PARTNERSHIP defined as a contract whereby two or more persons bind themselves to contribute money,

property, or industry for a common fund to engage in profitable activities with the intention of dividing the
profits among themselves. For purposes of taxation, partnership is classified into a) general professional
partnership and b) general co-partnership.
TAXABLE PARTNERSHIPS/GENERAL CO-PARTNERSHIP a partnership wherein part or all of its income is
derived from the conduct of trade or business.
1. For taxation purposes, considered as a corporation (whether or not registered with the SEC as a
partnership) and therefore liable to corporate tax of 30% beginning January 1, 2009.
Examples of Unregistered Partnerships taxable as corporations
1. 15 persons contributed small amounts to purchase a raffle ticket with the agreement that they would
divide the prize. The ticket won the third prize of P150,000.
2. After an extrajudicial settlement, the co-heirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves.
3. A father and son purchased a lot and building entrusted the administration of the building to an
administrator and divided equally the net income
4. Three sisters bought four pieces of real property which they leased to various tenants and derived
rentals therefrom.
Tax liability of the member of a general or business partnership on their distributive shares
1. The income must be derived from sources within the Philippines, if NRC or alien.
2. The partnership from which the distributive share was derived must not be a GPP
3. The distributive share is subject to a final tax and not reportable anymore by the partner as part of his
taxable income, subject to the schedular rate under Sec. 24(A), NIRC.
4. The rate of the final tax depends upon whether the taxpayer partner is a citizen, a resident or a nonresident alien.
5. Citizens, whether residents or non-residents, and resident aliens are subject to the same rate of final
tax on their share in the distributive net income of the partnership as follows: 10% beginning January
1, 2000.
6. Nonresident alien individuals are subject to a final tax of 20% of their share in the distributable net
income after tax of a partnership (except a GPP) of which he is a member.

EXEMPT PARTNERSHIPS/GENERAL PROFESSIONAL PARTNERSHIPS not taxable as corporations

1. Exempt partnerships; not subject to income tax, but required to file a tax return for its income for the
purpose of furnishing information as to the share in the gains or profits that each partner shall include in his
individual tax return. (Sec. 26, NIRC)
Rationale for the tax exemption: the GPP acts only as a pass through entity where its income is finally taxed
to the partners comprising it.
2. Definition: formed by persons for the sole purpose of exercising their common profession no part of the
income of which is derived from engaging in any trade or business. For tax purposes, it will include a joint
venture or a consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal, and other energy operations pursuant to an operating consortium agreement
under a service contract with the government.
3. The share of a partner shall be subjected to creditable withholding tax of 10% (share in the net income is
P720,000 or less) or 15% (share in the net income exceeds P720,000), as the case maybe, which will be
remitted by the professional partnership to the BIR. The amount of creditable withholding tax shall be
withheld by the GPP and deducted by each partner in his/her income tax due upon filing his/her return.
4. The net income of GPP, for purposes of computing the distributive share of the partners, shall be computed
in the same manner as a corporation.
- In computing allowable deductions, a GPP may use either the itemized deductions allowed under Sec.
34 A to J of the Tax Code or, in lieu thereof, it can opt for the optional standard deduction (OSD) in an amount
not exceeding 40% of its gross income. The net income determined by either using the ISD or OSD represents
the distributive net income from which the share of each partner is to be determined.
Tax Liability of Partners in a GPP:
1. Each partner shall report as gross income his/her distributive share, actually or constructively received,
in the net income of the partnership. The share of each partner in the net profits of the GPP shall be
taxable to the partners, regardless of whether it is distributed or not.
2. The partners in a GPP shall be liable for income tax only in their separate and individual capacities.
3. On the partners distributive share in GPP, the individual partner can still claim deductions incurred or
paid by him/her subject to the following conditions:
a. If the GPP uses the ISD, the partners may still claim ISD from partnerships share. However, they
are precluded from claiming the same expenses already claimed by the GPP.
b. If the GPP avails of ISD, the partners are not allowed to claim the OSD from their share in the net
income of GPP. This means that the OSD is in lieu of the items of deductions claimed both by GPP
and the partners.
c. If the GPP avails the OSD in computing its net income, the partners can no longer claim further
deduction from their share in the net income of the GPP.

