ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 5

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-602: INCOME TAX RATES FOR INDIVIDUALS,

ESTATES AND TRUSTS
1. Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at the rates established in the following
schedule (resident citizens, non-resident citizens, resident alien, estate and trust):

a. Effective January 1, 2018 (until December 31, 2022)

If the taxable income is:

Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 20% P 250,000
400,000 800,000 P 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,419,000 35% 8,000,000

b. Effective January 1, 2023

If the taxable income is:

Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 15% P 250,000
400,000 800,000 P 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 2,202,500 35% 8,000,000

2. Final Tax Rates on Certain Passive Income from Philippine Sources (income from WITHIN the PHILIPPINES).

a. Rates of Tax Certain Passive Income

1) Sec. 24 (B) – For residents or citizens;
a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or corporate lenders)
c. Yield or any other monetary benefit from trust funds and similar arrangements
20%
d. Royalties (except royalties on books and other literary works and musical compositions)
e. Prizes (except prizes amounting to P10,000 or less which shall be subject to tax under Subsection (A) of Section 24
f. Other winnings (except winning amounting to P10,000 or less from Philippine Charity Sweepstakes and Lotto which shall be exempt)
g. Royalties on books and other literary works and musical compositions 10%

2) Sec. 25 (A) (2) – For non-resident aliens engaged in trade or business.

a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or corporate lenders)
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Royalties (except royalties on books and other literary works and musical compositions)
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Subsection (B) (1) of Section 24, effectively
Sec. 24 (A) 20%
f. Other Winnings (except winnings from Philippine Charity Sweepstakes Office [PCSO] games amounting to P10,000 or less which
shall be exempt from income tax)

NOTE: Exemption of Lotto winnings from final taxes has been deleted.

see CREATE Act and RR No. 2-2021

g. Royalties on books and other literary works and musical compositions 10%
f. Cinematographic films and similar works shall be subject to the tax provided under Section 28 of the Tax Code 25%

3) Sec. 25 (B) – For non-resident aliens NOT engaged in trade or business

a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or corporate lenders)
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Royalties, in general 25%
e. Royalties on books, as well as other literary works and musical compositions
f. Prizes
g. Other winnings

Page 1 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

RES/CIT NRA-ETB NRA-NETB

a. Interest income received by individual taxpayer (except non-resident individual) from a 15%
depositary bank under expanded foreign currency deposit system (TRAIN law) Exempt* Exempt*
b. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other Exempt Exempt 25%
investments evidenced by certificates in such form prescribed by Bangko Sentral ng
Pilipinas (BSP) NOTE: Exception applies only to Individuals
If pre-terminated before fifth year, a final tax shall be imposed based on remaining maturity:
4 years but less than 5 years 5% 5% 25%
3 years but less than 4 years 12% 12% 25%
Less than 3 years 20% 20% 25%
*also applies to non-resident citizens
4) Cash and/or Property Dividends
RES/CIT NRA-ETB NRA-NETB
a. Cash and/or property dividends actually or constructively received from a DOMESTIC CORP.
or from JOINT STOCK CO., INSURANCE or MUTUAL FUND COMPANIES and REGIONAL 10% 20% 25%
OPERATING HEADQUARTERS of multinationals (beginning January 1, 2000}
b. Share of an individual in the distributable net income after tax of a PARTNERSHIP (OTHER
THAN a general professional partnership) of which he is a partner (beginning Jan. 1, 2000) 10% 20% 25%
c. Share of an individual in the net income after tax of an ASSOCIATION, a JOINT ACCOUNT, or
a JOINT VENTURE or CONSORTIUM taxable as a corporation of which he is a member or co- 10% 20% 25%
venturer (beginning January 1, 2000)
Provided, however, that the tax on dividends shall apply only on income earned on or after Jan. 1, 1998. Income forming part
of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax.

