Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it (Article 725, Civil Code).
The elements of donations for donor's taxation purposes are the following:
- Capacity or authority of donor;
- Donative intent of donor;
- Delivery of donated property;
- Acceptance of donee; and
- Donation is in prescribed forms
Capacity of the donor. All persons who may contract and dispose of their property may make a donation (Article 735, Civil Code).
To be able to make a donation, the donor should have the capacity to contract and the capacity to dispose of the thing donated.
Donative intent. This refers to the proper declaration of the legal owner of a property or right to transfer ownership to another without consideration in money or its equivalent.
Delivery of donated property. Donation is completed by the delivery, either actually or constructively, of the donated property to the donee (RR No. 12-2018).
Actual delivery connotes a physical transfer of property to the done or his or her authorized representative while constructive delivery means that the donor already renounces his or her control or power on the property because of the occurrence of the event which is certain to take place.
Note that under the Civil Code, Donation is a mode of acquiring ownership and does not ordinarily require delivery (or tradition), before ownership can be transferred. Once a donation is accepted, the donee becomes the absolute owner of the property donated. (Exception: Art. 748, Civil Code requires simultaneous delivery of the thing orally donated).
Article 729. When the donor intends that the donation shall take effect during the lifetime of the donor, though the property shall not be delivered till after the donor's death, this shall be a donation inter vivos. The fruits of the property from the time of the acceptance of the donation, shall pertain to the donee, unless the donor provides otherwise.
Acceptance of the donee. The donation is perfected from the moment the donor knows of the acceptance by the donee (Article 734, Civil Code).
For example, on January 1, 2022, Mr. A sent a diamond ring to Ms. G through a forwarder, J&J. Ms. G received the ring on February 14, 2022. However, Ms. G forgot to inform Mr. B that she already received and accepted the gift. On December 25, 2022, Ms. G informed Mr. B that she received the ring and that she accept it as a gift.
In the above situation, the donation was perfected on December 25, 2022, the date when the donor knows the acceptance by the donee.
Gifts must be accepted to be valid. Even donation proper nuptias must be accepted to be valid.
Who can receive gifts? All those who are not specially disqualified by law therefore may accept donations (Article 738, Civil Code).
Minors and others who cannot enter into a contract may become donees but acceptance shall be done through their parents or legal representatives (Article 741, Civil Code).
Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already born (Article 742, Civil Code).
Capacity of the donee to enter into a contract is not an element of donation. However, the donee must not be specifically disqualified by law to accept gifts.
What are void donations? The following donations shall be void:
- those made by a guardian or trustee in relation to the properties entrusted to them (Article 736, Civil Code);
- those made between persons who were guilty of adultery or concubinage at the time of the donation;
- those made between persons found guilty of the same criminal offense, in consideration thereof;
- those made to a public officer or his wife, descendants, and ascendants, by reason of his office (Article 739, Civil Code);
- those made to incapacitated persons, though simulated under the guise of another contract or
- through a person who is interposed (Article 743, Civil Code);
- those made between spouses, whether direct or indirect, during the marriage, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing (Article 87, Family Code);
- those made between persons living together as husband and wife without a valid marriage (Article 87, Family Code); and
- those made by person to those who cannot inherit from them (Article 740, 1027, Civil Code).
Formalities of Donation. Art. 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing, otherwise, the donation shall be void.
Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
Principles, Concepts Involving Donor’s Taxation
Imposition of Donor's Tax
Donor’s tax shall be levied, assessed, collected, and paid upon the transfer by any person, resident or nonresident, of the property by gift.
For example, Mr. F donated a brand new car to his eldest son on account of his 21st birthday. The eldest son accepted the birthday gift.
The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. "Transfer in trust or otherwise" includes not only the transfer of ownership in the fullest sense but also the transfer of any right or interest in property but less than the title.
For example, Mr. J created a trust of P5 million designating his eldest son as the beneficiary of the trust on account of his son’s 21st birthday.
Classification of Donor's Tax
The donor’s tax is not a property tax but is a tax imposed on the transfer of property by way of gift inter vivos. Donor's Tax can be further classified as follows:
- Excise tax
- Ad valorem tax
- Direct tax
- National tax
- Transfer tax
- Personal tax
- Proportional Tax
- Graduated tax or Progressive tax (before TRAIN law)
Incomplete Gift
The donor’s tax shall not apply unless and until there is a completed gift.
The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee; it is completed by the delivery, either actually or constructively, of the donated property to the donee.
A gift that is incomplete because of reserved powers becomes complete when either:
- the donor renounces the power; or
- his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other than because of the donor’s death.
Applicable Law
The law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor’s tax.
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Date of Donation |
Applicable Law |
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Before January 1, 1998: |
R.A. No. 7499 |
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January 1, 1998 – December 31, 2017 |
R.A. No. 8424 |
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January 1, 2018 |
R.A. 10963 (TRAIN) |
Only donations made on or after January 1, 2018 shall be subject to the donor’s tax rate provided under the TRAIN Law.
