1) The legal framework and basic concept

Donor’s tax is a tax on the gratuitous transfer of property—a “gift”—made during the donor’s lifetime. It applies whether the gift is made directly (e.g., deed of donation) or indirectly (e.g., transfer for less than adequate consideration).

Under the National Internal Revenue Code (NIRC), as amended (including the TRAIN reforms), donor’s tax is imposed on the donor based on the net gifts made during a calendar year, with a key rule:

Only the amount in excess of ₱250,000 in net gifts per calendar year is subject to donor’s tax.
The tax rate is 6% on the excess over ₱250,000.

This ₱250,000 rule is commonly called the “annual exclusion”, though in Philippine practice it functions as a yearly exemption threshold.

2) What counts as a “gift” (and what doesn’t)

A. What generally counts as a taxable donation (gift)

A gift typically exists when there is:

A transfer of property or a right (real property, shares, cash, receivables, etc.);
Without consideration, or for insufficient consideration; and
With donative intent (or a situation the tax law treats as a gift even if the parties label it otherwise).

Common examples:

Donation of land/condo through a Deed of Donation
Donation of cash, vehicles, jewelry, equipment
Transfer of shares to a relative for free or for a token price
Condonation/forgiveness of debt (creditor “waives” the receivable)
Transfers to a trust for the benefit of another (depending on structure and retained powers)

B. Transfers that are not gifts in substance (and usually not donor’s tax)

These depend heavily on facts and documentation, but generally:

Sales for adequate and full consideration (fair market)
Partition of co-owned property where each owner receives only what corresponds to their share (no gratuitous “extra” given)
Compulsory transfers by operation of law (not a voluntary donation)
Certain transfers between spouses may have special treatment depending on property regime and purpose, but documentation and context are critical.

Key practical point: If consideration is below fair market value, the difference may be treated as a gift (a “bargain sale” concept).

3) Who is taxed and what property is covered (resident vs nonresident)

A. Philippine resident citizen / resident alien donor

A donor who is a Philippine resident is generally taxed on donations of property wherever situated (Philippines or abroad), subject to rules on situs and potential relief mechanisms.

B. Nonresident alien donor

A nonresident alien is generally taxed only on donations of:

Real property and tangible personal property situated in the Philippines, and
Intangible personal property situated in the Philippines, unless exempt under reciprocity rules.

C. The “reciprocity” exemption for certain intangibles (important niche rule)

Philippine donor’s tax can exempt certain intangibles donated by a nonresident alien if the donor’s home country:

Does not impose donor’s tax on similar intangibles of Filipinos not residing there, or
Grants a similar exemption (reciprocal treatment).

This is technical and fact-specific (citizenship/residency, nature of intangible, foreign law), and it’s often raised in donations of shares, bank deposits, or other intangibles linked to the Philippines.

4) The ₱250,000 annual exclusion: what it is and how it works

A. The rule

For each calendar year:

Compute net gifts (explained below),
Apply the ₱250,000 exclusion, and
Tax the excess at 6%.

Formula (simplified): Donor’s Tax = 6% × (Net Gifts for the Year − ₱250,000) If net gifts ≤ ₱250,000 → no donor’s tax due, though filing may still be required in many cases (see compliance section).

B. “Per donor, per calendar year” (not per donee)

The ₱250,000 threshold is not ₱250,000 per recipient.
It’s ₱250,000 total net gifts by the donor within the year, regardless of how many donees.

C. Timing matters: calendar-year planning

Because the exclusion resets every January 1:

A donor can make gifts in December and again in January and potentially enjoy the threshold twice across two different calendar years (subject to substance and documentation).

D. Spouses: two donors, two exclusions (often overlooked)

If spouses donate (and the facts support that both are donors), each spouse may be entitled to a separate ₱250,000 exclusion for the year.

In practice, whether one or both spouses are treated as donors depends on:

The property regime (conjugal/community vs separation),
Who owns the property donated,
Who signs and is identified as donor in the instrument,
How the donation is structured.

For donations of conjugal/community property, the donation is often treated as made by both spouses (each donating their share), which can effectively allow two ₱250,000 exclusions, but it must be properly documented and consistent with property law rules on disposition.

5) “Net gifts” and what is excluded or exempt before applying ₱250,000

A. What “net gifts” means in practice

“Net gifts” for the year generally start from the total gifts made in the year, then remove items that are not subject due to:

Statutory exemptions (certain donees/uses),
Property not covered due to situs rules (especially for nonresidents),
Certain adjustments (e.g., encumbrances assumed by donee, where applicable).

With TRAIN’s simplification, the computation is typically more straightforward than older systems with many itemized deductions and graduated rates.

B. Encumbered property: mortgage/loan issues

If donated property is subject to a mortgage:

If the donee assumes the mortgage as part of the transfer, the net gift may be reduced by the amount effectively taken on by the donee (because that assumption is a form of consideration).
If the donor continues to pay without reimbursement, additional gift implications may arise depending on structure.

These cases are documentation-heavy: deed terms, lender consent, and whether assumption is real and enforceable matter.

6) Donor’s tax exemptions (Philippine context)

Some donations are exempt from donor’s tax regardless of amount. The major exemption categories commonly relied upon are:

A. Donations to the Government

Donations made to or for the use of:

The National Government, or
Any entity created by law, or
Any political subdivision (e.g., province, city, municipality, barangay),

are generally exempt, especially when the donation is for public purpose and properly accepted by the recipient government entity.

Practical requirements often include:

Government acceptance (e.g., resolution/acceptance documents),
Clear “for the use of” language and purpose.

