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Solution Manual

Income Taxation
(2009 Edition)
Chapter 1
True or False 1-1
1. True
2. False. Taxation covers person, properties, rights and
transactions.
3. False.
Person in taxation includes the concept of
partnership, corporation, estate and trust.
4. True
5. False. Taxation as a legislative process is under the
power of the legislative body, the Congress.
6. False. Taxation is the primary source of government
revenue. Usually, the government resorts to borrowing
if taxes collected are not sufficient to defray its
budgetary requirements.
7. True
8. True
9. False. Basically, taxes imposed are based on the ability
of the taxpayer to pay.
10. False. It is the primary obligation of the state to
protect all the constituents regardless of whether they
pay or not their tax liabilities.
True or False 1-2
1. True
2. True
3. True
4. True
5. True
1

6. False. The President cannot delegate the power of


taxation, since taxation is not vested in the President.
Taxation is vested in the legislative body.
7. False. Taxation cannot be separated from the state.
The moment a state exists, taxation also exists.
8. False. The making of tax law is undertaken ahead of
the collection of taxes.
9. False. Levying refers to the making of tax laws.
10. False. Only the legislative body, the Congress, can
grant tax exemptions.
True or False 1-3
1. False. It is the legislative branch of the government
that is vested with the power of taxation.
2. False. The power of taxation is restricted by inherent
and constitutional limitations.
3. False.
Tax assessment is the valuation and
determination of the amount of tax. The passage of
taxation is called levying or imposition of tax.
4. False. The three inherent powers can be and have
been delegated by the Legislative to the Executive
Branch.
5. True
6. True
7. False. The two kinds of double taxation are called
indirect double taxation and direct double taxation.
8. False.
Tax avoidance is a legal way of avoiding
payment of taxes.
9. False. Income tax cannot be classified as ad valorem,
since the amount is not fixed and does not rely upon
an independent appraiser. It is properly classified as
graduated.
10. False. The Constitution does not expressly mention
double taxation.
However, imposition of double
2

taxation violates the principle of uniformity; hence,


considered unconstitutional.
True or False 1-4
1. False. Taxes are broader than customer duties.
2. False. The power to grant tax exemption is vested in
the legislative branch of the government.
3. True
4. True
5. False. The idea that the tax rate and not the tax
payment shall be the same is the tenet of uniformity
and equity in taxation.
6. True
7. True
8. False. Although taxation is the strongest among the
three inherent powers of the State, it is subject,
however, to inherent and Constitutional limitations.
9. False. In forward tax shifting, the price of goods or
services keeps on increasing because of tax added.
10. False. Special assessment is imposed and collected
by the local government units. It is a local tax.
True or False 1-5
1. False. Not all government units exercise the power of
taxation. Only the Congress exercises the power of
taxation.
2. True
3. True
4. True
5. True
6. False. It is true that taxation cannot be separated from
the state; however, taxation is not absolute.
7. True
3

8. False. Tax assessment is the valuation of the property


and the determination of the amount of tax liabilities.
Enactment of tax laws is called levying or imposition of
tax.
9. True
10. False. Only non-payment of the poll tax is not
subject to imprisonment. Non-payment of other types
of tax is subject to criminal liability or sanction.
True or False 1-6
1. False. The power of taxation is comprehensive but
never absolute.
2. True
3. True
4. True
5. False. The three inherent powers of the state are not
dependent upon the Constitution.
6. True
7. True
8. True
9. False. The subject to be taxed and the amount of tax
are within the discretion of the Legislative Branch and
cannot be delegated. What can be delegated is the
administrative aspect, the assessment and collection of
taxes.
10. False. The Bureau of Internal Revenue administers
the taxes listed in the National Internal Revenue Code.
True or False 1-7
1. False. Tax liability is non-transferable, while debt is
transferable.
2. True
3. True
4. True
4

5. True
6. False. Real property tax is a local tax and administered
by the local government units.
7. False. It is properly classified as specific tax and not
ad valorem tax.
8. False. Levy is the taking of real property to enforce
collection of taxes. The taking of personal property is
called distraint.
9. False. The concept of proportionate in character is that
the amount of tax collected is based on the ability of
the taxpayer to pay.
It does not imply that the
taxpayer without money is exempted from payment of
tax.
10. False. The situs of occupation is the place where the
occupation is performed.
True of False 1-8
1. False. The Supreme Court, not the Congress, decides
on the legality of tax laws.
The decision of the
Supreme Court is final and executory.
2. False. The other term for tax minimization is tax
avoidance.
3. False. The Bureau of Internal Revenue is under the
Department of Finance.
4. False. The Philippine tax system is either graduated or
proportional. The regressive tax system has not yet
been adopted in the Philippines.
5. False. Non-payment of the poll tax is not subject to
imprisonment as one of the Constitutional limitations
and not one of the inherent limitations.
6. True
7. True
8. False. The power of eminent domain is the taking of
private property with just compensation for public
5

purpose. The two acts mentioned are under the police


power.
9. False. Collection of tax liabilities is the third stage of
the taxation system. The payment of tax due is the
stage that is incidental to the whole taxation system.
10. True
True or False 1-9
1. True
2. False. Tax cases involving more than P1,000,000 is
handled by the Court of Tax Appeals.
3. True
4. False. When the President vetoes certain items in the
bill passed by the Congress, the veto exercise is called
item veto. When the President objects to the whole
bill, it is called pocket veto.
5. False. Tax exemption is non-transferable.
6. False. What is exempted by the Constitution is the
property tax on religious or educational institutions.
Their property, however, is subject to other types of
tax.
7. False. The concept of tax exemption is privilege given
to certain types of taxpayer but not to reduce the tax
liability.
8. True
9. False. Late payment of the poll tax is subject to
surcharge or interest.
10. False. The Philippine Constitution does not expressly
prohibit double taxation. However, tax laws that are
not uniform and equitable are unconstitutional.
True or False 1-10

1. False.
Taxation imposes contributions not only on
individuals but also on properties, rights and
transactions.
2. False. The legislative body of the government and not
the President undertakes the imposition of taxation.
3. False. Taxation is a legislative exercise undertaken by
the Congress.
4. False. Taxation even not provided expressly in the
Philippine Constitution can be imposed. It is an
inherent power of the state.
5. False. It is true that taxation is the strongest among
the three inherent powers of the state, but it is subject
to inherent and Constitutional limitations; hence, not
absolute.
6. False.
It is only the legislative branch of the
government that can delegate the three inherent
powers of the State.
7. False. Uniformity and equity in taxation implies that
the tax rates applied, and not the amount of tax to be
paid, should be the same to all taxpayers belonging
under the same class.
8. True
9. True
10. True
True or False 1-11
1. True
2. True
3. False. The principle of fiscal adequacy presupposes
that taxes collected are sufficient to meet the fiscal
requirements of the government.
4. False. Taxation is the lifeblood of the government, but
only the legislative body can exercise taxation. Not all
government units can exercise the power of taxation.
7

The administrative aspect of taxation has been


delegated by the Legislative to the Executive Branch.
5. False. Collection of taxes through withholding taxes is
a concrete example of the principle of administrative
feasibility.
6. False. The doctrine of escape from taxation is intended
to reduce the amount of tax liability
7. False. Tax on fermented liquor is classified as specific
tax, since it is based on weight (volume) of the
product.
8. False. Tax evasion is an unlawful mode of reducing tax
liability. The process of transferring the tax burden
from one taxpayer to another is called tax shifting.
9. True
10. True

True or False 1-12


1. True
2. True
3. False.
Toll is imposed by private entities, either
individual or corporate, to cover maintenance and
operating expenditures.
4. True
5. False. Proportional tax classification is based on a fixed
percentage or rate where the subject of taxation
belongs.
Estate tax falls under the graduated
classification.
6. False.
Collection is a stage where government
agencies are tasked to demand the tax liabilities.
Taxpayers act of meeting their tax liabilities is called
payment stage.
7. True
8

8. False. The concept of equity in taxation is based on


the premise that taxes collected are dependent upon
the ability of the taxpayer to pay.
9. False. The basic premise of international comity is that
all states are treated alike. It is the principle of privity
of relationship that the state continues to impose
taxation on its subjects even outside its territorial
jurisdiction.
10. False. Prospective application means that tax laws
are operative after the approval of the President of the
tax bill.
11. True
12. True
13. True
14. True
15. False.
Tax laws can be retroactive if it is the
intention of the Legislative Branch that it will be
effective retroactively. Otherwise, the effect shall be
prospective.
Multiple Choice 1-1
Multiple Choice 1-2
Multiple Choice 1-3
1. D
2. B
3. C
4. A
5. A

6. B
7. C
8. A
9. B
10.C

1.
2.
3.
4.
5.

C
D
C
C
C

6. B
7. A
8. C
9. D
10. D

1.
2.
3.
4.
5.

A
C
B
B
C

Multiple Choice 1-4


Multiple
Multiple Choice 1-6
1. D
2. A
3. B

6. C
7. A
8. B

1. C
2. D
3. B

6. C
7. C
8. B
9

1. D
2. A
3. A

6. B
7. A
8. C
9. A
10. B
Choice
6. C
7. B
8. A

1-5

4. D
5. C

9. A
10.C

4. A
5. B

9. C
10.C

4. B
5. B

9. A
10.D

Multiple Choice 1-7 Multiple Choice 1-8


1. D
2. A
3. C
4. A
5. D

6. B
7. A
8. B
9. C
10.C

1.
2.
3.
4.
5.

True or False 2-1

B
D
A
C
C

6. B
7. C
8. A
9. D
10. B
Chapter 2

1. False. The stages or aspects of taxation are classified


as legislative (levying) and administrative (assessment
and collection).
2. False. Levying of tax is legislative in character, while
assessment is administrative in nature.
3. True
4. True
5. False.
The value of the object after assessment
includes all penalties and charges.
6. True
7. False.
Tax laws approved by the President are
implemented by various government agencies.
8. True
9. False. Tax assessment is undertaken just to determine
the amount of tax burden. In most instances, the
taxpayers themselves determine the amount of tax
liability.
10. True

10

True or False 2-2


1. True
2. True
3. True
4. False. Four Commissioners administer the BIR.
5. False. Tax assessment is not anymore required when a
tax deficiency has been determined because of
fraudulent return.
6. True
7. False. Tax deficiency means that the amount of tax
paid is less than the amount of tax due and payable.
8. True
9. False.
The Commissioner of BIR may delegate
assessment to his authorized representative, but not
the final assessment.
10. False. Formal notice of assessment should be in
writing and should state all the facts.
True or False 2-3
1. False. The three-year period shall start on the date of
filing if the correct tax return is filed after the last day
of filing.
2. True
3. False. Fraud assessment arises from fraudulent return
filed by the taxpayer.
4. False. Assessment should be made within the
prescribed period; otherwise, the findings are not valid.
5. True
6. False. The taxpayer is given only 15 days to respond
on the findings for informal conference.
7. True
8. False.
The taxpayer has 15 days to contest the
findings indicated in Preliminary Notice of Assessment.
9. True
11

10. True
True or False 2-4
1. False. Tax assessment is not required if tax deficiency
is due to mathematical error.
2. False. The taxpayer is given 30 days to contest the
findings in the formal notice of assessment.
3. False.
The taxpayer shall submit all supporting
documents within 60 days after protest.
4. False. Upon receipt of notice of the BIR decision, the
taxpayer has 30 days to submit his protest to the Court
of Tax Appeal.
5. False.
Collection is an administrative aspect of
taxation.
6. False. The government has the administrative and
judicial remedies to enforce collection of taxes.
7. True
8. True
9. False. Actual distraint is the taking of the physical
properties. Prohibition to use the property is termed
as constructive distraint.
10. True
True or False 2-5
1. False.
Stocks and bonds can be distraint
constructively.
2. False.
The Revenue District Officer shall administer
distraint on tax liabilities less than P1,000,000.
3. False.
The officer administering the distraint shall
submit a report within two days to the BIR
Commissioner.
4. False.
Levy is the taking of real properties to effect
payment of taxes.
12

5. False. The BIR regularly conducts tax assessment to


check the correctness of tax returns.
6. True
7. True
8. False.
Again, the BIR is regularly taking preassessment.
9. True
10. True
True or False 2-6
1. False.
The taxpayer has 30 days to file an
administrative protest on the assessment.
2. False. The prescribed period of assessment for failure
to file a return is 10 years.
3. True
4. True
5. True
6. False. The government has administrative and judicial
remedies to enforce collection of taxes.
7. False. Tax refund check or warrant has five years to
remain outstanding from the date of delivery.
8. False. Distraint is the seizure of personal properties.
9. False.
The BIR Commissioner or his authorized
representative executes distraint if the amount of tax
liability is more than P1,000,000.
10. True
True or False 2-7
1. False.
Levy generally is undertaken if the personal
properties of the taxpayer are not enough to cover the
total amount of tax liability.
2. True
3. False. Distraint and levy cannot be administered if the
amount of tax deficiency is not more than P100.
13

4. True
5. True
6. True
7. False. The taxpayer has to file an appeal to the Court
of Appeals (CA) when the Court of Tax Appeals (CTA)
makes an unfavorable decision.
8. True
9. True
10. True
True or False 2-8
1. False. Formal notice of assessment may be sent by
personal delivery. The person receiving it, however,
should acknowledge the notice.
2. True
3. False. The taxpayer has 30 days to appeal to the Court
of Tax Appeals if the decision of the BIR Commissioner
is unfavorable.
4. False. Basically, enforcement of collection of taxes is
done administratively.
5. True
6. False.
Intangible personal properties like stocks and
credits are subject to distraint using the constructive
system.
7. False. Notice of levy may be issued simultaneously
with the notice of distraint.
8. False. Levy or distraint is administered if deficiency tax
assessment involves more than P100.
9. True
10. True
True or False 2-9
1. False. The BIR has a Commissioner and four Deputy
Commissioners.
14

2. False.
The Department of Finance is the primary
government agency responsible for tax administration
and supervision.
3. True
4. False. Taxpayers do not have to use simplified books if
quarterly sales receipts or earnings do not exceed
P50.000.
5. False. Willful neglect of filing tax return is subject to
50% surcharge.
6. True
7. True
8. True
9. True
10. True
Multiple Choice 2-1
Multiple Choice 2-2
Multiple Choice 2-3
1. D
2. B
3. B
4. B
5. D

6. D
7. A
8. A
9 D
10.D

1. C
2. A
3. C
4. C
5. D

6. C
7. D
8. B
9. B
10.A

Multiple Choice 2-4


1. B
2. D
3. D
4. D
5. D

6. A
7. A
8. C
9. D
10. C

11.
12.
13.
14.
15.

