Chapter 4 Co-Ownership, Estates and Trusts CO-OWNERSHIP Article 484 of the Civil Code provides that there is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. The portions belonging to the co-owners in the co-ownership. shall be presumed equal, unless the contrary is proved [Art. 485 (CC)} - For taxation purposes, there is co-ownership when two or more heirs or beneficiaries inherit an undivided property from a decedent, or when a donor makes a gift of an undivided property in favor of two or more donees. Inheritance is subject to “Estate Tax” while Donation is subject to “Donor’s Tax”. Both taxes are not income taxes but classified as “Transfer Taxes” which are discussed in Volume 2 (Transfer and Business Taxation). Nonetheless, incomes from. such properties are subject to income tax. Co-owners are taxed individually on their distributive share in the income of the co-ownership. Meaning, co-ownership itself is not taxable for the reason that the activities of co-ownership are generally limited to the preservation of the common property and the collection of the income therefrom. Should the co-owners invest the income in business for profit, they would be constituting themselves into a partnership and such shall be taxable as a corporation as discussed in Chapter 6 — Income Tax of a Partnership. 189hyper 4- Comte Estates andy i i .d undivided for more th When inherited property remaine div (10) years and no attempt was ever made to divide the same amop, Co-heirs, nor was the property under administration pane Dor ha in trust, the property should be considered as owned by an UNTeGistere, Partnership, consequently, taxable as corporation. ‘AN ten the hey ‘d ILLUSTRATION CASE A: 2 : Ana, Loma and Fe “bought” a parcel of land for the purpose of improving he same before leasing it out to interested tenants. Question: Was a co-ownership created? “Answer: No. ‘ * Though the propery may be undivided, it was acquired by the ome not through gratufous transfer (inheritance or donation) but by purchase. Ana, Loma and Fe formed a partnership, instead of co ownership. Partnership is generally taxable as a corporaion Consequently, Ana, Lora and Fe shall be considered “shareholders for income tax purposes. Income tax of a partnership as well as the partners are discussed in Chapter 6. CASE B: On January 1, 2023, Noy, a resident citizen taxpayer died leaving an undivided Parcel of land to his heirs Allan, Mar and Pacquito valued at 60,000,000. The property is an income producing property primarily through rentals. In 2023, the property earned gross rentals amounting to P15,000,000 while ‘expenditures necessary to carry out the operations was P3,000,000. On the other hand, the heirs, who are all engaged in businesses in their own individual capacity, provided the following data for 2023 taxable year: Allan Mar Pacquito | Gross business income P6,000,000 P5,000,000 8,000,000 | Business expenses - 3,000,000 2,500,000 6,000,000 | Income subject to final taxes (net) 200,000 320,000 500,000 Question 1: Was a co-ownership created? “Answer: Yes. * Since the property is undivided, the heirs are considered co-owners. | "The estate of Noy valued at P6OM is not ‘Subject to income tax but to esta | ‘ax (transfer tax is discussed in Volume 2). 190Ole 4- Co-eanrhiy Estates ad Trusts Question 2 Assuming Noy was able to secure a partition and three separate land titles were issued by the govemment before his death, naming his heirs as the rightful owners in his last will and testament, was a co-ownership created? “Answer: No. The properly involved isnot an undivided property. Question 3: What is the applicable tax for the gratuitous transfer (inheritance) of the property from Noy to his heirs? “> Answer: Estate Tax Estate fax and Donor’ tax (ransfer taxes) are discussed in volume 2. Question 3: How much is the taxable income of the co-ownership? “Answer: none nt A co-ownership is not @ taxable person or entity. Its income, however, is distributed or shared by the heirs/donees, thus, taxable fo them in their individual capacity. Question 4: How much is the taxable income of Allan in 2023? + Answer: P7,000,000 Solution: Gross income of Allan ‘Allowable business expenses of Allan Share in net income of the co-ownership [(P15M-3M) 13] Taxable income, 2023 Question 5: How much is the income tax payable of Allan in 2023? “Answer: P1,902,500 Solution: Taxable income 7,000,000 TAX DUE (using the graduated tax rates): 42,000,000 402,500 In excess of P2M; (PSM x 30%) 4,500,000 Income Tax Payable, 2023 7,902,500 191G Hhapler # =o oa oanershiy Estates Hd Cog INCOME TAX OF AN ESTATE Income tax of an estate refers a the oH on income received by the estate during f period of Beaten or settlement An lard ae of Proper “estate” is a mass of all the property, rights, ether ‘through fldonaton and obligations of a deceased person which ree ct tax) of are not extinguished by his death, including through inheritance (subject to those which have accrued thereto since the estate tax). A transfer tax ig opening of succession. For instance, the * not _an Income tax because A transfer tax is a tax on in there iS no taxable incom parcel of land worth 60,000,000. in : i illustration 1, CASE B is the estate of Noy. hon Pa ae f is het e The passage of his property to his heirs upon ropa othe hes his death is subject to Estate Tax (Refer to Volume 2 - Business and Transfer Taxes). “Administration or Settlement Period” refers to the period when title to the properties left by a decedent is not yet finally transferred to the - heirs/beneficiaries. At this period, the executor named by the deceased in his “last will or testament”, if any, or the administrator appointed by the court, as the case may be, is temporarily in-charge of the administration of the estate until such time that the estate is finally distributed to the rightful heirs. While under administration, the estate may earn income, thus, the corresponding income tax should be paid. ILLUSTRATION 2: A decedent died leaving the following to his lawful heirs: Cash 5,000,000 House and lot 15,000,000 Vacant parcel of land 5,000,000 Commercial building 30,000,000 Vehicles 5,000,000 Total (@ FMVs upon death) P60,000,000 The propetties to be received by his lawful heirs upon his death are not part of their gross income for purposes of computing the heirs’ taxable income because it does not come within the definition of income. The estate of a decedent may be settled judicially or extrajudicially. Judicial settlement pertains to settlement of an estate in a cout proceeding while in extrajudicial settlement, the heirs or beneficiaries settle for themselves the distribution of the estate or their inheritance. 