IN-HOUSE CPA REVIEW

TAXATION
ESTATE TAX (NOTES) [Link]
Estate tax is a tax levied upon the transfer of the net estate of a decedent to his heirs.

A. Important definitions
1. 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 will or by
operation of law.
2. Will is an act whereby a person is permitted with the formalities prescribed by law, to control to a certain
degree the disposition of his estate, to take effect after his death.
3. Decedent. The person whose property is transmitted through succession, whether or not he left a will.
4. Heir. The person called to the succession, either by the provision of a will or by operation of law.
5. Estate refers to all the property, rights and obligations of a person which are not extinguished by his death.
6. Testamentary succession. Succession which results from the designation of an heir, made in a will executed in
the form prescribed by law.
7. Legal or intestate succession. Transmission of properties where there is no will, or if there is a will, the same is
void or nobody succeeds in the will.
8. Mixed succession. Transmission of properties which is effected partly by will and partly by operation of law.
9. Legatee. An heir to a particular personal property given by virtue of a will.
10. Devisee. An heir to a particular real property given by virtue of a will.
11. Executor is the person nominated by the testator to carry out the directions and requests in his will and to
dispose of his property according to his testamentary provisions after his death.
12. Administrator is a person appointed by the court, in accordance with the governing statute, to administer and
settle intestate estate and such testate estate as no executor designated by the testator.
13. Legitime is that part of the testator’s property which he cannot dispose of because the law has reserved it for
certain heirs who are therefore, called compulsory heirs.
14. Holographic will a will that is entirely written, dated and signed by the testator.

B. Inter vivos transfers which are subject to estate tax

1. Revocable transfers. - The decedent reserves for himself the power to alter, amend, revoke or even terminate
such transfer.
2. Transfers with retention or reservation of certain rights. – The decedent retains for himself the economic
benefits of the property or the power to designate the persons who may exercise such rights.
3. Transfers in contemplation of death. – The decedent was motivated by the thought of death to transfer the
property.
4. Transfer under general power of appointment. – The decedent was given the authority to hold property during
his lifetime and to name the beneficiaries thereof when he dies.
C. Absolute Community of Property Regime
In the absence of a marriage settlement, or when the regime agreed upon is void, the system of absolute
community of property shall govern, unless the marriage was celebrated prior to August 3, 1988 because those
celebrated before the effectivity of the Family Code, which had no prior agreement on the system of property
relationship were governed by the conjugal partnership of gains.
Unless otherwise provided, the community property shall consist of:
1. All the property owned by spouses at the time of the celebration of the marriage; or
2. Those acquired during the marriage.

The following shall be excluded from the community property:

1. Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the income
thereof, if any, unless it is expressly provided by the donor, testator or grantor that they shall from part of the
community property;
2. Property for personal or exclusive use of either spouse. However, jewelry shall from part of the community
property.
3. Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage,
and the fruits as well as the income, if any, of such property.

TAXATION- ESTATE TAX (NOTES) Page 1 of 4

FRINGE BENEFITS TAX [Link]
D. Conjugal partnership of gains
All property acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is
proved.
The following are not conjugal because they shall be the exclusive property of each spouse:
1. That which is brought to the marriage as his or her own;
2. That which each acquires during the marriage by gratuitous title;
3. That which is acquired by right or redemption, by barter or by exchange with property belonging to only one
of the spouses; and
4. That which is purchased with exclusive money of the wife or of the husband.
E. EXCLUSIONS from gross estate (not taxable)
1. Proceeds of life insurance policy.
Requisites for exemption from estate tax:
a. The life insurance policy was not taken out by the decedent upon his own life.
b. The beneficiary designated in the policy is irrevocable.
c. The designated beneficiary is not the estate of the deceased, his executor or administrator.
2. Insurance proceeds or other benefits from SSS and GSIS.
3. Payments to legal heirs of deceased war veterans.
4. Amounts received from damages suffered during World War II
5. Benefits received from U.S. Veterans Administration.
6. Merger of usufruct in the owner of naked title.
7. The transmission or delivery of inheritance or legacy of the fiduciary heir or legatee to the fideicommissary.
8. The transmission from the first heir, legatee or done in favor of another beneficiary in accordance with the
desire of the predecessor.
9. All bequest legacies or transfers to social welfare, cultural and charitable institutions, no part of the net
income of which inures to the benefit of any individual. Provided however, that no more than 30% shall be
used for administration purposes.
10. The exclusive property of the surviving spouse.

DEDUCTIONS from gross estate

1. Expenses, losses, indebtedness and taxes (ELIT)-

a. Funeral expense- the amount deductible shall be whichever is the lowest among the following: the
actual funeral expenses incurred, 5% of gross estate, and the P 200,000.

b. Judicial expense- It includes those actually and necessarily incurred during the settlement of the estate
but not beyond six (6) months, or the extension thereof for the filing of the estate tax return. Expenses
not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs,
legatees, or devisees are not allowed as deduction.

c. Claims against the estate. – These represents personal obligation of the deceased existing at the time
of his death except unpaid funeral expenses and unpaid medical expenses. The claims may arise out of
contract, tort or operation of law. The requisites for deductibility are the following:

1. Must have been contracted in good faith and for an adequate and full consideration in money or
money’s worth;
2. The debt instrument must be duly notarized except loans granted by financial institutions where
notarization is not part of the business practice/policy of the financial institution-lender;
3. It must not have been condoned by the creditor; and
4. The action to collect from the decedent must have been prescribed.
d. Unpaid mortgages upon the property left by the decedent. The requisites for deductibility are the
following:
1. The mortgage indebtedness was contracted in good faith and for an adequate and full
consideration in money or money’s worth; and
2. The fair market value of the property mortgaged without deducting the mortgaged indebtedness
has been included in the gross estate.
e. Claims against insolvent persons (bad debts). – Receivable of the decedent which are uncollectible due
to insolvency of the debtor.

