Tax Consequence of Transfer of Real Property as Trustee

December 15, 1988 BIR RULING NO. 579-88 53 (a) (1) 000-00 579-88 Gentlemen : This refers to your letters dated October 18 and November 3, 1988 stating that your client, Hospital Espaol de Santiago (Hospital) is a principal donor of Sociedad Espaola de Beneficencia (Sociedad) since its organization; that Sociedad is a non-stock and non-profit charitable entity; that Hospital intends to create an irrevocable trust for the benefit of Sociedad to insure the continuity and permanency of funds for it; that for such purpose, Hospital intends to convey its real property in Makati to Anscor Capital and Investment Corporation (ACIC), an investment house with a trust license, as trustee, under a Deed of Irrevocable Trust for the benefit of Sociedad; that not more than 30% of the trust corpus or the property shall be used by Sociedad for administration purposes; and that Hospital intends to expand the beneficiaries of the irrevocable trust to other deserving charitable, educational, religious, cultural, social welfare, philanthropic or research institutions or organization. cdta In your letter dated December 12, 1988, you stated that your client, Hospital, has decided to transfer the real property to ACIC, as trustee of the said irrevocable trust. In connection therewith, you now request a ruling as to the tax consequences of the foregoing transaction. In reply thereto, I have the honor to inform you as follows: 1. The transfer by your client of its real property to ACIC, as trustee, for the benefit of Sociedad and other qualified donee institutions/organizations is exempt from the donor's gift tax provided that not more than 30% of said gift shall be used by such donee for administration purposes. Under Section 94(a)(3) of the Tax Code as amended, among the gifts exempt from the gift tax are those made "in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization: Provided, however , that not more than thirty per centum of said gifts shall be used by such donee for administration purposes. 2. The Deed of Irrevocable Trust is not subject to documentary stamp tax imposed under Section 196 of the Tax Code as amended. (Sec. 179, Regulations No. 26 or the Revised Documentary Stamp Tax Regulations) 3. "Where a gift is made to a trustee for the benefit of one or more beneficiaries, the beneficiaries, and not the trustee, are the donees of the gifts" (Am. Jur., 2nd, 1976 Ed., Vol. 34, p. 858) Accordingly, the transfer by the Hospital of its real property to the irrevocable trust is deductible in full provided that the beneficiaries are qualified donees under Section 29(h)(2)(C) of the Tax Code, as amended, otherwise, it will be deductible to the extent of 3% of the Hospital's taxable income derived from business as computed without the benefit of the deduction under Section 29(h)(l) of the Tax Code, as amended. Moreover, as regards full deductibility, the conditions to be complied with are those prescribed by Section 30(h)(2)(C) of the Tax Code, as amended by Batas Pambansa Blg. 45 and as implemented by BIR-NEDA Regulations No. 1-81. 4. If ACIC, as trustee, sells the property, said trustee is subject to the 5% capital gains tax based on the gross selling price or fair market value whichever is higher, pursuant to Section 21(e) of the Tax Code, as amended. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner