In the Philippine jurisdiction, the donation of real property is a formal act that carries significant tax implications. Donor’s tax is not a property tax but rather an excise tax imposed on the privilege of the donor to transfer property gratuitously. Understanding the valuation of real property is critical, as it serves as the tax base upon which the applicable rate is applied.
The primary governing law is the National Internal Revenue Code (NIRC) of 1997, as significantly amended by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
1. The Tax Base: Fair Market Value
Pursuant to Section 102 of the NIRC, in relation to Section 88(B), if a gift is made in property, the value thereof at the time of the donation shall be considered the amount of the gift. For real property, the law is specific about how this "Fair Market Value" (FMV) is determined.
The value of the real property shall be the higher of:
- The Zonal Value: The value as determined by the Commissioner of Internal Revenue (CIR); or
- The Assessed Value: The value as shown in the schedule of values fixed by the Provincial and City Assessors (found in the Tax Declaration).
If there is no established zonal value, the FMV appearing in the latest Tax Declaration shall be used. If the property is being sold for less than an adequate and full consideration (a "deemed gift"), the difference between the FMV and the consideration is subject to donor’s tax.
2. The Applicable Tax Rate
Under the TRAIN Law, which took effect on January 1, 2018, the computation of donor’s tax was simplified. Previously, the law utilized a graduated tax table and distinguished between relatives and strangers.
- Current Rate: A flat rate of 6%.
- Threshold: The tax is computed on the total value of net gifts made during the calendar year that exceed ₱250,000.
- Uniformity: The 6% rate applies regardless of whether the donee (the recipient) is a stranger or a relative.
3. Computation of the Net Gift
The tax is levied on the "Net Gift." To arrive at this figure, one must determine the Gross Gift and subtract any allowable deductions or exemptions.
- Gross Gift: The FMV of the real property (as determined by the "higher of" rule mentioned above).
- Encumbrances: If the property is donated subject to a mortgage or an existing lien which is assumed by the donee, the amount of the debt assumed is generally deducted from the FMV to arrive at the net gift.
- The ₱250,000 Exemption: This is an annual exempt threshold. Only the amount in excess of ₱250,000 is multiplied by the 6% tax rate.
4. Exempt Donations
Certain donations of real property may be exempt from donor’s tax under Section 101 of the NIRC, provided specific conditions are met:
- Donations to the Government of the Philippines or any entity/political subdivision thereof for public use.
- Donations in favor of educational, charitable, religious, cultural, or social welfare corporations, or philanthropic organizations/NGOs, provided that no more than 30% of said gifts are used by the donee for administration purposes.
5. Summary Table: Valuation and Rates
| Factor | Rule / Value |
|---|---|
| Primary Basis | Fair Market Value (FMV) at the time of donation |
| Valuation Hierarchy | Higher of: Zonal Value vs. Assessed Value |
| Tax Rate | 6% of the amount in excess of ₱250,000 |
| Taxable Period | Cumulative within one calendar year |
6. Administrative Requirements and Deadlines
To perfect the transfer of the title following the payment of the donor's tax, the taxpayer must comply with the following procedural steps:
- Filing (BIR Form 1800): The donor’s tax return must be filed within thirty (30) days after the date the gift (the Deed of Donation) is made or executed.
- Place of Filing: The return is generally filed with the Revenue District Office (RDO) having jurisdiction over the residence of the donor. For non-resident citizens, it may be filed with the Philippine Embassy or Consulate where they reside, or directly with the Office of the Commissioner.
- Certificate Authorizing Registration (CAR): Upon payment of the tax and submission of required documents (Deed of Donation, Certified True Copy of the Title, Tax Declaration, etc.), the BIR will issue a CAR. This document is indispensable for the Register of Deeds to cancel the old title and issue a new one in the name of the donee.
Failure to file and pay on time results in the imposition of civil penalties, including a 25% surcharge (or 50% in cases of willful neglect or fraud) and annual interest.