CTA: Parents donation to daughter on nullified marriage taxable

By: Garry S. Pagaspas, CPA

Court of Tax Appeals (CTA) division has denied the application for refund of donor’s tax alleged to have been erroneously paid by spouses on the transfer of a condominium unit to a common child in relation to the court decision declaring their marriage null and void.

In a decision of a Regional Trial Court (RTC) in Makati City sometime November 2015, it declared the marriage of spouses as null and void, and approved the “Agreement on Custody and Support and Liquidation, Dissolution, and Separation of the Property Regime”.  In furtherance of the agreement, former spouses executed a Deed of Donation for the transfer of a condominium unit in favor of their common child and paid donor’s tax totaling PhP760,800.00 (each of them paying PhP380,400.00 donor’s tax in respective BIR Form Nos. 1800) for the issuance of the Certificate Authorizing Registration and transfer of the title to the condominium unit to the common child. After such transfer, the spouses filed applications for refund May 27, 2017 and February 8, 2018, respectively, and was not acted by the BIR prompting them to file Petition for Review with the CTA last February 12, 2018 claiming that the donation is without donative intent and as such, not taxable.

The issue in this case is whether or not the Deed of Donation in compliance of the requirements of the dissolution of the property relations between spouses for the delivery of the presumptive legitime to the common child in compliance with Article 102(5) in relation to Article 51, both of the Family Code of the Philippines.

In resolving this issue, the CTA explained is essence as follows:

A. Donor’s tax is an excise tax imposed on the privilege of transferring property by way of gift inter vivos (quoting  Lladoc vs. CIR, 14 SCRA 292). Although the Tax Code, as amended, does not define “transfer of property by gift“, the same is understood to include “donation” defined under Article 725 of the Civil Code as “an act of liberality whereby a person disposes of gratuitously of a thing or right in favor of another, who accepts it” (quoting Abello vs. CIR, 452 SCRA 162,168).

B. Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee, and; (c) the intend to do an act of liberality or animos donandi (quoting Abello vs. CIR, 452 SCRA 162,168, citing Republic vs. Guzman, 326 SCRA 90; Tayoto vs. Heirs of Kusop, 184 SCRA 355). According to the CTA, in this case, there is no doubt that donation was actually made by the parties because the elements of a valid donation are present.

C. “Even granting that the subject donation was made by petitioners for the purpose of complying with the legal requirements of the dissolution of the property relations between them, the same does not negate presence of donative intent in the subject transaction considering that petitioners gave portion of their patrimony to the common child without any material consideration.”

D. “While its is true that Article 51 and 102(5) of the Family Code mandate the delivery of the presumptive legitime of the common children upon dissolution of the absolute community regime and the partition of the properties of the spouses, the same does not ipso jure cause the transfer of title or ownership over the properties comprising the presumptive legitime from either or both of the spouses to their common children.” “At most, these provisions merely prescribe a specific obligation that the spouses have to comply with. and in the present case, petitioners have actually complied with the foregoing provisions through the execution of the Deed of Donation over the subject property in favor of their common child.”

E. “To reiterate, donor’s tax is an excise tax imposed on the privilege of transferring property by way of gift inter vivos, i.e. during the lifetime of the donor. In the present case, what is being subjected to the payment of the donor’s tax in the privilege, duly exercised by the petitioners, of transferring the subject property to their common child. It is beyond doubt that the said transfer of property by way of gift was made during the lifetime of the petitioners.”

F. “The transfer is fully consummated as the title over subject property was already issued under the name of the donee. Consequently, the said transfer falls within the ambit of Section 98, of the 1997 NIRC. On the other hand, the subject donation is not one of those enumerated under Section 101 of the 1997 NIRC as exempt from donor’s tax.

From the above, the CTA denied the Petition for Review seeking refund of paid donor’s tax.


CTA Case No. 9765 promulgated November 23, 2018 by CTA Second Division. Please read the full text of the decision at the CTA website for more details.

garry s pagaspasGarry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about fifteen (15) years now helping out taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has been helping out some foreign clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

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