Solution Manual Income Taxation (2009 Edition) Chapter 1 True or False 1-1 1. True 2. False. Taxation covers person, properties, rights and transactions. 3. False. Person in taxation includes the concept of partnership, corporation, estate and trust. 4. True 5. False. Taxation as a legislative process is under the power of the legislative body, the Congress. 6. False. Taxation is the primary source of government revenue. Usually, the government resorts to borrowing if taxes collected are not sufficient to defray its budgetary requirements. 7. True 8. True 9. False. Basically, taxes imposed are based on the ability of the taxpayer to pay. 10. False. It is the primary obligation of the state to protect all the constituents regardless of whether they pay or not their tax liabilities. True or False 1-2 1. True 2. True 3. True 4. True 5. True 1
6. False. The President cannot delegate the power of taxation, since taxation is not vested in the President. Taxation is vested in the legislative body. 7. False. Taxation cannot be separated from the state. The moment a state exists, taxation also exists. 8. False. The making of tax law is undertaken ahead of the collection of taxes. 9. False. Levying refers to the making of tax laws. 10. False. Only the legislative body, the Congress, can grant tax exemptions. True or False 1-3 1. False. It is the legislative branch of the government that is vested with the power of taxation. 2. False. The power of taxation is restricted by inherent and constitutional limitations. 3. False. Tax assessment is the valuation and determination of the amount of tax. The passage of taxation is called levying or imposition of tax. 4. False. The three inherent powers can be and have been delegated by the Legislative to the Executive Branch. 5. True 6. True 7. False. The two kinds of double taxation are called indirect double taxation and direct double taxation. 8. False. Tax avoidance is a legal way of avoiding payment of taxes. 9. False. Income tax cannot be classified as ad valorem, since the amount is not fixed and does not rely upon an independent appraiser. It is properly classified as graduated. 10. False. The Constitution does not expressly mention double taxation. However, imposition of double 2
taxation violates the principle of uniformity; hence, considered unconstitutional. True or False 1-4 1. False. Taxes are broader than customer duties. 2. False. The power to grant tax exemption is vested in the legislative branch of the government. 3. True 4. True 5. False. The idea that the tax rate and not the tax payment shall be the same is the tenet of uniformity and equity in taxation. 6. True 7. True 8. False. Although taxation is the strongest among the three inherent powers of the State, it is subject, however, to inherent and Constitutional limitations. 9. False. In forward tax shifting, the price of goods or services keeps on increasing because of tax added. 10. False. Special assessment is imposed and collected by the local government units. It is a local tax. True or False 1-5 1. False. Not all government units exercise the power of taxation. Only the Congress exercises the power of taxation. 2. True 3. True 4. True 5. True 6. False. It is true that taxation cannot be separated from the state; however, taxation is not absolute. 7. True 3
8. False. Tax assessment is the valuation of the property and the determination of the amount of tax liabilities. Enactment of tax laws is called levying or imposition of tax. 9. True 10. False. Only non-payment of the poll tax is not subject to imprisonment. Non-payment of other types of tax is subject to criminal liability or sanction. True or False 1-6 1. False. The power of taxation is comprehensive but never absolute. 2. True 3. True 4. True 5. False. The three inherent powers of the state are not dependent upon the Constitution. 6. True 7. True 8. True 9. False. The subject to be taxed and the amount of tax are within the discretion of the Legislative Branch and cannot be delegated. What can be delegated is the administrative aspect, the assessment and collection of taxes. 10. False. The Bureau of Internal Revenue administers the taxes listed in the National Internal Revenue Code. True or False 1-7 1. False. Tax liability is non-transferable, while debt is transferable. 2. True 3. True 4. True 4
5. True 6. False. Real property tax is a local tax and administered by the local government units. 7. False. It is properly classified as specific tax and not ad valorem tax. 8. False. Levy is the taking of real property to enforce collection of taxes. The taking of personal property is called distraint. 9. False. The concept of proportionate in character is that the amount of tax collected is based on the ability of the taxpayer to pay. It does not imply that the taxpayer without money is exempted from payment of tax. 10. False. The situs of occupation is the place where the occupation is performed. True of False 1-8 1. False. The Supreme Court, not the Congress, decides on the legality of tax laws. The decision of the Supreme Court is final and executory. 2. False. The other term for tax minimization is tax avoidance. 3. False. The Bureau of Internal Revenue is under the Department of Finance. 4. False. The Philippine tax system is either graduated or proportional. The regressive tax system has not yet been adopted in the Philippines. 5. False. Non-payment of the poll tax is not subject to imprisonment as one of the Constitutional limitations and not one of the inherent limitations. 6. True 7. True 8. False. The power of eminent domain is the taking of private property with just compensation for public 5
purpose. The two acts mentioned are under the police power. 9. False. Collection of tax liabilities is the third stage of the taxation system. The payment of tax due is the stage that is incidental to the whole taxation system. 10. True True or False 1-9 1. True 2. False. Tax cases involving more than P1,000,000 is handled by the Court of Tax Appeals. 3. True 4. False. When the President vetoes certain items in the bill passed by the Congress, the veto exercise is called item veto. When the President objects to the whole bill, it is called pocket veto. 5. False. Tax exemption is non-transferable. 6. False. What is exempted by the Constitution is the property tax on religious or educational institutions. Their property, however, is subject to other types of tax. 7. False. The concept of tax exemption is privilege given to certain types of taxpayer but not to reduce the tax liability. 8. True 9. False. Late payment of the poll tax is subject to surcharge or interest. 10. False. The Philippine Constitution does not expressly prohibit double taxation. However, tax laws that are not uniform and equitable are unconstitutional. True or False 1-10
6
1. False. Taxation imposes contributions not only on individuals but also on properties, rights and transactions. 2. False. The legislative body of the government and not the President undertakes the imposition of taxation. 3. False. Taxation is a legislative exercise undertaken by the Congress. 4. False. Taxation even not provided expressly in the Philippine Constitution can be imposed. It is an inherent power of the state. 5. False. It is true that taxation is the strongest among the three inherent powers of the state, but it is subject to inherent and Constitutional limitations; hence, not absolute. 6. False. It is only the legislative branch of the government that can delegate the three inherent powers of the State. 7. False. Uniformity and equity in taxation implies that the tax rates applied, and not the amount of tax to be paid, should be the same to all taxpayers belonging under the same class. 8. True 9. True 10. True True or False 1-11 1. True 2. True 3. False. The principle of fiscal adequacy presupposes that taxes collected are sufficient to meet the fiscal requirements of the government. 4. False. Taxation is the lifeblood of the government, but only the legislative body can exercise taxation. Not all government units can exercise the power of taxation. 7
The administrative aspect of taxation has been delegated by the Legislative to the Executive Branch. 5. False. Collection of taxes through withholding taxes is a concrete example of the principle of administrative feasibility. 6. False. The doctrine of escape from taxation is intended to reduce the amount of tax liability 7. False. Tax on fermented liquor is classified as specific tax, since it is based on weight (volume) of the product. 8. False. Tax evasion is an unlawful mode of reducing tax liability. The process of transferring the tax burden from one taxpayer to another is called tax shifting. 9. True 10. True
True or False 1-12 1. True 2. True 3. False. Toll is imposed by private entities, either individual or corporate, to cover maintenance and operating expenditures. 4. True 5. False. Proportional tax classification is based on a fixed percentage or rate where the subject of taxation belongs. Estate tax falls under the graduated classification. 6. False. Collection is a stage where government agencies are tasked to demand the tax liabilities. Taxpayers’ act of meeting their tax liabilities is called payment stage. 7. True 8
8. False. The concept of equity in taxation is based on the premise that taxes collected are dependent upon the ability of the taxpayer to pay. 9. False. The basic premise of international comity is that all states are treated alike. It is the principle of privity of relationship that the state continues to impose taxation on its subjects even outside its territorial jurisdiction. 10. False. Prospective application means that tax laws are operative after the approval of the President of the tax bill. 11. True 12. True 13. True 14. True 15. False. Tax laws can be retroactive if it is the intention of the Legislative Branch that it will be effective retroactively. Otherwise, the effect shall be prospective. Multiple Choice 1-1 Multiple Choice 1-2 Multiple Choice 1-3 1. D 2. B 3. C 4. A 5. A
6. B 7. C 8. A 9. B 10.C
1. 2. 3. 4. 5.
C D C C C
6. B 7. A 8. C 9. D 10. D
1. 2. 3. 4. 5.
A C B B C
Multiple Choice 1-4 Multiple Multiple Choice 1-6 1. D 2. A 3. B
6. C 7. A 8. B
1. C 2. D 3. B
6. C 7. C 8. B 9
1. D 2. A 3. A
6. B 7. A 8. C 9. A 10. B Choice 6. C 7. B 8. A
1-5
4. D 5. C
9. A 10.C
4. A 5. B
9. C 10.C
4. B 5. B
9. A 10.D
Multiple Choice 1-7 Multiple Choice 1-8 1. D 2. A 3. C 4. A 5. D
6. B 7. A 8. B 9. C 10.C
1. 2. 3. 4. 5.
True or False 2-1
B D A C C
6. B 7. C 8. A 9. D 10. B Chapter 2
1. False. The stages or aspects of taxation are classified as legislative (levying) and administrative (assessment and collection). 2. False. Levying of tax is legislative in character, while assessment is administrative in nature. 3. True 4. True 5. False. The value of the object after assessment includes all penalties and charges. 6. True 7. False. Tax laws approved by the President are implemented by various government agencies. 8. True 9. False. Tax assessment is undertaken just to determine the amount of tax burden. In most instances, the taxpayers themselves determine the amount of tax liability. 10. True
10
True or False 2-2 1. True 2. True 3. True 4. False. Four Commissioners administer the BIR. 5. False. Tax assessment is not anymore required when a tax deficiency has been determined because of fraudulent return. 6. True 7. False. Tax deficiency means that the amount of tax paid is less than the amount of tax due and payable. 8. True 9. False. The Commissioner of BIR may delegate assessment to his authorized representative, but not the final assessment. 10. False. Formal notice of assessment should be in writing and should state all the facts. True or False 2-3 1. False. The three-year period shall start on the date of filing if the correct tax return is filed after the last day of filing. 2. True 3. False. Fraud assessment arises from fraudulent return filed by the taxpayer. 4. False. Assessment should be made within the prescribed period; otherwise, the findings are not valid. 5. True 6. False. The taxpayer is given only 15 days to respond on the findings for informal conference. 7. True 8. False. The taxpayer has 15 days to contest the findings indicated in Preliminary Notice of Assessment. 9. True 11
10. True True or False 2-4 1. False. Tax assessment is not required if tax deficiency is due to mathematical error. 2. False. The taxpayer is given 30 days to contest the findings in the formal notice of assessment. 3. False. The taxpayer shall submit all supporting documents within 60 days after protest. 4. False. Upon receipt of notice of the BIR decision, the taxpayer has 30 days to submit his protest to the Court of Tax Appeal. 5. False. Collection is an administrative aspect of taxation. 6. False. The government has the administrative and judicial remedies to enforce collection of taxes. 7. True 8. True 9. False. Actual distraint is the taking of the physical properties. Prohibition to use the property is termed as constructive distraint. 10. True True or False 2-5 1. False. Stocks and bonds can be distraint constructively. 2. False. The Revenue District Officer shall administer distraint on tax liabilities less than P1,000,000. 3. False. The officer administering the distraint shall submit a report within two days to the BIR Commissioner. 4. False. Levy is the taking of real properties to effect payment of taxes. 12
5. False. The BIR regularly conducts tax assessment to check the correctness of tax returns. 6. True 7. True 8. False. Again, the BIR is regularly taking preassessment. 9. True 10. True True or False 2-6 1. False. The taxpayer has 30 days to file an administrative protest on the assessment. 2. False. The prescribed period of assessment for failure to file a return is 10 years. 3. True 4. True 5. True 6. False. The government has administrative and judicial remedies to enforce collection of taxes. 7. False. Tax refund check or warrant has five years to remain outstanding from the date of delivery. 8. False. Distraint is the seizure of personal properties. 9. False. The BIR Commissioner or his authorized representative executes distraint if the amount of tax liability is more than P1,000,000. 10. True True or False 2-7 1. False. Levy generally is undertaken if the personal properties of the taxpayer are not enough to cover the total amount of tax liability. 2. True 3. False. Distraint and levy cannot be administered if the amount of tax deficiency is not more than P100. 13
4. True 5. True 6. True 7. False. The taxpayer has to file an appeal to the Court of Appeals (CA) when the Court of Tax Appeals (CTA) makes an unfavorable decision. 8. True 9. True 10. True True or False 2-8 1. False. Formal notice of assessment may be sent by personal delivery. The person receiving it, however, should acknowledge the notice. 2. True 3. False. The taxpayer has 30 days to appeal to the Court of Tax Appeals if the decision of the BIR Commissioner is unfavorable. 4. False. Basically, enforcement of collection of taxes is done administratively. 5. True 6. False. Intangible personal properties like stocks and credits are subject to distraint using the constructive system. 7. False. Notice of levy may be issued simultaneously with the notice of distraint. 8. False. Levy or distraint is administered if deficiency tax assessment involves more than P100. 9. True 10. True True or False 2-9 1. False. The BIR has a Commissioner and four Deputy Commissioners. 14
2. False. The Department of Finance is the primary government agency responsible for tax administration and supervision. 3. True 4. False. Taxpayers do not have to use simplified books if quarterly sales receipts or earnings do not exceed P50.000. 5. False. Willful neglect of filing tax return is subject to 50% surcharge. 6. True 7. True 8. True 9. True 10. True Multiple Choice 2-1 Multiple Choice 2-2 Multiple Choice 2-3 1. D 2. B 3. B 4. B 5. D
6. D 7. A 8. A 9 D 10.D
1. C 2. A 3. C 4. C 5. D
6. C 7. D 8. B 9. B 10.A
Multiple Choice 2-4 1. B 2. D 3. D 4. D 5. D
6. A 7. A 8. C 9. D 10. C
11. 12. 13. 14. 15.
