FURL, GIARIKA 1g . Ls. TAX 50! UL. Trusts ‘A. Definition of Estate Anestate refers to the mass ofall property rights and obligations of a person which are not extinguished by his death. B. Ties one cased person is ataxpayer if it will receive income during the . Application of Tax. ‘The tax imposed upon individuals shall also apply to the income of esate including 1. income. accumulated ot held for future distribution under the terms of the will 2: income acta ty cua of gacard peons gh pod of mination or telzmet fhe state. vada enc taxpayer, a distribution-of the year’s income to an heir or beneficiary is 1. A special item of 2. A special item of the is Aegon OPE. real or personal, held by-one party for the benefit of another, k : ey pecs a guardian, trustec, executor, administrator, receiver, conservator or any person acting in |, any fiduciary capacity for any person 1. Adruspis a taxpayer if under the terms of the trust the fiduciary mtst accumulate the income. 2. A trusts a taxpayer if under the terns of the trust the fiduciary may accumulate or distribute the income, in his discretion. D. Application of Tax. ‘The tax imposed upon individuals shall also apply to the income of any kind of property held in trust including; ui e 1. Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interests, and income accumtulated or held for future distribution under the terms of the will or trust; Income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected ~~ by a guardian of an infant which is to be held or distributed as the court may direct; 3. Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or scion tre mace to the tnt by sch employe, or employes, or both for the purpose af of the fund accumulated Poge 1 ofILIPPINE ACCOUNTANCY REVIEW FOR EXCELLENCI _PAReX 2. if under the trust instrument itis impossible at any time prior to the satisfaction ofall lebiiies with respect to employees under the trust, for any part of the ‘corpus or income to be (within the taxable year thereafter) used for, or diverted to, purposes other than forthe exclusive benefit of his employees: Provided, That any amount actually distributed to any hall-be taxable 1a hi ear in which so distributed to th ‘When a trust is taxpayer, ibution ofthe year's income to a beneficiary is: 1. A special item of deduction for the rust; 2. A special item of income fo the beneficiary. The sal be comple yon he uc ss ce a a ATS TW RC HS except 4s those relating to revocable trusts and to income for the benefit of the grantor. A. Revocable trusts ‘Where at any time the power to revest inthe grantor tite to any part ofthe corpus ofthe trust is vested ¥ in the grantor either alone or in conjunction with any person not having a substantial adverse-interest in the disposition of such part of the corpus or the income therefrom, or in any person nat having a substantial adverse iteteat inthe disposition of such par of the eorpus othe ene therefrom, the income of such part of the trust shall be inGluded in computing the taxable income of the grantor. “ ‘Where any part of the ingome of a trust Y ‘sor in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part ofthe income may be held or accumulated for future distribution to the grantor, or may, oF in’ the discretion of the grantor or of any person not having a substantial adverse interest in the 4isposition of such part ofthe income, be distributed tothe grantor, ot ~ is, oF in the discretion of the grantor or of any person not havitig a substantial adverse interest in the disposition of suck part of the-income may be applied to the payment of premiums upon policies of insurance onthe life ofthe grantor, such part of the income ofthe trst shal be included in computing the taxable income of the grantor. The term 'in the discretion of the grantor’ means in the discretion of the grantor, either alone or.in conjunction with any person not having a substantial adverse interest in the disposition of the part ofthe | income in question. , - Computation of taxable Income, ~ ~ The taxable income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that: 4, There shall be allowed as.a deduction in computing the taxable income of the estate or trust * the amount of the income of the estate or trust for the taxable year which is to be distributed currently by the fiduciary to the beneficiaries, and * the amount of the income collected by a guardian of an infant which is to be held or. distributed ag the court may direct, but the amount so allowed as a deduction shall be included in computing the taxable income of the beneficiaries, whether distributed to them or not. ) Any amount alloyed as a deduction under this Subsection shall not be allowed as @ deduction in the next paragraph (b,) in the same or any succeeding taxable year. X TAX 505 ESTATE AND TRUST Page 2of5PHILIPPINE ACCOUNTANCY REVIEW FOR EXCELLENCE PaRex b In