UNIT 12

TAXATION
Session 12

Required
Calculate the capital gains and losses for an individual and company, together with relevant allowances

Topics
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Review of Last session Test of baseline knowledge Layout of computation Allowable Expenditure Indexation allowance and taper relief Dealing with losses Allowances

Review of Last session

Test of baseline knowledge

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Layout of computation

Outright Sale Real Property

Value of the Property x 6%

Instalment or terms Real Property

Selling Price Less: Cost and Expenses Less: Mortgage Assumed Taxable Amount Divided by number of amortizations x months collected within the year x 6%

Stock Purchase
Taxable Base Selling Price Less: Cost and Other Allowable Expenses Net Capital Gain/(Loss) Tax Due on the Entire Transaction 5% on the first 100,000 10% over 100,000 Total Tax Due = = =

= =

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Allowable Expenditure

Allowable costs may include:

the price paid to acquire the asset the costs of any improvements made to your assets Incidental costs of acquiring or disposing of the asset (e.g. Documentary Stamp Tax) Sometimes you use the market value of the asset instead of the actual cost (eg if you received the (eg asset as a gift).

Indexation allowance and relief

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Indexation
It is a measure of inflation that finds application in tax law, when computing long-term capital gains on longsale of assets Computing Capital Gains with the consideration of the Time Value of Money using inflation rate as index. We Do not have Indexation in the Philippines

Relief
Taper relief provides a valuable reduction in the capital gains tax payable on the disposal of assets, especially those with qualifying business use. use. Rollover ReliefReliefPostponement of capital gains tax allowed to a business that reinvests the proceeds from a profitable sale of an asset, as an incentive for replacing older capital assets with new or better ones. ones. Again, there are no Relief in the Philippines

Dealing with losses

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Definition
The loss incurred when a capital asset (investment or real estate) decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price. Casualty Loss approved by BIR occurring from calamities.

Casualty Losses
A casualty loss cannot just be claimed as a deduction. The affected taxpayer must report the loss to the BIR within 45 days after the event. The report shall be filed in the form of a Sworn Declaration of Loss, stating the following: a. Nature of the event that gave rise to the loss and time of its occurrence; occurrence; b. Description and location of the damaged properties; properties; c. Items needed to compute the losses such as cost of the properties; depreciation, if any; value of the properties before properties; any; and after the event; and cost of repair; and event; repair; d. Amount of insurance or other compensation received or receivables

Treatment
Capital Losses deducted from Income same year Casualty Losses - deducted in the Income Statement as deduction to assets and/or ,if applicable, repairs expense.

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Capital Gains Allowances

In some countries, there are threshold countries, amounts before capital gains are computed. The allowances range from 10,100 to 10,600 Tax rates also differs per amount of Salary reported to the Internal Revenue. Again, Not Applicable in the Philippines

Topics for Research

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Tax form used Tax rates Calculating the tax payable Reporting Period

Required
Calculate the tax payable in respect of capital gains

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