5) Exercises:
a. Identify whether the following are subject to final tax or not (year 2018). Taxpayer is RESIDENT CITIZEN unless otherwise stated (Y/N).
Final tax? Rate
1) Interest from peso bank deposit, Equitable – PCIB, Makati
2) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan
3) Interest from USA dollar bank deposit, First USA Bank, New York
4) Interest income from a debt instrument not within the coverage of deposit substitute, Philippines
5) Interest income from a debt instrument within the coverage of a deposit substitute, Philippines
6) Interest on government debt instrument and securities (regardless of number of lenders at the time of the
origination)
7) Interest from overdue accounts receivable, Philippines
8) Royalties, in general, Manila
9) Royalties, books published in Manila
10) Prize amounting to P30,000, Philippines
11) Prize amounting to P10,000, Philippines
12) Prize amounting to P40,000, USA
13) Winnings amounting to P30,000, Philippines
14) Winnings amounting to P10,000, Philippines
15) USA Sweepstakes winnings
16) Philippine Lotto winnings
17) Interest received from depository bank under expanded foreign currency deposit system (jointly in the name
of a non-resident citizen and his spouse who is a resident citizen)
18) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a
financial institution other than a bank in denomination of P10,000)
19) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a
bank to an individual in denomination of P10,000)
20) Dividend from a domestic corporation received on April 15, 2006
21) Share in distributive net income of local business partnership received on May 15, 2006
22) Share in net income after tax of an association, a joint account, or a joint venture or consortium received on
August 15, 2006
23) Share in the net income of a general professional partnership
24) Dividend from a foreign corporation
25) Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a
NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS
26) Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a
NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS
27) Interest income received by NONRESIDENT ALIEN individual from a depository bank under expanded foreign
currency deposit system
28) Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank under expanded
foreign currency deposit system
29) Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from
a domestic corporation.
30) Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a domestic corporation

Page 2 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

b. b. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was transferred to Mr. Y (a
resident alien) who, in turn, held it for 8 years. How much is final withholding tax due?
Mr. X _____
Mr. Y _____

c. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and transferred it to Mr. Y (a
resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a resident citizen), who held it until the day of
maturity or for 5 years. How much is the final withholding tax due?
Mr. X _____ Mr. Y ________ Mr. Z __________

d. An instrument with maturity period of 10 years was held by Mr. X (a non-resident alien engaged in trade or business in the Philippines)
for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a non-
resident alien not engaged in trade or business), who pre-terminated it after 4 years. How much is the final withholding tax due?
Mr. X _____ Mr. Y _________ Mr. Z ___________

3. Capital Gains Tax

a. Sec. 24 (C) – Capital Gains from Tax base: Net capital gains
Sale of Shares of Stock not
Traded in the Stock Exchange
Sale, barter, transfer and/or
assignment of shares of stock of
publicly-listed companies not
compliant with mandatory
minimum public ownership (10%
of the publicly-listed companies’
issued and outstanding shares,
exclusive of any treasury shares)
(RR No. 16-2012)
a.1 Determination of Selling Price
(check FMV if higher than the SP – Cash sale
possible Donor’s tax
implication under Section 100)
Tax rates (old): 5% - not over P100,000
10% - excess of P100,000
Tax rate (TRAIN Law): 15%
In case of… SP shall be
Total consideration per deed of sale
Partly in money and Sum of money and the FMV of the property received
partly in kind
Exchange FMV of the property received
If FMV of shares of stock Excess of the FMV of the shares of stock sold, bartered
sold/bartered/exchanged or exchanged over the amount of money and the FMV of
> amount of money the property, if any, received as consideration shall be
and/or FMV of the deemed a gift subject to the donor's tax under Section
property received 100 of the 1997 Tax Code, as amended
Listed shares Closing price on the day when the shares are sold,
sold/transferred/ transferred, or exchanged
exchanged outside of
the trading system Note: When no sale is made in the local stock exchange on the
and/or facilities of the day when the listed shares are sold, transferred, or exchanged,
local stock exchange the closing price on the day nearest to the date of sale, transfer
or exchange of the shares shall be the FMV.
Shares of stock not Book value of the shares of stock as shown in the
listed and traded in the financial statements duly certified by an independent
local stock exchange CPA nearest to the date of sale

a.2 Determination of FMV

Type FMV of the shares sold

Listed the closing price on the day when the shares are sold, transferred, or
shares exchanged. When no sale is made in the Local Stock Exchange on the
day when the listed shares are sold, transferred, or exchanged, the
closing price on the day nearest to the date of sale, transfer or exchange
of the shares shall be the FMV.

Unlisted a. Common shares – book value (BV) based on the latest available
shares audited FS prior to the date of sale, but not earlier than immediately
preceding taxable year

b. Preferred shares – liquidation value (LV), which is equal to the

redemption price of the shares as of the balance sheet date nearest
to the transaction date, including any premium and cumulative
preferred dividends in arrears.

