already
inclusive of transfer for public use.

12 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


P4.4 (Decedent: Resident Alien; Single) (a) Net Taxable estate = P49,500,000; (b)Estate tax due = P2,970,000
House and lot, USA * P20,000,000
Investment in stock, Philippines 8,000,000
Investment in stock, USA 10,000 000
Investment in bonds, USA 7,000,000
Cash in bank, Philippines 3,000,000
Cash on hand, Philippines 500,000
Claim against insolvent person (fully uncollectible) 2,000.000
Car, Philippines 8,000,000
Receivable under RA 4917 500,000
Devise to Quezon City for children’s playground** 700,000
Total Gross Estate P59,700,000
Ordinary Deductions:
Funeral expenses P-
Judicial expenses -
Unpaid Philippine income tax for income in 2017 1,200,000
Loss on December 31, 2018 due to theft 800,000
Devise to Quezon City for children’s playground 700,000
Claim against insolvent person (fully uncollectible) *** 2,000,000 (4,700,000)

Special Deductions:
Standard deduction (5,000,000)
RA 4917 500,000
Medical expenses -
Net Taxable Estate P49,500,000
Estate Tax Due (P49,500,000 x 6%) P2,970,000
* *Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedent’s gross estate
***Assume the debtor is an insolvent person.

P4.5
a) Vanishing deduction = P18,243,902
b) Net Taxable estate = P31,066,098
c) Estate tax due = P1,860,366
Exclusive Conjugal Total
Land P30,000,000
House and Lot (Family Home) P50,000,000
Other tangible personal properties 22,000,000
Claims against insolvent persons 500,000 P102,500,000
Ordinary deductions:
Other claims against conjugal properties (5,000,000)
Claims against insolvent persons (500,000)
Unpaid mortgage** (3,500,000)
VANISHING DEDUCTION* (18,243,902) (13,560,976)
Net exclusive/conjugal P11,756,098 P68,500,000 P80,256,098
Special deductions:
Standard deduction (5,000,000)
Family Home (10,000,000)
Medical expenses -
Share of the surviving spouse (34,250,000)
TAXABLE ESTATE P31,006,098
Estate Tax Due (P31,006,098 x 6%) P1,860,366

13 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


CHAPTER 5 – ESTATE TAX CREDIT AND DISTRIBUTABLE ESTATE

PROBLEM SOLVING
P5.1 One foreign country only:

a) Decedent is a resident citizen


Total Net Estate before special deductions P15,000,000
Less: Standard deduction (5,000,000)
Net Taxable estate P10,000,000
x Estate tax rate 6%
Estate tax due P600,000
Less: Estate tax credit
Estate tax paid abroad P200,000
vs. Limit (P4/10 x P600,000) 240,000
Allowed (lower) (200,000)
Estate tax payable P400,000

b) Decedent is a nonresident alien


Total Net Estate before special deductions (Phils. only) P12,000,000
Less: Standard deduction (500,000)
Net Taxable estate P11,500,000
x Estate tax rate 6%
Estate tax payable (tax credit is not allowed to NRA decedents) P690,000

P5.2 More than one foreign countries:

Net Taxable Estate, world P20,000,000

Estate Tax Due (P20M x 6%) P1,200,000


Estate tax credit ** (570,000)**
Estate tax payable P630,000

Limit 1 (Per foreign country): Limit Actual Allowed


Canada: 8,000/20,000 x P1.2M P480,00 P520,000 P480,000
USA: 2,000/20,000 x P1.2M 120,000 90,000 90,000
P570,000
Limit 2 (all foreign countries):
10,000/20,000 x P1.2M P600,000 P610,000 600,000
ALLOWED TAX CREDIT
(Lower between L1 and L2) P570,000**

17 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


P5.3
Net Taxable Estate P20,000,000
Estate Tax Due (P20M x 6%) P1,200,000
Estate tax credit** (300,000)**
Estate tax payable after tax credit P900,000

Limit 1 (Per foreign country with tax payments only): Limit Actual Allowed
Singapore: 5,000/20,000 x P1,200,000 P300,000 P200,000 P200,000
China: not included in the determination of Limit 1 since - - -
there was no estate tax paid in China
Japan: 2,000/20,000 x P1,200,000 120,000 100,000 100,000
P300,000
Limit 2 (all foreign countries including China):
10,000/20,000 x P1,200,000 P600,000 300,000 300,000
ALLOWED TAX CREDIT P300,000

P5.4
a) Net Taxable estate = P7,474,000
b) Estate tax due = P448,440
c) Net Distributable Estate = P11,731,560

House and lot (Family Home), USA P8,000,000


Cash in bank, USA 650,000
Car, USA 2,000,000
Accounts receivable from an insolvent person in Quezon City** 200,000
Investment in stock, Philippines 800,000
Parcel of land in Quezon City inherited from his father 2 ½ years 1,000 000
ago
Investment in bonds, foreign corporation*** 700,000
Cash in bank, Philippines 450,000
Car, Philippines 800,000
Devise to Quezon City for children’s playground or TFPU**** 1,400,000
Total Gross Estate P16,000,000

Ordinary Deductions:
LITe:
Claim against the estate (Philippines) P940,000
Unpaid Philippine income tax for 2016 and 2017 320,000
Loss on December 31, 2018 due to theft 180,000
Claim against insolvent person *** 200,000 (1,640,000)

TFPU (1,400,000)
Vanishing Deduction (486,000)
Special Deductions:
Standard deduction (5,000,000)
Family Home in USA; (not allowed) -
NET TAXABLE ESTATE P7,474,000
Estate Tax Due (P7,474,000 x 6%) P448,440

18 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia


**To be deductible, the legacy/devise should be included first in the decedent’s gross estate;
*** Considered as Estate “within”

Value to take/Initial basis P1,000,000


2nd Deduction: Proportionate deduction
(1,000/16,000) x P1,640,000 + P1.4M**** (190,000)
Final Basis P810,000
x Vanishing rate 60%
Vanishing Deduction P486,000

Total Gross Estate P16,000,000


Deductions:
Actual funeral expenses P480,000
Judicial expenses 300,000
Claim against the estate (Philippines) 940,000
Unpaid Philippine income tax for 2016 and 2017 320,000
Loss on December 31, 2018 due to theft 180,000
Claim against insolvent person 200,000
TFPU 1,400,000
Vanishing Deduction No allowed
Standard deduction Not allowed
Estate tax due 448,440 (4,268,440)
NET DISTRIBUTABLE ESTATE P11,731,560

MULTIPLE CHOICE
1. C 5. A
2. C 6. C
3. D 7. B
4. C

Supporting Computations:
No.5 A
Net taxable estate P4,000,000
x Estate tax rate 6%
Estate tax due P240,000
Less: Estate tax credit
Limit = P1/4 x P240,0000 = P60,000 (60,000)
Actual tax paid abroad = P80,000
Estate tax payable P180,000

No. 6 C (decedent: resident alien)


Total net taxable estate P10,000,000
x Estate tax rate 6%
Estate tax P600,000
Less: estate tax credit NA
Estate tax payable P600,000

19 | Transfer & Business Taxation(2020 Edition) by Tabag and Garcia

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