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%its) 1*th month pay P 4,000 +ess) Exemption Exemption *0,000 $ . Total not not taxable4,000
(. 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 P1(,000 x 10- 100,0002 as income. . The rule is 3amounts recei!e" in excess o% the %ace amount o% the policy are usually taxable as interest5 hence, inclu"e" in the #ross income. c No. 6t "oes not matter 7hether the insure" is the mother or the 7i%e o% . the bene%ici bene%iciary. ary. The exclusio exclusion n exists exists because because li%e insuran insurance ce bene%its bene%its closely resemble inheritances 7hich are not taxable. *.
None, None, becaus because e n#el n#el is not not re9uire re9uire" " to pay pay inco income me tax tax on the entire entire amount he recei!e" as procee"s %rom insurance policy. The reason bein# that the insure" "i" not outli!e the policy. 6% ho7e!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 an inco income me o% P:, P:,00 000. 0. lthou#h lthou#h ac9uire" by him, he is not re9uire" to report the !alue o% the inherit inherite" e" proper properties ties in his income income tax return return because because proper properties ties ac9uire" thru inheritance are sub
:. a.
The P(0,000 #i!en #i!en to co!er me"ical expenses expenses are actual "ama#es, 7hile the other P(0,000 constitutes moral "ama#es. Both actual an" moral "ama#es are not sub
c.
Not inclu"e" in the #ross income. The amount amount o% P1(,000 bein# #i!en by the employer to its employees in case o% "isability are not salaries but compensation %or personal in
Taxable. Taxable. >alaries recei!e" by employees employees 7ho are unable to 7or= "ue to personal in
".
Not taxable. The P?0,000 is in the %orm o% moral "ama#es 7hich is not capable o% pecuniary pecuniary estimation. Besi"es, it is in the nature o% a return o% capital.
e.
?. ?. No, No, beca becaus use e all all the the re9 re9uisi uisite tes s %or %or exem exempt ptio ion n %rom %rom incom income e tax tax are are present) 1- Tan"a retire" at a#e ?0 7hich is more than the re9uire" a#e o% :0 years (- a pri!ate pension plan is maintaine" by the employer an", an", *- he 7or=e" 7ith 7ith >an @ose Aorpor Aorporatio ation n %or more more than 10 years. years. The la7 "oes not re9uire continuous continuous ser!ice. There%ore, There%ore, the 10$year ser!ice re9uirement is satis%ie" e!en i% he ha" a bro=en ser!ice 7ith the company. .
The The amou amount nt is is taxa taxabl ble e to Nilo Nilo.. >epa >epara rati tion on pay pay is exem exempt pt %rom %rom inc incom ome e tax i% the cause o% separation %rom ser!ice is "eath, sic=ness, physical "isability, or any cause beyon" the control o% the employee. None o% the abo!e$mentione" abo!e$mentione" can be pointe" out as the !ery cause o% his separation %rom ser!ice. 6ne%%iciency in ser!ice "ue to %re9uent tar" tar"in ines ess s caus cause" e" by hea! hea!y y tra% tra%%i %ic c is not not beyo beyon" n" the the cont contro roll o% the the employee. Taxable. Taxable.
8. a.
b Taxable. Taxable. . c Not Not taxa taxabl ble. e. a ay y 7a 7as s a7 a7ar ar"e "e" " 7i 7ith thou outt
The pri'e 7on by Torna"o Torna"o is taxable. The %i#ht 7as not sanctione" by a national sports associations. s a matter o% %act, it 7as hel" in a !ery seclu"e" place. The main purpose o% the %i#ht is %or the #amblers to bet on their %a!orite %i#hter an" not to promote sports.
10.
ns7er) P* P*8,000 >alary P(0,000 x 1("") Bene%its Ahristmas bonus Pro"ucti!ity bonus
(40,0 00 (0,000 (,000
Taxable. Taxable. >alaries recei!e" by employees employees 7ho are unable to 7or= "ue to personal in
".
Not taxable. The P?0,000 is in the %orm o% moral "ama#es 7hich is not capable o% pecuniary pecuniary estimation. Besi"es, it is in the nature o% a return o% capital.
e.
?. ?. No, No, beca becaus use e all all the the re9 re9uisi uisite tes s %or %or exem exempt ptio ion n %rom %rom incom income e tax tax are are present) 1- Tan"a retire" at a#e ?0 7hich is more than the re9uire" a#e o% :0 years (- a pri!ate pension plan is maintaine" by the employer an", an", *- he 7or=e" 7ith 7ith >an @ose Aorpor Aorporatio ation n %or more more than 10 years. years. The la7 "oes not re9uire continuous continuous ser!ice. There%ore, There%ore, the 10$year ser!ice re9uirement is satis%ie" e!en i% he ha" a bro=en ser!ice 7ith the company. .
The The amou amount nt is is taxa taxabl ble e to Nilo Nilo.. >epa >epara rati tion on pay pay is exem exempt pt %rom %rom inc incom ome e 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$mentione" abo!e$mentione" can be pointe" out as the !ery cause o% his separation %rom ser!ice. 6ne%%iciency in ser!ice "ue to %re9uent tar" tar"in ines ess s caus cause" e" by hea! hea!y y tra% tra%%i %ic c is not not beyo beyon" n" the the cont contro roll o% the the employee. Taxable. Taxable.
8. a.
b Taxable. Taxable. . c Not Not taxa taxabl ble. e. a ay y 7a 7as s a7 a7ar ar"e "e" " 7i 7ith thou outt
The pri'e 7on by Torna"o Torna"o is taxable. The %i#ht 7as not sanctione" by a national sports associations. s a matter o% %act, it 7as hel" in a !ery seclu"e" place. The main purpose o% the %i#ht is %or the #amblers to bet on their %a!orite %i#hter an" not to promote sports.
10.
ns7er) P* P*8,000 >alary P(0,000 x 1("") Bene%its Ahristmas bonus Pro"ucti!ity bonus
(40,0 00 (0,000 (,000
+oyalty a7ar" Aash #i%t nni!ersary bonus 1*th month pay To Total +ess +e ss)) Exem Exempt ptio ion n
*,000 1,000 (,000 (0,000 48,000 *0,0 *0,000 00
6ncome sub
18,0 18,0 00 (:8,0 00
EXERCISES 5–2.1:
1.
(.
ANSWER: D The entire amount amount o% procee"s procee"s o% the insurance policy recei!e" by the bene%iciary o% =e'e %rom /ilipinas +i%e ssurance Aompany is not taxable because they are more consi"ere" as in"emnity rather than as #ain or pro%it. ANSWER: B Procee"s o% li%e insurance +ess) +e ss) Premi Premiums ums pai" pai" 1 1,00 ,000 0 x 1( x (0(0>ub
*.
ANSWER: C Total amounts amounts recei!e" recei!e" :0,000 :0,000 x 1(+ess) /ace !alue o% the policy Deeme" interest taxable-
4.
ANSWER: C Total amounts amounts recei!e" recei!e" :0,000 :0,000 x 1(+ess) mount o% premiums pai" 1,000 x 1( x (0>ub
Prob 5-2.2
1.
ANSWER: C
:00,00 0 (40,0 (40,00 0 0 (?0,00 0 ?00,00 0 :00,00 0 100,00 0 ?00,00 0 (40,00 0 *?0,00 0
Procee"s o% insurance +ess) Premiums pai" P10,000 x (06ncome sub
:00,0 00 (00,00 0 *00,00 0
ANSWER: D None because >onia "ie".
