SOLUTIONS MANUAL
INCOME TAXATION, 2016 Edition By: TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION TRUE OR FALSE-SET A 1. FALSE 2. TRUE 3. TRUE 4. TRUE 5. TRUE 6. FALSE 7. TRUE 8. FALSE MULTIPLE CHOICE 1. A 2. C 3. B** 4. D 5. C 6. B 7. C 8. C 9. D 10. D*** 11. A 12. D 13. D 14. C 15. C 16. D 17. A 18. A 19. C 20. B
9. 10. 11. 12. 13. 14. 15. 16.
TRUE TRUE TRUE TRUE FALSE FALSE FALSE FALSE
17. 18. 19. 20. 21. 22. 23. 24.
FALSE FALSE FALSE TRUE TRUE TRUE TRUE FALSE
25. 26. 27. 28. 29. 30.
FALSE TRUE FALSE TRUE TRUE FALSE
21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
D D D D B A A D C C A C D C A C D C D A
41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.
D A A B C C B A C D D C B D A A A D C A
61. 62. 63. 64. 65.
C C C C A
**Statement 1 – False; similarity of tax from license fee, not a distinction. ***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”. Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”
CHAPTER 2 - INDIVIDUAL TAXPAYERS PROBLEMS
2-1 1. 2. 3.
RC RC RC
4. 5. 6.
NRA-NETB NRC RA
2-2 1.
P125,000 = BPE + APE for Ana and PWD. The brother shall likewise qualify as PWD within 4th degree
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2.
3.
4.
5.
P150,000 = BPE + APE for four dependents. Note: Not entitled for APE for his 20 years old recognized natural child for being gainfully employed. Assume further that all the requirements to qualify for additional exemption under the “Foster Child Act” were complied with. P0 or none; Reciprocity clause applies to a nonresident alien engaged in trade or business. The taxpayer in the problem is a nonresident alien not engage in trade or business. Dividend income from a domestic corporation is not considered as income derived from trade or business. P90,000 = BPE of P40,000 (lower than P50,000 allowed in the Philippines) + APE of P25,000 per dependent (lower than the P30,000 allowed in U.S.A. as provided in the problem). Total personal exemption = P50,000 BPE + P25,000 x 2 additional personal exemption = P90,000 P100,000 = BPE + APE for his 2 minor children.
2-3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
TAX TYPE FWTx FWTx BTx FWTx Exempt BTx BTx BTx BTx BTx FWTx FWTx FWTx BTx BTx FWTx FWTx BTx
Tax RATE 20% 7.5% Tax Table 20% Tax Table Tax Table Tax Table Tax Table Tax Table 20% 10% 20% Tax Table Tax Table 20% 20% Tax Table
19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
TAX TYPE Exempt Exempt FWTx BTx Exempt FWTx FWTx FWTx BTx BTx FWTx FWTx FWTx BTx Exempt BTx BTx
Tax RATE 25% Tax Table 20% 20% 10% Tax Table Tax Table 20% 25% 10% Tax Table Sub.to OPT Tax Table Tax Table
* Prizes received from Philippine sources exceeding P10,000 are subject to 20% final tax rate. On the other hand, Other WINNINGS (regardless of amount) are subject to 20% final tax rate.
2-4 1.
Taxpayer 1.1 1.2 1.3 1.4
is a resident citizen Taxable income = P1,000,000 Income tax payable = P160,000 Final tax on passive income = P14,500 Total income tax expense = P299,500
2.
Taxpayer is a nonresident citizen 2.1 Taxable income = P860,000 2.2 Income tax payable = P115,200 2.3 Final tax on passive income = P11,500 2.4 Total income tax expense = P251,700
3.
Taxpayer is a resident alien 3.1 Taxable income = P860,000 (same answer with #2.1; nonresident citizen) 3.2 Income tax payable = P115,200 (same answer with #2.2; nonresident citizen) 3.3 Final tax on passive income = P14,500 (same answer with #1.3; resident citizen) 3.4 Total income tax expense = P254,700 computed as follows:
4.
Taxpayer is a nonresident alien engaged in trade or business 4.1 Taxable income = P910,000 4.2 Income tax payable = P131,200 4.3 Final tax on passive income = P16,500 4.3 Total income tax expense = P267,700
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Dividend income from foreign corporationAssume situs is without the Phls.; refer to page 300 for the determination of situs of dividend income 5.
Taxpayer is a nonresident alien not-engaged in trade or business Compensation income, Philippines P600,000 Dividend income - DC 50,000 Dividend income from foreign corp. Interest income bank deposit, Phls. 20,000 Interest income on FCDS deposit Exempt Royalty income from composition 25,000 Raffle draw winnings 10,000 PCSO winnings 200,000 Total GROSS Income P905,000 x 25% Income Tax Expense P226,250
Assume situs is without
Not exempt under the tax code if the taxpayer is NRA-NETB.
2-5 1.
Taxpayer is a resident citizen a. Taxable net income = P1,026,100 b. Income tax payable = P293,352 c. Final tax on passive income = P38,030 d. Capital gains tax = P120,600
2.
