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Income taxation - Ampongan (SolMan)

Income taxation - Ampongan (SolMan)


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Published by John Dale Mondejar
A Solutions Manual to Ampongan's book Income taxation.
A Solutions Manual to Ampongan's book Income taxation.

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Categories:Types, School Work
Published by: John Dale Mondejar on Jul 17, 2013
Copyright:Attribution Non-commercial


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D 1. F, K 2. I 3. J 4. J 5. B 6. E 7. H 8. C 9. 10 . M

11 K . 12 J . 13 A .

F 1. F 2. F 3. F 4. F 5. F 6. F 7. F 8. T 9. 10 T .

11 . 12 . 13 . 14 . 15 . 16 . 17 . 18 . 19 . 20 .


21 . 22 . 23 . 24 . 25 . 26 . 27 . 28 . 29 . 30 .


31 . 32 . 33 . 34 . 35 .


EXERCISE 1–2 1. 2. 3. 4. 5. E S H I F T I N G S D C O L I F E B L O O D H N S C O X M E S O S R O E L C O R P E T M Excise Community Due process Donor’s tax Shifting 6. 7. 8. 9. L L U A N X O I T R E V E N U E U Y T S E N M A X A T D Lifeblood Toll School Revenue 10. Tax amnesty




1. 2. 3. 4. 5. 6. 7. 8. 9. 10.


11. 12. 13. 14. 15. 16. 17. 18. 19. 20.


1. 2. 3. 4. 5. 6. 7. 8. 9.


11 B . 12 A . 13 A . 14 C . 15 C . 16 B . 17 D . 18 A . 19 C . 20 B .

2 1. 2 2. 2 3. 2 4. 2 5. 2 6. 2 7. 2 8. 2 9. 3 0.


31 D . 32 C . 33 B . 34 A . 35 A .

10 C .

The claim of the Commissioner should be denied. Rule-making power must be confined to details for regulating the mode or proceedings in order to carry into effect the law as has been enacted, and it cannot be extended nor can it expand the statutory requirements or to embrace matters not covered by the statute. Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law.

YES. Double taxation means taxing twice the same property twice when it should be taxed only once; that is “taxing the same person twice by the same jurisdiction for the same thing.” Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila to contribute to city revenues; (3) by the same taxing

Moreover. or percentage tax under the NIRC. no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Here. Thus. Piolo is correct. 7. it cannot be subject to compromise anymore. 5. The claim for refund should be denied on ground of prescription. is entitled to great respect and have in their favor a presumption of legality (Anscor Container Corporation v. 567 bear no relation to the objective pursued or are oppressive in character. To determine the gross estate of a decedent. subject to review by the Secretary of Finance. Section 143(h) may be imposed only on businesses that are subject to excise tax. the Commissioner is authorized to inquire into bank deposit: a. 4. The Commissioner may not grant the refund when there is a deficiency tax assessment against the claimant-taxpayer. The query should be addressed to the Commissioner of Internal Revenue because the power to interpret the provisions of the National Internal Revenue Code (NIRC) and other tax laws is under the exclusive and original jurisdiction of the Commissioner. and When a taxpayer applies for a compromise of his tax liability by reason of financial incapacity. and that are “not otherwise specified in preceding paragraphs. It is therefore an exercise in futility to forego with the case against him. I will inform him that a compromise is not allowed anymore because the case had already been filed in the Regional Trial Court.” EXERCISE 1. subject only to the test of reasonableness. 234 SCRA 348). the two-year period for the . even if the case is decided against the taxpayer. and it is not contended that the means provided in Section 6 of C. EXERCISE 2–1 1. To award such refund despite the existence of the deficiency assessment is an absurdity and a polarity in conceptual effects (Commissioner vs. Under RA 1405 the BIR Commissioner’s power to inquire into a taxpayer’s bank deposit is not in conflict with the Bank Secrecy Law. b. 6. Yes. Taxation may be made the implement of the State’s police power. CTA. CIR. 38052. he will not have the money to pay the assessed tax.8 The law is constitutional.A. 1998). 2011. and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business. interpretation of officers. (4) within the same taxing jurisdiction –within the territorial jurisdiction of the City of Manila. CA and Citytrust Banking Corp. I will request for a compromise of the assessed tax on ground that the financial position of the taxpayer demonstrates clear inability to pay the assessed tax. the two year prescriptive period lapsed on April 5. Where a corporation paid quarterly corporate income taxes in any of the first three quarters during the taxable year but incurs a net loss during the taxable year. As the protection and promotion of the sugar industry is a matter of public concern. 2. the legislative discretion must be allowed full play. VAT. Bank of Communications vs. If objective and methods are alike constitutionally valid. Based on the provision of the NIRC.PAGE 3 authority – the City of Manila. Recovery of taxes erroneously paid or illegally collected are allowed only when filed within the two-year prescriptive period. (5) for the same taxing periods – per calendar year. 302 SCRA 241). The moment the case is filed in court. 3. GR No. the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. The tax is levied with a regulatory purpose – to provide means for the rehabilitation and stabilization of the threatened sugar industry. Moreover. of laws which are entrusted to their administration. Clearly. The two-year period should be computed from the time of actual filing of the Adjustment Return and final payment of the tax (Phil. August 31.