Prob 5-2.3
ANSWER: D 6ncome %rom coconut lan"
:0,0 00 *0,000 80,000
6ncome %rom bus operation 6ncome sub
ANSWER:
B
Procee"s o% li%e insurance policy +ess) mounts o% premiums pai" mount sub
P :00,00 0 400,00 0 100,00 0
Prob 5-2.5:
ANSWER:
C
Procee"s o% insurance policy +ess)) +ess mo mount unt pai pai" " upo upon n assi#nment Premiums subse9uently pai" Taxable income
P (00,00 0 P ?0,000 80,000 140,00 0 ?0,00 0
Prob 5-3.1
ANSWER:
C
pplyin pplyin# # the princip principle le o% beyon" beyon" the control control test,5 the separation separation %rom employment o% Mr. @acobo 7as "ue to a cause 7hich is 7ithin his
control, that is resi#nation 7hile the cessation %rom employment o% Mr. intanar 7as ma"e 7ithout his control. There%ore, There%ore, the separation pay recei!e" by Mr. @acobo is a taxable income 7hile the amount recei!e" by Mr. intanar is not taxable. Prob 5-3.2
ANSWER:
C
The retirement retirement bene%it o% P*00,000 P*00,000 is taxable to @o!ito because he retire" retire" at the a#e a#e o% 48. To be exempt exempt %rom %rom the payment payment o% income 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. 6n the case o% the procee"s procee"s %rom insurance insurance policy, the amount exempt is P40,000 P(,000 x (0- only 7hich represents represents the return o% o% the premiums pai". Prob 5-3.3
ANSWER: B There There is no sho7in# sho7in# that Mario Mario 7as in the ser!ice ser!ice o% the same employer %or at least ten 10- years, that he is at least %i%ty:0- years o% a#e at the time o% retirement, that he has ne!er a!aile" o% the bene%it o% exclusion, an" that the retirement #ratuity came %rom a reasonable retirement plan maintaine" by his employer. The amo amount unt o% P(:0,00 P(:0,000 0 is taxable taxable because because ;emus ;emus is only only 4C year years s ol" ol" upon upon reti retire reme ment nt.. To be exem exempt pt %rom %rom inco income me tax, tax, the the retirement a#e o% an employee must be at least :0 years. Prob 5-3.4
ANSWER: D The money money !alue !alue o% the accumul accumulate" ate" lea!e lea!e cre"its cre"its #i!en #i!en to a retirin# #o!ernment o%%icial or employee is not sub
A; (-. Prob 5-3.5
ANSWER: A The P1,000,0 P1,000,000 00 is part part o% +arryFs +arryFs retireme retirement nt pay an" not a #i%t. #i%t. Aonsi"erin# that the re9uisites %or exemption %rom payment o% tax are satis%ie", 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 be either "eath, sic=ness, physical "isability, or any cause beyon" the control o% the employee. The separation pay recei!e" by +in#$lin# an" Gina are exempt because they are separate" %rom ser!ice "ue to re"un"ancy an" "isability, causes 7hich are beyon" their control. EXERCISES 5–4.
Prob 5–4.1 ANSWER: C nly the amount o% P*00,000 correspon"in# to the income 7hich 7as lost "urin# the perio" o% treatment is taxable because e!en i% he "i" not meet an acci"ent, that income 7oul" ha!e been taxable. Prob 5-4.2 ANSWER: A T7o monthsF salary 6ncrease in !alue o% car P?00,000 $ 4:0,0006ncome
40,0 00 1:0,00 0 1C0,00 0
Prob 5-4.3
ANSWER: C Payment %or the salaries
?0,0 00
Prob 5-4.4
ANSWER:
D
The amount o% P:00,000 shoul" not be "eclare" in the income tax returns o% the heirs. The amount represents "ama#es recei!e" on account o% personal inec. *( B- H1I, T;-. The reason is that li%e insurance procee"s represents in"emnity an" not income. The procee"s o% li%e insurance policies pai" to the bene%iciary, in this case the 7i%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 Aash pri'e Pay per !ie7 Talent %ee Taxable amount
400,000 1,000,000 1,400,000 (:,000,00 0 *0,000,00 0 1(,000,00 0 ?,000,00 0
EXERCISES 55.2 a. The P*:0,000 !alue o% the car is sub
EXERCISES 5-5.3 Bein# a resi"ent citi'en, Moni9ue >alon#a is taxable on income 7ithin an" 7ithout the Philippines. Aonse9uently) a. The income o% K:,000 is taxable to her unless she has ac9uire" the status o% a contract 7or=er. 6n 7hich case, the K:,000 is not taxable to her because contract 7or=ers are taxable only on income "eri!e" %rom sources 7ithin the Philippines b.
The talent %ees "eri!e" %rom 6nter$6slan" Broa"castin# Net7or= amountin# to P100,000 is a pro%essional income sub
c.
The K:,000 !alue o% the trophy is not taxable to her because it is in reco#nition o% an outstan"in# achie!ement. n a7ar" %or outstan"in# achie!ement is a #i%t, an" not a taxable income.
PROBLEM 5-6.1 ANSWER:
D
>alary P(:,000 x 1(-
*00,0 00
ther bene%its) 1*th month pay
(:,00 0 (,:00 *0,000 :,:00 *0,000
Aash #i%t +on#e!ity pay Total +ess) mount o% exemption Procee"s o% li%e insurance *00,000 (00,0006ncome sub
(,: 00 100,00 0 4(,:0 0
EXERCISE 5 – 7
1. None. &oli"ay pay, o!ertime pay, ni#ht shi%t "i%%erential pay an" ha'ar" pay earne" by a minimum 7a#e earner shall li=e7ise be exempt %rom income tax. ( Basic salary . Aommissions &onoraria &oli"ay pay !ertime pay &a'ar" pay ther bene%its *?,000 *0,0006ncome sub
C:,000
1:,000 10,000 ,000 8,:00 ?,000 ?,00 0 14,:0 0
EXERCISES 5 – 8 1.
ANSWER:
D
nly option D has complie" 7ith the re9uisites %or exemption %rom tax o% retirement bene%its, !i') 1- There must be a pri!ate pension maintaine" by the employer an" appro!e" by the B6; (- The retirin# o%%icial or employee has been in the ser!ice o% the same employer %or at least ten 10- years *- The a#e must be at least :0 years ol" at the time o% retirement an" 4- The bene%it o% exemption can be
a!aile" o% only once. (.
ANSWER:
C
monthly #ratuity o% P(0,000 to a Me"al o% Lalor a7ar"ee is exempt %rom income tax ; C04C-. Terminal lea!e pay o% employees o% the #o!ernment are exempt %rom tax A6; !. Aastae"a, G; C?01?, ct. 1, 1CC1-. ;etirement per Aollecti!e Bar#ainin# #reement is consi"ere" !oluntary, hence subeparation bene%its consistin# o% the mar=et !alue'onal !alue o% the resi"ential lot, is tax exempt B6; ;ulin# No. 0:?$C:-. *.
ANSWER:
C
+etter re%ers to "e"uctions %rom #ross income.5 +etter B re%ers to tax exemption.5 +etter D re%ers to tax cre"it.5 Exclusion re%ers to income recei!e" or earne" but is not taxable as income because exempte" by la7 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%ically calle" %or >ec. ?1, ;e#s.-. 4.
ANSWER:
A
This is a case o% =ey insurance 7here the company insures the li%e o% its =ey employee. The procee"s is not taxable to the corporation because it is consi"ere" as an in"emni%ication %or the loss o% the presi"ent 7hich is one o% the companyFs =ey employees. :.
ANSWER:
A
The P*,:00,000 is exempt %rom income tax because it is #i!en as in"emni%ication %or the loss on the "estruction o% the company buil"in#. ?.
ANSWER:
B
The procee"s o% li%e insurance shoul" be "eclare" %or estate tax purposes i% the "esi#nation o% the bene%iciary 7as re!ocable. .
ANSWER: C The pro!ision exemptin# 3interest on #o!ernment securities3 has
been "elete" in the Tax ;e%orm ct. There%ore, interest #o!ernment securities are no7 sub
on
ANSWER: D The pension %rom G>6> is not taxable 7hile the interest %rom the time "eposit is sub
C.
ANSWER: A The phrase 3personal in
10.
ANSWER: C Pri'es amountin# to P10,000 or less are to be inclu"e" in the computation o% #ross income. They are not sub
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 Dismissal %rom employer "ue to ine%%iciency in ser!ice is a cause 7hich is not beyon" the control o% the employee. n"er the beyon" the control test,5 7hene!er an employee is separate" %rom ser!ice %or a cause or causes 7hich isare beyon" his control, the separation pay recei!e" by him is not sub
1*.
ANSWER: D Dama#es recei!e" by a taxpayer "ue to physical in
14.
ANSWER: D Thirteenth month pay an" other bene%its are exempt %rom income tax. &o7e!er, the amount in excess o% P*0,000 are taxable to the employee.
1:.
ANSWER: B Exclusion %rom #ross income
1?.
1,000,0 00
ANSWER: D The exemption %rom income tax on a 9uali%ie" senior citi'en "oes inclu"e exemption %rom !alue$a""e" tax, estate tax, "onorOs tax an" income tax on passi!e income.
1.
ANSWER: A Monthly salary an" allo7ance P*,:00 Q 1,000Months recei!e" @anuary to @une 1:ctual amount o% salaries recei!e" Net income %rom trimobile 6ncome sub
4,: 00 :.:
(4,:0 (4,000 48,:0
EXERCISES 61 1.
