Escolar Documentos
Profissional Documentos
Cultura Documentos
IN GENERAL
Income Tax
Sources of income
1.
2.
3.
Taxable income
Income, in its broad sense, means all wealth which flows
into the taxpayer other than as a mere return on capital.
[Section 36, Revenue Regulations 2]
Income means accession to wealth, gain or flow of
wealth.
Conwi v. CTA [213 SCRA 83]: Income may be defined
as an amount of money coming to a person or
corporation within a specified time, whether as payment
for services, interest, or profit from investment.
Commissioner v. BOAC [149 SCRA 395]: Income
means cash received or its equivalent. It is the amount
of money coming to a person within a specific time. It is
distinct from capital for, while the latter is a fund, income
is a flow. As used in our laws, income is flow of wealth.
The source of an income is the property, activity or
service that produces the income. For the source of
income to be considered as coming from the Philippines,
it is sufficient that income is derived from activity within
the Philippines. IN BOACs case, the sale of tickets in the
Philippines is the activity that produces the income.
Fisher v. Trinidad [43 Phil 973]: Stock dividend is not
an income. It merely evidences the interest of the
stockholder in the increased capital of the corporation.
An income may be defined as the amount of money
coming to a person or corporation within a specified
time, whether as payment for services, interest, or profit
for investment. A mere advance in the value of property
of a person or corporation in no sense constitutes the
income specified in the revenue law. Such advance
constitutes and can be treated merely as an increase of
capital. An income means cash received or its equivalent.
It does not mean choses in action or unrealized
increments in the value of the property.
SOURCES OF I NCOME
actual receipt
constructive receipt
Income v. capital
TAXABLE INCOME
Income
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INCOME TAXATION
1.
2.
3.
Ordinary gains
1.
2.
3.
Business income
Severance test
Substantial alteration of interest test
Flow of wealth test
1.
Severance test
2.
Note:
1.
2.
3.
1.
2.
1.
2.
3.
4.
5.
6.
7.
8.
Interest income
Rentals/Leases
Royalties
Dividends
Annuities and proceeds of life insurance/other types of
insurance
Prizes and winnings, awards, and rewards
Gifts, bequests, and devises
Other types of passive income
schedular system
global system
Schedular system
The schedular system is one where the income tax treatment
varies and is made to depend on the kind or category of
taxable income of the taxpayer.
Global system
1.
2.
3.
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capital gain
ordinary gain
a.
business income
b.
compensation income
c.
passive income
d.
other income from whatever source derived i.e.
found treasure
Capital gains
CLASSES OF INCOME
Passive income
TAXATION
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INCOME TAXATION
Philippines at any time during the taxable year to
reside permanently in the Philippines.
Corporation
corporations v. individuals
nationality
residence
Note:
2.
3.
Note:
Individuals
a.
Resident citizens
b.
Non-resident citizens
c.
Resident aliens
d.
Non-resident aliens
i)
engaged in trade or business in the
Philippines, or
ii)
not engaged in trade or business in
the Philippines
A non-resident alien individual who shall come to the
Philippines and stay therein for an aggregate period of
more than one hundred eighty (180) days during any
calendar year shall be deemed a non-resident alien doing
business in the Philippines. [Section 25(A)(1), NIRC]
GENERAL
PROFESSIONAL
PARTNERSHIP
PARTNERSHIP
Corporations
a.
Domestic corporations
b.
c.
Special
a.
Proprietary
educational
institutions
hospitals that are non-profit
b.
Insurance companies
c.
d.
and
1.
2.
3.
4.
TAXATION
V.
ORDINARY
BUSINESS
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INCOME TAXATION
For tax purposes, the co-ownership of inherited
properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent
to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either
duly executed in an extrajudicial settlement or approved by the
court in the corresponding testate or intestate proceeding.
The reason is simple. From the moment of such
partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to
manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith. If after such
partition, he allows his share to be held in common with his coheirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed, for
the purpose, for tax purposes, at least, an unregistered
partnership is formed.
For purposes of the tax on corporations, the NIRC,
includes partnerships except general professional partnerships
within the purview of the term corporation.
Note:
Pascual v. Commissioner
4.
6.
1.
2.
2.
5.
