taxationlaw1 - paulita's draft (estates & trusts)
DESCRIPTION
Taxationlaw1 - Paulita's Draft (Estates & Trusts)TRANSCRIPT
![Page 1: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/1.jpg)
ESTATE UNDER JUDICIAL SETTLEMENT (PENDING SETTLEMENT)
TAX BASE: Income derived during a
taxable year from all sources, within and
without the Philippines.
ESTATES AND TRUSTS
ESTATE- Refers to the mass of properties left by a deceased person.- The status of the estate is determined by the status of the decedent at the time of his death; so an estate, as an
income taxpayer can be citizen or an alien.
The taxable estate entity is one under administration or judicial settlement. If not under judicial, testamentary or intestate proceedings, it is not a taxable entity. The income thereof is taxable directly to the heir or beneficiary.
RULES ON TAXABILITY OF ESTATE:
When a person who owns property dies, the following taxes are payable under the provisions of the income tax law:
1. Income tax for individuals under Sec. 24 and 25 of the NIRC (to cover the period beginning January to the time of death); and
2. Estate income tax under Sec. 60 of the NIRC if the estate is under judicial settlement or administration.
A. ESTATE UNDER JUDICIAL SETTLEMENT
1. During the pendency of the settlement
2. Termination of Judicial Settlement (where the heirs still have not divided the property)
Tax Rates:
Taxable Net Income subject to graduated
rate of 5%-32%.
Amount of Net Taxable Income
Rate
Over But Not Over
P10,000 5%
P10,000
P30,000
P500 + 10% of the Excess over P10,000
P30,000
P70,000
P2,500 + 15% of the Excess over P30,000
P70,000
P140,000
P8,500 + 20% of the Excess over P70,000
P140,000
P250,000
P22,500 + 25% of the Excess over P140,000
P250,000
P500,000
P50,000 + 30% of the Excess over P250,000
P500,000
P125,000 + 32% of the Excess over P500,000 in
Exceptions:
a. Entitlement to personal exemption is limited only to P20,000.00
1st view: RA 9504 amended the NIRC increasing the basic personal exemption amounting to P50,000.00 for each individual taxpayer. Estates and trusts are considered in the NIRC as individual taxpayers and therefore the exemption allowed to them should also be increased from P20,000.00 to P50,000.00.
2nd view: Tax exemptions are strictly construed. Sec. 62 of the NIRC explicitly provides that the exemption allowed to estates and trusts is P20,000.00.
b. No additional exemption allowed; and
c. Distribution to the heirs during the taxable year of estate income is deductible from the taxable income of the estate.
Where no such distribution to the heirs is made during the taxable year when the income is earned, and such income is subjected to income tax payment by the estate, the subsequent distribution thereof is no longertaxable on the part of the recipient.
![Page 2: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/2.jpg)
ESTATE UNDER JUDICIAL SETTLEMENT (TERMINATION OF JUDICIAL SETTLEMENT)
HEIRS CONTRIBUTE TO THE ESTATE
MONEY, PROPERTY OR INDUSTRY:
An unregistered partnership is created
and the estate becomes liable for the
payment of:
CORPORATE INCOME TAX
HEIRS DID NOT CONTRIBUTE TO THE
ESTATE MONEY, PROPERTY OR
INDUSTRY, SIMPLY DIVIDE THE FRUITS:
A co-ownership is created and the heirs shall be liable for the
payment of:
INDIVIDUAL INCOME TAX
B. ESTATE NOT UNDER JUDICIAL SETTLEMENT
![Page 3: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/3.jpg)
ESTATES
Pending the extrajudicial settlement, the income tax liability depends on WON the unregistered partnership or co-ownership is created.
------bebe zan, in general na po ito for estates
Final Withholding Tax on Passive Incomes subject to Final Tax
CAPITAL GAINS TAX
Interest Income Royalties Prizes & Winnings Dividends
A. Yield from Deposit Substitutes, Turst, Frunds & Other similar arrangments:
20%
B. Net Income From Expanded Foreign Currency Deposit System:
7.5%
C. Interest Income from Local Bank Deposits:
20%
A. Use and exhaustion of property such as earnings from copyrights, patents, trademarks, formulas and natural resources under lease:
20%
B. Royalties from books, literary works and musical compositions:
10%
NOTES:1. It covers both payments made:- Under license; and- Under Compensation which a person would be obliged to pay for fraudulently copying or infringing the right.2. Royalties must be derived from sources within the Philippines to be considered as passive income.3. If it is derived from sources outside the Philippines, the royalty income is subject to GRADUATED RATES.
