Add: Compensation income 240,000Note: Interest income and dividend income have been subjected to final tax, hence, not to be included anymore in an annual taxable income.. B The co-owner
Trang 1CHAPTER 13
INCOME TAXES OF PARTNERSHIPS, ESTATES &
TRUSTS
Problem 13 – 1 TRUE OR FALSE
1 False – not all partnership, only commercial partnership
2 False – tax exempt, but required to file
3 False – the tax withheld in creditable
4 True – starting on the 4th year of operation
5 True
6 True
7 True – because it is withheld with final tax
8 True
9 False – trading business income will make the partnership a commercial partnership
10 False – still subject to final tax of 10%
11 True – if created through gratuitous transfer, not more than 10 years and no
contribution is made by the co-owners
12 True
13 True
Problem 13 – 2 TRUE OR FALSE
1 True
2 False – It shall be in writing either as trust inter-vivos or through a will
3 False – A trustor is the person who establishes the trust, not the trustee
4 True
5 True
6 True
7 True
8 False – P50,000
9 True
10 True
11 False – the personal exemption is P50,000
12 True
Problem 13 – 3 Problem 13 – 4
11 C
Problem 13 – 5 A
Net profit from trading business of the partnership
Less: Income tax (P400,000 x 30%)
Income after tax
P400,000
120,000 P280,000
Trang 2Interest income, net of final withholding tax
Dividend income
Total income for distribution to partners
Divide by profit and loss ratio
Share of each partner
Multiply by dividend tax rate
Income tax on the distributive share of Mitzi Baguingan
4,000 10,000 P294,000 2 P147,000 10%
P 14,700
Problem 13 – 6
(1
(2
Problem 13 – 7
1 A
J, Opting itemized deduction:
Share of J in the Partnership (325,000-175,000) x 70%
Other business income
Total business income
Less: Itemized deductions (excluding contribution)
Net income before contribution
Less: Contribution
Actual, P1,750 + (15,000 x 70%) =P12,250
Limit, P155,000 x 10% or P15,500
Allowed
Net taxable before personal exemption
Less: Personal exemption (P50,000 + 25,000)
Net taxable income of J
P105,000 85,000 P190,000 35,000 P155,000
12,250 P142,750 75,000
P 67,750
2 D
R, opting for standard optional deduction:
Share in the partnership, gross (P325,000 x 30%)
Other business income
Total business income
Less: Optional standard deduction (P162,500 x 40%)
Net income before personal exemption
Less: Personal exemption - single
Net taxable income
P 97,500 65,000 P162,500 65,000
P 97,500 50,000
P 47,500
Problem 13 – 8
Trang 3Add: Compensation income 240,000
Note: Interest income and dividend income have been subjected to final tax, hence, not to be included anymore in an annual taxable income
Problem 13 – 9
1 D
None The objective of co-ownership is to preserve the co-ownership property, therefore, not subject to tax
2 B
The co-owners in an exempt co-ownership are liable for the tax in the income they received from the co-ownership They should file the return and pay the corresponding tax based on their separate and individual capacity
The net taxable income of Robert is computed as follows:
Share from the income of co-ownership
Less: Personal exemption – single
Net taxable income
P1,000,000 50,000
P 950,000 Income received by the co-owners is already net of itemized deductions of the co-ownership, therefore, the co-owners in their individual capacity is not anymore entitled to optional standard deduction Inasmuch as the related expenses have been deducted before the distribution of income to the co-owners, (Sec 34 L)
Supreme Court Ruling - Deductions and exemptions are highly disfavored in law They must
be construed strictly against the taxpayer, (Commissioner of Internal Revenue vs P J Kiener Company, LTD., 65 SCRA 143)
Problem 13 – 10 D
Problem 13 – 11
1 B
Income of the grantor
Income of trust A - revocable
Total income of the grantor
Less: Total expenses
Grantor – business expense
Trust A – business expense
Grantor’s income before personal exemptions
P400,000
200,000
P1,000,000
500,000 P1,500,000
600,000
P 900,000
2 D
Income of trust B – irrevocable trust
Less: Expenses of irrevocable trust – B
Net income before exemption
Less: Personal exemption
Net taxable income of all the trust
P200,000
100,000 P100,000 50,000
P 50,000
Trang 43 Not in the choices
Income of beneficiary (P100,000 – P40,000)
Add: Share from trust