A+>>6/6AT6N
>6T> / TRB+E 6NAME a. Nonresi"ent citi'en Within only b. Nonresi"ent alien Within only NETBc. Nonresi"ent citi'en Within only ". ;esi"ent alien Within only e. Nonresi"ent alien Within only NETB%. Nonresi"ent alien Within only ETB-
(. a. Ses, llen is 9uali%ie" as hea" o% %amily because o% his mother 7ho is "epen"ent upon an" li!in# 7ith him. b. No. n aunt is not a 9uali%ie" "epen"ent %or purposes o% claimin# the status o% hea" o% %amily. Moreo!er, the aunt is not li!in# 7ith the taxpayer. c. Ses. Ain"y is alrea"y a 7i"o7 an" she is supportin# her "au#hter 7ho li!es 7ith her. ". No. taxpayer 7ho is separate" in be" an" boar" 7ith the spouse but not le#ally separate" maintains the status o% a marrie" taxpayer.
e. No. bene%actor o% a senior citi'en 7oul" be 9uali%ie" to ac9uire the status o% a hea" o% %amily re#ar"less o% 7hether such senior citi'en is a relati!e or not i% the senior citi'en is li!in# 7ith the taxpayer. *.
a. 6n the absence o% an a#reement, @ohn has the ri#ht to claim the a""itional exemption because un"er ;e!enue ;e#ulation ($C8, husban"s ha!e the ri#ht to claim a""itional exemption on the "epen"ent chil"ren. Besi"es, he has actual custo"y o!er the t7o chil"ren. b. 6% Marsha coul" pro!e that she pro!i"e" chie% support o!er the chil"ren, both spouses 7oul" be "is9uali%ie" to claim a""itional exemption. Marsha is "is9uali%ie" because the chil"ren are not li!in# 7ith her "espite the support she is exten"in#. @ohn is "is9uali%ie" because he "oes not %urnish chie% support to his chil"ren. c. Ses, because not one o% them can claim P:0,000 7hich is the amount allo7e" to each marrie" in"i!i"ual taxpayer. t most, they 7oul" ac9uire only the status o% either sin#le or hea" o% %amily "epen"in# upon the circumstances surroun"in# the case.
4.
a. @ulio is the one 9uali%ie" to claim as hea" o% %amily because he is pro!i"in# chie% support to his mother 7ho is also li!in# 7ith him. The rest are #i!in# only minimal amount o% support. b. None. ""itional personal exemption can be claime" only on "epen"ent chil"ren.
:. a. None. unties are not 9uali%ie" "epen"ents %or purposes o% claimin# a""itional exemption. b. None. The mother is not a 9uali%ie" "epen"ent. c. None. The "au#hter is "is9uali%ie" because o% her a#e. >he is alrea"y more than (1 years ol". ". None. Both Decepe"a an" his sister cannot claim a""itional exemption on their %ather. e. P 100,000. Elantra is allo7e" to claim "epen"ents on his %our chil"ren only. ?. a. Aarina is 9uali%ie" as hea" o% %amily. >he is alrea"y a 7i"o7 an" has one "epen"ent "au#hter li!in# 7ith her. b. Gross compensation income +ess) Personal exemption
4(0,0 00
Basic personal ""itional
:0,000 (:,000
Taxable income Tax on P (:0,000 C:,000 x *0J 6ncome tax
:,0 00 *4:,0 00
:0,000 (8,:00 8,:00
c. 6% Aarina has no "au#hter to support, her %ilin# status is sin#le.5 ". Gross compensation income
4(0,0 00 :0,00 0 *0,0 00
+ess) Basic personal exemption Taxable compensation income Tax on P (:0,000 1(0,000 x
P :0,000 *?,000
*0J 6ncome tax .
a. Aompensation income @im +ess) Personal exemption Taxable compensation income Business income Pat +ess) Expenses Net income +ess) Personal exemptions Taxable income b. Aompensation income @im
8?,000 1?0,0 00 :0,0 00 110,0 00 :00,0 00 (:,0 00 ((:,0 00 :0,00 0 1:,0 00 1?0,0 00
+ess) Personal exemptions Basic personal ""itional exemptions
:0,000 (:,000
Taxable income Tax on P 0,000 1:,000 x (0J 6ncome tax "ue
P 8,:00 *,000 11,:00
Business income 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 (:J 6ncome tax "ue 6ncome tax @im
8.
((,:00 8,:0 *1,(:0
6ncome tax Pat Total income tax
P 11,:00 *1,(:0 4(,:0
a. Tax on P 40 x :J
(.00
b. Tax on P 10,000 x :J c.
Tax on P 10,000 (,(4:.40 x 10J 6ncome tax ". Tax on P (:0,000 e. Tax on P (:0,000 (0?,80 x *0J 6ncome tax "ue %.
Tax on P :00,000
:,00 0 8:,00 0
:00 :00.00 ((4.:4 (4.:4 :0,000 :0,000 ?(,0*4 11(,0*4 1(:,000. 00
?(*,(:1.( x *(J
1CC,440. 41 *(4,440. 41
6ncome tax "ue C a. . b. c. ".
>alary
$ Aompensation
6nterest on ban= "eposit &onorarium Pri'es
$ Passi!e income tax exempt $ Aompensation income $ r"inary business income not excee"in# P10,000e. +otto 7innin#s $ Tax exempt %. 6ncome %rom %armin# $ Business income #. ;oyalties on boo=s $ Passi!e income 10Jh. Di!i"en"s %rom "omestic $ Passi!e income 10Jcompany i. 1*th month pay $ Exempt up to P *0,000 <. 6nterest on preterminate" $ Passi!e income 1(J"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 (0J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable
:0,000 :,000
1(:,0 00 (:,00 0
:00 *,000 *,:00 10,100 ?,? 00-
b. Maria >alary +ess) Basic personal exemptions Taxable income
1(:,0 00 :0,00 0 :,00
0
11 a . .
Tax on P 0,000 :,000 x (0J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable
8,:00 1,000 C,:00 1:,000 :,:00-
6ncome tax @uan 6ncome tax Maria 6ncome tax payable
?,?00 :,:001(,100
Monthly insurance premium
1:0
Times number o% months in a year De"uctible health insurance premium b .
Monthly insurance premium maximum Times number o% months in a year De"uctible health insurance premium
(00 1( (,400
c .
No amount o% health or hospitali'ation insurance premium is "e"uctible because the total income o% the %amily excee"s P(:0,000.
" .
Monthly insurance premium maximum Times number o% months "urin# the year De"uctible health insurance premium
1 (.
1( 1,800
a .
Aompensation income +ess) Personal exemption Basic personal ""itional (:,000 x 4 Total compensation income Tax on P *0,000 (0,000 x 1:J 6ncome tax "ue
b .
Gross income +ess) llo7able "e"uctions
(00 8 1,?00 (00,000
:0,000 100,000
1:0,0 00 :0,000 (,:00 *,000 :,:00 (00,000
Expenses Basic personal ""itional exemptions Taxable income Tax on P *0,000 (:,000 x 1:J 6ncome tax "ue c .
(,:00 *,:0 ?,(:0
Gross income
(00,0 00 +ess) ptional stan"ar" "e"uctions (0,00 (00,000 x 10J0 Net income 180,00 0 +ess) Basic personal an" a""itional 1:0,00 exemptions 0 Taxable income *0,0 00 6ncome tax "ue P *0,000
1 *.
10:,000 :0,000 100,000 (::,00 0 ::,00 0-
Aompensation income Business income Gross income +ess) De"uctions ptional 18?,000 x 40J6temi'e" Personal exemption Total Taxable income
EXERCISE 6 – 2
1. N>WE;) B
(8,:0 0 Aase 1 1(:,0 00 18?,0 00 *11,0 00
Aase ( 80,000 (*0,00 0 *10,00 0
4,40 0 :0,0 00 1(4,4 00 18?,? 00
10:,00 0 :0,00 0 1::,00 0 1::,00 0
Gross receipts +ess) Expenses Pri'e, contest >alary *,?00 Q (,400;ent income *8,000C:J+ess) Depreciation Total
C:0,00 0 1(0,00 0 40,000 8,000
+ess) Basic personal exemption Taxable income (. N>WE;) D Tax on P :00,000
6ncome tax "ue
>alary ;ent 40,000 *8,000-
14(,:0 0 (,400 (,00 0
6ncome tax payable *. N>WE;) B 6nterest on preterminate" "eposit (0,000 x 1(JWinnin#s in ra%%le 100,000 x (0JDi!i"en" %rom A Aorp. ?,000 x 10J Total %inal 7ithhol"in# tax 4. N>WE;) B 6nterest on lon#$term ban= "eposit Winnin#s in lotto 1*th month pay +i%e insurance bene%its +oan bene%its $ >>>
*(,000 C0,00 0 :0,00 0 8:,00 0 1(:,00 0 114,(4 0 (*C,(4 0
*:,000 x *(J
+ess) Withhol"in# taxes Pro%ession C:0,000 x 1:J-
8*0,00 0 :,000 40,000
14?,C0 0 C(,*4 0 (,400 (0,000 ?00 (*,000 40,000 (0,000 *,:00 1:0,00 0 (0,00 0
Total income exempt %rom income tax
(**,:0 0
EXERCISE 6 - 3 6NAME 1. 6nterest on ban= "eposit 7ith Banco "e ro$ Php (. 6nterest on ban= "eposit 7ith a ban= in the nite" >tates in .>. "ollar *. 4. :. ?.
