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Income Tax of Individuals: Income Taxation 6Th Edition (By: Valencia & Roxas) Suggested Answers
Income Tax of Individuals: Income Taxation 6Th Edition (By: Valencia & Roxas) Suggested Answers
CHAPTER 11
Problem 11 6
Problem 11 4
1. D
2. C
3. B
4. A
5. C
6. B
7. D
8. D
9. B
10. C
Problem 11 5
1. C
2. B
3. A
4. D
5. D
6. B
7. B
8. D
9. D
10. A
P50,000
90
P25,000
25,000
25,000
75,000
P125,000
For additional exemption of the taxpayers dependent, the Tax Code defines a
dependent as a legitimate, illegitimate or legally adopted child chiefly dependent
upon and living with the taxpayer. Subject to the conditions that such dependent is
not more than twenty-one (21) years of age, unmarried and not gainfully employed
or if such dependent, regardless of age, is incapable of self-support because of
mental or physical defect. The additional exemption of P25,000 per child is granted
to a maximum of 4 qualified dependent children. [Sec. 35 (B), NIRC as amended by
R.A. 9504]
A taxpayer supporting a senior citizen is not allowed to claim additional exemption.
The Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable
because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of
June 6, 2008 provides that additional exemption shall apply to qualified dependent
children. When the law does not include it excludes. The old CTA decision is
superseded by the two Special Laws R.A. 8424 & R.A. 9504 which are superior to
CTA decision. Furthermore, Rev. Regs. No. 4 2006, Sec. 7 last paragraph provides
that No personal exemption is allowed for senior citizen.
It must be noted that the principle of lex posteriori derogate priori the
more recent law governs.
Problem 11 7
C
Basic personal exemption
Additional exemption (a & b only) (P25,000 x 2)
Total personal and additional exemptions
Problem 11 8
Not in the choices = P70,000.
Basic personal exemption reciprocity
Add: Additional exemption reciprocity (P10,000 x 2)
Basic personal exemption married
P50,000
50,000
P100,000
P 50,000
20,000
P 70,000
When there is reciprocity, nonresident alien engaged in business in the Philippines is allowed
of personal exemptions subject to limit. The term personal exemption in the Philippines
includes both the basic personal exemption (Sec. 35 (A), NIRC) and additional exemption for
qualified dependent children not exceeding four. (Sec. 35 (B), NIRC)
Problem 11 9
D
Zero. Maria has no income.
Problem 11 10
A
Income from the Philippines (P10,000 x 12)
Less: Personal exemption
Income subject to tax in the Philippines
P120,000
50,000
P 70,000
91
Note: Income earned by OFW outside the Philippines is not subject to tax in the Philippines.
The income from the sari-sari store in the Philippines is earned from January to December of
the taxable year.
Problem 11 11
Not in the choices =P487,500.
Gross compensation income Philippines (P250,000 x 12)
Add: 13th month pay
Total taxable compensation
Multiplied by special income tax rate
Income tax payable
P3,000,000
250,000
P3,250,000
15%
P 487,500
P 900,000
75,000
50,000
P1,025,000
15%
P 153,750
If the special taxpayer is an alien and qualifies to be taxed using 15% special tax rate, all of
his gross compensation income is subject to 15% final tax. Take note that the 13 th month pay
amounting to P30,000 is included as taxable compensation because the tax rate has been
reduced to 15%.
Problem 11 13
B
Annual salary (P65,000 x 12 months)
Annual cost of living allowance (P5,000 x 12 months)
13th month pay (P780,000/12)
Gross compensation income
Less: Nontaxable 13th month pay
Taxable gross compensation income
Less: Personal exemption basic
Net taxable income
P780,000
60,000
65,000
P905,000
30,000
P875,000
50,000
P825,000
Tax on P500,000
Tax on excess [(P825,000 P500,000) x 32%]
Income tax due
P125,000
104,000
P229,000
Since the compensation income is below the threshold of P975,000 per year of a Filipino
Citizen Employed by Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies, his compensation income shall be subject to a regular tax for
individuals. (Sec. 1, Rev. Regs. No. 11-2010)
Take note that if the special Filipino taxpayer opted to be tax using normal tax, the 13 th
month pay is deducted as nontaxable income.
Problem 11 14
P200,000
92
Rent income
Less: OSD (P50,000 x 40%)
Net income before personal exemption
Less: Basic personal exemption
Premium payments on hospitalization
insurance, limit
Net taxable income
P50,000
20,000
30,000
P230,000
P50,000
2,400
52,400
P177,600
For individual taxpayers, only gross sales or gross receipts are allowed as the basis
of OSD (Sec. 34(L), NIRC; RA 9504).
The Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable
because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of
June 6, 2008 provides that additional exemption shall apply to qualified dependent
children. When the law does not include it excludes. The old CTA decision is
superseded by the two Special Laws R.A. 8424 & R.A. 9504 which are superior to
CTA decision. Furthermore, Rev. Regs. No. 4 2006, Sec. 7 last paragraph provides
that No personal exemption is allowed for senior citizen.
It must be noted that the principle of lex posteriori derogate priori the
more recent law governs.
Problem 11 15
1.
Letter B
Compensation income
Business and other income:
Professional income (P300,000 + P200,000)
Interest income without
Dividend income without
Total business and other income
Less: OSD (P600,000 x 40%)
Net business income
Total net income before personal exemption
Less: Basic personal exemption
Net income to ITR tabular tax
Subject to
Tabular tax
P240,000
500,000
60,000
40,000
P600,000
( 240,000)
P360,000
P600,000
( 50,000)
P550,000
Letter A
Compensation income
Business income:
Professional income, net of OSD (P300,000 x 60%)
Total net income before personal exemption
Less: Basic personal exemption
Net income to ITR tabular tax
Interest income within
Dividend income within
Income subject to final tax
Final tax
P100,000
60,000
P160,000
P240,000
180,000
P420,000
50,000
P370,000
P100,000
60,000
P160,000
93
Problem 11 16
Husband
P140,000
P22,500
P50,000
45,000
P5,000
20,000
P 2,500
Problem 11 17
B
Compensation as researcher
Less: Personal exemption basic
Net taxable compensation income
Tax on P500,000
Tax on excess (P50,000 x 32%)
Total income tax from compensation
Dividend income tax (P120,000 x 10%)
Interest income tax (P500,000 x 7.5%)
Total income tax due
Problem 11 18
D
Capital gains tax on shares of stock (P80,000 x 5%)
Capital gains tax on sale of land (P2,000,000 x 6%)
Total capital gains tax paid
Problem 11 19
1.
Letter B
Final tax on copyright royalty (P11,250/90%) x 10%
Final tax on mineral claim royalty (P12,000/80%) x 20%
Final tax on share from trading partnership as dividend (P270,000/90%) x
10%
Total final tax
2.
Wife
P250,000
P 600,000
50,000
P 550,000
P125,000
16,000
P141,000
12,000
37,500
P190,500
P
4,000
120,000
P124,000
P 1,250
3,000
30,000
P34,250
Letter D
None. All reported earnings are subject to final tax.
Problem 11 20
B
Percent of service
Add: Output VAT
Total
Less: Withholding tax
Percent of net proceeds
100%
12%
112%
20%
92%
Net proceeds
Divided by percent of net proceeds
Service fee
P 92,000
92%
P100,000
P 20,000
P 12,000
Problem 11 21
1. Letter A
Salaries of assistants
P 96,000
94
Traveling expenses
Light and water, Office
Stationeries and supplies
Office rent
Total expenses before contribution
Add: Contribution subject to limit (P500,000 P176,850) x 10%
Total allowable deductions
2.
3.
Letter C
Professional fees
Less: Allowable deductions
Net income from business
Add: Income from compensation:
Allowance as director of Corporation A
Commissions
Net income before personal and additional exemptions
Letter D
Net income before personal and additional exemptions
Less: Personal and additional exemptions:
Basic widower
Additional exemptions (P25,000 x 3 qualified children)
Net taxable income
11,000
7,890
1,960
60,000
P176,850
32,315
P209,165
P500,000
209,165
P290,835
P25,000
5,000
P320,835
P 50,000
75,000
Tax on P140,000
Tax on excess (P55,835) x 30%
Income tax due
Problem 11 22
1. Using itemized deduction
Compensation income
Gross income from business
Less: Itemized deduction
Total income before personal exemptions
Less: Personal exemptions
Basic personal exemptions
Additional exemptions (P25,000 x 4)
Taxable income
125,000
P195,835
P 22,500
13,959
P 36,459
P 20,000
P 400,000
150,000
P 50,000
100,000
30,000
P320,835
250,000
P270,000
150,000
P120,000
P 8,500
10,000
P 18,500
1,000
P 17,500
P 20,000
P 400,000
160,000
P 50,000
100,000
240,000
P260,000
150,000
95
Taxable income
P110,000
P 8,500
8,000
P 16,500
1,000
P 15,500
P375,000
325,000
P 50,000
150,000
70,000
P270,000
2,000
P268,000
P 20,000
26,800
P47,000
Corrected net taxable income
Less: Reported net income subject to tax
Unreported taxable income
Problem 11 24
200B net income from business
Capital gains transactions
Short-term capital gains (P40,000 x 100%)
Long-term capital gains (P30,000 x 50%)
Short-term capital loss (P10,000 x 100%)
Net capital gains
Less: 200A Capital loss carry over limit
Income before personal exemptions
Basic personal exemption- married
Additional exemption (P25,000 x 3)
Taxable income, 200B
46,800
P221,200
150,000
P 71,200
P 71,200
24,200
P 47,000
P 600,000
P 40,000
15,000
(10,000)
P45,000
35,000
P 50,000
75,000
10,000
P 610,000
125,000
P 485,000
Note: The applicable capital loss carry-over should only be limited to P35,000, because it
should not exceed the net income from operation of such year (Sec. 39D, NIRC).