Page 3 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

c. With common and preferred shares – BV per common share is

computed by deducting the liquidation value of the preferred shares
from the total equity of the corporation dividing the result by the
number of the outstanding common shares as of the balance sheet
date nearest to the transaction date

For this purpose, the BV of common shares or the LV of the preferred

shares, need not be adjusted to include any appraisal surplus from any
property of the corporation not reflected or included in the latest audited
FS.

a.3 Determination of Cost

In case of…
If the shares of stock
can be identified
If the shares of stock
cannot be properly
identified
In general, stock
dividend received
Cost shall be
Actual purchase price plus all costs of acquisition,
such as commissions, DST, transfer fees, etc.
Cost to be assigned shall be computed on the basis
of the first-in first-out (FIFO) method*
*If books of accounts are maintained by the seller
where every transaction of a particular stock is
recorded, moving average method shall be applied
rather than the FIFO method.
Allocate the cost of the original shares of stock to
the total number shares held after receipt of stock
dividends (i.e., the original shares plus the shares
of stock received as stock dividends).

b. Sec. 24 (D) – Capital Gains
from Sale of Real Property
Classified as Capital Asset
(Located in PH)
c. Disposition of real property
classified as capital asset by
individual to the
government or any of its
political subdivisions or
agencies or to GOCCs
Tax base: Gross selling price or fair market
value whichever is higher
Tax rate: 6% final tax
The tax to be imposed shall be determined either under Section 24 (A) for the normal rate of
income tax for individual citizens or residents or under Section 24 (D) (1) for the final tax on the
presumed capital gains of property at 6%, at the option of the taxpayer-seller.

d. Exemption from 6% capital 1) Exempt proceeds

gains tax on sale/transfer
of principal residence
e. Carry-over of historical cost
or adjusted basis
Capital gains presumed to have been realized from the sale or disposition of their principal
residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing
a new principal residence within 18 calendar months from the date of sale or disposition
shall be exempt from capital gains tax.
2) Escrow agreement
The buyer/tansferee shall withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s
check in interest bearing account with an Authorized Agent Bank (AAB) under an Escrow
Agreement between the concerned Revenue District Officer, the Seller and the Transferee, and
the AAB.
The historical cost or adjusted basis of the real property sold or disposed shall be carried over to
the new principal residence built or acquired.

Page 4 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

f. Expropriation of real property Not Subject to CGT.

without payment of just
compensation (CTA Case No.
9240 dated October 26,
2017)
g. Private project contractors
participating in socialized
housing (covered by RA No.
7279, otherwise known as
the “Urban Development and
Housing Act of 1992”)
The transfer of property through expropriation proceedings and the payment of just compensation
are necessary elements of "sale" or "exchange" for purposes of Sections 24 (D) and 56 (A) (3) of
the 1997 Tax Code, as amended. Hence, both elements must be present in order to be considered
"sale" and be subjected to the imposition of CGT.
Exempt from payment of CGT and project-related income taxes.
Under Section 20 (d) of RA No. 7279, members of the private sector participating in socialized
housing shall be given the incentive of exemption from the payment of the following:
1. Project-related income taxes;
2. CGT on raw lands used for the project; and
3. VAT for the project contractor concerned

f. Computation for the basis Historical cost of old principal residence xxx
of the new principal Add: Additional cost to acquire new principal residence xxx*
residence Adjusted cost basis of the new principal residence xxx

*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx
Additional cost to acquire new principal residence xxx
g. Notification required The Commissioner shall have been duly notified by the taxpayer within 30 days from the date of
sale or disposition through a prescribed return of his intention to avail of the tax exemption.
h. Exemption once every 10 The tax exemption can only be availed of once every 10 years.
years
i. Taxable portion if no full If there is no full utilization of the proceeds of sale or disposition of principal residence, the portion
utilization of proceeds of the gain presumed to have been realized from the sale or disposition shall be subject to capital
gains tax.

