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TAXATION 1. Section 30 to 83 Explanatory Notes Section 30​-​Exemption from Tax on Corporations.

The corporations covered by this section are exempted from income tax because it is generally organized not for profit but exclusively for the benefit of their respective members. So that no income inuring to the benefit of the individual members but for the benefit of the organization as a whole. ​However, a corporation is not simply exempted from tax because it is not organized and operated for profit, it is still subjected to income tax no matter how these corporation are created. Hence, if they will have income of whatever kind and character from any of their properties real or personal or from any of their activities conducted for profit regardless of the disposition made of such income, they will be liable for income tax. ​For instance a non-profit corporation will sell their property and derive income therein, that income would be subjected to income tax. ​The rule that “regardless of their disposition made of such income” do not apply to non-profit educational institution, because under the constitution all revenues and assets of these institutions it actually, directly and exclusively used for educational purposes will make these institution exempted from all taxes. Thus, if Xavier University, for example, who is a non-stock, non-profit educational institution will use their rental income from the gym for education purposes, the same is not subject to income tax. However, if the gym rental is used for charitable purposes it would already be subjected to income tax because what the constitution provides is only to educational purposes. READ : CIR vs. Court of Appeals, 298 SCRA 83 Section 31​-​Taxable Income means “Gross Income”, less deductions and/or personal and additional exemptions. ​The following are the deductions under the tax code: 1. Business deduction (Sec. 34, par. A – J and M): available to corporations or individual taxpayer who are taxed on taxable income derived from business, trade, or exercise of profession. 2. Optional standard deduction (Sec. 34, par. L); available to corporations or individual taxpayer who are taxed on taxable income derived from business, trade, or exercise of profession. 3. Personal exemptions (Sec. 35): only individuals allowed who are also taxable based on taxable income. 4. Premium on health insurance / Hospitalization insurance: only individuals allowed who are also taxable based on taxable income. Section 32​-​Gross Income ​(A)​General Definition – the term “all income derived from whatever source means from legal or illegal sources. ​The enumeration of items of income from no. 1 to 11 is not exclusive. Meaning that incomes that are not mentioned in the enumeration are also included as part of gross income. ​Sources of income might be from the following activity: 1. Exercise of profession; 2. Services rendered;

3. Rentals; 4. Profits from sale or exchange of asset; 5. Business or trade; 6. And from other sources such as interest in bank deposits, dividends, and royalties. What is income? ​Income is an amount of money coming to a person within a specified time, whether as payment of services, interests or profits from investments. ​Presumed Gain is also income. ​Gain is synonymous with income. ​Gain may be derived from capital, labor or both. ​“Income in taxation does not only mean profit. Hence, SP may be considered an income if provided by law. But capital is never treated as “Income”. ​Profits or gain may also derive through sale or conversion of an asset. ​There is no statutory definition of income under the tax code. However, under Section 36 of the Revenue Regulation No. 2, income is defined that in its broad sense, means all wealth which flows into the taxpayer, other than as a mere return of capital. ​An income to be considered as taxable must be: 1. Actually or constructively received; 2. It must be realized. ​There are three (3) tests to determine the realization of income. 1. Severance test – as capital or investment is not income subject to tax, the gain or profit derived from the exchange or transaction of said capital by the taxpayer for his separate use benefit or disposed income subject to tax. 2. Substantial alteration of interest lost – income to be returnable for taxation must be fully and completely realized. When there is no separation of gain or profit, or separation of the increase in value from capital, there is no income subject to tax. 3. Flow of wealth test –anything/implying existence of capital a) Capital is fund income is the flow; b) Capital is wealth income service of wealth; c) Property is tree income is fruit; d) Labor is tree income is fruit. READ​:​Madrigal vs. Rafferty , 38 Phil. 414 ​The tax code did not indicate the source of income (Blinds Sources). What it enumerates are specific items of income. ​Are the following items considered income? 1. Found treasure – other forms of gain; 2. Punitive damages/damages for breach of promise or alienation of affection; 3. Recovery of bad debts; 4. Tax refund;

Lost profits recovered are subject to income tax. 5. Non-cash benefits. ​Exclusions from Gross Income simply means that these incomes are not subject to income tax: • There are only instances an item of income would not be subjected to income tax: 1. ​(B)​​Exclusion from Gross Income – an income can be exempted from taxes based on the following reasons: 1. Prizes. fellowship. If it is an accident insurance and it includes coverage of life insurance the proceeds would not be subjected to income tax.5. the Supreme Court stated that taxable income. ​Doctrine of Constructive Receipt of Income means that it was already set aside. (2) He is not less than fifty (50) years of age at the time of retirement. 3. 2. If it is exempted by the statute or law. scholarship. 8. Some Principles: ​A tax free income is different from a tax free organization. 2. if the holder of the property has the obligation to return it and instead use it for his own benefit. ​The Material Benefit rule (CIR vs. Exemption by the fundamental law of the land. 3. Return of Premium not subject to income tax because it is just a mere return of capital. Exempted by the statute. However. Compensation for Injuries or Sickness includes physical. and Devises not subject to income tax but subject to estate tax or donor’s tax. it can be subjected to estate tax if the rules of the estate taxes will apply. 6. means that under the solutio indebiti rule. Life Insurance – proceeds of life insurance being only an indemnity of life lost is not subject to income tax. the amount to be returned would be considered an income. without limitations. When it does not come within the definition of income. ​In the case of Commissioner vs. Example share of the partner in a general partnership. Tours Specialist. Gifts. . 6. 2. It does not come within the definition of income such as stock dividend or increase in the appraisal of the FMV of the property. Bequests. 4. Example: increase of appraisal value of the property 1. Income from illegal sources. If it is exempted by the Constitution. Javier. restrictions or conditions for its withdrawal. moral and psychological injuries. 7. 3. 183 SCRA 402. Retirement Benefits covered by a private benefit plan maintained by the employer would be exempted from income tax if the following conditions will be present: (1) The retiring employee is in the service of the same employer for at least ten (10) years. Income Exempt under Treaty would not be subject to tax because of the treaty (International Comity) entered into by the government with other countries. ​Doctrine of Cash Equivalent in Transaction means that if a property is exchanged with another property the difference of a Fair Market Value (FMV) would be considered income. Forgiveness of debt. however. 199 SCRA 824). does not include items received which do not add to the taxpayer’s net worth or redound to his benefit such as amounts merely deposited or entrusted to him.

labor code will govern. Private Employee . or for any cause beyond the control of the said special or employee. are also other forms of involuntary retirement. Pseudo retirement. 1995 – retirement under CBA is taxable for being voluntary. . Some other grounds like retrenchment. (7) Or civic achievement. April 11. The reasons may be because of the death. if there is a treaty or law that exempts it. 071-95. (6) Literary. . G. (3) Entitled retirement ½ salary for every year of service but not less than one month salary. closure of business. Miscellaneous Items (READ : CIR vs. If the company has no BIR approved retirement plan an employee who is separated against his will but who signed a CBA. (2) Charitable. Requirements are the following: (1) At least sixty (60) years old but not more than sixty-five (65) years old. 54908. redundancy. ​The aforestated conditions would be applicable if there is a reasonable private benefit plan of the employers. 22. sickness or other physical disability. 7. and it is not of his own choice that he is retired. ​Retiring person which has no private retirement plan by the employer: . (2) Has served at least five (5) years of service with the same employer. 1990). The award is primarily: (1) religious. . . SSS and GSIS benefits are exempted from income tax. the retirement benefits under the CBA is taxable because by signing the CBA it will make his separation voluntary. or compulsory retirement. ​If it is a government employee. Benefits given to persons residing in the Philippines whether alien or citizen by the USVA exempted from income tax. b) Income Derived by the Government or its Political subdivisions not subject to tax because it is an inherent limitation provided that the government is performing governmental function. ​BIR Ruling No.(3) You retired under the private benefit plan of the employer. No. c) Prizes and Awards – conditions would be exempt from income tax: . or involuntary retirement. . (3) Scientific. (4) Educational. Mitsubishi. ​Involuntary retirement is present if the employee did not ask. (5) Artistic. retirement will be governed either by the retirement plan of the government agency or by the GSIS. Take note of the source of income. did not initiate. a) Income Derived from Foreign Government are exempt because of reciprocity between countries. The retirement benefits received from involuntary retirement not subject to income tax.R. Jan. Foreign retirement benefits or domestic benefit retirement gratuitously received by a resident or non-resident citizen of the Philippines or alien who come to reside permanently in the Philippines are exempted from income tax.

