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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 28SUGGESTED ANSWERSChapter 5: ESTATE TAX
CHAPTER 5ESTATE TAX
Problem 511. True
2. False 20% of the net taxable estate 3. False intangible property of nonresident alien decedent. 4. False Not any claims, but legal claims substantiated with supporting documents
5. False Not allowed to nonresident alien decedent because they are taxed only on properties situated within.
6. False the first P200,000 is estate tax-exempt.
7. True 8. True 9. True 10. False If the value of the gross estate exceeds P2,000,000. 11. True 12. True
Problem 521. False This is also allowed to nonresident alien decedent for their ELITE. 2. True 3. True 4. True 5. False deductible in full 6. False standard deduction will not reduce the inheritance. 7. False only 30 days. 8. True 9. True
10. True 11. True 12. True
Problem 5-3Problem 5-4Problem 5-5
1.A1.C1.C
2.C2.B2.A
3.D3.B3.D
4.A4.D4.A
5.C5.A5.B
6.A6.D6.D
7.D7.D7.A
8.B8.C8.C
9.A9.A9.A
10.C10.D10.D
11.D11.D11.D
12. D
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 29SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 56B
Conjugal gross estate (P3,120,000 + P180,000)P3,300,000
Funeral expense allowed (P3,300,000 x 5%)(165,000)
Share of surviving spouse (P3,300,000 P165,000) x 50%( 1,567,500)
Standard deduction( 1,000,000)
Net estateP567,500
Problem 57D
Gross estateP3,000,000
Funeral expense allowed (P3,000,000 x 5%)(150,000)
Net conjugal/community estateP2,850,000
Standard deduction(1,000,000)
Net estateP1,850,000
Share of surviving spouse (P2,850,000 x 50%)1,425,000
Net taxable estateP425,000
Problem 58A
Estate after actual deductionsP1,200,000
Add: Actual deductions (P150,000 + P50,000)200,000
Gross estateP1,400,000
Less: Funeral expense allowed (P1,400,000 x 5%)P 70,000
Other deduction50,000
Standard deduction1,000,000(1,120,000)
Net taxable estateP 280,000
Problem 59D
ExclusiveConjugal
Property cashP1,000,000P4,000,000
Family home800,000
Transfer for public use(1,000,000)
Funeral expense allowed(200,000)
Net conjugal estateP4,600,000
Family home (P800,000/2)(400,000)
Standard deduction(1,000,000)
Net estateP3,200,000
Share of surviving spouse (P4,600,000 x 50%)(2,300,000)
Net taxable estateP900,000
Problem 510A
Gross estateP4,500,000
Charges against the estate(200,000)
Net conjugal estateP4,300,000
Standard deduction(1,000,000)
Family home(1,000,000)
Net estateP2,300,000
Share of surviving spouse (P4,300,000 x 50%)(2,150,000)
Net estate taxable in the PhilippinesP150,000
Problem 511B
Conjugal
PropertiesP3,400,000
Funeral expense, limit(200,000)
Judicial expenses(250,000)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 30SUGGESTED ANSWERSChapter 5: ESTATE TAX
Claims against properties( 550,000)
Net conjugal estateP2,400,000
Problem 512C
Net estate of P500,000 has a estate tax amounting toP15,000
Problem 513A
Estate tax of P5,000,000P465,000
Problem 514D
Net estateEstate tax
AmountsP2,000,000P135,000
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 515A
Net taxable estateP10,000,000
Add: Family homeP1,000,000
Standard deduction1,000,0002,000,000
Distributable estate before estate taxP12,000,000
Less: Estate tax of P10,000,0001,215,000
Net distributable estateP10,785,000
Problem 516
1.Letter BExclusiveConjugal
Real estateP2,800,000P1,600,000
Personal property800,000
Funeral expense, limit(200,000)
Judicial expenses(100,000)
Unpaid mortgage loan.(300,000)
Net exclusive/conjugal stateP2,800,000P1,800,000P4,600,000
Standard deduction(1,000,000)
Family home (P1,600,000/2)(800,000)
Net estateP2,800,000
Share of surviving spouse (P1,800,000 x 50%)(900,000)
Net taxable estateP2,100,000
2.Letter D
Estate tax on P500,000P 15,000
Estate tax on excess (P1,600,000 x 8%)128,000
Estate taxP143,000
3.Letter BExclusiveConjugal
Real estateP2,800,000P1,600,000
Personal property800,000
Funeral expense, actual(245,000)
Judicial expenses(100,000)
Unpaid mortgage loan.(300,000)
Net exclusive/conjugal estateP2,800,000P1,755,000P4,555,000
Share of surviving spouse (P1,755,000 x 50%)(877,500)
Estate tax( 143,000)
Net distributable estateP3,534,500
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 31SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 517C
Tax credit P100,000 x 2M/5M)P40,000
Problem 518A
Total gross estate (P1,700,000 + P800,000)P2,500,000
Less: Deductions1,500,000
Net taxable estateP1,000,000
Estate tax on P500,000P15,000
Excess P500,000 x 8%40,000
Total estate tax in the PhilippinesP55,000
Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000P17,600
Problem 519
ConjugalExclusiveTotal
Real propertyP1,500,000
Inherited propertyP700,000
Other properties500,000.
