INCOME TAXATION

ABDUL BARRI INDOL GATO, CPA

MINDANAO STATE UNIVERSITY
MARAWI CITY
09452146094
KINDS OF TAXPAYERS
Individual Partnerships
1) Intention is clear
Ordinary partnerships
RC - considered domestic corporations
Citizens
NRC
General Professional
RA partnerships
Aliens NRA-ETB
NRA NRA- NETB - NONTAXABLE entity
- partners are the one taxable
2) Intention is not clear

RC
NRC Estates
Citizens
183 days Stay 183 days
outside
PH Judicial - TAXABLE
RA
NRA-NETB
NRA-ETB
Aliens Extra-Judicial - NONTAXABLE
180 days 180 days - 1 yr 1 yr
Stay inside PH

Corporate Trusts
Domestic Revocable - NONTAXABLE

RFC
Foreign
NRFC Irrevocable - TAXABLE
INDIVIDUAL INCOME TAX
 Gross Income

THOSE SUBJECT TO
BASIC TAX
- graduated tax table diretso THOSE EXEMPTED or EXLUDED
- compute taxable income
- income tax due (questions)
-08 Proceeds of life insurance received by family members
(as beneficiaries)
THOSE SUBJECT TO -08 Gifts, bequests and devises

FINAL TAX -08 Income under treaties

-08 Income derived by foreign governments, etc.

- will not be included sa income tax due
-08 Income derived by government or its political subdivisions
- tax computed and withheld is already final
-08 Gains from redemption of mutual funds
Gains from sale/exchange/retirement of bonds,
Difference of Final Withholding Tax -08

debentures, etc. with maturity of > 5 yrs

and Creditable Withholding Tax -08 Personal Equity and Retirement Account

-08 Personnel Economic Relief Allowance

100k - 10k = 90k -08 Capital Contributions to corporations/partnerships

-08 Other non-taxable income whole not mentioned here

Withheld tax but mentioned throughout the notes
FINAL CREDITABLE
- not subjected to - not yet final
any other tax - advanced for payment
- exclude from - kasama sa GI computation
gross income but tax withhld will reduce
computation income tax due
General Rules

RULE #1 RULE #2 RULE #6

Individual NRA-NETB ALL PASSIVE INCOME (except rent)
Taxpayers 25% FINAL TAX are subject to FINAL TAX..
INDIVIDUAL
RC ALL SOURCES
NRC
RA WITHIN PH
ONLY
NRA-ETB
RULE #7
NRA-NETB
RULE #3
ALL INCOME WITHOUT
are subject to BASIC TAX..
NO SPECIAL ALIENS!
(under RA 10963)

RULE #4
Corporate
Taxpayers
RULE #8
Domestic ALL SOURCES RULE #5 Pre-dominance Test

o
Gross Income PH, 3 yrs
Foreign WITHIN PH
(RFC or NRFC) ONLY NRFC 30% FINAL TAX Gross Income World, 3 yrs
CREATE #2
<= 50% income without
> 50% - < 85% partly in, out
>= 85% income within
 Mixed Income Earner Compensation Income
1) Regular Compensation - deduct mandatory contributions
1) Purely Self-employed
- no employer (business or Gross Receipts/Sales
+ Non-op Income
2) Supplemental Compensation - all taxable
practice of profession)
a. Graduated Tax Table; or 3M (3M - 250k) 8%
3) 13th month pay and other benefits - 90k threshold
b. 8% Gross Income Tax Tax due

(if signified on 1ST Quarter

of taxable year) 4) Separation Pay
a. EXEMPT: cause beyond control of employee
b. Taxable: voluntary cause
2) Mixed Income Earner
5) Retirement Pay Minimum Wage Earners
a. Business or b. Compensation Income GR: Taxable General Rule: all EXEMPT (not exceed SMW)

Professional income (Graduated Tax table)

Exempt: Except: If SMW exceeded: ALL TAXABLE

- dito ideduct ang 250k • Income subject to final tax

- employer-employee relationship
• approved by BIR, first time to avail •
Business income
Gross Receipts/Sales
• 10 years of service, >= 50 yrs old • Practice of profession
+ Non-op Income
3M (3M) 8% RC, NRC only
6) Fringe Benefits •
Other benefits > 90k

Tax due
8% GIT
RA, NRA-ETB a. Employee’s convenience - NON Taxable
b. Insurance premiums paid by employer to insure employee
Beneficiary: COMPANY/EMPLOYER - TAXABLE
NOTE: If > 3M, all graduated tax table! Beneficiary: FAMILY MEMBERS - NON Taxable

EXEMPT SA 8% GIT DE MINIMIS BENEFITS Meal for

overtime or
25% of basic
minimum
•

graveyard shift wage

• 6k
VAT Taxpayers Monetized Uniform clothing
•

Unused
•

10 days
a
per yr Non-cash
Taxpayers subject to OPT
@

•
Vacation (private) tangible 10k •

other than 3% OPT Medical allowance •

10k employee per yr •

•
Partners of GPP Monetized no
(govt)
•
to employee
@

per yr achievement
Sick & Vacation limit
@

•
Those tax-exempted award
Laundry 300 per
Those who failed to signify intention
•

•
Medical cash 250 per Productivity
allowance to
•
allowance @
month
to avail 8% in 1st quarter @

month Incentive
dependents Christmas or Scheme
10k •

• 5k per yr O

anniversary
Rice Subsidy 2000 per per yr employee
⑥ •

month@
gifts benefits
 Rent Income Prizes
Annuities 1) Cash 3) Advance Individual Corporate
Return of capital: EXEMPT payment
2) Lessor’s obligation 10k & below BASIC
BASIC
Return on capital: TAXABLE to 3rd parties Prepaid rent • Income in year of receipt
Above 10k 20%