Taxpayer is a non-resident citizen a. Taxable income = P388,400 b. Income tax payable = P91,520 c. Final tax on passive income = P38,030 d. Capital gains tax = P120,600 As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on passive income of a nonresident citizen is the same with that of a resident citizen.
3.
Taxpayer is a a. b. c. d.
nonresident alien engaged in trade Taxable income = P388,400 (same with a non-resident citizen taxpayer) Income tax payable = P91,520 (same with a non-resident citizen taxpayer) Final tax on passive income = P38,600 ** same with 2.C except that the DI from DC shall be @ 20% Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)
2-6 a. b. c.
Taxable income of the husband = P1,115,000 Taxable income of the wife = P840,000 Consolidated tax due of the husband and the wife = P555,600
2-7 a.
Total capital gains taxes Total capital gains tax Note: Sale of shares in the local stock exchange is subject to transaction tax of ½ of 1% of GSP
P310,000
b. Total Final tax on passive income of Daniel and Kat
P13,550
c. Taxable net income of Daniel
P547,000
Taxable net income of Kat
P515,000
d.
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2-8 a. b. c. d. e. f.
Income tax payable, first quarter = P32,500 Income tax payable, second quarter = P14,500 Income tax payable, third quarter = P19,233 Income tax payable, fourth quarter = P59,823 Final tax on passive income = P15,800 Capital gains tax = P600,000 x 6% = P36,000
2-9 Taxable income
P167,600
2-10 Taxable income
P291,000
2-11
a. Special Alien employed by ROHQ = P170,000 computed as follows:
Being a nonresident alien-not engaged in trade or business for income taxation purposes, a Special Alien is not entitled to personal exemptions and all income other than “compensation income”, unless exempt under the law, shall be subject to 25% final tax on other income including PCSO winnings.
b. Filipino Citizen employed by ROHQ = P218,500 computed as follows:
**Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the option to be taxed either at 15% on their gross compensation income or based on Section 24(A) of the tax code. However, Filipinos exercising the option to be taxed at 15% preferential rate must meet all the three (3) requirements as discussed in page 98. In the problem provided, the Filipino counterpart failed to meet the “compensation threshold test” of at least P975,000. Consequently, the taxpayer shall be subject to basic income tax on its “compensation income” under Section 24(A) of the tax code. The applicable personal exemptions shall be deducted in computing the taxable income subject to basic tax
c. Filipino Citizen employed by an OBU = P141,000 computed as follows:
***Filipinos employed by OBUs as well as Petroleum Contractors/Subcontractors shall be subject to 15% Final Tax on their “compensation income”. The 15% tax rate is a final tax on “gross compensation” income. Hence, personal exemptions shall not be deducted from such income.
d. Filipino Citizen employed by a Petroleum Contractor = P141,000 (refer to computations in assumption “c”)
e. Filipino Citizen employed by ROHQ with gross compensation income of P1,250,000 = P346,500 OR P201,000 computed as follows: ****Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the option to be taxed either at 15% on their gross compensation income or based on Section 24(A) of the tax code, provided, however, that Filipinos exercising the option to be taxed at 15% preferential rate must meet all the three (3) requirements as discussed in page 98.
2-12 1. 2. 3. 4.
P6M x 6% = P360,000 ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0 Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-13 a.
P15M x 6% = P900,000
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2-14 2-15 2-16 2-17
b. P20M x 6% = P1,200,000 c. P0 C.G. Tax = none; the transaction resulted to a loss C.G. Tax = P100,000 x 5% = P5,000 C.G. Tax = (P100,000 x 5%) + (P50,000 x 10%) = P10,000 C.G. Tax = none TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. TRUE 5. TRUE 6. FALSE 7. TRUE 8. TRUE 9. FALSE 10. FALSE MULTIPLE CHOICE 1. D 2. C 3. D 4. D 5. B 6. A 7. B 8. B 9. D 10. B 11. B 12. B 13. A 14. C 15. D
11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
TRUE TRUE FALSE TRUE FALSE FALSE TRUE TRUE FALSE TRUE
21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
FALSE TRUE TRUE FALSE TRUE TRUE FALSE FALSE TRUE FALSE
16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
B D B C D D B D B A D D C B A
31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45.
A B D D B D A D A B D B D D D
46. 47. 48. 49. 50. 51. 52. 53.
A B B D B A B C
#49 ***The SFE is not qualified for the 15% preferential tax rate. However, the fringe benefits received shall still be subject to 15% FBT because under RR 11-2010, the option to be subject to 15% preferential tax rate and the coverage of fringe benefit tax are independent to each other. Thus, as provided in the aforementioned RR, there would be instances where a Filipino employee shall enjoy 15% preferential tax rate but may not be covered by fringe benefit tax for not being a supervisory/managerial employee. Likewise, there would be instances where such SFE may not be subject to 15% preferential tax rate due to failure to meet any of the three (3) tests discussed earlier but may be subject to 15% FBT for being a “managerial” employee. The taxpayer in this particular case is occupying a managerial position.
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