Answer ESTATE TAX:

1. C
2. A
3. A
4. B
5. A
6. A
7. C
8. B
9. A
10.D
11.D
12.A
13.A
14.C
15.B
16.D
17.C
18.D
19.C
20.C
21.A
22.A
23.C
24.A
25.B
26.D
27.D
28.D
29.D
30.A
31.C
32.C
33.C
34.C
35.B
36.C
37.A
38.B
39.C
40.D
Solution:
#1. Transfer tax = Estate tax and Donor’s tax.
Generally, Donation is subject to donor’s tax. Donations subject to Estate tax:
 Donation which takes effect at the time of death of the donor
 Donation in contemplation of death
 Donation with reservation of rights. Example, the property is donated, but
the income of the property is reserved by the donor.
 Revocable transfers
#3. Redistribution of Income and wealth Theory – is the transfer of income and
wealth (including physical property) from some individuals to others through
social mechanism such as taxation, welfare, public services, land reform,
monetary policies, confiscation, divorce or tort law.
“Your abundance at the present time should supply their need, so that their
abundance may supply your need, that there may be fairness. As it is written:
“The one who gathered much did not received too much, and the one who
gathered little did not lack”. (2 Corinthians 8:14-15)
Social Justice – Power does not belong only to one or few persons. Power and
wealth should be shared by all people in order to prevent abuse of power and
inequities and injustices.
- Refers to a political and philosophical theory that focuses on the
concept of fairness in relations between individuals in society and
equal access to wealth, opportunities and social privileges.

#8. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Unless the
stipulations in a contract are contrary to law, morals good customs, public order
or public policy, the same are binding as between the parties.
 The phrases, “Act” and “Law” are so close that they are sometimes used
interchangeably.
#11. Situs rules:
 Franchise – the place where it is exercised
 Share of stock or bonds of foreign corporation – at least 85% of the of the
business is located in the Philippines, the shares of stock are considered
“within the Philippines.”
 Shares of stock or bonds of Domestic corporation – within the Philippines
 Bank deposit – location of the depository bank
#12. Value of land to be included in the gross estate
 Fair market value at the time of death
 Fair market value is the higher of zonal value and the assessed value
 Zonal value at the time of death (March 1, 2020), P2,000,000.

#13. Gross estate of Pedro on November 2, 2018.

Name of Classification Amount to Gross estate
assets include
Sun Champ Common shares –  Closing price P79,000
Corp. listed  Mean value of
the nearest
date
(39.5 x 2,000)
Agrinurture Common stocks – Book value 67,500
not listed (45 x 1,500)
Greenenergy Preferred stocks – Par value 150,000
not listed (P50 x 3,000)
Car Personal assets Fair market value 400,000
Real property Real property FMV (ZV or AV) 120,000
Total P816,500
#14. Gross estate of nonresident Alien
 In general – Properties within the Philippines
 There is reciprocity – only tangible properties within the Philippines

Intangible Tangible Total

Vacant lot in Manila 2,000,000 2,000,000
Shares - Domestic corporation 100,000 100,000
Shares – Foreign corp. - -
(BS<85%)
Car in Manila 500,000 500,000
Total 100,000 2,500,000 2,600,000

#15. With Reciprocity

Tangible property within the Philippines – P2,500,000

#17. Transfer under General Power of Appointment

A transferred a B, died leaving the

property to B. A can property to C
choose whoever he C
wants to give the (Property received via
Property GPA)

*The property shall be included in the Gross estate of “B”

Transfer under Special power of Appointment

A transferred a B, died leaving the

property to B. A property to C
stipulated that B can C
only give the property (Property received via
to C or D SPA)
*The property shall not be included in the Gross estate of “B”

#19. Transfer for insufficient consideration

Consideration received P700,000
Value at the time of sale P1,200,000

Value at the time of death 1,500,000

Consideration received (700,000)
Amount to be included in the gross P800,000
estate

