Material 4
Income tax on Estates and Trusts
a. Definition of estate
Estate refers to the mass of all property, rights and obligations of a
person which are not extinguished by his death.
b. Definition of trust
Trust is a right on property, real or personal, held by one party for the
benefit of another.
8. Important Pointers on Estates and Trusts
a. Estate as a taxpayer
An estate is a taxpayer if it is under settlement or administration.
1) A trust is a taxpayer if under the terms of the trust the fiduciary must
b. Trust as a taxpayer
accumulate the
income.
2) A trust is a taxpayer if under the terms of the trust the fiduciary may
accumulate or
distribute the income, in his discretion.
c. When is the income
of the trust taxable
to the grantor?
1) If under the term of the trust the title to any part of the corpus or
principal of the trust may be re-vested to the grantor, the income of
the part of the corpus or principal shall be taxable to the grantor.
2) If under the term of the trust the income of the trust shall be applied for
the benefit of the grantor, the income that shall be applied for the benefit
of the grantor shall be taxable to the grantor.
d. Treatment of
income distribution
of the year’s
income to heir or
beneficiary
When an estate or a trust is a taxpayer, a distribution of the year’s
income to an heir or beneficiary is:
1) A special item of deduction for the estate/trust;
2) A special item of income to the heir/beneficiary.
e. Computation of
taxable income of
the estate or trust
Gross income
xxx
Less: Deductions
Business expenses
xxx
Distribution of year’s income to the heir or beneficiary
xxx
xxx
Net income before exemption
Less: Personal exemption
xxx
Taxable net income
xxx
Tax due [Sec. 24 (A)]
xxx
Several Trusts with a Common Grantor and a Common Beneficiary
A separate return will have to be filed for each trust by the respective
a. Filing of
trustee or fiduciary.
separate returns
b. Consolidation of
The separate returns filed by the different fiduciaries shall be
the separate returns
consolidated in the BIR allowing against the consolidated taxable income
one exemption only of P50,000.
An income tax shall be computed on the consolidated income.
c. Consolidated
income tax
The tax computed on the consolidated income shall be apportioned to the
d. Apportionment of
different trusts, such that each trust shall have a share in the income tax
the consolidated
on consolidated income.
income
The format of computation follows:
tax
to the different trusts
Taxable income of the trust x Consolidated income tax
Taxable income of all trusts
e. Tax payable of each
Each trust shall pay an income tax still due computed as follows:
trust
Income tax apportioned to the trust
xxx
Less: Income tax already paid by the fiduciary of the trust
xxx
Income tax still due
xxx
Filing of Returns and Payment of Tax (Estate and Trust)
The following persons acting in any fiduciary capacity shall file the
a. Who shall file
income tax return for an estate or trust:
the return?
1) Guardians;
5) Receivers;
2) Trustees;
6) Conservators;
3) Executors;
7) All other persons or corporations acting as
fiduciary.
4) Administrators;
b. Gross income is
P50,000 or
more
c. In case of two
or more
joint fiduciaries
The return shall be filed if the estate or trust has a gross income of P50,000
or more during the taxable year.
In case of two or more joint fiduciaries, return filed by one of them shall be
a sufficient compliance with the requirements of the Tax Code.
14. Income Tax Returns (Individuals, Estates and Trusts)
The income tax return shall be filed on or before April 15 of the
a. Pure compensation
succeeding year.
income earner
b. Income from business
or practice of
profession
Quarterly declarations:
First quarter
April 15
c. Place of filing of
return
Second quarter
August 15
Third quarter
November 15
Final adjusted return
April 15 of the succeeding year
1) Authorized agent banks;
2) Revenue District Officer;
3) Collection agent;
4) Duly authorized city or municipal Treasurer in which the taxpayer has
his legal residence or principal place of business.
d. Payment of tax
The tax is paid as the return is filed.