A A C C B Chapter 3
True or False 3-1
15
1. B 2. C 3. C 4. A 5. D
6. B 7. D 8. A 9. B 10.B
1. False. The resident alien should have an income within the Philippines and the dependents should be staying with the taxpayer in the Philippines. 2. False. The tax limit is P250,000 gross taxable income in order that a taxpayer can deduct premium on HHIP. 3. True 4. False. Spouses who separate during the year with a child under the custody of either or both of them are already classified as head of the family. However, under RA 9504, the basic personal exemption is P50,000 regardless of the filing status. 5. False. A non-resident alien engaged or not in business or trade in the Philippines is not allowed the additional personal exemption. 6. False. The taxpayer is still classified as married. The separation is not legal. 7. False. The taxpayer is classified as head of the family but cannot claim the P25,000 additional exemption, since the dependent is a brother. 8. True 9. False. The husband ordinarily claims the additional personal exemption. 10. False. Special individuals are taxable on their gross income; hence, no deductions are allowed. True or False 3-2 1. False. The principle of reciprocity is one of the requisites for the non-resident alien to claim the basic personal exemption. 2. True 3. False. The allowable amount shall be the amount allowed in the country of NRA-EBTP or what Philippine law allows, whichever is lower.
16
4. False. Non-resident aliens either engaged or not in business are not allowed to claim premium on health and hospitalization. 5. False. Resident aliens with income within the Philippines only are entitled to the basic personal exemption. 6. True 7. False. The husband should formally waive his right by executing a sworn statement. 8. False. The wife cannot claim the additional exemption if his husband who is a non-resident citizen has an income within the Philippines. 9. True 10. True True or False 3-3 1. False. The term individual taxpayer refers only to natural or human individual. A juridical person like a corporation cannot be classified as individual taxpayer. 2. False. A natural born citizen does not have to perform any act to acquire Philippine citizenship. 3. True 4. True 5. False. A Filipino citizen who stays more than 183 days outside the Philippines is classified as non-resident citizen. 6. False. The waiver executed by the husband on the additional exemption once revoked shall take effect at the start of the succeeding year. 7. True 8. False. A Filipino citizen employed in an offshore banking unit is classified as special alien and taxable on his gross income. 9. False. Resident citizens sourcing income purely from foreign sources cannot claim additional exemption. 17
10. False. The additional personal exemption is for qualified dependent children only. True or False 3-4 1. False. Living with the taxpayer does not necessarily mean that the dependent should be under the same roof with the taxpayer. 2. False. The law grants personal exemptions based on the status of the taxpayer, and the level of income has nothing to do with it. 3. False. An illegitimate child who meets all the requisites of a dependent is allowed additional exemption. 4. True 5. False. If the combined gross income of the spouses is more than P250,000, the HHIP contribution cannot be deducted. 6. True 7. False. A resident alien is entitled to additional exemption only when his dependents are living with him in the Philippines. 8. False. The amount of claim for HHIP is the actual contribution of P2,400, whichever is lower, provided the gross taxable income is not more than P250,000. 9. True 10. True True or False 3-5 1. False. NRC is taxable on income from within the Philippines. 2. True 3. False. A child legally adopted and meeting the requisites of a dependent, qualifies for additional exemption. 18
4. False. The taxpayer is classified as single. He is supporting not his own parents or sister. 5. False. The taxpayer may still claim the additional exemption, since the law assumes that the child changed his status at the close of the year. 6. True 7. False. The status of the taxpayer will only be elevated to the head of the family. 8. True 9. True 10. False. Only one of the spouses can claim the additional exemption and the husband is ordinarily the claimant. Multiple choice 3-1 Multiple Choice 3-2 Multiple Choice 3-3 1. C 2. A 3. D 4. C 5. C
6. C 7. A 8. B 9. C 10.B
1. C 2. A 3. C 4. D 5. B
6. B 7. D 8. D 9. B 10. B
1. NRC 6. NRC 2. NRC 7. RC 3. RA 8. NRA-EBT 4. NRC 9. SI 5. NRA-EBT10.NRC
Multiple Choice 3-4 1. C
2. C
3. A
4. C
5. C
6. A
Exercise 3-1 Basic personal exemption (H/F) Additional personal exemption (recognized child) HHIP (actual, P4,000; limit, P2,400) Total allowable deduction Exercise 3-2 19
50,000 25,000 2,400 77,400 =====
Taxpayer Basic personal exemption (married) 50,000 Additional exemption (legally adopted child) 25,000 HHIP (actual, 2,300; limit, 2,400) 2,300 Total allowable deduction 77,300 ===== Exercise 3-3 Basic personal exemption (married) 50,000 Additional exemption (P25,000 x 2) 50,000 HHIP 2,400 Total allowable deduction 102,400 ====== Exercise 3-4 Basic personal exemption (single) 50,000 Additional personal exemption HHIP (gross income exceeded 250,000) Total allowable deduction 50,000 ===== Exercise 3-5 Basic personal exemption (married) 50,000 Additional exemption (25,000 x 3) 75,000 HHIP (gross income exceeded 250,000) Total allowable deduction 125,000 ====== Exercise 3-6 Basic personal exemption 20
Spouse 50,000 50,000 =====
(married) 50,000 Additional exemption (25,000 x 4) 100,000 HHIP (gross income exceeded 250,000) Total allowable deduction 150,000 ====== Exercise 3-7 Basic personal exemption (married) 50,000 Additional exemption (25,000 x 4) 100,000 HHIP (gross income exceeded 250,000) Total allowable deduction 150,000 ====== Exercise 3-8 No exemption allowed, since the taxpayer is classified as non-resident citizen with income outside the Philippines. Exercise 3-9 Basic personal exemption (married) 50,000 Additional exemption HHIP (gross income exceeded 250,000) Total allowable deduction 50,000 ===== Exercise 3-10 Basic personal exemption (married) 50,000 Additional exemption (3 x P25,000) 75,000 HHIP 21
(gross income exceeded 250,000) Total allowable deduction 125,000 ====== Exercise 3-11 Basic personal exemption (married) 50,000 Additional exemption HHIP (gross income exceeded 250,000) Total allowable deduction 50,000 ===== Exercise 3-12 Basic personal exemption (married) 50,000 Additional exemption (2 x P25,000) 50,000 HHIP – no contribution; gross income exceeded limit Total allowable deduction 100,000 ====== Exercise 3-13 Basic personal exemption (married) 50,000 Additional exemption (3 x P25,000) 75,000 HHIP – no contribution; gross income exceeded limit Total allowable deduction 125,000 ====== Exercise 3-14 Basic personal exemption (single) 50,000 Additional exemption HHIP – no contribution 22
Total allowable deduction
50,000 =====
Exercise 3-15
The taxpayer is classified a non-resident citizen with income outside the Philippines; hence, no allowable personal deductions. Exercise 3-16 The taxpayer is classified as non-resident alien not engaged in business; hence, no allowable personal deductions. Exercise 3-17 No allowable personal exemption, since the taxpayer is classified as non-resident alien without reciprocity. Exercise 3-18 The taxpayer is classified as special individual; hence, no allowable personal deductions. Exercise 3-19 No deductions allowed, since the taxpayer does not have income from within the Philippines. The taxpayer is classified as resident alien. Exercise 3-20 The taxpayer is classified as non-resident alien not engaged in business in the Philippines; hence, no deductions allowed. 23
Exercise 3-21 No allowable deductions for personal exemptions. Exercise 3-22 Basic personal exemption (married) 50,000 Additional exemption (2 x P25,000) 50,000 HHIP – no contribution Total allowable deduction 100,000 ====== Exercise 3-23 Basic personal exemption (H/F) 50,000 Additional exemption (3 x P25,000) 75,000 HHIP – Gross income exceeded the limit Total allowable deduction 125,000 ====== Exercise 3-24 Basic personal exemption (married) 50,000 Additional exemption (2 x P25,000) 50,000 HHIP – Gross income exceeded the limit Total allowable deduction 100,000 ====== Exercise 3-25 Basic personal exemption (married) 50,000 Additional exemption (2 x P25,000) 50,000 HHIP – Gross income 24
exceeded the limit Total allowable deduction
100,000 ======
Exercise 3-26 Basic personal exemption (married) 50,000 Additional exemption (1 x P25,000)25,000 HHIP – no contribution Total allowable deduction 75,000 ===== Exercise 3-27 Husband
Basic personal exemption (married) 50,000 Additional exemption (2 x P25,000) 50,000 HHIP – no contribution Total allowable deduction 100,000 ====== Problem 3-1 Taxpayer Basic personal exemption (married) 50,000 Additional exemptions Another legitimate son 25,000 Illegitimate son of the wife 25,000 Legitimate daughter 25,000 HHIP Total allowable deductions 125,000 ===== Problem 3-2 Basic personal exemption (married) Additional exemption
50,000 25,000 25
Spouse 50,000 50,000 ===== Spouse 50,000
50,000 =====
HHIP Total allowable deductions
2,400 77,400 =====
Problem 3-3 Basic personal exemption (H/F) 50,000 Additional exemption (25,000 x 2) 50,000 HHIP Total allowable deductions 100,000 ====== Problem 3-4 Basic personal exemption (H/F) 50,000 Additional exemption (25,000 x 2) 50,000 Total personal exemptions 100,000 ====== Problem 3-5 Basic personal exemption (married) 50,000 Additional exemption (25,000 x 4) 100,000 HHIP Total personal exemptions 150,000 ====== Problem 3-6 Husband Wife Basic personal exemption (married) 50,000 50,000 Additional exemption HHIP Total personal exemptions 50,000 50,000 ===== ===== Problem 3-7 Basic personal exemption 26
(married) 50,000 Additional exemption (25,000 x 1) 25,000 HHIP 2,400 Total personal exemptions 77,400 ===== Problem 3-8 Basic personal exemption (married) 50,000 Additional exemption (25,000 x 4) 100,000 HHIP Total personal exemptions 150,000 ====== Problem 3-9 Basic personal exemption (single) 50,000 Additional exemption HHIP Total personal exemptions 50,000 ===== Problem 3-10 Basic personal exemption (married) 50,000 Additional exemption (P25,000 x 1)25,000 HHIP Total personal exemptions 75,000 ===== Problem 3-11 Basic personal exemption (single) 50,000 Additional exemption HHIP Total personal exemptions 50,000 ===== Problem 3-12 27
Husband
Wife
Basic personal exemption (married) 50,000 50,000 Additional exemption (2 x 25,000) 50,000 HHIP Total personal exemptions 100,000 50,000 ====== ===== Problem 3-13 Basic personal exemption (married) 50,000 Additional exemption (25,000 x 1) 25,000 HHIP Total personal exemptions 75,000 ===== Problem 3-14 Husband Wife Basic personal exemption (married) 50,000 50,000 Additional exemption (3 x 25,000) 25,000 50,000 HHIP Total personal exemptions 75,000 100,000 ===== ====== Problem 3-15 Husband Wife Basic personal exemption (married) 50,000 50,000 Additional exemption (4 x 25,000) 75,000 25,000 HHIP Total personal exemptions 100,000 75,000 ===== ===== Chapter 4
28