A The BIR is inferior to the Court of Tax Appeals in terms of tax cases. The counting of the two (2) year period commences to run from the date of final payment. He is given 30 days from receipt of the CIR’s decision but not exceeding 2 years from the date of final payment. B D C The power to decide tax cases is more of a power and duty of the Commissioner rather than the Bureau of Internal Revenue. 205 SCRA 184). he has until July 9. fees and other charges. 10. 9. 5. Since it was received on May 15. Considering that the final payment was made on July 9. Hence. TMX Sales. 8. A The power to interpret the provisions of the NIRC is under the exclusive original jurisdiction of the Commissioner of Internal Revenue. 3. 6. penalties. as amended. D Under RA 1125. the BIR is not empowered to review the decision of a superior court. etc. The Overseas Communication Tax and the Gross Receipts Tax are business taxes under Section 120 and 121. C C The Bureau of Immigration is under the Department of Justice. MULTIPLE CHOICE 1. 2014. the prescriptive period will end on July 9. or eight (8) days following the receipt of the decision. the decisions of the Commissioner of Internal Revenue on cases pertaining to disputed assessments. 2014.PAGE 4 filing of claim for refund or credit shall be counted from the date of the filing of the annual corporate income tax return (Commissioner vs. EXERCISE 2-2. 4. The documentary stamp tax is levied under Title VII of the NIRC. 7. he has until June 14. respectively. Augusto has thirty days from receipt of the decision of the CIR to file an appeal with the CTA. is appealable only to the Court of Tax Appeals. 2014 to file his appeal with the CTA. c. 2. 2014. refunds of taxes. 8. subject to review by the Secretary of Finance. B The Community Tax is levied under the Local Government Code of 1991. Thus. The Commissioner or his duly authorized representative may be allowed only to inquire into . a. b. to file an appeal with the CTA. of the National Internal Revenue Code. 2012. D The limited power of the Commissioner does not conflict with RA 1405 because the provision of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law.

D The case cannot be compromised anymore if the case is filed already before the courts of justice and if the case involves fraud. A Taxpayers are given 30 days from receipt of BIR decision but within two (2) years from the date of payment. C The best action is to file an appeal with the Court of Tax Appeals before the lapse of the 2year prescriptive period. When there is a waiver duly signed by the taxpayer. B B Corporations are not allowed to be registered by the Securities and Exchange Commission for the purpose of practice of public accountancy (RA 9298). Revenue Regulations are more detailed interpretation of the tax laws. To determine the gross estate of the decedent. or the 30-days reglementary period from receipt of decision to appeal to the CTA. b. upon the recommendation of the Commissioner of Internal Revenue. EXERCISE 2-3 1. and c. 12. 15. 13. Revenue Special Order and Revenue Travel Assignment Order are not exercises of legislative power.PAGE 5 the bank deposits of the taxpayer on the following cases: a. without waiting for the decision of the Commissioner of Internal Revenue. It is issued by the Secretary of Finance. 3. Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity. the suit or proceeding must be started in the Court of Tax Appeals without awaiting for the decision of the Commissioner. to appeal the decision to the Court of Tax Appeals. C A withholding agent is a party in interest having sufficient legal interest to bring a suit for refund of taxes illegally collected from him. The computation of the two-year period starts from the filing of the final adjustment return because it was only then that it could be ascertained whether the taxpayer made profits or incurred losses in its business operations. D The counting of the 30 day prescriptive period for appeal starts from the date of receipt of the decision because it would be unfair on the part of the taxpayer to include in the counting the . 5. 2013 or two (2) years from the date of final payment. D The last day to claim refund is June 30. The claim for refund must be filed with the CIR before any suit in Court of Tax Appeals is commenced. D When the 2-year period is about to lapse. 11 C Revenue Audit Memorandum Order. 14. 2. 4.

