Professional Documents
Culture Documents
21 Inclusion and Exclusion of Gi
21 Inclusion and Exclusion of Gi
The term “exclusions” refer to items that are not included in the determination of gross income either because:
They represent return of capital or are not income, gain or profit;
They are subject to another kind of internal revenue tax; or
They are income, gain or profit that are expressly exempt from income tax under the constitution, tax treaty, tax code, or a general or special law.
Note:
Exclusions from gross income are not included in the amount of reportable gross income in the income tax return. The amount of deductions is
initially included in the amount of gross income but is separately presented as deduction against gross income in the income tax return.
1. Proceeds of life insurance – paid to the heirs or beneficiaries upon the death of the insured. BUT if such amounts are held by the insurer under an
agreement to pay interest thereon, the interest payments included in gross income.
Exercise: After two years from the death of her husband, Nancy Matyas received the proceeds of life insurance of her husband amounting to
P1,254,400 including 12% compounded interest per year. How much is the taxable amount?
2. Return of insurance premium – amount received by the insured, as a return of premiums paid by him, either during the term or at the maturity of
the term mentioned in the contract or upon surrender of the contract. BUT the excess over premiums paid (whether or not in the current year)
included in the gross income.
Exercise: Mrs. Vina Lucena was insured under an endowment policy with value of P500,000. Total premiums paid by her for life insurance policy
was P490,000 from which there was a return of premiums of P40,000. At the maturity of the policy, Mrs. Lucena received P500,000. The income
of Mrs
3. Gift, bequest or devise – value of the property received excluded BUT the income from such property is included in gross income.
Exercise: On March 1, 200B, Mayumi received a building property from his parents as inheritance with fair market value of P10,000,000. This
TAXATION
property was acquired for P8,000,000 five years ago by his parents. The monthly rental income of the property is P100,000 with an average
monthly expense of P20,000.Mayumi’s income after expenses, subject to income tax for the year 200B is
FAR
4. Compensation for personal injuries or sickness – amounts EASTERN
received, UNIVERSITY
through accident – MANILA
or health insurance or under Workmen’s Compensation
Acts, plus the amount of damages received, whether by
GROSS suit or agreement, on account of such
INCOME-EXCLUSIONS ANDinjuries or sickness.
INCLUSIONS (2101)
Exercise: Mr.Mario was injured in a vehicular accident in 200B. He incurred and paid medical expenses of P20,000 and legal fees of P10,000
during theA. Exclusions
year. In 200C, from Gross P70,000
he received Income as settlement from the insurance company which insured the car owned by the other party involved
in the accident.
Except when otherwise provided in this “Title”
From the above payments and transactions, what is the amount of taxable income accruing to Mr.Mario in 200C?
The term “exclusions” refer to items that are not included in the determination of gross income either because:
They represent return of capital or are not income, gain or profit;
5. Income exempt under Treaty – income of any kind, to the extent required by any treaty obligation binding upon the government of the
Philippines. They are subject to another kind of internal revenue tax; or
They are income, gain or profit that are expressly exempt from income tax under the constitution, tax treaty, tax code, or a general or special la
6. Retirement benefits, pension, gratuities, etc.
Note:under R.A. 7641 – The Mandatory Retirement Law (for private firms without retirement trust fund)
Those received
Those receivedExclusions fromofgross
by employees income
private are notinincluded
employers in the
accordance amount
with of reportable
a reasonable gross
private income
benefit in ;the income tax return. The amount of deductions is
plan
initially included in the amount of gross income but is separately presented
Those received as a result of involuntary separation – causes beyond the control of the employee as deduction against gross income in the income tax return.
Social security benefits, retirement gratuities, pensions etc from foreign government agencies and other institutions, private or public
Benefits due to residents who are US veterans
ITEMS THAT ARE NOT INCLUDED:
SSS benefits
GSIS benefits
1. Proceeds of life insurance – paid to the heirs or beneficiaries upon the death of the insured. BUT if such amounts are held by the insurer under
agreement to pay interest thereon, the interest payments included in gross income.
Retirement benefits received under R.A. Retirement benefits pursuant to RA 4917 (Private Retirement Benefit Plan)
No. 7641 andExercise:
those received byyears
After two officials 1. Retiring
from the death employee
of her husband, must Matyas
Nancy not be less than 50
received theyears old. of life insurance of her husband amounting to
proceeds
and employees ofP1,254,400
private firm. 2. Must have been in the service for at least
including 12% compounded interest per year. How much is the taxable amount? 10 years of the same employer.
