GROSS INCOME :

INCLUSIONS AND
EXCLUSIONS/
ORDINARY AND CAPITAL
GAINS & LOSSES

By: Prof. Anita B. Catolico

For Income Tax Purposes:
 INCOME – defined as the gain derived from
capital, from labor, or from both, provided it be
understood to include profit or gain through a sale
of an asset.
Income:
 Interestor Dividend - from capital
 Salaries or Commissions – from labor
 Income of a building contractor – from capital and
labor
 Sale of property with a cost of P100,000 for
P120,000 – Income from gain on sale of P20,000.
Gross Income means all Income from
whatever Source
 A. Compensation
 B. From business or exercise of profession
 C. Gains from sale of property
 D. Interests
 E. Rents
 F. Royalties
 G. Dividends
 H. Prizes and Winnings
 I. Pensions
 K. Partner’s distributive share from the net income
of the general professional partnership
EXCLUSIONS FROM GROSS
INCOME UNDER THE REVENUE
CODE:
 A. Proceeds of life insurance policies paid to the
beneficiaries upon death of the insured
 B. Amount received by the insured as a return of
the premiums paid
 C. Value of property acquired by gift or descent
(inheritance). However, income from such
property will be included in gross income.
 D. Amounts received through accident or health
insurance
 E. Retirement benefits
 The retiring employee has been in the service of the
same employer for at least 10 years.
 The employee is not less than 50 years of age at the
time of retirement
 Employee can receive the benefit of exclusion only
once
 F. Benefits received from the SSS
 G. Benefits from GSIS
 H. Prizes and awards in recognition of religious,
charitable, scientific, or civic achievement only if
recipient is selected without any action on his part
to enter the contest.
 I. 13th Month pay not exceeding P90,000.
INCOME FROM CAMPAIGN
CONTRIBUTIONS
 Not included in the taxable income of the
candidate to whom they are given. Candidate must
file with the Comelec a Statement of Expenditures,
if not the entire amount shall be subject to income
tax. Unutilized campaign contributions shall be
subject to income tax.
GAINS & LOSSES FROM SALES
OF ASSETS
 A TAXPAYERMUST KNOW WHETHER THE
ASSET SOLD WAS HELD AS ORDINARY
ASSET OR AS CAPITAL ASSET BECAUSE OF
THE SPECIAL RULES ON GAINS & LOSSES
ON SALES OF CAPITAL ASSETS.
CAPITAL ASSET IS
 1. PROPERTY NOT RELATED TO THE
TAXPAYER’S BUSINESS, AND
 2. PROPERTY RELATED TO THE TAXPAYER’S
BUSINESS BUT HELD ONLY AS INVESTMENT.
 SO…these are NOT capital assets
 Inventory for sale by a merchandiser
 Real estate for sale by a real estate dealer
 Land on which the factory stands
ORDINARYOR CAPITAL??
 1. SECURITIES HELD AS INVESTMENT
 2. INVENTORY OF RAW MATERIALS OR
FINISHED GOODS
 3. OFFICE EQUIPMENT
 4. LAND USED IN BUSINESS
 5. RESIDENTIAL HOUSE
 6. FAMILY PLEASURE YACHT
 7. LAND FOR SALE BY A REAL ESTATE
DEALER
 8. PERSONAL ART COLLECTION
 9. FAMILY VACATION HOUSE
 10. CAR USE IN BUSINESS AND FOR
PERSONAL USE
ORDINARY AND CAPITAL GAINS
AND LOSSES WITH NO CAPITAL
GAIN TAXES
 ORDINARY GAINS & LOSSES:
 SELLING PRICE PXX
 LESS:EXPENSES OF SALE XX PXX
 LESS:
 COST PXX
 EXPENSES OF ACQUISITION XX XX
 GAIN OR LOSS ON THE SALE PXX
RULES ON CAPITAL
GAINS/LOSSES
CORPORATION INDIVIDUAL
THE CAPITAL GAIN OR LOSS THE CAPITAL GAIN OR LOSS
SHALL ALWAYS BE SHALL BE CONSIDERED AT:
CONSIDERED AT 100% 100% - IF THE ASSET WAS
REGARDLESS OF THE HELD FOR NOT MORE THAN
LENGTH OF THE HOLDING 12 MONTHS
PERIOD OF THE ASSET 50% - IF MORE THAN 12 MOS.
CAPITAL LOSSES ARE CAPITAL LOSSES ARE
DEDUCTIBLE ONLY TO THE DEDUCTIBLE ONLY TO THE
EXTENT OF CAPITAL GAINS EXTENT OF CAPITAL GAINS

