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TAXATION
TAMAYO/GARCIA
TX 501: INCOME TAX (INDIVIDUALS, ESTATES AND TRUSTS)
1. Classification of Individuals
a. Citizens
1) Those who are citizens of the Philippines at the time of the adoption of the
Constitution (on February 2, 1987);
2) Those whose fathers or mothers are citizens of the Philippines;
3) Those born before January 17, 1973 of Filipino mothers who elect Philippine
citizenship upon reaching the age of majority;
4) Those who are naturalized in accordance with law.
1) Resident
A citizen of the Philippines residing therein.
citizen
2) Non-resident
1) A citizen of the Philippines who establishes to the satisfaction of the
citizen
Commissioner the fact of his physical presence abroad with a definite
intention to reside therein;
2) A citizen of the Philippines who leaves the Philippines during the taxable year
to reside abroad, either as an immigrant or for employment on a permanent
basis;
3) A citizen of the Philippines who works and derives income from abroad and
whose employment thereat requires him to be physically present abroad
most of the time during the taxable year;
4) A citizen who has been previously considered as non-resident citizen and who
arrives in the Philippines at any time during the taxable year to reside
permanently in the Philippines shall likewise be treated as a non-resident
citizen for the taxable year in which he arrives in the Philippines with respect
to his income derived from sources abroad until the date of his arrival in the
Philippines;
5) The taxpayer shall submit proof to the Commissioner to show his intention of
leaving the Philippines to reside permanently abroad or to return to and reside
in the Philippines as the case may be.
b. Aliens
Individuals who are not Filipinos.
1) Resident alien;
2) Non-resident alien doing business in the Philippines;
3) Non-resident alien not doing business in the Philippines.
1) Resident alien
An individual whose residence is within the Philippines and who is not a citizen
thereof.
1) An alien who lives in the Philippines with no definite intention as to his stay;
2) One who comes to the Philippines for a definite purpose which in its nature
would require an extended stay and to that end makes his home temporarily
in the Philippines, although it may be his intention at all times to return to his
domicile abroad;
3) An alien who has acquired residence in the Philippines retains his status as
such until he abandons the same and actually departs from the Philippines.
2) Non-resident
An individual whose residence is not within the Philippines and who is not a
alien
citizen thereon.
1) One who comes to the Philippines for a definite purpose which in its nature
may be promptly accomplished.
2) A non-resident alien individual who shall come to the Philippines and stay
therein for an aggregate period of more than 180 days during any calendar
year shall be deemed a non-resident alien doing business in the
Philippines.
2. Formats of Computation (Annual Return)
a. Pure
Gross compensation income
compensation
Less: Basic personal exemption
income
Additional exemption
Premium payment for health and/or hospitalization insurance
Taxable compensation income
Tax due [Sec. 24 (A)]
Less: Tax withheld on compensation
Foreign tax credits
Tax payable (overpayment)
b. Pure business or
Gross business/professional income
professional
Less: Allowable deductions
income
Net income before personal exemptions
Less: Basic personal exemption
Additional exemption
Premium payment for health and/or hospitalization insurance
P xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
P xxx
P xxx
xxx
Pxxx
Pxxx
xxx
xxx
xxx
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c. Mixed income
Page 2
Tax Base
Net income within and
without
Net income within
Net income within
Net income within
Gross income within
Tax Rate
Sec. 24 (A)
Sec. 24 (A)
Sec.
Sec.
Sec.
Sec.
24
24
25
25
(A)
(A)
(A) (1)
(B)
4. Personal Exemptions
a. Personal
Personal exemptions are arbitrary amount allowed in the nature of a deduction
exemptions
from gross or net income for personal, living or family expenses of the taxpayer.
defined
These have been calculated to be roughly equivalent to the minimum of
subsistence.
b. Kinds of personal
1) Basic personal exemption;
exemptions
2) Additional exemptions.