3. Exemption must be availed only once.
2. Return of insurance premium – amount 4. The received
private benefit
by theplan mustasbea approved
insured, by the BIR.paid
return of premiums (Reasonable private
by him, either pension
during plan.)or at the maturity
the term
the term mentioned in the contract or upon surrender of the contract. BUT the excess over premiums paid (whether or not in the current y
included in the gross income.
Retirement benefits under RA 7641 (In the Absence of Retirement Plan)
1. The retiring employee is 60 years old. (The compulsory retirement age of an employee under
Exercise: Mrs. Vina Lucena was insured under an endowment policy with value of P500,000. Total premiums paid by her for life insurance po
the Mandatory Retirement is 65 years old.)
was P490,000 from which there was 2. aHe
return
mustofhave
premiums of P40,000.
served the companyAtforthe
at maturity of the
least 5 years in policy, Mrs. Lucena received P500,000. The inco
said establishment.
of Mrs Lucena under
Any amount received by an official orthe policy is
Any amount received by an official or employee of by his heirs from the employer as a consequence
3. Gift, bequest or devise – value of the property received excluded BUT the income from such property is included in gross income.
21. GROSS INCOME INCLUSIONS AND EXCLUSIONS Page 1 of 14
Exercise: On March 1, 200B, Mayumi received a building property from his parents as inheritance with fair market value of P10,000,000. T
property was acquired for P8,000,000 five years ago by his parents. The monthly rental income of the property is P100,000 with an aver
monthly expense of P20,000.Mayumi’s income after expenses, subject to income tax for the year 200B is
4. Compensation for personal injuries or sickness – amounts received, through accident or health insurance or under Workmen’s Compensation
Acts, plus the amount of damages received, whether by suit or agreement, on account of such injuries or sickness.
Exercise: Mr.Mario was injured in a vehicular accident in 200B. He incurred and paid medical expenses of P20,000 and legal fees of P10,
during the year. In 200C, he received P70,000 as settlement from the insurance company which insured the car owned by the other party involv
in the accident.
From the above payments and transactions, what is the amount of taxable income accruing to Mr.Mario in 200C?
5. Income exempt under Treaty – income of any kind, to the extent required by any treaty obligation binding upon the government of the
employee as a consequence of separation of separation of such official or employee from the service of the employer because of death,
sickness, or physical disability or for any cause beyond the control of the said official or employee
is not included in the gross income
Social security benefits, retirement The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement
gratuities, pensions and other similar gratuities, pensions and other similar benefits received from foreign government agencies and other
benefits received from foreign institutions, private or public resident or non-resident citizen of the Philippines or aliens who come to
government agencies and other reside permanently in the Philippines are not included in the gross income
institutions, private or public
Social Security System (SSS) Benefits Benefits received from or enjoyed under the Social Security System are not included in the gross
income
Government Service Insurance System Benefits received from the GSIS including retirement gratuity received by government officials and
(GSIS) Benefits employees are not included in the gross income
United States Veterans Administration Payment of benefits due or to become due under United States Veterans Administration are not
Benefits included in the gross income
Exercise: Mr. Mario Matiyaga, 50 year old, rendered service as a security guard of Anscor Corporation. He had a monthly salary of P5,000 before
retirement in October 31, 200x. During the same taxable year he received P500,000 retirement benefits in accordance with reasonable private
benefit plan maintained by Anscor Co.
Required: Compute for the amount to be included in the gross income of Mr. Matiyaga for 200x based on the following independent
assumptions:
1. He received the retirement benefit for the first time after serving for 10 years
2. He received the retirement benefit for the second time
3. He has served the company for 10 non continuous years.
7. Miscellaneous Items
a. Passive income derived from investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on deposits in
banks in the Philippines by:
Foreign governments
Financing institutions owned, controlled, or enjoying refinancing from foreign governments
International or regional financial institutions established by foreign government
b. Income derived from any public utility or from the exercise of any essential governmental function by the Philippine Government or political
subdivision thereof
c. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only
if:
The recipient was selected without any action on his part to enter the contest or proceeding; and
The recipient is not required to render substantial future services as a condition to receiving the prize or award.
d. All 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.
e. 13th Month Pay and other benefits of public and private entities – BUT total exclusion under this item not to exceed P90,000.
