Taxation of Partnerships
- In general, partnerships are considered
corporations and taxable as such at 30% on
taxable income.
- The following are exempt from income tax:
a. General professional partnerships
b. Joint venture or consortium formed for
undertaking construction projects
c. Joint venture or consortium engaged in
petroleum, coal, geothermal and other
energy operations
Partnership
A partnership is defined as a
contract whereby two or more
persons bind themselves to contribute
money, property or industry to a
common fund to engage in profitable
activities with the intention of dividing
the profits among themselves.
Classification of Partnership
1.
2.
General
Professional
Partnership
(GPP)
2.
Illustration
Atty. Liu is one of the partners of B&J Partnership. The
partnership is engaged in rendering professional
services (the sole source of income of the
partnership) with a net income before tax of
P200,000. Atty. Liu has 60% shares on the profit or
loss of the partnership. The other income of Atty. Liu
is a buy and sell business with a gross income of
P200,000 and related expenses of P80,000.
Compute the following:
1. How much is the income tax of B&J?
2. How much is the net income tax payable of Atty. Liu
if the partnership withheld a 10% withholding
income tax.
Illustration
Atty. Liu is one of the partners of B&J Partnership. The partnership is
engaged in rendering professional services (the sole source of income
of the partnership) with a net income before tax of P200,000. Atty. Liu
has 60% shares on the profit or loss of the partnership. The other
income of Atty. Liu is a buy and sell business with a gross income of
P200,000 and related expenses of P80,000.
Answers:
1.
How much is the income tax of B&J?
B&J Partnerships income is tax-exempt because it is engaged in purely
professional services.
How much is the net income tax payable of Atty. Liu if the
partnership withheld a 10% withholding income tax?
Atty. Liu, being engaged in business, is liable for income tax only in his
separate and individual capacity and should not in any way change
the tax status of B&J partnership as a general professional
partnership.
2.
Illustration
Atty. Liu is one of the partners of B&J Partnership. The partnership is engaged in
rendering professional services (the sole source of income of the partnership)
with a net income before tax of P200,000. Atty. Liu has 60% shares on the
profit or loss of the partnership. The other income of Atty. Liu is a buy and sell
business with a gross income of P200,000 and related expenses of P80,000.
Answers:
The income tax due of Atty. Liu would be:
Share from the gross income of professional partnership
Gross income from buy and sell business
___________
Less: Allowable deductions ___________ ___________
Income before personal exemptions ___________
Less: Personal exemption basic
___________
Taxable Income
___________
Tax on P140,000
___________
Tax on excess (P50,000 x ____)
___________
Income tax due
___________
Less: Tax withheld by the partnership (P120,000x____)
Income tax still due ___________
___________
___________
Illustration
Atty. Liu is one of the partners of B&J Partnership. The partnership is engaged in
rendering professional services (the sole source of income of the partnership)
with a net income before tax of P200,000. Atty. Liu has 60% shares on the
profit or loss of the partnership. The other income of Atty. Liu is a buy and sell
business with a gross income of P200,000 and related expenses of P80,000.
Answers:
The income tax due of Atty. Liu would be:
Share from the gross income of professional partnership
(P200,000 x60%) P 120,000
Gross income from buy and sell business
P200,000
Less: Allowable deductions
80,000
120,000
Income before personal exemptions P240,000
Less: Personal exemption basic
50,000
Taxable Income P190,000
Tax on P140,000
22,500
Tax on excess (P50,000 x 25%)
12,500
Income tax due P35,000
Less: Tax withheld by the partnership (P120,000x10%)
Income tax still due
P23,000
12,000
Notes:
1.
2.
3.
General
Co-Partnership
(GCP)
Illustration
Illustration
Answers:
1. Income tax due of JBs Enterprises.
Net income ___________
Multiplied by corporate normal tax rate
Income tax Due
___________
___________
Illustration
J and B are partners of JBs Enterprises, sharing 60% and 40% profit
and loss, respectively. The partnerships net income before tax
during the year amounts to P2,000,000.
Answers:
1. Income tax due of JBs Enterprises.
Net income P2,000,000
Multiplied by corporate normal tax rate
Income tax Due
P600,000
30%
Illustration
JB Partnership of James and Benjie reported
the following earnings:
Professional fee
P100,000
Professional expenses
60,000
Business income trading
200,000
Business expenses trading
120,000
Illustration
JB Partnership of James and Benjie reported the following
earnings:
Professional fee P100,000
Professional expenses
60,000
Business income trading
200,000
Business expenses trading
120,000
Question: Will JB partnership be liable to income tax?
Answer: JB partnership is liable to pay income tax, because it
earned business income. It is a clear indication that the
partnership is engaged in activities other than professional
services. Hence, it is considered and treated as a
corporation which is liable to corporate income tax of 30% or
MCIT.
_______
_______
_______
4,200
Co-ownership
Joint Venture
QUIZ
J and B are partners of JBs Enterprises, sharing 60% and
40% profit and loss, respectively. The partnerships net
income before tax during the year amounts to
P4,000,000.