AGAMATA eert CPA REVIEW FINAL INCOME TAX “Home of Topnotch Professionals” KNOWLEDGE ENGINEERS/ REVIEWERS R. B. Banggawan _ REVIEW NOTES PHILIPPINE INCOME TAX SCHEME An identified gross income will be subject to tax as follows: pny anbtnsw! identified item of gross income i ‘ ' 1 ‘ 1 ! Exception Tes! = : i q Final Withholding Tax Taxable at Spal Galnaea 4 (Certain passive either (Certain capital gains | income only) only) 5 t 4 : fl 1 1 : t 1 1 1 t 1 1 Regular Income Tax Individuals: Progressive Taxation (5-32%) Corporations: Proportional Taxation (30%) Cateh-all for all item of gross income not subject to final tax and capital gains tax Final tax and capital gains tax are the exceptions rule in the taxation of gross income. If an item of gross Income is subject to, or is exempted from, final tax or capital gains tax, it is no longer subject to regular tax, ok Ue cpa review www.certscollege.org www.revieweronline comAX.0-1404.Final Income Tax.RN PINAL WITHHOLDING TAX Pinal withholding tax is imposed to certain passive income. Refer to HO04,1 for the tist. Under the final withholding tax system, the taxpayer actually shoulders the tax but it is the income payor who withholds and pays the tax. The amount of tax withheld is final. The taxpayer has no more Fesponsibility to file an income tax return for the passive income covered subject to final withholding tix Nature of Final Income Tax on Certain Passive Income: L. The final taxes on the passive income are restrictive in application. They are applicable only on the items of passive income that are expressly listed by the NIRC. Final taxes are withheld at source by the income payor; hence, the income received by the taxpayer is net of the final tax, The income taxpayer therefore need not file a return for the Passive income. 1, Final taxes apply only on specified passive income by the law earned in the Philippines. Final Withholding Tax vs. Creditable/Expanded Witholding Tax ‘The income payor withhold a percentage ef the income, Serves to avoid cash flow problems to taxpayers by collecting at the moment cash is available. Differences: Income tax withheld Full Certain passive income Only portion Certain passive income and regular income income payor and the taxpayer Required Coverage Who remits the tax Income payor “Necessity for a consolidated returm None a - WwWw.reviewer-online.com uc cpa review wiww.certscollege.org L uc cpa review ‘MULTE CHOICE QUESTIONS (21 7s Gal Which is not subject to final tax? A. Gain on sale of shares of stock directly to buyer B. Royaities from musical composition C. Capital gain on sale of real property classified as capital asset D. Share ofa partner in the distributive net income after tax of a business partnership Which is subject to final tax? A. Share of the distribute net income of a general professional partnership B. Winnings not exceeding P10,000 C. Prizes not exceeding P10,000 D. Interest income from foreign bank deposits ‘Which of the following passive income is taxed on an annual and net basis? ‘A. Capital gain on sale of domestic stocks directly to buyer B. Capital gain on sale of domestic stocks through the Philippine Stock Exchange ©. Capital gain on sale of real property classified as capital asset D. Capital gain on sale of real property classified as ordinary asset Capital gain on the sale of which capital asset below is éaActusively presumed A. Real property used in business C. Personal property not used in business 8. _ Real property not used in business D. Personal property used in business The passive Income that is subject to a two-tiered final tax structure is A. Capital gain on sale of stocks of & resident foreign corporation directly to buyer B. Capital gain on the sale of capital interest in a partnership CC.” Capital gain on sale of sale of real property not used in business D. Capital gain on the sale of stocks of a domestic corporation directly to buyer Which is taxed at the lowest final tax rate among the following passive income? A. Interest income received fiom a depositary bank under the expanded foreign currency deposit system received by a resident citizen B. Cash dividend from a domestic corporation . Royalties from books and other literary works D. Interest income from long-term deposit with maturity of over five years All of the following are subject to 7 14% final tax on interest on FCDU Deposit, except A. Resident citizen D. Domestic corporation B.. Non-resident citizen E. Resident corporation C. Resident alien Dividends received by which of the following is not subject to dividend tax? A. Resident individual C. Resident corporation 8, General professional partnership D. Non-resident foreign corporation www.certscollege.org 2 www. reviewer-online.com.9 — 404.Final Income Ta: i i i Its of Ambiong Bank of Baguio started operation in 1995 with the following information on resul operation and dividend declarations. Year — Netincome Dividends declared 1996 P_ 500,000 E 1997 1,500,000 a 1998 2,000,000 ~ 1999 1,000,000 7 2000 2,500,000 P 6,500,000 ee . 