Estate and donor’s tax

“The TRAIN law reduced the estate tax to 6 percent.”

We continue with our series of articles on estate and donor’s taxes. The Bureau of Internal Revenue (BIR) has issued Revenue Regulations 12-2018 (Rev. Regs. 12-2018) dated 25 January 2018 on estate and donor’s tax as has been modified by Republic Act 10963 (the TRAIN law).

Congress and the government have reduced the tax cost of a loved one passing or for a person/entity acting benevolently. The TRAIN law reduced the estate tax to 6 percent from a scheduler rate with a high of 20 percent and donor’s tax also reduced to 6 percent from a scheduler rate with a high of 15 percent or 30 percent if the donation was made to a relative or to a stranger, respectively. The following are some of the equally important points of Rev. Regs 12-2018 implementing the amendments of the TRAIN law on estate and donor’s tax:

• The standard deduction for citizen or resident has been increased to P5 million from P1 million. The standard deduction for the estate in the case of a non-resident alien is P500,000.00.

• The maximum deductible amount in the case of one’s Family Home has been increased to P10 million from P1 million of the fair market value. Though the TRAIN law removed the requirement, the revenue regulations maintained the requirement in obtaining a certification from the barangay of the locality that the family home is the actual residential home of the decedent and his family at the time of the decedent’s death.

• Obtaining a Tax Identification Number for the estate is still required, but there is no longer a requirement to file a Notice of Death.

• The time of filing and payment of estate tax is one year from the decedent’s death. This was six months before the TRAIN law.

• With prior approval of the bureau, the payment of estate tax may be extended up to five years if the estate is settled through the Courts, or up to two years in the case of extra-judicial settlement. Payment after the one-year period but within the approved extension period will be subject to interest but not to surcharge penalty.

• With prior approval by the bureau, the estate tax may be paid by installment. The estate tax return shall still be filed within the one-year period from the date of decedent’s death, indicating the frequency (i.e., monthly, quarterly, semi-annually or annually), the deadline and the amount of each installment. The cash installments shall be made within two years from the date of filing of the estate tax return. Should two years have lapsed without the payment of the entire tax due, the remaining balance shall be due and demandable subject to the applicable penalties and interest reckoned from the prescribed deadline for filing of the return and payment of the estate tax.

• With prior approval by the bureau, the estate may opt for the partial disposition of estate to be able to use its proceeds to pay the estate tax due. Specifically, this is a disposition of certain property of the estate, whether real, personal or intangible property, for the payment of estate tax. The estate shall pay the proportionate estate tax due of the property intended to be disposed of and an electronic Certificate Authorizing Registration (eCAR) shall be issued.

• The revenue regulations clarified that a general renunciation by an heir of his/her share in the inheritance is not subject to donor’s tax unless specifically and categorically done in favor of identified heir or heirs to the exclusion of the other co-heirs in the hereditary estate.

• The filing and payment of donor’s tax is within 30 days after the gift has been made, but the computation of donor’s tax is cumulative over a period of one calendar year.

We will update our readers as these regulations or jurisprudence on estate and donor’s tax develop over time.