Problem 11 25
1.
Compensation income (P240,000 + P30,000)
Less: Personal exemption (P50,000 + P25,000)
Net taxable compensation
Business income
P270,000
75,000
P195,000
P100,000
96
120,000
(P20,000)
0 P195,000
Tax on P140,000
Tax on excess (P55,000 x 25%)
Income tax due
Less: Tax credit
Income tax still due and payable
Problem 11 26
1.
Salary (P30,000 x 12)
Add: Taxable 13th month pay (P35,000 P30,000)
Total
Less: SSS contribution
Medicare/Philhealth contribution
Taxable compensation income before personal
exemption
Less: Personal exemption
Net taxable compensation income
P22,500
13,750
P36,250
30,000
P 6,250
P360,000
5,000
P365,000
P3,000
2,000
5,000
P360,000
50,000
P310,000
P50,000
18,000
P68,000
12
P 5,667
P200,000
120,000
P 80,000
Tax on P70,000
Tax on excess (P10,000 x 20%)
Quarterly business income tax per quarter
Problem 11 27
1.
Entertainment fee (P1,700,000/85%)
Business income
Philippines
Japan
Total gross income
Less: OSD (P3,500,000 x 40%)
Net income before personal exemption
Less: Personal exemption - basic
Additional (P25,000 x 4)
Net taxable income
2.
Tax on P500,000
Tax on excess (P1,450,000 x 32%)
Income tax due
3.
Tax credit
Creditable withholding tax on fees
8,500
2,000
P 10,500
P2,000,000
500,000
1,000,000
P3,500,000
1,400,000
P2,100,000
P50,000
100,000
150,000
P1,950,000
P 125,000
464,000
P 589,000
97
(P2,000,000 x 15%)
Business income tax paid - Philippines
Japan (P589,000 x 594,000*/2,100,000))
P166,603 vs. actual P300,000, lower
4.
P300,000
40,000
166,603
P 506,603
P 82,397
Within
2,500,000
71%
Outside
1,000,000
29%
Total
3,500,000
100%
994,000
1,506,000
406,000
594,000
1,400,000
2,100,000
Problem 11 28
Gross professional income (P100,000/90%)
Rent income (P300,000/2)
Total gross income
Less: OSD (40%)
Net income from business
Add: Gross compensation income
Total
Less: Personal exemptions
Net taxable income
Tax on P140,000/ P250,000
Tax on excess:
Mr. Bravo (P91,667 x 25%)
Mrs. Bravo (P90,000 x 30%)
Income tax due
Withholding tax on compensation
Withholding tax on professional income (P111,111 P100,000)
Income tax still due and payable
Mr. Bravo
P111,111
150,000
P261,111
104,444
P156,667
225,000
P381,667
150,000
P231,667
Mrs. Bravo
P 22,500
P 50,000
22,917
.
P 45,417
( 25,000)
( 11,111)
P 9,306
27,000
P 77,000
( 50,000)
.
P 27,000
Problem 11 29
1. P290,000
Compensation income
Taxable 13th month pay and bonuses (P40,000 P30,000)
Net business income (P400,000 P300,000)
Capital gains long-term (P60,000 x 50%)
Total
Less: Personal exemptions (P50,000 + P100,000)
Net taxable income
2. (P8,000)
Tax on P250,000
Tax on excess (P40,000 x 30%)
Total income tax due
Less: Income tax paid on:
Compensation
Quarterly business income
Income tax refund
P150,000
P150,000
60,000
P 90,000
300,000
P390,000
50,000
P340,000
P300,000
10,000
100,000
30,000
P440,000
150,000
P290,000
P
P
50,000
12,000
62,000
(P
70,000
8,000)
P 50,000
20,000
98
Problem 11 30
1.
