Chapter 4 TAX SCHEMES, ACCOUNTING PERIODS

Chapter cover Taxed to: Examples

1 Final income tax 5 Passive income Interest from banks, dividends from dome
2 Capital gains tax 6 Capital assets assets not used in business, trade or profe
3 Regular income tax 7 Active & Other incomeCompensation, business, professional inco

- Other income charged to regular tax includes:

a. Gains from dealings in properties, not subject to CGT
b. Other passive income not subject to final tax

- Deadline of filing of Income Tax Return (ITR)

April 15th of every year considering holidays - if calendar year
On the 15th day of the 4th month following the close of the taxable year of the taxpayer - if fiscal

- EXERCISES: WHEN IS THE FILING ON SHORT ACCOUNTING PERIODS?

1 A started operations in May 30, 2020 and opted to use calendar year accountin
2 B started operations in May 1, 2020 and opted to use fiscal year accounting pe
3 C uses FYAP ending every January 31. It ceased business operation the followin
4 D uses CYAP ending every March 31. It ceased business operation the following
5 Effective January 2020, E Corp. changed its FYAP ending every July 31 to CYAP.
6 Effective January 2020, F Corp. changed its CYAP to FYAP ending every July 31.
7 Mr. G died on June 16, 2020.
8 Mr. H died on April 14, 2020.
9 The CIR terminated the CYAP of I company last August 1, 2020.

TYPES OF ACCOUNTING METHODS

1 General methods
a. Accrual basis income is recognized when earned. Expense is…
1.) Advanced income is taxable upon receipt.
2.) Prepaid expense is non-deductible in the year paid.
b. Cash basis Expense is recognized when paid. Income is recognized when…

- EXERCISES: DETERMINE IF IT IS INCLUDED IN CASH BASIS OR ACCRUAL BASIS?

1 Advance income
2 Accrued income
3 Uncollected income
4 Cash income
5 Collected income
5 Cash expense
6 Amortization of prepayments
7 Depreciation of PPE
8 Accrued expense
 9 Payments of accrued expenses

- hybrid basis combination of incomes of cash & accrual bases

2 Installment metho - Sale of goods with extended payment terms

- wherein gross income is recognized and reported in proportion to the collecti
- Available to the ff:
bahay, bahay a.) Dealers of personal property
car, car b.) Dealers of real property, only if initial payment does not be > 25% of sellin
bahay, car c.) Casual sale of non-dealers, when selling price > 1K & initial payment does n

Canlubang exampl Received cash 200,000.00

Promissory no 1,800,000.00
Selling Price 2,000,000.00
Machine Cost (1,200,000.00)
subj to installment Gross Profit 800,000.00

if Accrual basis, the Gross Income wil be the answer.

If Installment basis, we will determine the following:

Selling price = Contract Price
a. Installment payments - every July 3 and january 3
b. Initial paymdownpayment 200,000.00
July installment 300,000.00
500,000.00
c. Ration of IP/ SP 25%
d. Gross Income computation
Collection/ Contract Price X Gross Profit
At the date of sale 80,000.00
Every installment 120,000.00

3 Deferred payment - Sale of goods with extended payment terms

- the GI is computed based on the PV or discounted value

2019 2020
Received cash 1,000,000.00
PV of note 900,000.00
Selling Price 1,900,000.00
Machine Cost (1,400,000.00)
Gross Profit 500,000.00 50,000.00
 Ratio of IP/ SP 50% hence not allowed for installment

4 Percentage of Completion Method - book

5 Lease - book

Kindy take note also the basic computations of the agriculture or farming income…

- EXERCISES: COMPUTATION OF PENALTIES

1 J paid its tax return amounting to P150,000 on April 16, 2020.
2 K willfully did not pay on the ITR deadline, but, instead, it pays a year after for
3 L pays its 50,000 tax return on April 13, 2020.

---end---
terest from banks, dividends from domestic corps, royalties, RENT (SM)
sets not used in business, trade or profession, opposed to ordinary assets such as inventory, supplies & PPE
ompensation, business, professional income

DEC.2019 APR.15.2020
he taxable year of the taxpayer - if fiscal year NOV.2019 MARC.15.2020
OCT.2019 FEB.15.2020
JULY.2019 NOV.15.19

WHEN?
nd opted to use calendar year accounting period (CYAP). on or before April 15, 2021
d opted to use fiscal year accounting period (FYAP). on or before August 15, 2021 APR.30.2021
t ceased business operation the following month, February 29, 2 on or before March 30, 2020 30 days from cessation of
ceased business operation the following month, April 30, 2020. on or before May 30, 2020 30 days from cessation of
d its FYAP ending every July 31 to CYAP. on or before April 15, 2021
d its CYAP to FYAP ending every July 31. on or before November 15, 2020
on or before April 15, 2021 There is no requirement for
on or before April 15, 2021 There is no requirement for
any last August 1, 2020. Immediately

me is recognized when…

OR ACCRUAL BASIS? CASH ACCRUAL

Yes Yes
No Yes
No Yes
Yes Yes
Yes No already recognized upon
Yes Yes
Yes Yes
Yes Yes
No Yes
 Yes No already recognized upon

nd reported in proportion to the collection from the installment sales

tial payment does not be > 25% of selling price

elling price > 1K & initial payment does not >25% of selling price

Tagaytay example Selling Price 2,000,000.00

Less: Tax basis of (1,400,000.00)
Gross Profit 600,000.00

e the answer.

the following: With indebtedness assumed by buyer

SP = SP less Mortgage assumed by buyer
and january 3 a. Installment payments - every July 3 and january 3
b. Initial paymentdownpayment 200,000.00
July installment 200,000.00
400,000.00
c. Ration of IP/ SP 20%
d. Contract Price computation
SP 2,000,000.00
Mortgage assumed by buyer (1,000,000.00)
CP 1,000,000.00
d. Gross Income computation
Collection/ Contract Price X Gross Profit
At the date of sale 120,000.00
Every installment 120,000.00

r discounted value

2021

50,000.00 these are deferred and recognized as interest income

ence not allowed for installment
apr
may
aprl 15; july 15 jun
15,000.00 3,750.00 july
448.77

Surcharge (25/50) Interest (12) Compromise

,000 on April 16, 2020. 37,500.00 49.32 20,000.00
ne, but, instead, it pays a year after for P100,0 50,000.00 12,000.00 15,000.00
- - -
<
<

<
<

<
<

Taxpayer examSelling Price 2,000,000.00

Less: Tax basis (1,300,000.00)
Gross Profit 700,000.00

With indebtedness assumed by buyer

SP = SP less Mortgage assumed plus excess of Mortgage of cost
a. Installment payments - every Dec 31 and July 31
b. Initial paymdownpayment 100,000.00
Dec installment 200,000.00
Excess M > C 200,000.00
500,000.00
c. Ration of IP/ SP 25%
d. Contract Price computation
SP 2,000,000.00
Mortgage assum (1,500,000.00)
Excess M > C 200,000.00
CP 700,000.00
d. Gross Income computation
Collection/ Contract Price X Gross Profit
At the date of sa 300,000.00
Every installmen 200,000.00
15
31
30
15
91
 Chapter 5: FINAL INCOME TAXATION (TAXES APPLIED ONLY WITHIN THE PHILIPPINES)