A. Prizes (except P10,000 or less) & Winnings (regardless of the amount):
20%
XPN: PCSO and lotto winnings are not subject to final tax.
NOTES:
1. Prizes amounting to P10,000 or less, although exempt from final tax, are to be included in gross income and subject to the graduated rates.
2. Prizes and Winnings from sources without the PH are included in the Gross Income of a Resident Citizen.
CASH & PROPERTY DIVIDENDS
STOCK DIVIDENDS LIQUIDATING DIVIDENDS
1. On:
a. Cash &/or Property Dividends from domestic corporation or from a joint stock company, etc.
b. Share in the distributable net income after tax of a taxable or business partnership; and
c. Share in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of w/c he is a member or co-venturer:
10%
2. On cash and/or property dividends from a foreign corporation:
Graduated Rates of 5%-32%
GR: A stock dividend representing the transfer of surplus to capital account shall not be taxable. (Sec 73, B, NIRC)
Exceptions:
1. It gives the shareholder an interest different from that which his former stock represented;
2. Different classes of stocks were issued;
3. Stock dividend is table to Usufructuary;
4. When there is redemption or cancellation essentially equivalent to the distribution of taxable dividends;
5. The recipient is either than the shareholder; and
6. Dividends declared in the Guise of treasury stock dividend to avoid the effects of income taxation.
Liquidating gain is subject to:
Graduated Rates of 5%-32%
RULES ON CAPITAL GAINS AND LOSSES of an ESTATE
![Page 4: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/4.jpg)
Gross Income of An Estate subject to Income TaxAll income derived from whatever source, including but not limited to the
ORDINARY ASSETS
1. Stocks in Trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
2. Property held by the taxpayer primarily for sale to customers in the ORDINARY COURSE OF BUSINESS.
3. Personal Property used in trade or business subject to depreciation.
4. Real property used in trade or business.
Note: The above-mentioned list is exclusive.
CAPITAL ASSETS
All properties not classified as ordinary asset.
-SUBJECT TO CGT-
A. Sales of shares of stock of a domestic corporation not listed and not traded through stock exchange by a non-dealer securities:
1st P100,000.00 – 5% In excess of P100,000.00 –
10%B. Sale or Other Disposition of Real
Property subject to CGT:
6% on the gross selling price or zonal values of the provincial and
city assessors, whichever is the highest
Tax Base:
Net Capital Gains on a per transaction basis.
XPNS:
- Sale of Principal Residence- Buyer is the Government or any of its political subdivisions- Sale subject to right of redemption
-NOT SUBJECT TO CGT-
Regular Income Tax Rates Rules to be followed in the
determination of the gross income:
Holding Period (NIRC, Sec 29 B)
Loss Limitation Rule (NIRC, Sec 29 C)
NELCO (NIRC, Sec 29 D)
Notes: The rules on capital gains and losses shall apply only if the transaction on capital assets is either a SALE OR EXCHANGE.
OTHER CAPITAL ASSETS NOT SUBJECT TO CGT
Involves sale or exchange or one considered as equivalent to a sale or exchange of property classified as capital asset except:
1. Unlisted shares of stock of a domestic corporation; and
2. Real property in the Philippines held as capital asset.
Tax Treatment:
1. Ordinary Gains – included in the gross income.
2. Ordinary Losses – deductible from gross income.
Tax Treatment and Rate:
Included in the gross income subject to the regular income tax rates.
