Valuation of Property Gifts
ATTY. PEACHES ARANAS
Last March, the Department of Finance (DoF) issued Revenue Regulations (RR) No. 12-2018, the consolidated regulations governing the imposition and payment of estate and donor’s taxes, implementing the provisions of Republic Act (RA) 10963, or the “Tax Reform for Acceleration and Inclusion” Train Law.
The donor’s tax for each calendar year is now at a uniform rate of 6 percent, which is imposed on the gifts received by the donee (recipient of the donation) in excess of the 250,000 threshold for exempt gifts, and is computed on a cumulative basis over a period of one calendar year. Hence, having an idea of the value of the gifts you receive, as a donee, will come in handy in determining how much donor’s tax you have to pay. Some gifts are easily valued, the easiest of which is cash. What if the gifts you receive were in the form of real property, or shares of stock, how would these be valued for donor’s tax purposes?
Real property and shares of stock will prove challenging to value, and needs a set of rules that taxpayers may follow to avoid confusion. RR No. 12-2018, specifically Section 13,made an attempt to provide rules on the valuation of gifts made in property, unfortunately, the wrong section of the regulation was referenced, which succeeded to confuse more than elucidate. Luckily, the DoF, through the Bureau of Internal Revenue (BIR) rectified the apparent mix-up, and issued RR No. 17-2018 amending Section 13 of RR No. 12-2018, by providing the appropriate set of rules, laid down in Section 5, on the valuation of gifts made in property. Note that under Section 13 of RR No. 12-2018, the reckoning point for valuation shall be the date when the donation is made.
For those lucky enough to receive real property as a gift, the appraised value shall be whichever is the higher between the fair market value (FMV) determined by the Commissioner of Internal Revenue (CIR) and the FMV as shown in the schedule of values fixed by the provincial and city assessor.
In the case of shares of stock, the FMV shall depend on whether the shares are listed in the stock exchange or not. Unlisted common shares are valued based on book value, while unlisted preferred shares are valued at par.
In determining the book value, the appraisal surplus will not be considered for common shares, nor will the value assigned to preferred shares be considered, if any. In addition, the valuation of unlisted shares shall be exempt from the valuation methods required under RR No. 6-2013, specifically the “Adjusted Net Asset Method” whereby all assets and liabilities are adjusted to fair market values.
For listed shares, the FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of donation, if none is available at the time of donation.
For those luckier to receive gifts in the form of memberships in golf, sports, or country clubs, the FMV shall be the bid price nearest the date of donation published in any newspaper or publication of general circulation.
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