2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS dTAXATION LAW 2 CHAPTER 7: Allow!l" D"d#$%&o'( SEC) *+) Deductions from Gross Income.- E,$"% .o/ %,"/( "/'&' $o"'(%&o' &'$o" /&(&' ./o "/(o'l ("/3&$"( /"'d"/"d #'d"/ ' "lo "/-"lo"" /"l%&o'( 4& w4"/" 'o d"d#$%&o'( (4ll !" llow"d o%4"/ %4' #'d"/ (#!("$ %&o' 5M Premium Payments on Health and/or Hospitalization Insurance of an Individual Tax pay 8 er &' $o#%&' %,!l" &'$o" (#!9"$% %o &'$o" %, #'d"/ S"$%&o'( 2+ 5A 2 5A 26 27 5A8 5B 'd 5C 'd 2; 5A 518 %4"/" (4ll !" llow"d %4" .ollow&' d"d#$%&o'( ./o /o(( &'$o" A) Expenses. 1) rdinary and !ecessary Trade" #usiness or Professional Expenses. $ ) G%&) All %4" o/d&'/ 'd '"$"((/ ","'("( &d o/ &'$#//"d d#/&' %4" %,!l" "/ &' $//&' o' o/ w4&$4 /" d&/"$%l %%/&!#%!l" %o8 % 4" d"3"lo"'%8 '""'%8 o"/%&o' 'dBT 4( !""' &d &&) A /"(o'! l" llow' $" .o/ %/3"l "," '("(8 4" /" 'd !/od8 w4 &l" w ./o 4o " &' %4" #/(#&% o. %/d"8 !#(&'"(( o/ /o."((&o' &&&) A /" (o' !l " llo w' $" .o/ /"'%l ( 'dINANCE 8 ! /#l"( 'd /"#l%&o'( /"($/&!"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 %@&' &'%o $$o#'% %4" '""d( ( w"ll ( %4" ("$&l $&/$#(%'$"(8 '%#/" 'd $4/$%"/ o. %4" &'d#(%/8 %/d"8 !#(&'"((8 o/ /o."((&o' o. %4" %,"/: 1) '' ","'(" &'$#//"d .o/ "'%"/%&'"'%8 #(""'% o/ /"$/"%&o' %4% &( $o'%// %o lw8 o/l( #!l&$ ol&$ o/ #!l&$ o/d"/ (4ll &' 'o $(" !" llow"d ( d"d#$%&o') !)
(u)stantiation %e*uirements ) - No d"d#$%&o' ./o /o(( &'$o" (4ll !" llow"d #'l"(( %4" %,"/ (4ll (#!(%'%&%" w&%4 (#$&"'% "3&d"'$"8 (#$4 ( o$&l /"$"&%( o/ o%4"/ d"?#%" /"$o/d(: &) Ao#'% o. %4" ","'(" !"&' d"d#$%"d &&) D&/ "$% $o''" $%&o ' o/ /"l %&o ' o. %4" ","' (" !"&' d"d #$%"d %o %4" d"3"l o "'%8 ' " "'%8 o"/%&o' 'd
$) #ri)es" +ic,)ac,s and ther (imilar Payments. - No d"d#$%&o' ./o /o(( &'$o" (4ll !" llow"d #'d"/
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS SUBS EC 5A .o/ ' "'% d"8 d& /"$% l o/ &' d& /"$% l8 %o ' o $& l o/ " l o "" o. %4" '%&o ' l o3"/'"'%8 o/ %o ' o$&l o/ "lo"" o. ' lo$l o3"/'"'% #'&%8 o/ %o ' o$&l o/ "lo"" o. o3"/'"'%-ow'"d o/ -$o'%/oll"d $o/o/%&o'8 o/ %o ' o$&l o/ "lo"" o/ /"/"("'%%&3" o. .o/"&' o3"/'"'%8 o/ %o /&3%" $o/o/%&o'8 "'"/l /o."((&o'l /%'"/(4&8 o/ (&&l/ "'%&%8 &. %4" "'% $o'(%&%#%"( !/&!" o/ @&$@!$@) 2) Expenses 'lloa)le to Private Educational Institutions ) - I' dd&%&o' %o %4" ","'("( llow!l" ( d"d#$%&o'( #'d"/ %4&( C4%"/8 /&3%" "d#$%&o'l &'(%&%#%&o'8 % &%( o%&o' "l"$% "&%4"/: ) To d"d#$% ","'d&% #/"( o%4"/w &(" $o'(&d"/ "d ( $&%l o#%l ( o. d"/"$&!l" (("%( &'$#/ /"d d#/&' %4" %,!l" "/ .o/ %4" ",'(&o' o. ($4ool .$&l&%&"( 5o/ !) To d"d#$% llow'$" .o/ d"/"$&%&o' %4"/"o. #'d"/ SUBSEC 5> d"/"$&%&o' o. /o"/%) B) I' %"/"(% ) 1) G%& - Ao#'% o. &'%"/ "(% &d o/ &'$#// "d w&%4&' %,!l" "/ o' &'d"!%"d' "(( &' $o''"$%&o' w&%4 %4" %," /( /o."((&o'8 %/d" o/ !#(&'"(( (4ll !" llow"d ( d"d#$%&o' ./o /o(( &'$o": ) LIMITATION: 'llow! l" d"d#$%&o' .o/ &'%"/"(% ","'(" (4ll !" /"d#$"d ! ' o#'% o. %4" &'%"/"(% &'$o" (#!9"$%"d %o ='l %,: ** 2) Exceptions.- No d"d#$%&o' (4ll !" llow"d &' /"("$% o. &'%"/"(%: ) I. %, "/ /"o/%& ' &'$o" o' %4" $(4 !(&( &'$# /( ' &'d"!%"d '"(( o' w4&$4 ' &'%"/ "(% &( &d &' d3'$" %4/o#4 d&($o#'% o/ o%4"/w&(" &) S#$4 &' %"/"(% (4ll !" llow "d d"d#$ %&o' &' %4" " / %4" &'d "!%"d'"(( &( & d &&) I. %4" &'d"!% "d'"(( &( !l" &' "/&od &$ o/%&J% &o'(8 %4" o#' % o. &'%"/"(% w4&$ 4 $o//"( o'd( %o %4" o#'% o. %4" /&'$&l o/%&J"d o/ &d d#/&' %4" "/ (4ll !" llow"d ( d"d#$%&o' &' (#$4 %,!l" "/ !) I. !o%4 %4" %, "/ 'd %4" "/(o ' %o w4o %4" " '% 4( !""' d" o/ &( %o !" d" /" "/(o '( ("$&="d #'d"/ SEC *65B &) 36(b): losses from sales or exchanges of property: 1. 2. 3. '. !. 6.
Between members of family Between individal and corporation more than !"# in vale of $%& owned by sch individal Between 2 corporationsmore than !"# $%& is owned by either one Between grantor and dciary in trst Between dciary in trst and another dciary in trst if grantor is the same person Between dciary of trst and be neciary of sch tr st )
$) I. %4" &'d"! %"d'"(( &( &'$#// "d %o =''$" " %/ol"# ",lo/% &o') *) ptional Treatment of Interest Expense ) - A% % 4" o%&o' o. %4" % ,"/8 &'%"/"(% &'$#//"d %o $?#&/" /o"/% #("d &' %/d" !#(&'"(( o/ ","/$&(" o. /o."((&o' !" llow"d (: ) D"d# $% &o'
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !) C &%l " ,"'d& %#/ ") C) Taxes. $ 1) G%& T,"( &d o/ &'$#// "d w&% 4&' %4" %,!l " " / &' $o''"$%&o' w&%4 %4" %, "/ ( /o."((&o'8 %/d " o/ !#(&'"((8 (4ll !" llow"d ( d"d#$%&o' 2) EXCE PT IO NS : ) I'$o" %, /o3&d"d .o/ #'d"/ %4&( T&%l" !) I'$o" % ,"( &o( "d ! #%4o /&% o. ' .o/ "&' $o# '%/ &) T4&( d"d #$%&o' (4 ll !" llow"d &' %4" $ (" o. %, "/ w4o do"( 'o % (&'&. &' 4&( /" %#/' 4&( d" (&/" %o 43" %o ' ",%"'% %4" !"'"=%( o. PAR 5* o. %4&( (#!("$%&o' 5/"l%&' %o $/"d&%( .o/ %,"( o. .o/"&' $o#'%/&"( $) E(% %" 'd do'o/( % ,"( d) T,"( (("(("d &'(% lo$l !"'"=%( o. @&'d %"'d&' %o &'$/"(" %4" 3l#" o. %4" /o"/% (("(("d) *) T,"( llow"d #'d"/ %4&( S#!("$%&o'8 w4"' /".#'d"d o/ $/"d&%"d8 (4ll !" &'$l#d"d ( /% o. /o(( &'$o" &' %4" "/ o. /"$"&% %o %4" ",%"'% o. %4" &'$o" %, !"'"=% o. (&d d"d#$%&o') +) imitations on Deductions ) - NRA "'"d &' %/d" o/ !#(&'"(( &' %4" P4&l&&'"( 'd R>C8 %4" d"d#$%&o'( .o/ %,"( (4ll !" llow"d o'l &. 'd %o %4" ",%"'% %4% %4" /" $o''"$%"d w&%4 &'$o" ./o (o#/$"( w&%4&' %4" P4&l&&'"() ) redit '0ainst Tax for Taxes of 1orei0n ountries ) - I. %4" %,"/ (&'&="( &' 4&( /"%#/' 4&( d"(&/" %o 43" %4" !"'"=%( o. %4&( //48 %4" %, &o("d ! %4&( T&%l" (4ll !" $/"d&%"d w&%4: ) itizen and Domestic orporation. - o#'% o. &'$o" %,"( &d o/ &'$#//"d d#/&' %4" %,!l" "/ %o ' .o/"&' $o#'%/ !) Partnerships and Estates ) - I' %4" $(" o. ' (#$4 &'d&3&d#l w4o &( "!"/ o. FPP o/ !"'"=$&/ o. ' "(%%" o/ %/#(%8 4&( /oo/%&o'%" (4/" o. (#$4 %,"( o. FPP o/ %4" "(%%" o/ %/#(% &d o/ &'$#//"d d#/&' %4" %,!l" "/ %o .o/"&' $o#'%/8 &. 4&( d&(%/&!#%&3" (4/" o. %4" &'$o" o. (#$4 /%'"/(4& o/ %/#(% &( /"o/%"d .o/ %,%&o' #'d"/ %4&( T&%l") &) A' l&"' &'d& 3&d#l 'd .o/ "&' $o/ o/%&o ' (4ll 'o% !" llow "d %4" $/" d&%( &'( % %4" %, .o/ %4" %,"( o. .o/"&' $o#'%/&"( llow"d #'d"/ %4&( //4) 6) imitations on redit.- T4" o#'% o. %4" $/"d&% %@"' #'d"/ %4&( S"$%&o' (4ll !" (#!9"$% %o "$4 o. %4" .ollow&' l&&%%&o'(: ) 'o#'% o. %4" $/"d&% &' /"("$% %o %4" %, &d o/ &'$#//"d %o ' $o#'%/ (4ll 'o% ",$""d %4" (" /oo/%&o' o. %4" %, &'(% w4&$4 (#$4 $/"d&% &( %@"'8 w4&$4 %4" %,"/( %,!l" &'$o" ./o (o#/$"( w&%4&' (#$4 $o#'%/ !"/( %o 4&( "'%&/" %,!l" &'$o" .o/ %4" (" %,!l" "/
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !) To%l o#'% o. %4" $/"d&% (4ll 'o% ",$""d %4" (" /oo/%&o' o. %4" %, &'(% w4&$4 (#$4 $/"d&% &( %@"'8 w4&$4 %4" %,"/ ( %,!l" &'$o" ./o (o#/$"( w&%4o#% %4" P4&l& &'"( %,!l" #'d"/ %4&( T&%l" !"/( %o 4&( "'%&/" %,!l" &'$o" .o/ %4" (" %,!l" "/) 7) 'd2ustments on Payment of Incurred Taxes ) K ) I. $$/#"d %,"( w4"' &d d&"/ ./o %4" o#'%( $l&"d ( $/"d&%( ! %4" %,"/ !) I. ' %, &d &( /" .#'d"d &' w4ol" o/ &' /% &) T,"/ (4ll 'o%&. CIR w4o (4ll /"d"%"/&'" %4" o#'% o. %4" %, .o/ %4" "/ o/ "/( "$%"d &&) Ao#'% o. %, d#" #o' (#$4 /" d"%"/ &'%&o ' (4ll !" &d ! %4" %, "/ # o' 'o%&$" ' d d"'d ! CIR8 o/ %4" o#'% o. %, o3"/&d8 &. '8 (4ll !" $/"d&%"d o/ /".#'d"d %o %4" %,"/) $) I' %4" $(" o. (#$ 4 %, &'$#//"d !# % 'o% &d8 CIR ( $o'd&%&o ' /"$"d"'% %o %4" llow '$" o. %, $/"d &% /"?#&/" %4" %," / %o &3" !o'd w&%4 (#/"%&"( 8 $o'd&%&o'" d #o' %4" "'% ! %4" %, "/ o. ' o#'% o. %, .o#'d d#" #o' ' (#$4 /"d"%"/&'%&o') ;) 3ear in 4hich redit Ta,en.- C/"d&%( 8 % %4" o%&o' o. %4" %,"/ 'd &//"("$%&3" o. %4" "%4od o. $$o#'%&' "lo"d &' @""&' 4&( !oo@(8 !" %@"' &' %4" "/ w4&$4 %4" %,"( o. %4" .o/"&' $o#'%/ w"/" &'$#//"d8 (#!9"$%8 4ow"3"/8 %o %4" $o'd&%&o'( /"($/&!"d &' SUBSEC 5 o. %4&( S"$%&o') ) I. %4" %,"/ "l"$%( %o %@" (#$4 $/"d&%( &' %4" "/ &' w4&$4 %4" %,"( o. %4" .o/"&' $o#'%/ $$/#"d8 %4" $/"d&%( .o/ ll (#!("?#"'% "/( (4ll !" %@"' #o' %4" (" !(&( 'd 'o o/%&o' o. ' (#$4 %,"( (4ll !" llow"d ( d"d#$%&o' &' %4" (" o/ ' (#$$""d&' "/) ) Proof of redits ) - C/"d&%( 4ll !" llow"d o'l &. %4" %,"/ "(%!l&(4"( %o %4" (%&(.$%&o' o. %4" Co&((&o'"/ %4" .ollow&': ) To%l o#'% o. &'$o" d"/ &3"d ./o (o#/$ "( w&%4o#% %4" P4&l &&'"( !) Ao#'% o. &'$o" d"/&3"d ./o "$4 $o#'%/8 %4" %, &d o/ &'$#//"d %o w4&$4 &( $l&"d ( $/"d&% #'d"/ (&d //48 (#$4 o#'% %o !" d"%"/&'"d #'d"/ /#l"( 'd /"#l%&o'( /"($/&!"d ! %4" S"$/"%/ o. >&''$" 'd $) All o%4"/ &'.o /%&o' '" $"((/ .o/ %4" 3"/&=$ %&o' 'd $o #%%&o' o. (# $4 $/"d&% () D) osses. $ 1) G%& Lo(("( $%#ll (#(%&'"d d#/&' %4" %,!l" "/ 'd 'o% $o"'(%"d .o/ ! &'(#/'$" o/ o%4"/ .o/( o. &'d"'&% (4ll !" llow"d ( d"d#$%&o'(: ) I. &'$#//"d &' %/ d"8 / o."((& o' o/ !#( &'"(( !) O. /o"/ % $o''" $%"d w&%4 %4" %/ d"8 !#(& '"(( o/ /o. "((&o' $) I. %4" lo(( /&("( ./o =/"(8 (%o/(8 (4&w/"$@8 o/ o%4"/ $(#l%&"(8 o/ ./o /o!!"/8 %4".% o/ "!"JJl""'%) &) S> &( 4"/"! #%4 o/&J"d %o /o# l%" /#l" ( 'd /"#l%& o'( /"($ /&!&' %&" 'd ' '"/ ! w4&$4 %4" % , "/ (4ll (#! &% d"$l / %& o' o. lo( ( (#(% &' "d ./ o $(# l% o/ ./ o /o!!"/ 8 %4 ".% o/
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS "!"JJl""'% d#/&' %4" %,!l" "/ &&) T& " l&&% (4ll 'o% !" l"(( %4 ' *0 d( 'o/ o/" %4 ' 0 d( ./o %4" d%" o. d&($ o3"/ o. %4" $(#l% o/ /o!!"/8 %4".% o/ "!"JJl""'% &3&' /&(" %o %4" lo(() d) No lo(( (4ll !" llow "d ( d"d#$%&o ' &. % %4" %&" o. %4" =l&' o. %4" /"%#/ '8 (#$4 lo( ( 4( !""' $l&" d ( d"d#$%&o' .o/ "(%%" %, #/o("( &' %4" "(%%" %, /"%#/') 2) Proof of oss.- I' %4" $(" o. NRA o/ >C8 %4" lo(("( d"d#$%&!l" (4ll !" %4o(" $%#ll (#(%&'"d d#/&' %4" "/ &'$#/ /"d &' !#(&'"((8 %/d" o/ ","/$&(" o. /o."((&o' $o'd#$ %"d w&%4&' %4" P4&l& &'"(8 w4"' (#$4 lo(("( /" 'o% $o"'(%"d .o/ ! &'(#/'$" o/ o%4"/ .o/( o. &'d"'&%) &) S> &( 4"/"! #%4 o/&J"d %o /o# l%" /#l" ( 'd /"#l%& o'( /"($ /&!&' %&" 'd ' '"/ ! w4&$4 %4" % , "/ (4ll (#! &% d"$l / %& o' o. lo( ( (#(% &' "d ./ o $(# l% o/ ./ o /o!!"/ 8 %4 ".% o/ "!"JJl""'% d#/&' %4" %,!l" "/ &&) T& " l&&% (4ll 'o% !" l"(( %4 ' *0 d( 'o/ o/" %4 ' 0 d( ./o %4" d%" o. d&($ o3"/ o. %4" $(#l% o/ /o!!"/8 %4".% o/ "!"JJl""'% &3&' /&(" %o %4" lo(() *) !et peratin0 oss arry-ve /) K ) G%: N"% o"/%&' lo(( o. %4" !#(&'"(( o/ "'%"//&(" .o/ ' %,!l" "/ &"d&%"l /"$"d&' %4" $#//"'% %,!l" "/8 w4&$4 4d 'o% !""' /"3&o#(l o("% ( d"d#$%&o' ./o /o(( &'$o" (4ll !" $//&"d o3"/ ( d"d#$%&o' ./o /o(( &'$o" .o/ %4" '",% * $o'("$#%&3" %,!l" "/( &"d&%"l .ollow&' %4" "/ o. (#$4 lo((: !) E5EPTI!: &) A' '"% lo(( &'$ #//"d &' %,!l" " / d#/&' w4&$ 4 %4" %, "/ w( "," % ./o &'$o" %, (4l l 'o% !" llow"d ( d"d#$%&o' #'d"/ %4&( S#!("$%&o' &&) NOLCO (4ll !" llow "d o'l &. %4"/" 4( !"" ' 'o (#!(%' %&l $4'" &' %4" ow' "/(4& o. %4" !# (&'"(( o/ "'%"//&(" &' %4% : 1) No% l"(( %4' 7 &' 'o&'l 3l#" o. o#%(%'d&' &((#"d (4/"(8 &. %4" !#(&'"(( &( &' %4" '" o. $o/o/%&o'8 &( 4"ld ! o/ o' !"4l. o. %4" (" "/(o'( o/ 2) No% l"(( 7 o. %4 " &d # $ & %l o. %4" $o/ o/ %& o' 8 &. %4" !#(&' "( ( &( &' %4" ' " o. $o/o/%&o'8 &( 4"ld ! o/ o' !"4l. o. %4" (" "/(o'() NET OPERATINF LOSS: ",$"(( o. llow!l" d"d#$%&o' o3"/ /o(( &'$o" o. %4" !#(&'"(( &' %,!l" "/) 6&'"( o%4"/ %4' o&l 'd ( w"ll(8 '"% o"/%&' lo(( w&%4o#% %4" !"'"=% o. &'$"'%&3"( &' O'&!#( I'3"(%"'%( Cod"8
&'$#//"d &' ' o. %4" =/(% 10 "/( o. o"/%&o' !" $//&"d o3"/ ( d"d#$%&o' ./o %,!l" &'$o" .o/ %4" "/( &"d&%"l .ollow&' %4" "/ o. (#$4 lo(()
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS E'%&/" o#' % o. %4" lo(( (4ll !" $//&"d o3"/ %o %4" =/(% o. %4" %,!l" "/( .ollow&' %4" lo((8 'd ' o/%&o' o. (#$4 lo(( w4&$4 ",$""d(8 %4" %,!l" &'$o" o. (#$4 =/(% "/ (4ll !" d"d#$%"d &' l&@" ''"/ .o/ %4" %,!l" & '$o" o. %4" '",% /"&'&' + "/() +) apital osses. ) imitation) - Lo(( ./o (l"( o/ E,$4'"( o. $&%l (("%( (4ll !" llow"d o'l %o %4" ",%"'% /o3&d"d &' SEC * i. &% 3* (%apital gains and losses)
!) (ecurities #ecomin0 4orthless ) - I. ("$#/&%&"( ( d"='"d &' SEC 22 5T !"$o" wo/%4l"(( d#/&' %4" %,!l" "/ 'd /" $&% l (("%( 8 %4" lo(( /"(#l%&' %4"/"./o (4ll8 .o/ #/o("( o. %4&( T&%l"8 !" $o'(&d"/" d ( lo(( ./o %4" (l" o/ ",$4'"8 o' %4" l(% d o. (#$4 %,!l" "/8 o. $&%l (("%() i. &% 22 (+): &hares of stoc, in a corporation and rights to receive sch shares
) osses 1rom 4ash (ales of (toc, or (ecurities. - Lo(("( ./o 7ash sales7o. (%o$@ o/ ("$#/&%&"( ( /o3&d"d &' SEC *;) ) -n the case of any loss claimed to have been sstained from any sale or other disposition of shares of stoc, or secrities the taxpayer has ac/ired (by prchase or by exchange pon which the entire amont of gain or loss was recogni0ed by law) or has entered into a contact or option so to ac/ire sbstantially identical stoc, or secrities then no dedction for the loss shall be allowed nder &% 3' nless the claim is made by a dealer in stoc, or secrities and with respect to a transaction made in the ordinary corse of the bsiness of sch dealer.
!) -f the amont of stoc, or secrities ac/ired (or covered by the contract or option to ac/ire) is less than the amont of stoc, or secrities sold or otherwise disposed of then the particlar shares of stoc, or secrities the loss form the sale or other disposition of which is not dedctible
$) -f the amont of stoc, or secrities ac/ired (or covered by the contract or option to ac/ire which) reslted in the non dedctibility of the loss
6) 4a0erin0 osses) - Lo(("( ./o w"/&' %/'($%&o'( (4ll !" llow"d o'l %o %4" ",%"'% o. %4" &'( ./o (#$4 %/'($%&o'() 7) ')andonment osses. $ ) I' %4" "3"'% $o'%/$% /" w4" /" "%/ol" # o"/%&o '( /" #'d"/% @"' &( /%&ll o/ w4oll !'do'" d8 ll $$##l%"d ",lo/%&o' 'd d"3"lo"'% ","'d&%#/"( (4ll !" llow"d ( d"d#$%&o' & !) I' $(" /od#$&' w"ll &( (#!("? #"'%l !'do'"d 8 #'o/%&J "d $o(%(8 ( w"ll ( #'d"/"$ &%"d $o(%( o. "?#&"'% d&/"$%l #("d8 (4ll !" llow"d ( d"d#$%&o' &' %4" "/ (#$4 w"ll8 "?#&"'% o/ .$&l&% &(
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !'do'"d ! %4" $o'%/$%o/ &) &. (#$4 !'d o'"d w"ll &( /""'% "/"d 'd /od #$%&o' &( /"(#"d8 o/ &. (#$4 "?#& "' % o/ .$&l& % &( /"(%o/"d &'%o ("/3&$"8 %4" (&d $o(%( (4ll !" &'$l#d"d ( /% o. /o(( &'$o" &' %4" "/ o. /"(#%&o' o/ /"(%o/%&o' 'd (4ll !" o/%&J"d o/ d"/"$&%"d) E) #ad De)ts. 1) G%& D"!%( d#" %o %4" %,"/ $%#ll ($"/%&'"d %o !" wo/%4l"(( 'd $4/"d o w&%4&' %4" %,!l" "/ 2) EXCEPT IO N: ) T4o(" ' o% $o''" $%"d w&% 4 /o."((&o'8 %/ d" o/ !#( &'"(( !) T4o(" (#(%&'"d &' %/'($%&o' "'%"/"d &'%o !"%w""' /%&"( "'%&o'"d #'d"/ S"$%&o' *6 5B &) 36(b): losses from sales or exchanges of property: 1. 2. 3. '. !. 6.
Between members of fam ily Between individal and corporation more than !"# in vale of $%& owned by sch individal Between 2 corporationsmore than !"# $%& is owned by either one Between grantor and dciary in trst Between dciary in trst and another dciary in trst if grantor is the same person Between dciary of trst and beneciary of sch trst )
$) R"$o3"/ o. !d d"!%( /"3 &o#(l llow "d ( d"d#$%& o' &' %4" /"$"d &' "/( (4ll !" &'$l #d"d ( /% o. %4" /o(( &'$o" &' %4" "/ o. /"$o3"/ %o %4" ",%"'% o. %4" &'$o" %, !"'"=% o. (&d d"d#$%&o') *) (ecurities #ecomin0 4orthless ) - I. ("$#/&%&"( /" ($"/%&'"d %o !" wo/%4l"(( 'd $4/"d o w&%4&' %4" %,!l" "/ 'd /" $&%l (("%(8 %4" lo(( (4ll !" $o'(&d"/"d ( lo(( ./o %4" (l" o/ ",$4'"8 o' %4" l(% d o. (#$4 %,!l" "/8 o. $&%l (("%() ) I' %4" $(" o. %,"/ o%4"/ %4' !'@ o/ %/#(% $o' &'$o /o/%"d #'d"/ P4&l& &'"( (#!(%' %&l /% o. w4o(" !#(&'"(( &( %4" /"$"&% o. d"o(&%( >) Depreciation. 1) G%& T4"/" (4ll !" llow"d ( d"/"$&%&o' d"d#$%&o' /"(o'!l" llow'$" .o/ %4" ",4#(%&o'8 w"/ 'd %"/ 5&'$l#d&' /"(o'!l" llow'$" .o/ o!(ol"($"'$" o. /o"/% #("d &' %4" %/d" o/ !#(&'"(() ) I' %4" $(" o. /o"/% 4"ld ! o'" "/(o' .o/ l&." w&%4 /"&'d"/ %o 'o%4"/ "/(o'8 %4" d"d#$%&o' (4ll !" $o#%"d ( &. %4" l&." %"''% w"/" %4" !(ol#%" ow'"/ o. %4" /o"/%) !) I' %4" $( " o. /o" /% 4"ld &' %/#(%8 llow !l" d"d# $%& o' (4ll !" o/% &o' "d !"%w" "' %4" &'$o" !"'"=$&/&"( 'd %4" %/#(%""( &' $$o/d'$" w&%4 &'(%/#"'% $/"%&' %4" %/#(%8 o/ &' %4" !("'$" o. (#$4 /o3&(&o'(8 o' %/#(% &'$o" llow!l" %o "$4) 2) 8se of ertain 6ethods and %ates) K REASONABLE ALLOWA NCE: (4ll &'$l#d"' llow'$" $o#%" d ! %4"
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS S"$/"%/ o. >&''$"8 #'d"/ ' o. %4" .ollow&' "%4od(: ) S%/ &4 %-l &'" "%4od !) D"$l&' &'-! l'$" "%4o d8 #(&' /%" 'o% ",$""d&' %w&$" %4" /%" w4&$4 wo# ld 43" !""' #("d 4d %4" ''#l llow'$" !""' $o#%"d #'d"/ %4" "%4od d"($/&!"d &' SUBSEC 5>51 depreciation) 5 $) S#-o.-%4"-"/(-d&&% "%4od d) A' o%4" / "%4od w4 &$4 !" /"($/ &!"d ! S>) *) '0reement as to 8seful ife on 4hich Depreciation %ate is #ased. $ ) W4"/" #'d "/ /#l"( 'd /"#l%&o '( /"($/&! "d ! S>8 %,"/ 'd CIR 43" "'%"/" d &'%o ' /"""'% &' w/&%&' ("$&=$ll d"l&' w&%4 %4" #(".#l l&." 'd /%" o. d"/"$& %&o' o. ' /o"/% 8 /%" (o /""d #o' (4ll !" !&'d&' o' !o%4 %4" %,"/ 'd %4" '%&o'l Fo3"/'"'% !)