192Chapter -& - Ca aonershs Estates aad Trusts 7 Classification of Estates under settlement or administration Estate under “judicial” Fiduciary/rustee administration (administratoroxecutor) files tho ITR and pays the tax due thereon. . Eslates not under “Judicial” Heirs and/or beneficiaries file the ITR } administration (i.e, of the estate and pay tho tax due extrajudicial settlement) thereon. Applicable tax The taxable income of the estate is computed in the same manner as an individual taxpayer. Consequently, the tax due is therefore computed using the graduated income tax rates for individuals under Section 24(A) of the Tax Code (as amended under RA 10963 otherwise known’ as the “TRAIN Law’). Likewise, ’an estate Is required to adopt the calendar year as its accounting period. Where prior to the settlement of the estate, the executor or administrator sells property of a decedent's estate for more than the appraised value place upon it at the decedent's death, the excess is income taxable to the estate. Where the heir sells the property after the settlement, the heir is taxable individually on any profit derived. GRADUATED TAX RATE BEGINNNG 2023 TAXABLE YEAR for Individuals, Estates, and Trusts INCOME TAX Not over P250,000 Exempt e Over P250,000 but not over P400,000 15% of excess over P250,000 ‘Over P400,000 but not over P800,000 22,500 + 20% in excess of P400,000 Over P800,000 but not over P2M 102,500 + 25% in excess of P800,000 Over P2,000,000 but not over P&M 402,500 + 30% in excess of P2M Over P8,000,000 2,202,500 + 35% In excess of PEM 193G Chapter 4 - Co cers Estates and Tras if ILLUSTRATION : On November 1, 2022, Juan Dela Cruz died leaving various properties wor, ies are income producing properties deriving rent ON Te 1” was executed by the decedent prior to s income. A “last will and testamen! i lent prio death assigning GJ as the executor. In 2023, (while under administration), the estate eamed P4,750,000 (net of 5% creditable withholding tax on rent) ang incurred operating expenses of 2,000,000. Question: How much is the income tax payable of the Estate of Juan Dela Cruz in 2023? Answer: P452,500 ‘Solution: “Gross” rental income (4.75M/95%) 5,000,000 ‘Alowable deductions (2,000,000) Taxable income 3,000,000. TAX DUE (using the graduated tax rate beg. 2023): 42,000,000 402,500 Inexcess of P2M @ 30%; (PIM x 30%) Income Tax Due - Less: CW Tax on rentals Income Tax Payable | Deductions from the Gross Income of an Estate and Trust Deductions from the gross income of an estate and trust are the same items of deductions (business expenses) allowed for individual taxpayers under Section 34 of the Tax Code. However, in addition to the usual allowable business expenses, the amount of income of the estate for the taxable year which is properly paid or credited during such year to any legatee, heir, or beneficiary should be deducted (also known as special deduction) in the determination of the taxable income of an estate and trust. However, such amount of income distributed shall be included in the determination of the taxable income of the legatee/heir/beneficiary- 194Chapter 4 ~ Op “wench Estates and Trsts Shown below is the pro-forma c i aie de the estate and the heirs/bene! ficlariens utation of the taxable income of Taxable income of the Estate Gross income Less: Deductions Business expenses ‘Special Deduction: Distribution of estate's in Taxable income of the Estate Pxxx Icome to beneficiaries Compensation income, if any Net income of the beneficiary from business and/or practice of profession Add: Amt. received from the income of the estate Taxable income Tax Due [Graduated Tax Rate ILLUSTRATION 4: On November 1, 2022, Juan Dela Cruz died leaving various Properties worth 30,000,000 to his heirs; Pedro, Ana and Loma. The properties are income producing properties deriving rental income. In 2023, (while under administration), the estate earned P4,750,000 (net of 5% creditable withholding tax on tent) and incurred operating expenses of P2,000,000. During 2023, Pedro (one of the lawful heirs) received P200,000 from the income of the estate. Pedro's other income and expenses were as follows: Compensation income P800,000 Business income 1,500,000 Business expenses 600,000 Question 1: Assume that the estate is still under administration, how much is the taxable income of the estate in 2023? + Answer: P2,800,000 195/~ ie Clgpler 4 - Co-vanerhypy Estates and ay, Ss ‘Solution: | ae Gross" rental income (4.75M + 25M) 5.000000 Allowable business expenses : (2,000,000) Distribution of income to Pedro (heir) hiss it 0) Taxable income Question 2: How much is the taxable income of Pedro in 2023? “Answer: P1,900,000 computed as follows: Compensation income 800,000 Business income 1,500,000 Business expenses (600,000) Amt. received from the income of the estate 200,000 | Taxable income : P 1,900,000 Termination of Judicial/Extrajudicial Settlement After termination of judicial/extrajudicial settlement of the estate where the heirs still do not divide the property but instead contribute to the estate money, property, or. industry with intention to divide the profits between/among themselves, an unregistered partnership is created and the estate becomes liable for the payment. of corporate income tax. (Evangelista vs. Collector, GR No. L-9996, October 15, 1957; Offa vs. Commissioner, GR No. L-19342, May 25, 1972). On the other hand, if the heirs, without contributing money, property or industry to improve the estate, simply divide the fruits thereof between/among themselves, a Co-ownership is created, and individual income tax is imposed on the income received by each of the heirs, payable in their separate and_ individual Capacity. (Pascual vs. Commissioner, GR No. °L-78133, October 18, 1988; Obillos vs. Commissioner, GR No. L-68118, October 29, 1985), 196 |Ch ap ter & - Co eronershi, Estates andl TAXATION OF TRUSTs Meaning of Trust. ~ Trust is a right on property, real or personal, held by one party for the benefit of another. Trust also refers to a legal instrument or device whereby a person called a Trustor or Grantor delivers part or ‘all of his properties to another person called Trustee or Fiduciary who administer and manages the properties for the benefit of designated person/s called Beneficiaries. The term “person” may refer to an individual, natural or juridical person like a corporation. ; Trust may be arranged inter-vivos or created by will under which title to a property is passed to another for conservation or investment with the income therefrom ‘and ultimately the corpus (principal) to be distributed in accordance with the directions of the creator as expressed in the governing instrument. The subject matter of the trust or the must be clearly identified. It is important that the property to be transferred in trust must be existing, lawful, definite and transferrable. Anything that has an economic value and which a person may own and to which may transfer legal title, by gift or Sale, is a property that may be conveyed in trust such as cash, stocks, bonds real property, livestock and growing crops and jewelry. Trust agreement allows individuals to create sustained benefits for an individual or entity. For instance, a parent may place a sum of money, property or other types of financial assets such as equity and debt instruments in the hands of a trustee for the benefit of an incapacitated or minor child. Parties to the Trust 4. Trustor — Person who establishes a trust. 2. Trustee — One in whom confidence is reposed as regards property for the benefit of another person. Fiduciary- any person or corporation that holds in trust an estate of another person or persons. 3. Beneficiary - Person for whose benefit trust is created. 