The partnership is not liable to pay income tax considering that no income was earned during the year. however. Face value Less: Discount (100. Discount x Due in 2011 P 100. The excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production.PAGE 6 date while the decision is still in the table of the Commissioner or it is still in transit. The increase in the net assets was caused by the additional contribution of P10.000 80. The contention of Judge Nitafan is wrong. Petron. EXERCISE 2–4 The proper party to question. Payment of income tax by judges is not covered by the constitutional protection against diminution of their salaries during their continuance in office. directly and legally liable for the payment of the excise taxes. Even if Petron passed on to Silkair the burden of the tax. Petron. or seek a refund of an indirect tax is the statutory taxpayer. as manufacturer or producer. it pays the excise taxes due on the petroleum products thus removed. However. since an excise tax is an indirect tax. they are really taxes on property as they are imposed on certain specified goods. Stated otherwise. legislative and the judiciary. Petitioner should invoke its tax exemption to Petron before buying the aviation jet fuel.000 P 20. Silkair as the purchaser and end consumer. is the person liable for the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR. the statutory taxpayer is the proper party who can claim the refund. When Petron removes its petroleum products from its refinery in Limay. Income taxation for the members of the judiciary give substance to the equality among the three branches of the government consisting of the executive. Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price. a. In the refund of indirect taxes. but this does not transform petitioner’s status into a statutory taxpayer.000 20. ultimately bears the tax burden. Petron is the taxpayer that is primarily.000 x 20%) Income subject to tax/Fair discounted value b. Bataan. An excise tax is an indirect tax where the tax burden can be shifted to the customer but the tax liability remains with the manufacturer or producer. .000 by the partners. 3. EXERCISE 3-1 1. Although excise taxes can be considered as taxes on production. the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.000 50% 2. remains the statutory taxpayer on those excise taxes.

g.000 P 10. 2011 c. 7. it is subject to income tax. Thus. e. .000 is in the nature of a remuneratory donation.taxable 9. The dividends paid are in effect property dividends. Value-added tax Real property tax Income tax Stock transaction tax Special assessment Occupation tax Estate tax Income tax paid to a foreign country Community tax Excise tax not taxable taxable not taxable not taxable not taxable taxable not taxable taxable if claimed as deduction 6. both the stockholders who were paid stocks and cash dividends are subject to final tax.taxable . The P50.000 x 50%) 4. i. j.000 Whenever a stockholder is indebted to the corporation and said creditor corporation decides to condone the debt. a. there was a corresponding reduction in the tax liability. Dividends received from domestic . It being the case. the recovery of such debt is taxable to PAMCO but only up to P90. whenever a bad debt is claimed as deduction from gross income and it resulted to a reduction in its tax liability. since others were paid cash. h. They are not subject to tax. the recovery of such is subject to tax. 5. Income reportable in 2012 ( 20. b. c. 10. the amount is considered as an additional investment by Eduardo to the corporation. b.000 constitutes more as a taxable gift rather than as a taxable income. The dividends paid are actually stock dividends. Therefore. Thus. the amount that has been beneficial to PAMCO.PAGE 7 Income subject to tax. If Eduardo is the creditor while Lux Corporation is the debtor and the former decides to condone the debt of the latter. the dividends are subject to a final tax of 10%.000. f. Yes. such declaration and payment resulted to a change in proportionate interest. when Pamco wrote off the accounts and claimed it as deduction from gross income. Yes the amount of P30. d. a. d. Although some stockholders were paid stock dividends. Under the tax benefit rule. such condonation has the effect of a payment of dividend to the stockholder. a. Hilario is not required to report income on the condonation considering that the condonation of debt was given without requiring him to render services. the condonation made by Lux Corporation to Eduardo is in effect a payment of dividend by Lux Corporation to Eduardo. 8. They are subject to a final tax of 10% c. – not taxable 10.