The taxable portion is computed as follows:

Unutilized portion x Tax base
Gross selling price

Computation of adjusted cost basis of the new principal residence:

j. Filing of Final Capital Gains
Tax Return on sale of
principal residence
Utilized portion x Historical cost
Gross selling price
1) After depositing the amount representing the 6% capital gains tax, the Buyer/Transferee and
the Seller, shall jointly file, within thirty (30) days from the date of sale or disposition of the
principal residence, with the RDO having jurisdiction over the property, in duplicate, the Final
Capital Gains Tax Return covering the property bought with no computed tax due stating that
the supposed tax due/amount so withheld by the buyer is maintained in an escrow account,
which amount will be used to satisfy future tax liability, if any, on the subject transaction.
2) For purposes of capital gains tax otherwise due on the sale, exchange or disposition of the said
Principal Residence, the execution of the Escrow Agreement shall be considered sufficient.

k. Exercises

a. An individual taxpayer holds shares of stock as investment (P120,000 par value). During the current year, he sells the shares he
bought for P100,000 for P180,000 directly to a buyer.

How much is the capital gains tax and documentary stamp tax on the sale, if any?

b. An individual taxpayer holds shares of stock as investment which he bought from a publicly-listed company for P500,000 (P500,000
par value). The shares are listed and traded in the local stock exchange. During the current year, he sells them for P750,000.

Question 1 - How much is the percentage tax, if any?

2 – How much is the documentary stamp tax, if any?
3 – How much is the capital gains tax on the sale assuming the corporation from which the shares are bought are not
compliant with the mandatory minimum public ownership?

c. An individual taxpayer invested P300,000 in the common shares of SMC Corp (P150,000 par value). During the current year, he sold
these shares to a buyer not through the local stock exchange for P250,000.

Question 1 - How much was the capital gains tax on the sale, if any?
2 – How much was the documentary stamp tax, if any?

d. During the year 2018, Ms. Kat Antonio sold her vacation house for P500,000. She acquired it for P700,000 two (2) years ago. The
fair market value of the vacation house at the time of sale was P800,000. Ms. Antonio was going to use the proceeds to build her
new principal residence within eighteen (18) months after informing BIR within thirty (30) days of such intention.

How much is the capital gain tax and the documentary stamp tax, if any?

Page 5 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

e. Mr. C. Avenido acquired his principal residence in 2016 at a cost of P1,000,000. He sold the said property on January 1, 2018, with a
fair market value of P5,000,000 for a consideration of P4,000,000. Within the 18-month reglementary period he purchased his new
principal residence at cost of P7,000,000.

Question 1 - How much is the capital gains tax due?

2 – How much is the documentary stamp tax?
3 - How much is the basis of the new principal residence?

f. Using the same data in letter e, if for example, Mr. Avenido acquired his new principal residence within the 18-month reglementary
period but did not utilize the entire proceeds of the sale in acquiring his new principal residence because he only used P3,000,000
thereof in acquiring his new principal residence.

Question 1 - How much is the capital gains tax?

2 - How much is the basis of the new principal residence?

4. Tax Rates for Special Aliens and their Filipino Counterparts

a. The provision on the preferential income tax rate of fifteen percent (15%) for qualified employees of Regional Headquarters, Regional
Operating Headquarters, Offshore Banking Units, and Petroleum Service Contractors and Subcontractors has been vetoed.

b. The preferential income tax rate of qualified employees of Regional Headquarters, Regional Operating Headquarters, Offshore Banking
Units, and Petroleum Service Contractors and Subcontractors shall no longer be applicable without prejudice to the application of
preferential tax rates under existing international tax treaties.

Persons Subject to Tax Tax Rate

Sec. 25 (C) Alien Individual 15% of gross income within the Philippines (same tax treatment shall apply to Filipinos
Employed by Regional employed and occupying the same position as those of aliens employed by these multinational
or Area Headquarters companies)
and Regional
Operating Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a) of the Tax Code,
Headquarters of as amended, without prejudice to the application of preferential tax rates under existing
Multinational Co. international tax treaties.

Sec. 25 (D) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos employed and
Employed by Offshore occupying managerial and technical positions similar to those occupied by aliens employed by
Banking Units these offshore banking units).

Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a) of the Tax Code,
as amended, without prejudice to the application of preferential tax rates under existing
international tax treaties.

Sec. 25 (E) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos employed and
Employed by Foreign occupying the same position as those aliens who are permanent residents of a foreign country
Petroleum Service but who are employed by petroleum service contractor and subcontractor in the Philippines).
Contractor and
Subcontractor Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a) of the Tax Code,
as amended, without prejudice to the application of preferential tax rates under existing
international tax treaties.