SSS. ​FB means employees benefits supplementary to a money wage or salary. and all others such as the different MWSS bonus.000. . except if: 1) The FB is required by the nature of the employment. however. GSIS. The award is unconditional meaning he is not required to render substantial future service as a condition to receiving the prize or award. ​The term other benefits includes Christmas bonus. F to be exempt. Pag-IBIG contributions (which are employer’s share) are exempted from income tax including union dues but not including contributions made by employers which are not enumerated in par. So that if the FB is exempted from FBT it would still be subject to compensation income tax unless if the employee is also exempted from the income tax. ​Rank and file employees are exempt from Fringe Benefit Tax (FBT) ​Only supervisory or managerial employee are liable to pay FBT. ​All the three (3) conditions must be present to be exempted from income tax. the excess would be subjected to income tax. ​The tax base is grossed up monetary value of the FB. ​Example of FB . 2) Necessary to the trade.00. that the total exclusion under this subparagraph shall not exceed P30. The first P30. 33.. Self-explanatory. . 3) FB is for the convenience and advantage of the employer. ​Memorize definition of FB under Sec. ​FB given to employees which are non-residents alien individual not engaged in trade or business within the Philippines including the special alien individuals under Section 25 shall not be subject to FBT but the regular rates imposed under Section 25. 13th Month Pay and Other Benefits – Gross benefits received by officials and employees of public and private entities: Provided. Section 33. ​Nota Bene – take note of the tax provisions for minimum wage earners which exempt compensation and other benefits. C. Section 33. no. (memorize) ​If the FB is already subjected to FBT it is no longer subject to tax as compensation income. ​13th month pay are exempted if received by public or private entities. Section 33​-​Fringe Benefit – this tax is imposed to the employee but payable by the employer under the withholding tax system.see par. There was involuntary participation by the recipient . ​Mnemonics to remember : R E L A C C S . B.​ .000. quarterly bonus.00 would be exempted. monthly bonus. Medicare. Self-explanatory. 1-10 ​FB that are not taxable – refer to par. business or profession of the employer. .

00/month. Interest Expense (4 requisites) -​there must be an indebtedness -​proceeds of the loan is utilized in the business -​there must be a legal liability to pay interest -​indebtedness must be that of the taxpayer .000.000 . Deduct the entire amount of expenditures during the taxable year. Ordinary and necessary 2. for public employees no limit.000.​Itemized Deductions (the same requisites with the ordinary but with additional conditions): 1. taxes cannot be deducted as losses) 6.000 x 38% (effective Jan.00/annum. To be deducted in the category it belongs (e. or 2. Business Expenses comprises of: (Sec. CHAPTER VII. 2000)​P 19. 6) Laundry allowance P300. Ordinary and Necessary Trade. 2) Medical cash allowance to dependents not exceeding P700. 34 A) . 4) Uniform allowance P3. There are four groups as stated earlier: . Allowable Deductions. Paid or incurred during the taxable year (fiscal or calendar year) 3. Reasonable expense ​Bribes. ​Private Educational Institutions (Proprietary) is given the option to deduct the expenditures which are capital outlay for expansion of school facilities either: 1.000 Deductible interest expense​P 41.00/semester or P125.​De minimis benefits (benefits of small value) is exempted both from FBT and compensation income tax. 5) Medical benefits P1.00/month. 3) Rice subsidy P1. 1. business or Professional Expenses. Deduct as depreciation expense ​II. ​Examples of De minimis benefits: 1) monetized unused vacation leave not exceeding ten (10) days for private employees. Connected and related of the taxpayer’s business 4. Requisites: 1.000.00/annum.000 Less : Bank deposit interest income P50.Tax Arbitrage Scheme – the amount of interest of loans will be deducted from business income net of the interest income received by the taxpayer from his bank deposits subject to Final Tax Example: Interest Expense​P 60. kickbacks and other similar payments NOT ALLOWED as expense.00/month or less. Substantiated by receipts or invoices’ (par b(1)A) 5.g.

127d) 5.. Income Tax Due​P x x x Less : Foreign Tax Credit (FTC)​P x x x Tax still due​P x x x ​FTC will only arise if the taxpayer is taxable in the Philippines of income derived within and without the Philippines ​FTC – to determine it there is a Formula. Deduct the interest as outrightly. 36(b)] NOT DEDUCTIBLE.Different treatment if the taxpayer used the CASH METHOD and the interest on loans was prepaid interest expense. Special Assessments ​Taxes that are not enumerated above are deductible from business income provided it is connected. Transfer Tax on sale of shares of stocks (Sec. The entire foreign tax paid cannot be used as FTC. Example: 1. The interest to be deducted must be prorated with the payment of the principal loan. To be deducted through depreciation. 36(b). . Treat the interest as capital expenditures.Optional treatment of Interest Expense when loans are incurred to acquire property to be used in business: 1. Gross Income (within and without)​P x x x ​Less : Deductions (not including Foreign Income Tax)​P x x x ​Taxable income​P x x x ​Phil. Income Tax 2.​Losses ​Kinds of Losses . ​3. or 2.Interest on indebtedness incurred to finance petroleum exploration NOT DEDUCTIBLE. Gross Income (within and without)​P x x x ​Less : Deductions (including Foreign Income Tax)​P x x x ​Taxable income​​P x x x 2.​Taxes ​ ​The following cannot be deducted: ​ 1. Estate and Donor’s Taxes 4. ​2. .Sec. The entire prepaid interest expense will not be deducted on the year the loan was incurred. interest expense on loans obtained from related persons [Sec. Foreign Income Tax (if Foreign Tax credit is utilized) 3. ​Foreign Tax Credit – is a portion of foreign income tax which can be used as a deduction from the Philippine Income Tax due. Ordinary losses​–​operation of the business ​-​NOLCO will apply ​-​connected with business . .

