• Article 484 of the Civil Code provides that there is a co-ownership

whenever the ownership of an undivided thing or right belongs to

different person.
• For taxation purposes, there is co-ownership when two or more
heirs of 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.
• Co-owners are taxed individually on their distributable share in the
income of the co-ownership.
• Co-ownership itself is not taxable for the reason that the activities of
co-ownership are generally limited to the preservation of the
common property and the collection of 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.
• When inherited property remained undivided for more than 10
years and no attempt was ever made to divide the same among the
co-heirs, nor was the property under administration proceedings
nor held in trust, the property should be considered as owned by an
unregistered partnership, consequently, taxable as corporation.
INCOME TAX OF AN ESTATE
- Tax on income received by the estate during the period of
administration or settlement

Estate
- Mass of all the property, rights, and obligations of a deceased
person which are not extinguished by his death, including those
which have accrued thereto since the opening of succession.

Administration or settlement period

- Period when the title to the properties left by a decedent is not yet
finally transferred to the heirs/beneficiaries.
- While under this period, the estate may earn income, thus, the
corresponding income tax should be paid.
 The estate of a decedent may be settled judicially or extrajudicially.

Judicial settlement
-Settlement of an estate in a court

Extrajudicial settlement
-Heirs and beneficiaries settle for themselves the distribution of the
estate or their inheritance
Deduction from estate’s gross income
- Same items of deductions allowed for individual taxpayers (usual
allowable business expenses, AND amount paid/credited to any
legatee, heir, or beneficiary (known as special deduction).

 Such amount of income distributed (special deduction) shall be

included in the determination of the taxable income of the
legatee/heir/beneficiary.
TRUST
- Right on property, real or personal, held by one party for the benefit
of another
- Legal instrument or device whereby one person called a Trustor of
Grantor delivers part or all of his properties to another person called
Trustee or Fiduciary who administers and manages the
property/ies for the benefit of designated person/s called
Beneficiaries.
Parties to the Trust
1. Trustor – person who establishes a trust
2. Trustee – one in whom confidence is reposed as regards property
for the benefit of another person; Fiduciary – any person or
corporation that holds in trust an estate of another person/s.
3. Beneficiary – person for whose benefit trust is created.
Parties to the Trust
1. Trustor – person who establishes a trust
2. Trustee – one in whom confidence is reposed as regards property
for the benefit of another person; Fiduciary – any person or
corporation that holds in trust an estate of another person/s.
3. Beneficiary – person for whose benefit trust is created.
Taxability of income of Trusts

The income of a trust may be taxable to the:

1. Trustee – if the income is to be accumulated or held for future
distribution, whether ordinary income or gain from the sale of
assets in the corpus of the trust.
2. Grantor / Trustor – under the term of the trust, the title to any part
of the corps or principal of the trust may be revested to the grantor
(Revocable Trust)
3. Beneficiaries – if the income is to be distributed to the beneficiaries.
Classification of Trusts
1. Ordinary trust – the income an corpus (principal) of the trust do not
revert to the grantor. The trust income is accumulated and held for
distribution to the beneficiaries.
2. Revocable trust – a trust where any time, the power to revest in the
grantor, title to any part of corpus of the trust is vested
3. Employees’ Trust – income tax shall not apply to employees’ trust
which forms part of pension, share bonus, or profit-sharing plan of
an employer for the benefit of some or all of his employees. Income
of employees’ trust is likewise exempt from the payment of final
taxes.