Tax Base:
Net Capital Gains
PARTNER’S SHARE IN THE NET INCOME OF
THE GENERAL PROFESSIONAL
![Page 5: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/5.jpg)
Meaning of the Phrase “Gross Income from whatever Source Derived”
- Indicates a legislative policy to include all income not expressly exempted within the class of taxable income under our laws.(CIR vs. AIR India, G.R. No. 72443, January 29, 1988)
EXCLUSIONS FROM GROSS INCOME OF ESTATESIncome received or earned but is not included in the determination of gross income and thus not taxable either because:
GROSS INCOME
ANNUITIES
DIVIDENDS
INTERESTS
ROYALTIES
GAINS FROM DEALINGS IN PROPERTY
RENTS
COMPENSATION
PRIZES AND WINNINGS
GROSS INCOME FROM PROFESSION, TRADE OR BUSINESS
PARTNER’S SHARE IN THE NET INCOME OF
THE GENERAL PROFESSIONAL
The following are likewise included in the taxpayer’s gross income:
1. Treasure found or punitive damages representing profits lost;
2. Amount received by mistake;
3. Cancellation of the taxpayer’s indebtedness on account of service rendered;
4. Payment of usurious interest;
5. Illegal gains;
6. Tax refunds and bad debts recovered;
7. Subsidy; and
8. Unutilized or excess of the campaign funds, which is in excess of campaign contributions over the candidate’s campaign expenditures.
PENSIONS
![Page 6: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/6.jpg)
1. They are not income, gain or profit.2. They represent return of capital.3. They are subject to another kind of internal revenue tax.4. They are income, gain or profits which are expressly exempt from income tax under the Constitution, tax treaty,
NIRC or general or special law.
EXCLUSION VS. EXEMPTION
EXCLUSION EXEMPTIONRefers to the removal of otherwise taxable items from the reach of taxation
Refers to an immunity or privilege, freedom from charge or burden to which other persons are subject to tax
(PLDT v Laguna, G.R. No. 151899, August 16, 2005)
DEDUCTIONS FROM GROSS INCOME OF AN ESTATES
ITEMS OF EXCLUSIONS
1. PROCEEDS OF LIFE INSURANCE
CONDITION: The life insurance proceeds must be paid to the heirs or beneficiaries by reason of death of the insured, whether in a single sum or installment.
2. RETURN OF INSURANCE PREMIUM
CONDITION: The amounts must be received as a return of premiums paid by him under life insurance, endowment or annuity contracts.
3. GIFT, BEQUEST, DEVISE OR DESCENT
CONDITION: Only donated property is excluded from gross income.
4. COMPENSATION FOR INJURIES OR SICKNESS
CONDITION: The term injury includes death, even if there is no injury. If the person dies, the compensation received on account of his death is also excluded from the gross income.
5. RETIREMENT BENEFITS, PENSIONS AND GRATUITIES
CONDITION: It does not matter whether the retirement is voluntary. As long as requirements are met, the retirement proceeds are excluded from gross income.
7. MISCELLANEOUS ITEMS
- PASSIVE INCOME- INCOME DERIVED BY THE PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISION- PRIZES AND AWARDS- PRIZES AND AWARDS GRANTED TO ATHLETES IN SPORTS COMPETITIONS LOCALLY OR ABROAD AND SANCTIONED BY THEIR NATIONAL SPORTS ASSOCIATION- 13TH MONTH PAY AND OTHER BENEFITS UP TO P30,000.00- GSIS, SSS, MEDICARE (NOW PHILHEALTH) AND PAG-IBIG CONTRIBUTIONS AND UNION DUES OF INDIVIDUALS- GAINS DERIVED FROM SALE OR EXCHANGE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF INDEBTEDNESS WITH A MATURITY OF MORE THAN 5 YEARS- GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUNDS
6. INCOME EXEMPT UNDER TREATY
CONDITION: Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines may be excluded from the gross income.
ALLOWABLE DEDUCTIONS FOR ESTATES
![Page 7: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/7.jpg)
Illustrative Case
Facts:
In 1945, Atanasio Pineda died, survived by his wife and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. The estate was divided among and awarded to the heirs. Manuel Pineda received a share amounted to about P2,500.00.
After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945-1948 and it found that the corresponding income tax returns were not filed. Manuel, contested the same alleging that he was appealing “only that proportionate part or portion pertaining to him as one of the heirs.”
The Commissioner of Internal Revenue appealed and proposed to hold Manuel B. Pineda liable for the payment of all taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the estate.
Issue:
Whether or not Manuel Pineda is liable to pay all the taxes as found by the tax court.
Ruling:
No. Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he received from the inheritance. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code. (CIR vs Manuel B. Pineda, GR No. L-22734, September 15, 1967)
trustsa legal arrangement whereby the owner of the property(trustor) transfers ownership to a person (trustee) who is to hold and control the property belonging to the owner’s instructions, for the benefit of a designated person(s) (beneficiaries).