Resident citizens
Domestic corporations
Who are taxed only on their income from sources within the
Philippines?
1.
2.
3.
4.
Non-resident citizen
Overseas contract workers
Alien individual, whether a resident or not of the Philippines
Foreign corporation, whether engaged or not in trade or
business in the Philippines
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TAXATION
55
INCOME TAXATION
Types of income taxed
1.
2.
3.
TREATMENT OF SOME SPECIAL ITEMS
4.
Forgiveness of indebtedness
1.
2.
3.
4.
TAX ON INDIVIDUALS
PRELIMINARY POINTS ON TAXATION OF INDIVIDUALS
How taxed?
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TAXATION
Considered as income
5.
Capital gains from the sale of shares of stock not traded in the
stock exchange
1.
2.
5%
10%
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INCOME TAXATION
Capital gains from the sale of real property
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TAXATION
The 15% preferential tax rate shall apply only in cases where
an alien concurrently holds a position similar to that of the
Filipino employee. Thus, this preferential tax treatment shall
not apply where the counterpart expatriate is recalled to the
head office or reassigned elsewhere, whether temporarily or
otherwise, and only Filipinos are the ones so employed by an
OBU for the time being or where the post vacated by the
expatriate is subsequently assumed by a Filipino to replace
the expatriate, as a result of which all top management posts
are now being occupied by Filipinos.
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INCOME TAXATION
TAX ON CORPORATIONS
In General
1.
A tax effort ratio of twenty percent (20%) of Gross
National Product (GNP)
2.
A ratio of forty percent (40%) of income tax collection to
total tax revenues
3.
A VAT tax effort of four percent (4%) of GNP
4.
A 0.9 percent (0.9%) ratio of the Consolidated Public
Sector Financial Position to GNP
4.
1.
2.
3.
Trading Concern
Cost of goods sold shall include
the invoice cost of the goods
sold, plus import duties, freight
in transporting the goods to
the place where the goods are
actually
sold,
including
insurance while the goods are
in transit.
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Manufacturing Concern
Cost of goods manufactured and
sold shall include all costs of
production of finished goods,
such as raw materials used,
direct labor and manufacturing
overhead,
freight
cost,
insurance and other costs
incurred to bring the raw
materials to the factory or
warehouse.
TAXATION
5.
6.
7.
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INCOME TAXATION
higher. However, since in the instant case the taxpayer
claimed a depreciation deduction when the building and
other improvements were not used in trade or business,
the taxpayer must file and amend its income tax return
and pay the deficiency income tax, if any, plus surcharge
and interest, based on its adjusted taxable income
resulting from the disallowance of the depreciation
deduction.
services required by
the customers and
clients including (A)
salaries
and
employee benefits
of
personnel,
consultants
and
specialists
directly
rendering
the
service and (B) cost
of facilities directly
utilized in providing
the service such as
depreciation
or
rental of equipment
used and cost of
supplies.
Note:
Cost
of
goods
manufactured
and
sold
for
a
manufacturing
concern
Gross Income for
taxpayers engaged in
sale of service
Section 27(E)
MCIT
equivalent to gross sales less sales
returns, discounts and allowances and
cost of goods sold.
shall include all business expenses
directly
incurred
to
produce the
merchandise to bring them to their
present location and use.
shall include the invoice cost of the goods
sold, plus import duties, freight in
transporting the goods to the place
where the goods are actually sold,
including insurance while the goods are in
transit.
shall include all costs of production of
finished goods, such as raw materials
used, direct labor and manufacturing
overhead, freight cost, insurance and
other costs incurred to bring the raw
materials to the factory or warehouse.
gross receipts less gross receipts less
sales
returns, sales
returns,
allowances
and allowances
and
discounts.
discounts and cost
of services
Cost of services
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For
banks,
it
includes
interest
expense.
TAXATION
Minimum corporate
corporations
income
tax
on
resident
foreign
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INCOME TAXATION
3.
4.
5.
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TAXATION
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INCOME TAXATION
Non-resident cinematographic film owner, lessor or distributor
Tax on certain incomes received by a resident foreign
corporation
1.
2.
3.
4.
Intercorporate dividends
Dividends received by a resident foreign
corporation from a domestic corporation liable to tax
under the NIRC shall not be subject to income tax.