13th month pay
Other benefits:
Excess of clothing allowance (P4,500 P4,000)
Excess of rice subsidy (P1,600 P1,500) x 12
Total (not exceeding P30,000) nontaxable
Allowable de minimis:
Clothing allowance
Rice subsidy (P1,500 x 12)
Total 13th month pay and other benefits nontaxable
2.
3.
P25,000
P 500
1,200
P4,000
18,000
1,700
P26,700
22,000
P48,700
P300,000
150,000
P150,000
Tax on P140,000
Tax on excess (P10,000 x 25%)
Total income tax due
P22,500
2,500
P25,000
P22,917
Problem 11 31
Gross income from business (P1,000,000 P700,000)
Operating expenses (P250,000 P60,000 P30,000)
Deductible interest expense (P30,000) (P20,000 x 33%)
Deductible contribution (P300,000 P160,000 P23,400) x 10%
Net business income
Capital asset transactions:
Capital gains short-term (P300,000 x 100%)
Capital losses long-term (P400,000 x 50%)
Lotto winning, USA
Gambling winnings
P125,000
232,080
P357,080
P22,917
24,000
46,917
P310,163
P 300,000
( 160,000)
( 23,400)
( 11,660)
P 104,940
P 300,000
200,000
P 200,000
100,000
300,000
99
250,000
200,000
5,000
P 709,940
150,000
P 559,940
Tax on P500,000
Tax on excess (P59,940 x 32%)
Total income tax due
Less: Withholding tax on compensation
Income tax still due and payable
P 125,000
19,181
P 144,181
20,000
P 124,181
Problem 11 32
Note: OSD is not applicable unless the taxpayer signified in his ITR that he opted to use OSD
in lieu of itemized deductions. (Sec. 34 (L), NIRC)
Philippines
P200,000
U. S. A.
Total
P125,000
P325,000
50,000
75,000
110,000
75,000
100,000
P350,000
100,000
P610,000
50,000
P560,000
60,000
.
P260,000
P125,000
19,200
P144,200
P20,000
3,000
40,000
63,000
P 81,200
*Allowable tax credit paid outside the Philippines is lower than tax limit or actual tax
paid. The tax credit is computed as follows:
Limit (P350,000/P610,000) x P144,200
Actual foreign taxes paid:
Interest (P75,000 x 20%)
Compensation (P125,000 x 10%)
Dividend (P100,000 x 10%)
Commissions (P50,000 x 5%)
Total
P82,738
P40,000
P15,000
12,500
10,000
2,500
P40,000
Note: The actual tax paid outside the Philippines is lower than the computed tax limit;
hence, the actual tax paid without is the allowable tax credit.
100
P12,500
1,000
P13,500
P200,000
60,000
P260,000
50,000
P210,000
P22,500
17,500
P40,000
23,000
P17,000
P12,500
1,000
P13,500
Note: Nonresident citizens are taxable only on income derived within the Philippines.
P240,000
76,000
66,667
12,000
P394,667
101
25%
P 98,667
Note: In computing the income tax, a fractional part of a peso less than P0.50 shall be
disregarded. If the fractional part is P0.50 or more, it shall be rounded up to P1.00 (R.A. 590).
Problem 11 33
Gross income from business (P1,000,000 P700,000)
Operating expenses (P250,000 P60,000 P30,000)
Deductible interest expense (P30,000) (P20,000 x 33%)
Deductible contribution (P300,000 P160,000 P23,400) x 10%
Net business income
Capital asset transactions:
Capital gains short-term (P300,000 x 100%)
Capital losses long-term (P400,000 x 50%)
Lotto winning, USA
Gambling winnings
Gambling losses (excess cannot be deducted from other
income)
Gross compensation income (P180,000 + P20,000)
Taxable 13th month pay (P35,000 P30,000)
Net taxable income before exemption
Less: Personal exemptions (P50,000 + P100,000)
Net taxable income
Tax on P500,000
Tax on excess (P59,940 x 32%)
Total income tax due
Less: Withholding tax on compensation
Income tax still due and payable
P 300,000
( 160,000)
( 23,400)
( 11,660)
P 104,940
P 300,000
200,000
100,000
300,000
P 200,000
250,000
200,000
5,000
P 709,940
150,000
P 559,940
P 125,000
19,181
P 144,181
20,000
P 124,181