000 x 12) on the rent.000 x 6) Leasehold improvement: Cost P 100. 11.000 x 10%).000 / 25) 00 Book value upon termination 96. she has to report an income of P100.000. a . The reward received by Miss Supsup is subject to a final withholding tax of 10%.000. end of lease (26.000 (P100.000 on the leasehold improvement and P48.29 7 119. Rent ( 4. the lessor is required to report as income the fair market value of the improvement at the time of completion. Since 10% of the value of the smuggled goods is P10.000 703 48. Under Outright Method.000 Less: Amount already reported as income 703 Income of lessor in 2013 95.00 0 26. 12.000 Less: Depreciation (7/1/09 – 6/30/10) 4. P 48.000/25 x 18.0 (100.000 / 18.000 x 10%).000 b.PAGE 8 b.000 x 12) Add: Income on leasehold improvement Cost of improvement Less: Accumulated depreciation (100. Rent (P4. b.000 74. Dividends received by resident foreign from .000 P 100. a . Hence.000.5 x ½ ) c .5) Book value.703 24.000 (P4. Thus.000 (P1.000. Dividends received by nonresident foreign corporation from domestic – 15% final tax if the country in which the nonresident foreign corporation is domiciled shall allow tax credit of 15% in its income tax payable in such foreign country. Miss Supsup is entitled to 10% of the value of confiscated smuggled goods but not exceeding P1. or a total amount of P148.000.29 7 EXERCISE 3 – 2 1 T 6 T 11 F .000.not taxable domestic c. Miss Supsup is entitled only to P1 million as tax informer’s reward. the amount of tax to be withheld in favor of the government is P100.

00 0 830.500 P 90.000 40.1: Case 1 – P 40.00 0 ( 30.000 P 80.000 490.0 00 30.000) 33.2: (1) ANSWER: D Gross profit Add: Bad debts recovered Total Less: Accounts writtenoff Deductible expenses Net income before income tax 33.000 Case 3 .0 00 8.00 0) P 50.000 (85.000 Case 2 .00 0 .000 – 15.000 120.3: (2) ANSWER: D Gross income before taxes Less: Deductible taxes Amusement tax Local business taxes Net loss ANSWER: B Amusement tax Local business taxes 80.PAGE 9 2 3 4 5 T T T F 7 8 9 10 F T F T 12 13 14 15 F F T F 3-3.40.00 0 800.000 Case 4 70.20.000 440.00 0 340. TAX BENEFIT RULE 3ANSWER: B 3.

4.000 123.863.000 3. MULTIPLE CHOICE THEORY 1.000 1. ANSWER: D Rent income (5. The community tax paid by a corporation is a deductible item from gross income. a refund received is taxable. ANSWER: C This is an application of the “tax benefit rule.000 x 12) Leasehold improvement Tax paid by lessee Income to be reported under outright method ANSWER: A Rent income Tax paid by lessee Leasehold improvement: 60. the refund received from these taxes are not subject to tax. Thus. LEASEHOLD IMPROVEMENT ANSWER: B Cash received Tax paid by lessee Income to be reported in 2011 120. These taxes. 60.000 3. ANSWER: D The capital gains tax is an income tax. the recovery of bad debt previously deducted is taxable if at the time it was claimed as deduction. are not deductible from gross income from purposes of computing the income tax. 3.500 EXERCISES 3 – 3.1: 1.000 . there was a corresponding reduction in the income tax liability of the taxpayer. 2.000 1. Hence.PAGE 10 Taxable income 88.000 3.000 3. while the tax paid on inter vivos donation is a donor’s tax.” Under this principle. 11 above on tax benefit rule. including the valueadded tax. 2.000 The lessor shall apply cash method on prepayment of rental even if it is using accrual method of accounting.800. EXERCISE 3-4 34. ANSWER: C See the explanatory notes in No.