197Chapter 4 - Ct -oanerhip Estates and, Dn Taxability of Income of Trusts The income of a trust may be taxable to the trustee, Benetcian, or grantor, as the case may be. Taxable to the “Trustee” if: P pe 7 . The income of the trust is taxable tothe “nistge” i the Income i8 tobe accumulated or held for future distribution, wl ea des a income ae gain from sale of assets included in the corpus oft ie ‘ u Ihe imposition, of the tax is not affected by the fact that the ultimate Seen, may be 5 Person exempt from tax. Likewise, the income of a trust a ministered in 2 foreign country is taxable to the trustee. Taxable to the “Grantor/Tr rustor’ if: "Under the term of the trust, the title to any part of the Corpus of Principal of the trust may be revested to the grantor (Revocable Trust . The income of the corpus or principal that may be revested to Qrantor Shall be taxable to the grantor: ™ The income of the trust may be held or distributed for the benefit Of the grantor. = Under the term of the trust, the income of the trust shall be applied for the benefit of the grantor. Taxable to the Beneficiéries The income of the trust is taxable to, the beneficiaries if the income is to be Special Deductions: distributed to the beneficiaries. In such a 1. _ Distribution of the case, the beneficiaries include in their Yeat's income to an return, their distributive share in the net heir o beneficiary; income of the trust. The distribution .of ae 2. Amount collected by 9 guardian of an infant which is to be the year's income to an heir or beneficiary is a Special item of deduction * for the trust, At the same time, the held or distributed income distributed (actual or 4s the court may Constructive) shall be treated as as direct. special item of income to the heir/beneficiary, Special deductions are Not allowed j (oy. ina foreign country [Sec.61(C)-NIRC}, Gin case of a trust administered in 198Clyper # ~ Convent wwshit, Estates wed 1 Trusts ni putation of Taxable Income col the principles applied in computing the taxable ji ; previously aiseueer # ee applicable in the deparsination or the a income of a trust. Hence, the Trust's taxable income is likewise mputed in ine pore. Wind fas 8s an individual taxpayer. The tax due is 4150 pased on ee a ual c cee for individual taxpayers provided under geation 24(A) of ax Code, as amended. Moreover, calendar period | be used as accounting period for tax purposes. A 1 rf He ie calendar year as its accounting period, trust is required to shown below is the pro-forma computation ; ; atrust and @ Beneficiary: of the taxable income of taxable income. of the Trust Gross income Less: Deductions Business expenses pecial Deduction: Distribution of trust’s income to beneficiaries Taxable income of the Trust Tax Due [Graduated Tax Rate] PXXK Taxable Income of the Beneficiai Compensation income, if any Net income of the beneficiary from business and/or practice of profession Add: ‘Amt. received from the income of the trust Taxable income of the Beneficiary Tax Due [Graduated Tax Rate ILLUSTRATION 5: On November 1, 2022, Pedro established a trust agreement with Mr. Abogado for the benefit of his daughter, Ana. The properties in the trust agreement pertain to income producing real properties deriving rental income located in Cebu. In 2023, the trust earned P4,750,000 rental income (net of 5% creditable withholding tax on fen!) and incurred operating expenses of 2,000,000 199Mp estates and, ie , Chotr & Orel 7 a income of the trust. Ana's op, ved P500,000 from the in ' 023, Ana received 5 A During 21 inonte and expenses Were ss oo an. 900 tion incol 500, waar m self-employment 00,000 Business income fro Business expenses in 2023? Question 1: How much is the taxable income of the trust in 4 Answer: P2,500,000 vam dail 500000 "Gross’ rental income (4 ‘Allowable business expenses eye Distribution of income to Ana ROshh at) | Taxable income _P2,500,000 Question 2: How much is the taxable income of Ana in 2023? + Answer: P2,200,000 computed as follows: Compensation income 800,000 Business income from self-employment 1,500,000 Business expenses (600,000) Amt. received from the income of the estate 500,000 <— Taxable income P2,200,000 Classification of Trusts 1. Ordinary Trust - the income and corpus of the trust do not revert to the fone Me trust Tee is accumulated and held for distribution to eneficiaries. Under the Tax C i i fawn Hele ode, ordinary trust is any of the * A trust where the income is acct \. Trust | umul; distribution under the terms ofa will fhe Se te * A trust where the income > di Is is i Tiley ote Cen eae to be distributed currently by the " At ‘l rust where the income is accumulated for the benefit of unborn or unascertai led ‘person or ers fh con t in ge fees pe Or persons wit! tingent "A trust where the { income, i be eit istri » IS at the i ‘ her distributed to the beneficiaries cof fautiery, may mula 200Chapter # - Co-aw — 2 y “ Caner, Estates and Trusts cable Trust (Section 63-NIRC 2 Rover to revest in the grantor, title tb any pet of tre corpus of he wus ‘ ca Part of the corpus of the trust is the grantor either alone or i conjunction with any person not hating substantial adverse interest in the The income of such part of the disposition of such part of the c the income therefrom; or crecisiol as a be ' , include i «In any penn not having a substantial Sinane the adverse erest in the disposition of such taxable income vart he the corpus or the income of the grantor therefrom. [Sec. 63, NIRC]. Employees" Trust - income tax shall not 5 which forms part of pension, stock bonus, eal ar aarna plan Sa employer for the benefit of some or all of his employees [Section g0(B)-NIRC]- The income of an employees’ trust is likewise exempt from the payment of final taxes as well as income derived from the sale of real property whose [Link] sourced from the employees’ trust fund [Miguel J. Ossorio Pension Foundation, Inc. vs. CA and GIR(G.R. No. 162175, June 28, 2010)]. i Requisites or Conditions for Exemption of Employee's Trust + The employee's trust must form part of a pension, stock-bonus, oF profit-sharing plan of an-employer for the benefit of some or all of Any amount his employees; Gctually distributed « Contributions are made to the trust by such to any employee employer, or employees, Or both; or distributee shall = The contributions are made for the purpose of be taxable to him distributing to such employees the earnings — in the year of and principal of the fund accumulated by the distribution, to the trust in accordance with such plan: extent that it + Under the trust instrument, it is impossible at exceeds the amount any time prior to the satisfaction of all liabilities contributed by such with respect to employees under the trust, for employee or any part of the corpus or income to be (within distributes. the taxable year or thereafter) used for, oF diverted to, purposes other than for the exclusive benefit of his employees- 201ye senershy Clypter tO urns (TWO Ret Consolidated Income Tax Where two oF ae a and the beneficiary 'S the sam hall the trusts 5! income of all t! asin: 7 Te eee ee such consolidated a uit consolidated income shall be his ; each trust shall have a share in The format of computation Taxable income of the trust Ten sppotines: Taxable income of all trusts toa Trust 2. Such proportion of said tax shall trustee which the taxable income the consolidated income of the several .trusts. é income tax still due or payable computed as follows: 4 ame trustor or ig created by the S gra more trusts Bt ne following rules shall apply. person, be consolidated and the t The tax computed on the the different trusts, SUCH tha income tax on consolidated income, Mor ax follows (Tax Apportionment): x Consolidated income tax | be assessed and collected from each of the trust administered by him bears to Each trust shall pay an Income Tax apportioned to a