EXERCISES 5-1
1.
None. The entire income is exempt because Minnie is a MWE. Basic salary P 48,000 !ertime an" ni#ht$shi%t "i&erential pay 14,000 'a(ar" pay 1),000 ther bene*ts+ 1th month pay P 4,000 -ess+ Exemption 0,000 $ . Total not taxable/ 4,000
). a.
None. Procee"s o% li%e insurance policy payable upon the "eath o% the insure" are exclu"e" %rom #ross income.
b ernan"o must report P)0,000 2P1),000 x 10/ 3 100,000 as income. . The rule is 5amounts recei!e" in excess o% the %ace amount o% the policy are usually taxable as interest67 hence, inclu"e" in the #ross income. c No. t "oes not matter 9hether the insure" is the mother or the 9i%e o% . the bene*ciar bene*ciary y. The exclusion exclusion exists exists because because li%e insurance insurance bene*ts bene*ts closely resemble inheritances 9hich are not taxable. .
None None,, becau because se :n#e :n#ell is not re; re;ui uire re" " to pay inco income me tax tax on the the entir entire e amount amount he recei recei!e" !e" as proce procee"s e"s %rom %rom insura insurance nce polic policy y. The reaso reason n bein# that the insure" "i" not outli!e the policy. % ho9e!er, his %ather outli!e" the li%e insurance policy, :n#el must report an income o% P<,000 the %ace amount o% P100,000 minus the premiums pai" in the amount o% P)<,000/.
4.
=o"o =o"ol% l%o o mus mustt rep repor ortt an inco income me o% o% P<, P<,00 000. 0. :lthou#h ac;uire" by him, he is not re;uire" to report the !alue o% the inherite" properties in his income tax return because properties ac;uire" thru inheritance are sub>ect to estate tax6 the liability bein# on the estate an" not on the recipient o% the estate.
<. a.
The P)0,000 #i!en to co!er me"ical expenses are actual "ama#es, 9hile the other P)0,000 constitutes moral "ama#es. Both actual an" moral "ama#es are not sub>ect to tax. b The P1<0,000 a9ar"e" by the court %or 9innin# in the libel case is not . taxable. -ibel is inclu"e" in the phrase 5personal in>ury or sic?ness,5 9hich is exempt %rom income tax.
c.
Not inclu"e" in the #ross income. The amount o% P1),000 bein# #i!en by the employer to its employees in case o% "isability are not salaries but compensation compensation %or personal personal in>uries bein# su&ere" su&ere" by its employees.
Taxable. @alaries recei!e" by employees 9ho are unable to 9or? "ue to pers person onal al in>u in>uri ries es or sic? sic?ne ness ss are are taxa taxabl ble. e. t "oe "oes not not ma?e ma?e any any "i&e "i&ere renc nce e bet9 bet9ee een n rece recei! i!in in# # the the sala salary ry 9hil 9hile e he is 9or? 9or?in in# # an" an" recei!in# the same e!en 9hile the employee is unable to 9or?.
".
Not taxable. The PA0,000 is in the %orm o% moral "ama#es 9hich is not capable o% pecuniary estimation. Besi"es, it is in the nature o% a return o% capital.
e.
A. A. No, No, beca becaus use e all all the the re;u re;uis isit ites es %or exem exempt ptio ion n %rom %rom incom income e tax tax are are present+ 1/ Tan"a retire" at a#e A0 9hich is more than the re;uire" a#e a#e o% <0 year years6 s6 )/ )/ a pri! pri!at ate e pens pensio ion n plan plan is main mainta tain ine" e" by the the employer6 an", / / he 9or?e" 9ith @an ose Corporation Corporation %or more than 10 years. The la9 "oes not re;uire continuous ser!ice. There%ore, the 10$year ser!ice re;uirement is satis*e" e!en i% he ha" a bro?en ser!ice 9ith the company. .
The The amou amount nt is is tax taxab able le to to Nilo Nilo.. @epa @epara rati tion on pay pay is is exe exemp mptt %ro %rom m inco income me tax i% the cause o% separation %rom ser!ice is "eath, sic?ness, physical "isability, or any cause beyon" the control o% the employee. None o% the abo!e$mentione" can be pointe" out as the !ery cause o% his separation %rom ser!ice. ne&iciency in ser!ice "ue to %re;uent tar" tar"in ines ess s caus cause" e" by hea! hea!y y tra& tra&ic ic is not not beyo beyon" n" the the cont contro roll o% the the employee. Taxable.
8. a.
b Taxable. . c Not Not taxabl taxable. e. Day 9as a9ar"e a9ar"e" " 9ithou 9ithoutt >oini >oinin# n# the conte contest st an" not . re;ui re;uire" re" to ren"e ren"err substa substanti ntial al %uture %uture ser!ic ser!ices. es. Moreo Moreo!er !er,, the pri(e pri(e #i!en 9as in reco#nition o% an e"ucational attainment. .
The The pri( pri(e e 9on by by Tor Torna na"o "o is tax taxab able le.. The *#h *#htt 9as not not san sanct ctio ione ne" " by a national sports associations. :s a matter o% %act, it 9as hel" in a !ery seclu"e" place. The main purpose o% the *#ht is %or the #amblers to bet on their %a!orite *#hter an" not to promote sports.
10.
:ns9er+ P P8,000 @alary P)0,000 x 1)/ :""+ Bene*ts Christmas bonus Pro"ucti!ity bonus
)40,0 00 )0,000 ),000
-oyalty a9ar" Cash #i%t :nni!ersary bonus 1th month pay To Total -ess -ess++ Exem Exempt ptio ion n
,000 1,000 ),000 )0,000 48,000 0,0 0,000 00
ncome sub>ect to tax
18,0 18,0 00 )<8,0 00
EXERCISES 5–2.1:
1.
).
ANSWER: D The entire amount o% procee"s o% the insurance policy recei!e" by the bene*ciary o% ?e(e %rom ilipinas -i%e :ssurance Company is not taxable because they are more consi"ere" as in"emnity rather than as #ain or pro*t. ANSWER: B Procee"s o% li%e insurance -ess+ Premiums pai" pai" 1,000 x 1) x )0/ @ub>ect to tax
.
ANSWER: C Total otal amo amoun unts ts rece recei! i!e" e" <0, <0,00 000 0 x 1)/ 1)/ -ess+ ace !alue o% the policy Feeme" interest taxable/
4.
ANSWER: C Total otal amo amoun unts ts rece recei! i!e" e" <0, <0,00 000 0 x 1)/ 1)/ -ess+ :mount o% premiums premiums pai" 1,000 x 1) x )0/ @ub>ect to tax
Prob 5-2.2
1.
ANSWER: C
<00,00 0 )40,00 0 )A0,00 0 A00, A00,00 00 0 <00,00 0 100,00 0 A00, A00,00 00 0 )40,00 0 A0,00 0
Procee"s o% insurance -ess+ Premiums pai" P10,000 P10,000 x )0/ ncome sub>ect to tax ).
<00,0 00 )00,00 0 00,00 0
ANSWER: D None because @onia "ie".
Prob 5-2.3
ANSWER: D ncome %rom coconut lan" ncome %rom bus operation ncome sub>ect to tax
<0,0 00 0,000 80,000
Prob 5-2.4:
ANSWER: B Procee"s o% li%e insurance policy -ess+ :mounts o% premiums pai" :mount sub>ect to to tax
P <00,00 0 400,00 0 100,00 0
Prob 5-2.5:
ANSWER: C Procee"s o% insurance policy
P )00,00 0
-ess -ess++ :mou :mount nt pai" pai" upon upon P assi#nment A0,000 Premiums 80,000 140,00 subse;uently pai" 0 Taxable income A0,00 0 Prob 5-3.1
ANSWER: C :pplyin# the principle o% Gbeyon" the control test,7 the separation separation
%rom employment o% Mr. Mr. acobo 9as "ue to a cause 9hich is 9ithin his control, that is resi#nation6 9hile the cessation %rom employment o% Mr. Dintanar 9as ma"e 9ithout his control. There%ore, the separation pay recei!e" by Mr. acobo is a taxable income 9hile the amount recei!e" by Mr. Mr. Dintanar is i s not taxable. Prob 5-3.2
ANSWER: C The retirement bene*t o% P00,000 P00,000 is taxable to o!ito because he retire" retire" at the a#e o% 48. To be exempt %rom %rom the payment payment o% income tax, tax, the the taxp taxpay ayer er must must be at leas leastt <0 year years s on the the "ate "ate o% his his retirement. n the case o% the procee"s %rom insurance policy, policy, the amount exempt is P40,000 P40,000 P),000 x )0/ only 9hich represents represents the the return o% the premiums pai". Prob 5-3.3
ANSWER: B There There is no sho9in# sho9in# that Mario Mario 9as in the ser!ice ser!ice o% the same employer %or at least ten 10/ years, that he is at least *%ty<0/ years o% a#e at the time o% retirement, that he has ne!er a!aile" o% the bene*t o% exclusion, an" that the retirement #ratuity came %rom a reasonable retirement plan maintaine" by his employer. The amount amount o% P)<0,000 P)<0,000 is taxable taxable because because =emus =emus is only 4 years ol" upon retirement. retirement. To be exempt %rom income tax, the retirement a#e o% an employee must be at least <0 years. Prob 5-3.4
ANSWER: D The money money !alue o% the accumulat accumulate" e" lea!e cre"its cre"its #i!en to a retirin# #o!ernment o&icial or employee is not sub>ect to tax C= s. C:, et.al, )0 @C=: )/. Prob 5-3.5
ANSWER: A The P1,000,000 P1,000,000 is part o% -arryHs retirement pay an" not a #i%t. Consi"erin# that the re;uisites %or exemption %rom payment o% tax are satis*e", the a""itional P1,000,000 is not taxable. Prob 5-3.6
ANSWER: D The separation pay recei!e" by E!elyn is taxable because o% the !oluntary action on her part. To be exempt, the causes %or separation must must be either either "eath "eath,, sic?ne sic?ness, ss, physic physical al "isabi "isabilit lity y, or any cause cause beyon" the control o% the employee. The separation pay recei!e" by -in#$lin# an" Iina are exempt becaus because e they they are separa separate" te" %rom %rom ser!i ser!ice ce "ue to re"un re"un"an "ancy cy an" "isability, causes 9hich are beyon" their control. EXERCISES 5–4.