Individuals
Transaction RC NRC RA
1 EITHER PASSIVE INCOME OR ACTIVE INCOME - - -
2 INTEREST INCOME ON CURRENCY BANK DEPOSITS
a.) short-term deposits - < 5 years 20% 20% 20%
b.) long-term deposits - = > 5 years Exempt ExemptExempt
>> pre-termination of LTD before 5 years
Holding Periods:
- < 3 years 20% 20% 20%
- 3 to < 4 years 12% 12% 12%
- 4 to < 5 years 5% 5% 5%
- = > 5 years 0% 0% 0%
x1.) Savings or time deps with cooperatives Exempt ExemptExempt
3 FOREIGN CURRENCY DEPOSIT(FCD) w/ FCD BANKS 15% Exempt 15%
>> joint accts on foreign exchange deposits
a.) Not joint acct/ separate acct - Exempt -
b.) joint acct 15% Exempt -
c.) Deposited savings thru acct of wife 15% - -
x2.) Lending activities, whether or not for business - RIT - - -
x3.) Investment in bonds - RIT - - -
x4.) Promissory notes - RIT - - -
x5.) Foreign sources whether bank or non-bank - RIT - - -
x6.) Penalty for legal delay or default - RIT - - -
4 DIVIDENDS
a.) From domestic corporation 10% 10% 10%
bx7.) from foreign corporation - RIT - - -
1.) Cash 10% 10% 10%
2.) Property 10% 10% 10%
3.) Scrip - paid in notes or evidence of indebtedness 10% 10% 10%
x4.) Stock - as a general rule - - -
Exceptions:
- Subsequent cancellation of redemption 10% 10% 10%
- Leads to substantial alteration in ownership 10% 10% 10%
x5.) Liquidating - - -
x6.) Stock split - - -
x7.) Intercorporate - received by DC & RFC from a DC Exempt ExemptExempt
 x8.) Dividends from cooperatives Exempt ExemptExempt
c.) Other entities taxable as Corporations
1.) Real Estate Investment Trusts 10% Exempt 10%
2.) Business Partnerships 10% 10% 10%
3.) Taxable associations 10% 10% 10%
4.) Taxable joint ventures/ joint accounts 10% 10% 10%
5.) Taxable co-ownerships 10% 10% 10%
5 ROYALTIES
a.) Only on books, literary works, musical compositions 10% 10% 10%
b.) Other sources/ All Rights Reserved 2020 20% 20% 20%
c.) Only on cinematographic films and similar works 20% 20% 20%
6 PRIZES
a.) > P10,000 20% 20% 20%
b.) < = P10,000 RIT RIT RIT
7 WINNINGS
xa.) PCSO/ lotto < = 10,000 Exempt ExemptExempt
b.) PCSO/ lotto > 10,000 20% 20% 20%
c.) Other winnings 20% 20% 20%
8 TAX INFORMER'S REWARD 10% 10% 10%
- discovery of fraud
- recovery of revenues/ surcharges/ fees/ penalties (R/S/F/P)
- BIR & gov't employees cannot apply/ file
- basis is 1M or 10% of R/S/F/P discovered w/ever lower
9 TAX-FREE CORPORATE COVENANT BONDS 30% 30% 30%

Exceptions for not being 25% or 30% Standard Tax Rate

a.) CG on sale of domestic stocks directly to buyer
b.) Rentals on cinematographic films
c.) Rentals of vessels
d.) Rentals of aircrafts, machineries, & other equipment
e.) Interest incomeunder FCD system
f.) Interest on foreign loans
g.) Dividend income
h.) Please refer on no. 9 above

> What is tax sparing rule?? Related on international comity, wherein there is an agreement between phils and other country
- NRFCs shall be subject to 15% final tax on dividend income instead of the general 30% tax if the country of domicile of t
tax due of such NRFC taxes presumed to have been paid by such NRFC from the Phil. Equivalent to 15% of the dividends.
> Income Payments to Subcontractor of Petroleum Service Contractors 8% 8% 8%
> Income Payments to Petroleum Service Contractors RIT RIT RIT

> FINAL WITHHOLDING TAX RETURN DEADLINE

- BIR Form 0619-F - monthly filing on or before 10th of the following month
- BIR Form 1601-FQ - quarterly filing on or before the last day of the month aft
Q1 Q2 Q3
> Other entities exempt from FIT March June September
xa.) Foreign government and foreign GOCC 31 30 30
xb.) International missions or org with immunity
xc.) GPPs
xd.) Qualified employee trust fund
xe.) All transactions abroad - subject to RIT
Individuals Corporations EXAMPLES
NRA-ETB NRA-NETB DC RFC NRFC Individuals
- 25% - - 30%

20% 25% 20% 20% 30% US citizen - 6yr time deposit

Exempt 25% 20% 20% 30% 500,000.00 -
interest - 50k 12,500.00

20% 25% 20% 20% 30% On January 1, 2013, Mr. B investe 24,000.00
12% 25% 20% 20% 30% P1M in ABC Bank for 10-yr time d 25,200.00
5% 25% 20% 20% 30% The dep pays 6% annually. 14,250.00
0% 0% 0% 0% 0% -
Exempt Exempt ExemptExempt Exempt
Exempt Exempt 15% 15% Exempt OFW - 40,000 -
- Amount - 60,000
- - - - - C, OFW, deposits under FCDU -
- - - - - D, OFW, joint acct w/ RC wife 4,500.00
- - - - - E, OFW, depo on acct of wife 9,000.00
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -

20% 25% ExemptExempt 30%

- - - - - Stockholder (dugong bughaw) 1yr NRFC
20% 25% ExemptExempt 30% - quarterly meetings sa XYZ Corp -
20% 25% ExemptExempt 30% - cash 2M
20% 25% ExemptExempt 30%
- - - - - QRS Copr. NRFC
- quarterly meetings sa XYZ Corp, DC
20% 25% ExemptExempt 30% - BMW 1.7M
20% 25% ExemptExempt 30%
- - - - -
- - - - -
Exempt Exempt ExemptExempt Exempt
 Exempt Exempt ExemptExempt Exempt

Exempt Exempt ExemptExempt Exempt

20% 25% 10% 10% 30%
20% 25% 10% 10% 30%
20% 25% 10% 10% 30%
20% 25% 10% 10% 30%

10% 25% 20% 20% 30% Korean company 2,000,000.00

20% 25% 20% 20% 30% 600,000.00
25% 25% 20% 20% 30% Vice Ganda - GBBT 8,000,000.00

20% 25% RIT RIT 30% Wowowin - 50k 10,000.00

RIT 25% RIT RIT 30% Mr. H, American, residing, 5mos. 12,500.00

Exempt 25% ExemptExempt 30% lotto, latina, 7mos. -

20% 25% 20% 20% 30% lotto 365M 292,000,000.00
20% 25% RIT RIT 30% 73,000,000.00
10% 25% 10% 10% 30% RC, 500k reward 50,000.00
RA, 5M reward 500,000.00
ABC, Corp 30M

30% 30% RIT RIT 30%

TAX BASIS
15% 15% CGT
25% 25% rentals
25% 4.5% rentals
25% 7.50% rentals
Exempt Exempt
N/A 20%
25% 15% if tax sparing rule is applicable
30% 30%

tween phils and other country

if the country of domicile of the NRFC credits against the
ent to 15% of the dividends.
 8% 25% 8% 8% 30%
RIT 25% RIT RIT 30%
filing
Feb. 3, 2020 on or before March 10, 2020
e 10th of the following month final tax - 150k March 13, 2020
e the last day of the month after each quarter 37,500.00
Q4 147.95
December 20,000.00
31 57,647.95
 EXAMPLES
Corporations

nra-netb

at the end 2nd yr

974,800.00 January 2019 June 2022
985,750.00 January 2019 September 20

55,500.00 net proceeds

DC
200,000.00

510,000.00
 600,000.00

net proceeds
final tax

3,000,000.00
vs
1,000,000.00 lower
before March 10, 2020
filing date
surcharge
interest
compromise
 3.5
4.75 American, residing in the phils for 2 yrs
 Chapter 6: CAPITAL GAINS TAXATION (CGT) - TAXES APPLIED ONLY WITHIN THE PHILIPPINES

>> Ordinary Assets >> Ordinary Gains - subject to RIT

a.) Assets held for sale - inventory
b.) Assets held for use - supplies and PPE items