ITEMIZED DEDUCTION OPTIONAL STANDARD DEDUCTIONS
PREMIUM PAYMENTS ON HEALTH AND/OR
HOSPITALIZATION INSURANCE
PERSONAL EXEMPTIONS
![Page 8: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/8.jpg)
WHEN IS IT TAXABLE?
1. Trust income is to be accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interest and income accumulated or held for future distribution under the terms of the will or trust;
2. Trust income is to be distributed currently by the fiduciary to the beneficiaries;
3. Income collected by a guardian of an infant which is to be held or distributed as the court may direct; or
4. Trust in which the fiduciary may, at its discretion, either distribute or accumulate the income.
EXCEPTIONS
1. Employee’s trust must be party of a pension, stock bonus, or profit sharing plan of the employer for the benefit of some or all his employees;
2. Contributions are made to the trust by such employer, or such employees, or both;
3. Such contributions are made for the purpose of distributing to such employees both the earnings and principal of the fund accumulated by the trust; and
4. The trust instrument makes it impossible for any part of the trust corpus or income to be used for or diverted to, purposes other than the exclusive benefit of such employees.
NOTE:Any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount contributed by such employee or distributee.
TAXABILITY OF THE INCOME OF A TRUST
RULES:
1. If income is distributed to beneficiaries, the beneficiaries shall file the return and pay the tax.
2. If income is to be accumulated or held for future distribution, the trustee or beneficiary shall file the return and pay the tax.
EXCEPTIONS:
1. In a revocable trust, the income of the trust shall be included in computing the taxable income of the grantor. (Sec. 63, NIRC)
REVOCABLE TRUST- where at any time the power to
A right to the property, whether real or personal, held by one person for the benefit of another. (Gayondato vs. Treasurer of P.I., G.R. No. L-24597, October 18, 1988)
The status of a trust depends upon the status of the grantor or creator of the trust. Hence, a trust can also be a citizen or an alien.
![Page 9: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/9.jpg)
RULES:
1. If income is distributed to beneficiaries, the beneficiaries shall file the return and pay the tax.
2. If income is to be accumulated or held for future distribution, the trustee or beneficiary shall file the return and pay the tax.
EXCEPTIONS:
1. In a revocable trust, the income of the trust shall be included in computing the taxable income of the grantor. (Sec. 63, NIRC)
REVOCABLE TRUST- where at any time the power to
SUMMARYINCOME IS TAXPAYER
For the benefit of the grantor GrantorRetained by the trust FiduciaryDistributed to beneficiary Beneficiary
CONSOLIDATION OF INCOME OF TWO OR MORE TRUSTS
Where two or more trusts are created by the same grantor, the beneficiary in each instance is the same person, the fiduciaries shall file a separate return for, and pay the income tax of, each trust, but the CIR shall cause the income tax to be computed on the consolidated income of the several trusts, allowing one exemption (P20,000). (Sec. 60(c) NIRC)
The income tax computed on the consolidated taxable income shall be allocated between the several trusts in proportion to their respective taxable income.
------bebe zan, in general na po ito for trusts ♥
Final Withholding Tax on Passive Incomes subject to Final Tax
![Page 10: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/10.jpg)
TRUSTS
CAPITAL GAINS TAX
Interest Income Royalties Prizes & Winnings Dividends
A. Yield from Deposit Substitutes, Turst, Frunds & Other similar arrangments:
20%
B. Net Income From Expanded Foreign Currency Deposit System:
7.5%
C. Interest Income from Local Bank Deposits:
20%
A. Use and exhaustion of property such as earnings from copyrights, patents, trademarks, formulas and natural resources under lease:
20%
B. Royalties from books, literary works and musical compositions:
10%
NOTES:1. It covers both payments made:- Under license; and- Under Compensation which a person would be obliged to pay for fraudulently copying or infringing the right.2. Royalties must be derived from sources within the Philippines to be considered as passive income.3. If it is derived from sources outside the Philippines, the royalty income is subject to GRADUATED RATES.
A. Prizes (except P10,000 or less) & Winnings (regardless of the amount):
20%
XPN: PCSO and lotto winnings are not subject to final tax.
