NAME DATE: SCORE:

Income Tax on Special Corporations (10 items x 5 points)

Read and analyze the following scenarios and apply the principles and concept of income
taxation on special corporations.

1. Pioneer College, a private educational institution, has presented the following data for
the year:

Gross Income, related activities P5,000,000

Gross Income, unrelated activities (except rental 5,000,000
income)
Rental income (gross of 5% WT) 2,000,000
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
Dividend income from a domestic corporation 100,000
Quarterly income tax paid for the first three 500,000
quarters
Compute the income tax payable.
Gross Income, related activities P 5,000,000
Gross, Income Unrelated activities 5,000,000
Rent Income (2,000,000*95%) 2,000,000
Total Gross Income P 12,000,000
Less:
Expenses, Related activities (P 2,000,000)
Expenses, Unrelated activities (P 3,000,000)
Net Taxable Income P 7,000,000
Tax Rate 30%
Income Tax Due P 2,100,000
Less:
Dividend Income From a Domestic (P100,000)
Corporation
Quarterly income tax paid for the first three (P500,000)
quarters
Total Income Tax Payable P 1,500,000

10 Task Performance 1 *Property of STI

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2. Advanced Learning Institute, an educational institution, provided the following data
for the current taxable year:
Income from tuition fees P
3,500,000
School Miscellaneous Fees 1,500,000
Dividend Income:
Domestic Corporation 2,000,000
Foreign Corporation 2,000,000
Rent Income (Net of 5% 1,900,000
withholding tax)
Operating Expenses 4,000,000

Compute the tax payable of the school.

Income from tuition fees P 3,500,000

Rent Income (1,900,000/95%) 2,000,000
School Miscellaneous fees 1,500,000
Dividend Income from Foreign Corp 2,000,000
Total Gross Income P 9,000,000
Less: Operating Expenses (4,000,000)
Net Taxable Income P 5,000,000
Special Tax Rate 30%
Income Tax Due P 500,000
Less: Creditable withholding tax on rent (100,000)
(2,000,000-1,900,000)
Income Tax Payable P 1,400,000
 3. Norte De University, a proprietary educational institution, has the following
selected information for the taxable year 2X18:

Tuition Fees P
12,800,000
Miscellaneous Fees 1,800,000
Interest on Bank Deposits 12,300
Rent Income 350,000
Salaries and Bonuses, all 7,500,000
personnel
Other Operating Expenses 3,500,000
Quarterly Income Tax Payments 48,000

An additional school building was built and finished on April 1, 2X18 at the cost of
P2,000,000 with a depreciable life of 50 years.
a. Compute the income tax payable assuming the university opted to claim the cost
of construction as an outright expense.
b. Compute the income tax payable assuming the university opted to capitalize the
cost of building construction.
A.

Tuition Fees P 12,800,000

Miscellaneous Fees 1,800,000
Rent Income 350,000
Total Income P 14,950,000
Less:
Salaries and Bonuses all personnel 7,500,000
Other Operating Expenses 3,500,000
Total Gross Income P 3,950,000
Less: School Building Cost 2,000,000
Net Taxable Income P 1,950,000
Special tax Rate 10%
Income Tax Due P 195,000
Less: Quarterly Income Tax Payments 48,000
Income Tax Payable P 147,000
B.
Tuition Fees P 12,800,000
Miscellaneous Fees 1,800,000
Rent Income 350,000
Total Income P 14,950,000
Less:
Salaries and Bonuses all personnel 7,500,000
Other Operating Expenses 3,500,000
Total Gross Income P 3,950,000
Less: School Building Cost Depreciation 40,000
Net Taxable Income P 3,910,000
Special tax Rate 10%
Income Tax Due P 392,000
Less: Quarterly Income Tax Payments 48,000
Income Tax Payable P 344,000
 BM1804

4. A non-profit domestic hospital has the following data during the year
2x18:

Gross income from hospital operation P2,000,000

Operating Expenses (excluding depreciation for the new hospital 500,000
building)
Rent income of commercial space, hospital ground floor, net of 5% 190,000
withholding taxes
Interest on bank deposit, net of 20% withholding tax 40,000
Dividend income from a domestic corporation 100,000

An additional hospital building was built and finished on June 30, 2X18 at the cost of
P4,000,000 with a depreciable life of 25 years.
c. Compute the income tax still due and payable in 2X18.
d. Assume the hospital was organized for profit, compute the income tax still due and
payable in 2X18.