True or False 4-1 1. True 2. False. An income is non-taxable if it is expressly excluded by the Tax Code or any other special laws. 3. False. The law provides which income is non-taxable. 4. True 5. True 6. False. The presence of employer-employee relationship is the primary factor whether an income is compensation income or not. 7. False. Not all payments, like de minimis benefits, are taxable compensation income. 8. False. The point of reckoning is at the time when service has been rendered and not at the time of payment. 9. False. Allowances, whether fixed or variable, are not taxable if they do form part of the basic salary, subject to liquidation or expressly provided by law to be nontaxable. 10. True True or False 4-2 1. False. Those allowances are non-taxable as provided by the Tax Code up to P30,000 for both public and private employees. 2. False. The amount of hazard pay will be included in the gross taxable compensation income. However, if the recipient of hazard pay is classified as minimum wage earner, the amount provided for hazard pay is non-taxable. 3. True 4. False. Retirement pay from GSIS or SSS is expressly provided to be tax-exempt. It is not a gift from the government. 29
5. False. 6. True 7. False. Only fringe benefits, except de minimis, received by supervisory or managerial employees are subject to fringe benefit tax. 8. False. Meal allowance and lodging provided to employees are included in the gross taxable income, except if those are for the benefit of the employer. 9. True 10. True True or False 4-3 1. False. The tax base is the fair market value of the property at the time of payment. 2. True 3. True 4. False. The value of the notes issued, as payment of compensation, is its fair market value. 5. False. Income subject to final tax shall not be included in the computation of gross taxable income subject to basic tax. 6. False. Net sales are computed by deducting sales returns and discounts from gross sales, while gross income is computed by deducting cost of sales from net sales. 7. True 8. True 9. False. Passive income arises when the taxpayer does not exert effort to earn it. 10. False. Notes as payment of compensation are based on their fair market value. True or False 4-4 1. True 30
2. True 3. False. The tax base under the outright method of recognizing income for leasehold improvement is the fair market value of the improvement at the time of its completion. 4. True 5. False Stock dividend is basically not taxable. 6. True 7. False. Prizes less than P10,000 are included in the gross taxable income; hence, subject to basic tax. 8. True 9. False. The cash surrender value of a life insurance policy not exceeding the premiums paid is not taxable. 10. False. All the items are excluded by law from gross taxable income. True or False 4-5 1. True 2. True 3. True 4. True 5. False. The gain is tax-exempt or excluded from gross taxable income. 6. True 7. True 8. True 9. False. Tax refund of Philippine income tax is not taxable. 10. False. Resident citizens are taxable on income within and outside the Philippines; hence, unidentified income does not have to be prorated as to source. Multiple Choice 4-1 Multiple Choice 4-2 Multiple Choice 4-3 31
1. D 6. C 2. A 7. D 3. B 8. D 4. D 9. D 5. D 10. D Multiple Choice 1. D 2. B 3. C 4. D 5. C
1. D 2. A 3. A 4. B 5. D 4-4
6. A 7. C 8. A 9. C 10. B
1. C 2. A 3. A 4. A 5. B
6. D 7. C 8. B 9. C 10.A
6. A 7. C 8. C 9. A 10.A
Exercise 4-1 C Basic salary (45,000 x 12) 540,000 Representation allowance (10,000 x 12) 120,000 Commission (6,300,000 – 250,000) x 5% 302,500 13th month pay (45,000 x 120%) – 30,000 24,000 Gross annual taxable compensation income 986,500 ====== Exercise 4-2 C Gross taxable income 986,500 Less: Basic personal exemption (M) 50,000 Additional exemption (25,000 x 4) 100,000 HHIP - 150,000 Net taxable income 836,500 ====== Exercise 4-3 B Gross taxable income Less: Basic personal exemption (H/F)
986,500 50,000 32
Additional exemption HHIP Net taxable income
50,000 936,500 ======
Exercise 4-4 D Basic salary Fair value of motor vehicle Notes receivable (400,000 x .71178) Christmas bonus (50,000 – 30,000) Gross taxable compensation income
850,000 600,000 284,712 20,000 1,754,712 =======
Exercise 4-5 B Gross taxable income Less: Basic personal exemption (H/F) Additional exemption HHIP Net taxable income Exercise 4-6 A
1,754,712 50,000 25,000 - 75,000 1,679,712 =======
Annual salary 420,000 Debt cancelled 80,000 Notes receivable 50,000 13th month pay (420,000/12) + 40,000 – 30,000 45,000 Gross taxable compensation income 595,000 ====== Exercise 4-7 A 33
Gross compensation income 595,000 Less: Basic personal exemption (M) 50,000 Additional exemption (25,000 x 3) 75,000 HHIP -125,000 Net taxable income 539,000 ====== Exercise 4-8 A Annual salary 144,000 Cost of living allowance (2,500 x 12) 30,000 Retirement pay from employer (less than 10 years) 45,000 Gross compensation income 219,000 ====== Exercise 4-9 A Gross compensation income Less: Basic personal exemption (H/F) Additional exemption HHIP 2,400 Net taxable compensation income
219,000 50,000 50,000 102,400 116,600 ======
Exercise 4-10 C Net sales (5,800,000 – 150,000) Less: Cost of sales Gross taxable income
5,650,000 3,470,000 2,180,000 =======
Exercise 4-11 D Net sales Less: Cost of sales Gross taxable income
5,650,000 3,365,000 2,285,000 34
======= Exercise 4-12 B Exercise 4-13 A
Cash basis
Cash receipts Animal/livestock 1,200,000 Cash crop 900,000 Farm equipment 200,000 Rent – agricultural lan 150,000 Total 2,450,000 Less: Cost of livestock 700,000 Cost of crop raised 500,000 Book value – tractor 300,000 Gross income before inventory 950,000 Add: Ending inventory Total 950,000 Less: Beginning inventory Gross taxable income 950,000 =======
Accrual basis 1,200,000 900,000 200,000 150,000 2,450,000 700,000 500,000 300,000 950,000 500,000 1,450,000 700,000 750,000 =======
Exercise 4-14 B Exercise 4-15 C Exercise 4-16 A (Income will be recognized only upon completion, that is on the 3rd year.) Year 1 Contract price 25,000,000 Percentage of completion 45% Contract earned 11,250,000 Less: Cost incurred 10,000,000 Gross income to date 1,250,000 Less: Income prior year Gross income – annual 1,250,000 35
Year 2 25,000,000
Year 3 25,000,000
70% 17,500,000 16,000,000 1,500,000 1,250,000 1,250,000
100% 25,000,000 22,000,000 3,000,000 1,500,000 1,500,000
======== ========
========
Exercise 4-17 A Monthly rental (15,000 x 10) Shares on real estate tax Gross taxable rent income Exercise 4-18 C Monthly rental income Security deposit Shares on real estate tax Gross taxable rent income
150,000 2,500 152,500 ====== 150,000 45,000 2,500 197,500 ======
Exercise 4-19 A 2008 rental (10,000 x 9) 90,000 Real property tax (6,000/12 x 9) 4,500 Taxable rent income – 2008 94,500 ===== Exercise 4-20 D 2009 rental 120,000 Building – FMV 8,000,000 Real property tax paid by lessee 6,000 Taxable rent income – 2009 8,126,000 ======= Exercise 4-21 B Cost of the improvement 6,000,000 Less Accu. dep’n. end of lease [(6,000,000 – 400,000)/50] x 25 2,800,000 Book value 3,200,000 Divided by term of lease 25 Annual income on improvement 128,000 36
======= Income for 9 months (128,000/12 x 9) Add: Taxable rent income (see item 1) Gross taxable income
96,000 94,500 190,500 =======
Exercise 4-22 D Annual income on improvement Rental income Gross taxable income
128,000 126,000 254,000 =======
Problem 4-1 Gross compensation income Less: Basic personal exemption (M) Additional exemption (25,000 x 3) HHIP 2,400 Taxable net income
240,000 50,000 75,000 127,400 112,600 ======
Problem 4-2 Gross business income 1,200,000 Other income (460,000 x 65%) 299,000 Gross taxable income 1,499,000 Less: Allowable business expenses (800,000 x 75%) 600,000 Net income 899,000 Less: Basic personal exemption (H/F) 50,000 Additional HHIP 50,000 Taxable net income 849,000 ======= 37
Problem 4-3 Resident Citizen Compensation income Gross business income Other income subject to basic tax Interest income on time deposit Gross taxable income Less: Business expenses Taxable income before personal exemption Problem 4-4
Resident Alien
970,000 1,680,000
610,000 960,000
260,000
180,000
2,950,000
40,000 1,750,000
1,080,000
610,000
1,870,000 =======
1,140,000 =======
Salaries from employment Share in the net income Bonus (18,000 + 32,000) – 30,000 Other fringe benefits Dividend from non-resident foreign corporation Gross taxable income Less: Basic personal exemption (M) Additional exemption (25,000 x 3) 75,000 Net taxable income Problem 4-5 Salary (400,000 – 8,000) 13th month pay (55,000 – 30,000) Representation and traveling allowance 38
280,000 65,000 20,000 32,000 48,000 445,000 50,000 125,000 320,000 ====== 392,000 25,000 60,000
Gross taxable income Less: Basic personal exemption (H/F) Additional exemption Net taxable income Problem 4-6 Compensation income Christmas bonus (82,000 – 30,000) Gross taxable income Problem 4-7
477,000 50,000 - 50,000 427,000 ====== 800,000 52,000 852,000 ======
Winnings from gambling 650,000 Actual damages for unrealized profits 200,000 Gross taxable income 850,000 ====== Problem 4-8 2009 2010 1. Sales 3,500,000 0 Less: Cost of sales 2,100,000 0 Gross profit/income 1,400,000 0 ======= === 2. 2009 (1,400,000/3,500,000) x 1,300,000 2010 (1,400,000/3,500,000) x 2,200,000 Total income Problem 4-9 1. Sales Less: Cost Gross profit
2009 6,000,000 4,000,000 2,000,000 39
520,000 880,000 1,400,000 ======= 2010 0 0 0
=======
==
2. Percentage of initial payment to selling price is 20% [(P720,000 + 480,000)/P6,000,00]; hence, the taxpayer may opt for installment payment. 2009 (2,000,000/6,000,000 x P1,200,000 400,000 2010 (2,000,000/6,000,000) x P4,800,000 1,600,000 Gross profit 2,000,000 ======= Problem 4-10 2009 2010 1. Sales 3,000,000 0 Less: Cost 2,000,000 0 Gross profit 1,000,000 0 ======= == 2. Percentage of initial payment to selling price is 30% (P900,000/P3,000,000); hence, the installment payment method cannot be used. Rather, the deferred payment will be used. 2009 income Cash collected 900,000 Less: Cost 2,000,000 Excess of cost over collection (1,100,000) ======= 2010 income Cash collected 2,100,000 Less: Excess of cost over collection – 2009 1,100,000 Income to be reported 1,000,000 =======
40
Chapter 5 True or False 5-1 1. True 2. False. The cost of inherited property is based on the fair market value at the time of inheritance. 3. False. Property acquired as a gift is measured based on its fair market value at the time of gift, or same as if it would be in the hands of the donor, whichever is lower. 4. False. It is the other way around. 5. False. An asset may be ordinary for a certain taxpayer but classified as capital by another taxpayer. 6. False. Net capital gain is the excess of capital gain over capital loss. 7. False. Capital loss cannot be deducted from ordinary gain. 8. False. The holding period applies only to capital gain or loss. 9. True 10. False. Capital loss is deductible only from capital gain and net capital loss cannot be deducted from gross income subject to income taxation. True or False 5-2 1. False. The sale is subject to final tax at the rate of 5% or 10% based on capital gain realized. 2. True 3. True 4. True 5. False. Stock in trade or inventory is an ordinary asset used in business operation.