;esi"ent or citi'en (0J
N; ETB (0J
Tax table
(0J Exempt (0J Exempt :J 10J 10J
Not taxable (0J (0J 10J Tax table (0J Exempt (0J Exempt :J (0J (0J
.:J
Exempt
Earnin#s %rom interest on money mar=et ;oyalties on in!entions ;oyalties on boo=s Pri'es amountin# to P,:00
(0J (0J 10J Tax table
. Pri'es amountin# to P(0,000 8. Winnin#s in lotto Philippines C. Winnin#s in lottery 10. 6nterest on lon#$term in!estment 11. 6nterest on "eposit %or 4 years 1(. Aash "i!i"en"s "omestic corp. 1*. >hare o% partner in net income o% taxable partnership 14. 6nterest income un"er expan"e" %orei#n currency "eposit system
EXERCISES 6–4.1 1. ANSWER:
A
n"er the Tax ;e%orm ct, only resi"ent citi'ens are taxable on income "eri!e" %rom sources 7ithin an" 7ithout the Philippines. ll others are taxable on income 7ithin only.
EXERCISE 6–4.2 6NAME
;A
1. ;ent on apartment in the
SE>
;, N;A SE>
Phils. (. ;ent on apartment in
SE>
Aana"a *. Di!i"en"$"omestic corporation 4. Di!i"en"$%orei#n corporation
N;ETB-N;NETBSE>
YES
N
N
N
SE>
SE>
YES
YES
SE>
N
N
N
:. ?. . 8. C.
+otto 7innin#s in the Phils. +otto 7innin#s in .>.. Aash pri'e on contest, Phils. Aash pri'e on contest, .>.. 6nterest, ban= "eposit in
SE> N SE> SE> SE>
N N SE> N N
N N
N N
YES
YES
N N
N N
.>.. 10. 6nterest ban= "eposit Phils.
SE>
SE>
YES
YES
Probl! 6– 4.3 ANSWER: C 1. "#$%#&r '( r(')*+ ,'+'* . Aompensation income, Philippines
1(0,00 0 *:0,00 0 :,000,0 00 :,40,0 00
Business income, Philippines Business income, Aana"a K(00,000 x P(: Total #ross income +ess) De"uctions Expenses, Philippines Expenses, Aana"a K1:0,000 x (:Net income +ess) Personal exemptions Basic personal ""itional
((0,00 0 *,:0,00 0
:0,000 (:,000
Taxable income Tax on P:00,000 C(:,000 x *(J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable (.
*,C0,0 00 1,:00,0 00 :,0 00 1,4(:,0 00
1(:,000 (C?,000 4(1,000 10,000 411,(00
ANSWER: C "o+#l '*#l +#$( %#'): Di!i"en" %rom a "omestic company /inal tax rate
40,00 0 10J
4,000
>hare in income o% business partnership /inal tax rate Total %inal tax *.
:0,00 0 10J
:,000 C,000
ANSWER: A R(')*+ ,'+'* o%+) +o #/#'l o OSD. Aompensation income Business income, Philippines Business income, Aana"a K(00,000 x (: Total +ess) ptional "e"uctions :,*:0,000 x 40JNet income +ess) Basic personal exemption Taxable income
4.
1(0,00 0 *:0,00 0 :,000,00 0 :,*:0,00 0 (,140,00 *,(10,00 0 0 *,**0,0 00 :0,0 00 *,(80,0 00
ANSWER: B "#$%#&r '( # r(')*+ #l'*. Aompensation income, Philippines
1(0,0 00 *:0,00 0 40,00 0 ((0,00 0 (:0,00 0
Business income, Philippines Gross income +ess) Expenses, Philippines Net income +ess) Personal exemption Basic personal ""itional exemption P(:,000 x 4 Taxable income
:0,00 0 100,000
1:0,00 0 100,00 0
:.
ANSWER: A "#$%#&r b,o!( # *o*r(')*+ ,'+'*. Net income +ess) Basic personal exemption Taxable income
?.
ANSWER: D No*r(')*+ #l'* E"B. Business income, Philippines +ess) Expenses, Philippines Net income +ess) Personal exemption lo7er Taxable income
.
*:0,0 00 ((0,00 0 1*0,00 0 (0,00 0 110,00 0
ANSWER: D "#$%#&r '( NRA NE"B. Business income, Philippines Di!i"en" %rom a "omestic company >hares in net income o% a partnership Gross income ;ate /inal tax
8.
(:0,00 0 :0,0 00 (00,00 0
ANSWER: D Lalue o% inheritance +otto 7innin#s Procee"s o% li%e insurance Total exemption
*:0,0 00 40,000 :0,00 0 440,00 0 (:J 110,00 0 :00,00 0 1,:40,0 00 (:0,0 00 (,(C0,0
00
EXERCISE 65.1 ANSWER:
D
ptional stan"ar" "e"uctions are allo7e" only on pro%essional or business income o% an in"i!i"ual taxpayer, pro!i"e" that he has si#ni%ie" in the tax return his intention to a!ail o% sai" "e"uctions. Aorporations can a!ail also o% optional stan"ar" "e"uctions
EXERCISE 65.2 ANSWER: .
B
The term #ross income means total sales, less cost o% #oo"s sol" plus any income %rom in!estments an" %rom inci"ental or outsi"e operations or sources. De"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 CC,000 Q :,000Pro%essional income 8*,000 Q ,000Gross income, business Total +ess) Pro%essional an" business expenses
104,00 0 C0,00 0 1(:,00 0 (1:,00 0 :?,:0 0
;ent income :,000C:JNet income +ess) Personal exemptions Basic personal ""itional (:,000 x ( Taxable income
:0,00 0 :0,000
1:8,:0 0 ?0,00 0 *((,:0 0
100,00 0 (((,:0 0
Tax on P 140,000 8(,:00 x (:J 6ncome tax "ue +ess) Tax cre"it Withhol"in# tax on $
Wa#es P :,000 Pro%essional income ,000 ;ent ?0,000$:,000*,000 6ncome tax payable 2.
ANSWER:
((,:0 0 (0,?(: 4*,1(:
1:,000 (8,1(:
D
>alary
104,00 0
Gross receipts on business ;ent income Pro%essional income Total +ess) ptional "e"uctions P(:,000 x 40JNet income +ess) Personal exemption Basic personal ""itional
P 1(:,00 0 ?0,000 C0,00 0 (:,00 0 110,00 0
:0,0 00 :0,000
Taxable income Tax on P 140,000 (C,000 x (:J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable
((,: 00 ,(:0 (C,:0 1:,000 14,:0
1?:,00 0 (?C,00 0
100,00 0 1?C,00 0
PROBLEM 6-5.4
1. ANSWER:
C
Gross compensation income ,000 Q *00x 1( +ess) Personal exemption Basic personal ""itional exemption Taxation income (. ANSWER:
8,?00 :0,000 (:,000
:,000 1(,?00
C
Gross business income +ess) ptional "e"uction 1:0,000 x 40JNet +ess) Personal exemptions Taxable income
1:0,00 0 ?0,000 C0,000 :0,000 40,000
EXERCISES 6-6.1: PERSONAL EXEMP"IONS 1.
ANSWER:
B
Personal exemptions are arbitrary amounts allo7e" in the nature o% a "e"uction %rom the amount o% #ross compensation income an"or net business an"or pro%essional income, as the case may be, %or personal, li!in# or %amily expenses o% an in"i!i"ual >ec. C, ;e#s.-. (.
ANSWER:
A
Nonresi"ent aliens not en#a#e" in tra"e or business in the Philippines are not allo7e" to claim personal exemptions. They are sub
ANSWER:
C
n ille#itimate chil" is no7 consi"ere" as a 9uali%ie" "epen"ent %or purposes o% claimin# the status as hea" o% %amily. 4.
ANSWER:
B
The amount o% basic personal exemption allo7e" to N; ETB must not excee" the amount o% exemption bein# allo7e" in the Philippines. :.
ANSWER:
C
>enior citi'ens are not consi"ere" as 9uali%ie" "epen"ents by its bene%actor %or purposes o% claimin# the a""itional exemptions. 6lle#itimate chil"ren are no7 consi"ere" as 9uali%ie" "epen"ents %or purposes o% a""itional exemption pro!i"e" that all the other re9uisites are complie". ?.
ANSWER:
C
The husban" is the proper claimant o% the a""itional exemptions except 7hen he "oes not "eri!e any income %rom sources 7ithin the Philippines or he explicitly 7ai!es his ri#ht in %a!or o% his 7i%e. .
ANSWER:
D
No matter ho7 bi# is the income o% the 7i%e as compare" to the husban", i% the latter "oes not 7ai!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 7ithout, he 7ill al7ays claim the a""itional exemption. 8.