Partner’s share in GPP’s NI

paid/assumed Security •
Taxable:if applied to

deposit future pmts

EXEMPT PRIZES
by lessee (Real property tax, etc)
Exempt: restricted
To athletes sanctioned
Advance rentals oooo ⑧
by their NSA's
Without any action to

4) Leasehold enter contest

From exempt corporation: BASIC Improvements

Oooo
In recognition of religious, No substantial in
scientific, etc. achievement future services to
From taxable corporation: Dividend income from DC Loss of lease render

Royalty Income
Pre-termination

Winnings
Income improvement

FMV @
Outright Loss O
completion
=
1) Active Royalty: BASIC tax Individual Corporate
Annual income Income Additional income
2) Passive Royalty BV, end of term recognized BV of LI @ termination
In general 20% BASIC
Spread-out = = - Income already
•
In general Remaining recognized PCSO & Lotto
20% lease term
• From cinematographic (Individual or corporate)
10k & below EXEMPT EXEMPT
films, etc.
•

Deductible expense of lessee (NRA-NETB and

NRFC also)
• From books, literary works 10% Individual FV of bldg @ completion Above 10k 20% 20%
=
•

& musical composition 20% Corporate Remaining lease term

Other Sources of Income

Interest Income Dividends 1) Informer’s reward
10% or 1M, lower
except 6th degree etc.
(also NETB and NRFC 25% still)
Short-term 20% FINAL TAX
•

Local business-related taxes

20%
•

Individual < 5 yrs

subject to NRA—ETB 2) Tax refund OPT except STT FBT Excise taxes
•• Customs duties
•

Long-term EXEMPT pre-termination Individual

• •

Tax benefit rule applies Foreign income tax paid

Other individuals 10%
•
•
DST
Local currency (see below) •
(RC and DC only) as OPEX
>= 5 yrs
Domestic (except NETB: 25% still) 3) Damages recovery
Corporate 20% FINAL TAX Corporation
to

Banks except NRFC: 15% if tax sparing rule applies

30% if not or if silent EXEMPT: Damages for loss of life, property and
RC, RA, DC : 15% FINAL TAX Corporate EXEMPT damage to person
Resident RFC 7.5% FINAL TAX CREATE #8
Foreign currency
:
TAXABLE: Any other damages
Non-resident EXEMPT Foreign
BASIC TAX except NRA-NETB, NRFC 4) Bad debts recovery
Corporation
Tax benefit rule applies
BASIC TAX except
PRE-TERMINATION RC, DC: 100% TAXABLE
CREATE #6 From If nag benefit @ time of write-off
Non-banks within RFC Pre-dominance
NRA-NETB, NRFC - before 5th yr of original term NRC, Aliens, FC: ONLY test
NRFC without
Pre-termination interest Cooperative EXEMPT
EXEMPT INTEREST INCOME
< 3 yrs 20%
⑧
From FCDU received by non-residents Exempt Pure stock dividend
⑧
Those earned by land owners (CARP) 3 yrs - < 4 yrs 12% FORMS BE
Stock Taxable Represents distribution of
Imputed interest
earnings or have options
⑧

4 yrs - < 5 yrs 5% Cash

From cooperatives
Liquidating Exempt
BE
⑧
BE

Those that ser ve as penalties

Property
⑧

BE
BE
Scrip Final Tax
CORPORATE INCOME TAX
DOES NOT COVER: CREATE #1
GPP Penalty Income Tax
Joint construction
venture energy operations under 1) Minimum Corporate Income Tax (MCIT)
service contract with govt
for CREATE #5
RATE: 2% x (Gross Income + Non-operating Income)

Standard Income Tax

COVERAGE:
DC except REITs Those subject special tax rates
RFC (Except private schools, hospitals
and international carriers)
CREATE #2 1) Net Income Tax: 30% NOTES:
2) Final Tax DC-RFC NRFC 08Starts on 4th taxable yr ④o Max period for one yr
- 2% of GI VS 30% of TI, HIGHER excess MCIT: 3 YRS
a. Interest Income 20% 30%
*FCDU -
15%-7.5% CREATE #8 EXEMPT ④o CUMULATIVE basis 00 If tax due is the 30% or RCIT,
b. Royalties 20% 30% excess MCIT can be credited
Oo Excess MCIT computation: ANNUAL only
c. Dividends from DC EXEMPT 30% OR 15%*
*If tax sparing rule applies

3) Capital Gains Tax 2) Improperly Accumulated Earnings Tax (IAET)

DC RFC-NRFC
CREATE #11
a. Domestic shares directly to 15% First 100k: 5% CREATE #9
RATE: 10% of Improperly Accumulated Earnings (IAE)
a buyer (on the capital gain) Excess of 100k: 10%
COVERAGE:
b. Real property classified RFC: BASIC TAX (capital gain)
6% DC that are closely-held
as capital asset NRFC: Capital gain x 30%
PAYMENT: 15 days after close of taxable year

Special Income Tax DOES NOT COVER:

Banks, non-banks Taxable partnerships + GPP
Insurance companies NON taxable joint venture
1) Branch Profit Remittance Tax Those TIEZA-registered
Publicly-held corps
- for RFC branch of a foreign corporation
FORMULA OF IAE:
- 15% of remittance related to operations
TAXABLE INCOME
TOTAL TAX LIABILITY: Income exempt/excluded from tax
Income subject to final tax-
Pwede i-net na ang final tax
para di malimutan
30% Net Income Tax + 15% BPRT of Remittance NOLCO
(Net of 30% NIT)
Dividends paid
CREATE #3 2) Gross Income Tax - 15% of gross income Income tax paid * If dividends are declared
subsequently: FINAL TAX