Prob 5–4.1 ANSWER: C nly the amount o% P00,000 correspon"in# to the income 9hich 9as lost "urin# the perio" o% treatment is taxable because e!en i% he "i" not meet an acci"ent, that income 9oul" ha!e been taxable. Prob 5-4.2 ANSWER: A T9o monthsH salary ncrease in !alue o% car PA00,000 $ 4<0,000/ ncome
40,0 00 1<0,00 0 10,00 0
Prob 5-4.3
ANSWER: C Payment %or the salaries
A0,0 00
Prob 5-4.4
ANSWER: D The amount amount o% P<00,000 P<00,000 shoul" shoul" not be "eclare" "eclare" in the income income tax returns o% the heirs. The amount represents "ama#es recei!e" on account o% personal in>uries 9hich inclu"es "eath/, there%ore exclu"ible %rom #ross income 2@ec. ) B/ J1K, T=:/. The reason is that li%e insurance procee"s represents represents in"emnity an" not income. The procee"s o% li%e insurance policies pai" to the bene*ciary, bene*ciary, in this case the 9i%e, upon the "eath o% the insure" is exclu"e" %rom #ross income. EXERCISES 5–5
EXERCISE 5– 5.1: ANSWER: C Talent %ee Pro%essional %ee Total amount taxable Cash pri(e Pay per !ie9 Talent %ee Taxable amount
400,000 1,000,000 1,400,000 )<,000,00 0 0,000,00 0 1),000,00 0 A,000,00 0
EXERCISES 55.2 a. The P<0,0 P<0,000 00 !alue !alue o% o% the car is is sub>ect sub>ect to a *nal tax o% o% )0L. )0L. b. The P<,000 P<,000 is is sub>ect sub>ect to #ra"ua #ra"uate" te" tax tax to be repor reporte" te" in the the income income tax return. c. The cash cash pri(e pri(e an" an" the e;ui!alent e;ui!alent amount amount o% the the 100 shares shares are are sub>ect sub>ect to )0L *nal tax because the a9ar"s #i!en are not in reco#nition o% reli#ious, reli#ious, charitabl charitable, e, scienti*c scienti*c,, e"ucatio e"ucational, nal, artistic artistic,, literary literary or ci!ic achie!ement. EXERCISES 5-5.3 Bein# Bein# a resi"ent resi"ent citi(en, citi(en, Moni;ue Moni;ue @alon#a @alon#a is taxable taxable on income income 9ithin an" 9ithout the Philippines. Philippines. Conse;uently+ Conse;uently+ a. The The income income o% <,0 <,000 00 is taxab taxable le to her unles unless s she has ac;u ac;uir ire" e" the status o% a contract 9or?er. 9or?er. n 9hich case, the <,000 is not taxable to her because contract 9or?ers are taxable only on income "eri!e" %rom sources 9ithin the Philippines6 b. The The tale alent %ees "er "eri!e i!e" %rom nt nter$ er$sl slan an" " Bro Broa"ca a"cas stin tin# Net9o t9or? amountin# to P100,000 is a pro%essional income sub>ect to #ra"uate" rates o% tax. c.
The The <,0 <,000 00 !alue !alue o% the trop trophy hy is not not taxa taxabl ble e to her her bec because ause it is in reco#nition o% an outstan"in# outstan"in# achie!ement. achie!ement. :n a9ar" %or outstan"in# outstan"in# achie!ement is a #i%t, an" not a taxable income.
PROBLEM 5-6.1 ANSWER: D @alary P)<,000 x 1)/
00,0 00
ther bene*ts+ 1th month pay
)<,00 0 ),<00 0,000 <,<00 0,000
Cash #i%t -on#e!ity pay Total -ess+ :mount o% exemption Procee"s o% li%e insurance 00,000 3 )00,000/ ncome sub>ect to tax
),< 00 100,00 0 4),<0 0
EXERCISE 5 – 7
1. None. None. 'oli"ay 'oli"ay pay, pay, o!ertime o!ertime pay, pay, ni#ht shi%t shi%t "i&erent "i&erential ial pay an" ha(ar" ha(ar" pay earne" by a minimum 9a#e earner shall li?e9ise be exempt %rom income tax. ) Basic salary . Commissions 'onoraria 'oli"ay pay !ertime pay 'a(ar" pay ther bene*ts A,000 0,000/ ncome sub>ect to tax
<,000
3
1<,000 10,000 ,000 8,<00 A,000 A,00 0 14,<0 0
EXERCISES 5 – 8 1.
ANSWER: D nly option F has complie" 9ith the re;uisites %or exemption %rom tax o% retire retiremen mentt bene*t bene*ts, s, !i(+ 1/ There There must be a pri!at pri!ate e pension pension maintaine" by the employer an" appro!e" by the B=6 )/ The retirin# o&icial or employee has been in the ser!ice o% the same employer %or at least ten ten 10/ years6 years6 / The a#e must must be at least <0 years years ol" at
the time time o% retire retiremen ment6 t6 an" 4/ a!aile" o% only once. ).
The bene* bene*tt o% exemptio exemption n can be
ANSWER: C : monthly monthly #ratuity #ratuity o% P)0,000 P)0,000 to a Me"al Me"al o% alor a9ar"ee a9ar"ee is exempt %rom income tax =: 04/. Terminal lea!e pay o% employees o% the #o!ernment are exempt %rom tax C= !. CastaOe"a, I= A01A, ct. 1, 11/. =etirement per Collecti!e Bar#ainin# :#reement is consi"ere" !oluntary, !oluntary, hence sub>ect to income tax an" 9ithhol"in# tax on 9a#es B= =ulin# No. 01$8/. @eparation bene*ts consistin# o% the mar?et !alue(onal !alue o% the resi"ential lot, is tax exempt B= =ulin# No. 0
.
ANSWER: C -etter : re%ers to G"e"uctions %rom #ross income.7 -etter B re%ers to Gtax exemption.7 -etter F re%ers to Gtax cre"it.7 Exclusion re%ers to income recei!e" or earne" but is not taxable as income because exempte" by la9 or treaty. @uch tax %ree income are not to be inclu"e" in the income tax return unless in%ormation re#ar"in# it is speci*cally calle" %or @ec. A1, =e#s./.
4.
ANSWER: A This is a case o% ?ey insurance insurance 9here 9here the company company insures insures the li%e o% its ?ey employee. The procee"s is not taxable to the corporation corporation becaus because e it is consi consi"er "ere" e" as an in"emn in"emni*c i*cati ation on %or the loss loss o% the presi"ent 9hich is one o% the companyHs ?ey employees.
<.
ANSWER: A The P,<00,000 P,<00,000 is exempt %rom income tax because it is #i!en as in"e in"emn mni* i*ca cati tion on %or %or the the loss loss on the the "est "estru ruct ctio ion n o% the the comp compan any y buil"in#.
A.
ANSWER: B The procee"s o% li%e insurance shoul" be "eclare" %or estate tax purposes i% the "esi#nation o% the bene*ciary 9as re!ocable.
.
ANSWER: C
The pro!ision exemptin# 5interest on #o!ernment securities5 has been een "ele elete" in the Tax =e% =e%orm :ct :ct. The There%or %ore, int intere erest on #o!ernment securities securities are no9 sub>ect to tax. 8.
ANSWER: D The pension %rom I@@ is not taxable 9hile the interest %rom the time "eposit is sub>ect to a *nal tax o% )0L. No, the separation "ue to the economic con"ition is one 9hich is beyon" the employeeQs control, hence, exclu"e" %rom #ross income an" not sub>ect to 9ithhol"in# tax.
.
ANSWER: A The phrase 5personal in>uries5 9hich are exempt %rom income tax inclu"es moral "ama#es a9ar"e" by the court on account o% mental an#uish experience" by one person "ue to libelous statements ma"e a#ainst him.
10. ANSWER: C Pri(es Pri(es amountin# amountin# to P10,000 P10,000 or less are to be inclu"e" inclu"e" in the computation o% #ross income. They are not sub>ect to *nal tax. 11. ANSWER: C The amount o% P1,<00 #i!en by his mother to -uis is in the %orm o% a con"onation or #i%t an" not a taxable income. 1). ANSWER: D Fismissal %rom employer "ue to ine&iciency in ser!ice is a cause 9hich is not beyon" beyon" the control control o% the employee. employee. Rn"er the Gbeyon" Gbeyon" the control test,7 9hene!er an employee is separate" %rom ser!ice %or a cause or causes 9hich isare beyon" his control, the separation pay recei!e" by him is not sub>ect to tax. 1. ANSWER: D Fama#es Fama#es recei!e" recei!e" by a taxpayer taxpayer "ue to physical physical in>uries in>uries or sic?ne sic?ness ss are not taxable taxable to him. him. 'o9e!e 'o9e!err, "ama#e "ama#es s recei recei!e" !e" as compensation %or lost pro*ts are sub>ect to tax. 14. ANSWER: D Thirteenth month pay an" other bene*ts are exempt %rom income
tax. 'o9e!er 'o9e!er,, the amount in excess o% P0,000 P0,000 are taxable taxable to the employee. 1<. ANSWER: B Exclusion %rom #ross income
1,000,0 00
1A. ANSWER: D The exemption %rom income tax on a ;uali*e" senior citi(en "oes inclu"e exemption %rom !alue$a""e" tax, estate tax, "onorQs tax an" income tax on passi!e income. 1. ANSWER: A Monthly salary an" allo9ance P,<00 S 1,000/ Months recei!e" anuary to une 1 :ctual amount o% salaries salaries recei!e" Net income %rom trimobile ncome sub>ect to tax
4,< 00 <.< )4,<0 )4,000 48,<0
EXERCISES 6-1 1.
C-:@@C:TN
a. b. c. ". e. %.
@TR@ T::B-E NCME Nonresi"ent citi(en Within only Nonresi"ent alien Within only NETB/ Nonresi"ent citi(en Within only =esi"ent alien Within only Nonresi"ent alien Within only NETB/ Nonresi"ent alien Within only ETB/
). a. No. No. : mot mothe herr is is not not a ;ua ;uali li*e *e" " "ep "epen en"e "ent nt %or %or pur purpo pose ses s o% o% a"" a""it itio iona nall exemption. b. No. No. :n aunt aunt is not not a ;ual ;uali* i*e" e" "epe "epen" n"en entt %or pur purpo pose ses s o% clai claimi min# n# a""itional exemption. c. Ues. Cin"y Cin"y becau because se she she is suppo support rtin# in# her her "au#ht "au#hter er 9ho 9ho is li!in# li!in# 9ith 9ith her. ". Ues. es.