41
6. False. The selling price of the shares issued in exchange shall be the fair market value of the property received. 7. False. A surcharge and interest can be imposed and collected at the same time. 8. True 9. False. Tax on the sale of shares of stock thru the local stock exchange is collectible by the broker administering the sale and should be remitted within five days from collection. 10. True True or False 5-3 1. False. The gain on shares redeemed is subject to income tax. 2. False. Sale of treasury stock is subject either to stock transaction tax or to capital gains tax. 3. True 4. False. The amount of capital gain or loss is subject to the regular income tax rate ranging from 5% to 32%. 5. True 6. False. The capital loss on worthless shares shall be deducted from other capital gains arising not from sale of shares of stock. 7. True 8. True 9. True 10. True True or False 5-4 1. True 2. True 3. False. The property is value based on the amount paid by the transferee. 42
4. False. The procedure of specific identification should be used if the share can be identified. 5. False. The total cost will not be affected by stock dividend but the unit cost per share will be reduced. 6. True 7. False. It is the difference of the fair market value over cost. 8. False. Sale of treasury stock may be subject to stock transaction tax or to final tax. 9. False. Gain on wash sale is taxable, but loss is nondeductible. 10. False. The gain realized shall be subject to income taxation. Multiple Choice 5-1
Multiple Choice 5-2
1. C
6. C
1. A
2. A 3. D 4. B 5. C
7. A 8. A 9. C 10.A
Exercise 5-1
2. 3. 4. 5. B
Selling price Less: Acquisition cost Attorney’s fee Taxes Improvement (150,000 – 70,000) Gain on sale Exercise 5-2
A C C D
4,000,000 900,000 20,000 40,000 80,000
1,040,000 2,960,000 =======
D 43
Exchange price (FMV) Add: Cash added Total Less: Book value (4,300,000 – 1,720,000) Gain on exchange Exercise 5-3
5,000,000 400,000 5,400,000 2,580,000 2,820,000 =======
C
Business income (2,000,000 – 1,600,000) Add: Short term capital gain 90,000 Long-term capital gain (40,000 x 50%) 20,000 Total capital gain Less: Short-term capital loss 60,000 Long-term capital loss (50,000 x 50%) 25,000 Total capital loss Gross taxable income Exercise 5-4
400,000
110,000
85,000 425,000 ======
B
Business income (4,300,000 – 3,000,000) 1,300,000 Gain on sale of business assets (700,000 – 580,000) 120,000 Capital gain (120,000 x 50%) 60,000 Capital loss (90,000 x 50%) 45,000 15,000 Gross taxable income 1,435,000 ======= Exercise 5-5 D FMV Zonal value (800 sq. x 6,500) Higher – zonal value 44
4,800,000 5,200,000 5,200,000
Multiplied by capital gains tax Capital gains tax Exercise 5-6 Exercise 5-7
6% 312,000 =======
B B
Business income Allowable expenses Taxable business income Add (Less) Capital gain (loss) Short-term capital gain Long-term capital gain Short-term capital loss Net capital gain (loss) Capital loss carry over Gross taxable income Less: Basic exemption Additional Net taxable income Exercise 5-8
Gain on sale
2009 800,000 600,000 200,000
60,000 190,000 (130,000) 130,000 400,000 50,000 50,000
200,000 200,000 70,000 270,000 50,000 100,000
300,000 170,000 ====== ======
A
Selling price Less: Cost Acquisition expenses Selling expenses
2008 900,000 500,000 400,000
700,000 400,000 60,000 40,000 500,000 200,000 ======
45
Exercise 5-9
D
FMV (higher) Less: Cost Gain on exchange Exercise 5-10
C
720,000 500,000 220,000 ======
Gain on sale (P1,500,000 – P600,000) Capital gain tax On the 1st P100,000 x 5% On excess (900,000-100,000) x 10%
900,000 ======
5,000 80,000 85,000 ====== Exercise 5-11 A No capital gain shall be recognized, since the sale of the shares resulted to a loss. Exercise 5-12
D
Selling price (higher) Multiplied by Capital gains tax
6,000,000 6% 360,000 =======
Problem 5-1 Business income (450,000/90%) Compensation income (268,000 +32,000) Interest income on trade receivable Short-term capital gain (80,000 x 100%) Long term capital loss (60,000 x 50%) 50,000 Gain on sale of ordinary assets Loss from sale of ordinary assets Dividend income – resident foreign corporation 46
500,000 300,000 40,000 80,000 (30,000) 52,000 (30,000) 25,000
Gross taxable income
937,000 ======
Problem 5-2 1. Ordinary assets
Computer Motor Vehicle Selling price 42,000 400,000 Less: Book value 44,625 480,000 Ordinary gain (loss) ( 2,625) ( 80,000)
Commer- Total cial Lot 6,000,000 6,442,000 2,500,000 3,024,625 3,500,000 3,417,375
====== ====== ======= ======= 2. Capital assets
Coml. Lot
Selling price 4,920,000 Less: Book value 5,520,000 Capital gain (loss) ( 600,000) Holing period 50% Net capital gain (loss) ( 300,000) ======= Problem 5-3
Feb. 1 Net sales 192,000 Less: Cost 125,000 Gain (loss) 67,000 Cap. tax rate .005 Capital gains tax 335 ===== Less: Taxes paid (335 + Net capital gains tax
Jewelry
Equipment
650,000 300,000 350,000 50%
150,000 84,000 66,000 100%
175,000 ======
66,000 =====
May 1 July 1 318,500 135,000 262,000 144,000 56,500 (9,000) .005 282.50 ====== ====== 282.50 + 175)
Oct. 1 485,000 450,000 35,000 .005 175 ======
Net gain (loss)
( 59,000 ) =======
Cumulative 1,130,500 981,000 149,500 .005 747.50 (
792.50 45.00 ) =======
Problem 5-4 Salary (380,000 + 20,000) Christmas bonus (60,000 – 30,000) Gain on sale of jewelries (120,000 – 80,000) Cash dividend from non-resident foreign corporation 47
400,000 30,000 40,000 20,000
Cash dividend from resident foreign corporation Business income Gross taxable income
80,000 950,000 1,520,000 =======
Problem 5-5 1. Sales (200 x 95) Less: Cost (200 x 100) Non-deductible loss
19,000 20,000 (1,000) ===== The loss is considered non-deductible, because the sales and subsequent acquisition were within the 61day period (wash sale).
2. Sales Less: Cost (300 x 110) Taxable gain
36,000 33,000 3,000 =====
Problem 5-6 1. Downpayment Additional payments within the year Excess of mortgage assumed Initial payment 2. Selling price Less: Mortgaged assumed by the buyer Balance Add: Excess of mortgaged over cost (700,000 – 600,000) 48
150,000 50,000 100,000 300,000 ====== 1,080,000 700,000 380,000 100,000
Contract price
480,000 =======
3. Gross profit (1,080,000 – 600,000)
480,000 =======
Selling price 1.080,000 Less: Initial payment – Actual 200,000 Mortgage assumed 700,000 900,000 Balance 180,000 Divided by 3 Annual collection 60,000 ======= Annual income 1st year (480,000/480,000 x 300,000) 2nd year (480,000/480,000 x 60,000) 3rd year 4th year Total
300,000 60,000 60,000 60,000 480,000 ======
Problem 5-7 Gross profit (P2,000,000 – P1,200,000)
800,000 ======
Percentage of initial payment to selling price (P400,000/P2,000,000) Income to be reported: 2009 (800,000/2,000,000) x 400,000 49
20% ====
188,235.29
2010 (800,000/2,000,000) x 800,000 2011 (800,000/1,700,000) x 500,000 Total Problem 5-8
376,470.59 235,294.12 800,000.00 ========
Gross profit (3,500,000 – 1,400,000) 2,100,000 ======= Initial payment ([400,000 + 300,000 + (1,400,000 – 1,500,000)] 800,000 ====== Percentage of initial payment to selling price (800,000/3,500,000) 22.86% ====== Contract price (P3,500,000+ P100,000 – P1,500,000) 2,100,000 ======= Income to be reported: 2009 (2,100,000/2,100,000 x 800,000) 800,000 2010 (2,100,000/2,100,000 x 700,000) 700,000 2011 (2,100,000/2,100,000 x 600,000) 600,000 Total 2,100,000 ======= Problem 5-9 Gross profit (P2,800,000 – P2,000,000) 2009 50
800,000 ====== Income
Cash FMV of notes (90% x P1,800,000) Total Less: Cost 2010 Cash Less: FMV of notes received in 2009 Total income
1,000,000 1,620,000 2,620,000 2,000,000 620,000 1,800,000 1,620,000
180,000 800,000 =======
Problem 5-10 Selling price Less: Cost (2,000/5,000 x 600,000) Less: Cost (3,000/5,000 x 600,000) Loss on sale Gain on sale
Mr. AA 200,000 240,000 60,000 -======
No capital gain tax since the sale resulted to a loss -Capital gain tax (P90,000 x 5%)
Mr. BB 450,000 360,000 -90,000 ====== 4,500
Chapter 6 True or False 6-1 1. False. Fringe benefits are additional privileges which are relatively small in value and not considered as compensation. 2. False. Only the fringe benefits granted to supervisory and managerial employees are subject to fringe benefit tax. 3. True 4. True 5. True 6. False. De minimis benefits granted to managers or supervisors are not subject to fringe benefit tax. 51
7. False. Fringe benefits exempted from fringe benefit tax may be subject to income tax. 8. True 9. True 10. False. Monetized unused vacation leave credits for government officials and employees are not subject to fringe benefit tax. True of False 6-2 1. True 2. False. The monetary value is equal to 50% of the rental payment. 3. False. Housing units within the business premises are exempted from fringe benefit tax. 4. True 5. False. The monetary value is 50% of the 5% of the acquisition cost. 6. False. It is not included as part of acquisition cost. 7. True 8. True 9. False. Whether receipted or not, if the employee benefits from the personal expenses, such are subject to fringe benefit tax. 10. False. The monetary value is equal to its acquisition cost divided by five years. True or False 6-3 1. False. It is 50% of the acquisition cost after dividing it by five years. 2. False. The monetary value is acquisition cost divided by 20 years. 3. True 4. True 52
5. False. The interest is subject to fringe benefit tax if is lower than the 12% benchmark. 6. False. Unreasonable foreign travel expenses are subject to fringe benefit tax. 7. False. Lodging in excess of P300 is subject to fringe benefit tax. 8. True 9. True 10. False. Educational assistance connected with the employer’s trade and with a written agreement that employee will serve the employer for a certain period of time is not subject to fringe benefit tax. Multiple Choice 6-1 1. D 2. B 3. C 4. D 5. A
6. C 7. A 8. D 9. C 10.D
Exercise 6-1
11. 12. 13. 14. 15.
B B A C D
D
Downpayment 3,000,000 Installment (1,000,000 x 4.111) 4,111,000 Value of fringe benefits 7,111,000 ======= Exercise 6-2 A Actual value Percentage of managerial employees Total
7,111,000 20% 1,422,200 =======
Monetary value (1,422,200 x 5%) x 50%
35,500 53
======= Exercise 6-3
A
Grossed-up monetary value (35,555/68%) Exercise 6-4
52,287 =====
A
Fringe benefit tax (52,287 x 32%) Exercise 6-5 C Gross income from business Rental Fringe benefits (51,000/68%) RATA Gross taxable income Exercise 6-6
C
Gross taxable income Less: Business expenses Net income Less: Basic personal exemption (M) 50,000 Additional exemp 50,000 Net taxable income Exercise 6-7
C
Monetary value (150,000/32%) x 68% Exercise 6-8
16,732 =====
1,200,000 150,000 75,000 204,000 1,629,000 ======= 1,629,000 620,000 1,009,000 100,000 909,000 =======
318,750 =====
C
Grossed-up monetary value 54
(150,000/32%) Exercise 6-9
468,750 ======
B
Fringe benefit tax (255,000/68%) x 32% Exercise 6-10
120,000 ======
D
Salary Christmas bonus (25,000 + 30,000) – 30,000 Cash fringe benefits Other fringe benefits Gross taxable income Exercise 6-11
B
280,000 25,000 15,300 25,500 345,800 ======
Salary Christmas bonus Gross taxable income
280,000 25,000 305,000 ====== Exercise 6-12 A (Fringe benefit provided to rank-andfile is not subject to fringe benefit tax) Exercise 6-13
B
Grossed-up monetary value [(15,300 + 25,500)/68%]
60,000 ===== Exercise 6-14 A (The amount of 765,000 is a fringe benefit and subject to fringe benefit tax) Exercise 6-15
B
Fringe benefit tax 55
(765,000/85%) x 15%
135,000 ======
Problem 6-1 1. Total value of fringe benefit tax (956,250 + 430,750 + 750,000)
2. Fringe benefit tax to supervisor (956,250/68%) x 32% Fringe benefit tax to non-resident alien (750,000/75%) x 25% Total fringe benefit tax
2,137,000 ======= 450,000 250,000 700,000 =======
Problem 6-2 1. Cash payment for grocery items Motor vehicle benefits Downpayment 400,000 Installment (400,000 x 4 years) 1,600,000 Total fringe benefit expenses 2. On grocery items (382,500/68%) x 32% On motor vehicle [(750,000/5)/68%] x 32% Total fringe benefit tax
382,500
2,000,000 2,382,500 ======= 180,000.00 70,588.24 250,588.24 ========
Problem 6-3 1. Local travel De minimis benefits Total value of fringe benefits
56
420,750 80,000 500,750 ======
2. Grossed-up monetary value (420,750/68%)
618,750 ======
3. Fringe benefit tax (618,750 x 32%)
198,000 ======
Problem 6-4 1.Grossed-up monetary value (GUMV)
3,468,549.02 ==========
2. Total fringe benefit tax ========
Resident Citizen
80% value Divided by GUMV Tax rate Fringe benefit tax
1,280,000.00 68% 1,882,352.94 32%
908,549.02 Special Alien 768,000.00 85%
NRA-NEBT 512,000.00 75%
Total 2,560,000.00
903,529.41 15%
682,666.67 25%
3,468,549.02 -
602,352.94 135,529.41 ========= =======
170,666.67 =======
908,549.02 =======
Chapter 7 True or False 7-1 1. False. The expenses that are reasonable and necessary must be allowed by taxation law to be deductible. 2. True 3. False. The compensation income is not included in the computation of the 40% optional standard deduction. 4. True 5. True 57
6. False. NRAs engaged or not engaged in business cannot use the optional standard deduction. 7. False. The expenses should be ordinary and necessary. 8. False. Estimates are non-deductible expenses. 9. True 10. False. Bribes and kickbacks are against public morals; hence, non-deductible. True or False 7-2 1. False. The expenses must be connected with the business activities. 2. True 3. False. The advance rental shall be prorated on the term of the lease. 4. False. The leasehold improvement shall be apportioned over the term of the lease or the life of the improvement, whichever is shorter. 5. False. Both the actual and accrued interest expenses are deductible. 6. True 7. True 8. True 9. False. If the taxpayer is using the cash basis, advance interests are prorated over the outstanding balance. 10. True True or False 7-3 1. False. Expenses between related taxpayers are nondeductible. 2. True 3. True 4. False. Not all taxes are deductible. Philippine income tax is non-deductible. 5. True 58
6. False. Net operating loss carry over applies also to corporate taxpayers. 7. False. The loss can be applied only for the next three years following the year of loss. 8. True 9. False Loss on shares of stock is deductible if there is actual sale. 10. False. Only bad debts ascertained to be worthless and written off are deductible. True or False 7-4 1. False. Recognition of unpaid debts is non-deductible. The debts should be ascertained to be worthless. 2. True 3. True 4. True 5. False. The depreciation rate is dependent on the useful life of the assets. 6. False. Such properties shall be depreciated over a period of 10 years or shorter. 7. False. Compensation income is deductible only by basic and personal exemption. 8. True 9. True 10. False. The donation is subject to 10% limitation, because it is intended for public purpose. True or False 7-5 1. True 2. False. The base of the 5% or 10% limitation is the taxable income before personal exemption. 3. False. It should be amortized over a period of 60 months or five years. 59
4. False. Payment of past pension cost is amortized over 10 years. 5. True Multiple Choice 7-1 Multiple Choice 7-2 Multiple Choice 7-3 1. C 2. C 3. A 4. B 5. C
6. C 7. D 8. A 9. B 10. C
Exercise 7-1
1. 2. 3. 4. 5.