REQUISITES
- irrevocable for 3 yrs Final taxes paid
Amount of reserves for
* Once subjected to IAET,
di na muli masubject
(once only)

Oo Tax ratio 20% to GNP Oo
Oo 40% ratio of income tax
collection to total tax revenue Oo
Oo VAT tax effort of 4% of GNP
0.9% ratio of consolidated public sector reasonable corporate needs
financial position (CPSFP) to GNP
IAE RE, prior year
Paid-up capital (common stock, etc) X 10%
COGS 55% of Gross Sales/Receipts
SPECIAL TAX RATES
2) Resident Foreign Corporations (RFCs)
1) Domestic Corporations (DCs) GENERAL RULE: 30% RCIT vs 2% MCIT
CREATE #2

GENERAL RULE: 30% RCIT vs 2% MCIT EXCEPTIONS: Compare #1 VS 2% MCIT

2.5% of Gross PH Billings
EXCEPTIONS: Compare #1&2 VS 2% MCIT Oo International Carriers From PH port to outside ONLY
CREATE #10 Take note of special cases here (transshipment, etc)

Oo OBUs
Interest Income of residents

Proprietary educational 10% FINAL TAX

Interbank deposits
Oo CREATE #12
institutions govt and EXEMPT
Oo RHQs EXEMPT
non-profit
non-stock
on related
activities
10% of NI
⑨ Non-profit hospitals Requisite: unrelated GI ⑨ ROHQs 10% on Taxable Income
50% of total GI CREATE #7
Can’t capitalize cost of new building,
only proprietary educational institutions
④o Service contractor/sub-contractors 8% FINAL TAX

-00 Final tax of FCDU of a local bank -⑨ ECOZONE enterprises and TIEZA 5% GIT
under EFCDS
Interest Income of residents
10% FINAL TAX
Interbank deposits
3) Non-resident Foreign Corporations (NRFCs)
Oo Service contractors or GENERAL RULE: 30% FINAL TAX
CREATE #2
sub-contractors engaged 8% FINAL TAX 25%
Oo Non-resident cinematographic films FINAL TAX
in PETROLEUM operations
Oo Non-resident owner/lessor of vessels 4.5%
Oo ECOZONE enterprises FINAL TAX
10% GIT
and TIEZA Oo Non-resident owner/lessor of aircraft, 7.5%
machineries & other equipments FINAL TAX
(Set-ups, training, service and maintenance fee also)

CREATE #13
PARTNERSHIPS, ESTATES
and TRUSTS
 Partnerships
1) General Professional Partnerships
- EXEMPTED
- also income payments to them by their
clients are CWT EXEMPT
Tax Liability of Partners in GPP
-8 Income tax only on their separate and individual capacities
-8 Partner’s share shall be taxable to partner whether
distributed or not
-8 Partner’s shall be subjected to CWT:
10% Income payments total 720k or lower
15% Income payments total > 720k
2) All other partnerships
- TAXABLE like a DC
- share in profits are DIVIDENDS
JOINT VENTURES
1) Those that are EXEMPT
- Joint venture for
-08 undertaking construction
projects
-8 petroleum, coal, geothermal
and other energy operations
under service contract with
government
2) Those that are TAXABLE
- All other kinds of joint venture
- TAXABLE like a DC
Estates Judicial - TAXABLE
Extra-Judicial - NONTAXABLE
- include those which have accrued thereto since opening of succession
TO WHOM ESTATE INCOME BE TAXED? Devisee - successor of REAL PROPERTY
thru will
1) To the Fiduciary/Trustee first Legatee - successor of PERSONAL
PROPERTY thru will
- he shall file estate return & pay income tax
In case of a LOSS: deductible
2) To the heirs and beneficiaries if under
extra-judicial and no executor/administrator
GROSS INCOME INCLUSION
- each heir and beneficiary shall include in his
return his distributive share in NI of estate Income received by estate during period
of administration/settlement of estate
TAXABILITY Prior settlement, exec/admin sells
1) Gross receipt/sales GRADUATED property of estate for more than
3M: appraised value (excess is included
+ Non-operating income TAX TABLE
GRADUATED
2) Gross receipt/sales 3M: TAX TABLE
+ Non-operating income OPTION 8% GIT
Trusts
Revocable - NONTAXABLE
Irrevocable - TAXABLE
TO WHOM TRUST INCOME BE TAXED? EMPLOYEE’S TRUST?
EXEMPT
CO-OWNERSHIP 1) To the Trustee
-8
Ordinary income and/or gain on sale of assets Requisites for exemption
-8 Income of trust created by will/deed with Trust must form part of pension/stock
contingent interest bonus/profit-sharing plan of employer
- Co-ownership that is:
-8 formed within co-ownership
-08 Income of trust where trustee may, in his Contributions are made to trust by such
discretion, distribute income employer/employee/both
purpose
2) To the Beneficiaries Contributions are made for purpose of
distributing to such employees earnings
Income of trust to be distributed to
-08
beneficiaries, subject to 15% CWT Used solely for exclusive
benefit of employees
3) Directly to GRANTOR
- Co-ownership: TAXABLE like a DC
Income from REVOCABLE trust
-08
TAXABILITY
-8 implied as business partnership GRADUATED
1) Gross receipt/sales 3M:
-8
Income held/distributed for grantor’s benefit TAX TABLE
+ Non-operating income
-8 where co-ownership income is GRADUATED
-08
Income applied to payment of premiums for 2) Gross receipt/sales TAX TABLE
invested by co-owners in business or 3M:
insurance of grantor’s life + Non-operating income
other income-producing properties OPTION 8% GIT
CAPITAL DEALINGS
 THOSE RESULTING TO CAPITAL GAINS TAX-FREE EXCHANGES OTHER CAPITAL TRANSACTIONS
1) Sale of domestic shares held as capital asset - in pursuant to merger/consolidation
1) Write-off of stocks held as capital assets: capital loss
LISTED 0.6% STT 1) Shares to shares - NO gain or loss 2) When bonds held as capital assets are retired
Individual 15% CGT on net CG/CL 2) Shares to shares PLUS transferor receives BOOT 3) Gains/losses from failure to exercise options: gain/loss
NOT LISTED 15% CGT on net CG/CL Money + FV of ceiling
DC a. Gain recognized:
Corporation
First 100k: 5% CGT CREATE #9
property received 4) Distribution of corporate assets in liquidation
FC Excess of 100k: 10% CGT FV of shares received
ceiling: + FV of boot received
5) Liquidation of partnership capital gain/loss to
2) Sale of real property held as capital asset
- Cost of shares transferred 6) Redemption of preferred shares SH or partner
6% CGT on FMV (ZV vs AV, higher)
Individual vs SP, higher b. Basis of shares received by transferor: 7) Gains/losses from short sales: short-term always
DC BASIC TAX (the capital gain)
Corporation RFC: Cost of stocks/property transferred xx
FC NRFC: Capital gain x 30% LESS: Money received xx