.575. 7.000/17.857 1.0 00 60.429 2014 42. ANSWER: C Effective January 1.800.857 2015 42. directly and exclusively for educational purpose.800.429 6. 2014.000/17.800.000 102. directly and exclusive for educational purpose.00 0 21. the land and the building shall be exempt from real estate tax because it is now being used actually. 221.857 15.75) Book value upon termination Less: Amount declared as income 2013 21.857 162.0 00 750. All assessments or reassessments made after the 1st day of January of any year shall take effect on the 1st day of January of the succeeding year (Sec.000/30 x 3. Local Government Code of 1991).5) Note: No real property tax will be shouldered by the lessee starting 2014 because the land and the building shall be exempt from real estate tax considering that it is now being used actually.000 1.5) x 6/12 Income to be reported under spread-out method 4.050.0 00 225.857 60.5) Deductible expense ANSWER: B Cash received Leasehold improvement (750.5) Book value.000 42. 5.857 102.00 0 1.000/30 x 17. end of lease (750.000/17. ANSWER: B Rent expense Depreciation (1. ANSWER: C Cash received (5.0 00 1.800.PAGE 11 Cost Less: Accumulated depreciation (1.800.429 84.000 x 3) Leasehold improvement: Cost Less: Accumulated depreciation (1.

00 0 1.111 Note: It is presumed that Bryant had already reported his entire income on leasehold improvement for the taxable year 2015 but not his income from January to February 28.PAGE 12 2016 Total EXERCISE 3-4.425.000/30 x 15) Book value.000. end of lease Annual income (550.000. EXERCISE 3–4.3: ANSWER: B Rent income Income on leasehold improvement: Cost of improvement Less: Depreciation for 15 years (600.11 1 x No.000/ 9 years) Income under spread-out method 3.000/20 x 9) Book value.000 x 12) Leasehold improvement: Cost Less: Depreciation for 9 years (1.0 00 .111 85.00 0 24.0 00 1.0 00 42. 2016. ANSWER: C Annual income reportable 61.0 00 1.000 300.00 0 61.857 150.440. ANSWER: C Rent (2.111 24. of years of reporting ____1 Loss incurred by Bryant 61.0 00 300.000 x 12) Leasehold improvement Income using outright method 2.0 00 550. ANSWER: A Rent (2.2: 1.0 00 1.000 36.024.0 00 1. end of lease Divide by remaining term of lease (years) 600.000.000 15 20.0 00 450.

000/50 x 8) Book value.000 96.680.00 0 320.000 x 20%) Taxable income.680. ANSWER: D Discount Less: Income to be reported in 2012 (24.000 x 25%) Taxable income. 2013 24. interest or profit from investment.500 Value of promissory note Less: Discount (P50.000 x 50%) Taxable income.000 210. 2. ANSWER: A The income from rent received by Vic is taxable to him.2: 1.1: 1. there was no gain realized whether as payment for services.PAGE 13 Annual income to be reported EXERCISE 3–4.000 56.000 12.500 37.4 1. As a matter of fact.000 24.00 0 1. 2013 2. ANSWER: C P 50. ANSWER: C Cost of improvement Less: Depreciation for 8 years (2.000. ANSWER: B . end of lease Rent income Income from leasehold improvement (1.000 EXERCISE 3–5.000 12.000 EXERCISE 3-5 EXERCISE 3–5. 2011 P 120.00 0 P 10. ANSWER: D Value of promissory note Less: Discount (120.000 2.000 / 8) Total income using spread-out method 3.000 220.000 12. while the amount given as loan is not because there was no gain realized by Vic in this transaction. ANSWER: D P 2.000.

other percentage taxes and excise tax on certain goods are taxes found under Titles IV. It is distinguished from global system in the sense that the latter is employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of individual (Tan vs. Del Rosario. without consensual recognition. ANSWER: B A schedular system of taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. Dividends received by a resident citizen from a domestic corporation are subject to a final tax of 10%. . ANSWER: B The amount of P3. 6.000 37. 5. ANSWER: C Winnings in lotto are tax exempt. that means that there is no legally demandable obligation on the part of other people to give him money. 4.000 raised by Mon is a gift which should be excluded from gross income because when a financial aid is asked. EXERCISE 3-6. US.500 12. ANSWER: C Value-added tax. V and VI. income taxation is discussed in Title II of the same code. 237 SCRA 324. 2014 EXERCISE 3–5. ANSWER: C Dividends received by a domestic and resident foreign from a domestic corporation are not subject to income tax. 2. 3.3: P 50. ANSWER: D Income refers to earnings. 366 US 213). respectively of NIRC.500 1. is taxable to the payee at its fair discounted value. lawfully acquired. MULTIPLE CHOICE 1. ANSWER: C Payment for services rendered by promissory note which can be discounted. which contain the provisions on business taxation. Dividends received by a domestic corporation from a foreign corporation are subject to ordinary income tax. 331). express or implied of an obligation to repay and without restriction as to their imposition (James vs. whereas.PAGE 14 Value of promissory note Less: Amount already declared as income Taxable income.