Exercises
a. At the start of the year, Adriano Santos, a Filipino holding a managerial position in an RHQ, receives a monthly salary and cost of living
allowance in the amount of P70,000 and P7,000 respectively. His 13th month and 14th month pays amount to P140,000. How much
is his income tax payable?

b. Ms. CCF, an alien employed in MCUD Corporation, a Petroleum Service Contractor received compensation income of ₱5,000,000.00 for
2020, inclusive of ₱400,000.00 13th month pay and other benefits. How much is the taxable net income and the income tax due?

Page 6 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

Integrative Cases

a. A married resident citizen supports three (3) qualified dependent children and a brother-in-law who is a PWD, unmarried and not
gainfully employed. He has the following data on income and expenses for the year 2021:

Salary, Philippines P 560,000

Gross business income, Philippines (gross sales, P1,700,000) 500,000
Business expenses, Philippines 180,000
Gross business income, USA (gross sales, P1,500,000) 900,000
Business expenses, USA 300,000
Interest income from bank deposit, Philippines 50,000
Interest income from bank deposit, USA 70,000
Interest income from domestic depository bank under EFCDS 80,000
Interest income from a debt instrument not within the coverage of deposit substitute, Philippines, gross of
15% creditable withholding tax (issue price is P300,000) 50,000
Interest income from a debt instrument within the coverage of a deposit substitute, Philippines (issue price
P500,000) 60,000
Royalty on book published in the Philippines 100,000
Prize in a contest he joined in the Philippines 5,000
Philippine Charity Sweepstakes winnings 1,000,000
Gain from sale of shares of stock not traded through the local stock exchange (P200,000 par value) 150,000
Dividend received from a domestic corporation 40,000
Tax payments, first three (3) quarters 100,000

Questions:
1. How much is the total final tax on certain passive income?
2. How much is the capital gains tax and the documentary stamp taxes?
3. Can the taxpayer avail of the 8% income tax option?
4. How much is the taxable net income and income tax due?

b. A resident alien individual supports two (2) qualified dependent adopted children and a foster child. He asks you to assist him in the
preparation of his tax return for his income in 2020. He provides you the following information:

Gross business income, Philippines (gross sales, P3,000,000) P 1,000,000

Gross business income, Japan (gross sales, P7,000,000) 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Interest income received from a depository bank under EFCDS, Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Income taxes paid for the first three (3) quarters 50,000

Questions:
1. Can the taxpayer avail of the 8% income tax rate?
2. How much was the taxable net income and income tax due if he avails of the 8% income tax rate?
3. How much was the final tax on passive income?
4. Assuming the taxpayer failed to avail of the 8% income tax, how much is his taxable income and the income tax due?

- END -

SUGGESTED ANSWERS & SOLUTIONS

5) Exercises:
c. Identify whether the following are subject to final tax or not (year 2018). Taxpayer is RESIDENT CITIZEN unless otherwise stated (Y/N).

Final tax? Rate

1) Interest from peso bank deposit, Equitable – PCIB, Makati Yes 20%
2) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan No Sec. 24 (A)
3) Interest from USA dollar bank deposit, First USA Bank, New York No Sec. 24 (A)
4) Interest income from a debt instrument not within the coverage of deposit substitute, Philippines No Sec. 24 (A)
5) Interest income from a debt instrument within the coverage of a deposit substitute, Philippines Yes 20%
6) Interest on government debt instrument and securities (regardless of number of lenders at the time of the
origination) Yes 20%
7) Interest from overdue accounts receivable, Philippines No Sec. 24 (A)
8) Royalties, in general, Manila Yes 20%
9) Royalties, books published in Manila Yes 10%
10) Prize amounting to P30,000, Philippines Yes 20%

Page 7 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

11) Prize amounting to P10,000, Philippines No Sec. 24 (A)

