Chupler

Co-Ownership, Estates and Trusts

CO-OWNERSHIP

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 iss
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 taxablee
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.
When inherited property remained undivided for more than ten
the
years and no attempt was ever made to divide the same among nor held
O-neirs, nor was the property under administration proceedings
in trust, the property should be considered as owned by an unregistered
Parnership, consequently, taxable as corporation.

177
 Ca-amershid, Estates and rust
010nership, Estates and lrusts
Ouestion 3: What is the
applicable tax for the
LLUSTRATION 1: of the property from Noy to his heirs? gratuitous transfer inheritance)
of improvin
Answer: Estate Tax
tor tne purpose Estate taX
CASE A: a parcel
of land he and Donor's tax
(transfer taxes)
and Fe "bought"'
are discussed in volume 2.
Ana, Lorna interested
tenants.

s a m e before
leasing it out to Question 3: How much is the taxable
income of the
created? Answer: none co-ownership?
co-ownership A
Question 1: ls a cO-ownership Is not a taxable person
Answer.. No. undiviaed, T was acquired
by the owno distributed or shared by the
or
entity. Its income, however, Is
may be hot heirs/donees, thus, taxable to them in their individual
Though the property
transter (inheritance
or donation)
but by purchasa capacity.
through gratuitous of co-ownero
Fe fomed a parnersnp, nstead
Ana, Lorna and taxable as a corporaion. Consequently, Ana.
I
Partnership is generally tax purposes. Inco
Question 4: How much is the taxable income
of Allan in 2019?
"shareno/ders" Tor income
and Fe shall be considered
are aisCussed in Chapter 6.
Answer: P7,000,000
as well as the partners Solution:
tax of apartnership
Gross income of Allan
Allowable business expenses of Alan P6,000,000
CASE B: an undivided Share in net income of the (3,000,000)
resident citizen taxpayer died leaving co-ownership 4,000,000
On January 1, 2018, Noy, a
Mar and Pacquito valued at P60,000,000. The [(P15M-3M) 13]
parcel land to his heirs Allan,
of rentals. In 2019 Taxable income
P7,000,000
income producing property primarily through
property is an
the earned gross rentals amounting P15,000,000
to while expenditures
property Question 5: How much is the income tax payable of Allan in 2019?
was P3,000,000.
necessary to cary out the operations
Answer: P2,090,000
Taxable income P7,000,000
On the other hand, the heirs, who are all engaged in businesses in their own
TAX DUE (using the graduated tax
individual capacity, provided the following data for 2019 taxable year:
1st P2,000,000
rates)
P490,000
In excess of P2M; (P5M x 32%) 1,600,000
Allan Mar Pacquito Income Tax Payable P2,090,000
Gross business income P6,000,000 P5,000,000 8,000,000
Business expenses 3,000,000 2,500,000 6,000,000 INCOME TAX OF AN ESTATE
Income subject to final taxes (net) 200,000 320,000 500,000 Income tax of an estate refers to the tax
on income received by the estate during the A transfer tax is a tax on
Question 1: Is a co-ownership created? gratuitous transfer of property
period of administration or settlement. An
Answer: Yes. estate" is a mass of ali the property, rights, either through giftdonation
Since the property is undivided, the heirs are considered co-owners.
and obligations of a deceased person which Subject to donor's tax) or
The estate of Noy valued at P60M is through inheritance (subject to
not subject to income tax but to estate are not extinguished by his death, including
tax (a transfer tax discussed in Volume estate tax). A transfer tax is
2). those which have accrued thereto since the not an income tax because
Question 2: Assuming Noy was able to secure a opening of succession. For instance, the there is no taxable income
land titles were issued by the partition and three separate parcel of land. worth P60,000,000 in realized from the passage of
government before his death, naming his heirs as of
the rightful owners in his last will and
testament, is a co-ownership created'? ustration 1, CASE B above is the estate
to his
property to the heirs upon the
Answer: No. Noy. The passage of his property death of the decedent.
Tax
The property invoved is not an
undivided property. heirs upon his death is subject to Estate
Transter
(Refer to Volume 2 Business -
and
Taxes).

178
179
 (0
Estates and T 0unersha, lstales and Truts
Co-ownersha "usts Applicable tax

to the
period when tit The taxable come oí the estate is omputed t e same
Period"
refers al taxpayer. on549uerdy. the tar in
manner a
transferred
an die rereire mpusted s
finally e
araduated
usinga Code (as incOrre
Settlement

or is not yet decethe

the tar rate, for indtviduais under Setion
"Administration

a
decedent named by in ameriged under RA 1063 241)
left by
executor

properties period,
the a d m i n i s t r a t o r
appointed
he of the aw). Likewise, an esats is therwise known as tre
the
At this the
the administrat Tequired tn adopt the caiendar
ccounting period. nere pfior to the settiement of the estats.y+a
heirs/beneficiaries.
or
testament",
if any,
in-charge of the ri of "TR the
will o r d i s t r i b u t e d to