Net taxable income before personal exemption
P 60,000 50,000 P110,000
Note: Unless the taxpayer signifies in his ITR his intention to elect the OSD, he shall be
considered as having availed himself of the itemized deductions (Sec 34(L), NIRC)
Alternative solution of 3: If beneficiary opted to use OSD
4 Not in the choices
Income of beneficiary
Add: Share from trust
Total gross income
P100,000 50,000 P150,000
Problem 13 – 12
1 The partnership is a general professional partnership, therefore, tax exempt
2 and 3 Computation of tax liabilities of partners A and B
Net income of the partnership (P1,200,000 – P100,0000) P1,100,000
Partner A = 60% Partner B = 40% Total Partner’s salary
Distribution of balance
Total
Less Personal exemption
Net taxable income
P240,000
300,000 P540,000 50,000 P490,000
P360,000
200,000 P560,000
100,000 P460,000
P 600,000 500,000 P1,100,000
Tax on excess (P210,000 x 30%) 63,000
Problem 13 – 13
Gross income – merchandising
Dividend received from nonresident foreign corporation
Ordinary and necessary expenses – merchandising
Net income before income tax
Less: Provision for income tax (P380,000 x 30%)
Net income
P575,000 60,000 (255,000) P380,000
114,000 P266,000 Note: Dividends received from domestic corporation by a general co-partnership is tax exempt
Computation of partnership share considered as dividends:
M - 40% W – 60%
Trang 5Dividends from domestic corporation (P40,000)
Interest income, net of final tax of 20%, (P8,000)
Distributive partner’s share on general co-partneship
Multiply by final tax rate
Final tax on share on partnership income
16,000 3,200
P 125,600 10%
P 12,560
24,000 4,800
P 188,400 10%
P 18,840 Note: In a general co-partnership, the share of individual partner is considered as dividend income
Problem 13 – 14
1 BIR Ruling (August 18, 1959) provides that the co-ownership shall be taxed as a
corporation if the property was not divided for more than ten (10) years Therefore, the tax on the income of the co-ownership would be:
Income of co-ownership
Multiply by corporate normal tax rate
Income tax as corporation
P5,000,000 30% P1,500,000
2 Final tax on dividend of Marjorie Sison:
Amount received from co-ownership
Multiply by final tax rate on dividend
Final tax on dividend – income tax withheld
P1,000,000 10%
P 100,000
3 The amount received by Grace Ann Subala shall no longer be subjected to normal tabular tax because it has been subjected to final tax on dividend
Problem 13 – 15
1 Answer
Conjugal gross income from estate
Less: Business expense (P5,000,000 x 40%)
Income distributed to beneficiaries
Conjugal net income
P2,000,000
600,000
P5,000,000
2,600,000 P2,400,000 200x income tax due from the estate of Mr Baguingan:
Share of Mr Baguingan from the net income of the conjugal estate
(P2,400,000 x 50%)
Less: Personal exemptions (P50,000 + P25,000)
Taxable income
Tax on P500,000
Tax on excess (P625,000) x 32%)
Income tax due
P1,200,000 75,000 P1,125,000
P 125,000
200,000
P 325,000
Mr Baguingan’s income from estate shall claim the total amount of P75,000 personal exemptions (RA 9504) because Sec 35C of the NIRC provides that if the taxpayer dies during the taxable year, his estate may claim the corresponding additional exemptions for himself and his dependent(s) as if he died at the close of such year Hence, the applicability of the exemption of the income from estate amounting to P50,000 shall take effect only in the succeeding years after the decedent’s death
2 Answer
Trang 6Net taxable income P300,000
Note: Unless the taxpayer signifies in his ITR his intention to elect the OSD, he shall be
considered as having availed himself of the itemized deductions (Sec 34(L), NIRC)
Alternative solution: If beneficiary opted to use OSD
Compensation income
Add: Income received from trust, net of OSD (P200,000 x 60%)
Total income before exemption
Less: Personal exemptions:
Basic
Additional (P25,000 x 4)
Taxable income of Mrs Diana Nievera
Tax on P140,000
Tax on excess (P80,000 x 30%)
Income tax due
P 50,000
100,000
P250,000
120,000 P370,000
150,000 P220,000
P 22,500 24,000
P 46,500
3 Answer
Total amount received by the children
Multiply by withholding tax rate
Total withholding taxes
P600,000 15%
P 90,000
Problem 13 – 16
Correction: Second paragraph should be…”A year following the death of Naty Poc….”
