Taxation(Co-Ownership, Estates and Trusts)

Question 1

There is a ______________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.

Answer 1

Co-Ownership

Question 2

Co-owners are _________________________________________________________________________________________________________

Meaning, Co-Ownership itself _________________________________________________________________________________________________________________________________

Answer 2

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 is generally limited to the preservation of the common property and the collection of the income therefrom.

Question 3

Ana, Lorna and Fe bought a parcel of land for the purpose of improving the same before leasing it out to the tenants?
Question: Was a Co-Ownership created?

Answer 3

Answer: No. Though the property may be undivided, it was acquired by the owners and not through gratuitous transfer.

Question 4

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 P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000

Q1: Was a Co-Ownership created?

Answer 4

Answer: YES. Since the property is undivided, the heirs are considered co-owners.

Question 5

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 P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000

Q2: Assuming Noy was able to secure a partition and three separate land titles were issued by the government before his death, naming his heirs as the rightful owners in his last will and testament, was a Co-Ownership created?

Answer 5

Answer: NO. The property involved is not an undivided property

Question 6

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 P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000

Q3: What is the applicable tax for the gratuitous transfer of the property from Noy to his heirs?

Answer 6

Answer: Estate tax

Question 7

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 P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000

Q4: How much is the taxable income of the Co-Ownership?

Answer 7

Answer: NONE. A Co-Ownership is not a taxable person or entity. Its income however is distributed or shared by the heirs/donees, thus taxable to them in their individual capacity

Question 8

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 P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000

Q4: How much is the taxable income of Allan in 2023?

Answer 8

Answer: 7,000,000
Solution:
Gross income of Allan 6,000,000
Allowable business expenses of Allan (3,000,000)
Share in net income of Co-Ownership
(( 15,000,000 - 3,000,000) ÷ 3) 4,000,000
Taxable income 7,000,000

Question 9

Allan, Mar and Pacquito valued at P60,000,000. 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 business in their own individual capacity, provided the following data for 2023 taxable year.

Allan
Gross business income 6,000,000
Business expenses 3,000,000
Income subject to final taxes (net)200,000

Mar
Gross business income 5,000,000
Business expenses 2,500,000
Income subject to final taxes (net)320,000

Pacquito
Gross business income 8,000,000
Business expenses 6,000,000
Income subject to final taxes (net)500,000
Q5: How much is the tax payable of Allan in 2023?
Answer: 1,902,500

Answer 9

Q5: How much is the tax payable of Allan in 2023?
Answer: 1,902,500

Question 10

__________is a mass of all property, rights and obligations of a deceased person which are not extinguished by his death including those who have accrued threto since the opening of succession.

Income tax of an __________refers to the tax on income received by the estate during the period of administration or settlement.

The taxable income of the __________is computed in the same manner as an individual taxpayer.

Answer 10

Estate

Question 11

Refers to the period when title to the properties left by a decedent is not yet finally transferred to the heirs or beneficiaries.

The executor named by the deceased in his last will and 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.

Answer 11

Administration or Settlement Period

Question 12

The estate of a decedent may be settled judicially or extrajudicially.
The judicial settlement pertains to settlement of an estate in a court proceeding.
The extrajudicial settlement is when the heirs or beneficiaries settle for themselves the distribution of pf the estate or their inheritance.

Answer 12

Classification of Estates under settlement or Administration

Question 13

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 among themselves, an unregistered partnership is created and the estate becomes liable for the payment of corporate income tax.

Answer 13

Termination of Judicial/Extrajudicial Settlement

Question 14

On November 2023, Juan Dela Cruz died leaving various properties worth P30,000,000 to his heirs; Pedro, Ana and Lorna. The properties are income producing properties deriving rental income. In 2023, (while under administration), the estate earned P4,750,000 (net of 5% CWT) and incurred operating expenses of P2,000,000.

During 2023, Pedro, one of the lawful heirs received 200,000 from the income of the estate. Pedros other income and expenses were as follows:
Compensation income P800,000
Business income P1,500,000
Business expenses P600,000

Q1: Assume the estate is still under administration, how much is the taxable income of the estate in 2023?

Answer 14

Answer: 2,800,000
solution:
Gross rental income
(4,750,000 ÷ 95% ) 5,000,000
Allowable business expenses (2,000,000)
Distribution income to Pedro (200,000)
Taxable income 2,800,000

Question 15

On November 2023, Juan Dela Cruz died leaving various properties worth P30,000,000 to his heirs; Pedro, Ana and Lorna. The properties are income producing properties deriving rental income. In 2023, (while under administration), the estate earned P4,750,000 (net of 5% CWT) and incurred operating expenses of P2,000,000.