A C B C D
6. B 7. A 8. C 9. A 10. D
1. A 2. C 3. C 4. B 5. C
C
Allowable deduction under OSD (1,800,000 x 40%) Exercise 7-2
720,000 ======
B
Compensation income (380,000 + 45,000) – 30,000 Business income Deduction under OSD
395,000 1,800,000 720,000 1,080,000
Taxable income before personal exemption Exercise 7-3
C
Salaries – rank-and-file Salaries – supervisory positions Fringe benefits – rank-and-file Fringe benefits – supervisory positions (326,400/68%) Total bonus 60
1,475,000 ======= 2,700,000 900,000 300,000 480,000 272,400
Total deductible salaries Exercise 7-4
4,652,400 =======
D
Net annual salaries Total amount withheld Christmas bonus Fringe benefits Total deductible salaries Exercise 7-5
3,200,000 580,000 250,000 180,000 4,210,000 =======
D
Fringe benefits – foreign travel Plant ticket – first class ($3,500 x 30%) x P50 Meals ($3,000 - $1,800) x P50 Plant ticket – economy (tax exempt) Meals ($1,500 - $900) x P50 Total value of fringe benefits
52,500 60,000 30,000 142,500 ======
Allowable travel expenses of the taxpayer: Foreign plane ticket, meals and lodging ($3,500 + $3,000 + $1,200 + $ 1,500) x 50 460,000.00 Domestic travel 400,000.00 Grossed-up monetary value (142,500/68%) 209,559,82 Total allowable Trave expenses 1,069,558,82 ======== Exercise 7-6 A (The loss is partial; hence the amount of deductible loss is the book value or replacement cost, whichever is lower)
61
Exercise 7-7
B
Deductible charitable contributions (2,500,000 – 1,700,000) x 10% Exercise 7-8
C
Business expense, exclusive of interest expense (750,000 – 25,000) Add: Deductible interest expense [25,000 – (50,000 x 33%)] Total allowable expenses Exercise 7-9
8,500 733,500 ====== 800,000 144,000 944,000 40% 377,600 ======
A
Gross receipts Add: Compensation income (P255,000 + 45,000) Total Less: Allowable deduction Taxable income before personal exemption Exercise 7-11
725,000
B
Gross receipts from profession Rental income (136,800/68%) Total income from business/exercise of profession Multiplied by OSD rate Allowable deduction under OSD Exercise 7-10
80,000 =====
944,000 300,000 1,244,000 377,600 866,400 =======
D
Net salaries
8,750,000 62
Add: Employees SSS contribution 300,000 Withholding tax 650,000 Employees Medicare contribution 100,000 Cash advances 200,000 1,250,000 Gross payroll 10,000,000 Add: Fringe benefits to employees 1,500,000 Fringe benefits to key officers (2,040,000/68%) 3,000,000 4,500,000 Total deductible salaries/compensation 14,500,000
Exercise 7-12
========
D
Transportation expenses within the Philippines Fringe benefits (170,000/68%) Transportation, pouch man Transportation expenses outside Fringe benefits (544,000/68%) Total deductible expenses Exercise 7-13
C
Annual rent (P180,000/12 x 7 months) Real estate tax Insurance premium (P30,000/12 x 7 months) Leasehold amortization (P600,000/5 x 7/12) Total deducible rent Exercise 7-14
B
Interest expense on borrowings Less: Reduction based on interest income (P150,000 x 33%) Deductible interest expense 63
600,000 250,000 60,000 1,800,000 800,000 3,510,000 ======= 105,000 3,500 17,500 70,000 196,000 ====== 300,000 49,500 250,500 ======
Exercise 7-15
B
Charitable contributions subject to limitation for: Public purpose 100,000 UCCP Church 50,000 Flood victims 50,000 Total - actual 200,000 Limit (P5,000,000 – 2,000,000 – 1,000,000) x 5% 100,000 Lower 100,000 Charitable contribution deductible in full – for education 300,000 Total deductible charitable contributions 400,000 ====== Problem 7-1 1. Advance rental is not a deposit Cash basis Accrual basis Monthly rental (starting Sept. 1) 600,000 600,000 Real estate tax 6,000 6,000 Interest expense (12,000/2) 6,000 6,000 Insurance premium (7,500/2) 3,750 3,750 Advance rental (applicable for July and August) 300,000 300,000 Total 915,750 915,750 ====== ====== 2. Advance rental is a deposit with restriction Cash basis Accrual basis Monthly rental (starting July. 1) 900,000 900,000 Real estate tax 6,000 6,000 Interest expense (12,000/2) 6,000 6,000 Insurance premium (7,500/2) 3,750 3,750 Advance rental as deposit 300,000 Total 1,215,750 915,750 ======= ====== 64
Problem 7-2 Salaries (870,000 + 30,000 + 150,000) 1.050,000 Fringe benefits – rank-and-file 450,000 Fringe benefits – managerial employee (340,000/68%) 500,000 Representation and traveling allowance 150,000 Rent expense 180,000 Commission (7,425,000 + 75,000) x 5% 375,000 Business expense before donation 2,705,000 Donation subject to limitation (see below) 179,500 Total deductible expense 2,884,500 ======= Gross income from business (7,500,000 x 60%) Less: Expenses before donation Income before donation 10% limit Allowable deductible donation Problem 7-3 1. Municipal taxes Community tax Documentary stamp tax (P910 – 80 – 30) License (P4,000 – 500 – 100) Total deductible taxes 2. Representation and traveling allowance Interest on documentary stamp tax Interest on borrowings Interest on license 65
4,500,000 2,705,000 1,795,000 10% 179,500 ======= 1,200 1,000 870 3,400 6,470 ===== 15,000 30 10,000 100
Compensation to key personnel - fringe benefit (P10,200/68%) Compensation to employees Total of other deductible expenses
15,000 6,000 46,130 ======= The interests on documentary stamp tax and on license fees are not classified as taxes but rather interest expense. Fringe benefits of key personnel are subject to fringe benefit tax; hence, the amount was grossedup. Problem 7-4 Business losses 200,000 Partial loss on equipment Book value (P800,000 – 480,000) x 80% 256,000 Replacement cost 240,000 Deductible loss – lower 240,000 Total loss on machinery Acquisition cost 2,000,000 Less: Accumulated depreciation (P2,000,000/10) x 6 1,200,000 Book value 800,000 Less: Recoverable amount 200,000 600,000 Deductible loss 1,040,000 ======= Problem 7-5 1. Other business expenses FB to employees FR to employees subject to fringe benefit tax (P204,000/68%) Interest expense on bank loan 66
1,800,000 120,000 300,000 60,000
Net operating loss carry over 70,000 Entertainment Actual 40,000 Limit (5,600,000 – 50,000 – 20,000) = 5,530,000 x 1/2% 27,650 Lower 27,650 Total deductible business expense 2,377,650 ======= 2. Net sales Less: Cost of sales Gross income Add: Interest income on bank loan in USA Total gross income Less: Deductible expenses Net income before exemption Less: Personal exemption (50,000 + 100,000) Taxable net income
5,530,000 2,200,000 3,330,000 90,000 3,420,000 2,377,650 1,042,350 150,000 992,350 =======
Problem 7-6 1. Salaries Losses on embezzlement Advertising Depreciation Taxes (P190,000 – P90,000) Pension contribution – present (P230,000 – P100,000) Pension contribution – past (P100,000/10) Entertainment Actual Limit (P2,900,000 x 1%) 67
400,000 50,000 20,000 50,000 100,000 130,000 10,000 35,000 29,000
Lower 29,000 Interest expense on bank deposit Actual 90,000 Less: Reduction due to interest income (P50,000 x 33%) 16,500 73,500 Total before charitable contribution 862,500 Charitable contribution for public purpose Actual 150,000 Limit (P2,900,000 – 1,305,000 – 85\62,500) = 732,500 x 10% 73,250 Lower 73,250 Total deductible expenses 935,750 ====== 2. Gross income (P2,900,000 – 1,305,000) Less: Allowable deduction Net income before personal exemption Less: Personal Exemption (P50,000 + 100,000) Taxable net income
True or False 8-1
1,595,000 935,750 659,250 150,000 509,250 =======
Chapter 8
1. False. The taxpayer is still required to file an income tax return, since the source of income is from business. 2. False. Only on income within the Philippines. 3. False. There are only two employers; hence, the taxpayers are required to file though the income did not exceed P60,000. 4. True 68
5. False. The Statement of Net Worth and Operation shall be attached to the tax return if the gross receipts do not exceed P50,000 in any quarter. 6. False. The centavos shall never be dropped or rounded off in the tax due after tax credit. 7. True 8. False. Income tax credits are deductible against income tax liabilities. 9. True 10. False. Non-resident citizens are taxable only on income within the Philippines. Hence, taxes paid in a foreign country cannot be claimed as tax credit. True or False 8-2 1. False. Taxes paid in a foreign country are subject to limitation if claimed as tax credit. 2. False. Only individual taxpayers can avail of the installment method of paying income tax in excess of P2,000. 3. False. The second installment is due on July 15. 4. True 5. False. The income is classified as income from outside the Philippines. The threshold is 50%. 6. True 7. False. If the internal revenue taxes are more than P10,000, the over-the-counter of EFPS may be adopted. 8. False. Substitute filing is applicable if there is only one employer. 9. False. The payment of taxes due shall be made through the AAB. 10. True Multiple Choice 8-1 69
1. B 2. B 3. C 4. A 5.D
6. 7. 8. 9. 10.
