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04 chapter 5 estate tax

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Estate Tax

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04 chapter 5 estate tax

  1. 1. Taxation 2 │ ESTATE TAX FLABERT VILLASENCIO, CPA Notre Dame of Dadiangas University
  2. 2. Estate Tax oImposed on the right of the deceased to transmit his/her properties to his/her legal heirs upon death oBased on laws in force at the time of death
  3. 3. Estate Tax Table Rates of Estate Tax Net Estate Estate Tax Excess Over Not Over Tax of Plus % Over 0 200,000 Exempt 0 0 200,000 500,000 0 5% 200,000 500,000 2,000,000 15,000 8% 500,000 2,000,000 5,000,000 135,000 11% 2,000,000 5,000,000 10,000,000 465,000 15% 5,000,000 10,000,000 And over 1,215,000 20% 10,000,000
  4. 4. Estate Tax Table ▪ Illustration GiesThony, a Philippine resident alien, died leaving with total net taxable estate amounting to P7,000,000. The amount of the Philippine estate tax due would be: Estate Tax on 5,000,000 465,000 Add: Estate tax on the excess (2M x 15%) 300,000 Amount of the Phil estate tax due 765,000
  5. 5. Estate Tax Credit ▪ The amount of estate taxes paid to a foreign country could be claimed as credit against the Philippine Estate Tax subject to limit, if such taxes pertain to properties which are included in the gross estate for Philippine estate tax computation . ▪ Available to avoid double taxation ▪ Applicable only to Citizens or Resident Alien decedent ▪ NOT Allowed to Non Resident Aliens
  6. 6. Estate Tax Credit 1. Only ONE Foreign country is involved Estate Tax = Net Estate in Foreign Country x Philippine Credit World Net Estate Estate Tax Estate Tax = Actual estate tax paid to foreign country whichever is LOWER 2. TWO or MORE Foreign Countries Limit A: Per Foreign Country Net Estate per Foreign Country x Phil. Estate Tax Entire Net Estate Limit B: By Total Net Estate ALL Foreign Country x Phil. Estate Tax Entire Net Estate OR The Actual Estate Tax paid to Foreign Country, LOWER Value
  7. 7. Estate Tax Credit Illustration: GiesThony, an unmarried resident alien of the Philippines, died leaving the following properties: Location of Properties Net Estate Estate Tax Paid Philippines 1,000,000 United States 2,000,000 135,000 Australia 3,000,000 365,000 Total 6,000,000 500,000 Compute for the Philippine Net Estate Tax payable.
  8. 8. Estate Tax Credit Illustration: Location of Properties Net Estate Estate Tax Paid Philippines 1,000,000 United States 2,000,000 135,000 Australia 3,000,000 365,000 Total 6,000,000 500,000 Limit A – Per Country Net Estate Per Foreign Country x Philippine Estate Tax Entire Net Estate United States 2,000,000 x 615,000 = 205,000 6,000,000 Actual vs 135,000 135,000 Australia 3,000,000 x 615,000 = 307,500 6,000,000 Actual vs 365,000 307,500
  9. 9. Estate Tax Credit Illustration: Location of Properties Net Estate Estate Tax Paid Philippines 1,000,000 United States 2,000,000 135,000 Australia 3,000,000 365,000 Total 6,000,000 500,000 Limit B – ALL Foreign Country Net Estate ALL Foreign Country x Philippine Estate Tax Entire Net Estate Foreign Country 5,000,000 x 615,000 = 512,500 6,000,000 Actual (135,000 + 365,000) vs 500,000 500,000 vs 442,500 442,500 Tax Credit 442,500
  10. 10. Estate Tax Credit Illustration: Location of Properties Net Estate Estate Tax Paid Philippines 1,000,000 United States 2,000,000 135,000 Australia 3,000,000 365,000 Total 6,000,000 500,000 Tax Credit 442,500 Estate Tax on 5,000,000 465,000 Estate Tax on excess (1,000,000 x 15% ) 150,000 Total 615,000 Less: Tax Credit 442,500 Philippine Net Estate Tax Payable 172,500
  11. 11. SEATWORK: (1/2 CW) 5-11 5-13 5-18 #DO IT INDIVIDUALLY#SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE
  12. 12. Problem 5–11 B Conjugal Properties P3,400,000 Funeral expense, limit ( 200,000) Judicial expenses ( 250,000) Claims against properties ( 550,000) Net conjugal estate P2,400,000 Problem 5–13 A Estate tax of P5,000,000 P465,000 ANSWERS:
  13. 13. Problem 5–18 B Total gross estate (P1,700,000 + P800,000) 2,500,000 Less: Deductions Net taxable estate 1,500,000 Net Taxable Estate 1,000,000 Estate tax on P500,000 15,000 Excess P500,000 x 8% 40,000 Total estate tax in the Philippines 55,000 Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000 P17,600 ANSWERS:
  14. 14. Estate Tax with Allocated Deductions Illustration: KieRish, a resident alien decedent, died due to fractured jaw. The following is the reported assets and obligations: China Philippines Family Home 4,000,000 Other Properties 2,000,000 2,000,000 Funeral Expense 100,000 300,000 Other Charges and Obligations 400,000 600,000 Donations to governments 100,000 300,000 Medical expenses (within 1 year) 400,000 600,000 Estate taxes paid 90,000 Properties located in China are exclusive properties of the decedent. The donation to the Philippine government is taken from his only exclusive property in the Philippines.