000 5. 5. ANSWER: D The amount of indebtedness cancelled due to services rendered by the debtor is considered as compensation income. 1 2 ANSWER: C Tips Liability condoned after rendering service Taxable income 1 3 ANSWER: A Selling price (115 x 200) Less: Cost (100 x 200) Gain on sale 23. 9. the transaction has the effect of a payment of dividend (Sec. CTA Case No. 65). income. CIR. No. subject to income tax.PAGE 15 7. 1 1 ANSWER: B The money given to Lazaro is a remuneratory donation. irrespective of voluntary or involuntary action of the taxpayer in producing the income (Gutierrez vs. ANSWER: C The money value of accumulated leave credits not exceeding 10 days is not taxable to the employee. ANSWER: C The amount received by Ceidi and Ador fall within the ambit of “income from whatever source derived” because these are income not expressly excluded or exempted from the class of taxable income. Regs. The above phrase is so broad that it includes all income not expressly excluded or exempted from the class of taxable income.00 0 25.000 3.000 20.000 30. 2).000 It is deemed an . Travelling expenses received by an employee who was sent on a business trip are not taxable to the employees provided that these employees are required to liquidate said expenses. 1 0 ANSWER: D If a corporation to which a stockholder is indebted forgives the debt. Rev. Tips received by waitresses directly from customers which are not accounted for by the employer to the employer are considered taxable income. It is just like paying an employee by an amount equivalent to the services he had rendered to his employer-creditor. 8.

000 22.000 30 20 600 750 1.000 P 5.PAGE 16 Date Shares Cost per share 1-24-2008 200 P 100 2-05-2008 200 110 4-12-2008 (400 x 5%) 20 420 New cost per share (42.954 New Cost per Share P 95.046 3..000 ANSWER: C 200 210 Market value of shares .000 x 20%x10%) Dividend income 1 7 ANSWER: A Selling price (30 x 25) Less: Cost (5. 42.000 Selling price (115 x 200) Less: Cost (95.000/420) P 100 1 4 ANSWER: D 23.000/125) x 25 Loss Amount Number Shares 100 Dividend (100 x 25%) 25 Total 125 5. of Common shares Property dividend 1 6 ANSWER: D Market value of stocks dividends per share Stock dividend received by Rosa (1.Mina Company x No.000 ( 250) . of Shares Date Old New Cost 1 5 1-24-2008 P20.00 0 19.000 120 150 18.23 x 200) Gain on sale No.23 Total Cost P 20.000 -.

50 0 187.PAGE 17 1 8 ANSWER: D Sale of dividends (P60 x 40) Less: Cost 200 P55) 20 20%) 220 (11. irrespective of the voluntary or involuntary action of the taxpayer in producing the income.00 0 175.00 0 35. 2.40 0 EXERCISE 4–1.00 0 12.000/220) x P40 Gain on sale 1 9 ANSWER: A Total sale (P400.00 0 275..000) Less: Cost Book value of farm equipment Gain on sale Add: Other income Gross income EXERCISE 3 -7.00 0 2.0 00 -.000 400 (200 x (200 x 11. Thus. Yes. The phrase includes also proceeds of stolen or embezzled property or gains derived from illegal source. CROSSWORD PUZZLE 2 1 5 Y 2 % T 4 D W E 3 L V E .000 + 50.50 0 11.0 00 450. it shall be taxable to Javier 240. It is part of Javier’s gross income falling within the ambit of the “income from whatever source derived” which includes all income not expressly excluded or exempted from the class of taxable income. assuming that the Mellon Bank fails to recover the money.

the matter falls squarely within the “convenience-of-theemployer rule. c .Not taxable (de minimis benefit) 2 .Taxable .2 1 2 3 4 5 T F F F T 6 7 8 9 10 F T F T F 11 12 13 14 15 T F T T T EXERCISE 4-3 1 . Interest on corporate bonds .Taxable (income from whatever source derived) . b . It is very clear that the couple required her to stay in their house for their own benefit.Taxable Salary Tips Winnings in lotto Winnings in jueteng Money stolen from mother’s purse Rice subsidy of P325 per month . d . a .Taxable . f.” . e .PAGE 18 E R 5 M N K & F I N G 3 7 6 A R S L E S I M S C 8 L O 0 T H I S N G EXERCISE 4 .Not taxable (expressly exempt under the law) . g .Taxable (income from whatever source derived) . Hence. The value of the free meals and lodging is not taxable to Yaya.

