Solution manual transfer and business taxes by valencia CHAPTER 5 ESTATE TAX

It not, then there is no deduction allowed for NRA... Problem 5–9 CNet estate of P500,000 has a estate tax amounting to P15,000 Problem 5–10 D Net estate Estate tax Nonresident alien de

CHAPTER 5

ESTATE TAX

Problem 5–1

1 False – only P200,000

2 True

3 True

4 True

5 True

6 True

7 True

8 False – If the value of the gross estate exceeds P2,000,000

9 False – only 30 days

10.True

Problem 5–2

Problem 5–3

Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500)

-3 Net distributable estate (P1,000,000 + P900,000) P1,900,000

Net conjugal estate before funeral expense allowed P3,000,000

5 Gross estate (within) P5,000,000 Less: Prorated allowable deduction* (P1,000,000 x 5/15) 333,333

*If properties outside are presented, then prorate It not, then there

is no deduction allowed for NRA

6 40% of properties in the Philippines are intangible

Tangible properties in the Philippines (P5,000,000 x 60%) P3,000,000 Less: Allowable deduction (P1,000,000 x 5/15) x 60% 200,000

Less: Share of surviving spouse (P19,800,000 x 50%) 9,900,000

Tax credit:

Limit (P1,050,000 x 40%) = P420,000

Less: Prorated allowable deduction (P2,000,000 x 60%) 1,200,000

Less: Share of surviving spouse (P10,800,000 x 50%) 5,400,000

Problem 5–4 B

Funeral expense allowed (P3,000,000 x 5%) ( 150,000)

Problem 5–5 A

Add: Actual deductions (P150,000 + P50,000) 200,000

Less: Funeral expense allowed (P1,400,000 x 5%) P 70,000

Problem 5–6 D

Exclusive Conjugal

Share of surviving spouse (P4,000,000 – P200,000) x 50% (1,900,000)

Problem 5–7 A

-Problem 5–8 A

Conjugal Exclusive

Shares of surviving spouse (P2,400,000 x 50%) (1,200,000) 1,200,000

Problem 5–9 C

Net estate of P500,000 has a estate tax amounting to P15,000

Problem 5–10 D

Net estate Estate tax

Nonresident alien decedent is not allowed to have standard deduction The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported (Sec 86 (B), NIRC)

Problem 5–11

Conjugal Exclusive

1 A

Share of surviving spouse (P1,800,000 x 50%) ( 900,000) 900,000

2 B

Share of surviving spouse (P1,755,000 x 50%) ( 877,500) 877,500

Problem 5–12 C

Problem 5–13 A

Total gross estate (P1,700,000 + P800,000)

Less: Deductions

Net taxable estate

Estate tax on P500,000

Excess P500,000 x 8%

Total estate tax in the Philippines

P2,500,000

1,500,000 P1,000,000 P15,000

40,000 P55,000 Tax credit allowed

(P800,000/ P2,500,000) x P55,000 = P17,600 vs P20,000 P17,600

Problem 5–14

Gross estate (P2,000,000 + P180,000)

Less: Deductions:

Unpaid mortgage

Funeral expense

Judicial expense

Standard

Net estate

Tax on P500,000

Tax on excess P120,000 x 8%

Total estate tax

P 480,000 60,000 20,000 1,000,000

P2,180,000

1,560,000

P 620,000

P15,000 9,600 P24,600

Gross estate

Less: Ordinary deductions (P480,000 + P80,000)

Estate tax

Net distributable estate

P560,000

24,600

P2,180,000

584,600 P1,595,400

Problem 5–15

Cash

Property

Gross estate

Deductions:

Promissory note

Funeral expense

Net estate before share of surviving spouse

Less: Share of surviving spouse (P1,330,000 x 50%)

Net estate before special deduction

Less: Standard deduction

Net estate

P 400,000

1,500,000 P1,900,000 ( 500,000) ( 70,000) P1,330,000

665,000

P 665,000

1,000,000 (P 335,000) Gross estate

Less: Promissory note

Funeral expense 70,000P500,000

P1,900,000

570,000

Net estate before share of surviving spouse

Less: Share of surviving spouse (P1,330,000 x 50%)

Net distributable estate

P1,330,000

665,000

P 665,000

Problem 5–16

Conjugal Exclusive

Gross estate (P1,000,000 + P9,000,000)

Ordinary deductions:

Funeral expense (limit)

Judicial expense

Claims against the estate

Net conjugal estate before share of surviving spouse

Less: Share of surviving spouse (P100,000 x 50%)

Special deductions:

Standard deduction

Medical expense

Net taxable estate

P1,000,000 ( 200,000) ( 200,000) ( 500,000)

P 100,000 50,000

P9,000,000

50,000

(1,000,000) ( 500,000) P7,550,000

Tax on P5,000,000

Tax on excess P2,550,000 x 15%

Estate tax

P465,000

382,500 P847,500 Conjugal estate

Less: Ordinary deductions (actual):

Funeral expense

Judicial expense

Claims against the estate

Net conjugal estate before share of surviving spouse

Less: Share of surviving spouse (P90,000 x 50%)

Net share of the decedent

Add: Exclusive property of the decedent

Net distributable estate before estate tax

Less: Estate tax

Net distributable estate

Divide by number of heirs (12 + 1)

Share of each heir

P210,000 200,000

500,000

P1,000,000

910,000

P 90,000 45,000

P 45,000

9,000,000 P9,045,000

847,500 P8,197,500

13

P 603,576.92

Note: The medical expense is assumed to have been paid

Problem 5–17

Taxable Distributabl

e

Conjugal property - real estate

Ordinary deductions:

Funeral expenses, limit (P2,300,000 x 5%)