#23. Rules on ACP and CPG

PROPERTY ACP CPG
1. Properties acquired before marriage, by any Common Exclusive
means
2. Properties acquired during marriage
 From exclusive property Exclusive Exclusive
 From common property Common Common
 From labor, industry, work or profession of Common Common
either spouses (Gain)
 From gratuitous transfer Exclusive, except Exclusive
the donor/testator
expressly provided
that it shall form
part of community
property
3. FRUITS or income on properties Fruits shall follow All fruits are
the source. If the common,
source is exclusive, regardless of
the fruits is also source
exclusive. If the
source is common,
the fruits is
common
4. Property for personal and exclusive use of either Exclusive, except Exclusive
spouse Jewelry
#24 and #25. Conjugal Partnership of Gains
Property Exclusive Conjugal Total Gross
Estate
Rest house in Cebu 6,000,000 6,000,000
Income from rest house in Cebu 600,000 600,000
Condominium in Davao (Exclusive - - -
property of wife)
Income from Condo 360,000 360,000
Town house in QC, acquired during 10,500,000 10,500,000
marriage
Income from townhouse in QC 1,050,000 1,050,000
Total 6,000,000 P12,510,000 P18,510,000

#26 and #27. Absolute Community of Property

Property Exclusive Common Total

Rest house in Cebu 6,000,000 6,000,000
Income from rest house in Cebu 600,000 600,000
Condominium in Davao - 3,600,000 3,600,000
Income from Condo 360,000 360,000
Town house in QC, acquired during 10,500,000 10,500,000
marriage
Income from townhouse in QC 1,050,000 1,050,000
Car, inherited by wife but the decedent 1,300,000 1,300,000
said that it would form part of common
properties
Jewelry 200,000 200,000
Total Gross estate 23,610,000 23,610,000
#28. Conjugal Partnership of Gains
Property Exclusive Conjugal Total
Land 4,000,000 4,000,000
Building 10,000,000 10,000,000
Other properties acquired during 6,000,000 6,000,000
marriage
Jewelry inherited during Marriage 2,500,000 2,500,000
Property in US, gift during marriage 2,300,000 2,300,000
Rental income 1,200,000 1,200,000
Gross estate 8,800,000 17,200,000 26,000,000
Casualty losses (600,000) (600,000)
Claims against estate (1,600,000) (1,600,000)
Vanishing deduction – Jewelry (952,000) (952,000)
Net estate before special deduction 7,848,000 15,000,000 22,848,000
Standard deduction (5,000,000)
Family home (9,000,000)
Share of surviving spouse (7,500,000)
Net Estate 1,348,000

Vanishing Deduction
Initial value to take P1,300,000
Mortgage paid -
Initial basis 1,300,000
Allocated deduction (1,300/26,000 x (110,000)
P2,200)
Final basis 1,190,000
Vanishing rate (1-2 years nainherit) 80%
Vanishing deduction – exclusive 952,000

Family Home
Land (exclusive) 4,000,000
Building (10,000,000 / 2) 5,000,000
(conjugal)
Allowable 9,000,000
deduction

#29. Absolute Community of Property

Property Exclusive Common Total
Land 4,000,000 4,000,000
Building 10,000,000 10,000,000
Other properties acquired during 6,000,000 6,000,000
marriage
Jewelry inherited during Marriage 2,500,000 2,500,000
Property in US, gift during marriage 2,300,000 2,300,000
Rental income 1,200,000 1,200,000
Gross estate 3,500,000 22,500,000 26,000,000
Casualty losses (600,000) (600,000)
Claims against estate (1,600,000) (1,600,000)
Vanishing deduction – Jewelry (952,000) (952,000)
Net estate before special deduction 3,500,000 19,348,000 22,848,000
Standard deduction (5,000,000)
Family home (7,000,000)
Share of surviving spouse (9,674,000)
Net Estate 1,174,000

#30. Casualty losses, within one year from the date of death
 Loss due to shipwreck, six months after the decedent’s death, P500,000

#31. Amount includible in the Estate of Mr. Rich

Real property P2,000,000
Proceeds from loan 1,000,000
Gross estate P3,000,000
Accommodation Loan (1,000,000)
Net Estate P2,000,000

#32. Vanishing Deduction

Gross estate P7,000,000

Ordinary deductions 700,000

Vanishing deduction from inheritance from his father:

House and lot Cash Total
Initial value to take P1,500,000 500,000 P2,000,000
Mortgage paid (500,000) - (500,000)
Initial basis P1,000,000 500,000 P1,500,000
Proportionate deduction:
1,000/7,000 x 700,000 100,000 (150,000)
500/7,000 x 700,000 50,000
Final basis 900,000 450,000 1,350,000
Vanishing deduction rate 80%
Vanishing Deduction P1,080,000

Vanishing Deduction from gift from the mother

Initial basis 500,000
Proportionate deduction (500/7,000 x (50,000)
700,000)
Final basis 450,000
Vanishing deduction rate 100%
Vanishing deduction 450,000

Vanishing deduction from father P1,080,000

Vanishing deduction from mother 450,000
Total vanishing deduction P1,530,000

#33. Allowable deductions:

Ordinary deductions:
Expenses, losses, indebtedness and taxes P12,000,000
Unpaid mortgage on land 500,000
Unpaid mortgage on car 500,000
Funeral expenses (3,000,000)
Medical expenses (6,000,000)
Transfer for public use (TPU) 3,000,000
Ordinary deductions, excluding vanishing 7,000,000
deductions

*No vanishing deduction on the car, because vanishing deduction is applicable

only if the prior inheritance or gift was received within 5 years before death of the
decedent.
Date of receipt of property Vanishing deduction rate
0 – 1 year 100%
1 – 2 years 80%
2 – 3 years 60%
3 – 4 years 40%
4 – 5 years 20%
Initial value to take 12,500,000
Mortgage paid (500,000)
Initial basis P12,000,000
Proportionate deduction (12,000 / 80,000 x (1,050,000)
7,000,000)
Final basis P10,950,000
Vanishing deduction rate (3 – 4 years) 40%
Vanishing deduction 4,380,000

Ordinary Deductions
1. Losses
2. Indebtedness
3. Taxes payable
4. Transfer for public use

Not ordinary deduction:

1. Funeral expense
2. Judicial expense
3. Medical expense

#35. Deductible claims against the estate

Assets
Assets 100,000
Indebtedness with priority (40,000)
Total 60,000
Liabilities with no priority 100,000
Collectability 60%
Receivable from Juan 80,000
Collectible from Juan 48,000
Claims against insolvent person 32,000
(80-48)
#37. Deductible Family Home
Conjugal house (8,000,000 / 2) 4,000,000
Exclusive land 4,000,000
Deductible family home 8,000,000

#38. Net estate of Non-resident Alien

Exclusive Conjugal Total
Properties, Phil. 5,600,000 4,200,000 9,800,000
Expenses, losses, indebtedness (1,470,000) (1,470,000)
and taxes
(4,200,000 x 9,800 / 28,000)
Transfer for public use (1,800,000) (1,800,000)
Net estate before special 3,800,000 2,730,000 6,530,000
deductions
Standard deduction (500,000)
SOSS (1,365,000)
Net estate 4,665,000

#39. Net estate tax payable

Philippines USA Total
Gross estate P14,200,000 P4,400,000 P18,600,000
Allowable deductions 6,400,000 2,200,000 (8,600,000)
Standard deduction (5,000,000) (5,000,000)
Net estate 2,800,000 2,200,000 5,000,000
Estate tax rate 6%
Estate tax 300,000
Estate tax credit (132,000)
Estate tax payable 168,000
Estate tax credit:
Estate tax paid – USA 150,000
Limit:
2,200/5,000 x 300,000 132,000
Lower 132,000

#40. Net estate payable

Gross estate Allowable Net Estate
deduction
Philippines P18,750,000 P15,750,000 3,000,000
China 3,000,000 1,500,000 1,500,000
Japan 4,500,000 5,250,000 (750,000)
USA 6,000,000 2,250,000 3,750,000
Total 32,250,000 24,750,000 7,500,000
Estate tax rate 6%
Estate tax 450,000
Estate tax credit (217,500)
Estate tax 232,500
payable

Estate tax credit:

Limit 1 – Individual Country Limit Actual paid allowed
China (450,000 x 1,500/7,500) 90,000 37,500 37,500
Japan negative 0 0
USA (450,000 x 3,750/7,500) 225,000 180,000 180,000
Total 217,500

Limit 2 – All foreign Countries Limit Actual paid allowed

Foreign countries 270,000 217,500 217,500
(450,000 x 4,500 / 7,500)