'e is entit entitle le" " to an a""it a""itio iona nall exem exempt ptio ion n on his his "epe "epen" n"en entt
"au#hter. e. No. No. : bene bene%a %act ctor or o% a seni senior or citi( citi(en en is not not a ;ual ;uali* i*e" e" "epen "epen"e "ent nt %or purposes o% a""itional exemption. . a. n the absence o% an a#reement, ohn has the ri#ht to claim the a""i a""iti tion onal al exem exempt ptio ion n beca becaus use e un"e un"err =e!e =e!enu nue e =e#u =e#ula lati tion on )$8 )$8,, husb husban an"s "s ha!e ha!e the the ri#h ri#htt to clai claim m a""i a""iti tion onal al exemp xempti tion on on the the "epen "epen"en "entt chil"r chil"ren. en. Besi"e Besi"es, s, he has actual actual custo" custo"y y o!er o!er the t9o chil"ren. b. % Mars arsha coul" ul" pro!e that hat she pro!i" o!i"e" e" chie chie%% sup suppor port o!er !er the the chil chil"r "ren en,, both both spou spouse ses s 9oul 9oul" " be "is; "is;ua uali li*e *e" " to clai claim m a""i a""iti tion onal al exemption. Marsha is "is;uali*e" because because the chil"ren chil"ren are not li!in# 9ith her "espit "espite e the support support she she is exten"in#. exten"in#. ohn is "is;uali "is;uali*e" *e" because he "oes not %urnish chie% support to his chil"ren. c. None None.. Each Each tax taxpa paye yerr is enti entitl tle" e" to a basi basic c pers person onal al exem exempt ptio ion n o% P<0,000 P<0,000 re#ar"le re#ar"less ss o% his status. The a""itional a""itional exemptio exemption n on each "epen"ent chil" is P)<,000 re#ar"less o% the status o% the taxpayer$ claimant. 4. a. None. :""itional personal exemption can be claime" only on "epen"ent chil"ren re#ar"less o% the support bein# exten"e" by other persons. <. a. None None.. :unt :untie ies s are are not not ;ua ;uali li*e *e" " "ep "epen en"e "ent nts s %or %or purp purpos oses es o% clai claimi min# n# a""itional exemption. b. None. None. The mother mother is not a ;ual ;uali*e i*e" " "epe "epen"e n"ent. nt. c. None. None. The "au#h "au#hter ter is "is;u "is;uali ali*e" *e" becau because se o% her a#e. a#e. @he is alrea alrea"y "y more than )1 years ol". ". None. ne. Bot Both Fece ecepe"a pe"a an" an" his his sist ister cann canno ot claim laim a"" a""itio itiona nall exemption on their %ather. e. P 100,0 100,000. 00. Elantra Elantra is allo9e" allo9e" to to claim claim "epen"ent "epen"ents s on on his %our chil"ren chil"ren only. A. a. No. No. : mixe mixe" " inco income me ear earne nerr cann cannot ot be be clas classi si*e *e" " as a MWE MWE re# re#ar ar"l "les ess s o% his compensation income %rom employment. b. Ues, becaus because e the "au#hter "au#hter is a ;uali* ;uali*e" e" "epen"e "epen"ent. nt. c. Iross compensation income -ess -ess++ Basi Basic c pers person onal al exem exempt ptio ion n :""itional exemption
)40,0 00 <0,0 <0,000 00 )<,000
<,0
00 14<,0 00
Taxable compensation income Tax on P 140,000 <,000 x )
)),<00 1,)<0 ),<0
". Iross compensation income
)40,0 00 <0,00 0 10,0 00
-ess+ Ba Basic personal exemption Taxable income Tax on P 140,000 <0,000 x )
)),<00 1),<00 <,000
. a. Compensation income 3 im
1A0,0 00 <0,0 00 110,0 00
-ess+ Personal exemption Taxable compensation income Business income 3 Pat
<00,0 00 )<,0 00 ))<,0 00 <0,00 0 1<,0 00
-ess+ Expenses Net income -ess+ Personal exemption Taxable income b. Compensation income 3 im -ess+ Personal exemptions exemption s Basic personal :""itional exemptions Taxable income
1A0,0 00 <0,000 )<,000
<,00 0 8<,00 0
Tax on P 0,000 1<,000 x )0L ncome tax "ue
P 8,<00 ,000 11,<00
Business income 3 Pat
<00,0 00 )<,0 00 ))<,0 00 <0,00 0 1<,0 00
-ess+ Expenses Net income -ess+ Personal exemptions Taxable income Tax on P 140,000 <,000 x )
)),<00 8,<0 1,)<0 P 11,<00 1,)<0 4),<0 ).00 <00
c. Tax on P 10,000 ),)4<.40 x 10L ncome tax
<00.00 ))4.<4 )4.<4
". Tax on P )<0,000
<0,000
e. Tax on P )<0,000 )0A,80 x 0L ncome tax "ue %.
Tax on P <00,000 A),)<1.) x )L ncome tax "ue
<0,000 A),04 11),04 1)<,000. 00 1,440. 41 )4,440. 41
a. @alary . b. nterest on on ban? "eposit c. ". e. %. #. h. i. >.
$ Compensation
$ Passi!e income 3 tax exempt lon#$ term/ 'onor norariu arium m $ Com Compens pensat atio ion n inc income Pri( Pri(es es $ r"i r"ina nary ry busi busine ness ss inco income me not not exce excee" e"in in# # P10,000/ -otto 9innin#s $ Tax exempt ncome %rom %armin# $ Business income =oyalties on boo?s $ Passi!e income 10L/ Fi!i"en"s %rom "omestic $ Passi assi!e !e inc incom ome e 10L 10L// company 1th mo month pay $ Exempt up to P 0,000 nterest on preterminate" preterminate" $ Passi assi!e !e inc incom ome e 1)L 1)L// "eposits
10 a. uan . @alary
1<0,0 00
-ess+ Personal exemptions Basic personal :""itional exemptions )<,000 x / Taxable income Tax on P 10,000 1<,000 x )0L ncome tax "ue -ess+ Withhol"in# tax ncome tax payable
<0,000 <,000
1)<,0 00 )<,00 0
<00 ,000 ,<00 10,100 A,A 00/
b. Maria @alary
1)<,0 00 <0,00 0 <,00 0
-ess+ Ba Basic personal exemptions Taxable income Tax on P 0,000 <,000 x )0L
8,<00 1,000
ncome tax "ue -ess+ Withhol"in# tax ncome tax payable
,<00 1<,000 <,<00/
ncome tax 3 uan
A,A00 / ncome tax 3 Maria <,<0 0/ ncome ncome tax payable payable 1),10 re%un" 0/ 11 a . .
Monthly insurance premium
1<0
Times number o% months in a year Fe"uctible he health in insurance pr premium b Monthly in insurance pr premium m maximum/ . Times number o% months in a year Fe"uctible he health in insurance pr premium c .
a .
)00 1) ),400
No amou amount nt o% heal health th or hosp hospit ital ali( i(at atio ion n insu insura ranc nce e prem premiu ium m is "e"u "e"uct ctib ible le beca becaus use e the the tota totall inco income me o% the the %ami %amily ly exce excee" e"s s P)<0,000.
" Monthly insurance premium maximum . Time Times s numb numbe er o% mont months hs "urin urin# # the the year year Fe"uctible he health in insurance pr premium 1 ).
1) 1,800
Compensation income -ess+ Personal exemption Basic personal :""itional )<,000 x )/ Total compensation income Tax on P 0,000 0,000 x )0L ncome tax "ue
b Iross income .
)00 8 1,A00 )00,000
<0,000 <0,000
100,0 00 100,00 0 8,<00 A,000 14,<0 0 )00,000
-ess+ :llo9able "e"uctions ptional ptional "e"uctio "e"uctions ns 80,00 )00,000 x 40L/ 0 Basic personal <0,000 :""itional exemptions <0,000 180,00 0 Taxable income )0,00 0 Tax on P 10,000 10,000 x 10L ncome tax "ue c .
<00 1,000 1,<00
Iross compensation income -ess+ -ess+ Basic personal personal an" a""itional a""itional exemptions Taxable income Tax on P 0,000 0,000 x )0L ncome tax "ue
1 .
Compensation income Business income Iross income -ess+ Fe"uctions ptional 18A,000 x 40L/
8,<00 A,000 14,<0 0 Case 1 1)<,0 00 18A,0 00 11,0 00
Total Taxable income
EXERCISE 6 – 2
1. ANSWER: B
Case ) 80,000 )0,00 0 10,00 0
4,40 0
temi(e" Personal exemption
)00,0 00 100,00 0 100,0 00
<0,0 00 1)4,4 00 18A,A 00
10<,00 0 <0,00 0 1<<,00 0 1<<,00 0
Iross receipts -ess+ Expenses Pri(e, contest @alary ,A00 S ),400/ =ent income 8,000
<0,00 0 1)0,00 80,00 0 0 <,000 40,000 40,000 8,000 ) ),000 0,00 0 <0,00 0 8<,00 0
). ANSWER: D Tax on P <00,000
1)<,00 0 114,)4 0 ),)4 0
<,000 x )L ncome tax "ue -ess+ Withhol"in# taxes Pro%ession <0,000 x 1
14),<0 0 ),400 ),00 14A,0 0 0 ),4 0
. ANSWER: B nterest on preterminate" "eposit )0,000 x 1)L/ Winnin#s in raVe 100,000 x )0L/ Fi!i"en" %rom C Corp. A,000 x 10L/ Total *nal 9ithhol"in# tax 4. ANSWER: B nterest on lon#$term ban? "eposit Winnin#s in lotto 1th mo month pay -i%e insurance bene*ts -oan bene*ts $ @@@
),400 )0,000 A00 ),000 40,000 )0,000 ,<00 1<0,00 0 )0,00 0
Total income exempt %rom income tax
),<0 0
EXERCISE 6 - 3 NCME 1. nterest on ban? "eposit "eposit 9ith 9ith Banco "e ro$ Php ). nterest on on ban? "eposit "eposit 9ith a ban? in the Rnite" @tates in R.@. "ollar . Ea E arnin#s %rom interest on money mar?et 4. =oyalties on in!entions <. =oyalties on boo?s A. Pr Pri(es amountin# to P,<00 . Pri(es amountin# to P)0,000 8. Winnin#s in lotto 3 Philippines . Winnin#s in lottery 10. nterest on lon#$term in!estment 11. nterest on "eposit %or 4 years 1). Cash "i!i"en"s 3 "omestic corp. 1. @hare o% partner in net income o% taxable partnership 14. nterest income un"er expan"e" %orei#n currency "eposit system
=esi"ent or citi(en )0L
N=: ETB )0L
Tax table )0L )0L 10L Tax table )0L Exempt )0L Exempt
Not taxable )0L )0L 10L Tax table )0L Exempt )0L Exempt
.
