CHAPTER 5
ALLIEN GRACE APOLINARIO
Definition of Terms
Estate or Inheritance
All properties, rights and obligations of a person which are not
extinguished by his death and also those which have accrued thereto
since the opening of succession
Trust
An agreement created by will or an agreement under which title to
property is passed to another by conversation or investment with the
income therefrom and ultimately the corpus or principal to be
distributed in accordance with the directives of the creator as
expressed in the governing instrument.
Trust or or Grantor
The person who establishes trust.
Beneficiary
The person whose benefit the trust has been created. A beneficiary has
the equitable title to the property transferred to the trust, including,
generally, the possession and use of the property.
Fiduciary
The general term which applies to all persons or corporations that
occupy positions of peculiar confidence towards others, such as
trustees, executors, guardians, or administrators, receivers or
conservators.
Income Tax Purposes (Fiduciary is any persons or corporations that holds
in trust and estate of another person or persons.
Taxable Estates
Estates of deceased person under judicial settlement.
Taxable Trust
Trust are unique form of legal entity: Pure Taxpayer or Pure
Conduit
Tax payers such as corporations, all income is tax to the
income-earning corporations.
Conduit such as general professional partnerships, no income is
taxed to the income-earning organization. Rather income is
taxed to the owners of the partnership when earned,
regardless of whether the income is distributed to them.
Gross Income
The items of gross income of estates and trusts are the same items of gross
income of individuals as provided in the Tax Code. They include:
Gross Income
Less: Deductions
Personal Exemption
Taxable Income
Tax Due:
On P500,000
580, 000 at 32%
Illustration 2:
Mr. Henry Argos created an irrevocable trust designating his two daughters, aged 3
and 1 beneficiaries. Under the terms of the trust, only half of the income shall be
distributed to the beneficiaries. The other half shall be left to accumulate and be
distributed when the beneficiaries reach 21 years of age. For the year of 2014, income
of the trust was P500,000. Compute for the tax due.
Gross Income
Less: Deductions
Personal Exemption
Taxable Income
Tax Due:
On P140, 000
90,000 at 25%
Consolidated of Income of Two or More Trusts
When two or more trust are created by the same grantor and the beneficiary in both trusts
is the same, the taxable income of all trusts shall be consolidated and the tax computed
on such consolidated income.
income tax
=
payable by each
trustee
Mr. Black maintains two irrevocable trusts that name his three
children, all minors, as common beneficiaries. The terms of the trust
provide that no income shall be distributed to the beneficiaries until
the youngest should become 25 years of age. Following are the data
relative to the trust:
Trust 1 Trust 2
Taxable Income
Multiply by Tax Rate
Amount of Income Tax on
Consolidated Taxable Income
Trust 1 Trust 2
Gross Income as defined in the Tax Code means all income
derived from whatever source including but limited to the
following terms:
COMPENSATION INCOME
Compensation for services, in whatever form paid, including
but not limited to fees, salaries, wages, commissions and
similar item.
General Term
Compensation means all remuneration for services
performed by an employee for his employer under an
employer-employee relationship, unless specifically excluded
by the Code.
Definition of Terms
*Subtractions are not allowed for depreciation, depletion, selling expenses or losses, or for
items not ordinary used in computing cost of goods sold.
Farming
Gross Income from farming includes gain or profit derived from the operations of
farms, such as stock, dairy, poultry, fruits and truck farms; plantations; ranches; etc.
Income pf farmers may be reported using either the cash basis, accrual basis crop
year basis.
Cash Basis
General Rule: The entire of the gain (or loss, as the case may
be) arising therefrom is a taxable gain (or deductible loss).
INTEREST
RENTS
Rent is the amount paid for the use of enjoyment
of a thing or right. Gross income derived from rent
comes not only from real state but also from the
use of personal property
ROYALTIES
Gross income derived from loyalties includes earnings from copyright,
trademarks, patents, and natural resources under lease. It involves not
only the use of property but also its exhaustion. Royalties for properties
which produce coal, gas, oil, copper, timber or other similar products
shall form part of gross income for purposes of computing the income
tax liability of the taxpayer under Section 24(A), 27, 28.
SOFTWARE
In view to the rapid development of computer technology in recent
years and the extent of transfers of such technologies across national
borders, the BIR issued on Nov. 18,2003 RMC 77-03. Subsequently, the
BIR issued RMC 44-05 dated Sept. 01,2005 amending RMC 77-03. The
circular classifies payments for software for income tax purpose.
Terms:
insert table