Animus donandi or donative intent of parents

Animus donandi or donative intent of parents by: Jean Abenasa-Miso

“Excessive allowances from parents that have enabled the children to save substantial amounts to purchase properties is (sic) deemed a donation within the meaning of the law. Otherwise, taxpayers can easily skirt transfer taxation in the guise of allowances by the parents to their children.”

This logical observation of the Bureau of Internal Revenue (BIR) was cited in an interesting case that may have parents and children thinking twice about transferring and/or acquiring properties using mom and dad’s wallets.

In Sps. Hordon H. Evono and Maribel C. Evono vs. Department of Finance, et. al. (CTA EB No. 705 dated June 4, 2012), the Court of Tax Appeals (CTA) en banc denied a petition questioning the legality of the BIR’s assessment of donor’s tax resulting from the processing of the Certificates Authorizing Registration (CAR) covering three properties purchased by the petitioners. The petitioner-spouses secured the CARs in the name of the mother pursuant to two separate deeds of absolute sale between her and the sellers of the properties. Subsequently, the respective deeds of sale were amended to acknowledge receipt by the sellers of the full payment from the petitioner and her three minor children.

The petitioner then requested the BIR to issue amended CARs for the same properties, so that the names of the children could be affixed to the titles of the properties that they bought. The BIR assessed the petitioner-spouses donor’s tax, which the latter paid under protest. The BIR subsequently issued the amended CARs by including the names of the three minor children. The petitioner-spouses then instituted the administrative and judicial proceedings to rescind the BIR’s assessment of donor’s tax.

To support the tax assessment, the Commissioner of Internal Revenue argued that the petitioners’ allegations -- that the funds used to purchase the properties included not only theirs but those of their minor children’s as well -- are mere afterthoughts and that since it was only the mother who bought the property, the request to include the minor children in the CAR as transferees is in effect a donation equivalent to three-fourths of the property.

On the other hand, the petitioner-spouses argued that there was no transfer of property from them to their children since they did not own the properties; instead, the properties were purchased from the sellers using funds owned by the spouses and the savings of their children from their allowances.

The CTA was thus called to resolve whether the inclusion of the petitioners’ children in the CAR and the transfer certificates of titles may be deemed a donation from the petitioners, and may be subject to donor’s tax. The CTA ruled that clearly, there was animus donandi or donative intent on the part of the petitioners in this case.

According to the Court, donation is defined as “a gift; a transfer of the title to property to one who receives it without paying for it; the act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another person, without any consideration.” In this regard, Section 98 of the Tax Code of 1997, as amended, provides that the transfer of property by gift is taxable, whether the same is direct or indirect, real or personal, tangible or intangible. The true intention of the parties is ascertained to determine whether or not there is a donation.

In this case, although various contracts were presented by the petitioner-spouses to prove that their children were also buyers of the subject properties, the Court considered the external factors surrounding the transaction as a measure to prevent avoidance of the tax due. One factor is the capacity of the buyer to acquire the property. The petitioner-spouses admitted that, although not earning income, their children are financially capable of purchasing the subject properties from their own savings.
Un fortunately for the petitioners, the Court only had to note the age of the children to vote for the dismissal of the case. As ruled by the Court: “True, children can save money from their allowances and would be able to purchase properties from their savings; however, in this case, records show that the petitioners’ children were only 11, 10 and 5 years old at the time of the sale of the subject properties, the consideration of which amounted to the total amount of P5.4 million. x x x.. Logically, at such young ages, the three minor children would not be able to save such substantial amount, even if they were receiving enormous allowances from their parents.”

Thus, without a source of income or an acceptable form of acquisition of a substantial amount to purchase the properties, the inclusion of the names of the minor children in the CARs was deemed a donation.

Incidentally, the Court noted that the gift tax was enacted mainly to prevent the loss of revenue due to the practice of wealthy individuals of donating inter vivos or otherwise gratuitously disposing of their properties during their lifetime for the purpose of reducing their estate and, thus, avoiding payment of the estate tax upon their death.

The decision of the Court in the Evono case is logical, but it also got me thinking: did the Court limit the application of the concept of animus donandi or donative intent of the parents to minor children? There was no such limitation. In fact -- and this is what is perhaps impressive -- the Court emphasized that the existence of donative intent shall be determined in light of external factors surrounding the transaction. A proper determination of the existence (or nonexistence) of donative intent may even curb the practice of tax avoidance in wealth or estate planning. One can just think of the not-so-uncommon situations among Filipinos, wherein the substantial portion of family wealth is appropriated by only one or some of the children, sadly with the help of the parents themselves. Other parties having legal right or interest therein but who have lost their claims can say, “Ok, we did not get anything, but at least the Government should benefit from the donor’s tax.”

The concept of donative intent can be used in general for transactions whenever applicable. But when the Government looks too far beyond the evidence and considers irrelevant factors to make a case for donation, the application of the concept can be misused. In this case, the taxpayer should protest the assessment of donor’s tax.