C C B D B
Exercise 8-1
A
Gross income (2,500,000 – 1,500,000) Less: Allowable business expense Taxable income before exemption Less: Personal exemption (P50,000 + 100,000) Taxable net income Exercise 8-2
150,000 400,000 =======
C
On P250,000 On excess (P400,000 – 250,000) x 30% Total Add: Surcharge (P95,000 x 25%) Interest (P95,000 x 20% x 139/360) Total tax due and payable Exercise 8-3
1,000,000 450,000 550,000
D
Net salaries subject to tax (490,000 – 6,000 – 4,000) Net business income subject to tax (P1,800,000 – 950,000) Taxable net income before personal exemption Less: Personal exemption (P100,000 + 75,000) Taxable net income 70
50,000.00 45,000,00 95,000,00 23,750,00 7,336.11 126,086.11 ========
480,000 850,000 1,330,000 175,000 1,155,000 =======
Exercise 8-4
B
On 500,000 125,000.00 On excess (P1,155,000 – 500,000) x 32% 209,600.00 Total 334,600.00 Less: Quarterly tax paid 180,000.00 Withholding tax on wages 60,000.00 240,000.00 Tax due before penalties 94,600.00 Add: Surcharge (P94,600 x 25%) 23,650.00 Interest (P94,600 x 20% x 35/260) 1,839.44 Total taxes still due and payable 120,089.44 ======== Exercise 8-5 B Gross income (4,000,000 – 2,200,000) 1,800,000 Add: Interest income on notes receivable 20,000 Total gross income 1,820,000 Less: Business expenses 1,100,000 Interest expense [70,000 – (90,000 x 33%) 40,300 1,140,300 Income before charitable contribution 679,700 Less: Charitable contribution Actual 80,000 Limit (P679,000 x 10%) 69,970 69,970 Taxable income before personal exemption 611,730 Less: Personal exemption (P50,000 + 100,000) 150,000 Taxable net income 461,730 ======= 71
Exercise 8-6
A
On P250,000 On excess (461,730 – 250,000) x 30% Total Less: Quarterly tax payment Balance Add: Surcharge (P18,519.00 x 25%) Total tax due and payable Exercise 8-7
50,000.00 63,519.00 113,519.00 95,000.00 18,519.00 4,629.75 23,148.75 ========
B
Total taxable income (P415,000 + 150,000) = 565,000 On P500,000 125,000.00 On excess (565,000 – 500,000) x 32% 20,800.00 Total 145,800.00 Less: Tax previously paid on P415,000 On P250,000 50,000 On excess (415,000 – 250,000) x 30% 49,500 99,500.00 Deficiency tax 46,300.00 Add: Surcharge (46,300 x 50%) 23,150.00 Interest (P46,300 x 20% x 107/160) 2,752.78 25,902.78 Total tax still due 72,702.78 ======== Exercise 8-8 C Total deficiency assessment 72,702.78 Add: Surcharge (P72,702.78 x 25%) 18,175.70 Interest (72,702.78 x 20% x 15/360) 605.86 72
Total Exercise 8-9
91,484.34 =======
A
Gross income (5,000,000 + 3,000,000) 8,000,000 Less: Business expense (P3,500,000 + 2,400,000) 5,900,000 Income taxes paid in Australia 200,000 6,100,000 Net business income 1,900,000 Add: Interest income – Australia 30,000 Royalty income – Australia 20,000 50,000 Net income 1,850,000 Less: Personal exemption (P50,000 + 75,000) 125,000 Net taxable income 1,725,000 ======= Exercise 8-10 B Tax on P500,000 Tax on excess (P1,725,000 – 500,000) x 32% Total tax before tax credit Less: Taxes paid Income tax still due Exercise 8-11
125,000 393,000 517,000 300,000 217,000 =======
D
Gross income (5,000,000 + 3,000,000) 8,000,000 Less: Business expense (P3,500,000 + 2,400,000) 5,900,000 Net business income 2,100,000 Add: Interest income – Australia 30,000 Royalty income – Australia 20,000 50,000 73
Net income Less: Personal exemption (P50,000 + 75,000) Net taxable income Exercise 8-12
2,050,000 125,000 1,925,000 =======
C
Tax on P500,000 125,000 Tax on excess (P1,925,000 – 500,000) x 32% 456,000 Total tax due 581,000 Less: Tax credit Philippine taxes paid 300,000 Taxes paid in Australia Actual 200,000 Limit (P600,000/2,100,000) x 581,000 166,000 Lower 166,000 466,000 Income tax still due after tax credit 115,000 ======= Problem 8-1 1. Gross business income 4,500,000 Cash dividend from non-resident foreign corporation 9,000 Property dividend from resident foreign corporation 36,000 Salary and allowances 500,000 Gain on sale of jewelry (80,000 – 35,000) 45,000 Interest earned on premium 10,000 Christmas and incentive (28,000 + 15,000) – 30,000 13,000 Interest income on deposit abroad 10,000 Gross taxable income 5,123,000 74
======= 2. Gross taxable income 5,123,000 Less: Cost of sales and other allowable expenses 2,800,000 Past pension cost (250,000/10) 25,000 Interest expense [80,000 – (60,000 x 38%)] 57,200 Fringe benefits to supervisor (40,800/68%) 60,000 2,942,200 Income before donation 2,180,800 Less: Donation – actual (150,000 + 25,000) 175,000 - limit (2,180,000 x 10%) 218,080 - lower (actual) 175,000 Net income before personal exemption 2,005,800 Less: Basic personal exemption 50,000 Additional exemption 50,000 100,000 Net taxable business income 1,905,800 ======= 3. Taxable net
Tax due Income On 500,000 On excess (1,905,800 – 500,000) x 32% 1,405,800 Total 1,905,500 ======= Less: Quarterly tax paid Tax due and payable
75
125,000 449,856 574,856 175,000 399,856 ======
4. Tax due and payable Add: Surcharge (399,856 x 25%) Interest (399,856 x 20% x 4.5/12) Tax due and payable – September 1
399,856.00 99,964.00 29,989.20 529,809.20 ========
Problem 8-2 1. Installment method not adopted by taxpayers Carlos Daisy(Spouse) Compensation income First Com’l. Corp. Salary (480,000 + 55,000) 535,000 13th month pay (55,000 – 30,000) 25,000 Greater Libungan (60,000 + 14,400) 74,400 Brownies Corporation (240,000 + 35,000) 275,000 Total gross compensation 634,400 275,000 Less: Basic personal exemption (M) 50,000 50,000 Additional (25,000 x 3) 75,000 125,000 50,000 Net taxable income 509,400 225,000 ====== ====== Tax due Less: Tax withheld Tax due and payable
128,008 69,400 58,608 ====== 2. Taxpayers adopted installment payment of tax Tax due before tax credit Divided by Total Less: Tax withheld First installment payment of tax (for credit on second installment 76
43,750 35,000 8,750 =====
128,008 2 64,004 69,400
43,750 2 21,875 35,000
( 5,396) ======
(13,125) =====
Second installment Less: Excess of 1st installment Tax due on 2nd installment
Problem 8-3
64,004 ( 5,396 ) 58,608 ====== Edwin
Compensation income (216,000 + 25,000) Business income Sales (net) 2,788,000 Less: Cost of sales 1,775,000 Gross profit 1,013,000 Less: Allowable business expenses Net income/compensation before exemption 510,000 Less: Basic personal exemption 50,000 Additional exemption 75,000 50,000 Taxable net income 385,000 ======= Tax due Less: Tax credit Tax due and payable
90,500 90,500
======
Problem 8-4
21,875 (13,125) 8,750 ===== Nancy (Spouse) 241,000
503,000 241,000 50,000 125,000 191,000 ====== 35,250 25,000 10,250
=====
Resident Citizen Non-resident Gross profit from sales 6,000,000 Gross compensation income 525,000 Gain from sale of business assets 195,000 Rental income 150,000 Interest income – Singapore 115,000 Royalty income – Singapore 255,000 Total 7,240,000 Other gross income –partly within and without (4,320,000/7,240,000) x 225,000 77
3,600,000 525,000 195,000 150,000 4,470,000 225,000 134,254
Gross income
7,465,000 =======
4,605,254 =======
Problem 8-5 1. a. 8,102,000 b. 5,250,182 Resident
Non-resident
Gross business income 7,800,000 5,000,000 Compensation income (150,000 + 12,000) 162,000 162,000 Interest on loan 5,000 Property dividend 25,000 Rental income 50,000 50,000 Cash dividend from resident foreign corporation 60,000 (7,000,000/11,000,000) = .636363 x 60,00 38,182 Gross taxable income 8,102,000 5,250,182 ======= ======= 2. Gross taxable income abroad Gross business income – Malaysia Interest on loan Property dividend Cash dividend partly abroad Total
Problem 8-6 1. Gross business income (P6,000,000 + 4,000,00) Less: Business expenses (P4,000,000 + 3,500,000) Taxes paid in Singapore Net income before other income Add: Royalty – Singapore Interest on bank deposit – Singapore 78
2,800,000 5,000 25,000 38,182 2,868,182 =======
10,000,000 7,500,000 300,000 7,800,000 2,200,000 50,000 50,000
100,000 Net income Less: Personal exemption (P50,000 + 100,000) Net taxable income
2,100,000
Tax on P500,000 Tax on excess (P1,950,000 – 500,000) 32% Total Less: Philippine taxes paid Income tax still due 2. Gross business income (P6,000,000 + 4,000,00) Less: Business expenses (P4,000,000 + 3,500,000) Net income before other income Add: Royalty – Singapor 50,000 Interest on bank deposit – Singapore 50,000 100,000 Net income Less: Personal exemption (P50,000 + 100,000) Net taxable income
150,000 1,950,000 ======= 125,000 464,000 589,000 450,000 139,000 ======= 10,000,000 7,500,000 2,500,000
2,600,000
150,000 2,450,000 ======== Tax on P500,000 125,000 Tax on excess (P2,450,000 – 500,000) x 32% 624,000 Total 749,000 Less: Tax credit Philippines income tax paid 500,000 Singapore Actual 300,000 Limit (P500,000/2,500,000) x 749,000 149,800 Lower 149,800 649,800 Income tax still due 99,200
========
79
Problem 8-7 Taxable income – Philippines - Malaysia - Taiwan Total
3,000,000 2,000,000 500,000 5,500,000 ======= 125,000.00
Tax on P500,000 Tax on excess (P5,500,000 – 500,000) x 32% 1,600,000.00 Total 1,725,000.00 Less: Tax credit Philippine quarterly tax 700,000.00 Malaysia Actual 600,000.00 Limit (P2,000,000/5,500,000) x 1,725,000 627,272.72 Lower 600,000.00 Taiwan Actual 250,000.00 Limit (500,000/5,500,000) x 1,725,000 156.818.18 Lower 156,818.18 1,456,818.18 Philippine income tax still due after tax credit 268,181.82 ========= CHAPTER 9 True or False 9-1 1. True 2. False. In a general partnership, liabilities of partners are not limited to their capital contributions. 80
3. False. A limited partner is liable only to the extent of his capital contributions. 4. True 5. False. A partner in a general professional partnership is subject to tax based on his share. 6. True 7. True 8. True 9. False. A general co-partnership is subject to 30% corporate tax rate and treated like a corporation. 10. False. The share of the partners in a co-partnership is treated like a dividend subject to 10% final tax. True or False 9-2 1. True 2. False. Co-partnership is formed for profit and taxable, while co-ownership is formed primarily to preserve certain property and basically not taxable. 3. True 4. True 5. True 6. True 7. False. When the trust is revocable, the income of the trust is not taxable to the trust but to the grantor. 8. True 9. True 10. False. The amount of estate so transferred is not deductible from the income of the state. However, the amount shall be subject to estate tax. True or False 9-3 1. True 2. False. When there are several trusts made by the trustor, each trust shall file a separate income tax 81
return and the BIR shall consolidate the tax returns filed. 3. True 4. False. The net income used to compute the proportionate share on the consolidated income tax due shall be before deducting the personal exemption of P20,000. 5. False. The income of the estate would be taxable only to the heir from the time he received the property. 6. False. Not all income-producing estate is subject to tax on the part of the estate. 7. True 8. True 9. False. The amount of estate transferred to the beneficiaries is not allowable deduction but will be subject to estate tax. 10. True Multiple Choice 9-1 Multiple Choice 9-2 1. C 2. B 3. B 4. D 5. A
6. B 7. C 8. B 9. C 10.A
1. A 2. C 3. D 4. B 5. D
6. C 7. D 8. D 9. D 10.A
Exercise 9-1 A Since the entity is a general professional partnership, the income is not subject to tax. Exercise 9-2
A