NOTES:
1. Prizes amounting to P10,000 or less, although exempt from final tax, are to be included in gross income and subject to the graduated rates.
2. Prizes and Winnings from sources without the PH are included in the Gross Income of a Resident Citizen.
CASH & PROPERTY DIVIDENDS
STOCK DIVIDENDS LIQUIDATING DIVIDENDS
1. On:
a. Cash &/or Property Dividends from domestic corporation or from a joint stock company, etc.
b. Share in the distributable net income after tax of a taxable or business partnership; and
c. Share in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of w/c he is a member or co-venturer:
10%
2. On cash and/or property dividends from a foreign corporation:
Graduated Rates of 5%-32%
GR: A stock dividend representing the transfer of surplus to capital account shall not be taxable. (Sec 73, B, NIRC)
Exceptions:
1. It gives the shareholder an interest different from that which his former stock represented;
2. Different classes of stocks were issued;
3. Stock dividend is table to Usufructuary;
4. When there is redemption or cancellation essentially equivalent to the distribution of taxable dividends;
5. The recipient is either than the shareholder; and
6. Dividends declared in the Guise of treasury stock dividend to avoid the effects of income taxation.
Liquidating gain is subject to:
Graduated Rates of 5%-32%
ORDINARY ASSETS
1. Stocks in Trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
2. Property held by the taxpayer primarily for sale to customers in the ORDINARY COURSE OF BUSINESS.
3. Personal Property used in trade or business subject to depreciation.
4. Real property used in trade or business.
CAPITAL ASSETS
All properties not classified as ordinary asset.
-SUBJECT TO CGT-
A. Sales of shares of stock of a domestic corporation not listed and not traded through stock exchange by a non-dealer securities:
1st P100,000.00 – 5% In excess of P100,000.00 –
10%
OTHER CAPITAL ASSETS NOT SUBJECT TO CGT
Involves sale or exchange or one considered as equivalent to a sale or exchange of property classified as capital asset except:
1. Unlisted shares of stock of a domestic corporation; and
2. Real property in the Philippines held as capital asset.
RULES ON CAPITAL GAINS AND LOSSES of a TRUST
![Page 11: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/11.jpg)
Gross Income of A Trust subject to Income TaxAll income derived from whatever source, including but not limited to the
ORDINARY ASSETS
1. Stocks in Trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
2. Property held by the taxpayer primarily for sale to customers in the ORDINARY COURSE OF BUSINESS.
3. Personal Property used in trade or business subject to depreciation.
4. Real property used in trade or business.
CAPITAL ASSETS
All properties not classified as ordinary asset.
-SUBJECT TO CGT-
A. Sales of shares of stock of a domestic corporation not listed and not traded through stock exchange by a non-dealer securities:
1st P100,000.00 – 5% In excess of P100,000.00 –
10%
Tax Treatment:
1. Ordinary Gains – included in the gross income.
2. Ordinary Losses – deductible from gross income.
Tax Treatment and Rate:
Included in the gross income subject to the regular income tax rates.
Tax Base:
Net Capital Gains
RENTS
PARTNER’S SHARE IN THE NET INCOME OF
THE GENERAL PROFESSIONAL PARTNERSHIP
![Page 12: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/12.jpg)
Meaning of the Phrase “Gross Income from whatever Source Derived”
- Indicates a legislative policy to include all income not expressly exempted within the class of taxable income under our laws.(CIR vs. AIR India, G.R. No. 72443, January 29, 1988)
EXCLUSIONS FROM GROSS INCOME OF TRUSTSIncome received or earned but is not included in the determination of gross income and thus not taxable either because:
1. They are not income, gain or profit.
GROSS INCOME
ANNUITIES
DIVIDENDS
INTERESTS
ROYALTIES
GAINS FROM DEALINGS IN PROPERTY
COMPENSATION
PRIZES AND WINNINGS
GROSS INCOME FROM PROFESSION, TRADE OR BUSINESS
The following are likewise included in the taxpayer’s gross income:
1. Treasure found or punitive damages representing profits lost;
2. Amount received by mistake;
3. Cancellation of the taxpayer’s indebtedness on account of service rendered;
4. Payment of usurious interest;
5. Illegal gains;
6. Tax refunds and bad debts recovered;
7. Subsidy; and
8. Unutilized or excess of the campaign funds, which is in excess of campaign contributions over the candidate’s campaign expenditures.