Sale of Principal
3) Other capital transactions resulting to capital gains FV of property received xx (xx)
Balance xx
- subject to BASIC TAX
ADD: Gain recognized xx
Amount treated as dividend xx xx

Residence
RULES:
Individual Corporation BASIS OF STOCK RECEIVED xx
Holding Period?

Wash Sale Loss

12 mos 100%
12 mos
= 50%
PROCEEDS
Capital Loss only
deductible against
Non-deductible Loss Tax basis for re-acquired shares FULL PARTIAL
capital gain?
Utilized portion
Net Capital Loss No. of shares acquired Cost of Acquisition xx Cost of new: COST OF OLD COST OF OLD X
Proceeds
Carry-over? within 61-day period + Wash Sale loss xx
Loss
Period: 1 yr No. of shares sold New Tax Basis xx Un-utilized portion
CGT: ZERO CGT DUE X
Proceeds
Amount:
Net Income,
VS Net Capital Gain,
NOTES
yr of incurrence next yr REQUISITES NOTES
EXEMPTED -⑨ Purchase includes entering -⑨ Notify BIR within 30 days of sale
securities sold at a loss
into contract to acquire Oo Reacquisition of new residence must be
1) Real property classified as FAMILY HOME identical securities identical securities within 18 mos from sale
30 days before and after
2) Sale of LAND thru CARP Oo Deductible loss Oo Capital gains is held in escrow
not a dealer - numerator is ‘not covered shares’
taxpayer not made in ordinary in favor of government
3) Sale of SOCIALIZED HOUSING by NHA - not deductible against
course of business capital gains
Oo Can be availed only once every 10 yrs
Oo Citizens and RA only
INSTALLMENT REPORTING
CONCEPT BEHIND

Where income on installment sales of SELLING PRICE CONTRACT PRICE

property during the year is allowed to be
reported in installments in proportion to - amount realized on the sale
installment payments actually received Selling price xx
Cash received xx Less: Mortgage assumed by buyer xx

FV of Property sold xx Balance xx

TAXABLE INCOME
Installment obligation of buyer xx Add: Excess of
Gross Profit Mortgage over Cost xx
X Installment received Mortgage assumed by buyer xx
Contract Price
Selling price xx Contract Price xx

CASES WHERE INCOME MAY BE REPORTED

UNDER INSTALLMENT REPORTING INITIAL PAYMENTS
- payments received in CASH/PROPERTY other than evidence of indebtedness of taxpayer
Sale of personal property by a dealer
Casual sale of personal property where: Downpayment xx
-8 Selling price > P1,000 Add: Installments received in yr of sale xx
-8 Initial Payments 25% of selling price Total xx

-8 Property is not of a kind which would be Add: Excess of

included in inventory if on hand at close Mortgage over Cost xx
of taxable year Initial Payments xx
Sale of real property where:
-8 Initial Payments 25% of selling price
FRINGE BENEFITS
FRINGE BENEFITS TAX
-08 Tax upon managerial/supervisory employee EXEMPT FRINGE BENEFITS
-08 Final tax -08 Employer’s contribution to SSS, PhilHealth,
-08 Paid by employer HMDF or group insurance
Go Grossed-up tax -8 Benefits required by nature or necessary to
the trade or business of employer
Monetary Value FB Expense -08 Benefits given for convenience of employer
Cash received -08 Benefits given to rank and file employees
CASH Grossed-up
Monetary -8 De minimis benefit not in excess of legal limits
KIND Acquisition cost OR FV, Value
FRINGE HIGHER
BENEFITS
RIGHT 50% X Depreciation FBT
General rules
TO USE Real property: 20 yrs
Personal property: 5 yrs
EXEMPT HOUSING PRIVILEGES
-8 Military officials of AFP/PAF/Army/Navy on their
MANAGERIAL or quarters that are accessible from military camp
RANK & FILE SUPERVISORY
-8 Housing unit situated or adjacent to the premises
Regular Compensation of business or factory (MAX: 50 meters)
BASIC BASIC
Supplemental -08 Temporary housing for an employee in a housing
TAX TAX unit for 3 months or less
Compensation
13th month pay and
other benefits
a. De minimis EXEMPT EXEMPT NON-TAXABLE EXPENSE ACCOUNTS
b. First 90k EXEMPT EXEMPT
c. Excess of 90k BASIC TAX FBT exclude 13th mo pay
-8 Expenses duly receipted for and in employer’s name
(BASIC TAX)