B. Donations to qualified/accredited donee institutions (charitable, religious, educational, etc.)

Donations in favor of certain non-stock, non-profit entities organized and operated exclusively for:

Educational
Charitable
Religious
Cultural
Social welfare purposes

may be exempt from donor’s tax, typically subject to conditions such as:

The organization meets non-profit and no inurement requirements (no part of net income/asset benefits private individuals),
The donee is qualified/accredited under applicable rules and maintains compliance documentation.

Important distinction: Donor’s tax exemption is not the same as the donor’s ability to claim an income tax deduction for charitable contributions (which has its own set of rules and substantiation). A donation can be donor’s-tax-exempt yet still not deductible for income tax (and vice versa) depending on compliance.

C. Special laws and specific-purpose exemptions

From time to time, special statutes may grant exemptions for donations to specific programs (e.g., certain disaster response frameworks, socialized housing initiatives, or priority development programs). Whether these apply depends on the specific law and the implementing rules.

7) Applying the ₱250,000 exclusion step-by-step (with examples)

Step 1: Identify all gifts made in the calendar year

Include cash, properties, rights, shares, forgiven debts, and bargain elements of undervalued transfers.

Step 2: Determine which gifts are exempt (remove them from the taxable base)

Example: donation to the National Government (properly documented) is removed.

Step 3: Value each non-exempt gift properly

Use the correct tax valuation rules (see Section 8).

Step 4: Sum the non-exempt gifts to get “net gifts” for the year (subject to adjustments)

Apply mortgage assumption reductions if properly treated as consideration.

Step 5: Apply ₱250,000 annual exclusion

Only the excess is taxed.

Step 6: Compute donor’s tax at 6% and comply with filing/payment

Example 1: Multiple donees

Donated ₱100,000 cash to sibling
Donated ₱120,000 cash to friend
Donated ₱80,000 cash to cousin Total non-exempt gifts = ₱300,000 Taxable excess = ₱300,000 − ₱250,000 = ₱50,000 Donor’s tax = 6% × ₱50,000 = ₱3,000

Example 2: Mix of exempt and non-exempt gifts

Donated ₱500,000 to a city government (properly accepted) → exempt
Donated ₱260,000 cash to a private individual → non-exempt Net non-exempt gifts = ₱260,000 Since ₱260,000 − ₱250,000 = ₱10,000 → tax = ₱600

Example 3: Spouses donating conjugal/community property (conceptual)

If a donated asset is clearly conjugal/community and both spouses are properly treated as donors, each spouse may be treated as donating their share, potentially allowing two ₱250,000 thresholds. The exact outcome depends on property regime facts and documentation.

8) Valuation rules (where disputes often happen)

A. Real property (land/condo/building)

For donor’s tax purposes, value is generally based on fair market value (FMV) under tax rules, commonly determined as the higher of:

The zonal value (BIR), or
The fair market value per the local assessor (tax declaration)

Improvements and classification matter; mismatches between declared values and actual may trigger scrutiny.

B. Shares of stock

Listed shares: typically based on market value under applicable rules.
Unlisted shares: often based on book value (from latest financial statements), subject to the applicable BIR valuation approach.

C. Personal property (vehicles, equipment, jewelry)

Generally FMV at the time of donation. Appraisals and objective references help.

D. Intangibles and rights

Receivables, intellectual property rights, partnership interests, etc., require defensible valuation support.

9) Compliance: returns, deadlines, and transaction mechanics

A. Filing and payment

Donor’s tax is generally filed using the donor’s tax return (commonly BIR Form 1800 in practice), with payment due within the statutory period from the date of donation (commonly 30 days from the gift, subject to current implementing rules).

Even when no tax is due (because of the ₱250,000 exclusion), filing may still be required in many donation transactions—especially where the donation involves registrable property (real property, shares requiring transfer records), because agencies and registries often require proof of tax compliance.

B. Real property: eCAR and registry requirements

Donations of real property frequently require:

Electronic Certificate Authorizing Registration (eCAR) from the BIR,
Deed of Donation and acceptance,
Supporting documents for valuation,
Payment of other charges.

C. Other taxes/fees that may arise (separate from donor’s tax)

A deed of donation can trigger other obligations, depending on the asset:

Documentary Stamp Tax (DST) on conveyances/documents
Transfer fees (Registry of Deeds, local transfer tax in some LGUs, registration fees)
Notarial costs and administrative requirements

These are distinct from donor’s tax: even if donor’s tax is reduced by the ₱250,000 exclusion, DST/fees may still apply.

10) Documentation and substantiation (the difference between smooth processing and delay)

For ordinary donations:

Deed of Donation and acceptance (clear identity of donor/donee, description, valuation basis)
Proof of ownership (titles, tax declarations, stock certificates, etc.)
Proof of valuation (zonal value, tax declarations, appraisals, financial statements)

For exempt donations (government or qualified institutions):

Proof the donee is a qualified/accredited entity where required
Proof of acceptance and purpose (“for the use of”)
Certifications/receipts required by the applicable regulatory framework

11) Common pitfalls and audit triggers

Treating ₱250,000 as “per donee” rather than per donor per year
Using contract labels to disguise a gift (e.g., “sale” at a token price)
Understating real property FMV by ignoring the higher of zonal vs assessed FMV
Donating conjugal/community property but naming only one spouse as donor (or vice versa) inconsistently
Claiming exemption for a donee institution that lacks proper qualification/accreditation documentation
Forgetting that donor’s tax and DST/fees are separate obligations

12) Practical takeaways (without shortcuts)

Aggregate your gifts by calendar year—that’s how the ₱250,000 threshold is applied.
Separate exempt gifts from non-exempt gifts before computing the taxable base.
Value properly (especially real property and shares).
Document donor identity and ownership correctly—especially for spouses and conjugal/community assets.
Plan timing across years when legitimate and consistent with actual intent and transfer.
Comply early for registrable assets to avoid delays in eCAR issuance and registration.