OCTOBER 15, 2020

MODULAR

FINAL TAX ON PASSIVE INCOME

PASSIVE INCOME – REFERS TO INCOME EARNED WITHOUT EXERTING PHYSICAL EFFORT

PASSIVE INCOME FINAL TAX RATE

1. DIVIDEND INCOME FROM DOMESTIC CORPORATION 10%
2. INTEREST ON BANK DEPOSIT, YIELD ON DEPOSIT SUBSTITUTE 20%
3. INTEREST ON FOREIGN CURRENCY DEPOSIT SYSTEM OR DOLLAR 15% TRAIN
DEPOSIT LAW BEFORE 2.5%
4 ROYALTY ON BOOKS, LITERARY WORKS AND MUSICAL 10%
COMPOSITION
5 OTHER ROYALTY INCOME 20%
6 PRIZES OR WINNINGS EXCEEDING P10,000 20%
7. DISTRIBUTABLE NET INCOME OF GENERAL PARTNERSHIP 10%
8. OTHER WINNINGS, INCLUDING PHIL LOTTO AND PHIL. CHARITY 20% TRAIN
SWEEPSTAKES (PREVIOUSLY WINNINGS ON LOTTO AND LAW
SWEEPSTAKES ARE EXEMPT)

DIVIDENDS – IS THE INCOME OF SHARES OF STOCK

- BLUE CHIP STOCKS –STOCK OFFERED IN THE STOCKS EXCHANGE CENTER PARTICULARLY
THE MAKATI STOCK EXCHANGE CENTER SUCH JOLIBEE SHARES, METROBANK SHARES,
SAN MIGUEL SHARES, SM SHARES. Traded stock

- Not traded STOCKS - stocks of corporation whose stocks are not traded in Makati Stock
Exchange Center (Local Stock Exchange Center)

- TREASURY SHARES- LENDER GOV’T- LAND BANK OF THE BANK HOLDER OF TREASURY IS
CALLED CREDITOR

- AYALA COMPANY DECLARED DIVIDEND P43 BILLION - ALL HOLDER OF AYALA SHARES
RECEIVE DIVIDENDS

- DOMESTIC CORPORATION – A CORPORATION ESTABLISHED UNDER PHIL. LAWS. IT

GOVERNED BY CORPORATION CODE OF THE PHILIPINES AND UNDER THE
ADMINISTRATION OF S.E.C.

INTEREST FROM BANK DEPOSIT IS SUBJECT TO 20% FINAL TAX.

ASSUMMING YOU EARNED P20,000 INTEREST ON BANK DEPOSIT - 20% = P4,000 GOES TO BIR AS FINAL
TAX (WITHHOLDING AGENT - BANK), THE REST OF P16,000 WILL BE ADDED TO YOUR DEPOSIT.
SECOND TABLE

PASSIVE INCOME AMOUNT RATE OF FINAL TAX

FINAL TAX
1. INTEREST ON BANK 100,000 20% 20,000
2 ROYALTY ON BOOKS 200,000 10% 20,000
3. ROYALTY ON LITERARY WORKS 50,000 10% 5,000
4. ROYALTY ON MUSICAL COMPOSITION 20,000 10% 2,000

IN CASE OF FINAL TAX DERIVED FROM EARNING INTEREST INCOME FROM BANK, THE BANK IS THE
WITHHOLDING AGENT OF FINAL TAX. THE BANK IS AUTHORIZED BY BIR TO COLLECT AND WITHHOLD
FINAL TAX ON INTEREST EARNED BY CLIENTS/DEPOSITORS.

P 100,000-INTEREST IS SUBJECT TO P20,OOO FINAL TAX= NET SHARE OF THE DEPOSITOR WHICH IS
P80,000 IS ADDED TO HIS BANK ACCOUNT. PARA SA MA EXEMPT SA 20% FINAL TAX, KAILANGAN
TUMAGAL ANG DEPOSIT NG 5 YEARS PATAAS SA BANGKO.

IN CASE OF ROYALTY EARNED BY THE AUTHOR OF THE BOOK?

WHO IS THE WITHHOLDING AGENT OF FINAL TAX ON BOOKS? PUBLISHING COMPANY EX. REX
BOOKSTORE. IN CASE OF LITERARY WORKS, THE WITHHOLDING AGENT IS THE MAGAZINE COMPANY,
BOOKSTORE, NEWSPAPER COMPANY AND ARTIST WHO IS IN CHARGED ON THE EXHIBIT. IN CASE OF
ROYALTY ON MUSICAL COMPOSITION, THE WITHHOLDING AGENT OF FINAL TAX IS THE RECORDING
COMPANY. EX. VIVA RECORDS, STAR MAGIC, SPOTIFY