his "last be, is

temporarily
finaly
as r or administrator Sels property of a
c a s e may e s t a t e is thue decedent's estate for more
court, a s
the
such time
that the may
e a r n income,
the exe a0praised value place upon t at
the decedent s death, the
the e s t a t e until administration,
the estate
tha e taxable to the estate. Where the heir selis the property ater eesthe
under paid.
heirs. h i l e s h o u l d be Is
corresponding
income tax ment, the heir is taxabiE ingividuaily oni any profit derived
ILLUSTRATION 2:
following to
his lawful
heirs:
cOADUATED TAXRATEfor Individuals,
GRAD
Estates and Trusts
the TRAIN LAW-TAXABLE YEAR 2018-2022
PRIOR to 2018 2023 onwards
died leaving P5,000,000
A decedent TAX IMCOME TAX
Cash 15,000,000 INCOME

House and lot 5,000,000 5% Wt ver P250,000 Exempt Exempt

Not over

parcel
Vacant
of land 30,000,0000
P10,000
Commercial building 5,000,000 over
Over P250,000 but 20%h of excess over 15% of excess

Vehicles P60,000,000 Over P10,000

P500+10%in
P250,000
upon death) excess of P10,000 not over P4)0,000 P250.000
Total (@ FMVs büt not over
upon his death are not
be received his lawful heirsthe heirs' taxable P30,000
The properties to of computing P22.500 20% in
income for purposes Over P400.000 but P30,000+25% in
income. P2,500 +15% in
part of their gross the definition of
does not come Within
Over P30,000
not over P800,000 of P400,000
excess of P400,000

income because it
excess
excess of P30,000
but not over
extrajudicially.
judicially o r
edent may
be settled in a court P70,000 P102,500+ 25% in
estate
The estate of a settlement of a n
Over P800,000 but P130,000+ 30% in

pertains to or
beneficiaries P8,500+20% in excess of P800,000
Judicial
settlement
settlement,
the heirs Over P70,000 excess of P800,000
inheritance. notOver
while in extrajudicial estate or their but not over
excess of P70,000
proceeding distribution of the P2,000,000
t h e m s e l v e s the
settle for P140,000 P402,500 + 30% in
or
administration
Over P2,000,000
P490,000+32% in
settlement P22,500+ 25% in excess of P2,000,000
Classification of Estates under Over P140,000
but not over
excess of

udicial"
Fiduciary/trustee files the ITR but not over
excess of P140,000
P2,000,000
Estate under administrator/executor) P8,000,00
P2,202,500+ 35% in
due thereon. P250,000
administration
and pays the tax
2,410,000+35%

Over P8,000,000 excess of P8,000,000

P50,000+ 30% in in excess of

beneficiaries file
the ITR of Over P250,000
Heirs and thereon. but not over
excess of P250,000 PB,000,000
Estates not under
"judicial" the tax due
the estate and pay
administration P500,000
ntraiudicial setlement o00 t 3?h in
 Cwnership, Estates and Trusts
Shown belowisthe pro-forma computation of the taxable income of
the estate and the heirs/beneficiaries:

Taxable income ofthe Estate

Gross income
Less: Deductions
Pxxx
Business expenses
Pxxx
Special Deduction
Distribution of estate 's income to beneficiaries XXX
Taxable income of the Estate
Pxxx
TaxDue Graduated Tax Rate] Pxxx
Taxable Income of the Beneficia
Compensation income, if any
Net income of the beneficiary from business PxXx
andlor practice of profession
Add
Amt. received from the income of the estate XXX
Taxable income PxXx
Tax Due Graduated Tax Rate PXXX

ILLUSTRATION 4:

On November 1, 2017, Juan Dela Cruz died leaving various property worth
The properties are income
P30,000,000 to his heirs; Pedro, Ana and Lorna.
The net income from rentals for 2017
producing properties deriving rental income. testament" was executed by the
amounted to P2,500,000. A "last will and
under
as the executor. In 2018, (while
decedent prior to his death assigning GJ
earned P4,750,000 (net of 5% creditable withholding tax
administration), the estate
on rent) and incurred operating expenses
of P2,000,000.

from the income of

Pedro (one of the lawful heirs) received P200,000
During 2018, were as follows.
the estate. Pedro's other income and expenses
Compensation income P800,000
1,500,000
Business income
Business expenses
600,000

