Are you donating property? Here’s what you need to know

Donation of property is governed by existing laws and rules and regulations that need to be complied with, to ensure that it is valid. Failure to conform with its requirements affects the deed and makes the donation void. Consequently, many donations have resulted in numerous misunderstandings among donors (gift givers), relatives and stranger-donees (recipients), even dragging them into protracted court cases.  

Definition

Persons who may contract and dispose of their property may make a donation, a term  defined by The Civil Code of the Philippines (Republic Act No. 386, as amended) as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it”. Two other actions are additionally considered by the Civil Code as donation: (a) when a person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the donor, provided they do not constitute a demandable debt; or (b) when the gift imposes upon the donee a burden which is less than the value of the thing given.

Legal requisites

Our laws consider donation a contract and thus, needs to comply with its essential characteristics.  

Justice Edgardo Paras noted in the book The Civil Code of the Philippines Annotated, “it is not enough that a person be capacitated to contract, he must also have the capacity to dispose” such as minors who are already allowed to make a valid will; husband or wife with respect to their share of the property, etc. 

The following must also be adhered to: (a) the donee must accept the donation personally or through an authorized person with a special power of attorney for the purpose, or with a general and sufficient power; (b) the notarized deed should specify the property and the value of the charges that the donee must satisfy, if the gift is an immovable property like land, house or condo unit; and (c) the acceptance must be done during the donor’s and donee’s lifetime, with such acceptance made in the same deed of donation or separate public document provided that the donor shall be notified, and noted in both instruments.

Oral donation however, may be valid provided there is simultaneous delivery of the thing or document  representing such right, and the value is worth P5,000 or less. If it exceeds P5,000, the donation and the acceptance should be made in writing, otherwise the donation shall be considered void. Furthermore, if the property involved is a real property such as land, house or condo unit, both the donation and the acceptance deeds must be notarized. 

Void donation

The following deeds are considered void: (a) those made between persons who were guilty of adultery or concubinage at the time of the donation; (b) those made between persons found guilty of the same criminal offense, in considerations thereof; (c) those made to a public officer or his wife, descendants and ascendants, by reason of his office; (d) those made to incapacitated persons, though simulated under the guise of another contract or through a person who is interposed; (e) those made by guardians and trustees entrusted with the property (new Civil Code); and (f) those made by a spouse to another during their marriage, except moderate ones given on the occasion of any family rejoicing.

Tax on donation

Philippine laws require the filing and or payment of a donor’s tax on the transfer of property:

Rates. The applicable rate is based on the law at the time of donation. Currently, it is pegged at six percent, computed on the basis of the total net gift value in excess of P250,000 given during the same calendar year, otherwise the donation is tax exempt. This rate had been in place since January 1, 2018 after Republic Act No. 10963 (TRAIN Law) took effect. Today, donations made to either relatives or strangers are no longer distinguished by law because a uniform rate applies to both.  A stranger is defined as “a person who is not a brother or 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”.

However, between January 1, 1998 to December 31, 2017, RA No. 8424 set different tax rate ranges. The tax to be paid would reached P1.004 million plus 15 percent in excess of P10 million in net gift value, for donation made within a same calendar year. Meanwhile, donation to a stranger would have been imposed a higher tax of 30 percent of net gift value, in contrast to donation made to a relative.

To know more about the applicable rates in previous years, check out the Bureau of Internal Revenue website (bir.gov.ph).

Who shall file and when. The Tax Return shall be filed by the person, whether natural or juridical, who transfers or causes to transfer the property, to either a resident or non-resident.  If the donation involves a conjugal/community property, each spouse is required to file separate return corresponding to his/her respective share.

As with the rates, the deadline for the filing and or payment  of the donor’s tax return depends on the law applicable at the time of the donation. Presently, a donor is required to file it within thirty days after the date of donation.

Exemption. In addition to the limited threshold, gifts to government, educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization, research institution or organization are tax exempt provided not more than 30 percent of said gifts will be used by the donee for administration purposes. 

While many donate because of their personal principles, beliefs and values, or simply out of a sense of obligation, undoubtedly most donors agree that their actions are intended to give others a lead start or helping hand.  However, unless done properly, it is possible that the charitable act may cause undue anxiety and cause their recipients to have sleepless nights. 

References: 

The Civil Code of the Philippines Annotated. Volume II. Nineteenth Edition (2021) by Justice Edgardo Paras, and Bureau of Internal Revenue – Donor’s Tax (bir.gov.ph).

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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.

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