INCOME TAX FOR PARTNERSHIPS

1 point each, total of 10 points

1. C
TG Partnership reported for a year net profit from trading (general partnership) amounting to P800,000.
The other income included interest income of P8,000, net of 20% final withholding tax, and dividend
income from domestic corporation of P20,000 (tax exempt, since recipient is considered also as domestic
corporation ). Assuming T and G share profits and losses equally, how much is the final withholding tax on
the distributive share of T in the earnings of that partnership?
a. P28,700
b. P31,400
c. P33,400
d. P29,400

Solution:
Tg's net profit, net of RCIT of 20% (800,000 x 80%) 640,000
Interest income net of FWT 8,000
Dividend income (tax exempt) 20,000
Total distributable income 668,000
Divided by; 2
Share in income of the GP (per partner) 334,000
x tax rate (final) 10%
Income tax due (FWT) 33,400

2. A
Based on the previous number, assume that the partnership is a general professional partnership, how much
is the final withholding tax on the distributive share of T in the earnings of that partnership?
a. P0
b. P334,000
c. P30,100
d. P29,400

 General Professional partnership (GPP) is exempt and distributive share of each partner is not treated
as a dividend and is instead included in their taxable income.

For numbers 3-10.

Garcia, Ramos, Toribio and Co., CPAs (GRT & Co.), are partners of an accounting firm. The 2019 financial
records of the firm disclosed the following:
Service revenue 4,990,000
Cost of services 1,610,000
Operating expenses 800,000
Passive incomes, net of FWTS
Interest income from bank deposit, net 160,000
Interest income from FCDU transaction, net 238,000.00

Ramos is also engaged in business with the following data for the year:
Sales 2,500,000
Cost of sales 1,250,000
Operating Expenses 550,000

3. D
How much is the distributable income of the General professional partnership (GPP)?
a. P992,667

INCOME TAX FOR PARTNERSHIPS 1

 b. P1,019,333
c. P2,578,00
d. P2,978,000

Solution:
Service Revenue 4,990,000
Cost of Services (1,610,000)
Gross income 3,380,000
Operating Expenses (800,000)
Net Income 2,580,000
Interest income from bank deposit, net 160,000
Interest income from FCDU transaction, net 238,000.00
Total distributable income of the GPP (#5) 2,978,000
Divided by: 3
Distributive share per partner (#6) 992,666.67

4. A
How much is the distributive share of each partner in the total income of the GPP?
a. P992,667
b. P1,019,333
c. P2,578,00
d. P2,978,000

 See solution in number 5.

5. C
How much is the taxable income of Ramos in 2019?
a. P860,000
b. P1,510,000
c. P1,560,000
d. P2,580,000

Solution:
Net Income from GPP operations 2,580,000
Divide by 3.00
Share in GPP's ordinary income per partner (excluding passive
incomes) 860,000.00
Add: Ramos’ own net income (1,250,000-1,250,000-550,000) 700,000.00
Taxable Net income of Ramos 1,560,000

 The partner’s share in the other income of the GPP (subject to FWT and CGTs) are non-returnable
income of the partners.

6. A
How much is the taxable income of Ramos in 2019 assuming CML & Co. opted to use Optional Standard
Deduction?
a. P1,376,000
b. P1,426,000
c. P1,692,000
d. P1,860,600

Solution:
GPP's Gross income 3,380,000.00

INCOME TAX FOR PARTNERSHIPS 2

 x 60%
GPP's Net income under OSD 2,028,000.00
Divide 3
Share of May in the ordinary income of the GPP 676,000.00
Add: May's own net income (2.5M-1.25M-
550k) 700,000.00
Taxable net income of May 1,376,000.00

7. D
How much is the taxable income of Ramos in 2019 assuming the GPP and the partner opted to use the
Optional Standard deduction?
a. P1,376,000
b. P1,426,000
c. P1,692,000
d. P2,176,000

Solution:
GPP's Gross Income (4,490k-1,610k+500k) 3,380,000.00
x 60%
GPP\s net income under OSD 2,028,000.00
Divide 3
Share of May in the ordinary income of the GPP 676,000.00
Add: May's own net income using OSD (Gross income of 2.5M x 60%) 1,500,000.00
Taxable net income of May 2,176,000.00

For the following three questions (8-10), assuming the partnership is a general (commercial) partnership.
8. A
How much is the distributable income of the General partnership (GP)?
a. P2,462,000
b. P734,667
c. P2,204,000
d. P2,978,000

Solution:
Service Revenue 4,990,000
Cost of Services (1,610,000)
Gross income 3,380,000
Operating Expenses (800,000)
Net Income 2,580,000
Less: 20% RCIT of Net income (516,000)
Net income after tax 2,064,000
Interest income from bank deposit, net 160,000
Interest income from FCDU transaction,
net 238,000.00
Total distributable income of the GP (#8) 2,462,000
Divided by: 3
Distributive share per partner (#9) 820,666.67

9. B
How much is the distributive share of each partner in the total income of the GP?
a. P2,204,000
b. P820,667

INCOME TAX FOR PARTNERSHIPS 3

 c. P734,667
d. P2,978,000

 See solution in the previous number.

10. A
How much is the taxable income of Ramos in 2019?
a. P700,000
b. P860,000
c. P734,667
d. P790,000

Solution:
2,500,000.0
Sales 0
(1,250,000.00
Cost of Sales )
(550,000.00
Operating expenses )
700,000.0
Ramos' own net income (P2.5M - P1.25M - P0.55 M) 0
Add: Share in GP's ordinary income per partner -
Taxable Net income of Ramos 700,000

The share in the net income of the general (commercial) partnership is treated as a dividend income from a
domestic corporation subject to final tax which is non-returnable. Therefore, it is not included in the
determination of “taxable income”.

INCOME TAX FOR PARTNERSHIPS 4