TAXATION

ESTATE TAX (101)

Transfer tax is defined as a tax imposed on gratuitous transfer of property, rights and obligations.
Two General Ways ofTransferrin2 Ownership of Property
Onerous transfer is one where as part of the transfer process, there is a consideration or burden required from Bilateral transfers or exchanges,
the transferee. This kind of transfer is characterized by the exchange of values between the transferor and such as sale and barter. These
transferee. are referred to as "onerous
transfer".
Gratuitous transfer is one where there is no burden that is imposed on or consideration required from, the Unilateral transfers, such as
recipient or transferee. succession - transfer of property
upon death and donation. These
Kinds of GratuitousTransfer are referred to as "gratutitous
1. Estate Tax - Which is a kind of transfer tax imposed on gratuitous transfer of property which takes transfer".
effect upon death of the transferor. ( A tax levied upon the transfer of the net estate of a decedent to
his heirs)
2. Donor's Tax - Which is a kind of transfer tax imposed on gratuitous transfer of property that is
completed even during the lifetime of the transferor.
On the basis, transfer tax is considered as excise tax.
Under current usage, unilateral transfers are simply referred to as "transfer" while bilateral transfers are called "exchanges". Benefits derived from
onerous transactions are "earned or realized", hence subject to income tax. Benefits derived from gratuitous transactions are not realized because of
the absence of an earning process. Benefits from gratuitous transactions are subject to transfer tax not income tax.

Complex transactions- are partly gratuitous and partly onerous. These transactions are commonly referred to as "transfer for less ull and adequate
consideration". The gratuitous portion of the transaction is subject to transfer tax while the benefit from the onerous portion is subject to income tax.

PROBLEM
Problem 1: (Income tax andTransfer tax) Check the box where each of the following items is taxable:
Income tax Transfer tax
1. Sale of goods
2. Donation of goods
3. Barter of goods
4. Transfer of properties from a decedent to his heirs upon death
5. Transfer for less than full and adequate consideration

Concept of Succession and EstateTax

Succession - is a mode of acquisition by virtue of which the property, rights and obligation to the extent of the value of the inheritance, of a person
are transmitted through his death to another or others either by will or by operation of law. (Art. 774, Civil Code of the Philippines).
• Will- an act whereby a person is permitted with the formalities prescribed by law, to control to a certain degree the disposition of his
estate, to take effect after his death (Art. 783,CCP) from the moment of the death of the decedent, the rights to the succession are
transmitted, and the possession of the hereditary property is deemed transmitted to the heir (Art. 777, CCP)

Elements of Succession
a. Decedent- the person whose property is transmitted through succession, whether or not he left a will (Art 775, CCP)
b. Heir- the person called to the succession either by the provision of a will or by operation of law (Art. 782,CCP)
c. Estate- refers to all the property, rights and obligations of a person which are not extinguished by his death (Art. 776, CCP)

Requisites of Succession
1. Death of the transferor or decedent
2. Estate or the mass of properties left by the decedent
3. Successors, beneficiaries, or heirs of the decedent
4. Executors and/or administrator

Kinds of Succession
Testate succession - 1. Testamentary- succession which results from the designation of an heir, made in a will executed in the form prescribed
is one that takes effect by law (Art. 779,CCP)
by virtue of a will
executed by a person, While the decedent may dispose of his properties in a last will and testament, he must, however, reserve some for certain
known as the persons who are called by law as compulsory or forced heirs.
decedents, in favor of • Kinds of successors in a testamentary succession
another or other 1. Legatee- an heir to a particular personal property given by virtue of a will.
beneficiaries (also 2. Devisee- an heir to a particular real property given by virtue of a will.
known as heirs) in the • Executor- is the person nominated by a testator to carry out the directions and request in his will and to
form prescribed by dispose of his property according to his testamentary provisions after his death.
law. • Kinds of compulsory heirs:
1. Primary - those who have precedence over and exclude other compulsory heirs (i.e. legitimate children
and descendants)
2. Secondary - those who succeed only in the absence of the primary compulsory heirs (i.e. legitimate
parents and ascendants)
3. Concurring - those who succeed together with the primary or secondary compulsory heirs (i.e.
illegitimate children and descendants and surviving spouse)
• Under testamentary succession, the mass of properties left by the decedent may be classified into:
1. Legitime is the portion of the testator's property which could not be disposed of freely because the law
has reserved it for the comoulsorv heirs. (Art.886,CCP)

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