  15. 15. Estate Tax with Allocated Deductions Computation of Net Estate: China Phil Total Family Home 4,000,000 Other Properties 2,000,000 2,000,000 Gross Estate 2,000,000 6,000,000 8,000,000 Less: Ordinary Deductions ELITE: Funeral Exp (200,000] x 1/4 and 3/4 50,000 150,000 Other Charges and Obligations 400,000 600,000 Transfer for Public Use 300,000 Total Ordinary Deductions 450,000 1,050,000 1,500,000 Net Exclusive or Net Community Estate 1,550,000 4,950,000 6,500,000 Less: Special Deductions Standard [1,000,000] x 2/8 and 6/8 250,000 750,000 Family Home 1,000,000 Medical Exp [500,000] x 4/10 and 6/10 200,000 300,000 Total Special Deductions 450,000 2,050,000 2,500,000 Net Estate 1,100,000 2,900,000 4,000,000 Less: Share of the Surviving Spouse (4,950,000 x 50%) 2,475,000 Net Taxable Estate 1,525,000
  16. 16. Estate Tax with Allocated Deductions Computation of Tax Credit Allowed Foreign Estate Tax Paid = 90,000 Estate Tax Credit = Net Estate Foreign Country x Phil Estate Tax World Net Estate = 1,100,000 x 97,000 4,000,000 = 26,675 vs 90,000 Estate Tax Credit = 26,675
  17. 17. Estate Tax with Allocated Deductions Computation of Philippine Estate Tax Payable Estate Tax on 500,000 = 15,000 Estate Tax on Excess (1,025,000 x 8%) = 82,000 Philippine Estate Tax = 97,000 Less: Estate Tax Credit = 26,675 Philippine Estate Tax = 70,325 Payable
  18. 18. Estate Tax of Nonresident Alien Only properties WITHIN the Philippines are subject to Philippine estate tax. Illustration: Assume that Brad Naipit, a married and non-resident alien decedent, left the following properties and expenses to his surviving spouse. House and lot- France 4,000,000 Business Interest- France 2,000,000 Car-Baguio 1,000,000 Dollar Time Deposit-Cebu City 1,000,000 Franchise-Manila 1,000,000 Share of Stocks- Nestle Corp (donated 3.5 years ago) 1,000,000 Medical Expense 600,000 Actual Funeral Expense 300,000 Judicial Expense 300,000
  19. 19. Estate Tax of Nonresident Alien WITH RECIPROCITY Reportable Gross estate-Within Car- Baguio 1,000,000 Less: Ordinary deductions ELITE: Funeral Expense (200,000) x 4,000,000/10,000,000 80,000 Judicial Expense (300,000) x 4,000,000/10,000,000 120,000 200,000 Net Conjugal/Community estate 800,000 Less: Share of the surviving spouse (800,000x50%) 400,000 Net Taxable Estate 400,000 Estate Tax: On 200,000 - On excess (200,000 x 5%) 10,000 Estate Tax 10,000
  20. 20. Estate Tax of Nonresident Alien WITHOUT RECIPROCITY Reportable Gross estate-Within Car- Baguio 1,000,000 Dollar Time Deposit 1,000,000 Franchise 1,000,000 Shares of Stocks 1,000,000 4,000,000 Less: Ordinary deductions ELITE: Funeral Expense (200,000) x 4,000,000/10,000,000 80,000 Judicial Expense (300,000) x 4,000,000/10,000,000 120,000 Vanishing Deduction 313,600 513,600 Net Conjugal/Community estate 3,486,400 Less: Share of the surviving spouse (3,486,400 x50%) 1,743,200 Net Taxable Estate 1,743,200 Estate Tax: On 500,000 15,000 On excess (1,243,200 x 8%) 99,456 Estate Tax 114,456
  21. 21. Administrative Requirements Value of Gross Estate Exceeds Exceeds Exceeds Requirements 20,000 200,000 2,000,000 1.Notice of Death (within 2 months)Yes Yes Yes 2.Estate Tax Return (w/in 6 months) No Yes Yes 3.CPA Certificate (w/in 6 months) NO No Yes Additional Requirement -Registering the estate of the decedent and getting a separate TIN for the estate Liability for Payment of Estate Tax 1.Primary Obligation- Estate through Executor or Administrator (severally liable) 2.Subsidiary Obligation- the Heirs or Beneficiaries To the extent of their obligation but in no case shall it exceed the value of their inheritance.