>> Capital Assets >> Capital Gains

a.) Personal assets of individual taxpayers - General Rule: RIT
b.) Business assets of any taxpayers - Exception Rule: CGT
1. Financial assets - cash, AR, prepaid expense, investments
2. Intangible assets - patent, copyrights, leasehold/ franchise rights

All Individuals
Personal Business Assets
Transaction Assets Ordinary
a A domestic stock of a securities dealer a
b A domestic stock of a car dealer a
c A vacant lot by a real estate developer a
d A vacant lot by an equipment dealer a
e Real and other properties acquired by banks (ROPA)
f ROPA in the form of domestic stocks held by banks
g A property used for future use in business regardless of circumstances a
h Discontinuance of the active use of the property by business a
i Real properties used, previously used in trade of the taxpayer a
j Ordinary properties unused for > 2 years
k Fully depreciated or un-depreciated asset a
l Real properties used by an exempt corporation
Note: Change in business from real estate to non-real estate business shall not change the classification of ordinary assets

CAPITAL GAINS SUBJECT TO CGT

I 1. Gain on the sale, exchange, & other disposition of domestic stocks directly to buyer 15% -
>> Formula for Net Gain:
Selling Price
a.) Cash sale
b.) Cash plus fair value of property received
c.) Fair value of the property received - for exchanges
LESS:
Basis of Stocks Disposed
a.) Specific identification/ Moving Average method/ FIFO - for purchases
a.1) Acquisition cost for capital assets
a.2) Non-depreciable ordinary assets such as land
a.3) Any asset purchased for an inadequate consideration or those acquired < FV at the date of acquisition
b.) FV of at the time of death by the decedent - for inheritance
c.) Lower of FV at the time donated or FV of last preceding owner not acquired by gift
d.) Amount paid by the transferee for the property - if inadequate consideration
 e.) Substituted basis of the stocks - acquired thru tax free exchanges
e.1) For pure share-for-share swap, the tax basis of the shares exchanged or given is the tax basis of the shares recei
e.2) For share-for-swap with non-cash consideration, the tax basis shall be the substituted basis (see p. 403)
Selling expenses
Documentary stamp tax on the sale - if paid by the seller
NET CAPITAL GAIN 15% -
CAPITAL GAINS TAX
NET CAPITAL GAIN FOR FOREIGN CORPS - RFC/ NRFC - -

2. Installment payment of CGT - kindly refer to Ch. 4

3. Exchange of domestic stocks in kind

a.) Foreclosure of property in settlement of debt 15% -
b.) Sale with buy back agreement (Pacto de Retro) 15% -
c.) Conditional sales 15% -
d.) Voluntary buy back of shares by issuing corp 15% -
e.) Issuance of stocks by a corporation - -
f.) Exchange of stocks for services - -
g.) Redemption of shares in a mutual fund - -
h.) Worthlessness of stocks - -
i.) Redemption of stocks for cancellation by the issuing corp - -
j.) Gratuitous transfer of stocks - -

3a. Other Transactions Not subject to CGT

a.) Merger or consolidation - also not subject to RIT - -
b.) Initial acquisition of control - also not subject to RIT - -
c.) Investors in shares of stocks in a mutual fund company - -
d.) Foreign govts, foreign GOCC, RFC and NRFC/ international missions/ GPP - -
e.) Qualified employee trust funds - -
f.) All CG transactions where location of the property is outside the Philippines - -

4. Shares of stocks sold, exchanged or disposed through PSE - Stock Transaction Tax 0.60% -
- non-dealer sells 0.60% -
- dealer sells - considered as ordinary assets - RIT

II Sale, exchange, and other disposition (S/E/D) of real property in the Philippines 6% -
- Determination is whichever is higher of the following:
a.) Zonal value - land
b.) FMV or Assessor's FMV- land & improvements
c.) Selling price
xd.) Independent appraisal valuation

Other Transactions Not subject to CGT

x.) S/E/D of principal residence for the reacquisition of new residence, exempt if: Exempt -
- BIR From No. 1706 - used
 - Applicable for RC, NRC and RA only
- reacquisition must be within 18 months from date of sale
- can be availed once every 10 years
- CG is held in escrow in favor of the govt
xx.) sale of land pursuant to Comprehensive Agrarian Reform Program Exempt -
xxx.) sale of socialized housing units by the National Housing Authority Exempt -

III Gains from other capital assets - -

> CAPITAL GAINS TAX RETURN DEADLINE

- BIR Form 1707 (domestic stocks) within 30 days after each sale, exchan
within 30 days after each installment
- BIR Form 1707-A - annual (domestic stocks) on or before 15th day of the 4th mon
- BIR Form 1706 - annual (real property) within 30 days from the date of sale o

> DOCUMENTARY STAMP TAX ON SALE OF CAPITAL ASSETS 0.0075

1 DST on S/E/D directly to buyer - DOMESTIC STOCKS P1.50/ 200 -
2 DST on sales of real properties P15/P1,000 P15/P1,000
- Whichever is higher of:
a.) GSP
b.) FMV

Francisco
125,000.00
821.92 jul 31 to aug 4 (5 days)
30,000.00
155,821.92
 Gains - subject to RIT

Individuals Domestic Corporations EXAMPLES

Business Assets Ordinary Capital
Capital Assets Assets

a
a
a
a

a a
a
a
fication of ordinary assets previously held.

15% - 15%

300,000.00

truck - FV 3,000,000.00
3,300,000.00

te of acquisition
purchasemoving average (2,700,000.00)
ax basis of the shares received
basis (see p. 403)
(60,000.00)

15% - 15% 540,000.00

81,000.00
- - 5%-10% 200,000.00 5,000.00
600,000.00 10,000.00
15,000.00

15% - 15%
15% - 15%
15% - 15%
15% - 15%
- - -
- - -
- - -
- - -
- - -
- - -

- - -
- - -
- - -
- - -
- - -
- - -

0.60% - 0.60% STT

0.60% - 0.60% A has SP 10M costing 60%. 60,000.00
- RIT - A has SP 10M costing 60%. -

6% - 6%
CGT
5,000,000.00
6,000,000.00
6,500,000.00 390,000.00
7,000,000.00 not included

Exempt - - - H, TAXPAYER, used 3.5 out of 4M proceeds in 3,500,000.00

acquiring a new residence 4,000,000.00
 - SP is 5M
- CGT 300,000.00 total amount in escrow
taxable portion 262,500.00
exempt portion 37,500.00
Exempt - Exempt
Exempt - Exempt

RIT - RIT 3,000,000.00 181,479.45

surcharge interest
sold aug. 31, 2020 3,000,000.00 181,479.45
ays after each sale, exchange and other dispo6M- gain on domestic stocks
ays after each installment sale BIR consider tht covid-19
e 15th day of the 4th month following the clodec. 31, 2020 actual filing
ays from the date of sale or exchange deadline: sept. 30

there is willful neglect

P1.50/ 200 - P1.50/ 200 PV-2M; SP-3M; FMV-1.5M 15,000.00

P15/P1,000 P15/P1,000
0.015 60,000.00
3,000,000.00
4,000,000.00
USED
RECEIVED
ount in escrow

oct 31.00
20,000.00 3,201,479.45 nov 30.00
compromise dec 31.00 92.00
20,000.00
 Chapter 7 - 9: REGULAR INCOME TAXATION - INCLUSIONS & EXCLUSIONS
Individual Income
Compensatio
Transaction n (Ch.10)
GROSS INCOME
a Gross compensation income a
b Sales less Cost of Goods Sold - for merch & manu
c Gross receipts less Cost of Services
d Sales less COGS/COS plus Other taxable income not subject to FIT
e Sales less COGS/COS plus Other non-operating income

