SBCA 2011 Acads Lumbera Tax Notes Washout Watermark PDF

1
EXECUTIVE COMMITTEE
P u b l i s h e d i n c o o p er a t i o n w i t h
Over-all Chairman Jan Raphael Salud
Vice-Chairpersons for Academics Jonalyn Porquez
Michael Quesada EDITORIAL BOARD
Vice-Chairperson for Logistics Cristina Elaine Mangrobang Editor-in-Chief Aretha Eugenio
Vice-Chairperson for Finance Amerissa Base Associate Editor Ma. Katerina Santiago
Vice-Chairperson for Secretariat Patricia David
Managing Editor Laisa Mae Aguila
Vice-Chairperson for Recruitment Kathleen May Clareza
EIC Emeritus Mary Sayeh Hassani
SUBJECT HEADS
News Editor Joey Alfonso
Political Law Maicha Lucaylucay
Feaures Editor Rio Dizon
Labor Law Roberto Martin Buenaventura
Literary Editor Jenna Marie Dela Cruz
Civil Law Michael Malvar
Layout Artists Sam Santos
Taxation Law Amerissa Base Luvimindo Balinang, Jr.
Commercial Law Cherylette Lingao Carlo June Tibayan
Criminal Law Mina Batungbacal ADVISER: Atty. Rita Linda V. Jimeno
Remedial Law Michael Quesada
Legal Ethics Miguel Justin Rigor
Legal Forms and Legal Writing Karla Soleil Rosal
MEMBERS
Altares, Philip Neri, Jorgianna
Basconcillo, Ian Zander Ngo, Dianne
Cosico, Michiko Palacol, Jamie Rose Real Property Tax/ Real Estate Tax
Daganta, Fely Rose Palileo, Fernando Jr.
Dechavez, Alyssa Mae Palmiery, Fritzielyn I will start the discussion by comparing the exemption of various
De Paz, Marvin Pastores, Cherie organizations. Kasi dito medyo naintindihan natin yung ibang constitutional
Escucha, Alexandra Gerardine Red, Karen Christine provisions. Memorized na natin yan, enumeration, definition. But let’s do some
Galan, Cherie Amor Talatala, Juan Miguel comparison as to the exemption of various organizations from real estate tax,
Gloria, Nadine Alessandra Vibandor, Jo Marie Angeli taxability for income tax purposes, taxability for estate tax purposes, for donor’s
Javier, Gemma Andrea Yang, Gladys Mae tax purposes and deductibility from the gross income, these are the points that we
Ibasco, Caselyn Yapjoco, Soleil need to study.
Llave, Miguel Ycong, Cherry Joy
Let’s start with the government. Ang sabi natin: the government is exempt
Martinez, Ambrosio Advisers: Atty. Bruce V. Rivera
from payment of tax, but that is just a mere general rule. There are specific rules
Munoz, Lirio Dean Ulpiano P. Sarmiento III
2
on application of exemption of governmental agencies. What are these specific e.g. Lay-out of building owned by DSWD
rules?
1) Government agencies to which the state exercises governmental functions

are exempt, unless there is a law requiring taxation; and
Building 1 Building 2 Building 3
2) Governmental agencies to which the state exercises proprietary functions
are subject to tax, unless there is a law exempting them. Park Portion rented to
Office Parking Lot KFC, McDo, Jollibee
Government Owned and Controlled Corporations (GOCCs)

You will not find the answer in the computation. When we talk of RPT, it’s
When we talk of Government Owned and Controlled Corporations always the Local Government Code of 1991 which governs exemption or taxability
(GOCCs), these are treated as ordinary domestic corporations and therefore, they of properties for purposes of RPT.
are subject to all kinds of corporate taxes except for the following: SSS, GSIS,
PHIC, PCSO. Ang sabi sa Local Government Code of 1991, the following properties are exempt
from payment of real estate tax: “Real properties owned by the government of the
PAGCOR is no longer exempt. I will teach you how these governmental Republic of the Philippines or any of its instrumentalities or agencies, provided,
agencies are subjected to tax. that the beneficial use thereof does not inure to the benefit of a non-exempt entity.”
So the rest of the GOCCs (except SSS, GSIS, PHIC & PCSO) are subject In other words, even if it is owned by the government, if the beneficial use pertains
to tax just like an ordinary domestic corporation. Okay, now we also have rules for to a non-exempt entity, it will no longer be exempt from payment of real estate tax.
Government Educational Institutions. In layman’s language, we refer to it as public The Local Government Code does not say, “actually, directly, exclusively
schools, public elementary schools, public high schools and state universities, iba used for governmental purpose.” Ang sinabi lang niya, lahat ng pagaari ng
rin yung tax treatment dito. I will teach you how the tax is imposed on these kinds gobyerno ay libre sa RPT subalit kung ang gamit niya ay para sa tao o para sa
of institutions. So let me start by giving you an example, ha? Para naman taxpayer na hindi tax exempt, then hindi na siya magiging exempt. So, following
maintindihan ninyo. that rule when you are asked, is this portion of the property subject to RPT?
Governmental agencies performing governmental functions (Pointing to building 1 up to parking lot) EXEMPT. The portion which pertains to a
non-exempt entity (portion rented to KFC, McDo, Jollibee) is no longer exempt
So let us say that this is a parcel of land. Let us discuss the rules on from payment of real property tax.
taxability and exemption of governmental agencies. Let’s start with governmental
agencies to which the state exercises governmental functions, example DSWD, Recent jurisprudence
DPWH, napakarami niyan, these are the governmental agencies. So DSWD, let us There are a lot of cases, new cases decided by the SC applying this
say that this is the land occupied by the office, building 1, building 2, building 3, it doctrine. We have two cases, the one involving Iloilo Fishing Port and Navotas
has its office here, it has a small park and there’s a parking lot. Then a portion Fishing Port. What happened there in those two cases decided by the SC in 2010
here is rented out by DSWD to private entities, let us say KFC, McDo and Jollibee, and 2009? Let’s take the case of Iloilo, ang city government ng Iloilo, ni-reclaim
and these private entities are paying rentals to DSWD. That’s the physical set up yung shoreline at kinonvert into a fishing port. After conversion, a portion thereof
of the government agency. The first question is of course, is DSWD, a was rented to tenants, the local government of Iloilo assessed real estate tax on
governmental agency exempt or subject to payment of real property tax or real the portion occupied by tenants because they were paying rentals. So ang issue
estate tax (RPT)? dito ay, “Paano ang taxability ng lupa ng gobyerno na ang isang portion ay
ginagamit ng government at ang kabilang portion ay ginagamit ng non-exempt
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
3
entity?” Applying the rule under the Local Government Code of 1991, ang sabi ng anything that flows into your wealth or anything that increases your net worth other
Korte Suprema, “The portion of the fishing port rented out to tenants and paying than a mere return of capital.
rentals will be suject to real estate tax because those are not exempt anymore
from payment of RPT.” Following the same doctrine is the Navotas Fishing Port. When income realized by DSWD is not subject to income tax
Ganun din ang sitwasyon, pina-rent naman. ‘Yung portion na pinarent sa public
and paying rentals, hindi na raw exempt from payment of real estate tax. So are these P50,000 from projects and P100,000 rental income subject to
income tax? Is the answer found in the Constitution? NO. Is the answer found in
Build-Operate-Transfer Agreement the general rule that the government is exempt from payment of tax? NO. Saan
hahanapin ang sagot? Nasa codal, Sec. 27. As far as the P50,000 income from
Okay, now there is another doctrine as far as RPT is concerned. Under a the projects is concerned, it is income and not taxable because it is in the exercise
Build-Operate-Transfer Agreement (BOT) the government owns the property. Here of governmental function.
comes a third person, a tax payer, a private entity entering into an agreement with
the government that the private entity will build, operate, and then later on transfer But the rental income of P100,000 is out of proprietary function and
the improvements to the government. The agreement is: the private entity builds, therefore subject to income tax.
operates and then eventually transfers the infrastructure to the government after a
certain period of time. Donation given to DSWD is income
What is the question? During the BOT agreement while the property is Sumunod na tanong: let us say that X gives DSWD P500,000, tinanggap ni
owned by the government, is the property subject to RPT? DSWD. 1) Nung tinanggap ng DSWD yung P500,000 from X, is that income on the
part of DSWD? YES. Because income is anything that flows into your wealth or
Ang sabi ng SC, “it is subject to RPT because the beneficial use in the anything that increases your net worth other than a return of capital. Sa tax, laging
mean time that there is a BOT pertains to a non-exempt entity, and what the black or white pero konting movement, nag-iiba yung point of view. So we should
government has at that time is merely a contingent benefit Why? Because its get used to it. It is income because, from your end? Ang tanong is, “Did it increase
benefit is contingent upon the subsequent transfer to the government and while it my net worth other than return of capital? Is it flow of wealth into me? The answer
is being used by the non-exempt entity under the Local Government Code of is yes and so be it, the answer is yes, it is income.
1991, it will not be exempt from payment of real estate tax.
Donation to DSWD not subject to Estate or Donor’s Tax
Income realized by government agency from projects
When X gives to DSWD, is it subject to estate or to donor’s tax? Estate tax-
Now, let’s continue. DSWD, a governmental agency, realizes income out of -the way or mode of transfer from X to DSWD is taking effect upon death.
projects. ‘Yung mga batang kinukuha nila, matatandang kinukuha nila, their Testamentary succession, bequests, taking effect upon death, the question will be,
educational courses in the meantime that they are in the hospice. So meron silang ‘Is it subject to estate tax?” But if the mode of transfer from X to DSWD is taking
mga projects, DSWD realizes income out of these projects, let’s say P50,000. Ang effect during the lifetime, the question is, “Is it subject to donor’s tax?” ‘Yan ang
tanong satin ay: Is it income from DWD’s point of view? Is it INCOME? YES. tatandaan ninyo. Basta ang mode of transfer ay taking effect upon death, ang
Because income is anything that flows into the wealth of the taxpayer other than a laging tanong sa inyo ay estate tax. Pag nakita ninyo that the mode of transfer is
return of capital or anything that increases his net worth or anything that flows into inter vivos, then ang tanong sa inyo is, “is it subject to donor’s tax?” Ngayon, either
the wealth of the taxpayer other than a return of capital. Therefore, the P50,000 way, is it subject to estate or donor’s tax? You will not find the answer in the
from the projects is income for taxation purposes. Is the rental income? Let us say, Constitution. It is not in RPT. It is in Sec. 86 for Estate Tax and Sec. 101 for
P100,000. Is this income on the part of DSWD? Yes, because income is anything Donor’s Tax which we refer to as Transfers for Public Use. When a transfer is
that flows into the wealth of the taxpayer or anything that increases his net worth made in favor of the government or any of its agencies or instrumentalities, we call
other than return of capital. Income, from the economic point of view in taxation, is it ‘transfer for public use,’ and if the mode of transfer is taking effect upon death,
we say that the transfer is exempt from estate tax. If the mode of transfer is taking
4
effect during the lifetime, we say that the same is exempt from donor’s tax. Donation to DSWD may be claimed as deduction by business income earner
Donor’s Tax is Sec.101 and Sec. 86 is Estate Tax.
Now, if you were a business income earner, X may be a corporation or an
Donor can claim the gift as a deduction from Gross Income individual. Whether X is a corporation or an individual taxpayer earning business
income, and P500,000 is given to DSWD, then the business income earner can
Now from the point of view of X, can X claim the same as deduction? claim the same as a deduction in full especially if the donation is for the priority
Magtanong kayo kung bakit maraming nagbibigay. Maraming nagbibigay dahil projects of the government. We’ll find this in Sec. 34 (h). These are the rules on
talagang dakila ang puso, dalisay. Pure ang intention na makatulong. But in the exemption from taxability of government institutions exercising governmental
recognition of that purity of intention and the effect of your gift, the government functions from RPT to income tax, from donor’s tax to estate tax. Walang ibang
gives a benefit in favor of the donor and the benefit is in the nature of deductibility rules na madadagdag diyan. Kahit bali-baliktarin natin ang codal, yan lang ang
from gross income. May tax consequence ang pagbibigay kasi nire-recognize ng pwedeng itanong sa inyo pagdating sa group na ito.
government ang pagtulong ng isang taxpayer by way of giving of gift. When X
gives P500,000, it means may income siya kasi hindi siya makakapagbigay kung When Government Educational Institution is exempt and not exempt from
wala siyang kita. ‘Yan ang tandaan ninyo. Ang presumption dito ay, si X ay may Real Estate Tax
kita na more than P500,000. Kasi walang taxpayer na normal ang isipan na
magbibigay ng ikahihirap nya. Kaya siya nagbibigay kasi may sobra. So pag Let’s take the case of a Government Educational Institution (GEI) or what
nagbigay siya ng sobra, yung gobyerno nirerecognize natin ang purity of intention we refer to as public schools, public elementary schools in far flung barangays,
and the effect of your gift by way of allowing you to claim as deduction, the gift that wherever. Public high schools, science high schools, this is what we refer to as
you made. GEI, state universities or colleges. GEI ang tawag diyan. Let’s take for instance
the University of the Philippines: Building 1, Building 2, may office, may swimming
pool, may Building 3, Library, may Parking Lot, may canteen, at itong portion na ‘to
pinapa-rentahan na naman sa KFC, McDo and Jollibee. These agencies are
Deductions that may be claimed by a purely compensation income earner paying rentals of P100,000. Yan yung physical setup.
So from the point of view of X, can X claim P500,000 as deduction from his e.g. Lay-out of the property owned by UP
gross income? Ang sagot dito ay makikita sa Sec. 34 and 35 of the Tax Code. I
don’t want you to memorize these numbers. I want you to understand what these Building 1 Building 2 Building 3 Office Swimming Pool
numbers provide in the Code. Can X claim the P500,000 gift as a deduction? Ito
ang sagot: If X were a purely compensation income earner, ano ang ibig sabihin
nito? Nagta-trabaho, employer-employee relationship, ang kinikita mo ay puro
sweldo. Wala kang ginagawa kundi ang magtrabaho under an employer-employee Library Parking Lot Canteen Portion rented to KFC, McDo,
Jollibee
relationship. What you earn is compensation income. You are called a purely
compensation income earner and under the law, if a taxpayer or individual is a
purely compensation income earner, the only allowable deductions are: (PE), Is the government educational institution subject to or exempt from
Personal Exemption of P50,000; (AE) Additional Exemption of P25,000 per child, payment of RPT? The basis of the answer is Local Government Code of 1991, not
maximum of 4; and (PHHI) Premiums on Health and/or Hospitalization Insurance. the tax code. What does it say? All properties owned by the government of the
Nothing more, nothing less. So if you gave P500,000 and you are working as an Republic of the Philippines shall be exempt from real property tax except when the
employee in a company, ang presumption natin ay kinuha mo ang P500,000 sa beneficial use thereof pertains to a non-exempt entity. Following that rule, exempt
sweldo mo. Kapag nag-compute ka ba ng income tax due from your compensation or subject to tax? EXEMPT! This one (buiding 1 up to canteen)? EXEMPT. How
for the entire year, can you claim as deduction the P500,000? Ang sagot ay: NO. about the portion rented out to KFC, McDo and Jollibee? TAXABLE. According to
Because you are allowed only PE, AE and PHHI as deduction, and donation is not the Local Government Code of 1991, this portion will now be subjected to real
PE, AE or PHHI. property tax.
5
Tuition fee paid by students is income P100,000 rental income is an income from real property and therefore according to
the last paragraph, it is not exempt from payment of income tax.
The school realizes income from tuition fees. Syempre nagbabayad din
naman tayo, subsidized nga lang ng gobyerno so mas maliit ang binabayaran. Is Interest income from interest on investment, generally taxable
the tutition fee income revenue of the school income? Yes! Because income is
anything that flows into the wealth of the taxpayer or anything that increases the Let us assume that the GEI put P50,000 and P100,000 in a financial
net worth other than a return of capital. Is the rental income, income? Yes. institution, earning interest of 10%. All in all P15,000. Is the P15,000 interest
Because following the same rule, anything that flows into your wealth or anything income, an income? Yes. Is it subject to income tax? Yes. Because according to
that increases your net worth other than mere return of capital is treated as income the last paragraph of Sec. 30, income from an activity conducted for profit of the
for taxation purposes. GEI, will no longer be exempt from payment of income tax. Yes or no? Yes! So
this one is subject to income tax. Of course there are BIR Rulings, not BIR
Payment from rentals is income Regulations. The government educational institutions may seek a particular BIR
ruling, if it can prove that the P15,000 income and the income from rental income
Is tuition fee an income? Yes. Is payment from rentals an income? Yes. will be devoted by the school for educational purpose, pwede ma-exempt. That is
an exception to the rule, that is not the general rule. Without a specific ruling to the
When income is not subject to income tax effect that this income, P15,000 and P100,000 rental ay dine-devote sa
Are the tuition fee and rentals subject to income tax? Where will you find governmental purpose or sa educational purpose, hindi mae-exempt yan by
the answer? Sec. 30 of the tax code. Sec. 30 is an enumeration or list of reason of last paragraph of Sec.30.
corporations which are not subject to income tax. The first sentence of sec. 30, Meaning of “regardless of disposition”
makikita niyo yung salitang “as such”. Those two words are very important in Sec.
30. Tagalugin natin. Lahat ng korporasyon na nakalista ay exempt sa income tax. Let us assume that the P15,000 is not exempt; there’s no specific ruling.
Nakasulat diyan, are not subject to income tax under this title. Kung titingnan mo, P15,000 is not exempt but the P100,000 is exempt. Let’s presume that the 50,000
ano title? Income tax. “Ay hindi subject sa income tax sa income as such” that’s and 15,000, 65,000 ginamit ng skwelahan, the school used the P65,000 income
how you read it. All of these corporations shall not be subject to income tax for the which is not exempt from income tax for purchase of computers, improvement of
income realized by them as such. the school. Will that fact now exempt the P15,000 and P50,000 from payment of
income tax? NO. Because ang sabi sa Sec.30 last paragraph ay “regardless of
Meaning of “income realized as such”
disposition”. Yan ibig sabihin nung regardless of disposition.
What is the meaning of income realized as such? Income realized by each Gifts, bequests, devises as items of exclusion from computation of gross
corporation pursuant to the primary purpose for which they are treated. One of income
them is a government educational institution, Sec. 30 (i). So anong ibig sabihin? Is
tutition fee income, income as such? Yes. Therefore this is exempt. Rental Next, X gives GEI P500,000. Is it income on the part of the school? YES.
income, income as such? No. Therefore, subject to tax. Because income is anything that flows into the wealth of the taxpayer other than
mere return of capital. Is it taxable income on the part of the GEI when the GEI
Income from real property is subject to income tax receives P500,000? NO, because of Sec. 32 (b) (3). Gifts, bequests and devises
In addition to the first paragraph, you go to the last paragraph. Nakasulat are items of exclusion from the computation of the gross income of the decedent.
din diyan, last paragraph, “notwithstanding the provisions above, income of Pag kayo tumanggap ng regalo, yun ay income sa inyo pero hindi siya taxable
whatever kind or character from real or personal property or from an activity income. Hindi siya subject sa income tax. Bakit? According to Sec. 32 (b) (3), gifts,
conducted for profit, regardless of disposition, shall no longer be exempt from bequests and devises are items of exclusion from your computation of gross
payment of income tax.” Very literal ang sinasabi ng batas. When you apply that, income. So pag binigyan ka ng limandaang libong piso at ikaw si GEI, income yan
sa iyo. Gawin nating kayo at ako para mas madali. Kayo si GEI tapos binigyan ko
6
kayo ng P500,000. Income sa inyo? Oo. Taxable income sa inyo? HINDI. Bakit? Income of Government-Owned Or Controlled Corporations
Nakasulat sa batas na lahat ng tinatanggap na regalo ay hindi part ng gross
income for income tax purposes. So we are through with government educational institutions. If it is a GOCC
pabaliktad naman. GOCC-lahat subject to tax because it is treated as an ordinary
Gifts to Government Educational Institution not subject to estate or donor’s domestic corporation. Madali pag GOCC, lahat- real property, lahat yan subject to
tax tax. Now let’s continue our discussion by comparing the two with charitable,
religious, educational institutions, non-stock, non-profit, stock or proprietary
Ang susunod na tanong, pag binigyan kita ng P500,000 yan ba ay subject educational institutions (PEIs), we also have proprietary hospitals. These are
sa estate or donor’s tax? You will again find the answer under the NIRC, right? If some of the organizations that we have under the Constitution, under the tax code.
you give in favor of the government, transfers for public use again, and are And we are going to determine the taxability or exemption of these institutions
therefore exempt from either estate or donor’s tax. using the same example so that you can see the variances in the rules.
Donation not allowed as a deduction if donor is a purely compensation
income earner
CT
Noong binigay ko yan sa inyo, anong tax consequence sa akin? Pwede ko
bang i-claim as deduction? The answers are the same. If Lumbera is a purely CHURCHES Charitable
compensation income earner, eto lang tatlo ang pwede kong i-claim (PE, AE,
PHHI). Therefore it cannot be claimed as deduction sa akin. CONVENTS A, D, E, Religious RPT
MOSQUES used Educational TAX
Donation allowed as a deduction if donor is engaged in trade or business Non-Profit Cemeteries
Kung si Lumbera is a corporation or individual earning business income, P L B I

then I may claim the same as a deduction. That’s Sec. 34 (h) and Sec. 35 of the
NIRC.
Question: Now the Constitution states that, “All churches, charitable institutions,
convents, mosques, non-profit cemeteries, parsonages as well as all lands,
Barrister: Ma’am for Sec. 30 po, last paragraph, the “regardless of disposition”, buildings and improvements, actually, directly and exclusively used for charitable,
does this fall under those characterized as one-time transactions? religious and educational purpose, shall be exempt from tax.” That’s
Constitutional Provision NO.1. I-noun natin, dun sa elementary, may noun dito
Atty. Lumbera: Ah kung one-time transaction iba yan kasi one time transaction, ang katapat niya charitable. Charitable institution, charitable purpose. Eto,
remember that in an activity conducted for profit, the presumption is regular. religious walang educational na katapat sa sentence. Agree? So nagma-match
Because if it’s a one-time transaction, you can seek for an exemption from BIR. yan. Magkaka-match yan. Ang sabi lahat daw ng mga institusyon na ito, kasama
Kasi hindi mo ma-establish that you are engaging in business activity. Ang ang kanilang lupa, lahat ng building at lahat ng improvements doon sa lupain ay
premise dito is habitual, regular. You are entering into commercial transactions on libre saan? Tax. Anung klaseng tax? RPT lang yan. At kaya libre sa tax eh dahil
a more or less habitual or regular basis which give you profits. Pag regular kasi ginagamit actually, directly and exclusively for charitable, religious. So, ito ang
yung transaction mo, commercial activities and you are a government educational laging tatandaan. Sa tax kasi this is very helpful. You don’t read the provisions of
institution, ibig sabihin nawawala na ang serbisyong publiko ng inyong institusyon. the law which are very long. Sundan lang ang outline, tagalog version, English
That’s the reason why. version, easy to understand.
7
Requirement for exemption from RPT Income realized from projects is subject to income tax
So what makes the exemption? The USE, regardless of ownership. So Now, yung mga tao diyan kinukupkop ay nag-aaral ng technical or
even if an entity which is not exempt allows these institutions to use it for these vocational courses. Gumagawa ng proyekto: basahan, Christmas cards,
purposes, that property will be exempt from tax because ownership is not Christmas baskets, bags out of paper, all of these things. So, the institution
important. The use of the property is important. So kahit sinong may-ari. Basis? realizes income, not from tuition fee but from projects. P50,000. Income on the
Constitution and the Local Government Code of 1991. part of the institution? YES. Why? Because income is anything that flows into the
wealth of the taxpayer other than mere return of capital. Is the P100,000 rental
Exempt property No. 2. One is government, exempt property No. 2 “All real income, income? Yes. Is the P50,000 income from the project subject to income
properties actually, directly and exclusively used for charitable, religious and tax? When you look at the constitutional provision, can you say that it is exempt or
educational purposes.” Sa Local Government Code of 1991 nakalagay yan. It shall that it is not exempt? No, you cannot. Kahit bali-baliktarin natin yan hindi natin
be exempt from RPT. malalaman kung yung P50,000 ay subject sa income tax. Bakit? Kasi ang
coverage nito ay RPT, hindi income tax. So saan makikita ang sagot? CODAL.
Determination of purpose of a charitable Institution Nakasulat diyan, Sec. 30 again, Sec. 30 (e). Nakasulat sa batas na ang income ng
Let’s take the case of a charitable institution. Let’s say that this is Bahay ng isang institusyon which is created for charitable purpose, income as such, shall be
Mga Taong Walang Pag-asa (BTWP). Kinukupkop ang mga tao diyan, mga taong exempt, and therefore the P50,000 income is income as such, exempt from
walang pag-asa. How will you know if it is a charitable institution? You look at the income tax.
incorporation documents, the SEC documents. Because each charitable institution Rental income is subject to tax
should be registered as a charitable institution with documents, registered before
the SEC, wherein the primary purpose is stated. Doon niyo makikita yan. Without What about the rental income? Again we go back to last paragraph of Sec.
any document proving that indeed the organization is a charitable one, no 30, “income of whatever kind or character from real or personal properties or from
exemption will be allowed. an activity conducted for profit comma regardless of disposition comma shall be
subject to tax.” Hindi niyo makikita and sagot sa constitutional provision. Bakit?
Exemption of a charitable institution from payment of Real Estate Tax Kasi RPT lang pinag-uusapan sa Constitution. Sa codal, NIRC, nandoon ang
Let us say that this is Building1, Building 2, it has a canteen, kitchen, office, kasagutan kung bakit yung dalawang income ay taxable o hindi.
park, entertainment area, parking lot, plus KFC, McDo, Jollibee, paying rentals of Donation given to the charitable institution not subject to income tax
P100,000 to BTWP, a charitable institution. Is it subject to or exempt from the
payment of RPT? Are the Building1 to Parking Lot exempt from payment of RPT? Now let’s continue, X gives P500,000 to the charitable institution Bahay ng
EXEMPT. Basis? Constitution and the Local Government Code of 1991 which Mga Taong Walang Pag-asa (BTWP). Charitable institution. Kanina, gobyerno ang
states expressly that, “all real properties actually, directly and exclusively used for binigyan, sumunod ay government educational institution, ngayon charitable
charitable, religious and educational purpose shall be exempt from payment of institution. Is it income on the part of the charitable institution? YES. Because
RPT.” income is anything that flows into the wealth of the taxpayer other than mere
return of capital. Is it subject to income tax? Is the P500,000 gift from X and
Building Building 2 Canteen Kitchen Office
1 received by the charitable institution taxable income? NO. Because of Sec. 32 (b)
(3), gifts bequests and devises are items of exclusion from the computation of the
gross income. So from the point of view of the recipient, that’s income but not
Park Entertainment Parking Portion rented to KFC, McDo,
Area
taxable income. Basis? Not the constitution but the tax code.
Lot Jollibee
8
Gift given to the charitable institution, not subject to Estate or Donor’s Tax corporate taxpayer, which gave out P500,000 to the charitable institution. Ang
assumption natin is yung amount na binigay ko galing sa income ko from
If you give in favor of the government, it is not subject to estate or donor’s business. But I have the right to claim as deduction only to the extent of 10% of my
tax. 100% exempt. If you give to a charitable institution and the question is, is it taxable income, not 10% of the donation. 10% of my taxable income.
subject to estate or donor’s tax? It will not be subject to either estate or donor’s
tax, provided, that not more than 30% is used for administration purposes.
Nakalagay yan, Sec. 87 and 101 of the tax code. So there’s a qualification. It Lumbera’s taxable income for 2011 Donation Allowable deduction for gift
10% of taxable income
cannot be subject to estate or donor’s tax, provided, that the donee does not use
P1,000,000 x10%=P100,000
more than 30% of the gift or the donation for administration purposes. P1,000,000 P500,000 (if individual)
5% of taxable income
Gift is subject to Estate or Donor’s tax if more than 30% of the gift is used P1,000,000 x 5%=P50,000
for administration purposes (if corporation)
What if ikaw na donee eh ginamit mo ang more than 30% ng binigay ko

para sa administration purposes? Ang sagot lang diyan ay simple. Nagbibigay ka If my taxable income for the year 2011 is P1,000,000 and I donated
para makatulong sa institusyon, hindi para paswelduhin ang mga tao na P500,000 to the charitable institution, my deduction as a corporation is only
empleyado ng institusyon. Hindi para bayaran ang kuryente ng institusyon at hindi equivalent to 5%, so P50,000 lang. Out of my gift, yung P450,000 walang effect sa
para bayaran ang telepono, sabon, tubig. Hindi ganyan ang pagbibigay ko. Ang akin. Hindi natin sinasabi na ‘wag ka na magbigay ng pera kung singkwenta mil
pagbibigay ko ay para makatulong sa mga taong walang pag-asa na magkaroon lang. Ang sinasabi natin, ‘pag nagbigay ka, salamat, pero ang tax consequence sa
ng pagasa. That’s the reason why I am giving and that is why there is a iyo, Lumbera, ay hanggang sampung porsyento lang at hanggang limang
requirement that when the donee (recipient) uses more than 30% for porsyento lang kung korporasyon sa taxable income. The P450,000 is a gift but it
administration purposes, then the entire donation or gift will be subjected to will have no effect on the part of the donor. If si Lumbera is an individual,
donor’s or estate tax. The reason I am giving you is not for you to live but para according to Sec. 34, it will be limited by 10%, up to P100,000 lang ang magiging
matulungan yang mga taong yan. Kung bubuhayin lang din kita eh hindi yan tax effect sa akin out of the P500,000 gift that I made. Yun yung Sec. 34 (h),
donasyon sa akin, hindi kita binibigyan ng pag-asa na mabuhay. Ang binibigay ko makikita niyo yan.
sayo ay pera para mabuhay ang institusyon. So, if you violate that rule then I have
the right to cancel the donation. If there’s a condition for the gift and the donee Religious institutions
violates the condition for the gift, the donor has the right to rescind, That’s the
logic. Let’s talk about religious institutions. Again, the Constitution states:
Churches, convents, mosques, non-profit cemeteries, parsonages, as well as all
Gift given to the charitable institution as deduction lands, buildings and improvements therein actually, directly and exclusively used
for religious purposes shall be exempt from RPT. So let’s change it to a religious
Now on the part of X, can X claim as a deduction the amount of P500,000 institution. San Beda, the school, is not the religious institution. San Beda-Order of
given to the charitable institution? If Lumbera is a purely compensation income St. Benedict (OSB), is the religious institution. Here we are talking about OSB, the
earner, only three (3) are allowed as deductions (PE, AE, PHHI) and this is not religious institution, not San Beda the school. If we will talk about the School-San
one of the three. Therefore, no deduction can be allowed. Beda, San Beda, the school will be covered by the other constitutional provision,
But if Lumbera were a corporate taxpayer or a business income owner not by this one. If we are talking of OSB, the religious institution, like Iglesia ni
individual, and she gives P500,000 to the institution, she has the right to claim it as Cristo, Roman Catholic Church, Jesus Is Lord Movement, Lahat ng yan. These
deduction, with limitation. What’s the limitation? If Lumbera were a corporate are the religious institutions.
taxpayer, deduction is limited to 5% of my taxable income only. And if an
individual, 10% of my taxable income. What does it mean? Si Lumbera is a
9
Determination whether organization is a religious institution Real property of religious institution exempt from real estate tax
Again, the requirements are that: in the articles of incorporation, it is Ngayon eto bang property na ito ng simbahan ay subject sa real estate tax
incorporated as an organization and there are documents showing that it is a duly or hindi? Lahat ng ito, except this portion rented to KFC, McDo, Jollibee, will be
organized group. Without that proof, you cannot claim the exemption. exempt from real property tax. Basis? Constitution. Maliwanag pa sa sikat ng
araw. Itong portion rented to KFC, McDo, Jollibee ang hindi exempt. Bakit?
Properties and income of a religious institution Because it is not actually, directly and exclusively used for religious purposes.