000 50. since there is a condition that he should remain in the employ of the employer for at least ten years after graduation. The cost of the educational assistance extended by De la Salle University to Prof. it is neither subject to creditable withholding tax nor to fringe benefit tax. Therefore.” The rental value of the residential property is subject to fringe benefits tax which is subject to final tax. 4 .PAGE 19 3 . Romero. not part of the gross income. it should not be part of the gross compensation income of Prof.000 ceiling for “other benefits. The equivalent value of the living quarter is not taxable to Kulas under the convenience-of-the-employer rule. Romero is neither classified as managerial nor supervisory employee. The purpose of the piggery farm in providing Kulas a room inside the premises is for the convenience of Habang Bata Pa Piggery Farm. The excess of the laundry allowance in the amount of P450 (P750300) is part of gross compensation income if such excess is beyond the P30.00 0 16. the same shall be deducted from the gross income of the school. the expenditure shall be considered as granted for the convenience of the employer’s trade or business. Therefore. whether the granting of the benefit is extended through a qualifying/competitive examination or not. The cost of the tuition fee is attributable to the operation and conduct of business of the employer. ANSWER: C Fringe benefit expense Fringe benefit tax expense Deductible expense 34. Thus.000 . The free parking and courtesy discounts are subject to fringe benefit tax considering that Kareen Leon is a managerial employee of UB Corporation. However. EXERCISE 4 – 4 1. he is still classified as a rank-and-file employee. 5 No.000 a month fall under the “de minimis benefits” which are exempt from income tax. The rice subsidy of P1. 6 . . Ferdinand Romero is supposed to be treated as part of the teacher’s gross compensation income considering that Prof. The rice allowance is considered as a de minimis benefit which is exempt from income tax. Therefore.

Accounting clerks. the excess maybe also be exempt if forming part of the other benefits not exceeding P30. EXERCISE 4-5 1. ANSWER: B The one sack of rice is not subject to fringe benefit tax on the first P1. The employer’s share in the GSIS contribution is not subject to income tax.000 3. is not exempt from the payment of fringe benefit tax. ANSWER: B Fees in civic club Life insurance premium Monetary value Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 5. the fringe benefit tax must have been given to him. 4.0 00 68% 50.000 32% 9.840 .000 12. ANSWER: B To rank and file employees: Christmas bonus Loan benefits [96.000.000 Fringe benefit expense Divide by Grossed-up monetary value 3. ANSWER: A The fringe benefit tax is imposed only if the fringe benefit is given to managerial or to supervisory employees. The equivalent value of free lodging given to a driver of an obstetrician falls under convenience of the employer rule which is not subject to fringe benefit tax.000 15.000 per employee per month.600 2. Only the company’s general manager is a managerial or supervisory employee.840 16.PAGE 20 2. A corporation.000 63. Therefore. though exempt from tax.400 68% 30.400 20. ANSWER: C 34.000 x (12%-8%) Medical allowance Uniform allowance To the supervisor: 32. janitors and the security guards are rank-and-file employees.

400 3.000 27.a.m.000 / employee 12.000 / employee 32.000 p.000 3. allowances furnished for and as a necessary incident to the property performance of his duties are not taxable because they fall under the “convenience of the employer rule.000 63. 3. ANSWER: A EXERCISE 4-6 4.PAGE 21 Christmas bonus Fees in civic club Life insurance premium Uniform allowance Fringe benefit expense Fringe benefit tax expense Total deductions 3.” ANSWER: C Tony’s gross income is P9.) Medical allowance (max: 125 per employee 12.240 9. ANSWER: C As a general rule. On the other hand. ANSWER: D 4.a. free meals and lodging furnished by the employer to the employees are taxable to the latter.000 5.000 1.500 because his employer’s residence is not the place of business where the employer conduct a significant portion of his business.000 p. ANSWER: D The free meals are given by the employer to provide sanitary meals . 2.84 0 Rank and file: Christmas bonus (max: P 5.) Uniform allowance (max: 3.400 91.60 0 100. However.000 15.) Supervisor: Christmas bonus Uniform allowance Total de minimis benefits 4.000 p. Bert’s gross income should not include the monthly value of his free meals and living quarters because the provision enables Cristy to avail of the services of Bert at her convenience (RAMO 1-87).