trust PXxx Less: Income tax already paid (xxx) Income tax payable Pxxx ILLUSTRATION 6: In 2023, Pedro created three (3) trusts for his minor daughter, Ana. The following data were furnished by the trusts during 2023: Trust Gross Income. — Expenses Net Income 4 5,000,000 82,500,000 2,500,000 2 10,000,000 5,000,000 9,000,000 3 15,000,000 7,500,000 7,500,000 Required: Compute the incom "Consolidated Tax Due Consolidated Gross Income Income Tax Paid ~- P500,000 1,200,000 2,000,000 e tax payable of Trust 1,2and3 Consolidated expenses 30,000,000 Consolidated taxable income 15.0000 PAS, Tax Due [Using 2023 ie on rary 000.00 Graduated rate] mn excess over RBM @ 3594- 2,202, |___Gonsolate ince Tops 7X 35%) 2,450,000 202 —____2,450,000_ i 24,652,000.Chepter # ~ Comoe yA MCrsh ty C fee, ceshipy Estates and, Trusts |, Income Tax Still Due/Payable of Tax Apportionment fo Trust 1 rast | (2,500/18,000 x 4,652,000) 775,333 Less: Income tax already paid \ Income tax stil due/payable —(500,000)_ \ : 275,333 | » Income Tax Still Due/Payable of Trust 2 | Tax Apportionment to Trust 2 | (6,000/18,000 x P4,652,000) Fiseh cer | Less: Income tax already paid 4,200,000 | Income tax still due/; — 11,200,000) luefpayable 350,667 | » Income Tax Still Due/Payable of Trust 3 | Tax Apportionment to Trust 3 | (7,500/15,000 x P4,652,000) penne | Less: Income tax already paid (: Income tax still due/payable PADD | Filing of Income Tax Returns The following persons acting in any fiduciary capacity shall file the income tax return for an estate or trust (Section 65:NIRC): ~ Guardians Trustees : Executors/administrators Receivers Conservators Bees ; All other persons or corporations acting in any fiduciary capacity In case of two or more joint fiduciaries, return filed by one of them shall be a sufficient compliance with the requirements of the Tax Code. The return and the tax due may be filed and paid in: Authorized agent banks; Revenue District Officer; Collection agent; en Duly sulfone city or municipal Treasurer In which the taxpayer has his legal residence or principal place of business. 203CG p, der & - Co- nner Estates and, Li, a Eee Ooms FG Se MoU Namahinga Nah died leaving an estate yo Inthe estate eames . el San iStratan 1A Poe eetate incurred expenses of peg, ‘one Felipe, the Bali nels racaived 200,000 from the income of the estate °0. Required: 1. .Determine the income tax due of the estate and fill-out the applicable income tax return Solution: Gross income Pao OPEX (600,000) Income of the estate distributed to Felipe (200,000) Estate's taxable net income __P700,000 Income Tax Due of the Estate (Using 2023 Graduated Tax Rate) 82,500 2. Assume that Felipe also eamed net income of P500,000 from his trading business. What amount should Felipe report as his taxable income for the year? Solution: > Gross income from trading business 500,000 Amount received from the Income of the estate 200,000 Taxable net income of, Felipe P700,000 204Chapter + - Co monershity Estates and Trusts Bi @mzE Annual Income antec aadng ME ee Ret Fe eT NRO Se rnpe____leeaePevinwt | Peters DX) ete | That Sonpematen a a al Present [Stoner Chior vecnetonroecn-init fla (XK) wre wercann <0 Fate hi ie aon STATE OF (in snap TROST TD fins Ws aS] ES, TAT EL OF NALMAWH LNG, A_ NAH, iit 1 an [fpSjat beets ete en tremens dati ttn Non SE PUM ANAM, STB ARG YUMA GAN, | leatd GUM A a ‘az Gose | 4, 3,053 Ena Rios aa Hr 1231 19.5.9] Mm Ahi me a@ema it com yy ya 1 judas 2 a Gaeta tdi Pgs Tat Rr a et PMO tt Coys Fim Ty pip aitiit a eer taints 10) — [18 Ge Stas renasom 2,831 216.70 0.91 (xlsinge Li tepety Sepanted [J widoneer | rte, sous Pas coe? Yes te “iF Sepa Fs me eae en ST weer TXT es Me = pesca cree a ooazem Fat (X] Gedeted Rates 1] temzed Deaurton 0 ptonal tard Deon (05) Seam ie cannmnn El peoeeseeaee” —L Saegeererermneear [Clo nsf dtd ae dS 2488 Poet Tx ua S118 oR PART = Total Tae Fa Tae as Patan Due ee Pat te 3 pi 18121 O01) pa i i tenet Tax creesreymerte ren Pot nae 17 rarer ane rarer re Tax Payablel{Overpayrent) (sem 72 Less ton 23) 14 18121500) pia iit i} Teen ee Mecano RETOROAS] | gl yyy yy ys Ot Amount of Tax Payable/(Overpayment) pe 26 Less tom 25) pi 181% 5 O10] pa si 0 Fist eet e peta ha pa ie pateye, pra Oh 3 Compromise vrriii iol os] 0 Teal Perales Gomis 27 679 press py Se auaamanm 810 ve py 1 Ol Aggregate Amount Payable/(Overpayment) (Su of ims 318 and 316) TE CRSES i re, ee 5 TB ote sued Tox roe Cates (100) Trip oa red a er Josette rust sea nara re Co Bern BE Tey Ty a a Te a SS Bees rp sn ay re Pe ge tee» Boss ey eee estes Pech Z/h Ne a rege eps fag shed eas ans FELIFE NAH oie Fa a Sire Tap TROD PART II- Datla of Payment Fara umber oT foavmwnvatvere |) yy fata irriitititiritiiriire ae 1 bo biit rfid pri Tax Deb He Te i Ts pa oa , El ts hh pity a erate Vora Ravan OT ROGUE Da Tah AIT A BO Say Urn EE TTS re cme eben Fazer nr {Ros Spt Tor neh1701 sary ova enes) Inaviduats Grebsding HIKED Income EMS im Annual Income Tax Retry reste 7 ra 7,8, 9, 1, 5,6, 8, 1,0,0,0,0,0 saree TF 0,010] 2 ROO Cote ‘Cornpensaton Famer Fiars Spouse Tye [_J__ Single Propilet ee Panties Le lfameea as [| mene Se eT =| [remiensne. wi] feasted Tinea tre C1 na a ncn 0) se hein tes of Graduated Rates unde Se. 2414) Pee pray Te election tat | ck chp telmurRareeRTC TE? Tver ht SAREE oma Tops mans nice C=) Spear aaa eRe ANHAPHH S30) he Far bee 1B ANRC eco Waa ck arn Sie Scheie $= Gros Someones gr OT gw Fase este wa Wp bre sr Toone aie ne ORTH RTT Seiten eaenaetas to nied. Torae osama ee ema - - Rn ttf et tt ntl gy peer Toca Taga COE I a ta alia t! octamer wea} a ditty 4 wo hd Ll 10 z yo sO} pip pins 0 sk Geeamremnienestae ou wf ritrit en — ese en a cae aT 5 - Sets ates coma 1 voli sii es — alr leciatatale 'a Gross Compansoton come (Fm Pax vSaeaih hm MeO) 1 PT) Rarer ee 0 Las Non Taatie Eat Conpusnton ot mae Fai Cian hee fro Lob) rare Pease 7 Tax Due-Compensction come gus Gx ieee FRAO etme Sn ere 6ST Sir erased mere Tate a SaesRevenues Recep 0s 11416010; 40] 1 4 0 Dass Sols Reus, Alowancas and Dou regi a o a Nat Sale eRovenvesRecopisFees vn Les bo Rona Ol Gay ike Ft iaay Con ol SabsSonees pekatrebfremrteniamey ty 141 olay 11a ol he Gross ncome/Les) rom Opwatien fem 0s fn) [ri soo1 000! | jxinr tons un sing aS Pei pi 3 Ordinary Nowableemized Dudiions (Fam Pav Sede don) 1418101010. pa it Spon AlowableloritedDaGuclons For AV SAeui Son Satren eT 0 om h p orOe OLD eat et ern 9 0 fs Toit Alowable hamised Doductons (Suet tre 19101) ft tt a 111 0,0,00,0f yyy pty 7 Optimal Sandra DaGicon (950) WPhetion o Fe Not ocome oo al Rt Ls ton WLOS tm laon dissin sof ppiirity ta es a TY Diriiii iol spp) a bs ot ai of yp a at 1 ae eT Ria Sarna | 72 Total Other Nah Op Wana Icom (Sm fnew F 1) pf 73 Table ncoTme Busia (Sum of Av 18nd 2) posnaya Oy py ttl Total Tovable Income ~ Compensation &BusnesS an naive S Tot ecb Copmetin Bie Fone arin * 7,004 4 0,0) Ti ansamesinae) fever? 