183
 Estates and Tru.
Co-ownershis, rusts AXATION OF TRUSTs
0-wnership, Estates and Trusts
administration, how mih
uch
that the estate
is still under the Trust is a right on property, real or
benefit of another. It may be arrangedpersonal, held by one party for
Assume
Question 1:
in 2018?
taxable income of the estate the
under hich title to a prOperty s passed to inter-vivos or created by will
Answer: P2,800,000 estment with the income another for conservation or
therefrom and
Solution:
(4.75M+ 25M) P5,000,000 invedistributed in ultimately the corpus
(principai)
"Gross"rental income
Allowable business expenses
(2,000,000) to
be
expressed accordance
in the overning
with the
instrument. directions of the creator as

of income to
Pedro (heir) (200,000)
Distribution

Taxable income
P2,800,000 Trust agreement allows individuals to create sustained
lividual or entity. For instance, a benefits for
an in parent may place a sum of
much is the
taxable income of
Pedro? or other types of financial assets such money
in the hands of a trustee for the benefit of equity
Question 2: How prop as and debt
P1,900,000 computed as follows
nts
i n s t r u m e n t s

Answer:
Compensation income
P800,000 minor child.
an
incapacitated or

1,500,000
Business income
(600,000) TRUST:
Business expenses PARTIES to a
Amt. received from
the income of the
estate 200,000 Trustor
Person who establishes a trust.
P1,900,000 Trustee- One in whom confidence is
Taxable
income
of another person.
reposed as regards property for
the benefit
Beneficiary Person for whose benefit trust is created.
-

Settlement Fiduciary- any person or corporation that holds in trust an estateof

Termination of JudicialVExtrajudicial
or persons. A fiduciary may exist only if a legal trust is
another person
judicial/extrajudicial settlement of the
After termination of created
the property but instead
still do not divide
estate where the heirs with intention to Trusts
contribute to the estate money,
property, or industry Taxability of Income of
themselves, an unregistered partnership
divide the profts betweenlamong of corporate be taxable to the trustee, beneficiary
or
becomes liable for the payment The income of a trust may
is created and the estate October 15, 1957;
income tax. (Evangelista vs.
Collector, GR No. L-9996, grantor, a s the case may
be.
No. L-19342, May 25, 1972).
Oña vs. Commissioner, GR

On the other hand, if the heirs,

without contributing money, Taxabletothe "Trustee"it income is to be
the estate, simply divide
the fruits thereof
The income of the trust taxableto
is the "trustee" if the income or
property or industry to improve is created, and
individual
future distribution,
whether ordinary
between/among themselves, a co-ownership accumulated or held for The imposition
of the heirs, of the trust.
income received by each included in the corpus be a
income tax is imposed on the gain from sale of
assets
ultimate beneficiary may
and individual capacity. (Pascual Vs. affected by the fact that the administered in a
payable in their separate of the tax is not trust
October 18, 1988;
Obillos vs. the income of a
Commissioner, GR No. L-78133, from tax. Likewise,
Derson exempt the trustee.
Commissioner, GR No. L-68118, October 1985). 29, foreign country is taxable to
 states and Trts ,

ownershib, states dnd Trusts

helow iis
Shown below the
pro-forma computation of the
Trustand
a Beneficiary: taxable income of
of the c o r n . a
title to any part
"Grantor/Trustor"if
Taxableto the term trust, the TOr Trust
Taxableincome ofthe
U n d e r the of the to the grantor (Revocable
trust may be revested be revested to S t)
the Gross income
principal of principal that may grantor
of the corpus or Less: Deductions
The income Pxxx
the grantor. distributed for the benefit n t
shall be taxable to held or the Business expenses
trust may be
The income the
of Special Deduction: Pxxx
be
grantor trust, the
income of thetrust shall appliedo
for Distribution of trust's income to beneficiaries
Under the term ofthe Taxable income of the Trust XXX
the benefit of the grantor. Pxxx
|TaxDue |Graduated Tax Rate]
Pxxx
Taxable to the Beneficiaries
The income of the trust is
taxable to
Special Deductions:
Taxable Income of the Beneficiary
the income is to be Compensation income, if any
the beneficiaries if . Distribution of the
distributed to the beneficiaries.
Ih such a Net income of the
year's income to an beneficiary from business Pxxx
include in their heir or beneficiary; andlor practice of profession
case, the beneficiaries
return their distributive share in
the net and d:
income of the trust. The distribution of 2. Amount collected by
Amt. received from the income of the trust
a guardian of an XXX
the year's income to an heir or Taxable income of the Beneficiary
infant which is to be Pxxx
beneficiary is a special item of deduction held or distributed Tax Due [Graduated Tax Rate Pxxx
for the trust. At the same time, the
as the court may
income distributed (actual or
direct.
constructive) shall be treated as a
Classification of Trust
special item of income to the
1. Ordinary Trust- the income and corpus of the trust do not revert to the
heir/beneficiary. grantor. The trust income is accumulated and held for distribution too
are not allowed in case of a trust administered in a the beneficiaries. Under the Tax Code, ordinary trust is any of the
Special deductions
following trusts:
foreign country [Sec.61(C)-NIRC].
A trust where the income is accumulated or held for future
Computation of Taxable Income distribution under the terms of a will trust.
The principles applied in computing the taxable income of an estate, A trust where the income is to be distributed currently by the
as previously discussed, is also applicable in the determination of the fiduciary to the beneficiaries.
benefit of
taxable income of a trust. Hence, the Trust's taxable income is likewise A trust where the income is accumulated for the
in with contingent
computed the same manner as an individual taxpayer, except that the unborn or unascertained person or persons
basic personal exemption allowed is limited only to P20,000 (Section 62-
The tax due is also
interest. of a infant is
NIRC). based on the graduated rates provided under A trust where the income collected by a guardian
Section 24(A) of the Tax Code as shown in Table 2-2 of Chapter 2. and
held or distributed as the court may direct;
Moreover, calendar period shall be used as accounting period for tax is at the discretion of fiduciary, may
A trust where the income,
purposes. A trust is required to adopt the calendar year as its accounting beneficiaries or accumulated
be either distributed to the
period.