R"(o'(&!&l &% o. "(%!l&(4&' %4" ",&(%"'$ " o. (#$4 .$%( 'd $&/$#(% '$"( (4ll /"(% w&%4 %4" /% &'&%&%&' %4" od&=$%&o')
$) A' $4' " &' %4" /""d /%" 'd #(".# l l&." o. %4" d"/"$&! l" /o"/% (4 ll 'o% !" ""$%&3" .o/ %,!l " "/( /&o/ %o %4" %,!l" "/ &' w4&$4 'o%&$" &( ("/3"d ! %4" /% &'&%&%&' (#$4 $4'" %o %4" o%4"/ /% %o %4" /"""'% &) W4"/" %4" %, "/ 4( do%"d (#$4 #(".#l l&." 'd d"/"$&%& o' /%" .o/ ' d"/" $&! l" 'd $l& "d %4" d"/"$&% &o' ","'("( ( d"d#$% &o' ./o 4&( /o(( &'$o"8 w&% 4o#% ' w/& %%"' o!9"$%&o' o' CIR8 %4" .o/"(&d #(".#l l&." 'd d"/"$&%&o' /%" (o do%"d ! %4" %,"/ .o/ %4" .o/"(&d d"/"$&!l" (("% (4ll !" $o'(&d"/"d !&'d&' .o/ #/o("( o. %4&( S#!("$%&o') +) Depreciation of Properties 8sed in Petroleum perations ) K ) A' llo w'$" .o/ d"/"$&%& o' (4ll !" llo w"d #'d"/ %4" (%/ &4 %-l& '" o/ d"$l&'& '-!l '$" "% 4od o. d"/"$&%&o' % %4" o%&o ' o. %4" ("/3&$" $o'%/$%o/) &) I. %4" ("/3&$ " $o'%/$%o / &'&%&ll "l"$ %( %4" d"$l&'& '-!l '$" "%4 od8 &% % ' (#!("?# "'% d%"8 (4&.% %o %4" (%/&4%-l&'" "%4od) &&) U(".#l l&." o. /o" /%& "( #("d &' o/ /"l %"d %o /od#$%&o' o. "%/o l"# (4 ll !" 10 "/ ( o. (#$4 (4o/%"/ l&." ( !" "/&%%"d ! %4" Co&((&o'"/) &&&) P/o"/%&"( 'o% #("d d&/" $%l &' %4" /od#$% &o' o. "%/ol"# (4ll !" d"/"$&% "d #'d"/ %4" (%/& 4%l&'" "%4od o' %4" !(&( o. ' "(%&%"d #(".#l l&." o. "/() ) Depreciation of Properties 8sed in 6inin0 perations. K ) Allow' $" .o/ d"/"$& %&o' &' /"("$% o. ll /o"/%&" ( #("d &' &'&' o"/%&o' ( o%4"/ %4' "%/ol" # o"/%&o'(8 (4ll !" $o#%"d ( .ollow(: &) A% %4" 'o/ l /%" o. d"/ "$&%&o' & . %4" "," $%"d l&. " &( 10 "/( o/ l" (( &&) D"/"$&%"d o3"/ ' '# !"/ o. "/( !"% w""' "/ ( 'd %4" ","$ %"d l&." &. %4" l%%"/ &( o/"
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS %4' 10 "/(8 'd %4" d"/"$&%&o' %4"/"o' llow"d ( d"d#$%&o' ./o %,!l" &'$o" 6) Depreciation Deducti)le )y !onresident 'liens En0a0ed in Trade or #usiness or %esident 1orei0n orporations ) I' %4" $(" o. NRA "'"d &' %/d" o/ !#(&'"(( o/ R>C8 /"(o'!l" llow'$" .o/ %4" d"%"/&o/%&o' o. P/o"/% (4ll !" "/&%%"d o'l w4"' (#$4 /o"/% &( lo$%"d &' %4" P4&l&&'"() F) Depletion of il and Gas 4ells and 6ines. 1) G%& I' %4" $(" o. o&l 'd ( w"ll( o/ &'"(8 /"(o'!l" llow' $" .o/ d"l"%&o' o/ o/%&J%& o' $o#%"d &' $$o/d'$" w&%4 %4" $o(%-d"l"%&o' "%4od (4ll !" /'%"d ) W4"' %4" llow'$" .o/ d"l"%&o' (4ll "?#l %4" $&%l &'3"(%"d 'o .#/%4"/ llow'$" (4ll !" /'%"d !) '.%"/ /od#$%&o' &' $o"/$&l ?#'%&%&"( 4( $o"'$"d8 $"/%&' &'%'&!l" ",lo/%&o' 'd d"3"lo"'% d/&ll&' $o(%(: &) S4ll !" d"d#$ %&!l" &' %4" "/ &'$#//" d &. (#$4 ","'d& %#/"( /" &'$#/ /"d .o/ 'o'- /od#$&' w"ll( 'd
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS NET INCOME >ROM MININF OPERATIONS: /o(( &'$o" ./o o"/%&o'( l"(( 7alloa)le deductions7w4&$4 /" '"$"((/ o/ /"l%"d %o &'&' o"/%&o'() ALLOWABLE DEDUCTIONS: &'&'8 &ll&' 'd /@"%&' ","'("(8 'd d"/"$&%&o' o. /o"/%&"( d&/"$%l #("d &' %4" &'&' o"/%&o'() ") T4&( // 4 (4ll 'o% l %o: &) E,"'d&%#/"( .o/ %4" $?#&(&% &o' o/ &/o3" "'% o. /o"/ % o. $4/$%"/ w4&$ 4 &( (#!9"$% %o %4" llow'$" .o/ d"/"$&%&o') &&) Ao#'%( &d o/ &'$# //"d .o/ %4 " ",lo/%&o' 'd d "3"lo "'% o. o&l ' d () EXPLORATION EXPENDITURES: ","'d&%#/"( &d o/ &'$#//"d .o/ %4" #/o(" o. ($"/%&'&' %4" ",&(%"'$"8 lo$%&o'8 ",%"'% o/ ?#l&% o. ' d"o(&% o. o/" o/ o%4"/ &'"/l8 'd &d o/ &'$#//"d !".o/" %4" !"&''&' o. %4" d"3"lo"'% (%" o. %4" &'" o/ d"o(&%) DEVELOPMENT EXPENDITURES: ","'d&%#/"( &d o/ &'$#//"d d#/&' %4" d"3"lo"'% (%" o. %4" &'" o/ o%4"/ '%#/l d"o(&%() D"3"lo"'% (%" o. &'" o/ o%4"/ '%#/l d"o(&% (4ll !"&' % %4" %&" w4"' d"o(&%( o. o/" o/ o%4"/ &'"/l( /" (4ow' %o ",& (% &' (#$&"' % $o "/ $& l ?# '%& % 'd ?#l&% 'd (4 ll "'d #o' $o "' $""'% o. $% #l $o "/ $& l ",%/$%&o') *) Depletion of il and Gas 4ells and 6ines Deducti)le )y a !%' or -1. I' %4" $(" o. 'o'/"(&d"'% l&"' &'d&3&d#l "'"d &' %/d" o/ !#(&'"(( &' %4" P4&l&&'"( o/ /"(&d"'% .o/"&' $o/o/%&o'8 llow'$" .o/ d"l"%&o' (4ll !" #%4o/&J"d o'l &' /"("$% %o o&l 'd ( w"ll( o/ &'"( lo$%"d w&%4&' %4" P4&l&&'"() H) harita)le and ther ontri)utions 1) G%&. KCo'%/&!#%&o'( o/ &.%( $%#ll &d o/ d" w&%4&' %4" %,!l" "/ %o: ) U(" o. %4" Fo3"/' "'% o. %4" P4&l&&' "( o/ ' o. &%( "'$& "( o/ ' ol&%&$l (#!d&3& (&o' ",$l# (&3"l .o/ #!l&$ #/o("( !) A$$/"d &%"d do"(% &$ $o/ o/ %&o ' o/ (( o$& %&o' ( o/ '& J"d 'd o"/%"d ",$l#( &3"l .o/ /"l &&o #(8 $4/&% !l"8 ($& "'% &=$8 o# %4 'd (o/%( d"3 "lo"'%8 $#l %#/ l o/ "d#$% &o' l #/ o( "( o/ .o/ %4" /"4!&l&%%&o' o. 3"%"/'( $) So$&l w"l ./" &'(%& %#%&o' (8 o/ %o 'o'-o3 "/'"'% o/'&J %&o'( &) No /% o. %4" ' "% &'$o" o. w4 &$4 &'#/" ( %o %4" !"'" =% o. ' /&3% " (%o$@4 old"/ o/ &'d &3&d#l &' ' o#'% 'o% &' ",$"(( o.: 1) 10 &' %4" $(" o. ' &'d&3&d #l 2) &' %4" $(" o. $o/ o/ %&o '8 o. %4" %, "/( %, !l" &'$o " d"/&3 "d ./o %/d" 8 !#(& '"(( o/ / o. "((&o ' ( $o #% "d w&%4 o# % %4 " !"'"=% o. %4 &( ' d %4 " .ollo w& ' (#!//4()
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 2) ontri)utions Deducti)le in 1ull. - No%w&%4(%'d&' %4" /o3&(&o'( o. %4" /"$"d&' (#!//48 do'%&o'( %o %4" .ollow&' &'(%&%#%&o'( o/ "'%&%&"( (4ll !" d"d#$%&!l" &' .#ll ) Donations to the Government ) - Do'%&o'( %o %4" Fo3"/'"'% o. %4" P4&l& &'"( o/ %o ' o. &%( "'$&"( o/ ol&%&$ l (#!d&3&(&o' (8 &'$l#d&' .#ll-ow'"d o3"/ '"'% $o/o/%&o' (8 ",$l#(&3"l %o =''$"8 %o /o3&d " .o/8 o/ %o !" #("d &' #'d"/%@&' /&o/&% $%&3&%&" ( &' "d#$%&o'8 4"l%48 o#%4 'd (o/%( d"3"lo"'%8 4#' ("%%l""'%(8 ($&"'$" 'd $#l%#/"8 'd &' "$o'o&$ d"3"lo"'% $$o/d&' %o N%&o'l P/&o/&% Pl' d"%"/&'"d ! NEDA &) '' do'%&o' w4&$4 &( d" %o %4" Fo3"/'"'% o/ %o ' o. &%( "'$&"( o/ ol&%&$l (#!d&3&(&o'( 'o% &' $$o/d'$" w&%4 %4" (&d ''#l /&o/&% l' (4ll !" (#!9"$% %o %4" l&&%%&o'( /"($/&!"d &' PAR 51 o. %4&( S#!("$%&o' !) Donations to ertain 1orei0n Institutio ns or International r0anizations. - Do' %&o '( %o &'(%&%#%&o'( o/ &'%"/'%&o'l o/'&J%&o'( w4&$4 /" .#ll
.o/ "& '
$) Donations to 'ccredited !on0overnment r0anizations ) K NONFOVERNMENT OPERATION: 'o' /o=% do"(%&$ $o/o/%&o': &) O/'& J"d 'd o"/%"d ",$l# (&3"l .o/ ($&"'% &=$8 /"("/ $48 "d#$% &o'l8 $4/$ %"/-!#&ld&' 'd o#%4 'd (o/%( d"3"lo"'%8 4"l%4 8 (o$&l w"l ./ "8 $#l%#/ l o/ $4 /&% !l" #/ o( "(8 o/ $o!&'%&o' %4"/"o.8 'o /% o. %4" '"% &'$o" o. w4&$4 &'#/"( %o %4" !"'"=% o. ' /&3%" &'d&3&d#l && ) W4& $48 'o % l %"/ %4' %4" 1%4 d o. %4" %4 &/ d o'% 4 .% "/ %4 " $l o( " o. %4 " $$/ "d &%"d 'o'o3"/'"'% o/'&J%&o'( %,!l" "/ &' w4&$4 $o'%/&!#%&o'( /" /"$"&3"d8 @"( #%&l&J%&o' d&/"$%l .o/ %4" $%&3" $o'd#$% o. %4" $%&3&%&"( $o'(%&%#%&' %4" #/o(" o/ .#'$%&o' .o/ w4&$4 &% &( o/'&J"d 'd o"/%"d8 #'l"(( ' ",%"'d"d "/&od &( /'%"d ! %4" S"$/"%/ o. >&''$" &' $$o/d '$" w&%4 %4" /#l"( 'd /"#l%&o' ( %o !" /o#l%"d 8 #o' /"$o"' d%&o' o. %4" Co&((&o'"/ &&&) L"3"l o. d&' &(%/%&3 " ","' (" o. w4&$4 (4l l8 o' ' ''#l !(&( !# % &' 'o $(" %o ",$""d %4& /% "/$"'% 5*0 o. %4" %o%l ","'("( &3) A(("%( o. w4&$48 &' %4" "3"' o. d&( (ol#%&o '8 wo#ld !" d&(% /&!#%"d %o 'o%4"/ 'o' /o=% do" (%&$ $o/o/%&o' o/'&J"d .o/ (&&l/ #/o(" o/ #/o("(8 o/ %o %4" (%%" .o/ #!l&$ #/o("8 o/ wo#ld !" d&(%/&!#%"d ! $o#/% %o 'o%4"/ o/'&J%&o' %o !" #("d &' (#$4 ''"/ ( &' %4" 9#d"'% o. (&d $o#/% (4ll !"(% $$ol&(4 %4" "'"/l #/o(" .o/ w4&$4 %4" d&((ol3"d o/'&J%&o' w( o/'&J"d)
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 11
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 3) UT ILI ATION: 1) A' o# '% &' $( 4 o/ &' @&' d 5&' $l# d&' d &'&( %/ %&3" ", "'( "( &d o/ #%& l&J"d %o $$ol&(4 o'" o/ o/" #/o("( .o/ w4&$4 %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' w( $/"%"d o/ o/'&J"d) 2) A' o#' % &d %o $?#&/" ' (("% #( "d 5o/ 4"ld .o/ #(" d&/"$%l &' $// &' o#% o'" o/ o/ " #/ o( "( .o/ w4& $4 %4" $$/"d&%"d 'o'o3 "/'"'% o/ '& J%& o' w( $/"%"d o/ o/'&J"d) *) A' o#'% (" % (&d" .o/ ("$&= $ /o9"$% w4 &$4 $o"( w&% 4&' o'" o/ o/" #/ o("( o. %4" $$/"d&%"d 'o'o3" /'"'% o/'& J%&o' !" %/"%"d ( #%&l&J% &o'8 !#% o'l &. % %4" %&" (#$4 o#'% &( ("% (&d"8 %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' 4( "(%!l&(4"d %o %4" (%&(.$%&o' o. %4" Co&((&o'"/ %4% %4" o#'% w&ll !" &d .o/ %4" ("$&=$ /o9"$% w&%4&' "/&od %o !" /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co &( (&o' "/8 !#% 'o% %o ",$""d "/(8 'd %4" /o9" $% &( o'" w4&$4 $' !" !"%%"/ $$ol&(4"d ! ("%%&' (&d" (#$4 o#'% %4' ! &"d&%" "'% o. .#'d( *) 9aluation- T4" o#'% o. ' $4/&%!l" $o'%/&!#%&o' o. /o"/% o%4"/ %4' o'" (4ll !" !("d o' %4" $?#&(&%&o' $o(% o. ( &d /o"/%) +) Proof of Deductions )$4'/o!l"( 3&/%#l lw l&!// - Co'%/&!#%&o'( o/ &.%( (4ll !" llow!l" ( d"d#$%&o'( o'l &. 3"/&="d #'d"/ %4" /#l"( 'd /"#l%&o' ( /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o "'d%& o' o. %4" Co&((&o'"/) I) %esearch and Development. $ 1) G%& - R"("/$4 o/ d"3"lo"'% ","'d&%#/"( &d o/ &'$#//"d ! 4& d#/&' %4" %,!l" "/ w4&$4 /" 'o% $4/"!l" %o $&%l $$o#'%(4ll !" llow"d ( d"d#$%&o' d#/&' %4" %,!l" "/ w4"' &d o/ &'$#//"d) 2) 'mortization of ertain %esearch and Development Expenditures. - >ollow &' /"("/ $4 'd d"3 "lo"'% ","'d&%#/"( !" %/"%"d ( d"."//"d ","'("(: ) P&d o/ &'$#//"d ! %4" %,"/ &' $o''"$%&o' w&%4 4&( %/d"8 !#(&'"(( o/ /o."((&o' !) No% %/"% "d ( "," '("( #'d"/ $&% l $$o#' % $) C4 / "! l" %o $ &% l $$o#'% !#% 'o% $4/ " !l" %o / o "/ % o. $4/ $% "/ w4&$4 &( (#!9 "$% %o d"/"$&%&o' o/ d"l"%&o') I' $o#%&' %,!l" &'$o"8 (#$4 d"."//"d ","'("( (4ll !" llow"d ( d"d#$%&o' /%!l d&(%/&!#%"d o3"/ "/&od o. 'o% l"(( %4' 60 o'%4( ( !" "l"$%"d ! %4" %,"/ 5!"&''&' w&%4 %4" o'%4 &' w4&$4 %4" % ,"/ =/(% /"l&J"( !"'"=%(
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 12
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ./o (#$4 ","'d&%#/"() T4&( !" d" 'o% l%"/ %4' %4" %&" /"($/&!"d ! lw .o/ =l&' %4" /"%#/' .o/ (#$4 %,!l" "/) M"%4od (o "l"$%"d8 'd %4" "/&od ("l"$%"d ! %4" %,"/8 (4ll !" d4"/"d %o &' $o#%&' %,!l" &'$o" .o/ %4" %,!l" "/ .o/ w4&$4 %4" "l"$%&o' &( d" 'd .o/ ll (#!("?#"'% %,!l" "/( #'l"(( w&%4 %4" /o3l o. %4" Co&((&o'"/8 $4'" %o d&"/"'% "%4od &( #%4o/&J"d w&%4 /"("$% %o /% o/ ll o. (#$4 ","'d&%#/"() El"$%&o' (4ll 'o% l %o ' ","'d&%#/" &d o/ &'$#//"d d#/&' ' %,!l" "/ .o/ w4&$4 %4" %,"/ @"( %4" "l"$%&o') *) imitations on Deduction ) - T4&( S#!("$%&o' (4ll 'o% l %o ) A' ","'d&%#/" .o/ %4" $?#&(&%&o' o/ &/o3""'% o. l'd8 o/ .o/ %4" &/o3""'% o. /o"/% %o !" #("d &' $o''"$%&o' w&%4 /"("/$4 'd d"3"lo"'% o. $4/$%"/ w4&$4 &( (#!9"$% %o d"/"$&%&o' 'd d"l"%&o' !) A' ","' d&%#/" &d o/ &'$#// "d .o/ %4" #/o(" o. ($"/%&' &' %4" ",&(%"' $"8 lo$%&o '8 ",%"'%8 o/ ?#l&% o. ' d"o(&% o. o/" o/ o%4"/ &'"/l8 &'$l#d&' o&l o/ () ) Pension Trusts- A' "lo"/ "(%!l&(4&' o/ &'%&'&' "'(&o' %/#(% %o /o3&d" .o/ %4" "'% o. /"(o'!l" "'(&o'( %o 4&( "lo""( (4ll !" llow"d ( d"d#$%&o' 5&' dd&%&o' %o %4" $o'%/&!#%&o'( %o (#$4 %/#(% d#/&' %4" %,!l" "/ %o $o3"/ %4" "'(&o' l&!&l&% $$/#&' d#/&' %4" "/8 llow"d ( d"d#$%&o' /"(o'!l" o#'% %/'(."//"d o/ &d &'%o (#$4 %/#(% d#/&' %4" %,!l" "/ &' ",$"(( o. (#$4 $o'%/&!#%&o'(8 !#% o'l &. (#$4 o#'%: ) No% %4"/"%o.o/" !""' llow" d ( d"d# $%&o'8 !) Ao/%&o'"d &' "?#l /%( o3"/ "/&od o. 10 $o'("$#%&3" "/( !"&''&' w&%4 %4" "/ &' w4&$4 %4" %/'(."/ o/ "'% &( d") ) 'dditional %e*uirements for Deducti)ility of ertain Payments. - A' o#' % & d o/ !l " w4&$4 &( o%4"/w &(" d"d#$%&!l" ./o8 o/ %@"' &'%o $$o#'% &' $o#%&' /o(( &'$o" o/ .o/ w4&$4 d"/"$&%&o' o/ o/%&J%&o' !" llow"d #'d"/ %4&( S"$%&o'8 (4ll !" llow"d ( d"d#$%&o' o'l &. &% &( (4ow' %4% %4" %, /"?#&/"d %o !" d"d#$%"d 'd w&%44"ld %4"/"./o 4( !""' &d %o BIR) L) ptional (tandard Deduction. - A' &'d&3&d#l (#!9"$% %o %, #'d"/ S"$%&o' 2+8 o%4"/ %4' 'o'/"(&d"'% l&"'8 "l"$% (%'d/d d"d#$%&o' &' ' o#'% 'o% ",$""d&' 10 o. 4&( /o(( &'$o") ) U'l"(( %4" %, "/ (&'&=" ( &' 4&( /"%#/' 4&( &'%"' %&o' %o "l"$% %4" o%&o'l (%'d/ d d"d#$%&o' 8 4" (4ll !" $o'(&d"/"d ( 43&' 3&l"d 4&("l. o. %4" d"d#$%&o'( llow"d &' %4" /"$"d&' S#!("$%&o'() &) T4&( w4"' d" &' %4" /"%#/' (4ll !" &//"3o$!l" .o/ %4" %,!l" "/ .o/ w4&$4 %4" /"%#/' &( d" !) A' &'d&3&d# l w4o &( "'%&%l"d %o 'd $l&"d .o/ %4" o% &o'l (%'d /d d"d#$ %&o' (4ll 'o% !" /"?#&/ "d %o (#!&% w&%4 4&( %, /"%#/' (#$4 =''$&l (%%""'%( &) E,$"% w4"' %4" Co&((&o'"/ o%4"/w&(" "/&%(8 %4" (&d &'d&3&d#l (4ll @"" (#$4 /"$o/d( "/%&'&' %o 4&( /o(( &'$o" d#/&' %4" %,!l" "/8 ( !" /"?#&/"d ! %4" /#l"( 'd /"#l%&o'( /o#l%"d
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ! %4" S>) M) Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer. $ ) Ao#'% o. /"&#( 'o% %o ",$"" d P28+00 "/ . &l o/ P200 o'%4 &d d#/&' %4" %,!l" "/ .o/ 4" l%4 'd .%"/ #!l&$ 4"/&' (4ll 43" !""' 4"ld .o/ %4&( #/o("8 /"($/&!" ! /#l"( 'd /"#l%&o'(8 l&&%%&o'( o/ $"&l&'( .o/ ' o. %4" &%"&J"d d"d#$%&o'( #'d"/ SUBSEC 5A %o 5 o. %4&( S"$%&o': 1o/ #/o("( o. d"%"/&'&' (#$4 $"&l&'( o/ l&&%%&o'(8 %4" S"$/"%/ o. >&''$" (4ll $o'(&d"/ %4" .ollow&' .$%o/(: 1) Ad"?#$ o. %4" /"($/&!" d l&&%( o' %4" $%#l "," 'd&%#/ " /"?#&/" "'%( o. "$4 /%&$#l / &'d#(%/ 'd 2) E"$%( o. &'% &o' o' ","' d&%# /" l"3"l (: Provided" further" T4% 'o $"&l&'( (4ll .#/%4"/ !" &o("d o' &%"( o. ","'(" l/"d (#!9"$% %o $"&l&'( #'d"/ /"("'% lw)
E,"'("( Allow!l" d"d#$%&o'( -n compting taxable income, allowable dedctions are sbtracted from gross income to measre the tax base. -temi0eddedctions xpenses which are allowed form adsted gross income , itemi0ed in detail nder their appropriate captions and sbtracted to arrive at income sbect to tax. +hese inclde ordinary and necessary expenses , interest, taxes, losses, bad debts, depreciation, depletion of oil and gas wells and mines, charitable and other contribtions, research and development expenditres and pension trst contribtions.
&tandarddedctions $ption available to taxpayers whereby they can dedct a specied amont from adsted gross income instead of itemi0ing the dedctions. +his is generally sed by taxpayers who do not have dedctions which exceed the standard dedction assigned to them.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS
1) D"d#$% &o' 3(. E,"%&o' 'd E,$l#(&o' edction xemption &btraction from gross income to -mmnity or privilege from a arrive at taxable income. brden. 4efers to actal expenses paid dring the tax year.
-n general, the greater the /alied expenses, the lower the taxable income.
xclsion -ncome received or earned bt is not taxable as income becase it is exempted by law or by treaty (or a nonrecognition rle) , e9ectively providing a sbsidy for exclded amont.
4elates to ling stats and to nmber of dependents. 5owers tax liability by allowing the sbtraction of an e/al amont for each person a taxpayer claims as dependentin addition to himself or his spose.
ay be a grant of immnity to particlar persons or corporations of a particlar class from a tax which others generally are obliged to pay.
7ny person can claim a personal exemption for himself, nless he is another8s dependent.
Ill#(%/%&o': Elo"/( $o'%/&!#%&o'( %o /"%&/""'% (3&'( l'( /" 'o% $o'(&d"/"d &'$o" o' /% o. "lo""(
+he more dependents (maximm of '), the lower the taxable income.
;ot inclded in income tax retrn nless information is re/ired therein. &ome are exclded becase of di
o
mployees8 contribtions are sbtracted from their taxable income
Ao#'%( %4% "lo"/( .o/ "lo""( 4"l%4 l&." 'd $$&d"'% &'(#/'$" ( w"ll ( 4o#(&' lo'( /" 'o% $o'(&d"/"d %,!l" &'$o" .o/ "lo""( %4#( (#!(&d&J&' %4" #/$4(" o. "lo"'%-!("d !"'"=%()
2) E, "'("( &' F "'"/l =%+-B5 >?;&&: cost of carrying on a trade or bsiness or in the exercise of profession. +hese are sally dedctible if nderta,ing is done to ma,e prot. %onditions for dedctibility of bsiness expenses • $rdinary and necessary ?aid or incrred dring taxable year •
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • • • • •
?aid or incrred in carrying on a trade or bsiness or exercise of profession +axpayer mst prove by evidence or records the dedctions claimed nder law st not be contrary to law, pblic policy or morals 4easonable and@or within the ceiling set by law or reglations -f covered by the withholding tax system@rles, appropriate amont of withholding tax on expense has been withheld and remitted to B-4
B=&-;&& +&+: rst 3 conditions • -n connection with 2nd and 3rd condition, there mst be proper matching of income and expense wherein expenses incrred in a given period are matched with the revene earned in the same period o 7+%A-; ?4-;%-?5: matching of revene and expensesC where expenses were not related to the generated income , said expenses mst not be allowed as dedctible. %onsidered waiveda taxpayer who is athori0ed to dedct expenses and other allowable dedctions bt failed to do so. • &% 6, ;-4%any retrn, statement of declaration led in any o
) W4"' $4/"( /" d"d#$%&! l"
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 16
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS dedction from gross income and may in proper cases le a claim for refnd of the excess tax paid for failre to dedct sch loss in the srcinal retrn. 7 loss from theft or embe00lement occrring in 1 year and discovered in another is dedctible for year it which sstained.
*) E,&(%"'$" o. lw # %4o/&J &' d"d #$%&o': Ae mst point to some specic provision of the statte in which that dedction is athori0ed and mst be able to prove that he is entitled to the dedction which the law allows.
+) S%/ &$% $o'(%/ #$%&o' +ax exemptions are constred against the taxpayer.
) T,"/( "' %&%l"d % o d"d#$%&o'( 4esident citi0en, nonresident citi0en and resident alien deriving income from sorces other than compensation ;onresident alien engaged in trade or bsiness embers of ?? omestic corporations ?roprietary edcational instittions and hospitals •
$%%, agencies and instrmentalities 4esident foreign corporations
Hollowing cannot avail dedctions: 4esident citi0en, nonresident citi0en and resident alien whose income is prely compensation income , except for: o Basic personal exemption o 7dditional exemption for dependents o ?remim payments on health and@or hospitali0ation insrance ;onresident alien engaged in trade or bsiness in ?hilippines is entitled to itemi0ed dedctions bt not to optional standard dedctions ;onresident alien not engaged in trade or bsiness in ?hilippines, since gross income from sorces within is sbect to 2!# nal tax ;onresident foreign corporation, since gross income from sorces within is sbect to nal tax of 3"#
6) S#!(%' %&% &o' /#l"( ;o dedction from income shall be allowed nless taxpayer shall sbstantiate with s
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 17
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -f at the time of investigation, said 1" years had lapsed, taxpayer8s expenses even if not properly sbstantiated may be sstained.
) CO HA N PR INCIPL E 4: if record provides s
-&&=: D$; Board refsal was stied A5: Board shold ma,e as close an approximation as it can. -f there was basis for some allowance , and it was wrong to refse any, it is not fatal that reslt will inevitably be speclative.K
>%?+-$;& +$ %$A7; ?4-;%-?5: • Dhen taxpayer has access to sbstantiating evidence , bt fails to prodce it. • Dhen ins
Ill#(%/%&o' H #("d 4&( $/ 'd d/&3"/ !o%4 .o/ "/(o'l 'd !#(&'"(( #/o("() T4"/" w( 'o $l"/ (4ow&' %4% $/ w( o/" d"3o%"d .o/ !#(&'"(( %4' .o/ 4&( "/(o'l 'd !#(&'"(( '""d() M 4" d"d#$% ( d"d#$%&o' o. $/ 'd d/&3"/ ","'("(Q o GES. -t is reasonable. 7) A$$o#'%&' "%4od( xcept where nal taxes on certain transactions are imposed , liability of taxpayers from income tax is determined on basis of taxable year , calendar or scal , covering 12month period. ;-4% does not prescribe an acconting method , it allows the taxpayer to adopt a standard method as long as it can properly reGect his income and his dedctions and that it is sed by him with consistency. Aowever , the law recogni0es principal acconting methods sch as cash basis and accral basis methods.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &% '!, ;-4%dedctions shall be ta,en for the taxable year in which Ipaid or accredK or Ipaid or incrredK dependent pon the method of acconting the basis of which net income is compted , nless in order to clearly reGect the income , dedctions shold be ta,en as of a di9erent period. -n case of death of taxpayer , there shall be allowed as dedctions for taxable period in which falls the date of his death , amonts accred p to date of his death if not otherwise properly allowable in respect of sch period or prior period.
) A$$/ # l "% 4od 3(. C(4 "%4od 7ccral method %ash method ethod of ,eeping acconts which shows expenses incrred and ?ractice of recording of income and expense only when cash is income earned for a give period, althogh sch expenses and income received or paid ot. may not have been actally paid or received. -t reGects dedctions as paid and income as received in any one tax year. 4ight to receive and not actal receipt determines inclsion of amont in gross income. -t is system of acconting which treats as income only cash which is Dhen right to receive an amont becomes xed, right accres. $bligations payable to or by taxpayer are treated as if discharged when incrred.
, actally received and as expense only cash which is actally paid ot in contrast to accral basis which records income when de thogh not received and expense when incrred thogh noy yet paid.
Hollows 755L;+& +&+: • 4ight to income is xed (in case of income) or all events have occrred which established fact of liability (in case of dedction) • 7mont can be determined with reasonable accracy.
!) ALL EVE NTS TEST 'd P/o/&"% o. A$$/#l 755L;+& +&+: right to income or liability be xed and determined with reasonable accracy. +his test does not demand that amont of income be ,nown absoltely , only that a taxpayer has at his disposal the information necessary to compte the amont with reasonable accracy. -t is satised where comptation remains ncertain , if its basis is nchangeablewhere comptation may be n,nown , bt is not as mch as n,nowable within the taxable year. 7mont of liability does not have to be determined exactly bt with reasonable accracy.
O/d&'/ 'd '"$"((/ %/d"!#(&'"(( o/ /o."((&o'l ","'("( •
4easonable allowance for salaries, wages and other forms of compensation for personal services actally rendered , inclding grossed p monetary vale of fringe benet frnished or granted by employer to employee provided that fringe benet tax has been paid.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS •
4easonable allowance for travel expenses, local and abroad, while away from home in the prsit of trade, bsiness or profession
•
4easonable allowance for rentals and@or other payments which are re/ired as a condition for contined se or possession , for prposes of trade, bsiness or profession, of property to which the taxpayer has not ta,en or is not ta,ing title or in which he has no e/ity other than that of a lessee, ser or possessor
•
4easonable allowance for entertainment, amsement and recreation expenses dring the taxable year, that are directly connected to development, management and operation of trade, bsiness or profession of the taxpayer, or that are directly related to or in frtherance of condct of his or its trade , bsiness or exercise of a profession not to exceed set ceilings.
•
$rdinary and necessary expenditres directly connected with or pertain to taxpayer8s trade or bsiness. o %ost of goods prchased for resale, with property adstment for opening and closing inventories , is dedcted from gross sales in compting gross income. anagement expenses %ommissions 5abor
&pplies repairs -ncidental $perating expenses of transportation /ipment sed in trade or bsiness +ravelling expenses while away from home solely for the prsit of trade or bsiness 7dvertising and other selling expenses -nsrance premims against re, storm, theft, accident or other similar losses in case of a bsiness , and rental for se of bsiness property
1) D"='&% &o'( o. o/d&'/ 'd '"$"((/ -t is mandatory that all expenses be both ordinary and necessary. Aowever , not all are nder circmstances allowed as dedction in an nlimited amont. edction claimed mst be stied as reasonable in natre and amont.
) O/ d& ' / :$ne that is common and accepted to incr in the trade or bsiness of taxpayer. -t mst be in reasonable amont. -f expense is extraordinary, it will not be disallowed permanently. xpenditre may be capitali0ed for which depreciation allowance may be claimed over a period of time and not otright. ?4-;%-?75 H=;%+-$;: to distingish a dedctible expense from one that is capital. $rdinary expense may be flly dedcted dring taxable year.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 20
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS %apital expenditre mst be depreciated over the life of the asset with which expenditre is associated or where no specic asset or sefl life can be ascertained, it is dedcted pon dissoltion of enterprise. Hollowing not considered ordinary expenses: • ?ayments by the taxpayer for repair of re damage , sch payments being distingished from those for wear and tear • %onsel fees incrred by taxpayer, president of a corporation in prosecting a slander sit to protect his reptation and that of his bsiness • ratitos payments to stoc,holders in settlement of disptes between them or to assme the expense of a lawsit in which they had been made defendants • ?ayments in settlement of a lawsit against a member of partnership , e9ect being to enable him to devote his ndivided e9orts to the partnership bsiness and also to protect his credit.
!) N"$"(( / :$ne that is helpfl and appropriate for trade or bsiness or occpation. xpense does not have to be indispensable to be considered necessary. -t is also necessary if intended to minimi0e losses or to increase its prots. -t is distingished from personal expenditre or from one not pertinent to bsiness of taxpayer. +his refers to bsiness daytoday expenses. -t does not mean that payments mst be habital for them to be ordinary. xpense is ordinary becase from experience that payments for sch a prpose, whether amont is large or small, are the common and accepted means of defense against attac,.
Ill#(%/%&o'( X CORP ow'( ""% o. %'@ %/#$@( w4&$4 &% l"("( %o o%o/ $//&"/( .o/ %/'(o/%%&o' o. !#l@ l&?#&d( . I' 2001 (o" $&%&"( &o("d ,&# w"&4% l&&%( .o/ o%o/ 3"4&$l"( o' 4&4w( . So" /"(%/&$%"d %/#$@"/( %o + 000 o#'d( w4&l" o%4"/( llow"d 60000 o#'d(. X CORP d"l&!"/%"l o"/%"d &%( %/#$@( o3"/w"&4% &' 4o" % $l$#l%"d /&(@ o. "($&' %4" ol&$" . D#/&' %, "/ 2001 X CORP &d P+1000 o ='"( 'd $o(%( .o/ 3&ol%&o'( . M d"d#$%&o' o. %4% o#'% !" llow"dQ o
;$. xpense cannot be considered necessary if allowance of dedction wold frstrate national policies proscribing particlar condct, evidence by some government declaration. Hines by penal stattes are enacted to protect highways from damage and to insre safety of persons sing them.
X w( %4" ("$/"%/ o. W CORP"'"d &' /&' !#(&'"(() Co' w( d9#d"d ' &'3ol#'%/ !'@/#% 'd 4d d&($4/" ./o &%( d"!%() T4"/".%"/X d" $o'%/$% w&%4 CORP %o #/$4(" /&' .o/ &% o' $o&((&o') I' o/d"/ %o /"-"(%!l&(4 4&( /"l%&o'( w&%4 $#(%o"/( w4o 4" 4d @'ow' w4"' $%&' .o/ W CORP 'd %o (ol&d&. 4&( $/"d&% 'd (%'d&' 4" d"$&d"d %o %4" d"!%( o. W CORP ( 4" w( !l") I' .#l=ll"'% o. %4% /"(ol3" 4" d" "'%( d#/&' (#$$"((&3" "/() A/" "'%( d"d#$%&!l" ./o &'$o" ( o/d&'/ 'd '"$"((/ ","'("(Q o
en do at times pay debts of others withot legal obligation or lighter obligation imposed by sages of trade or by neighborly amenities, bt they do not do so ordinarily even to heighten their reptation for generosity. ?ayment is not ordinary.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 21
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS A 'o'-/"(&d"'% .o/"&' $o/o/%&o' &'$#//"d ","'("( &d ! &%( !/'$4 &' %4" P4&l&&'"() A/" ","'("( d"d#$%&!l" ! !/'$4Q o
7 branch which assmed payment attribtable to its head o
CORP &( ' "'%&% o"/%&' 4o(&%l 'd '#/(&' ($4ool) I% "/'"d &'%"/"(%( 'd d&3&d"'d( ./o &%( &'3"(%"'%() To low"/ &%( %, l&!&l&%&% d"d#$%"d d&'&(%/%&3" ","'("( %o &%( &'%"/"(%( 'd d&3&d"'d( &'$o") I( %4" d"d#$%&o' /o"/Q o
;$. -nterests and dividends by 7 %$4? were merely incidental income to its main activity , which is the operation of its hospital and nrsing schools hence its activities never went beyond of passive investor , which do not come within prview of carrying on any trade or bsiness. ?assive income is sbect to nal tax imposed on gross amont. ;o dedctions are allowed.