NET CAPITAL LOSS CARRY- NET CAPITAL LOSS CARRY-

OVER IS NOT AVAILABLE OVER IS AVAILABLE
ILLUSTRATION:
 NET INCOME FROM BUSINESS P230,000
 DIVIDENDS FROM A CORP. 20,000
 GAIN ON SALE OF ORD. ASSET 10,000
 GAIN ON SALE OF CAPITAL ASSET
 HELF FOR 6 MONTHS 2,000
 LOSS ON SALE OF CAPITAL ASSET
 HELF FOR 13 MONTHS 3,000
 LOSS ON SALE OF ORDINARY ASSET 14,000
TAXABLE INCOME : (MR. A)
 NET INCOME FROM BUSINESS P230,000
 DIVIDENDS INCOME 20,000
 GAIN ON SALE OF ORD. ASSET 10,000
 LOSS ON SALE OF ORDINARY ASSET 14,000 ( 4,000)
 ORDINARY NET INCOME P246,000
 GAIN ON SALE OF CAPITAL ASSET
 HELF FOR 6 MONTHS (100%) 2,000
 LOSS ON SALE OF CAPITAL ASSET
 HELF FOR 13 MONTHS (3,000X50%) (1,500)
 NET CAPITAL GAIN 500
 TAXABLE INCOME P246,500
MR. B:
200A 200B
NET INCOME -PROFESSION P 90,000 P 78,000
INTEREST FROM NOTES OF 2,000 4,000
CLIENTS
CAPITAL GAIN ON ASSETS:
PAINTING HELD FOR 10 MOS. 30,000
JEWELRY HELD FOR 2 YRS. 40,000
CAPITAL LOSS ON BONDS 70,000
HELD FOR 3 YRS.
 200A 200B
NET INCOME -PROFESSION P 90,000 P 78,000
INTEREST INCOME 2,000 4,000
ORDINARY NET INCOME P 92,000 P 82,000
CAPITAL GAIN (100%) P 30,000
CAPITAL GAIN (50%) P 20,000
CAPITAL LOSS (50%) (35,000)
NET CAPITAL LOSS (P 5,000)
NET CAPITAL LOSS CARRY- (5,000)
OVER FROM 200A

NET CAPITAL GAIN _________ P 15,000

TAXABLE INCOME P 92,000 P 97,000
MR.C :
200A 200B
NET INCOME-BUSINESS P 80,000 P 90,000
INTEREST FROM NOTES OF 4,000 2,000
CLIENTS
CAPITAL GAIN ON ASSETS 50,000
HELD FOR 3 YRS.
CAPITAL GAIN ON JEWELRY 70,000
HELD FOR 10 MONTHS
CAPITAL LOSS ON BONDS 120,000
HELD FOR 4 MONTHS
MR. C
200A 200B
NET INCOME-BUSINESS P 80,000 P 90,000
INTEREST INCOME 4,000 2,000
ORDINARY NET INCOME P 84,000 P 92,000
CAPITAL GAIN (50%) P 25,000
CAPITAL GAIN (100%) P 70,000
CAPITAL LOSS (100%) (120,000)
NET CAPITAL LOSS (P 95,000)
NET CAPITAL LOSS CARRY- (70,000)
OVER FROM 200A
NET CAPITAL GAIN _________ P 0___
TAXABLE INCOME P 84,000 P 92,000
ABC CORP.
 ORDINARY NET INCOME P52,000
 GAIN ON SALE OF CAPITAL ASSET HELD
 FOR 10 MONTHS 2,000
 GAIN ON SALE OF CAPITAL ASSET HELD
 FOR 18 MONTHS 2,000
 LOSS ON SALE OF CAPITAL ASSET HELD
 FOR 6 MONTHS 1,100
 LOSS ON SALE OF CAPITAL ASSET HELD
 FOR 20 MONTHS 2,000
 IN THE PRECEEDING YEAR IT HAD A NET CAPITAL
LOSS OF P1,500 AND A TAXABALE INCOME OF P60,000.
 ORDINARY NET INCOME P 52,000
 CAPITAL GAINS:
 ASSET HELD FOR 10 MOS. (100%) P 2,000
 ASSET HELD FOR 18 MOS. (100%) P 2,000
 TOTAL CAPITAL GAINS P 4,000
 CAPITAL LOSSES:
 ASSET HELD FOR 6 MOS. (100%) P1,100
 ASSET HELD FOR 20 MOS. (100%) 2,000 3,100 900
 TAXABLE INCOME P 52,900
 READY???
 HAY SALAMAT!!!