186 187
 Ce-oanerstis, Estates and
rusts t-ownershib, Estates and Trusts
trust where at any time
nsolidated Inco e Tax Returns (Two or more
63-NIRCH a
or th
the Where two or more
trusts is created trusts)
Revocable Trust (Section corpus
of the corpus of the
2. title to any part trust is the sam by the same
person, the following rulestrustor or grantor
grantor, same ne
revest in the the beneficiary
power to and shall apply
IS vested: or in
I n the grantor
either alone a The income of
1 taxable
The taxab income of all the
trusts shall be
not having mputed on such consolidated consolidated and the tax
conjunction with any person such part of the
the income.
ncolidated income shal be apportioned toThethetaxdifferent
adverse interest in
substantial of trust shall be computed on the
disposition of such part
of the corpus
included in
ach
that each trust shall have a share in
the income tax on
trusts, such
the income therefrom;
or
substantial computing the income.
consolidated
having a
In any person not
the disposition of
such taxable income The format of computaton follows (Tax Apportionment):
adverse interest in of the grantor
income
or the T
part of the corpus Sec. 63, NIRC). Apportioned Taxable income of the trust X Consolidated
therefrom. to a Trust Taxable income of all trusts income tax
not apply to employee's trust
3. Employees' Trust income tax shall Such proportion or said tax shall be assessed and collected from each
of pension, stock bonus, or profit-sharing plan of an
which forms part trustee which the taxable income of the trust administered by him bears
of some or all of his employees [Section
employer for the benefit to the consolidated income of the several trusts. Each trust shall pay an
income of an employees trust is likewise exempt
60(B)-NIRC]. The income tax still due or payable computed as follows:
as well as income derived from the
from the payment of final taxes Income Tax apportioned to a trust PxXx
funds are sourced from the employees
sale of real property whose Less: Income tax already paid
Pension Foundation, Inc. vs. CA and Xxx
trust fund [Miguel J. Ossorio Income tax payable Pxxx
CIR(G.R. No. 162175, June 28, 2010)1.
Trust ILLUSTRATION 5:
Requisites or Conditions for Exemption of Employee's
The employee's trust must form part
of a In 2018, George created three (3) trusts for his minor daughler. The following data
of were furnished by the trusts during 2018:
pension, stock bonus, or profit-sharing plan Income Tax Paid
an employer for the benefit of some or
all of Any amount Trust Gross Income Expenses Net Income
actually distributed 1 P5,000,000 P2,500,000 P2,500,000 P500,000
his employees
Contributions are made to the trust by such to any employee 2 10,000,000 5,000,000 5,000,000 1,200,000
employer, or employees, or both; or distributee shall
15,000,000 7,500,000 7,500,000 2,000,000
T h e contributions are made for the purpose of be taxable to him
in the year of and 3
distributing to such employees the earnings
distribution, to the Required: Compute the income tax payable of Trust 1,2
and principal of the fund accumulated by the Consolidated Tax Due
that it P30,000,000
trust in accordance with such plan; extent
Consolidated Gross Income
exceeds the amount
Under the trust instrument, it is impossible at
Consolidated expenses
(15,000,000)
contributed by such
any time prior to the satisfaction of all liabilities
Consolidated taxable income P15,000,000
or
with respect to employees under the trust, for employee
any part of the corpus or income to be (within distributee.
the taxable year or thereafter) used for, or Tax Due Section 24(A)] P2,410,000
diverted to, purposes other than for the On 1st P8,000,000 4.450,000
exclusive benefit of his employees. In excess over P8M35% P4,860,000
Due
Consolidated Income Tax

188 189
 Estatus and . .
C-cunestis, Trusts PROBLEMS
P4.1. (Estate)
of Trust 1 P4.1 d
Income Tax Still Due/Payable P810,000 two (2) years ag0 leaving an
His heirs were Louie andundivided
Trust 1 Pedro
Tax Apportionment to entals. property deriving
(2.500/15,000 x P4,860,000) from ation throu
administration through the decedents Floyd. The income
Less: Income tax already paid
(500,000) executor. The
property is under