A
A
C
C
B
Chapter 3

True or False 3-1

15

1. B
2. C
3. C
4. A
5. D

6. B
7. D
8. A
9. B
10.B

1. False. The resident alien should have an income within


the Philippines and the dependents should be staying
with the taxpayer in the Philippines.
2. False. The tax limit is P250,000 gross taxable income
in order that a taxpayer can deduct premium on HHIP.
3. True
4. False. Spouses who separate during the year with a
child under the custody of either or both of them are
already classified as head of the family. However,
under RA 9504, the basic personal exemption is
P50,000 regardless of the filing status.
5. False. A non-resident alien engaged or not in business
or trade in the Philippines is not allowed the additional
personal exemption.
6. False. The taxpayer is still classified as married. The
separation is not legal.
7. False. The taxpayer is classified as head of the family
but cannot claim the P25,000 additional exemption,
since the dependent is a brother.
8. True
9. False. The husband ordinarily claims the additional
personal exemption.
10. False. Special individuals are taxable on their gross
income; hence, no deductions are allowed.
True or False 3-2
1. False.
The principle of reciprocity is one of the
requisites for the non-resident alien to claim the basic
personal exemption.
2. True
3. False. The allowable amount shall be the amount
allowed in the country of NRA-EBTP or what Philippine
law allows, whichever is lower.

16

4. False. Non-resident aliens either engaged or not in


business are not allowed to claim premium on health
and hospitalization.
5. False.
Resident aliens with income within the
Philippines only are entitled to the basic personal
exemption.
6. True
7. False. The husband should formally waive his right by
executing a sworn statement.
8. False. The wife cannot claim the additional exemption
if his husband who is a non-resident citizen has an
income within the Philippines.
9. True
10. True
True or False 3-3
1. False. The term individual taxpayer refers only to
natural or human individual. A juridical person like a
corporation cannot be classified as individual taxpayer.
2. False. A natural born citizen does not have to perform
any act to acquire Philippine citizenship.
3. True
4. True
5. False. A Filipino citizen who stays more than 183 days
outside the Philippines is classified as non-resident
citizen.
6. False. The waiver executed by the husband on the
additional exemption once revoked shall take effect at
the start of the succeeding year.
7. True
8. False.
A Filipino citizen employed in an offshore
banking unit is classified as special alien and taxable on
his gross income.
9. False. Resident citizens sourcing income purely from
foreign sources cannot claim additional exemption.
17

10. False.
The additional personal exemption is for
qualified dependent children only.
True or False 3-4
1. False. Living with the taxpayer does not necessarily
mean that the dependent should be under the same
roof with the taxpayer.
2. False. The law grants personal exemptions based on
the status of the taxpayer, and the level of income has
nothing to do with it.
3. False. An illegitimate child who meets all the requisites
of a dependent is allowed additional exemption.
4. True
5. False. If the combined gross income of the spouses is
more than P250,000, the HHIP contribution cannot be
deducted.
6. True
7. False.
A resident alien is entitled to additional
exemption only when his dependents are living with
him in the Philippines.
8. False. The amount of claim for HHIP is the actual
contribution of P2,400, whichever is lower, provided the
gross taxable income is not more than P250,000.
9. True
10. True
True or False 3-5
1. False.
NRC is taxable on income from within the
Philippines.
2. True
3. False.
A child legally adopted and meeting the
requisites of a dependent, qualifies for additional
exemption.
18

4. False. The taxpayer is classified as single. He is


supporting not his own parents or sister.
5. False. The taxpayer may still claim the additional
exemption, since the law assumes that the child
changed his status at the close of the year.
6. True
7. False. The status of the taxpayer will only be elevated
to the head of the family.
8. True
9. True
10. False.
Only one of the spouses can claim the
additional exemption and the husband is ordinarily the
claimant.
Multiple choice 3-1
Multiple Choice 3-2
Multiple Choice 3-3
1. C
2. A
3. D
4. C
5. C

6. C
7. A
8. B
9. C
10.B

1. C
2. A
3. C
4. D
5. B

6. B
7. D
8. D
9. B
10. B

1. NRC 6. NRC
2. NRC 7. RC
3. RA
8. NRA-EBT
4. NRC 9. SI
5. NRA-EBT10.NRC

Multiple Choice 3-4


1. C

2. C

3. A

4. C

5. C

6. A

Exercise 3-1
Basic personal exemption (H/F)
Additional personal exemption
(recognized child)
HHIP (actual, P4,000; limit, P2,400)
Total allowable deduction
Exercise 3-2
19

50,000
25,000
2,400
77,400
=====

Taxpayer
Basic personal exemption
(married)
50,000
Additional exemption
(legally adopted child)
25,000
HHIP (actual, 2,300; limit, 2,400)
2,300
Total allowable deduction
77,300
=====
Exercise 3-3
Basic personal exemption
(married)
50,000
Additional exemption (P25,000 x 2) 50,000
HHIP
2,400
Total allowable deduction
102,400
======
Exercise 3-4
Basic personal exemption (single) 50,000
Additional personal exemption
HHIP
(gross income exceeded 250,000)
Total allowable deduction
50,000
=====
Exercise 3-5
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 3) 75,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
125,000
======
Exercise 3-6
Basic personal exemption
20

Spouse
50,000
50,000
=====

(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
150,000
======
Exercise 3-7
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
150,000
======
Exercise 3-8
No exemption allowed, since the taxpayer is classified as
non-resident
citizen
with
income
outside
the
Philippines.
Exercise 3-9
Basic personal exemption
(married)
50,000
Additional exemption
HHIP
(gross income exceeded 250,000)
Total allowable deduction
50,000
=====
Exercise 3-10
Basic personal exemption
(married)
50,000
Additional exemption (3 x P25,000) 75,000
HHIP
21

(gross income exceeded 250,000)


Total allowable deduction
125,000
======
Exercise 3-11
Basic personal exemption
(married)
50,000
Additional exemption
HHIP
(gross income exceeded 250,000)
Total allowable deduction
50,000
=====
Exercise 3-12
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP no contribution;
gross income exceeded limit
Total allowable deduction
100,000
======
Exercise 3-13
Basic personal exemption
(married)
50,000
Additional exemption (3 x P25,000) 75,000
HHIP no contribution;
gross income exceeded limit
Total allowable deduction
125,000
======
Exercise 3-14
Basic personal exemption (single) 50,000
Additional exemption
HHIP no contribution
22

Total allowable deduction

50,000
=====

Exercise 3-15

The taxpayer is classified a non-resident citizen with


income outside the Philippines; hence, no allowable
personal deductions.
Exercise 3-16
The taxpayer is classified as non-resident alien not
engaged in business; hence, no allowable personal
deductions.
Exercise 3-17
No allowable personal exemption, since the taxpayer is
classified as non-resident alien without reciprocity.
Exercise 3-18
The taxpayer is classified as special individual; hence, no
allowable personal deductions.
Exercise 3-19
No deductions allowed, since the taxpayer does not have
income from within the Philippines. The taxpayer is
classified as resident alien.
Exercise 3-20
The taxpayer is classified as non-resident alien not
engaged in business in the Philippines; hence, no
deductions allowed.
23

Exercise 3-21
No allowable deductions for personal exemptions.
Exercise 3-22
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP no contribution
Total allowable deduction
100,000
======
Exercise 3-23
Basic personal exemption (H/F)
50,000
Additional exemption (3 x P25,000) 75,000
HHIP Gross income
exceeded the limit
Total allowable deduction
125,000
======
Exercise 3-24
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP Gross income
exceeded the limit
Total allowable deduction
100,000
======
Exercise 3-25
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP Gross income
24

exceeded the limit


Total allowable deduction

100,000
======

Exercise 3-26
Basic personal exemption
(married)
50,000
Additional exemption (1 x P25,000)25,000
HHIP no contribution
Total allowable deduction
75,000
=====
Exercise 3-27
Husband

Basic personal exemption


(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP no contribution
Total allowable deduction
100,000
======
Problem 3-1
Taxpayer
Basic personal exemption
(married)
50,000
Additional exemptions
Another legitimate son
25,000
Illegitimate son of the wife
25,000
Legitimate daughter
25,000
HHIP
Total allowable deductions
125,000
=====
Problem 3-2
Basic personal exemption
(married)
Additional exemption

50,000
25,000
25

Spouse
50,000
50,000
=====
Spouse
50,000

50,000
=====

HHIP
Total allowable deductions

2,400
77,400
=====

Problem 3-3
Basic personal exemption (H/F)
50,000
Additional exemption (25,000 x 2) 50,000
HHIP
Total allowable deductions
100,000
======
Problem 3-4
Basic personal exemption (H/F)
50,000
Additional exemption (25,000 x 2) 50,000
Total personal exemptions
100,000
======
Problem 3-5
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
Total personal exemptions
150,000
======
Problem 3-6
Husband Wife
Basic personal exemption
(married)
50,000 50,000
Additional exemption
HHIP
Total personal exemptions
50,000 50,000
===== =====
Problem 3-7
Basic personal exemption
26

(married)
50,000
Additional exemption (25,000 x 1) 25,000
HHIP
2,400
Total personal exemptions
77,400
=====
Problem 3-8
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
Total personal exemptions
150,000
======
Problem 3-9
Basic personal exemption (single) 50,000
Additional exemption
HHIP
Total personal exemptions
50,000
=====
Problem 3-10
Basic personal exemption
(married)
50,000
Additional exemption (P25,000 x 1)25,000
HHIP
Total personal exemptions
75,000
=====
Problem 3-11
Basic personal exemption (single) 50,000
Additional exemption
HHIP
Total personal exemptions
50,000
=====
Problem 3-12
27

Husband

Wife

Basic personal exemption


(married)
50,000
50,000
Additional exemption (2 x 25,000) 50,000
HHIP
Total personal exemptions
100,000
50,000
====== =====
Problem 3-13
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 1) 25,000
HHIP
Total personal exemptions
75,000
=====
Problem 3-14
Husband Wife
Basic personal exemption
(married)
50,000
50,000
Additional exemption (3 x 25,000) 25,000
50,000
HHIP
Total personal exemptions
75,000 100,000
===== ======
Problem 3-15
Husband Wife
Basic personal exemption
(married)
50,000 50,000
Additional exemption (4 x 25,000) 75,000 25,000
HHIP
Total personal exemptions
100,000 75,000
===== =====
Chapter 4

28

True or False 4-1


1. True
2. False. An income is non-taxable if it is expressly
excluded by the Tax Code or any other special laws.
3. False. The law provides which income is non-taxable.
4. True
5. True
6. False. The presence of employer-employee relationship
is the primary factor whether an income is
compensation income or not.
7. False. Not all payments, like de minimis benefits, are
taxable compensation income.
8. False. The point of reckoning is at the time when
service has been rendered and not at the time of
payment.
9. False. Allowances, whether fixed or variable, are not
taxable if they do form part of the basic salary, subject
to liquidation or expressly provided by law to be nontaxable.
10. True
True or False 4-2
1. False. Those allowances are non-taxable as provided
by the Tax Code up to P30,000 for both public and
private employees.
2. False. The amount of hazard pay will be included in
the gross taxable compensation income. However, if
the recipient of hazard pay is classified as minimum
wage earner, the amount provided for hazard pay is
non-taxable.
3. True
4. False. Retirement pay from GSIS or SSS is expressly
provided to be tax-exempt. It is not a gift from the
government.
29