8121 51010 eChapter # ~ Co vvoncrshipy Estates and. Casts 1704 Annual | agence) | meant catty MeSH ex, ROUTE t 73,89, 1,5,0,9, 1, 0,0,0,0, 01N AH Shar Sef teens Tose Soles Tes ROE pF 608 (mt sarang Sexanc dDaoaT fr 9 Toa ara Somes Rad ass Aine rate fon male a i roape arg nae OE Taxable Income LOS] (tam 28 Las tm 29) Tar Dn ass bane fin 3 ties Tr fs Amorzatons f2Be6 Debs [az mtx D-cmrpntn 8 tabs nem iar turian Vous Tim ed 3 chartobe and Oar Conibulons feDepltion Depreciation [éEnvonearent, Arusament and Retention Frege Bovstts fe trest Doses fa Pension Tost fri Remal 2 Ressoich and Develprort ‘Sample ony 13 Sears, Wages and Alowantes [¥4SSS,G5IS, Phieath, HOMF and Ofer Conrbutons Hi Teeand Leones 6 Tansportaon and Trove 8 [antoril ond Massengerial Sewvices cars Ds svetons Subject 1s VAN Tax ood Oar Epa [Professional Fees [Secunty Services @ a iva Paving Ona (st os V0 RoC ale A Piitiittiiisiiiiiig dal Spd Neo Tard Dacre Topp (Surat tas + 0m 2) 70 Pa V Sete 3A Ren) oiiitt 4 Lit pitt i 6 Yoel Special Alwable Verz0d Deductions Sows Sumer ters 40nd) Gross ncome [2 Less Ordinary Mlowatle hemired Deductions NOLO ABIES prevoun Yous, Tha aaa ‘nope sshi2 Boyhi Estates and.) Cast, Chapter 4 Co-opner ts sa turn income Tax Re income Ear 1701 san 21808) 3 3.5,5 ar ‘Annual Ii tnanduats Anchuding MINE 1s 3,5, 10,0,0,0,01N 7 3 Aco aid Preven Ye H, ae fe wmico esos AA a il i i oy are AOD Fant = Sepa oor [rags Raincone Tex Don (om Pat ere ote 30 Speci Ra-ncome Taxus (om Pat Xe 7870 Tres, Shve of er Gover Ageey, Frameset A Tet Spec tyrone Torin er Go nL Tal come TexDue (um ltrs 1&9 (oFor Vien Fata Tanah a pres fara Por Yoors Exess Oras TexPayronter a Fost Three @) QUIS fs cnatoie Tex Wane forthe Fit Tree) Guars [create Tax anno per BI FounNo 2307 tite A” Quiet scale Teawnv per Bam 8 ren Pave FIED. Te Pid en Previous Fo isi n Aenea Ret For Tax Cs, pene Speci Tax Cras, Fear To Pat VLAD Ome Tax CresisPoyners rest erro [a Tor Tax CresisPaymars Gure/iere (OO ToPott ton23) Pana -Ta Wawa ae eee che We Pa a ra Kha A) [eter Rett pees Mele bed at natn [Si Tosl— Tax Rete (Sunol aera de) ease cna Tox Doe (Fem Poe 178 end De 7 Fe Texte Airant Oefore Spi Tex Cre em dss tan [tA Spacer Tox Crede Fon (ono Vite Teal Tax Rea aimee SPECIAL fumafione Sand vase rapa ane Yr Ohare Ds Pier Ar Netgear [ToxRtl en tpocd Nowtle nied Dds, Pastrami AE 0 Ton ex Rebel Aainent-EXENPT Gnd fers bora PARTI Recenalon fet icare ga tle ere aa snd aa a il “it coma pe aks 2 7 a [eicdan amare Tal Sav ote Ow) Tite Table neomeltcay dnt nameOkapter = On ¢ ‘omenshep » Estates and, Trusts [ieee ela Ey 3 RETURN of a TRUST On January 1, 2023, Pedro established a trust fund for the benefit jughter, Ana. Pedro appointed Atty, Digong as the trustee, The of his it of land with a dormitory earning erty transferred to the trust is a piece ora income. During the year, the trust earne urred expenses of P10,000,000. Out of inov’erredP 10,000,000 to Ana, eempensation income of P2,500,000. required: ‘ 4, Determine the income tax due of the trust and fill-up the applicable * income tax return of the trust. d P40,000,000 revenues and the trust's income, Atty. Digong During the year, Ana earned Solution: Gross income-trust 40,000,000 Expenses (10,000,000) Income of the trust given to Ana (10,000,000) Net Taxable Income-trust 20,000,000 Income Tax Due based on 2023 Graduated Rate 1ST P8M 2,202,500 35% in excess of P8M; (P12M x 35%) 4,200,000 Income Tax Due (Tax Table) 6,402,500 2. How much is the taxable income of Ana? Solution: Compensation income 2,500,000 Income of the trust distributed fo Ana 10,000,000 Net Taxable Income-Ana P12,500,000 209Clapler A - Co-vine Bene nos e Tax Annual Income Tore 1701 nraey 2038 NCS) hip Estates and, 7 st, ial Taimetnant ye Alphanurere Tax Code (ATE) [X)" wort Goneraatonheome {_}bsBanetiane PATO ta Se ras a 1 ea oe Pfn =P ah 6 Medien a seg TRUST FAO Gm MaDe UL BALD, 1S | BT Nose enn Fe Here ESTA rey PRS PAOLA TY, 0, LGONG at piel | ie at oa an r PrtN As G51 AiMs Ay TB jR,G,¥ cde | rarer era 4.8.39] Tat ae — 19,7,9)3,t)t, Y.@.6m841 A I ‘casera Cie Ci ey PSL | Telenge Graduates Rates id eres Deon ener e MT Ee a clad eauatte ca oka res {seit ne [Tweed “Tesely Seperees TT widower ca fe Flag Saue [sol Fling [—] Sepa rn x ar POR CURERERENTIC RET Torgrice| ig Rieti dose = "1 cont Standard Deduction (020) FEIT Ss Eaouromtremtase 2 yA Faaa [2 Tax Due rronPon wien 161410215100] pia iiis o 5 ess: Total Tax Groote/Paymeria rat bon 1 fae i o Tax Payabla(Overpayi (i 20a 0029 16,402,500) pss iiss 0 PE pty arabic AE OY ‘our of Tox Payaben Overpayment) fom SL tn) 11614102600] , sys iii o ‘Aad Penalion 27 bart pris iol 18 28 sucha Po Oe 29 Gonpromise pops Ohya o etal Preto i in 271629 risers sol yyy ips d Tota Amount Payablal(Overpayrant (un oerai6 md 118,402, 50,01 144 mo) 32 Aggregate Arourt Payable(Overpayment) um fens 31h wx 3a a fptt Toe a os OTB chore ame, ene ESSE] Eel be ded abeieindaToxCrct Cotesia (62) |] Tabatha ora etx coat oe ean a ep RE Se er eT Wana To il OT mao salina FC ones PART H-Detl of ray Pre Fate ey cs oa da oneneets | ga inbor t arse Rumba vo Ta tt dabei 210 Beas aT rays ors?a hapter +- Cy “Owners ra hit Estates and, Trusts at Annual Income | sant ate) AE wo stan bd Thunts 4-6,7,2,9,4,0,050,0,0 f = Teanaon Nomber ee Sean Pevta He Vil0,0,0,0,0] acm Pe ee rai ee inane [edna tec nena fname toa thin eats} ieee rants Tbe mga Texoreai@? 1 ves Ch nef Foregn Terror a hears Ta Te Fs 1 7 Tene neat arebalentrettt ate ipo “Comet ates ‘WA Cer osteo Jalna i (eerhatt tbe oy Cl nese Cope mnt cena "Casi iy ot Grund Rates ut S66 2A) &Preeiage Tax nde Sec TSE os ea PARTY = Corpses ae a =s nae a ee fara Fad OP ra 0) aN SS Haven aaa GE GE Tee genee Sat Stem mates ee a te tk PR ee eee I a seer Ty Ieee fy ri t Dititi Olirrriiiy O z eta ely 0 Fen carpee ear pa ToT yi ie ; Sauer mae ee a agate PTT ‘ s rE as = eee ae 7 is Copansion core (fom eV Sach 7 32) bottii1 Olriai iit Less Hon Toni / Ea Compencanle pooh Teas Compenssion icone ova iam mo) braaa lye pel arate Tao rer ct cl ra i SeesRovenvesReceptsFeas 14101010 1010010 erarere Pekan st ie cat 1410100010010} 4 44 i ia) ine torWSiarcoricn pekacewtmemremrmete) 1111111 idlhisa iii 2 Gross income fos) fom Op eration lem 10 L268 Rei) 4410010101040 81 tet [i Welocome/ 05e) manta to LOS to tus bare i (oy Be 22 Toil Cor Hon-Operaing Income (Gum oom Piarmestinerereera@e 20408 Cri) Ee Dis Companedion ord) Bares me vanities 6141012 £8 211neh Estates and, as Return xia and Tests 1701 sarang 018 NCS) ‘ax ual Income T8X naan tn mE ewe R577. 9,4,0,0,0,0, 010, GONG Seen re Saeser evs one ame a freer enne om oe Tas Rosie nica err ren saa emape arom fro Tessie incomes) tn 28 Les tm 9) tT oe nor ee fm Ces AD a bang ce nr id nf joeaanerne rae na fr Amoaiavons 2 Bea Debts Fs Chartana sd Orbs Contbutons Fa Depiaion [sDeprecitan fe Entotarener, Amusement and Recreaion Fringe Sarai fe reerest Loews fo Penson Tass eae 2 Research and Developrant 13 Saas, Wages and Alowances 14 SSS, 61S, Phihealh, HOME and Ome! Conribuions 6 Tames 90d Leenses 6 Transporaton and Tevel z ioe Bae Wa [entorl ana Messenger Services Protessional Foes {sere on Seconty Sevens (Semple ong Gap oni Samper 5, 0,0; 00,040 p £ 51 0,0; 0,0,0,0 < i as Gamay Pl tind os fantom tm afar Soman amt] 2 +O, 0, 01 04 0,040 i a 5 ea Spent No anaes Dire Tempapie (Sime ers ara ra Pat V Seta d Ae) i ie ct Spl Aa aied Desacions Spoma una! Goat TOPalV ems BAR Pa erosion Fe cess Oraiay AlowabieHerined Deaiciane et part 085s ten owas tates tn COSA RAT . a ea B teLconveiee Prenat ‘beat Cnowoenns | BNOLCO ARIES Camere 212Outer Ss Chapter #~ Co po af v tit, Extates and, Trusts TREE Annual Inc \eatatete Poaotog MRED sen ee eturn )-Eatates and Tanta LE Pee 2, NOLCO Asied eens SWoteotipes | NOCD Appa is SO OSA Se ey RTT an zeae To Due Panu ihren or erin ee Tax Due (ron Pat en 7A) Se avant AGE, ree oo BR ey i Sens ited rot files ny Daa nal tare 8 ATFoPat Heme ETAT ro aecone 18 | rears evens cred oats feb Fist Toe ©) Quars ea Tx Wether e Frat Troe @) Qvaters i Ton Weel por BR Fora No 7307 forthe Ove calyx