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TAXATION
vessels
chartered
by
2.
Intercorporate dividends
A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or
property dividends received by a non-resident foreign
corporation from a domestic corporation, subject to the
condition that the country in which the non-resident foreign
corporation is domiciled shall allow a credit against the tax
due from the non-resident foreign corporation taxes deemed
to have been paid in the Philippines equivalent to thirty two
percent (32%) in the year 2000.
This is the so-called tax sparing rule.
3.
Capital gains from sale of shares of stock not traded in the
stock exchange
a.
Not over P100,000 5%
b.
Over P100,000 10%
Involves
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INCOME TAXATION
of any other corporation, by permitting earnings and
profits to accumulate instead of being divided or
distributed.
4.
5.
6.
7.
8.
9.
10.
11.
Coverage
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TAXATION
62
INCOME TAXATION
general rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication.
GROSS INCOME
Gross income
Fringe benefit
1.
In
general,
fixed
or
variable
transportation,
representation and other allowances which are received
by a public officer or employee or officer or employee of
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TAXATION
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INCOME TAXATION
2.
3.
4.
5.
6.
Finance lease
DIVIDEND INCOME
Dividends
De minimis benefits
1.
2.
3.
4.
Stock dividend
INTEREST INCOME
by
non-stock,
non-profit
Cash dividend
Stock dividend/stock rights
Property dividend
Liquidating dividend
RENTALS
Operating lease
Liquidating dividend
Disguised dividends
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TAXATION
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INCOME TAXATION
3.
EXCLUSION
Exclusion
2.
3.
TAXATION
1.
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The phrase for any cause beyond the control of the said
official or employee connotes involuntariness on the part of
the official or employee. The separation from the service of
the official or employee must not be asked for or initiated by
him. [Section 2.78.1, Revenue Regulation 2-98] The
separation was not of his own making.
1.
2.
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INCOME TAXATION
2.
2.
3.
DEDUCTIONS
IN GENERAL
Deductions
Deduction v. exemption
3.
Expenses
Interest
Taxes
Losses
Bad debts
Depreciation
Depletion of oil and gas wells and mines
Charitable and other contributions
Research and development
Pension trusts
Premium payments on health and/or hospitalization insurance
of an individual taxpayer
Deduction v. exclusion
Itemized deductions
Optional standard deduction
Kinds of deductions
Note:
1.
2.
3.
2.
3.
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TAXATION
66
INCOME TAXATION
Pensions and compensation for injuries
Requisites for deductibility of business expense
1.
2.
3.
4.
5.
6.
Rules on repairs
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TAXATION
Tax home
Rental expense
Travel expenses
Reasonable in amount
Incurred during the taxable period
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INCOME TAXATION
3.
4.
5.
2.
3.
2.
3.
Advertising expense
Not deductible business expense. Efforts to
establish reputation are akin to acquisition of capital
assets and, therefore, expenses related thereto are not
business expense but capital expenditures.
Promotional expenses
Same as advertising expense
1.
2.
3.
4.
The amount of interest paid or incurred within a taxable
year on indebtedness in connection with the taxpayers
profession, trade or business shall be allowed as
deduction from gross income.
2.
3.
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TAXATION
Tax credit
Back-to-back interest
INTEREST EXPENSE
Interest
TAXES
Litigation expenses
Litigation expenses that are incurred in the
defense or protection of title are capital in nature and
not deductible.
In the former, the taxes are deducted from the gross income
in computing the net income, while in the latter, the taxes are
deducted from Philippine income tax itself.
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INCOME TAXATION
Proof of credits
Limitations on credit
1.
2.
4.
5.
6.
7.
Note:
Casualty loss
1.
2.
3.
Losses
LOSSES
1.
2.
3.
4.
5.
Wash sale
Wagering losses
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TAXATION
69
INCOME TAXATION
Abandonment losses
1.
2.
3.
4.
BAD DEBTS
Bad Debts
1.
2.
3.
4.
DEPRECIATION
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TAXATION
Depreciation
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INCOME TAXATION
DEPLETION OF OIL AND GAS WELLS AND MINES
3.
Non-government organization
Depletion v. depreciation
Utilization
Utilization means:
1.
2.
Proof of deductions
2.
3.
4.
5.
2.