Exempt
EXERCISE 6–4.1 1. ANSWER: A Rn"er Rn"er the Tax =e%orm =e%orm :ct, only resi"ent resi"ent citi(ens citi(ens are taxable taxable on income income "eri!e" "eri!e" %rom source sources s 9ithin an" 9ithout 9ithout the Philippin Philippines. es. :ll others are taxable on income 9ithin only. EXERCISE 6–4.2 NCME 1. =ent on on apartment apartment in the
UE@
=:, N=C UE@
Phils. ). =ent on apartment in
UE@
N
N
N
Cana"a . Fi!i"en"$"omestic
UE@
UE@
YES
YES
UE@ N UE@
N N N
N N N
N N N
corporation 4. Fi!i"en"$%orei#n corporation <. -otto 9innin#s in the Phils. A. -otto 9innin#s in R.@.:.
=C
N=:ETB N=:NET / B/ YES UE@
. Cash pri(e on contest, Phils. 8. Ca Cash pri(e on contest, R.@.:. . nterest, ban? "eposit in
UE@ UE@ UE@
UE@ N N
YES
YES
N N
N N
R.@.:. 10. nterest ban? "eposit 3 Phils.
UE@
UE@
YES
YES
Probl! 6– 4.3 1. ANSWER: C "#$%#&r '( r(')*+ ,'+'*. ,'+'*. Compensation Compensation income, Philippines Business income, Philippines Business income, Cana"a )00,000 x P) Total #ross income 9ithin an" 9ithout -ess+ Fe"uctions Expenses, Philippines Expenses, Cana"a 1<0,000 x ) Net income -ess+ Personal exemptions Basic personal :""itional
1)0,00 0 <0,00 0 <,000,0 00 <,40,0 00 ))0,00 0 ,<0,00 0
<0,000 )<,000
Taxable income Tax on P<00,000 )<,000 x )L ncome tax "ue -ess+ Withhol"in# tax ncome tax payable ).
,0,0 00 1,<00,0 00 <,0 00 1,4)<,0 00
1)<,000 )A,000 4)1,000 10,000 411,)00
ANSWER: C "o+#l *#l +#$( %#'): Fi!i"en" %rom a "omestic company inal tax rate @hare in income o% business
40,00 0 10L <0,00
4,000
partnership inal tax rate Total *nal tax .
0 10L
<,000 ,000
ANSWER: A R(')*+ ,'+'* o%+) +o #/#'l o0 OSD. OSD. Compensation income Business income, Philippines Business income, Cana"a )00,000 x ) Total -ess+ ptional "e"uctions <,<0,000 x 40L/ Net income -ess+ Basic personal exemption Taxable income
4.
1)0,00 0 <0,00 0 <,000,00 0 <,<0,00 0 ),140,00 ,)10,00 0 0 ,0,0 00 <0,0 00 ,)80,0 00
ANSWER: B "#$%#&r '( # r(')*+ #l'*. Compensation Compensation income, Philippines Business income, Philippines
1)0,0 00 <0,00 0 40,00 0 ))0,00 0 )<0,00 0
Iross income 9ithin -ess+ Expenses, Philippines Net income 9ithin -ess+ Personal exemption Basic personal :""itional exemption P)<,000 x 4/ Taxable income <.
ANSWER: A
<0,00 0 100,000
1<0,00 0 100,00 0
"#$%#&r b,o!( # *o*r(')*+ ,'+'*. Net income 9ithin -ess+ Basic personal exemption Taxable income A.
ANSWER: B No*r(')*+ #l'* E"B. Business income, Philippines -ess+ Expenses, Philippines Net income -ess+ Pe Personal exemption lo9er/ Taxable income
.
<0,0 00 ))0,00 0 10,00 0 40,00 0 0,00 0
ANSWER: D "#$%#&r '( NRA NE"B. Business income, Philippines Fi!i"en" %rom a "omestic company @hares in net income o% a partnership Iross income =ate inal tax
8.
)<0,00 0 <0,0 00 )00,00 0
ANSWER: D -otto 9innin#s Procee"s o% li%e insurance Total exemption
<0,0 00 40,000 <0,00 0 440,00 0 )
The inheritance is more o% a "onation rather than an income.
EXERCISE 65.1 ANSWER: D ptional stan"ar" "e"uctions are allo9e" only on pro%essional pro%essional or business income o% an in"i!i"ual taxpayer, taxpayer, pro!i"e" that he has si#ni*e" in the tax return his intention to a!ail o% sai" "e"uctions. Corporations Corporations can a!ail also o% optional stan"ar" "e"uctions EXERCISE 65.2 ANSWER: B .
The The term term #ros #ross s inco income me mean means s tota totall sale sales, s, less less cost cost o% #oo" #oo"s s sol" sol" plus plus any any inco income me %rom %rom in!e in!est stme ment nts s an" an" %rom %rom inci inci"e "ent ntal al or outs outsi" i"e e operations or sources. Fe"uctions shoul" not be ma"e %or items not or"inarily use" in computin# the cost o% #oo"s sol".
PROBLEM 6-5.3 1. ANSWER: A @alary ,000 S <,000/ Pro%essional income 8,000 S ,000/ Iross income, business Total -ess -ess++ Pro% Pro%es essi sion onal al an" an" busi busine ness ss expe expens nses es
104,00 0 0,00 0 1)<,00 0 )1<,00 0
=ent income <,000
<0,00 0 <0,000
1<8,<0 0 A0,00 0 )),<0 0
100,00 0 ))),<0 0
Tax on P 140,000 8),<00 x )
Wa#es P <,000 Pro%essional income ,000 =ent A0,000$<,000/ ,000 ncome tax payable
2. ANSWER:
)),<0 0 )0,A)< 4,1)<
1<,000 )8,1)<
D
@alary Iross receipts on business =ent income Pro%essional income Total -ess+ ptional "e"uctions "e"uctions )<,000 x 40L/ Net income -ess+ Personal exemption Basic personal
:" :""itional
104,00 0 P 1)<,00 0 A0,000 0,00 0 )<,00 0 110,00 0
<0,0 00 <0,000
Taxable income Tax on P 140,000 ),000 x )
)),< 00 ,)<0 ),<0 1<,000 14,<0
1A<,00 0 )A,00 0
100,00 0 1A,00 0
1. ANSWER: C Iross compensation income ,000 S 00/ x 1) -ess+ Personal exemption Basic personal :""itional exemption Taxation income
8,A00 <0,000 )<,000
<,000 1),A00
). ANSWER: C Iross business income -ess+ ptional "e"uction 1<0,000 x 40L/ Net -ess+ Personal exemptions Taxable income
1<0,00 0 A0,000 0,000 <0,000 40,000
EXERCISES 6-6.1: PERSONAL EXEMP"IONS 1.
ANSWER: B Personal Personal exemptions are arbitrary amounts allo9e" in the nature o% a "e"uction %rom the amount o% #ross compensation income an"or net net busi busine ness ss an" an"or or pro% pro%es essi sion onal al inco income me,, as the the case case may may be, be, %or %or personal, li!in# or %amily expenses o% an in"i!i"ual @ec. , =e#s./.
).
ANSWER: A Nonres Nonresi"e i"ent nt aliens aliens not en#a#e en#a#e" " in tra"e tra"e or busin business ess in the Philippine Philippines s are not allo9e" to claim person personal al exemptions exemptions.. They are sub>ect to *nal tax base" on the entire #ross income "eri!e" %rom sources 9ithin the Philippines.
.
ANSWER: C :n ille#itimate chil" is no9 consi"ere" as a ;uali*e" "epen"ent %or purposes o% claimin# a""itional exemption
4.
ANSWER: B The amount o% basic personal exemption allo9e" to N=: ETB must not excee" the amount o% exemption bein# allo9e" in the Philippines.
<.
ANSWER: C @enior @enior citi(ens citi(ens are not consi"er consi"ere" e" as ;uali*e" ;uali*e" "epen"en "epen"ents ts by its
bene%actor %or purposes o% claimin# the a""itional exemptions. lle#itimate chil"ren are no9 consi"ere" as ;uali*e" "epen"ents %or %or purp purpos oses es o% a""i a""iti tion onal al exem exempt ptio ion n pro! pro!i" i"e" e" that that all all the the othe otherr re;uisites are complie" 9ith. A.
ANSWER: C The husban" is the proper claimant o% the a""itional exemptions except 9hen he "oes not "eri!e any income %rom sources 9ithin the Philippines or he explicitly 9ai!es his ri#ht in %a!or o% his 9i%e.
.
ANSWER: D No matter matter ho9 bi# is the income income o% the 9i%e as compare" compare" to the husban", i% the latter "oes not 9ai!e his ri#ht to claim the a""itional exemption or he is a nonresi"ent an" his income is not purely "eri!e" %rom sources 9ithout, he 9ill al9ays claim the a""itional exemption.
8.
ANSWER: B n cases o% personal exemptions, only N=: ETB are sub>ect to the la9 la9 on reci recipr proc ocit ity y. Nonr Nonres esi" i"en entt alie aliens ns 9ho 9ho shal shalll come come to the the Philippines an" stay therein %or an a##re#ate perio" o% more than 180 "ays are "eeme" N=: ETB.
.
ANSWER: D : moron moron,, altho althou#h u#h mental mentally ly "e%ec "e%ecti! ti!e e shall shall not ;uali% ;uali%y y as "epen"ent because he is not actually *nancially "epen"ent %rom the taxpayer. : chil" o% a marria#e 9hich has been "eclare" !oi" ab initio is a ;uali*e" "epen"ent %or purposes o% a""itional exemption. : chil" pursuin# pursuin# his stu"ies stu"ies else9her else9here e is "eeme" "eeme" li!in# 9ith the taxpayer taxpayer.. 'e is consi"er consi"ere" e" Ga9ay temporari temporarily7 ly7 %rom the taxpayerQs taxpayerQs home. : "epen"ent recei!in# a salary o% P1,000 monthly is not consi"ere" as #ain%ully employe".