Exclusions & Inclusions - not subject to income tax (RIT/FIT/CGT)/ subject to income tax
A Proceeds of life insurance policy (Return OF capital)
1.) General rule r
2.) In case agreed with interest to be paid - interest payments only -
B Amount received by the insured as a return of premium (Return ON capital)
1.) Insuree died within insurance coverage -
2.) Insuree outlived the insurance policy -
3.) Insuree died within insurance coverage but assigned to his heir -
4.) Insuree insured by his employer r
5.) Property insurance -
C Gains from dealings in properties
1.) Ordinary gains in dealings in ordinary assets -
2.) Net capital gains in capital assets other than domestic stocks & real props (chap 6)
a.) Capital asset held for < 1 yr (short-term holding period) -
b.) Capital asset held for > 1 yr (long-term holding period) -
3.) Exchanges
a.) Merger, consolidation & initial acquisition of control -
b.) Share-for-share swap transactions or property-for-share swap transactions that -
c.) Transfer of properties to a corp alone or w/ 4 others w/c did not result to initial -
d.) Transfer of props to a controlled corp after the initial acquisition of control -
e.) Wash sales -
f.) Retirement of bonds, debentures, notes, or certificates and other evidence of in -
g.) Short sale of properties -
h.) Failure to exercise a privilege or option to buy or sell property that is a capital as -
i.) Security becoming worthless - becoming bad debts expense in banks -
j.) Receipt/ CG of liquidating dividends in excess of cost -
k.) CG or amount received in liquidation of a partnership -
l.) Redemption of shares for cancellation or retirement -
m.) CG or CL Voluntary buy-back of shares -
D Gift, bequest, devise, or descent (G/B/D/D)
1.) General rule - subject to transfer's tax r
2.) Income from such property as well as G/B/D/D -
E Interest Income Other than Ch. 5
1.) Lending activities to individuals and corps , finance companies & other lenders -
2.) Bonds and promissory notes -
3.) Bank deposits abroad -
4.) Earned by landowners in disposing their lands to their tenants pursuant to Compr -
5.) Imputed interest income -
F Compensation for injuries or sickness
1.) Received from accident insurance r
2.) Received from health insurance r
3.) Received under Workmen's Compensation Act r
4.) Recovery/ reimbursement of lost profit/ salary a
G Rent
1.) Advance rentals either restricted (to be applied in future years or upon termination o -
2.) Advance rental constituting a loan or a security deposit to guarantee a payment or -
3.) Leasehold improvements See Chapter 4
H Royalties - active and earned from sources outside the Philippines -
I Dividends - please refer to Ch. 5
1.) Cash, Property and Script from foreign corps. -
J Annuities - excess of annuity over premium -
K Prizes & Winnings - please refer to Ch. 5
1.) Exempted from final tax -
2.) Received without effort or received in athletic competitions sanctioned by national sports association
3.) 10k and below - within and abroad -
4.) >10k - abroad -
5.) > 10k - within - FIT Please refer on Ch. 5
5.) PCSO and lotto > 10k or 20k - within - FIT Please refer on Ch. 5
6.) PCSO and lotto < 20k - within -
7.) PCSO and lotto < or > 20k - abroad -
8.) Winnings from other sources - abroad -
L Partner's Distributable Share from the Net Income of GPP -
M Share from Net Income of Exempt Joint Ventures & Co-Ownerships -
O Any income distribution received by an heir or beneficiary from a taxable estate/ trust -
P Income exempt under treaty - international comity r
Q Retirement benefits, pensions, gratuities under RA7641
1.) Retirement r
a. First time availment
b. Retiring official/ employee been in the service of the same employer for 10 years
c. Retiring official/ employee is at least 50 years old at the time of retirement
d. The employer maintains a reasonable private benefit plan
2.) Separation or Termination r
a. Due to job-threatening sickness
b. Beyond the control of the employee
3.) SSS/ GSIS benefits, retirement gratuities, etc. r
 4.) US Veterans Administration r
R Recoveries of Past Deductions - bad debts, local tax, interest exp condoned by lender, r -
x.) Recoveries on the following:
1.) Philippine income tax -
2.) Estate or donor's tax -
3.) Income tax paid or incurred to a foreign country if the taxpayer claimed a credit f -
4.) Stock transaction tax thru PSE -
5.) Special assessment -
S Expenses of the taxpayer that are reimbursed or paid by customer/ client -
T Cancellation of indebtedness
1.) In consideration of service or goods -
2.) As an act of gratuity -
3.) As capital transaction such as forfeiting the right to receive dividends in exchange o -
U Miscellaneous items
1.) Income derived from Phil investments in loans, stocks, bonds, domestic shares -
or from interest on bank deposits by:
a. Foreign investments
b. Financing institutions owned, controlled, or enjoying refinancing from foreign govt
c. International or regional financial institutions established by foreign govts
2.) Income derived by the government and its political subdivisions from:
a. Any public utility -
b. Exercise of essential govt function -
c. Government-Owned and Controlled Corporations -
3.) Prizes and awards made primarily in recognition of religious, charitable, scientific, ed r
a. The recipient selected without any action on his part
b. The recipient is not required to render substantial future service
4.) Prizes and awards in sports competitions granted to athletes r
5.) GSIS, SSS, Philhealth, Pagibig, Personal Equity Retirement Account (PERA) and Unio r
6.) 13th Month pay and other benefits received by officials and employees <90k r
7.) Gains from sale of bonds, debentures or other cert of indebtedness with a maturity -
8.) Gains realized from redemption of shares in a mutual fund company by the investor -
9.) Minimum wage earners - holiday, OT, night shift & hazard pay r
10.) Brgy. Micro-Business Enterprise (BMBE) under RA 9178 - total assets < = 3M -
11.) Cooperatives
a. General rule - transacts business with members -
b. Transacts business with non-members if accumulated reserves & undivided sav -
c. Income from non-related sources -
12.) Non-Stock & Non-Profit Entities -
13.) Qualified Employees' Trust Fund -
14.) Enterprises enjoying tax holiday incentives under EO 226 -
V Business Income Subject to Special Tax Regimes (Not Subject to RIT) -
1.) Philippine Economic Zone Authority (PEZA)-registered enterprises - GI tax -
2.) Tourism Infrastructure and Enterprise Zone Authority (TIEZA)-registered enterprises -
 3.) Income of self-employed and/ or individuals who opted to be taxed at 8% - Optiona -
W Business Income Subject to Final Tax
#REF! See Chapter 5
#REF! See Chapter 5
X Creditable Withholding Tax These should be added back to the

LESS: DEDUCTIONS
a Salary deductions a
b Transactions exempted by law, contracts or treaty from income tax a
c Operating expenses -
d Ordinary losses from dealings in properties (refer to C above) -
e Net capital loss -
>>> Net Capital Loss Carry Over - applicable for 1 year only (please see page 400) -
TAXABLE INCOME a

INCOME TAX 0-35%

>> In case of mixed transactions with different Taxable Income

- add all (+)
- add, absorb the negative (-)
- add, absorb the negative (-)
- recognize only the compensation, business loss can be carried-over (+)
- recognize only the compensation, prof loss can be carried-over (+)
- there should be a separate bookeeping a
>> Taxpayers with multiple type of business income shall report their GI subject to RIT under the column "Regular" in the com
>> GI subject to special rate and those exempt are presented respectively under the columns "Total Special" and "Total Exem