P CORP &'%"'d( %o ("l.-&'(#/" &%( /"l 'd "/(o'l /o"/%&"( &'(%"d o. &'(#/&' %4" (" w&%4 &'(#/'$" $o'&"() Pl' .o/ ("l.-&'(#/'$" w&ll !" .#'d"d %4/o#4 $/"%&o' o. (&'@&' .#'d %o !" '"d ! ' &'d""'d"'% %/#(%"" !'@) >#'d w&ll !" ("/"%"d 'd w&ll 'o lo'"/ .o/ /% o. (("%( o. P CORP 'd w&ll '(w"/ .o/ $%(%/o4&$ lo(("( w4&$4 !" (#"/"d ! &%) P CORP w&ll $o'%/&!#%" ''#ll %o %4" (&'@&' .#'d 'd %4% %4" o#'% %o !" $o'%/&!#%"d w&ll !" !("d o' /&o/ "/( &'(#/'$" /"&# "'%() I( %4" o#'% &d %o %4" (&'@&' .#'d d"d#$%&!l"Q o
Dhile reglar premim payment to an insrance company is a dedctible expense becase it is ordinary , amont paid to a sin,ing fnd as a form of selfinsrance will not /alify as an ordinary expense becase selfinsrance is not an ordinary means of insring bsiness assets. $rdinary expense connotes payment normal in relation to the bsiness of the taxpayer and the srronding circmstances.
ven thogh expense may be considered ordinary and necessary, taxpayer may still not be allowed to dedct the expense in the year he paid or incrred (cost of goods sold and capital expenditres). -n some cases taxpayer may not be allowed to dedct expense at all (personal expense).
2) CAPITAL EXPEN DIT URE:otlay of fnds for ac/isition or improvement of a xed asset which extends the life or increases the prodctivity of asset. xpenditre for asset shold be capitali0ed and depreciated over estimated life of the asset. +hese are not dedctible in taxable income. Aowever, althogh taxpayer generally cannot ta,e a crrent dedction for a capital expense , he may be able to recover the amont he sed throgh depreciation, amorti0ation or depletion. 3 types of costs are capitali0ed: • $rgani0ation@preoperating costs
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 22
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • •
Bsiness assets -mprovements
) O/'&J %&o' 'd /"-o"/%& ' $o(%( -t may be treated as deferred expenses and dedcted for a period not less than 6" days beginning from rst month the corporation is active in bsiness. +herefore , taxpayers who pay or incr bsiness startp expenditres and sbse/ently enter trade or bsiness to which expenditres relate can elect to amorti0e these expenditres over a period of not less than 6" months. 7morti0ation period commences with the month in which the bsiness begins. +o /alify for amorti0ation, expenditre mst be paid and incrred in connection with creating or investigating the creation or ac/isition of an active trade or bsiness entered into by taxpayer. &+74+=? >?;-+=4& inclde: amonts paid or incrred before , and in anticipation of , the start of bsiness in an activity for prot or prodction of income. 7 corporation is considered to begin bsiness when it commences the activities for which it was organi0ed. +his occrs after charter or 7$- is issed.
&) P/"-o"/%&o 'l $o(%( o. /"l "(%%" d"3"lo"/ -n case of a newly established real estate company: • Dhen land is ac/ired on installment plan or credit nancing , interest element or carrying charge shold be charged as interest expense and not as part of cost of asset. • -nterest or nancing cost shold be treated as expense dring which credit was extended , and shold be amorti0ed over credit period. •
-nterest expense shold not be classied as deferred charges in form of preoperating expense. ?reoperating expenses inclde only organi0ational cost, research and development cost and other expenses relative to o organi0ation of company.
•
-nterest paid on loan obtained for prchase of land shold neither be treated as preoperating expense in period when incrred. 4egistration fees, docmentary stamps and transfer fees shold form part of cost of land ac/ired. o
&&) E,"'("( &' M"/"/ ( 'd A$?#&(& %&o'( &alaries paid to corporate o
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !) B# (& '"(( (( "% ( 4: %osts of ac/iring e/ipment, machinery, xtres or other items having a sefl life beyond the taxable year are considered capital expenditres. Bsiness assets benet the taxpayer for more than 1 year. +axpayer mst depreciate the asset by dedcting portion of cost over several years. 5and is not depreciated becase it is assmed to last indenitely. +here are assets which may have a sefl life exceeding 1 year bt cannot be capital expenditre. ∴ ?romotional items of softdrin,s company (electric coolers and ice coolers) to be distribted to dealersretailers of softdrin,s are considered ordinary and necessary expenses dedctible in the net income.
& ) Tool ( +hese are dedctible expenses if the tools have a life expectancy of less than 1 year or their cost is minor.
&& ) I / o3 " "'%( +hese are capital expenses if improvements add to the vale of the asset , appreciably lengthen the time it can be sed or adapt it to a di9erent se. -mprovements are generally maor expenditres. xamples: • ;ew electric wiring ;ew roof • ;ew Goor • • ;ew plmbing • Bric,ing p windows to strengthen a wall • 5ighting improvements Aowever, a taxpayer can crrently dedct repairs that ,eep the property in a normal e
*) B /& ! "( @&$@!$@( 'd (&&l/ "'%( 5&ll"l "'%( +hese are taxable income on part of recipient. Aowever , it is not dedctible on part of payer.
) L"l ", "'("( d"d#$%&!l" . /o &ll" l &'$o "
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -llegal income is incldable in comptation of gross income bt illegal expenses are not dedctible from gross income even if from a legal sorce. +his rle applies if expense is contrary to morals or pblic policy or order. -f expense is legal, it may be dedcted regardless of legality or illegality of income. -t is possible to incr legal expenses in condct of an illegal bsiness. -n case of illegal bsiness , dedctibility of expense depends on whether the expense is legal or illegal. -f expense is legal , it may be dedcted from illegal income on which it is incrred nless there is a law prohibiting the dedction. 5egal expenses connected to an illegal income or any excess may not be dedcted from legal income and viceversa. Hormer is not incrred to earn the latter.
Ill#(%/%&o' X /"$"&3"d &'$o" ./o $o'd#$% o. &ll"l "'%"//&(" 'd &'$#//"d (l/ ","'("(: .o/ ("/3&$"( "/.o/"d ! "lo""( 'd "'% o. /"'% .o/ #(" o. /"&("( .o/ ' &ll"l "'%"//&(" . M %4" o#'%( !" d"d#$%"d ./o /o(( &'$o" (&'$" %4o(" w"/" .o/ ","'d&%#/"( &' $o''"$%&o' o. ' &ll"l $%Q o
-n absence of law to the contrary, fact that expenditre bears a remote relation to an illegal act does not ma,e it nondedctible. 7monts paid as wages to employees and to landlord as rent are ordinary and necessary expenses. +hat is enogh to permit the dedction, nless it is clear that allowance is a device to avoid conse/ence of violation of law , or otherwise contravenes state8s policy expressed in a statte or reglation.
+) P"/ (o' l ","'( "( -t is not inclded to allowable dedctions. -f a taxpayer has an expense for something sed partly for bsiness and partly for personal prposes , total cost shall be divided between bsiness and personal portions. Bsiness portion may be dedcted while personal portion is not dedctible. -f a taxpayer ses his car partly for personal se and partly for profession , he is not entitled to claim a dedction for his car se from home to o
Co"'(%&o' .o/ "/(o'l ("/3&$"( 4: a bsiness can claim a tax dedction for salary , wages , commissions , bonses and other compensation (holiday, ha0ard, $+ and night shift di9erential) it pays to its employees. +&+: whether compensation payments are reasonable and are payments prely for service.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS Ill#(%/%&o'( A' o#'% &d &' %4" .o/ o. $o"'(%&o' !#% 'o% &' .$% ( #/$4(" /&$" o. ("/3&$"( &( 'o% d"d#$%&!l" . o
o
$stensible salary paid by a corporation may be a distribtion of dividend on stoc,. +his occrs when corporation has few shareholders, all of whom draw salaries. -f in sch case , salaries are in excess of those ordinarily paid for similar services , and excessive payment bear a close relationship to stoc,holdings of o
>o/ o/ "%4od o. =,&' $o"'(%&o' &( 'o% d"$&(&3" ( %o d"d#$%&!&l&% . o
-f contingent compensation is paid prsant to a free bargain between the employer and the individal made before services are rendered, not inGenced by any consideration on part of employer other than that of secring on fair and advantageos terms the services of the individal, it shold be allowed as a dedction even thogh in the actal wor,ing ot of the contract , it may prove to be greater than the amont which wold ordinarily be paid.
I' ' "3"'% %4" llow'$" .o/ $o"'(%&o' &d 'o% ",$""d w4% &( /"(o'!l" &' ll $&/$#(%'$"( . o
%ircmstances to be ta,en into consideration are those existing at the date when contract for services was made , not those existing at the date when contract is /estioned.
1) >$%o/( $o'(&d "/"d &' d"%"/&' &' /"(o'! l"'"(( o. $o"'(%&o' -f a pay is excessive , excess pay is disallowed as dedction. Hollowing is a nonexclsive list of factors that may be considered in determining whether compensation of an employee, manager or 3rd party is reasonable: • 7rm8s length negotiation Aowever, lac, of arm8s length negotiation does not ma,e the compensation nreasonable as a matter of law. o • %omparable services from a 3 rd party • ;atre of dties • Bac,grond and experience • &alary history %ontribtion to organi0ation8s sccess • +ime devoted in performing services to the organi0ation • • &i0e of organi0ation
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 26
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • •
•
7mont of employer8s income ?olicy of employer ?olicy or scheme adopted by employer in its compensation pac,ages may gage whether salaries it provides are reasonable or o not. conomic conditions
) I'd""'d"'% &'3"(%o/ /o$ 4 -t relies on measre of performance based on corporation8s retrn on e/ity (4$). -f a taxpayeremployer8s rate of retrn on investments remain at a level that wold satisfy an independent investor , there is a strong indication that management is providing compensable services and that prots are not being siphoned ot of company disgised as salary.
!) T/"%"'% o. ", $"((&3 " $o"'(%&o' 4: excess compensationportion of compensation beyond what is reasonableis not dedctible. -ncome tax liability of recipient in respect of an amont of ostensibly paid to him as compensation , bt not allowed to be dedcted as sch by the payer will depend pon circmstances of each case. -n the case of excessive payments by corporations , if sch payments correspond or bear a close relationship to stoc,holdings , and are fond to be distribtion of earnings or prots, excessive payments will be treated as dividend. -f sch payments constitte payment for property , they shold be treated by payer as a capital expenditre and by the recipient as part of prchase price.
Ill#(%/%&o' C CORP w( .o#'d"d ! A) A ow'( )6 o. %o%l #%4o/&J"d $&%l (%o$@ o. C CORP) A w( %4" $4&/' o. BOD 'd (l"('-!/o@"/ .o/ $o') H" /"$"&3"d 0 (4/" o. (l"( $o& ((&o'( "/'"d ! C CORP (&d" ./o 4&( o'%4l (l/ l#( ./"" #(" o. $o' $/ 'd /"$"&% o. o%4"/ (&&l/ llow'$"( 'd !"'"=%( w4&$4 w( do#!l" %4" /"o/%"d '"% &'$o" o. C CORP) M C CORP d"d#$% "'%( o. AQ o
?ayments were inordinately large and cold not be accorded the treatment of ordinary and necessary expenses allowed as dedctible items within prview of ;-4%.
2) Bo '#("( +here is no xed test for determining the reasonableness of a given bons as compensation. Aere are sggested tests: • ?ayment made in H • %haracter of taxpayer8s bsiness • Lolme and amont of its net earnings • 5ocality • +ype and extent of services rendered • &alary policy of corporation • &i0e of particlar bsiness
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 27
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • •
mployee8s /alications and contribtions to the bsiness ventre eneral economic conditions
) L& & % %& o'( edctions from gross income of additional compensation in bonses granted to o
!) P/ o= % ( 4 /&' ?rot sharing benet li,e bonses, based pon a xed plan, sch as percentage of prots, are dedctible despite the condition that sch bonses@benet shold be based on net income after income tax has been imposed , and even thogh amont cannot be determined ntil after end of year when boo,s are closed and prots determined.
Ill#(%/%&o' A CORP (old /o"/%&"( %4/o#4 !/o@"/ 'd &d l%%"/ $o&((&o') T4"/".%"/ &% d&(%/&!#%"d !o'#("( %@"' ./o %4" /o$""d( %o &%( o$"/() I( "'% o. !o'#("( d"d#$%&!l"Q o
;$. 7bsence of service rendered by o
$) >/&' " 'd d" & '& &( !"' "=% ( 4: amont of taxable fringe benet and fringe benet tax shall be allowable dedctions from gross income of employer. Aowever , if basis for comptation of fringe tax is depreciation vale , 0onal vale or fair mar,et vale , only actal fringe benets tax shall constitte as dedctible expense. Lale of fringe benet shall not be dedctible and shall be presmed to have been tac,ed on or actally claimed as depreciation expense by employer. Aowever, if 0onal vale or fair mar,et vale is greater that cost sbect to depreciation , excess amont shall be allowed as dedction from employer8s gross income as fringe benet expense. $n the other hand, any amont given by employer as benets to its employees as Ide minimisK benets shall constitte as dedctible expense pon sch employer.
&) P&d &' / o "/ %
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS Dhere compensation is paid in property other than money, employer shall ma,e necessary arrangements to ensre that amont of tax re/ired to be withheld is available for payment to B-4.
d) SSS< FS IS ECSI> 'd P-&!& Co'%/&!#%&o'(: #'d"/ lw "lo"/ &( 'd%"d %o $o'%/&!#%" &) mployee8s compensation and state insrance fnd (for wor,related illnesses or inries) &&) ;ational health insrance actbenets for nonwor, related illnesses or inries &&&) Aome development mtal fndhosing benets &3) &ocial secritycomprehensive benets (sic,ness, disability , retirement and fneral benets) xcept for %-H, both employer and employee contribte to common fnd from which benets are sorces. %ontribtions are based on compensation of employee. %ontribtions to &&& , &-&, ;A-7@?A-% (?hilAealth) and AH (?ag-big) are allowable dedctions.
") S"& ' /( xpenses and costs of attending seminars are dedctible as ordinary and necessary expense.
T/3"ll&' ","'("( I7D7M H4$ A$K: limited to travel from post or station or place of employment to points where bsiness transactions are made. +ravel expenses inclde transportation expenses and meals and lodging. -f trip is nderta,en for other than bsiness prposes , transportation expenses are personal and not dedctible. ?ayment for se of sample room at a hotel for display of goods is a bsiness expense and hence , dedctible.
1) Sl / 'd % /3 "l ", "'("( • • • •
&alary &alary &alary &alary
as fll compensation reimbrsement for traveling expenses N travel expenses dedctible on commission basis O expense allowance N travel expenses dedctible P travel expenses N repaid travel expenses not dedctible P travel allowance N not dedctible
2) REUISI TES .o/ d"d#$%&!&l&% ) xpenses mst be reasonable and necessary traveling expenses as that term is generally nderstood !) xpenses mst be incrred while away from home $) xpenses mst be incrred in prsit of trade or bsiness +ransportation expenses from main o
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -f a company car is tili0ed by employee both for bsiness and personal se , dedction is in proportion. %ommon atomobile expenses inclde cost of gasoline , oil, repairs, batteries, insrance, depreciation, interest to prchase the car, taxes, registration fees, car washes , garage, rent, par,ing fees and toll fees.
*) S#!( %' %& %&o ' +axpayer mst attach to his retrn a statement showing:
) Pl' " %&$@ "%< &/w !& ll ?assenger copon of plane tic,et@airway bill which reGects the %7B (%ivil 7eronatics Board) rate shall not be sed as basis for claim of expense. 7mont expense shall be the actal cost incrred for prchase of tic,et@bill which is the net amont of the fare dedcting the fare@freight adstments. -n case of plane tic,ets, if said tic,ets are prchased from travel agents@travel expenses as claimed by passengers shall be validated on basis of sales invoice@$4 issed by travel agent representing the actal cost of tic,et and reasonable margin added by travel agent as payment for services.
+) T/3"ll& ' w ./o 4o " 'd %, 4 o" +47L55-; 7D7M A$: if his dties re/ire him be away from the general areawhile of hisaway. Itax homeK for a period longer than an ordinary day8s wor,H4$ and he needs to get sleep or rest toto meet the demands of his wor, 5ocation of tax home mst rst be determined. +7> A$: place of employment , station or post of dty regardless of where the family home is maintained. -f one reglarly wor,s in more than 1 place, his tax home is where his main place of bsiness or wor, is located. -; determining main place of bsiness, here are the conditions: 5ength of time normally re/ired to spend at each location for bsiness prposes • • egrees of bsiness activity in each area • 4elative signicance of nancial retrn from each area +he most important consideration is the length of time spent at each location.
) D"d #$%&!l" ","'("( +ravel expenses in connection with a temporary wor, assignment away from home is dedctible. -f indenite wor, assignment, not dedctible. 7ny wor, assignment in excess of 1 year is considered indenite. +here is no dedction becase it becomes a personal choice to st move there. +ravel expenses for conventions are dedctible if it can be shown the attendance is for trade , bsiness or profession.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *0
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS edctible travel expenses while away from wor, inclde bt are not limited to: 7irplane, train, bs or car between tax home and bsiness destination • o -f ride is a reslt of a fre/ent traveler or similar program , cost is 0ero • =se of car while on bsiness destination o 7ctal expenses or standard mileage rate and tolls and par,ing fees may be dedcted) o -n case of rented car, only bsinessse of portion of expenses may be dedcted • Hares for taxis or other types of transportation between airport@train station and hotel , from one cstomer to another, one place of bsiness to another • eals and lodging +ips paid • ry cleaning and landry • • Bsiness calls • $ther ordinary and necessary expenses
!) T/3"l %, 'd %"/&'l ."" +47L5 +7>: levy imposed by government on persons who are leaving the contry regardless of contry where the air tic,et is issed an the form or place of payment -t mst be paid by: • %iti0ens of ?hilippines • Horeigners holding a permanent resident visa • Horeign torists or expatriates who have stayed in the ?hilippines for more than 1 year +hose who do not pay +ravel +ax: • Horeign temporary visitors (torists and bsiness persons) • Hilipino bali,bayans Both staying for less than 1 year. 7pplicable rates: 1cst Hll rate &tandard redced rate ?rivileged redced rate for $HD dependents
lass
conomy class 2,E"" 1,3!" '""
1,62" Q1" 3""
7side from travel tax, separate 7irport +erminal Hee is levied on all travelers. ;o one is exempt. Both travel tax and terminal fee are dedctible expenses.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ) T/3"l ", "'("( .o/ 'o%4" / &'d&3&d #l +ravel expenses for conventions are dedctible if it can be shown that attendance benets trade or bsiness or profession. -f spose, dependent or other individal goes with taxpayer on bsiness trip or convention , their travel expenses may not be dedcted. Aowever, travel expenses of someone who goes with taxpayer may be dedcted if that person: • mployee • Aas a bona de bsiness prpose for travel • Dold be allowed to dedct travel expenses -f a bsiness associate meets the conditions 2 and 3 , travel expenses may be dedcted. B=&-;&& 7&&$%-7+: someone with whom one cold expect to actively condct bsiness. B$;7 H- B=&-;&& ?=4?$&: if real bsiness prpose can be proved for individal8s presence. -ncidental services sch as typing notes or assisting in entertaining cstomers are not dedctible.
R"'%l ","'("( 4;+: consideration paid for se or occpation of property (taxpayer does not own). , bsiness or exercise of profession. 4: rent can be dedcted as an expense only if it is for property sed in trade -f taxpayer has or will receive e/ity in or title to property, rent is not dedctible.
4R=-&-+&: • 4ental property mst be sed in trade, bsiness or exercise of profession • 4ental expense is a consideration or condition for contined se or possession of property • ?ayment is reasonable • 4ental payment has been sbected to withholding tax 5essee may dedct the amont of rent paid or accred , inclding all expenses which nder the terms of agreement the lessee is re/ired to pay to or for accont of , the lessor.
1) U'/"( o'!l" /"'%<4o" /"'%l 4: cash or fair mar,et vale of property paid for se of real estate or personal property is dedctible from gross income. 4ent paid to a related person is reasonable if it is the same amont a lessee wold pay to a stranger for se of same property. 4ent is not nreasonable st becase it is gred as a percentage of gross sales. -f taxpayer rents his home and se part of it as his place of bsiness , he may be able to dedct the rent he pays for that part.
) R"'% &d & ' d3 '$" 4: -t is dedctible in year paid or accred.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -f payments constitte as advance rentals , sch shall be dly apportioned over the lease term. -n compting term of lease, all options shall be ta,en in consideration if there is a reasonable expectation that sch options will be exercised.
!) Ao#'%( &d %o $'$ "l l"(" 'd ", "'("( &d ! %"'' % -f lessee pays the lessor to cancel a lease , money is rental expense and is dedcted in year incrred. -f lessee pays any of the lessor8s expenses, those payments are rental expense. +axes paid by a tenant to or for a landlord for bsiness property are additional rent and constitte a dedctible item to the tenant and taxable income to the landlordC amont of tax being dedctible by the latter.
$) S"$#/&% d" o(&% -t is not dedctible if lessor may be re/ired to retrn it to the lessee at the end of the lease. By its natre, secrity deposit is a refndable amont nless lessee damages the property , does not pay rent or violates the contract. -f lessee dedcts the secrity deposit, lessor retrns it at termination of contract and lessee will benet twice from secrity deposit. Bt if lessor ,eeps part or all, it is dedctible from gross income. -f lessor ,eeps secrity deposit becase lessee damaged the property , it is , lessor shold dedct the money as expense when it is applied to last month8s rent. dedctible. -f it is sed as lessee8s nal month8s rent
2) L"("4old .o/ ("$&=" d (# 'd $o(% o. !#&ld& '( 'd &/o3 ""'%( 57&A$5: asset representing the right of lessee to se lease property. Dhere a leasehold is ac/ired for bsiness prposes for a specied sm , prchaser may ta,e as a dedction in his retrn an ade/ate part of sch sm each year, based on nmber of years lease has to rn. %ost for erecting bildings or ma,ing permanent improvements of which he is lessee is a capital investment and not dedctible as a bsiness expense. -n order to retrn to taxpayer his investment of capital , annal dedction may be made from gross income of an amont e/al to cost of sch improvements divided by nmber of years remaining in the lease period nder depreciation. -f remainder of lease period is greater than probable life of bildings@improvements erected, dedctions shall still be in form of depreciation.
*) Co( % o. "%% &' l" (" +axpayer may either entire into a new lease with lessor of property or get an existing lease from another lessee. Dhen a lessee gets an existing lease from another lessee, he pays the previos lessee money to get the lease besides paying the rent. -f the lessee gets an existing lease on property or e/ipment for his bsiness , he mst amorti0e any amont he pays to get that lease over the remaining term of the lease.
Ill#(%/%&o'
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" **
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS I. A ( P100000 %o "% l"(" 'd %4"/" /" 10 "/( /"&'&' w&%4 'o o%&o' %o /"'"w) o
Ae can dedct ?1",""" each year.
+) L"( " o odw& ll 57& $$D-55: intangible asset that reGects the vale of lease location to a bsiness. $rdinary good will reGects on good name and reptation of bsiness. 5ease good will represents vale of location over its ordinary cost. xample: gasoline station on a bsiness intersection or a bsiness located in a torist spot. oodwill is not dedctible bt dedctions may be made if premims are paid for the goodwill of leased property.
) D"d#$%&!l" ","'("( o. l"((o/ 5essor may dedct all ordinary and necessary expenses attribtable to earning of income: • -nterest on mortgage or other loans or credits • 4epairs and maintenance • =tilities • • • • • • • • • •
-nsrance Dages and salaries of employees Hees for services of independent contractor 5egal and professional fees 7dvertising, commissions ?roperty taxes and other expenses related to rental activity -n case of condominims or bildings, association des or maintenance fees ?roperties sbect to operating lease +angible personal properties sbect to nance lease dring primary lease period bt not less than 6"# of depreciable life of property 5itigation expenses defrayed by taxpayer to collect apartment rentals and to eect delin/ent tenants
Ill#(%/%&o': El"$%/&$l (#l&"(&'% l#!"/ l#!&' $""'% %&l"( /3"l (o'/ 'd l!o/ #("d %o /"&/ %,"/( /"'%l /%"'%( d&d 'o% &'$/"(" %4" 3l#" o. (#$4 /%"'%( o/ /olo' %4"&/ l&.") A/" %4" d"d#$%&!l"Q o
M& as necessary expenditres.
) No'-d"d#$%&!l" ","'("( o. l"((o/ +he following are not dedctible bsiness expenses bt shold be integrated into cost of capital assets to be depreciated yearly: xpenses in watching over laborers in constrction wor, (part of constrction cost) •
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • • • •
4eal estate tax which remained npaid by former owner of taxpayer8s rental property bt which the latter paid (additional cost to ac/ire propertyC inclded in property8s prchase price) -ron bars, venetian blind and water pmp agmented the vale of apartments where they were installed (not maintenance hence not dedctible) xpenses for relocation, srvey and registration of property tend to strengthen title over property (considered addition to costs of property) &et of %omments on 4les of %ort prchased by lessor having a life span of more than 1 year
R"/"("'%%&o' 5"'%"/%&'"'%#(""'% 'd /"$/"%&o' ","'("( 4?4&;+7+-$; >?;&&: expenses incrred in entertaining , providing amsement and recreation to, or meeting with gests at a dining place, place of amsement, contry clb, theater, concert, play, sporting event and similar events or places. =&+: persons or entities with which taxpayer has direct bsiness relations to clients@cstomers or prospective clients@cstomers. -t shall not inclde employees, o
1) D&"/"'% ./o " lo"" ( /"/"("'%% &o' llow '$" 4epresentation expenses are di9erent from xed representation allowances sbect to withholding tax on wages.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -n case of contry, golf , sports clb or any other similar clb where employee or o
2) E'%"/% &' "'% .$ &l&% &"( +hese refer to: • Macht, vacation home or condominim • 7ny similar item of real or personal property sed by taxpayer for entertainment , amsement or recreation of gests or employees. +o be considered an entertainment facility , sch yacht, vacation home or condominim , or item of real or personal property mst be owned or form part of taxpayer8s trade , bsiness or profession, or rented by sch taxpayer for which taxpayer claims a depreciation and rental expense. Macht is considered an entertainment facility if its se is not restricted to specied o
) T4/"(4old o#'% .o/ d"/"$&%&o' 44 122"12: no depreciation shall be allowed for yachts , helicopters, airplanes and@or aircrafts and land vehicles which exceed ?2.'-55-$; nless taxpayer8s main line of bsiness is transport operations or lease of transportation e/ipment and vehicles prchased are sed in said operations. 7ll expenses related to nondepreciable vehicles sch as bt not limited to repairs and maintenance , oil and lbricants, gasoline, spare parts, tires and accessories, premim paid for insrance covering said vehicles and registration fees shall not be allowed as a dedction in its entirety. 7ll inpt taxes (L7+) to the said disallowed expenses are not allowed.
!) E,$l#(&o'( 5", "'("( 'o% $o'(&d"/" d "'%"/%&' "'% #(""'% 'd /"$/"%&o' Hollowing are not considered entertainment, amsement and recreation expenses: • +hose treated as compensation or fringe benets for services rendered nder employeremployee relationship • Hor charitable or fnd raising events Hor bona de bsiness meeting of stoc,holders, partners or directors • Hor attending or sponsoring an employee to a bsiness leage or professional organi0ation meeting •
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS • •
Hor events organi0ed for promotion, mar,eting and advertising inclding concerts, conferences, seminars, wor,shops , conventions and other similar events $ther expenses of a similar natre
& ) Il l " l &o/l $o'%// %o #!l&$ ol&$ 'd o/d"/ +hese are not allowed for dedction. Aowever , recipient is taxable.
*) R"?#&(&%"( .o/ d"d#$%&!&l&% ) -t mst be paid or incrred dring taxable year !) -t mst be: i. irectly connected to development , management and operation of trade, bsiness or profession of taxpayer ii. irectly related to or in frtherance of condct of his or its trade , bsiness or exercise of a profession c. st not be contrary to law , morals, good cstoms, pblic policy or pblic order d. st not have been paid to an o
+) C"&l &' 4: actal entertainment, amsement and recreation expense is allowed as a dedction from gross income. %-5-;: in no case shall dedction exceed: .!"# net sales (gross less sales retrns@allowances and sales disconts) for taxpayers engaged in sale of goods or properties • • 1# of net revene (gross revene less disconts) for taxpayers engaged in sale of services , inclding exercise of profession and se or lease of properties • -f taxpayer is deriving income from both sale of goods@ properties and services , allowable 74 (entertainment, amsement and recreation) expenses shall be determined based on apportionment formla: o ;et sales@net revene x 7ctal expenses +otal ;et sales and ;et 4evene
Ill#(%/%&o' E CORP &( "'"d &' (l" o. ood( 'd ("/3&$"( w&%4 '"% (l"(<'"% /"3"'#" o. P200 000 'd P100000 /"("$%&3"l) A$%#l "'%"/%&'"'% #(""'% 'd /"$/"%&o' ","'("( .o/'d2 (""(%"/ 2012 %o%l"d %o P*000) N"% ( l"(< '"% /"3"'#"
EA R ","'( "( ! ("d o'
M,& # "/$"'% "
Al low ! l" o# '% %o !"
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS o/% &o '"'% .o / #l
$"&l &' o. E AR " , "'("
$l & "d ( E AR 5w4&$4"3"/ &( low"/ o. $ol#'( 2 'd *
12*+ Sl" o. ood( Sl" o. ("/3&$"( To%l
2"",""" 1"",""" 3"","""
2,""" 1,""" 3,"""
1,""" 1,""" 2,"""
1,""" 1,""" 2,"""
Ao/%&o'"'% .o/#l: &ale of goods (2"" ,"""@3"",""") x &ale of services (1"","""@3"",""")
3,""" x 3,"""
M,&# $"&l&': &ale of goods:(2"" ,""" x &ale of services (1"" ,""" o
.!"#) x
x
1#)
Based on comptation table, %$4? can only claim a total of ?2 ,""" as 74 expense. ;otwithstanding ceiling imposed on sch expense, claimed expense shall be sbect to verication and adit for determining dedctibility and compliance of re/irements.
) R"o/% &' -n its nancial statements and income tax retrns , taxpayer is re/ired to se: • +he name, Intertainment, amsement and recreation expenseK • isclose note to nancial statements the amont corresponding when recording expenses paid or incrred of the natre. Aowever , sch expense shold be reported in -+4 as separate expense item. -f after verication , a taxpayer is fond to have shifted 74 to any other expense to avoid being sbected to the ceiling , amont shifted shall be disallowed in its totality withot predice to penalities.
Co(% o. %"/&l(<(#l&"( ;-4% allows for dedction of bsiness spply expenses. Aowever , taxpayers shold be carefl to avoid dedcting expenses as materials when they are in fact capital assets. -f the sefl life of an item is signicantly greater than 1 year , it mst be depreciated and not expense otright.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS aterials on hand shold inclde charges for materials and spplies only to the amont these are actally consmed and sed in operation for the year for which retrn is made, provided that cost of sch materials and spplies has not been dedcted in determining net income for any previos year. ∴ taxpayer cannot st by a large /antity of spplies at year end and considered it an expense for that year. -f taxpayer carries incidental materials on hand for which no record of consmption is ,ept or of which physical inventories at beginning and end of year are not ta,en, it will be permissible for taxpayer to inclde in his expenses and dedct from gross income the total cost of sch spplies and materials as were prchased dring the year for which retrn is made , provided net income is clearly reGected by this method.