(RMC 27-2011) Only the mandatory or compulsory contributions of employees to SSS, GSIS, PHIC and HDMF are exempt from income tax
Contributions to SSS, GSIS, PHIC
The voluntary
and HDMF contributions
in in excess of what the law requires as mandatory contributions are taxable gross income of the em
excess of mandatory contributions are not exempt from withholding tax on compensation.
The exemption from withholding tax on compensation referred to in Section 2.78.1(B)(12) of Revenue Regulations (RR) No. 2-98
g. Gains from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5)
years.
h. Gains realized by the investor upon redemption of shares of stock in a mutual fund company as defined in Section 22 (BB)
Problem 1 : Precious Lara received cash amounting to P1,000,000 plus a house and lot amounting to P3,000,000 for winning as Miss International.
How much is tax exempt from the awards of Miss Lara?
Problem 2 : Onyok Velasco, a national athlete, received the following during the year:
How much is the the total winnings/awards and prizes not subject to income tax?
Problem 3 : The following earnings were realized from investment in 5 year government bonds:
Problem4: Mr. Jose Velasco received the following items for the taxable year 200x
Winning from charity horse race sweepstakes from PCSO P500,000
Winnings from gambling, net of P700,000 loss from gambling 800,000
Interest on government debt securities 100,000
Damages awarded by the court for breach of contract
(of which 40% is damages for unrealized profits) 1,000,000
Gains from redemption of shares in mutual fund 300,000
Gain from sale of bonds with maturity of more than five years 60,000
Gifts from friends 200,000
Problem 5: Mr. Allan Cruz received the following: Return of his life insurance premium paid for 25 years
With annual premium of P15,000
Proceeds his mother’s life insurance, paid premium for P2,000,000
30 years with annual premium of P5,000 P1,000,000
Cash gift from his missionary friend 50,000
House and lot inherited from his mother 3,000,000
Rent income from house and lot inherited 100,000
Problem 6: The following relates to the compensation income of Ms. Cruz in 20X4:
Compensation P1,900,000
Contribution to SSS, Philhealth, and HDMF
Mandatory contributions 125,000
Voluntary contributions 150,000
Creditable withholding taxes 190,000
Labor union dues 10,000
Meaning of income
Income means all wealth, which flows into the taxpayer’s hands other than as a mere return of capital
Income is the gain derived from labor, or from capital, or from both labor and capital, including the gain derived from the sale or exchange of
capital asset
General Definition. - Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not
limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional partnership.
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items
Stock plans could take various forms. In an SOP, the employee is given the option to purchase a
specific number of shares on specified dates at a specified price which is lower than the market value
of the stocks.
There are three important events in SOP - The grant date is the date on which the employee is given a stock option by the employer.
- the grant date, the vesting period and the
exercise date The vesting period is the time that an employee must wait in order to be able to exercise employee
stock options.
The exercise date is when the employee/option holder notifies the company that he or she would like
to buy the stock at the strike price/option price indicated in the SOP.
Tax Treatment (RMC NO. 79-2014) Grant of Option
If the option was granted by the The grantor/employer cannot claim a deduction
Reportorial Requirements: employer to its employees and no on grant date. The actual benefit of the employees
The issuing corporation shall submit to the payment was received for the grant of cannot be determined yet until the employee
Revenue District Office where it is registered the said option exercises the option. Therefore, no actual expense is
a statement under oath within 30 days incurred yet by the employer upon grant of the
from the grant of the option indicating the option.
following: If the option was granted for a price The full price of the option shall be considered
1. Terms and condition of the stock option capital gains, and shall be taxed.
2. Names, TINs, positions of the grantees Upon issuance of the Option, the same Stock with par value amounting to P0.75 on each
3 Book value, fair market value, par value of is subject to a Documentary Stamp P200, or fractional part thereof, of the par value of
the shares subject of the option at the Tax: the stock subject of the option.
grant date
4. Exercise price, exercise date and/or Stock without par value the amount equivalent to
period 25% of the Documentary Stamp Tax paid upon the
5. Taxes paid on the grant, if any original issue of the stock subject of the option, as
6. Amount paid for the grant, if any provided for in the Section 175 of the NIRC of 1997,
as amended.
During the exercise period, the issuing
corporation shall file a report on or
before the 10th day of the month
following the month of exercise stating Sale or Transfer of Option
therein the following:
1. Exercise date If the option is transferred by the The RMC 79-14 clarified that the sale,
2. Names, TINs, positions of those who grantee/subsequent owner without barter or exchange of the stock option
exercised the option any consideration: is subject to capital gains tax.