ANNUAL/ QUARTERLY TAX RETURNS

Purely-employed taxpayer 1700
Purely in business or profession or opting 8% -
Mixed income earners, estates and trusts 1701
Subject to RIT N/A
Subject to combination of rates N/A
Exempt N/A
Quarterly - within the year filing 1701Q
DEADLINE FOR FILING
Calendar Year Accounting Period April 15th
Fiscal Year Accounting Period 15th of 4th mo
1st Quarter - withtin the year May 15th
2nd Quarter - within the year August 15th
3rd Quarter - within the year November 15th
 Corporate
Individual Income EXAMPLES
Income
Business Professiona Business
l

a a a
a a a
a a a
a a a

r r -
a a -

r r - A insured his life w/ insurance. -

a a - annual payments of 20k for 10yr 300,000.00 taxable portion
a a - In case assigned to heir in 6th y 830,000.00 taxable portion
- - -
a a a B Co. secured a fire insurance fo 500,000.00 taxable portion

a a a

a a a Date acquired - 2017, date sold net gain net gain after hold
a a a car, books, supplies, lot, laptop, 40,000.00 20,000.00
40,000.00 40,000.00
r r r
a a a
a a a
a a a
a a a
a a a
a a a
a a a
a a a
a a a
a a a
a a a
a a a

r r -
a a a C donated car to son, later used 1,200,000.00 upon donation - excluded
 30,000.00 after donation - included
a a a
a a a
a a a
r r r
r r r

r r - E car accident and paid 1M. His c 500,000.00 taxable portion

r r -
r r -
a a - D Dengue, cannot go to work 100,000.00 hosp bill
20,000.00 prof fees
a a a 50,000.00 taxable portion
- - -
e Chapter 4
a a a Computer software

a a a
a a a X purchased an annuity - 200K, to pay him 10k annually for 12 years

- - - 200,000.00 proceeds
orts association 120,000.00 payments
a a a 80,000.00 taxable
a a a
ease refer on Ch. 5
ease refer on Ch. 5
r r a
N/A N/A a
a a a
a a - 60:40 share of Partner A&B on their Distributive Income
a a - 1,000,000.00 600,000.00 A.
a a - 400,000.00 B
r r r
20.00
r r - 32.00
F started in G Co. last Jan. 1, 1988 10,000,000.00
This year, due to COVID, she availed retirement.

A taxpayer incurred 60k bad debts e

r r -
NI before BDE
(BDE)/ recoveries
r r -
r r -
a a a A taxpayer incurred 60k bad debt 35,000.00

r r r
r r r
r r r
r r r
r r r
a a a transpo expenses, rpt expenses

a a a 500,000 loan
r r r walang kapalit
a a a A taxpayer incurred 90k BDE in 201

r r r NI before BDE
(BDE)/ recoveries

- - r govt can't itself

- - r govt can't itself
- - a example: Landbank, Development Bank of Phil.
r r -
Nobel Peace Prize Gawad Sining Award
CNN Hero of the Year Most Outstanding Citizen
r r - PBA/ FIBA/ Sea Games/ Olympics
r r -
- - -
r r r
r r r
- - -
r r r agriculture, bakery, actng/ auditing firm

r r r
r r r
a a a
r r r
r r r
r r r

5% 5% 5%
5% 5% 5%
 8% 8% - doctors, accountants, engineers, lawyers, etc.

e Chapter 5
e Chapter 5
ese should be added back to the reportable amoun
Rent income of 100k, net 5% CW 105,263.16
Interest income of 100k, net of 2 125,000.00

- - -
- - -
a a a
a a a
r r r
Applicable Applicable N/A
a a a

0-35% 0-35% 30%

(+) (+) N/A

(+) - N/A
- (+) N/A
(-) - N/A
- (-) N/A
a a N/A
r the column "Regular" in the computation of tax per regime in the Annual ITR.
s "Total Special" and "Total Exempt"

- - N/A
1701A 1701A N/A
1701 1701 N/A
N/A N/A 1702-RT
N/A N/A 1702-MX
N/A N/A 1702-EX
1701Q 1701Q 1702Q

April 15th April 15th April 15th

15th of 4th mo
15th of 4th mo
15th of 4th mo
May 15th May 15th May 30th
August 15thAugust 15th August 30th
November 15th
November 15th
November 30th
 500,000.00 proceeds
(200,000.00) payments/ dist
300,000.00 taxable

1,000,000.00 proceeds proceeds

(130,000.00) payments cost of property insured
(40,000.00) payments
830,000.00 taxable

1,500,000.00 cost of building

2,000,000.00 proceeds
500,000.00 taxable

onation - excluded
onation - included

500,000.00
1,000,000.00
500,000.00 taxable
x
x
lost profit

non taxable

yer incurred 60k bad debts exp in 2018, 35k recovered in 2020.
2,018.00 2019 2020
100,000.00 80,000.00 120,000.00
(60,000.00) - 35,000.00
40,000.00 80,000.00 155,000.00
yer incurred 90k BDE in 2018, 60k of which was recovered in 2020
2,018 2019 2020
70,000.00 100,000.00 120,000.00
(90,000.00) - 60,000.00
(20,000.00) 100,000.00 180,000.00
(20,000.00)
80,000.00
 Chapter 10 - 11: COMPENSATION INCOME OF EMPLOYEES

Transaction
GROSS COMPENSATION INCOME
A Regular Compensation - fixed remunerations per payroll period
1.) Basic salary
2.) Fixed allowances - COLA, housing, representation, transpo
2.x.a) Exempted - see no. 3 below for exempt benefits
2.x.b) Any excess advances are returned to the employer
B Supplemental Compensation - includes performance-based remunerations
1.) OT, Hazard, Night Shift Differential (11pm to 5am) and Holiday Pay
2.) Commissions
3.) Fees including director's fees (if director is an employee)
4.) Emoluments (any pay in general) & Honoraria (attending to special task or assign)
5.) Taxable retirement & separation pay
6.) Value of living quarters or meals
7.) Gains on exercise of stock options
8.) Profit sharing and taxable bonuses

