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Chapter 5: Exclusion from Gross Income

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

CHAPTER 5

EXCLUSION FROM GROSS INCOME
Problem 5 – 1 TAXABLE OR NONTAXABLE with income tax
1 Taxable
11 Taxable
21 Nontaxabl
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e
2 Nontaxable
12 Taxable
22 Taxable
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3 Taxable
13 Nontaxabl 23 Nontaxabl
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e
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e
4 Nontaxable
14 Taxable
24 Taxable
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5 Taxable
15. Nontaxabl 25 Nontaxabl
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e
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e
6 Nontaxable
16 Nontaxabl
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e
7 Nontaxable
17 Taxable
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8 Taxable
18 Taxable
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9 Nontaxable
19 Taxable
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10 Nontaxable
20. Taxable
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Problem 5 – 2 TAXABLE OR NONTAXABLE with income tax
1 Nontaxable
11 Taxable
21 Nontaxabl
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e
2 Taxable
12 Taxable
22 Nontaxabl
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e
3 Nontaxable
13 Nontaxabl 23 Taxable
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4 Taxable
14 taxable
24 Nontaxabl
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e
5 Nontaxable
15. Nontaxabl 25 Nontaxabl

The excess of proceeds over premium paid is taxable. in general 15. False – nontaxable .Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) . False – only Philippine charity sweepstakes are not subject to tax in the Philippines. True 11. in general 4. 9 . 5. 17 . e taxable 26 . True 6. True 13. 8 . 27 Taxable taxable Nontaxabl e Nontaxabl e Nontaxabl e 28 Nontaxabl e Taxable 29 Taxable 30 Nontaxabl e Problem 5 – 3 TRUE OR FALSE 1. False – include in gross income 9. False – nontaxable because the other income is subjected only to final tax. 10 . 7 . False – Proceeds of life insurance is not taxable regardless of whoever would be the recipient. 8. e . Nontaxable Taxable Taxable Taxable Nontaxable 16 . 19 . 20. except when the insured person outlived his life insurance and received the proceeds. True 7. 6 . False – Bequest is a personal property. False – subject to normal tax. False – nontaxable because it is just a return of expenses 14. True 12. 18 . 10. 3. True 2. True.

C 10 D . C 4. C 5. Problem 5-6 1. False – some prizes and awards are exempt by law from taxation. False – Include in gross income because income from gift is subject to income tax. C 8. B 9. P 90. True 6. False – Tax-exempt 15. False – nontaxable because aliens are taxable only for income derived within the Philippines. B 2. A 6. 14. D 3. D 3. True 12. D 4. B 6. False – nontaxable 7. D 10 D . B 7.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 – 4 TRUE OR FALSE 1. False – the P3M capitalization does not include the land asset of BMBE. A 10 C . A 8. C 4. D 3. D 7. 3. C 8. D 5. True 5. True 13. True Problem 5-5 1. D 2. True 2. D 7. True 9. 11. A 2.000 . D 9. False – nontaxable in general 8. B 5. 4. D 9. Problem 5 –8 A Basic minimum wage Problem 5-7 1. True 10. A 6.

500 Amount excluded from gross income Problem 5 –10 Dividend income 7.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 13th month pay 15-day monetized unavailed leave Overtime pay Holiday pay Christmas bonus (de-minimis) Total nontaxable income Problem 5 –9 13th month pay vacation 24.50 0 P12.000 .000 2.000 Interest income on EFCD to be taxable in the Philippines must be transacted with residents.000 240.000 x 12) Sari-sari store (P20.250 5.000 2.000 P132.000 P300.750 C 5.00 0 P 60. Problem 5 –11 B Income from the Philippines: Wagwag business (P5.500 B Deductible from gross compensation income: SSS contribution Philhealth contribution P 6.500 3.000 x 12) Gross taxable income in the Philippines P 60.500 P3.

000 8. Problem 5 –13 C Total basic salary 13th month pay Excess rice subsidy De minimis rice subsidy (P24. Pay Excess rice subsidy Rice subsidy w/in ceiling Total nontaxable Taxable P 96.000 2.000 1.000 4. 18.000 P151. Problem 5-14 D MWE Basic salary Overtime pay Hazard pay Holiday pay 13th mo. pay is already P30.000 6.000 6.000.000 44. because the 13th mo.500 x 12) Clothing allowance Amount of nontaxable compensation P30.000 18.000 18.000 P 0 .000 – P6.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 –12 D th 13 month pay (P390.000 The excess of rice subsidy over the ceiling is already taxable.000 excess of rice subsidy is still exempt because if combined w/13th mo pay and other benefit the amount does not exceed P30.000) Total nontaxable compensation Taxable Nontaxable P240.000 The P6.000 .000 20.000 P240.000 P52.000/13) De minimis with the ceiling amount: Rice subsidy (P1.000 20.000.