12) Prize amounting to P40,000, USA No Sec. 24 (A)
13) Winnings amounting to P30,000, Philippines Yes 20%
14) Winnings amounting to P10,000, Philippines Yes 20%
15) USA Sweepstakes winnings No Sec. 24 (A)
16) Philippine Lotto winnings Yea 20%
17) Interest received from depository bank under expanded foreign currency deposit system (jointly in the No Exempt
name of a non-resident citizen and his spouse who is a resident citizen) Yes (1/2)
15 % (1/2)
18) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a
financial institution other than a bank in denomination of P10,000) Yes 20%
19) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a
bank to an individual in denomination of P10,000) No Exempt
20) Dividend from a domestic corporation received on April 15, 2006 Yes 10%
21) Share in distributive net income of local business partnership received on May 15, 2006 Yes 10%
22) Share in net income after tax of an association, a joint account, or a joint venture or consortium received
on August 15, 2006 Yes 10%
23) Share in the net income of a general professional partnership No Sec. 24 (A)
24) Dividend from a foreign corporation No Sec. 24 (A)
25) Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a
NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS No Exempt
26) Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a
NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS Yes 25%
27) Interest income received by NONRESIDENT ALIEN individual from a depository bank under expanded
foreign currency deposit system No Exempt
28) Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank under expanded
foreign currency deposit system No Exempt
29) Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from
a domestic corporation. Yes 25%
30) Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a domestic
corporation Yes 20%
d.
e. b. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was transferred to Mr. Y (a
resident alien) who, in turn, held it for 8 years. How much is final withholding tax due?

Suggested Answers:
Mr. X 20% final tax (2 years)
Mr. Y Exempt (8 years)

c. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and transferred it to Mr. Y (a
resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a resident citizen), who held it until the day of
maturity or for 5 years. How much is the final withholding tax due?
Suggested Answers:
Mr. X 12% (3 years) Mr. Y 20% (2 years) Mr. Z Exempt (5 years)

d. An instrument with maturity period of 10 years was held by Mr. X (a non-resident alien engaged in trade or business in the Philippines)
for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a non-
resident alien not engaged in trade or business), who pre-terminated it after 4 years. How much is the final withholding tax due?
Suggested Answers:
Mr. X 12% (3 years) Mr. Y 20% (2 years) Mr. Z 25% (4 years)

l. Exercises
g. An individual taxpayer holds shares of stock as investment (P120,000 par value). During the current year, he sells the shares he
bought for P100,000 for P180,000 directly to a buyer. How much is the capital gains tax and documentary stamp tax on the sale, if
any?
Suggested Answers/Solutions:
Selling price P180,000
Less: Cost 100,000
Capital gain P 80,000
Capital gains tax 80,000 x 15% P 12,000

h. An individual taxpayer holds shares of stock as investment which he bought from a publicly-listed company for P500,000 (P500,000
par value). The shares are listed and traded in the local stock exchange. During the current year, he sells them for P750,000.

Question 1 - How much is the percentage tax, if any?

2 – How much is the documentary stamp tax, if any?
3 – How much is the capital gains tax on the sale assuming the corporation from which the shares are bought are not
compliant with the mandatory minimum public ownership?

Page 8 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

Suggested Answers/Solutions:
Question 1 - How much is the percentage tax, if any?

Selling price P750,000

Tax rate x .006
Stock transactions tax P 4,500

Question 2 - How much is the documentary stamp tax, if any?

Par value (section 175 of the Tax Code, as amended) P500,000

Tax rate (P1.50 / P200) (section 175 of the Tax Code, as amended) x .00075
DST on transfer of shares P 3,750

Question 3 – How much is the capital gains tax on the sale assuming the corporation from which the shares are bought is not
compliant with the mandatory minimum public ownership?

Selling price P750,000

Less: Cost 500,000
Capital gain P250,000
Capital gains tax 250,000 x 15% P 37,500

i. An individual taxpayer invested P300,000 in the common shares of SMC Corp (P150,000 par value). During the current year, he sold
these shares to a buyer not through the local stock exchange for P250,000.

Question 1 - How much was the capital gains tax on the sale, if any?
2 – How much was the documentary stamp tax, if any?

Suggested Answers/Solutions:
Question 1 - How much is the capital gains tax on the sale, if any?
Selling price P250,000
Less: Cost (300,000)
Capital loss (P50,000)
Capital gains tax -

Question 2 - How much is the documentary stamp tax, if any?

Par value (section 175 of the Tax Code, as amended) P150,000
Tax rate (P1.50 / P200) (section 175 of the Tax Code, as amended) x .00075
DST on transfer of shares P 1,125

j. During the year 2018, Ms. Kat Antonio sold her vacation house for P500,000. She acquired it for P700,000 two (2) years ago. The
fair market value of the vacation house at the time of sale was P800,000. Ms. Antonio was going to use the proceeds to build her
new principal residence within eighteen (18) months after informing BIR within thirty (30) days of such intention. How much is the
capital gain tax and the documentary stamp tax, if any?