Income tax still due/payable P310,000 provided in 2018: following data were

of Trust 2 Rental income of the estate

(gross of 5% tax)
Income Tax Stil Due/Payable
Trust 2 P1,620,00o Deductible operating expenses estate P800,000
Tax Apportionment to
(5,000/15,000 x P4,860,000)
420,000
Less: Income tax already paid (1,200.000) Personal Income/Expenses of the heirs:
Louie Floyd
Income tax still due/payable P420,000 Gross business income
P 325,000 P 380,000
Deductible businesS expenses
Dividend from domestic corporation 117,000 105,000
Income Tax Stil Due/Payable of Trust 3 25,000
Tax Apportionment to Trust 3 P2,430,000 Dividend from foreign corporation 30,000
12,000 8,250
(7,500/15,000 x P4,860,000) Prize, supermarket raffle
15,000 7,500
Less: Income tax already paid (2,000,000) Royalty, books
10,000 18,000
Income tax stilldue/payable P430,000 Additional Information
Louie is married with 2 dependent children while Floyd is single
without dependent children.
Filing of Income Tax Returns Required: Determine the following:
The following persons acting in any fiduciary capacity shall file the 1. Income tax payable of the estate
income tax return for an estate or trust (Section 65-NIRC) 2. Income tax payable of Louie
Guardians 3. Income tax payable of Floyd
Trustees
Executors/administrators
P4.2. (Estate)
Receivers Pedro died two (2) years ago leaving an undivided property deriving income
Conservators
All other persons from rentals. His heirs were Louie and Floyd. The property is under
or corporations acting in any fiduciary çapacity administration through the decedent's executor. The following data were
In case of two or more joint fiduciaries, return filed provided in 2018:
shall be a sufficient compliance with the
by one of them
The return may be filed in
requirements of the Tax Code.
Rental income of the estate P1,000,000
Authorized agent banks; Deductible operating expenses (estate) 500,000
Revenue District Officer; Income distributed to Louie 50,000
Collection agent; Income distributed to Floyd 50,000
Duly authorized city or municipal Treasurer in which the Dividend income from domestic corporation 100,000
has his legal residence or taxpaye 200,000
principal place of business. Interest income from U.S. $ deposits
Interest income from peso deposits 100,000

190
191
 rercises - Co
Chapler
Chapter Erervises
- Co-cenerskip,
Estates and
Trusts shib, Estates and Tusts
of the heirs: Required: Determine the
following:
Personal
Income/Expenses Louie Floyd 1. Income tax payable of the
P 325,000 P 380,000
Income tax payable of Pedro
trust
2.
Gross Income 117,000
25,000
105,000
Deductible expenses

from domestic corporation

12,000
30,000
Dividend
corporation 8,250
from foreign 15,000
Dividend
7,500
Prize, supermarket rafle
10,000 18,000 TDIE
MULTIPL CHoICE.
Ch0ose the letter of
the correct answNer.
Royalty, books
It arises when
es when ttwo or more
heirs or
1. beneficiaries
inherit an undivided
property from a decedent, or when a donor makes a
Additional Information:
children while Floyd is sin nroperty in favor or two or more donees gift of an undivided
Louie is married
with 2 dependent single a. Partnership
without dependent children. C. Joint account
b. Trust
d. Co-ownership
the following:
Determine
Required:
1. Income tax payable
of the estate Which of the following shall
qualify as co-ownership?
2. Income tax payable
of Louie I. Succession by several heirs to an undivided estate, the estate is
of Floyd not under administration;
3. Income tax payable
II. Donation of property to two or more beneficiaries.
a. Both I and II C. I only
P4.3. (Trust)
favor of Pedro. A large sum of money was b. Neither I nor II d. II only
Mr. Masigasig created a trust in
income of which is accumulated in favor of
entrusted to BDO (Trustee), the
Pedro. The following data were provided: Usethe following data for the next three (3)questions:
Gross income of the trust P3,000,000 Ana, Lorna, and Fe, are the heirs of Pedro who died on Nov. 1, 2017. The

Deductible business expenses of the trust

1,800,000 properties of Pedro comprised solely of real property valued at P50,000,000 at
Income distributed to Pedro during the year 200,000 the time of his death. The property is primarily deriving rental income. In
100,000
Dividend income from domestic corporation 2018, the property remained undivided and it derived a net rental income of
Dividend income from resident foreign corporation 100,000 P15,000,000.
Interest income from U.S. $ deposits 200,000
Interest income from peso deposits 100,000 3. For income tax purposes, the heirs will be tax on net rental income from

the inherited property for the year 2018 as:

Personal Income and Expenses ofPedro
Compensation income 800,000
a. Partners in a commercial partnership
b. Partners in a general professional partnership
Rental income (net) 475,000 C. Partners in an unregistered co-partnership
Rental expenses 80,000
d. Co-owners
Royalty income, books 300,000
Other royalty income 120,000 as taxable income of
the co-ownership?
4. What amount should be reported
Dividend from domestic corporation 30,000 C. P14,980,000
Dividend from foreign corporation a. P50,000,000
8,250 b. P15,000,000 d. nil
Prize, S&R raffle 15,000
Lotto winnings 10,000,000 individual returns as their
heir report in their
Tax payments (Quarter 1-3) 120,000 What amount should each
income of the property they
inherited?
share in the net rental
C. P10,000,000
a. P50,000,000 d. P5,000,000
b. P15,000,000

192 193
 rercuiscs(aoenerstis, tstates andd Irust
t: Chapler terises t dwnership
Chusler
ales and Trusts
co-ownership taxable?
10. Incomne received by the estate
6. Question 1: Is a
of co-owner taxable?
settlemer of theeestate, for tax during the od of administrati
Question 2: Is the share a. Income of the purposes
ses is or
estate known as
because the activities of the b. Income of the heirs C.
Income of
Answer to Question 1: No, of the property and the collectionS Owners the
are limited to the preservation of Income of the trustee
d.
testator
11, Statement 1:
For taxation
income therefrom.
ined in the
all be determined purposes, the taxable
same manner income of the estate
Yes, because each cO-owner is ed individual taxpayers. and basis as
in the case of
Answer to Question2
individually on their
distributive share in the income of the
ne
CO afement 2: The income from
the estate is
personal exemption of P20,000 no
longer allowed to deduct
ownership.
questions are correct. a. Statements 1 & 2 upon effectivity of RA10963.
a. Answers to both are false
for Question 1 is wrong. b. Statement 1 is true
b. Only the answer but
C. Only the answer for Question
2 is wrong.
CStatement 1 is false but statement 2 is false
d. Answers to both questions are wrong. d. Statements 1 and 2 are statement 2 is true
true
7. Statement 1: Co-owners are taxed individually on their distributive share
e 12 The following statements
in the income of the co-ownership.
rerer to the rules
income and the applIcable incorme tax
in
determining the taxable
Statement2: If co-owners invest the income in a co-ownership
in statements is correct? liability of an estate. Which of the
business for profit, they would constitute themselves into a partnership I. The items of gross income of the
and as such shall be taxable as corporation. estate are the same items as
the items of gross income of
individual taxpayers.
a. Statements 1& 2 are false
b. Statement 1 is true but statement 2 is false
II. Deductions from the gross income of the estate are the
the items of deductions allowed to same as
an individual
C. Statement 1 is false but statement 2 is true III. In addition to the allowable taxpayer.
d. Statements 1 and 2 are true deductions under Section 34 of the
Tax Code, the estate is allowed to
deduct the amount of income
of the estate during the taxable
8. When will an inherited property be considered as owned by an year that is paid or credited to
the legatee, heir or
unregistered partnership? beneficiary.
IV. The amount of income of the estate
When the property remained undivided for more than ten (10) or credited to the
during the year that is paid
years.
legatee, heir or beneficiary is subject
to final
withholding tax of 15%.
. When no attempt was ever made to divide the same among the
a. I and II only C. I, I1, II and IV
co-heirs, nor was the property under administration proceedings
b. I, II and II only d. None of the above
nor held in trust
a. Only condition I is required. 13. Which of the
b. Only condition II is required following is included in the income of the estate of a
C. Conditions I and II are required decedent?
d. None of the above a. Income received by the estate of a deceased person during the
period of administration or settlement of the estate.
9. It composed of all the property, b. Excess of selling price over the appraised value placed upon the
rights, and obligations of a deceased
person which are not extinguished by his death, including those which property at the time of death, where the property was sold after
have accrued thereto since the the settlement of the estate.
opening of succession. C. Appreciation in the value of property passed to the executor or
a. Estate C. Legatee
b. Devisee d. Testator administrator upon death of decedent.
kind to legatee or devisee.
a. Delivery of property in

194
195
 Chapter terises
ment 1: The income
Onerskip, Lstales dnd Trusts
18. Staten
of the
during the year is subject to final estate distributed to the beneficiary
withholding tax of 15%
2: The
Statement 2:
withholding tax on the income
is creditable
heneficiary against the total
tax distributed to the
a. Statements 1 & 2 are
false liability of the beneficiary.
b. Statement 1 is true but
statement 2 is false
CStatement 1 is false
but statement 2 is true
d. Statements 1 and 2
are true
19. Statem nt 1: Where prior to
the
or
administrator sells property settlement of the estate, the
of a executor or
lue place upon it at decedent's estate for more than the
praised value
the decedent's
income taxable to the estate. death, the excess is
atement 2: Where the devisee, legatee, or
Sta
the settlement, the devisee, legatee, or heir heir sells the property after
is taxable
profit derived. individually on any
a. Statements 1& 2 are
false
b. Statement 1 is true but statement 2 is false
Stateme is false but
statement 2 is true
d. Statements 1 and 2 are true

Use the following data for the next two questions:

Alamahinga Nha died lin 2017 eaving an estate
worth P10,000,000. The
estate is under administration. In 2018, the
properties in the estate earned a
aross income of 600,000 and the estate incurred
of
received P120,000 from the income of the P150,000.
expenses
Francis, one of the heirs, estate.
20. The taxable income of the estate is
a. P480,000 C. P310,000
b. P450,000 d. P330,000

21. Assume that Francis, head of the family, also earned net income of
P500,000 from his trading business. What amount should Francis report
as his taxable income for 2018?
a. P620,000 C. PS00,000
b. P570,000 d. P450,000

22. An agreement created by will or an agreement under which title to

property is passed to another for conservation or investment with the
income therefrom and ultimately the corpus to be distributed in
accordance with the directives of the creator as expressed in the
governing instrument.
a. Estatee C. Fiduciary
b. Trust d. Beneficiary

197
 Chaster Erercises
-

Ca-onertis, tstutes and T..

Trusts Chapter &eriseso
23. Estates and trust are Il. A trust where the
income i
nershib, stales and Trusts
unborn or unascertained
a. Treated as separate taxable
b. The tabular rates of tax
entities.
prescribed under Section 24A for interest. accumulated
person or r
for the
benefit of
individuals shall be used in computing the income tax of truste.
s or V. A trust where the persons with contingent
estates. held or distributed income
as collected by a
C. Personal exemption of P20,000 is no longer allowed beginnina V. A trust
where the the court may direct.guardian of an
infant is
January 1, 2018 may be either income, is at the
a. I and II only distriDuted to the discretion of the fiduciary,
d. All of the above
b. 1, II and III only
beneficiaries
C. 1, I1, III and accumulated.
or

24. Which of the following statements regarding trust agreement(s) is d. 1, IV only

11, IIL, IV and V
correct? atement 1: Revocable Irust
I. A trust is a right of property, real or personal, held by one party the arantortitle to any part of isa trust in which the
for the benefit of another. self or
grantor himself or in
the corpus of power to revest in
any person not the trust is
The creation of trusts may either be express or implied. vested in the
corpus on its income. having any substantial adversi
I. interest in the trust
III. Trusts are treated as separate taxable entities. Ctatement 2: The income of
a trust
erse
a. I, II and III C. I and III only income of the trust that may be held be taxed against
will
b. I and II only d. I only grantor
or grantor if the
distributed for the benefit of the
a. Statements 1& 2 are
25. The following are the classifications of Trusts, except b. Statement 1 is true false
but
Statement 1 is false but statement
a. Ordinary trust 2 is false
C.
b. Revocable trust statement 2 is true
d. Statements 1 and 2
C. Irrevocable trust are true
d. Employer'strust
29, Statement 1: Income tax
shall not
26. The following statement(s) part of pension, stock bonus, or apply to employee's trust which forms
refer to a Testamentary Trust, except: benefit of some or all of the profit-sharing plan of an employer for the
. It is created under a Last Will and Testament. employees.
Statement 2: Any amount actually distributed
I It exists in the Will only until the death of the Testator.
to any employee or
II. This type of trust is amèndable and revocable at
any time
distributee shall be taxable to him in the
the Testator's lifetime, but becomes
during that it exceeds the amount contributed year of distribution to the extent
irrevocable.upon the a. Statements 1& 2
by such employee or distributee.
Testator's death. are false
N. A Testamentary Trust is considered its own
legal entity, so it is
b. Statement 1 is true but
statement 2 is false
taxed separately from the individual Beneficiaries even C. Statement 1 is false but statement 2 is true
before the
death of the testator. d. Statements 1 and 2 are true
a. I only
C. V only
b. II only d. III and IV 30. Statemerit 1: For taxation
only purposes, the taxable income of a trust shall
be determined in the same manner and basis as in the
case of individual
27. Which of the
following statement(s) is/are correct description(s) of an taxpayers.
Ordinary Trust"? Statement 2: Prior to 2018, the income of the trust is allowed with a
A trust where the income is accumulated or held
for future personal exemption of P20,000.
distribution under the terms of a
II. A trust where the income testamentary trust. a. Statements 1 & 2 are false
is to be distributed b. Statement 1 is true but statement 2 is false
fiduciary to the beneficiaries. currently by the
C. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