As to nature and objective

As to tax liability of the
partnership
As to tax liability of partners on
shares they receive

GPP
Exercise of profession
Exempted from income tax
Subject to creditable withholding
tax of 10% or 15%

General Co-Partnership
Operates for profit
Subject to 30% income tax or 2%
MCIT
Subject to 10% final tax

CO-OWNERSHIP refers to the ownership of undivided thing or right which belongs to two (2) or more
persons; usually exists when there are two or more beneficiaries that inherit a property; or a donation is made
to two or more donees.
Rules in handling co-ownership:
General Rule: Co-ownership is not subject to tax, provided that the activities of the co-owners are limited to
the preservation of the property and collection of income therefrom.
However, the income derived by a co-owner on the property will form part of the gross income of the
individual co-owner subject to basic tax.
Exemptions: Co-ownership shall be subject to tax using the corporate tax rate under the following cases:
1. Co-ownership is voluntarily created through agreements/contracts.
The income of each co-owner is treated as dividend subject to final tax.
2. Shares of co-owners are reinvested in the co-ownership with the intention of producing income.
The co-owners constituted themselves into a partnership subject to tax.
3. Inherited property remains undivided for more than 10 years.
4. Property in trust was never under administration proceedings as the property should be considered as
owned by an unregistered partnership
ESTATE - mass of properties and assets left behind by the deceased or all property, rights and obligations of a
person which are not extinguished by his death and also those which have accrued thereto since the opening
of the succession.
An estate may be income producing or non-income producing.
An income producing estate may either be a non-taxable or taxable estate.
-> individual
-> calendar year

The income that is subject to income taxation is the income received by estates of deceased persons during
the period of administration or settlement of the estate.
For example: A died leaving as his only property a 25-door apartment located in Baguio City. The rentals
derived from this rental property prior to the settlement of the estate would be subject to income taxes.
Who is liable to pay the income tax of the estate from the death of the decedent until the heirs receive the
property?
Answer: The estate, and it is treated as a person with juridical personality. When the estate is an incomeproducing entity and is subject to income tax, the taxable income is computed based on the concept of an
individual taxpayer.
Notes:
1. Non-taxable income-producing estate = when the estate is not under court or judicial proceedings, its
income shall not be subject to income tax. In this case, the heirs are treated as co-owners of the
property and are required to include the income in their individual gross taxable income.
2. Taxable income-producing estate = if the estate is under court or judicial proceedings, its income
during the period the period of settlement shall be taxable.
The estate is treated as a juridical person subject to income tax computed based on the same
manner and on the same basis as in the case of an individual taxpayer.
Guidelines:
a. The gross taxable income of the estate shall include all the items composing the gross income of an
individual taxpayer.
b. The deductible items from the income of the estate shall be made up of similar deductions
allowable to an individual taxpayer. The estate may adopt the OSD or ISD.
c. A special deduction is allowed to the estate on the amount of income credited or paid to the heirs
or beneficiaries, which has been subject to 15% creditable withholding tax.
d. When a portion of the gross estate has been paid or transferred to the heir, the amount so
transferred is not allowable deduction from the income of the estate.
e. If the decedent dies during the taxable year, the estate may claim the basic exemption of P50,000
and additional exemption of P25,000 for each qualified dependent child as if the decedent died at
the close of the year.
f. In succeeding years, the estate shall be allowed to deduct from the income an exemption of
P20,000.

g. The amount of tax dues shall be computed based on the scheduler tax rates of the individual
taxpayer.

Resident estate DISTINGUISHED FROM non-resident estate

A resident estate is allowed to deduct the OSD while a non-resident estate is not allowed to do so.
A resident estate is to be taxed on its income derived from within and without Phil sources while a nonresident estate is to be taxed only on its income derived from sources within the Phils.
Basic Formula for the computation of income tax of a resident estate: (Note: The estate follows the status of
the deceased)
Gross income derived from all sources
Less: OSD
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Quarterly income tax payments
Withheld taxes on the income
Tax credits
Net Income Tax Payable
or
Gross income derived from all sources
Less: Itemized Deductions
Amount of income for the period currently distributed to the beneficiaries
Amount of income collected which are to be held or distributed as the court may direct
Amount of income properly credited to the beneficiaries
Personal Exemption
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Quarterly income tax payments
Withheld taxes on the income
Tax credits
Net Income Tax Payable
Basic Formula for the computation of income tax of a nonresident estate: (Note: The estate follows the status
of the deceased)
Gross income derived from sources within the Philippines
Less: Itemized Deductions
Amount of income for the period currently distributed to the beneficiaries
Amount of income collected which are to be held or distributed as the court may direct
Amount of income properly credited to the beneficiaries
Personal Exemption
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Withheld taxes on the income
Tax credits
Net Income Tax Payable

TRUST a right or property, real or personal, held by one party for the benefit of another; a confidence given
by a person, the grantor (creator) reposed in one person called fiduciary (trustee) for the benefit of another
who is called the cestui que trust (beneficiary) regarding property given by the grantor(creator) to the
fiduciary (trustee) for the benefit of the cestui que trust (beneficiary).
GRANTOR/CREATOR/TRUSTOR/
SETTLOR/BENEFACTOR
TRUSTEE/FIDUCIARY/ADMINISTRATOR/EXECUTOR - *Legal Title;control, management,
ownership
TRUST ASSETS/Corpus: personal residence, funds,
Real estate, business, investment account

