Estate Tax

1. Taxation 2 │
ESTATE TAX
FLABERT VILLASENCIO, CPA
Notre Dame of Dadiangas University

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Problem 5–17 C
Tax credit P100,000 x (2M/5M) P40,000
ANSWERS:

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. 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. 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