10. ANSWER: C : senior citi(en is or"inarily taxable unless he ;uali*es un"er the exemptions 9hich are also bein# #rante" to or"inary taxpayers. EXERCISES 6.2
6-
1. ANSWER: C The taxpayer is ;uali*e" as hea" o% %amily because o% the le#itimate an" reco#ni(e" natural chil". nly le#itimate, ille#itimate 9hich inclu"es reco#ni(e" natural chil"/ or le#all le#ally y a"opte a"opte" " chil"r chil"ren en can ;uali% ;uali%y y as "epen "epen"en "entt %or purpos purposes es o% claimin# a""itional exemptions. Thus, common la9 husban" an" 9i"o9e" mother o% common la9 husban"s are "is;uali*e". The total personal personal an" a""itional exemptions is+ Personal exemptions
<0,00 0
:""itional exemptions+ exemptions+ -e#itimate chil" lle#i lle#itim timate ate chil" chil" reco# reco#ni( ni(e" e" natural chil"/ Total
)<,0 00 )<,0 00
<0,00 0 100,0 00
). ANSWER: B : nonresi"ent alien en#a#e" in tra"e or business is allo9e" to claim basic personal exemptions exemptions as "e"uction "e"uction %rom #ross income. income. They are not, ho9e!er, allo9e" to claim a""itional exemption. The personal exemptions allo9e" shall be the lesser amount bet9een that allo9e" in his country an" the amount *xe" as exemption %or citi(ens or resi"ents in the Philippines. . ANSWER: D Basic personal exemptions+ 'usban" Wi%e :""itional exemptions exemptions )<,000 x 4/ Total
<0,00 0 <0,00 0
A4,000 100,000 100,000 1A4,000
4. ANSWER: C Basic personal exemption :""itional exemption )<,000 )<,000 x / Total personal exemptions
<0,000 <,000 1)< 000 ,000
<. ANSWER: D Pro%essional %ees :llo9ances Total -ess+ Expenses @alaries Tra!elin# expenses &ice supplies =ent expense Taxable income be%ore exemption -ess+ -ess+ Person ersonal al exem exempti ption on <0 <0,00 ,000 0 S2)<,000 x / Taxable income
180,000 )4,000 )04,000 A,00 0 )0,00 0 4,000 A,00 A,000 0 108,000 1)<,000 .
A. A*(r: A Iross compensation income -ess+ Personal exemptions exemption s Basic personal :""itional )<,000 x 4/ Taxable income
))0,000 <0,00 0 100,0 1<0,000 00 0,000
. A*(r: C Iross compensation income -ess+ Personal exemptions exemption s Basic personal :""itional )<,000 x )/ Taxable income
))0,000 <0,00 0 <0,00 100,000 0 1)0,000
8. A*(r: C Rpin Balbal Total a""itional exemption
)<,000 )<,000 <0,000
EXERCISES 6 – 7. CLASSIFICATION OF INDIVIDUAL INCOME TAXP TAXPA AYERS
1. ANSWER: D : nonresi"ent alien not en#a#e" in tra"e or business N=: NETB/ is not entitle" to claim personal exemption. ). ANSWER: A :n alien 9ho comes to the Philippines %or a "e*nite purpose 9hich in its its natu nature re may may be prom prompt ptly ly acco accomp mpli lish she" e" is a tran transi sien entt @ec @ec.. <, =e#s./. . ANSWER: D The tax base %or resi"ent citi(ens, resi"ent aliens, an" nonresi"ent citi(ens is taxable income, 9hile nonresi"ent aliens NETB are taxe" on the entire #ross income "eri!e" %rom sources 9ithin the Philippines. 4. ANSWER: D <. ANSWER: B Pri(es amountin# to more than P10,000 are sub>ect to a *nal tax o% )0L. nterest on "ollar "eposits are sub>ect also to a *nal tax o% )0L. Cash Cash "i!i"e "i!i"en"s n"s recei recei!e" !e" by in"i!i" in"i!i"ual uals s as stoc?h stoc?hol" ol"ers ers o% a corporation corporation are sub>ect to a *nal tax o% 10L. A. ANSWER: A =oyalty income on musical compositions are sub>ect to a *nal tax o% 10L. . ANSWER: C nterest taxpayer is N=: ETB/
A4,00 0
The "i!i"en" is sub>ect to *nal tax. EXERCISES
6–8.1. PREMIM PAME MEN"S ON OSPI"ALIA"ION INSRANCE
EAL"
ANDOR
1. ANSWER: D Premiums pai" by the taxpayer %or health insurance o% his %amily is a "e"uction but sub>ect to limitations/ %rom the #ross income o% an in"i!i"ual taxpayer.
). ANSWER: D Premiums pai" on health insurance is "e"uctible %rom #ross income o% an in"i!i"ual taxpayer i% the income o% his %amily "oes not excee" P)<0,000 "urin# the year re#ar"less o% the nature o% his income. . ANSWER: C Compensation Compensation income earners are not allo9e" "e"uctions except pers person onal al exem exempt ptio ions ns an" an" insu insura ranc nce. e. The The amou amount nt o% heal health th or hospitali(ation insurance allo9e" is limite" to P),400 or P)00 a month. Iross compensation income -ess+ Fe"uctions Basic personal :""itional exemption nsurance premiums )00 x 1)/ Taxable income
)00,0 00 <0,000 )<,000 ),400
,40 0 1)),A 00
EXERCISE 6.8.2 Case 1+
None None beca becaus use e the the tota totall #ros #ross s inco income me o% the the spou spouse ses s exce excee" e"s s P)<0,000.
Case )+
None. The "e"uction on health insurance can be claime" by the 9i%e bein# the claimant o% the a""itional exemption on "epen"ents.
Case +
The husban" can only claim a maximum amount o% P1,A00 because only only P)00 P)00 is allo allo9e 9e" " as "e"u "e"uct ctio ion n e!er e!ery y mont month, h, comp comput ute" e" as %ollo9s+ P)00 x 8 X 1,A00. 1,A00.
Case 4+
P1,)00. The husban" is allo9e" to claim claim the "e"uction "e"uction e!en i% in the meantime no "epen"ent is ;uali*e" %or a""itional exemption.
EXERCISES 6-7 1. ANSWER: A @alary bein# a compensation compensation income is returnable. 'ence, part o% the taxpayerQs #ross income. Pro!i"e", ho9e!er, that the employee is not a minimum 9a#e earner. Thirteenth month pay, pay, inclu"in# other bene*ts, are exempt %rom tax up to P0,000. Consi"erin# that 1 1th month pay is P8,000 only, the entire
amount is exempt %rom income tax. ). ANSWER: D None. Nonresi"ent Nonresi"ent citi(ens are taxable only on income 9ithin. . ANSWER: D Iross compensation income -ess+ Personal exemptions Basic personal hea" o% %amily/ :""itional )<,000 x /
1<,< A <0,000 <,000
Taxable income Tax on P 0,000 ),
1)<,00 0 ),
),<00.00 41.40 ),1.40
4. ANSWER: C Compensation income :""+ Pro%essional income income -ess+ Expenses
<,00 0 <0,000 140,000
Total -ess+ Exemptions Basic personal :""itional
<0,000 )<,000
Taxable income Tax on P140,000 48,000 x )
)10,00 0 )A,00 0 <,00 0 188,00 0
)),<00 1),000 4,<00
<. ANSWER: D =e%er to the solution to Problem A. A. ANSWER: A @alary P11,000 S )<,000/ :""+ Taxable other bene*ts bene*ts th 1 month pay ther bene*ts
)1A,00 0 18,000 1<,000
Total -ess+ Exemption
,000 0,000
Total -ess+ Personal exemption Taxable income Tax on P 140,000 ),000 x )
,00 0 )1,00 0 <0,00 0 1A,00 0
)),<00 ,)<0 ),<0 )<,000 4,<0
. ANSWER: D Iross income, restaurant
00,00 0 1A0,00 0 1,0A0,0 00
Taxable other income )00,000 x 80L/ Total -ess+ Fe"uctions Business expenses 00,000 x A0L/ x 8
4<,000 <0,000 )<,000
Taxable income
<4,00 0 <)A,00 0
8. ANSWER: A Basic salary Cost o% li!in# allo9ance 'a(ar" pay
)10,<4 .A A,000.00 ,A00.00
Iross compensation income :""+ Net income %rom pro%ession pro%ession Pro%essional income -ess+ Expenses
P1
,A00. 00 ))0,14 .A
8,0 .00
Total #ross income
0,< .A <0,000 .00 )<,< .A
-ess+ Personal exemption Taxable income Tax on P )<0,000 ,<.A x 0L ncome tax "ue -ess+ Withhol"in# tax on 9a#es ncome tax payable
<0,000.00 ),8A1. <),8A1. ),A0.<0 )<,)<).
. ANSWER: B Business income, Phils., 11 $ 40 -ess+ Expenses, Phils. Business income, Phils., <1 $ 1)1 <40,000 -ess+ Expenses, Phils. )4,<00 Pro%essional income Fi!i Fi!i"e "en" n" %ro %rom m %ore %orei# i#n n corp corpor orat atio ion n 1,< 1,<00 00 x A0/ A0/
40,000 1,000 )),< 00 )),<0 0 0,0 0,00 0 0
Total -ess+ Personal exemption Taxable income Tax on P )<0,000 1)8,000 x 0L ncome tax "ue 10 ANSWER: B . Iross compensation income )10,48.)4 )10,48.)4 S A,000/ -ess+ Personal exemptions Basic personal :""itional Taxable income
),000
40<,000 4)8,000 <0,000 8,000
<0,0 00 8,40 0 88,40 0
)1A,48. )4 <0,000. 00 <,000. 00
1)<,000 .00 1,48. )4
Tax on P 0,000 )1,48.)4 x )0L ncome tax "ue -ess+ Withhol"in# tax ncome tax payable
8,<00.0 0 4,)8. A< 1),8. A< ),)4A. 40 14,4<8.
11 ANSWER: B . Basic salary 48,4A<.)< S ),<00/
<0,A<.) < <0,000.0 0 A<.)<
-ess+ Personal exemption Taxable income Tax on P A<.)< x
48.)A 41. 4 8. 1/
1) ANSWER: B . ncome tax "ue o% :lex
14,4<8. 8.1 / 14,841. 4/
ncome tax "ue o% Paloma :##re#ate amount amount payablere%un" 1 ANSWER: A . Iross compensation income -ess+ Personal exemptions Basic personal :""itional )<,000 x )/ Taxable income
))0,00 0 <0,00 0 <0,000
100,0 00 1)0,000
14 ANSWER: C . Iross compensation income -ess+ Personal exemptions Basic personal :""itional Taxable income
)00,00 0 <0,00 0 <0,000
100,000 100,000
1< A*(r: B . @alary $ 11 to A0 P8,000 x A/ :""+ Procee"s o% o% insurance -ess+ ss+ Pre Premium mium payme aymen nts P< P<,00 ,000 x )0/ Iross income -ess+ Personal exemption Taxable income
48,000 <00,00 0 100,00 ,000
400,00 ,000 448,000 <0,000 8,000
EXERCISE 6-10.
