TAXATION 2 NOTES 2.

Definition of Ownership and Owner:

A.Y. 2024-2025 MIDTERM ○ Owner: The person who holds
dominion or title to property.
I. Amendment of the Estate Tax Rate ○ Ownership: Exclusive right to
possess, enjoy, and dispose of
● Section 22 of the TRAIN law amends property.
Section 84 of the Tax Code, which
provides for the estate-tax rate.
● Under the TRAIN law, it will now be Modes of Acquiring Ownership:
1. Occupation: Ownership of appropriable
subject to a flat rate of 6 percent.
things (e.g., animals or fish) with no
II. Amendments on Estate Tax Deductions known owner.
2. Intellectual Creation: Ownership
● Section 23 of the TRAIN law amends through the creation of intellectual
Section 86 of the Tax Code, which works (music, literature, etc.).
3. Donation: The gratuitous transfer of a
provides for the computation of the net
thing or right.
estate or, effectively, the deductions 4. Succession: Transfer of property
allowed to the gross estate of an through inheritance.
individual. 5. Prescription: Acquiring ownership
● The TRAIN law removes funeral through the passage of time under legal
expenses, judicial expenses and medical conditions.
expenses as allowable deductions. Examples:
● Occupation: Bees or domesticated
● Instead, the law increases the Standard
animals can be acquired under specific
Deduction to P5 million, which circumstances.
previously only amounted to P1 million. ● Intellectual Creation: Authors and
Only available to citizens (resident or composers own their works by law.
nonresident) and resident aliens, TRAIN ● Prescription: Long-term possession,
law now provides that nonresident aliens such as land accretion through natural
causes, can lead to ownership.
can avail themselves of a standard
deduction, although only up to Concept of Transfer Taxes
P500,000. 1. Definition:
○ A tax levied on the transfer of
INTRODUCTION ownership from one entity to
Key Concepts: another, typically requiring
1. What is Property? registration.
○ Property refers to anything ○ Gratuitous transfers (e.g.,
subject to ownership. donations) are subject to
transfer taxes.
Two types of Property: 2. Types of Transfer Taxes:
○ Estate Tax: Imposed on the
Real Property- properties that cannot transmission of property from
be transferred without causing damage. the deceased to their heirs.
Personal Property- can easily be ○ Donor’s Tax: Levied when
transported. property is transferred from the
○ Ownership includes possession, donor to the donee.
use, and enjoyment for lawful
purposes.

Compiled and Arranged by: Rizza June Jimena

Key Points: Testamentary Succession
● Estate Tax: A tax on the decedent's ● Will: Legal document detailing the
estate at the time of death, distribution of assets.
encompassing all assets and liabilities. ○ An Act whereby a person is
● Donor’s Tax: A tax applied when permitted, with formalities, to
ownership is passed by donation during control to a certain degree the
the donor’s lifetime. disposition of his estate to take
● Both are excise taxes, focusing on the effect after his death.
right to transfer property either during ● Codicil: A document modifying a will.
life or after death. ● Probate: Court process validating a
will.
BASIC CONCEPTS OF SUCCESSION ● Capacity to Make a Will
○ The testator (person making the
will) must have sound mind at
Succession Definition
the time of execution. This
● Succession: Transfer of property, rights,
means the testator understands
and obligations of a deceased person to
the nature of their estate, the
their successors, either by will or by law.
beneficiaries, and the act of
making a will.
Types of Succession
1. Testamentary (Testate): Based on the
Forms of Will
deceased’s will.
● Holographic- written by the testator
2. Legal (Intestate): Occurs when no valid
will is present. with his own hand without witness.
3. Mixed: A combination of will and legal ● Notarial- notarized by law.
inheritance.
Disinheritance
Elements of Succession ● Reasons include attempts on life, false
1. Death of Decedent: Property transfer accusations, or misconduct against the
begins at death. testator.
2. Inheritance: Includes all
non-extinguished rights and obligations. NOTE:
3. Successors: Heirs, devisees (real estate), ● A will can be revoked anytime before
and legatees (personal property). the testator’s death. Any subsequent will
4. Acceptance: Can be expressed or that doesn’t revoke previous ones
implied through actions. explicitly annuls only the contradictory
a. Express- Made in private/public provisions.
document
b. Tacit- Resulting from acts by Legal Succession
which the intention to accept is ● A person who is not incapacitated by
necessarily implied. law may inherit through a will or by
intestacy (when there is no will). The
Executors and Administrators heir must be alive when the succession
● Executor: Appointed by the will to opens unless legally represented.
implement its provisions.
● Administrator: Appointed by a court if Institution of Heir
no will exists or to manage intestate ● Institution of an heir is when the
assets. testator designates a person to succeed
them in their property or rights. Even if
a will lacks this, it is still valid as long
as the other dispositions are clear.

Compiled and Arranged by: Rizza June Jimena

Legitime ○ Collateral consanguinity:
● Legitime is the portion of the estate Relatives who descend from the
reserved by law for certain heirs, called same ancestors but not directly
compulsory heirs. These include: (e.g., uncle to nephew).
○ Legitimate children/descendants
○ Legitimate parents/ascendants
○ The surviving spouse 3. Right of Representation
○ Acknowledged natural children ○ Allows descendants to step into
and illegitimate children the place of a deceased heir and
inherit in their stead. This right
applies in the direct descending
line but not in the ascending
line.

Order of Intestate Succession

Disinheritance 1. Descending direct line (legitimate
● Disinheritance is when a person legally children/descendants)
excludes an heir from inheriting. This 2. Ascending direct line (legitimate
can only be done through a will and parents/ascendants)
must specify the legal cause. 3. Illegitimate children/descendants
4. Surviving spouse
Reasons for disinheriting include: 5. Collateral relatives (within the 5th
■ Attempt on the life of degree)
the testator 6. The State
■ Groundless accusations
of a crime
■ Adultery or
concubinage with the
spouse
■ Refusal to support the
testator
■ Dishonorable life or
conviction of a serious
crime

Legal or Intestate Succession

1. When Intestate Succession Applies
○ Occurs when a person dies
without a valid will, or when the
will doesn’t dispose of all the
property.
○ Also applies if the heir dies Overview of Estate Tax
before the testator or refuses the ● Estate Tax is a tax on the right of a
inheritance, with no deceased person to transfer their estate
substitution. to lawful heirs and beneficiaries. It is
2. Consanguinity not a tax on property but a tax on the
○ Refers to blood relations. privilege of passing property upon
○ Lineal consanguinity: Direct death.
descendants or ascendants (e.g.,
son to father).

Compiled and Arranged by: Rizza June Jimena

 ● The estate tax rate is 6% of the net ● Other Assets: Valued at their fair
estate for all decedents, whether resident market value at the time of death.
or non-resident of the Philippines.
Deductions Allowed to the Estate
Composition of the Gross Estate For a citizen or resident, deductions include:
● Resident or Non-Resident 1. Standard Deduction: ₱5,000,000.
Citizen/Resident Alien: 2. Claims Against the Estate: Valid if
○ Real or Immovable Property – supported by notarized documentation.
wherever situated. 3. Unpaid Mortgages or Indebtedness.
○ Tangible Personal Property – 4. Losses during the settlement of the
wherever situated. estate due to events like fire or theft.
○ Intangible Personal Property 5. Previously Taxed Property: A
– wherever situated. deduction based on prior estate or
● Non-Resident Alien: donor’s taxes paid on the same property.
○ Real or Immovable Property – 6. Transfers for Public Use.
within the Philippines. 7. Family Home Deduction: Up to
○ Tangible Personal Property – ₱10,000,000 for the decedent’s family
within the Philippines. home.
○ Intangible Personal Property 8. Amounts Received by Heirs under RA
– within the Philippines (unless 4917.
exempted under reciprocity For a non-resident decedent, the deductions are
clause). limited but include a ₱500,000 standard
deduction and other applicable deductions.
Exclusions from Gross Estate
The following are excluded from the gross Basis and Rate of Tax
estate: ● The estate tax is computed on the basis
● Proceeds from GSIS and SSS. of the net estate.
● Life insurance proceeds where the ● For a single person: The net estate is
beneficiary is irrevocably appointed. the gross estate minus applicable
● Proceeds from group insurance taken by deductions.
an employer. ● For a married person:
● War damage payments. ○ Conjugal properties: Deduct
● Properties held in trust. the share of the surviving
● Transfers by bona fide sales. spouse.
● Property transferred to the government ○ Exclusive properties: Deduct
or political subdivisions. standard and other allowable
● Exclusive property of the surviving deductions.
spouse.
Illustrative Examples
Valuation of the Gross Estate
● Real Properties: Based on the higher of
the Zonal Value or Fair Market Value.
● Improvements: Valued similarly to real
properties.
● Shares of Stock:
○ Unlisted stocks are valued by
book value (common shares) or
at par (preferred shares).
○ Listed stocks are valued by the
arithmetic mean between the
highest and lowest quotations.

Compiled and Arranged by: Rizza June Jimena

Compiled and Arranged by: Rizza June Jimena