EXAMPLES OF OTHER ROYALTY INCOME SUBJECT TO 20% FINAL TAX

A. ROYALTY INCOME ON INVENTION

B. ROYALTY INCOME ON FRANCHISE

2 KINDS OF PARTNERSHIP

1. GP - GENERAL PARTNERSHIP- THE SHARES OF THE PARTNER FROM THE DISTRIBUTABLE NET
INCOME OF GENERAL PARTNERSHIP IS SUBJECT TO 10% FINAL TAX.
2. GPP- GENERAL PROFESSIONAL PARTNERSHIP
3. - SUBJECT TO BASIC TAX OR TAX TABLE

LET’S GO TO PROBLEM

1. ASSUMING THE TAXPAYER HAD THE FOLLOWING TRANSACTIONS FOR THE MONTH

GROSS COMPENSATION INCOME (SALARIES % WAGES)……….P 400,000 BT (TAX TABLE)

OTHER INCOME:

1. ROYALTY ON BOOKS ………………………………………………….P 40,000 FT

2. OTHER WINNINGS………………………………………………………..20,000 FT
3. INTEREST EARNED FROM BANKS………………………………….100,000 FT
4. INTEREST INCOME ON PROMISSORY NOTE RECEIVED 10,000 BT TAX TABLE)
 A) HOW MUCH IS INCOME SUBJECT TO FINAL TAX?
R0YALTY ON BOOKS 40,000
OTHER WINNINGS 20,000
INTEREST FROM BANK. 100,000
160,000

B) HOW MUCH IS INCOME SUBECT TO BASIC TAX?

GROSS COMPENSATION INCOME ………………….P 400,000
INTEREST INCOME ON PN…………………………………..10,000
GROSS INCOME …………….………………………………….410,000

C) HOW MUCH THE TOTAL FINAL TAXES?

R0YALTY ON BOOKS 40,000 X 10%= 4,000

OTHER WINNINGS 20,000 X 20% 4,000
INTEREST FROM BANK. 100,000 X 20%= 20,000
P 28,000
D) HOW MUCHT THE INCOME TAX DUE?

(P410,000 - 400,000 X 25% + P30,000 = P32,500

2ND PROBLEM - THE TAXPAYER RECEIVED THE FOLLOWING INCOMES:

GROSS COMPENSATION INCOME, NET OF 20% W/TAX…….. ……………..…………..P780,000 BT
ROYALTY ON BOOK, NET OF FINAL TAX …………………………………………………………….60,000 FT NET
INTEREST INCOME ON BANKS …………………………………………..…………………………….120,000 FT GROSS

1. HOW MUCH THE INCOME SUBJECT TO FINAL TAX?

60,000/90%= P66,666.67+ 120,000 = P186,666.67
2. HOW MUCH THE INCOME SUBJECT TO BASIC TAX?
GCI (P780,000/80%=P975,000 GROSS AMOUNT
3. HOW MUCH THE FINAL TAX?

ON BOOKS, P66,666.67 X 10%= P 6,666.67

ON INTEREST, P120,000 X 20% = 24,000

P30,666.67

P30,666.67 = 6,666,67 + 24,000=30,666.67

4. HOW MUCH THE INCOME TAX DUE OR (REFUND)?
780,000/80%=P975,000 - 800,000 X 30%+130,000 =P 182,500 TAX DUE
LESS: WITHHOLDING TAX (20%X975,000) 195,000 (975T-780T )WITHHOLDING TAX
INCOME TAX REFUND………………………………….…………….12,500
 THE BASKET IS FULL OF FRUITS, 49 PCS. ARE OVERIPPED AND 91% OF FRUITS ARE IN GOOD
CONDITION, HOW MANY FRUITS ARE IN THE BASKET?
CRUZADO, 44.59
BACCAY, 45
AMOR, 44.59
ZIPAGAN, 53.84
CASTILLO, N, 46.41
DAGALANGIT, 44.59
RAGANDAN, 544.44
DINIO 45

BASKET BULOK GOOD CONDITION

544.44 49/ 495,44/

100% 9% 91%

WHY IS IT BECOMES FINAL TAX? BECAUSE INCOME SUBJECT TO FINAL TAX IS NO LONGER
PART OF INCOME SUBJECT TO BASIC TAX. MASARAP YUMAMAN SA INCOME SUBJECT TO FT,
DAHIL MURA ANG TAX KAYSA BASIC TAX.

PROBLEM 3 - ASSUME A TAPAYER HAD THE FOLLOWING DATA ON INCOME IN 2019:

GROSS COMPENSATION INCOME ………………………………………….P 456,000 BT
OTHER INCOME;
INTEREST ON DOLLAR DEPOSIT………………………………………………….60,000FT
ROYALTY ON LITERARY WORKS………………………………………………….80,000FT
INTEREST ON RECEIVABLE……………………………………………………… 130,000BT
QUESTION NO 1. HOW MUCH INCOME IS SUBJECT TO FINAL TAX?