Gross estateP2,000,000P700,000P2,700,000
Less: Deductions:
ELITE:
Funeral expensesP100,000
Judicial expenses80,000
Claims against the estate300,000
Transfer for public use20,000
Total deductionsP500,000500,000
Net conjugal/exclusive estateP1,500,000P700,000P2,200,000
Less: Special deductions:
Standard deduction1,000,000
Medical expense200,000
Net estate before share of surviving spouseP1,000,000
Less: Share of surviving spouse (P1,500,000 x 50%)750,000
Net taxable estateP 250,000
Estate tax:
Tax on P200,000P- 0 -
Tax on excess (P50,000 x 5%)2,500
Estate tax dueP2,500
Problem 520
ConjugalExclusiveTotal
Family home PhilippinesP2,000,000
Family business Philippines2,000,000
Properties USA.P1,000,000
Gross estateP4,000,000P1,000,000P5,000,000
Deductions:
ELITE Funeral expense200,000..
Net conjugal/exclusiveP3,800,000P1,000,000P4,800,000
Less: Special deduction
Std. deduction1,000,000
Family home1,000,000
Net estate before share of surviving spouseP2,800,000
Less: Share of surviving spouse (P3,800,000 x 50%)1,900,000
Net taxable estateP 900,000
Estate tax:
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 32SUGGESTED ANSWERSChapter 5: ESTATE TAX
Tax on P500,000P15,000
Tax on excess (P400,000 x 8%)32,000
Estate tax dueP47,000
Less: Estate tax credit allowed (P47,000 x 8/28) lower13,429
Estate tax still due and payableP33,571
Supporting computation:
The computation of net estate per country is as follows:
PhilippinesU. S. A
ConjugalExclusiveTotal
Gross estateP4,000,000P1,000,000P5,000,000
Funeral expense(200,000)(200,000)
Family home(1,000,000)(1,000,000)
Allocation of std deduction
(P1,000,000 x 4/5): (1/4)(800,000)(200,000)(1,000,000)
Net estateP2,000,000P800,000P2,800,000
Problem 521
ConjugalExclusiveTotal
Gross estate*P5,800,000P4,200,000P10,000,000
Less Deductions:
Ordinary deductions:
Funeral expenses (actual, P350,000;
5% limit, P500,000; statutory
Maximum allowed, P200,000) - lowest(200,000)
Judicial expenses(500,000)
Other deductions(100,000)
Vanishing deductions (note 1).( 92,000)
Net conjugal/exclusive estateP5,000,000P4,108,0009,108,000
Special deductions:
Standard deduction(1,000,000)
Family home (50% is P1,500,000) max. allowed(1,000,000)
Medical expenses (actual, P600,000) max. allowed(500,000)
Amount receivable under R.A. 4917(200,000)
Net estateP6,408,000
Less: Share of the surviving spouse (P5,000,000 x 50%)2,500,000
Net taxable estateP3,908,000
*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order not to increase the deduction by 50%.