5. False.
6. True
7. False.
Only fringe benefits, except de minimis,
received by supervisory or managerial employees are
subject to fringe benefit tax.
8. False.
Meal allowance and lodging provided to
employees are included in the gross taxable income,
except if those are for the benefit of the employer.
9. True
10. True
True or False 4-3
1. False. The tax base is the fair market value of the
property at the time of payment.
2. True
3. True
4. False. The value of the notes issued, as payment of
compensation, is its fair market value.
5. False.
Income subject to final tax shall not be
included in the computation of gross taxable income
subject to basic tax.
6. False. Net sales are computed by deducting sales
returns and discounts from gross sales, while gross
income is computed by deducting cost of sales from
net sales.
7. True
8. True
9. False. Passive income arises when the taxpayer does
not exert effort to earn it.
10. False. Notes as payment of compensation are based
on their fair market value.
True or False 4-4
1. True
30

2. True
3. False. The tax base under the outright method of
recognizing income for leasehold improvement is the
fair market value of the improvement at the time of its
completion.
4. True
5. False Stock dividend is basically not taxable.
6. True
7. False. Prizes less than P10,000 are included in the
gross taxable income; hence, subject to basic tax.
8. True
9. False. The cash surrender value of a life insurance
policy not exceeding the premiums paid is not taxable.
10. False. All the items are excluded by law from gross
taxable income.
True or False 4-5
1. True
2. True
3. True
4. True
5. False. The gain is tax-exempt or excluded from gross
taxable income.
6. True
7. True
8. True
9. False.
Tax refund of Philippine income tax is not
taxable.
10. False. Resident citizens are taxable on income within
and outside the Philippines; hence, unidentified income
does not have to be prorated as to source.
Multiple Choice 4-1
Multiple Choice 4-2
Multiple Choice 4-3
31

1. D
6. C
2. A
7. D
3. B
8. D
4. D
9. D
5. D
10. D
Multiple Choice
1. D
2. B
3. C
4. D
5. C

1. D
2. A
3. A
4. B
5. D
4-4

6. A
7. C
8. A
9. C
10. B

1. C
2. A
3. A
4. A
5. B

6. D
7. C
8. B
9. C
10.A

6. A
7. C
8. C
9. A
10.A

Exercise 4-1 C
Basic salary (45,000 x 12)
540,000
Representation allowance (10,000 x 12) 120,000
Commission (6,300,000 250,000) x 5% 302,500
13th month pay
(45,000 x 120%) 30,000
24,000
Gross annual taxable
compensation income
986,500
======
Exercise 4-2 C
Gross taxable income
986,500
Less: Basic personal exemption (M)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
- 150,000
Net taxable income
836,500
======
Exercise 4-3 B
Gross taxable income
Less: Basic personal
exemption (H/F)

986,500
50,000
32

Additional exemption
HHIP
Net taxable income

50,000
936,500
======

Exercise 4-4 D
Basic salary
Fair value of motor vehicle
Notes receivable
(400,000 x .71178)
Christmas bonus
(50,000 30,000)
Gross taxable
compensation income

850,000
600,000
284,712
20,000
1,754,712
=======

Exercise 4-5 B
Gross taxable income
Less: Basic personal
exemption (H/F)
Additional exemption
HHIP
Net taxable income
Exercise 4-6 A

1,754,712
50,000
25,000
- 75,000
1,679,712
=======

Annual salary
420,000
Debt cancelled
80,000
Notes receivable
50,000
13th month pay
(420,000/12) + 40,000 30,000
45,000
Gross taxable
compensation income
595,000
======
Exercise 4-7 A
33

Gross compensation income


595,000
Less: Basic personal exemption (M)
50,000
Additional exemption (25,000 x 3)
75,000
HHIP
-125,000
Net taxable income
539,000
======
Exercise 4-8 A
Annual salary
144,000
Cost of living allowance (2,500 x 12)
30,000
Retirement pay from employer
(less than 10 years)
45,000
Gross compensation income
219,000
======
Exercise 4-9 A
Gross compensation income
Less: Basic personal exemption (H/F)
Additional exemption
HHIP
2,400
Net taxable compensation income

219,000
50,000
50,000
102,400
116,600
======

Exercise 4-10 C
Net sales (5,800,000 150,000)
Less: Cost of sales
Gross taxable income

5,650,000
3,470,000
2,180,000
=======

Exercise 4-11 D
Net sales
Less: Cost of sales
Gross taxable income

5,650,000
3,365,000
2,285,000
34

=======
Exercise 4-12 B
Exercise 4-13 A

Cash basis

Cash receipts
Animal/livestock
1,200,000
Cash crop
900,000
Farm equipment
200,000
Rent agricultural lan 150,000
Total
2,450,000
Less: Cost of livestock
700,000
Cost of crop raised
500,000
Book value tractor 300,000
Gross income
before inventory
950,000
Add: Ending inventory
Total
950,000
Less: Beginning
inventory
Gross taxable income
950,000
=======

Accrual basis
1,200,000
900,000
200,000
150,000
2,450,000
700,000
500,000
300,000
950,000
500,000
1,450,000
700,000
750,000
=======

Exercise 4-14 B
Exercise 4-15 C
Exercise 4-16 A (Income will be recognized only upon
completion, that is on the 3rd year.)
Year 1
Contract price
25,000,000
Percentage of
completion
45%
Contract earned
11,250,000
Less: Cost incurred
10,000,000
Gross income to date
1,250,000
Less: Income prior year
Gross income annual 1,250,000
35

Year 2
25,000,000

Year 3
25,000,000

70%
17,500,000
16,000,000
1,500,000
1,250,000
1,250,000

100%
25,000,000
22,000,000
3,000,000
1,500,000
1,500,000

======== ========

========

Exercise 4-17 A
Monthly rental (15,000 x 10)
Shares on real estate tax
Gross taxable rent income
Exercise 4-18 C
Monthly rental income
Security deposit
Shares on real estate tax
Gross taxable rent income

150,000
2,500
152,500
======
150,000
45,000
2,500
197,500
======

Exercise 4-19 A
2008 rental (10,000 x 9)
90,000
Real property tax (6,000/12 x 9) 4,500
Taxable rent income 2008
94,500
=====
Exercise 4-20 D
2009 rental
120,000
Building FMV
8,000,000
Real property tax paid by lessee
6,000
Taxable rent income 2009
8,126,000
=======
Exercise 4-21 B
Cost of the improvement
6,000,000
Less Accu. depn. end of lease
[(6,000,000 400,000)/50]
x 25
2,800,000
Book value
3,200,000
Divided by term of lease
25
Annual income on improvement
128,000
36

=======
Income for 9 months
(128,000/12 x 9)
Add: Taxable rent income
(see item 1)
Gross taxable income

96,000
94,500
190,500
=======

Exercise 4-22 D
Annual income on improvement
Rental income
Gross taxable income

128,000
126,000
254,000
=======

Problem 4-1
Gross compensation income
Less: Basic personal exemption (M)
Additional exemption (25,000 x 3)
HHIP
2,400
Taxable net income

240,000
50,000
75,000
127,400
112,600
======

Problem 4-2
Gross business income
1,200,000
Other income (460,000 x 65%)
299,000
Gross taxable income
1,499,000
Less: Allowable business expenses
(800,000 x 75%)
600,000
Net income
899,000
Less: Basic personal
exemption (H/F)
50,000
Additional
HHIP
50,000
Taxable net income
849,000
=======
37

Problem 4-3
Resident
Citizen
Compensation income
Gross business income
Other income
subject to basic tax
Interest income
on time deposit
Gross taxable income
Less: Business
expenses
Taxable income before
personal exemption
Problem 4-4

Resident
Alien

970,000
1,680,000

610,000
960,000

260,000

180,000

2,950,000

40,000
1,750,000

1,080,000

610,000

1,870,000
=======

1,140,000
=======

Salaries from employment


Share in the net income
Bonus (18,000 + 32,000) 30,000
Other fringe benefits
Dividend from non-resident
foreign corporation
Gross taxable income
Less: Basic personal exemption (M)
Additional exemption
(25,000 x 3) 75,000
Net taxable income
Problem 4-5
Salary (400,000 8,000)
13th month pay (55,000 30,000)
Representation and
traveling allowance
38

280,000
65,000
20,000
32,000
48,000
445,000
50,000
125,000
320,000
======
392,000
25,000
60,000

Gross taxable income


Less: Basic personal
exemption (H/F)
Additional exemption
Net taxable income
Problem 4-6
Compensation income
Christmas bonus (82,000 30,000)
Gross taxable income
Problem 4-7

477,000
50,000
- 50,000
427,000
======
800,000
52,000
852,000
======

Winnings from gambling


650,000
Actual damages for unrealized profits 200,000
Gross taxable income
850,000
======
Problem 4-8
2009
2010
1. Sales
3,500,000
0
Less: Cost of sales
2,100,000
0
Gross profit/income
1,400,000
0
======= ===
2. 2009 (1,400,000/3,500,000)
x 1,300,000
2010 (1,400,000/3,500,000)
x 2,200,000
Total income
Problem 4-9
1. Sales
Less: Cost
Gross profit

2009
6,000,000
4,000,000
2,000,000
39

520,000
880,000
1,400,000
=======
2010
0
0
0

=======

==

2. Percentage of initial payment to selling price is 20%


[(P720,000 + 480,000)/P6,000,00]; hence, the
taxpayer may opt for installment payment.
2009 (2,000,000/6,000,000 x P1,200,000
400,000
2010 (2,000,000/6,000,000) x P4,800,000
1,600,000
Gross profit
2,000,000
=======
Problem 4-10
2009
2010
1. Sales
3,000,000
0
Less: Cost
2,000,000
0
Gross profit
1,000,000
0
=======
==
2. Percentage of initial payment to selling price is 30%
(P900,000/P3,000,000); hence, the installment
payment method cannot be used. Rather, the
deferred payment will be used.
2009 income
Cash collected
900,000
Less: Cost
2,000,000
Excess of cost over collection
(1,100,000)
=======
2010 income
Cash collected
2,100,000
Less: Excess of cost over collection 2009
1,100,000
Income to be reported
1,000,000
=======

40

Chapter 5
True or False 5-1
1. True
2. False. The cost of inherited property is based on the
fair market value at the time of inheritance.
3. False. Property acquired as a gift is measured based
on its fair market value at the time of gift, or same as
if it would be in the hands of the donor, whichever is
lower.
4. False. It is the other way around.
5. False. An asset may be ordinary for a certain taxpayer
but classified as capital by another taxpayer.
6. False. Net capital gain is the excess of capital gain
over capital loss.
7. False. Capital loss cannot be deducted from ordinary
gain.
8. False. The holding period applies only to capital gain or
loss.
9. True
10. False. Capital loss is deductible only from capital
gain and net capital loss cannot be deducted from
gross income subject to income taxation.
True or False 5-2
1. False. The sale is subject to final tax at the rate of 5%
or 10% based on capital gain realized.
2. True
3. True
4. True
5. False. Stock in trade or inventory is an ordinary asset
used in business operation.