the ease of income received by estates of deceased persons during the period of administration or aa ae ot the estate, and in the case of income which, in the discretion of the fiduciary, may be sSther distributed tothe beneficiary or accumulated, there shall Be allowed as an additional deduction in Computing the taxable income ofthe esate or trust the amount ofthe income ofthe estate or tus fit ited dui or beneficiary but taxable year, which is the amount to allowed a8 a deduction shall be included in computing the taxable income ofthe legstes, heir or beneficiary. , the deductions mentioned in paragraph (a.) and. c. In the case of a um of said trust scustadministered in a foreign country, (b.) shall Provided, That the amount of any income included in the retw ‘shall not be included in computing the income of the beneficiaries. tate anid Trust are allowed a personal exemption of Twenty thousand pesos (P20,000) from their gross incomes. Gross income wx Less: Deductions Business expenses xxx Distribution of year’s income to the heir or beneficiary 8X mt Net income before exemption ' 10x Less: Personal exemption xxx Taxable net income as Tax due [Sec. 24 (A)] xa F q tee or fiduciary. ‘A separate retum will have tobe fled for each trust by the respective trus he separate fetus fled bythe diferent fiduciaries shall be consolidated in the BIR allowing against ‘The: the consolidated taxable income one exemption only of P20,000. ‘An income tax shall be computed on the consolidated income. to the different trusts, such that each ‘on the consol hhave a share in the income tax on consolidated income. trust ‘The format of computation follows: x Consolidated income tax Page 3 of SHILI SEINE ACEOUN ney REN EW FOR EXCELLENCE PAReX The teturn shall be filed ifthe estate of trust has a gross income of P20,000 or more during the taxable year. th case of two or more joint fdas eura filed by one of them shall be a sufficient compliance with the requirements of the Tax Code. ' 6. Fiduciary Returns, Such fiduciary or person filing the return for him ori, shall take oath that he has sufiient knowledge of the affair of such person, trust or estate to enable him to make such return and thatthe same is, to the best of bis knowledge and belief, true and correct, and be subject al the provisions ofthis Title which apply to individuals, A return made by or for one or two or le; under such rules Commissioner, shall 7. more joint fiduciaries filed in the province where such fiduciaries ‘and ‘regulations as the Secretary of Finance, upon recommendation of the prescribe, shall be a sufficient compliance with the requirements of this Section. Trustees, executors, administratots and other fiduciaries are indemnified against the claims or demands of ‘very beneficiary for all payments of taxes which they shall be required to make under the provisions of this Title and they shall have credit forthe amount of such payments against the beneficiary or principal in any accounting which they make’as such trustees or other fiduciaries, Exercises: '. Mr. George T. Wala created two (2) rusts, He designated Atty, Vannie Bayayao as trustee of trust number | and Atty. Abby Apepe as trustee of trust number 2. Both trusts were created for the benefit of a common beneficiary, Albena, girlfriend, who just gave birth to their son. Alberta, at present is operating a beauty parlor and has the following results of operation: : : Gross income 900,000 Business expenses 7 250,000 Income distribution received, gross of 15% creditable withholding tax $00,000 Below were also the results ofthe different activities of the two trusts created by George: ‘TrustNo.1 » TritstNo.2 Gross income P1,220,000, * “P1520,000 . Business expenses 300,000 200,000 Income distribution to beneficiary 200,000 300,000 a Compute the tax due from: “1. Albert 2), Each trust. : 3), Bach trust after share in the consolidated income tax. “b. Assuming Trust web created forthe benefit of Alberta and Tru 2 vas created for the benefit of Alberto, ‘compute the tax due from: 1), Alberta’ : 2). Bach trust. J ; 3) Alberto, assuming he opted for standard deduction. 2. “Mr. George’N, Wala died and left a beauty parlor. During the settlement of the estate the estate his the Tollowing results of operation: ~ _ Gross income P1,2200,000 "Business expenses 300,000 ‘Income distribution to Alberta (heir) 200,000. : £5 X TAX 505 ESTATE AND TRUST | Page 4 o! Bi e,PAReX 7 PHILIPPINE A\ . ‘Alberta, one of the heirs of George has her results of operation from her own business: Gross income ie : P900,000 250,000 Business expenses : Income distribution received, gross of 15% creditable withholding tax 500,000 1. Compute the tax due from: 1) Alberta : : 2) The estate... > . . 3) Alberta, assuming there is no distribution of income from the estate, 4) The estate, assuming there is no distribution of income to.Alberta.