1) O$" " ,"'("( 'd (# l& "( +hese are the most common bsiness , trade or exercise of profession expenses. $
2) S#l& "( #("d &' ","/$&(" o. /o."((&o' +hese may be dedctible: • xpenses for operation and repair of transportation e/ipment in ma,ing professional calls • es to professional societies and sbscription to professional ornals • 4ent for o
) P/o-!o'o l" l ( "/3 &$"( 5awyer or professional partnership rendering actal free legal services is entitled to allowable dedction from gross income , either amont which cold have been collected for actal free legal services rendered or p to 1"# of gross income derived from actal performance of legal profession, whichever is lower. 575 &4L-%& +$ B ?4H$4 BM 57DM4: any activity which re/ires application of law , legal procedre, ,nowledge, training and experiences which shall inclde legal advice and consel, preparation of instrments and contracts, appearances before administrative and /asidicial tribnals handling cases in cort and other similar services dened by &%. +o be entitled to dedction:
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 5awyer shall secre a certication from ?7$ , $F or accredited association of &% indicated that services are within services dened by &% and that agencies cannot provide the legal services of a private consel. Hor prpose of determining nmber of hors actally provided , association or organi0ation accredited by &% shall isse a certication that legal services were actally nderta,en. %ertication shall be sbmitted to B-4 for availing tax dedctions and to $F for monitoring.
!) D"o(&%(<d3'$"( ! $l&"'%( o. "'"/l /o."((&o'l /%'"/(4&( .o/ ","'("( -t is common bsiness practice for ??, sch as acconting rms or law rms: • +o re/ire their clients to deposit a sm for necessary expenses • +o pay in advance necessary expenses eposits shall be li/idated by ?? , while advances shall be paid by client. rd Aowever, since $4@invoices covering expenses incrred on behalf of client are issed by 3 party establishments in the name of ??, instances occr when these expenses are claimed as dedctions to gross income by both ?? and client. 7s a reslt , same expense is twice claimed as dedctions contrary to provisions of ;-4%.
idelines: • &ervice -ncome of ??s o Dhen ?? receives cash deposits or advances, it shall isse an $4. +his will be boo,ed as income of ?? and shall form part of gross receipts and sbect to L7+ if applicable. • %laim for dedction of expenses o ?? shall record its expenses for income tax prposes if $4@invoice issed by rd3 party establishment is in the name of ??. 7ll these may be claimed by ?? as dedctions from its gross income. $n the other hand, all expenses made by client to ?? shall be allowed as dedction provided that they are sbstantiated by $4 o ?? and client are not preclded from availing $ptional &tandard edction.
$) D"o(& %(<d3 '$"( /" $"&3"d ! %, "/( o%4 "/ %4' FPP ( idelines in acconting and recording deposits@advances for payment of expenses received by taxpayers other than ??s: eposits@advances part of gross receipts • o Dhen deposits or advances are received by taxpayers other than ?? from client@cstomer , $4 shall be issed. o 7mont received shall be boo,ed as income and shall form part of gross receipts and sbect to L7+ or ?ercentage +ax (ross 4eceipts +ax) if applicable -t shall be dedctible as an expense by client@cstomer provided it is sbstantiated by $4. o •
%laim for dedction of expenses 4eceipts incrred, paid for and issed in name of taxpayer shall be recorded as its own expenses for income tax prposes. o
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +0
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS o
+hese shall be claimed as dedctions from gross income provided sbstantiated by $4 issed by 3
rd
party establishments.
•
-ncome payments are sbect to appropriate withholding taxes o 7ll clients@cstomers shall, pon payment of deposit@advances , withhold tax which shall be remitted@paid on or before 1"th day of following month sing except for taxes withheld for month of ecember of each year , which shall be led on or before F7; 1! of following year.
•
-ssing $4 for deposit and advances $4 shall be issed for every deposit and advances o $4 shall cover entire amont client@cstomer pays. o o Hor L7+ taxpayers, L7+ $4 will constitte the $tpt +ax for taxpayers other than ?? and in trn the inpt tax of its client@cstomer.
*) E, "'("( o. . / "/( Ae is entitled to dedct all necessary expenses for bsiness of farming $rdinary tools of short life or small costs %ost of feeding and raising livestoc, insofar as sch represents actal otlay , bt not inclding vale of farm prodce grown pon the farm or labor of taxpayer %ost of gasoline or fel , repairs and p,eep of transportation e/ipment if sed wholly in bsiness prposes %ost of gasoline or fel , repairs and p,eep of transportation e/ipment if sed partly for pleasre or convenience of taxpayer or his family, sch cost may be apportioned to the extent of bsiness se and personal se , and only a proportion of sch cost attribtable to bsiness prposes is dedctible as necessary expense Dhen farmer ta,es more than a year from time of planting to process of gathering and disposal , expenses dedcted may be determined pon crop basis and dedctions may be ta,en in the year in which gross income from crop has been reali0ed. %ost of farm machinery , e/ipment and farm bildings represents a capital investment and is not an allowable dedction as an item of expense. xpenses considered as capital and not dedctible: 7monts expended in development of farms, orchards and ranches prior to time when prodctive state is reached 7monts in prchasing wor,, breading or dairy animals, nless sch animals are inclded in an inventory ?rchase price of transportation of e/ipment even when wholly sed in carrying on farm operations -f farm is operated for recreation and not commercial , and if expenses is in connection with the farm are in excess of receipt , entire receipts from sale of prodcts may be ignored in the retrn of income. ?ersonal expenses will not constitte allowable dedction.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS R"&/( 'd &'%"''$" 4: repairs and maintenance incidental in carrying ot trade or bsiness or exercise of profession are dedctible. inor or ordinary repairs are dedctible from gross income becase they ,eep the assets in their wor,ing condition. %ost of incidental repairs which neither material add to vale of property or prolong its sefl life are dedctible , provided that plaint or property accont is not increase by amont of sch expenditre. 4eplacements , to the extent that they arrest deterioration and prolong life of property, shold be charged against depreciation reserves if sch property is ,ept.
1) E, "'(&' 3(. C&%l&J&' 4?7-4& 7; 7-;+;7;%: costs of p,eeping frnitre , machinery, e/ipment, bilding or other property inclding rental properties for se in bsiness operations. 4: dedctible if they are incidental in natre and does not materially add to the vale of property nor prolong its sefl life. +hey are treated as crrent period expense becase of nominal amont involved and of fact that main benet incrred. xpenses which mst be capitali0ed and not dedcted are: 2. -ncrred as permanent improvements or betterments that increase vale or prolong sefl life of property 3. valeprolong or se of property ma,e good the exhastion '. 4estore &bstantially sefl life ofor prope rty !. ade to adapt the property to a new or di9erent se +hey are not expense otright becase of material amont involved and fact that benet is for more than the year they are incrred. -f amont incrred is minimal, it may be dedcted (concept of de minimis expensing) for practical reason.
Ad3"/%&(&' ","'("( +hese are expenses incrred for the se of spo,en or written word in printed matter , movies, radio and +L to ac/aint the pblic with taxpayer8s merchandise or services. -t represents expenses associated with promoting an indstry , entity, brand, prodct name or specied prodcts or services in order to stimlate a desire to by the entity8s prodcts or services for a certain period.%ommon advertising expenses inclde printing of bsiness cards, yellow pages ads, newspaper advertisements, +L and radio ad costs, costs for bsiness website , for promotion activities etc. iveaway items , pens, co9ee mgs, shirts, refrigerator magnets, calendars, bags and ,ey changes are also dedctible. 4les on their dedctibility: • 7dvertising to stimlate crrent sale of merchandise or se of services (dedctible) • 7dvertising to stimlate ftre sale or merchandise or se of services (not dedctible bt are to be spread over period of time irrespective whether taxpayer is on cash or accral basis)
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS •
7dvertising to promote sales of shares of stoc,s or to create a favorable image (not dedctible)
1) R"?#&/""'%( .o/ d"d#$%&!&l&% -t shold not only be necessary bt ordinary. %$;-+-$;& to be considered ordinary: • 4easonableness of amont incrred • 7mont mst not be a capital otlay to create goodwill for prodct and@or the bsiness 7lthogh an expense for advertisement of a single prodct is necessary , it cannot be an ordinary expense if it is inordinately large. ?rotection of brand franchise is analogos to maintenance of good will or title of one8s property. -t is capital expenditre.
) P"/ '"'% d ( 7dvertisements or signs that have a sefl life of less than 1 year are dedctible as operating expenses in the year they are incrred (Gyers and cardboard signs). ?ermanent metal or plastic sign that has a sefl life of more than 1 year mst be capitali0ed and depreciated.
!) P"/ (o' l "," '("may ( have some advertising or bsiness or trade promotion vale ;ot dedctible even thogh they -f corporation8s president threw a birthday party and invited some of corporation8s big clients , expenses of party are not dedctible. %osts are not dedctible as IadvertisingK. $) C/"%&' . 3o/ !l" & " ;ot dedctible as a bsiness expense 9orts to establish reptation are a,in to ac/isition of capital assets and therefore not related to bsiness expense bt capital expense.
O%4"/ o"/%&' ","'("(:not exclsive and only provides a gideline on what are typical dedctible bsiness operating expenses. 1) L&%&%& o' ","'("( &' d" ."'(" o. %&%l" o. /o "/% •
•
Fdgments or other binding dicial addication on accont of damages for patent infringement , personal inries or other case are dedctible o =nless ta,en nder other methods of acconting which reGect correct dedction less any amont of sch damages as may have been compensated for by insrance or otherwise. 5itigation expenses in defense or protection of title are capital in natre and not dedctible. o +hese constitte part of cost of property.
) ORIFIN O > CLA IM DO CTRINE
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 7ny recovery shold be taxed in the same manner as the item for which it is intended to sbstitte. 7ny settlement or dgment payments shold be treated for tax prposes as if economic damages which is sbect of the sit had not occrred.
Ill#(%/%&o': L"l .""( &'$#//"d &'$&d"'% %o ''#l"'% 'd /o"/% ("%%l""'% w4&$4 &'3ol3"d %4" %,"/( !#(&'"(( 'o% !" d"d#$%"d) o
o o
Hocs is not on the conse/ences if the taxpayer failed to defeat the claim on the bsiness , bt rather, on the srcinal of initial claim. -f expenditre arose in a bsiness or prot ma,ing activity , it is dedctible. -f it arose ot of personal activity, it is a nondedctible personal expense.
!) D&/"$%< &'d &/"$% %" (% -f expense is directly related to capital transaction (therefore a long term benet) , it shold be capitali0ed. -f only an indirect relation between expense and capital transaction , same may be expensed otright. ∴ xpenses for salaries and wages (srcinating from employeremployee relationship) and in connection with daytoday bsiness bt indirectly related to ac/isition of another bsiness may be expensed and not capitali0ed cost of the ac/ired bsiness.
$) L"l ' d l&%& %&o' ", "'("( o. .o/ "$lo(#/" 5egal expenses by ban,s in the corse of foreclosing ac/ired assets are dedctible from their gross income. +hese are expenses incrred in carrying on of a trade or bsienss.
2) M / &' >""( +hese are not expenses in connection with prodction of earning of income. +hey are expenses incrred in disposition of said incomes , expenses for remittance of fnds after they have already been earned by a branch in the ?hilippines for the disposal of Aead $
*) Pol &%&$ l $ &' ", "'("( +o be considered exempt from income tax , it mst be tili0ed to cover candidate8s expenditres for his or her electoral campaign , =ntili0ed@excess campaign fnds shall be sbect to income tax and mst be inclded in candidate8s taxable income in his -ncome +ax 4etrn (-+4). %ampaign expenses are dedctible from taxable ntili0ed campaign fnds.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ++
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 7ny candidate who fails to le with %$5% the &tatement of xpenditres nder $mnibs lection %ode shall be atomatically preclded from claiming sch expenditres as dedctions from his campaign contribtions. ntire amont of campaign contribtions shall be sbect to income tax.
) Co'%/ &!#%&o' ( 'o% d"d#$%&!l" &) ?olitical campaign contribtions are not dedctible from gross income since they do not held earn income from which they are to be dedcted.
&&) xpenses paid or incrred to ta,e part in any political campaign. +) Co &(( &o'( +hese are dedctible as consideration for bringing abot a protable transaction and therefore part of bsiness cost. ∴ %ost of frnitre given by taxpayer as commission is dedctible.
) L& (% &' ." " Hee which is paid to the stoc, exchange, which is annal and recrring, for having its stoc, listed is an ordinary and necessary bsiness expense. &ingle payment to the stoc, exchange will be disallowed as a dedction if the expenditre does not meet the stattory test , to be paid only once and the benet to be ac/ired contines indenitely. embership and other fees to enhance the taxpayer8s bsiness are dedctible.
Ill#(%/%&o': F w( ' o$"/ o. #'&o/ C4!"/ o. Co"/$" w4&$4 (o'(o/"d %4" N%&o'l Co'3"'%&o' o. >&l&&'o B#(&'"(("' . H" w( l(o %4" /"(&d"'% o. Ho"ow'"/( A((o$&%&o' o/'&J"d .o/ %4o(" "'"d &' /"l "(%%" %/d" . Ae incrred expenses in attending the %onvention and the lncheon meeting and crise to %orregidor of Aomeowner8s 7ssociation which were shown to be for prsit of his bsiness. 7re expenses dedctibleS M&. Ais membership and activities in connection were solely to enhance his bsiness. o
52 Expenses 'lloa)le to Private Educational Institutions ) - I' dd&%&o' %o %4" ","'("( llow!l" ( d"d#$%&o'( #'d"/ %4&( C4%"/8 /&3%" "d#$%&o'l &'(%&%#%&o'8 /"."//"d %o #'d"/ S"$%&o' 27 5B o. %4&( Cod"8 % &%( o%&o' "l"$% "&%4"/: 5 %o d"d#$% ","'d&%#/"( o%4"/ w&(" $o'(&d"/" d ( $&%l o#%l( o. d"/"$&!l" (("%( &'$#//"d d#/&' %4" %,!l" "/ .o/ %4" ",'(&o' o. ($4ool .$&l&%&"( o/ 5! %o d"d#$% llow'$" .o/ d"/"$&%&o' %4"/"o. #'d"/ S#!("$%&o' 5> 4"/"o.) 1) O%&o'( o. /&3%" "d#$%&o'l &'(%&%#%&o'( P/&3%" &'(%&%#%&o' &( llow"d %o $l& ./o &%( /o(( &'$o"8 llow!l" d"d#$%&o'( 9#(% l&@" ' o/d&'/ %,"/) I% 4( %4" o%&o' %o "l"$% "&%4"/:
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 1 D"d#$% ","'d&%#/"( o%4"/w&(" $o'(&d"/"d ( $&%l o#%l( o. d"/"$&!l" ("%( &'$#//"d d#/&' %4" %,!l" "/ .o/ %4" ",'(&o' o. ($4ool .$&l&%&"( 2 D"d#$% llow'$" .o/ d"/"$&%&o' %4"/"o. C&%l ","'d&%#/"( w4&$4 /" 'o/ll $&%l&J"d 'd d"/"$%"d !" ","'("d o#%/&4% &' %4" "/ &'$#//"d 1)1 E,'(&o' o. ($4ool .$&l&%&"( S$4ool .$&l&%&"( /"."/ %o l'd8 !#&ld&'( 'd o%4"/ $&3&l wo/@ o/ &/o3""'%(8 l&!// .$&l&%&"(8 $4&'"/&"(8 "?#&"'% 'd &'(%/#"'%( &'$l#d&' %4"&/ $o(% o. &'(%ll%&o'( /o3&d"d (#$4 .$&l&%&"( (4ll !" #("d (ol"l %o #/(#" %4" ",'(&o' $%&3&%&"( o. %4" ($4ool E,'(&o' o. ($4ool .$&l&%&"( /"."/( %o $?#&(&%&o'8 d"3"lo"'% o/ &/o3""'% o. ($4ool .$&l&%&"( 2) >$#l% D"3"lo"'% T4" ","'("( &'$#//"d ! ' "d#$%&o'l &'(%&%#%&o' &' &%( >$#l% D"3"lo"'% P/o/ /" d&/"$%l $o''"$%"d w&%4 o/ "/%&'&' %o &%( !#(&'"(( 'd /" /o/&%" 'd 4"l.#l &' %4" d"3"lo"'% o. &%( %"$4&' "/(o''"l 'd %4"/".o/" d"d#$%&!l"
5B I'%"/"(%)- 51 In General) - T4" o#'% o. &'%"/"(% &d o/ &'$#//"d w&%4&' %,!l" "/ o' &'d"!%"d'"(( &' $o''"$%&o' w&%4 %4" %,"/( /o." ((&o'8 %/d" o/ !#(&'"(( (4ll !" llow"d ( d"d#$%&o' ./o /o(( &'$o": 8 T4% Provided" hoever %4" %,"/( o%4"/w&(" llow!l" d"d#$%&o' .o/ &'%"/"(% ","'(" (4ll !" /"d#$"d ! ' o#'% "?#l %o %4" .ollow&' "/$"'%"( o. %4" &'%"/"(% &'$o" (#!9"$%"d %o ='l %,: >o/%-o'" "/$"'% 5+1 !"&''&' '#/ 18 1; T4&/%-'&'" "/$"'% 5* !"&''&' '#/ 18 1 'd T4&/%-"&4% "/$"'% 5*; !"&''&' '#/ 18 2000 52 Exceptions. - No d"d#$%&o' (4ll !" llow"d &' /"("$% o. &'%"/"(% #'d"/ %4" (#$$""d&' (#!//4(: 5 I. w&%4&' %4" %,!l" "/ ' &'d&3&d#l %,"/ /"o/%&' &'$o" o' %4" $(4 !(&( &'$#/( ' &'d"!%"d'"(( o' w4&$4 ' &'%"/"(% &( &d &' d3 '$" %4/o# 4 d&($o# '% o/ o%4"/w &(": P/o3&d"d8 T4 % (#$4 &'% "/"(% (4ll !" llo w"d d"d#$% &o' &' %4" "/ %4" &'d"!%"d'"(( &( &d:Provided" further 8 T4% &. %4" &'d"!%"d'"(( &( !l" &' "/&od&$ o/%&J%&o'(8 %4" o#'% o. &'%"/"(% w4&$4 $o//"(o'd( %o %4" o#'% o. %4" /&'$&l o/%&J"d o/ &d d#/&' %4" "/ (4ll !" llow"d ( d"d#$%&o' &' (#$4 %,!l" "/ 5! I. !o%4 %4" %,"/ 'd %4" "/(o' %o w4o %4" "'% 4( !""' d" o/ &( %o !" d" /" "/(o'( ("$&="d #'d"/ S"$%&o' *6 5B o/ 5$I. %4" &'d"!%"d'"(( &( &'$#//"d %o =''$" "%/ol"# ",lo/%&o') 5* ptional Treatment of Interest Expense ) - A% %4" o%&o' o. %4" %,"/8 &'%"/"(% &'$#//"d %o $?#&/" /o"/% #("d &' %/d" !#(&'"(( o/ ","/$&(" o. /o."((&o' !" llow"d ( d"d#$%&o' o/ %/"%"d ( $&%l ","'d&%#/") R"?#&(&%"( .o/ d"d#$%&!&l&% o. &'%"/"(% ","'(" 1)1 Bo' =d" d"!% •
7 bona de debt is one which arises from a debtorcreditor relationship based pon a valid and enforceable obligation to pay a xed or determinable sm of money
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 1)2 U'$o'd&%&o'l o!l&%&o' • • • • •
+he basic test of the existence of debtorcreditor relationship is whether the debtor is nder an nconditional obligation to repay the creditor -t mst also be legally enforceable obligation for the payment of money -nterest paid on a prescribed void or nenforceable obligation may not be dedcted. -f there is no stiplated interest there can be legal interest prsant to 7rt 22"* of ;%%. -nterest de shall accre at the time is t is dicially demanded
2) RULES ON THE DEDUCTIBILITG O> INTEREST EXPENSE +he amont o interest expense paid or incrred within a taxable year on indebtedness in connection with the taxpayer8s trade bsiness or exercise of profession shall be allowed as a dedction from the taxpayer8s gross income +he amont o interest expense paid or incrred within a taxable year on indebtedness in connection with the taxpayer8s trade bsiness or exercise of profession shall be redced by an amont e/al to 33# of the interest income earned which had been sbected to nal withholding tax +he limitation applies regardless of whether or not a tax arbitrage scheme was entered into by the taxpayer or regardless of the date when the interest bearing loan and the date when the investment was made for as long as dring the taxable year there is an interest expense incrred on one side and an interest income earned on the other side which interest income had been sbected to nal withholding tax. +his rle shall be observed irrespective of the crrency the loan was contracted and@or in whatever crrency the investments or deposits were made. 5aw does not provide that there is a need for tax arbitrage in order that the limitation on dedction of the interest expense can be applied
Ill#(%/%&o': A Co/) w4&$4 4( d"o(&% $$o#'% w&%4 B B'@8 o!%&'"d lo' ./o X >&''$&' Co/ &' $o''"$%&o' w&%4 %4" o"/%&o' o. &%( !#(&'"(() A( '"% &'$o" .o/ 200 !".o/" d"d#$%&o' o. %4" &'%"/"(% w( P4 180008000) >o/ %4" "/ 2008 %4" &'%"/"(% &'$o" d"/&3"d ./o %4" (&d d"o(&% w&%4 B B'@ o#'%"d %o P4 1;08 000 o' w4&$4 ='l %, o. P4 *68000 4d !""' w&%44"ld) I%( &'%"/"(% ","'(" o' %4" lo' o!%&'"d ./o X >&''$&' Co/ d#/&' %4" (" "/ o#'%"d %o P4 108000) +he taxable income and the income tax payable of %ompany 7 are compted as follows: 2""* ;et income before interest expense ?hp 1"""""" 5ess: -nterest expense ?hp 1!"""" 5ess: 33# of interest income from deposit (33# x 1Q"""") ?hp !* '"" edctible -ncome ?hp *" 6""
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS +axable -ncome ?hp *"*'"" -ncome tax de for taxable year 2""* (3"#) ?hp 2E2 Q2"
2)1 T, A/!&%/" -t refers to a sitation where a taxpayer prots from the di9erences in how income or gains are taxed. -t is a scheme wherein the proceeds of a taxpayer8s loan obtained in connection with the operations of his trade bsiness or exercise of profession is deposited or invested Dithot the tax arbitrage rle the interest expense will reslt to a net prot since the tax rate on income from trade bsiness or exercise of profession is higher than the tax rate on passive interest income
Ill#(%/%&o': I' 20128 D Co/ o!%&'"d P4 180008000 lo' ./o P4&l !'@ % 10 &'%"/"(% "/ ''#) Uo' /"$"&% o. %4" lo' /o$""d(8 D Co/ d"o(&%"d %4" (" &' &%( ("$&l (3&'( $$o#'% w4&$4 "/'"d 10 &'%"/"(% "/ ''#) B("d o' %4&( 'd w&%4o#% l&' %4" %, /!&%/" l&&%%&o'8 D Co/o/%&o' d"d#$% %4" &'%"/"(% ","'(" o. 1008000 510 o. %4" 1M ./o &%( /o(( &'$o" /"(#l%&' %o %, !"'"=% o. *080000 5*0 $o/o/%" &'$o" %, o. 100 ! low"/&' %4" d#" ! %4" (" o#'%) O' %4" o%4"/ 4'd8 D Co/ w&ll !" (#!9"$%"d %o 20 ='l %,%4" 5S"$ NIRC&. o' &%(&'((&3" &'$o" o. 100 510 o. 1M o/ %, l&!&l&% o. 20) A( /"(#l%8 D Co/) "/'"d '"%27D o#'% 10 %4" ($4"") • • •
+he prpose of the tax arbitrage is to e/ali0e the tax liability of the taxpayer on his interest income and tax benet on his interest expense. -nterest expense shall be redced by 33# to the extent of the interest income sbected to nal tax provided that the maximm interest income to be considered for this prpose shall not be higher than the interest expense. 33# is roghly the ratio of the di9erence between the nal tax and the reglar tax (3"# 2"#) 3"# N33.33#
2)2 No% l&$!l" &. %4" I'%"/"(% I'$o" &( 'o% (#!9"$% %o >&'l T, -f the interest income of the taxpayer is sbect to the reglar rate and none has been sbected to nal tax then the interest expense may be dedcted in fll +here is no di9 on the tax e9ect between the interest income and interest expense since the applicable tax rates are the same -n the illstration above if %orp loaned 1 to %orp at 1"# interest per annm (not sb to nal tax) there is no advantage since the tax benet of the interest expense and the tax on the interest income wold be the same in terms of amont (3"""" (3"# of the 1""""" interest expense) and 3"""" (3"# tax on interest income of 1""""")
*) I'%"/"(% o' U'&d T,"(
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -nterests on taxes shold be considered as interests on indebtedness within the meaning of the ;-4%. 7lthogh taxes already de are not the same as debts they are however obligations that may be considered as sch -nterests incrred or paid by the taxpayer on all npaid bsinessrelated taxes shall be flly dedctible from gross income and shall not be sbect to the limitation on dedction mentioned above (tax arbitrage). &ch interest paid shall not be diminished by the percentage of interest income earned which had been sbected to nal withholding tax
+) No'-d"d#$%&!l" I'%"/"(% E,"'(" ;o interest expense shall be allowed as dedction from gross income in any of the 9 cases:
1 W&%4&' %4" %,!l" "/8 ' &'d&3&d#l %,"/ /"o/%&' &'$o" o' %4" $(" !(&( &'$#/( 'd &'d"!%"d'"(( o' w4&$4 &'%"/"(% &( &d &' d3'$" %4/o#4 d&($o#'% o/ o%4"/w&(" o o o
?rovided: a) -nterest shall be allowed as a dedction in the year the indebtedness is paid B) -nterest shall be allowed as a dedction in the year the indebtedness is paid %) -ndebtedness is payable in periodic amorti0ation the amont of interest w@c corresponds to the amont of the principal amorti0ed or paid dring the year shal be allowed as dedction in sch taxable year
Ill#(%/%&o': M/) C8 ("l.-"lo"d &'d&3&d#l8 $o'(&(%"'%l "lo( %4" $(4-!(&( $$o#'%&' "%4od &' @""&' 4&( !oo@( o. $$o#'%() O' ' 18 1; 4" /"$"&3"d ./o %4" !'@ %4" /o$""d( o. 4&( lo' &' %4" (# o. 7008000 '"% o. &'%"/"(% &d &' d3'$" &' %4" o#'% o. *008000) +he interest expense shall be ta,en for the taxable year in which paid or incrred or paid or accred depending pon the method of acconting pon the basis of which the next income is compted nless in order to clearly reGect the income the dedction shold be ta,en as of a di9 period 7 selfemployed individal is allowed to dedct from his gross income the entire amont of interest expense actally paid dring the taxable year. -nterest paid in advance and on a cashbasis method shall only be allowed as dedction in the year when he has flly paid his liability -f said debtor has flly paid his loan as of the end of the taxable year 1*** his interest expense paid in advance on Fanary 1 1**Q in the amont of 3""""" shall only be allowed as dedction from his gross income in the taxable year 1***
EXC: E3"' &. %4" &'%"/"(% &( &d &' d3'$" !#% %4" &'d"!%"d'"(( &( !l" &' "/&od&$ o/%&J%&o'8 %4" o#'% o. &'%"/"(% ","'(" w4&$4 $o//"(o'd( %o %4" o#'% o. %4" /&'$&l o/%&J"d o/ &d d#/&' %4" /"("$%&3" "/( 1; 'd 1 (4ll !" llow"d ( d"d#$%&o' &' (#$4 /"("$%&3" %,!l" "/( 2 I. !o%4 %4" %,"/ 'd %4" "/(o' %o w4o %4" "'% 4( !""' d" o/ &( %o !" d" /" "/(o'( ("$&="d #'d"/ S"$ *65B o. %4" NIRC
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS a) Between members of the family which incldes his brothers and sisters (whole or half) spose ancestors and lineal descendants b) Between individal and a corporation more than !"# in vale of the otstanding stoc, of which is owned directly indirectly by or for sch individal c) Between two corporations more than !"# in vale of the otstanding stoc, of each of which is owned directly or indirectly by or for the same individal or d) Between the grantor and a dciary of any trstC or e) Between the dciary of a trst and the dciary of another trst if the same person is a grantor with respect to each trstC or f) Between a dciary of a trst and a beneciary of sch trst
Ill#(%/%&o': 1 A l"'% 1M %o 4&( (o' B .o/ 4&( !#(&'"(() B &d A &'%"/"(% o#'%&' %o 08000 d#/&' %4" %,!l" "/) B $''o% $l& d"d#$%&o' .o/ %4" &'%"/"(% ","'(" ( %4" /" /"l%"d /%&"( • 2 A Co/ ",%"'d"d lo' %o B Co/) T4" .o/"/( /"(&d"'% &( %4" l%%"/( C4&/' o. %4" Bo/d) I( %4" &'%"/"(% $4/"d ! A Co/ d"d#$%&!l"QM&. +he fact that he is the concrrent president and the chairman of the Board of another %orp doesndeniably not mean or may it in any way be composition dedced thatofhe has controlling and establishing ownership the two corps. ownership of sch corporation in the absence of facts clearly 3) -f the indebtedness on which the interest expense is paid is incrred to nance petrolem exploration in the ?A. +he nondedctible interest expense to pertain to interest or other consideration paid or incrred by a &ervice %ontractor engaged in the discovery and prodction of indigenos petrolem in the ?A in respect to nancing of its operations. ') -nterest calclated for cost,eeping or other prposes on amont of capital or srpls invested in the bsiness which does not represent a charge arising nder an interestbearing obligation is not allowable dedction from gross income
+)1 A$?#&(&%&o' o. S"$#/&%&"( -nterest paid on indebtedness sed to prchase secrities by one who is not a dealer in secrities is ;$+ edctible. -t will form part of the cost which will be sed in determining gain or loss pon disposition of the secrities • • -nterest on preferred stoc, (which is in reality a dividend) cannot be dedcted in compting net income •
+)2 I'%"/"(% o' Mo/%" Ban,s and loan or trst companies: -nterest paid w@in the year on deposits or on moneys received from investment and secred by interest bearing certicate indebted issed by sch ban, or loan@trst company may be dedcted from gross income.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 0
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ortgage pon real estate which the taxpayer is the legal or e/itable owner and even thogh he is not directly liable pon the bond or not secred by sch mortgage may be dedcted as interest on his indebtedness
) O%&o'l T/"%"'% o. I'%"/"(% E,"'(" o' C&%l E,"'d&%#/" 7t the option of the tax payer interest income on a capital expenditre incrred to ac/ire property sed in trade bsiness or exercise of a profession may be allowed as dedction in fll in the year when incrred. +ax payer is not entitled to both the dedction from gross income and the adsted (increased) basis for determining gain or loss and the allowable depreciation charge. +he law does not prohibit the dedction of interest capital expenditre nless the taxpayer has also previosly capitali0ed the same interest payments and thereby adsted the cost basis of sch assets.
Ill#(%/%&o': T,"/ #/$4("d $&%l (("% .o/ 008000 'd &'$#//"d &'%"/"(% ","'(" o. 18000 ./o 4&( /o(( &'$o" .o/ %4" %,!l" "/ o/ &% !" dd"d %o %4" $o(% o. %4" (("%) I' %4" =/(% o%&o'8 %4" d"/"$&!l" 3l#" o. %4" (("% &( 008000) I' %4" ("$o'd o%&o'8 %4" d"/"$&!l" 3l#" o. %4" (("% &( 18000 •
6) D"%"/&'%&o' o. T,!l" I'$o" o' I'%"/-Co' Lo'( o/ Ad3'$"( •
&ec !" ;-4% in any case of two or more organi0ations trades or bsinesses (whether incorporated and whether or not organi0ed in the ?A) owned or controlled directly or indirectly by the same interest the %-4 is athori0ed to distribte apportion or allocate gross income or dedctions between or among sch organi0ations trades or bsinesses.
