Deductions from Gross Estate Under Philippines Tax Rules and Singapore Tax Rules Essay Example

conditions that such losses:

1. re not compensated for by insurance or otherwise;
2. at the time of the filing of the return, have not been claimed as a deduction for income tax purposes in an income tax return; and
3. were incurred not later than the last day for payment of the estate tax.

Property Previously Taxed or Vanishing Deduction Step-by-step computation of the vanishing deduction:

1. Value taken of PPT*)xxx Less: Mortgage debt or other lien paid, if any (1st deduction)xxx Initial basisxxx
2.  Initial basisxxx Less: 2nd deductionxxx Final basisxxx Multiply by percentage of deductionx%Vanishing deductionxxx *)

The value of the property previously taxed or the aggregate value of such property if more than one item, as finally determined for the purpose of the prior estate tax or the value of such property in present decedent’s gross estate, whichever is lower. Period between two deathsPercentage of deductions 1 year or less100% More than 1 year months but not more than 2 years80% More than 2 years but not more than 3 years60% More than 3 years but not more than 4 years40% More than 4 years but not more than 5 years20% Transfers for Public UseThere shall be allowed as deduction from gross estate the amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusive public purposes.

Family Home

The family home must be the actual residential home of the decedent and his family at the time of his death. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included

in the gross estate, or the extent of the decedent’s interest, whichever is lower, but not exceeding P1,000,000.

Standard Deduction

A deduction in the amount of P1,000,000 shall be allowed as an additional deduction without need of substantiation. Medical Expenses Medical expenses incurred by the decedent, paid or unpaid, within 1 year prior to his death and duly substantiated with receipts shall be allowed as deduction from gross estate, but not exceed P500,000.

Amount Received by Heirs under R. A.

4917 Net Share of the Surviving Spouse SINGAPORE TAX RULES Funeral Expenses and Debts

For deaths occurring on or after 01 Jan 2005, the amount allowed for funeral expenses is $6,000 or the actual amount expended, whichever is lower. Debts are allowed for deduction if they are:

• a. outstanding as at the date of death;
• b. incurred by the deceased for his own use and benefit and
• c. not reimbursable from another source

Debts are deducted against the value of the asset that is pledged as security. For example, a mortgage loan of a property shall only be deducted against the value of the property regardless of whether the property is exempt from Estate Duty.

Quick Succession Relief (QSR)

When 2 persons died on or after 01 Jan 2006, and the later death occurred not more than 24 months after the earlier death, the estate of the later death is entitled to QSR.Where the order of the 2 deaths is unknown, the younger person is presumed to have survived the older person and inherited the older person's assets. Each estate is assessed separately and the exemptions under the Estate Duty Act will apply separately on each assessment. For all quick succession deaths, a

relief of varying amount would be given depending on the time period between the two deaths, as shown in the table below.

Period Between Two Deaths

Percentage of relief 6 months or less100% More than 6 months but not more than 12 months75% More than 12 months but not more than 18 months50%More than 18 months but not more than 24 months25% More than 24 months0% The formula for calculating the relief is A/B x C x P A = the assessed value of that part of the transferred property on which estate duty has been paid on the earlier death or the assessed value of the same part of the transferred property on which estate duty is payable on the later death, whichever is the lower. B = the assessed value of the estate of the later deceased.

C = the amount of the estate duty payable on the deceased. P = the percentage of remission at the applicable rate set out in the above Table. ExemptionsThe following exemptions are listed below:

AssetsExemption Threshold Other Information

Dwelling houses$9 million

1. Used wholly for residential purpose by any person regardless of whether the property is let out or owner occupied.
2. For deaths occurring on or after 25 Feb 2000, dwelling houses used partly for the following activities also qualify for exemption: oSmall business activities allowed by URA or HDB under their respective guidelines. oHome Office approved by HDB or URA b) All other assets (including CPF balance) $600,000*Egs.

Bank account balances, shares, commercial and industrial properties, and vacant land etc. ) If the CPF balance exceeds $600,000The excess of $600,000

• See details on CPF below d) Gifts specified in the deceased's Will
  

(bequests) made to Singapore Government or approved IP after death

Institutions of Public Character

Central Provident Fund (CPF) CPF balances, regardless of the amount, are exempt from estate duty as follows:

Where CPF balance is more than S$600,000, estate duty is imposed on the value of the other assets excluding CPF balance.

1. Deceased leaves S$1.5 million in CPF balance and nothing else
2. Deceased leaves S$1. 5 million in CPF balance and S$500,000 in cash, stocks, and other non-residential property assets CPF balance$1. 5 million$1. 5 million Other assetsNIL$500,000 Total assets$1. 5 million$2 million Less exemption of $600,000$600,000$600,000 Balance$900,000$1. 4 million Less exemption CPF balance in excess of $600,000)$900,000 (1.5 million - 600,000)$900,000 Net valueNIL$500,000 Estate duty payable @ 5%NIL$25,000 - Where the CPF balance is equal to or less than $600,000, duty is imposed on the excess value of other assets that exceeds the S$600,000 threshold when aggregated with the CPF balance.
3. Deceased leaves $300,000 in CPF balance and $500,000 in cash, stocks, and other non-residential property assets
4. Deceased leaves $600,000 in CPF balance and $600,000 in cash, stocks, and other non-residential property assets CPF balance$300,000$600,000 Other assets$500,000$600,000 Total assets$800,000$1. 2 million Less exemption of $600,000$600,000$600,000 Balance$200,000$600,000 Less exemption (CPF balance in excess of $600,000)NILNIL Net value$200,000$600,000 Estate duty payable @ 5%$10,000$30,000

Conclusion

After looking

at the tax rules of the Philippines and Singapore on deductions from gross estate above, we can see that Philippines tax rules give more allowable deductions from gross estate than Singapore tax rules. Judicial expenses, unpaid mortgage, unpaid taxes, casualty losses, and medical expenses are not deductible from gross estate under Singapore tax rules. There are significant differences between two countries’ rules in computing property previously taxed (quick succession relief). Under the Philippines tax rules, the amount of deduction would be given if the period of two deaths is not more than 5 years, while is only not more than 2 years under Singapore’s.

The percentage of deductions and the steps of computation to get the vanishing deductions are also different. The other difference is the requisites of family home to be qualified for exemption. Under both countries’ tax rules, the family home that is qualified for exemption is the actual residential home of the decedent and his family at the time of his death. As addition to that, under Singapore tax rules, family home that is used partly for the small business activities or home office is also qualified for exemption.

Based on the comparison explained above, the amount that the taxpayer of Singapore would pay for the estate tax payable will be greater than the amount of Philippines’ taxpayer. It is because the allowable deductions from gross estate under Singapore tax rules is lesser than Philippines tax rules. Consequently, the income that Singapore’s government would receive will be greater than Philippines’. Therefore, we recommend the Philippines’ government to adopt the tax rules of deductions from gross estate from Singapore’s.

References

1. Ballada, S., & Ballada, W. (2007).
   

Transfer and Business Taxation (8th ed. ).