Items 1-9 (specific BASIC TAX FBT

guidelines) Go Expenses are connected with trade or business of
taxpayer
GROSS-UP RATE FBT RATE -8 Representation and transportation allowances
Individuals except which are fixed in amounts and are regularly
65% 35% received by employees as part of their monthly
NRA-NETB
compensation income
NRA-NETB 75% 25%
SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION
MONETARY VALUE FB EXPENSE
1) HOUSING PRIVILEGE
a. Employer leased properties for employee’s use 50% of rental 100% rental + FBT
b. Employee used employer-owned properties 50% x FV/20 FBT
c. Employer buys property in installment and lets employee use it 50% x AC/20 FBT
d. Transfer to employee of employer’s property Higher of Cost vs FMV GUMV
e. Transfer to employee of employer’s property at less than acquisition cost FMV less Selling Price FBT

2) EXPENSE ACCOUNT
a. Employee’s expenses paid by employer Amount paid by employer
GUMV
b. Amounts reimbursed by employer Amount reimbursed by employer

3) MOTOR PRIVILEGE
a. Employer buys vehicle in employee’s name Cost
b. Employee gives cash to employee to buy vehicle Cash received GUMV
c. Employer shoulders portion of cost Amount shouldered
d. Employer purchases vehicle on installment in employee’s name AC/5
e. Employer lets employee use employer-owned vehicle 50% x AC/5 FBT
f. Employer lets employee use employer-leased vehicle 50% x Rentals 100% rental + FBT
g. Employer lets employee use employer-owned yacht AC/20 FBT
h. Use of aircrafts/helicopters owned & maintained by employer NOT SUBJECT NONE

4) HOUSEHOLD EXPENSES
a. Salaries of household help, driver, etc. Total Salaries
GUMV
b. Payment for other similar expenses (association dues, etc) Total amount paid

5) LESS THAN MARKET RATE INTEREST ON 12% - Actual interest rate

6) EXPENSES FOR FOREIGN TRAVEL

a. No documentary evidence (receipt, etc) Amounts shouldered by employer GUMV
b. Duly receipted and documented
-08 Business/economy class ticket EXEMPT TOTAL EXPENSES
-08 First class ticket 30% +
-8 Lodging expenses EXEMPT FBT
-8 Foods, beverages, transportation $300 per day - EXEMPT; Excess - 100%
100% GUMV
7) HOLIDAY AND VACATION EXPENSE
8) EDUCATIONAL ASSISTANCE
a. Education of employee unless education is connected with employer’s business &
employee is obligated to remain in service of employer for certain period (exempt) Amounts paid GUMV
b. Education of employee’s dependents unless assistance is provided thru by employer
competitive scheme under scholarship program of employer (exempt)
9) COST OF INSURANCE BORNE BY EMPLOYER FOR EMPLOYEE Premiums/contributions
GUMV
(Except SSS, GSIS, PhilHealth or if employer is paying for group insurance of employees) paid by employer
TAX DEDUCTIONS
 Itemized Deductions
COVERAGE
1) Ordinary Itemized Deductions
Individuals engaged in trade, business or a. BUSINESS EXPENSES
profession if taxed under graduated rates
-8 Compensation expenses of employer
DC, RFC, Ordinary Partnerships - salaries, other compensation, bonuses and GUMV of fringe benefits subject to FBT
Estates and Trusts only if taxed under - management & labor expenses, commissions and pension payments
- compensation for injuries paid by employer less any insurance proceeds
graduated rates - premiums on life insurance of employee where beneficiary is employee
- salaries paid after employee’s death excluding donations for coffin & wake expenses
Individuals earning compensation income
-8 Travel Expenses (while away from home)
- transportation expenses
- meals and lodging

Optional Standard Deductions (OSD)

-8 EAR (Entertainment, Amusement, Recreational) Expenses
- representation expenses
- depreciation and rental expenses (entertainment facilities)
- signify in 1st quarter of taxable year Sale of goods & properties: 1/2 of 1% of net sales
CEILING
- irrevocable for entire year; IN LIEU OF ALL ITEMIZED DEDUCTIONS Sale of services & property leasing: 1% of net revenues

