Business Taxation Requisites for deductibility

Chapter 3 Liability is:

Deductions from the Gross Estate a. personal obligation of the deceased existing at
the time of his death
Deductions from the Gross Estate b. in good faith or for adequate and full
1. Ordinary deductions consideration of money
2. Special deductions c. must be a debt or claim valid in law, enforceable
3. Share of the surviving spouse, if the decedent is in court
married d. not have been condoned by the creditor

Substantiation Requirements
In case of Simple Loan
a. duly notarized @ time of indebtedness was
incurred
b. Duly notarized certification from creditor sa
unpaid balance + interest as of time of
death
c. Proof of financial capacity of the creditor to
lend the amt at the time the loan was
granted
d. Statement under oath executed by the
administrator if the said loan was
ORDINARY DEDUCTIONS (LITe) contracted w/om 3 years prior to the death
1. Losses of the decedent
2. Taxes
3. Indebtedness Unpaid Obli from Purchase of Goods or Services
4. Etc a. Pertinent documents evidencing the
purchase (sales invoice/ delivery receipt)
1. Losses b. Duly notarized certification from the creditor
- Deductible losses from Gross Estate (GE) shall as to the unpaid balance+interest as to the
pertain to casualty losses time of death
- The amt deductible is the value of the property c. CTC of the latest audited balance sheet of the
lost creditor w/ detail sched of its receivable
Requisites for deductibility showing the unpaid bal of the decedent-
a. Arising exclusively from debtor
o Acts of God (fire, storm,shipwreck etc) d. Pertinent docs - if settlement at sa court
o Acts of Man (robbery, theft,
embezzlement) Funeral, Medical and Judicial Expenses
b. Not claimed by insurance - NO LONGER ALLOWED AS DEDUCTIONS - Beg
c. Not claimed as deduction from income tax Jan 1, 2018 (TRAIN Law)
return of the estate • Funeral Expenses
d. Incurred DURING the settlement period of the • Medical Expenses
estate • Judicial Expenses
o Settlement period – period prescribed
by law to file and pay estate tax (w/in Unpaid Mortgages
1 year from death) - Or Indebtedness on Property
- Deductions allowed when a decedent leaves
2. Indebtedness property encumbered by a mortgage or
- Or Claims against the estate indebtedness contracted in good faith & for
- Claims – debts which could have been enforced adequate and full consideration
against the deceased in his lifetime - GE must include the FMV of the property then
- Claims against the estate arises from yung outstanding debt or mortgage yung
o Contract idededuct
o Tort GE: FMV of Property
o Operation of law Deductions: outstanding mortgage
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 Accommodation Loan
- Loan proceeds went to another person Requisites for deductibility
- The value of the unpaid loan must be included 1. Death – present decedent died w/in 5 years
as a receivable of the estate from the date of death of the prior decedent/
- If there is a legal impediment to recognize the date of gift
same as receivable of the estate, unpaid 2. Identity of Property – identified as the one
obligation or mortgage payable shall NOT be received form prior decedent/donor
allowed as deduction from the gross estate 3. Location – must be in the Phil
4. Inclusion of the property -must have formed
3. Taxes part sa gross estate/gross gift ng prior
decedent/donor made win 5 years prior to the
- Allowed as deduction: Unpaid taxes that present decedent’s death
accrued prior to the death of the decedent 5. Previous taxation of the property – estate
- Not Allowed as deduction tax/donors tax mist have been finally
o Income tax on income received after determined and paid before
death 6. No previous vanishing deduction on the
o Property Taxes accrued after death property – no deduction on the property in
o Estate Tax determining the value of the net estate of the
prior decedent
4. Claims Against Insolvent Persons (CAIP)
- Receivables due or owing from persons who are Vanishing Deduction Rates:
not financially capable of meeting their
obligations
- Claims by the decedent during his lifetime that
are NOT COLLECTIBLE
Requisites for deductibility
a. Incapacity of the debtor to pay his obligation
should be proven
b. Full amount owed by insolvent must first be Proforma Computation of Vanishing Deduction:
included in the GE then amount collectible
shall be allowed as deduction
c. If the insolvent could only pay partial amount
the full amount owed shall be included in
the gross estate, amount uncollectible shall
be allowed as deduction
• (Asset/ Liab) x total claims = collectible
• Amount of claim- collectible = uncollectible

5. Transfer for Public Use (TFPU)

- Dispositions in the Last will and testament
(LWT) or transfers to take effect after the
death in favor of the Govt of the Phil. for
exclusively public use
- Included in the GE, then deduction

6. Vanishing Deductions (Property Previously

Taxed)
- Amount allowed to reduce the taxable estate of
a decedent where a property included in his GE
was previously received by him, either:
1. From a prior decedent by way of inheritance
2. From a donor by way of gift or donation
• Meaning, has been the object of previous
transfer (donor or estate tax)

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SPECIAL DEDUCTIONS NET SHARE OF SURVIVING SPOUSE
a. Standard Deduction - The amount deductible is the net share of the
- If the decedent is surviving spouse in the conjugal partnership
o Citizen or Resident: P5,000,000 property
o NRA: P500,000 - Equivalent to ½ or 50% of the conjugal property
after deducting the obligations chargeable
b. Family Home (for citizens and residents only) (ordinary deductions only) to such property.
- Deduction of FMV of family home @ time of - Share of surviving spouse must be removed to
death of the decedent or P10,000,000 ensure that only the decedent’s interest in the
whichever is LOWER estate is taxed
- Family home – house and lot from the time it is
actually occupied by a family residence.
Unmarried Head of the Family Deductions from the Gross Estate of an NRA
o Unmarried man or woman w/ 1 or
both parents, or w/ 1 or more sibling,
or w/ 1 or more legitimate (natural or
legally adopted) children living with
and dependent on him
o Sibling and/or children not more than
21 yo and unmarried or pag w/mental
or physical defect (regardless of age)

Beneficiaries of a family home

▪ Husband, wife, or the head of
the family
▪ Parents, ascendants,
descendants
Limitation
▪ Availing of family home
deduction – 1 family home
only
Requisites for deductibility
1. Decedent was married or if single, head of the
family
2. Owned by decedent
3. Must be the actual residential home of the
decedent & his fam @ time of death, certified
by Brgy. Captain
4. Allowable deduction = FMV of family home OR
the extent of the decedent’s interest
(conjugal/community/exclusive) w/c ever is
lower but not exceeding P10,000,000

C. Amounts Received by Heirs under RA 4917 (for

citizens and residents)
- RA 4917 – Retirement benefits of employees of
private firms
- Any amt received by the heir/s from the
decedent’s employer as a consequence of the
death of the decedent-employee
- Included as part of GE then dededuct after