1 How much tax must have been paid in the 2000 dividend Ss Ban! oe ‘A, P650,000 8, P390,000 Paso, i tition is generally taxable - The prizes on the foliowing award or compet i ' bi A ie echo competition sponsored by an organization sanctioned by the Philippi Olympic Committee. F B. “Most Charitable Person of the Year” “Nobel Prize Winner” D, Pageant competition i 2 Sbjoad by a resident citizen is subject to e foreign cutrency deposits made abfoa Interest income from foreigi ebiratle D. regular tax ‘A, 20% final tax B, 74% final tax Royalties on musical composition is subject to A, 20% final tax B, 10% final tax C/0% finial tax D. regular tax The interest inéome on long’t ee 1 of P300,000 Armando is a partner ine business partnership. At the end of 2010, he peste abt a profit sharing on the after tax income of the partnership inclusiveiof F120, 's profit sharing, managing partner. Compute the amount final tax to. be withheld from Armando’s pro! 8 a. (paz.o00 c, P30,000 8, P18,000 Pane ional Assuming the same information above except that the partnership is a general professio partnership, compute the. final tax to be withheld? turn; which is Final taxes are genétally withheld at source and does not require an income tax ret an exception ; A. Pinal tax on interest income from deposit {Final tax on royalties ’ Pinal tax on capital gain on’sale of domestic shares of stock directly to buye Ab. fi nk on dividends uc cpa review www. reviewer-online.com wwiw.certscollege.org Whith of the following is not subject to 20% final tax? | Interest income on long-term deposit of domestic corporation | Interest income on foreign toans {Interest income from money market placements or trust funds (Lotto winnings (oinpute the total amount of income subject to fifial tax: Yield from deposit substitute P 10,000 Interest income from bonds of a domestic corporation 23,000 \roperty dividend declared by a foreign corporation 40,000 stock dividend declared by a domestic corporation 50,000 Compensation income, net of P10,000 withholding tax 80,000 trize on “Search for Mr. Sexy Body” 15,000 oyalties from books 24,000 interest income on personal foans granted to a friend 8,000 Salaries from a general professional partnership 30,000 Salaries from a business partnership 20,000 A. P89,000 8. P99,000 €. P49,000 D. P69,000 19, Determine the total amotint of income tax withheld inconte during the year: Interest on Peso bank deposit e P 90,000 Royalties 36,000 Dividends 63,000 Share In the distributive income of ajéint venture 72,000 A. 46,000 B, P53,000 © Ss. ©. P38,700 D. P46, 500 12% annual interest every January 1. If Kevin disposed of this investment directly to buyer on December 31, 2008'at 102, how much is'the total final tax due? As. P24,000 B. P25,000 €)P1,000 D. PO On January 1, 2005, Helen invested P1,000,000 to RCBC Commercial Bank’: pre-terminated her investment on July 1, 2008. How much is thi of Helens investment? A. P9,000; P1,066,000 C. P18,750; P1,056,250 B. P63,000; P1,012,000 D. P30,000; P1,345,000 °2. How much final tax is withheld in the interest income paid by the bank on Janiiaty 1) 2006? AS~'PO B. P18,000 C. P30,000 D. P7,500 uc cpa review www.certscollege.org TAX.0-1404.Final Income Tax.MC if thé taxpayer received the following passive OnJanuary 1, 2008, Kevin purchased 1,000 P1,000 face value bonds of a tlomestic corporation at face value, The bonds were datéd January 1, 2007 and mature on January 1, 2011, The bonds pay s S-year, tax-free time Geposit. The long-term deposit pays 15% annual interest every January 1. In need of cash, Helen e final tax due and the proceeds Wwww.reviewer-online.com24, Assuming the same information in the problem above, except that the investment was mad domestic corporation, how much final tax is withheld in the year of pre-termination and the proceeds to the corporation? A. P'15,000; P1,060,000 B, 45,000; P1,030,000 C. P18,750; P1,056,250 D. P30,000; P1,345,000 20. Wenito Mojica invested in an 8-year long-term deposit in Rizal Commercial Banking Corporation mounting to P2,000,000 paying 10% interest semi-annually. How much is the final tax tobe withheld by Rizal Commercial Banking Corporation if Benito Mojica pre-terminated his (nvestinent at the just after the end of the third year? A 00 €. 30,000 6. 