INTEREST ON DOLLAR DEPOSIT……………………….60,000

ROYALTY ON LITERARY WORK………………………..80,000
TOTAL SUBJECT TO FINAL TAX……………………….140,000
2. HOW MUCH INCOME IS SUBJECT TO BASIC TAX? (P456,000 +130,000) = P586,000
3. HOW MUCH THE TOTAL FINAL TAXES?
INTEREST ON DOLLAR DEPOSIT (P60,000 X 15% = 9,000
ROYALTY ON LITERARY WORK (P80,000 X 10%) 8,000
17,000
4. HOW MUCH THE INCOME TAX DUE? (P586,000 - 400,000 X.25 + P30,000) =P76,500
_____________________________________________________________________________________

1. BASIC TAX
2. FINAL TAX
3. CAPITAL GAINS TAX (2)
 1. SALE OR EXCHANGE OF REAL PROPERTY (LAND OR BUILDING) LOCATED IN THE
PHILIPPINES HELD AS A CAPITAL ASSET. (AN ASSET NOT RELATED TO BUSINESS) REAL
PROPERTY – A PROPERTY ATTACHED TO THE SOIL WITH PERMANENCE AND THE LAND
ITSELF.

3 ANG HALAGA NG LUPA

1. ASSESSED VALUE – HALAGA NG LUPA LOCAL GOVERNMENT, SA CITY HALL
(REGISTRY OF DEEDS)
2. ZONAL VALUE – HALAGA NG LUPA SA BIR
3. HALAGA NG LUPA O GUSALI SA NAGBEBENTA = SELLING PRICE

CAPITAL GAINS TAX IS EQUIVALENT TO 6% TO BE MULTIPLIED TO HIGHER AMOUNT IN THE 3 VALUES.

ASSESSED AND ZONAL VALUES WHICH EVER IS HIGHER IS CALLED FAIR MARKET VALUE. COMPARE FAIR
MARKET VALUE TO THE SELLING PRICE WHICH EVER IS HIGHER SHALL BE MULTIPLIED TO 6% CAPITAL
GAINS TAX. THE CAPITAL GAINS TAX SHOULD BE PAID BY THE SELLER OF THE LAND AND BUILDING OR
HOUSE AND LOT. ANG CGT AY MAHALAGA, SAPAGKAT HINDI MALILIPAT SA PANGALAN NG BUYER ANG
LUPA NA BINILI KAPAG HINDI NABAYARAN ANG CAPITAL GAINS TAX.

ASSESSED VALUE 2M

CAPITAL GAINS TAX 6% TO BE MULTIFLIED TO ZONAL VALUE 3M X 6%=180,000

SELLING PRICE P1 M

2. SALES OR EXCHANGE OF SHARES OF STOCK, NOT TRADED IN THE LOCAL STOCK

EXCHANGE CENTER ISSUED BY A DOMESTIC CORPORATION HELD AS A CAPITAL ASSET
AND SOLD TO DIRECT BUYER.

STOCK IS TRADED –MAKATI EXCHANGE CENTER - STOCK TRANSACTION TAX (BUSINESS TAX) THE RATE
½ OF 1% OF THE GROSS SELLING PRICE. P1M X 1% X1/2= P5,000

ISSUED BY DOMESTIC CORPORATION- THE CAPITAL GAINS TAX (INCOME TAX) IS 15% (UNDER TRAIN
LAW) OF THE HIGHER AMOUNT BETWEEM THE FAIR MARKET VALUE OR SELLING PRICE. (THE OLD LAW
5% -10%)

4.ASSUMING THE TAXPAYER HAD THE FOLLOWING TRANSACTIONS FOR THE MONTH
GROSS CONPENSATION INCOME …………………………………………. P 400,000 BT

OTHER INCOME:

A. ROYALTY ON BOOKS …………………………………………………. P 40,000 FT

B. OTHER WINNINGS……………………………………………………….. 20,000 FT
C. INTEREST EARNED FROM BANKS…………………………………. 100,000 FT
D. INTEREST INCOME ON PROMISSORY NOTE RECEIVED 10,000 BT
E. GAIN ON SALE OF LAND LOCATED IN THE PHIL. SELLING PRICE,
P10M, ZONAL VALUE, P12M, ASSESSED VALUE, P8M………………… ….2,000,000 (GAIN)

QUESTIONS

A. HOW MUCH INCOME IS SUBJECT OT FINAL TAX= P160,000

B. HOW MUCH THE AMOUNT OF INCOME SUBJECT TO BASIC TAX? - P 410,000
C. HOW MUCH THE BASIS OF CAPITAL GAINS? =P12,000,000
D. HOW MUCH THE CAPITAL GAINS TAX? (P12M X 6%)= P 720,000