Suggested Answers/Solutions:

Fair market value P 800,000

Tax rate 6%
Capital gains tax P 48,000

k. Mr. C. Avenido acquired his principal residence in 2016 at a cost of P1,000,000. He sold the said property on January 1, 2018, with a
fair market value of P5,000,000 for a consideration of P4,000,000. Within the 18-month reglementary period he purchased his new
principal residence at cost of P7,000,000.

Question 1 - How much is the capital gains tax due?

2 – How much is the documentary stamp tax?
3 - How much is the basis of the new principal residence?

Suggested Answers/Solutions:
Question 1 –
None. Exempt from capital gains tax but must deposit in escrow the equivalent of the 6% capital gains tax.

Question 2 –
Consideration P4,000,000
Tax rate (P15 / P1,000) (section 196 of the Tax Code, as amended) x .015
DST on sale of real property P 60,000

Page 9 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

Question 3 -

Historical cost of old principal residence P1,000,000

Add: Additional cost to acquire new principal residence
Cost to acquire new principal residence 7,000,000
Less: Gross selling price of old principal residence (4,000,000) 3,000,000
Adjusted cost basis of new principal residence P4,000,000

l. Using the same data in letter e, if for example, Mr. Avenido acquired his new principal residence within the 18-month reglementary
period but did not utilize the entire proceeds of the sale in acquiring his new principal residence because he only used P3,000,000
thereof in acquiring his new principal residence.

Question 1 - How much is the capital gains tax?

2 - How much is the basis of the new principal residence?

Suggested Answers/Solutions:

Question 1
Taxable portion (1,000,000/4,000,000 x 5,000,000) P1,250,000
Tax rate 6%
Capital gains tax P 75,000
Question 2
Historical cost of old principal residence P1,000,000
Less: Portion of historical cost pertaining to the tax on utilized amount
(25% x 1,000,000) 250,000
Adjusted cost basis of new principal residence P 750,000
Or
3,000,000/4,000,000 x 1,000,000 P 750,000

Exercises
c. At the start of the year, Adriano Santos, a Filipino holding a managerial position in an RHQ, receives a monthly salary and cost of living
allowance in the amount of P70,000 and P7,000 respectively. His 13th month and 14th month pays amount to P140,000. How much
is his income tax payable?
Suggested Answer:
The tax due is based on the graduated income tax rates but cannot be determined at this time because the bonus is not yet known.

d. Ms. CCF, an alien employed in MCUD Corporation, a Petroleum Service Contractor received compensation income of ₱5,000,000.00 for
2020, inclusive of ₱400,000.00 13th month pay and other benefits. How much is the taxable net income and the income tax due?
Suggested Answer/Solution:
Compensation Income ₱ 5,000,000.00
Less: Non-taxable 13th Month Pay and other benefits (max) 90,000.00
Taxable Compensation Income P4,910,000.00
Tax due on 2,000,000.00 P 490,000.00
2,910,000.00 x 32% 931,200.00
Total tax due P1,421,200.00

* All employees of RHQs/ROHQs/OBUs, and Petroleum Service Contractors and Subcontractors. shall be subject to regular income
tax rate under Section 24(A)(2)(a) of the Tax Code, as amended, without prejudice to the application of preferential tax rates under
existing international tax treaties.

Integrative Cases

c. A married resident citizen supports three (3) qualified dependent children and a brother-in-law who is a PWD, unmarried and not
gainfully employed. He has the following data on income and expenses for the year 2020:
Salary, Philippines P 560,000
Gross business income, Philippines (gross sales, P1,700,000) 500,000
Business expenses, Philippines 180,000
Gross business income, USA (gross sales, P1,500,000) 900,000
Business expenses, USA 300,000
Interest income from bank deposit, Philippines 50,000
Interest income from bank deposit, USA 70,000
Interest income from domestic depository bank under EFCDS 80,000
Interest income from a debt instrument not within the coverage of deposit substitute,
Philippines, gross of 15% creditable withholding tax (issue price is P300,000) 50,000
Interest income from a debt instrument within the coverage of a deposit substitute, Philippines
(issue price P500,000) 60,000
Royalty on book published in the Philippines 100,000

Page 10 of 12 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

Prize in a contest he joined in the Philippines 5,000

Philippine Charity Sweepstakes winnings 1,000,000
Gain from sale of shares of stock not traded through the local stock exchange (P200,000 par
value) 150,000
Dividend received from a domestic corporation 40,000
Tax payments, first three (3) quarters 100,000

Questions:
1. How much is the total final tax on certain passive income?
2. How much is the capital gains tax and the documentary stamp taxes?
3. Can the taxpayer avail of the 8% income tax option?
4. How much is the taxable net income and income tax due and the business tax?