000 Rice subsidy – de minimis Clothing allowance Total Nontaxable P108.0 P52. P154. pay hazard pay holiday pay 13th mo.000 1.+ similar benefits: 13th mo.000 18.000 13.000. honoraria. his/her entire earnings are no longer exempt from income tax.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5-15 B Taxable MWE: Basic salary o. benefits in excess of the allowable statutory amount of P30.000 2.00 0 30. overtime pay.t. holiday pay.000 .000 18. therefore. Pay Excess rice subsidy Excess clothing to complete P30. Problem 5-16 D Taxable Non- . night shift differential pay and hazard pay shall not enjoy the privilege of being a MWE and. taxable allowances and other taxable income other than the SMW. fringe benefits.000 4.000 9.000 00 An employee who receives additional compensation such as commissions.000 3.

Pay Excess rice subsidy Rice subsidy Rent income Interest income. 5-17 D Only P1.000 13th mo.000 6. business.000 P228.000 .000 ( 17. pay 96. 4. or practice of profession.000 MWEs receiving other income.000 5. Problem 5 –18 C Take home pay Nontaxable 13th month pay Withholding tax Other income subject to normal tax Taxable income P212.00 0 32.500 20.500 sickleave benefit actually taken.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) taxable MWE: Basic salary o.t.000 18.000/80% Total 8. except income subject to final tax.+ similar benefits: 13th mo.500) 13.000 181. such as income from the conduct of trade. in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year.000 60.000 20.

000) P27.000 C Taxable Tax-exempt Net take home pay P13. a MWE is not subject to WTW and income tax on his compensation income.000 P36.000/68%.000 ( 5. however.000 P289.000 6. his entire income during the year will be subject to income tax.000 SSS contributions P300 PAG-IBIG contributions 100 Union dues contributions 100 Office party contributions 75 Charitable contribution (deductible only from 25 business income) Withholding income tax 400 .500 P500 Problem 5 –21 D Monthly salary Free board and lodging is for convenience of employer. But if he has other income that is subject to normal tax.000 20.000 50. Problem 5 –22 Rent of apartment Reimbursement Taxable benefits B P15.000 Note that the tax base to determine the tax liability of supervisor should be the grossed-up amount.000 (27. his compensation income. Problem 5 –19 C Net pay Withholding tax Advances 3th month pay Christmas bonus (de minimis) SSS contribution Totals Problem 5 –20 Taxable Nontaxable P265. Totals P13. meaning P70.000 P70.000) 5.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) In general.000 P 50. 4.000 . . will not be subject to WTW.

Rev. the P270. .32Ba.000) 40. Sec. Problem 5 –25 B Maturity value received Premium paid Premium refund Income in excess of premium paid P500.000 (490.4 0 0 1.254.000 cash surrender value is just a partial return of total contribution of P360.Taxable P1. (Rev.797193877) Interest income . Problem 5 –26 D Zero.000.0 0 0 P 2 5 4 .2.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 –23 D Proceeds of life insurance including 12% interest for 2 years Less: Present value of life insurance proceeds (P1. Sec.254.400 x 0.000 The premium refund is actually a decrease of premium paid.000.22. because. NIRC) Problem 5 –24 D Proceeds of life insurance policy are not taxable. 4 0 0 Proceeds of life insurance policy are not taxable but the interest thereof is taxable.000 P 50.

000 The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured are excluded from the gross income of the beneficiary.000 30. Regs. 2) Problem 5 –28 1 Letter C . however. 32 (B)(2).000 The total premium paid is excluded because such amount represents return of capital.00 .000 P940.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 –27 D Car insurance Accident insurance Life insurance as beneficiary Cash surrender value of life insurance Participating dividend Total amount excluded from gross income P300. NIRC] 2 Letter A .000 P200. [Sec.000.000 10. No. No. 62. The interest income.000 500. NIRC] Problem 5 –29 D Actual damages for unrealized profit Interest on non-taxable damages Actual damages for lost products Taxable Nontaxa P100.00 0 20. [Sec. 62. 2. 32 (A) (1).000 100.000 The participating dividend and cash surrender value are considered return of premium. Regs. It represents income from the use of insurance proceeds not yet taken. Sec. Total premium paid – excluded P500. Total consideration received – excluded P2. (Sec. is included in the gross income.

000 x 15 years) Cost ratio Multiplied by annual pension Annual amount of pension excluded from gross income Problem 5 –33 Terminal pay Life insurance SSS death benefit D P1.350.000 500.000 5.000 80.400.000 Taxable Nontaxable P 60. an employee should have been in the service of the same employer for at least ten (10) years and at least 50 years at the time of his retirement.000 .Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Exemplary damages due to injuries Moral damages due to injuries Actual liquidated damages Total . but on the part of the counsel. P120. the attorney’s fee is only a reimbursement of his judicial expenses. To be excluded from gross income.000 10.000 P 90. Problem 5 –30 Taxable income A P -0- Problem 5 –31 A The retirement pay should be included in the gross income because Max retired at an optional age and has rendered less than 10 years in service. NIRC] Problem 5 –32 C Cost of life annuity contract Divided by expected return (P360.000 50.00 0 0 50. such amount is reportable income. [Sec.00 0 P380.000 25% 360.00 0 Note: On the part of Ernie Barron. 32 (B)(6)(a).