During 2023, Pedro, one of the lawful heirs received 200,000 from the income of the estate. Pedros other income and expenses were as follows:
Compensation income P800,000
Business income P1,500,000
Business expenses P600,000

Q2: How much is the taxable income of Pedro in 2023?

Answer 15

Answer: 1,900,000
Solution
Compensation income 800,000
Business income 1,500,000
Business expenses (600,000)
Amount received from the estate 200,000
Taxable income 1,900,000

Question 16

_______is a right on property, real or personal held by one party for the benefit of another.

A legal instrument or device whereby a person called a trustor or a grantor delivers part of all of his properties to another person called trustee or fiduciary who administer and manages the properties for the benefit of the designated persons called beneficiaries.

Answer 16

Trust

Question 17

1.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

Answer 17

Parties to the Trust

Question 18

Parties to the Trust

person who establishes a trust.

Answer 18

Trustor

Question 19

Parties to the Trust

one in whom confidence is reposed as regards property for the benefit of another person.

any person or corporation that holds in trust an estate of another person or persons

Answer 19

Trustee

Fiduciary

Question 20

Parties to the Trust

person for whose benefit trust is created

Answer 20

Beneficiary

Question 21

Taxability of Income of Trust

The income of the trust is taxable to the trustee if the income is to be accumulated or held for future distribution whether ordinary income or gain from sale of assets included in thr corpus of the trust.

Answer 21

Taxability of Income of Trust

Goodjob!
Taxable to the Trustee if

The income of the trust is taxable to the trustee if the income is to be accumulated or held for future distribution whether ordinary income or gain from sale of assets included in thr corpus of the trust.

Question 22

Taxability of Income of Trust

The income of the trust may be held or distributed to t
he benefit of the grantor.

Answer 22

Taxable to the Grantor/Trustor

GOODJOB !
Taxable to the Grantor/Trustor if
The income of the trust may be held or distributed to the benefit of the grantor.

Question 23

Taxability of Income of Trust

The income of the trust is to be distributed to the beneficiaries. In such a case, the beneficiaries include in their return their distributive share in the net income of the trust.

Answer 23

Taxable to the Beneficiaries

GOODJOB! IM SO PROUD OF YOU ILOVE YOU

Taxable to the Beneficiaries if
The income of the trust is to be distributed to the beneficiaries. In such a case, the beneficiaries include in their return their distributive share in the net income of the trust.

Question 24

On November 1,2022, Pedro established a trust agreement with Mr. Abogado for the benefit of his daughter, Ana. The properties in the trust 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 wittholding tax on rent) and incurred operating expenses of P2,000,000.

During 2023, Ana received P500,000 from the income of the trust. Ana’s other income and expenses were as follows:
Compensation income P800,000
Business income from employment 1,500,000
Business expenses 600,000

Q1: How much is the taxable income of the trust in 2023?

Answer 24

Answer: 2,500,000
Solution:
Gross rental income
(4,750,000 ÷ 95%) P5,000,000
Allowable business expenses (2,000,000)
Distribution of income to Ana (500,000)
Taxable income 2,500,000

Question 25

On November 1,2022, Pedro established a trust agreement with Mr. Abogado for the benefit of his daughter, Ana. The properties in the trust 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 wittholding tax on rent) and incurred operating expenses of P2,000,000.

During 2023, Ana received P500,000 from the income of the trust. Ana’s other income and expenses were as follows:
Compensation income P800,000
Business income from employment 1,500,000
Business expenses 600,000

Q2: How much is the taxable income of Ana?

Answer 25

Answer: 2,200,000
Compensation income 800,000
Business income from self-employment 1,500,000
Business expenses (600,000)
Amount received from the trust 500,000
Taxable income 2,200,000

Question 26

Classification of Trusts

the trust income is accumulated and held for distribution to the beneficiaries.

Answer 26

Ordinary trust

Question 27

Classification of Trusts

a trust where at any time, the power to revest in the grantor, title to any part of the corpus of the trust vested.

Answer 27

Revocable trust

Question 28

Classification of Trusts

income tax shall not apply to employee’s trust which forms part of pension, stock bonus or profit sharing plan of an employer for the benefit of his employees.

Answer 28

Employees trust