The petition has merit. Cooperatives Cooperatives are not required required to withhold withhold taxes taxes on interest from savings and time deposits deposits of their members based on a BIR Ruling. There is nothing in the ruling to suggest that it applies only when deposits are maintained in a bank. Rather, the ruling learly states, without any qualifiation, that sine interest from any !hilippine urreny bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, ooperatives are not required required to withho withhold ld the orrespo orrespondi nding ng tax on the interest interest from from saving savings s and time deposi deposits ts of their their members. This interpretation was reiterated in BIR Ruling "#$%&'(%)**+ "#$%&'(%)**+ dated -tober &, &, )**+, whih was issued by $ssistant Commissioner ames /. Roldan upon the request of the ooperatives for a onfirmatory ruling on several issues, among whih is the alleged exemption of interest inome on members0 deposit 1over and above the share apital apital holdings2 from the )*3 final withholding withholding tax. In the said ruling, the BIR opined opined that4
xxxx 3. Exemption of interest interest income on members’ members’ deposit (over and above above the share capital capital holdings) from the 20% Final Withholding ax. he !ational "nternal #even$e ode states that a &final tax at the rate of t'ent percent (20%) is hereb imposed $pon the amo$nt of interest on c$rrenc ban deposit and ield or an other monetar bene benefi fitt from from the dep depos osit it s$b s$bst stit it$t $tes es and and fro from m tr$st tr$st f$nd f$ndss and and simil similar ar arran arrange gemen mentt x x x* for for indi indivi vid$ d$al alss $nder $nder +ectio +ection n 2,(-)( 2,(-)() ) and for domest domestic ic corpo corporat ration ionss $nder $nder +ectio +ection n 2/()( 2/()(). ). Considerin Considering g the members’ deposits with the cooperatives are not currency bank deposits nor deposit substitutes, Section 24(B)(1) and Section 2(!)(1), there"ore, do not app#y to members o" cooperatives and to deposits o" prim primar arie iess with with "ede "edera rati tion ons, s, respe espect ctiv ive# e#yy$
Given that petitioner is a credit cooperative duly registered with the Cooperative Development Authority (CDA), Section 2(!)(") o# the $%&C must 'e read together with &A *+, as amended 'y &A 2-. /nder Article 2 o# &A *+, as amended 'y &A 2-, it is a declared policy o# the State to #oster the creation and growth o# cooperatives as a practical vehicle #or promoting sel#0reliance and harnessing people power towards the attainment o# economic development and social 1ustice. hus, to encourage the #ormation o# cooperatives and to create an atmosphere conducive to their growth and development, the State e3tends all #orms o# assistance to them, one o# which is providing cooperatives a pre#erential ta3 treatment. he legislative intent to give cooperatives a pre#erential ta3 treatment is apparent in Articles " and 2 o# &A *+, which read4 read4
1#. 1#. . %a& %reatment %reatment o" Cooperatives. Cooperatives . $l registered cooperatives $nder this ode 'hich do not transact an b$siness 'ith non4members or the general p$blic shall not be s$b5ect to an government taxes and fees imposed $nder the "nternal #even$e 6a's and other tax la's. ooperatives not falling $nder this article shall be governed b the s$cceeding section. 1#. 1#. 2. %a& and 'ther &emptions. &emptions . ooperatives transacting b$siness 'ith both members and nonmembers shall not be s$b5ect to tax on their transactions transactions to members. !ot'ithstanding the the provision of an la' or reg$lation to the contrar7 s$ch cooperatives dealing 'ith nonmembers shall en5o the follo'ing tax exemptions8 x x x. his his e3empti e3emption on e3tend e3tends s to mem'ers mem'ers o# cooper cooperati atives ves.. %t must must 'e emphasi5 emphasi5ed ed that that cooper coo perati atives ves e3ist #or the 'ene#it 'ene#it o# their mem'ers. mem'ers. %n #act, the prima primary ry o'1ect o'1ective ive o# every every cooperative is to provide goods and services to its mem'ers to ena'le them to attain increased income income,, savin savings, gs, invest investmen ments, ts, and and produc productiv tivity ity.. here# here#ore ore,, limitin limiting g the applic applicati ation on o# the ta3 e3emption to cooperatives cooperatives would go against against the very purpose purpose o# a credit cooperative. E3tending the e3emption to mem'ers o# cooperatives, on the other hand, would 'e consistent with the intent o# the legislatur legislature. e. hus, hus, although the ta3 e3emption e3emption only mentions cooperati cooperatives, ves, this should 'e construed to include the mem'ers. All told, we hold that petitioner is not lia'le to pay the assessed de#iciency withholding ta3es on interest #rom the savings and time deposits o# its mem'ers, as well as the delin6uency interest o# 2-7 per annum. %n clo closin sing, g, coo cooper perati atives ves,, includ including ing their their mem'er mem'ers, s, deserv deserve e a pre#er pre#erent ential ial ta3 treatm treatment ent 'ecause o# the vital role they play in the attainment o# economic development and social 1ustice. Sadi natapos CHAPTER 7
EXERCISES – 1 1 a. By contr ntribut ibutin in# # P10 P100,00 ,000 each ach 9ith 9ith the the inte intent ntio ion n o% "i!i" i!i"in in# # . 9hate! 9hate!er er pro*t pro*t is obtai obtaine" ne",, :tien :tien(a, (a, Bau(o Bau(on n an" Carmon Carmona a ha!e ha!e %orme" a business partnership 9hich is taxable as a corporation. The re#istration 9ith the @ecurities an" Exchan#e Commission is not an in"ispensable re;uisite in its %ormation. n this case, the business or#ani(ation %orme" 9ill %all un"er the phrase Gpartnership no matter ho9 create" or or#ani(e",7 9hich is inclu"e" in the "e*nition o% a corporation. corporation.
b. The The busin usines ess s or#an #ani(at i(atio ion n %orm orme" is a cor corpor poratio ation. n. The The *!e entrepreneurs ser!e" as the incorporators. c. The t9o t9o corpor corporation ations s ha!e %orme" %orme" a >oint >oint !entu !enture re because because it is clear clear that their intention is to accomplish a sin#le pro>ect 9hich upon completion, the >oint un"erta?in# 9ill be automatically "issol!e". The >oint !enture is not taxable as a corporation corporation B= =ulin# 8$0/. ". Ii#i an" ay>ay ay>ay ha!e ha!e %orme" %orme" a #ener #eneral al pro% pro%essio essional nal partners partnership. hip. By or#ani(in# an accountin# an" au"itin# *rm, they shall exercise a commo common n pro%e pro%essi ssion on %or %or certi certi*e" *e" public public accoun accountan tants. ts. : #ener #eneral al pro%essional pro%essional partnership is not sub>ect to income tax. e. The busine business ss or#ani( or#ani(ati ation on %orme" %orme" possess possesses es the %eature %eature applic applicabl able e to a >oint stoc? company. company. t is taxable as a corporation. ) .
Classi*cation a. Fomestic corporation b. =esi =esi"e "ent nt %ore %orei# i#n n corporation Y c. Nonr Nonres esi" i"en entt %or %orei ei#n #n corporation
@itus o% ncome
Tax Base
Within an" 9ithout Within only
Taxable income Taxable income Iross income
Within only
Yt is an international carrier (See Comm vs. BOAC, et al, GR Nos. 65773-74, April 30, 1!7". n 9hich case, case, the tax base can be Iross Philippine Billin#s. # . .
Do!(+', ,or%or#+'o* @ales 3 "omestic @ales 3 abroa" Iross sales -ess+ Cost o% #oo"s sol" Iross income -ess+ Expenses Fomestic orei#n
)008
)00
,000,0 00 ,000, 000 10,000, 000 <,000, 000 <,000,0 00
,000,0 00 ,000, 000 10,000, 000 <,000, 000 <,000,0 00
1,000,0 00 ),000,0
1,000,0 00 ),000,0
Total expenses Taxable income =ate ncome tax b .
00 ,000,0 00 ),000,0 00 0 L A00,00 0
,000,0 00 1,<00,0 00 1,<00,0 00 1,000,0 00 <00,000 < L 1<,00 0
,000,0 00 1,<00,0 00 1,<00,0 00 1,000,0 00 <00,000 0L
R(')*+ 0or'9* ,or%or#+'o* @ales 3 "omestic -ess+ Cost o% #oo"s sol" sol" 10 10 x <,000,000/ Iross income -ess+ Expenses on "omestic sales Taxable income =ate o% tax ncome tax
, .
00 ,000,0 00 ),000,0 00 < L 00,00 0
1<0,000
No*r(')*+ 0or'9* ,or%or#+'o* @ales 3 "omestic Uiel" %rom "eposit "eposit substitute Iross income =ate ncome tax
,000,0 00 400,00 0 ,400,0 00 < L 1,10,0 00
,000,0 00 400,00 0 ,400,0 00 0 L 1,0)0,0 00
4 a. Ba#o Corpora Corporation tion shall shall be co!ere" co!ere" by the application application o% the MCT MCT . e&ecti!e )010. b. Ues, the corporation corporation shall be sub>ect sub>ect to a minimum income tax in )010 )010 because the normal income tax is P0,000 9hile the )L o% the #ross inco income me 9hic 9hich h repr repres esen ents ts the the mini minimu mum m corp corpor orat ate e inco income me tax tax is
P100,000, P100,000, compute" as %ollo9s+ Iross income 3 )010 -ess+ Expenses Taxable income =ate Normal income tax -ess+ Minimum income income tax <,000,000 <,000,000 x )L/ Excess MCT
<,000,0 00 4,00,0 00 00,000 0 L 0,000 100,000 10,00 0/
The countin# o% the %our 4/ year perio" shall commence in )00A a year %ollo9in# the year in 9hich the corporation 9as re#istere" 9ith the B=. The corporation corporation is not co!ere" by the MCT %rom )00< to )00. t shall be co!ere" only in )010 or on the 4 th year %ollo9in# the year in 9hich it 9as re#istere" 9ith the Bureau o% nternal =e!enue. < . Iross sales @ales returns an" "iscounts Cost o% #oo"s sol" Total Net :""+ Capital #ain Iross income -ess+ Fe"uctions Taxable income =ate o% tax Normal ncome tax
)00
)008
)00
4,<80,0 00 )00,00 0 8A0,0 00 1,0A0,0 00 ,<)0,0 00 0,0 00 ,<<0, 000 ,480,4 00 A,A00
<,)<0,0 00 1<,00 0 A)0,0 00 <,0 00 4,4<<,0 00
),8<0,0 00 )<,00 0 1,)00,0 00 1,4<,0 00 1,<<,0 00 <,0 00 1,0, 000 8<0,0 00 <40,00 0 0 L 1A),00
< L )4,A0
. 4,4<<,0 00 4,)00,0 00 )<<,00 0 < L 8,)<0
0 MCT+ )00 ,<<0,000 x )L/ )008 4,4<<,000 x )L/ )00 1,0,000 x )L/ ncome tax Exce Excess ss MCT MCT 3 )00 )00 1, 1,00 000 0 3 )4,A0/ -ess+ -ess+ Carry Carry %or %or9ar 9ar" " o% exce excess ss MCT ncome tax payable A a . .