Vanishing deduction:
Cash, initial value allowed to takeP500,000
Less: Proportionate deductions:
Funeral expenseP200,000
Judicial expense500,000
Other obligations100,000
TotalP800,000
(P800,000 x P500,000/P10,000,000)40,000
Final basisP460,000
Multiplied by vanishing deduction rate20%
Vanishing deductionP 92,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 33SUGGESTED ANSWERSChapter 5: ESTATE TAX
Problem 522
Gross estate (P2,000,000 + P180,000)P2,180,000
Less: Deductions:
Unpaid mortgageP 480,000
Funeral expense60,000
Judicial expense20,000
Standard1,000,0001,560,000
Net estateP620,000
Tax on P500,000P15,000
Tax on excess P120,000 x 8%9,600
Total estate taxP24,600
Gross estateP2,180,000
Less: Ordinary deductions (P480,000 + P80,000)P560,000
Estate tax24,600584,600
Net distributable estateP1,595,400
Problem 523
CashP400,000
Property1,500,000
Gross estateP1,900,000
Deductions:
Promissory note(500,000)
Funeral expense(70,000)
Net conjugal estateP1,330,000
Less: Standard deduction1,000,000
Net estateP330,000
Less: Share of surviving spouse (P1,330,000 x 50%)665,000
Net taxable estate(P335,000)
Gross estateP1,900,000
Less: Promissory noteP500,000
Funeral expense70,000570,000
Net estate before share of surviving spouseP1,330,000
Less: Share of surviving spouse (P1,330,000 x 50%)665,000
Net distributable estateP665,000
Problem 524
ConjugalExclusiveTotal
Gross estate (P1,000,000 + P9,000,000)P1,000,000P9,000,000P10,000,000
Ordinary deductions:
Funeral expense (limit)(200,000)(200,000)
Judicial expense(200,000)(200,000)
Claims against the estate(500,000)(500,000)
P100,000
Net conjugal estateP9,100,000
Special deductions:
Standard deduction(1,000,000)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 34SUGGESTED ANSWERSChapter 5: ESTATE TAX
Medical expense( 500,000)
Net estateP7,600,000
Less: Share of surviving spouse (P100,000 x 50%)50,000
Net taxable estateP7,550,000
Tax on P5,000,000P465,000
Tax on excess P2,550,000 x 15%382,500
Estate taxP847,500
Conjugal estateP1,000,000
Less: Ordinary deductions (actual):
Funeral expenseP210,000
Judicial expense200,000
Claims against the estate500,000910,000
Net conjugal estate before share of surviving spouseP90,000
Less: Share of surviving spouse (P90,000 x 50%)45,000
Net share of the decedentP45,000
Add: Exclusive property of the decedent9,000,000
Net distributable estate before estate taxP9,045,000
Less: Estate tax847,500
Net distributable estateP8,197,500
Divide by number of heirs (12 + 1)13
Share of each heirP 603,576.92
Note: The medical expense is assumed to have been paid.
Problem 525
TaxableDistributable
Conjugal property - real estateP2,000,000P2,000,000
Ordinary deductions:
Funeral expenses, limit (P2M + P300,000) x 5%( 115,000)(150,000)
Judicial expenses(5,000)(5,000)
Unpaid mortgage( 500,000)(500,000)
Vanishing deduction*( 175,304).
Net conjugal estateP1,204,696P1,345,000
Add: Exclusive property personal property inherited300,000300,000
Net estate before special deductionP1,504,696P1,645,000
Less: Standard deduction1,000,000.
Net estate before share of surviving spouseP504,696P1,645,000
Less: Share of surviving spouse (P1,204,696 x 50%)602,348
(P1,345,000 x 50%)672,500
Net taxable/distributable estate(P97,652)P972,500
Divide by number of compulsory heirs3
Inheritance of each heirP324,167
Vanishing deduction:
*Value takenP300,000
Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000)80,870
Final basisP219,130
Multiply by percentage of vanishing deduction one year ago80%
Vanishing deductionsP175,304
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 35SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
Problem 526
The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be:
1. Computation of net estate:
CommunalExclusiveTotal
Residential house and lotP 3,500,000
Building apartment10,000,000
Income of apartment3,000,000
Deposit in Equitable Bank5,000,000
Agricultural landP 800,000
Family car550,000
Other personal properties1,000,000
Claim against insolvent person100,000.