Amendments by TRAIN
As to the Tax Rates, the old law imposes 2% to 15% with the first P 100,000 net gift exempted if the donee is a relative and a 30% flat rate if the donee is a stranger. TRAIN imposes a 6% rate computed on the basis of net gift in excess of P 250,000 exempt gift made during the Calendar year whether donee is a relative or a stranger
As to the distinction between a stranger and relative, a stranger is a person who is not a brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendants or relative by consanguinity in the collateral line within the fourth degree of relationship. Under TRAIN, the distinction between a stranger and a relative is no longer relevant.
As to transfer for less than adequate and full consideration, the old law presumes that all transfers for less than adequate and full consideration have donative intent and hence, are subject to donor's tax. Under TRAIN, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length transactions and free from donative intent), will be considered as made an adequate and full consideration in money or money’s worth.
As to dowries or gifts on account of marriage, old law allows a deduction for dowries or gift on account of marriage and before the celebration of marriage or within one year thereafter by parents to each of their legitimate, recognized natural or adopted children to the extent of first P 10,000. Under TRAIN, no such deduction is longer allowed.
Transfers Which May Be Considered a Donation
1. Sale, exchange, or transfer of property for less than adequate and full consideration; exception
Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
Provided, however, that a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money’s worth.
The cancellation and forgiveness of indebtedness may amount to a payment of income, to a gift, or to a capital transaction, depend upon the circumstances:
Condonation of indebtedness in consideration of service performed to or for the creditor is treated as compensation income on the part of the debtor. The debtor shall pay income tax.
Condonation of indebtedness without any consideration or by mere liberality of the creditor constitutes a gift. The creditor shall pay the donor’s tax.
If a corporation to which a stockholder is indebted forgives the debt, the transaction has the effect of a payment of dividend.
General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent, is not subject to donor’s tax.
The following renunciation of inheritance is subject to donor’s tax:
- Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s
- Renunciation by an heir is specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.
Classification of Donors
Individuals and Corporations can make donations. They can further be classified as follows:
- Resident Citizen
- Resident Citizen
- Domestic Corporation
- Resident Foreign Corporation
- Non-resident Citizen
- Non-resident Alien
- Non-resident Foreign Corporation
Net Gifts/Donations
For purposes of the donor’s tax, “net gift” shall mean the net economic benefit from the transfer that accrues to the donee.
If there is only one gift given during the calendar year, the tax due shall be based on the value of the gift donated less allowable deduction.
Net Gift
= Gross Gift less Allowed Deductions
If there are several gifts made, the tax due shall be computed based on the total net gifts made during the calendar year.
Net Gift
= Gross gift – Allowable Deductions + Prior Net Gifts
The computation of the donor’s tax is on a cumulative basis over a period of one calendar year. Cumulative only insofar as gifts made within the same calendar year.
Gross Gift
Gross Gift is the value of the property or right donated subject to donor’s tax before any deduction. It includes Actual Gifts and Transactions deemed gifts. The composition of gross gift follows the same rule as estate taxation.
1. Residents and citizens – all properties, real or personal, tangible or intangible, wherever situated.
2. Non-resident aliens – only properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC.
The valuation of gross gift follows the same rule as estate taxation, provided, That the reckoning point for valuation shall be the date when the donation is made.
Allowed Deduction
Allowed deductions are those amounts specified by law / BIR to be deductible from the Gross Gift to arrive at taxable net gift that is subject to computation of donor’s tax. These deductions include
- encumbrances on the gift,
- diminution on the gift as directed by the donor and
- those exempt gifts as specified by NIRC and other special laws.
Encumbrance Assumed by the Donee
If mortgaged property is transferred as a gift, but imposing upon the done the obligations to pay the mortgage liability (e.g., mortgage, unpaid interest, or taxes), then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed.
For example, on October 2, Mr. J donated to his son a house and lot with a fair market value of P15,000,000 at the time of donation. The property was mortgaged with an unpaid balance of P1,500,000 plus 10% unpaid interest for 10 months. It has also an unpaid real property tax of P60,000. The donee as agreed will assume the unpaid liabilities.
How much is the net gift?
Answer: P13,315,0000
= Gross gift - Unpaid mortgage - unpaid interest - unpaid taxes
= P15,000,000 - 1,500,000 - (1,500,000 x 10% x 10/12) - 60,000
= P15,000,000 - P1,685,000
= P13,315,000
Diminution of Gifts
In cases where the value of the donated property is reduced by certain amount in accordance with the terms and conditions set by the donor, such amount shall be deducted from the gross gifts.
For example, on October 15, Mr. X donated P500,000 cash to his brother on the condition that the P150,000 shall be given to PUP.
How much is the net gift?
Answer: P350,000
= Gross gift – Diminution as provided by the donor
= P500,000 – P150,000
= P350,000
The following are exempt from the donor’s tax:
1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.
For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.
3. Encumbrances on the property donated if assumed by the donee in the deed of donation.
4. Donations made to entities exempted under special laws.
- Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines
- Development Academy of the Philippines
- Integrated Bar of the Philippines
- International Rice Research Institute
- National Museum
- National Library
- National Social Action Council
- Ramon Magsaysay Foundation
- Philippine Inventor’s Commission
- Philippine American Cultural Foundation
- Task Force on Human Settlement on the donation of equipment, materials and services
Tax Due and Tax Credit
The donor’s tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000) exempt gift made during the calendar year.