198
199
 nerstib, tstutis aud t . hapler trdes
Chatier tteruses(A lrusts 'Unerstub, lstates aad Trusts
I1. The income of the
revocat trust is taxable
a. I only
statements refer to the rules
in determining the taxabl
able b. II only C.
Both I andagainst
II
the grantor.
31. The following of a trust. VWhich of the d.
income tax liability Neither
income and the applicable I nor II
following statements is/are
correct?
are the same items: 35. Which atement is true? Pre-tax
of income of the trust the Tc taxed to the income by a trust
I. The items gross
individual taxpayers.
a.
beneficiary if
Is taxed to trust if such such income is retained
items of gross income of are the same
b.
by the trust.
income of the trust Is taxed income
II. Deductions from the gross
allowed to an individual taxpayer,
as C. depending on who is in is distributed.
current
the items of deductions income. possession of the
deductions under Section 34 of thne
Il. In addition to the allowable d. All of the above.
Tax Code, the trust is allowed to deduct the amount of income.of
that is pala or credited to the
the trust during the taxable year 6 Statement 1: The income tax of
legatee, heir or beneficiary. manner as the income of the estate.
irrevocable trust is taxable in the same
trust during the year that is paid or
V. The amount of income of the Statement 2: In the case of two
beneficiary is subject to final or more
credited to the legatee, heir or
rcon
perso for the same benericiary, the taxable trusts created by the same
tax of 15%%. income of all
withholding C. 1, II, III and IV
nsolidated and tthe tax shall be
based on the consolidated trusts shall be
a. I and II only a. Statements 1 &2 are false income
b. I, II and III only d. None of the above
b. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
32. Which of the following statements is not correct? d. Statements 1 and 2 are true
a. An irrevocable trust is subject to income tax.
b. An irrevocable trust is taxed in the same manner as an individual
37. The income distributed to the beneficiaries of estates and trusts,
taxpayer. except
C. Prior to 2018, a taxable trust is allowed to claim personal income subject to final withholding tax and income exempt from tax, is
subject to
exemption of P20,000.
d. An irrevocable trust is taxed at a rate of 30% of net taxable a. Creditable withholding tax of 10%
income D. Creditable withholding tax of 15%
C. Final withholding tax of 20%
33. Which of the following income of the trust is not taxable to the trust? d. Neither final nor creditable withholding tax
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 38. Statement 1: Estates and trust can deduct from the gross income the
assets included in the corpus of the trust. same items of deductions authorized under the Tax Code as those

b Income of a trust, whether created by will or deed, for allowed to individual taxpayers.
accumulation of income, whether for an unascertained person or Statement 2: The scheduler tax rates under Section 24(A), which are
persons with contingent interest or otherwise. prescribed for individuals, will be used in computing the income tax of
C.Income ofa trust, where under the terms of a will or deed, the estates and trusts.
trustee may, in his discretion, distribute the income and a. Statements 1& 2 are false
false
accumulate it. b. Statement 1 is true but statement 2 is
2 is true
d. Income of a trust, which in full in
part, is subject to revocation Statement 1 is false but statement
anytime. d. Statements 1 and 2 are true

34. Which of the following statements is

I.
correct
A revocable trust exists when the
regarding revocable trusts?
reserves the right to
grantor
revoke his power to change at any time any part of the terms or
the trust.

200 201
 Chapter tteises
, Estates dnd l.
Trus eonersh. tstales and Trusts
Chaster &teruses
thefollowing data for the next two
(3) stions:
(2) questions:
following data for the nexttwo bigay created two (2) trusts
Mr. Mapagbigay
Use the In 2018, year, the two for
trust naming
created a
his eldech the trusts earned net income his minor son, Lucky.
Nag-aalangan receive the income ofthSOn, During
as follows:
In 2018, Mr. who will thust
revocable beneficiary
Kadudaduda as
abide with
the terms provided in Trust 1
son could
not the terms of the ust Trust 2 P4,000,000
If the eldest could change anytime
instrument, Mr.
Nag-aalangan
earned a net
income of P1.000t 6,000,000
the trust
For the current
taxable year,
earned a compensation
income of P1.500 Each trust
t filed their own inCome tax return and
filed
the grantor income of the trush paid the
income tax due as computed in their separate returns. corresponding
On the other hand, No part of the were
income of P1,000,000.
and business
the revocable beneficiary during
the year. Determine the
distributed to Determine the following:
following: 43, Consolidated tax due of the Trust
a. P1,1130,000 C. P3,1110,000
of the trust
39. The taxable income c. P950,000 b. P1,770,000 d. nil
a. P1,000,000 d. nil
b. P980,000 income tax payable of Trust 1
44, Additional
a. P96,000 C. P1,130,000
40. The taxable income of the grantor c. P3,000,000 b. P114,000 d. P1,770,000
a. P1,000,000
d. P3,500,000
b. P2,500,000 income tax
45. Additional payable of Trust 2
a. P96,000 C. P1,130,000
d. P1,770,000
Usethe following data for the next two (2) questions:
b. P114,000

a trust fund for the benefit of his

On January 1, 2018, Francis established
Lo Yer as the trustee. The
daughter, Princess. Francis appointed Atty.
the trust is a piece of lot with a dormitory earning
property transferred to
rental income.

revenues andincurred
During the year, the trust earned P10,000,000
Lo Yer gave Princess
expenses of P2,000,000. Out of the trust's income, Atty.
Princess earned compensation income off
P1,500,000. In the same year,
P1,850,000, 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 Niah

a. P1,500,000 c. P2,500,000
b. P1,850,000 d. P4,000,000

203
202