Income of Church, not subject to income tax

Simbahan Parsonage Quarters Park Canteen
Let’s talk about the income of the church. P50,000 out of pamisa,
Kitchen Office Parking Lot Portion rented to KFC, McDo, Jollibee pabinyag, pakumpil. Income? YES. Yung mga pamisa ninyo sa simbahan. Yan
ba’y income? YES. Is it subject to income tax? Can you use again as basis the
Constitution? No, again because the Constitution only pertains to RPT. So what
again will be the basis for your answer? Sec. 30 of the Tax Code. Nakasulat na
So let’s take the case of the Church, Katolikong Simbahan. Roman naman diyan, paragraph (e). So is it subject to income tax? NO. Because
Catholic Church. So eto ang simbahan, bahay/parsonage ng pari, quarters, there’s according to sec. 30, this is income as such of an organization devoted for
a park, canteen, kitchen, office, parking lot, portion rented to KFC, McDo and religious purpose and therefore exempt.
Jollibee. Pagka-panganak bibinyagan, magbabayad sa opisina, mass sa binyag,
special mass-mahal, susunod kumpil, mass sa kumpil special kumpil--bayad ka. Rental income paid to religious institution, subject to income tax
Araw-araw ng buhay natin tayo’y nagpe-petisyon. Simula ngayon ang inyong What about the income from rent paid by KFC, McDo and Jollibee?
petisyon ay: pumasa sana ako sa 2011 bar examinations. At kayo namang mga Income? YES. Subject to income tax? YES. What’s the basis? Not the
nasa college of law: sana’y wala akong bagsak at maka-enroll ako sa June! Ang Constitution, but the last paragraph of Sec. 30 which states that, “income of
mga petisyon nating yan, bayad na naman tayo sa opisina, singkwenta pesos, whatever kind and character from real and personal properties or from an activity
trenta pesos. Pag tayo’y nag-asawa, ganun na naman, bayad, depende kung may conducted for profit, regardless of disposition, shall no longer be exempt from
bulaklak, may carpet, mass sa kasal, special kasal, limang pari, walong pari, payment of income tax.”
Obispo, whatever, iba ang rate. Pag namatay ka, ganun din-bebendisyunan ka,
last rites, mass sa funeral o special, depende sa misa, kung ang mass ay full- Interest income of religious institution, subject to income tax
blown na misa o di kaya eh may choir na kumakanta na tatlong oras tama ba? Iba-
iba ang bayad natin. So these amounts of money go to the office. You pay, there’s If the Church decides to put the money in a lending institution, financial
a receipt. institution, earning interest, is it income? YES. Subject to income tax? YES. Basis?
Last paragraph of Sec. 30.
Now habang nagmimisa, habang may serbisyo ang mga pari, pagkatapos
non kakain ang mga pari, masarap ang kain, hipon, alimango. Plus may, “father Donation given to the Church, not subject to income tax
pasensya ka na,” merong envelope yan ang ginagawa natin, dahil ang paniniwala
natin sa relihiyon ay nagdadala sa atin sa langit pagdating natin sa kabilang Now let’s continue, X gives P500,000 sa simbahan sa paniniwalang kung
buhay. Di tayo dadaan sa purgatoryo, at hindi rin tayo pupunta sa impyerno. nagbigay sa simbahan eh sa langit didiretso. Pero maraming nagbibigay sa
Diretso nang langit. That’s the exercise of our faith, so yan ang ating paniniwala at simbahan kasi ganyan tayong mga Pilipino. So, nagbigay sa simbahan, income on
yan ang ating mga kustumbre sa relihiyon. the part of the church? Yes. Because income is anything that flows into the wealth
of the taxpayer other than mere return of capital. Is it taxable income on the part of
10
the church? No. Because, gifts bequests and devises are items of exclusions from kung korporasyon. The rules are the same for religious and charitable institutions.
the computation of the gross income of the church. Walang pinagkaiba.
Income of the priest and income tax consequence Non-stock non-profit educational institutions
Question, what about those that you give to the pari? Income on the part of Non-stock, non-profit educational institutions. Let’s change this to a school.
the pari? Yes, because that increases his net worth. Is it taxable income on the Kanina GEI. Ngayon non-stock, non-profit educational institutions. Private but non-
part of the pari? Dalawa ang sagot diyan. stock, non-profit. Ang konstitusyon nakalatag, madaling intindihin. Yan din ang ia-
apply natin. So let’s say that this is a school, non stock non-profit. How do you
1) One is that this is income but not taxable because it is in the nature of a know that?
gift. Ibinigay mo kay father, ang konsiderasyon gratuitous. Now if you give it to the
pari because it is in the form of a gift, it is true that it is income but it is not taxable Determination whether school is a non-stock non-profit educational
because of Sec. 32 (b) (3) but it should be subjected to donor’s tax. It should be institution
subjected to the rules of donor’s tax.
Nakasulat na naman sa articles of incorporation at sa by-laws. What are
2) The other answer is, it is considered as income because it is an income the indicators of a non-stock non-profit institution? Nakalagay yon: governed by a
from exercise of profession. “Hindi naman ako nagbibigay sa pari dahil pari siya.” board of trustees instead of a board of directors, walang dividends distributed, the
Nagbigay sa pari dahil nagbigay siya ng serbisyo. In consideration of the services income of the organization is not distributed to the members. These are the
rendered by the priest, it should be treated as income and taxable income in the indicators that an organization is a non-stock, non-profit institution. But of course it
exercise of profession, but not subject to donor’s tax. should be registered with CHED kasi educational institution ‘to may special permit
from DepEd or the CHED in case of tertiary schools.
Ako (Atty. Lumbera), personally, I consider that as taxable income because
the reason that I give it to the priest is because of the service that he renders
although ang nature nga ng serbisyo is religious. So, that’s an exercise of
profession and therefore it should be treated as taxable income. What kind of When School is Subject to or Exempt from Real Estate Tax
income is that? Income from exercise of profession, but it will not be subjected to
Portion rented out to KFC, McDo, Jollibee
donor’s tax because I did not give it gratuitously without consideration. I gave it for
the service rendered by the priest.
Building 1 Building 2 Park Dorm 1 Canteen 1
Gift given to the Church, not subject to estate or donor’s tax
X gives P500,000 to the Church. Income? Yes. Taxable income? NO. Is it K A L Y E

subject to estate or donor’s tax? No, provided, not more than 30% is used for
administration purposes. Canteen 2 Dorm 2
When gift may be claimed as a deduction by the donor
Is it allowed as a deduction on the part of the donor? Now, if X the donor,

were a purely compensation income earner, he cannot claim as a deduction even So yan ang eskwelahan, dagdagan natin (portion rented to KFC, McDo,
a single centavo of the P500,000. Pag binigyan ko kayo ng limandaan, pwede ko Jollibee, building 1, building 2, park, merong dorm at may canteen sa loob ng
ba yon i-deduct sa akin (purely compensation income earner)? HINDI. Kasi sakin, campus, at eto ang kalye, meron ding dorm 2 at canteen 2 sa labas ng campus)
tatlo lang ang pwede (PE, AE, and PHHI). Pag corporation or tao na engaged in yan ang set-up. Is the school subject to or exempt from payment of real property
trade or business, limited ang deduction ayon sa Sec. 34 by 10% kung tao and 5%
11
tax? Building 1 & 2, park and canteen 1--exempt. The dorm? Exempt? YES When property located outside the school campus is subject to or exempt
because that is actually, directly and exclusively used for educational purpose. from real estate tax
Ilagay natin ‘to, Constitutional Provision No. 2. So ang sabi naman dun Portion rented out to KFC, McDo, Jollibee
sa isang constitutional provision, “All revenues and assets of non-stock non-profit
Building 1 Building 2 Park Dorm 1 Canteen 1
educational institutions as well as all lands, buildings and improvements actually,
directly and exclusively used for educational purpose shall be exempt from taxes K A L Y E
and duties.” Taxes here refer to all national internal revenue taxes, duties here
refers to tariff and customs duties. So if you compare the two, this one is a lot Canteen 2 Dorm 2
broader than this (constitutional provision No. 1). Because there, the constitutional
exemption is limited to RPT, here, all internal revenue taxes and tariff and customs
duties. So makikita niyo agad ang distinction sa constitution pa lang.
So balik tayo, building 1, building 2, park, dorm1, canteen1-exempt from
Application of the constitutional provisions RPT. Basis? Constitution and Local Government Code of 1991. This portion
rented out to KFC, MCDO, Jollibee is not exempt because this is not actually,
How do we apply the rules? Basically pareho but meron lang konting directly and exclusively used for educational purpose. Now, are these dorm 2 and
variance yan. So let’s take the case of a non-stock non-profit educational canteen 2, which are outside of the campus, maintained and operated by the
institution. Question in your mind? San kaya ang gamit nito e meron namang school, subject to real estate tax or exempt? Ano lang ang criterion? Actually,
ganito (Constitutional Provision No. 1)? Ano bang mali doon? Churches mosques, directly and exclusively used for educational purpose.
convents, parsonages, non-profit cemeteries, charitable institutions actually,
directly and exclusively used for religious, charitable and educational purpose. If the circumstances of the dormitory outside the campus give us the
Bakit ganon eh meron namang constitutional provision na devoted for educational impression that the same is actually, directly and exclusively used for educational
purpose? Bakit hindi na lang siya tinanggal? purpose, anong scenario? Ang mga studyante lang ng eskwelahan ang pwede
tumira, educational purpose. Ibig sabihin, exempt. Pero kung ang dormitory na ito,
Kasi po may mga institusyon na charitable at religious na incidental to ang kalahati eh yung mga trabahador diyan sa gilid ng eskwelahan pinapatira
charitable and religious purposes meron silang educational purpose. Incidental, diyan, hindi na exclusively for educational purpose. Therefore, hindi na magiging
hindi primary. Incidental, katulad ng ibang mga simbahan, sa kabilang gilid eh may exempt. Kayo-studyante, puno na si dorm 1, sabi ng San Beda dun na kayo sa
day care center sa mga batang tinuturuan. Nagtuturo ng katekismo, catechism dorm 2 lahat, exclusively for students of San Beda. Exempt or not? EXEMPT.
classes. Incidental lang siya na educational pero hindi sya skwelahan na
established separately from the religious institution. When property is not exempt from real estate tax
Just like what I mentioned to you earlier, if we talk about San Beda, the Pero kung sabi ng San Beda, why don’t we just also cater to those who are
school, which is a non-stock non-profit educational institution, this is the provision working, who are not students but are working in the companies in Alabang. Yun
applied (CP No. 2), not that one (CP No. 1). But if we talk about OSB, the religious bang dorm na yan ay subject to real estate tax? OO. Bakit? Because it’s no longer
institution, dito tayo (CP No. 1). Pag sinabing San Beda, the school, eto tayo (CP actually, directly and exclusively used for educational purpose. Same thing. What’s
No. 2). Maliwanag ang demarcation line sa constitutional provision. the difference between this canteen and this one? This one caters exclusively to
students (canteen 1). This one (canteen 2) may cater to students or even the
outsiders. That will contribute to the loss of the exemption because it is no longer
actually, directly and exclusively used for educational purpose.
