After finally passing the Bar Examinations, a new lawyer was given an engagement ring worth PHP1,000,000.00 by a longtime significant other who happened to be one of the most junior sitting Justices of the Supreme Court. Their relationship has so far been platonic. Being an avid supporter of the current government, the new lawyer told the significant other that the gift would only be accepted if all taxes due have been paid. Is there any tax liability arising from the giving of the engagement ring? Explain briefly.
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Yes, there is a donor's tax liability arising from the giving of the engagement ring. Under Section 98 and Section 99 of the National Internal Revenue Code (R.A. No. 8424, as amended by R.A. No. 10963), a donor's tax of six percent
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Quick check
Under Section 99 of the Tax Code, what is the statutory tax rate for donor's tax on net gifts exceeding PHP 250,000.00?
Section 99 of the Tax Code imposes a donor's tax rate of six percent on net gifts exceeding PHP 250,000.00.
Under Section 32(B)(3) of the Tax Code, how is a gift treated for income tax purposes by the donee?
Section 32(B)(3) excludes property acquired by gift from the recipient's gross income.
What is the net taxable gift when an individual donates an engagement ring worth PHP 1,000,000.00 during the calendar year?
Deducting the PHP 250,000.00 exemption from the PHP 1,000,000.00 gift yields a net taxable gift of PHP 750,000.00.
Who is statutorily liable to pay the donor's tax on a gratuitous transfer of property?
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Which statute amended the Tax Code to set a flat 6% donor's tax rate with a PHP 250,000.00 annual exemption?
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Learn more about these topics
1. Donor's Tax Liability
Under Section 98 and Section 99 of the National Internal Revenue Code of 1997 (Republic Act Number 8424, as amended by Republic Act Number 10963, or the TRAIN Law), a donor's tax of six percent (6%) is levied upon the gratuitous transfer of property by gift. The tax applies to total net gifts made during the calendar year in excess of the statutory exemption threshold of Two Hundred Fifty Thousand Pesos (PHP 250,000.00). The donor is statutorily liable for paying the donor's tax on the taxable portion of the gift value.
2. Gross Income Exclusion
Under Section 32(B)(3) of the National Internal Revenue Code, the value of property acquired by gift, bequest, devise, or descent is explicitly excluded from gross income. Consequently, the recipient or donee of a gratuitous transfer incurs no income tax liability on the value of the property received. While income generated from such property after acquisition remains subject to income tax, the receipt of the principal gift itself is non-taxable to the donee.
3. Computation of Tax
Under the amended provisions of Section 99 of the Tax Code, donor's tax is computed at a flat rate of six percent (6%) on net gifts exceeding Two Hundred Fifty Thousand Pesos (PHP 250,000.00). When an engagement ring valued at One Million Pesos (PHP 1,000,000.00) is given as a gift, the net taxable gift is Seven Hundred Fifty Thousand Pesos (PHP 750,000.00). The corresponding donor's tax liability equals Forty-Five Thousand Pesos (PHP 45,000.00), payable exclusively by the donor.