LESS: NON-TAXABLE COMPENSATION

A Mandatory deductions - GSIS, SSS, Philhealth, HDMF, union dues
B Exempt benefits
1.) Benefits excluded and/ or exempted under the NIRC & special laws
1.a) Remunerations received as incidents of employment
1.a.1) Exempt retirement benefits under RA7641
1.a.2) Exempt termination benefits
1.a.3) Benefits from US Veterans Administration
1.a.4) Social security, retirement gratuities, pensions & similar benefits from foreign govt a
1.a.5) Benefits from SSS, under SSS Act of 1954, as amended
1.a.6) benefits from GSIS under the GSIS Act of 1937, as amended
1.a.7) Employer's retirement, insurance, hospitalization contribution to employees
1.b) De minimis benefits - relatively small value, promoting the health, goodwill, contentment, or efficiency of employee
1.b.1) Monetized unused VL of private employees < = 10 days
1.b.2) Monetized unused VL & SL of govt officials & employees
1.b.3) Medical cash allow to dependents of employees < = P1,500/ emp/ semester, or P375
1.b.4) Rice subsidy < = 2k or = to 1 sack (50 kilo) rice
1.b.5) Uniform & clothing allow < = 6k per annum
1.b.6) Actual medical assistance < = 10k per annum
1.b.7) Laundry allow < = 300/ mo.
1.b.8) Employee achievement award < = 10k
1.b.9) Gifts given during Christmas & any co. anniversary < = 5k
 1.b.10) Daily meal allow for OT work night/ graveyard shift < = 25% of the basic MW per reg
1.b.11) Benefits rec'd by employee by virtue of CBA and productivity incentive schemes <
1.c) 13th month pay and other benefits < = 90k
1.c.1) 13th month pay - mandatory
1.c.2) Christmas bonus of private employees
1.c.3) Cash gifts other than Christmas or anniv gifts to private employees
1.c.4) Additional compensation allow of govt personnel
1.c.5) 14th & 15th month pay
1.c.6) Other fringe benefits of rank & file employees
- Excess de minimis
- Other benefits of relatively small value not included in the list of de minimis benefits
- Employee personal expenses shouldered by the employer
1.c.7) Other fringe benefits of managerial or supervisory employees
Valuation of the monetary value (Quarterly):
> Paid in cash - valuation is the amount paid in cash
> Paid in kind - FV of the thing given or BV whichever is higher
> Paid in kind - FV of the transferred property even if partially used in the business of the employer
> Given in the form of FREE USE - 50% of the rental value of the property
> Given in the form of FREE USE - 50% of the depreciation value of the property if no rental value
>> 20 yrs for real properties - computed as 1/20 or 5% of the value of the property
>> 5 yrs for movable properties - computed as 1/5 or 20% of the value of the property
1.c.7.1) Housing benefits
a.) Military officials of the AFP, Phil. Air Force, Army, Navy
b.) Unit situated or adjacent to business premises (w/in 50 meters)
c.) To be used 3 months or less
1.c.7.2) Expense account reimbursed/ advanced by employer
1.c.7.3) Vehicles of any kind
a.) Aircrafts - deemed solely for business use
b.) Yachts
c.) Yachts used for entertaining guests or prospective clients
1.c.7.4) Household expenses
1.c.7.5) Interest on loan at less than market rate of 12%
1.c.7.6) Membership fees, dues, & other expenses borne by the employermfor his employees in social & athle
1.c.7.7) Foreign travel expenses to attend business mtgs, conventions, seminars, etc.
a.) In-land travel expenses such as transpo and meals
b.) lodging costs for an average of $300 a day or less
c.) Economy and business class airplane tickets
d.) 70% of the cost of first-class ticket
1.c.7.8) Holiday and vacation expenses if shouldered by the employer
1.c.7.9) Educational assistance to the employee or his/ her dependent - as a rule
a.) Directly connected with the employer's trade, business or profession
b.) Employee bond/ contract to stay for a period of time
1.c.7.10) Life or health insurance & other non-life insurance premiums in excess of th
 a.) Employer's SSS, Philhealth, HDMF, or grp insurance contributions with
b.) Cost of premium for group insurance of employees
1.d) Certain benefits of MWE
2.) Benefits exempt under treaty or international agreements
2.a) Employee benefits of non-Filipino nationls and/or permanent residents
2.b) Filipino employees - as a rule
2.b.1) United Nations
2.b.2) Specialized UN agencies
2.b.3) Australian Agency for International Development
2.b.4) Food and Agriculture Organization (FAO)
2.b.5) WHO
2.b.6) United Nations Development Programme (UNDP)
2.b.7) International Organization for Migration
2.b.8) International Seabed Authority
2.c) Foreign embassy, mission or org - w/in the Phils
2.c.1) Filipino citizens
2.c.2) Aliens
2.d) Philippine embassy w/in the Phils - both from citizens and aliens
2.e) Foreign embassy, mission or org - abroad - both from citizens and aliens
2.f) Phil embassy or consulate office
2.c.1) Filipino citizens
2.c.2) Aliens
3.) Benefits required by the nature of, or necessary to, the trade, business or conduct of profession by the employer
3.a) Travelling, transpo, representation or entertainment for reimb or liquidation
3.b) Reimbursement allow to govt personnel
3.b.1) RATA
3.b.2) Personal Economic Relief Allowance
3.c) Reimbursements of employees for travel & representations
4.) Benefits for the convenience or advantage of the employer
4.a) Phone, transpo, car allow, celphone, helicopter allow for miners, chopper to CEO
4.b) Hotel/ inn allow/ housing privileges or quarters at remote facilities
4.c) Scholarship grants/ masteral, etc.
C Benefits not subject to Withholding Tax on Compensation
1.) Remunerations received as incidents of employment
2.) Rem. Paid for agricultural labor and paid entirely in products of the farm where labor is perform
3.) Rem. For domestic services
4.) Rem. For casual labor not in the course of an employer's trade or business - treated as other inc
5.) Damages paid by the employer to employees
6.) Proceeds of life insurance
7.) Amounts received by an uninsured employee as a return of premium
8.) Compensation for injuries or sickness
9.) Comp. income of employees in the public sector if the same does not exceed those MWE in agri
TAXABLE COMPENSATION INCOME
COMPENSATION INCOME TAX
FRINGE BENEFIT TAX - GROSSED-UP MONETARY VALUE /65% X 35%; IF NRA - /75% X 25%

>> Under The Substituted Filing System, The Employer Files The ITR of its employees.

TAX RETURN ON COMPENSATION/ FRINGE BENEFIT

- BIR Form 1601-C - monthly filing
- BIR Form 1601-C - FOR TAXES WITHHELD IN DECEMBER
- BIR Form 1604-C - Annual Info Return
- BIR Form 2316 - required to be furnished to employees
- BIR Form 1603Q - quarterly filing
 Managers/
Rank & File Employees EXAMPLES
Supervisors

Regular RIT MWE FBT

a r - Basic salary 30,000.00 a month

a r - COLA 500.00
r - - actual
r - - plane ticket - 6k 5,800.00 200.00
a r -
a r - OT - 3 hrs (1am to 4am) 511.36 8am-5pm
a r - Hazard 11,000.00
a - - NSD - 1-4am 51.14
a - - holiday pay 2,727.27
a - - commission - 5% (2 cars) 100,000.00
a - - housing allowance 10,000.00
a - - Employee entitled to buy 10k of 500,000.00
a r - target 1M 15,000.00

r - -

r - r
r - r
r - r
r - r
r - r
r - r
r - r
entment, or efficiency of employees
r - r limit
r - r actual allowance received non-taxable taxable
r - r 5,000.00 4,500.00 500.00
r - r 48,000.00 24,000.00 24,000.00
r - r
r - r 10,000.00 10,000.00 -
r - r 4,000.00 3,600.00 400.00
r - r
r - r 4,000.00 4,500.00 -
 r - r
r - r
r r r
r r r 13th 30,000.00
r r r mgmt prerogative - 1/2 of salary 15,000.00
r r r 14th 30,000.00
r r r 15th 30,000.00
r r r 105,000.00 15,000.00
taxable
a a -
a a -
r r -

s of the employer

no rental value

Quarterly value Q Monet. Value

- - a Employer leases residential H&L 60,000.00 30,000.00
- - r
- - r
- - r
- - a Grocery, transpo, hotel accom, utibusiness expenses, food for clients, business telephone b
- - a 60/40 1,000,000.00 400,000.00
- - r
- - a
- - -
- - a gardener a mo., subd association dues a year, guard a mo., utilities a mo.
Asia Coop lent its COO 1M at a m 90,000.00 22,500.00
for his employees in social & athletic clubs or si PICPA, IIA

- - r
- - r
- - r
- - r
- - a
- - a
- - r
- - r
- - a
 - - r
- - r
- r -

r - r
a - r
r - r
r - r
r - r
r - r
r - r
r - r
r - r
r - r

a - r
r - r
N/A - r
r - r

a - r
r - r
profession by the employer
r - r plane, bus, taxi fares

r - r
r - r
r - r meals

r - r
r - r
r - r

r r -
r r -
r r -
r r -
r r -
r r -
r r -
r r -
r r -
 a a -
a a -
- - a

DEADLINE
on or before 10th of the following month
on or before January 15th of the succeeding year
on or before January 31st of the succeeding year
on or before January 31st of the succeeding year
on or before the last day of the mo. Ff. the quarter in w/c withholding is made
*assign

Cash Advancefrom employer

Reimbursememag-aabono secure receipts
*assign

8am - 5pm

150 selling price

100 purchase price
50 gain

*assign
ood for clients, business telephone bills

mo., utilities a mo.