12
Dorm and canteen inside school, operated by concessionaire Rental income from KFC, McDo, and Jollibee
Let’s have a variance. Dorm and canteen maintained and operated by the Rental income from KFC and McDo. Income? YES. Taxable? Subject to
school is exempt from real estate tax. Dorm and canteen operated by the tax. YES. Basis? Last paragraph of Sec. 30.
concessionaire, subject to real estate tax or not? Agreement with the
concessionaire is, I pay the school 10% of gross sales, that’s the agreement. Is it Interest income of the school
subject to real property tax or not? EXEMPT. Bakit? Ang sinasabi actually, directly
and exclusively used, hindi naman sinasabi na actually, directly and exclusively If you put the income in a financial institution with interest, the interest is
maintained and operated by the school. Ginagamit ba exclusively for educational income but taxable. Basis again? Sec. 30, last paragraph, not the Constitution.
purpose? Yes. Then, still exempt. Always go back to that.
Dorm outside campus, maintained by concessionaire, subject to real estate Payment of students for dorm and canteen
tax Kanina real property tax ang pinag-uusapan, dorm and canteen maintained
These two (dorm 2 and canteen 2), operated and maintained by and operated by the school. Yung binabayad ninyo sa dorm and canteen pag
concessionaire, subject to real estate tax? Yes. Bakit? Kasi kahit sino ang nagme- kumakain kayo, income? Yes. Taxable income on the part of the school? Yes.
maintain, ang tinatanong sa real estate ay ano? GAMIT. USE. Ginagamit ba? Aba Exempt o taxable? TAXABLE. Basis? Last paragraph of Sec. 30. You will imagine
eh pag nasa labas ng campus most likely yan ay hindi ginagamit para sa ha, na lahat ng bagay doon umiikot. Kasi nandun lang eh. Taxable? OO. Ano sabi
eskwelahan kaya yan ay hindi exempt. Titignan ang circumstances. Ganito mag- ng batas? Notwithstanding the provisions, income of whatever kind and character
interpret ng batas sa tax. Hindi yung codal lang tas walang titingnan sa riyalidad. from real or personal properties, or activity conducted for profit comma regardless
Lahat ng riyalidad titingnan mo. Anu-ano ba yung mga nandiyan? Mga estudyante of disposition comma shall no longer be exempt from payment of tax.
ba lahat diyan o baka naman nagpapaupa ka na ng mga iba diyan? Kung Payment of concessionaire to the school
nagpapaupa ka na diyan, nawala na ang ADE (actually, directly and exclusively
used for educational purpose). Kaya hindi na siya pwede ma-exempt. Now, let’s change the scenario. Dorm and canteen operated by a
concessionaire. The payment of the concessionaire, income? YES. Subject to tax?
Income from tuition fee YES! Basis? Last paragraph of Sec. 30. That is already income from an activity
The school realizes income-tuition fee, income? YES. Subject to tax? Non- conducted for profit.
stock non-profit educational institution realizing income from tuition fees paid by Income paid to dorm and canteen outside campus
students. Ang San Beda ba ay exempt from income tax for the tuition fees that you
pay? Yes or no? YES. Basis? Syempre ang una niyong titingnan ay Constitution. Dorm 2, canteen 2, operated and maintained by the school. Payment for
Base sa Constitution, ‘pag kayo nagbayad ng tuition fee sa akin (San Beda), the dorm and canteen food, income on the part of the school? YES. Subject to
exempt na ba yun? Hindi. Kasi ang sabi sa konstitusyon ay, “revenues, assets, income tax? YES. Basis? Last paragraph of Sec. 30.
actually directly and exclusively used.” Kasi pag revenues ang pinagusapan,
tandaan ninyo, either the source of the revenues dictate the exemption or the use Amount paid by concessionaire for income from dorm and canteen outside
of the revenues. Nevertheless, according to Sec. 30 (e), exempt yung tuition fees campus
na binabayaran. “Tuition fee income of a non-stock, non-profit educational
institution shall be exempt from payment of income tax.” Basis? Sec. 30 (e). Outside of the campus, operated and maintained by a concessionaire, the
amount paid by the concessionaire, income? YES. Subject to tax? YES. Basis?
Last paragraph of Sec. 30. Hindi siya mahirap. Kailangan lang alamin niyo ang
sitwasyon para alam ninyo kung ano ang ia-apply in relation to the Constitution.
13
Donation given to school, not subject to income tax Properties inside the campus of the PEI exempt from real property tax
X gives P500,000 to the school, income? YES. Is it taxable income on the Portion rented out to KFC, McDo, Jollibee
part of the school? NO. Because gifts, bequests and devises are items of
exclusions from the computation of the gross income of the school. Building 1 Building 2 Park Dorm 1 Canteen 1
Donation not subject to estate or donor’s tax K A L Y E
Subject to estate or donor’s tax? NO, provided, not more than 30% is used Canteen 2 Dorm 2
for administration purposes.
Gift as a deduction from gross income of donor

So how do we treat the assets and the revenues of a PEI? Let’s talk about
When X gives P500,000 to the non-stock non-profit school, can X claim as RPT. Building 1, building 2, park, dorm1, canteen 1, canteen and dorm operated
deduction the P500,000 gift? If X were a purely compensation income earner? NO. by the school, are these subject to real property tax or exempt? Can you use as
Not a single centavo. That’s not Personal Exemption, that’s not Additional basis the Constitution? NO. Sabi nga nila taxable eh. So dapat raw taxable yan
Exemption, that’s not PHHI. unless there is a law exempting them. So anong babalikan nating batas? Local
Now if X were a business income earner, can X claim as deduction the Government Code of 1991 which states that, “All real properties actually, directly
amount given to the non-stock non-profit school? YES, but with limitation. If X and exclusively used for charitable, religious and educational purpose shall be
were a corporation, up to 5% of his taxable income prior to deduction. And if an exempt from tax.” So ano ang kongklusyon natin? Basta ginagamit sa pagaaral,
individual, then up to 10% of the taxable income prior to deduction of the donation. kahit ang gumagamit o ang mayari ay non-stock non-profit or proprietary
educational institution, EXEMPT.
Determination whether school is a Proprietary Educational Institution (PEI)
Reason for exemption from real estate tax of properties used for education
Next, Proprietary Educational Institutions. Sa madaling sabi, what are the
indicators that the school is a proprietary educational institution? It is a stock Kasi nire-recognize ng batas ang kontribusyon ng pag-aaral ng edukasyon
corporation, governed by a board of directors, profits and surpluses are distributed sa development ng bansa. So there’s no distinction. For real property tax
as dividends to the stockholders. But whether PEI or non-stock non-profit, dapat purposes, whether the educational institution is non-stock non-profit or a PEI,
pareho yan registered sa DepEd or sa CHED if you’re maintaining a tertiary level EXEMPT ang real property actually, directly and exclusively used for educational
educational institution. Kasi hindi naman pwede magkaron ng eskwelahan na purpose. So here, dorm1 and canteen1 are exempt whether operated by the
walang permiso. So these are the indicators. school or a concessionaire.
Paragraph 2 of Constitutional Provision No. 2 Dorm and canteen outside the PEI
Now, parehong pareho. RDL School of Cosmetology. Yan ang skwelahan Dorm2 and canteen2 if operated by the school exclusively and we can
ko, parehong pareho ang physical set-up. What are the rules that we’ll apply if it is establish that this is actually, directly and exclusively used for educational
a PEI? Sabi sa konstitusyon, yung No.2 na constitutional provision, meron yang purpose, then it may be exempt. But in general, since it is outside of the campus,
second paragraph. “Subject to the limitations provided for by law, proprietary we cannot establish the exclusivity of the use for educational purpose and
educational institutions may likewise be exempt from payment of tax”. Ano ang ibig therefore these dorm2, canteen2 will not be exempt from real property tax.
sabihin niyan? Ibig sabihin niyan, ang PEI ay hindi exempt. Mae-exempt lang siya
kung merong batas na nage-exempt. In short, they are not exempt. They’ll only be
exempt if there is a law exempting them.
14
Portion rented to KFC, McDo, and Jollibee If the income from unrelated trade or activity exceeds 50% of the entire
income, the entire income is taxed at the regular rate of 30%. If it’s the other way
So the portion rented to KFC, McDo, Jollibee will not be exempt because it around:
is not actually, directly and exclusively used for educational purpose.
Income from tuition fee P100,000
Preferential tax rate of 10% for proprietary educational institutions
Income from unrelated trade P 50,000
Tuition fee income and rental income. Is tution fee an income? YES.
Rental, income? YES. Subject to income tax? Can you use as basis the Total P150,000
constitution? NO. What will be the basis of our answer? Sec. 27 (b). Sabi diyan sa
Sec. 27(b), ang PEI plus proprietary hospitals ay isa-subject sa tax at a rate of P50,000 does not exceed 50% of P150,000 which is P75,000. The entire
10%. Ang regular rate ng corporate tax ay 30%, so hindi itong 30% kundi 10% income shall be taxed at the preferential rate of 10%.
kung ang kinikita nila sa unrelated trade or activity ay mas mababa sa singkwenta
porsyento (50%) ng suma total na kita. ‘Pag naman mas mataas ang kinita sa PEIs distinguished from charitable, religious and non-stock non-profit
unrelated trade or activity, sobra ng singkwenta porsyento sa suma total na kita, cducational Institutions
hindi siya bibigyan ng preferential tax treatment. In English, the PEI/ PH shall be Unlike in charitable, religious and non-stock non-profit, you segregate. You
subjected to a preferential tax rate of 10% only if the income from unrelated trade take the income independently of each other and then you apply the rules
or activity does not exceed 50% of its total income. Conversely, if the income from independently. If you’re talking about PEIs, the income is grouped together and it’s
unrelated trade or activity exceeds 50% of its total income, then the 10% tax will either taxed at 10% (all) or all at 30%. Now the preferential tax treatment will be
not be applied, regular tax will be applied. allowed only if the income from unrelated trade or activity does not exceed 50% of
Unrelated Trade or Activity (UTA) its total income. Otherwise if it exceeds, the P150,000 will be subjected to tax at
30%. Just like an ordinary domestic corporation. So the exemption is not full, this
So let’s take our example, income from tuition fee is P50,000. What is an is only partial exemption. That’s what we are saying.
unrelated trade or activity? Unrelated trade or activity is an activity pursued by the
PEI which is not in accordance with its primary purpose. So yung tuition fee ay Interest income of PEI from lending institution
related trade or activity. Kaya nagbabayad ng tuition fee ay para sa pag-aaral, Now what if the school decided to put the money in a lending institution
yung rental income unrelated trade yon. earning income of P15,000. Interest, income? YES. Is the interest of P15,000 in
our example subject to income tax? Pano na naman gagawin diyan? Isasama yan
as UTA (Unrelated Trade or Activity). Mababago ngayon yung sum total. You don’t
Income from tuition fee P 50,000 take the income independently of each other. You just group them into either
Unrelated Trade or Activity (UTA) or RTA (Related Trade or Activity) and then you
Income from unrelated trade P100.000 get the sum.