1,000 8,100 . 1,00 0 4A,A4 0 1;<< <
@ales @ale @ales s retu return rns s an" an" allo allo9a 9anc nces es @ales "iscounts
Pu Purchases
rei#ht$in Purchase returns an" allo9ances Purchase "iscounts Ioo"s a!ailable %or sale n!e n!ent nto ory, Fec Fecembe emberr 1 Iross income -ess+ peratin# expenses Taxable income =ate o% tax Normal ncome tax
4A,A4 0 42;61 < A,000,0 00
)00, )00,00 00 0 1<,00 0
Net sales -ess+ Cost o% #oo"s sol" n!entory, anuary 1
. 8,)<0
),400,0 00 1,<00,0 00 <,000 0,00 0/ ,00 0/ ,88,0 00 1,0 ,00,0 00
)1<,0 00 <,8<,0 00
1,8,0 00 ,8,0 00 1,A00,0 00 ),18,0 00 < L A<,4
),80 0 1A),00 0 162;<< <
<0 b MCT ,8,000 x )L/ . c .
<, 40
ncome tax "ue
A<,4 <0
Iross sales . -ess+ Cost o% sales
),000, 000 1,A00, 000 400,00 0
Iross income -ess+ ptional "e"uction Iross income =ate
stan"ar" 400,000 40L
Taxable net income 8 .
1A0,00 0 )40,00 0
a .
The rate rate o% tax applic applicabl able e to the e"ucat e"ucation ional al instit instituti ution on is 10L 10L because the income %rom unrelate" acti!ity "oes not excee" <0L o% the entire #ross income.
b .
% the income %rom unrelate" acti!ity is more than the income %rom relate" the :rts Rni!ersity 9oul" be sub>ect to a tax rate o%
.
)00A a .
Pro!ision %or income tax
<0,000
ncome tax payable
<0,0 00
To recor" income tax liability usin# normal income tax. b .
Fe%erre" char#es 3 MCT ncome tax payable To recor" excess MCT A<,000 3 <0,000/
1<,000 1<,0 00
c. ncome tax payable Cash in ban?
A<,000 A<,0 00
To recor" payment o% income tax "ue %or )00A. a .
)00 The corporation is not allo9e" to carry %or9ar" an" cre"it the )00A excess MCT a#ainst the income tax liability %or )00, since the )00 MCT is #reater than the normal income tax %or sai" year.
b .
To recor" income tax liability usin# the normal income tax rate. Pro!ision %or income tax ncome tax payable
8<,000 8<,000
c. To recor" recor" applicatio application n o% excess excess MCT MCT.. Fe%erre" char#es 3 MCT ncome tax payable " .
To recor" payment o% income tax "ue %or )00. ncome tax payable
1<,000 1<,000
100,00 0
Cash in ban?
100,00 0
)008 The corporation corporation is not allo9e" to carry %or9ar" an" cre"it the )00A an" )00 excess MCT a#ainst the normal income tax liability %or )008 an" )00 since the )008 an" )00 MCT are #reater than the Normal ncome Tax %or sai" year. The accounti accountin# n# entries entries in )008 )008 an" )00 )00 shall be similar similar to )00A an" )00 abo!e. or taxable year )010 9hen the expire" portion o% excess MCT A<, A<,00 000 0 3 <0,0 <0,000 00// %or %or taxa taxabl ble e year year )00A )00A is clos close" e" to =eta =etain ine" e" Earnin#s account "ue to its non$application the entry is+ =etaine" earnin#s Fe%erre" char#es 3 MCT 10 .
1 .
Tuition %ees
1<,000 1<,000 1,
@chool canteen Formitories Boo?stores Car stic?ers Total
11 .
)<0,000 <,000 48,000 8,0 0 1,A1, 00
) .
% atima Rni!ersity is a non$stoc?, non$pro*t e"ucational institution no income shall be reporte" %or income tax purposes because non$ stoc? non$pro*t schools are not sub>ect to income tax.
.
% atima Rni!ersity is a #o!ernment e"ucational institution it 9ill not report any income %or income tax purposes because #o!ernment e"ucational institutions are exempt %rom income tax.
a .
Iross receipts
4,<00,0 00 1,)00,0 00 ,00,0 00 A80,0 00 ),A)0,0 00 < L 1,0 00
-ess+ Cost o% sales Iross income -ess+ Fe"uctions Taxable income =ate ncome tax b .
Taxable income
),A)0,0 00 <,000 4),00 0 ),,0 00
Uiel" %rom "eposit "eposit substitutes substitutes nterest income Total -ess+ Fi!i"en"s pai" ncome tax pai" Tax on "eposit substitutes <,000 x )0L/ Tax on interest 4),000 x )0L/ =ese =eserr!e" !e" %or buil buil" "in# in# constr nstru uctio ction n mproperly accumulate" earnin#s
<,000 1,000 1<,000 8,400 1,<0 ,<00,0 00
),81<,4 00 8,4
00/ 1) .
The The *nal *nal 9ith 9ithho hol" l"in# in# tax tax to be pai" pai" by the the corp corpor orat atio ion n 9he 9heth ther er "ome "omest stic ic,, resi resi"e "ent nt %ore %orei# i#n n or nonr nonres esi" i"en entt %ore %orei# i#n/ n/ is uni% uni%or orml mly y compute" as %ollo9s Iross sellin# price P110 x 1,000/ -ess+ Cost P100 x 1,000/ Net capital #ain =ate o% tax Capital #ains tax *nal tax/
P 110,000 100,000 10,000
EXERCISES 7–2 7–2.1
1. ANSWER: A ). ANSWER: C . A*(r: D or purposes o% MCT, MCT, the taxable year in 9hich business operations commence" commence" shall be the year in 9hich the "omestic corporation corporation is re#istere" 9ith the Bureau o% nternal =e!enue. irms re#istere" 9ith B= in any year shall be co!ere" by MCT a%ter the lapse o% three calen"ar years. The corporation is re#istere" re#istere" 9ith B= in )004. There%ore, There%ore, it shall be sub>ect to MCT e&ecti!e )008. 4. ANSWER: D Iross income -ess+ Fe"uctions Taxable income =ate o% tax Normal income tax MCT P8<),000 x )L/ ncome tax payable hi#her/
8<), 000 800,00 0 <),000 0 L 1<,A00 1,040 1,040
<. A*(r: C Iross income
A),00 0 A10,00 0 )),000 < L ,0 0 1),A40 1),A40
-ess+ Fe"uctions Taxable income =ate o% tax Normal income tax MCT PA),000 x )L/ ncome tax payable hi#her/ PROBLEM 7-2.2
1. ANSWER: C Minimum Corporate ncome Tax -ess+ Normal income tax Excess o% MCT o!er NT Entry+ Fe%erre" char#es $ MCT ncome tax payable ). ANSWER: A =etaine" earnin#s Fe%erre" char#es $ MCT . ANSWER: B )00< )00A )00 Total excess o% MCT o!er NT ournal entry+ ncome tax payable Fe%erre" char#es 3 MCT
<0,000 )0,000 0,000 0,000 0,000 0,000 0,000 ),000 <,000 10,000 4),000 4),000 4),000
PROBLEM 2.3: 1. ANSWER: B ncome tax, 1st Zt Ztr NT 3 hi#her/ -ess+ Taxes 9ithhel" 3 Prior year
100,00 0 10,000
Taxes 9ithhel" 3 1st ;t ;tr Excess MCT prior year ncome tax "ue, 1st Ztr normal income tax/
)0,000 0,000 A0,000 40,000
). ANSWER: B ncome tax, )n" Zt Ztr MCT 3 hi#her/ -ess+ Taxes 9ithhel" 3 Prior year Taxes 9ithhel" 3 1st ;t ;tr n" Taxes 9ithhel" 3 ) ;t ;tr Net income tax payment 3 1st Ztr ncome tax "ue, )n" Ztr 3 MCT
0,00 0 10,000 )0,000 0,000 40,000 100,00 0 )0,00 0
. ANSWER: C ncome tax, r" Zt Ztr NT 3 hi#her/ -ess+ Taxes 9ithhel" 3 Prior year Taxes 9ithhel" 3 1st ;t ;tr n" Taxes 9ithhel" 3 ) ;t ;tr r" Taxes 9ithhel" 3 ;t ; tr Net income tax payment 3 1st Ztr MCT pai" in the )n" Zt Ztr Excess MCT in prior year ncome tax "ue, r" Ztr $ NT
40,00 0 10,000 )0,000 0,000 40,000 40,000 )0,000 0,000 400,00 0 0,00 0
4. ANSWER: C :nnual income tax NT 3 hi#her/ -ess+ Taxes 9ithhel" 3 Prior year Taxes 9ithhel" 3 1st ;t ;tr n" Taxes 9ithhel" 3 ) ;t ;tr r" Taxes 9ithhel" 3 ;t ; tr th Taxes 9ithhel" 3 4 ;tr Net income tax payment 3 1st Ztr Net income tax payment 3 r" Ztr MCT pai" in the )n" Zt Ztr Excess MCT in prior year ncome tax "ue, inal Ztr $ NT
A0,00 0 10,000 )0,000 0,000 40,000 <,000 40,000 0,000 )0,000 0,000 <0<,00 0 1A<,0
00 <. ANSWER: A :nnual income tax MCT 3 hi#her/ hi#her/ -ess+ Taxes 9ithhel" 3 Prior year Taxes 9ithhel" 3 1st ;t ;tr n" Taxes 9ithhel" 3 ) ;t ;tr r" Taxes 9ithhel" 3 ;t ; tr th Taxes 9ithhel" 3 4 ;tr Net income tax payment 3 1st Ztr Net income tax payment 3 r" Ztr MCT pai" in the )n" Ztr ncome tax "ue, inal Ztr $ NT
<<0,00 0 10,000 )0,000 0,000 40,000 <,000 40,000 0,000 )0,000 4<,00 0 <,0 00
EXERCISE –3 1. ANSWER: A Iross income -ess+ Fe"uctions Ex Expenses N-C
),<0,0 00 1,<0,0 00 00,00 0
Taxable income =ate o% tax ncome tax "ue ). ANSWER: D Taxable income :""+ nterest on ban? "eposit "eposit 1A,00080L/ Procee"s o% insurance N-C Fi!i"en"s %rom :BB Total
),0<0,0 00 00,000 < L 1<,00 0 00,000
)0,000 1,)00,0 00 00,00 0 <,00 0
1,<<,0 00 ),4<,0 00
-ess+ Fi!i"en"s pai" ncome tax pai" nterest on ban? "eposit )0,000 31A,000/ mproperly accumulate" taxable income =ate
<00,000 1<,000 4,000
mproperly accumulate" earnin#s tax
81,00 0 1,AA,0 00 10 L 1A,A0 0
. ANSWER: D 4. ANSWER: D <. ANSWER: C PROBLEM