A.
Gross Income P 2,000,000
Rent Income 200,000
Total Gross Income P 2,200,000
Less: Operating Expenses (500,000)
Depreciation expense(4M/25X6/12) (80,000)
Taxable Net Income P 1,620,000
Special tax Rate 10%
Taxable Due P 162,000
Less: CWT on rent (10,000)
Income Tax Payable P 152,000

B.
Gross Income P 2,000,000
Rent Income 200,000
Total Gross Income P 2,200,000
Less: Operating Expenses (500,000)
Depreciation Expenses (80,000)
Taxable Net Income P 1,620,000
Special Tax Rate 30%
Taxable Due P 486,000
Less:
CWT on Rent (10,000)
CWT on interest (40,000)
Dividend Income (100,000)
Income Tax Payable P 336,000

10 Task Performance 1 *Property of STI

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 BM1804

5. Pacific Airlines, an international carrier, showed the following gross receipts for 2X18:

Point of Origin Destination Gross

Receipts
Philippines United States of P 8,000,000
America
United States of United Kingdom 4,000,000
America
United States of Philippines 3,750,000
America
United Kingdom Philippines 2,100,000

Additional information:
 Forty percent (40%) of the shipments from the Philippines to the United States
were later shipped to the United Kingdom.
 Twenty-five percent (25%) of all its revenues were from the transport of cargoes
and goods.

Compute the income tax payable for 2X18.

Gross Philippine Billings P 8,000,000

2.5%
Income Tax Payable P 200,000
 BM1804

6. China Airlines Inc., a resident foreign corporation, has the following data for the
taxable year 2x18:

Passengers airfare from China to the P 1,800,000

Philippines
Passengers airfare from the Philippines 1,500,000
to China
Airfare for cargoes from China to the 700,000
Philippines
Airfare for cargoes from the Philippines 1,300,000
to China

Compute the income tax payable.

Passenger’s airfare from the Philippines to China P 1,500,000

Airfare for cargos from the Philippines to China 1,300,000
Gross Revenue 2,800,000
Income Tax Rate 2.5%
Income Tax Due P 70,000
 BM1804

7. Y Corporation, a family-closed corporation, had the following selected data for

201A, the accumulated earnings for which year the BIR considered to be improper:

Non-taxable gain on life insurance of Y Co.’s president P900,00

0
Income tax due 201A 780,000
Quarterly income tax paid 580,000
Dividend declared and paid during the year 440,000
Reserve for maturing bonds in 201B 300,000
Tax-exempt dividend income from resident corporation 200,000
Net-operating loss carry-over (NOLCO) deducted 100,000
Capital gain on direct sale to the buyer of shares of another domestic 85,000
corporation,
net of final tax
Interest income on peso deposit, net of final tax 16,000

Compute the amount of improperly accumulated earnings tax (IAET).

Taxable Income (780,000/30%) P 2,600,000
Dividend Income from Gross Income 200,000
Non Taxable Gain on life insurance 900,000
Interest Income on Deposit (16,000/80%) 20,000
Capital Gain on Direct sales of shares 100,000
(85,000/85%)
Amount of NOLCO deducted 100,000
Total P 3,920,000
Less:
Dividend paid 440,000
Income Tax Due 201A 780,000
Reserve for Maturing bonds 300,000
Quarterly Income tax paid 580,000
Final Tax on Deposit 4,000
Final Tax on shares 15,000
Improperly accumulated taxable income P 1,801,000
Rate 10%
Improperly Accumulated Earnings Tax 180,100
 8. A closely-held corporation, deemed committed unreasonably accumulating its
income, shows the following data:

Paid-up capital P
10,000,000
Accumulated Earnings – unrestricted 8,000,000
Accumulated Earnings – restricted 2,000,000
Income tax per annual income tax return 300,000
Income tax for the first three quarters 240,000
Final tax on passive income at 20% 60,000
Capital gains tax at 15% 45,000

Compute the amount of improperly accumulated earnings tax (IAET).

Taxable Income (300,000/30%) P 1,000,000

Add: Income Subject to final Tax 60,000
Add: Income Subject to CGT 45,000
TOTAL: P 1,105,000
Less: Income Tax Paid 300,000
Improperly Accumulated Earnings P 805,000
Improperly Accumulated Earning Tax P 80,500
(10% of 805,000)

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