When the gifts are made during the same calendar year but on different dates, the donor's tax shall be computed based on the total net gifts (or on a cumulative basis) during the calendar year.
January 30, 2021
Donor's Tax Due
= (P2,000,000 - 250,000) x 6%
= P105,000
March 30, 2021
Donor's Tax Due
= (P2,000,000 + 1,000,000 - 250,000) x 6%
= P165,000
Donor's Tax Payable
= P165,000 - P105,000
= P60,000
August 15, 2021
Donor's Tax Due
= (P2,000,000 + 1,000,000 + 500,000 - 250,000) x 6%
= P195,000
Donor's Tax Payable
= P195,000 - P105,000 - P65,000
= P30,000
Foreign Tax Credits
Only resident or citizen donors may claim a tax credit for donor’s taxes paid to a foreign country.
The amount of the credit shall be subject to Specific Country Limitation and Global Limitation.
Specific Country Limitation is the amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gits situated within such country taxable under the tax code bears to his entire net gift.
Net estate (per foreign country)/Entire net estate x Philippine Estate Tax
Global Limitation is the total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net gifts situated outside the Philippines taxable under the tax code bears to his entire net gifts.
Net estate (all foreign country)/Entire net estate x Philippine Estate Tax
Tax Return Preparation and Filing and Tax payments
The Donor’s Tax Return (BIR Form No. 1800) shall be filed in triplicate by any person, natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.
The donor shall file the donor's tax return within 30 days after the date when the gift was made or completed. The tax due thereon shall be paid at the same time that the return is filed.
Unless the Commissioner otherwise permits, the return shall be filed and the tax paid to AAB, Revenue District Officer, and Revenue Collection Officer having jurisdiction over the place where the donor is domiciled at the time of the transfer.
If there be no legal residence in the Philippines, with the Office of the Commissioner.
In the case of gifts made by a non-resident, the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner.
For this purpose, the term “OFFICE OF THE COMMISSIONER” shall refer to the Revenue District Office (RDO) having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner, or presently, to the Revenue District Office No. 39-South Quezon City.
Compliance Requirement
Mandatory Requirements:
- Notarized Deed of Donation but only photocopied documents shall be retained by BIR; (One (1) original copy and two (2) photocopies)
- TIN of Donor and Donee/s; One (1) original copy for presentation only)
- Proof of claimed tax credit, if applicable; (One (1) original copy and two (2) photocopies)
- Duly Notarized Special Power of Attorney (SPA) for the transacting party if the latter is not one of the parties to the Deed of Donation; (One (1) original copy and two (2) photocopies)
- Official Receipt/Deposit Slip and duly validated return as proof of payment; (One (1) original copy and two (2) photocopies)
- Copy of Tax Debit Memo used as payment, if applicable. (One (1) original copy and two (2) photocopies)
For Real Properties:
- Certified True Copy/ies of the Original/Transfer/ Condominium Certificate/s of Title (front and back pages) of the donated property, if applicable; (One (1) original copy and two (2) photocopies)
- Certified True Copy/ies of the Tax Declaration at the time or nearest to the date of the transaction issued by the Local Assessor’s Office for land and improvement, if applicable; (One (1) original copy and two (2) photocopies)
- Sworn Declaration of No Improvement by at least one (1) of the transferees or Certificate of No Improvement issued by the Assessor’s Office, if applicable. (One (1) original copy and two (2) photocopies)
For Personal Properties:
- Proof of valuation of shares of stock at the time of donation, if applicable: (One (1) original copy and two (2) photocopies)
- For shares of stocks not listed/not traded - Latest Audited Financial Statement of the issuing corporation with computation of the book value per share;
- For shares of stocks listed/traded - Price index from the PSE/latest FMV published in the newspaper at the time of transaction;
- For club shares - Price published in newspapers on the transaction date or nearest to the transaction date.
- Photocopy of stock certificate; (One (1) original copy and two (2) photocopies)
- Proof of valuation of other types of personal properties, if applicable; (One (1) original copy and two (2) photocopies)
- Proof of claimed deductions, if applicable; (One (1) original copy and two (2) photocopies)
- Certificate of deposit/ investment/ indebtedness/ stocks for donated cash or securities; (One (1) original copy and two (2) photocopies)
- Certificate of registration of motor vehicle, if any. (One (1) original copy and two (2) photocopies)
Other Additional Requirements, if applicable:
- Special Power of Attorney (SPA), if the person transacting/processing the transfer is not a party to the transaction; (One (1) original copy and two (2) photocopies)
- Certification from the Philippine Consulate or Hague Apostille Convention (if executed abroad); (One (1) original copy and two (2) photocopies)
- Location Plan/Vicinity map if zonal value cannot be readily determined from the documents submitted; (One (1) original copy and two (2) photocopies)
- Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or his authorized representative, if tax exempt; (One (1) original copy and two (2) photocopies)
- Such other documents as may be required by law/rulings/regulations/etc. (One (1) original copy and two (2) photocopies)