TAXATION-FRINGE BENEFITS TAX Page 2 of 4

FRINGE BENEFITS TAX [Link]
Its requisites for deductibility are as follows:
1. The value of the decedent’s interest therein must be included in the gross estate.
2. The debtor’s insolvency/ incapacity is proven and not merely alleged.
f. Unpaid income and property taxes which have accrued as of the death of the decedent which were
unpaid as of the time of death.
g. Losses – requisites:
1. The loss must arise during the settlement of the estate but not beyond the deadline for the
payment of the estate tax.
2. It must arise from fires, storms, shipwreck, or other casualties, or form robbery, theft or
embezzlement.
3. Such losses have not been claimed as deduction for income tax purposes.
4. Must not be compensated by insurance or otherwise.
Note:
If the decedent is a nonresident alien, pro-rate the above expenses ( a to g) as follows:

Philippine Gross Estate

Total Gross Estate x ELIT

2. Transfers for public purpose. The amount of all bequests, legacies, devises or transfers to or for the
use of the Government of the Philippines, or any political subdivision thereof, for exclusively public
purposes.
3. Vanishing deductions
Requisites for deductibility:
a. The property is situated in the Philippines;
b. The property must have been acquired thru inheritance or donation within five (5) years before
the death of present decedent;
c. Such property can be identified as the one received from prior decedent, or donor or which
can be identified as having acquired in exchange for property so received.
d. Prior gift tax or estate tax has been paid.
e. The property is included in the gross estate or gross gift of prior decedent/ donor.

Vanishing rates:

More than Not More than Percentages

1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years x x 0%

SPECIAL DEDUCTIONS
1. Amounts received by heirs from employer under RA 4917. – Amounts received by the heirs from the decedent’s
employer as a consequence of the death of the decedent-employee. Provided, that such amount is included in
the gross estate of the decedent.
2. Medical expenses. This includes cost of medicines, hospital bills, doctor’s fees, etc. incurred whether paid or
unpaid at the time of death of the decedent.
Requisites:
a. Incurred by the decedent within one (1) year prior to his death.
b. Maximum amount deductible is P 500,000.
c. Duly substantiated with receipts.
3. Share of surviving spouse in the net conjugal or community property
4. Family home. - The dwelling house, including the land on which it is situated, where the husband and wife, or a
head of the family, and members of their family reside, as certified by barangay captain of the locality. The
deductible amount is the higher between the assessor’s value and FMV or zonal value, but not exceeding P
1,000,000. The total value, however, must be included as part of the gross estate of the decedent.

TAXATION-FRINGE BENEFITS TAX Page 3 of 4

FRINGE BENEFITS TAX [Link]
ADMINISTRATIVE PROVISIONS

1. Notice of death. This is required when the transfer is subject to tax, or the gross value of the estate exceeds P
20,000 even if exempt from tax. This written notice should be made within 2 months-
a. After death, or
b. After the executor or administrator qualifies.

2. Filing of estate tax return (within 6 months from decedent’s death). An estate tax return is required to be filed-
a. If the transfer is subject to tax, or
b. Through exempt, if the gross value exceeds P 200,000.
c. Regardless of gross value of estate, when it consists of registered or registrable property.

3. Payment of tax – at the time the return is filed.

4. Extension for filing and payment

a. Filing- not exceeding 30 days
b. Payment-

If settled thru the court – not to exceed 5 years

If settled extrajudicially – not to exceed 2 years

5. Statements accompanying the return. – when the gross value of the estate is P 2,000,000 or more, the return
should be accompanied by a statement certified by a Certified Public Accountant containing the following:

a. Itemized assets of the decedent with corresponding value;

b. Itemized deductions from gross estate; and
c. Tax due and payable.

6. Place of filing the return and payment of the tax

a. Resident decedent – domicile of the decedent at the time of his death.

b. Non-resident decedent-
i. With executor/administrator – RDO where the administrator/ executor is registered or having jurisdiction
over the latter’s legal residence if such executor or administrator is not registered.
ii. No executor or administrator- with the Office of the Commissioner

7. Payment of Estate Tax by Installment is allowed in case the available cash of the estate is not sufficient to pay its
total estate tax liability. Clearance shall be released only on the property, the corresponding tax on which has
been paid.

Revisions under R. A. 10963, effective January 1, 2018:

1. A tax at the rate of 6% of the net estate shall be imposed to every decedent, whether resident and non-resident
of the Philippines.
2. Standard deduction – P5M
3. If the family home exceeds P10M based on current fair market value, the excess shall be subject to estate tax
4. A standard deduction of P500,000.00 is allowed to non-resident, not citizen decedent
5. Estate tax returns showing a gross value of P5M shall be supported with a statement from a CPA
6. Estate tax return shall be filed within one year from the decedent’s death.
7. In case the available cash is insufficient to pay the total estate tax due, payment thru installment shall be
allowed within two (2) years from the statutory date of payment without penalty and interest
8. If bank has a knowledge of the death of the depositor who maintained a bank deposit account, it shall allow
withdrawal subject to 6% final withholding tax.

-END-
TAXATION-FRINGE BENEFITS TAX Page 4 of 4