Total P150,000 Income from tuition fee (RTA) P100,000
Income from interest (UTA) P 15,000
50% of P150,000 is P75,000- 30% rate applies Income from unrelated trade P 50,000
Total P165,000
15
If the income from unrelated trade or activity does not exceed 50% of its
total, then the total is taxed at 10%. If it exceeds 50%, the total is taxed at 30%. Charitable Hospital Proprietary Hospital
Hindi ‘to full exemption, partial only. Ok?
Incorporated as a charitable institution Not a charitable institution even if it has a
Donation given to PEI, not subject to income tax charity ward
X gives P500,000 to the school (PEI). Income on the part of the school? Non-stock, non-profit (even if it accepts Stock corporation
YES! Is it subject to income tax? NO! Because gifts, bequests and devises are paying patients)
items of exclusions from the computation of the gross income of the school. ‘Pag Governed by board of trustees Governed by a board of directors
tumanggap ka ng regalo, yan ay income pero hindi taxable. Bakit? Ang sabi ng
batas excluded.
Donation given to PEI, not subject to estate or donor’s tax All real properties of proprietary hospital subject to real property tax
Now, is it subject to estate or donor’s tax ‘pag nagbigay ka sa PEI? ‘Pag
ikaw ay nagbigay para sa edukasyon, ano ang primary consideration natin kung SCHOOL BUILDING 1 BUILDING 2
bakit ine-exempt? Kasi pag ikaw ay nagbigay para sa edukasyon, ang edukasyon
ay nagdudulot ng kaunlaran ng bansa at dahil diyan ay hindi yan isa-subject sa
estate or donor’s tax, Provided, that not more than 30% is used for administration
CHARITY WARD CANTEEN LABORATORY
purposes.
PHARMACY DORM OFFICE
Gift given to PEI may be claimed as a deduction
MEDICAL ARTS FLOWER SHOP PORTION RENTED TO KFC, McDo,
Next, can X claim the same as deduction from gross income? Kung
BUILDING Jollibee
nagbigay ako sa San Beda, PEI, pwede pa ba yun i-claim as deduction? YES.
Pero subject to the 10% (for individuals) and 5% (corporations) restriction.
Ano ang set up ng ospital? Lagyan natin ng school, “complete with nursing
school!” Parang St. Luke’s katabi ang Trinity College of Asia. Ang studyante ng
Determination whether institution is a charitable or proprietary hospital
Trinity College dun nagpa-practice sa St. Luke’s. Pero ang school hindi part ng
Balikan natin, Proprietary Hospital (PH), versus a Charitable Hospital (CH). ospital, separately incorporated. So pag eskwelahan ang pinaguusapan, ano ang
Ang isang ospital ay charitable kung ayon sa kanyang articles of incorporation, ia-apply? Ang itatanong niyo, charitable or proprietary? YAN. Titignan, stock ba?
ang purpose ay charity, non-stock non-profit at ang purpose is for charity. Kahit pa STOCK. Non-stock? NON-STOCK. Yan ang mga rules. O meron ditong ward. So
yan ay may paying clients and patients. Let’s make a distinction. What is a proprietary hospital with charity ward. May laboratory, canteen, may KFC, McDo,
charitable hospital versus a proprietary hospital? Jollibee, may flower shop at may medical arts building. Yan, let’s take the very
simple case of a proprietary hospital with this layout.
Ang tanong natin, yan bang ospital ay exempt from real property tax for all
the real properties? NO. Not a single square inch of the hospital will be exempt.
Bakit? Because it is a proprietary hospital at ang nakalagay sa Local Government
Code ay, “Only those properties which are actually, directly and exclusively used
16
for charitable, religious and educational purpose,” so hindi yan nagfo-fall doon. portion ha. Yung charity ward portion, that portion can be treated as devoted for
Everything will be subjected to real property tax. charitable purpose and therefore may be exempt from the payment of real estate
tax.
Income of hospital
Charitable hospital
SCHOOL BUILDING 1 BUILDING 2
Pano naman kung charitable hospital? Eh di palitan natin. It will be treated
purely as a charitable institution and all the rules applicable to a charitable
CHARITY WARD CANTEEN LABORATORY institution except the physical hospital will be applied.
PHARMACY DORM OFFICE SCHOOL BUILDING 1 BUILDING 2
MEDICAL ARTS BUILDING FLOWER SHOP PORTION RENTED TO KFC, McDo,

Jollibee
CHARITY WARD CANTEEN LABORATORY
PHARMACY DORM OFFICE

Kumikita ang ospital saan? Bayad ng pasyente, board and lodging,
laboratory fees, professional fees paid to the doctors and rentals of doctors in the MEDICAL ARTS FLOWER SHOP PORTION RENTED TO KFC, McDo,
medical arts building. What will be the tax treatment of these income of the BUILDING Jollibee
proprietary hospital? You apply Sec. 27 (b). Hahanapin ang unrelated trade or
activity at ang related trade or activity. At ano ang unrelated? Let’s have a run down. So dito, lahat ng yan ay exempt from real property
tax, pero itong medical arts building portion, hindi exempt. Bakit? Because this is
UTA: Rental income from KFC, McDo, Jollibee not actually, directly and exclusively used for charitable purpose. Ang hindi lang
exempt ay ang Medical Arts Building and the portion rented to KFC, McDo,
Rental income from doctors in medical arts building
Jollibee because this is not actually, directly and exclusively used for charitable
So these two will be the income from unrelated trade or activity. Go back to purpose. But the rest will be exempt from RPT. Basis? Constitution and Local
the computation. If the UTA does not exceed 50% of its total income, then taxed at Government Code of 1991.
10%. If it exceeds, everything is 30%.
Other income
What about income from laboratory fees? X-ray, HIV test, lahat, stool test,
What about the income from board and lodging, laboratory fees,
urinalysis. Income yan, related yan. So therefore, dun siya sa related trade or
examinations, rental income from medical arts building, from the pharmacy, from
activity.
the canteen, how do we treat these income? Very simple. Income as such,
Charity ward of proprietary hospital exempt from real property tax EXEMPT. But the rental income from the medical arts building and rental income
from KFC, McDo, Jollibee, according to last paragraph of Sec. 30, “income of
Eh papano kung may charity ward? The fact that there is a charity ward whatever kind and character from real or personal properties or from an activity
and it accepts patients without paying board and lodging, does it mean that the conducted for trade or profit, regardless of the disposition, shall no longer be
hospital is no longer a proprietary hospital and already non-stock non-profit? NO. It exempt from payment of tax.”
doesn’t change the nature of the organization. But what is the effect of the charity
ward? In the famous case of Lung Center of the Philippines, yung portion na may
charity ward, iyon ang pwedeng ma-exempt from real property tax. Portion by
17
Donation given to charitable hospital, not taxable income corporate taxpayers. So putting up of branches here in the Philippines, engaging
in commercial transactions on a habitual basis, hiring of employees, employment
Now if there’s a donation in favor of the charitable hospital, is it income? of agents, these are indicators that a foreign corporation is a resident foreign
YES. Is it taxable income? NO. Because gifts, bequests and devises are items of corporation. But the 180-day period of course will never apply to a corporate
exclusion from the computation of the gross income. taxpayer. It is not a criterion in determining whether or not a foreign corporation is
a resident foreign corporation or a non-resident foreign corporation.
Donation to charitable hospital, not subject to estate or donor’s tax
C. Partnerships
Is it subject to estate or donor’s tax? NO, provided, not more than 30% is
used for administration purposes. General Professional Partnerships (GPPs) are those partnerships which
are established solely for the exercise of a common profession and no part of the
Gift to charitable hospital claimed as a deduction income of which is derived from trade or business. These are treated as corporate
Can X, the donor, claim the same as a deduction? We apply the same taxpayers. So for partnership, there are two kinds: General co-partnership (GCP)
rules. It is subject to the 10% (for individuals) and 5% (corporations) restriction. and General Professional Partnership. Defined under the law, GPP is one
established for the sole purpose of the exercise of a common profession of the
KINDS OF TAXPAYERS partners and no part of the income of which is derived from trade or business.
Very important yan. A GPP is exempt from income tax.
A. Estate and trust
GCP. What is a General Co-Partnership? Sa civil law ang dami-daming
Estate and trust are treated as individual taxpayers for purposes of klase. Sa tax dalawa lang. GCP is any partnership other than the GPP. Any
taxation. TRUST, from the time of the creation and while the property is in the partnership which is not a GCP is a GPP. A GCP is treated as an ordinary
possession of the trustee prior to distribution to the beneficiary. This transitory domestic corporation and therefore subject to tax. It’s like an ordinary domestic
period, the trust is an income tax payer classified as an individual taxpayer. corporation.
B. Corporations Things to know in income tax
Now let’s go to corporations. A domestic corporation is one organized in 1. Did you receive anything? If wala, forget it.
accordance with Philippine law even if there is foreign equity. A resident foreign 2. Is it income?
corporation (RFC) is one which is incorporated in accordance with a law other than 3. Who am I as a taxpayer?
the Philippines which is engaged in trade or business in the Philippines. 4. What is the source of the income?
5. Is it taxable?
RFC is a foreign corporation engaged in trade or business. Ang 6. What kind of income tax do we impose?
counterpart niya is non-resident alien engaged in trade or business (NRAETB). A 7. What rate of tax do we apply?
non-resident foreign corporation (NRFC) is a corporation even with Philippine
equity but not engaged in trade or business and the counterpart in individuals is a
non-resident alien not engaged in trade or business (NRANETB). Yan yung So ang una niyong gagawin, “Sino ba kayo bilang taxpayer?” “May
magkakatambal. tinanggap kayo?” Pag sagot niyo ay OO, “yun bang tinanggap niyo eh income?””
OO. Susunod niyong gagawin, “Sino ba ako?” Hanapin ninyo ang sarili ninyo.
When Corporation is deemed engaged in trade or business “San ba ako diyan?” At pag nakita na kung sino ka, ang susunod mong itatanong,
“San ba galing yang income?” Is it within or without? Because among the kinds of
Now how do we know if a corporation is engaged in trade or business or
taxpayers, when we determine the source of the income, only a resident citizen
not? We have the same criteria except the 180-day period. It does not apply to
18
and a domestic corporation are taxable for income within and outside of the tax system is based on international taxation. Pare-pareho lang yan. Same
Philippines. banana, same concept. May konting variations lang.