3. Book value, fair market value, par value 1. Capital gains tax
of the shares subject of the option at the 2. Donor’s tax If the option was granted without any
exercise date/s consideration, the cost base of the option
4. Mode of settlement (i.e. cash, equity) for purposes of computing the capital
5. Taxes withheld on the exercise, if any gains shall be zero.
6. Fringe Benefits Tax paid, if any
Exercise of Option
Exercise: Atty. Anita Lucenario is employed as a corporate-lawyer of FLP, International. In 200B, he received the following from his employment.
Salary P300,000
One thousand corporate shares of stock for special service
rendered in October 200A:
Fair market value per share – 200A 100
Fair market value per share – 200B 125
Cancellation of debt in lieu of service rendered 50,000
Insurance (the company is the beneficiary) 20,000
Profit sharing 40,000
Required: Compute for the gross taxable compensation income of Mr. Thomas for year 200B.
(2) Gross income derived from the conduct of trade or business or the exercise of a profession
Gross Sales/receipts xxx
Less: sales returns and allowances/sales discount (xxx)
Net Sales/receipts xxx
Less: Cost of sales/services (xxx)
Gross income from operation xxx
Add: Other income:
Other Incidental income xxx
Gross Income xxx
Sale of Capital Assets Other than Real Property and Shares of Stock that are subject to a special CGT rate.
The net capital gain realized from the sale of assets classified as capital assets shall be subject to ordinary income tax.
(4) Interests
1) Included in interest income Interest includes such interest arising from indebtedness, whether business or non-business. Unless
exempted by law, interest received by taxpayer, whether or not usurious, are taxable.
Interest income subject to regular income tax, not to final tax:
a. Lending activities, whether or not in the course of business
b. Investment in bonds
c. Promissory notes
d. Foreign sources, whether bank or non-bank
e. Penalty for legal delay or default
2) Subject to final tax Interest income from Philippine sources subject to final tax (not included in the taxable net income
subject to tax rates in general)
a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Interest income received from a depository bank under expanded foreign currency deposit system
e. Interest income from long-term deposit or investment evidenced by certificates prescribed by
Bangko Sentral ng Pilipinas if pre-terminated before fifth year.
3) Exempt from income tax Interest income from Philippine sources exempt from tax:
a. Interest income received from a depository bank under expanded foreign currency deposit system by
non-resident (individual or corporation)
b. Interest income from long-term deposit or investments evidenced by certificates prescribed by
Bangko Sentral ng Pilipinas received by individual (RC, NRC, RA, NRA-ETB)
4) Interest income or yield Recipient
Individuals DC/RFC
Source of interest income Individuals Corporations
Short-term deposit Pre-terminated: 30% (Regular tax)
4 yrs to < 5 yrs 5%
3 yrs to < 4 yrs 12%
< 3 yrs 20%
Long-term deposits/investment certificates Exempt* 30% (Regular tax)
Note* exemption does not include NRA-NETB (25%)
NRFC – 30% Final tax
Short term deposits – are those made for a period of less than five years.
Long term deposits or investment certificates – refer to certificate of time deposit or investment in
the form of savings, common or individual trust funds, deposit substitutes, investment management
accounts and other investments with a maturity of not less than five years the form of which shall be
prescribed by the BSP and issued by banks only (not by non-bank financial intermediaries or finance
companies) to individuals in denomination of P10,000 and other denominations as may be prescribed
by the BSP. (RMC 18-2011)
5) Foreign currency deposit with foreign Taxpayer Individuals Corporations
currency depository banks Residents 15% 15%
Non-residents Exempt Exempt
.
Joint Accounts on Forex Deposits – if the bank account is jointly in the name of the non-resident and a
resident taxpayer, 50% of the interest shall be exempt while the other 50% shall be subject to the 15%
final tax (RR 10-98)
6) Income derived under expanded DC RFC NRFC
foreign currency deposit system by From foreign currency transactions with nonresident, OBUs in the Exempt Exempt Exempt
depository bank Philippines, local commercial bank including branches of foreign
banks
From foreign currency loans granted to resident other than OBUs 10% 10% Exempt
(5) Rents
3. Leasehold Improvement
Additional income to the lessor Leasehold improvement is a source of additional income to the lessor if it shall become his upon
the expiration of the lease contract
Recognition of income from leasehold
improvement
a. Lump sum or outright method Lessor may report as income, at the time when such buildings or improvements are completed,
the fair market value (FMV) of such buildings or improvements subject to lease.