ANSWER:
B
6n cases o% personal exemptions, only N; ETB are sub
ANSWER:
D
moron, althou#h mentally "e%ecti!e shall not 9uali%y as "epen"ent because he is not actually %inancially "epen"ent %rom the taxpayer. chil" o% a marria#e 7hich has been "eclare" !oi" ab initio is a 9uali%ie" "epen"ent %or purposes o% a""itional exemption. chil" pursuin# his stu"ies else7here is "eeme" li!in# 7ith the taxpayer. &e is consi"ere" a7ay temporarily5 %rom the taxpayerOs home. "epen"ent recei!in# a salary o% P1,000 monthly is not consi"ere" as #ain%ully employe". 10.
ANSWER:
D
The term bene%actor o% a senior citi'en5 pertains to any person 7ho ta=es care o% a senior citi'en as his "epen"ent, 7hether or not relate" to him.
EXERCISES 6-6.2 1. ANSWER:
C
The taxpayer is 9uali%ie" as hea" o% %amily because o% the le#itimate an" reco#ni'e" natural chil". nly le#itimate, ille#itimate 7hich inclu"es reco#ni'e" natural chil"or le#ally a"opte" chil"ren can 9uali%y as "epen"ent %or purposes o% claimin# a""itional exemptions. Thus, common la7 husban" an" 7i"o7e" mother o% common la7 husban"s are "is9uali%ie". The total personal an" a""itional exemptions is) Personal exemptions
:0,00 0
""itional exemptions) +e#itimate chil" 6lle#itimate chil" reco#ni'e" natural chil" Total (. ANSWER:
(:,0 00 (:,0 00
:0,00 0 100,0 00
B
nonresi"ent alien en#a#e" in tra"e or business is allo7e" to claim basic personal exemptions as "e"uction %rom #ross income. They are not, ho7e!er, allo7e" to claim a""itional exemption. The personal exemptions allo7e" shall be the lesser amount bet7een that allo7e" in his country an" the amount %ixe" as exemption %or citi'ens or resi"ents in the Philippines. *. ANSWER:
D
Basic personal exemptions) &usban" Wi%e ""itional exemptions (:,000 x 4 Total
:0,00 0 :0,00 0
?4,000 100,000 1?4,000
4. ANSWER: B Basic personal exemption
:0,000
""itional exemption (:,000 x * Total personal exemptions
:,000 1(:, 000
:. ANSWER: D Pro%essional %ees llo7ances Total +ess) Expenses >alaries Tra!elin# expenses %%ice supplies ;ent expense Taxable income be%ore exemption +ess) Personal exemption :0,000 Q(:,000 x **2 Taxable income
180,000 (4,000 (04,000 *?,00 0 (0,00 0 4,000 *?,00 C?,000 0 108,000 1(:,000 .
?. A*(0r: A Gross compensation income +ess) Personal exemptions Basic personal ""itional (:,000 x 4 Taxable income
1(0,000 :0,00 0 100,0 1:0,000 00 (0,000
. A*(0r: C Gross compensation income +ess) Personal exemptions Basic personal ""itional (:,000 x ( Taxable income
((0,000 :0,00 0 :0,00 100,000 0 1(0,000
EXERCISES 6 – . CLASSIICA"ION O INDIIDAL INCOME "AXPAERS 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 7ho comes to the Philippines %or a "e%inite purpose 7hich in its nature may be promptly accomplishe" is a transient >ec. :, ;e#s.-. *. ANSWER:
D
The tax base %or resi"ent citi'ens, resi"ent aliens, an" nonresi"ent citi'ens is taxable income, 7hile nonresi"ent aliens NETB are taxe" on the entire #ross income "eri!e" %rom sources 7ithin the Philippines. 4. ANSWER:
D
:. ANSWER:
B
Pri'es amountin# to more than P10,000 are sub
A
;oyalty income on musical compositions are sub
1. ANSWER:
6–8.1. PREMIM PAMEN"S OSPI"ALIA"ION INSRANCE
?4,00 0 :0,000 14,000 ON
EAL"
AND7OR
D
Premiums pai" by the taxpayer %or health insurance o% his %amily is a "e"uction but sub
(. 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
Aompensation income earners are not allo7e" "e"uctions except personal exemptions an" insurance. The amount o% health or hospitali'ation insurance allo7e" is limite" to P(,400 or P(00 a month. Gross compensation income +ess) De"uctions Basic personal ""itional exemption 6nsurance premiums (00 x 1( Taxable income
(00,0 00 :0,000 (:,000 (,400
,40 0 1((,? 00
EXERCISE 6.8.2 Aase 1)
None because the total #ross income o% the spouses excee"s P(:0,000.
Aase ()
None. The "e"uction on health insurance can be claime" by the 7i%e bein# the claimant o% the a""itional exemption on "epen"ents.
Aase *)
The husban" can only claim a maximum amount o% P1,?00 because only P(00 is allo7e" as "e"uction e!ery month, compute" as %ollo7s) P(00 x 8 U 1,?00.
Aase 4)
P1,(00. The husban" is allo7e" to claim the "e"uction e!en i% in the meantime no "epen"ent is 9uali%ie" %or a""itional exemption.
EXERCISES 6-9 1.
ANSWER:
A
>alary bein# a compensation income is returnable. &ence, part o% the taxpayerOs #ross income. Pro!i"e", ho7e!er, that the employee is not a minimum 7a#e earner. Thirteenth month pay, inclu"in# other bene%its, are exempt %rom tax up to P*0,000. Aonsi"erin# that 1*th month pay is P8,000 only, the entire amount is exempt %rom income tax.
(.
ANSWER: D None. Nonresi"ent citi'ens are taxable only on income 7ithin.
*.
ANSWER: D Gross compensation income +ess) Personal exemptions Basic personal hea" o% %amily""itional (:,000 x *-
1:,:? :0,000 :,000
Taxable income Tax on P *0,000 (,:? x 1:J 6ncome tax "ue 4.
1(:,00 0 *(,:?
(,:00.00 41*.40 (,C1*.40
ANSWER: C Aompensation income "") Pro%essional income +ess) Expenses Total +ess) Exemptions Basic personal ""itional Taxable income Tax on P140,000 48,000 x (:J 6ncome tax "ue
:.
ANSWER: D ;e%er to the solution to Problem ?.
?.
ANSWER: A >alary P1C1,000 Q (:,000"") Taxable other bene%its 1*th month pay ther bene%its Total +ess) Exemption Total +ess) Personal exemption Taxable income Tax on P 140,000
:*,000 *:0,000 140,000 :0,000 (:,000
(10,000 (?*,000 :,000 188,000
((,:00 1(,000 *4,:00
(1?,000 18,000 1:,000 **,000 *0,000
((,:00
*,000 (1C,000 :0,000 1?C,000
(C,000 x (:J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable .
,(:0 (C,:0 (:,000 4,:0
ANSWER: D Gross income, restaurant Taxable other income (00,000 x 80J Total +ess) De"uctions Business expenses C00,000 x ?0Jx8:J Basic personal exemption ""itional exemption Taxable income
8.
C00,000 1?0,000 1,0?0,0 00 4:C,000 :0,000 (:,000
:*4,000 :(?,000
ANSWER: A Basic salary Aost o% li!in# allo7ance &a'ar" pay
(10,:4C. ? ?,000.00 *,?00.00
Gross compensation income "") Net income %rom pro%ession Pro%essional income +ess) Expenses
P1:?,8C0.00 ?,:00.00
Total #ross income +ess) Personal exemption Taxable income Tax on P (:0,000 C,:*C.? x
:0,000.00 (,8?1.C*
*0J 6ncome tax "ue +ess) Withhol"in# tax on 7a#es 6ncome tax payable
:(,8?1.C* (,?0C.:0 (:,(:(.*
C,?00.0 0 ((0,14C. ?
8C,*C0. 00 *0C,:*C. ? :0,000. 00 (:C,:*C. ?
C.
ANSWER: B Business income, Phils., 11 $ 40,000 4*0 +ess) Expenses, Phils. 1,000 Business income, Phils., :1 $ 1(*1 :40,000 +ess) Expenses, Phils. (C(,:0 (4,:00 0 Pro%essional income ((,:00 Di!i"en" %rom %orei#n corporation 1,:00 x ?0C0,000 Total +ess) Personal exemption hea" o% %amily Taxable income Tax on P (:0,000 1(8,000 x *0J 6ncome tax "ue
10 .
40:,000 4(8,000 :0,000 *8,000
:0,00 0 *8,400 88,400
ANSWER: B Gross compensation income (10,4*8.(4 Q ?,000+ess) Personal exemptions Basic personal ""itional
(1?,4*8. (4 :0,000. 00 :,000. 00
Taxable income Tax on P 0,000 (1,4*8.(4 x (0J 6ncome tax "ue +ess) Withhol"in# tax 6ncome tax payable 11 .