BENEFICIARY/CESTUI QUE TRUST

Maybe a natural or juridical person
*Equitable Title
The person who will succeed to or receive the property
in trust
May be legally disadvantaged (minor, incapacitated,
disabled)
May be an unborn child
A contract of trust is an agreement created by will or otherwise where the property of a grantor is being
transferred to the trustee or administrator for purposes of management or conservation of the property. The
income of and the title to the property will be transferred to the beneficiary as expressed by the grantor.
Income of estates and trusts for income taxation
1. Income accumulated
a. in trust for the benefit of unborn or unascertained persons or persons with contingent interests
b. or held for future distribution under the terms of the will or trust
2. Income to be distributed currently by the fiduciary to the beneficiaries, and collected by a guardian of
an infant which is to be held or distributed as the court may direct
3. Income which in the discretion of the fiduciary may either be distributed to the beneficiaries or
accumulated
KINDS OF TRUST RELATIONS Express, and implied trust
EXPRESS TRUSTS those created by the direct and positive acts of the parties, or by some writing or deed, or
will or by word evidencing an intention to create a trust.
IMPLIED TRUSTS those which without being express are deducible from the nature of the transaction as
matters of intent, or those which are superinduced on the transaction by operation of law, irrespecve of, and
even contrary to, any such intention of the parties.
Classification of trusts for tax purposes:
1. Taxable, and non-taxable trust
Taxable trust income is subject to income taxation
Tax-exempt trust / Non-taxable trust income is not subject to income taxation
Ex. An employees trust which forms part of a pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his employees, provided that if contributions are made to
the trust by such employer, or employees, or both for the purpose of distributing to such employees
the earnings and principal of the fund accumulated by the trust in accordance with such plan and if
under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with
respect to employees under the trust, for any part of the corpus or income to be (within the taxable

year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his
employees.

2. Revocable, and irrevocable trust;

Revocable trust a kind of trust where at any time the power to revest (return) to the grantor title to
any part of the corpus (the body) of the truth is vested
a. In the grantor alone either
i. Alone or
ii. In conjunction with any person
1. Not having a substantial adverse interest
2. In the disposition of such part of the corpus or in the income therefrom
b. In any person not having a substantial adverse interest in the disposition of such part of the corpus
or in the income therefrom.
Irrevocable trust a kind of trust where the corpus (the body) of the trust or any part thereof does not
revest (return) in the grantor through the acts
a. of the grantor alone or in conjunction with any person not having a substantial adverse interest in
the disposition of such part of the corpus or in the income therefrom.
b. in any person not having a substantial adverse interest in the disposition of such part of the corpus
or in the income therefrom.
Importance of knowing whether a trust is revocable or irrevocable the income of a revocable trust is
included in computing the taxable income of the grantor without any of the deductions allowed for
estates WHILE the income of an irrevocable trust is subject to tax as income of the trust after
deducting the allowable deductions.
Non-taxable income-producing trust
Taxable income-producing trust
The trust is a revocable trust, and the income of The trust is irrevocable, and the income of the
the trust is for the benefit of the grantor
trust is partially or fully credited for the benefit of
the beneficiary
Income shall be included in the gross taxable
income of the grantor
Guidelines:
1. The taxable trust is treated like a person whose gross income shall include all items composing the
gross income of an individual taxpayer.
2. The deductible items from the income of the trust shall be computed in the same manner as in the
case of an individual taxpayer. The trust may adopt the OSD or the ISD.
3. The following special items, if any, shall be deducted from the gross income.
a. Income from the trust which was credited to the grantor
b. Income from the trust which was credited or distributed to the beneficiary
c. Income from the trust which was credited to the guardian of an infant
d. The trust shall be allowed to deduct the personal exemption of P20,000
e. The income tax of the trust shall be computed using the scheduler tax return used by the individual
taxpayer.
3. Trust administered in the Philippines; and trust administered from a foreign country
Trust administered in the PHils
the administrator of the trust (the grantee) is located in the PHils.
-subject to income tax in the same manner as individual citizen and resident alien individual:
-Basic formula for the cormputation of income tax:

Gross income derived from all sources

Less: OSD
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Withheld taxes on the income
Tax credits
Net Income Tax Payable
or
Gross income derived from all sources
Less: Itemized Deductions
Amount of income for the period currently distributed to the beneficiaries
Amount of income collected which are to be held or distributed as the court may direct
Amount of income properly credited to the beneficiaries
Personal Exemption of P20,000
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Withheld taxes on the income
Tax credits
Net Income Tax Payable
Trust administered in a foreign country
the administrator of the trust (the grantee) is located outside the PHils.
-subject to income tax in the same manner as a non-resident alien individual
-since it is taxed in the same manner, it is not allowed to use OSD as this deduction is available only to
estates administered in the Phils, not allowed to deduct the special deductions
-basic formula:
Gross income derived from sources within the Phils
Less: Itemized Deductions
Personal Exemption of P20,000
Taxable Income
Multiply by TAX RATE
Income tax due
Less: Withheld taxes on the income
Tax credits
Net Income Tax Payable