Fes N26 (Frm Pun V Sec 1 Bem 3420) aa Rar PDI FW 9 iss 8 Aan Retain amy THE robs, Kopi col Tax C685, Foe eee (To Pot Vitam er Tar Crests ays ee ra Tax CredaPayars Sum of ere 2) (To Pat Rem 23. Pant tar wanes 5 Fee Tc thee Put Xow ate Fn A arenes LrcmidnteodAbatie tein teaitow StGonernaurma SaToal= Tax Roll Suna hems Fane : [ecaos mene Tak Ub (Fim Po Ren #70. ono fem 7H) Tas iaat raiment Bofors Special Tox Cred ern Lass Rem 9 aa peal Tox Cro, any (Fem Por VE Rea6) al Tax Relat Arslinet- SPECIAL (Suet es 5 ed) vas-8 eer ane oxen Ou ft Bn BoE Xe packet et Monae Remind Don re Fa Toa Tox Relol Walmer EXEMPT (Suma Here @ and PART Reconatinton Ret rapa ba So Tet ecomafs) por Books Tol fm m8 1 are! dal an fms 69) Wit Taxable meoma/(cone) (lem 660 fen 10) 213aN ee PROBLEMS P41, (Estate) undivided property deriving in, m Come Pedro died two (2) years ago leaving a0 TN a” "the property is. un fi . His heirs were Louie a p Unideg sarinieteete through the decedent's executor. The following data Werg provided during 2023 taxable year: Rental income of the estate (gross of 5% tax) Fenn ooo Deductible operating expenses — estate ,( Personal Income/Expenses of the heirs: e500 (Fieu Gross business income _ 417/000 fa ,000 Deductible business expenses __ 25,000 5,000 Dividend from domestic corporation rao 30,000 Dividend from foreign corporation 12, n 8,250 Prize, supermarket raffle 15,000 7,500 Royalty, books 10,000 18,000 Additional information: Louie is married with 2 dependent children while Floyd is single without dependent children. Required: Determine the following: 1. Income tax payable of the estate 2. Income tax payable of Louie 3. Income tax payable of Floyd P4.2, (Estate) Pedro died two (2) years ago leaving an undivided Property deriving income from rentals. His heirs were Louie and Floyd. The property is under administration through the decedent's executor. The following data were provided during 2023 taxable year: Rental income of the estate P1,000,000 Deductible operating expenses (estate) 0 Income distributed to Louie ; u 50 00 10 Income distributed to Floyd 50,000 Dividend income from domestic Corporation 100,000 Interest income from U.S. $ deposits 200,000 Interest income from peso deposits 400,000 214ter & — Co-ow a : Cb fer Co. enonerskip, Estates and Dus bs personal Income/Expenses of the heirs: sg Income eductible expenses pividend from domestic corporation pividend from foreign corporation prize, supermarket raffle Royalty, books ‘Additional Information: . Louie Floyd P 325,000 — P. 380,000 117,000 405,000 25,000 30,000 12,000 8,250 15,000 7,500 10,000 18,000 touie is married with 2 dependent children while Floyd is single without dependent children. Required: Determine the following: 4. Income tax payable of the estate 2. Income tax payable of Louie 3... Income tax payable of Floyd p43. (Trust) Mr. Masigasig created a trust in favor of Pedro. entrusted to BDO (Trustee), the income of which Pedro. The following data were provided: Gross income of the trust Deductible business expenses of the trust Income distributed to Pedro during the year Dividend income from domestic corporation Dividend income from resident foreign corporation Interest income from U.S. $ deposits Interest income from peso deposits Personal Income and Expenses of Pedro Compensation income Rental income (net) Rental expenses Royalty income, books Other royalty income Dividend from domestic corporation Dividend from foreign corporation Prize, S&R raffle Lotto winnings Quarterly tax payments 215 A large sum of money was is accumulated in favor of P3,000,000 4,800,000 200,000 400,000 400,000 200,000 400,000 800,000 475,000 80,000 300,000 420,000 30,000 8,250 15,000 40,000,000 420,000+f ’ wnershiby lests Les a Okgpter & Co -wonerhip 5LULES aay, “i, / Required: Determine the following: 1. Income tax payable of the trus' 2. Income tax payable of Pedro MULTIPLE CHOICE. Choose the letter of the correct answer. 1. It arises when two or more heirs or oe ey inert an UNdivige, Property from a decedent, or when a donor makes.a gift of an UNGivide, roperty ii r of two or more donees < : S Parnorship c. Joint account b. Trust . d. Co-ownership d leg 2. Which of the following shall qualify as co-ownership? |. Succession by several heirs to an undivided estate, the CState ig Not under administration; aes ll. Donation of property to two or more beneficiaries. a. Both | and II c. lonly b. Neither | nor II d. ll only Use the following data for the next three (3) questions: Ana, Lorna, and Fe, are the heirs of Pedro who died on Nov. 1, 2022. The Properties of Pedro comprised solely of real property valued at P50,000,009 at the time of his death. THe property is Primarily deriving rental income. in 2023, the property remained undivided and it derived a net rental income of P15,000,000. 3. For income tax purposes, the heirs will be tax on net rental income from the inherited property for the year 2023 as: a. . Partners in a commercial partnership b. Partners ina general professional partnership c. Partners in an unregistered co-partnership d. Co-owners 4. What amount should be reported as taxable income of the co-ownership? a. P50,000,000 c. P14,980,000 b. P15,000,000 d. nil 5. What amount should each heir report in their individual returns as their share in the net rental income of the Property they inherited? a. P50,000,000 ¢. P10,000,000 b, P15,000,000 d. P5,000,000 216apter & — CO G hap fer Co woneeship , Estates am Tews bs estion 1 Is a co-ownership taxable? 6 austin 2; Is the share of co-owner taxable? to Question 1: A nswer_to Question 1: No, because the activities of the co-owners 1S\ are limited to the preservation income therefrom. of the property and the collection of Answer to Question 2: Yes, becau i Aewidually on thelr distributive Dea LTS ownership. income of the co- a. Answers to both questions are correct. b. Only the answer for Question 1 is wrong. ¢. Only the answer for Question 2 is wrong. d. Answers to both questions are wrong. L statement 4: Co-owners are taxed individually on their distributive share in the income of the co-ownership. statement 2: If co-owners invest the income in a co-ownership in business for profit, they would constitute themselves into a partnership and as such shall be taxable as corporation. a. Statements 1 and 2 are false b.. Statement 1 is true but'statement 2 is false ¢. