Am quoting here a post from another blog. It’s a good read for all property owners.
“In my professional life, I am always asked the question on which is the tax efficient way of transferring capital property or property not used in business. Is it through donation or sale? Well, the answer depends on two factors, namely: i) value of the property and ii) relationship of the donor to the donee.
If the donation is made to a “stranger”, then sale is more tax efficient than donation. This is because the tax rate for donation to a stranger is 30% while the tax rate for sale is 6%. Further, even if donation is not subject to documentary stamp tax and sale is subject to 1.5% documentary stamp tax, nonetheless, the total tax rate for donation is still higher at 30% compared to the total tax rate for sale of 7.5% ( capital gains tax of 6% and documentary stamp tax of 1.5).
For example, if a father donates a house and lot worth PHP 3 million to his son and the bride-to-be, then 50% of the donation that pertains to the son shall be subjected to the graduated tax rate on donation, while the remaining 50%, pertaining to the donation to the future daughter-in-law shall be subject of 30% tax rate, because the donation made by a father-in-law to his daughter in law is considered or treated by law as donation to a stranger.
The law defines a “stranger” as a person who is not a brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or relative by consanguinity in the collateral line within the fourth degree of relationship (up to first cousin).
If the transfer of property is made from one person to another person who is not a “stranger”, as defined by law, then donation is more tax efficient than sale, at least up to a certain value of the property.”
This is based on the following reasons:
a)
Donation is not subject to documentary stamp tax while sale is. Documentary stamp tax for a sale transaction is equivalent to 1.5% of the selling price or fair market value of property whichever is higher.
b) Tax rate for a sale transaction is 6% while the tax rate for donation is based on graduated rates from 2% to 15% depending on the value of the property.
For example, if a property worth PHP 500,000 is donated, the amount of tax for this donation would be PHP 8,000.00, while the tax rate for sale would have been PHP 37,500, had the transaction been a sale. Donation is thus more tax efficient for this particular case.
Another example; if a property worth PHP 4,500,000.00 is donated, the amount of tax for this donation would be PHP 354,000.00, while the tax rate for sale would have been PHP 337,500.00,, had the transaction been a sale. Thus under this particular case, sale is more tax efficient.
Below is a tax table for donation type of transaction that will help you determine the corresponding tax dues if the transaction is a donation. Compare this with the existing tax rate of 7.5% (6% + 1.5%) for a sale transaction.
Effective January 1, 1998 to present
Net Gift Over | But not Over | The Tax Shall be | Plus | Of the Excess Over |
100,000.00 | exempt | |||
100,000.00 | 200,000.00 | 0 | 2% | 100,000.00 |
200,000.00 | 500,000.00 | P 2,000.00 | 4% | 200,000.00 |
500,000.00 | 1,000,000.00 | 14,000.00 | 6% | 500,000.00 |
1,000,000.00 | 3,000,000.00 | 44,000.00 | 8% | 1,000,000.00 |
3,000,000.00 | 5,000,000.00 | 204,000.00 | 10% | 3,000,000.00 |
5,000,000.00 | 10,000,000.00 | 404,000.00 | 12% | 5,000,000.00 |
10,000,000.00 | and over | 1,004,000.00 | 15% | 10,000,000.00 |
Notes:
1. | Rate applicable shall be based on the law prevailing at the time of donation. |
No comments:
Post a Comment