Tax savings:
Income tax when no income of estate was distributed (Case 1 + Case 3)
Less: Income tax when P150,000 of estate’s income was distributed
Supporting computations:
Case 1 Case 2 Case 3 Case 4
Business deductions:
Income tax on excess
Case 4: (220,000 – 140,000) x 25% 20,000
Problem 13 – 17
1 Income tax payable by the trust in 200x:
Trang 7Income from house and lot
Income from hollow block business (P10,000 x 12)
Income from farm
Total gross income from trust
Less: Related expenses (P250,000 x 30%)
Amount distributed to the beneficiary
Net income before exemption
Less: Exemption
Net taxable income
Tax on P70,000
Tax on excess (P5,000 x 20%)
Total income tax payable
P 75,000 50,000
P 80,000 120,000 50,000
P 250,000
125,000
P 125,000 50,000
P 75,000
P 8,500 1,000
P 9,500
2 Income tax payable from the beneficiary in 200x:
Gross income received from income of trust
Less: Personal exemption
Net taxable income
Total income tax payable
P 50,000 50,000
P 0
P 0
Note: Unless the taxpayer signifies in his ITR his intention to elect the OSD, he shall be
considered as having availed himself of the itemized deductions (Sec 34(L), NIRC)
Alternative solution – if Trust and beneficiary opted to use OSD
Amount distributed to the beneficiary 50,000 150,000
Problem 13 – 18A
Correction: The requirement should be stated as: How much is the income tax due and
payable of the two trusts?
Total income of trusts (P50,000 + P1,000,000)
Less: Distribution to beneficiary (P10,000 + P20,000)
Exemption
Net taxable income
P 30,000 50,000
P1,050,000 80,000
P 970,000
Trang 8Tax on P500,000
Tax on excess (P470,000 x 32%)
Income tax due and payable
P125,000
150,400 P275,400
Problem 13 – 18B
Note: Since the topic is tax planning and the requirement is tax savings, OSD can
automatically assumed to be used to determine the lower tax
2 Income tax when no income of estate was distributed (Case 1 + Case
3)
Less: Income tax when P150,000 of estate’s income was distributed
Supporting computations:
Case 1 Case 2 Case 3 Case 4
Income tax on excess
Problem 13 – 19
1 To minimize income tax, Dokling can do the following:
a Put his business under irrevocable trust
b Use OSD instead of itemized deduction because the OSD is greater than
the itemized deduction, and
c Claim his child’s allowance as share from the income of the trust
2 Tax exposure before the creation of trust:
Trang 9Note: The allowance is not deductible because the child is not
established as beneficiary of the trust Furthermore, the business is not in
trust
50% of the business is created as trust:
Grantor:
Income tax if 50% is held in trust (irrevocable)
Trust:
Income tax if 50% is held in trust (irrevocable)
Beneficiary:
Problem 13 – 20
Note: Since the topic is tax planning, the taxpayer should use OSD instead of itemized
deduction because using OSD can give a greater tax savings based on the given data of this case
Trang 10Tax on P70,000 P 8,500
Less: Income tax in No 1
Problem 13 – 21
1
Not a government project
Less: Cost of construction, net of VAT (P72,800,000/1.12) 65,000,000
b The share of joint venture partners X Co and Y Co is not
subject to income tax under inter-corporate dividend
rule
2
Government project (consortium)
a Tax-exempt
X Co Y Co
b Share of co-venturers in the net income (P20M x
Multiplied by corporate income tax rate 30% 30%
Note: OSD is not applicable to co-ventures because their respective shares are already net of
expense
Problem 13 – 22
1
Not a government project
Less: Cost of construction, net of VAT (P56,000,000/1.12) 50,000,000
b The share of joint venture partners X Co and Y Co is not
Trang 11subject to income tax under inter-corporate dividend
rule
2
Government project (consortium)
a Tax-exempt
X Co Y Co
b Share of co-venturers in the net income (P20M x
Multiplied by corporate income tax rate 30% 30%
Alternative solution using OSD:
Note: If the joint venture opted to use OSD, it will have a lower income tax obligation,
computed as follows:
1 Not a government project
Less: Cost of construction, net of VAT (P56,000,000/1.12) 50,000,000
b
The share of joint venture partners X Co and Y Co is not
subject to income tax under inter-corporate dividend
rule
2 Government project (consortium)
a Tax-exempt
X Co Y Co b
Share of co-venturers in the net income (P20M x 50%) P9,000,000 P9,000,000 Multiplied by corporate income tax rate 30% 30%