6)1 I'%"/"(% P"/&od •
•
•
-t shall commence at the date the indebtedness arises except that with respect to the indebtedness arising in the ordinary corse of bsiness or of sales leases or spply of goods and services which are generally considered as trade acconts receivables or payables +he interest period shall not commence if the taxpayer is able to establish that the normal trade practice in a given indstry is to allow balances in the case of similar transactions with nrelated parties to remain otstanding for a longer period w@o charging interest +he earliest balance otstanding mst be applied
6)2 Al&$!&l&% •
+he foregoing applies to all forms of bona de indebtedness and incldes: 1) 5oans and advances of money or other consideration (whether or not evidence by written instrment) 2) -ndebtedness arising in the ordinary corse of bsiness ot of sales leases or the rendition of services by or between members of the grop or any other similar extension 3) oes not apply to alleged indebtedness which was in fact a contribtion of capital or a distribtion by a corp w@ respect to its shares
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 6)* T4"o/"%&$l I'%"/"(% • • •
&ec !" of the ;-4% does not inclde the power to impte Itheoretical interestsK to controlled taxpayer8s transactions +here mst be proof of the actal or at the very least probable receipt or reali0ation by the controlled taxpayer of the item of gross income soght to be distribted apportioned or allocated by the %-4. 7rt 1*!6 of the ;%% I;o interest shall be de nless it has been expressly stiplated in writingK
5C Taxes. -51 In General. - T,"( &d o/ &'$#//"d w&%4&' %4" %,!l" "/ &' $o''"$%&o' w&%4 %4" %,"/( /o."((&o'8 %/d" o/ !#(&'"((8 (4ll !" llow"d ( d"d#$%&o'8 ",$"% 5 T4" &'$o" %, /o3&d"d .o/ #'d"/ %4&( T&%l" 5! I'$o" %,"( &o("d ! #%4o/&% o. ' .o/"&' $o#'%/ !#% %4&( d"d#$%&o' (4ll !" llow"d &' %4" $(" o. %,"/ w4o do"( 'o% (&'&. &' 4&( /"%#/' 4&( d"(&/" %o 43" %o ' ",%"'% %4" !"'"=%( o. //4 5* o. %4&( (#!("$%&o' 5/"l%&' %o $/"d&%( .o/ %,"( o. .o/"&' $o#'%/&"( 5$ E(%%" 'd do'o/( %,"( 'd 5d T,"( (("(("d &'(% lo$l !"'"=%( o. @&'d %"'d&' %o &'$/"(" %4" 3l#" o. %4" /o"/% (("(("d) Provided8 T4% %,"( llow"d #'d"/ %4&( S#!("$%&o'8 w4"' /".#'d"d o/ $/"d&%"d8 (4ll !" &'$l#d"d ( /% o. /o(( &'$o" &' %4" "/ o. /"$"&% %o %4" ",%"'% o. %4" &'$o" %, !"'"=% o. (&d d"d#$%&o') 52 imitations on Deductions ) - I' %4" $(" o. 'o'/"(&d"'% l&"' &'d&3&d#l "'"d &' %/d" o/ !#(&'"(( &' %4" P4&l&&'"( 'd /"(&d"'% .o/"&' $o/o/%&o'8 %4" d"d#$%&o'( .o/ %,"( /o3&d"d &' //4 51 o. %4&( S#!("$%&o' 5C (4ll !" llow"d o'l &. 'd %o %4" ",%"'% %4% %4" /" $o''"$%"d w&%4 &'$o" ./o (o#/$"( w&%4&' %4" P4&l&&'"() 1) D"d#$%&!l" %,"( FR: +axes are dedctible EXC: +hose with respect to which the law does not permit dedction ;onresident alien individal and a foreign corp. dedction is allowed only if and to the extent that the taxes for which dedction is claimed are connected with income from sorces within the ?A -mport dties paid to proper cstoms o
1)1 L&&%"d %o %,"( /o"/ -t is limited to the taxes proper and has never inclded interest on delin/ent taxes penalties and srcharges. +axes means dedction therefrom shold be allowed for amonts representing interest srcharge or penalties incident to delin/ency edctions from gross income are matters of legislative grace what is not expressly granted by %ongress is withheld.
1)1)1 I'%"/"(%( /" d"d#$%&!l" -nterest on taxes is interest on indebtedness and is dedctible
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 4le applies even thogh the tax is nondedctible -nterest on taxes s not dedctible as taxes -nterests on deciency taxes are dedctible not as taxes bt as interest -nterest payment for delin/ent taxes is not dedctible as tax nder &ec 3'% of the ;-4% -t is therefore sbect to 33# dedction rle on interest expense becase sch rle is applicable even if there is no tax arbitrafe
1)2 Io("d o' 'd !l" ! %,"/ erchants8 sales tax imposed by law pon sales is not dedctible by he individal prchaser even thogh the tax may be billed to him as a separate item L7+ is li,ewise not dedctible from the gross income of the owner %ontractor8s tax may not be dedcted -ndividal: no dedction is allowed for the taxes imposed pon his interest as shareholder of ban, or corp. %orporate bonds or other obligations containing a taxfree covenant clase the corp paying is not entitled to dedct sch payment from .-
1)* P&d o/ &'$#//"d d#/&' %4" "/ &% &( $l&"d ( d"d#$%&o' +he tax mst have been paid or incrred dring the taxable year it is being claimed as a dedction +axes to be paid in the near ftre are not dedctible bt reported as a crrent liability imstead $bligation to dedct arises only when the tax is nally determined $verpaid taxes are reported on the boo,s as a crrent asset
1)*)1 D"."//"d &'$o" %, •
-t is recogni0ed when a revene or expense item is reported on the income tax retrn in a year that is di9erent from the year the item appears on the taxpayer8s boo,s or nancial statements de to timing di9erences between the acconting standards and the tax laws
1)+Co''"$%"d w&%4 %/d" , !#(&'"(( o/ /o."((&o' $nly those taxes which are related to the taxpayer8s trade or bsiness or profession are dedctible from gross income
T4" %,"( /" d"d#$%&!l" ./o %4" FROSS INCOME 1. 2. 3. '. !. 6.
?ercentage taxes xcise taxes ocmentary stamp taxes 5ocal gov8t taxes 4eal property tax -mport dties
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS E. B-4 registration fees Q. 4egistration fees of vehicles sed in bsiness
1) M#(% 'o% !" ",$l#d"d •
+here are taxes which by express provision of the law or by their very natre are not dedctible from the gross income
1))1 P4&l&&'" &'$o" %, 5aw does not permit the dedction of the income tax paid to or accred in favor of the government of the ?A and in no case may the taxpayer avail of sch dedction Hringe benets tax aside from the amont of taxable fringe benet shall constitte allowable dedctions from - of the employer
1))1)1 No% ' o"/%&' ","'(" -ncome tax payments are not expenses which contribte to or are incrred in connection with the prodction of prot. -ncome tax is inconsistent with the natre of operating expenses -t is paid after a bsiness cycle not dring the condct of bsiness
1))1)2) C''o% !" $4/"d ! P#!l&$ U%&l&% %o &%( $#(%o"/( •
-ncome tax shold be borne by the pblic tility alone as they are payments made in exchange for benets received by it from the &tate no benet is derived by the cstomers from sch payment of taxes by the pblic tility.
1))2) I'$o" %,"( &o("d ! #%4o/&% o. ' .o/"&' $o#'%/ &. %, $/"d&% &( $l&"d • •
+axpayer can ta,e it either as a dedction or a tax credit for freeing income taxes imposed on him by a foreign contry. 7llowed as dedctions $;5M -H the taxpayer does not signify in his retrn his desire to have to any extent the benets of the provisions of law allowing credits against the tax for taxes of foreign contries.
1))2)1) C' !" $l&"d ( T, C/"d&% • • • •
edctibility of a tax imposed by a foreign contry B=+ ;$+ claimed as tax credit prespposes that the same may be claimed as a tax credit. -f it cant be claimed as tax credit it follows that it cant be dedcted. 4=5: the taxpayer mst be entitled to a tax credit or the option to dedct from gross income disappears altogether. ;ote: the wording of &ec 3'(%)(1)(b) shows the law8s intent that the right to dedct income taxes paid to foreign government from the taxpayers gross income is given only as an alternative to his right to claim a tax credit so that nless the alien resident has a right to claim sch tax credit he is preclded from dedcting the foreign income taxes from his gross income.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS •
;ote again: the dedction shall be allowed in the case of a taxpayer who $& ;$+ &-;-HM in his retrn his desire to have any of the benets relating to credits for taxes paid to foreign contries. B=+ the taxpayer may also signify his desire to claim a tax credit and waive the dedctions. &o bali,tad lang.
1))2)2 &'%"'%&o' o. %4" lw Sec 34 (C) Taxes.(1) In General. - Taxes paid or incurred within the taxable year in connection with the taxpayers pro!ession" trade or business" shall be allowed as deduction" except (a) The inco#e tax pro$ided !or under this Title% (b) Inco#e taxes i#posed by authority o! any !orei&n country% but this deduction shall be allowed in the case o! a taxpayer who does not si&ni!y in his return his desire to ha$e to any extent the bene'ts o! para&raph (3) o! this subsection (relatin& to credits !or taxes o! !orei&n countries)% (c) state and donors taxes% and (d) Taxes assessed a&ainst local bene'ts o! a ind tendin& to increase the $alue o! the property assessed. *ro$ided" That taxes allowed under this Subsection" when re!unded or credited" shall be included as part o! &ross inco#e in the year o! receipt to the extent o! the inco#e tax bene't o! said deduction. (3) Credit +&ainst Tax !or Taxes o! ,orei&n Countries. - I! the taxpayer si&ni'es in his return his desire to ha$e the bene'ts o! this para&raph" the tax i#posed by this Title shall be credited with (a) Citien and /o#estic Corporation. - In the case o! a citien o! the *hilippines and o! a do#estic corporation" the a#ount o! inco#e taxes paid or incurred durin& the taxable year to any !orei&n country% and (b) *artnerships and states. - In the case o! any such indi$idual who is a #e#ber o! a &eneral pro!essional partnership or a bene'ciary o! an estate or trust" his proportionate share o! such taxes o! the &eneral pro!essional partnership or the estate or trust paid or incurred durin& the taxable year to a !orei&n country" i! his distributi$e share o! the inco#e o! such partnership or trust is reported !or taxation under this Title. +n alien indi$idual and a !orei&n corporation shall not be allowed the credits a&ainst the tax !or the taxes o! !orei&n countries allowed under this para&raph. •
Basta point here is that taxpayer can avail of dedction or claim a tax credit for foreign income taxes.
1))*) S"$&l (("(("'%( .o/ !"'"=%( • •
+axes for local benets li,e streets sidewal,s and other improvements becase of some indirect benet $ ;$+ constitte an allowable dedction from gross income. Dhen assessments are made for the prpose of maintenance or repair of local benets the taxpayer may dedct assessments paid as an expense incrred in bsiness ?7 B=&-;&& lang. -f its capital expenditres ;$+ dedctible.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 1))+) O%4"/( NOT d"d#$%&!l": o o o o o o o o o o
state and gift taxes L7+ &rcharge and compromise on tax penalties -nterest on npaid taxes +axes that are not related to trade bsiness or practice of profession O personal expenses to. lectric energy consmption tax Hinal taxes on passive income +ax dedcted and withheld at sorce on compensation +ax amnesty payments ?ayment of nderwithheld income taxes by a withholding agent who failed to withhold.
2) T/"%"'% o. R".#'d"d 'd C/"d&%"d T,"( •
Dhen taxes are refnded or credited this shall be inclded in gross income for the year of the receipt to the extent of the income tax benet of said dedction. o >%?+-$;: T, B"'"=% R#l" o +ax Benet 4le O if a taxpayer recovers part of an expense in the same tax year in which he wold have claimed a dedction he mst redce his crrent year expense by the amont of the recovery. Bt if the dedction of the tax did not benet the taxpayer sbse/ent tax refnd or credit shold not be inclded as part of gross income of the taxable year the same was granted.
Ill#(%/%&o': O"/%&o' o. %,"/ &' 200+ /"(#l%"d &' &'$o" o. P18000 .%"/ d"d#$%&' %, o. P00) T, /".#'d .o/ P00 o w( &3"' &' 200) I' %4&( $("8 %4" w4ol" o#'% o. P00 (4o#ld !" &'$l#d"d &' 4&( %,!l" &'$o" .o/ 200 !"$#(" &% w( %4" o#'% 4" !"'"=%%"d &' 200+) 5.o/ o/" &ll#(%/%&o'(8 /"."/ %o %4" !oo@ ) 7*+8 &%( @&'d $l"/ %4o#4 /&4%Q o
5* redit '0ainst Tax for Taxes of 1orei0n ountries ) K I. %4" %,"/ (&'&="( &' 4&( /"%#/' 4&( d"(&/" %o 43" %4" !"'"=%( o. %4&( //48 %4" %, &o("d ! %4&( T&%l" (4ll !" $/"d&%"d w&%4: 5 itizen and Domestic orporation. - I' %4" $(" o. $&%&J"' o. %4" P4&l&&'"( 'd o. do"(%&$ $o/o/%&o'8 %4" o#'% o. &'$o" %,"( &d o/ &'$#//"d d#/&' %4" %,!l" "/ %o ' .o/"&' $o#'%/
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 5! Partnerships and Estates ) - I' %4" $(" o. ' (#$4 &'d&3&d#l w4o &( "!"/ o. "'"/l /o."((&o'l /%'"/(4& o/ !"'"=$&/ o. ' "(%%" o/ %/#(%8 4&( /oo/%&o'%" (4/" o. (#$4 %,"( o. %4" "'"/l /o."((&o'l /%'"/(4& o/ %4" "(%%" o/ %/#(% &d o/ &'$#/ /"d d#/&' %4" %,!l" "/ %o .o/"&' $o#'%/ 8 &. 4&( d&(%/&!#% &3" (4/" o. %4" &'$o" o. (#$4 /%'"/(4& o/ %/#(% &( /"o/%"d .o/ %,%&o' #'d"/ %4&( T&%l") A' l&"' &'d&3&d#l 'd .o/"&' $o/o/%&o' (4ll 'o% !" llow"d %4" $/"d&%( &'(% %4" %, .o/ %4" %,"( o. .o/"&' $o#'%/&"( llow"d #'d"/ %4&( //4) 5+ imitations on redit. - T4" o#'% o. %4" $/"d&% %@"' #'d"/ %4&( S"$%&o' (4ll !" (#!9"$% %o "$4 o. %4" .ollow&' l&&%%&o'(: 5 T4" o#'% o. %4" $/"d&% &' /"("$% %o %4" %, &d o/ &'$#//"d %o ' $o#'%/ (4ll 'o% ",$""d %4" (" /oo/%&o' o. %4" %, &'(% w4&$4 (#$4 $/"d&% &( %@"'8 w4&$4 %4" %,"/( %,!l" &'$o" ./o (o#/$"( w&%4&' (#$4 $o#'%/ #'d"/ %4&( T&%l" !"/( %o 4&( "'%&/" %,!l" &'$o" .o/ %4" (" %,!l" "/ 'd 5! T4" %o%l o#'% o. %4" $/"d&% (4ll 'o% ",$""d %4" (" /oo/%&o' o. %4" %, &'(% w4&$4 (#$4 $/"d&% &( %@"'8 w4&$4 %4" %,"/( %,!l" &'$o" ./o (o#/$"( w&%4o#% %4" P4&l&&'"( %,!l" #'d"/ %4&( T&%l" !"/( %o 4&( "'%&/" %,!l" &'$o" .o/ %4" (" %,!l" "/) 5 'd2ustments on Payment of Incurred Taxes ) - I. $$/#"d %,"( w4"' &d d&"/ ./o %4" o#'%( $l&"d ( $/"d&%( ! %4" %,"/8 o/ &. ' %, &d &( /".#'d"d &' w4ol" o/ &' /%8 %4" %,"/ (4ll 'o%&. %4" Co&((&o'"/ w4o (4ll /"d"%"/&'" %4" o#'% o. %4" %, .o/ %4" "/ o/ "/( "$%"d8 'd %4" o#'% o. %, d#" #o' (#$4 /"d"%"/&'%&o'8 &. '8 (4ll !" &d ! %4" %,"/ #o' 'o%&$" 'd d"'d ! %4" Co&((&o'"/8 o/ %4" o#'% o. %, o3"/&d8 &. '8 (4ll !" $/"d&%"d o/ /".#'d"d %o %4" %,"/) I' %4" $(" o. (#$4 %, &'$#//"d !#% 'o% &d8 %4" Co&((&o'"/ ( $o'd&%&o' /"$"d"'% %o %4" llow'$" o. %4&( $/"d&% /"?#&/" %4" %,"/ %o &3" !o'd w&%4 (#/"%&"( (%&(.$%o/ %o 'd %o !" /o3"d ! %4" Co&((&o'"/ &' (#$4 (# ( 4" /"?#&/"8 $o'd&%&o'"d #o' %4" "'% ! %4" %,"/ o. ' o#'% o. %, .o#'d d#" #o' ' (#$4 /"d"%"/&'%&o') T4" !o'd 4"/"&' /"($/&!"d (4ll $o'%&' (#$4 .#/%4"/ $o'd&%&o'( ( %4" Co&((&o'"/ /"?#&/") 56 3ear in 4hich redit Ta,en. - T4" $/"d&%( /o3&d"d .o/ &' S#!("$%&o' 5C5* o. %4&( S"$%&o' 8 % %4" o%&o' o. %4" %,"/ 'd &//"("$%&3" o. %4" "%4od o. $$o#'%&' "lo"d &' @""&' 4&( !oo@(8 !" %@"' &' %4" "/ w4&$4 %4" %,"( o. %4" .o/"&' $o#'%/ w"/" &'$#//"d8 (#!9"$%8 4ow"3"/8 %o %4" $o'd&%&o'( /"($/&!"d &' S#!("$%&o' 5C5 o. %4&( S"$%&o') I. %4" %,"/ "l"$%( %o %@" (#$4 $/"d&%( &' %4" "/ &' w4&$4 %4" %,"( o. %4" .o/"&' $o#'%/ $$/#"d8 %4" $/"d&%( .o/ ll (#!("?#"'% "/( (4ll !" %@"' #o' %4" (" !(&( 'd 'o o/%&o' o. ' (#$4 %,"( (4ll !" llow"d ( d"d#$%&o' &' %4" (" o/ ' (#$$""d&' "/) 57 Proof of redits ) - T4" $/"d&%( /o3&d"d &' S#!("$%&o' 5C5* 4"/"o. (4ll !" llow"d o'l &. %4" %,"/ "(%!l&(4"( %o %4" (%&(.$%&o' o. %4" Co&((&o'"/ %4" .ollow&': ) T4" %o%l o# '% o. &'$o" d"/ &3"d ./o (o#/ $"( w&%4o #% %4" P4&l& &'"( !) T4" o#' % o. &'$o" d"/&3"d ./o "$ 4 $o#'%/8 %4" %, &d o/ &'$#//"d %o w4&$4 &( $l&"d ( $/"d&% #'d"/ (&d //4 8 (#$4 o#'% %o !" d"%"/&'" d #'d"/ /#l"( 'd /"#l%&o' ( /"($/&!"d ! %4" S"$/"%/ o. >&''$" $) All o%4"/ &'.o /%&o' '" $"((/ .o/ %4" 3"/&=$ %&o' 'd $o #%%&o' o. (# $4 $/"d&% ()
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS T, C/"d&% -t is the amont sbtracted from an individal8s or entity8s tax liability to arrive at the total tax liability. -t redces the taxpayer8s liability peso for peso compared to a dedction which redces taxable income O pon which the tax liability is calclated.
>o/"&' %, $/"d&% • •
-f a citi0en or resident incrs or pays income taxes to foreign contry on income sbect to tax the taxpayer may be able to claim some of these taxes as a dedction as a tax credit against the ?hilippine income. ?rpose of the Horeign +ax %redit (H+%) is to provide relief from doble taxation.
1) T,"/( w4o /" llow"d $/"d&% if the taxpayer signies in retrn his desire to have the benets of credit against tax for taxes of foreign contries the income tax shall be credited with: %iti0en and omestic %orporation O the amont of income taxes paid or incrred dring the taxable year to any foreign contry • • ?artnerships and estates O proportionate share of each partner in the taxes of the general professional partnership or the estate or trst paid or incrred dring the taxable year to a foreign contry
)dividends Do"(%from &$ $o/o/ ow'&' 9o/&% o. %4"the (%o$@ o. .o/" &' $o/o to /%&o' % receives H% the%&o' credit for foreign taxes incldes income taxes deemed have been paid determined by ta,ing the same proportion of any income taxes paid or accred by sch controlled foreign corporation to any foreign contry. +he amont of taxes deemed to have been paid is limited to an amont of the tax against which the credit for foreign taxes is ta,en which the amont of sch dividends bears to the amont of the entire net income of the domestic corporation in which the dividends are inclded. -f there are dividends from more than 1 H% compte them separately.
2) M#(% (& '&. &' / "%#/' ;-4% re/ires the taxpayer to indicate in the retrn his intention to avail of the tax credit otherwise dedction na siya.
No'/"(&d"'% C&%&J"'( l&"'( 'd .o/"&' $o/o/%&o'( 'o% "'%&%l"d • • • •
Becase they are only taxed on -;%$ H4$ &$=4%& D-+A-;. +his is tre even if the foreign government taxes the ?hilippinesorced income reslting to indirect dplicate taxation. -f the converse is tre where the tax credits are allowed to aliens and H%s it will place the taxpayer who is taxable on domestic sorces of income in a better position than one who is taxable on both domestic and foreign sorces. ;$+: doble taxation becomes obnoxios only where the taxpayer is taxed twice for the benet of the same governmental entity
1) T, % /"% /" l&".
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 7liens and H%s may avail of existing tax treaty reliefs to redce their ?hil tax liability. +hese treaties are not niform and each has its own rles
L&&%%&o'( • •
7mont of the credit in respect to the tax paid or incrred to any contry shall not exceed the same proportion of the tax against which sch credit is ta,en. +he total amont of the credit shall not exceed the same proportion of the tax against which sch credit is ta,e which the taxpayer8s taxable income from sorces withot the ?hilippines bears to his entire taxable income for the same taxable year.
Ill#(%/%&o': A DOMESTIC CORP "/'"d &'$o" o. P100 000 &' COUNTRG A P100 000 &' COUNTRG B 'd P10000 &' PHILIPPINES) H" &d %,"( o. 100000 5COUNTRG A 0 000 5COUNTRG B) To%l &'$o" %, &d &' P4&l&&'"( .o/ ll %4" &'$o" w( P10 000) Ao#'% o. %, $/"d&% (4ll !": o
o
?er contry limitation: %$=;+4M 7 1"","""@3"",""" x 1"! ,""" +ax credit (lower than 3! ,""" limit) %$=;+4M B 1"","""@3"",""" x 1"!,""" +ax credit (lower than actal !" ,""") +otal:
N N
?3!,""" ?1"
,"""
N N
?3!,""" ?3!,""" ?'!,"""
7ll foreign limitation: 2"","""@3"",""" x 1"!,""" N 7llowable tax credit (lower between per contry and all foreign limitation)
?E",""" ?'! ,"""
R"d"%"/&'%&o' o. %, •
•
-f accred taxes when paid di9er from the amonts claimed as credits by the taxpayer or if any tax is refnded in whole or in part the taxpayer shall notify the %om. $f -nternal 4evene. +hen the commisionah will determine the amont of the tax for the year or years a9ected then tax the mofo pon notice and demand. -f the tax is incrred bt not yet paid the commissionah will re/ire the taxpayer to give a bond before giving him the allowance of the credit.
W4"' $/"d&% o. %,"( !" %@"' • •
+a,en in the retrn for the year in which the taxes were paid +a,en in the year in which the taxes of the foreign contry were incrred or accred (determined by the %-4)
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ;$+: taxpayer elects to ta,e sch credits in the year of the foreign contry accred the credits for all sbse/ent years shall be ta,en pon the same basis and no portion of any sch taxes shall be allowed as a dedction in the same or any scceeding year.
P/oo. o. $/"d&%(: credits shall be allowed only if the taxpayer establishes to the %-4: • •
+otal amont of income derived from sorces withot the ?hilippines +he amont of income derived from each contry the tax paid or incrred to which is claimed as a credit.
1) Co'd&% &o'( .o/ llow '$" o. $/"d&%( • • • •
-f he wants to claim credit for income taxes it mst be accompanied by the appropriate form prescribed by the %-4. -f the credit is soght for taxes already paid mst have attached to it the receipt for each tax payment. st be an srcinal or certied copy and if in a foreign langage translated. -f the credit is soght tax accred bt not paid the %-4 may re/ire a bond. -f the taxpayer wants to claim as a credit and not as a dedction the form may be led at a later date bt a credit cannot be allowed for sch taxes nless the taxpayer signies in his retrn his desire to have any benets of the tax credit.
5D osses: 51 In General) - Lo(("( $%#ll (#(%&'"d d#/&' %4" %,!l" "/ 'd 'o% $o"'(%"d .o/ ! &'(#/'$" o/ o%4"/ .o/( o. &'d"'&% (4ll !" llow"d ( d"d#$%&o'(: 5 I. &'$#//"d &' %/d"8 /o."((&o' o/ !#(&'"(( 5! O. /o"/% $o''"$%"d w&%4 %4" %/d"8 !#(&'"(( o/ /o."((&o'8 &. %4" lo(( /&("( ./o =/"(8 (%o/(8 (4&w/"$@8 o/ o%4"/ $(#l%&"(8 o/ ./o /o!!"/8 %4".% o/ "!"JJl""'%) T4" S"$/"% / o. >&' '$"8 #o' /"$o "'d%&o ' o. %4" Co &(( &o' "/8 &( 4"/ "! #% 4o/ &J"d %o /o#l %" /#l "( 'd /"#l%&o'( /"($/&!&'8 o' o%4"/ %4&'(8 %4" %&" 'd ''"/ ! w4&$4 %4" %,"/ (4ll (#!&% d"$l/%&o' o. lo(( (#(%& '"d ./o $(#l % o/ ./o /o!!"/8 %4".% o/ "!"J Jl""'% d#/&' %4" %,!l" "/: Provided" hoever 8 T4% %4" %&" l&&% %o !" (o /"($/&!"d &' %4" /#l"( 'd /"#l%&o'( (4ll 'o% !" l"(( %4' %4&/% 5*0 d( 'o/ o/" %4' '&'"% 50 d( ./o %4" d%" o. d&($o3"/ o. %4" $(#l% o/ /o!!"/8 %4".% o/ "!"JJl""'% &3&' /&(" %o %4" lo(() 5$ No lo(( (4ll !" llow"d ( d"d#$%&o' #'d"/ %4&( S#!("$%&o' &. % %4" %&" o. %4" =l&' o. %4" /"%#/'8 (#$4 lo(( 4( !""' $l&"d ( d"d#$%&o' .o/ "(%%" %, #/o("( &' %4" "(%%" %, /"%#/' . 52 Proof of oss.- I' %4" $(" o. 'o'/"(&d"'% l&"' &'d&3& d#l o/ .o/"& ' $o/o/%&o' 8 %4" lo(("( d"d#$%&!l" (4ll !" %4o(" $%#ll (#(%& '"d d#/&' %4" "/ &'$#//"d &' !#(&'"((8 %/d" o/ ","/$&(" o. /o."((&o' $o'd#$%" d w&%4&' %4" P4&l&&'"( 8 w4"' (#$4 lo(("( /" 'o% $o"'(%"d .o/ ! &'(#/'$" o/ o%4"/ .o/( o. &'d"'&%) T4" S"$/"% / o. >&' '$"8 #o' /"$o "'d%&o ' o. %4" Co &(( &o' "/8 &( 4"/ "! #% 4o/ &J"d %o /o#l %" /#l "( 'd
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 60
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS /"#l%&o'( /"($/&!&'8 o' o%4"/ %4&'(8 %4" %&" 'd ''"/ ! w4&$4 %4" %,"/ (4ll (#!&% d"$l/%&o' o. lo(( (#(%& '"d ./o $(#l % o/ ./o /o!!"/ 8 %4".% o/ "!"J Jl""'% d#/&' %4" %,!l" "/: Provided" T4% %4" %&" %o !" (o /"($/&!"d &' %4" /#l"( 'd /"#l%&o'( (4ll 'o% !" l"(( %4' %4&/% 5*0 d( 'o/ o/" %4' '&'"% 50 d( ./o %4" d%" o. d&($o3"/ o. %4" $(#l% o/ /o!!"/8 %4".% o/ "!"JJl""'% &3&' /&(" %o %4" lo(( 'd Lo(("( • •
eciency of the amont received as opposed to the amont invested in a transaction. -t may refer to a nancial loss reslting from a sdden and nexpected event. st be evidenced by closed and completed transactions. 7dstment mst be made in each case for expenditres or items of loss properly chargeable to capital accont and for depreciation obsolescence amorti0ation or depletion. 4edced frther in the amont of any insrance or other compensation received.
-ncome tax provides for reliefs from losses incrred which may be one or a combination of the following methods: o %arrybac, O the carrying over of the loss to o9set it against prots in prior years. o %arryforward O %arrying over to o9set it in the ftre years. o &eto9 O dedction of loss against other income in the year in which the loss was incrred ;$+: some tax risdictions adopt the ;egative -ncome +ax where taxpayers incrring losses receive assistance from the state instead of paying taxes to the latter. •
1) &' d( o . lo (( "( 4: 5$&&& =%+-B5 are losses in the taxpayer8s trade or bsinessC losses in protsee,ing transactions and casalty losses. $rdinary losses %asalty losses 5osses sstained by taxpayer dring its normal operations. %omplete or partial destrction of property reslting from an +hese are incrred in the condct of trade or bsiness or exercise of identiable event of a sdden, nexpected or nsal natre. -t profession. denotes accident or sdden invasion by hostile agency and excldes progressive deterioration. &=; L;+: swift, not gradal or nanticipated. xample re, storm, shipwrec,, robbery, theft or embe00lement. %asalty loss is claimed in the year incrred while losses from theft or embe00lement is claimed in year discovered.
) D&( %& '$%&o '( Both of them above are /alied as allowable dedctions from gross income distinction lies in the additional re/irement for dedctibility in the case of casalty losses -n determining whether a loss is an ordinary loss or a casalty loss the isse to be resolved is not whether the expense was spported by the re/ired certication bt whether said inventory losses were incrred in the normal bsiness operations of the taxpayer.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 61
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS : +he taxpayer see,ing dedction mst (1) point to some specic provision of the statte b. R"?#&(&%"( o. d"d#$%&!&l&% athori0ing the dedction and (2) prove that he is entitled to the dedction claimed by him i. &mmary: • 5oss mst be that of a taxpayer • st be actally sstained and charged o9 within the taxable year • st be evidenced by a closed and completed transaction • st not be compensated for by insrance or other form of indemnity • %asalty or loss: sworn declaration of loss led within '! days after date of occrrence of casalty or robbery theft or embe00lement • +axpayer mst prove elements of the loss claimed (actal natre and occrrence of event and amont of loss) • 5oss connected with trade bsiness or profession of the taxpayer • 5oss not previosly claimed as dedction for estate tax prposes in the estate tax retrn & & ) 1(% /"?#&(&%" a. b. c. d.
5oss of one taxpayer may not be transferred to and sed by another 5oss in one class of income not o9set against income of another class 5oss of predecessor not dedctible by a sccessor nless they are technically and legally the same entity 5oss of sbsidiary may not be dedcted by the parent corporation and vice versa (exc: parent corporation can show that losses are not and cannot be ta,en into accont in the &tate residence of the sbsidiary) e. 5oss of branch dedctible from gross income of head o
Ill#(%/%&o': >l#$%#%&o'( &' /@"% 3l#" /" '"3"/ %o !" $$o#'%"d .o/ &' %4" $o#%%&o' o. &'$o" #'%&l %4" &' o/ lo(( !"$o"( ' $$ol&(4"d .$%) i. */d /"?#&(&%":Iclosed and completed transactionK is one s
Ill#(%/%&o': O!(ol"($"'$" 5.#'$%&o'l d"/"$&%&o' .o/ l'%( &( 'o% llow"d &. &% 4( 'o% .#'$%&o'll d"/"$&%"d !#% w( "/"l '""dl"((l $?#&/"d &' 3ol#'%/ !#(&'"(( $o'(ol&d%&o')
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 62
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS Ill#(%/%&o': T,"/( $''o% %@" d"d#$%&o' .o/ ' o%4"/ $(#l% lo(( w4"/" %4"/" w( 'o 4(&$l d" %o %4" /o"/% o. %4" %,"/ 'd '"/! l'd(l&d" /#&'"d '"&4!o/&' 4o"() B(&( 4"/" w( "/"l: ."/ %4% %4" o#'%&' &4% %%$@ %4"&/ 4o"( '",%) iv. O%4"/ /"?#&(&%"(: 5oss of personal property as to the E th re/isite may not be dedcted from gross income and neither may losses from investment or trade be dedcted from compensation income. ;o loss is sstained by the transfer of property by gift or death. Qth re/isite O settlement of estate losses: dedction incrred from res storms shipwrec, other casalties robbery theft embe00lement (when not compensated by insrance or otherwise) and if at the time of the ling of the retrn sch losses have not been claimed as a dedction for the income tax prposes in an income tax retrn and provided sch losses were incrred not later than the last day for the payment of the estate tax as prescribed in section *1. 1. F#&d"l&'"( .o/ d"d#$%&o':taxpayer engaged in trade or bsiness may be entitled to claim casalty losses incrred for the properties actally in the bsiness enterprise that were damaged and reported as losses in the appropriate declaration led with the B-4. 5oss of assets not sed in the corse of bsiness and@or are personal in natre shall not be allowed. %asalty losses mst have been reported as part of taxpayer8s assets in the acconting records and nancial statements in the year immediately preceding the occrrence of loss with cost of ac/isition clearly established and recorded. $therwise sch claim is not allowed. 7mont of loss that shall be compensated by insrance coverage shold not be claimed as a dedctible loss. -f insrance proceeds exceed the net boo, vale of the damaged assets excess shall be sbect to reglar income tax bt not to L7+ since the indemnication is not an actal sale of goods by the insred company to the insrance company. -n the event of total loss@destrction of properties sed in bsiness enterprise net boo, vale immediately preceding natral disaster shold be sed as basis in claiming casalty losses and shall be redced by the amont of insrance proceeds received. 4estoration of damaged property or ac/isition of the new property to replace it mst be property recorded and recogni0ed as either repairs expense or capitali0ed asset. overned by tax acconting rles ta,ing into accont natre of the transaction vale of amonts involved and other factors. •
T/"%"'% o. ",$"(((insrance proceeds excess over net boo, vale of the insred assets) O not taxable income if the same have been sed in restoring the lost assets. Dhere insrance proceeds are actally reinvested in similar property no gain is recogni0ed.