41

6. False.
The selling price of the shares issued in
exchange shall be the fair market value of the property
received.
7. False. A surcharge and interest can be imposed and
collected at the same time.
8. True
9. False. Tax on the sale of shares of stock thru the local
stock exchange is collectible by the broker
administering the sale and should be remitted within
five days from collection.
10. True
True or False 5-3
1. False. The gain on shares redeemed is subject to
income tax.
2. False. Sale of treasury stock is subject either to stock
transaction tax or to capital gains tax.
3. True
4. False. The amount of capital gain or loss is subject to
the regular income tax rate ranging from 5% to 32%.
5. True
6. False. The capital loss on worthless shares shall be
deducted from other capital gains arising not from sale
of shares of stock.
7. True
8. True
9. True
10. True
True or False 5-4
1. True
2. True
3. False. The property is value based on the amount paid
by the transferee.
42

4. False. The procedure of specific identification should


be used if the share can be identified.
5. False. The total cost will not be affected by stock
dividend but the unit cost per share will be reduced.
6. True
7. False. It is the difference of the fair market value over
cost.
8. False. Sale of treasury stock may be subject to stock
transaction tax or to final tax.
9. False. Gain on wash sale is taxable, but loss is nondeductible.
10. False. The gain realized shall be subject to income
taxation.
Multiple Choice 5-1

Multiple Choice 5-2

1. C

6. C

1. A

2. A
3. D
4. B
5. C

7. A
8. A
9. C
10.A

Exercise 5-1

2.
3.
4.
5.
B

Selling price
Less:
Acquisition cost
Attorneys fee
Taxes
Improvement
(150,000 70,000)
Gain on sale
Exercise 5-2

A
C
C
D

4,000,000
900,000
20,000
40,000
80,000

1,040,000
2,960,000
=======

D
43

Exchange price (FMV)


Add: Cash added
Total
Less: Book value
(4,300,000 1,720,000)
Gain on exchange
Exercise 5-3

5,000,000
400,000
5,400,000
2,580,000
2,820,000
=======

Business income
(2,000,000 1,600,000)
Add: Short term capital gain 90,000
Long-term capital gain
(40,000 x 50%)
20,000
Total capital gain
Less: Short-term capital loss 60,000
Long-term capital loss
(50,000 x 50%)
25,000
Total capital loss
Gross taxable income
Exercise 5-4

400,000

110,000

85,000
425,000
======

Business income
(4,300,000 3,000,000)
1,300,000
Gain on sale of business assets
(700,000 580,000)
120,000
Capital gain (120,000 x 50%) 60,000
Capital loss (90,000 x 50%)
45,000
15,000
Gross taxable income
1,435,000
=======
Exercise 5-5
D
FMV
Zonal value (800 sq. x 6,500)
Higher zonal value
44

4,800,000
5,200,000
5,200,000

Multiplied by capital gains tax


Capital gains tax
Exercise 5-6
Exercise 5-7

6%
312,000
=======

B
B

Business income
Allowable expenses
Taxable business income
Add (Less) Capital gain (loss)
Short-term capital gain
Long-term capital gain
Short-term capital loss
Net capital gain (loss)
Capital loss carry over
Gross taxable income
Less: Basic exemption
Additional
Net taxable income
Exercise 5-8

Gain on sale

2009
800,000
600,000
200,000

60,000
190,000
(130,000)
130,000
400,000
50,000
50,000

200,000
200,000
70,000
270,000
50,000
100,000

300,000 170,000
====== ======

Selling price
Less: Cost
Acquisition
expenses
Selling expenses

2008
900,000
500,000
400,000

700,000
400,000
60,000
40,000
500,000
200,000
======

45

Exercise 5-9

FMV (higher)
Less: Cost
Gain on exchange
Exercise 5-10

720,000
500,000
220,000
======

Gain on sale (P1,500,000 P600,000)


Capital gain tax
On the 1st P100,000 x 5%
On excess (900,000-100,000) x 10%

900,000
======

5,000
80,000
85,000
======
Exercise 5-11 A No capital gain shall be recognized,
since the sale of the shares resulted to a loss.
Exercise 5-12

Selling price (higher)


Multiplied by
Capital gains tax

6,000,000
6%
360,000
=======

Problem 5-1
Business income (450,000/90%)
Compensation income (268,000 +32,000)
Interest income on trade receivable
Short-term capital gain (80,000 x 100%)
Long term capital loss (60,000 x 50%)
50,000
Gain on sale of ordinary assets
Loss from sale of ordinary assets
Dividend income
resident foreign corporation
46

500,000
300,000
40,000
80,000
(30,000)
52,000
(30,000)
25,000

Gross taxable income

937,000
======

Problem 5-2
1. Ordinary assets

Computer Motor
Vehicle
Selling price
42,000
400,000
Less: Book value 44,625
480,000
Ordinary gain
(loss)
( 2,625) ( 80,000)

Commer- Total
cial Lot
6,000,000 6,442,000
2,500,000 3,024,625
3,500,000 3,417,375

====== ====== =======


=======
2. Capital assets

Coml. Lot

Selling price
4,920,000
Less: Book value 5,520,000
Capital gain (loss) ( 600,000)
Holing period
50%
Net capital
gain (loss)
( 300,000)
=======
Problem 5-3

Feb. 1
Net sales
192,000
Less: Cost
125,000
Gain (loss)
67,000
Cap. tax rate
.005
Capital gains tax 335
=====
Less: Taxes paid (335 +
Net capital gains tax

Jewelry

Equipment

650,000
300,000
350,000
50%

150,000
84,000
66,000
100%

175,000
======

66,000
=====

May 1
July 1
318,500
135,000
262,000
144,000
56,500
(9,000)
.005
282.50
====== ======
282.50 + 175)

Oct. 1
485,000
450,000
35,000
.005
175
======

Net
gain (loss)

( 59,000 )
=======

Cumulative
1,130,500
981,000
149,500
.005
747.50
(

792.50
45.00 )
=======

Problem 5-4
Salary (380,000 + 20,000)
Christmas bonus (60,000 30,000)
Gain on sale of jewelries
(120,000 80,000)
Cash dividend from non-resident
foreign corporation
47

400,000
30,000
40,000
20,000

Cash dividend from resident


foreign corporation
Business income
Gross taxable income

80,000
950,000
1,520,000
=======

Problem 5-5
1. Sales (200 x 95)
Less: Cost (200 x 100)
Non-deductible loss

19,000
20,000
(1,000)
=====
The loss is considered non-deductible, because the
sales and subsequent acquisition were within the 61day period (wash sale).

2. Sales
Less: Cost (300 x 110)
Taxable gain

36,000
33,000
3,000
=====

Problem 5-6
1. Downpayment
Additional payments
within the year
Excess of mortgage assumed
Initial payment
2. Selling price
Less: Mortgaged assumed
by the buyer
Balance
Add: Excess of mortgaged
over cost (700,000 600,000)
48

150,000
50,000
100,000
300,000
======
1,080,000
700,000
380,000
100,000

Contract price

480,000
=======

3. Gross profit
(1,080,000 600,000)

480,000
=======

Selling price
1.080,000
Less: Initial payment
Actual
200,000
Mortgage assumed 700,000 900,000
Balance
180,000
Divided by
3
Annual collection
60,000
=======
Annual income 1st year
(480,000/480,000 x 300,000)
2nd year
(480,000/480,000 x 60,000)
3rd year
4th year
Total

300,000
60,000
60,000
60,000
480,000
======

Problem 5-7
Gross profit
(P2,000,000 P1,200,000)

800,000
======

Percentage of initial payment


to selling price (P400,000/P2,000,000)
Income to be reported:
2009
(800,000/2,000,000) x 400,000
49

20%
====

188,235.29

2010
(800,000/2,000,000) x 800,000
2011
(800,000/1,700,000) x 500,000
Total
Problem 5-8

376,470.59
235,294.12
800,000.00
========

Gross profit (3,500,000 1,400,000) 2,100,000


=======
Initial payment
([400,000 + 300,000 +
(1,400,000 1,500,000)]
800,000
======
Percentage of initial payment
to selling price (800,000/3,500,000)
22.86%
======
Contract price
(P3,500,000+ P100,000
P1,500,000)
2,100,000
=======
Income to be reported:
2009
(2,100,000/2,100,000 x 800,000)
800,000
2010
(2,100,000/2,100,000 x 700,000)
700,000
2011
(2,100,000/2,100,000 x 600,000)
600,000
Total
2,100,000
=======
Problem 5-9
Gross profit (P2,800,000 P2,000,000)
2009
50

800,000
======
Income

Cash
FMV of notes
(90% x P1,800,000)
Total
Less: Cost
2010
Cash
Less: FMV of notes
received in 2009
Total income

1,000,000
1,620,000
2,620,000
2,000,000
620,000
1,800,000
1,620,000

180,000
800,000
=======

Problem 5-10
Selling price
Less: Cost (2,000/5,000 x 600,000)
Less: Cost (3,000/5,000 x 600,000)
Loss on sale
Gain on sale

Mr. AA
200,000
240,000
60,000
-======

No capital gain tax since


the sale resulted to a loss
-Capital gain tax (P90,000 x 5%)

Mr. BB
450,000
360,000
-90,000
======
4,500

Chapter 6
True or False 6-1
1. False. Fringe benefits are additional privileges which
are relatively small in value and not considered as
compensation.
2. False. Only the fringe benefits granted to supervisory
and managerial employees are subject to fringe benefit
tax.
3. True
4. True
5. True
6. False. De minimis benefits granted to managers or
supervisors are not subject to fringe benefit tax.
51

7. False. Fringe benefits exempted from fringe benefit tax


may be subject to income tax.
8. True
9. True
10. False. Monetized unused vacation leave credits for
government officials and employees are not subject to
fringe benefit tax.
True of False 6-2
1. True
2. False. The monetary value is equal to 50% of the
rental payment.
3. False. Housing units within the business premises are
exempted from fringe benefit tax.
4. True
5. False. The monetary value is 50% of the 5% of the
acquisition cost.
6. False. It is not included as part of acquisition cost.
7. True
8. True
9. False.
Whether receipted or not, if the employee
benefits from the personal expenses, such are subject
to fringe benefit tax.
10. False. The monetary value is equal to its acquisition
cost divided by five years.
True or False 6-3
1. False. It is 50% of the acquisition cost after dividing it
by five years.
2. False. The monetary value is acquisition cost divided
by 20 years.
3. True
4. True
52

5. False. The interest is subject to fringe benefit tax if is


lower than the 12% benchmark.
6. False. Unreasonable foreign travel expenses are
subject to fringe benefit tax.
7. False. Lodging in excess of P300 is subject to fringe
benefit tax.
8. True
9. True
10. False. Educational assistance connected with the
employers trade and with a written agreement that
employee will serve the employer for a certain period
of time is not subject to fringe benefit tax.
Multiple Choice 6-1
1. D
2. B
3. C
4. D
5. A

6. C
7. A
8. D
9. C
10.D

Exercise 6-1

11.
12.
13.
14.
15.

B
B
A
C
D

Downpayment
3,000,000
Installment (1,000,000 x 4.111) 4,111,000
Value of fringe benefits
7,111,000
=======
Exercise 6-2 A
Actual value
Percentage of
managerial employees
Total

7,111,000
20%
1,422,200
=======

Monetary value
(1,422,200 x 5%) x 50%

35,500
53

=======
Exercise 6-3

Grossed-up monetary value


(35,555/68%)
Exercise 6-4

52,287
=====

Fringe benefit tax (52,287 x 32%)


Exercise 6-5 C
Gross income from business
Rental
Fringe benefits (51,000/68%)
RATA
Gross taxable income
Exercise 6-6

Gross taxable income


Less: Business expenses
Net income
Less: Basic personal
exemption (M) 50,000
Additional exemp 50,000
Net taxable income
Exercise 6-7

Monetary value
(150,000/32%) x 68%
Exercise 6-8

16,732
=====

1,200,000
150,000
75,000
204,000
1,629,000
=======
1,629,000
620,000
1,009,000
100,000
909,000
=======

318,750
=====

Grossed-up monetary value


54

(150,000/32%)
Exercise 6-9

468,750
======

Fringe benefit tax


(255,000/68%) x 32%
Exercise 6-10

120,000
======

Salary
Christmas bonus
(25,000 + 30,000) 30,000
Cash fringe benefits
Other fringe benefits
Gross taxable income
Exercise 6-11

280,000
25,000
15,300
25,500
345,800
======

Salary
Christmas bonus
Gross taxable income

280,000
25,000
305,000
======
Exercise 6-12 A (Fringe benefit provided to rank-andfile is not subject to fringe benefit tax)
Exercise 6-13

Grossed-up monetary value


[(15,300 + 25,500)/68%]

60,000
=====
Exercise 6-14 A (The amount of 765,000 is a fringe
benefit and subject to fringe benefit tax)
Exercise 6-15

Fringe benefit tax


55

(765,000/85%) x 15%

135,000
======

Problem 6-1
1. Total value of fringe benefit tax
(956,250 + 430,750 + 750,000)

2. Fringe benefit tax to supervisor


(956,250/68%) x 32%
Fringe benefit tax to non-resident alien
(750,000/75%) x 25%
Total fringe benefit tax

2,137,000
=======
450,000
250,000
700,000
=======

Problem 6-2
1. Cash payment for grocery items
Motor vehicle benefits
Downpayment
400,000
Installment
(400,000 x 4 years) 1,600,000
Total fringe benefit expenses
2. On grocery items
(382,500/68%) x 32%
On motor vehicle
[(750,000/5)/68%] x 32%
Total fringe benefit tax

382,500

2,000,000
2,382,500
=======
180,000.00
70,588.24
250,588.24
========

Problem 6-3
1. Local travel
De minimis benefits
Total value of fringe benefits

56

420,750
80,000
500,750
======

2. Grossed-up monetary value


(420,750/68%)

618,750
======

3. Fringe benefit tax (618,750 x 32%)

198,000
======

Problem 6-4
1.Grossed-up monetary
value (GUMV)

3,468,549.02
==========

2. Total fringe benefit tax


========

Resident
Citizen

80% value
Divided by
GUMV
Tax rate
Fringe
benefit tax

1,280,000.00
68%
1,882,352.94
32%

908,549.02
Special
Alien
768,000.00
85%

NRA-NEBT
512,000.00
75%

Total
2,560,000.00

903,529.41
15%

682,666.67
25%

3,468,549.02
-

602,352.94 135,529.41
========= =======

170,666.67
=======

908,549.02
=======

Chapter 7
True or False 7-1
1. False.
The expenses that are reasonable and
necessary must be allowed by taxation law to be
deductible.
2. True
3. False. The compensation income is not included in the
computation of the 40% optional standard deduction.
4. True
5. True
57