*assign
*assign
 Chapter 7 - 9 (12): REGULAR INCOME TAXATION - INCLUSIONS & EXCLUSIONS
Chapter 13 - 13B: DEDUCTIONS - INCLUSIONS & EXCLUSIONS
Individual Income
Compensation
Transaction (Ch.10)
GROSS INCOME
LESS: DEDUCTIONS
A Salary deductions a
B Transactions exempted by law, contracts or treaty from income tax a
C Operating expenses/ Regular Allowable Itemized deductions -
1. INTEREST EXPENSE -
- Requisities of Deductibility
1.a. There must be a valid indebtedness --> must be that of the taxpayer and connected with his trade, business or exe
1.b. Interest expense must have been paid/ incurred during the taxable year; must be stipulated in writing; and must b
1.c. Interest payments must not be between related taxpayers
1.d. Interest must not be incurred to finance petroleum operations
1.e. In case of interest incurred in acquisition of property used in T/B/P, the same should not be treated as a capital ex
1.f. The interest is not unlawful.
Notes:
- Thrift banks - exempt from arbitrage limit coverage -
- Discount or pre-deducted interest - is a prepayment, hence, non-deductible -
- Interest on personal loans -
- Interest incurred with a related party -
- Discount applicable to future periods -
- Interest exp incurred to finance petroleum operations -
- Interest on redeemable preferred shares -
- Imputed interest -
2. TAXES paid or incurred within the taxable year in connection with T/B/P -
- FBT -
- Foreign income tax, if NOT claimed as tax credit -
--> can be claimed as deduction or tax credit
'Notes:
'- Only DC and RC can claim this.
'- Refund of non-deductible taxes is exempt from income tax.

- Percentage and excise taxes -

- DST, Occupational, License taxes -
- Local taxes except special assessment, Community and Municipal taxes -
- FIT, CGT, RIT -
- Foreign income tax, if claimed as tax credit -
- Estate and donor's taxes -
- Special assessment -
- VAT and Unused Input VAT -
- Surcharges or penalties on delinquent taxes -
3. LOSSES actually sustained during the taxable year -
- Requisities of Deductibility
3.a. It must be incurred in T/B/P - a business loss not a personal loss
3.b. It must pertain to property connected with T/B/P if loss arises from fires, storms, shipwrecks or other casualties, ro
3.c. It must not be compensated for by insurance
3.d. Declaration of loss must be filed by the taxpayer w/in 45 days from the date of discovery of the casualty, robbery,
3.e. It must not be claimed as a deduction for estate tax purposes in the estate tax return
TYPES OF LOSSES
- Ordinary losses from dealings in properties (refer to C above) -
- Other ordinary losses -
1.) Loss on disposal or destruction of any ordinary asset -
2.) Loss due to voluntary removal of building incident to renewal or replaceme -
3.) Permanent loss in value of assets due to changes in business condititions, o -
4.) Abandonment losses -
- Capital losses -
>>> Net Capital Loss Carry Over - applicable for 1 year only (please see page 400 -
4. BAD DEBTS -
- Requisities of Deductibility
4.a. The debt must have been ascertained to be worthless.
4.b It must be charged off within the year and connected with taxpayer's T/B/P
4.c. It must not be incurred from a related party.
4.d. The taxpayer must be under accrual basis of accounting.
Notes:
- Estimated bad debts expense -
- Bad debts from personal receivables -
- Securities becoming worthless of taxpayers other than domestic banks & trust -
- Loss on capital investments in partnerships, joint ventures, or corps. -
- Bad debts sustained under cash basis of accounting even if there is subsequen -
5. DEPRECIATION (please refer on BIR & Tax Code for the details) -
6. DEPLETION for minerals gas and oil (please refer on BIR & Tax Code for the details) -
7. CHARITABLE & OTHER CONTRIBUTIONS -
- Requisities of Deductibility
7.a. The donee institution must be a domestic institution.
7.b. No income of the donee institution must inure to the benefit of any private stockholder/ individual
7.c. The contribution must be valued at the tax basis of the property donated.
7.d. The taxpayer must be engaged in T/B.
7.e. The donee must issue a Certificate of Donation
7.f. It donation is at least 50k, the donor shall file a Notice of Donation to RDO within 30 days upon receipt of the Certi
- Those who meet the requisites above may either be:
 7.A. Fully deductible (please refer on BIR & Tax Code for the details) -
7.B. Contributions subject to limit -
- not with priority activities
- Donations to Non-Accredited NGOs

8. CONTRIBUTIONS TO PENSIONS & TRUSTS

- Requisities of Deductibility -
8.a. The employer must have established a pension/ retirement fund - funded by the employer
8.b. The actuarial assumptions used by the fund must be sound and reasonable.
8.c. The fund assets must not be subject to the control by the employer.
8.d. Contribution for current service cost is deductible in full.
8.e. Contribution for past service cost is amortized over a period of 10 years.

9. RESEARCH & DEVELOPMENT COSTS -

10. OTHER ORDINARY & NECESSARY T/B/P EXPENSES
- Salaries & allowances, Fringe benefits, SSS, GSIS, HDMF & other contributions -
- Commissions, advertising, rental, insurance, royalties, repairs & maintenance -
- Transpo, fuel & oil, utilities, supplies -
- miscellaneous -
- Entertainment, Amusement & Recreation (EAR) Expenses
- Requisities of Deductibility
9.a. Paid/ incurred during the taxable year
9.b. Directly connected to T/B/P and not unlawful
9.c. With adequate proof & amount of tax have been withheld/ paid to BIR
- Net sales for the sale of goods -
- Net revenues for the sales of services -
- For both goods/ services -
D Special Allowable Itemized Deductions & NOLCO -
SPECIAL EXPENSES UNDER THE NIRC & SPECIAL LAWS
1. INCOME DIST. FROM A TAXABLE ESTATE OR TRUST -
2. TRANSFER TO RESERVE FUND & PAYMENTS FOR:
- INSURANCE COMPANIES -
 - TAXABLE COOPERATIVES -
3. DIVIDEND DIST. OF A REAL ESTATE INVESTMENT TRUST (REIT) UNDER RA985 -
4. DISCOUNTS TO:
- SENIOR CITIZENS UNDER RA9257 - 60 yrs & above -
- Requisities of Deductibility
4.a. The GSP & discount of SC should be separated - the only portion eligible for deduction
4.b. Only the actual amount or sales disc granted <=20% can be duducted (net of VAT)
4.c. The discount allowed only to be deducted in they year it was granted
4.d The co. giving discounts should keep name, TIN, ID, gross sales, disc granted, date, invoice no for every SC transacti
- PWDs UNDER RA9442 (same computations as SCs above)
DEDUCTION INCENTIVES UNDER SPECIAL LAWS
1. ADDITIONAL COMPENSATION EXPENSE TO:
- SENIOR CITIZENS UNDER RA9257 -
- Requisities of Deductibility
1.a. Employment should continue at least 6 months
1.b. The SC annual taxable income <= to the poverty level as determined by NEDA
- PWDs UNDER RA9442 -
2. COST OF FACILITIES IMPROVEMENTS FOR PWD UNDER RA9442 -
3. ADDITIONAL TRAINING EXPENSE UNDER 8502 - JEWELRY INDUSTRY DEVELO -
4. ADDITIONAL CONTRIBUTION EXPENSE UNDER ADOPT-A-SCHOOL PROGRAM -
5. ADDITIONAL DEDUCTIONS FOR ROOMING-IN & BREAST-FEEDING PRACTICES -

6. ADDITIONAL FREE LEGAL ASSISTANCE EXPENSE UNDER RA9999 - pro bono -

7. ADDITIONAL PRODUCTIVITY INCENTIVE BONUS EXPENSE UNDER RA6971 -

TAXABLE INCOME a

INCOME TAX 0-35%

>> In case of mixed transactions with different Taxable Income

- add all (+)
- add, absorb the negative (-)
- add, absorb the negative (-)
- recognize only the compensation, business loss can be carried-over (+)
- recognize only the compensation, prof loss can be carried-over (+)
Net Operating Loss Carry-Over (NOLCO) -
Taxpayers exempt, enjoying tax holiday, subject to final tax -
There is a substantial change in the ownership of the business -
NOLCO and NCLCO deducted at the same time -
NOLCO transferred to acquirer -
NOLCO for mining companies can be carried over up to 5 years -
 FORMULA: GI subject to RIT less deds excluding NOLCO and Special Deds
-->
2015
Gross Income 410,000.00
Ordinary Deductions (500,000.00)
Special Deductions (200,000.00)
NI/ (NOLCO) (90,000.00)
50,000.00
NOLCO balance (40,000.00)
40,000.00
-
NOLCO balance -

