Years ago, Krisanto bought a parcel of land in Muntinlupa for only PhP65,000. He donated the land to his son, Kornelio, in 1980 when the property had a fair market value of PhP75,000, and paid the corresponding donor’s tax.
Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 million and paid the capital gains tax, documentary stamp tax, local transfer tax, and other fees and charges. Katrina, in turn, donated the land to Klaret School last August 30, 2017 to be used as the site for additional classrooms. No donor’s tax was paid, because Katrina claimed that the donation was exempt from taxation. At the time of the donation to Klaret School, the land had a fair market value of PhP 65 million.
(a) Is Katrina liable for donor’s tax? (2.5%)
(b) How much in deduction from gross income may Katrina claim on account of the said donation? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** Katrina is not liable for donor's tax. She may claim a deduction of PhP6.5 million from gross income if Klaret School is an accredited donee, or up to 10% of her taxable business income under statutory limits.
**Legal Basis:** Under Section 101(A)(3) of the NIRC, donations to educational institutions are exempt from donor's tax. Under Section 34(H), donations to accredited NGOs are fully deductible based on acquisition cost, or limited to 10% of taxable income.
**Application:** The classroom donation to Klaret School is tax-exempt. For income tax, Katrina may deduct the acquisition cost of PhP6.5 million if the school is accredited, or claim up to 10% of her taxable business income.
**Conclusion:** Thus, Katrina owes no donor's tax, and her deduction is PhP6.5 million or subject to the 10% limit.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
Under Section 101(A)(3) of the Tax Code, what percentage of a donation to an educational institution may be spent on administrative costs to remain exempt from donor's tax?
Section 101(A)(3) requires that not more than thirty percent of the donation be used for administrative purposes.
What is the general income tax deduction ceiling for charitable contributions made by an individual under Section 34(H) of the Tax Code?
Individual taxpayers are subject to a statutory deduction ceiling of ten percent of taxable business income for standard charitable contributions.
How is the deductible amount of a real property donation calculated for income tax purposes under Section 34(H)?
The allowable income tax deduction for a non-cash charitable contribution is determined by the acquisition cost or adjusted basis of the property.
Which condition must be met for a donation of land to an educational institution to be completely exempt from donor's tax?
Donor's tax exemption requires that no more than thirty percent of the gift be utilized for administrative costs.
Under Section 34(H), when can an individual claim a full deduction for a charitable contribution without applying the ten percent ceiling?
Donations to accredited NGOs or qualifying priority projects under Section 34(H) are deductible in full without statutory limits.
Learn more about these topics
1. Educational Donation Exemption
Under Section 101(A)(3) of the National Internal Revenue Code, gifts made to or for the use of educational, charitable, religious, cultural, or social welfare institutions, or non-accredited non-government organizations, are exempt from donor's tax. To qualify for exemption, not more than thirty percent of the gift shall be used by the donee institution for administration purposes. A donation of real property to an educational institution to serve as a site for school classrooms directly fulfills educational objectives, thus qualifying the donor for full exemption from Philippine donor's tax.
2. Charitable Deduction Limits
Under Section 34(H) of the Tax Code, contributions or gifts actually paid or made within the taxable year to accredited non-government organizations or educational institutions are deductible from gross income. For individual donors, charitable contributions to non-accredited institutions are subject to a statutory deduction ceiling of ten percent of taxable income derived from trade, business, or profession, prior to deducting such contributions. However, donations made to accredited non-government organizations or under specific priority programs may be deductible in full based on the donor's acquisition cost.
3. Deductible Property Valuation
For income tax deduction purposes under Section 34(H) of the Tax Code, the deductible amount of a non-cash charitable contribution of real property is generally based on the acquisition cost or adjusted basis of the donated property, rather than its prevailing fair market value at the time of donation. Therefore, even if the donated land has appreciated significantly in value by the time it is conveyed to an educational institution, the allowable income tax deduction is calculated using the donor's historical purchase price.