is that sum which should be set aside for the taxable year in accordance with a reasonable consistent plan whereby the aggregate of the sums so set aside. No. C. robbery. (Sec. depreciation means the reduction in service value or property used in business or trade arising from exhaustion. shipwreck. plant and equipment are normally usable for a number of years.​Casualty losses​-​properties used in business ​-​loss arises from fires. suffice to provide an amount equal to the original cost.​Depreciation ​-​property. 2) ​Depreciation – a deduction from gross income for depreciation is allowed but limits the recovery to the capital invested in the asset being depreciated. Requisites for claiming depreciation deductible are as follows: (a) It must be charged off (b) Must be deducted directly from the book value of the assets (c) Must be reasonable allowance (d) Property must be used or employed in business or trade or must be determined if its not being used. ​-​should not be compensated by insurance to be deductible. 2) Depreciation commences with the acquisition of the property or with its erection. ​The proper allowance for depreciation of any property used in trade or business. Reg. 195. ​-​not used as a losses deduction for estate tax purposes ​-​proof of loss (par. 38) E.Connected to business .If recovered later after it was deducted. at the end of the useful life of the property. 5. Depreciation of properties used in petroleum operations is allowable.Actual bad debts or write-offs. Depreciation – for income tax purposes. ​-​depreciation will only apply to extraordinary expenditures or capital expenditures. study carefully. plus salvage value.​Losses from Wash Sales .​Capital losses​-​(to be discussed with Capital Gains) D. ​-​to be reported to the BIR not less than 30 days and not more than 90 days.​Abandonment losses – read ​4.​Wagering losses (gambling) – to be deducted only if there is a gambling gains F. 195. theft or embezzlement. D). 256 SCRA 242 . or out of its not being used. 2 of par.​Bad Debts (A/R that cannot be collected) ​READ : Pareño vs. ​-​the owner will be able to recover the cost of the property because it will gradually or periodically deducted from his gross income as deduction called depreciation.(to be discussed in Sec. or other casualties. (Sec.B. Hence. a deduction over and above such cost cannot be . Rev. and obsolescence. Regs. not the estimated bad debts . storms. will. A point will be reached when such property may not be useful anymore in the business die to exhaustion. Sandigan. then the recovered bad debts to be included as part of gross income in the taxable year it was recovered. wear and tear. The law does not authorize the depreciation of an asset beyond its acquisition cost. wear and tear. No. Rev. This is the Tax Benefit Rule.

If.e. Accordingly. (Sec. A deduction for such depreciation is allowed in computing taxable income. the value assigned on the trademarks which is computed on the basis of future sales cannot be discounted to its present value at the time of acquisition and cannot be amortized for tax purposes over the average remaining lives of the different trademarks purchased. formulas. may be the subject of a depreciation allowance. Income Tax Regulations) ​Such being the case. your opinion that any amount of goodwill paid for by your client may not be deducted for tax purposes unless the same business or the assets related to the said goodwill is sold by your clo9ent is hereby confirmed. trademarks. 5.. ​(5)​Amounts paid for an agreement not to compete in a trade or business. (Basilan Estates. 1967) ​Goodwill. L-22492. Moreover. 107. Accordingly. ​(6)​Goodwill is not such property as is subject to exhaustion. including trademarks. to determine the present values and may be paid at said price (i. said royalty payment is subject to the 20% final withholding tax. Accordingly. vs. however. the value assigned on the trademarks which is computed on the basis of future sales can be discounted to its present value at the time of acquisition and can be amortized for tax purposes over the average remaining lives of the different trademarks purchased. Inc. the use of which in the trade or business is definitely limited in duration. etc. Sept. If. G. an intangible asset acquired through capital outlay is known from experience to be of value in the business for only a limited period. the length of which can be estimated from experience with reasonable certainty. and trade brands. ​(4)​Formulas are not subject to annual depreciation. are capital expenditures and subject to allowances for depreciation ratably spread over the period mentioned in the agreement but only where the elimination of competition is for a definite and limited term may the cost be exhausted over such a term. will not usually be a proper subject of such an allowance. however. As such. the cash price as discounted) over the agreed period (say 5 to 8 years) when royalties will have to be paid is hereby confirmed. – Intangibles. Examples are patents. such intangible asset may be the subject of a depreciation allowance provided the facts are fully shown in the return or prior thereto the satisfaction of the Commissioner of Internal Revenue. copyrights and franchises. Accordingly. a formula is found to be worthless. the cost of the different formulas cannot be amortized over the (a) remaining life of the trademarks purchased or (b) the expected period within which your client proposes to continue manufacturing said products using the said formulas. They are not created by implication but upon clear expression of the law. are not such property as are subject to exhaustion. ​(2)​Goodwill. its cost may be deducted in full as a loss for the year in which the formula is abandoned as being worthless. trade names. The reason is that deductions from gross income are privileges not matters of right. No. the use of which in the business or trade is not so limited. . Commissioner. Moreover. Accordingly. generally depreciates or loses its usefulness and value with the passage of time. (BIR Ruling No. Intangibles. where the taxpayer can prove the existence of such an agreement. after acquisition. 88-206) ​Patents. your opinion that discounted or present value at the time of acquisition and that it is acceptable for tax purposes to amortize the said present values and royalties to be paid on the basis of future sales may be discounted. your opinion that the value agreed between your client and seller may not compete in the same line of business that was sold to your client is hereby confirmed.claimed and allowed. your opinion that the assigned cost on the plant as determined at the time of purchase can be depreciated for tax purposes is hereby confirmed. ​(1)​Business and income producing property other than land. ​(3)​Right to receive royalties over a given term is depreciable. copyrights.R.

​Research and Development – self-explanatory (read) ​9. Only persons having an economic interest in a mineral land or oil gas wells are entitled to a depletion allowance (which should not be more than the capital invested). the optional standard deduction will be disregarded. (c). (b). Deduction elected for one taxable year is irrevocable for that year. he shall be considered as having availed himself of the itemized deduction. ​-​Methods ​ Cost – Salvage Value ​1. such as mines and oil and gas wells. Employer provides pension trust for the payment of reasonable pension for employees.​Optional Standard Deduction (OSD) ​-​in lieu of the business deductions ​-​non-resident alien cannot claim OSD ​-​NRFC not allowed OSD ​-​election of OSD is irrevocable for the taxable year for which the return was made ​-​deduction rate is 40% of Gross Income ​-​there is no need to support the deduction with receipts ​ ​If the taxpayer failed to elect the kind of deduction in his income tax return. ​10. 6. Religious. If the taxpayer elected both deductions in one taxable year.​Declining balance method ​3.​Charitable and Other Contributions (par. ​8. Public purpose 2.​Straightline method Life (years) ​2. as a result of severance of production. It must be emphasized that for one taxable year. the taxpayer must have a capital investment in the property and not a mere economic advantage.​Depletion ​-​it is the exhaustion of natural resources. To acquire an economic interest. youth. Corporate donor – the same rule above except the rate is 5% ​In both cases (full or with limitation) the contribution is given to a juridical person. 6. charitable. a .​Sum of the years digit method. sports development. cultural or educational purposes Individual donor – not in excess of 10% of taxable income without including the charitable contribution as a deduction. H) ​ ​Two kinds 1) Deductible in Full (see par 2(a). Read very well par. 7. scientific.the cost of the different formulae can be amortized over the (a) remaining life of the trademarks purchased or (b) the expected period within which your client proposes to continue manufacturing said products using the said formulae. 4 (petroleum operations) and par. and (d) 2) Deductible subject to limitation on the following: 1.​Pension Trust ​ ​Requisites: 1.

2010 X got married. ​Query:​(1) How much is the amount deductible? ​(2) What is the ceiling of gross income to be allowed? ​(3) Who can claim if the taxpayers are married? ​12. regardless of age. additional exemptions may be claimed only by the spouse who has custody of the child or children. ​If the spouse or any of the dependents dies or if any of such dependents marries.000.000. as the case may be. in full for such year. that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions herein allowed. became 21 years old or became gainfully employed at the close of such year. ​In the case of legally separated spouses.00 ​-​Additional Exemptions for Dependent P25.00 for each but not more than four (4) ​Additional Exemptions for Dependents. 2010 X became a widower.​Premium Payments on Health and/or Hospitalization insurance ​-​only individuals (except NRA not doing business) can claim as deduction if taxable under the schedular rates. –There shall be allowed an additional exemption of P25. June 2. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than 21 years of age. the taxpayer may claim the corresponding additional exemption. How much basic exemption for the 2010? ​Personal Exemption Allowable to Nonresident Alien Individual – a nonresident alien individual . ​If the taxpayer dies during the taxable year. 2010 X is single. 1. Provided.00 for each dependent not exceeding four (4). ​11. is incapable of self-support because of mental or physical defect. the taxpayer may still claim the same exemptions as if the spouse or any of the dependents died.​Personal Exemptions ​-​For individuals only on their TAXABLE INCOME ​-​Regardless of STATUS BASIC P50. becomes 21 years old or becomes gainfully employed during the taxable year. illegitimate or legally adopted ​-​chiefly dependent upon: more than 50% support ​-​living with: does not mean residing in the same house or roof or the same place ​-​not more than 21 years old and unmarried ​-​not gainfully employed ​-​regardless of age: incapable of self-support because of mental/physical defect ​Change of Status – If the taxpayer marries or should have additional dependent(s) as defined above during the taxable year. ​For purposes of this subsection. or as if such dependents married. ​The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals.000. a ‘dependent’ means a legitimate. Example:​Jan.000) ​-​refers only to children who are legitimate. unmarried and not gainfully employed or if such dependent. ​Dependent (to be qualified to the claim of P25. his estate may still claim the personal and additional exemptions for himself and his dependent(s) as if he died at the close of such year.taxpayer must elect only one kind of deduction. December 1.

