CHAPTER 6 – INCOME TAX ON PARTNERSHIP

Partnership- is a contract whereby 2 or more persons bind themselves to contribute money, property, or
industry to a common fund
- 2 or more persons may formed partnership for the exercise of profession
- has juridical personality separate and distinct from each partner
- may be constituted in any form except immovable property / real rights

2 KINDS OF PARTNERSHIP
1. GPP (General Professional Partnership)
- one formed by persons for the sole purpose of exercising their common profession, no part of
the income is derived from engaging in trade or business
example: Accounting firm, law firm, engineering firm
- Exempt from income tax & CWT
-subject to FWT & CGT
- not taxable for income tax since it is only acting as a “pass-through” where its income is ultimately
passed to the partners

NOTE: Net income or distributable net income of a General Professional Partnership (GPP) shall be
computed in the same manner as that of a Corporation, as such, it may claim itemized deductions or
optional standard deduction.
However, the partners’ distributive share from GPP income can no longer be subject to further
deduction under RR No. 8-2018.
Note also, that individual partners are not allowed to claim the 8% Flat Tax Rate on their
distributive share from the GPP since the same is already net of applicable deductions.
But, if the partner also derives other income from trade, business or practice of profession apart
and distinct from the share in the net income of the GPP, the deduction that can be claimed from the
other income would either be the itemized deductions or OSD.
-The share of a partner in a GPP’s net income shall be considered part of its taxable income
subject to Income Tax in their individual capacities.

- income payments made by GPP to the partners, such as drawings, advances, sharings,
allowances, stipends, subject to 15% CWT if the amount of income payment is more than 720k,
otherwise, 10%

2. GCP (General Co-Partnership) or GP(commercial partnership)

- other tan GPP
- taxed similar to a corporation
-partners are considered shareholders ,and therefore, profits distributed to them is subject to FWT(not
returnable since its final tax)
-subject to RCIT or MCIT (whichever is higher)
TAXPAYER PARTNERSHIP PARTNERS
1. GPP exempt Basic Tax
2. GP (30%) Corporate Income Tax (10%) Final Tax
*10% if taxpayer is RC, RA, NRC
*20% if NRAETB
*25% if NRANETB

*Partnership itself is exempt however, the share of the partners of GPP is subject to basic tax

ALLOWABLE DEDUCTIONS TO GPP

In computing taxable income of GPP, ff deductions are allowed:
a. Itemized Deductions
-
b. Optional Standard Deduction (OSD)

*if the GPP avails of either itemized deductions or OSD, partners CANNOT claim any further
deductions and may NOT avail 8% tax rate because the distributable share is already net of cost and
expenses
-however, if partner derives income from other sources ther than the share in GPP, he may claim either
itemized or OSD from the other source of income
CHAPTER 7- GROSS INCOME

gross income-