(*,000
1(:,000 .00 C1,4*8. (4
8,:00.0 0 4,(8. ?: 1(,8. ?: (,(4?. 40 14,4:8. :-
ANSWER: B Basic salary 48,4?:.(: Q (,:00-
:0,C?:.( :
+ess) Personal exemption
:0,000.0 0 C?:.(:
Taxable income Tax on P C?:.(: x :J +ess) Withhol"in# tax 6ncome tax payable 1( .
48.(? 4*1. 4: *8*. 1C-
ANSWER: B 6ncome tax "ue o% lex
14,4:8. : *8*.1 C14,841. C4-
6ncome tax "ue o% Paloma ##re#ate amount payablere%un" 1* .
ANSWER: A Gross compensation income +ess) Personal exemptions Basic personal ""itional (:,000 x (-
((0,00 0 :0,00 0 :0,000
Taxable income 14 .
ANSWER: C Gross compensation income +ess) Personal exemptions Basic personal ""itional Taxable income
1: .
100,0 00 1(0,000
(00,00 0 :0,00 0 :0,000
100,000 100,000
A*(0r: B >alary $ 11 to ?*0 P8,000 x ?"") Procee"s o% insurance
48,000 :00,00
+ess) Premium payments P:,000 x (0Gross income +ess) Personal exemption Taxable income
0 100,000
400,000 448,000 :0,000 *C8,000
EXERCISE 6-10.
The petition has merit. Cooperatives are not required to withhold taxes on interest from savings and time 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 to withhold the orresponding tax on the interest from savings and time deposits of their members. This interpretation was reiterated in BIR Ruling "#$%&'(%)**+ dated -tober &, )**+, whih was issued by $ssistant Commissioner ames /. Roldan upon the request of the ooperatives for a onfirmatory ruling on several issues, among whih is the alleged exemption of interest inome on members0 deposit 1over and above the share apital holdings2 from the )*3 final withholding tax. In the said ruling, the BIR opined that4
xxxx 3. Exemption of interest income on members’ deposit (over and above the share capital holdings) from the 20% Final Withholding ax. he !ational "nternal #even$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$rrenc ban deposit and ield or an other monetar benefit from the deposit s$bstit$tes and from tr$st f$nds and similar arrangement x x x* for individ$als $nder +ection 2,(-)() and for domestic corporations $nder +ection 2/()(). Considering the members’ deposits with the cooperatives are not currency bank deposits nor deposit substitutes, Section 24(B)(1) and Section 2(!)(1), there"ore, do not app#y to members o" cooperatives and to deposits o" primaries with "ederations, respective#y$ 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
1#. . %a& %reatment o" 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#. 2. %a& and 'ther &emptions. ooperatives transacting b$siness 'ith both members and nonmembers shall not be s$b5ect to tax on their transactions to members. !ot'ithstanding 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 e3emption e3tends to mem'ers o# cooperatives. %t must 'e emphasi5ed that cooperatives e3ist #or the 'ene#it o# their mem'ers. %n #act, the primary o'1ective o# every cooperative is to provide goods and services to its mem'ers to ena'le them to attain increased income, savings, investments, and productivity. here#ore, limiting the application o# the ta3 e3emption to cooperatives would go against the very 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 legislature. hus, although the ta3 e3emption only mentions cooperatives, 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 closing, cooperatives, including their mem'ers, deserve a pre#erential ta3 treatment 'ecause o# the vital role they play in the attainment o# economic development and social 1ustice.
CHAPTER 7
EXERCISES – 1 1 a. By contributin# P100,000 each 7ith the intention o% "i!i"in# . 7hate!er pro%it is obtaine", tien'a, Bau'on an" Aarmona ha!e %orme" a business partnership 7hich is taxable as a corporation. The re#istration 7ith the >ecurities an" Exchan#e Aommission is not an in"ispensable re9uisite in its %ormation. 6n this case, the business or#ani'ation %orme" 7ill %all un"er the phrase partnership no matter ho7 create" or or#ani'e",5 7hich is inclu"e" in the "e%inition o% a corporation. b. The business or#ani'ation %orme" is a corporation. The %i!e entrepreneurs ser!e" as the incorporators. c.
The t7o corporations ha!e %orme" a
". Gi#i an" @ay
( .
Alassi%ication a. Domestic corporation b. ;esi"ent %orei#n corporation V c. Nonresi"ent %orei#n corporation
>itus o% 6ncome
Tax Base
Within an" 7ithout Within only
Taxable income Taxable income Gross income
Within only
V6t is an international carrier (See Comm vs. BOAC, et al, GR Nos. 65773-74, April 30, 1!7". 6n 7hich case, the tax base can be Gross Philippine Billin#s. * # . .
Do!(+', ,or%or#+'o* >ales "omestic >ales abroa" Gross sales +ess) Aost o% #oo"s sol" Gross income +ess) Expenses Domestic /orei#n Total expenses Taxable income ;ate 6ncome tax
b .
(008
(00C
*,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 00 *,000,0 00 (,000,0 00 *: J 00,00 0
1,000,0 00 (,000,0 00 *,000,0 00 (,000,0 00 *0 J ?00,00 0
*,000,0 00 1,:00,0
*,000,0 00 1,:00,0
R(')*+ or'* ,or%or#+'o* >ales "omestic +ess) Aost o% #oo"s sol" *10 x
:,000,000Gross income +ess) Expenses on "omestic sales Taxable income ;ate o% tax 6ncome tax
, .
00 1,:00,0 00 1,000,0 00 :00,000 *: J 1:,00 0
00 1,:00,0 00 1,000,0 00 :00,000 *0J
*,000,0 00 400,00 0 *,400,0 00 *: J 1,1C0,0 00
*,000,0 00 400,00 0 *,400,0 00 *0 J 1,0(0,0 00
1:0,000
No*r(')*+ or'* ,or%or#+'o* >ales "omestic Siel" %rom "eposit substitute Gross income ;ate 6ncome tax
4 a. Ba#o Aorporation shall be co!ere" by the application o% the MA6T . e%%ecti!e (010. b. Ses, the corporation shall be sub
:,000,0 00 4,00,0 00 *00,000 *0 J C0,000 100,000 10,00 0-
The countin# o% the %our 4- year perio" shall commence in (00? a
year %ollo7in# the year in 7hich the corporation 7as re#istere" 7ith the B6;. The corporation is not co!ere" by the MA6T %rom (00: to (00C. 6t shall be co!ere" only in (010 or on the 4 th year %ollo7in# the year in 7hich it 7as re#istere" 7ith the Bureau o% 6nternal ;e!enue. : . Gross sales >ales returns an" "iscounts Aost o% #oo"s sol" Total Net "") Aapital #ain Gross income +ess) De"uctions Taxable income ;ate o% tax Normal 6ncome tax MA6T) (00 *,::0,000 x (J(008 4,4::,000 x (J(00C 1,*C0,000 x (J6ncome tax Excess MA6T (00 1,000 (4,*?0+ess) Aarry %or7ar" o% excess MA6T 6ncome tax payable ? a
>ales
(00
(008
(00C
4,:80,0 00 (00,00 0 8?0,0 00 1,0?0,0 00 *,:(0,0 00 *0,0 00 *,::0, 000 *,480,4 00 ?C,?00
:,(:0,0 00 1:,00 0 ?(0,0 00 C:,0 00 4,4::,0 00
(,8:0,0 00 (C:,00 0 1,(00,0 00 1,4C:,0 00 1,*::,0 00 *:,0 00 1,*C0, 000 8:0,0 00 :40,00 0 *0 J 1?(,00 0
*: J (4,*?0
. 4,4::,0 00 4,(00,0 00 (::,00 0 *: J 8C,(:0
1,000 8C,100 . 1,00 0 4?,?4 0
1<== =
. 8C,(:0
4?,?4 0 42<61 = ?,000,0
(,80 0 1?(,00 0
;;;;;; 162<== =
.
.
00 >ales returns an" allo7ances >ales "iscounts
(00,00 0 1:,00 0
Net sales +ess) Aost o% #oo"s sol" 6n!entory, @anuary 1
Purchases
/rei#ht$in Purchase returns an" allo7ances Purchase "iscounts Goo"s a!ailable %or sale 6n!entory, December *1 Gross income +ess) peratin# expenses Taxable income ;ate o% tax Normal 6ncome tax b MA6T *,8,000 x (J. c .
(,400,0 00 1,:00,0 00 *:,000 *0,00 0 ,00 0*,8C8,0 00 1,C00,0 00
(1:,0 00 :,8:,0 00
1,CC8,0 00 *,8,0 00 1,?00,0 00 (,18,0 00 *: J ?:,4 :0 :, 40
6ncome tax "ue
?:,4 :0
Gross sales . +ess) Aost o% sales
(,000, 000 1,?00, 000 400,00 0
Gross income +ess) "e"uction
ptional
stan"ar"
Gross income ;ate Taxable net income 8 .