Gross receipts Less: Cost of services Gross income Less: Operating expenses Net income 82
2,000,000 500,000 2,500,000 600,000 900,000
Share of Alex (P900,000 x 1/2) Multiplied by creditable tax rate Creditable withholding tax Share in the net income (P900,000 1/2) Less: Personal exemption (P50,000 + 75,000) Net taxable income Tax on 250,000 Tax on excess (P325,000 – 250,000) x 30% Total Less: Creditable withholding tax Income tax still due Exercise 9-3
C
Share in gross income (P2,000,000 x 1/2) Less: Optional standard deduction (40% x P1,000,000) Net income Less: Personal exemption (P50,000 + 50,000) Net taxable income
======= 450,000 10% 45,000 ====== 450,000 125,000 325,000 ====== 50,000 22,500 72,500 45,000 27,500 ======
1,000,000 400,000 600,000
100,000 500,000 ======= Tax on P500,000 125,000 Less: Creditable withholding tax 45,000 Income tax still due 80,000 ======= Exercise 9-4 A The partnership is a general professional partnership; hence, not subject to tax. 83
Exercise 9-5
D
Gross receipts Less: Cost of services (P600,000 + 500,000) Gross income Less: Operating expense Net income Share of Peter (P1,100,000 x 1/2) Multiplied by creditable tax rate Creditable withholding tax Salary received Add: Share in the profit – gross method (P2,500,000 x 1/2) Less: Optional standard deduction (P1,250,000x 40%) 500,000 Total Less: Personal exemption (P50,000 + 75,000) Net taxable income Tax on P500,000 Tax on excess (P1,225,000 – P500,000) x 32% Total Less: Creditable withholding tax Income tax still due Exercise 9-6
C
Salary received Add: Share in the partnership (P1,100,000 x 1/2) Total 84
2,500,000 1,100,000 1,400,000 300,000 1,100,000 ======= 550,000 10% 55,000 ======= 600,000 1,250,000 750,000 1,350,000 125,000 1,225,000 ======= 125,000 232,500 357,000 55,000 302,000 ======= 500,000 550,000 1,050,000
Less: Personal exemption (P 50,000 + 75,000) Taxable net income
Tax on P500,000 Tax on excess ( P925,000 – 500,000) x 32% Total Less: Creditable withholding tax Income tax still due Exercise 9-7
D
Gross sales Less: Cost of sales Gross income Less: Operating expenses Net taxable income Multiplied by Corporate income tax (higher than MCIT below) MCIT (P2,100,000 x 2%) Exercise 9-8
125,000 925,000 =======
125,000 136,000 261,000 55,000 206,000 ======= 3,000,000 900,000 2,100,000 1,200,000 900,000 30% 270,000 ======= 42,000 =======
A
Share in the income of the partnership (P900,000 – 270,000) x 40% Multiplied by final tax rate Final tax
85
252,000 10% 25,200 ======
The share from the partnership is subject to final tax; hence, partners are not liable to income tax. Exercise 9-9
C
Compensation – gross (P350,000 + 32,000) Less: Personal exemption (P50,000 + 50,000) Net taxable income
382,000
Tax on P250,000 Tax on excess (P282,000 – 250,000) x 30% Total Less: Withholding tax Income tax still due Exercise 9-10
B
Gross income Less: Operating expenses (P2,500,000 x 70%) Exemption Net taxable income Tax on P500,000 Tax on excess (P730,000 – 500,000) x 32% Total tax due Problem 9-1
100,000 282,000 ====== 50,000 9,600 59,600 32,000 27,600 ====== 2,500,000
1,750,000 20,000 1,770,000 730,000 ======= 125,000 73,600 198,600 =======
1. The partnership is not subject to tax being a general professional partnership. 86
2.Share using the gross income method (P500,000 4/10) Less: Optional standard deduction (200,000 x 40%) Distributive share in the income of the partnership
200,000 80,000 120,000 ======
3. Gross income 500,000 Less: Operating expenses 320,000 Net income of the partnership 180,000 Multiplied by shares in the profit (6/10) 60% Distributive share 108,000 ====== 4. Net income of the partnership 180,000 Multiplied by shares in profit (4/10) 40% Distributive share on net income 72,000 ====== Creditable withholding tax (P72,000 x 10%) 7,200 ====== Gross compensation (P450,000 + 50,000) 500,000 Add: Share in partnership (see answer # 2) 120,000 Total 620,000 Less: Personal exemption (H/F) 50,000 Net taxable income 570,000 ====== Tax on P500,000 125,000 Tax on excess (P570,000 – 500,000) x 32% 22,400 Total 147,400 Less: Tax credit Withholding taxes on wages 75,000 87
Creditable withholding tax on partnership Amount of tax still due
7,200
5. Distributive share on net income (P180,000 x 60%) Multiplied by Creditable withholding tax Gross compensation (P480,000 + 90,000) Add: Share in partnership (see answer # 3) Total Less: Personal exemption (P50,000 + 75,000) Net taxable income Tax on P500,000 Tax on excess (P553,000 – 500,000) x 32% Total Less: Tax credit Withholding taxes on wages Creditable withholding tax on partnership Amount of tax still due
82,200 65,200 ====== 108,000 10% 10,800 ====== 570,000 108,000 678,000 125,000 553,000 ====== 125,000 16,960 141,960
90,000 10,800 100,800 41,160 ======
Problem 9-2 1. Gross income Less: Operating expenses Net taxable income Multiplied by corporate tax rate 88
1,500,000 800,000 700,000 30%
Income tax due 2.
Michael
210,000 ======= Albert
Share in the net income after tax (P700,000 x 70%) = P490,000 x 40% 196,000 x 60% 294,000 Less: Final tax (P196,000 x 10%) 19,600 (P294,000 x 10%) 29,400 Distributive share after final tax 176,400 264,600 ====== ======
Problem 9-3 1. Gross income (P2,000,000 – 1,200,000) 800,000.00
Less: Operating expenses 400,000 Interest expense [P30,000 – (P50,000 x 33%)] 13,500 413,000.00 Income before charitable contribution 386,500.00 Less: Charitable contribution – Actual 60,000 Limit (386,500 x 5%) 19,325 Lower 19,325.00 Net taxable income 367,175.00 Multiplied by tax rate – corporation 30% Tax liability 110,152.50 ======== 2. Share on the profit [(P367,175 – 110,152.50) /2] Share on interest income (P50,000/2) Share on dividend from domestic corporation (P80,000/2_ Total Multiplied by final tax rate 89
128,511.25 25,000.00 40,000.00 193,511.25 10%
Final tax on share of Anthony on partnership profit
19,315.13 ========
3. Bert will have the same share on the income of the partnership subject to 10% final tax. In addition, however, he will be subject to income tax on his compensation income. Compensation income (P280,000 + 35,000) Less: Personal exemption (P50,000 + 50,000) Net taxable income Tax on P140,000 Tax on excess (215,000 – 140,000) x 25% Total Less: Withholding tax Income tax still due Problem 9-4
315,000 100,000 215,000 ====== 22,500 18,750 41,250 35,000 6,250 =====
1. The partnership being a general professional partnership is not subject to tax. The share, however, of each partner from the income of the partnership shall be subject to a creditable withholding tax of 10% if the share is not more than P720,000 and 15% if more than P720,000. The income of the partnership: Gross income Less: Operating expenses Net income before 90
800,000 300,000
charitable contribution Less: Charitable contribution – Actual Limit (P500,000 x 5%) Lower Net income
500,000 30,000 25,000
25,000 475,000 ====== The 5% rate is used to determine the limit of the charitable contribution, since in determining the distributive shares of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Distributive share Jonathan (P475,000 x 40%) Leonard (P475,000 x 60%) Multiplied by Creditable withholding tax
Jonathan 190,000
10% 19,000 ====== For Jonathan (P190,000- 19,000) 171,000 For Leonard (P285,000 – 28,500)
Leonard 285,000 10% 28,500 ====== 256,500
2 and 3 The taxable income of Jonathan and Leonard Jonathan 250,000 120,000
Gross income Less: Operating expenses Net income before charitable contribution 130,000 Less: Charitable contribution Actual 15,000 Limit – 10% of income 13,000 Lower 13,000 Net income 117,000 Add: Distributive share 171,000 91
Leonard 300,000 180,000 120,000 18,000 12,000 12,000 108,000 256,500
Total Less: Personal exemption Taxable net income 4. Tax on P140,000 On excess (P238,000 - 140,000) x 25% Total Less: Creditable withholding tax Income tax still due
288,000 50,000 238,000 ====== Jonathan 22,500
364,500 50,000 314,500 ======
24,500 47,000 19,000 28,000 ====== Leonard 50,000
5. Tax on P250,000 On excess (P314,500 – 250,000) x 30% Total Less: Creditable withholding tax Income still due
19,200 69,200 28,500 40,700 ======
Problem 9-5 1. Gross income Less: Business expenses Income distributed to beneficiary
2,500,000
3,000,000
100,000 2,600,000 Income before charitable deduction 400,000 Less: Charitable deduction Actual 30,000 Limit (P400,000 x 5%) 20,000 Lower 20,000 Net income before exemption 380,000 92
Less: Exemption Net taxable income
20,000 360,000 ======= Tax on P250,000 50,000 On excess (P360,000 – 250,000) x 30% 33,000 Tax due and payable 83,000 ===== 2. Income received from estate Less: Optional standard deduction (P100,000 x 40%) Income before exemption Less: Personal exemption (single) Net taxable income
100,000 40,000 60,000 50,000 10,000 ======
Tax on P10,000
500 ====== The administrator did not subject the income transferred to the beneficiary to 15% creditable withholding tax. Problem 9-6 1. Gross income Less: Business expenses 3,500,000 Income transferred to beneficiar 300,000 Net income Less: Personal exemption (during death) Net taxable income Tax on P500,000 On excess (P1,150,000 – 500,000) x 32% 93
5,000,000 3,800,000 1,200,000 50,000 1,150,000 ======= 125,000 208,000
Total Less: Quarterly tax paid Income tax still due
333,000 250,000 83,000 ======
2.Compensation income (P800,000 – 25,000 – 20,000) Add: Income from the estate Less: Optional standard deduction (P150,000 x 40%) 60,000 Total Less: Basic personal exemption Net taxable income Tax on P500,000 Tax on excess (P795,000 – 500,000) x 32% Total Less: Withholding tax 160,000 Creditable withholding tax (P150,000 x 15%) 22,500 182,500 Income tax still due
755,000 150,000 90,000 845,000 50,000 795,000 ====== 125,000 94,400 219,415
36,915 ======
3. Compensation income (P500,000 – 15,000 – 18,000) 467,000 Add: Income from the estate 150,000 Less: Optional standard deduction (P150,000 x 40%) 60,000 90,000 Total 557,000 Less: Basic personal exemption 50,000 Net taxable income 507,000 ====== Tax on P500,000 125,000 94
Tax on excess (P507,000 – 500,000) x 32% Total Less: Withholding tax Creditable withholding tax (P150,000 x 15%)
2,240 127,240 90,000 22,500 112,500
Income tax still due
14,740 ====
Problem 9-7 1. The trust being revocable is not subject to income tax; hence, the income of the trust will be added to the gross income of the trustor or grantor. 2. Gross income Less: Expenses Income transferred to the beneficiar Exemptio Net Taxable income
2,000,000 1,600,000 150,000 20,000
1,770,000 230,000 ======= Tax on P140,000 22,500 On excess (P230,000 – 140,000) x 25% 22,500 Tax due 45,000 ===== Problem 9-7 1.
Trust 1 800,000 500,000 180,000 100,000
Gross income Less: Expenses Amount transferred Net income before personal exemption Less: Personal exemption
120,000 20,000 95
Trust 2 500,000 300,000 680,000 400,000 100,000 20,000
Taxable net income
100,000 ======
Tax on P70,000 On excess (P100,000 – 70,000) x 20% (P80,000 – 70,000) x 20% Taxes due 2. Consolidated income Gross income Less: Expenses Amount transferred Net income Less: Personal exemption Net taxable income
Trust 1 8,500 6,000 14,500 =====
80,000 ====== Trust 2 8,500 14,500 10,500 10,500 ===== 1,300,000
800,000 280,000 1,080,000 220,000 20,000 200,000 =======
Tax on P140,000 On excess (P200,000 – 140,000) x 25% Total Less: Taxes paid Trust 1 14,500 Trust 2 10,500 Income tax still due 3.