Net income -
- there should be a separate bookeeping a
>> Taxpayers with multiple type of business income shall report their GI subject to RIT under the column "Regular" in the com
>> GI subject to special rate and those exempt are presented respectively under the columns "Total Special" and "Total Exem

ANNUAL/ QUARTERLY TAX RETURNS

Purely-employed taxpayer 1700
Purely in business or profession or opting 8% -
Mixed income earners, estates and trusts 1701
Subject to RIT N/A
Subject to combination of rates N/A
Exempt N/A
Quarterly - within the year filing 1701Q
DEADLINE FOR FILING
Calendar Year Accounting Period April 15th
Fiscal Year Accounting Period 15th of 4th mo
1st Quarter - withtin the year May 15th
2nd Quarter - within the year August 15th
3rd Quarter - within the year November 15th
 Corporate
Individual Income EXAMPLES
Income
Business Professional Business

- - -
- - -
a a a
Interest less 33%Interest less 33%Interest less 33% A taxpayer incurred int exp of 100,000.00
and earned int income 10,000.00
nnected with his trade, business or exercise of profession (T/B/P)
ust be stipulated in writing; and must be legally due --> Gross int exp 100,000.00
Less: Arbitrage limit 3,300.00
Deductible int exp 96,700.00
e should not be treated as a capital expenditure

NDs NDs NDs

NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
NDs NDs -
NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
a a a
a a a
a a a Deduction Approach
Phils
Taxable income from 1,800,000.00
Income tax paid 200,000.00
--> Taxable income - world 2,700,000.00
Corporate Income tax due 810,000.00
Less: Taxes paid 200,000.00
Income tax payable 610,000.00

a a a
a a a
a a a
NDs NDs NDs
NDs NDs NDs
 NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
a a a
and earned int income 10,000.00

rms, shipwrecks or other casualties, robbery, theft, embezzlement

e of discovery of the casualty, robbery, etc.

a a a
a a a
a a a
a a a
a a a
a a a
NDs NDs NDs
Applicable Applicable N/A
a a a

Chowking, Jollibee, Mang Inasal

San Miguel, Ginebra, Purefoods

NDs NDs NDs

NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
NDs NDs NDs
a a a
a a a
a a a

donee - bibigyan ng donation

stockholder/ individual donor - nagdonate

ithin 30 days upon receipt of the Certificate of Donation Revenue District Officer
 a a a
10% 10% 5%
non-priority activities 80,000.00
donation to non-acc NGOs 60,000.00
professional fees 1,100,000.00
deds b4 contributions 600,000.00
--> if individual
--> if corp.

a a a Defined benefit plan

y the employer 2019
Past service cost 600,000.00
Current service cost 500,000.00
Annual contribution 400,000.00

--> Contribution 400,000.00

Funding of 2019 CSC
CSC (400,000.00)
Excess before 2019 PSC -
2019 PSC
Overfunding - Prepaid Pension
DEDUCTIBLE PENSION EXPENSE 400,000.00
a a a

a a a
a a a
a a a
a a a

Actual EAR 9,000.00

Net sales 300,000.00
Net revenues 700,000.00
0.5% 0.5% 0.5% Sale of goods 300,000.00
1% 1% 1% Sale of services 700,000.00
a a a Total sales 1,000,000.00
a a a

a a a Trust net income to be dist. 5,000,000.00

- - a 2019
Required Reserves 672,000.00
Less: Prior Reserve -
 Deductible/ (Inclusion in GI) 672,000.00
- - 10.0% Net income from unrelated activ 600,000.00
- - a

20.0% 20.0% 20.0%

A Co. granted 30% discounts to SC
Gross sales for regular customer 3,000,000.00
Gross sales for SC customers 1,500,000.00
SC discounts granted 400,000.00
, date, invoice no for every SC transaction

15% 15% 15% Regular employee compensation 40,000.00

SC w/ salary grades >poverty lev 30,000.00
SC w/ salary grades <poverty lev 20,000.00

25% 25% 25%

50% 50% 50%
50% 50% 50%
50% 50% 50%
a a a Regular Deduction 200,000.00
Special Deduction 200,000.00
10% 10% 10%
Actual free legal services 100,000.00
Gross income from operations 3,000,000.00

50% 50% 50%

a a a

0-35% 0-35% 30%

(+) (+) N/A

(+) - N/A
- (+) N/A
(-) - N/A
- (-) N/A
a a a
r r r
r r r
r r r
r r r
a a a
 2016 2017 2018 2019 2020
300,000.00 500,000.00 400,000.00 600,000.00 900,000.00
(500,000.00) (450,000.00) (340,000.00) (450,000.00) (500,000.00)
(350,000.00) (300,000.00) (150,000.00) (50,000.00) (200,000.00)
(200,000.00) 50,000.00 60,000.00 150,000.00 400,000.00
- (50,000.00)
(200,000.00) -
(40,000.00)
20,000.00 (20,000.00)
(180,000.00) -
150,000.00 (150,000.00)
(30,000.00) -
- - - - 400,000.00
a a N/A
under the column "Regular" in the computation of tax per regime in the Annual ITR.
umns "Total Special" and "Total Exempt"

- - N/A
1701A 1701A N/A
1701 1701 N/A
N/A N/A 1702-RT
N/A N/A 1702-MX
N/A N/A 1702-EX
1701Q 1701Q 1702Q

April 15th April 15th April 15th

15th of 4th mo 15th of 4th mo 15th of 4th mo
May 15th May 15th May 30th
August 15th August 15th August 30th
November 15thNovember 15th November 30th
ES

>1 Foreign CountTax Credit Approach - 1 Foreign Country

China Korea
1,200,000.00 1,000,000.00 Limit 360,000.00
300,000.00 400,000.00 Actual income tax paid 300,000.00
3,000,000.00 Foreign tax credit (LOWER) 300,000.00
900,000.00
500,000.00
400,000.00
 140,000.00
vs

50,000.00 LOWER
25,000.00 LOWER

2020 2021
- -
510,000.00 520,000.00
1,400,000.00 400,000.00

1,400,000.00 590,000.00
(100,000.00) -
(510,000.00) (520,000.00)
790,000.00 70,000.00
(600,000.00) -
190,000.00 70,000.00
670,000.00 580,000.00

Allocation Ceiling Deductible

2,700.00 1,500.00 1,500.00
6,300.00 7,000.00 6,300.00
9,000.00 8,500.00 7,800.00 LOWER

3,750,000.00

2020 2021
960,000.00 800,000.00
672,000.00 960,000.00
288,000.00 (160,000.00)
60,000.00

300,000.00
VS
400,000.00
300,000.00

3,000.00

100,000.00 LOWER
VS
300,000.00
Tax Credit Approach - >1 Foreign Country (China) >1 Foreign Country (Korea)

Limit 360,000.00 Limit 300,000.00

Actual income tax paid 300,000.00 Actual income tax paid 400,000.00
4,000,000.00 Foreign tax credit (LOWER) 300,000.00 Foreign tax credit (LOWER) 300,000.00
1,200,000.00
800,000.00
400,000.00
>1 Foreign Country (World)

Total tax credit 600,000.00

World tax credit 660,000.00
World tax credit (LOWER) 600,000.00