Income within and income without Tax credit
What is the meaning of income within? Galing sa Pilipinas. What is the So yung income ng resident citizen sa labas ng Pilipinas, kung saan
meaning of income without? Galing sa labas ng Pilipinas. Only a resident citizen nanggaling yon, taxable din yun doon. So ang remedy natin para hindi masyadong
and a domestic corporation are subject to income tax for income within and mabigat sa taxpayer, meron tayong tinatawag na tax credit. I will teach you how to
outside of the Philippines. The rest of the kinds of taxpayers are taxable only for do it but not in computation form. Tignan lang natin yung konsepto but you can
income within, but not for income outside of the Philippines. From the table itself, see immediately from the table alone.
you will be able to determine and see already double taxation in the broad sense
because the income of a resident citizen from outside of the Philippines is taxable When income is from within or without
in the Philippines and that income may also be taxed in the country where it is
derived from. That’s double taxation in the broad sense. Now, paano mo malalaman kung galing sa Pilipinas o sa labas ng Pilipinas
ang isang income? Sinong nagsasabi na ang income ay within at without? Sec. 42
of the Tax Code. Yung Sec. 42 when you read it, napakahaba. Paragraph (a):
income within; paragraph (b): income without; paragraph (c): income partly within,
partly without. Huwag nang basahin yung (b) and (c), kasi yung b and c pag
binasa mo at pinag-compare mo, pareho rin lang, baliktad lang nung (a). So pag
binasa mo yung isa, alam mo din yung iba, pinagbaliktad lang. Pag wala sa a,
nasa b. Pag wala sa b and c, nasa a. So isa lang ang alamin. Pag alam mo ang
within, alam mo rin ang without. So let’s concentrate only on one so that you will
know both.
Interest income
Ang mga nakalista diyan ay una: (1) interest. Ano ang interest? One is
interest on bank deposits and two, interest on loans. How will you know if the
interest paid and received, syempre ang point-of-view dito ay sino ang nagbayad o
binayaran? Ang binayaran. Kayo ang pinaguusapan. Hindi ako na nagbayad. So
kaninong point-of-view dito sa interest, yung tumanggap ng bayad o yung
nagbayad? Yung binayaran! Ano ang sabi ng batas? Ang importante diyan ay, “of
The income of whatever kind of alien from the Philippines is taxable here. residents, corporate or otherwise.” So resident corporations which may be either
And because they are citizens of another country, they are also subjected to tax in resident foreign corporations or domestic corporations, or when we talk about
the country wherein they are citizens. That’s double taxation in the broad sense. individuals, resident citizens and resident aliens. Derived from Philippine sources.
Corporations, the same thing. This is a clear case of taxation in the broad sense,
not prohibited under the Constitution, not encouraged but not illegal. The law Interest income from bank deposit in the Philippines
recognizes the harsh effects of taxation in the broad sense and therefore the law
also in income taxation provides for the remedies to reduce the harsh effects of Bangko. May deposito ka sa bangko ko, nandito sa Alabang. Binigyan kita
double taxation such as: 1) tax credit; and 2) tax sparing rule. For branch profit ng P10 na interest on bank deposits. Income? Yes. Within or without? Within.
remittances, these are the two means on how to reduce the harsh effects of Bakit? Ang bangko ay nasa Alabang. Nasa loob ng mapa ng Pilipinas in
double taxation in the broad sense kasi doon ita-tax din yan. Remember that our
19
accordance sa archipelagic doctrine. Sino ka? Resident ka ba o hindi? Resident bank in the Philippines so that your family can benefit.” Within or without?
ka. So yan ay within. WITHOUT. Kahit ang bayad eh nasa loob ng Pilipinas. Bakit? Because the
services were rendered outside of the Philippines.
Interest income paid by non-resident citizen to another non-resident citizen,
both in US, but paid in Philippine Bank Sale of real or personal property
Utang. Kapwa Pilipino, pareho tayong nasa US. Nag-utangan tayo. Pareho Let’s summarize the income from sale of real property or personal
tayong non-resident citizens. Agreement? Bayaran mo ako ng utang mo ang property. Location is the rule. If you’re talking about income realized from sale of
interest i-deposito mo nga sa bangko sa Pilipinas. The debtor and creditor are property, the rule is where the property is located. Kahit pa tayo ay nagbayaran sa
both non-resident citizens. The interest was deposited in a bank in the Philippines. labas ng bansa, wala tayong pakialam. Nasaan ang real property? Nasa mapa ba
Income within or without? Without. Kasi parehas tayong non-resident citizen. Diba ng Pilipinas? OHO. Kahit ang bayaran natin ay doon sa Paris, dineposito sa Hong
ang nakasulat sa batas, “of residents, corporate or otherwise”. Ano ka, non- Kong, Pilipinas ba ang real property? Oo. WITHIN.
resident citizen ka ba? Oo. Ako non-resident citizen din. Maga-apply ba yan sa
atin? Hindi. Kaya yan income without. Tangible personal properties
Interest paid to resident citizen in Philippines Ganun din . Where it is located. Location is the rule.
Pero kung ikaw ay nasa Pilipinas, binayaran kita ng interest, pinadala ko Intangible personal properties
sa Pilipinas. Resident citizen ka. Yung interest ba ng utang ko sa iyo within or
without? WITHIN. What about intangible personal properties? Where is their location? If you
sell shares of stocks, credits, debentures, notes, promissory notes, these are
Interest income in US bank paid to resident citizen intangible personal properties. You don’t look at the paper. NO. The certificate of
stock, hindi yan ang tinitignan. Ano ang magde-determine ng location ng shares of
Let’s take it a little further. Creditor, nasa Pilipinas ka. Resident citizen ka. stock, debentures, notes, promissory notes? Yung bang papel na lumalakad,
Debtor, nasa labas ako ng Pilipinas, non-resident citizen. Binayaran kita ng bitbit? Hindi. What is the location of intangible personal properties? DOMICILE OF
interest sa utang ko sa iyo. Dineposito ko ito sa bangko sa USA. Within or THE OWNER. That’s the rule. So hindi pinag-uusapan kung nasan ang papel.
without? WITHIN. Bakit? Resident eh. Nasusundan? You just have to be particular ‘Pag ang binenta ay intangible personal property, the intangible personal property
about what the law states. No gray area, no dirty white. It’s there.You’re surprised follows the domicile of the owner.
now because all the while you’re thinking na everything na dito binayaran ay within
and everything na sa labas binayaran ay without. WRONG. Shares of stocks in a foreign corporation, ang may-ari ay Pilipino. Eh yung
shares of stocks na yun pag binenta kahit san ibenta, ang lokasyon nun ay
Services Pilipinas. Bakit? Susunod yun sa ating buntot! Domicile. Let’s be very, very
careful.
Services rendered. Kung sa loob ng Pilipinas naggupit ng buhok,
archipelagic doctrine, kahit saan nagbayad, walang pakialam. Income derived So sale of property, LOCATION. Kahit anung klase, real property or
from services rendered is dependent on where the service was rendered, not personal property, tangible personal property, you can see, location. Intangible
where the payment is made. Even if ginupitan kita ngayon dito sa Pilipinas, personal property, DOMICILE OF THE OWNER is the rule. The only time that we
nagbayaran tayo sa States, hindi magma-matter. Where are the services don’t follow the domicile of the owner is in estate or donor’s tax under Sec. 104.
rendered? Whether the payment is within or outside of the Philippines is not That’s a specific law. So that’s not a general rule.
material. Such that, if, let us say you are working for a Philippine company which
has a branch outside of the Philippines, you’re arrangement is, “Sige padadala kita
sa branch, you perform your work there but your salary will be deposited in the
20
Dividends issued by domestic corporation Pilipinas ay P500,000. In 2009, ang kinita sa US ay P2,000,000; sa Philippines ay
P700,000. In 2008, kinita sa Pilipinas ay P2,000,000; kinita sa US ay P3,000,000.
Let’s go to dividends. Ano ba ang dividends? Meron kang shares of stock Ang kinita sa States, may office is P6,000,000; ang kinita sa Pilipinas ay
in a corporation. Meron profits and tubo ang corporation. Ang profits at tubo, idi- P3,200,000. Pagsamahin, ang suma total na kinita ay P9,200,000. Kunin ang
distribute sa stockholders in the form of dividends. So sino ang taxpayer na 50%, it’s P4,600,000.
pinaguusapan? Yung may-ari ng shares of stocks na tumubo sa isang
korporasyon. Binigay ng korporasyon si profits. Ang sabi ng Code, ‘pag ang nag-
issue na korporasyon ay domestic corporation, income within or without? WITHIN.
Basta ang nag-issue ng shares of stock ay domestic corporation, WITHIN YAN US income RP income
LAHAT. Kahit sino ang tumanggap. Kahit ikaw ay resident citizen, non-resident
citizen, resident alien, kahit anung klase ka doon. ‘Pag ikaw ay tumanggap at 2010 P1,000,000 P500,000
nanggaling sa domestic corporation, yan ay within.
2009 P2,000,000 P700,000
Dividends issued by foreign corporations 2008 P3,000,00 P2,000,000
What about foreign corporations? Let us assume that the corporation TOTAL= P6M TOTAL=P3.2M
issued P100,000 worth of dividends to stockholders. If domestic corporation, the
entire P100,000 is within. Paano kung foreign corporation ang nag-issue? Within
or without? Nasa codal. Hindi yan “it depends”. Ang sabi ng batas, within lahat
SUBALIT kung tatlong taon bago binigay ang dibidendo, ang kinita ng foreign Three years prior to the declaration of the dividends, the income from the
corporation sa Pilipinas ay mababa sa singkwenta porsyento (50%) ng suma total Philippines is P3.2M which is less than 50% of its total income (P9.2M). Then the
na kinita, hindi lahat ay within. entire P100,000 is not from within. Only a portion is from within. How do you get
the portion?
Conversely, if the income derived from the Philippines three (3) years prior
to the declaration of dividends is more than fifty percent (50%), everything is Income from Philippines (P3.2M)
X P100K (dividends distributed)
within. Do not be confused. Our thinking is always, “if it’s a foreign corporation
which issued the dividends, we always think that it’s not in the Philippines”. Hindi Total income (P9.2M)
pinag-uusapan ang lokasyon. Ang pinaguusapan ay magkano ang kinita ng
P3.2 M is around 1/3 of total income of P9.2M. 1/3 of P100K is about
foreign corporation sa Pilipinas? Kapag ang kinita niya sa Pilipinas tatlong taon
P33,333 and 2/3 is P66,666. Pag ganyan ang sitwasyon ng korporasyon, sabi ng
bago niya ibigay ang dibidendo ay mas mababa ng singkwenta porsyento (50%)
rules lahat ng inissue na dividends ay within. So ang P100,000 dapat lahat ay
ng suma total na kinita, hindi lahat ay within. Kaunti lamang. Ano yung kaunti? In
within. SUBALIT, kung tatlong taon bago binigay ang dibidendo, ang kinita sa
proportion to the income derived from Philippine sources.
Pilipinas ay mas mababa sa 50% ng suma total na kinita, hindi lahat ng P100,000
Dividends issued by foreign corporation with no Philippine branch ay within, kaunti lamang. Ano yung kaunti? Eto 33%.