Suggested Answers/Solutions:
Question 1
Amount Rate Final tax
Interest income from bank deposit, Philippines 50,000 20% P10,000
Interest income from domestic depository bank under EFCDS 80,000 15% 12,000
Interest income from a debt instrument (a deposit substitute), Philippines 60,000 20% 12,000
Royalty on book published in the Philippines 100,000 10% 10,000
Philippine Charity Sweepstakes winnings 1,000,000 20% 200,000
Dividend received from a domestic corporation 40,000 10% 4,000
Total P248,000

Question 2
Gain from sale of shares of stock not traded through the local stock exchange P 150,000
Capital gains tax due and payable 150,000 x 15% P 22,500

Question 3 (see total gross sales/receipts if beyond the VAT threshold) and 4
Gross compensation income P 560,000
Gross business income, Philippines P 500,000
Gross business income, USA 900,000
Total gross income 1,400,000
Less: Business expenses, Philippines ( 180,000)
Business expenses, USA ( 300,000)
Net operating income 920,000
Add: Non-operating income
Interest income from bank deposit, USA 70,000
Interest income from a debt instrument not a deposit substitute, Philippines 50,000
Prize in a contest he joined 5,000 1,045,000
Taxable net income P 1,605,000

Tax due [Section 24 (A)] on P800,000 P 130,000

805,000 x 30% 241,500
Total tax due 371,500
Less: Creditable withholding tax on interest income from a debt instrument not a
deposit substitute, Philippines (50,000 x 15%) 7,500
Tax payments, first 3 quarters 100,000 107,500
Tax payable P 264,000

d. A resident alien individual supports two (2) qualified dependent adopted children and a foster child. He asks you to assist him in the
preparation
of his tax return for his income in 2020. He provides you the following information:
Gross business income, Philippines (gross sales, P3,000,000) P 1,000,000
Gross business income, Japan (gross sales, P7,000,000) 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Interest income received from a depository bank under EFCDS, Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Income taxes paid for the first three (3) quarters 50,000

Questions:
1. Can the taxpayer avail of the 8% income tax rate?
2. How much was the taxable net income and income tax due if he avails of the 8% income tax rate?
3. How much was the final tax on passive income?
4. Assuming the taxpayer failed to avail of the 8% income tax, how much is his taxable income and the income tax due?

Page 11 of 12 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-602
Week 5: INCOME TAX RATES for INDIVIDUALS, ESTATES & TRUSTS

Suggested Answers/Solutions:
Question 1
Yes because his gross sales from Philippine sources do not exceed the VAT threshold of P3,000,000. The 8% income tax
rate is in lieu of the graduated income tax rates and the 3% percentage tax under Section 116.
Question 2
Gross sales, Philippines P3,000,000
Less: Amount exempted under the graduated income tax rates 250,000
Taxable income P2,750,000
Tax due (2,700,000 x 8%) P 220,000
Less: Tax payments, first 3 quarters 50,000
Tax payable P 170,000
Question 3 –
Philippine Charity Sweepstakes winnings (500,000 x 20%) P100,000
Interest income received from a depository bank under EFCDS (300,000 x 15%) 45,000
Interest on peso bank deposit, Philippines (100,000 x 20%) 20,000
Total P165,000
Question 4
Gross sales, Philippines P3,000,000
Less: Cost of sales, Philippines 2,00,000
Gross business income, Philippines 1,000,000
Less: Business expenses, Philippines 200,000
Taxable income P 800,000
Tax due on P800,000 P 130,000
Less: Payments, first three quarters 50,000
Tax payable P 80, 000

Aside from income tax, the taxpayer is also liable to business tax.

END

Page 12 of 12 0915-2303213  www.resacpareview.com