BIR Ruling [DA-218-02]

November 22, 2002 BIR RULING [DA-218-02] Secretary Michael T. Defensor Chairman, Housing and Urban Development Coordinating Council 6th Floor, Atrium Building Makati Avenue, Makati City S i r : This refers to your letter dated June 25, 2002 requesting this Office to facilitate the issuance of a ruling allowing as a deductible item from the gross income of participating entities/donors the donation of homes to the aged and disabled poor persons and exempting caregivers from personal income tax in accordance with the provisions of R.A. No. 7432. The request was based on Executive Order No. 105 (Series of 2002) entitled "APPROVING AND DIRECTING THE IMPLEMENTATION OF THE PROGRAM PROVISION OF GROUP HOME/FOSTER HOME FOR NEGLECTED, ABANDONED, ABUSED, DETACHED AND POOR OLDER PERSONS AND PERSONS WITH DISABILITIES" which provides as follows: "SEC. 2. Grant of Incentives . All donations made to the Housing Program for the poor [ sic ] Aged and Disabled Persons are allowed as a tax-deductible item from the gross income of the participating entities/donors subject to the provisions of Sec. 34 of RA 8424 or the Tax Reform Act of 1997. The tax privilege shall be applicable only for the taxable year the donation was made. "The families that will serve as caregivers for the poor aged and disabled persons shall also be entitled to personal income tax exemptions pursuant to the provisions of Republic Act 7432." In reply, please be informed that the pertinent portions of Section 34(H) of the 1997 Tax Code provides: SEC. 34. Deductions from Gross Income . xxx xxx xxx (H) Charitable and Other Contributions . (1) In General . Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, or to accredited domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to nongovernment organizations, in accordance with rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, no part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (5%) in the case of a corporation, of the taxpayer's taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs. (2) Contributions Deductible in Full . Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full: (a) Donations to the Government . Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (NEDA),in consultation with appropriate government agencies, including its regional development councils and private philanthropic persons, and institutions: Provided ,That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection. xxx xxx xxx Thus, with regard to the deductibility of donations for income tax purposes under Section 34(H) of the Tax Code of 1997, the same are deductible in full if they are given to the Government or to any of its agencies or political subdivision to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development as described in the priority plan prepared by the NEDA. Such being the case, donations by private entities/donors to the housing program of the government for the poor aged and disabled persons may be deductible in full for income tax purposes if they are covered by the national priority plan of the NEDA. If, on the other hand, the said donations are not in accordance with said plan, the same are deductible in an amount not in excess of 10% in the case of an individual, and 5% in the case of a corporation, of the taxpayer's taxable income derived from business as computed without the benefit of this deduction. Regarding the personal tax exemptions that can be enjoyed by families that will serve as caregivers for the poor aged and disabled persons, quoted hereunder insofar as pertinent are the provisions of Section 7 of Revenue Regulations which implemented the provisions of Sections 4 and 5(a) of R.A. No. 7432 otherwise known as the Senior Citizen Law, viz: "Sec. 7. Basic Personal Exemption only for Benefactor . "A qualified senior citizen living with and taken cared of by a benefactor whether related to him or not, shall be treated as a dependent and his benefactor shall be entitled to the basic personal exemption of P12,000.00 [now P25,000] as head of the family, as defined in Section 2(e) of these regulations. "xxx xxx xxx. "Caring for a dependent senior citizen shall not, however, entitle the benefactor to claim the additional exemption allowable to a married individual or head of family with qualified dependent children under Sec. 29(1)(2) [now Sec. 35(B), Tax Code of 1997] of the NIRC, as amended." Accordingly, a caregiver for the poor aged and disabled persons shall be entitled to the basic personal exemption of P25,000 as head of the family but he/she shall not be entitled to claim the additional exemption allowable to a married individual or head of the family with qualified dependent children under Section 35(B) of the Tax Code of 1997. Please be informed further that this Office will be coming up with a Revenue Regulations/Memorandum Order to address the three (3) other issues raised by you. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group