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 8. When will an inherited property be considered as owned by an unregistered partnership? |. When the property remained undivided for more than ten (10) ears. Il. When no attempt was ever made to divide the same among the co-heirs, nor was the property under administration proceedings nor held in trust Only condition lis required. Only condition Ilis required Conditions | and II are required None of the above eaegD 9. Itcomposed of alll the property, rights, and obligations of a deceased uished by his death, including those which person which are not exting! | have accrued thereto since the opening of succession. a. Estate c. Legatee b. Devisee d. Testator 217Choster 4 — Oo-0 woership Estates ayy 7 Mapter tb — f 10. Income received by the estate during the Cian 38 tation , " Ost Settlement ofthe estate, for tax PUIPOSOE me of the trustee Fe fpcoine pt he ona d. Income of the testato, }. Income of St able income of the 7 ion purposes, the tax estate tatement 1: For taxation purpo' Sst " shall be determined in the same manner and basis as in the ca; individual taxpayers. ad fo a berieficary Statement 2: Income of the estate distribu ry is Alloway, deduction from the ores inven ot eee a. Statements 1 an b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 12. The following statements refer to the rules in determining the taxable income and ihe applicable income tax liability of an estate, Which of the statements is correct? : “ otha tee of gross income of the estate are the same items ag the items of gross income of individual taxpayers, Il. Deductions from the gross income of the estate are the same ag the items of deductions allowed to an individual taxpayer, Ill. In addition to the allowable deductions under Section 34 of the Tax Code, the estate is allowed to deduct the amount of income of the estate during the taxable year that is paid or Credited to the legatee, heir or beneficiary. IV. The amount of income of the estate during the year that is Paid or Credited to the legatee, heir or beneficiary is subject to final withholding tax of 15%, a. | and Il only ce. 1, I, Mland Iv b. |, land Ill only d. None of the above 13. Which of the following is included in the income of the estate of a decedent? a. Income received by the estate of a deceased Person during the Period of administration or settlement of the éstate. b. Excess of selling Price over the appraised value placed upon the Property at the time of death, where the Property was sold after the Settlement of the estate, c. Appreciation in the value of Property passed to the executor or administrator upon death of decedent, . Delivery of Property in kind to legatee or devisee. 218veh Chapter # — Co-owne e a wp = wonershi, Estates ae Trusts iy here the estate i 1 tement 1: Wi fate is u iat 14 tof he estate shal be taxabo to eae ciate the it 2; Where the estate is ‘yatemen Not under judicial adi i income of the estate shall be taxable to the ts ena banehceros. m a, Statements 1 and 2 are false —— b. Statement 1 is true but statement i 2is c. Statement 1 is false but statement Qisine d. . Statements 1 and 2 are true When an individual taxpayer dies, future income on his property will be taxed to Those who inherit the property after they i se y receive the property. pb. The estate itself, after the heirs hav i @ The individual himself. Sede d. None of the above. : Statement 1: The amount of income of the estate for the taxable year, which is properly paid or credited during such year to any legatee, heir, or beneficiary, Is a special item of deduction from the gross income of the estate. a Statement 2: An allowance paid to a widow or heir out of the corpus of the estate, is not deductible from the gross income of the estate. a. Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false c. Statement 4 is false but statement 2 is true d. Statements 1 and 2 are true Statement 1: When an estate, under administration, has income- producing properties, the annual income of the estate becomes part of the taxable gross estate. 47. =| Statement 2: When an estate, under administration, has income- producing properties and its income during the year is distributed to the heirs, the income so distributed is taxable to the heirs as part of their gross income for the year. Statements 1 and 2 are false Statement 4 is true but statement 2is false Statement 1 is false but statement 2 is true Statements 1 and 2 are true aoe 219Ag, Clap & — Cr -vonesh Estates aad, 18. Statement 1: The income of the estate Ces Sttese benefician, * duti ; ct to final withhold a%. Statomont The witwolng taxon the ReOM® Led tn beret is creditable against the total tax liability of the Penefician, Ise ents 1 and 2 are fal i b. Siatement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 19. Statement 1: Where prior to the settlement of oe coats the xe cuto, 7 administrator sells property of a decedent's ss . i More than appraised value place upon it at the decedent's death, the exceg he is income taxable to the estate. t 8 2 is ir sells the pro, Statement 2: Where the devisee, legatee, or heir sells © Property afta the settlement, the devise, legatee, or heir is taxable individually on any Profit derived. < a. Statements 1 and 2 are false b. Statement 4 is true but statement 2 is false ¢. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true Use the following data for the next two que: 1S: Namahinga Nha died lin 2022 leaving an estate worth 10,000,000. The estate is under administration. In 2023, the properties in the estate eamed a gross income of R600,000 and the estate incurred expenses of P150,000. Francis, one of the heirs, received 120,000 from the income of the estate. 20. The taxable income of the estate is a. P480,000 c. P310,000 b. P450,000 d. 330,000 21. Assume that Francis, head of the family, also eared net income of 500,000 from his trading business, What amount should Francis report as his taxable income for 2023? a. P620,000 b. P570,000 ¢. P500,000 4. R450,000 220a Chapter & — Co-tene via Estates aud, Trusts 1, An Scene agreement under which title to ervati gv ro ty roto and ultimately the =, ‘ation or investment with the incom’ ith the directi ‘Pus to be distributed in ance with the directives of the creato, i aon instrument. 1 as expressed in the go a, Estate ©. Fiduciary b. Trust d. Beneficiary ‘ the following is correct pertaini which of, ining to estates and trusts? 2 a. Estates and trusts are treated as separate taxable entities. be ae tabu are oi seed fate of tax prescribed under Section, for individuals shall be used i i i ear of tulste and ectavea, in computing the income c. The taxable income of estates and trusts shall be determined in the same manner and basis as in the case of individual taxpayers. d. Allof the above 24, Which of the following statements regarding trust agreement(s) is correct? I. Atrust is a right of property, real or personal, held by one party for the benefit of another. ll. The creation of trusts may either be express or implied. Il. Trusts are treated as separate taxable entities. a. |, land Ill c. land Ill only b. land Il only d. lonly 25. The following are the classifications of Trusts, except a. . Ordinary trust b. Revocable trust c. Irrevocable trust d. Employer's trust 26. The following statement(s) refer to a Testamentary Trust, except: |. Itis created under a Last Will and Testament. Il. It exists in the Will only until the death of the Testator. lll. This type of trust is amendable and revocable at any time during the Testator’s lifetime, but becomes irrevocable upon the Testator’s death. \V. ATestamentary Trust is considered its own legal entity, so itis taxed separately from the individual Beneficiaries even before the death of the testator. a. lonly c, IV only b. Il only d. Ill and IV only 221Aepter gz — Co-wnership, Estates nl, “4 27. Which of the following statement(s) is/are correct description(s) a one trust unere the income is accumulated or held for future distribution under the terms of a testamentary trust, Il Atrust where the income is to be distributed Currently by i fiduciary to the beneficiaries. & ll Atrust where the income is accumulated for the benef o 7 or unascertained person or persons with contingent intereet 'V. Atrust where the income collected by a guardian of an, infan held or distributed as the court may direct. tis Vv. Atrust where the income, is at the discretion of the fiduciary be either distributed to the beneficiaries or accumulateg. 