  22. 22. Administrative Requirements Surcharges, Interests and Penalties - imposed in the event of violation of the law, criminal penalties and civil liabilities. Payment of Estate Tax by Installment - may be allowed provided: 1.A clearance shall be released only with respect to the property on which tax has been paid 2.Any amount paid after the due date shall be subject to applicable penalty 3.If the late payment has been approved by the Commissioner or his representative, the penalty shall only be the interest. 4.The Commissioner may enforce action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are observed.
  23. 23. SEATWORK: (1/2 CW) 5-6 5-19 5-9 5-20 5-14 5-21 5-17 #DO IT BY PAIR #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE
  24. 24. Problem 5–6 B Conjugal gross estate (P3,120,000 + P180,000) P3,300,000 Funeral expense allowed (P3,300,000 x 5%) ( 165,000) Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500) Standard deduction ( 1,000,000) Net estate P 567,500 ANSWERS:
  25. 25. Problem 5–9 D Exclusive Conjugal Property – cash P1,000,000 P4,000,000 Family home 800,000 Transfer for public use (1,000,000) Funeral expense allowed ( 200,000) Net conjugal estate P4,600,000 Family home (P800,000/2) (400,000) Standard deduction (1,000,000) Net estate P3,200,000 Share of surviving spouse (P4,600,000 x 50%) (2,300,000) Net taxable estate P 900,000 ANSWERS:
  26. 26. Problem 5–14 D Net estate Estate tax Amounts P2,000,000 P135,000 Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86 (B), NIRC) ANSWERS:
  27. 27. Problem 5–17 C Tax credit P100,000 x (2M/5M) P40,000 ANSWERS:
  28. 28. Problem 5–19 Conjugal Exclusive Total Real property P1,500,000 Inherited property P700,000 Other properties 500,000 Gross estate P2,000,000 P700,000 P2,700,000 Less: Deductions: ELITE: Funeral expenses 100,000 Judicial expenses 80,000 Claims against the estate 300,000 Transfer for public use 20,000 Total deductions 500,000 500,000 Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000 Less: Special deductions: Standard deduction 1,000,000 Medical expense 200,000 Net estate before share of surviving spouse P1,000,000 Less: Share of surviving spouse (P1,500,000 x 50%) 750,000 Net taxable estate P 250,000 Estate tax: Tax on P200,000 P - 0 - Tax on excess (P50,000 x 5%) 2,500 Estate tax due P 2,500
  29. 29. Problem 5–20 Conjugal Exclusive Total Family home – Philippines P2,000,000 Family business – Philippines 2,000,000 Properties – USA . P1,000,000 Gross estate P4,000,000 P1,000,000 P5,000,000 Deductions: ELITE – Funeral expense 200,000 Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000 Less: Special deduction Std. deduction 1,000,000 Family home 1,000,000 Net estate before share of surviving spouse P2,800,000 Less: Share of surviving spouse (P3,800,000 x 50%) 1,900,000 Net taxable estate P 900,000 Tax on P500,000 P15,000 Tax on excess (P400,000 x 8%) 32,000 Estate tax due P47,000 Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429 Estate tax still due and payable P33,571
  30. 30. Problem 5–21 Conjugal Exclusive Total Gross estate* P5,800,000 P4,200,000 10,000,000 Less Deductions: Ordinary deductions: Funeral expenses (actual, P350,000; 5% limit, P500,000; statutory Maximum allowed, P200,000) - lowest (200,000) Judicial expenses (500,000) Other deductions (100,000) Vanishing deductions ( 92,000) Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000 Special deductions: Standard deduction (1,000,000) Family home (50% is P1,500,000) max. allowed (1,000,000) Medical expenses (actual, P600,000) max. allowed (500,000) Amount receivable under R.A. 4917 (200,000) Net estate P6,408,000 Less: Share of the surviving spouse (P5,000,000 x 50%) 2,500,000 Net taxable estate P3,908,000
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