Trust 1 Allocation of the P22,500 Trust 1 (P120,000/220,000) x 37,500 Trust 2 (P100,000/220,000) x 37,500 Allocated taxes Less: Taxes paid Income tax still due 4. Gross income from trusts ( P180,000 + 100,000)
22,500 15,000 37,500 15,000 22,500 ===== Trust 2
20,454.55 17,045.45 20,454.55 17,045.45 14,500.00 10,500.00 5,954.55 6,545.45 ======= ======= 280,000
96
Less: Personal exemption Taxable income Tax on P140,000 On excess (P230,000 – 140,000) x 25% Total Less: Creditable withholding tax On trust 1 (180,000 x 15%) 27,000 On trust 2 (100,000 x 15%) 15,000 Income tax still due
50,000 230,000 ====== 22,500 22,500 45,000 42,000 3,000 =====
Chapter 10 True of False 10-1 1. False. Corporation is created by the operation of law. 2. False. The concept of corporation for income tax purposes does not include a general professional partnership, since the latter is not subject to tax. 3. True 4. False. A resident foreign corporation is subject to income on its income from within the Philippines only. 5. True 6. False. There is no need to prorate the unidentified income, since it is a domestic corporation. It is taxable on its income from within and outside the Philippines. 7. False. A non-resident foreign corporation is subject to tax based on its gross income. 8. False. A non-resent foreign corporation is subject only to 30% normal tax rate effective January 1, 2009. 9. True 10. True 97
True of False 10-2 1. True 2. True 3. False. MCIT applies only to ordinary corporations. 4. False. Effective January 1, 2009 under RA 9337, the normal corporate income tax shall be 30%. 5. False. Under RA 9504, a corporate entity may adopt already the optional standard deduction. 6. False. MCIT is applicable beginning on the fourth year. 7. False. MCIT applies only to ordinary corporations. 8. False. MCIT is computed based on gross income. 9. False. The tax liability of a domestic corporation is based on NCIT or MCIT, whichever is higher. 10. False. There is no such thing as excess normal corporate income tax. If NCIT is higher than MCIT, the excess cannot be carried forward. True of False 10-3 1. False. A resident foreign corporation is taxable only on income from within the Philippines. 2. True 3. False. It is treated as a deferred charge classified as an asset and not a tax liability. 4. False. It is charged against the retained earnings of the corporate entity. 5. True 6. True 7. False. IAET applies only to close-held corporation. 8. True 9. False. An international carrier is subject to 2 1/2 % of gross Philippine billings, while owners of cinematographic films are subject to 25% based on gross receipts. 98
10. True Multiple Choice 10-1 1. D 2. C 3. B 4. B 5. A
6. B 7. B 8. D 9. C 10.B
Exercise 10-1 B Gross income ( P12,000,000 + 3,000,000) Less: Itemized deduction (P7,000,000 x 1,800,000) Taxable net income Multiplied by Income tax liability Exercise 10-2
8,800,000 6,200,000 30% 1,860,000 ========
A
Normal income tax (P12,000,000 – 7,000,000) x 30% Exercise 10-3
15,000,000
B
1,500,000 =======
Gross income within Philippines 8,000,000 Add: Unidentifiable within Philippines (3,000,000 x 8/20) 1,200,000 Total 9,200,000 Less: Business expenses – within Philippines 4,800,000 Unidentifiable within Phil. (P2,000,000 x 8/20) 800,000 5,600,000 Taxable net income 3,600,000 99
Multiplied by Normal corporate income tax Exercise 10-4
B
Gross income within Phil. Unidentifiable income (P2,000,000 x 4/40) Total Multiplied by Corporate income tax liability Exercise 10-5
C
Gross income (P14,000,000 + 1,500,000) Less: Business expenses Taxable income Multiplied by Income tax liability Exercise 10-6
4,000,000 200,000 4,200,000 30% 1,260,000 =======
15,500,000 9,000,000 6,500,000 10% 650,000 ========
D
Income from hospital operation (P12,000,000 – 8,000,000) Add: Income from other businesses (P6,500,000 – 4,000,000) Total Multiplied by Income tax liability Exercise 10-7
30% 1,080,000 =======
4,000,000 2,500,000 6,500,000 30% 1,950,000 =======
B
Income tax liability in the Philippines (P5,000,000 x 2 1/2%) 100
125,000 ======
Exercise 10-8 A The school being a governmentowned institution is tax-exempt. Exercise 10-9
C
Income tax liability (P8,000,000 – P5,000,000) x 25% Exercise 10-10
C
Income tax liability (P15,000,000 x 7 1/2%) Exercise 10-11
750,000 ======
1,125,000 =======
B
Under the normal corporate income tax, the company does not have tax liability, because of the loss sustained of P1,000,000 (P12,000,000 – 9,000,000 – 4,000,000). Hence, the minimum corporate tax of 2% will apply on the gross income. MCIT (P12,000,000 – 9,000,000) x 2% Exercise 10-12
60,000 =====
C
Gross income (P7,500,000 – 4,200,000) 3,300,000 Less: Operating expenses 2,450,000 Taxable net income 850,000 Multiplied by 30% Income tax liability 255,000 Less: Income tax paid first quarter 60,000 Amount of tax due for the 2nd quarter 195,000 ======= Exercise 10-13 D Under NCIT 101
(8,000,000 – 4,400,000 – 3,400,000) x 30% Under MCIT (P8,000,000 – 4,400,000) x 2% Higher – MCIT – tax payable Exercise 10-14
72,000 72,000 =====
B
MCIT NCIT Excess of MCIT over NCIT to be carried forward to succeeding 3 years Exercise 10-15
60,000
72,000 60,000 12,000 =====
B
Income on dividend within Phil. (P250,000 x 80%) x 30%
60,000 ===== Dividend received from AA Company was tax-exempt.
Exercise 10-16
B
Gross income Add: Other income Total Less: Business expenses Net income before contribution Less: Charitable contribution deductible in full Subject to limitation (P2,300,000 x 5%) 215,000 Net taxable income Multiplied by Normal corporate income tax 102
8,000,000 300,000 8,300,000 6,000,000 2,300,000 100,000 115,000 2,085,000 30% 625,500 =======
Exercise 10-17
A
MCIT (8,000,000 x 2%) Exercise 10-18
160,000 ======
B
Gross income (P12,000,000 – 7,500,000) Less: Business expenses Net operating loss 2008 Taxable net income Multiplied by Normal corporate tax Exercise 10-19
4,500,000 4,000,000 300,000 4,300,000 200,000 30% 60,000 =======
C
MCIT (4,500,000 x 2%)
Exercise 10-20
90,000 =====
A
Income tax liability (P7,000,000 x 2.5%)
175,000 ======
Problem 10-1 Direct flight from Philippines to London Direct flight from Philippines to Paris Transferred flights from Philippines to Paris transferred for London [P7,200,000 x (P6,000/P9,000)] Total receipts from Philippines Multiplied by 103
13,500,000 12,000,000 4,800,000 30,300,000 .025
Income tax payable
757,500 ========
Problem 10-2 NCIT 7,000,000
1. Gross income Add: Interest income on receivable Total Less: Business expenses Taxable net income Multiplied by Income tax liability
MCIT 7,000,000
200,000 7,200,000 7,000,000 5,000,000 2,200,000 7,000,000 30% 2% 660,000 140,000 ======= =======
2.
NCIT MCIT 4,000,000 4,000,000 3,100,000 900,000 4,000,000 30% 2% 270,000 80,000 ======= =======
Gross income Less: Business expense Taxable net income Multiplied by Income tax liability
Problem 10-3 The income of University of Southern Mindanao is not subject to income being a government educational institution. Problem 10-4 1. Itemized deduction a. Net sales (P5,000,000 – 50,000) Less: Cost of sales Gross income Less: Itemized operating expenses Net income Add: Capital gain 104
4,950,000 2,300,000 2,650,000 1,800,000 850,000
-
Sale of capital assets 1,000,000 Less: Cost of capital asset sold 1,200,000 Non-deductible capital loss 200,000 ======= Net taxable income NCIT (P850,000 x 30%) MCIT (2,650,000 x 2%) Income tax liability (NCIT – Lower)
b. Net taxable income Add: Interest income (P48,000/80% Dividend received
850,000 ======= 255,000 53,000 255,000 ======= 850,000
60,000 80,000 140,000
Total Less: Income tax paid 255,000 Final tax on interest (P60,000 – 48,000) 12,000 Improperly accumulated earnings
990,000 267,000 723,000 ======
2. Optional standard deduction a. Gross income 2,650,000 Less: OSD (P2,650,000 x 40%) 1,060,000 Net income 1,590,000 Add: Capital gain Sale of capital assets 1,000,000 Less: Cost of capital asset sold 1,200,000 Non-deductible capital loss 200,000 ======= Net taxable income 1,590,000 ======= 105
NCIT (P1,590,000 x 30%) MCIT (2,650,000 x 2%) Income tax liability (NCIT – Lower) b. Net income subject to tax Add: Interest income (P48,000/80%) 60,000 Dividend received 80,000 140,000 Total Less: 255,000 Final tax on interest (P60,000 – 48,000) 12,000 Improperly accumulated earnings Problem 10-5 1. Gross income (P3,000,000 + 1,200,000) Less: Business expenses (P1,800,000 + 900,000) Net income Add: Interest income – Australia Net taxable income
477,000 53,000 477,000 ======= 1,590,000
1,450,000 Income tax paid 267,000 1,183,000 =======
4,200,000 2,700,000 1,500,000 50,000 1,550,000 ======= 465,000
Income tax (P1,550,000 x 30%) Less: Tax credit Philippine tax paid 150,000 Australia Actual 120,000 Limit (P300,000/P1,500,000) x P465,000 93,000 Lower Excess minimum 106
93,000
corporate income tax Income tax still due
80,000
2. Gross income Less: Business expenses Net taxable income Income tax (P1,200,000 x 30%) Less: Tax credit Philippine tax paid 150,000 Excess minimum corporate income tax 80,000 Income tax still due
323,000 142,000 ======= 3,000,000 1,800,000 1,200,000 ======= 360,000
230,000 130,000 =======
Problem 10-6 1. Year 2006 NCIT (P3,000,000 – 2,900,000) x 30% MCIT (P3,000,000 x 2%) Income tax due – higher
30,000 60,000 60,000 =====
2. Year 2007 NCIT (P5,500,000 – 4,800,000) x 30% MCIT (P5,500,000 x 2%) Income tax due – higher Less: Excess of MCIT last year \ (P60,000 – 30,000) Income tax still due 107
210,000 110,000 210,000 30,000 180,000 ======
3. Year 2008 NCIT (P7,000,000 – 6,800,000) x 30% MCIT (P7,000,000 x 2%) Income tax due (higher)
60,000 140,000 140,000 ======
Problem 10-7 1.Gross income (P6,000,000 + 2,000,000 + 3,000,000) 11,000,000
Less: Business expenses (P4,800,000 +1,400,000 + 2,100,000) 8,300,000 Taxable net income 2,700,000 Multiplied by 30% Income tax due 810,000 ======== 2. Gross income Less: Business expenses Taxable net income Multiplied by Income tax due
6,000,000 4,800,000 1,200,000 30% 360,000 ========
3. Gross income Multiplied by Income tax due
6,000,000 30% 1,800,000 ========
4. Gross income Multiplied by Income tax due
6,000,000 2 1/2% 150,000 108
======== 5. Gross income Multiplied by Income tax due
6,000,000 7 1/2% 450,000 ========
6. Gross income Multiplied by Income tax due
6,000,000 4 1/2% 270,000 ========
7. Gross income Multiplied by Income tax due
6,000,000 25% 1,500,000 ========
8. Gross income Less: Business expenses Taxable net income Multiplied by Income tax due
6,000,000 4,800,000 1,200,000 20% 120,000 ========
CHAPTER 11 True or False 11-1 1. False. The income tax credits are deductible from the income tax due. 2. True 3. True 4. False. The amount is considered as final and full payment of income tax is due. 5. True 6. True 109
7. True 8. True 9. True 10. False. All government units, including its instrumentalities, can constitute as withholding agent. True or False 11-2 1. True 2. True 3. True 4. False. Payments made to a general professional partnership is not subject to creditable withholding tax, being among those expressly exempted by law. 5. False. Only compensation for services rendered within the Philippines is subject to withholding tax. 6. True 7. True 8. True 9. False. The amount of withholding tax is remitted on before the 10th day after the end of the applicable month. 10. True Multiple Choice 11-1 1. A 2. B 3. B 4. C 5. D
6. 7. 8. 9.
C C D C 10. B
Exercise 11-1 B Taxable compensation income (P18,000 – 1,000 – 500 – 500) 110
16,000.00 =======
On P12,083 On excess (P16,000 – 12,083) x 20% Withholding tax
707.73 783.40 1,491.73 ======= Exercise 11-2 A The compensation is not subject to withholding tax. The taxpayer is considered a minimum wage earner. Exercise 11-3 A Regular compensation (P15,000 – 1,000 – 800 – 500) + 4,000 On P15,800 On excess [(16,700 – 15,800) + 8,000] x 15% Withholding tax Exercise 11-4 C On regular compensation (P12,000 – 10,000) On excess (P2,000 + 35,000) x 20% Withholding tax Exercise 11-5 D On P15,832 On excess (P2,167 x 25%) Withholding ax Exercise 11-6
A
Salary (P40,000 x 12) Overnight pay Excess of benefits (P55,000 – 30,000) Total 111
16,700.00 ======= 208.33 1,335.00 1,543.33 ======= 708.33 7,400.00 8,108.33 ======= 1,875.00 541.75 2.416.75 ======= 480,000 6,000 25,000 511,000
Less: Personal exemption (P50,000 + 50,000) Net taxable compensation income Exercise 11-7
A
On P250,000 On excess (P161,000 x 30%) Total Less: Withholding tax deducted Income tax still due Exercise 11-8
A
100,000 411,000 ====== 50,000.00 48,300.00 98,300.00 81,597.27 16,706.73 =======
Income from profession (P495,000/90%) 550,000 Basic salary received 480,000 Rental income (P68,400/95%) 72,000 Gross income 1,102,000 Less: Personal exemption (P100,000 + 50,000) 150,000 Net taxable income 952,000 ======= Exercise 11-9 A Tax on P500,000 On excess: P952,000 – 500,000) 32% Total Less: Tax credits On profession (P495,000/90%) – P495,000 55,000 On withholding tax 85,000 On rental income (P68,400/95%) – 68,400 3,600 Income tax still due
112
125,000 144,640 269,640
143,600 126,040 =====
113
