JULIAN, Mark Morris M.

TAX 3B
2012-24844
COMPONENTS OF GROSS INCOME:

 Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions
and similar items;
o Basic salary or wage
o Honoraria
o Emoluments
o Fixed or variable allowances (COLA, Transportation, Representation and Clothing)
o Commission
o Fees
o Hazard or emergency pay
o Retirement pay: Exempt Retirement Pay
o SSS or GSIS retirement pay;
o Separation pay :Taxable if voluntary availed of, exempt involuntary separation
o Death;
o Sickness;
o Disability;
o Reorganization/merger;
o Company at the brink of bankruptcy.
o Vacation and sick leave - If paid or availed as salary not withstanding his absence from work constitute taxable compensation
income. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which were paid to private
employees and the monetized value of leave credits payable to government officials and employees during the year are not subject
to income tax or are considered de minimis benefits.
o Thirteenth month pay and other benefits (Not taxable to the amount of P90,000 or less; exceeding P90,000 taxable).
o Overtime pay
o Profit sharing
o Awards for special services (Also suggestions to employer resulting in the prevention of thief or robbery and awards for past
services and the like).
o Beneficial payments
o Other forms of compensation
 Gross income derived from the conduct of trade or business, or the exercise of a profession;
 Gains derived from dealings in property;
 Interests;
 Rents;
 Royalties;
 Dividends;
 Annuities;
 Prizes and winnings;
 Pensions; and
 Partner's distributive share from the net income of a general professional partnership.
 Other Income:
o Gains – arising from expropriation of property which constitutes income dealings in property.
o Cancellation of debt – subject to income tax, if the cancellation was: 1). Made on account of service
rendered, although payment for the service is not being demanded; and 2). Made by a corporation in
favor of a stockholder as this partakes the nature of payment of dividend. Not subject to income tax,
if the cancellation of the debt was made out of a generous act of the creditor to provide benefit to the
debtor. The debt cancelled may be subject to donor’s tax.
o Damage recovery – taxable if the recovery represents profit lost, not represent income, if the recovery
is for an actual damage suffered or the recovery represents return of property that was damaged or lost.
o Income from illegal source, such as among other, theft, embezzlement, smuggling, are taxable
income.
o Accounts written off and charge as bad debt, when subsequently recovered, is taxable income to
the extent of tax benefits derived from the deduction of the bad debt from gross income. Tax benefit
is measured by the amount which the expense has reduced taxable income.
JULIAN, Mark Morris M. TAX 3B
2012-24844
EXCLUSIONS FROM GROSS INCOME:

UNDER THE NATIONAL INTERNAL REVENUE CODE:

 The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether
in a single sum or otherwise; but if such amounts are held by the insurer under a agreement to pay Interest
thereon, the interest, payment shall be included in gross income.
 The amount received by the insured as a return of the premiums paid by him under life insurance, endowment
or annuity contract, either during the term or at the maturity of the term mentioned in the contract or upon the
surrender of contract (it is tantamount to return of capital; if the premium return exceeds the aggregate premium
paid, the excess shall be included in the gross income).
 The value of property acquired by gift, bequest, or devise, provided that income from such property shall be
included in the gross income;
 Amount received through accident or health insurance or under Workmen's Compensation Acts, as
compensation for personal· injuries or sickness, plus the amount of any damages received, whether by suit or
agreement, on account of such injuries or sickness.
o Actual damages for injuries suffered;
o Moral damages for grief, anxiety;
o Exemplary damages;
o Damages for loss of earning capacity;
o Damages for loss of goods and other belongings;
o Actual liquidated damages.
o Damages for loss of profit in property and compensation for injuries are taxable;
o Compensatory damages; Interest for non-taxable damages above; Damages for unrealized profits;
Compensatory liquidated damages.
 Income of any kind to the extent required by any treaty obligation binding upon the government of the
Philippines.
 Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of
private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained
by the employer: Provided, that the retiring official or employee has been in the service of the same employer for
at least ten (10) years and is not less than fifty (50) years of age at the time of retirement: Provided further, that
the benefits granted herein shall be availed of by the official or employee only once;
 Any amount received by an official or employee or by his heirs from the employer as a consequence of separation
of such official or employee from the service of the employer because of death, sickness or other physical
disability or for any cause beyond the control of the said official or employee;
 Social security benefits, retirement gratuities, pensions and other social similar benefits received by resident or
non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines, from foreign
government agencies and other institutions, private or public;
 Payment benefits due or to become due to any person residing in the Philippines under laws of the United States
administered by the United States Veterans Administration;
 Benefits received from or enjoyed under the Social Security System;
 Benefits received from GSIS, including the retirement gratuity received by government officials and employees;
 Income derived from investment in the Philippines in loans, stocks, bonds or other domestic securities, or from
interest on all deposits in banks in the Philippines by (1) foreign governments; (2) financing institutions owned,
controlled or enjoying refinancing from foreign government; and (3) international or regional financing
institutions established by foreign governments;
 Income derived from any public utility or from the exercise of any essential governmental function accruing to
the Government of the Philippines or any political subdivision thereof
 Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary or
civic achievement, but only if (1) the recipient was selected without any action on his part to enter the contest or
proceeding; and (2) the recipient is not required to render substantial future services as a condition to' receiving
such prize or award;
 Prizes and awards granted to athletes, in local and international sports competitions and tournaments whether
held in the Philippines or abroad and sanctioned by their national sports associations;
 Gross benefits received by officials and employees of public or private entities as thirteenth month pay and other
benefits, but the total exclusion shall not exceed ninety thousand pesos (P90,000), which shall cover:
JULIAN, Mark Morris M. TAX 3B
2012-24844

o Benefits received by official and employees of the national and local governments pursuant to R.A:
6686;
o Benefits received by employees pursuant to P.D. 851, as amended by Memorandum Order No. 28,
dated August 13, 1986;
o Benefits received by officials and employees not covered by P.D. No. 851, as amended by Memorandum
Order No. 28, dated August 13, 1986; and
o Other benefits such as productivity incentives and Christmas bonus.
 GSIS, SSS, Medicare, Philhealth and Pag-Ibig contributions and union dues of individuals;
 Gains realized from sale or exchange or retirement of bonds, debentures, or other certificates of indebtedness
with a maturity of more than five (5) years;
 Gains realized by the, investor upon redemption of shares of stock of a mutual fund company;
 Interest on long term deposits or investments in banks (with maturity of five years or more) received by
individuals (except nonresident aliens not engaged in business or practice of profession in the Philippines)
 Interest received by a non-resident alien (both engaged and not engaged in business or practice of profession in
the Philippines) from deposits with depository banks under the expanded foreign currency or deposit system;
 Dividends received by a domestic or resident corporation from domestic corporations subject to tax under the
Code (inter-company dividend); and
 De minimis benefits received by managerial or supervisory employee or by a rank and file employee.

EXCLUSIONS UNDER SPECIAL LAWS

 Philippine Charity Sweepstakes winnings (old rule exempt; under TRAIN, exempt up to P10,000 and 20% final
tax on excess);
 Interest on price of land covered by the Presidential Decrees on Land Reform, received by the landowner from
the purchaser-tenant and the capital gain derived by him; and
 Interest on government bonds when specifically provided in the bond issue.