-nvolntary conversion of property doctrine O sed in determining whether or not a gain from the involntary conversion of property may be recogni0ed as reali0ed income sbect to income tax to the recipient theft or sei0re its expropriation or condemnation or the threat or imminence thereof ?roperty complsorily or involntarily converted into property similar or related in service or se to the property so converted or into money which is forthwith in good faith no gain or loss shall be recogni0ed. 7ny part of the money not so expended in gain shall be recogni0ed bt in an amont not in excess of the money so expended.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS -f the taxpayer ses all insrance proceeds in rehabilitating destroyed assets the excess is not recogni0ed as reali0ed income and not sbect to income tax. xcess of the total replacement cost over the net boo, vale of the damaged assets immediately before the casalty will not be a dedctible loss bt may be capitali0ed sbect to depreciation (based on the adsted basis of the assets after rehabilitation) 4evene reglations 12EE: dedctible loss sstained from casalty shall be the excess of the net boo, vale of the ordinary assets that were totally destroyed over any proceeds from insrance and other forms of indemnity or compensation received. xcess immediately before the casalty shall be capitali0ed sbect to depreciation over the remaining sefl life of the property. B-4 rling '2*QQ: excess of the total costs of reconstrction rehabilitation restoration and replacement of the insred assets over the total ac/isition cost or adsted basis is not a dedctible loss. +he excess shall be considered an additional capital expenditre from which depreciation play be claimed. v. No% (#!9"$% %o VAT:&ec. 1"! of the +ax %ode of 1**E &%. 1"!. *ersons 0iable. 7ny person who in the corse of trade or bsiness sells barters exchanges leases goods or properties renders services and any person who imports goods shall be sbect to the valeadded tax (L7+) imposed in &ections 1"6 to 1"Q of this %ode. L7+ is an indirect tax and the amont of tax may be shifted or passed on to the byer transferee or lessee of the goods properties or services. +his rle shall li,ewise apply to existing contracts of sale or lease of goods properties or services at the time of the e9ectivity of 47 EE16. in the course o! trade or businessreglar condct orprsit of a commercial or an economic activity inclding transactio ns incidental thereto by any person regardless of whether or not the person engaged therein is a nonstoc, nonprot private organi0ation (irrespective of the disposition of its net income and whether or not it sells exclsively to members or their gests) or government entity. Iin the corse of trade or bsinessK: the bilding machinery or e/ipment not held primarily for the sale to cstomers or held for lease in the ordinary corse of trade or bsiness the sale of the same is not sbect to L7+ prsant to the abovementioned provision and its implementing rles and reglations. -ndemnication is not an actal sale of goods by the insred company to the insrance company: where it arises ot of a fortitos event and the sale is not in the reglar or ordinary corse of bsiness. +he proceeds derived from the destrcted of its insred assets shall not form part of its gross sales for L7+ prposes.
2) T,"/( llo w"d %o d "d#$% l o(("( •
5osses by individals O sstained by individals dring the year not compensated for by insrance or otherwise are flly dedctible (except by nonresident aliens) 1. -f incrred in a taxpayer8s trade 2. -ncrred in any transaction entered into for prots
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS
•
3. ?roperty connected with the trade or bsiness arising from res storm shipwrec,Tetc. ;o loss allwed as dedction if at the time of the ling of the retrn sch loss has been claimed as dedction for estate and inheritance tax prposes in the estate or inheritance tax retrn. 5osses by corporations 1. omestic O dedct losses actally sstained and charged o9 within the year and not compensated by insrance or otherwise 2. Horeign (applies to nonresident aliens) O allowed only losses sstained in bsiness or trade connected within the ?hilippines and those arising from res storms shipwrec,Tetc and those sstained in transactions entered into for prot in the ?hilippines not compensated by insrance or otherwise.
2. S#!(%'%&%&o' /"?#&/""'%(: taxpayer bears brden of proving and sbstantiating his claim for dedction for losses and shold comply with the 9: ) D"$l/%&o' o. lo(( led with the %-4 or his deptees within a certain period prescribed in these reglations after the occrrence of the casalty robbery theft or embe00lement
!) P/oo. o. lo((actal natre and occrrence of the event and amont of the loss eclaration of 5oss ($5) O Dithin '! days of the occrrence a taxpayer who sstained loss therefrom and who intends to claim the loss as a dedction for the taxable year in which the loss was sstained shall le a sworn declaration of loss with the nearest 4evene istrict $
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS vochers receipts the insrance policy and other evidence of cost). 7ll shold be ,ept as part of tax records and made available to revene examiner pon adit of his tax retrn and $5. ii. 4obbery theft and embe00lement losses O credible evidence to prove amont of loss and proper year of dedctionC insrance policyC police report (failre to report may be factor against taxpayer O bt not conclsive proof). iii. 7ll evidence sbect to verication by concerned Brea o
D"%"/&'%&o' o. o#'% d"d#$%&!l" &' "'"/l: amont is limited to di9erence between vale of property immediately preceding the casalty and its vale immediately thereafter bt shall not exceed an amont e/al to the cost or other adsted basis of the property or depreciated cost in the case property sed in bsiness redced by any insrance or other compensation received. • Hair mar,et vale O immediately before and after casalty for determining amont of casalty loss dedctible ascertained by impartial bt competent appraisal (recogni0ing e9ects of general mar,et decline which may occr simltaneosly with the casalty in order that any dedction shall be limited to actal loss reslting from damage to property • %ost of repairs O acceptable as evidence of loss of vale if also shown that the repairs are necessary that the amont spent is not excessive that they do not cover more than the damage s9ered and that the vale of the property after repairs does not exceed the vale of the property immediately before casalty.
Ill#(%/%&o'(: o To%l d"(%/#$%&o' o. /o"/% #("d &' !#(&'"(( K %4" '"% 3l#" &"d&%"l /"$"d&' %4" $(#l% (4o#ld !" #("d ( %4" !(&( &' $l&&' lo(("( l(o %o !" /"d#$"d ! ' o#'% o. &'(#/'$" o/ $o"'(%&o' A((#" %4%: A $?# & ( & % & o '$o ( %o./ o "/ % 10 80 00 A $$# # l % "dd " / "$& % & o' 80 0 0 I' ( #/ '$ " $ o 3 " / "d 28 0 0
7mont dedctible is compted as follows: 7c/isition cost 5ess:7ccmlatedepreciation 7mont of loss s9ered 5ess: amont recovered throgh insrance 7$=;+ =%+-B5
1"""" !""" !""" 2!"" 2!""
P/%&l D"(%/#$%&o' o. /o"/% #("d &' !#(&'"(( K /"l$""'% $o(% %o /"(%o/" /o"/% !$@ %o &%( 'o/l o"/%&' $o'd&%&o' (4o#ld !" #("d .o/ #/o("( o. $o#%&' d"d#$%&!l" lo(("(8 !#% &' 'o $(" o/" %4' %4" '"% !oo@ 3l#" o. %4" /o"/% ( w4ol" &"d&%"l !".o/" %4" $(#l%) E,$"(( (4o#ld !" $&%l&J"d (#!9"$% %o d"/"$&%&o' o3"/ %4" /"&'&' #(".#l &. o. %4" /o"/%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 66
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS A((#" %4%: A $ ? #& ( & % & o ' $o( % A$ $# #l % "dd" / "$& % & o ' N"!%oo3@ l #" E ( % & % "d / " & '& ' #( ". #l l & . " R" l $" " ' % $ o ( % o . d " d o / % & o '
-n the example the loss dedctible for tax prposes wold be limited to ?1"""" which is e/al to the net boo, vale of the whole property: ;et boo, vale 1"""" 4eplacement cost 2"""" xcess of replacement cost to be capitali0ed 1"""" %onse/ently the new cost basis sbect to depreciation charges over the remaining sefl life of the property which is ve years wold be ?2"""": ;etboo,valebeforecasalty 1"""" 7dd: excess of replacement cost over boo, vale 1"""" ;ew cost basis
10 0 8 0 0 0 0 80 00 10 8 0 0 0 " / ( 20 8 0 0 0
2""""
Mearly depreciation: 2""""@! years N ?hp '"""
1) >/ lo(("( o
o
5oss of livestoc, O that sstained in the death of livestoc, allowed as a dedction to the extent of the ac/isition cost only if no inventories are ta,en into accont in determining the income from the bsiness of farming. -f inventories are ta,en from trade or bsiness of farming no dedction allowed to the extent that sch losses are reGected in the inventory on hand at the close of the taxable year. $ther farm losses O grond prepared and planted or stoc,ed and its vale is completely destroyed by the overGow or seepage of water from natral resorces the cost of the preparation and planting shall be dedctible loss in the year which it is incrred.
a. >/ o"/%"d ( !#(&'"(( "'%"//&(": losses are dedctible from gross income. -f held for favorable mar,ets no dedction on accont of shrin,age in weight or physical vale or by deterioration in storage shall be allowed except as sch may be reGected in an inventory if sed to determine prots. +otal loss by storm Goor or re of prospective crop is not a dedctible loss in compting net income. 5oss of the vale of animals for famers engaged in raising livestoc, is not entitled to claim as a loss the vale of those that perish from among those raised on a farm (>%: reGected in inventory if sed). -f livestoc, prchased after arch 1 1*13 for any prpose and afterwards dies
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 67
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS the actal prchase price of sch stoc, less any depreciation allowable as a dedction in compting net income with respect to sch perished livestoc, and also any insrance or indemnity recovered may be dedcted as a loss 7ctal cost of property destroyed by order of athorities may be claimed as a loss nless reimbrsement is made (which shall be reported as income for the year in which it was made). %ost of feed pastrage care dedcted as an expense of operation shall not be inclde as part of the cost of the stoc, for prpose of ascertaining the amont of a dedctible loss. ross income ascertained by inventories O sch losses will be reGected in inventory by redcing the amont of livestoc, or prodcts on hand at the close of the year bt no dedction can be made for livestoc, or prodcts lost dring that year. -f an individal owns and operates a farm in addition to being engaged in another trade and sstains a loss from each operation on the farm amont of loss may be dedcted from gross income received from all sorces provided the farm is not merely for recreation or pleasre 2. Ro!!"/ %4".% 'd "!"JJl""'% lo(("( : amont dedctible shall be determined consistently with the manner prescribed for determining amont of casalty loss allowable. Hair mar,et vale of the property immediately after the theft shall be considered as U4$. oes not apply to losses reGected in inventories of taxpayer.
Ill#(%/%&o': M/) B #/$4("d "?#&"'% $o(%&' +0@) No3) *08 20108 &% 4d !oo@ 3l #" o. *@8 'd &% w( (%ol"') E?#&"'% w( &'(#/"d &'(% %4".%) I'(#/'$" $o' 4d $o'%/o3"/( o3"/ l&!&l&%) I' 20118 M/) B 4d /"(o'!l" /o("$% o. /"$o3"/ o. >MV o. "?#&"'%) Co'%/o3"/( ("%%l"d o' M/$4 20128 'd M/) B /"$"&3"d 20@ ./o &'(#/'$" $o') No d"d#$%&o' $o(%( .o/ 2010 o/ 2011 !#% o#'% o. d"d#$%&o' llow!l" &' 2012 &( 1 o
Laleofpropertyimmediatelybeforetheft 5ess: vale of property after 5oss to be ta,en into accont 5ess: insrance received edction allowable
3!, " 3!, 2", 1!,
2. T/"%"'% o. ",$"(( o. /"l$""'%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS depreciation may be claimed. xcess of insrance proceeds over ;BL of insred assets is not taxable income to the taxpayer if sed in restoring lost assets. a. 4le: where insrance proceeds are actally reinvested in similar property no gain recogni0ed. Hor depreciation taxpayer can claim depreciation of insred property pls any additional capital otlay incrred in restoring property if any. b. 7pply involntary conversion doctrine O no gain or loss to be recogni0ed in the event of property complsorily or involntarily converted into similar property. 7ny money not so expended the gain if any shall be recogni0ed bt in an amont not in excess of the money so expended.
G"/ o. d"d#$%&o':casalty occrring reslting in a loss and in the same year there exists a claim for reimbrsement with respect to which there is a reasonable prospect of recovery no portion of the loss with respect to which reimbrsement may be received is sstained ntil it can be ascertained with reasonable certainty whether or not sch reimbrsement will be received. Dhether a reasonable prospect of recovery exists with respect to a claim for a reimbrsement of a loss is a /estion of fact to be determined pon examination of facts. Dhen a taxpayer claims that the taxable year in which loss is sstained is xed by his abandonment of the claim for reimbrsement he mst be able to prodce obective evidence of his having abandoned the claim sch as exection of release. 1. E,4#(%&o' o. /""d&"(:loss dedctible only in year that it is sstained. >%: if it is compensable by insrance or otherwise dedction is postponed to sbse/ent year (year where it appears that no compensation can be had) a. 5oss dedction will be denied if there is measrable right to compensation for the loss with ltimate collection reasonably clear. Dhere there is reasonable grond for reimbrsement taxpayer mst see, redress and may not secre loss dedction ntil he establishes that no recovery may be had. +axpayer mst exhast his remedies rst to recover or redce loss. +axpayer may not dedct casalty and theft losses covered by insrance nless he les a timely claim and redces loss by amont of reimbrsement 2. >o/"&' ",$4'" lo(("(:ordinary gain or loss reslts from Gctations in transactions disposing foreign crrency ac/ired. 5oss is dedctible only for the year it is actally sstained (year loss occrs as evidenced by complete transaction and xed by identiable (+A-;V +A-& -& 7 +M?$) occrring that year. a. 5oss ascertained and reali0ed dring the taxable period and not compensated by insrance or otherwise is dedctible from gross income albeit it may relate to transaction of prior years. b. &mmary: H rates are taxable gains and@or dedctible expenses when: i. xchange rate (4) at the time of receipt of advance payments on contracts is di9erent from the rate at the time income is earned and debited against advance payments ii. 4 at time of recording acconts receivables di9erent from rate at the time of actal collection iii. 4 at the time advance payments made to sbcontractors di9erent from rate at the time expenses on the sbcontract are incrred@recorded
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS iv. 4 at the time of recording@recogni0ing acconts payables is di9erent from rate at the time acconts payables are paid v. 4 at the time down payments for constrction materials are made di9erent from the rate at the time of fll payment@settlement of balance on the prchase price of materials.
$) Ill #(%/ %&o '( : &) P/o"/% #/$4 ("d w&%4 !o//ow "d B/&%&(4 o#' d() D&"/" '$" !"%w" "' doll/ 3l#" o. !o//ow" d 'd 4&4"/ o#'% ","'d"d &' #/$4(" %o /" lo' lo(("() &&) P#/$4("/ !#( o' $/"d&% 5&'3"(%"'% &' .o/"&' ",$4'") M%#/&% o. "'%: %4" $#//"'$ &'$/"(&' o/ d"$/"(&' &( "?#&3l"'% %o %,"/ /o=% o/ lo(( o' ",$4'" !#% $o(% o. ood( &( 'o% "$%"d &&&) >E lo(("( /"(# l%&' ./o d"3l# %&o' o. "(o 3&(--3 &( .o/"&' $#/ /"'$ 'd 3&$" 3"/ ( !#% /"&%%'$ " o. ($4"d#l"d o/%&J%&o' $o'(&(%&' o. /&'$&l 'd &'%"/"(%( "'% o' .o/"&' lo' 'o% $%#ll d" /" 'o% d"d#$%&!l" ./o /o(( &'$o" .o/ &'$o" %, #/o("() 3. D"'&l o. &'#% VAT /".#'d:ntili0ed inpt L7+ related to 0erorated sales may be claimed as dedction from gross income if the taxpayer8s claim for refnd@credit of the same has been denied on the 9 gronds: i. Hailre to comply with sales invoicing re/irements ii. Hailre to show evidence that the inpt taxes soght to be refnded were not carried over nad applied against any otpt L7+ in the scceeding periods iii. Hlied ot of time -npt tax by its natre is an asset bringing benets to taxpayer. -n case of denial of claim for refnd@credit taxpayer loses the vale of his asset. -t may be dedcted in the year the loss was sstained (year of denial of claim). -n case claim denied for failre to sbmit invoices@receipts there is no dedctible loss. 9ect: L7+ passed on by spplier will form part of the expense of items prchased. 4emedy is to amend income tax retrn if still available
R"$o3"/ o. lo(("(: =nder +7> B;H-+ 4=5, taxpayer mst inclde in income the recovery of any amont dedcted in a prior taxable year to the extent the prior year8s dedction redced the taxpayer8s tax liability for that year (or created a net operating loss carryover or carrybac,) .
Ill#(%/%&o' I. %,"/ /o"/l d"d#$%( P100 000 lo(( &' 2010 'd d"d#$%&o' /"d#$"( %4" %,"/( 2010 &'$o" %, l&!&l&% /"$o3"/ o. P100000 /"$"&3"d &' 2012 &( &'$l#d&!l" &' .#ll &' %4" %,"/( &'$o" &' 2012 . I. 2010 lo(( ",$""d( %4% 2010 %,!l" &'$o" 'd $/"%"( '"% o"/%&' lo(( $//o3"/ o/ $//!$@ 5&' (o" %, ((%"( /"$o3"/ o. P100000 /"$"&3"d &' 2012 &( &'$l#d&!l" &' .#ll &' %4" %,"/( &'$o" &' 2012 . o
-f no carryover is created, the amont incldible is limited to the amont of taxable income . 4ecovery is ordinary income and not capital gain.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 70
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS I. %,"/ /o"/l $l&"d lo(( d"d#$%&o' 'd &' l%"/ "/ /"$o3"/( o/%&o' o. o#'%( %,"/ lo(% 'o% "'d %4" /&o/ "/( &'$o" %, /"%#/' %o /"d#$" %4" lo(( d"d#$%&o' ! %4" o#'% o. %4" /"$o3"/ . I'(%"d /"$o3"/ &( &'$l#d&!l" ( %, !"'"=% &'$o" &' %4" "/ /"$"&3"d) 5* !et peratin0 oss arry-ve /) - T4" '"% o"/%&' lo(( o. %4" !#(&'"(( o/ "'%"//&(" .o/ ' %,!l" "/ &"d&%"l /"$"d&' %4" $#//"'% %,!l" "/8 w4&$4 4d 'o% !""' /"3&o#(l o("% ( d"d#$%&o' ./o /o(( &'$o" (4ll !" $//& "d o3"/ ( d"d#$%&o' ./o /o(( &'$o" .o/ %4" '",% * $o'("$#%&3" %,!l" "/( &"d&%"l .ollow&' %4" "/ o. (#$4 lo((: Provided" hoever" T4% ' '"% lo(( &'$#//"d &' %,!l" "/ d#/&' w4&$4 %4" %,"/ w( ","% ./o &'$o" %, (4ll 'o% !" llow"d ( d"d#$%&o' #'d"/ %4&( S#!("$%&o': Provided" further" T4% '"% o"/%&' lo(( $//-o3"/ (4ll !" llow"d o'l &. %4"/" 4( !""' 'o (#!(%'%&l $4'" &' %4" ow'"/(4& o. %4" !#(&'"(( o/ "'%"//&(" &' %4% K 5& No% l"(( %4' 7 &' 'o&'l 3l#" o. o#%(%'d&' &((#"d (4/"(8 &. %4" !#(&'"(( &( &' %4" '" o. $o/o/%&o'8 &( 4"ld ! o/ o' !"4l. o. %4" (" "/(o'( o/ 5&& No% l"(( %4' 7 o. %4" &d # $&%l o. %4" $o/o/%&o'8 &. %4" !#(&'"(( &( &' %4" '" o. $o/o/%&o'8 &( 4"ld ! o/ o' !"4l. o. %4" (" "/(o'( . 7not operatin0 loss7(4ll "' %4" ",$"(( o. llow!l" d"d#$%&o' o3"/ /o(( &'$o" >o/ #/o("( o. %4&( (#!("$%&o'8 %4" %"/ o. %4" !#(&'"(( &' %,!l" "/Provided" ) T4% .o/ &'"( o%4"/ %4' o&l 'd ( w"ll(8 '"% o"/%&' lo(( w&%4o#% %4" !"'"=% o. &'$"'%&3"( /o3&d"d .o/ #'d"/ E,"$#%&3" O/d"/ No) 2268 ( "'d"d8 o%4"/w&(" @'ow' ( %4" O'&!#( I'3"(%"'%( Cod" o. 1;78 &'$#//"d &' ' o. %4" =/(% 10 "/( o. o"/%&o' !" $//&"d o3"/ ( d"d#$%&o' ./o %,!l" &'$o" .o/ % 4" '",% "/( &"d&%"l .ollow&' %4" "/ o. (#$4 lo(() T4" "'%&/" o#'% o. %4" lo(( (4ll !" $//&"d o3"/ %o %4" =/(% o. %4" %,!l" "/( .ollow&' %4" lo((8 'd ' o/%&o' o. (#$4 lo(( w4&$4 ",$""d(8 %4" %,!l" &'$o" o. (#$4 =/(% "/ (4ll !" d"d#$%"d &' l&@" ''"/ .o/ %4" %,!l" &'$o" o. %4" '",% /"&'&' + "/( .
N"% O"/%&' Lo(( C// O3"/ F"'"/l /&'$&l"( 'd ol&$&"( ;$5%$ shall be allowed as dedction from gross income of same taxpayer who sstained and accmlated net operating losses regardless of change of ownership. +his also applies in case of merger where taxpayer is the srviving entity. -ndividal (inclding estate or trst) or domestic or resident foreign corporation may be allowed to claim dedction corresponding to ;$5%$ bt he who claims '"# optional standard dedction shall not simltaneosly claim ;$5%$ dedction.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 71
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 3year reglementary period shall contine to rn notwithstanding the fact that taxpayer availed of '"# optional standard dedction in the said period. +his period on the carryover of ;$5%$ will also contine to rn even if corporation paid its income tax nder %-+ comptation. ;$5%$ shall be availed of on rstin rstot basis. ;et operating loss incrred in the year where there is sbstantial change in ownership shall not be a9ected by sch change of ownership.
1)
S#!(%'%&l $4'" ;$5%$ shall not be transferred or assigned to another person sch as transfer or assignment throgh merger consolidation or any other form of bsiness combination of sch taxpayer to another person . ;$5%$ shall be allowed if there has been no sbstantial change in the ownership of bsiness in that not less than E!# nominal vale of otstanding issed shares or not less than E!# paidp capital is held by or on behalf of the same persons. E!# e/ity ownership or interest rle only applies to transfer or assignment of taxpayer8s net operating losses as reslt of or arising from said merger consolidation or bsiness combination. -n case transfer or assignment of taxpayer8s net operating losses arises from sch merger consolidation or consolidation with another person transferee or assignee shall not be entitled to claim the same as dedction from gross income nless shareholders of transferor@assignor gains control of at least E!# or more in nominal vale of the otstanding issed shares or paid p capital of the transferee@assignee (in case transferee@assignee is a corporation) or E!# or more interest in bsiness of the transferee@assignee (if it is other than a corporation) .
)
B o/ o' !"4l. %o %4" (" "/(o' this refers to maintenance of ownership despite change as when: &) ;o actal change in ownership is involved in case the transfer involves change from direct ownership to indirect ownership or viceversa . &&) ;o actal change in ownership is involved as in the case of merger of sbsidiary into parent company.
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Ill#(%/%&o' .o/ 5& P CORP ow'( CORP %4% 4( NOLCO) P CORP %/'(."/( CORP( (4/"( %o R CORP &' ",$4'" .o/ 100 o. R CORP (4/"() o
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-n this case R %$4?8s ;$5%$ is retained becase R%$4?8s shares are held by4 %$4? on behalf of ? %$4? srcinal owner .
Ill#(%/%&o' .o/ 5&& X CORP ow'( 100 o. G CORP) G CORP ow'( 100 o. CORP) CORP 4( NOLCO) CORP &( "/"d &'%o G COR P) o
-n this case U %$4?8s ;$5%$ shold be e r tained and transferred to M%$4?. ?rior to the merger > %$4? already indirectly owned U %$4?. 7fter the merger > now directly owns U %$4? (absorbed corporation) which contines to exist in M %$4?.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 72
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 4eference to E!# e/ity ownership or interest rle IE!# or more in nominal valeK IE!# or more in interestK and other similar terms shall be constred within its context. -n determining whether there is actal change in ownership whole series of transactions shall be treated as single nit.
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D"%"/&'%&o' o. (#!(%'%&l $4'" &' %4" ow'"/(4& o. !#(&'"(( 4les in determining changes of ownership +ime of determination of sbstantial changein ownership shall be determined as of end of taxable year as ;$5%$ is to be claimed as dedction. %hange in ownership of bsiness occrs when person who sstained net operating losses enters into a merger consolidation or combination with another person reslting to transfer of the said net operating losses. o ;o sbstantial change in ownership if stoc,holders of transferor gains control of at least E!# or more in nominal vale of otstanding issed shares or paidp capital of transferee or E!# or more interest in bsiness of transferee assignee (if transferee is not a corporation). o &bstantial change in ownership occrs if stoc,holders of transferor gains control of transferee only to extent of less than E!#. B-4 4=5-; 21'2"12;$5%$ is the not absorbed one of thecorporation. assets that +his can rling be transferred absorbed by srvivingto corporation . ?rivilege ;$5%$ can be availed of only by has goneand astray and contradictory previos rlings. of dedcting &o long as there is no sbstantial change in ownership ;$5%$ may be dedcted.
T,"/( "'%&%l"d %o d"d#$% NOLCO ./o /o(( &'$o" 7ny individal sbect to normal income tax or preferential tax rates on their taxable income shall be entitled to dedct from his gross income for the crrent year his accmlated net operating losses for immediately preceding 3 consective years .
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>%?+-$;& (not entitled to ;$5%$ dedction: $9shore Ban,ing =nits and Horeign %rrency eposit =nit nterprise registered with Board of -nvestments with respect to B$-registered activity enoyingthe -ncome +ax Aoliday incentive . nterprise registered with ?U7 with respect to its ?U7registered activity. nterprise registered with Bases %onversion and evelopment 7ct with respect to registered bsiness activity. Horeign corporations engaged in international shipping or air carriage in the ?hilippines 7ny person natral or ridical enoyingexemption from income tax with respect to its operation dringperiod where exemption is applicable.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS
E'%&%l""'% %o N"% O"/%&' Lo(( C// O3"/ 5NOLCO
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4: only net operating losses incrred beginning F7; 1 1**Q may be carried over to next 3 years immediately scceeding taxable years following the year of sch loss for prposes of ;$5%$ dedction . >%?+-$;: mines (other than oil and gas well) net operating loss withot benet of incentives (nder $mnibs -nvestments %ode) incrred in any of the rst 1" years of operation may be carried over as dedction from taxable income for next ! years immediately following the year of sch loss. ntire amont of loss shall be carried over to rst of ! taxable years and any portion of sch loss which exceeds taxable income of the rst year shall be dedcted in li,e manner from taxable income of next remaining ' years.
Ill#(%/%&o' T,"/ &'$#//"d lo(("( o. P08000 &' 200 'd P1008000 &' 2001 . Ae obtained income of ?3"""" ?1"""" and ?12""""" in 2""2 2""3 and 2""'. 5osses may be carried over as follows:
200 0 N"% &'$o"
20 0 1
!""""
20 0 2
1"""""
2000
20 0 *
200 +
3""""
1""""
(3"""")
(1"""")
0
0
2001
12""""
(1""""")
T,!l" &'$o"
0
0
20 8 0 0 0
O!("/3": o o o o
;et loss to be carried over cannot exceed net income of sbse/ent year. ;et loss of !"""" incrred in 2""" cannot be carried over beyond 2""3. ;et loss in 2""1 is not carried over ntilnet loss in 2""" has been consmed. ;o carry over if sbse/ent year reslted in a loss.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ;$5%$ is one of the rate exceptions to principle that expenses incrred are matched with income earned for same taxable year . ;$5%$ dedction allows taxpayer to o9set previos year8s losses against sbse/ent year8s income.
1)
T/'(&%o/ o/%&o'"'% o. NOLCO8 &' $(" o. $o/o/%&o' #(&' %4" =($l "/ $$o#'%&' "/&od -n the case of corporation sing scal year acconting period allowable ;$5%$ for scceeding scal years shall be determined: ;$5%$ for entire scal year
x
4atio of:
X of months 12 months covering scal year
;$5%$ to be carried over to next 3 years.
2)
*)
W4"/" %,"/ &( ","%8 o/ /%l ","% ./o &'$o" %,8 o/ "'9o&' /"."/"'%&l %, %/"%"'% #'d"/ ("$&l lw(8 '"% o"/%&' lo(("( (4ll 'o% !" llow"d ( NOLCO d"d#$%&o' ./o &%( /o(( &'$o" d"/&3"d ./o #'/"&(%"/"d !#(&'"(( $%&3&%&"(. #/%"/l 'd ''#l 3&l"'% o. NOLCO
;$5%$ shall be allowed as dedction in compting taxpayer8s income taxes per /arter and annal nal adstment income tax retrns . -f per taxpayer8s nal annal adstment income tax retrn entire operations for the year reslted to a net operating loss sch may be claimed as ;$5%$ dedction in the immediately scceeding taxable year. ;$5%$ may be claimed as dedction only within 3 consective years immediately following the year of the net operating loss. -n order that the 3year period may be monitored taxpayer shall show its ;$5%$ dedction in its income tax retrn as a separate item of dedction. -n no case may ;$5%$ be claimed as a party of taxpayer8s other itemi0ed dedctions li,e nder IlossesK in general.
)
P/"("'%%&o' o. NOLCO &' %, /"%#/' 'd #'#("d NOLCO &' &'$o" (%%""'%
;$5%$ shall be separately shown in taxpayer8s income tax retrn (also ,nown as 4econciliation &ection of +ax 4etrn) while nsed ;$5%$ shall be presented in ;otes to Hinancial &tatements showing the taxable year in which net operating loss was sstained or incrred and any amont claimed as ;$5%$ dedction within 3 years . Hailre to comply with this re/irement will dis/alify the taxpayer from claiming ;$5%$.
+)
NOLCO &' /"l%&o' %o MCIT &ch corporation cannot enoy benet of ;$5%$ for as long as it is sbect to %-+ in any taxable year . Aowever rnning of 3year period for expiry of ;$5%$ is not interrpted by fact that corporation is sbect to %-+.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS
) !)
5+ apital osses. imitation) - Lo(( ./o (l"( o/ E,$4'"( o. $&%l (("%( (4ll !" llow"d o'l %o %4" ",%"'% /o3&d"d &' S"$%&o' *) (ecurities #ecomin0 4orthless ) - I. ("$#/&%&"( ( d"='"d &' S"$%&o' 22 5T !"$o" wo/%4l"(( d#/&' %4" %,!l" "/ 'd /" $&%l (("%(8 %4" lo(( /"(#l%&' %4"/"./o (4ll8 .o/ #/o("( o. %4&( T&%l"8 !" $o'(&d"/"d ( lo(( ./o %4" (l" o/ ",$4'"8 o' %4" l(% d o. (#$4 %,!l" "/8 o. $&%l (("%() 5 osses 1rom 4ash (ales of (toc, or (ecurities. - Lo(("( ./o7ash sales7o. (%o$@ o/ ("$#/&%&"( ( /o3&d"d &' S"$%&o' *;) 5 6 4a0erin0 osses ) - Lo( ("( ./o w"/ &' %/'( $%& o'( (4ll ! llo w"d o'l %o %4" ",%" '% o. %4" &' ( ./o (#$4 %/'($%&o'()
5
57 ')andonment osses. $ I' %4" "3"'% $o'%/$% /" w4"/" "%/ol"# o"/%&o'( /" #'d"/%@"' &( /%&ll o/ w4oll !'do'"d8 ll $$##l%"d ",lo/ %&o' 'd d"3"lo"'% ","'d &%#/"( "/%& '&' %4"/"%o (4ll !" llow"d ( d"d#$&%&o' Provided8 T4% $$##l%"d ","'d&%#/"( &'$#//"d &' %4% /" /&o/ %o '#/ 18 17 (4ll !" llow"d ( d"d#$%&o' o'l ./o ' &'$o" d"/&3"d ./o %4" (" $o'%/$% /") I' ll $("(8 'o%&$"( o. !'do'"'% (4ll !" =l"d w&%4 %4" Co&((&o'"/)
5!