1) Individuals except NRAs but include Estates and Trusts -8 Materials and supplies actually consumed in business
-8 Maintenance & repairs which do not add to the value of property nor prolong its life
40% -8 Rental expense (of lessee) of property used in business
of - taxes and other obligations of LESSOR paid by lessee
- depreciation of leasehold improvement
Net Sales Net Receipts Net of - advance or prepaid rentals (apportioned)
(accrual basis) Net of COGS (cash basis) Cost of
Services -8 Advertising and other selling expenses
Other Non-operating Income Other Non-operating Income -8 Operating expenses of transportation equipment used in trade, business, profession
-8 Insurance premium against fire, storm, theft, accident, etc.
2) Corporations (DC, RFC subject to RCIT not special tax or gross tax)
-8 Special expense for private educational institutions (capitalize or expense outright)
-8 Miscellaneous expenses
40% Gross Income
(deduct COGS) - amortization of pre-operating expenses (not more than 60 months)
of - judgments against taxpayer LESS amount compensated by insurance
Other Non-operating Income - amortization of corporate bond discounts
- loss upon corporations retirement of its own bonds
- cost of suits
 b. INTEREST EXPENSE
FULLY DEDUCTIBLE
Has no interest income
subject to final tax
Interest on all unpaid
business-related taxes
Interest payment of an occupant
of socialized housing project for
construction/purchase of house
NON-DEDUCTIBLE
Interest paid in advance by a
cash-basis taxpayer except
the year when debt is paid
Interest paid bet ween
members of a family or
related taxpayers
c. TAXES
ALLOWED
OPT except STT
Local business taxes
Import duties
Community Tax
Occupation Tax
d. DEPRECIATION/DEPLETION
DEPRECIATION IN
PETROLEUM
OPERATIONS
Used directly in
petroleum production
Not directly used in
petroleum production
DEPRECIATION IN
MINING OPERATIONS
Expected life
Used in
10 yrs Normal dep’n
mining
operations 10 yrs Depreciated over any # of yrs
bet. 5 yrs & expected life
e. LOSSES ⑨ Special losses
⑨ Ordinary losses - losses reported previously (accrual)
REDUCTION TO CREATE #4 - wagering losses
DEDUCTIBLE INTEREST
- casualty losses
IF MERON - 33% of interest income BV of Asset less Deductible against wagering gains ONLY
TOTAL LOSS : Cost of lotto ticket NOT DEDUCTIBLE if
subject to final tax; deductible to insurance proceeds
those non-fully deductible winnings are tax-exempt
PARTIAL LOSS Replacement cost or (i.e. 10k & below by RA/Citizens)
BV of Asset, lower - loss due to voluntary removal of old building/machinery
OPTIONAL TREATMENT If RC > BV of Asset Acquisition cost
- interest incurred to : Excess shall be capitalized and LOSS - Accumulated Dep’n
depreciated over remaining life
acquire property - Salvage Value
used in business or - business losses Bought land on which structures are erected and
trade or profession loses from sale of ordinary assets
NO DEDUCTION IF taxpayer proceeds to remove such (presumed that price
: partner’s share in GPP losses of land includes removal cost
Expensed outright - loss of useful value
Net Operating Loss Carry-over (NOLCO)
Capitalized and ⑨ ⑥
Due to business changes
depreciated - excess of allowable deduction Must be charged off the books
over gross income of business :
-stocks (classified ordinary asset) becoming worthless
Value is close to zero
RULES THOSE ENTITLED
⑥ Only if MCIT was due ⑥
Individuals in trade/business/profession LOSS Cost or Basis of stocks (capital loss if capital asset)
3-yr period for deductability ⑥
DC, RFC also those subject to
⑥
⑥ No substantial change preferential tax NO DEDUCTION IF Mere shrinkage in value
in ownership (<75%) ⑥
Estates and trusts
Privilege & License tax - abandonment losses on petroleum operations
Excise Taxes & DST ⑨ Net Capital Loss Carry-over (NCLC) - losses from sale of stocks where seller is a stock dealer
Automobile Reg. Fees PERIOD 1 yr
Exchanges in kind pursuant to merger/consolidation
NON-DEDUCTIBLE
Real property tax AMOUNT Net Income,
VS Net Capital Gain,
LOSSES
Losses from sale/exchange bet. related taxpayers
yr of incurrence next yr Losses from WASH SALE where seller is not a dealer
FBT
INTANGIBLE EXPLORATION AND NO DEPRECIATION FOR
EXPLORATION AND DRILLING COSTS (for mines, wells) CERTAIN TYPES OF VEHICLES
DEVELOPMENT EXPENDITURES
IN MINING OPERATIONS Condition: Commercial production has commenced Yachts
Helicopters Have value of < 2.4M
10 yrs or Deductible: : Maintenance exp:
- irrevocable election to deduct provided: Airplanes
shorter life Incurred for non-producing wells and/or mines Aircraft also non-deductible
Total deductible 25% of Net Income : Incurred for producing wells and/or mines in
5 yrs E&D expenditures from mining operations
Without any tax incentive benefits the same contract area EXCEPT
Deductible in full in yr incurred Taxpayer’s main line of business is
E&D CARRY-OVER OR
Capitalized and amortized transportation/lease of transpo
equipment and vehicles purchased
Actual E&D Expenditures DEPRECIATION/DEPLETION are used in operation
- 25% of NI from mining operation BY NRA-ETBs AND RFCs
- only if property/mine/well is
located within Philippines
 f. CHARITABLE CONTRIBUTIONS (Property other money)
2) Special Itemized Deductions
VALUATION Net book value of said property
a. For INSURANCE COMPANIES g. For LAWYERS/GPPs RENDERING FREE LEGAL SERVICES
as reflected in donor’s FS Amount that could have been collected for actual services
⑧ Net additions to reserve funds DEDUCTION lower
DEDUCTIBLE DEDUCTIBLE 10% of gross income from provision of legal services
Provided: released reser ves are
IN FULL WITH LIMIT REQUISITES
treated as income in yr of release
• Donations to gov’t/GOCCs Donations to gov’t/GOCCs
Oo Oo Sums paid within yr on policy and Oo Actual free legal services shall not include the minimum 60-hrs
mandatory legal aid services (to indigent litigants as required)
for priority activities not for priority activities annuity contracts including:
⑧f Lawyer/GPP shall secure certification from PAO/DOJ/etc.
Priority Activities Off Donations to accredited DCs - matured endowments
or associations organized - payments on installment policies h. ESTABLISHMENTS PARTICIPATING IN DUAL TRAINING
- education - science &
for priority activities or - surrender values actually paid
- health culture SYSTEM (RA 7686)
- youth & - economic veterans rehabilitation b. For REITs
sports dev’t dev’ts as 50% of system expenses paid to accredited educational
- human determined by ⑧f Donations to social ⑨ Dividends paid by REIT DEDUCTION institution for its trainees
settlements NEDA welfare institutions
REQUISITES Such expenses shall not exceed 5% of establishment’s
• Donations to foreign @ Donations to NGOs REQUISITES direct labor expenses but not to exceed 25M per yr
institutions pursuant to REIT is a corp. whose shares are PSE-traded
treaties entered into by Limit of contributions REIT must maintain minimum public i. For ENTERPRISES ADOPTING PRODUCTIVITY INCENTIVES
PH gov’t ownership of 40% (first 2 yrs) & 67% (on or
Individual 10% before 3rd yr and thereafter) j. DONATIONS TO PUBLIC SCHOOLS
⑧ Donations to entities Corporation 5% REIT must distribute at least 90% of the 08 Priority project: actual amount + 50% of said donation