5. Basic Personal Exemption
a. Taxpayers allowed
1) Resident citizens;
to
2) Non-resident citizens;
claim basic
3) Resident aliens;
personal
4) Non-resident aliens doing business in the Philippines (subject to reciprocity);
exemption
5) Estates and trusts.
b. Amount of basic
Old
New
personal
1)
Single (including married but legally separated, widow P20,000P50,000
exemption
or widower), estates and trusts
2) Head of family
P25,000 P50,000
3) Married (for each working spouse)
P32,000 P50,000
c. Amount of
a. Conditions for allowance:
personal
1) The foreign country of which the NRA-ETB is a subject or citizen has an
exemption allowed
income tax law;
to non-resident
2) The income tax law of the NRA-ETBs country allows personal exemptions to
alien doing
citizens of the Philippines not residing therein;
business in the
3) The NRA-ETB files a true and accurate return of his income from all sources
Philippines (nonwithin the Philippines.
resident alien
b. Amount allowed: The lower between what is allowed in the NRA-ETBs
engaged in trade
country and what is allowed in the Philippines.
or business)
6. Additional Exemptions
a. Taxpayers allowed 1) Resident citizens;
3) Resident aliens;
additional
2) Non-resident citizens; 4) NRA-ETB (subject to reciprocity)
exemptions
b. Amount of
P25,000 (old P8,000) per dependent child
additional
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1) Legitimate child;
2) Illegitimate child;
3) Adopted child.
7. Optional Standard Deductions (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)
1) Persons
The following may be allowed to claim OSD in lieu of the itemized deductions (i.e.
covered
items of ordinary and necessary expenses allowed under Section 34 (A) to (J) and
(M), Section 37, other special laws, if applicable):
2) Determination
of the amount
of OSD for
individuals
a) Individuals
b) Corporations
(1) Resident citizen
(1) Domestic corporation
(2) Non-resident citizen
(2) Resident foreign corporation
(3) Resident alien
(4) Taxable estates and trusts
a) The OSD allowed to individual taxpayers shall be a maximum of forty percent
(40%) of gross sales (if on accrual basis) or gross receipts (if on cash basis)
during the taxable year.
b) The cost of sales in case of individual seller of goods, or the cost of services
in the case of individual seller of services, are not allowed to be deducted for
purposes of determining the basis of the OSD
c) For other individual taxpayers allowed by law to report their income and
deductions under a different method of accounting (e.g. percentage of
completion basis, etc.) other than cash and accrual method of accounting, the
gross sales or gross receipts shall be determined in accordance with said
acceptable method.
8.
Premium Paid on Health and/or Hospitalization Insurance
a. Deductible
Premium on health and/or hospitalization insurance taken by the taxpayer for
premium
himself, including his family and paid for during the taxable year
b. Amount of
P2,400 per family per year or P200 per month whichever is lower
deductible
premium
c. Gross income of
family that can
The familys total gross income does not exceed P250,000 for the calendar year
claim premium
deduction
d. Total family
Total family income includes primary income and other income from sources
income
received by all members of the nuclear family.
e. Examples of
1) Father, mother, unmarried children living together as one household;
nuclear
2) Single parent with children;
family
3) Single person living alone.
f. Claimant of
In case of married taxpayers, the spouse claiming the additional exemption for
premium
qualified dependent children shall be the same spouse to claim the deduction for
deduction
premium payments.
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g. Exercises
1. A married resident citizen has five (5) qualified dependent children. The following information pertain to
his income and expenses in the year 2009:
Salary, net of P20,000 withholding tax
P380,000
Rent expense, apartment house
36,000
Health insurance premium paid
5,000
How much is the taxable compensation income?
2. A single resident citizen has two (2) qualified dependent children. During the year 2009, he earns and
spends the following:
Gross receipts from practice of profession
P750,000
Cost of services
500,000
Expenses in connection with the practice of profession
50,000
Hospitalization insurance premium paid
2,000
How much is the taxable net income?