the identification card number issued by the OSCA shall be indicated in the ITR to be filed by the benefactor. 21(e). 24]. prizes (except prizes amounting to P3.000 as head of the family.engaged in trade. Whichever is lower rule 3.Items not deductible ​ 1. file the corresponding business tax returns in accordance with existing laws. Rules to observe 1. documentary stamp tax. ​c. Reciprocity Rule 2. therefore. entitle the benefactor to claim the additional exemption allowable to a married individual or head of family with qualified dependent children under Sec. excise taxes. The senior citizen shall indicate in a certification to be submitted to the RDO and the OSCA his benefactor who will be granted the exclusive right to claim him as dependent for income tax purposes. NIRC) as the case may be. caterer’s tax. royalties. business and practice of profession shall be subject to other internal revenue taxes which include but are not limited to the value-added tax. overseas communications tax. par.​Capital gains from sales of real property (Sec. however. to citizens of the Philippines not residing in such country not to exceed the amount fixed in this Section as exemption for citizens or residents of the Philippines. Absorb by personal exemptions 2. NIRC) ​Basic personal exemption only for benefactor – a qualified senior citizen living with and taken cared of by a benefactor whether related to him or not. shall be treated as a dependent and his benefactor shall be entitled to the basic personal exemption of P20. Taxability of senior citizen to other internal revenue taxes. Provided.​A senior citizen whose annual taxable income exceeds the poverty level of P60.000. ​d. ​a. He shall. ​Caring for a dependent senior citizen shall not. trust fund and similar arrangements. a senior citizen who derives income from self-employment. rules and regulations.000 or such amount as may thereafter be determined by the NEDA for a certain taxable year shall be liable to the individual income tax in the full amount thereof on his taxable income net of allowable deductions. as defined in Section 2(e) of these regulations. as required by this Title.​Capital gains from sales of shares of stock (Sec. NIRC) ​e. 21(d). [now Sec. [now Sec. 29(1) (2) (now 34) of the NIRC. and other percentage taxes. Can avail only basic personal exemption Senior Citizen ​-​those 60 years old and above ​-​Exemption from the payment of individual income tax provided that their annual taxable income does not exceed the poverty level of P60.​Regardless of the amount of taxable income. (a) or (f). business or in the exercise of a profession in the Philippines shall be entitled to a personal exemption in the amount equal to the exemptions allowed in the income tax law in the country of which he is a subject or citizen. yield and other monetary benefit from deposit substitutes. . ​b.000 or less which shall be subject to income tax at the rates prescribed under Section 21. as amended. ​Section 36. 24]. Capital expenditures absorb by depreciation . that said nonresident alien should file a true and accurate return of the total income received by him from all sources in the Philippines.​He shall be subject to the 20% final withholding tax on interest income from Philippine Currency bank deposit.00 or such amount as may be determined by the NEDA for a certain taxable year. ​For purposes of claiming personal exemption as head of the family with dependent senior citizen. and winnings (except Philippine Charity Sweepstakes winnings).

Not allowed if the taxpayer is the beneficiary of the life insurance. exercising his profession.​Ordinary Assets (four groups) ​a. ​No. The cost of repair added to the value of the property to be depreciated.3. Not allowed in order to avoid evasion and collusion. Take note of the degree of relationship. CIR. It includes also interests on loans. To be deducted through depreciation. Between members of the family. If he dies the proceeds will go to his estate.. ​Why? (Sec. Stock in Trade and Inventories for sale in the regular conduct of business. READ: Calasanz vs. 36B) 1. This rule will not also apply to capital gains on sale of shares of stocks. ​-​wash sales losses are not deductible from gains derived from wash sales transactions ​-​this rule applies only to securities (e. ​​-​wash sales gains are to be reported and recognized as income ​​-​this rule of nondeduction does not apply if the dealer’s transaction of stocks and securities is made in the ordinary course of business. paid premium for his own life insurance.considered one (1) personality in the eyes of the law. Not on the stocks because of the capital gains on sale of stocks rule on taxation. 144 SCRA 664 ​Section 39 – Taxation of Capital Gains and Losses on Capital Assets ​-​the rules do not apply to sale of capital assets (real property) of an individual and sale of capital assets (land or buildings) of corporations. Premium is deductible? How about if the beneficiary is his GF and he is married? 5. bonds) which are capital assets. 4. ​-​loss of WS is disallowed to prevent the taxpayer from manipulating a “pretended” or “engineered” loss purely to establish a tax deduction ​-​WS gains are taxable under schedular rates (individual) and regular corporate tax (corporation). If the beneficiary is not the employer the premium is a deductible business expense. Extraordinary repairs. See notes on interest expenses. 2-6 -. The prohibition is on losses.g. because subject also to final taxes (5% or 10% rates). ​-​if the capital gain/net capital gain arise the applicable tax rates would be schedular rates (individual) and the regular corporate tax (corporation) ​-​memorize the following: ​1. . Query:​A lawyer. ​Section 38 – Losses from Wash Sales (WS) ​-​WS is a taxpayer scheme to recognize a deductible loss in his tax return by selling shares at a loss when the shares sold are substantially identical stock or securities of that which were purchased or acquired beginning 30 days before the date of sale and ending 30 days after the sale. which are subject to Final Taxes.

a short sale is not deemed to be consummated until ​Applicable -do-​ -do- Not Applicable -do- .​b.​Net Capital Loss (NCL) ​4. (Not applicable under the present tax laws) ​-​SS a typical capital asset transaction in the stock market. Properties primarily held for sale in trade or business. ​Can be carried over to 2011. Property used in trade or business subject to depreciation. and ​ ​2013. Business operating losses in 2010​was sustained. that can be carried over to the following taxable year and will be a deduction from the net capital gains of that year it was carried over (2011) ​-​applies to corporate and​-​applies only to individual ​individual ​Section 39 (F) – Gains and Losses from Short Sales ​-​Short Sales (SS) is the taxpayer’s advanced sale of shares of stocks to another person even before the seller actually owns the said shares. What can ​can be carried over​be carried over is not more than the ordinary net income of that year the net capital loss was sustained (2010) or the actual net capital loss.​Percentage of gain or loss to ​be recognized ​-​100% Gain/Loss recognition if ​held not more than one (1) year​ ​-​50% Gain/Loss recognition if ​Held more than one (1) year​ 3. ​-​Short Sale – For income tax purposes. ​-​Any loss from SS is deductible from the gain of SS except it is a WS. 2012. ​d.​Net Capital Loss Carry Over​ ​-​Difference ​NOLCO​​NCLCO ​-​arise from business operation​-​arise from capital assets transaction ​-​has a carry over of 3 years​-​to be carried over only once.​A capital loss is only deductible​ Applicable​ ​from a capital gain 2. it can no longer be carried over to 2012. ​2. Real property used in business. ​following the year of such loss​following the year the NCLCO ​Ex.​Ex. A SS can be at the same time a WS whenever the selling and the subsequent buying (to meet the commitment to sell) happens within the 30 day period rule of WS. ​-​the entire Net operating loss​-​subject to limitation. whichever is lower. ​c. Net capital loss in 2010 can be deducted from the net capital gain in 2011. If after the deduction there is still a balance of the 2010 net capital loss.​Net Capital Gain (NCG) ​3.​Net Capital Loss Carry Over (NCLCO) ​-​Rules​​​Individual​​Corporation 1.