(Depreciated value at the end of the lease term)
b. Annual or spread out method
1. Computation of annual income Cost of leasehold improvement xx
Less: Acc. Dep (remaining term of lease) (xx)
Book value, end of lease xx
Annual income:
Book value, end of lease xx
Remaining term of lease
2. Computation of income resulting from FMV of improvement when lessor took possession xx
premature termination of lease Less: Amount already reported as income (xx)
Income, year of termination xx
3. Computation of loss due to destruction Amount already reported as income xx
of leasehold improvement before the Less: Insurance recovery*** xx
term of the lease expires Salvage value xx (xx)
Loss (xx)
***To the extent that such loss was not compensated for by insurance.
Exercise A: Ria leased a facility from Cathy Company. Part of the lease agreement is for Ria to improve facility. Details of the improvement were as follows:
Cost of construction (Improvements) P10,000,000
Estimated useful life of improvements 20 years
Remaining terms of the lease 10 years
What amount, if any, should Cathy Company report as income from leasehold improvements under the following independent assumptions?
The income from the improvements is to be reported in one lump sum amount
The income from the improvements is to be reported annually
Exercise B: In connection from Problem A: Assume the income from the improvements is to be reported annually. However, at the
beginning of the 6th year, both parties agreed to terminate the lease agreement. Consequently, Cathy took possession of the improvements.
The fair value of the improvements at that time was P3,500,000. What amount should Cathy report as income from improvements on the
6th year of the lease agreement?
(6) Royalties
(7) Dividends
1) Difference between direct and indirect Direct dividend – is one where the paying corporation acknowledges that the distribution is a
dividend dividend payment
(8) Annuities
1) Annuities An annuity is a specified income payable at stated intervals for a fixed or a contingent period, often
for the recipient’s life, in consideration of a stipulated premium paid either in prior installment
payments or in a single payment
2) Non-taxable annuity Annuity representing return of premium
3) Taxable annuity Excess of the amount returned as premium
1) Subject to tax rates in general a) Prizes and winnings from foreign sources received by individuals and corporations
b) Prizes and winnings from Philippine sources received by corporations
c) Prizes from Philippine sources received by individuals amounting to P10,000 or less.
2) Subject to final tax Subject to 20% final tax
Recipient a) Prizes received by individual from Philippine sources (except prizes amounting to P10,000 or
Amount Individuals Corporations less which shall be subject to tax under Sec. 24 (a))
taxable b) Other winnings of individual from Philippine sources (except Philippine Charity sweepstakes
prize and Lotto winnings).
Prize 20% final Regular tax
exceeding tax Subject to 25% final tax
b) Prizes and awards made primarily in recognition of achievements in the followings fields:
1. Religion
2. Charitable
3. Scientific
4. Educational
5. Artistic
6. Literary
7. Civic
Conditions for the exemption of prizes and awards:
a. The recipient was selected without any action on his part to enter the contest or
proceedings
b. The recipient is not required to render substantial future services as a condition to receiving
the prize or award
c) All prizes and awards granted to athletes to local and international sports competitions and
tournaments whether held in the Philippines or Abroad and sanctioned by their national
sports association
(10) Pensions
A. Exclusion from gross income: Retirement benefits pursuant to RA 4917 (Private Retirement Benefit Plan)
Retirement Benefits – Requisites: 1. Retiring employee must not be less than 50 years old.
2. Must have been in the service for at least 10 years of the same employer.
3. Exemption must be availed only once.
4. The private benefit plan must be approved by the BIR. (Reasonable private pension plan.)
In order to facilitate the processing of requests for tax exemption of separation benefits received by officials/employees or his/her heirs as a result of
their separation from employment due to death, sickness or other physical disability or for any cause beyond the control of said officials or
employees, regardless of age and length of service, the following documents are required to be submitted to the Revenue District Office (RDO) or
appropriate Large Taxpayers (LT) Office where the employer is originally registered, to support such request:
1. Letter request from the Official/Employee (or by his heirs) or the Employer for the exemption of separation benefits from income tax and
withholding tax;
2. Death Certified true copy of Death Certificate;
3. Sickness/Physical a. Sworn Affidavits to be executed by the employer's physician or the employee's attending physician and the Head
Disability of Office/Entity or his representative, attesting to the fact that the retiring/separated official or employee is
suffering from a serious illness or physical disability that affects the performance of his duties and endangers his
life, if he continues working;
b. Clinical Record of the official/employee concerned indicating the history of illness/physical disability and initial
diagnosis; and
b. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of
a sole proprietor, stating the following:
That there has been an introduction of machinery, equipment or other devices, with brief description of the use of
said machinery, equipment or device;
That the introduction of the machinery, equipment or other device has been done in good faith and for valid
reason;
That there is no other option available to the employer than the introduction of machinery, equipment or other
device; and
That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria.