Total gross estateP23,150,000P 800,000P23,950,000
Less: Ordinary deductions:
ELIT:
Funeral expenses maximum200,000
Judicial expenses600,000
Claims against the estate600,000
Claims against insolvent person100,000
Unpaid mortgage300,000
Transfer for public use.200,0002,000,000
Net estate before special deductionsP21,650,000P 300,000P21,950,000
Less: Special deductions:
Standard deduction1,000,000
Family home maximum1,000,000
Medical expenses maximum500,000
Net estateP19,450,000
Less: Share of surviving spouse (P21,650,000 x 50%)10,825,000
Net taxable estateP8,625,000
2. Computation of estate tax:
For the first P5,000,000P465,000
Excess (P3,625,000 x 15%)543,750
Estate tax dueP1,008,750
3. Computation of net distributable estate:
CommunalExclusiveTotal
Residential house and lotP 3,500,000
Building apartment10,000,000
Income of apartment3,000,000
Deposit in equitable bank5,000,000
Agricultural landP800,000
Family car550,000
Other personal properties1,000,000
Claims against insolvent person100,000.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 36SUGGESTED ANSWERSChapter 5: ESTATE TAX
Total gross estateP23,150,000P 800,000P23,950,000
Less: Actual deductions:
Funeral expense actual350,000
Judicial expenses600,000
Claims against the estate actual800,000
Claims against insolvent person100,000
Unpaid mortgage300,000
Transfer for public use.200,0002,350,000
Net estate before share of surviving spouseP21,300,000P300,000P21,600,000
Share of surviving spouse (P21,300,000 x 50%)10,650,000
Net estate before estate taxP10,950,000
Less: Estate tax1,008,750
Net distributable estateP 9,941,250
4. Distribution of the net distributable estate:
Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:
Legitime:
To two legitimate children (P9,941,250 x 50%)P 4,970,625
To legally surviving spouse (P4,970,625/2)2,485,313
To illegitimate child (P2,485,313 x 50%)1,242,656
Free portion:
To church based on Will1,242,656
TotalP9,941,250
Problem 5-27
Estate tax:
Gross estate
House and lot, Baguio CityP1,000,000
House and lot, Quezon City family home*1,500,000
Grocery store, Baclaran300,000
Inventory (P700,000 P300,000) x 450/300600,000
Cash sales450,000
Claims against insolvent persons50,000P3,900,000
Ordinary deductions:
Funeral (P3,900,000 x 5%)P195,000
Claims against insolvent persons50,000
Unpaid income taxes20,000(265,000)
Net estate before special deductionsP3,635,000
Special deductions:
Family home (P1,500,000/2)P750,000
Medical expenses500,000
Standard deductions1,000,000(2,250,000)
Net estateP1,385,000
Less: Share of surviving spouse (P3,635,000 x 50%)1,817,500
Net taxable estate(P432,500)
Estate tax dueP- 0 -
Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin reside in that place.