PENSIONS
![Page 13: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/13.jpg)
2. They represent return of capital.3. They are subject to another kind of internal revenue tax.4. They are income, gain or profits which are expressly exempt from income tax under the Constitution, tax treaty,
NIRC or general or special law.
EXCLUSION VS. EXEMPTION
EXCLUSION EXEMPTIONRefers to the removal of otherwise taxable items from the reach of taxation
Refers to an immunity or privilege, freedom from charge or burden to which other persons are subject to tax
(PLDT v Laguna, G.R. No. 151899, August 16, 2005)
DEDUCTIONS FROM GROSS INCOME OF A TRUST
ITEMS OF EXCLUSIONS
1. PROCEEDS OF LIFE INSURANCE
CONDITION: The life insurance proceeds must be paid to the heirs or beneficiaries by reason of death of the insured, whether in a single sum or installment.
2. RETURN OF INSURANCE PREMIUM
CONDITION: The amounts must be received as a return of premiums paid by him under life insurance, endowment or annuity contracts.
3. GIFT, BEQUEST, DEVISE OR DESCENT
CONDITION: Only donated property is excluded from gross income.
4. COMPENSATION FOR INJURIES OR SICKNESS
CONDITION: The term injury includes death, even if there is no injury. If the person dies, the compensation received on account of his death is also excluded from the gross income.
5. RETIREMENT BENEFITS, PENSIONS AND GRATUITIES
CONDITION: It does not matter whether the retirement is voluntary. As long as requirements are met, the retirement proceeds are excluded from gross income.
7. MISCELLANEOUS ITEMS
- PASSIVE INCOME- INCOME DERIVED BY THE PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISION- PRIZES AND AWARDS- PRIZES AND AWARDS GRANTED TO ATHLETES IN SPORTS COMPETITIONS LOCALLY OR ABROAD AND SANCTIONED BY THEIR NATIONAL SPORTS ASSOCIATION- 13TH MONTH PAY AND OTHER BENEFITS UP TO P30,000.00- GSIS, SSS, MEDICARE (NOW PHILHEALTH) AND PAG-IBIG CONTRIBUTIONS AND UNION DUES OF INDIVIDUALS- GAINS DERIVED FROM SALE OR EXCHANGE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF INDEBTEDNESS WITH A MATURITY OF MORE THAN 5 YEARS- GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUNDS
6. INCOME EXEMPT UNDER TREATY
CONDITION: Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines may be excluded from the gross income.
ALLOWABLE DEDUCTIONS FOR TRUSTS
ITEMIZED DEDUCTION OPTIONAL STANDARD DEDUCTIONS
PREMIUM PAYMENTS ON HEALTH AND/OR
HOSPITALIZATION INSURANCE
PERSONAL EXEMPTIONS
![Page 14: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/14.jpg)
TAXABLE ESTATES VS. TAXABLE TRUSTS
Taxable Estate Taxable TrustThe taxable income shall be determined in the same way as that of individuals, but with a special deduction for any amount of income paid, credited or distributed to the heirs.
The taxable income shall be determined in the same way as that of individuals, but with:1. Special deduction for any amount of income paid, credited or distributed to the heirs.2. A special deduction for any amount of the income applied for the benefit of the grantor.
1st view: P50,000.002nd view: P20,000.00
The exemption is P20,000.00.
![Page 15: Taxationlaw1 - Paulita's Draft (Estates & Trusts)](https://reader036.vdocument.in/reader036/viewer/2022082507/5695d0161a28ab9b0290e729/html5/thumbnails/15.jpg)
The income tax rates for individuals apply. There is a creditable withholding tax on payment to the heir of 15%. (RR No. 02-98, Sec. 2.57.2|f|)
The income tax rates for individuals apply. There is a creditable withholding tax on payment to the heir of 15%. (RR No. 02-98, Sec. 2.57.2|f|)
The income tax return shall be filed if the gross income is P20,000.00 or more and the tax is paid by the executor or administrator. (Sec. 65, NIRC)
The income tax return shall be filed if the gross income is P20,000.00 or more and the tax is paid by the fiduciary. (Sec. 65, NIRC)