In the Philippines, the transfer of property through donation is governed by the National Internal Revenue Code (NIRC), as significantly amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963).
A donor's tax is an excise tax imposed on the privilege of transferring property from a living person to another without adequate consideration. It is not a tax on the property itself, but on the act of liberal transfer.
1. The Applicable Tax Rate
Under the TRAIN Law (effective January 1, 2018), the calculation of donor’s tax has been simplified into a single flat rate.
- Tax Rate: 6%
- Basis: The total value of net gifts in excess of ₱250,000 made during the calendar year.
Unlike the previous regime, there is no longer a distinction between "strangers" and "relatives" regarding the tax rate; the 6% flat rate applies to all donees.
2. Valuation of the Property
To calculate the tax, you must first determine the Gross Gift value of the property. For real property, the value is the higher of:
- The Fair Market Value (FMV) as determined by the Commissioner of Internal Revenue (Zonal Value); or
- The Fair Market Value as shown in the schedule of values of the Provincial and City Assessors (Assessed Value).
If the property being donated is personal property (e.g., shares of stock, jewelry, vehicles), the valuation is based on the FMV at the time of the gift. For shares of stock not traded in the stock exchange, the "Book Value" (for common shares) or "Liquidation Value" (for preferred shares) is used.
3. Deductions from the Gross Gift
The Net Gift is the amount subject to tax after subtracting allowable deductions. Common deductions include:
- Encumbrances: If the property is mortgaged and the donee assumes the payment of the mortgage, the amount of the mortgage is deductible.
- Diminutions: Any portion of the property or value provided by the donor but intended for a specific purpose (e.g., a portion of the gift is dedicated to a specific charity as a condition).
- Exempt Donations: Donations to specific entities (e.g., the Philippine government, non-profit educational/charitable institutions where not more than 30% of the gift is used for administration) are exempt.
4. Step-by-Step Calculation Formula
To calculate the donor's tax for a specific property transfer:
- Determine the Fair Market Value (FMV): Identify the higher value between the Zonal Value and the Assessed Value.
- Identify Deductions: Subtract any mortgage assumed by the donee or other allowable deductions.
- Apply the Annual Exempt Threshold: Subtract the ₱250,000 exemption. (Note: This exemption is applied only once per calendar year).
- Compute the Tax: Multiply the remaining amount by 6%.
Illustrative Example:
Mr. Cruz donated a residential lot to his daughter in March 2024.
- Zonal Value: ₱2,000,000
- Assessed Value: ₱1,500,000
- Mortgage Assumed by Daughter: ₱200,000
| Step | Component | Amount |
|---|---|---|
| 1 | Gross Gift (Higher of Zonal/Assessed) | ₱2,000,000 |
| 2 | Less: Mortgage Assumed | (₱200,000) |
| 3 | Net Gift Value | ₱1,800,000 |
| 4 | Less: Annual Exemption | (₱250,000) |
| 5 | Taxable Net Gift | ₱1,550,000 |
| 6 | Donor's Tax Due (6%) | ₱93,000 |
5. Cumulative Computation within a Calendar Year
The donor’s tax is computed on a cumulative basis over one calendar year. If a donor makes multiple gifts throughout the year, the tax is calculated on the total net gifts for the year, deducting the tax already paid on previous donations within that same year.
6. Filing and Payment Requirements
The responsibility for filing the return and paying the tax lies with the Donor.
- Form: BIR Form No. 1800.
- Deadline: Within thirty (30) days after the date the gift (donation) is made.
- Place of Filing: Generally, with an Authorized Agent Bank (AAB) or the Revenue District Office (RDO) having jurisdiction over the donor’s residence. For non-residents, it is filed with the RDO having jurisdiction over the location of the property or at the Office of the Commissioner.
7. Transfers for Less Than Adequate Consideration
Under Section 100 of the NIRC, if a property (other than real property classified as capital assets) is sold or exchanged for less than its fair market value, the difference between the FMV and the actual consideration is deemed a gift and is subject to donor’s tax. However, if the sale is a bona fide transaction made in the ordinary course of business, it is generally not treated as a gift.