I' $(" /od#$&' w"ll &( (#!("?#"'%l !'do'"d8 %4" #'o/%&J"d $o(%( %4"/"o.8 ( w"ll ( %4" #'d"/"$&%"d $o(%( o. "?#&"'% d&/"$%l #("d %4"/"&'8 (4ll !" llow"d ( d"d#$%&o' &' %4" "/ (#$4 w"ll8 "?#&"'% o/ .$&l&% &( !'do'"d ! %4" $o'%/$%o/:Provided"T4% &. (#$4 !'do'"d w"ll &( /""'%"/"d 'd /od#$%&o' &( /"(#"d8 o/ &. (#$4 "?#&"'% o/ .$&l&% &( /"(%o/"d &'%o ("/3&$"8 %4" (&d $o(%( (4ll !" &'$l#d"d ( /% o. /o(( &'$o" &' %4" "/ o. /"(#%&o' o/ /"(%o/%&o' 'd (4ll !" o/%&J"d o/ d"/"$&%"d8 ( %4" $(" !") C&%l (("% %7?-+75 7-;@5$&& reslts if taxpayer sells or exchanges a capital asset . %7?-+75 7&&+: property held by taxpayer (whether or not connected to his bsiness) bt does not inclde stoc, in trade or other property which wold be inclded in the inventory of taxpayer if on hand at close of taxable year or property held by taxpayer primarily for sale to cstomers in ordinary corse of bsiness of a character sbect to allowance for depreciationC or real property sed in trade or bsiness. -t is every owned and sed for personal prposes pleasre or investment . ;ote that sale of shares of stoc, and real properties held as capital assets are governed by rles on %apital ains +ax.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 76
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 1)
P"/(o'l-#(" /o"/% ain from its sale or exchange is a capital gain . 5oss is not dedctible from gross income .
2)
I'3"(%"'% /o"/% 5(#$4 ( (%o$@( 'd !o'd( ain or loss from its sale or exchange is a capital gain or loss . +his treatment does not apply to property sed to prodce rental income.
)
Sl" o. !#(&'"((
+A$4M $H H47;+7+-$;: sale of bsiness is not a sale of one asset. -nstead all assets of bsiness are sold. ach asset is treated as being sold separately for determining the treatment of gain or loss. Dhen sold assets mst be classied as capital assets depreciable property real property or property held for sale (sch as inventory or stoc, in trade). &ale of capital assets reslts in capital gain or loss. &ale of inventory reslts in ordinary income or loss.
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No'$&%l (("%( ;oncapital asset is property that is not a capital asset : &toc, in trade or other property inclded in the inventory if on hand at close of taxable year . &toc, in trade inventory and other property held mainly for sale to cstomers in trade or bsiness 7cconts or notes receivable ac/iredin ordinary corse of trade or bsiness for services rendered or from sale of any properties . epreciable property sed in trade or bsiness or as rental property (inclding intangibles) even if property is not flly depreciated (or amorti0ed). 4eal property (other than land) sed in trade or bsiness or as rental property even if flly depreciated. 5and sed in bsiness.
C&%l lo(( %7?-+75 5$&&&: if proceeds from sale exchange or any other disposition of capital asset are less than prchase price or consideration received.
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5imitations: +hese are allowed to be dedcted only to extent of capital gains (gains derived from sale or exchange of capital assets) and not from any other income of taxpayer. o >%?+-$;: -f ban, or trst company a sbstantial part of whose bsiness is receipt of deposits sells any bond debentre note or certicate or other evidence of indebtedness issed by any corporation with interest copons or in registered form any loss reslting from sch sale shall not be sbect to foregoing limitation and shall not be inclded in determining applicability of sch limitation.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 77
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 4: 7 capital loss can be dedcted only from capital gains nder &% 3* ntire amont of gain or loss pon sale or exchange of property shall be recogni0ed. ;o recognition shall be made if sale or exchange is made in prsance of a plan of corporate merger or consolidation or if as a reslt of an exchange of property for stoc,s exchanger alone or together with others not exceeding for gains control of corporation. +hen how reslting gain might be taxed or whether or not loss wold be dedctible are matters dealt with in other sections of ;-4%. %hec, &% 3* and '" for discssion on capital gain and losses.
1)
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Hold&' "/&od -n case of individal taxpayer (other than corporation) only these percentages of gain or loss recogni0ed pon sale or exchange of capital asset shall be ta,en into accont in compting net capital gain net capital loss and net income: 1""# if capital asset has been held for not more than 12 months !"# if capital asset has been held for more than 12 months
S"$#/&%&"( W W W
&%=4-+-&: shares of stoc, in a corporation and rights to sbscribe for or to receive sch shares . -t is a nancial instrment that represents: $wnership position in a pbliclytraded corporation (stoc,) %reditor relationship with government body or corporation (bond) 4ights to ownership as represented by an option ebtsecrity +ype of secrity that represents money that is borrowed that mst be repaid with terms that dene the amont borrowed interest rate and matrity@renewal date. +his incldes government and corporate bonds certicates of deposit preferred stoc, and collateri0ed secrities
/ityinvestment %apital not ordinary asset of investor the sale or exchange of which reslts in either a capital gain or capital loss. 5oss sstained is to be treated as capital loss as if incrred from sale or exchange transaction.
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 1)
I'3"(%o/( d"l"/( 'd %/d"/( -nvestors
ealers
+raders
+hey by and sell secrities and expect income from dividends interest or capital appreciation for personal investment. +hey are not condcting a trade or bsiness.
erchant of stoc,s or secrities with an established place of bsiness reglarly engaged in bsiness of secrities and resale of it to cstomers. +hey may charge services fees from clients.
$ne engaged in bsiness of bying and selling stoc,s for his own accont. +his is considered bsiness even thogh he has no inventory or clients.
&ales of secrities reslt in ains and losses are capital gains and losses.
classied as ordinary gains and losses.
4R=-&-+&: Ae mst see, to prot from daily mar,et movements in price of secrities and not from dividends interests or capital appreciation. 7ctivity mst be sbstantial Ae mst carry on activity with continity and reglarity. Hollowing facts and circmstances shold be considered in determining if activity is secrity trading bsiness: +ypical holding periods for secrities boght and sold Hre/ency and amont of
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS trades dring the year xtent to which taxpayer prses the activity to prodce income for a livelihood 7mont of time he devotes for activity -f natre of trading does not /alify as bsiness taxpayer is considered an investor and not a trader.
2)
O/d&'/ o/ $&%l &ecrities are ordinary assets only to dealer. =nder an investor it is capital assets.
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4: %apital gain or loss normally re/ires concrrence of 2 conditions for it to reslt: +here is sale or exchange +hing sold or exchanged is a capital asset .
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>%?+-$;& (loss as if from sale exchange of capital assets) Dorthless secrities 4etired certicates of indebtedness with interest copons or in registered form &hort sales and option to by or sell property where no sale or exchange strictly exists
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S4/&'@" &' 3l#" o. (%o$@(
?erson cannot dedct loss from shrin,age of vale of stoc,s (throgh Gctation of mar,et) from his gross income . 5oss allowable to be dedcted is when stoc, is disposed of. >%?+-$;: if worthlessness is satisfactorily shown as in case of bad debts.
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S4/"( o. (%o$@ !"$o" wo/%4l"((
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2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 5osses from shares of stoc, held as capital asset shall be treated as capital loss at the end of the year that it become worthless . Aowever this loss is not dedctible against capital gains reali0ed from sale barter exchange or other forms of disposition of shares dring taxable year bt mst be claimed against other capital gains to the extent provided in &% 3'. Hor !# and 1"# net capital gains tax (%+) to apply there mst be actal disposition of shares of stoc, held as capital asset and capital loss mst be derived from sale barter exchange and other disposition.
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&ecrities referred in this section (recogni0ed as becoming worthless): /ity secrities sch as shares of stoc, ebt secrities sch as bonds
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D7&A &A75: when a taxpayer sells or otherwise disposes stoc, or secrities (inclding a contract or option to ac/ire or sell stoc, or secrities) at a loss within 3" days before or after sale or disposition (the 61day rle) he: Bys sbstantially identical stoc, or secrities 7c/ires sbstantially identical stoc, or secrities in a flly taxable trade nters in a contract or option to ac/ire sbstantially identical stoc, or secrities 7c/ires sbstantially identical stoc, or secrities for his individal retirement arrangement . -t is also triggered if a taxpayer sells secrities at a loss and his spose or corporation that he controls ac/ires the same secrities within wash sale time frame . +axpayer cannot dedct losses from wash sales nless loss was incrred in ordinary corse of his bsiness as a dealer of stoc,@secrities. +here is sspension of loss since the taxpayer did not really give p the loss property. Aowever loss is added to basis of replacement property. +hs loss is allowed when replacement property is sbse/ently sold by taxpayer. 617M 4=5: calendar days and not trading days. +hs holidays and wee,ends are inclded.
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Ill#(%/%&o' A 4( (%o$@( &' X CORP) P/&$" o. (4/"( & ( dow' ./o w4"' 4" #/$4("d %4") H" w'%( %o d"d#$% lo(("( o' 4&( %, /"%#/' (o 4" ("ll( %4" (%o$@ 'd %4"' !#( (%o$@ &' X CORP % low"/ /&$") o
1)
-f there is no wash sale rle 7will get a tax dedction and still hold stoc,s of >%$4?.
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &A$4+ &75: contract to sell property a taxpayer borrowed for delivery to a byer . 7t a later date he either bys an identical property and delivers it to the lender or deliver property he held bt did not want to transfer at the time of the sale.
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Ill#(%/%&o' B %4&'@( %4% 3l#" o. 4&( (%o$@( &' G CORP w&ll d/o) H" !o//ow( 100 (4/"( ./o 4&( !/o@"/ COMPANG 'd ("ll %4" .o/ P1008000 %o C) o
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+his transaction is a short sale.
S#!("?#"'%l8 B !#( 100 (4/"( .o/ P;08000 'd d"l&3"/( %4" %o 4&( !/o@"/ COMPANG %o $lo(" %4" (4o/%. (l" +axable gain of B is ?2"""" (1"""""Q""""")
A$5-; ?4-$: amont of time a taxpayer actally held the property eventally delivered to the lender to close the short sale. Aowever gain when closing a short sale is short term if taxpayer: Aeld sbstantially identical property for 1 year or less on date of short sale 7c/ired property sbstantially identical to the property sold short after short sale bt on or before the date he closes the short sale .
-f a taxpayer held the sbstantially identical property for more than 1 year on date of short sale any loss on the short sale is a longterm capital loss even if the property sed to close the short sale was held 1 year or less .
W"/&' lo(("( 4: losses reslting from gambling or wagering transactions are dedctible becomes gambling or wagering is an incomeprodcing activity. 7lthogh ;-4% is silent legality or illegality of gambling or wagering activity a9ects dedctibility . Y losses in illegal bets and nmbers game are not dedctible losses.
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4=5: amont of wagering losses dedctible from gross income is limited only to amont of wagering gains. +axpayer is sbect to tax on his net income from gambling for the year. -n case of net loss same may not be dedcted from other sorces of income +o be eligible for o9set wagering gains mst occr in the same year as losses . +axpayer may dedct gambling losses only if he itemi0es dedctions . 7mont of losses he dedcts cannot be more than amont of gambling income he reports on his retrn.
Ill#(%/%&o'
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS W
20128 E lo(% 1008000 'd wo' 08000 &' 3/&o#( %/&( %o L( V"( . o
may dedct !""" from his losses whichis also the amont of gains. 4emaining balance of !"""" (fromloss) may not be dedcted from income from other sorces and simply disregarded. -t may not be o9set from gambling or wagering gains pertaining to sbse/ent years.
;$+: winnings from sorces within ?hilippines are sbect to 2"# nal tax . Y Dagering losses that may be dedcted are those incrred abroad. &ch losses may be dedcted only from wagering gains from sorces abroad.
1)
W"/&' %/'($%&o' D74: contract by which 2 or more parties agree that a certain sm of money or other thing shall be paid or delivered to one of them or that they shall gain or lose on the happening of an ncertain event or pon ascertainment of a fact in dispte where parties have no interest in the event except that arising from possibility of sch gain or loss. Dagering is synonymos to betting and gambling.
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4R=-&-+&: +here mst be a pri0e lement of chance +axpayer mst give some consideration 7B5-; -;%$: incldes winnings from lotteries raZes horse races and casinosC winnings other than those from sorces within ?hilippines.
A!'do'"'% lo(("( 7bandonment of property is disposition of property. 7B7;$;;+: when he volntarily and permanently gives p possession and se of property with intention of ending his ownership bt withot passing it on to anyone else. 4: it is not treated as sale or exchange. -f amont taxpayer reali0es (if any) is more than his adsted basis he has a gain. $therwise it is a loss.
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2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 5oss from abandonment of bsiness or investment property is dedctible as a loss. +his is not an ordinary loss. +his rle applies also to leasehold improvements the lessor made for lessee that were abandoned.
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2) *)
A!'do'"'% o. "%/ol"# o"/%&o'( 'd /od#$&' w"ll 4les regarding losses reslting from abandonment of petrolem operations and prodcing wells: -n event a contract area where petrolem operations are nderta,en is partially or wholly abandoned all accmlated exploration and development expenditres shall be allowed as a dedctiononly rom income derived from same contract area. -n case of prodcing well namorti0ed costs and ndepreciated costs of e/ipment directly sed shall be allowed as a dedction in the year of abandonment. o -f sch well is reentered and prodction is resmed or e/ipment is restored costs shall be inclded as part of gross income and shall be amorti0ed or depreciated.
Vol#'%/ /"o3l o. !#&ld&'( Lo(( o. #(".#l 3l#" o. ' (("% +)
A#d&% /o$"d#/"( 'd %"$4'&?#"(
5E #ad De)ts. $ In General) - D"!%( d#" %o %4" %,"/ $%#ll ($"/%&'"d %o !" wo/%4l"(( 'd $4/"d o w&%4&' %4" %,!l" "/ ",$"% %4o(" 'o% $o''"$%"d w&%4 /o."((&o'8 %/d" o/ !#(&'"(( 'd %4o(" (#(%&'"d &' %/'($%&o' "'%"/"d &'%o !"%w""' /%&"( "'%&o'"d #'d"/ S"$%&o' *6 5B o. %4&( Cod": P/o3&d"d8 T4% /"$o3"/ o. !d d"!%( /"3&o#(l llow"d ( d"d#$%&o' &' %4" /"$"d&' "/( (4ll !" &'$l#d"d ( /% o. %4" /o(( &'$o" &' %4" "/ o. /"$o3"/ %o %4" ",%"'% o. %4" &'$o" %, !"'"=% o. (&d d"d#$%&o') 2) ) - I. ("$#/&%&"(8 ( d"='"d &' S"$%&o' 22 5T8 /" ($"/%&'"d %o !" wo/%4l"(( 'd $4/"d o (ecurities #ecomin0 4orthless w&%4&' %4" %,!l" "/ 'd /" $&%l (("%(8 %4" lo(( /"(#l%&' %4"/"./o (4ll8 &' %4" $(" o. %,"/ o%4"/ %4' !'@ o/ %/#(% $o' &'$o/o/%"d #'d"/ %4" lw( o. %4" P4&l&&'"( (#!(%'%&l /% o. w4o(" !#(&'"(( &( %4" /"$"&% o. d"o(&%(8 .o/ %4" #/o(" o. %4&( T&%l"8 !" $o'(&d"/"d ( lo(( ./o %4" (l" o/ ",$4'"8 o' %4" l(% d o. (#$4 %,!l" "/8 o. $&%l (("%() 1)
1)
Bd d"!%( 'd ("$#/&%&"( A$%#ll ($"/%&'"d %o !" wo/%4l"(( ) C/"d&%o/ o. d"$"d"'%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 2)
!) A((&'"'% o. $/"d&% A$%#ll $4/"d o ./o %,"/( !oo@( o. $$o#'%(
R"?#&(&%"( .o/ d"d#$%&!&l&% Vl&d d"!% ) D"%"/&'&' w4"%4"/ d3'$"( /" $o'%/&!#%&o'( %o $&%l o/ lo'( 2) F#&d"l&'"( ) >$%o/( &'d&$%&' wo/%4l"(('"(( &) B'@/#%$ &&) >o/"$lo(#/" o. o/%" *) B'@( 'd &'(#/'$" $o'&"( 1)
T, B"'"=% R#l" S"$#/&%&"( !"$o&' wo/%4l"(( No'-d"d#$%&!l" !d d"!%(
1)
2)
5> Depreciation. $ General %ule ) - T4"/" (4ll !" llow"d ( d"/"$&%&o' d"d#$%&o' /"(o'!l" llow'$" .o/ %4" ",4#(%&o'8 w"/ 'd %"/ 5&'$l#d&' /"(o'!l" llow'$" .o/ o!(ol"($"'$" o. /o"/% #("d &' %4" %/d" o/ !#(&'"(() I' %4" $(" o. /o"/% 4"ld ! o'" "/(o' .o/ l&." w&%4 /"&'d"/ %o 'o%4"/ "/(o'8 %4" d"d#$%&o' (4ll !" $o#%"d ( &. %4" l&." %"''% w"/" %4" !(ol#%" ow'"/ o. %4" /o"/% 'd (4ll !" llow"d %o %4" l&." %"''%) I' %4" $(" o. /o"/% 4"ld &' %/#(%8 %4" llow!l" d"d#$%&o' (4ll !" o/%&o'"d !"%w""' %4" &'$o" !"'"=$&/&"( 'd %4" %/#(%""( &' $$o/d'$" w&%4 %4" "/%&'"'% /o3&(&o'( o. %4" &'(%/#"'% $/"%& ' %4" %/#(%8 o/ &' %4" !("'$" o. (#$4 /o3&(&o'(8 o' %4" !(&( o. %4" %/#(% &'$o" llow!l" %o "$4) 8se of ertain 6ethods and %ates ) - T4" %"/ 7reasona)le alloance7( #("d &' %4" /"$"d&' //4 (4ll &'$l#d"8 !#% 'o% l&&%"d %o8 ' llow'$" $o#%"d &' $$o/d'$" w&%4 /#l"( 'd /"#l%&o'( /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co& ((&o'"/8 #'d"/ ' o. %4" .ollow&' "%4od(: ) T4" (%/&4%-l&'" "%4od
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !)
D"$l&'&'-!l'$" "%4od8 #(&' /%" 'o% ",$""d&' %w&$" %4" /%" w4&$4 wo#ld 43" !""' #("d 4d %4" ''#l llow'$" !""' $o#%"d #'d"/ %4" "%4od d"($/&!"d &' S#!("$%&o' 5> 51 $) T4" (#-o.-%4"-"/(-d&&% "%4od 'd d) A' o%4"/ "%4od w4&$4 !" /"($/&!"d ! %4" S"$/"%/ o. >&''$" #o' /"$o"'d%&o' o. %4" Co&((&o'"/) *)
'0reement as to 8seful ife on 4hich Depreciation %ate is #ased. W4"/" #'d"/ /#l"( 'd /"#l%&o'( /"($/&!"d ! %4" S"$/"%/ o. >&''$" #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 %4" %,"/ 'd %4" Co&((&o'"/ 43" "'%"/"d &'%o ' /"""'% &' w/&%&' ("$&=$ll d"l&' w&%4 %4" #(".#l l&." 'd /%" o. d"/"$&%&o' o. ' /o"/%8 %4" /%" (o /""d #o' (4ll !" !&'d&' o' !o%4 %4" %,"/ 'd %4" '%&o'l Fo3"/'"'% &' %4" !("'$" o. .$%( 'd $&/$#(%'$"( 'o% %@"' &'%o $o'(&d"/%&o' d#/&' %4" do%&o' o. (#$4 /"""'%) T4" /"(o'( &!&l&% o. "(%!l &(4&' %4" ",&(%"'$ " o. (#$4 .$%( 'd $&/$#(%'$"( (4ll /"(% w&%4 %4" /% &'&%&%&' %4" od&=$%&o') A' $4'" &' %4" /""d /%" 'd #(".#l l&." o. %4" d"/"$&!l" /o"/% ( ("$&="d &' %4" /"""'% (4ll 'o% !" ""$%&3" .o/ %,!l" "/( /&o/ %o %4" %,!l" "/ &' w4&$4 'o%&$" &' w/&%&' ! $"/%&="d &l o/ /"&(%"/"d &l &( ("/3"d ! %4" /% Provided" &'&%&%& ' %o %4"/%" o%4"/ %o %4" /"""'%: 8 %4% w4"/" %4" %,"/ 4( do%"d #(".#l l&."(#$4 'd $4'" d"/"$&%&o' .o//% ' d"/"$&!l" 'd $l&"d %4"hoever d"/"$&%&o' ","'("( ( d"d#$%&o' ./o 4&((#$4 /o(( &'$o"8 w&%4o#% ' w/&%%"' o!9"$%&o' o' %4" /% o. %4" Co&((&o'"/ o/ 4&( d#l #%4o/&J"d /"/"("'%%&3"(8 %4" .o/"(&d #(".#l l&." 'd d"/"$&%&o' /%" (o do%"d ! %4" %,"/ .o/ %4" .o/"(&d d"/"$&!l" (("% (4ll !" $o'(&d"/"d !&'d&' .o/ #/o("( o. %4&( S#!("$%&o')
+)
Depreciation of Properties 8sed in Petroleum perations ) - A' llow'$" .o/ d"/"$&%&o' &' /"("$% o. ll /o"/%&"( d&/"$%l /"l%"d %o /od#$%&o' o. "%/ol"# &'&%&ll l$"d &' ("/3&$" &' %,!l" "/ (4ll !" llow"d #'d"/ %4" (%/&4%-l&'" o/ d"$l&'&'-!l'$" "%4od o. d"/"$&%&o ' % %4" o%&o' o. %4" ("/3&$" $o'%/$%o/)
How"3"/8 &. %4" ("/3&$" $o'%/$%o/ &'&%&ll "l"$%( %4" d"$l&'&'-!l'$" "%4od8 &% % ' (#!("?#"'% d%"8 (4&.% %o %4" (%/&4%-l&'" "%4od) T4" #(".#l l&." o. /o"/%&"( #("d &' o/ /"l%"d %o /od#$%&o' o. "%/ol"# (4ll !" %"' 510 "/( o. (#$4 (4o/%"/ l&." ( !" "/&%%"d ! %4" Co&((&o'"/) P/o"/%&"( 'o% #("d d&/"$%l &' %4" /od#$%&o' o. "%/ol"# (4ll !" d"/"$&%"d #'d"/ %4" (%/&4%-l&'" "%4od o' %4" !(&( o. ' "(%&%"d #(".#l l&." o. =3" 5 "/()
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS )
- ' llow'$" .o/ d"/"$&%&o' &' /"("$% o. ll /o"/%&"( #("d &' Depreciation of Properties 8sed in 6inin0 perations. &'&' o"/%&o'( o%4"/ %4' "%/ol"# o"/%&o'(8 (4ll !" $o#%"d ( .ollow(: ) A% %4" 'o/l /%" o. d"/"$&%&o' &. %4" ","$%"d l&." &( %"' 510 "/( o/ l"(( o/ !) D"/"$&%"d o3"/ ' '#!"/ o. "/( !"%w""' =3" 5 "/( 'd %4" ","$%"d l&." &. %4" l%%"/ &( o/" %4' %"' 510 "/(8 'd %4" d"/"$&%&o' %4"/"o' llow"d ( d"d#$%&o' ./o %,!l" &'$o":Provided" T4% %4" $o'%/$%o/ 'o%&="( %4" Co&((&o'"/ % %4" !"&''&' o. %4" d"/"$&%&o' "/&od w4&$4 d"/"$&%&o' /%" llow"d ! %4&( S"$%&o' w&ll !" #("d)
6)
Depreciation Deducti)le )y !onresident 'liens En0a0ed in Trade or #usiness or %esident 1orei0n orporations ) - I' %4" $(" o. 'o'/"(&d"'% l&"' &'d&3&d#l "'"d &' %/d" o/ !#(&'"(( o/ /"(&d"'% .o/"&' $o/o/%&o'8 /"(o'!l" llow'$" .o/ %4" d"%"/&o/%&o' o. P/o"/% /&(&' o#% o. &%( #(" o/ "lo"'% o/ &%( 'o'-#(" &' %4" !#(&'"(( %/d" o/ /o."((&o' (4ll !" "/&%%"d o'l w4"' (#$4 /o"/% &( lo$%"d &' %4" P4&l&&'"()
1) 2) *)
Co'$"% o. d"/"$&%&o' Co(% /"$o3"/ C4/&' S%%""'%o %od"/"$&%&o'( !" %%$4"d %o %4" /"%#/'
R"?#&/""'%( %o !" d"/"$&!l" 'd d"d#$%&!l" M#(% !" ow'"d ! %,"/ ) L"("d /o"/% !) I'$&d"'%( o. ow'"/(4& $) L&." %"''% 2) B#(&'"(( #(" ) P/%&l !#(&'"(( o/ &'3"(%"'% #(" *) P/o"/% 43&' d"%"/&'!l" #(".#l l&." +) P/o"/% l(%&' o/" %4' 1 "/ 1)
1)
D"/"$&!l" /o"/% D"/"$&%&o' o. &'%'&!l"( ) D"/"$&%&o' o. %"'% o/ $o/&4%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !)
D"/"$&%&o' o. d/w&'( 'd od"l( &) W4"' %4"/" /" ","'d&%#/"( &' 4&( !#(&'"(( .o/ d"(&'(8 d/w&'(8 %%"/(8 od"l(8 o/ wo/@ o. ' ","/&"'%l '%#/" .o/ %4" &/o3""'% o. 4&( .$&l&%&"( o/ /od#$%8 'd &. %4" "/&od o. #(".#l'"(( o. ' (#$4 (("% !" "(%&%"d ./o ","/&"'$" w&%4 /"(o'!l" $$#/$8 &% !" (#!9"$% o. d"/"$&%&o' llow'$"( (/"d o3"/ (#$4 "(%&%"d "/&od o. #(".#l'"(()
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &&) E?#&"'% .o/ $&%l &/o3""'%() T,"/ #(% dd o%4"/w&(" llow!l" d"/"$&%&o' o' %4" "?#&"'% d#/&' %4" "/&od o. $o'(%/#$%&o' %o %4" !(&( o. 4&( &/o3""'%() &&&) I'%'&!l"( (#!9"$% %o o/%&J%&o': 1) L"("4old $o(%( 2) Foodw&ll $''o% !" o/%&J"d &. &%( .o/ ' &'d"='&%" "/&od o. %&" *) R"("/$4 'd d"3"lo"'% ","'d&%#/"( "&%4"/ !" $&%l&J"d o/ %/"%"d ( o#%/&4% d"d#$%&!l" ","'(") +) P%"'%( (old w&%4 %4" ",$l#(&3" /&4% %o @"8 #("8 'd ("ll 'd /%&$l" $o'(%&%#%"( o/d&'/ &'$o") ) O/'&J%&o' ","'("( /" (#!9"$% %o o/%&J%&o' 'd /" 'o% d"d#$%&!l" &' .#ll o' %4" "/ &'$#//"d)
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !)
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 0
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS )
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 1
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 2
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS W W W
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" *
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS !(&( 510@-2@;@ 'd %4&( o#'% &( #l%&l&"d ! %4" /%" o. d"/"$&%&o' 5;@ , 20 18600) T4" d"/"$&%&o' d"d#$%&o' .o/ %4" 2'd "/ &( 18600) &) Do#!l" d"$l&'&' !l'$" "%4od K 4"/" %4"/" &( (/"d&' o. %4" &'&%&l $o(% o. $&%l (("% o3"/ %&" ! d"d#$%&' &' "$4 "/&od DOUBLE THE PERCENTAFE RECOFNIED BG STRAIFHT LINE "%4od 'd l&' do#!l" "/$"'%" %o %4" #'d"/"$&%"d !l'$" ",&(%&' % %4" (%/% o. "$4 "/&od) NO SALVAFE VALUE IS USED IN THE CALCULATION) S" ",l" !o3"8 X /%" w&ll !" +0 &'(%"d o. 20) $) S# o. "/( d&&%( "%4od K ''#l d"/"$&%&o' llow'$" $o#%"d ! #l%&l&' %4" d"/"$&!l" $o(% !(&( ! $o'(%'%l d"$/"(&' ./$%&o' N#"/%o/ o. %4" ./$%&o' /"/"("'%( %4" /"&'&' "/( o. #(".#l l&." o. %4" (("%) D"'o&'%o/ &( lw( %4" (# o. %4" "/( d&&%( o. #(".#l l&." % %4" %&" o. $?#&(&%&o' ILLUSTRATION: (("% 4( "(%&%"d #(".#l l&." o. "/() D"'o&'%o/ &(: +*21 1) E$4 d&&% &( #("d ( %4" '#"/%o/ &( +<18 "%$)%o d"%"/&'" %4" "/$"'%" ! w4&$4 %4" (("% (4o#ld !" d"/"$&%"d "$4 "/ &") >&/(% "/ &( <18 ("$o'd "/ +)
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" +
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ILLUSTRATION: X !o#4% $o"" $4&'" w4&$4 $' /od#$" 1&ll&o' $#( o. $o"" &' &%( l&."%&") Co(% o. %4" $4&'" &( 00@ 'd 4( (l3" 3l#" o. 0@) #'&% o. /od#$%&o' /%" &( d"%"/&'"d !: +0@ 5w4&$4 &( 00@ $o(% K 0@ (l3" 3l#" < 1&ll&o') W4&$4 &( P4 0)+) I. &' "/ %4" $4&'" @"( 100@ $#(8 d"/"$&%&o' ","'(" &( 100@ , 0)+) $) d)
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS W W
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 6
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 'o (l3" 3l#" 'd w4&$4 &( &'$&d"'%l %o 'd '"$"((/ .o/ %4" d/&ll&' o. w"ll( 'd /"/%&o' o. w"ll( .o/ %4" /od#$%&o' o. "%/ol "# & Prov ided" T4 % (& d $o(%( (4ll 'o% "/% &' %o %4" $?#& (&%& o' o/ &/ o3""' % o. /o"/% o. $4/$%"/ (#!9"$% %o %4" llow'$" .o/ d"/"$&%&o' ",$"% %4% %4" llow'$"( .o/ d"/"$&%&o' o' (#$4 /o"/% (4ll !" d"d#$%&!l" #'d"/ %4&( S#!("$%&o') A' &'%'&!l" ",lo/%&o'8 d/&ll&' 'd d"3"lo"'% ","'("( llow"d ( d"d#$%&o' &' $o#%&' %,!l" & '$o" d#/&' %4" "/ (4ll 'o% !" %@"' &'%o $o'(&d"/%&o' &' $o#%&' %4" d9#(%"d $o(% !(&( .o/ %4" #/o(" o. $o#%&' llow!l" $o(% d"l"%&o') 52
I' -$o#%&' %,!l" &'$o" ./o &'&' o"/%&o'(8 Election to Deduct Exploration and Development Expenditures. %4" %,"/ % 4&( o%&o'8 d"d#$% ",lo/%&o' 'd d"3"lo"'% ","'d&%#/"( $$##l%"d ( $o(% o/ d9#(%"d !(&( .o/ $o(% d"l"%&o' ( o. d%" o. /o("$%&'8 ( w"ll ( ",lo/%&o' 'd d"3"lo"'% ","'d&%#/"( &d o/ &'$#//"d d#/&' %4" %,!l" "/:Provided" T4% %4" o#'% d"d#$%&!l" .o/ ",lo/%&o' 'd d"3"lo"'% ","'d&%#/"( (4ll 'o% ",$""d 2 o. %4" '"% &'$o" ./o &'&' o"/%&o'( $o#%"d w&%4o#% %4" !"'"=% o. ' %, &'$"'%&3"( #'d"/ ",&(%&' lw() A$%#l ",lo/% &o' 'd d"3"lo"' % ","'d&%#/ "( &'#( %w"'%- =3" "/$"'% 52 o. %4" '"% &'$o" ./o &'&' (4ll !" $//&"d .o/w/d %o %4" (#$$""d&' "/( #'%&l .#ll d"d#$%"d) El"$%&o' ! %4" %,"/ %o d"d#$% %4" ",lo/%&o' 'd d"3"lo"'% ","'d&%#/"( &( &//"3o$!l" 'd (4ll !" !&'d&' &' (#$$""d&' %,!l" "/() 7!et income from minin0 operations7 8 ( #("d &' %4&( S#!("$%&o'8 (4ll "' /o(( &'$o" ./o o"/%&o'( l"((7alloa)le deductions7w4&$4 /" '"$"((/ o/ /"l%"d %o &'&' o"/%&o'() 7'lloa)le deductions7(4ll &'$l#d" &'&'8 &ll&' 'd /@"%&' ","'("(8 'd d"/"$&%&o' o. /o"/%&"( d&/"$%l #("d &'
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 7
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 7Development expenditures7"'( ","'d&%#/"( &d o/ &'$#//"d d#/&' %4" d"3"lo"'% (%" o. %4" &'" o/ o%4"/ '%#/l
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CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" ;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &)
2)1&ll&o'<700@ , 10@ +0@
E'%&%l""'% %o d"d#$% d"l"%&o' Co(% "%4od .o/ o&l 'd ( w"ll( 'd &'"( O%&o' o. %,"/ %o d"d#$% 'd $// .o/w/d D"l"%&o' d"d#$%&!l" ! 'o'-/"(&d"'% l&"'( o/ .o/"&' $o/o/%&o'(
5H harita)le and ther ontri)utions. $ In General. - Co'%/&!#%&o'( o/ &.%( $%#ll &d o/ d" w&%4&' %4" %,!l" "/ %o8 o/ .o/ %4" #(" o. %4" Fo3"/'"'% o. %4" P4&l&&'"( o/ ' o. &%( "'$&"( o/ ' ol&%&$l (#!d&3&(&o' %4"/"o. ",$l#(&3"l .o/ #!l&$ #/o("(8 o/ %o $$/"d&%"d do"(%&$ $o/o/%&o' o/ ((o$&%&o'( o/'&J"d 'd o"/%"d ",$l#(&3"l .o/ /"l&&o#(8 $4/&%!l"8 ($&"'%&=$8 o#%4 'd (o/%( d"3"lo"'%8 $#l%#/l o/ "d#$%&o'l #/o("( o/ .o/ %4" /"4!&l&%%&o' o. 3"%"/'(8 o/ %o (o$&l w"l./" &'(%&%#%&o'(8 o/ %o 'o'o3 "/'"' % o/ '& J%& o'( 8 &' $$o/d '$" w&%4 /#l"( 'd /"#l% &o' ( /o#l %"d ! %4" S"$/"% / o. =' '$"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 'o /% o. %4" '"% &'$o" o. w4&$4 &'#/"( %o %4" !"'"=% o. ' /&3%" (%o$@4old"/ o/ &'d&3&d #l &' ' o#'% 'o% &' ",$"(( o. %"' "/$"' % 510 &' %4" $(" o. ' &'d&3&d# l8 'd =3" "/$"'% 5 &' %4" $(" o. $o/o/%&o'8 o. %4" %,"/( %,!l" &'$o" d"/&3"d ./o %/d"8 !#(&'"(( o/ /o."((&o' ( $o#%"d w&%4o#% %4" !"'"=% o. %4&( 'd %4" .ollow&' (#!//4() 52 - No%w&%4(%'d&' %4" /o3&(&o'( o. %4" /"$"d&' (#!//48 do'%&o'( %o %4" ontri)utions Deducti)le in 1ull. .ollow&' &'(%&%#%&o'( o/ "'%&%&"( (4ll !" d"d#$%&!l" &' .#ll ) ) - Do'%&o'( %o %4" Fo3"/'"'% o. %4" P4&l&&'"( o/ %o ' o. &%( "'$&"( o/ Donations to the Government ol&%&$l (#!d&3&(&o'(8 &'$l#d&' .#ll-ow'"d o3"/'"'% $o/o/%&o'(8 ",$l#(&3"l %o =''$"8 %o /o3&d" .o/8 o/ %o !" #("d &' #'d"/% @&' /& o/&% $% &3&% &"( &' "d#$% &o' 8 4"l%4 8 o#%4 'd (o/%( d"3 "lo"'%8 4#' ("%%l""'%(8 ($&"'$" 'd $#l%#/"8 'd &' "$o'o&$ d"3"lo"'% $$o/d&' %o N%&o'l P/&o/&% Pl' d"%"/&'"d ! %4" N%&o'l E$o'o&$ 'd D"3"lo"'% A#%4o/&% 5NEDA8 I' $o'(#l%%&o' w&%4 /o/&%" o3"/'" '% "'$&"(8 &'$l#d &' &%( /" &o' l d"3"lo"'% $o# '$&l( 'd /&3%" 4&l' %/o 4&$ "/ (o'( 'd &'( %&%# %&o & '( Provided"T4% ' do'%& o' w4&$4 &( d" %o %4" Fo3"/'"' % o/ %o ' o. &%( "'$&" ( o/ ol&%&$ l (#!d&3&(&o '( 51
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P"
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS 'o% &' $$o/d'$" w&%4 %4" (&d ''#l /&o/&% l' (4ll !" (#!9"$% %o %4" l&&%%&o'( /"($/&!"d &' //4 51 o. %4&( S#!("$%&o' !)
