Partner’s distributable share from the net income of the GENERAL PROFESSIONAL

PARTNERSHIP

 GPP – not subject to income tax

 Only partners are subject to final tax on their share in the net income of GPP

Business partnership and taxable JOINT VENTURE or CO-OWNERSHIP

 Subject to corporate income tax

 Distributive share of partner organized within the PH – subject to 10% FWT

GENERAL CRITERIA FOR ITEMS OF GROSS INCOME

 Items of gross income subject to regular income tax – not limited to NIRC list
 Provision of income regular tax for all income that are:
1. Not subject to final tax, CGT and special tax regime
2. Not excluded or exempted by law or contract

Other Sources of Gross Income Subject to Regular Income tax

1. Income distribution from taxable estate

or trust
2. Share from the net income of other pass-
through entities:
a. Exempt joint venture
b. Exempt co-ownership
3. Farming income
4. Recovery of past deductions
5. Reimbursement of expenses
TAX BENEFIT (from deduction)

1. Direct – from reduction of taxable income in the year deduction is made

2. Indirect – from reduction of future taxable income through carry-over of net operating loss

Example: A taxpayer incurred 50,000 bad debt expense in 2019 out of which 15,000 was recovered in
2021:

2019 2020 2021

Net income before bad debts expense 110,000 75,000 115,000

Bad debt expense/Recoveries 50,000 - 15,000
Net income after bad debts expense 60,000 75,000 130,000

o 50,000 – tax benefit to the taxpayer

o 15,000 – tax benefit reverted back to gross income in 2021
o 130,000 – taxable income in 2021

Refund of non-deductible expenses

 Expenses/payments that are non-deductible against gross income in the computation of taxable
net income. (not included in gross income)

Examples of refund of non-deductible items that is not taxable:

1. PH income tax
2. Estate or donor’s tax
3. Income tax paid to a foreign country if the taxpayer claimed credit for such tax in the
year it was paid or incurred
4. Stock transaction tax in disposing stocks through PSE
5. Special assessment

Reimbursement of expenses

 Expenses of taxpayer that are reimbursed or paid by the customer constitute additional income of
the taxpayer

Example: client reimburses the out-of-pocket expenses of professional practitioner (income)

Cancellation of Indebtedness
a. In consideration of service or goods – treated as income
b. As an act of gratuity – treated as gift
c. As capital transaction such as forfeiting the right to receive dividends in exchange of the debt –
treated as dividend income