Net distributable estate:
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 37SUGGESTED ANSWERSChapter 5: ESTATE TAX
Gross estateP3,900,000
Actual deductions:
FuneralP250,000
Claims against insolvent persons50,000
Unpaid income taxes20,000
Medical expense550,000870,000
Net estate before share of spouseP3,030,000
Share of surviving spouse (P3,030,000 x 50%)1,515,000
Net distributable estateP1,515,000
Problem 528
1.Estate tax
House and lot (family home)P3,000,000
Time deposit principal amount2,000,000
Accrued interest 2004: (P2,000,000 x 12% x 12/12)240,000
2005: (P2,000,000 x 12% x 10/12)200,000
Car1,000,000
Claims against insolvent person100,000
Gross estateP6,540,000
Ordinary deductions:
Funeral expense, limitP 200,000
Judicial50,000
Claims against insolvent person100,000(350,000)
Net estate before special deductionsP6,190,000
Special deductions:
Standard deductionsP1,000,000
Medical expense, limit500,000
Family home, limit1,000,000(2,500,000)
Net estateP3,690,000
Less: Share of surviving spouse (P6,190,000 x 50%)3,095,000
Net taxable estateP595,000
Tax on P500,000P15,000
Tax on excess (P95,000 x 8%)7,600
Estate taxP22,600
2.Net distributable estate
Gross estateP6,540,000
Actual deductions:
Funeral expenseP250,000
Judicial expense50,000
Claims against insolvent person100,000(400,000)
Net distributable estate before share of surviving spouseP6,140,000
Less: Share of surviving spouse (P6,140,000 x 50%)3,070,000
Net actual estateP3,070,000
Less: Estate tax22,600
Net distributable estateP3,047,400
3.Distribution of inheritance
Net distributable estateP3,047,400
Divided by number of heirs (intestate succession)4
Share of each heirP761,850
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 38SUGGESTED ANSWERSChapter 5: ESTATE TAX
Problem 5291.Estate tax credit = P215,000
2.Estate tax payable = P222,500
Supporting computations:
a. Estate tax payable to the Philippines :
Country ACountry BPhilippinesEntire
Gross estateP1,200,000P2,500,000P5,000,000P8,700,000
Unpaid mortgages(200,000)(200,000)
Unpaid taxes(500,000)(500,000)
Transfer for public use..(2,000,000)(2,000,000)
Net of identifiable deductionsP1,000,000P2,000,000P3,000,000P6,000,000
Allocated deductions**(172,500)(358,750)(718,750)(1,250,000)
Net estateP 827,500P1,641,250P2,281,250P4,750,000
** Computation of allocated deductions:
Country ACountry BPhilippinesEntire
Funeral expensesP 27,600P 57,400P115,000P 200,000
Judicial expenses6,90014,35028,75050,000
Standard deduction allocated138,000287,000575,0001,000,000
Total allocated deductionsP172,500P358,750P718,750P1,250,000
Note: The above deductions are allocated because they are not specifically identified asdeductions from a specific country. The fraction per country is computed as follows:
Country ACountry BPhilippinesEntire
Gross state per countryP1,200,000P2,500,000P5,000,000P8,700,000
Divide by entire gross estateP8,700,000P8,700,000P8,700,000P8,700,000
Fraction13.80%28.70%57.50%100%
b. Computation of Philippines estate tax:
Tax on P2,000,000P135,000
Tax on excess (P2,750,000 x 11%)302,500
TotalP437,500
Less: Tax credit allowed*215,000
Estate tax payable to the Philippine GovernmentP222,500
c. Computation of tax credit:
Limit A:
Country A: [P437,500 x (P827,500/P4,750,000)]P76,217
Actual payment to country A lowerP75,000P 75,000
Country B: (P437,500 x P1,641,250/P4,750,000)P151,167
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 39SUGGESTED ANSWERSChapter 5: ESTATE TAX
Actual payment to country B lowerP140,000140,000
Tax credit Limit AP215,000
Limit B:
Total net estate foreign
[(P2,468,750)/P4,750,000] x P437,500P227,385
Total actual estate tax payments foreign
(P75,000 + P140,000) lowerP215,000
Tax credit Limit BP215,000
*Tax credit allowed (the lower of limit A or B)P215,000
Problem 530
ConjugalExclusiveTotal
CashP2,000,000
Shares of stock (P100 x 100,000 shares)P10,000,000
Insurance proceeds1,000,000
Transfer in contemplation of death.3,000,000
Total gross estateP2,000,000P14,000,000P16,000,000
Less: Ordinary deduction Transfer for public use.10,000,00010,000,000
Net estate before special deductionP2,000,000P 4,000,000P6,000,000
Less: Standard deduction1,000,000
Net estateP5,000,000
Less: Share of surviving spouse (P2,000,000 x 50%)1,000,000
Net taxable estateP4,000,000
Estate tax on P2,000,000P135,000
Tax on excess (P2,000,000 x 11%)220,000
Total estate taxP355,000
Less: Tax credits on tax previously paid (P34,840 + P204,000)238,840
Transfer tax still dueP116,160
Problem 531
Estate tax on P5,000,000P135,000
Estate tax on excess (P3,000,000 x 15%)450,000
Estate taxP585,000
Add: Surcharges willful neglect (P585,000 x 50%)P292,500
Interest for 4 years (P585,000 x 20% x 4)468,000760,500
Total amount to be paidP1,345,500