$)
Donations to ertain 1orei0n Institutions or International r0anizations. - Do'%&o'( %o .o/"&' &'(%&%#%&o'( o/ &'%"/'%&o'l o/'&J%&o'( w4&$4 /" .#ll d"d#$%&!l" &' #/(#'$" o. o/ &' $ol&'$" w&%4 /"""'%(8 %/"%&"(8 o/ $o&%"'%( "'%"/"d &'%o ! %4" Fo3"/'"'% o. %4" P4&l&&'"( 'd %4" .o/"&' &'(%&%#%&o'( o/ &'%"/'%&o'l o/'&J%&o'( o/ &' #/(#'$" o. ("$&l lw( Donations to 'ccredited !on0overnment r0anizations ) - T4" %"/ 7non0overnment or0anization7 "'(
'o' /o=% do"(%&$ $o/o/%&o': &) O/'&J"d 'd o"/%"d ",$l#(&3"l .o/ ($&"'%&=$8 /"("/$48 "d#$%&o'l8 $4/$%" /-!#&ld&' 'd o#%4 'd (o/%( d"3"lo "'%8 4"l%48 (o$&l w"l./ "8 $#l%#/l o/ $4/&%!l" #/o("(8 o/ $o!&'%&o' %4"/"o.8 'o /% o. %4" '"% &'$o" o. w4&$4 &'#/"( %o %4" !"'"=% o. ' /&3%" &'d&3&d#l %4
&&) W4&$48 'o% l%"/ %4' %4" 1 d o. %4" %4&/d o'%4 .%"/ %4" $lo(" o. %4" $$/"d&%"d 'o'o3" /'"'% o/'& J%&o'( %,!l" "/ &' w4&$4 $o'%/&!# %&o'( /" /"$"&3 "d8 @"( #%&l&J%&o' d&/"$%l .o/ %4" $%&3" $o'd#$% o. %4" $%&3&%&"( $o'(%&%#%&' %4" #/o(" o/ .#'$%&o' .o/ w4&$4 &% &( o/'&J"d 'd o"/%"d8 #'l"(( ' ",%"'d"d "/&od &( /'%"d ! %4" S"$/"%/ o. >&''$" &' $$o/d'$" w&%4 %4" /#l"( 'd /"#l%&o'( %o !" /o#l%"d8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/ &&&) L"3"l o. d&'&(%/%&3" ","'(" o. w4&$4 (4ll8 o' ' ''#l !(&(8 $o'.o/ w&%4 %4" /#l"( 'd /"#l%&o'( %o !" /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 !#% &' 'o $(" %o ",$""d %4&/% "/$"'% 5*0 o. %4" %o%l ","'("( 'd &3) A(("%( o. w4&$48 &' %4" "3"' o. d&((ol#%&o'8 wo#ld !" d&(%/&!#%"d %o 'o%4"/ 'o'/o=% do"(%&$ $o/o/%&o' o/'&J"d .o/ (& &l/ #/o(" o/ #/o("(8 o/ %o %4" (%%" .o/ #!l&$ #/o("8 o/ wo#ld !" d&(%/&!#%"d ! $o#/% %o 'o%4"/ o/'&J%&o' %o !" #("d &' (#$4 ''"/ ( &' %4" 9#d"'% o. (&d $o#/% (4ll !"(% $$ol&(4 %4" "'"/l #/o(" .o/ w4&$4 %4" d&((o l3"d o/'&J%&o' w( o/'&J"d) d)
S#!9"$% %o (#$4 %"/( 'd $o'd&%&o'( ( !" /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 %4" %"/ 7utilization7 "'(:
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 100
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &) A' o#'% &' $(4 o/ &' @&'d 5&'$l#d&' d&'&(%/%&3" ","'("( &d o/ #%&l&J"d %o $$ol&(4 o'" o/ o/" #/o("( .o/ w4&$4 %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' w( $/"%"d o/ o/'&J"d) &&) A' o#'% &d %o $?#&/" ' (("% #("d 5o/ 4"ld .o/ #(" d&/"$%l &' $//&' o#% o'" o/ o/" #/o("( .o/ w4&$4 %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' w( $/"%"d o/ o/'&J"d) A' o#'% ("% (&d" .o/ ("$&=$ /o9"$% w4&$4 $o"( w&%4&' o'" o/ o/" #/o("( o. %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' !" %/"%"d ( #%&l&J%&o'8 !#% o'l &. % %4" %&" (#$4 o#'% &( ("% (&d"8 %4" $$/"d&%"d 'o'o3"/'"'% o/'&J%&o' 4( "(%!l&(4"d %o %4" (%&(.$%&o' o. %4" Co&((&o'"/ %4% %4" o#'% w&ll !" &d .o/ %4" ("$&=$ /o9"$% w& %4 &' "/& od %o !" / "( $/ &! "d &' /#l"( ' d /"#l% &o' ( %o !" / o #l % "d ! %4 " S"$/ "% / o. >& ' '$"8 #o' /"$o" 'd%&o' o. %4" Co& ((&o '"/8 !#% 'o% %o ",$""d =3" 5 " /(8 'd %4" /o9" $% &( o'" w4&$4 $' !" !"% %"/ $$ol&(4"d ! ("%%&' (&d" (#$4 o#'% %4' ! &"d&%" "'% o. .#'d() 5*
9aluation) - T4" o#'% o. ' $4/&%!l" $o'%/&!#%&o' o. /o"/% o%4"/ %4' o'" (4ll !" !("d o' %4" $?#&(&%&o'
(&df /o"/% 5+ $o(% o.Proo of Dedu)ction)s - Co'%/&!#%&o'( o/ &.%( (4ll !" llow!l" ( d"d#$%&o'( o'l &. 3"/&="d #'d"/ %4" /#l"( 'd /"#l%&o'( /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/)
1) 2)
C4/&%!l" $o'%/&!#%&o'( Co'%/&!#%&o' o. /o"/% Co'%/&!#%&o'( ./o !/od L&&%%&o' o. d"d#$%&!&l&%
1)
Co'%/&!#%&o'( d"d#$%&!l" &' .#ll No'-(%o$@8 'o'-/o=% $o/o/%&o' o/ o/'&J%&o' ) A$$/"d&%%&o' o. 'o'-(%o$@8 'o'-/o=% $o/o/%&o'(
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 101
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS &&&)
1)
S#(!%'%&%&o' /"?#&/""'%(
P/o4&!&%"d %/'($%&o'( W&%4d/wl o. $"/%&=$%" o. $$/"d&%%&o' 'd /"3o$%&o' o. $"/%&=$%" o. /"&(%/%&o'
D"d#$%&!l" $o'%/&!#%&o'( #'d"/ ("$&l lw( 1) Ado%-A-S$4ool /o/ \ 7llows private entities to assist a pblic school preferably located in any of the 2" poorest provinces identied by the ?residential %oncil for %ontryside evelopment or any other government agency tas,ed with identifying the poorest province. \ xpenses incrred by the adopting entity shall be allowed an additional dedction from the gross income e/ivalent to !"# of sch expenses. Lalation of assistance other than money shall be based on the ac/isition cost of the property.
) T, &'$"' %&3"( %o %4" d o%&' / &3%" "'% &% 7 pre/alied adopting private entity which enters into an agreement with a pblic school shall be entitled to the following tax incentives: (i) edction from the gross income of the amont of contribtion@ donation thatwere actally directly and exclsively incrredfor the ?rogram sbect to limitations conditions and rles set forth in &ection 3'(A) of the ;-4% pls an additional amont e/ivalent to !"# of sch contribtion@ donation sbect to the following conditions: (a) +hat the dedction shall beavailed of in the taxable year in which the expenses have been paid or incrredC (b) +hat the taxpayer can sbstantiate the dedction with s
!) O%4"/ %, $o' ("?#"'$"( o. ((&( %'$" %o %4" # !l&$ ($4o ol \ Horeign donation O the L7+ and excise tax if any on the importation of goods shall be assmed by the epd or %A or +&7 as the case may be being the consignee or the importer thereof except in cases where the importation is exempt from L7+ nder &ection 1"* of the ;-4%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 102
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS \ 5ocal donation O the same shall be sbect to L7+ on the transfer of the said goods or properties nder &ection 1"6(B)(1) of the ;-4%C the doneepblic school shall be deemed as the nal consmer@ endser and therefore not entitled to any inpt L7+
$) Vl#%&o' o. ((&(%' $"<$o'%/&!# %&o' o/ d o'%&o' \ ?ersonal property O amont shall be based on the ac/isition cost of the said assistance or contribtion o -f said property had already been sed then sch valation shall ta,e into consideration the depreciated vale of the property o -f the assistance is in the form of consmable goods the amont shall be based on the ac/isition cost by the donor or the actal cost thereof at the time of the donation whichever is lower \ &ervices O amont shall be based on the vale of the services rendered as agreed pon by the donor and the service provider and the pblic school as xed in the $7 or the actal expenses incrred by the donor whichever is lower \ 4eal property O amont shall be the fair mar,et vale of the property at the time of the contribtion@ donation as determined prsant to &ection 6() of the ;-4% or the boo, vale@ depreciated vale of the property whichever is lower
51
52
5I %esearch and Development. $ In General. - %,"/ %/"% /"("/$4 o/ d"3"lo"'% ","'d&%#/"( w4&$4 /" &d o/ &'$#//"d ! 4& d#/&' %4" %, !l" "/ &' $o''"$%&o' w&%4 4&( %/d"8 !#(&' "(( o/ /o."((&o' ( o/d&'/ 'd '"$"((/ ","'("( w4& $4 /" 'o% $4/"!l" %o $&%l $$o#'%) T4" ","'d&%#/"( (o %/"%"d (4ll !" llow"d ( d"d#$%&o' d#/&' %4" %,!l" "/ w4"' &d o/ &'$#//"d) 'mortization of ertain %esearch and Development Expenditures. - A% %4" "l"$%&o' o. %4" %,"/ 'd &' $$o/d'$" w&%4 %4" /#l"( 'd /"#l%&o'( %o !" /"($/&!"d ! %4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 %4" .ollow&' /"("/$4 'd d"3"lo"'% ","'d&%#/"( !" %/"%"d ( d"."//"d ","'("(: ) P&d o/ &'$#//"d ! %4" %,"/ &' $o''"$%&o' w&%4 4&( %/d"8 !#(&'"(( o/ /o."((&o' !) No% %/"%"d ( ","'("( #'d"/ PAR 1 4"/"o. 'd $) C4/"!l" %o $&%l $$o#'% !#% 'o% $4/"!l" %o /o"/% o. $4/$%"/ w4&$4 &( (#!9"$% %o d"/"$&%&o' o/ d"l"%&o')
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10*
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS I' $o#%&' %,!l" &'$o"8 (#$4 d"."//"d ","'("( (4ll !" llow"d ( d"d#$%&o' /%!l d&(%/&!#%"d o3"/ "/&od o. 'o% l"(( %4' 60 o'%4( ( !" "l"$%"d ! %4" %,"/ 5!"&''&' w&%4 %4" o'%4 &' w4&$4 %4" %,"/ =/(% /"l&J"( !"'"=%( ./o (#$4 ","'d&%#/"() T4" "l"$%&o' /o3&d"d ! PAR 52 4"/"o. !" d" .o/ ' %,!l" "/ !"&''&' .%"/ %4" ""$%&3&% o. %4&( Cod"8 !#% o'l &. d" 'o% l%"/ %4' %4" %&" /"($/&!"d ! lw .o/ =l&' %4" /"%#/' .o/ (#$4 %,!l" "/) T4" "%4od (o "l"$%"d8 'd %4" "/&od ("l"$%"d ! %4" %,"/8 (4ll !" d4"/"d %o &' $o#%&' %,!l" &'$o" .o/ %4" %,!l" "/ .o/ w4&$4 %4" "l"$%&o' &( d" 'd .o/ ll (#!("?#"'% %,!l" "/( #'l"(( w&%4 %4" /o3l o. %4" Co&((&o'"/8 $4'" %o d&"/"'% "%4od &( #%4o/&J"d w&%4 /"("$% %o /% o/ ll o. (#$4 ","'d&%#/"() T4" "l"$%&o' (4ll 'o% l %o ' ","'d&%#/" &d o/ &'$#//"d d#/&' ' %,!l" "/ .o/ w4&$4 %4" %,"/ @"( %4" "l"$%&o') 5*
imitations on Deduction ) - T4&( S#!("$%&o' (4ll 'o% l %o:
)
A' ","'d&%#/" .o/ %4" $?#&(&%&o' o/ &/o3""'% o. l'd8 o/ .o/ %4" &/o3""'% o. /o"/% %o !" #("d &' $o''"$%&o' w&%4 /"("/$4 'd d"3"lo"'% o. $4/$%"/ w4&$4 &( (#!9"$% %o d"/"$&%&o' 'd d"l"%&o' 'd
!) 'A' ","'d&%#/" o/&'"/l8 &'$#//"d&'$l#d&' .o/ %4" #/o(" o. ($"/%&'&' %4" ",&(%"'$"8 lo$%&o'8 ",%"'%8 o/ ?#l&% o. d"o(&% o. o/" o/&d o%4"/ o&l o/ () Co'$"% o. R"("/$4 'd d"3"lo"'% 4esearch and evelopment (4]) O refers to expenditres incrred in connection with the taxpayer8s trade or bsiness which represent research and development costs in the experimental or laboratory sense generally inclding all sch costs incident to the development of an experimental or pilot model a plant process a prodct a formla an invention or similar property and the improvement of already existing property of the type mentioned.
1)
R"(o'!l" o#'% +he dedctibility of research or experimental expenditre refers only to the extent that the amont of the expenditre is reasonable nder the circmstances. -n general the amont of an expenditre for research or experimental activities is reasonable if the amont wold ordinarily be paid for li,e activities by li,e enterprises nder li,e circmstances.
O%&o'( o. %,"/ +he taxpayer may se one of the two following methods of acconting for 4] expenditres: (i) edct 4] expenditres in the tax year in which they are paid or incrred or
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10+
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS (ii)
7morti0e sch expenditres over a period of not less than 6" months.
+he taxpayer mst charge to a capital accont any 4] expenditres that he does not or cannot dedct crrently not defer and amorti0e.
1)
C#//"'%-"/ d"d#$%&o' o. RYD ","'d&%#/"( +he cost of research and experimentation are generally capital expenses. Aowever the taxpayer can elect to dedct these costs as a crrent ordinary and necessary bsiness expense. +he election to dedct these costs is binding for the year it is made and for all later years nless the taxpayer gets approval from the %-4 to ma,e a change.
2)
Ao/%&J%&o' o. RYD ","'d&%#/"( 7 taxpayer can amorti0e his 4] expenditres chargeable to a capital accont if he meets the following conditions: (i) ?aid or incrred by the taxpayer in connection with his trade bsiness or professionC (ii) ;ot treated as ordinary or necessary expensesC and (iii) %hargeable to capital accont btnot chargeable to property of a character which issbect to depreciation or depletion.
) +he election El"$%&o' %o o/%&J" to amorti0e research and development may be made for any taxable year beginning after 1**Q bt only if made not later than the time prescribed by law for ling the retrn for sch taxable year.
*)
L&&%%&o' edction of 4] shall not apply to expenditre for: (i) ac/isition or improvement of land or for the improvement of property to be sed in connection with research and development of a character which is sbect to depreciation and depletionC and (ii) ascertaining the existence location extent or /ality of any deposit of ore or other mineral inclding oil or gas.
5 Pension Trusts) - A' "lo"/ "(%!l&(4&' o/ &'%&'&' "'(&o' %/#(% %o /o3&d" .o/ %4" "'% o. /"(o'!l" "'(&o'( %o 4&( "lo""( (4ll !" llow"d ( d"d#$%&o' 5&' dd&%&o' %o %4" $o'%/&!#%&o'( %o (#$4 %/#(% d#/&' %4" %,!l" "/ %o $o3"/ %4" "'(&o' l&!&l&% $$/#&' d#/&' %4" "/8 llow"d ( d"d#$%&o' #'d"/ SUBSEC 5A 51 o. %4&( SEC /"(o'!l" o#'% %/'(."//"d o/ &d &'%o (#$4 %/#(% d#/&' %4" %,!l" "/ &' ",$"(( o. (#$4 $o'%/&!#%&o'(8 !#% o'l &. (#$4 o#'%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS W W
H( 'o% %4"/"%o.o/" !""' llow"d ( d"d#$%&o'8 'd I( o/%&o'"d &' "?#l /%( o3"/ "/&od o. 10 $o'("$#%&3" "/( !"&''&' w&%4 %4" "/ &' w4&$4 %4" %/'(."/ o/ "'% &( d") P"'%( %o "lo""( "'(&o' %/#(%( 7n employer who adopts or has adopted a reasonable pension plan actarially sond and who establishes or has established and maintains a pension trst for the payment of reasonable pensions to his employees shall be allowed to dedct from gross income reasonable amonts paid to sch trst in accordance with the pension plan (inclding any reasonable amendment thereof) as follows: (i) ?lan contemplates thepayment to the trst in advance of the time when pensions are granted of amonts to provide for ftre pensions (a) 4easonable amontspaid to the trst dring the taxable year representing thepension liability applicable tosch year determined in accordance with the plan shall be allowed as an ordinary and necessary bsiness expenseC and (b) $netenth of a reasonable amont transferred orpaid to the trst dring thetaxable year to coverin whole or in part the pension liability applicable to the years prior to the taxable year or so transferred or paid to place the trst on a sond nancial basis shall be allowed as a dedction for the taxable years and for each of the nine scceeding taxable years. (i) ?lan does not contemplate the payment to the trst in advance of the time when pensions are granted of amonts to provide for ftre payments (a) 4easonable amonts paidto the trst dring the taxable yearrepresenting thepresent vale of the expected ftrepayments in respect of pensions granted to employees retired dring the taxable year shall be allowed as a dedction for sch year as an ordinary and necessary bsiness expenseC and (b) $netenth of a reasonable amont transferred or paid to the trst dring the taxable year to cover in whole or in part the present vale of the expected ftre payments in respect of pensions granted to employees retired prior to the taxable year or so transferred or paid to place the trst on a sond nancial basis shall be allowed as a dedction for the taxable year and for each of the nine scceeding taxable years.
&'d( o. /&3%" /"%&/""'% !"'"=% l'( (i)
(ii)
+rsteed plan \ 7n employer8s past service contribtions to its employees8 retirement pension plan are dedctible only when sch contribtions are made or accre to a trst ;ontrsteed plan \ 7n insred plan established and maintained by an employer nder a Ieposit 7dministration %ontractK exected by and between the employer as the insred or policyholder and an insrance company as the insrer
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2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS \
mployer is not entitled to a dedction for past service liability contribtion made to an insred or nontrsteed plan
5 'dditional %e*uirements for Deducti)ility of ertain Payments. - A' o#'% &d o/ !l" w4&$4 &( o%4"/w&(" d"d#$%&!l" ./o8 o/ %@"' &'%o $$o#'% &' $o#%&' /o(( &'$o" o/ .o/ w4&$4 d"/"$&%&o' o/ o/%&J%&o' !" llow"d #'d"/ %4&( S"$%&o'8 (4ll !" llow"d ( d"d#$%&o' o'l &. &% &( (4ow' %4% %4" %, /"?#&/"d %o !" d"d#$%"d 'd w&%44"ld %4"/"./o 4( !""' &d %o %4" B#/"# o. I'%"/'l R"3"'#" &' $$o/d'$" w&%4 %4&( SEC ; 'd ;1 o. %4&( Cod") Add&%&o'l /"?#&/""'%( .o/ d"d#$%&!&l&% o. $"/%&' "'%( &ection 3'(V) of the ;-4% disallows as dedctible expenses income payments which were not sbected to the expanded withholding tax. 7n expense shall be allowed as a dedction only if it is shown that the tax re/ired to be dedcted and withheld therefrom has been paid to the B-4 whether the same is paid or payable. -n case of taxpayer8s failre to prove that he@it withheld income tax the same cannot be considered as a valid dedction from his@its gross income.
5L ptional (tandard Deduction. - I' l&"# o. %4" d"d#$%&o'( llow"d #'d"/ %4" /"$"d&' S#!("$%&o'(8 ' &'d&3&d#l (#!9"$% %o %, #'d"/ S"$%&o' 2+8 o%4"/ %4' 'o'/"(&d"'% l&"'8 "l"$% (%'d/d d"d#$%&o' &' ' o#'% 'o% ",$""d&' 10 o. 4&( /o(( &'$o") U'l"(( %4" %,"/ (&'&="( &' 4&( /"%#/' 4&( &'%"'%&o' %o "l"$% %4" o%&o'l (%'d/d d"d#$%&o'8 4" (4ll !" $o'(&d"/"d ( 43&' 3&l"d 4&("l. o. %4" d"d#$%&o'( llow"d &' %4" /"$"d&' S#!("$%&o'() S#$4 "l"$%&o' w4"' d" &' %4" /"%#/' (4ll !" &//"3o$!l" .o/ %4" %,!l" "/ .o/ w4&$4 %4" /"%#/' &( d": Provided" T4% ' &'d&3&d#l w4o &( "'%&%l"d %o 'd $l&"d .o/ %4" o%&o'l (%'d/d d"d#$%&o' (4ll 'o% !" /"?#&/"d %o (#!&% w&%4 4&( %, /"%#/' (#$4 =''$&l (%%""'%( o%4"/w&(" /"?#&/"d #'d"/ %4&( Cod": Provided" further"T4% ",$"% w4"' %4" Co&((&o'"/ o%4"/w&(" "/&%(8 %4" (&d &'d&3&d#l (4ll @"" (#$4 /"$o/d( "/%&'&' %o 4&( /o(( &'$o" d#/&' %4" %,!l" "/8 ( !" /"?#&/ "d ! %4 " /# l"( ' d /"#l% &o'( / o #l %"d ! %4 " S"$/ "% / o. >& ' '$"8 #o' /"$o"'d % &o' o. %4 " Co&((&o'"/) O%&o'l S%'d/d D"d#$%&o' Co'$"%
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 107
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS =nder the ;-4% when ling an income tax retrn taxpayers can choose to either ta,e the $ptional &tandard edction ($&) or to itemi0e dedctions. $& is dened as a xed amont that a taxpayer is allowed to dedct from his or her adsted gross income in lie of itemi0ing dedctible personal expenses. Dhether to itemi0e dedctions on the retrn depends on the circmstances of the taxpayer. -f the total amont actally spent on expenses is more than the standard dedction rate the taxpayer can sally benet by itemi0ing. $therwise $& is the better option.
P"/(o'( $o3"/"d D"%"/&'%&o' o. o#'% o. o%&o'l (%'d/d d"d#$%&o' .o/ &'d&3&d#l( D"%"/&'%&o' o. o#'% o. o%&o'l (%'d/d d"d#$%&o' .o/ $o/o/%&o'(
P " / ( o '( C o 3 "/ " d
D "% "/ & ' % & o ' o . % 4" A o # '% o . O S D
(i)
-ndividals (a) 4esident citi0en (b) ;onresident citi0en \ (c) 4esident alien (d) +axable estates and \ trsts
aximm of '"# of gross sales or gross receipts dring the taxable year -ndividal is on the accral basis of acconting for his income and dedctions O $& shall be based on the gross sales dring the taxable year -ndividal employs the cash basis of acconting for his income and dedctions O $& shall be based on his gross receipts dring the taxable year
(ii)
%orporations (a) omestic corporation (b) 4esident foreign corporation
+he $& allowed shall be in an amont not exceeding '"# of their gross income
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10;
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS Ill#(%/%&3" ",l"( &' d"%"/&'&' %4" !(&( o. +0 OSD .o/ &'d&3&d#l( 'd $o/o/%&o'( &ppose a retailer of goods whose acconting method is nder the accral basis has a gross sales of ?hp1""""""."" with a cost of sales amonting to ?hpQ"""""."". +he comptation of the $& for the individals and corporations shall be determined as follows:
I. I'd & 3 & d # l
I. C o/ o/ % & o'
ross &ales 5ess: %ost of oods &old
?hp1"""""".""
?hp1""""""."" Q""""".""
Basis of the $& x $& 4ate (maximm)
?hp1""""""."" '"#
?hp2"""""."" '"#
O S D A o #' %
P4 + 0 0 8 0 0 0 ) 0 0
P4 ; 0 8 0 0 0 ) 0 0
-f the taxpayer opts to se the $& in lie of the itemi0ed dedction allowed his@its net taxable income shall be as follows:
I. I'd & 3 & d # l
I. C o/ o/ % & o'
ross &ales 5ess: %ost of oods &old
?hp1"""""".""
?hp1""""""."" Q""""".""
ross &ales@ ross -ncome 5ess: $& (maximm)
?hp1""""""."" '""""".""
?hp2"""""."" Q"""".""
P4 6 0 0 8 0 0 0 ) 0 0
P4 12 0 8 0 0 0 ) 0 0
N " % I ' $o "
D"%"/&'%&o' o. o%&o'l (%'d/d d"d#$%&o' .o/ FPP( 'd /%'"/( o. FPP(
CARVAAL8 IM APPLE MARTINE8 MARA MENDOA8 LAUREN PARUNFO8 ALEX TAMAGO8 AI GABUT8 LEE ANNE P" 10
2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS ?rsant to &ection 26 a ?? is not sbect to income tax. Aowever the partners shall be liable to pay income tax on their separate and individal capabilities for their respective distribtive share in the net income of the ??. &ection 26 li,ewise provides that 2,or O purposes o! co#putin& the distributi$e share o! the partners" the net inco#e o! the G** shall be co#puted in the sa#e #anner as a corporation. 7s sch a ?? may claim either the itemi0ed dedctions allowed nder &ection 3'(7) to (F) or in lie thereof it can opt to avail of the $& allowed to corporations in claiming the dedctions in an amont not exceeding '"# of its gross income. +he net income determined by either claiming the itemi0ed dedction or $& from the ??8s gross income is the distribtable net income from which the share of each partner is to be determined. Aowever since the taxable income is in the hands of the partner as a rle apart from the expenses claimed by the ?? in determining its net income the individal partner can still claim dedctions incrred or paid by him that contribted to the earning of the income taxable to him. +he following rles shall govern the claim of the partners of dedctions from their share in the net income of the partnership: (a) -f the ?? availed of the itemi0ed dedction in compting its net income the partners may stillclaim itemi0ed dedctions fromsaid share provided that in claiming itemi0ed dedctions the partner is preclded from claiming the same expenses already claimed by the ??. (b) -f the ?? avails of $& in compting its net income the partners comprising itcan no longer claim frtherdedction from their share &ince in theonelayer said net income. (c) of incometax is imposed on the income of the ?? and the individal partners wherethe law had placed the stattory incidence of the tax in the hands of the latter the type of dedction chosen by the ?? mst be the same type of dedction that can be availed of by the partners. (d) -f the partner also derives other gross income from trade bsiness or practice of profession apart and distinct from his share in the net income of ?? the dedction that he can claim from his other gross income wold follow the same dedction availed of from his partnership income as explained in the foregoing rles.
O%4"/ &l&$%&o'( o. OSD -n electing to avail of the $& sch intention shall be signied in the individal taxpayer or corporation8s retrn. $therwise he@it shall be considered as having availed himself of the itemi0ed dedction. $nce election to avail of the $& or itemi0ed dedction is signied in the retrn it shall be irrevocable for the taxable year for which the retrn is made.
5M Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer T4" . -o#'% o. /"&#( 'o% %o ",$""d P28+00 "/ .&l o/ P200 o'%4 &d d#/&' %4" %,!l" "/ .o/ 4"l%4 'd
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2016 TAXATION 2 REVIEWER: TAX ON INCOME -- ALLOWABLE DEDUCTIONS .&l 4( /o(( &'$o" o. 'o% o/" %4' P20800 0 .o/ %4" %,!l" "/: 8 T4% &' %4" $(" o. //&"d Provided" ;nally %,"/(8 o'l %4" (o#(" $l&&' %4" dd&%&o'l ","%&o' .o/ d""'d"'%( (4ll !" "'%&%l"d %o %4&( d"d#$%&o') No%w&%4(%'d&' %4" /o3&(&o' o. %4" /"$"d&' S#!("$%&o'(8 T4" S"$/"%/ o. >&''$"8 #o' /"$o"'d%&o' o. %4" Co&((&o'"/8 .%"/ #!l&$ 4"/&' (4ll 43" !""' 4"ld .o/ %4&( #/o("8 /"($/&!" ! /#l"( 'd /"#l%&o'(8 l&&%%&o'( o/ $"&l&'( .o/ ' o. %4" &%"&J"d d"d#$%&o'( #'d"/ S#!("$%&o'( 5A %o 5 o. %4&( S"$%&o': Provided"T4% .o/ #/o("( o. d"%"/&'&' (#$4 $"&l&'( o/ l&&%%&o'(8 %4" S"$/"%/ o. >&''$" (4ll $o'(&d"/ %4" .ollow&' .$%o/(: 51 d"?#$ o. %4" /"($/&!"d l&&%( o' %4" $%#l ","'d&%#/" /"?#&/""'%( o. "$4 /%&$#l/ &'d#(%/ 'd 52 ""$%( o. &'%&o' o' ","'d&%#/" l"3"l(:Provided" further" T4% 'o $"&l&'( (4ll .#/%4"/ !" &o("d o' &%"( o. ","'(" l/"d (#!9"$% %o $"&l&'( #'d"/ /"("'% l w) H"l%4 'd
-ndividal taxpayers are allowed to amont of premims not to exceed ?hp2'""."" per family or ?hp2""."" a month paid dring the taxable year for health and@or hospitali0ation insrance ta,en by himself inclding his family.
1)
R&d"/( 'o% llow"d 5ife insrance premims with health insrance rider from private insrance rms and other preneed plans from private preneed rms li,e memorial edcational pension etc. are not dedctible from gross income of the employee.
Do$#"'%/ /"?#&/""'%( Hor prposes of sbstantiating the claim of insrance expense the policy contract shall be presented to the employer together with the srcinal o
P"/(o' %o $l& +he spose
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