6. False.
NRAs engaged or not engaged in business
cannot use the optional standard deduction.
7. False. The expenses should be ordinary and necessary.
8. False. Estimates are non-deductible expenses.
9. True
10. False.
Bribes and kickbacks are against public
morals; hence, non-deductible.
True or False 7-2
1. False.
The expenses must be connected with the
business activities.
2. True
3. False. The advance rental shall be prorated on the
term of the lease.
4. False. The leasehold improvement shall be apportioned
over the term of the lease or the life of the
improvement, whichever is shorter.
5. False. Both the actual and accrued interest expenses
are deductible.
6. True
7. True
8. True
9. False. If the taxpayer is using the cash basis, advance
interests are prorated over the outstanding balance.
10. True
True or False 7-3
1. False. Expenses between related taxpayers are nondeductible.
2. True
3. True
4. False. Not all taxes are deductible. Philippine income
tax is non-deductible.
5. True
58

6. False. Net operating loss carry over applies also to


corporate taxpayers.
7. False. The loss can be applied only for the next three
years following the year of loss.
8. True
9. False Loss on shares of stock is deductible if there is
actual sale.
10. False. Only bad debts ascertained to be worthless
and written off are deductible.
True or False 7-4
1. False. Recognition of unpaid debts is non-deductible.
The debts should be ascertained to be worthless.
2. True
3. True
4. True
5. False. The depreciation rate is dependent on the useful
life of the assets.
6. False. Such properties shall be depreciated over a
period of 10 years or shorter.
7. False.
Compensation income is deductible only by
basic and personal exemption.
8. True
9. True
10. False. The donation is subject to 10% limitation,
because it is intended for public purpose.
True or False 7-5
1. True
2. False. The base of the 5% or 10% limitation is the
taxable income before personal exemption.
3. False. It should be amortized over a period of 60
months or five years.
59

4. False. Payment of past pension cost is amortized over


10 years.
5. True
Multiple Choice 7-1
Multiple Choice 7-2
Multiple Choice 7-3
1. C
2. C
3. A
4. B
5. C

6. C
7. D
8. A
9. B
10. C

Exercise 7-1

1.
2.
3.
4.
5.

A
C
B
C
D

6. B
7. A
8. C
9. A
10. D

1. A
2. C
3. C
4. B
5. C

Allowable deduction under OSD


(1,800,000 x 40%)
Exercise 7-2

720,000
======

Compensation income
(380,000 + 45,000) 30,000
Business income
Deduction under OSD

395,000
1,800,000
720,000
1,080,000

Taxable income
before personal exemption
Exercise 7-3

Salaries rank-and-file
Salaries supervisory positions
Fringe benefits rank-and-file
Fringe benefits supervisory positions
(326,400/68%)
Total bonus
60

1,475,000
=======
2,700,000
900,000
300,000
480,000
272,400

Total deductible salaries


Exercise 7-4

4,652,400
=======

Net annual salaries


Total amount withheld
Christmas bonus
Fringe benefits
Total deductible salaries
Exercise 7-5

3,200,000
580,000
250,000
180,000
4,210,000
=======

Fringe benefits foreign travel


Plant ticket first class
($3,500 x 30%) x P50
Meals ($3,000 - $1,800) x P50
Plant ticket economy (tax exempt)
Meals ($1,500 - $900) x P50
Total value of fringe benefits

52,500
60,000
30,000
142,500
======

Allowable travel expenses of the taxpayer:


Foreign plane ticket, meals and lodging
($3,500 + $3,000 + $1,200
+ $ 1,500) x 50
460,000.00
Domestic travel
400,000.00
Grossed-up monetary value
(142,500/68%)
209,559,82
Total allowable
Trave expenses
1,069,558,82
========
Exercise 7-6
A (The loss is partial; hence the
amount of deductible loss is the book value or
replacement cost, whichever is lower)

61

Exercise 7-7

Deductible charitable contributions


(2,500,000 1,700,000) x 10%
Exercise 7-8

Business expense, exclusive


of interest expense (750,000 25,000)
Add: Deductible interest expense
[25,000 (50,000 x 33%)]
Total allowable expenses
Exercise 7-9

8,500
733,500
======
800,000
144,000
944,000
40%
377,600
======

Gross receipts
Add: Compensation income
(P255,000 + 45,000)
Total
Less: Allowable deduction
Taxable income before
personal exemption
Exercise 7-11

725,000

Gross receipts from profession


Rental income (136,800/68%)
Total income from business/exercise
of profession
Multiplied by OSD rate
Allowable deduction under OSD
Exercise 7-10

80,000
=====

944,000
300,000
1,244,000
377,600
866,400
=======

Net salaries

8,750,000
62

Add: Employees SSS contribution


300,000
Withholding tax
650,000
Employees Medicare contribution
100,000
Cash advances
200,000 1,250,000
Gross payroll
10,000,000
Add: Fringe benefits to employees
1,500,000
Fringe benefits to key officers
(2,040,000/68%)
3,000,000 4,500,000
Total deductible salaries/compensation
14,500,000

Exercise 7-12

========

Transportation expenses
within the Philippines
Fringe benefits (170,000/68%)
Transportation, pouch man
Transportation expenses outside
Fringe benefits (544,000/68%)
Total deductible expenses
Exercise 7-13

Annual rent (P180,000/12 x 7 months)


Real estate tax
Insurance premium
(P30,000/12 x 7 months)
Leasehold amortization
(P600,000/5 x 7/12)
Total deducible rent
Exercise 7-14

Interest expense on borrowings


Less: Reduction based on interest
income (P150,000 x 33%)
Deductible interest expense
63

600,000
250,000
60,000
1,800,000
800,000
3,510,000
=======
105,000
3,500
17,500
70,000
196,000
======
300,000
49,500
250,500
======

Exercise 7-15

Charitable contributions subject to limitation for:


Public purpose
100,000
UCCP Church
50,000
Flood victims
50,000
Total - actual
200,000
Limit
(P5,000,000 2,000,000
1,000,000) x 5%
100,000
Lower
100,000
Charitable contribution
deductible in full for education 300,000
Total deductible charitable
contributions
400,000
======
Problem 7-1
1. Advance rental is not a deposit
Cash basis
Accrual basis
Monthly rental (starting Sept. 1) 600,000
600,000
Real estate tax
6,000
6,000
Interest expense (12,000/2)
6,000
6,000
Insurance premium (7,500/2)
3,750
3,750
Advance rental (applicable
for July and August)
300,000
300,000
Total
915,750
915,750
======
======
2. Advance rental is a deposit with restriction
Cash basis
Accrual basis
Monthly rental (starting July. 1)
900,000
900,000
Real estate tax
6,000
6,000
Interest expense (12,000/2)
6,000
6,000
Insurance premium (7,500/2)
3,750
3,750
Advance rental as deposit
300,000
Total
1,215,750
915,750
=======
======
64

Problem 7-2
Salaries (870,000 + 30,000 + 150,000) 1.050,000
Fringe benefits rank-and-file
450,000
Fringe benefits managerial employee
(340,000/68%)
500,000
Representation and traveling allowance
150,000
Rent expense
180,000
Commission (7,425,000 + 75,000) x 5%
375,000
Business expense before donation
2,705,000
Donation subject to limitation (see below) 179,500
Total deductible expense
2,884,500
=======
Gross income from business
(7,500,000 x 60%)
Less: Expenses before donation
Income before donation
10% limit
Allowable deductible donation
Problem 7-3
1. Municipal taxes
Community tax
Documentary stamp tax
(P910 80 30)
License (P4,000 500 100)
Total deductible taxes
2. Representation and traveling allowance
Interest on documentary stamp tax
Interest on borrowings
Interest on license
65

4,500,000
2,705,000
1,795,000
10%
179,500
=======
1,200
1,000
870
3,400
6,470
=====
15,000
30
10,000
100

Compensation to key personnel


- fringe benefit (P10,200/68%)
Compensation to employees
Total of other deductible expenses

15,000
6,000
46,130
=======
The interests on documentary stamp tax and on license
fees are not classified as taxes but rather interest
expense. Fringe benefits of key personnel are subject
to fringe benefit tax; hence, the amount was grossedup.
Problem 7-4
Business losses
200,000
Partial loss on equipment
Book value (P800,000 480,000)
x 80%
256,000
Replacement cost
240,000
Deductible loss lower
240,000
Total loss on machinery
Acquisition cost
2,000,000
Less: Accumulated depreciation
(P2,000,000/10) x 6
1,200,000
Book value
800,000
Less: Recoverable amount
200,000
600,000
Deductible loss
1,040,000
=======
Problem 7-5
1. Other business expenses
FB to employees
FR to employees subject to
fringe benefit tax (P204,000/68%)
Interest expense on bank loan
66

1,800,000
120,000
300,000
60,000

Net operating loss carry over


70,000
Entertainment
Actual
40,000
Limit (5,600,000 50,000 20,000)
= 5,530,000 x 1/2%
27,650
Lower
27,650
Total deductible business expense
2,377,650
=======
2. Net sales
Less: Cost of sales
Gross income
Add: Interest income
on bank loan in USA
Total gross income
Less: Deductible expenses
Net income before exemption
Less: Personal exemption
(50,000 + 100,000)
Taxable net income

5,530,000
2,200,000
3,330,000
90,000
3,420,000
2,377,650
1,042,350
150,000
992,350
=======

Problem 7-6
1. Salaries
Losses on embezzlement
Advertising
Depreciation
Taxes (P190,000 P90,000)
Pension contribution present
(P230,000 P100,000)
Pension contribution past
(P100,000/10)
Entertainment
Actual
Limit (P2,900,000 x 1%)
67

400,000
50,000
20,000
50,000
100,000
130,000
10,000
35,000
29,000

Lower
29,000
Interest expense on bank deposit
Actual
90,000
Less: Reduction due to interest
income (P50,000 x 33%)
16,500
73,500
Total before charitable contribution
862,500
Charitable contribution for public purpose
Actual
150,000
Limit (P2,900,000 1,305,000
85\62,500) = 732,500 x 10%
73,250
Lower
73,250
Total deductible expenses
935,750
======
2. Gross income
(P2,900,000 1,305,000)
Less: Allowable deduction
Net income before
personal exemption
Less: Personal Exemption
(P50,000 + 100,000)
Taxable net income

True or False 8-1

1,595,000
935,750
659,250
150,000
509,250
=======

Chapter 8

1. False. The taxpayer is still required to file an income


tax return, since the source of income is from business.
2. False. Only on income within the Philippines.
3. False.
There are only two employers; hence, the
taxpayers are required to file though the income did
not exceed P60,000.
4. True
68

5. False. The Statement of Net Worth and Operation shall


be attached to the tax return if the gross receipts do
not exceed P50,000 in any quarter.
6. False. The centavos shall never be dropped or rounded
off in the tax due after tax credit.
7. True
8. False.
Income tax credits are deductible against
income tax liabilities.
9. True
10. False.
Non-resident citizens are taxable only on
income within the Philippines. Hence, taxes paid in a
foreign country cannot be claimed as tax credit.
True or False 8-2
1. False. Taxes paid in a foreign country are subject to
limitation if claimed as tax credit.
2. False.
Only individual taxpayers can avail of the
installment method of paying income tax in excess of
P2,000.
3. False. The second installment is due on July 15.
4. True
5. False. The income is classified as income from outside
the Philippines. The threshold is 50%.
6. True
7. False. If the internal revenue taxes are more than
P10,000, the over-the-counter of EFPS may be
adopted.
8. False. Substitute filing is applicable if there is only one
employer.
9. False.
The payment of taxes due shall be made
through the AAB.
10. True
Multiple Choice 8-1
69

1. B
2. B
3. C
4. A
5.D

6.
7.
8.
9.
10.