2. Merger/Consolidation are forms of business combinations for corporations (corporations as defined by the Corporation Code) ​Merger​-​two corporations combined and one of the name survived. Stocks/Securities ​Reason : They became one entity after the combination. Property vs. ​-​this provision enumerates certain kinds of income that would be considered derived within the Philippines. Stock vs. – this is an application of the territoriality rule as source of income. ​Consolidation -​two corporations combined and a new name emerged. ​If the dividend is from a FC Corporation (doing business in the Philippines) ​(1)​General rule: considered derived within the Philippines. . ​Section 40. Securities (bonds or debentures) vs. If the short sale is made through a broker and the broker borrows property to make delivery. The dividend he will receive is also taxable in the Philippines. 6 (Definitions) ​Section 42. ​(2)​Pro-rata rule: if less that 50% of the FC gross income was derived in the Philippines for the three (3) year period preceding the declaration of the dividend. His interest income from the bank deposits will be considered derived within the Philippines. The gain to be recognized is in an amount not in excess of the cash and the FMV of such properties (e. tangible properties. 40) a. Sec.​Supposing X is also a stockholder of SMC. 3. ​Forms of exchange which are exceptions (par. the gains will be recognized but not the losses.g.the delivery of property to cover the short sale. – TAX TREATMENT ​(A)​Gross Income (GI) from sources within the Philippines. lands or buildings) Memorize the terms in par. Stock c. () Query:​How is the gain or loss computed? ​What includes the amount of gain or loss to be realized? () What are the basis? () -​No gain or loss to be recognized if it’s a merger or consolidation. the short sale is not deemed to be consummated until the obligation of the seller created by the short sale is finally discharged by delivery of the property to the broker to replace the property borrowed by such broker.. X is an American residing in Canada but he has bank deposits in the Philippines. c(2). ​Example: 1. Stock b. ​(3)​Exchanges not solely in kind ​-​Exchanges where it not only involves property (stocks/securities) but also cash and/or properties (which are not stocks/securities).

​ GI Partly within ​Example: GI partly within and without x GI within and without ​-​same computation for expenses Section 43 – 50. Thus: ​P1 million ​Dividend declared x​P3 million ​b. even if it is sold outside the Phil. 5 ​e. 2008 and 2009) within and without the Philippines was P3 Million.​Taxable Income within the Philippines ​General Rule: The deductions/business expenses must be connected/related to the income derived within the Philippines. ​Rationale : Protection/benefit rule. business or profession) shall only be deducted by expenses incurred within the Philippines. Gross Income within the Philippines (trade. . OR PP is bought outside of the Phil. -​No uniform method of accounting can be prescribed for all taxpayers. ​-​self-explanatory (par. The accumulated gross income FC derived in the Philippines for the years 2007. ​-​Gain from the sale of SS of a domestic corporation always treated derived within the Phil. (B)​GI from sources without the Philippines. They are (a) the cash method.​Services – read par.Example: In the 2010 FC declared dividend. ​METHODS OF ACCOUNTING – There are two main methods generally followed by taxpayers. 3 ​c.. the CIR will compute using the method in the opinion of the CIR clearly reflects the income. 42) ​-​Taxable income means GI without the Philippines less expenses without the Philippines. = Gains or profits derived will be considered DERIVED within the Phil. ​f. FC total gross income (2007. ​Hence. the proceeds of the loans is actually used in connection with the conduct or operation of the business in the Philippines. it is the taxpayer who will choose. The dividend declared would be prorated to get the portion taxable within the Phils.​Sale of Personal Property (PP) ​-​PP is bought within the Phil. 4 . 2008 and 2009 was P1 Million.​Rentals and Royalties – read par. ​Except : Interest paid on loans abroad. If no period or method is used or the method used do not clearly reflect the income. (C)​Sources Partly within and Partly without the Philippines ​-​Allocation rule will apply on gross income and expenses. then sold within the Phil. .​Sale of Real Property – read par. ​d. and (b) the accrual method. Application of the connected/related rule on expenses.Accounting Periods and Methods of Accounting -​Method and Accounting Period (Fiscal or Calendar) as basis of computing taxable income and the method of accounting. then sold outside the Phil. C of Sec.

The exceptions are as follows: (a) In case of dissolution of a corporation. (d) Final return of decedent. account being taken of the materials and supplies on hand at the beginning and end of the taxable period for use in connection with the work done under the contract but not yet so applied. and are classed as income. Under this system. then the income shall be reported in full. or services earned during the taxable year. ​“Accrual method” is used mostly by business concerns. ​The method applies also to sales of realty where the initial payment does not exceed 25% of the selling price. expenses incurred during the taxable year are usually deductible even if they are not received during that year. (f) ​In case the Commissioner of Internal Revenue terminates the tax period of a taxpayer. where the returnable income in the taxable year which the gross profit realized or to be realized when payment is completed bears to the total contract price expressed in the following formula: Gross profit times installments received divided by total contract price equals returnable income. by the excess of income over expenditures. installation or construction covering a period more than one year where income is reported in case the contract is finally completed and accepted. Business expenses must be paid within the taxable year. All items of taxable income whether cash. ​TAXABLE PERIOD – the rule is that the taxable period of a taxpayer covers a period of 12 months. ​This applies further to casual sales of personalty (other than property includible in the taxpayer’s inventory) for a price exceeding P1. ​CASH METHOD in Accounting is different from CASH METHOD for Taxation. In the same way. Only amounts actually paid for deductible expenses are classed as disbursements. property.000 and where the initial payment does not exceed 25% of the . ​(c)​“Crop year basis” is a method where a farmer engaged in producing crops which take more than a year from the time of planting to the process of gathering and dispositions. the law allows expenses deducted to be determined upon such basis and such deductions must be taken in the year in which the gross income from the crop has been realized. net income is measured. there is constructive receipt of income to be reported but no constructive payment of expenses to be reported. – ​(a)​“Percentage of completion basis” is a method available in the case of building. There is no such thing as constructive payment. or services actually or constructively received are classed as receipts. (c) In case of corporation newly established.​“Cash method” is nearly used by individuals. though not received have accrued to the taxpayer. (e) Return for the decedent’s estate. ​Under the cash method for taxation purposes. where there should be deducted from gross income all expenditures made during the taxable year on account of the contract. ​(b)​“Completion of contract basis” is a method available to contractors for building. in a broad sense. (b) In case of change of accounting period. Cash. ​(d)​“Installment plan or method” is a method which is available to sales by dealers of personal property on the installment basis. if the initial payment of the selling price exceeds 25% thereof. installation or construction contracts covering a period in excess of one year. ​Other accounting periods. property.