The free meals and lodging given to Col. General is specifically exempt from fringe benefits tax. ANSWER: D Jaguar is a rank-and-file employee. 8. 4. ANSWER: D The use of aircraft owned and maintained by the employer shall be treated as business use and not subject to fringe benefits tax. the benefits are taxable to them and are includible in the computation of their respective gross income. However.PAGE 22 to its employees. it is also furnished for the convenience of the employer (the Philippine Government) so that the military officer shall be readily available when his services are required. Moreover. 7. apparent that the allowances furnished are in the form of fringe benefits. 9. All fringe benefits given by his employer are not subject to fringe benefits tax. ANSWER: D The grossed-up monetary value includes the monetary value of the fringe benefit received by the employee from his employer and the amount of fringe benefits tax due thereon which was paid by the employer. while the free lodging are provided because they do not want the workers to find difficulty in looking for boarding houses. The uniform allowance falls under de minimis benefits which are exempt from the fringe benefits tax. since they are given to ordinary workers which fall within the classification of rank-and-file employees. However. 5. ANSWER: B Fringe benefits given to rank and file employees are exempt from fringe benefits tax. there are benefits which are subject to regular income tax depending upon the nature of benefits the employees have received from their employer. 6. ANSWER: B De minimis benefits are of relatively small value that they are exempt from the payment of fringe benefits tax and ordinary income tax. ANSWER: D A residential property owned by the employer and assigned to an . These benefits are obviously furnished for the benefit of the employees and not to the advantage of the employer. It is therefore.

nonresident aliens not engaged in trade or business are subject to fringe benefits tax at a rate of 25% of the grossed-up monetary value.00 0 2. ANSWER: D Cost of first class ticket Rate subject to fringe benefit tax Fringe benefit Exchange value in Philippine currency Fringe benefit subject to fringe benefit tax Divide by Grossed-up monetary value Rate $ 2.000.PAGE 23 employer for use as his residence is subject to fringe benefits tax based on the 5% of the fair market value of the land and improvements. ANSWER: A Monthly salary Free meals and living quarters (P1. 10 ANSWER: D .500 .000) Monthly gross compensation income 3. EXERCISE 4-7 1. the excess of P7. 47 32 4.941 The medical benefits is a de minimis benefit up to the ceiling of P10.50 0 68% 15.500 6. 2. ANSWER: B Salary 4.500 + 1.426.500 is hereby presumed to be included as part of Other Benefits.250 68% 47.500 30 % 750 43 32.441 32% 4.000 4. ANSWER: C Purchase of groceries Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 10. Unlike other individual taxpayers.

176. ANSWER: C Interest at benchmark rate (P100. ANSWER: D Monetary value (P800.000 68% 2.000 x 9% x 8/12) Interest foregone/value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 8.00 0 68% 23. ANSWER: B Monetary value (P10.000 x 12% x 8/12) Less: Interest at special rate (P100.352 32% 2.00 0 68% 117.250 .64 7 32% 37.000 x 50%) Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 7.353 8.18 16. 47 80.000/12) % 15.1 8 32% 941.00 0 68% 7.000) Membership fees and dues (P75.PAGE 24 Fringe benefit tax 5. ANSWER: D Salary of driver and housemaid (P4.529 6.00 0 6.647 5.941.000 2.000/5) x 50% Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 6.529 32% 7.000 + 2.000 6. ANSWER: A Total expenses incurred Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 9.

000 68% 250. ANSWER: A Fair market value (higher) Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 11.4 71 1.4 71 32 % 1.000 7.200 Fringe benefit to supervisory employees Divide by Grossed-up monetary value Rate Fringe benefit tax 170.000 . ANSWER: D Monetary value (3.176.70 0 68% 2.765 2.PAGE 25 Monetary value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 10.00 0 68 % 3.400 3.676.000 32% 80.500. ANSWER: D 12.250 68% 18.015 32% 5.500 32% 800 3.400 x 50%) Divide by Grossed-up monetary value Rate Fringe benefit tax on rental Add: Monthly rental Fringe benefit to clerk Deductible expense 12.

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