A. Income taxation (Sec.

23, NIRC)

1. Income tax systems

a) Global tax system

b) Schedular tax system

c) Semi-schedular or semi-global tax system

2. Features of the Philippine income tax law

a) Direct tax

b) Progressive

c) Comprehensive

d) Semi-schedular or semi-global tax system

3. Criteria in imposing Philippine income tax

a) Citizenship principle

b) Residence principle

c) Source principle

4. Kinds of taxpayers

a) Individual taxpayers

(i) Citizens

(a) Resident citizens

(b) Non-resident citizens (Sec. 22. [E], NIRC)

(ii) Aliens

(a) Resident aliens (Sec. 22 [F], NIRC)

(b) Non-resident aliens (Sec. 22 [G], NIRC)

(1) Engaged in trade or business

(2) Not engaged in trade or business

(iii) Special class of individual employees

 (a) Minimum wage earner

(b) Corporations

(i) Domestic corporations

(ii) Foreign corporations

(a) Resident foreign corporations

(b) Non-resident foreign corporations

(iii) Joint venture and consortium

c) Partnerships

d) General professional partnerships

e) Estates and trusts

f) Co-ownerships

6. Income

a) Definition

b) Nature

c) When income is taxable

7. Gross income

a) Definition (Sec. 32 [A], NIRC)

- G2R2AD-P3IC

b) Concept of income from whatever source derived

c) Gross income vis--vis net income vis--vis taxable

income

d) Classification of income as to source

(i) Gross income and taxable income from sources

within the Philippines (Sec. 42)

*This section is NOT relevant to domestic

corporations and resident citizens because they are taxed worldwide
anyway. This section comes into play when it comes to problems
related to the income sources of taxpayers who are only taxed for
income sourced within the Philippines.

(ii) Gross income and taxable income from sources

without the Philippines (Sec. 42. [C], NIRC)

(iii) Income partly within or partly without the

Philippines (Sec. 42 [E], NIRC)

e) Sources of income subject to tax

(i) Compensation income

- Compensation from services in whatever form paid,

including, but not limited to:

Fees

Salaries

Wages

Commissions, AND

Similar items

- Compensation earners are not allowed to

deduct any other deductions from their salary,
BUT they may have deductions applies to
income earned from other sources.

a) Test in determining employer-employee

relationship

i. Convenience of the Employers

Rule
Allowances in kind furnished to the
employee for and as a necessary
incident to the performance of his
duties are NOT TAXABLE.

b) Compensation in kind

a. Insurance premiums paid by the

employer

b. Cancellation/Condonation or Forgiveness
of Debt
 c. Shares of Stock received as
compensation

d. Stock Option

e. Income Tax paid by the employer

f. Living Quarters/Lodging and Meals

(ii) Fringe benefits (Sec. 33, NIRC)

(a) Special treatment of fringe benefits

(b) Definition Any good, service, or other

benefit granted in cash or in kind by an employer to
an employee (except rank and file) such as:

(c) Taxable and non-taxable fringe benefits

(iii) Professional income

(iv) Income from business

(v) Income from dealings in property (Sec. 39 [A,

1], NIRC)

(a) Types of properties

(1) Ordinary assets

(2) Capital assets

(b) Types of gains from dealings in property

(1) Ordinary Gain

- any gain from selling of ordinary asset

(2) Capital Gain

- gain received from selling of capital

asset

(3) Long term capital gain vis--vis short-term capital gain

(4) Net capital gain, net capital loss

(5) Computation of the amount of gain or loss

 (6)Three (3) specific rules for income tax treatment of capital
loss

(a) Holding Period Rule (Sec. 39 [B], NIRC)

(b) Capital loss limitation rule (applicable to both

corporations and individuals) (Sec. 39 [C], NIRC)

(c) Net loss carry-over rule (applicable only to individuals)

(Sec. 39 [D], NIRC

NOTE: CAPITAL TRANSACTIONS NOT GOVERNED BY

THREE (3) SPECIFIC RULES

(7) Interest Income (Sec. 32A [4], NIRC)

(a) Tax Exempt

(b) Subject to Final Tax

(c) Subject to Normal Tax

(i) Rental Income (Sec. 32A [5], NIRC)

(a) Lease of personal property

(b) Lease of real property

(c) Tax treatment of:

(a) Leasehold improvements by lessee

(b) VAT added to rental/paid by the lessee

(c) Advance rental/long term lease

(ii) Royalties (Sec. 32A [6], NIRC)

1. For Individual Taxpayers

2. For Corporate Taxpayers

(iv) Dividend income (Sec. 32a [7], NIRC)

(1) Cash dividend

(2) Stock dividend

 (3) Property dividend

(4) Liquidating dividend

(8) Annuities (Sec. 32A [8], NIRC]

(9) Prizes and Winnings (Sec. 32A [9], NIRC)

(10) Pensions (Sec. 32A [10], NIRC)

(11) Other Sources of Income

(a) Recovery of Bad Debts

(c) Receipt of tax refunds or credit

(d) Income from any source whatever/Illegally obtained

Income

B. Taxation of resident citizens, non-resident citizens, and resident

aliens

a) General rule that resident citizens are taxable on income from

all sources within and without the Philippines

(i) Non-resident citizens

b) Taxation on compensation income

(i) Inclusions

(a) Monetary compensation

(1) Regular salary/wage

(2) Separation pay/retirement benefit not otherwise

exempt

(3) Bonuses, 13th month pay, and other benefits not

exempt

(4) Directors fees

(b) Non-monetary compensation

 (1) Fringe benefit not subject to tax

(ii) Exclusions

(a) Fringe benefit subject to tax

(b) De minimis benefits

(c) 13th month pay and other benefits, and

payments specifically excluded from taxable compensation
income

(iii) Deductions

(a) Personal exemptions and additional exemptions

(b) Health and hospitalization insurance

(c) Taxation of compensation income of a minimum

wage earner

**Income also subject to tax exemption: holiday pay, overtime pay,

night-shift differential, and hazard pay