-
4.1 1. ANSWER: C Iross income -ess+ Expenses @alar alary y, allo llo9anc ances an" an" bon bonus A,40 ,400,00 ,000 ther operatin# expenses ),A00,000 Fepreciat Fepreciation ion o% a""itional a""itional school %acilities+ Classrooms 1,00,000)0 1,00,000)0 x 48,<0 1)/ urniture urniture [ e;uipment e;uipment 10,0 400,000)0 x A1)/ 00 Taxable income =ate o% tax ncome tax ). ANSWER: D Tuition %ees Miscellaneous %ees ncome o% boo?store ncome o% school canteen Iross income
11,)0,0 00
,0<8,< 0 ),11,)< 0 10L )1,1) < ,<00,00 0 1,)00,00 0 <0,000 180,00 0 11,)0,0 00
-ess+ Expenses @alary, @alary, allo9ances an" bonus ther operatin# expenses Construction Construction o% a""itional classrooms urniture an" e;uipment
A,400,000 ),A00,000 1,00,000 400,000
Taxable income =ate o% tax ncome tax
10,00,0 00 <0,000 10 L <,00 0
. ANSWER: B : public public elementar elementary y school school is also a #o!ernme #o!ernment nt e"ucatio e"ucational nal institution. They are exempt exempt %rom income tax un"er un"er @ec. 0 o% the National nternal =e!enue Co"e. : non$stoc?, non$pro*t e"ucational institution is exempt %rom tax un"er :rticle , @ec. 42, 24 o% the Constitution. : non$pro*t e"ucational institution is sub>ect to an income tax rate o% 10L. 4. ANSWER: D PROBLEM –4.2 1. ANSWER: A Iross income -ess+ Fe"uctions peratin# expenses
Cost o% buil"in#
10,000,0 00 A,400,0 00 ),<00,0 00
Taxable income =ate o% tax ncome tax "ue ). ANSWER: C Iross income -ess+ Fe"uctions peratin# expenses
8,00,00 0 1,100,00 0 10L 110,00 0 10,000,0 00
A,400,0
Fepreciation),<00,000<0xA 1)/ Taxable income =ate o% tax ncome tax "ue
00 )<,00 0
A,4)<,00 0 ,<<,00 0 10L <,<0 0
. ANSWER: B The importation o% laboratory e;uipments are exempt %rom customs "uties i% the school is a pri!ate e"ucational institutions. The school buil"in#, e!en i% rente" only by the school, i% bein# use" actually, actually, "irectly an" exclusi!ely %or e"ucational purpose is exempt %rom real property tax. The portion portion o% the school school buil"in# buil"in# is sub>ect sub>ect to real estate estate tax beca becaus use e it is not not bein bein# # use" use" actu actual ally ly,, "ire "irect ctly ly an" an" excl exclus usi! i!el ely y %or %or e"ucational purpose. The income income %rom operation operation is taxable. taxable. nly income income recei!e" recei!e" by non$ non$s stoc? non$ non$pr pro o*t e"uc "ucatio ation nal ins instit titutio utions ns an" an" #o!e #o!errnme nment e"ucational institutions are exempt. 4. ANSWER: C EXERCISES – 5 PROBLEM –5.1. 1. ANSWER: A Iross income, Philippines -ess+ Ex Expenses, Philippines Iross income, R.@.:. -ess+ Expenses, R@: =oyalties, R@: Taxable income =ate o% tax )008/ ncome tax
P 40,00 0 4)<,00 0 A0,00 0 4<0,00 0
P 1<,00 0 )40,00 0 <0,00 0 A0<,00 0
). ANSWER: C Iross income, Phils.
40,00 0 4)<,00 0 1<,00 0
-ess+ Expenses Taxable income =ate o% tax )008/ ncome tax . ANSWER: A Iross income, Philippines
40,00 0 10,00 0 <0,00 0
nterest on ban? "eposit, PNB Total =ate o% tax )008/ inal tax 4. ANSWER: A PROBLEM – 5.2 ANSWER: D Iross income, Phils. -ess+ Fe"uctions Iross income, R@: -ess+ Fe"uctions Taxable income =ate )00/ ncome tax PROBLEM – 5.3 ANSWER: C
)00,00 0 80,000 A0,00 0 0,000
1)0,00 0 0,00 0 1<0,00 0 0L 4<,000
Iross income, Philippines
),800,0 00 1,00,0 00 1,<00,0 00 < L <)<,0 00
-ess+ Fe"uctions Taxable income =ate o% tax )008/ ncome tax PROBLEM – 5.4 1. ANSWER: B Iross income, Philippines -ess+ Expenses, Phils.
1,)00,000 800,000
Iross income, R.@. 1)<,000 x P40/ P<,000,000 -ess+ Expenses, R.@. R.@. A),000 x P40/ ),480,000 Iross income, 'D 4<,000
400,00 0
),<)0,0 00 )0,00 0
,440,0 00 ,840,0 00 0 L 1,1<),0 00
). ANSWER: C Iross income, Philippines -ess+ Expenses, Philippines Taxable income =ate o% tax ncome tax
1,)00,0 00 800,00 0 400,000 0L 1)0,000
. ANSWER: D Iross income, Philippines
1,)00,0 00
=ate o% tax inal tax 4
0 L A0,00 0
ANSWER: A Iross income =ate o% tax ncome tax
1,)00,0 00 ).< L 0,00 0
<. ANSWER: B Iross income, Philippines -ess+ Expenses, Philippines Taxable income =ate o% tax ncome tax :mount remitte" to mother mother company 400,000 $ 1)0,000/ =ate o% tax Branch pro*t remittance tax
1,)00,0 00 800,00 0 400,000 0 L 1)0,00 0 )80,000 1
A. ANSWER: A Exempt %rom branch pro*t remittance tax. . ANSWER: B Iross income =ate o% tax inal tax
1,)00,0 00 )< L 00,00 0
8. ANSWER: B Iross income
1,)00,0 00
=ate o% tax inal tax
4.< L <4,00 0
EXERCISE – 6 1. ANSWER: A ). ANSWER: C . ANSWER: B Net income a%ter tax =ate o% tax Branch pro*t remittance tax 4. ANSWER: C Net income a%ter tax =oyalty Fi!i"en" Total -ess+ Branch pro*t remittance tax :mount to be remitte" remitte" to hea" o&ice
40,000,0 00 1
<. ANSWER: B A. ANSWER: D I@@, @@@, @@@, an" P'C are exempt %rom income tax. P:IC= is no9 sub>ect to income tax per =: ). . ANSWER: C 8. ANSWER: C :ll assets o% a non$stoc? non$stoc? non$pro*t e"ucational e"ucational institution are exempt %rom customs "uties on importation. EXERCISE –. ML ML"IPLE "IPLE COICE "EOR
1. ANSWER: B Cuentas en participacion is consi"ere" as a corporation corporation sub>ect to corporate corporate tax. Ieneral pro%essional partnerships an" co$o9nerships are not sub>ect to income tax. : >oint !enture 9hich is %orme" %orme" %or the purpose purpose o% un"erta?in# un"erta?in# ener#y operations 9ith the #o!ernment are exempt %rom tax. ). ANSWER: A :n in"i!i"ual permanently resi"in# in the Philippines is classi*e" as resi"ent re#ar"less re#ar"less o% 9hether he is a citi(en or not. . ANSWER: D Fomestic corporations corporations an" resi"ent %orei#n corporations corporations are taxe" base" on taxable income. Non$pro*t cemeteries cemeteries are exempt %rom income tax. Nonre Nonresi" si"ent ent %orei# %orei#n n corpo corporat ration ions s are not not allo9 allo9e" e" to claim claim "e"uc "e"uctio tions ns %or purpos purposes es o% income income taxati taxation. on. They They are taxe" taxe" base" base" entirely on #ross income "eri!e" %rom sources 9ithin the Philippines. 4. ANSWER: B <. ANSWER: D A. ANSWER: D Fi!i"en"s Fi!i"en"s recei!e" recei!e" by in"i!i"uals in"i!i"uals %rom %rom a "omestic "omestic company company are sub>ect to *nal tax o% 10L. The rule on tax sparin# cre"it applies only 9hen the "i!i"en"s are recei!e" by nonresi"ent %orei#n %rom a "omestic corporations. . ANSWER: B @ales ),A8,000 11)L/
P),A<0, 000 1,)<,0 00 )<,000
-ess+ Cost o% sales Iross income -ess+ Expenses nclusi!e 8A,400 11)L/ Excl Exclus usi! i!e e Taxable income =ate o% tax )008/
4<,000 4<0, 4<0,00 000 0
<, <,00 000 0 10,000
ncome tax
4<,<00
EXERCISE 7–8. CASE PROBLEM
Excess income taxes pai" in a year that coul" not be applie" as tax cre"it to taxes "ue the %ollo9in# year may be re%un"e" the next year. Thus, i% the excess income taxes pai" in )00< ha!e not been entirely use" by a taxable corporation a#ainst its ;uarterly income tax liabilities %or )00A, the unuse" amount o% the excess may still be re%un"e", pro!i"e" that the claim %or such a re%un" is ma"e 9ithin t9o years a%ter payment o% the tax. % a taxpayer su&ere" a net loss in )00A, incurrin# no tax liability to 9hich a pre!ious yearQs tax cre"it coul" be applie", there is no reason %or the B= to 9ithhol" a tax re%un" 9hich ri#ht%ully belon#s to the taxpayer. taxpayer. Technicalities an" le#alisms, ho9e!er exalte", shoul" not be misuse" by the #o!ernment to ?eep money not belon#in# to it, thereby enrichin# itsel% at the expense o% its la9$abi"in# citi(ens solutio in"ebiti/. Thus+ Excess tax TU \04, *le" 41<0 TU )00< *le" )00A/+ ncome tax "ue -ess+ Tax cre"it excess tax Q0 Balance may be re%un"e"/
1,),. <1 4,18,<).0 0 1,),. <1 ,4),)0.< 1Y
Y Claim %or re%un" shoul" be ma"e not later that :pril 1<, )00.