4 a. land Il only c. I, Il, land Iv only b. |, Hand Il only d. 1, Il, Ill, IV and v 28. Statement 1: Revocable Trust is a trust in which the Power to Teves, the grantor title to any part of the corpus of the trust is vesiey u" grantor himself or in any person not having any substantial adver interest in the trust corpus‘on its income. ae Statement 2: The income of a trust will be taxed against Grantor if the income of the trust that may be held or distributed for the benefit of the grantor. Statements 1 and 2 are false ; | Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true Statements 1 and 2 are true poco 29. Statement 1: Income tax shall not apply to employee's trust which forms Part of pension, stock bonus, or, profit-sharing plan of an employer forthe benefit of some or all of the employees. Statement 2: Any- amount actually distributed to. any employee distributee shall be taxable to him in the year of distribution to the extett that it exceeds the amount contributed by such employee or distribute. Statements 1 and 2 are false Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true ' Statements 1 and 2 are true | aec9 222a Chapter + Co rownership, Estates and Tr t 1: For taxation pur go. Statement Purposes, the taxable income of a trust shall be determined in the same manner and basis as in the case of individual taxpayers. Statement 2: Income of a trust distributed to a beneficiary is allowable deduction from the gross income of the trust. a, Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false c. d. Statement 1 is false but statement 2 is true Statements 1 and 2 are true 3 . The following statements refer to the rules in determining the taxable income and the applicable income tax liability of a trust. Which of the following statements is/are correct? 1. The items of gross income of the trust are the same items as the items of gross income of individual taxpayers. ll. Deductions from the gross income of the trust are the same as the items of deductions allowed to an individual taxpayer. MM. In addition to the allowable deductions under Section 34 of the Tax Code, the trust is allowed to deduct the amount of income of the trust during the taxable year that is paid or credited to the legatee, heir or beneficiary. IV. The amount of income of the trust during the year that is paid or credited to the legatee, heir or beneficiary is subject to final withholding tax of 15%. a. land Il only c. I, ll, Mand IV b. |, land Ill only d. None of the above 32. Which of the following statements is not correct? a. An irrevocable trust is subject to income tax. b. An irrevocable trust is taxed in the same manner as an individual taxpayer. c. Anirrevocable trust is taxed at a rate of 25% of net taxable income. d. None of the above 33. Which of the following income of the trust is not taxable to the trust? a. Income of a trust which is to be accumulated or held for future distribution consisting of ordinary income or gain from the sale of assets included in the corpus of the trust. b. Income of a trust, whether created by will or deed, for accumulation of income, whether for an unascertained person or persons with contingent interest or otherwise. 223Chapter & — Co nsnershfpy Estates aud, 7, rash ill or c. Income of a trust, where under the terms of a wi eed, the, trustee may, in his discretion, distribute the income ang J accumulate it. : - d. Income of a trust, which in full in part, is subject to Fevocation anytime. 34. Which of the following statements is correct regarding revocable trusts A revocable trust exists when the grantor reserves the right to revoke his power to change at any time any part of the terms of the trust. s 2 The income of the revocable trust is taxable against the Grantor. MN a. lonly c. Both! and Il b. ILonly d. Neither | nor II 35. Which statement is true? Income derived by a trust . a. Is taxable to the beneficiary if such income is retained by the trust. b. Is taxable to the trust if such income is distributed to beneficiaries ¢. Is taxed depending on who is in current possession of the ° income. d. All of the above. 36. Statement 1: The income tax of irrevocable trust is taxable in, the same manner as the income of the estate. Statement 2: In the case of two or more trusts created by the same person for the same beneficiary, the taxable income of all trusts shall be consolidated and the tax shall be based on the consolidated income a. Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 37. The income distributed to the beneficiaries of estates and trusts, except income subject to final withholding tax and income exempt from tax, is Subject to i a. Creditable withholding tax of 10% © b. Creditable withholding tax of 15% c. ° Final withholding tax of 20% d. Neither-final nor creditable withholding tax Statement 1: Estates and trusts can deduct from the gross income the same items of deductions authorized under the Tax Code as those allowed to individual taxpayers. Statement 2: The scheduler tax rates under Section 24(A), which are prescribed for individuals, will be used in computing the income tax of estates and trusts. 38. . 2247 Olapter & ~ ©, , 4 -vwnership, Es r nership, Estates aud’ rusts a. Statements 1 and 2 o. gltoments are false ; ‘ is true but Statement 2 is fal false ¢. Statement 1s false bi d, Statements 1 and 2 ae rises aia te yo po olin ite re De to (2) questions: te ag-aalangan created a trust naming fee ‘eon (aa evooable benef ry pase will receive the income of the tn t ie ak est wr could not abide w the terms provided in the trust instrum ta Fe galangan could change anytime the terms of the trust. For is ue ita ote lantre trust eamed a net income of P1,000,000. "On the thor pend, the wai can ae income of Pt,600,000 and business income A " Q me of istril revooable beneficiary during the year. pecans Me oe 3g, The taxable income of the trust a. P1,000,000 b, P980,000 ete 49. The taxabie income of the grantor a. P1,000,000 c. P3,000,000 b. P2,500,000 d. P3,500,000 Use the following data‘for the next two (2) questions: stablished a trust fund for the benefit of his On January 1, 2023, Francis e: daughter, Princess. Francis appointed Atty. Lo Yer as the trustee. The property transferred to the trust is a piece of lot witha dormitory earning rental income. During the year, the trust earned P10,000,000 revenues and: incurred expenses of P2,000,000. Out of the trust’s income, Atty. Lo Yer gave Princess P1,500,000. In the same year, Princess earned compensation income of 1,850,000, net of withholding tax of P650,000. Determine the following: 41, Taxable income of the trust a: P5,000,000 c. P8,000,000 - b. P6,500,000 d. P10,000,000 42. Taxable income of Princess a. Aeon c. P2,500,000 b. P1,850,000 d. P4,000,000 225Chapter 4 Co-manership Estates an oF , 1e following data for the next two (3) questions: 7 for his minor son, Lu In 2023, Mr. Mapagbigay created two (2) trusts SON, Lucky During the year, the two trusts earned net income as follows: P4,000,000 Trust 3 6,000,000 Each trust filed their own income tax return and paid the corresponding income tax due as computed in their separate returns. Determine the following: 43. Consolidated tax due of the Trust a. P1,130,000 c. P2,902,500 b. P1,770,000 ‘ d. P3,110,000 44. Additional income tax payable of Trust 1 a. P96,000 c. P1,130,000 b. P158,500 d. P1,770,000 45. Additional income tax payable of Trust 2 a. P139,000 c. P1,130,000 b. P114,000 d. P1,770,000 226