Judicial expenses

Unpaid mortgage

Vanishing deduction*

Net estate before share of surviving spouse

Less: Share of surviving spouse (50%)

Net estate before exclusive property

Add: Exclusive property – personal property inherited

Net estate before special deduction

Less: Standard deduction

Net estate

Divide by number of compulsory heirs

Inheritance of each heir

P2,000,000

( 115,000) ( 5,000) ( 500,000)

( 175,304) P1,204,696 ( 602,348)

P 602,348

300,000

P 902,348

1,000,000 (P 97,652)

P2,000,000

( 150,000) ( 5,000) ( 500,000) P1,345,000

672,500

P 672,500

300,000

P 972,500

P 972,500

3

P 324,167

*Value taken

Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000)

Final basis

Multiply by percentage of vanishing deduction – one year ago

Vanishing deductions

P300,000

80,870 P219,130 80%

P175,304

Note: The inherited property is exclusive because the problem states that it is the decedent’s

estate

Problem 5–18

1 P3,900,000

2 P 265,000

3 P2,250,000

4 P1,817,500

5 P - 0 - or (P432,500)

6 P 0

-7 P1,515,000

Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin resides in that place

Supporting computations (Problem 5-18):

Gross estate

House and lot, Quezon City – family home* 1,500,000

Inventory (P700,000 – P300,000) x 450/300 600,000

Claims against insolvent persons 50,000 P3,900,000 (1) Ordinary deductions:

Less: Share of surviving spouse (P3,635,000 x 50%) 1,817,500

Special deductions:

Actual deductions:

Share of surviving spouse (P3,030,000 x 50%) 1,515,000

Problem 5–19

1 P6,540,000

2 P350,000

3 P2,500,000

4 P595,000

5 P22,600

6 P3,047,400

7 P761,750

Supporting computations (Problem 5-19):

2005: (P2,000,000 x 12% x 10/12) 200,000

Ordinary deductions:

Less: Share of surviving spouse (P6,190,000 x 50%) 3,095,000

Special deductions:

Actual deductions:

Net distributable estate before share of surviving spouse P6,140,000 Less: Share of surviving spouse (P6,140,000 x 50%) 3,070,000

Divided by number of heirs (intestate succession) 4

Problem 5–20

1 Estate tax credit = P212,917

2 Estate tax payable = P224,583

Supporting computations:

a Estate tax payable to the Philippines :

Country A Country B Philippines Entire Gross estate

Unpaid mortgages

Unpaid taxes

Transfer for public use

Net of identifiable deduct

Allocated deductions**

Net estate

P1,200,000 (200,000) P1,000,000

(208,333)

P 791,667

P2,500,000 (500,000) P2,000,000

(416,667) P1,583,333

P5,000,000

(2,000,000) P3,000,000

(625,000) P2,375,000

P8,700,000 (200,000) (500,000) (2,000,000) P6,000,000 (1,250,000) P4,750,000

b Computation of Philippines estate tax:

Tax on P2,000,000

Tax on excess (P2,750,000 x 11%)

Total

Less: Tax credit allowed*

Estate tax payable to the Philippine Government

P135,000

302,500 P437,500

212,917 P224,583

c. Computation of tax credit:

Limit A:

Country A: [P437,500 x (P791,667/ P4,750,000)] - lower

Actual payment to country A

Tax credit allowed for country A

Country B: (P437,500 x P1,583,333/ P4,750,000)

Actual payment to country B

Tax credit allowed for country B

Tax credit – Limit A

P 72,917

P 75,000

P145,833 P140,000

P 72,917

140,000 P212,917

Limit B:

Total net estate – foreign

[(P791,667 + P1,583,333)/ P4,750,000] x P437,500

Total actual estate tax payments – foreign

(P75,000 + P140,000) – lower

Tax credit – Limit B

P218,750 P215,000

P215,000

*Tax credit allowed (the lower of limit A or B) P212,917

** Computation of allocated deductions:

Country A Country B Philippines Entire Funeral expenses

Judicial expenses

Standard deduction allocated

Total allocated deductions

P 33,333 8,333

166,667 P208,333

P 66,667 16,667

333,333 P416,667

P100,000 25,000

500,000 P625,000

P 200,000 50,000

1,000,000 P1,250,000

Note: The above deductions are allocated because they are not specifically identified as

deductions from a specific country The allocation is computed by multiplying the fraction of the estate after identifiable deduction with the allocable deductions The fraction per country is computed as follows:

Country A Country B Philippines Entire Estate net of identifiable

deductions per country

Divide by entire net estate

Fraction

P1,000,000 P6,000,000 1/6

P2,000,000 P6,000,000 2/6

P3,000,000 P6,000,000 3/6

P6,000,000 P6,000,000 6/6

Problem 5–21

Conjugal Exclusive Cash

Shares of stock (P100 x 100,000 shares)

Insurance proceeds

Transfer in contemplation of death

Total gross estate

Ordinary deduction – Transfer for public use

Net estate before share of spouse

Less: Share of surviving spouse (P800,000 x 50%)

Net estate before special deduction

Less: Standard deduction

Net estate

P2,000,000

P2,000,000 P2,000,000 P1,000,000

P10,000,000 1,000,000

3,000,000 P14,000,000 (10,000,000)

P 4,000,000

1,000,000

P 5,000,000

1,000,000

P 4,000,000

Estate tax on P2,000,000

Tax on excess (P2,000,000 x 11%)

Total estate tax

Less: Tax credits on tax previously paid (P34,840 + P204,000)

Transfer tax still due

P135,000

220,000 P355,000

238,840 P116,160

Problem 5–22

Add: Surcharges – willful neglect (P585,000 x 50%) P292,500

Interest for 4 years (P585,000 x 20% x 4) 468,000 760,500