​Minimum wage earner ​Question: 1. with same definiteness. or if he has books. and the income tax correctly withheld. ​2. NRA – within income ​B. business or exercise of profession. How many copies of tax return will be filed? 2. Statement of Net Worth and Operations. he refuses to produce them. If both H and W are working. (c) That there is a fixed starting point or opening networth. and proper and just additions of personal expenses and other non-deductible expenditures were made. fair and equitable credit adjustments were given by way of eliminating non-taxable items.​Compensation earners purely derived in the Phil. a date beginning with the taxable year or prior to it at which the taxpayer’s financial condition can be affirmatively established. and (d) That the circumstances are such that the method does clearly reflect the taxpayer’s income with reasonable accuracy and certainty. ​4.selling price. ​3. or the taxpayer has no books. RA – within income 4. Where to file the income tax returns? 3. who will file his return? How about persons under disability? ​Financial Statements Attached to the Income Tax Returns upon Filing ​The financial statements required to be attached with the income tax returns: 1. NRC – within income 3. When to file? 4. RC – within and without income 2. who will file? 5. but has income. If the child is a minor. (a) Percentage method (b) Net-worth expenditure method (c) Excess cash expenditure method (d) Bank deposits ​Requirements for use of net-worth method (a) That the taxpayer’s books do not clearly reflect the income. (b) That there is evidence of a possible source or sources of income to account for the increases in the networth or for expenditures. ​-​Period for which deductions and credits taken = apply as “paid or incurred rule” ​Section 51-59. ​Methods of determining taxable income. – Returns and Payment of Taxes ​Individuals . This rule does not apply if deriving compensation income from two (2) employers within the taxable year. ​Required to file Income Tax Return 1.​ NOT REQUIRED ​1.​Those whose sole income is subject to the final withholding taxes.​If the gross income does not exceed his personal or additional exemptions. This statement is to be attached with the income tax . and correct. But this rule does not apply if engaged in trade.

business or exercise of their profession). wages and other fixed or determinable income. shall make and file a declaration of estimated income for the current taxable year on or before April 15 of the same taxable year. Balance Sheet and Profit and Loss Statements. ​Annual Declaration and Quarterly Payments of Income tax for Individual Taxpayers. 3. ​In general. receipt or output from business in any one quarter exceed P150.​Schedule of income producing properties and corresponding income therefrom. Return and Payments of Individual’s Estimated Income tax. schedules listing income producing properties and the corresponding income therefrom and other relevant statements. a true and accurate quarterly income tax return and final or adjustment return. Self-explanatory ​CORPORATE RETURNS ​Section 52 (A) of the National Internal Revenue Code provides that every corporation subject to the tax herein imposed. shall render. . c. April 15 of the same taxable year for the estimated income of the current year.​Comparative profit and Loss Statements for the current and preceding taxable years. except foreign corporations not engaged in trade or business in the Philippines. whether it constitutes the sole source of his income or in combination with salaries.​Balance Sheet and Profit and Loss Statement certified by an independent Certified Public Accountant. 2. every individual subject to income tax under Sections 24 and 25 (A) of the National Internal Revenue Code who is receiving self-employment income. ​B.​ Corporation/Partnership ​Read Sec.(Applies only to those who are engage in trade. in duplicate.000.return of individual taxpayers if the gross sales. receipts or output from business does not exceed P50. On or before April 15 of the following year for the taxable income of the previous year. earnings. profit and loss statements. 2.000 in any one quarter. except as otherwise provided by the law. a. FILING OF DECLARATIONS ​AND PAYMENTS​DATES ​First​​ ​April 15 of the current taxable year ​ Second​​August 15 of the current taxable year ​ Third​​November 15 of the current taxable year ​ Fourth ​April 15 of the following calendar year ​When final adjusted income tax return ​Is due for filing. ​The said taxpayer’s books of accounts shall be audited and examined yearly by an independent Certified Public Accountant and their income tax returns accompanied with a duly accomplished Account Information lifter from certified balance sheets. 1. b. These statements are to be attached with the income tax return of individual taxpayers if the gross sales. 52 – 56.

​Rules in filing and payment of corporate income tax: 1.​The return shall be filed by the president. The amount of total income tax computed thereof shall be reduced by income taxes paid during the first three quarters of the taxable year. ​Rules: 1. The amount of tax previously paid for the preceding quarters should reduce the amount of tax computed on the cumulative taxable income. 3. It is an indispensable method for collecting taxes in order that the government can obtain adequate revenue.. as the case may be. A corporation files a quarterly income tax return within 60 days after the end of each first three quarters of the taxable year. July. It is designed to ensure the collection at source of income taxes. The income tax due on the corporate quarterly returns and the final adjusted income tax returns computed in accordance with Section 75 and 76 shall be paid at the time the declaration or return is filed. (three times) Example: ​Calendar Year – Jan. 2. and Oct. = file in the months of Sept. = File in the months of April and May ​Fiscal Year – June. ​Note : Corporate Returns are filed four (4) times a year. ​Section 57 to 59. A final income tax return covering the total taxable income of the taxable year should be filed on or before April 15 of the following year. or on before the 15th day of the fourth month following the close of the fiscal year. ​A corporation shall not change the accounting period employed without prior approval from the Commissioner in accordance with the prohibitions of Section 47 of the Tax Code. Feb. The final adjustment return shall be filed on or before the 15th day of April. vice president or other principal officers and shall be sworn to by such officer and by the treasurer or assistant treasurer. If the total quarterly tax paid during the taxable year is more than the tax due on the final return the corporation may claim tax credit carry over or refunded with the excess amount. ​If withholding tax is not withheld from income payments. (Pay as you file system) 3. The withholding tax agent who is usually an employer or a person from whom the income is derived does this process through withholding the appropriate amount of taxes from taxpayers. Aug. The corporate quarterly return shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. 2. Mar. income tax expense of a corporation may be paid in an aggregate quarterly periodic payment. Three quarterly and one final adjustment return ​CORPORATE QUARTERLY TAX ​To ease the burden of paying taxes for a lump-sum amount. 4.. – Withholding Taxes ​Withholding of taxes is a systematic way of collecting taxes at source. there will be a disallowance of deductible business expenses claimed by the withholding agent in this income tax return or a . ​Taxable Year of Corporation ​A corporation may employ either calendar year or fiscal year as a basis for filing its annual income tax return.

​Section 60 to 66. taxes withheld on certain payments are intended to equal or at least approximate the tax due of the payee on said income. It does not extend to the payee’s other tax liability on said income. ​The primary objective of the system is to ensure accurate payment of taxes and to be able to use taxes collected at an earlier time to finance the operations and projects of the government. In CWT it may or may not result to a balance of tax liability. Thus. The estate is to be transferred from the decedent to his successors. ​Creditable Withholding Tax (CWT) ​Under the creditable withholding tax system.Estates and Trusts ​TAX ON INCOME OF ESTATE ​The estate is composed of all properties. ​ ​Taxes withheld on compensation is an example of CWT. ​Classification of Withholding Tax at Source ​Withholding tax may be classified into two categories such as 1) Final Withholding Tax. either to report the income and/or pay the difference between the tax withheld and the tax due on the income. and 2) Creditable Withholding Tax ​Final Withholding Tax (FWT) ​Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for the payment of the tax rests primarily on the payor as a withholding agent. if any. The payee is not required to file an income tax return for the particular income. earnings or obligations that have accrued thereto since the opening of the succession. The income recipient is still required to file his income tax return as prescribed in the Section 51 of the NIRC. the final tax on which has been withheld. in case of failure to withhold or in case of under withholding.penalty shall be imposed on withholding tax agent for failure to withhold the tax. A tax withheld in income payments covering the expanded withholding tax from compensation income is creditable in nature. rights and obligations including those properties. the deficiency tax shall be collected from the payor/withholding agent. ​The income paid to the employees is the net amount after deducting the taxes withheld which is based on the taxable income after adjustments with respect to personal. . ​Withholding Tax at Source ​A taxation at source is that part of tax system which collects through withholding agents or employers the appropriate income taxes due as they are earned and before earnings are paid to the employees. additional exemptions and or other adjustments allowed by the law. ​Diferrence between FWT and CWT ​-​in FWT no more tax liability if properly withheld. ​The finality of the withholding tax is limited only to the payee or recipient’s income tax liability on the particular income. such as when the said income is further subject to a percentage tax. .