C
C
B
D
B

Exercise 8-1

Gross income (2,500,000 1,500,000)


Less: Allowable business expense
Taxable income before exemption
Less: Personal exemption
(P50,000 + 100,000)
Taxable net income
Exercise 8-2

150,000
400,000
=======

On P250,000
On excess (P400,000 250,000) x 30%
Total
Add: Surcharge (P95,000 x 25%)
Interest (P95,000 x 20% x 139/360)
Total tax due and payable
Exercise 8-3

1,000,000
450,000
550,000

Net salaries subject to tax


(490,000 6,000 4,000)
Net business income subject to tax
(P1,800,000 950,000)
Taxable net income before
personal exemption
Less: Personal exemption
(P100,000 + 75,000)
Taxable net income
70

50,000.00
45,000,00
95,000,00
23,750,00
7,336.11
126,086.11
========

480,000
850,000
1,330,000
175,000
1,155,000
=======

Exercise 8-4

On 500,000
125,000.00
On excess (P1,155,000 500,000)
x 32%
209,600.00
Total
334,600.00
Less: Quarterly tax paid
180,000.00
Withholding tax on wages
60,000.00
240,000.00
Tax due before penalties
94,600.00
Add: Surcharge (P94,600 x 25%)
23,650.00
Interest (P94,600 x 20% x 35/260)
1,839.44
Total taxes still due and payable
120,089.44
========
Exercise 8-5 B
Gross income (4,000,000 2,200,000) 1,800,000
Add: Interest income
on notes receivable
20,000
Total gross income
1,820,000
Less: Business expenses
1,100,000
Interest expense
[70,000 (90,000 x 33%)
40,300
1,140,300
Income before charitable contribution
679,700
Less: Charitable contribution
Actual
80,000
Limit (P679,000 x 10%)
69,970
69,970
Taxable income before personal exemption
611,730
Less: Personal exemption (P50,000 + 100,000)
150,000
Taxable net income
461,730
=======
71

Exercise 8-6

On P250,000
On excess (461,730 250,000) x 30%
Total
Less: Quarterly tax payment
Balance
Add: Surcharge (P18,519.00 x 25%)
Total tax due and payable
Exercise 8-7

50,000.00
63,519.00
113,519.00
95,000.00
18,519.00
4,629.75
23,148.75
========

Total taxable income


(P415,000 + 150,000) = 565,000
On P500,000
125,000.00
On excess
(565,000 500,000) x 32%
20,800.00
Total
145,800.00
Less: Tax previously paid on P415,000
On P250,000
50,000
On excess
(415,000 250,000) x 30%
49,500
99,500.00
Deficiency tax
46,300.00
Add: Surcharge (46,300 x 50%)
23,150.00
Interest
(P46,300 x 20% x 107/160)
2,752.78
25,902.78
Total tax still due
72,702.78
========
Exercise 8-8 C
Total deficiency assessment
72,702.78
Add: Surcharge (P72,702.78 x 25%)
18,175.70
Interest (72,702.78 x 20% x 15/360)
605.86
72

Total
Exercise 8-9

91,484.34
=======

Gross income (5,000,000 + 3,000,000) 8,000,000


Less: Business expense
(P3,500,000 + 2,400,000) 5,900,000
Income taxes paid in Australia 200,000
6,100,000
Net business income
1,900,000
Add: Interest income Australia
30,000
Royalty income Australia
20,000
50,000
Net income
1,850,000
Less: Personal exemption
(P50,000 + 75,000)
125,000
Net taxable income
1,725,000
=======
Exercise 8-10 B
Tax on P500,000
Tax on excess
(P1,725,000 500,000) x 32%
Total tax before tax credit
Less: Taxes paid
Income tax still due
Exercise 8-11

125,000
393,000
517,000
300,000
217,000
=======

Gross income (5,000,000 + 3,000,000) 8,000,000


Less: Business expense
(P3,500,000 + 2,400,000)
5,900,000
Net business income
2,100,000
Add: Interest income Australia
30,000
Royalty income Australia
20,000
50,000
73

Net income
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Exercise 8-12

2,050,000
125,000
1,925,000
=======

Tax on P500,000
125,000
Tax on excess
(P1,925,000 500,000) x 32%
456,000
Total tax due
581,000
Less: Tax credit
Philippine taxes paid
300,000
Taxes paid in Australia
Actual
200,000
Limit
(P600,000/2,100,000)
x 581,000
166,000
Lower
166,000
466,000
Income tax still due after tax credit
115,000
=======
Problem 8-1
1. Gross business income
4,500,000
Cash dividend from non-resident
foreign corporation
9,000
Property dividend from resident
foreign corporation
36,000
Salary and allowances
500,000
Gain on sale of jewelry (80,000 35,000)
45,000
Interest earned on premium
10,000
Christmas and incentive
(28,000 + 15,000) 30,000
13,000
Interest income on deposit abroad
10,000
Gross taxable income
5,123,000
74

=======
2. Gross taxable income
5,123,000
Less: Cost of sales and
other allowable expenses 2,800,000
Past pension cost
(250,000/10)
25,000
Interest expense
[80,000 (60,000 x 38%)]
57,200
Fringe benefits to supervisor
(40,800/68%)
60,000
2,942,200
Income before donation
2,180,800
Less: Donation actual
(150,000 + 25,000)
175,000
- limit (2,180,000 x 10%)
218,080
- lower (actual)
175,000
Net income before personal exemption
2,005,800
Less: Basic personal exemption
50,000
Additional exemption
50,000
100,000
Net taxable business income
1,905,800
=======
3. Taxable net

Tax due
Income
On
500,000
On excess (1,905,800 500,000)
x 32%
1,405,800
Total
1,905,500
=======
Less: Quarterly tax paid
Tax due and payable

75

125,000
449,856
574,856
175,000
399,856
======

4. Tax due and payable


Add: Surcharge (399,856 x 25%)
Interest (399,856 x 20% x 4.5/12)
Tax due and payable September 1

399,856.00
99,964.00
29,989.20
529,809.20
========

Problem 8-2
1. Installment method not adopted by taxpayers
Carlos
Daisy(Spouse)
Compensation income
First Coml. Corp.
Salary (480,000 + 55,000)
535,000
13th month pay
(55,000 30,000)
25,000
Greater Libungan
(60,000 + 14,400)
74,400
Brownies Corporation
(240,000 + 35,000)
275,000
Total gross compensation
634,400
275,000
Less: Basic personal
exemption (M)
50,000
50,000
Additional (25,000 x 3)
75,000
125,000
50,000
Net taxable income
509,400
225,000
======
======
Tax due
Less: Tax withheld
Tax due and payable

128,008
69,400
58,608
======
2. Taxpayers adopted installment payment of tax
Tax due before tax credit
Divided by
Total
Less: Tax withheld
First installment payment of tax
(for credit on second
installment
76

43,750
35,000
8,750
=====

128,008
2
64,004
69,400

43,750
2
21,875
35,000

( 5,396)
======

(13,125)
=====

Second installment
Less: Excess of 1st installment
Tax due on 2nd installment

Problem 8-3

64,004
( 5,396 )
58,608
======
Edwin

Compensation income
(216,000 + 25,000)
Business income
Sales (net)
2,788,000
Less: Cost of sales
1,775,000
Gross profit
1,013,000
Less: Allowable business expenses
Net income/compensation
before exemption
510,000
Less: Basic personal
exemption
50,000
Additional exemption
75,000
50,000
Taxable net income
385,000
=======
Tax due
Less: Tax credit
Tax due and payable

90,500
90,500

======

Problem 8-4

21,875
(13,125)
8,750
=====
Nancy (Spouse)
241,000

503,000
241,000
50,000
125,000
191,000
======
35,250
25,000
10,250

=====

Resident Citizen Non-resident


Gross profit from sales
6,000,000
Gross compensation income
525,000
Gain from sale of business assets
195,000
Rental income
150,000
Interest income Singapore
115,000
Royalty income Singapore
255,000
Total
7,240,000
Other gross income partly within and without
(4,320,000/7,240,000) x 225,000
77

3,600,000
525,000
195,000
150,000
4,470,000
225,000
134,254

Gross income

7,465,000
=======

4,605,254
=======

Problem 8-5
1. a. 8,102,000
b. 5,250,182
Resident

Non-resident

Gross business income


7,800,000
5,000,000
Compensation income
(150,000 + 12,000)
162,000
162,000
Interest on loan
5,000
Property dividend
25,000
Rental income
50,000
50,000
Cash dividend from resident foreign corporation
60,000
(7,000,000/11,000,000)
= .636363 x 60,00
38,182
Gross taxable income
8,102,000
5,250,182
=======
=======
2. Gross taxable income abroad
Gross business income Malaysia
Interest on loan
Property dividend
Cash dividend partly abroad
Total

Problem 8-6
1. Gross business income
(P6,000,000 + 4,000,00)
Less: Business expenses
(P4,000,000 + 3,500,000)
Taxes paid in Singapore
Net income before other income
Add: Royalty Singapore
Interest on bank deposit
Singapore
78

2,800,000
5,000
25,000
38,182
2,868,182
=======

10,000,000
7,500,000
300,000
7,800,000
2,200,000
50,000
50,000

100,000
Net income
Less: Personal exemption
(P50,000 + 100,000)
Net taxable income

2,100,000

Tax on P500,000
Tax on excess (P1,950,000 500,000) 32%
Total
Less: Philippine taxes paid
Income tax still due
2. Gross business income
(P6,000,000 + 4,000,00)
Less: Business expenses
(P4,000,000 + 3,500,000)
Net income before other income
Add: Royalty Singapor
50,000
Interest on bank
deposit Singapore
50,000
100,000
Net income
Less: Personal exemption
(P50,000 + 100,000)
Net taxable income

150,000
1,950,000
=======
125,000
464,000
589,000
450,000
139,000
=======
10,000,000
7,500,000
2,500,000

2,600,000

150,000
2,450,000
========
Tax on P500,000
125,000
Tax on excess (P2,450,000 500,000) x 32%
624,000
Total
749,000
Less: Tax credit
Philippines income tax paid
500,000
Singapore
Actual
300,000
Limit (P500,000/2,500,000) x 749,000
149,800
Lower
149,800
649,800
Income tax still due
99,200

========

79

Problem 8-7
Taxable income Philippines
- Malaysia
- Taiwan
Total

3,000,000
2,000,000
500,000
5,500,000
=======
125,000.00

Tax on P500,000
Tax on excess
(P5,500,000 500,000) x 32%
1,600,000.00
Total
1,725,000.00
Less: Tax credit
Philippine quarterly tax
700,000.00
Malaysia
Actual
600,000.00
Limit
(P2,000,000/5,500,000) x 1,725,000 627,272.72
Lower
600,000.00
Taiwan
Actual
250,000.00
Limit
(500,000/5,500,000) x 1,725,000
156.818.18
Lower
156,818.18
1,456,818.18
Philippine income tax still due
after tax credit
268,181.82
=========
CHAPTER 9
True or False 9-1
1. True
2. False. In a general partnership, liabilities of partners
are not limited to their capital contributions.
80

3. False. A limited partner is liable only to the extent of


his capital contributions.
4. True
5. False. A partner in a general professional partnership
is subject to tax based on his share.
6. True
7. True
8. True
9. False. A general co-partnership is subject to 30%
corporate tax rate and treated like a corporation.
10. False. The share of the partners in a co-partnership
is treated like a dividend subject to 10% final tax.
True or False 9-2
1. True
2. False. Co-partnership is formed for profit and taxable,
while co-ownership is formed primarily to preserve
certain property and basically not taxable.
3. True
4. True
5. True
6. True
7. False. When the trust is revocable, the income of the
trust is not taxable to the trust but to the grantor.
8. True
9. True
10. False. The amount of estate so transferred is not
deductible from the income of the state. However, the
amount shall be subject to estate tax.
True or False 9-3
1. True
2. False. When there are several trusts made by the
trustor, each trust shall file a separate income tax
81

return and the BIR shall consolidate the tax returns


filed.
3. True
4. False. The net income used to compute the
proportionate share on the consolidated income tax
due shall be before deducting the personal exemption
of P20,000.
5. False. The income of the estate would be taxable only
to the heir from the time he received the property.
6. False. Not all income-producing estate is subject to
tax on the part of the estate.
7. True
8. True
9. False. The amount of estate transferred to the
beneficiaries is not allowable deduction but will be
subject to estate tax.
10. True
Multiple Choice 9-1 Multiple Choice 9-2
1. C
2. B
3. B
4. D
5. A

6. B
7. C
8. B
9. C
10.A

1. A
2. C
3. D
4. B
5. D

6. C
7. D
8. D
9. D
10.A

Exercise 9-1 A Since the entity is a general


professional partnership, the income is not subject to tax.
Exercise 9-2

Gross receipts
Less: Cost of services
Gross income
Less: Operating expenses
Net income
82

2,000,000
500,000
2,500,000
600,000
900,000

Share of Alex (P900,000 x 1/2)


Multiplied by creditable tax rate
Creditable withholding tax
Share in the net income (P900,000 1/2)
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Tax on 250,000
Tax on excess
(P325,000 250,000) x 30%
Total
Less: Creditable withholding tax
Income tax still due
Exercise 9-3

Share in gross income


(P2,000,000 x 1/2)
Less: Optional standard deduction
(40% x P1,000,000)
Net income
Less: Personal exemption
(P50,000 + 50,000)
Net taxable income

=======
450,000
10%
45,000
======
450,000
125,000
325,000
======
50,000
22,500
72,500
45,000
27,500
======

1,000,000
400,000
600,000

100,000
500,000
=======
Tax on P500,000
125,000
Less: Creditable withholding tax
45,000
Income tax still due
80,000
=======
Exercise 9-4
A
The partnership is a general
professional partnership; hence, not subject to tax.
83

Exercise 9-5

Gross receipts
Less: Cost of services
(P600,000 + 500,000)
Gross income
Less: Operating expense
Net income
Share of Peter (P1,100,000 x 1/2)
Multiplied by creditable tax rate
Creditable withholding tax
Salary received
Add: Share in the profit
gross method (P2,500,000 x 1/2)
Less: Optional standard deduction
(P1,250,000x 40%) 500,000
Total
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Tax on P500,000
Tax on excess
(P1,225,000 P500,000) x 32%
Total
Less: Creditable withholding tax
Income tax still due
Exercise 9-6