400,000 40J
1?0,00 0 (40,00 0
a The rate o% tax applicable to the e"ucational institution is 10J . because the income %rom unrelate" acti!ity "oes not excee" :0J o% the entire #ross income. b .
C .
6% the income %rom unrelate" acti!ity is more than the income %rom relate" the rts ni!ersity 7oul" be sub
a .
Pro!ision %or income tax
:0,000
6ncome tax payable
:0,0 00
To recor" income tax liability usin# normal income tax. b .
De%erre" char#es MA6T
1:,000
6ncome tax payable
1:,0 00
To recor" excess MA6T ?:,000 :0,000c. 6ncome tax payable Aash in ban=
?:,000 ?:,0 00
To recor" payment o% income tax "ue %or (00?. (00 a The corporation is not allo7e" to carry %or7ar" an" cre"it the (00? . excess MA6T a#ainst the income tax liability %or (00, since the (00 MA6T 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 6ncome tax payable
8:,000 8:,000
c. To recor" application o% excess MA6T. De%erre" char#es MA6T 6ncome tax payable " To recor" payment o% income tax "ue %or . (00. 6ncome tax payable
1:,000 1:,000
100,00 0
Aash in ban=
100,00 0
(008 The corporation is not allo7e" to carry %or7ar" an" cre"it the (00? an" (00 excess MA6T a#ainst the normal income tax liability %or (008 an" (00C since the (008 an" (00C MA6T are #reater than the Normal 6ncome Tax %or sai" year. The accountin# entries in (008 an" (00C shall be similar to (00? an" (00 abo!e. /or taxable year (010 7hen the expire" portion o% excess MA6T ?:,000 :0,000- %or taxable year (00? is close" to ;etaine" Earnin#s account "ue to its non$application the entry is) ;etaine" earnin#s De%erre" char#es MA6T 10 .
1 Tuition %ees . >chool canteen Dormitories Boo=stores Aar stic=ers Total
11
1:,000 1:,000 1,:?0,0 00 (:0,000 C:,000 48,000 8,*0 0 1,C?1,* 00
( .
6% /atima ni!ersity is a non$stoc=, non$pro%it e"ucational institution no income shall be reporte" %or income tax purposes because non$ stoc= non$pro%it schools are not sub
* .
6% /atima ni!ersity is a #o!ernment e"ucational institution it 7ill not report any income %or income tax purposes because #o!ernment e"ucational institutions are exempt %rom income tax.
a
Gross receipts
4,:00,0
.
.
00 1,(00,0 00 *,*00,0 00 ?80,0 00 (,?(0,0 00 *: J C1,0 00
+ess) Aost o% sales Gross income +ess) De"uctions Taxable income ;ate 6ncome tax b Taxable income . Siel" %rom "eposit substitutes 6nterest income
(,?(0,0 00 :,000 4(,00 0 (,*,0 00
Total +ess) Di!i"en"s pai" 6ncome tax pai" Tax on "eposit substitutes :,000 x (0JTax on interest 4(,000 x (0J;eser!e" %or buil"in# construction 6mproperly accumulate" earnin#s 1( .
8,400 1,:00,0 00
(,81:,4 00 8,4 00-
The %inal 7ithhol"in# tax to be pai" by the corporation 7hether "omestic, resi"ent %orei#n or nonresi"ent %orei#n- is uni%ormly compute" as %ollo7s Gross sellin# price P110 x 1,000+ess) Aost P100 x 1,000Net capital #ain ;ate o% tax Aapital #ains tax %inal tax-
EXERCISES 7–2 7–2.1
*:,000 C1,000 1:,000
P 110,000 100,000 10,000 :J :00
1.
ANSWER: A
(.
ANSWER: C
*.
A*(0r: D /or purposes o% MA6T, the taxable year in 7hich business operations commence" shall be the year in 7hich the "omestic corporation is re#istere" 7ith the Bureau o% 6nternal ;e!enue. /irms re#istere" 7ith B6; in any year shall be co!ere" by MA6T a%ter the lapse o% three calen"ar years. The corporation is re#istere" 7ith B6; in (004. There%ore, it shall be sub
4.
ANSWER: D Gross income +ess) De"uctions Taxable income ;ate o% tax Normal income tax MA6T P8:(,000 x (J6ncome tax payable hi#her-
:.
A*(0r: C Gross income +ess) De"uctions Taxable income ;ate o% tax Normal income tax MA6T P?*(,000 x (J6ncome tax payable hi#her-
8:(, 000 800,00 0 :(,000 *0 J 1:,?00 1,040 1,040 ?*(,00 0 ?10,00 0 ((,000 *: J ,0 0 1(,?40 1(,?40
PROBLEM 7-2.2
1.
ANSWER: C Minimum Aorporate 6ncome Tax
:0,000
+ess) Normal income tax Excess o% MA6T o!er N6T
(.
*.
(0,000 *0,000
Entry) De%erre" char#es $ MA6T 6ncome tax payable
*0,000
ANSWER: A ;etaine" earnin#s De%erre" char#es $ MA6T
*0,000
ANSWER: B (00: (00? (00 Total excess o% MA6T o!er N6T @ournal entry) 6ncome tax payable De%erre" char#es MA6T
*0,000
*0,000 (,000 :,000 10,000 4(,000 4(,000 4(,000
PROBLEM -2.3: 1. ANSWER: B 6ncome tax, 1st tr N6T hi#her+ess) Taxes 7ithhel" Prior year Taxes 7ithhel" 1st 9tr Excess MA6T prior year 6ncome tax "ue, 1st tr normal income tax-
100,00 0 10,000 (0,000 *0,000
(. ANSWER: B 6ncome tax, (n" tr MA6T hi#her+ess) Taxes 7ithhel" Prior year Taxes 7ithhel" 1st 9tr Taxes 7ithhel" (n" 9tr Net income tax payment 1st tr 6ncome tax "ue, (n" tr MA6T
**0,00 0 10,000 (0,000 *0,000 40,000
*. ANSWER: C 6ncome tax, *r" tr N6T hi#her+ess) Taxes 7ithhel" Prior year Taxes 7ithhel" 1st 9tr
?0,000 40,000
100,00 0 (*0,00 0 40,00 0
10,000 (0,000
Taxes 7ithhel" (n" 9tr Taxes 7ithhel" *r" 9tr Net income tax payment 1st
*0,000 40,000 40,000
tr MA6T pai" in the (n" tr Excess MA6T in prior year
(*0,000 *0,000
6ncome tax "ue, *r" tr $ N6T 4. ANSWER: C nnual income tax N6T hi#her+ess) Taxes 7ithhel" Prior year Taxes 7ithhel" 1st 9tr Taxes 7ithhel" (n" 9tr Taxes 7ithhel" *r" 9tr Taxes 7ithhel" 4th 9tr Net income tax payment 1st tr Net income tax payment *r" tr MA6T pai" in the (n" tr Excess MA6T in prior year
?0,00 0 10,000 (0,000 *0,000 40,000 *:,000 40,000 0,000 (*0,000 *0,000
6ncome tax "ue, /inal tr $ N6T :. ANSWER: A nnual income tax MA6T hi#her+ess) Taxes 7ithhel" Prior year Taxes 7ithhel" 1st 9tr Taxes 7ithhel" (n" 9tr Taxes 7ithhel" *r" 9tr Taxes 7ithhel" 4th 9tr Net income tax payment 1st tr Net income tax payment *r" tr MA6T pai" in the (n" tr 6ncome tax "ue, /inal tr $ N6T
400,00 0 0,00 0
:0:,00 0 1?:,0 00 ::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 Gross income +ess) De"uctions Expenses N+A
(,C:0,0 00 1,:0,0 00 *00,00 0
Taxable income ;ate o% tax 6ncome tax "ue (. ANSWER: D Taxable income "") 6nterest on ban= "eposit 1?,00080JProcee"s o% insurance N+A Di!i"en"s %rom BB
C00,000 (0,000 1,(00,0 00 *00,00 0 :,00 0
Total +ess) Di!i"en"s pai" 6ncome tax pai" 6nterest on ban= "eposit (0,000 1?,0006mproperly accumulate" taxable income ;ate 6mproperly accumulate" earnin#s tax *. ANSWER: D 4. ANSWER: D :. ANSWER: C
PROBLEM 4.1 1 ANSWER: .