subject to final tax at source P4. SSS daily maternity leave benefit is equivalent to the average daily salary credit for 60 days or 78 days in case of caesarian delivery. Problem 5 –40 D Zero.000 Problem 5-36 B SSS death benefit of P36. P .000 His annual income from professional fee is not more than P60. as amended] Problem 5 –38 A Zero. Problem 5 –39 C Interest income from bank savings deposit. Problem 5 –35 D Last pay upon resignation from his first employer P100.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Donations Totals .020 SSS sickness benefit is equal to 90% of daily salary credit after compliance with certain conditions. [Sec. R.620 23.000 which is exempt. separation pay is taxable.000 Problem 5 –34 A The termination is due to cause within the control of Jalosjos.A. R. 14. Gifts are generally subject to donor’s tax and are not subject to income tax. all items enumerated are not subject to income tax. subject to certain conditions.400 P25. 8282.000 P610. 1161.A.000 Problem 5-37 A Sickness benefit (P300 x 6 days x 90) Maternity benefit (P300 x 78 days x 100%) Total exclusion P 1.0 - 40. .

000 500.000. 32 (B)(7)(g). NIRC] Problem 5 –46 B Interest received from bond P 120.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 –41 D Total income (P100.000 x 10 months) Income subject to income tax P1.000 1.000 140.000 250.000 100.000 P 60.000.000 Problem 5 –42 D Zero.000 100.000 P2.000 P200. Gain from sale of certificate of indebtedness is tax-exempt only when the maturity is more than 5 years.000 x 10 months) Total average expenses (P20.000 ( 200.000 Interest income on government bonds is taxable.00 0 P 50.000.000) P 800. Lim Car from Nissan Winnings – Philippine sweepstakes Total winnings/awards not subject to income tax Problem 5 –45 A Interest income Gain from sale of bonds classified as capital asset Taxable income P10.000.000 . Problem 5 –43 A Lotto Philippine winnings Problem 5 –44 B Ramon Magsaysay award Athlete of the year award Prize for winning the silver Olympic medal Cash award from Mr. [Sec. All winnings received by Miss Lara are subject to tax because she has entered into a contest (Miss International) which requires rendition of subjstantial future services as a condition to receive such prize or award.

000 3.000.000 1.000 P7.000 . Same answer with No.000 Note: The cost of product produced need not to be deducted anymore because of the term “income from sale of invented products.000.200.000.000 x 10) P 50.000 P5.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) investment Problem 5 –47 Interest income B Problem 5 –48 D Interest on expanded foreign currency deposit Problem 5 –49 A Income from sale of invented products Sale of technology Total revenue Less: Research and development costs Nontaxable income P120. 1 P 50.000 800.000 P3.000 Problem 5 –52 1.000 Problem 5 –51 C Interest income from foreign currency deposit Interest income from time deposit Total taxable income P2.000 2.” Problem 5 –50 C Interest income on bank savings deposit P10.000 50.000 P6.000 P550.000.000 P100.000 2. Retirement benefits Salary earned Gross income P500.000. Compensation income (P5.000.

000 transfer to be received by Miss Tandana is to be included for income taxation because the transfer is in recognition of her services rendered. the P1.725. It is not to be included as a part of estate tax.000 25.000 2.500.000. P4. 000 100. 00 0 Problem 5 –55 No.000 .00 0 50.00 0 .000 3.000 P1.000.425.000) – (P15. 000 P1.000 Exclu de P 375.0 00 Incl ude P1.060.000 P77.000 60.000 200.000 300.000 x 25) Proceeds of his mother’s life insurance Cash gift Inheritance Rent income Total P 500. Problem 5 –56 Dividend income Interest income Prizes Total taxable income P50.000.000 1.625.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5 –53 Winnings from charity horse race sweepstakes from PCSO Gains from redemption of shares in mutual fund Gain from sale of bonds with maturity of more than five years Gifts from friends Total exclusion from gross income Problem 5 –54 Proceeds of his life insurance (P2.

00 0) P103.000) P122.8 00 Problem 5 -58 Answer for both no.400) (3. P60. Gross compensation SSS premium Philhealth premium Taxable compensation income P109.2 00 ( 2.000.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Problem 5-57 1.000 (2. Problem 5 -59 1 Time deposit .600 Note: The MWE with earnings subject to normal tax shall be taxable for his entire income during the year. None – the taxpayer is a MWE and the benefits does not exceed the allowable statutory amount of P30.2 Compensation SSS premium Philhealth Gross taxable compensation income P128.000 . 2. 1 and no.40 0) ( 3.

10.000 P -0- The cooperative’s ordinary income such as sales and income from lending to members are not subject to income tax.000 P70.Chapter 5: Exclusion from Gross Income INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) Foreign currency deposit Cooperative income subject to final tax 2 Cooperative income subject to normal tax . .