Salary received
Add: Share in the partnership
(P1,100,000 x 1/2)
Total
84

2,500,000
1,100,000
1,400,000
300,000
1,100,000
=======
550,000
10%
55,000
=======
600,000
1,250,000
750,000
1,350,000
125,000
1,225,000
=======
125,000
232,500
357,000
55,000
302,000
=======
500,000
550,000
1,050,000

Less: Personal exemption


(P 50,000 + 75,000)
Taxable net income

Tax on P500,000
Tax on excess
( P925,000 500,000) x 32%
Total
Less: Creditable withholding tax
Income tax still due
Exercise 9-7

Gross sales
Less: Cost of sales
Gross income
Less: Operating expenses
Net taxable income
Multiplied by
Corporate income tax
(higher than MCIT below)
MCIT (P2,100,000 x 2%)
Exercise 9-8

125,000
925,000
=======

125,000
136,000
261,000
55,000
206,000
=======
3,000,000
900,000
2,100,000
1,200,000
900,000
30%
270,000
=======
42,000
=======

Share in the income of the partnership


(P900,000 270,000) x 40%
Multiplied by final tax rate
Final tax

85

252,000
10%
25,200
======

The share from the partnership is subject to final tax;


hence, partners are not liable to income tax.
Exercise 9-9

Compensation gross
(P350,000 + 32,000)
Less: Personal exemption
(P50,000 + 50,000)
Net taxable income

382,000

Tax on P250,000
Tax on excess
(P282,000 250,000) x 30%
Total
Less: Withholding tax
Income tax still due
Exercise 9-10

Gross income
Less: Operating expenses
(P2,500,000 x 70%)
Exemption
Net taxable income
Tax on P500,000
Tax on excess
(P730,000 500,000) x 32%
Total tax due
Problem 9-1

100,000
282,000
======
50,000
9,600
59,600
32,000
27,600
======
2,500,000

1,750,000
20,000
1,770,000
730,000
=======
125,000
73,600
198,600
=======

1. The partnership is not subject to tax being a general


professional partnership.
86

2.Share using the gross income method


(P500,000 4/10)
Less: Optional standard deduction
(200,000 x 40%)
Distributive share in the income
of the partnership

200,000
80,000
120,000
======

3. Gross income
500,000
Less: Operating expenses
320,000
Net income of the partnership
180,000
Multiplied by shares in the profit (6/10)
60%
Distributive share
108,000
======
4. Net income of the partnership
180,000
Multiplied by shares in profit (4/10)
40%
Distributive share on net income
72,000
======
Creditable withholding tax
(P72,000 x 10%)
7,200
======
Gross compensation
(P450,000 + 50,000)
500,000
Add: Share in partnership
(see answer # 2)
120,000
Total
620,000
Less: Personal exemption (H/F)
50,000
Net taxable income
570,000
======
Tax on P500,000
125,000
Tax on excess
(P570,000 500,000) x 32%
22,400
Total
147,400
Less: Tax credit
Withholding taxes on wages 75,000
87

Creditable withholding tax


on partnership
Amount of tax still due

7,200

5. Distributive share on net income


(P180,000 x 60%)
Multiplied by
Creditable withholding tax
Gross compensation
(P480,000 + 90,000)
Add: Share in partnership
(see answer # 3)
Total
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Tax on P500,000
Tax on excess
(P553,000 500,000) x 32%
Total
Less: Tax credit
Withholding taxes on wages
Creditable withholding tax
on partnership
Amount of tax still due

82,200
65,200
======
108,000
10%
10,800
======
570,000
108,000
678,000
125,000
553,000
======
125,000
16,960
141,960

90,000
10,800 100,800
41,160
======

Problem 9-2
1. Gross income
Less: Operating expenses
Net taxable income
Multiplied by corporate tax rate
88

1,500,000
800,000
700,000
30%

Income tax due


2.

Michael

210,000
=======
Albert

Share in the net income after tax


(P700,000 x 70%) = P490,000 x 40%
196,000
x 60%
294,000
Less: Final tax (P196,000 x 10%)
19,600
(P294,000 x 10%)
29,400
Distributive share after final tax
176,400 264,600
====== ======

Problem 9-3
1. Gross income (P2,000,000 1,200,000)
800,000.00

Less: Operating expenses


400,000
Interest expense
[P30,000 (P50,000 x 33%)]
13,500 413,000.00
Income before charitable contribution
386,500.00
Less: Charitable contribution
Actual
60,000
Limit (386,500 x 5%)
19,325
Lower
19,325.00
Net taxable income
367,175.00
Multiplied by tax rate corporation
30%
Tax liability
110,152.50
========
2. Share on the profit
[(P367,175 110,152.50) /2]
Share on interest income (P50,000/2)
Share on dividend from
domestic corporation (P80,000/2_
Total
Multiplied by final tax rate
89

128,511.25
25,000.00
40,000.00
193,511.25
10%

Final tax on share of Anthony


on partnership profit

19,315.13
========

3. Bert will have the same share on the income of the


partnership subject to 10% final tax. In addition,
however, he will be subject to income tax on his
compensation income.
Compensation income
(P280,000 + 35,000)
Less: Personal exemption
(P50,000 + 50,000)
Net taxable income
Tax on P140,000
Tax on excess
(215,000 140,000) x 25%
Total
Less: Withholding tax
Income tax still due
Problem 9-4

315,000
100,000
215,000
======
22,500
18,750
41,250
35,000
6,250
=====

1. The partnership being a general professional


partnership is not subject to tax. The share, however,
of each partner from the income of the partnership
shall be subject to a creditable withholding tax of 10%
if the share is not more than P720,000 and 15% if
more than P720,000.
The income of the partnership:
Gross income
Less: Operating expenses
Net income before
90

800,000
300,000

charitable contribution
Less: Charitable contribution
Actual
Limit (P500,000 x 5%)
Lower
Net income

500,000
30,000
25,000

25,000
475,000
======
The 5% rate is used to determine the limit of the
charitable contribution, since in determining the
distributive shares of the partners, the net income of
the partnership shall be computed in the same manner
as a corporation.
Distributive share
Jonathan (P475,000 x 40%)
Leonard (P475,000 x 60%)
Multiplied by
Creditable withholding tax

Jonathan
190,000

10%
19,000
======
For Jonathan (P190,000- 19,000) 171,000
For Leonard (P285,000 28,500)

Leonard
285,000
10%
28,500
======
256,500

2 and 3 The taxable income of Jonathan and Leonard


Jonathan
250,000
120,000

Gross income
Less: Operating expenses
Net income before
charitable contribution
130,000
Less: Charitable contribution
Actual
15,000
Limit 10% of income
13,000
Lower
13,000
Net income
117,000
Add: Distributive share
171,000
91

Leonard
300,000
180,000
120,000
18,000
12,000
12,000
108,000
256,500

Total
Less: Personal exemption
Taxable net income
4. Tax on P140,000
On excess (P238,000
- 140,000) x 25%
Total
Less: Creditable
withholding tax
Income tax still due

288,000
50,000
238,000
======
Jonathan
22,500

364,500
50,000
314,500
======

24,500
47,000
19,000
28,000
======
Leonard
50,000

5. Tax on P250,000
On excess (P314,500
250,000) x 30%
Total
Less: Creditable
withholding tax
Income still due

19,200
69,200
28,500
40,700
======

Problem 9-5
1. Gross income
Less: Business expenses
Income distributed
to beneficiary

2,500,000

3,000,000

100,000
2,600,000
Income before charitable deduction
400,000
Less: Charitable deduction
Actual
30,000
Limit (P400,000 x 5%)
20,000
Lower
20,000
Net income before exemption
380,000
92

Less: Exemption
Net taxable income

20,000
360,000
=======
Tax on P250,000
50,000
On excess (P360,000 250,000) x 30%
33,000
Tax due and payable
83,000
=====
2. Income received from estate
Less: Optional standard deduction
(P100,000 x 40%)
Income before exemption
Less: Personal exemption (single)
Net taxable income

100,000
40,000
60,000
50,000
10,000
======

Tax on P10,000

500
======
The administrator did not subject the income
transferred to the beneficiary to 15% creditable
withholding tax.
Problem 9-6
1. Gross income
Less: Business expenses 3,500,000
Income transferred
to beneficiar
300,000
Net income
Less: Personal exemption
(during death)
Net taxable income
Tax on P500,000
On excess
(P1,150,000 500,000) x 32%
93

5,000,000
3,800,000
1,200,000
50,000
1,150,000
=======
125,000
208,000

Total
Less: Quarterly tax paid
Income tax still due

333,000
250,000
83,000
======

2.Compensation income
(P800,000 25,000 20,000)
Add: Income from the estate
Less: Optional standard deduction
(P150,000 x 40%)
60,000
Total
Less: Basic personal exemption
Net taxable income
Tax on P500,000
Tax on excess
(P795,000 500,000) x 32%
Total
Less: Withholding tax
160,000
Creditable withholding tax
(P150,000 x 15%)
22,500
182,500
Income tax still due

755,000
150,000
90,000
845,000
50,000
795,000
======
125,000
94,400
219,415

36,915
======

3. Compensation income
(P500,000 15,000 18,000)
467,000
Add: Income from the estate
150,000
Less: Optional standard deduction
(P150,000 x 40%)
60,000
90,000
Total
557,000
Less: Basic personal exemption
50,000
Net taxable income
507,000
======
Tax on P500,000
125,000
94

Tax on excess
(P507,000 500,000) x 32%
Total
Less: Withholding tax
Creditable withholding tax
(P150,000 x 15%)

2,240
127,240
90,000
22,500
112,500

Income tax still due

14,740
====

Problem 9-7
1. The trust being revocable is not subject to income tax;
hence, the income of the trust will be added to the
gross income of the trustor or grantor.
2. Gross income
Less: Expenses
Income transferred
to the beneficiar
Exemptio
Net Taxable income

2,000,000
1,600,000
150,000
20,000

1,770,000
230,000
=======
Tax on P140,000
22,500
On excess (P230,000 140,000) x 25%
22,500
Tax due
45,000
=====
Problem 9-7
1.

Trust 1
800,000
500,000
180,000
100,000

Gross income
Less: Expenses
Amount transferred
Net income before
personal exemption
Less: Personal exemption

120,000
20,000
95

Trust 2
500,000
300,000
680,000
400,000
100,000
20,000

Taxable net income

100,000
======

Tax on P70,000
On excess
(P100,000 70,000) x 20%
(P80,000 70,000) x 20%
Taxes due
2. Consolidated income
Gross income
Less: Expenses
Amount transferred
Net income
Less: Personal exemption
Net taxable income

Trust 1
8,500
6,000
14,500
=====

80,000
======
Trust 2
8,500
14,500
10,500
10,500
=====
1,300,000

800,000
280,000 1,080,000
220,000
20,000
200,000
=======

Tax on P140,000
On excess (P200,000 140,000) x 25%
Total
Less: Taxes paid
Trust 1
14,500
Trust 2
10,500
Income tax still due
3.

Trust 1
Allocation of the P22,500
Trust 1
(P120,000/220,000) x 37,500
Trust 2
(P100,000/220,000) x 37,500
Allocated taxes
Less: Taxes paid
Income tax still due
4. Gross income from trusts
( P180,000 + 100,000)

22,500
15,000
37,500
15,000
22,500
=====
Trust 2

20,454.55
17,045.45
20,454.55 17,045.45
14,500.00 10,500.00
5,954.55
6,545.45
======= =======
280,000

96

Less: Personal exemption


Taxable income
Tax on P140,000
On excess (P230,000 140,000) x 25%
Total
Less: Creditable withholding tax
On trust 1 (180,000 x 15%)
27,000
On trust 2 (100,000 x 15%)
15,000
Income tax still due

50,000
230,000
======
22,500
22,500
45,000
42,000
3,000
=====

Chapter 10
True of False 10-1
1. False. Corporation is created by the operation of law.
2. False. The concept of corporation for income tax
purposes does not include a general professional
partnership, since the latter is not subject to tax.
3. True
4. False. A resident foreign corporation is subject to
income on its income from within the Philippines only.
5. True
6. False. There is no need to prorate the unidentified
income, since it is a domestic corporation. It is
taxable on its income from within and outside the
Philippines.
7. False. A non-resident foreign corporation is subject to
tax based on its gross income.
8. False. A non-resent foreign corporation is subject only
to 30% normal tax rate effective January 1, 2009.
9. True
10. True
97

True of False 10-2


1. True
2. True
3. False. MCIT applies only to ordinary corporations.
4. False. Effective January 1, 2009 under RA 9337, the
normal corporate income tax shall be 30%.
5. False. Under RA 9504, a corporate entity may adopt
already the optional standard deduction.
6. False. MCIT is applicable beginning on the fourth year.
7. False. MCIT applies only to ordinary corporations.
8. False. MCIT is computed based on gross income.
9. False. The tax liability of a domestic corporation is
based on NCIT or MCIT, whichever is higher.
10. False. There is no such thing as excess normal
corporate income tax. If NCIT is higher than MCIT, the
excess cannot be carried forward.
True of False 10-3
1. False. A resident foreign corporation is taxable only on
income from within the Philippines.
2. True
3. False. It is treated as a deferred charge classified as
an asset and not a tax liability.
4. False. It is charged against the retained earnings of
the corporate entity.
5. True
6. True
7. False. IAET applies only to close-held corporation.
8. True
9. False. An international carrier is subject to 2 1/2 % of
gross Philippine billings, while owners of
cinematographic films are subject to 25% based on
gross receipts.
98

10. True
Multiple Choice 10-1
1. D
2. C
3. B
4. B
5. A

6. B
7. B
8. D
9. C
10.B

Exercise 10-1 B
Gross income
( P12,000,000 + 3,000,000)
Less: Itemized deduction
(P7,000,000 x 1,800,000)
Taxable net income
Multiplied by
Income tax liability
Exercise 10-2

8,800,000
6,200,000
30%
1,860,000
========

Normal income tax


(P12,000,000 7,000,000) x 30%
Exercise 10-3

15,000,000

1,500,000
=======

Gross income within Philippines


8,000,000
Add: Unidentifiable within Philippines
(3,000,000 x 8/20)
1,200,000
Total
9,200,000
Less: Business expenses
within Philippines
4,800,000
Unidentifiable within Phil.
(P2,000,000 x 8/20)
800,000
5,600,000
Taxable net income
3,600,000
99

Multiplied by
Normal corporate income tax
Exercise 10-4

Gross income within Phil.