C
(,0:0,0 00 C00,000 *: J *1:,00 0
:00,000 *1:,000 4,000
1,:C:,0 00 (,4C:,0 00 81C,00 0 1,??,0 00 10 J 1?,?0 0
Gross income
11,(*0,0 00
+ess) Expenses >alary, allo7ances an" bonus ?,400,000 ther operatin# expenses (,?00,000 Depreciation o% a""itional school %acilities) Alassrooms 1,*00,000(0 x 48,:0 C1(/urniture X e9uipment 10,0 400,000(0 x ?1(00 Taxable income ;ate o% tax 6ncome tax (. ANSWER: D Tuition %ees
C,:00,00 0 1,(00,00 0 *:0,000 180,00 0 11,(*0,0 00
Miscellaneous %ees 6ncome o% boo=store 6ncome o% school canteen Gross income +ess) Expenses >alary, allo7ances an" bonus ther operatin# expenses Aonstruction o% a""itional classrooms /urniture an" e9uipment Taxable income ;ate o% tax 6ncome tax
C,0:8,: 0 (,11,(: 0 10J (1,1( :
?,400,000 (,?00,000 1,*00,000 400,000
10,00,0 00 :*0,000 10 J :*,00 0
*. ANSWER: B public elementary school is also a #o!ernment e"ucational institution. They are exempt %rom income tax un"er >ec. *0 o% the National 6nternal ;e!enue Ao"e.
non$stoc=, non$pro%it e"ucational institution is exempt %rom tax un"er rticle R6L, >ec. 4*2, 42 o% the Aonstitution. non$pro%it e"ucational institution is sub
D
PROBLEM –4.2 1. ANSWER: A Gross income +ess) De"uctions peratin# expenses
Aost o% buil"in#
10,000,0 00 ?,400,0 00 (,:00,0 00
Taxable income ;ate o% tax 6ncome tax "ue (. ANSWER: C Gross income +ess) De"uctions peratin# expenses Depreciation(,:00,000:0x? 1( Taxable income ;ate o% tax 6ncome tax "ue
8,C00,00 0 1,100,00 0 10J 110,00 0 10,000,0 00
?,400,0 00 (:,00 0
?,4(:,00 0 *,::,00 0 10J *:,:0 0
*. ANSWER: B The importation o% laboratory e9uipments are exempt %rom customs "uties i% the school is a pri!ate e"ucational institutions. The school buil"in#, e!en i% rente" only by the school, i% bein# use" actually, "irectly an" exclusi!ely %or e"ucational purpose is exempt %rom real property tax. The portion o% the school buil"in# is sub
e"ucational purpose. The income %rom operation is taxable. nly income recei!e" by non$ stoc= non$pro%it e"ucational institutions an" #o!ernment e"ucational institutions are exempt. 4. ANSWER:
C
EXERCISES – 5 PROBLEM –5.1. 1. ANSWER: A Gross income, Philippines +ess) Expenses, Philippines Gross income, .>.. +ess) Expenses, > ;oyalties, > Taxable income ;ate o% tax (0086ncome tax (.
?C0,00 0 4:0,00 0
P *1:,00 0 (40,00 0 :0,00 0 ?0:,00 0 *:J (11,: 0
ANSWER: C Gross income, Phils. +ess) Expenses Taxable income ;ate o% tax (0086ncome tax
*.
P 40,00 0 4(:,00 0
40,00 0 4(:,00 0 *1:,00 0 *:J 110,(: 0
ANSWER: A Gross income, Philippines 6nterest on ban= "eposit, PNB
40,00 0 10,00 0
Total
:0,00 0 *:J (?(,:0 0
;ate o% tax (008/inal tax 4.
ANSWER: A
PROBLEM – 5.2 ANSWER: D Gross income, Phils. +ess) De"uctions Gross income, > +ess) De"uctions
(00,00 0 80,000 ?0,00 0 *0,000
Taxable income ;ate (00C6ncome tax
PROBLEM – 5.3 ANSWER:
1(0,00 0 *0,00 0 1:0,00 0 *0J 4:,000
C
Gross income, Philippines
(,800,0 00 1,*00,0 00 1,:00,0 00 *: J :(:,0 00
+ess) De"uctions Taxable income ;ate o% tax (0086ncome tax
PROBLEM – 5.4 1. ANSWER: B Gross income, Philippines +ess) Expenses, Phils. Gross income, .>. K1(:,000 x P40-
1,(00,000 800,000
400,00 0
P:,000,000 +ess) Expenses, .>. K?(,000 x P40(,480,000 Gross income, & K*4:,000:x40(,?0,000 +ess) Expenses, & K(*0,000: x 401,840,000 Taxable income ;ate o% tax 6ncome tax (.
+ess) Expenses, Philippines Taxable income ;ate o% tax 6ncome tax
;ate o% tax /inal tax
*,440,0 00 *,840,0 00 *0 J 1,1:(,0 00
1,(00,0 00 800,00 0 400,000 *0J 1(0,000
1,(00,0 00 *0 J *?0,00 0
ANSWER: A Gross income ;ate o% tax 6ncome tax
:.
C(0,00 0
ANSWER: D Gross income, Philippines
4
00
ANSWER: C Gross income, Philippines
*.
(,:(0,0
1,(00,0 00 (.: J *0,00 0
ANSWER: B Gross income, Philippines +ess) Expenses, Philippines
1,(00,0 00 800,00 0
Taxable income ;ate o% tax 6ncome tax mount remitte" to mother company 400,000 $ 1(0,000;ate o% tax Branch pro%it remittance tax ?.
400,000 *0 J 1(0,00 0 (80,000 1:J 4(,000
ANSWER: A Exempt %rom branch pro%it remittance tax.
.
ANSWER: B Gross income ;ate o% tax /inal tax
8.
1,(00,0 00 (: J *00,00 0
ANSWER: B Gross income ;ate o% tax /inal tax
1,(00,0 00 4.: J :4,00 0
EXERCISE – 6 1. ANSWER: A (.
ANSWER:
*.
ANSWER: B Net income a%ter tax
C
;ate o% tax Branch pro%it remittance tax 4.
ANSWER: C Net income a%ter tax
40,000,0 00 1:J ?,000,00 0 40,000,0
;oyalty Di!i"en" Total +ess) Branch pro%it remittance tax mount to be remitte" to hea" o%%ice :.
ANSWER: B
?.
ANSWER: D
00 *,:00,00 0 4,000,0 00 4,:00,0 00 ?,000,0 00 41,:00,0 00
G>6>, >>>, an" P&6A are exempt %rom income tax. PGA; is no7 sub
ANSWER:
8.
ANSWER: C ll assets o% a non$stoc= non$pro%it e"ucational institution are exempt %rom customs "uties on importation.
C
EXERCISE –. ML"IPLE COICE "EOR 1.
ANSWER: B Auentas en participacion is consi"ere" as a corporation sub
(.
ANSWER: A n in"i!i"ual permanently resi"in# in the Philippines is classi%ie" as resi"ent re#ar"less o% 7hether he is a citi'en or not.
*.
ANSWER: D Domestic corporations an" resi"ent %orei#n corporations are taxe" base" on taxable income. Non$pro%it cemeteries are exempt %rom income tax.
Nonresi"ent %orei#n corporations are not allo7e" to claim "e"uctions %or purposes o% income taxation. They are taxe" base" entirely on #ross income "eri!e" %rom sources 7ithin the Philippines. 4.
ANSWER:
:.
ANSWER: D
?.
ANSWER: D Di!i"en"s recei!e" by in"i!i"uals %rom a "omestic company are sub
B
The rule on tax sparin# cre"it applies only 7hen the "i!i"en"s are recei!e" by nonresi"ent %orei#n %rom a "omestic corporations. .
ANSWER: B >ales (,C?8,000 11(J-
P(,?:0, 000 1,(:,0 00 C(:,000
+ess) Aost o% sales Gross income +ess) Expenses 6nclusi!e *8?,400 11(JExclusi!e Taxable income ;ate o% tax (0086ncome tax
*4:,000 4:0,000
C:,000 1*0,000 *:J 4:,:00
EXERCISE 7–8. CASE PROBLEM
Excess income taxes pai" in a year that coul" not be applie" as tax cre"it to taxes "ue the %ollo7in# year may be re%un"e" the next year. Thus, i% the excess income taxes pai" in (00: ha!e not been entirely use" by a taxable corporation a#ainst its 9uarterly income tax liabilities %or (00?, the unuse" amount o% the excess may still be re%un"e", pro!i"e" that the claim %or such a re%un" is ma"e 7ithin t7o years a%ter payment o% the tax. 6% a taxpayer su%%ere" a net loss in (00?, incurrin# no tax liability to 7hich a pre!ious yearOs tax cre"it coul" be applie", there is no reason %or the B6; to 7ithhol" a tax re%un" 7hich ri#ht%ully belon#s to the taxpayer. Technicalities an" le#alisms, ho7e!er exalte", shoul" not be misuse" by the #o!ernment to =eep money not belon#in# to it, thereby enrichin# itsel% at the expense o% its la7$abi"in# citi'ens solutio in"ebiti-. Thus)
