In the Philippines, the practice of children providing financial allowances to their parents—often referred to as "filial support"—is a deeply rooted cultural norm. However, from a legal and fiscal standpoint, the question arises: Are these personal allowances considered taxable income for the parents?
To answer this, one must examine the intersection of the National Internal Revenue Code (NIRC), the Family Code of the Philippines, and existing Bureau of Internal Revenue (BIR) regulations.
1. The General Rule: What Constitutes Taxable Income?
Under Section 32(A) of the NIRC, "Gross Income" is defined broadly as all income derived from whatever source, including compensation for services, business income, interests, and rents.
However, for a receipt of money to be considered "taxable income," it must generally flow from labor, the use of capital, or a combination of both. Personal allowances from children typically do not fit this definition because they are not earned through a professional or contractual service.
2. Exclusion from Gross Income: Gifts and Bequests
The most critical provision regarding this topic is Section 32(B)(3) of the NIRC. This section explicitly states that the value of property acquired by gift, bequest, devise, or descent shall not be included in gross income and shall be exempt from taxation.
Since allowances from children are usually given out of "detached and disinterested generosity" or love and affection, they are legally classified as gifts. Therefore, the parent (the recipient) is not required to declare these allowances as part of their taxable income on an Income Tax Return (ITR).
3. The Legal Obligation of Support
Beyond being a "gift," such allowances often fall under the legal category of Support. Under Article 194 and 195 of the Family Code, parents and children are contractually and legally obliged to support each other.
- Support includes everything indispensable for sustenance, dwelling, clothing, medical attendance, and transportation.
- Because providing support is a legal mandate, the BIR generally does not view the fulfillment of this obligation as a taxable event for the recipient.
4. The Donor’s Tax Consideration
While the parent does not pay income tax on the allowance, the child (the giver) may, in theory, be subject to Donor’s Tax.
Following the TRAIN Law (Republic Act No. 10963), the rules for Donor's Tax are as follows:
- Exemption Threshold: The first ₱250,000 of total gifts made by a donor within a single calendar year is exempt from tax.
- Tax Rate: Any amount exceeding the ₱250,000 threshold is subject to a flat rate of 6%.
Practical Application: If a child gives their parent an allowance of ₱20,000 per month (totaling ₱240,000 a year), the amount is below the threshold. No Donor’s Tax is due, and the parent pays no income tax. If the total gifts exceed ₱250,000, the child is technically responsible for filing a Donor’s Tax return (BIR Form 1800) and paying the 6% tax on the excess.
5. Summary Table: Income Tax vs. Donor's Tax
| Feature | Recipient (Parent) | Giver (Child) |
|---|---|---|
| Tax Type | Income Tax | Donor's Tax |
| Is it Taxable? | No (Excluded under Sec. 32) | Yes, if exceeding ₱250,000/year |
| Reporting Requirement | None | BIR Form 1800 (if over threshold) |
| Legal Basis | NIRC Sec. 32(B)(3) | NIRC Sec. 99 |
Conclusion
In the Philippine context, personal allowances from children to parents are not considered taxable income for the parents. They are viewed either as a return of support under the Family Code or as a gift under the Tax Code. While the recipient is safe from income tax liabilities, donors should remain mindful of the ₱250,000 annual threshold to ensure compliance with donor’s tax regulations.
Would you like me to draft a summary of the documentation needed to prove that a large transfer of money is a "gift" rather than "taxable compensation"?