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TAXATION
Amortization
expenditures
of
certain
research
and
development
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INCOME TAXATION
2.
PENSION TRUSTS
1.
2.
3.
Personal exemptions
1.
2.
3.
4.
5.
6.
requirement
for
deductibility
of
certain
1.
2.
3.
4.
P20,000
P25,000
P32,000
Note:
Note:
TAXATION
Living with
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Citizens
Resident aliens
Non-resident aliens engaged in trade or business in the
Philippines under certain conditions
Estates and trusts, which are treated for purposes of personal
exemptions, as a single individual
PAYMENTS
Additional
payments
Personal exemption
Additional exception
Premium payments on health and/or hospitalization insurance
The term living with the person giving support does not
necessarily mean actual and physical dwelling together at all
times and under all circumstances.
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INCOME TAXATION
Family
a.
The term family includes an unmarried
separated person with:
1.
one or both parents;
2.
one or more brothers or sisters; or
3.
one or more legitimate, recognized
legally adopted children living
dependent upon him or her for
support.
or legally
natural, or
with and
their chief
3.
Additional exemption
Dependent
4.
5.
6.
Capital expenditures
1.
2.
3.
4.
5.
6.
Change of status
hospitalization
1.
2.
3.
6.
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TAXATION
Related taxpayers
4.
5.
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INCOME TAXATION
Relevant points regarding related taxpayers
1.
Payment of interest is not deductible.
2.
Bad debts are not deductible.
3.
Losses from sales or exchanges of property are not
deductible.
Ordinary asset
1.
2.
3.
4.
Capital asset
The general rule is that the entire amount of the gain or loss,
as the case may be, shall be recognized, i.e. taxable or
deductible.
Exceptions
1.
Net capital gain means the excess of the gains from sales
or exchanges of capital assets over the losses from such
sales or exchanges.
2.
Merger or consolidation
1.
2.
3.
Holding rule
Loss limitation rule
Net capital loss carry-over rule
Note:
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TAXATION
SOURCES OF TAXATION
Source of income
74
INCOME TAXATION
income is sourced in the place where the service
contracted for is rendered.
Sources of taxation
1.
2.
3.
Interest income
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Methods of accounting
Taxable year
Accounting periods
1.
2.
When
1.
2.
3.
4.
calendar
If
If
If
If
the
the
the
the
taxpayer
taxpayer
taxpayer
taxpayer
year
used?
Methods of accounting
TAXATION
1.
Cash Basis
Income, profits and gains earned by taxpayer are
not included in gross income until received.
Expenses are not deducted until paid within the taxable year.
2.
Accrual Method
Income, gains and profits are included in the gross
income when earned, whether received or not.
Expenses are allowed as deductions when incurred,
although not yet paid.
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INCOME TAXATION
3.
Mixed/Hybrid
Combination of the cash and accrual method.
4.
Initial payments
Termination of leasehold
Note:
1.
2.
3.
4.
These include:
1.
Casual sale or other casual disposition of
personal property (other than property included
in the inventory at the close of the taxable
year) for a price exceeding P1000; and
2.
Sale or other disposition of real property.
Treated either on installment basis or deferred sales
basis.
Installment basis - if the initial payments do not exceed
25% of the selling price.
Deferred sales basis if the initial payments
exceed 25% of the selling price [Section 49, NIRC and
Section 175, Revenue Regulations 2]
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TAXATION
Long-term contracts
2.
3.
4.
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INCOME TAXATION
Where to file
1.
2.
3.
4.
5.
Estimated tax
When to file
CORPORATE RETURNS
Corporation returns
Married individuals, whether citizens, resident or nonresident aliens, who do not derive income purely from
compensation, shall file a return for the taxable year to
include the income of both spouses.
However, if it is impracticable for the spouses to file one
return, each spouse may file a separate return of income
but the returns so filed shall be consolidated by the BIR
for purposes of verification for the taxable year.
SELF-EMPLOYED INDIVIDUALS
Self-employment income
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TAXATION
77
INCOME TAXATION
Installment payment
1.
3.
4.
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TAXATION
1.
2.
Deficiency
2.
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INCOME TAXATION
allowed as a deduction shall be included in computing
the taxable income of the legatee, heir or beneficiary.
Fiduciary returns
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TAXATION