Juan may place his property in a trust. 3. the amount so allowed as a deduction shall be a part of the taxable income of the legatee. ​Suppose Juan wants his wife to have the income from his estate as long as she lives. The trust is assigned to be administered by Attorney Nilo. Trust device is used frequently to transfer property from one generation to another. ​Under this arrangement. Exemption Generally. ​When a trust is created. ​Illustration. ​TAX ON INCOME OF TRUSTS ​A trust is an obligation imposed or a right to administer over a property given to a person for a benefit of another. a trustee. 4.​During the period when the title to the properties is not yet finally transferred to the successors. the trust might be dissolved at her death and the property distributed to the children. ​Estates’ or Trusts Taxable Income and Tax ​For taxation purposes. there may be earnings generated from the estate.000. Tax Rate ​The tax rate applicable is the tax rate prescribed for individual taxpayers. the income from estate/trusts is allowed for an exemption of P20. Gross Income The items of gross income of the estate are the same items with the items of gross income of individual taxpayers. ​Income accumulated in trust and/or to be distributed to beneficiary are subject to income tax. the income of which would go to his wife for life. . subject to a creditable withholding tax of fifteen percent (15%) However. It is to be noted that any portion of the gross estate paid to the heir is not deductible from the gross income of the estate. These earning are subject to income tax. the taxable income of the estate/trust shall be determined in the same manner and basis as in the case of individual taxpayers. a new entity comes into being. The items composing the taxable income and tax of the income from estates/trusts are as follows: ​Treated as Individual Taxpayers 1. the trustee is required by law to manage the trust strictly in accordance with the terms of the trust instrument. Special Deduction In addition to the allowable deductions under Section 34 of the Tax Code. heir or beneficiary. Deduction ​Deductions from the gross income of the estates/trusts are the same with the items of deduction allowed to individual taxpayer. the estate is also allowed to deduct the amount of income of the estate during the taxable year that is paid or credited to the legatee. for which returns must be filed and taxes paid. ​This is a legal institution used to administer funds in behalf of individuals or organizations. heir or beneficiary. 2. 5.

​“Trusts”. revocable trusts exist when the trustor (grantor) reserves the power to change at any time any part of the terms of the trust. Income that. for the same beneficiary. the rule is that the grantor is liable for the income of a revocable trust (because the revocable trust by itself is not subject to income tax except if the trust is irrevocable (because irrevocable trust is subject to income tax. Caduda Duda created a trust naming his eldest son as revocable beneficiary who will receive the income of the trust. Caduda Duda. and income collected by a guardian of an infant that is to be held or distributed as the court may direct. in the discretion of the fiduciary. For the year. Income that is to be distributed currently by the fiduciary to the beneficiaries. may be either distributed to the beneficiaries or accumulated.000. the trust earned a total income of P200. ​Illustration: ​Mrs. If the eldest son could not abide with the rules provided in the trust instrument. explained. 24 A of the Tax Code. so that the grantor is already exempted from income tax on the income derived from the irrevocable trust).” if created by will is known as a “testamentary trust. Mrs. ​Computation of Trust’s Income Tax ​The computation of the net taxable income of trust shall be in the same manner with the net taxable income of estate.” ​Income Derived from Trusts. The net taxable income shall be taxed by using the scheduler tax of an individual taxpayer based on Sec. ​Two or More Trusts ​In the case of two or more trusts created by the same person. ​REVOCABLE TRUSTS ​Generally. The income should be reported as taxable income of the grantor. For tax purposes. How much would be the taxable income of the trust? ​There is no taxable income of the trust because it is a revocable trust. and income accumulated or held for future distribution under the terms of the will or trust. ​The trust. and 3. or the beneficiaries or the grantor may pay the tax on income derived from trusts. . the taxable income of all trusts shall be consolidated and the tax shall be computed based on the consolidated income.​A trust created by a written instrument other than a will is known as a “trust inter-vivos. 2. Income accumulated in trust for the benefit of unborn or unascertained person/s with contingent interests. Mrs. including: ​ 1. ​The proportionate amount of the tax computed based on the consolidated income shall be assessed and collected from each trustee which should be equal to the proportion of the taxable income of the trust administered by the trustee to the consolidated income of the several trusts. – These are taxable entities created by will or trust deeds where the transfer of property to such trusts is irrevocable and the income of which is tot be accumulated for designated beneficiaries other than the grantor. Duda could change outright the terms of the trust. ​Tax imposed upon individual taxpayers shall apply to the income of any property held in trust.

in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income. Trusts not subject to tax. and income accumulated or held for future distribution under the terms of the will or trust. (c) Such contributions are made for the purpose of distributing to such employees both the earning . or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be held or accumulated for future distribution to the grantor. should be followed. may be either distributed to the beneficiaries or accumulated. such part of the income of the trust shall be included in computing the net income of the grantor. – (a) The employee’s trust must be part of a pension. Income of estate or trust includes the following: (a) Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interests. – Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested (a) in the grantor. when it comes to allowable deductions. or both.000. (b) may. and income collected by a guardian of an infant which is to be held or distributed as the court may direct. – (a) Revocable trusts the income of which is held or distributed for the benefit of the grantor (b) Employee’s pension trusts. (c) Income received by estates of deceased persons during the period of administration or settlement of the estate. (c) is. ​The taxable income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual. ​Income for the benefit of grantor.00 is allowed as an exemption.​Estates and trusts are subject to the rates of income tax applicable to individuals. in the discretion of the fiduciary. ​Exemption allowed to estates and trusts. or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be. ​Requisites for exemption of employee’s pension trust. – Where any part of the ncome of a trust – (a) is. – (a) P20. ​ (b) Contributions are made to the trust by such employer. applied to the payment of premiums upon policies of insurance on the life of the grantor. be distributed to the grantor. the guidelines in Section 61 of the Tax Code. such employees. and (d) Income which. or (b) in any person not having a substantial adverse interes in the disposition of such part of the trust shall be included in computing the net income of the grantor. either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom. ​Revocable trusts. stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees. However. (b) Income which is to be distributed currently by the fiduciary to the beneficiaries.

000. retirement benefits received by officials and employees of private firms under a reasonable private benefit plan maintained by the employer are exempt from all taxes. ​Where the employee has opted to have his compensation income subjected to withholding so as to be relieved of the obligation of filing an annual income tax return and paying his tax due on a lump sum basis. (e) The trust instrument makes it impossible for any part of the trust corpus or income to be used for. no withholding of tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage of P5. or 2.and principal of the fund accumulated by the trust. Commissions paid by an insurance agent to his sub-agents. – Withholding on Wages ​INCOME TAX COLLECTED AT SOURCE ON COMPENSATION INCOME ​Basic Rules on Withholding Taxes ​As a general rule. 3. ​Requirement of Withholding Tax Due ​Every employer muyst withhold taxes from compensation paid arising from employer employee relationship. ​It is to be noted that employees whose total annual compensation does not exceed P60. gardeners. His compensation income shall not be subject to a withholding tax but he shall file his annual income tax return and pay the tax due thereon. or diverted to. annually. whichever is higher. 4. ​Section 78 to 83. ​The employee who opts to file the Income Tax Return shall file the same not later than April 15 of the year immediately following the taxable year. Remuneration for causal labor not in the course of employer’s trade or business.00 in a year shall be given two options with which to pay his income tax due as follows: 1. (d) The fund is accumulated by the trust in accordance with the plan of which the trust is a part. 2. family drivers and the like. purposes other than for the exclusive benefit of such employees. ​Cumulative Average Method ​This method is used if the compensation of a particular employee is exempt from withholding . His compensation shall be subjected to withholding tax. Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization. cooks. However. Remuneration paid to agricultural labor and paid entirely in products of the farm. but he shall not be required to file the income tax return. except of the following items: 1. ​It may be noted that under Republic Act No.00 monthly or P60. 4917.000.000. 5. all salaries earned by persons as government or non-government employees are subject to withholding tax. Remuneration for private service performed by maids.00 a year. he shall execute a waiver in a prescribed BIR form of his exemption form withholding which shall constitute the authority for the employer to apply the withholding tax table provided under these Regulations.

