TAXATION – QUICK

NOTES - FINALS
INCOME

COMPENSATION
INCOME
• INCOME EXEMPT
FROM INCOME
BUSINESS TAX (IE)
INCOME
INCOME ITEM
• INCOME
SUBJECT TO
OTHER INCOME
FINAL INCOME
PROFESSIONAL
TAX (IFT(
INCOME • INCOME
SUBJECT TO
BASIC INCOME
TAXABLE INCOME
 Pertains to all income subject to basic and creditable
withholding taxes
REQUISITES (TAXABLE INCOME)
 There must be profit or gain
 It must be realized or received actually or constructively
 Must not be exempted by law from income taxation
SITUS OF INCOME
1. Interest – interest from bonds, notes, etc
• Situs – residence of the debtor

2. Interest – compensation for labor or personal service performed

• Situs – place of service
• Partly within and without – allocated based on time
x Compensation received
SITUS OF INCOME
3. Rentals and Royalties – rental and royalties from property or from any
interest
• Situs – location of the property or place where the intangible is
used

4. Gain on sale on real property

• Situs – location of real property
SITUS OF INCOME
5. Gain on sale of personal property
• Situs – place of sale
• Gain from the sale of stock in a domestic corporation - always
within (regardless of place of sale)
• Purchase (within), sale (without), and vice versa – entirely in the
country sold
• Produced within and sold without , and vice versa – partly within
and without
SITUS OF INCOME
6. Dividend income
• Domestic corporation – purely within
• Foreign corporation – based on the ratio of the Gross Income for
the preceding 3 years
x Dividend
• < 50% - without
• ≥ 50% - partly within, partly without
SITUS OF INCOME
7. Mining
• Situs – location of mine
8. Farming
• Situs – location of farm
9. Manufacturing Business
• Produced and sold within – within
• Produced and sold without – without
• Produced in whole/part within and sold without – partly within and without
• Produced in whole/part without and sold within – partly within and without
ALLOCATION OF UNIDENTIFIED
INCOME
x unidentified income

x unidentified income
INCLUSIONS IN GROSS INCOME
1. Compensation Income – income from an employer-employee relationship
• Salaries
• Wages
• Emoluments
• Honoraria
• Taxable bonuses
• Allowances (Transportation, representation and entertainment
• Fringe Benefits –rank and file
• Fees (director’s fees)
• Taxable pensions and retirement pay
INCLUSIONS IN GROSS INCOME
• Commission
• Compensation for services on the basis of percentage of profits
• Commissions on insurance premiums
• Tips
• Marriage fees
• Baptismal offerings
• Sums paid for saying masses for the dead
• Other contributions received by a clergyman, religious workers, etc.

Compensation paid in kind – measured at fair value

INCLUSIONS IN GROSS INCOME
Classification of compensation income

1. Regular compensation
• Basic Salary
• Transportation Allowance
• Representation Allowance
• Cost of Living Allowance (COLA)
• Personnel Economic Relief Allowance (PERA)
• Other employment income paid regularly per payroll period

2. Supplementary compensation
• Fees, including director’s fees
• Commissions
• Overtime Pay
• Taxable Pension/Retirement Pay
• Taxable Separation/Termination Pay
• Taxable Money Value of Leave Credits
• Profit Sharing
• Fringe benefits – rank and file
• Hazard Pay
• Taxable 13th month pay
INCLUSIONS IN GROSS INCOME
• Compensation income received after termination of employee-employer relationship –
still included in compensation income
• Fixed or Variable Allowances – included in compensation income, subject to BIT and
CWT
• Advances/Reimbursements for Travelling and Entertainment Expenses
• In general – not included in compensation income, given that
• It is for the pursuit of business
• The employee is required to account/liquidate for the foregoing expenses
• Excess of advances over actual expenses and not returned to employer - taxable
INCLUSIONS IN GROSS INCOME
• Premiums of life insurance, employee is the beneficiary (paid by employer) – taxable
income
• Benefits given by employer to employees – deductible expense to employer
• Tips and Gratuities – taxable income; but not subject to CWT
• Vacation and sick leaves allowances – taxable/compensation income
• Monetized value of unutilized vacation leaves credits of 10 days or less , private
firms(de minimis benefits) – not subject to income tax
• RATA – not a compensation
• Excess of RATA – taxable compensation income
INCLUSIONS IN GROSS INCOME
• Stipends of Resident Physicians – subject to CWT
• Service fees vs Royalties
• Payee has no proprietary interest in the property – service fee
• Payee has proprietary interest – royalty income
• Income/ gain from the exercise of stock options plans – compensation income, also
subject to CWT
INCLUSIONS IN GROSS INCOME
• Stipends of Resident Physicians – subject to CWT
• Service fees vs Royalties
• Payee has no proprietary interest in the property – service fee
• Payee has proprietary interest – royalty income
• Income/ gain from the exercise of stock options plans – compensation income, also
subject to CWT