3. A married individual has four (4) qualified dependent children. He has the following data on income
and expenses
for the year 2009:
Salary, Philippines, gross of withholding tax of P5,000
P 60,000
Gross business income, Philippines
500,000
Business expenses, Philippines
80,000
Gross business income, USA
900,000
Business expenses, USA
100,000
Compute the taxable net income in the Philippines assuming he is
a. resident citizen.
b. non-resident citizen.
4. An individual taxpayer asked you to assist him in the preparation of his tax return for his income in
2009.
He provided you the following information:
Gross sales, Philippines
P1,500,000
Cost of sales, Philippines
500,000
Gross sales, Japan
7,000,000
Cost of sales, Japan
2,000,000
Business expenses, Philippines
200,000
Business expenses, Japan
800,000
How much was the taxable income assuming the taxpayer was a:
a. resident citizen, married and has six (6) qualified dependent children.
b. non-resident citizen, head of family with two (2) qualified dependent brothers under optional
standard deduction.
c. non-resident alien engaged in business, single (his country allows personal exemption of P40,000
to single
Filipinos not residing in that country).
d. non-resident alien not engaged in business, married with four (4) qualified dependent children
(his country allows basic personal exemption of P40,000 to married individuals and additional
exemption of P10,000 for each dependent child to non-resident alien including Filipinos in that
country).
5. A husband and wife, resident citizens, with one (1) qualified dependent child, had the following income
and expenses for the year 2009. The husband waived the additional exemption in favor of his wife.
Salary of the husband, net of P50,000 withholding tax
P 450,000
Salary of the wife, gross of P60,00 withholding tax
600,000
Gross professional income, husband, gross of 15% withholding tax
1,500,000
Cost of services, husband
500,000
Expenses, practice of profession
300,000
Gross sales, wife
800,000
Cost of sales, wifes business
300,000
Business expenses, wife
100,000
Gross rent income, lease of common property, gross of 5% withholding tax
700,000
Expenses, leased common property
200,000
Business income, Singapore
600,000
Business expenses, Singapore
150,000
Question 1 - How much was the taxable income of the husband and wife using itemized deduction?
2 How much was the taxable income of the husband and wife using optional standard
deduction?
9. Head of Family
a. Meaning of head of
family
TX-501
b. Requisites or
qualifications of
dependents of head
of
family
c. Senior citizen
d. Requisites or
qualifications of
senior
citizen as dependent
of a
benefactor
e. Benefactor
f. Benefactor of senior
citizen not entitled to
claim additional
exemption
g.
Exemptions/discounts
of
senior citizens
h. Meaning of living
with
i. Meaning of chief
support
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Estate refers to the mass of all property, rights and obligations of a person
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Page 6
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b. Gross income is
P50,000 or more
c. In case of two or
more
joint fiduciaries
Page 7
The following persons acting in any fiduciary capacity shall file the income tax
return for an estate or trust:
1) Guardians;
5) Receivers;
2) Trustees;
6) Conservators;
3) Executors;
7) All other persons or corporations acting as fiduciary.
4) Administrators;
The return shall be filed if the estate or trust has a gross income of P50,000 or
more during the taxable year.
In case of two or more joint fiduciaries, return filed by one of them shall be a
sufficient compliance with the requirements of the Tax Code.
d. Payment of tax
e. Exercise
A single taxpayer has the following data for the year 2009 (in thousands):
1st Q
P 40
600
100
500
100
2nd Q
P 40
500
200
300
150
3rd Q
P 40
400
200
200
100
4th Q
P 40
700
300
400
200
REQ: 1. Compute the tax due and payable for each quarterly return and the annual return using itemized
deductions.
2. Compute the tax due and payable for each quarterly return and the annual return using optional
standard
deduction.
END
THOT: What we have to learn to do, we learn by doing.- Aristotle
jb
TX-501