TAX AFTER DEATH While it is contested whether or not there is life after death, it is certain that the government will have its share in the properties left behind by an individual after his death in the form of estate tax. Thus, understanding the tax consequences of death is something worthwhile. -NOTICE OF DEATH- Under the Tax Code, the executor (in case the decedent left a will), administrator OR any of the legal heirs is required to give a written notice of death to the Commissioner of Internal Revenue within 2 months (60 days) after the decedent’s death. -FILING OF RETURN AND PAYMENT OF ESTATE TAX- PLACE: The Estate Tax Return (BIR Form No. 1801) shall be filed with an Authorized Agent Bank, Revenue District Officer, Collecting Officer or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of death. TIME FOR FILING: The return should be filed within 6 months after the decedent’s death. In meritorious cases, the Commissioner may grant extension not exceeding 30 days. PAYMENT: Estate tax shall be paid at the time the return is filed (Pay as you file system). EXTENSION OF TIME TO PAY: When the Commissioner finds that the payment of estate tax would impose undue hardship upon the heirs, he may extend the time for payment of such tax or any part thereof, not to exceed 5 years in case the estate is settled through the courts or 2 years in case the estate is settled extra-judicially. CPA CERTIFICATION: Estate tax returns showing a gross estate exceeding 2 million pesos shall be accompanied by a statement, certified by a Certified Public Accountant, of: a. Itemized asset of the decedent, with their corresponding gross value at the time of death; b. Itemized deductions from the gross estate; and c. Amount of tax due. -COMPUTATION OF ESTATE TAX- GROSS ESTATE LESS: DEDUCTIONS FROM GROSS ESTATE EQUALS: NET TAXABLE ESTATE APPLY THE ESTATE TAX RATE GROSS ESTATE: For citizen and resident alien, the gross estate consists of real and personal property of the decedent regardless of location. Personal property includes tangible and intangible property. For non-resident alien, the gross estate comprises only of property located within the Philippines. Also included in the gross estate are properties which were transferred by the decedent during his lifetime but are deemed by law to be included in the gross estate for purposes of computing the estate tax, they are: 1. Transfer in contemplation of death. Those transferred by the decedent in view of the impending death; 2. Revocable transfer; 3. Transfer under general power of appointment. The decedent, when he transferred the property to another person, has instructed the latter that should he decide to transfer the property, he could transfer it to ANYBODY. If the instruction is that the other person could transfer the property to a SPECIFIC person only, the property transferred shall not be included in the gross estate ; and 4. Proceeds of life insurance UNLESS the beneficiary was irrevocably designated. The share of the surviving spouse in the absolute community of property or conjugal partnership of gains is EXCLUDED FROM THE GROSS ESTATE. DEDUCTIONS: Subject to certain condition, limitation and substantiation, the following may be deducted from the gross estate to arrive at the NET TAXABLE ESTATE: -Ordinary deductions: a. Funeral expenses (Max of P200,000); b. Judicial expenses; c. Losses; d. Claims against the estate; e. Claims against insolvent persons; f. Unpaid mortgage or indebtedness on property; g. Taxes; h. Transfer for public use;and i. Vanishing deduction; -Special deductions a. Standard deduction of P1,000,000 (no need for substantiation); b. Medical expenses (Max of P500,000); c. Family Home (Max of P1,000,000); and d. Amount receivable by heirs under RA No. 4917. NET TAXABLE ESTATE: The resulting amount after deducting the authorized deductions from the gross estate. ESTATE TAX RATE: Up to P200,000, the net taxable estate is exempt from tax. Any amount in excess of P200,000 shall be subject to the graduated estate tax rate of 5-20% depending on the amount of the net taxable estate. -PENALTY- Just like any internal revenue tax, non or late payment of estate tax will attract a surcharge of 25-50%, 20% interest per annum and a compromise penalty. -LOCAL TAX- Other than the estate tax imposed by the Tax Code, local transfer tax in the maximum amount of 75% of 1% of the fair market value of the estate is likewise imposed by the Local Government Code. This is payable within 60 days from the death of the decedent. It should be noted that while the ownership over the estate are transferred to the heirs upon the death of decedent, the timely payment of estate and local taxes should not be ignored. Otherwise, said taxes will become a lion’s share of the government (due to heavy penalties). This article is for general information only and not intended as a substitute for a professional advice on a specific tax issue. For questions or comments, the author may be reached via business_tax@yahoo.
Posted on: Sun, 13 Jul 2014 02:18:16 +0000
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