Unidentifiable income
(P2,000,000 x 4/40)
Total
Multiplied by
Corporate income tax liability
Exercise 10-5

Gross income
(P14,000,000 + 1,500,000)
Less: Business expenses
Taxable income
Multiplied by
Income tax liability
Exercise 10-6

4,000,000
200,000
4,200,000
30%
1,260,000
=======

15,500,000
9,000,000
6,500,000
10%
650,000
========

Income from hospital operation


(P12,000,000 8,000,000)
Add: Income from other businesses
(P6,500,000 4,000,000)
Total
Multiplied by
Income tax liability
Exercise 10-7

30%
1,080,000
=======

4,000,000
2,500,000
6,500,000
30%
1,950,000
=======

Income tax liability in the Philippines


(P5,000,000 x 2 1/2%)
100

125,000
======

Exercise 10-8
A
The school being a governmentowned institution is tax-exempt.
Exercise 10-9

Income tax liability


(P8,000,000 P5,000,000) x 25%
Exercise 10-10

Income tax liability


(P15,000,000 x 7 1/2%)
Exercise 10-11

750,000
======

1,125,000
=======

Under the normal corporate income tax, the company


does not have tax liability, because of the loss
sustained of P1,000,000 (P12,000,000 9,000,000
4,000,000). Hence, the minimum corporate tax of 2%
will apply on the gross income.
MCIT (P12,000,000 9,000,000) x 2%
Exercise 10-12

60,000
=====

Gross income (P7,500,000 4,200,000) 3,300,000


Less: Operating expenses
2,450,000
Taxable net income
850,000
Multiplied by
30%
Income tax liability
255,000
Less: Income tax paid first quarter
60,000
Amount of tax due for the 2nd quarter
195,000
=======
Exercise 10-13 D
Under NCIT
101

(8,000,000 4,400,000 3,400,000)


x 30%
Under MCIT (P8,000,000 4,400,000)
x 2%
Higher MCIT tax payable
Exercise 10-14

72,000
72,000
=====

MCIT
NCIT
Excess of MCIT over NCIT to be
carried forward to succeeding 3 years
Exercise 10-15

60,000

72,000
60,000
12,000
=====

Income on dividend within Phil.


(P250,000 x 80%) x 30%

60,000
=====
Dividend received from AA Company was tax-exempt.

Exercise 10-16

Gross income
Add: Other income
Total
Less: Business expenses
Net income before contribution
Less: Charitable contribution
deductible in full
Subject to limitation
(P2,300,000 x 5%)
215,000
Net taxable income
Multiplied by
Normal corporate income tax
102

8,000,000
300,000
8,300,000
6,000,000
2,300,000
100,000
115,000
2,085,000
30%
625,500
=======

Exercise 10-17

MCIT (8,000,000 x 2%)


Exercise 10-18

160,000
======

Gross income
(P12,000,000 7,500,000)
Less: Business expenses
Net operating loss 2008
Taxable net income
Multiplied by
Normal corporate tax
Exercise 10-19

4,500,000
4,000,000
300,000
4,300,000
200,000
30%
60,000
=======

MCIT (4,500,000 x 2%)

Exercise 10-20

90,000
=====

Income tax liability


(P7,000,000 x 2.5%)

175,000
======

Problem 10-1
Direct flight from Philippines to London
Direct flight from Philippines to Paris
Transferred flights from Philippines
to Paris transferred for London
[P7,200,000 x (P6,000/P9,000)]
Total receipts from Philippines
Multiplied by
103

13,500,000
12,000,000
4,800,000
30,300,000
.025

Income tax payable

757,500
========

Problem 10-2
NCIT
7,000,000

1. Gross income
Add: Interest income
on receivable
Total
Less: Business expenses
Taxable net income
Multiplied by
Income tax liability

MCIT
7,000,000

200,000
7,200,000 7,000,000
5,000,000
2,200,000 7,000,000
30%
2%
660,000
140,000
======= =======

2.

NCIT
MCIT
4,000,000 4,000,000
3,100,000
900,000 4,000,000
30%
2%
270,000
80,000
======= =======

Gross income
Less: Business expense
Taxable net income
Multiplied by
Income tax liability

Problem 10-3 The income of University of Southern


Mindanao is not subject to income being a
government educational institution.
Problem 10-4
1. Itemized deduction
a. Net sales (P5,000,000 50,000)
Less: Cost of sales
Gross income
Less: Itemized operating expenses
Net income
Add: Capital gain
104

4,950,000
2,300,000
2,650,000
1,800,000
850,000

Sale of capital assets


1,000,000
Less: Cost of capital asset sold 1,200,000
Non-deductible capital loss
200,000
=======
Net taxable income
NCIT (P850,000 x 30%)
MCIT (2,650,000 x 2%)
Income tax liability (NCIT Lower)

b. Net taxable income


Add:
Interest income (P48,000/80%
Dividend received

850,000
=======
255,000
53,000
255,000
=======
850,000

60,000
80,000
140,000

Total
Less: Income tax paid
255,000
Final tax on interest
(P60,000 48,000)
12,000
Improperly accumulated earnings

990,000
267,000
723,000
======

2. Optional standard deduction


a. Gross income
2,650,000
Less: OSD (P2,650,000 x 40%)
1,060,000
Net income
1,590,000
Add: Capital gain
Sale of capital assets
1,000,000
Less: Cost of capital asset sold 1,200,000
Non-deductible capital loss
200,000
=======
Net taxable income
1,590,000
=======
105

NCIT (P1,590,000 x 30%)


MCIT (2,650,000 x 2%)
Income tax liability (NCIT Lower)
b. Net income subject to tax
Add: Interest income
(P48,000/80%) 60,000
Dividend received
80,000
140,000
Total
Less:
255,000
Final tax on interest
(P60,000 48,000) 12,000
Improperly accumulated earnings
Problem 10-5
1. Gross income
(P3,000,000 + 1,200,000)
Less: Business expenses
(P1,800,000 + 900,000)
Net income
Add: Interest income Australia
Net taxable income

477,000
53,000
477,000
=======
1,590,000

1,450,000
Income tax paid
267,000
1,183,000
=======

4,200,000
2,700,000
1,500,000
50,000
1,550,000
=======
465,000

Income tax (P1,550,000 x 30%)


Less: Tax credit
Philippine tax paid
150,000
Australia
Actual
120,000
Limit
(P300,000/P1,500,000)
x P465,000
93,000
Lower
Excess minimum
106

93,000

corporate income tax


Income tax still due

80,000

2. Gross income
Less: Business expenses
Net taxable income
Income tax (P1,200,000 x 30%)
Less: Tax credit
Philippine tax paid
150,000
Excess minimum
corporate income tax
80,000
Income tax still due

323,000
142,000
=======
3,000,000
1,800,000
1,200,000
=======
360,000

230,000
130,000
=======

Problem 10-6
1. Year 2006
NCIT
(P3,000,000 2,900,000) x 30%
MCIT
(P3,000,000 x 2%)
Income tax due higher

30,000
60,000
60,000
=====

2. Year 2007
NCIT
(P5,500,000 4,800,000) x 30%
MCIT
(P5,500,000 x 2%)
Income tax due higher
Less: Excess of MCIT last year \
(P60,000 30,000)
Income tax still due
107

210,000
110,000
210,000
30,000
180,000
======

3. Year 2008
NCIT
(P7,000,000 6,800,000) x 30%
MCIT
(P7,000,000 x 2%)
Income tax due (higher)

60,000
140,000
140,000
======

Problem 10-7
1.Gross income
(P6,000,000 + 2,000,000 + 3,000,000)
11,000,000

Less: Business expenses


(P4,800,000 +1,400,000 + 2,100,000) 8,300,000
Taxable net income
2,700,000
Multiplied by
30%
Income tax due
810,000
========
2. Gross income
Less: Business expenses
Taxable net income
Multiplied by
Income tax due

6,000,000
4,800,000
1,200,000
30%
360,000
========

3. Gross income
Multiplied by
Income tax due

6,000,000
30%
1,800,000
========

4. Gross income
Multiplied by
Income tax due

6,000,000
2 1/2%
150,000
108

========
5. Gross income
Multiplied by
Income tax due

6,000,000
7 1/2%
450,000
========

6. Gross income
Multiplied by
Income tax due

6,000,000
4 1/2%
270,000
========

7. Gross income
Multiplied by
Income tax due

6,000,000
25%
1,500,000
========

8. Gross income
Less: Business expenses
Taxable net income
Multiplied by
Income tax due

6,000,000
4,800,000
1,200,000
20%
120,000
========

CHAPTER 11
True or False 11-1
1. False. The income tax credits are deductible from the
income tax due.
2. True
3. True
4. False. The amount is considered as final and full
payment of income tax is due.
5. True
6. True
109

7. True
8. True
9. True
10. False. All government units, including its
instrumentalities, can constitute as withholding agent.
True or False 11-2
1. True
2. True
3. True
4. False. Payments made to a general professional
partnership is not subject to creditable withholding tax,
being among those expressly exempted by law.
5. False. Only compensation for services rendered
within the Philippines is subject to withholding tax.
6. True
7. True
8. True
9. False. The amount of withholding tax is remitted on
before the 10th day after the end of the applicable
month.
10. True
Multiple Choice 11-1
1. A
2. B
3. B
4. C
5. D

6.
7.
8.
9.

C
C
D
C
10. B

Exercise 11-1 B
Taxable compensation income
(P18,000 1,000 500 500)
110

16,000.00
=======

On P12,083
On excess (P16,000 12,083) x 20%
Withholding tax

707.73
783.40
1,491.73
=======
Exercise 11-2 A The compensation is not subject to
withholding tax. The taxpayer is considered a
minimum wage earner.
Exercise 11-3 A
Regular compensation
(P15,000 1,000 800 500) + 4,000
On P15,800
On excess
[(16,700 15,800) + 8,000] x 15%
Withholding tax
Exercise 11-4 C
On regular compensation
(P12,000 10,000)
On excess
(P2,000 + 35,000) x 20%
Withholding tax
Exercise 11-5 D
On P15,832
On excess (P2,167 x 25%)
Withholding ax
Exercise 11-6

Salary (P40,000 x 12)


Overnight pay
Excess of benefits (P55,000 30,000)
Total
111

16,700.00
=======
208.33
1,335.00
1,543.33
=======
708.33
7,400.00
8,108.33
=======
1,875.00
541.75
2.416.75
=======
480,000
6,000
25,000
511,000

Less: Personal exemption


(P50,000 + 50,000)
Net taxable compensation income
Exercise 11-7

On P250,000
On excess (P161,000 x 30%)
Total
Less: Withholding tax deducted
Income tax still due
Exercise 11-8

100,000
411,000
======
50,000.00
48,300.00
98,300.00
81,597.27
16,706.73
=======

Income from profession (P495,000/90%)


550,000
Basic salary received
480,000
Rental income (P68,400/95%)
72,000
Gross income
1,102,000
Less: Personal exemption
(P100,000 + 50,000)
150,000
Net taxable income
952,000
=======
Exercise 11-9 A
Tax on P500,000
On excess: P952,000 500,000) 32%
Total
Less: Tax credits
On profession
(P495,000/90%) P495,000 55,000
On withholding tax
85,000
On rental income
(P68,400/95%) 68,400
3,600
Income tax still due

112

125,000
144,640
269,640

143,600
126,040
=====

113