5. Redundancy a. Written notice to the employee and the appropriate Regional Office of the Department of Labor and
Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for
termination.
b. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole
proprietor, stating the following:
That there has been superfluous positions or services of employees;
That the positions or services are in excess of what is reasonably demanded by the actual requirements of the
enterprise to operate in an economical and efficient manner;
That the redundant positions have been abolished in good faith; and
That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria.
c. Adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on
the viability of the newly created positions, job description and the approval by the management of the
restructuring.
6. Retrenchment a. Written notice to the employee and the appropriate Regional Office of the Department of Labor and
Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for
termination.
b. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole
proprietor, stating the following:
That the retrenchment is reasonably necessary and likely to prevent business losses;
That the losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent, with appropriate supporting evidence of said losses;
That the retrenchment is made in good faith for the advancement of its interest and not to defeat or circumvent the
employees’ right to security of tenure; and
That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria.
7. Closure or a. Written notice to the employee and the appropriate Regional Office of the Department of Labor and
Cessation of Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for
Operation termination.
b. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole
proprietor, stating the following:
That the management has decided to close or cease operation of the company;
That the closure or cessation of operation has been made in good faith; and
That there is no other option available to the employer except to close or cease operation.
C. Terminal leave pay of Government “Commutation of leave credits” is applied for by an officer or employee who retires, resigns or is
Employees: separated from the service through no fault of his own.
Not being part of the gross salary or income of a government official or employee but a retirement
benefit, terminal leave pay is not subject to income tax.
Share from the net income of the General Under Sec. 73 of the NIRC, the net income of these entities is deemed constructively received
Partnership by the partners, members or venturers, respectively, in the same year the net income is
reported. Hence, the 10% final tax applies at the point of determination of the income-
not at the point of actual distribution.
Share from the net income of the General Partner’s distributive share from the net income of the general professional partnership
Professional Partnership (Subject to Section 24 (a))
Non-deductible taxes:
1. Philippine income tax (except fringe benefit tax)
2. Transfer taxes –Estate tax and Donors tax
3. Special assessment
4. Foreign income tax if claimed as tax credit
5. Value added tax
6. Stock transaction tax
a. 6/10 of 1%
b. % tax on public offerings
PROBLEMS
Problem 2: Mrs. Rowena Gorospe reports the following items of income and expen ses as of December 31,200B:
Cash salary, net of withholding tax, P25,000 and SSS, P3,000 P302,000
Dividend from San Magnolia Corporation 30,000
Cancellation of her debt from San Magnolia Corporation 50,000
Living quarters and meals allowances, within the employer’s premises 40,000
Income tax paid by the employer 5,000
One year note receivable from the employer, net of discount
P1,000 (maturity June 30, 200B) 19,000
Gross income from business 400,000
Allowable expenses 250,000
Prepaid rent income 50,000
Interest from bank deposit, net of withholding tax 18,000
Bad debt recovery (60% previously written-off) 38,000
Gambling winnings 20,000
Gambling losses 30,000
Income tax refund 8,000
Household expenses 200,000
Donation from relatives 150,000
Winnings 10,000
Stock dividends from Asia Brewery at fair market value 4,000
Problem 3: The following are the revenue items in the income statement of Domestic Corporation for the year 20X1:
Sales P1,000,000
Cost of sales 500,000
Interest income from bank deposit, Philippines 40,000
Yield from deposit substitute, Philippines 80,000
Interest income received from depository bank under EFCDS, Philippines 60,000
Interest income from bank deposit, USA 400,000
Interest on notes receivable- trade, Philippines 30,000
Royalties, Philippines 70,000
Royalties, USA 300,000
Cash dividend received from domestic corporation 150,000
Prize and winnings, Philippines 400,000
Refund of Philippine value added tax 100,000
Bad debt recovery (tax benefit rule) 50,000
Required:
1. How much was total exempted/excluded from gross income?
2. How much was the total gross income subject to 30% corporate income tax?
END