pursuant to special laws Base distributable income 10% of NI (ind’l) before charitable
⑧ Non-priority project:
except: lower 5% of NI (corp) contributions
SUCs IRRI
Taxable Income
(excluding NON-OPERATING INCOME)
c. ESTABLISHMENTS GRANTING actual amount + 50% of said donation
CCP PH Red Cross before charitable contribution SALES DISCOUNTS TO PWDs and SCs
NCCA Any child-caring
institution
- no double discount rule
k. QUALIFIED EMPLOYER’S CONTRIBUTION TO PERA
IBP (DSWD-accredited)

⑧ Donations to accredited NGOs d. For EMPLOYERS OF DISABLED PERSONS CEILING

Overseas Filipino (ind’l) 200k per yr
Non-overseas Filipino (corp) 100k per yr
⑧ Additional deductions
g. BAD DEBTS h. PENSION TRUSTS
= 25% of Total amount paid as l. To REGISTERED TOURISM ENTERPRISES (RA 9593)
- charged off within taxable year ⑧ Present Service Cost: FULL salaries & wages to DPs
- tax benefit rule ⑧ Past Service Cost: 10 yrs DEDUCTION Env’tal protection activities (DENR-certified)
⑧ Improvements/modifications to their
Cultural heritage preser vation activities in
amortize physical facilities in order to provide
= 50% of surrounding areas
reasonable accommodation (doesn’t apply to B.P. #344)
i. RESEARCH & DEVELOPMENT EXPENDITURES Sustainable livelihood programs for local
ADDITIONAL = 50% of
Direct costs of communities in surrounding areas
- connected with used in trade or business or profession DEDUCTIONS improvements/
modifications
Treat as deferred expense and amortize over period m. To QUALIFIED JEWELRY ENTERPRISES
TAXPAYER’S 60 months beginning month benefits are realized e. For EMPLOYERS OF SENIOR CITIZENS
OPTION DEDUCTION = 50% of expenses incurred in training schemes
Deduct as ordinary & necessary expense = 15% of Total amount paid as
salaries & wages to SCs
Cannot use this if: n. For HOSPITALS/MEDICAL CLINICS
Expenditure is for land acquisition or property improvement subject to dep’n/depletion f. For ESTABLISHMENTS WITH ROOMING-IN ⑧ Expenses incurred in providing basic

Expenditure is for ascertaiing existence of location, extent, quality of a & BREASTFEEDING PRACTICES emergency to POOR and INDIGENT PATIENTS
deposit/other mineral
EXPENSES Provision of facilities for rooming-in and breastfeeding
including equipment, supplies,etc. which are not reimbursed by PhilHealth
j. FOREIGN INCOME TAXES PAID INCURRED IN Provision of lactation station inc. necessary equipment & facilities

- if taken as deductions by RC or DC DEDUCTION UP TO TWICE actual amount incurred

o. For PRIVATE FILIPINO SEED PRODUCERS (RA 7308)
Expenses on seed research, dev’t and
DEDUCTION = 200% for extension for first 5 yrs of operations

p. To BUSINESS ENTERPRISES THAT GENERATE & SUSTAIN GREEN JOBS

CREATE #14

Non-deductible Items
Personal living and family expenses Losses from sale/exchange of poperty

Expenditures that are capitalized except Interest Expense

intangible drilling & dev’t costs incurred bet ween related parties
in petroleum ops (full deduction)
Bad debts
Premiums paid by an employer
Fines and penalties due to late tax payment
⑨ Covering life of employee
⑨ Beneficiary is employer

Foreign Income Tax Credits

Per Foreign

Taxable Income corporation

LIMIT 1 X PH Income Tax Due

(per foreign corp) Total Taxable Income
All Foreign
LOWER VS ACTUAL
corporations

LIMIT 2 Taxable Income X PH Income Tax Due

(Itotal ang foreign corp) Total Taxable Income
FILING, PENALTIES
and REMEDIES
 Penalties
Filing
INDIVIDUALS SURCHARGES

THOSE REQUIRED 25% 50%

WHEN TO FILE? TO FILE
Failure to file any return and pay Willful neglect to file return
SOURCE OF INCOME RC Engaged in tax due w/in prescribed period within prescribed period (only if
⑧ Compensation ANNUAL (April 15) NRC trade, business includes: where taxpayer voluntarily files taxpayer files return after prior
RA or profession return beyond prescribed period but before notice in writing from BIR)
⑧ Business or 45 days after NRA-ETB notice is received from BIR
Profession quarter end
⑧ Capital gains
Filing a return with BIR officer False or fraudulent return is
NOT REQUIRED other than those with whom willfully made
30 days after each
a. Non-traded transaction with TO FILE return is required to be filed example: substantial under-declaration
capital stocks annual return of taxable sales, receipts or income OR
Taxable Income < 250k and not Failure to pay deficiency tax within over-statement of deductions by < 30%
b. Real capital 30 days after engaged in business/profession time prescribed for payment
property each sale Earning purely compensation
⑧ Fringe Benefits income (substituted filing)
10 days after
a. Manual filing quarter withholding REQUISITES INTEREST
- one employer
15 days after - income tax is withheld correctly Rate: double the legal interest rate by BSP (6% x = 12%)
b. EFPS filing
quarter withholding - taxpayer is not married From: date prescribed for payment until fully paid
Sole income has been
subjected to final tax Provided: Deficiency & delinquency interest shall not be
imposed simultaneously
CORPORATIONS Cases where extended payment is authorized by BIR
Surcharge but 12% interest per annum
TAXPAYER WHEN TO FILE? PROVIDED: extension request be made on/before deadline
DC
RFC 60 days after OTHER PENALTIES 1k per failure
Non-GPP quarter end not to exceed
⑧ Failure to file INFO return/any required attachment 25k per yr
Annual Info Returns Amount = tax
GPP
only ⑧ Failure of withholding agent to collect and remit tax withheld
Amount =
⑧ Failure of withholding agent to refund excess WHT refunds not
refunded
 Remedies
GOVERNMENT TAXPAYER
ASSESSMENT OF TAXES* COLLECTION OF TAXES 1) WHERE TAX HAS NOT BEEN PAID
Stages of Collection Receipt of Assessment
BIR Tax Audit Process Issuance of Assessment 30 days