72,000 D.P120,000 21. What if Benito Mojica pre-terminates it just after the end of the fifth year? ea) . P50,000 B, 972,000 D. P200,000 22. Benedict rendered advisory services to Alexander in connection'With the latter’s tax compliance from May 2, to July 2, 2006. In July 2, 2006, Alexandeppaid him a note with a face value of P100,000 payable a year after, The same note could b@discounted at the bank for 15% at the time of receipt. How much compensation income and interest income is to be included in gross Income? A, P85,000; PO 6. P100,000; P15,000 C. P85,000; P7,500 0, P2100,000; PO 24 Andromeda, a non-resident alien, rendered professional services to Philippine company, a domestic corporation. The total consultancy fees agreed were P1,000,000. How much should Philippine company withhold? A, P1100,000 8. P200;000 C, P250,000 D.PO 24, Androme Andromeda earned P100,000 interest income. How much final tax should Metro Pilipino Bank withhold? A, PO 8, P20,000 C. P25,000 D. P 30,000 25, Assuming the same information in the preceding problem except that Andromeda is a non- resident corporation. How much final tax is to be withheld? A PO B. P20,000 C. P25,000 D,P 30,000 @ non-resident alien, invests in the 60-day Peso time deposit of Metro Pilipino Bank. TAX.O-1404. Final Income Tax.MC 7). Sunrise Bank, a non-resident foreign bank, has substantial foreign currency deposit at the FCDU unit of Banco italiano, a resident foreign bank, totaling $5,000,000. Total interest credited to Sunrise Bank was $600,000 equivalent to P28,800,000 at the time of payment. How much is the final tax on the interest received by Sunrise Bank? A. P10,080,000 B. P5,760,000 C. P2,880,000 D. Exempt 28. The Gambling World, Inc, a foreign corporation, Inc. has been trying. its luck with the Philippine Charity Sweepstakes lotto. It spent P800,000 for losing PCSO lotto tickets. Luckily, one ticket costing P10 won the P218,000,000 Superlotto 6/49 draw on July 24, 2007. How much is the ‘ deductible expense and the taxable amount of winnings? A. P40; P47,999,990 C. P800,000; PO B. 800,000; P47,999,990 D. PO; PO 29. Which statement is incorrect? A. Prize results from an effort. B. Winning results from transaction dependent upon chance, C. Prizes is subject to either regular tax or final tax. D. Winnings from the Philippines is always subject to final tax’ 30. The system of tax compliance wherein the employees dgés not have to make computations nor file an income tax return at the end of the year. A. Final withholding tax scheme B. Creditable withholding tax scheme C. Substituted Filing of Tax Returns / D. Self-Assessment Method 31. The substituted Filing of Tax Return ig Applicable where (choose the exception) A. The employee earns pure comperisation income 8, The employee has only one employer C. The tax withheld by the’employer is correct D. The employee is also engaged in the exercise of a profession 32. Creditable withholding tax rates shall not be less than but not more than A, 5%; 20% C. 1%; 32% B. 1%; 20% D. 2%; 15% 33. Which is subject to final withholding taxes? A. Interest on loans of by banks B. Prizes from abroad C. Dividends from foreign corporations D, Book royalties 34. Which is subject to creditable withholding taxes? 20, Andromeda, a non-resident alien, deposited $100,000 in the FCDU unit of Universal Bank, a A, Rentincome resident foreign bank. During the period, Andromeda earned $1,000 total interest. The relevant B. Dividends from domestic corporations ‘exchange rate between the Peso and the Dollar was P50:$1. How much final tax should Metro C. Winnings from PCSO Pilipino Bank withhold? D. Interest income from long-term deposits by corporations . _°50,000 B. P100,000 €. P125,000 D.PO 7 www reviewer-online.com www.certscollege.org uc cpa review Hic cpa review www reviewer-online.coma TAX.0-1404.Final Income Tax.MC ———— ee 35. The return for final withholding tax by withholding agent shall be filed not later than A. 20 days from the close of each calendar quarter B, 25 days from the close of each calendar quarter C23 days from the close of each calendar quarter Co D, 60 days from the close of each calendar quarter 36. The return for creditable withholding tax by withholding agent shall be filed not later than A. the first day of the month following the close of the quarter during which withholding was made B. the 15 day of the month following the cldge of the quarter during which withholding was made C. the 25" day of the month cee the close of the quarter during which withholding was made D. the last day of the month following the close of the quarter during which withholding was made ( CPA ere Y Davao City © Cebu City © Manila e Pampanga e Dubai, UAE Davao City 2" Floor Lourdes Bldg., Lapulapu St. Agdao, Davao City ‘m (082) 3041374 / 2214337] www.certs certscpareview@amail,com| TLOVECERTS@groups. fac 1m, Cebu City UC CPA Review Center Sanciangko St., Cebu City ‘ (032) 255-777 Loc. 122 Manila ¥ Carl Balita Review Center 2F Catmen Bildg,, Espatia Ave., Cor G. 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