once applicable to a particular employee at any time during the calendar year shall be the same method to be consistently used for the remaining payroll periods of the same calendar year. In general. 3. The term “payable” refers to the date the obligation becomes due. as provided under Republic Act No. All government offices including government-owned or controlled corporations.57. as well as provincial. ​Annualized Withholding Tax Method ​This method is used when an employer – employee relationship is terminated before the end of the calendar year and when computing for the year-end adjustment the employer shall determine the amount to be withheld from the compensation on the last month of employment or in December of the current calendar year in accordance with the following procedures. ​Exemption from Withholding ​The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: 1. individual buyers who are not engaged in trade or business are also constituted as withholding agents. However.57. ​The cumulative average method. city and municipal governments. other than the present employer doing this cumulative computation. whichever comes first. insofar as taxable sale. any juridical person. The National government and its instrumentalities. including provincial.2: 1. general or special such as but not limited to the following: ​ b. ​PERSONS REQUIRED TO DEDUCT AND WITHHOLD ​Section 2. whether or not engaged in business or trade. c. demandable or legally enforceable. or the employee was newly hired and had a previous employer(s) within the calendar year. the present employer shall determine the tax to be deducted and withheld in accordance with the cumulative average method.3 enumerated the following persons who are hereby constituted as withholding agents for purposes of the creditable taxes that are required to be withheld in income payments enumerated in Section 2. Corporations registered with the Board of Investments and enjoying exemption from the income tax provided by R. ​Time of Withholding ​The obligation of the payor to deduct and withhold the tax under Section 25.000. No. 7916 and the Omnibus Investment Code of 1987. . with respect to payments made in connection with his trade or business.A. city or municipal governments. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law. or the supplementary compensation is equal to or more than the regular compensation to be paid. An individual.00 in Metro Manila and other highly urbanized areas and P150. but supplementary compensation is paid during the year.00 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB.000. 2. 7279 and its implementing regulations. exchange or transfer of real property is concerned.because the amount thereof is below the compensation level.7 of these regulations arises at the time an income is paid or payable. 2. Sales of real property by a corporation which is registered and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180.

​When to file ​The withholding tax return. ​If the payor is the Government of the Philippines or any political subdivision or agency thereof. Revenue District Officer. 2. Upon request of the payee. Corporations which are exempt from the income tax under Section 10 of NIRC. the return shall be filed directed with the Revenue District Officer. and Annual Information Return of Income Tax Withheld at Source (Form No. whether creditable or final shall be filed and payments should be made within 10 days after the end of each month except for taxes withheld for December. ​Annual Information Return for Income Tax Withheld ​The payor is required to file to the Commissioner. with a withholding tax statement. ​Withholding Tax Statement ​Every payer required to deduct and withhold taxes under there regulations shall furnish each payee. Revenue Regional Director. . the SSS. simultaneously with the income payment. the return shallb e made by the officer or employee having control of the payments or by any designated officer or employee. or any government-owned or controlled corporation. Name. on or before January 31 of the following year in which payments were made. ​The return for final withholding taxes on interest from any currency bank deposit and yield. the income payments arising from any activity is conducted for profit or income derived from real or personal property shall be subjected to a withholding tax as prescribed in these regulations. or where the withholding agent is a corporation. where the principal office is located except in cases where the Commissioner otherwise permits. showing among others the following information: 1. the statement should be given to the payee on or before January 31 of the succeeding year. to wit: The GSIS. where the government office is located in the case of a government agency. the filing of the return and the payment of tax shall be made within 25 days after the end of each month. Nature of income payments. using the prescribed form (BIR Form 2307) showing the income payments made and the amount of taxes withheld there from. Collection Agent in the city or municipality where the payor has his legal residence or principal place of business. Health Insurance Corp.. 1604). In places where there is no authorized agent banks. However. or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements shall be filed and the payment made within 25 days from the close of each calendar quarter. for every month of the quarter within 20 days following the close of the taxable quarter employed by the payee in filing his/its quarterly income tax return. ​For large taxpayers. For final withholding taxes. Collection Officer or the duly authorized Treasurer of the city or municipality where the withholding agent’s residence or principal place of business is located. the PCSO and the PAGCOR. the Phil. ​Where to File ​Creditable and final withholding taxes deducted and withheld by the withholding agent shall be paid upon filing a return in duplicate with the authorized agent banks located within the Revenue District Office (RDO) having jurisdiction over the residence or principal place of business of the withholding agent.d. which shall be filed on or before January 25 of the following year. gross amount and amount of tax withheld from each payee and such other information as may be required by the Commissioner. whether individual or corporate. address and taxpayer’s identification number (TIN).

​On or before 10th day of the ​which withholding was made ​December …………………………………………………..​Estate tax ​a.​30th day after sale ​b.​Income tax (taxpayer is individual) ……………………………​April 15 succeeding year 2. Events​​Due Date 1.​Remittance of tax withheld ​a.​On importation …………………………………………….​Second quarter …………………………………………….​DUE DATES ​Due dates refer to the last day for filing return and payment of tax.​Annual (final return) ………………………………………​April 15 succeeding year 3.​60th day after end of quarter ​d. services or property ​(1)​Monthly declaration ………………………………….​Capital gains tax on sale of shares of stock ​(not traded through local stock exchange) ​a.​Income tax (taxpayer is individual.​Not later than January 25 of the .​Other percentage taxes (quarterly return) ……………………​25th day after quarter’s end 8.​Cash sale ………………………………………………….​On sale of goods.​2 months after death ​b.​Notice of death …………………………………………….​Donor’s tax ……………………………………………………… ​30th day after each donation​ 6.​April 15 same year (new) ​b.……………………………...​Final/adjustment return ……………………………………​15th day of the 4th month after ​close of taxable year 4.​Per transaction return …………………………………….​Final/consolidated return ….​Capital gains tax on sale of real property ​(capital asset) by individual ​a.​25th day after month’s end ​(2)​Quarterly return ………………………………………​25th day after quarter’s end ​b.​Third quarter (Jul-Sept) ……………………………………​November 15 same year ​d..​60th day after end of quarter ​c.​Estate tax return ……………………………………………​6 months after death 5.​In general ​January to November ……………………………………. The following are the due date prescribed by laws for filing of return and payment of taxes..​15th day of 4th month after close ​of taxable year 9.​Third quarter ……………………………………………….​Before release from Customs 7.​Income tax (corporate taxpayers) ​a.​Value-added tax: ​a.​30th day after sale ​b.​First quarter (Jan-March) ………………………………….​First quarter …………………………………………………​60th day after end of quarter ​b..​Installment sale ……………………………………………​30th day after receipt of installment 10. in ​Business/practice of profession) ​a.​Second quarter (April-June) ………………………………​August 15 same year ​c.

​Husband and Wife (Sec.​succeeding year ​b.​Sec. 78(a)) ​2. 78(d)) ​3. 79 F) ​4.​Employer (Sec. ​Take note of the following: ​Meaning of :​1. 80b ​ ​ ​ 30 .​Large taxpayers ……………………………………………​On or before 25th day of the month ​following the month in which ​withholding was made ​Nota Bene – A withholding agent (WA) is a “taxpayer” but not a statutory taxpayer.​Employee (Sec. WA can claim a tax refund if there is overpayment.