ISSUANCE OF LETTER OF AUTHORITY NOTICE OF INFORMAL CONFERENCE PRELIMINARY COLLECTION LETTER Protest by filing with the CIR
PERIOD: 30 days from receipt of notice ⑧ Lump Sum payment ⑧ Compromise
CONDUCT OF AUDIT EXAMINATION ENDORSED within 7 days ⑧ Installment payment settlement Request for Request for
Reconsideration Reinvestigation
PERIOD: 120 days from receipt of LOA PRELIMINARY ASSESSMENT NOTICE FINAL NOTICE BEFORE SEIZURE LETTER 60 days
HOW FREQUENT: only once every taxable year
except: PERIOD: 15 days from receipt of reply PERIOD: within 10 days from PCL issuance
180
days
Submission of all relevant
CIR determined that fraud, irregularities or mistakes
to proposed assessment IF IGNORED: ENTER ADMINISTRATIVE REMEDIES * or supporting documents
: were committed by taxpayer
Taxpayer request for re-investigation or re-examination
FAILURE TO REPLY: FINAL, DEMANDABLE
and NON-APPEALABLE JUDICIAL REMEDIES ** or SIMULTANEOUSLY 180 days

There is need to verify taxpayer’s compliance with Denial of protest OR was not acted upon
: withholding tax and other tax
Taxpayer’s CGT liabilities must be verified
FORMAL LETTER OF DEMAND *ADMINISTRATIVE REMEDIES
CIR exercises his power to obtain info relative to
and FINAL ASSESSMENT NOTICE
•
DISTRAINT LEVY Can file for
examination of other taxpayers GARNISHMENT 30 days
ducestecum
FOR THOSE WHO FAILED TO RESPOND TO request for
Await the decision:
Subpoena reconsideration
PAN WITHIN 15 DAYS
#

testificandum ⑧ Personal property Real property Personal property in

8
to CIR
protest is eventually
@
⑧ Purchased by gov’t @ Forfeited to gov’t possession of 3rd party (administrative appeal)
No advertisement
REPORTING ON EXAMINATION RESULT DISPUTE OF ASSESSMENT
⑧ @ Purchased by gov’t

• Advertised once a week for 3 weeks

denied by CIR
PROCEED TO ISSUANCE OF ASSESSMENT • Amount must be > P100 to avail 30 days
PERIOD: 30 days from receipt of FLD/FAN
Go Request for reconsideration 1) RESEARCH OF TAXPAYER PROPERTIES Appeal to the CTA
* PRESCRIPTIVE PERIOD - no additional evidence
- question of facts or of law or both
2) NOTICE OF TAX LIEN/TAX LEVY
> 1M: CIR

- 3 YRS except: ⑧f Request for reinvestigation

3) SEIZURE OF PROPERTIES DISTRAINT =< 1M: RDO
LEVY: RDO prepares certificate
2) WHERE TAX HAS BEEN PAID
- presence of new additional evidence
Where false/fraudulent return 4) AUCTION SALE AND/OR FORFEITURE OF PROPERTIES @ Tax was erroneously collected
GROUNDS
•

10 yrs from - provide within 60 days from filing of protest

with intent to evade tax is filed -Within 20 days from levy • Tax was illegally collected
discovery
:
Failure/omission to file return
CIR and taxpayer agreed upon a period Any period JUDICIAL APPEAL **JUDICIAL REMEDIES Date of tax payment
provided agreed before 3-yr expiration Within 5 yrs CIVIL RTC, MTC < 1M Principal amount of taxes
CTA FIRST BEFORE SUPREME COURT 2 yrs
of assessment ACTION CTA => 1M excluding charges & penalties
File for refund
CRIMINAL Enforcement of penal provisions
TAXPAYER and GOVERNMENT ACTION 2 yrs v claim with CIR
May be filed
simultaneously
Denial of claim
1) COMPROMISE 2) ABATE TAX LIABILITY 30 days

RATE Appeal to the CTA

GROUNDS GROUNDS
⑧ Reasonable doubt as to validity
of claim against taxpayer
40% B Tax or any portion thereof appears to be unjustly or
excessively assessed
3) FILING CRIMINAL ACTION AGAINST
⑧ Financial inability of taxpayer to pay - shall only cover the surcharge and compromise penalty
- will not cover the interest imposed
ERRING/ABUSIVE BIR OFFICIAL
10%
General rule:
Exceptions:
- taxpayer is a dissolved corporation
⑧ Administration and collection costs involved do not 4) APPLY FOR A TRO or INJUNCTION
20% justify collection of amount due
- taxpayer is non-operating corp. < 3 yrs
- taxpayer is declared insolvent/bankrupt
WITH THE CTA