The foreign corporation is incorporated in a foreign country. The main So using that as basis, when you look at the table, if we are talking about a
office is in USA. It so happened that the foreign corporation does not have a non-resident citizen and the situation is like that of a foreign corporation, only the
branch in the Philippines, but has income from Philippines. Pwede rin may branch. P33,333 is taxable. The P66,666 is not. In the same manner as a corporation, if
In which case, the foreign corporation is a resident foreign corporation. Or walang we apply the rules, pagdating sa domestic, buong P100,000 taxable. Pagdating
branch but may kinita sa Pilipinas, in which case, the foreign cororation is a non- dito (Table), only 33% is taxable, 66% is without and not subject to tax.
resident foreign corporation. Basta may kinita sa Pilipinas. Nagbigay ng dibidendo
noong 2011 ng P100,000. Nung 2010, ang kinita sa US ay P1,000,000; sa
21
The correct rule is when it comes to foreign corporations, everything is Gross income
within, unless three years prior to declaration of dividends, less than 50% of the
entire income is derived from the Philippines, only a portion is from within. The rest Less: allowable deductions
are from without. Domestic and foreign, both are from within, subject to that
exception. Taxable net income
Income tax liability of resident citizen x tax rate
Let’s talk about a resident citizen. So we are sure about who the taxpayers Net income tax due
are, then from the source of income alam natin ang taxability. Now let’s go to the Less: tax credit (if any)
third factor, that is, the kind of income they receive so that we will be able to know
kung taxable ba o hindi at kung taxable, anung klaseng buwis ang babayaran. I’ll Merong schedular. Yung if the net income is not more than P500,000 the
give you the description of the kinds of taxes para isang bagsakan tayo later. tax shall be blah blah blah plus 4% of excess over blah. Yung bracketing, yan ang
net income tax table. Ano ang ibig sabihin niyan? Sa loob ng isang taon,
Individual taxpayers’ liabilities pagsasama-samahin mo lang ang gross income mo tapos you will be allowed to
Net income tax claim deductions na nakalagay din sa batas kung ano, and that will be your
taxable net income multiplied by the rate and is equal to the net income tax due
Withholding tax less tax credit, if any. Yan ang sinusundang proseso.
Final withholding tax (FWT) Withholding tax
Creditable withholding tax (CWT) What is withholding tax? When income is realized and received, the payor
of the income is under the obligation to withhold the corresponding tax due and
Gross income tax remit the same to BIR. There are two kinds: 1) final withholding tax (FWT); and 2)
creditable withholding tax (CWT). If the income is subjected to final withholding,
Fringe benefits Tax your income is taxed with finality and no other tax can be collected. And your
income subjected to FWT will not be included anymore in the gross income.
So let’s discuss first, individuals. For individual taxpayers simple ang rules. Kunwari sa prizes and winnings, pag nanalo ka sa Willing Willie at binigay sayo
Anu-ano ang klase ng taxes na pwedeng maging liable ang individual taxpayers? ang premyo, meron yung withholding tax na 20%. The income, the prize and the
Net income tax, withholding tax (final withholding tax and creditable withholding winnings are subjected to final tax. I (the payor of the winnings) am under the
tax), and then we have the Gross Income Tax (GIT). Fringe Benefit Tax is a form obligation to deduct the withholding tax and the tong, equivalent to tax, will be
of final withholding tax. remitted to the BIR by me (the payor). Whatever prizes and winning realized or
Net income tax earned, you will not be taxed anymore forever for that and you will not add that
income to your gross income for purposes of Net Income Tax (NIT).
Net income tax is a form of income tax imposed on all items of gross
income less the allowable deductions provided by law. So here, individual Creditable withholding tax
taxpayers kukuha ng calculator, add, add, add, add, gross income. And then you Now let’s compare it with an income subject to creditable withholding tax.
will be entitled to some deductions. The formula here for clarification is: Example: sweldo. Ikaw ay tagagupit ko sa parlor, swinelduhan kita, P10,000.
Gross income less allowable deductions is equal to the taxable net income, Again, as you receive the income, I withhold the tax. I remit to BIR. I give you a
multiplied by the tax rate provided in the table. certificate of withholding tax as proof that this one has been withheld from you and
remitted to BIR and that income is not taxed with finality and your income from
22
panggugupit as my employee, which is subjected to creditable withholding tax, you
will add that in your gross income so you will arrive at your net income tax due, Kinds of taxpayers and their tax liabilities
and whatever tax withheld, that is tax credit, if any.
The system is in both FWT and CWT, the tax is withheld at the time the
income is received or given, but the difference is, the income subjected to FWT is
taxed with finality and no other tax can be collected. Income subjected to CWT (A) (B) (C) (D)
would still be subjected to NIT and you credit the CWT against the tax due. Kaya
tinawag na withholding tax, CREDITABLE. You credit it later against the other tax. Kind Income Income Net Passive Capital Capital
Final withholding tax, no other tax. Final. ‘Pag sinabing final, tapos na di ba? That within without income income gains on gains on
is the difference but the system is the same. The tax is withheld at the time the of tax shares of sale of real
income is received. Who withholds it? The PAYOR. taxpayer stock not property
traded in located in
Gross income tax local Philippines
stock
GIT. Gross Income Tax. Ibig sabihin nito, the tax is on the gross income.
Iipunin lahat ng income from beginning to end of the taxable period, walang exchange
deductions allowed, multiplied by the rate, that’s the gross income tax due. So RC / / NIT FWT FWT FWT
those are the kinds of income taxes for individuals. Let’s do some exercises, let’s
concentrate on the resident citizen. RA / x NIT FWT FWT FWT
I want you to look at Sec. 24 (a) (1) (a) on resident citizens. Kasi tumatawid NRA-ETB / x NIT FWT FWT FWT
yan dun sa malaking letter b. Yung (B) passive income, yung (C) capital gains on
sale of shares of stocks not traded through the local stock exchange. (D) Capital NRA- / x GIT GIT 25% FWT FWT
Gains Tax (CGT) on sale of real property located in the Philippines. This is the NETB 25%
technique, marunong kayo mag-alpabeto? Ang sabi diyan, a resident citizen is
taxable for all income within and without the Philippines. What kind of tax, if the DC / / NIT 30% FWT FWT FWT
income is falling under letter B, passive income, that’s FWT, if falling under C
RFC / x NIT 30% FWT FWT X
that’s FWT as well. And if letter D, FWT. Pag wala sa B, C or D, nasa A, catch-all
provision. Ibig sabihin, ang tax naman dito ay NIT. NRFC / x GIT GIT 30% FWT X
30%
Income of Lumbera from teaching
Si Lumbera nagtuturo sa inyo, pagod na pagod na. Sinwelduhan ako ng

San Beda, income? YES. Within or without? WITHIN. Subject to tax? YES. What
kind of tax? NIT.
23
Income from employment in private company PASSIVE INCOME
Si Lumbera empleyado sa kumpanya, isang private company, Passive income on interest deposited in Philippine bank
sinuswelduhan ako, income? YES. Within or without? WITHIN. Subject to tax?
YES. What kind of tax? Net Income Tax (NIT). Now let’s go to letter (B), look at the provisions of the law. 1) Passive
income, interest on bank deposit. Si Lumbera may peso bank account sa China
Income from services rendered outside the country Bank, Alabang. Kumita ng interest, P100. Income? YES. Within or without?
WITHIN. Subject to tax? YES. What kind of tax? FWT. What is the rate? 20%.
Ibig sabihin ganito ang proseso. Pagsasama-samahin simula January
hanggang December. Si Lumbera, habang nagbabakasyon sa States, nagkulot. Interest income from dollar account in Philippine bank
Binayaran ako. Income? YES. Within or without? WITHOUT. Subject to tax? YES!
What kind of tax? NIT. All income within or without, NIT. Si Lumbera may dollar account sa China Bank, Alabang, kumita ng interest
$10. Income? YES. Within or without? WITHIN. Subject to tax? YES. What kind of
Income from business tax? FWT. What rate? 7 ½%. Under the Expanded Foreign Currency Deposit Act,
it’s 7.5%.
Si Lumbera, may tindahan sa tabi ng bahay, sari-sari store. Kumita si
tindahan. Income? YES. Within or without? WITHIN. Subject to tax? YES. What Interest income from time deposit in Philippine bank is exempt
kind of tax? NIT.
Si Lumbera, may peso time deposit account. I did not pre-terminate for five
Income from sale of goods in foreign country by resident citizen years. Interest is P3,000. Income? Yes. Within or without? WITHIN. Subject to
tax? NO. EXEMPT.
Si Lumbera, habang nasa States, ang laman ng bag ay cellphone card,
alahas, relo, nagbebenta sa mga Pilipino. Kumita, business. Income? YES. Within Interest income from peso account in US bank
or without? WITHOUT. Subject to tax? YES. What kind of tax? NIT.
Si Lumbera ay may peso account sa isang US Bank. Kumita ng interest
Income from stolen newelry in Philippines P100. Income? YES. Within or without? WITHOUT. Subject to tax? YES. What
kind of tax? NIT. Bakit hindi FWT? Kasi yung letter B sa interest ay dapat interest
Si Lumbera nagnakaw ng alahas sa Pilipinas. Income? YES. Within or sa Pilipinas. So lahat ng interest na wala sa B dahil nasa ibang bansa ay nasa A.
without? WITHIN. Subject to tax? YES. What kind of tax? NIT. ‘Pag wala sa B, nasa A. ‘Pag wala sa C, nasa A. Pag wala sa D, nasa A. So dapat
alam mo si B, C, and D para alam mo kung nasaan siya.
Income from stolen items outside Philippines
Interest income from dollar account in US
Si Lumbera nagnakaw sa States. Income? YES. Within or without?
WITHOUT. Subject to tax? YES. What kind of tax? NIT. Si Lumbera may dollar account sa States, kumita ng interest, $100.
Income? YES. Within or without? WITHOUT. Subject to tax? YES. What kind of
Rate of net income tax tax? NIT.
Yung rate, depende sa taxable net income. Ang rate diyan ranging from Interest income from peso and dollar account in US Bank
2% to 32%. Kahit anong income sa Pilipinas o sa labas ng Pilipinas, kung resident
citizen ako, taxable ako, anong tax? NIT. Si Lumbera merong peso and dollar account sa States. Time deposit.
Kumita ng interest, hindi ko prine-terminate for 5 years. Income? YES. Within or
without? WITHOUT. Subject to tax? YES. What kind of tax? NIT. Bakit, anong
rason? Hindi kasi natin pwedeng utusan ang ibang bansa na maging withholding
24
agent natin. “Hoy Barack Obama! Make sure that all the taxes will be remitted to Jueteng won outside Philippines
me!” sabi ni PNoy. In the same manner na sabi ni Barack kay PNoy, “PNoy, remit
also the withholding taxes due from citizens of the United States derived from the Lumbera nagpapa-jueteng ng mga Pilipino sa States. Yung jueteng sa
Philippines.” You cannot do that. There’s no such thing as a withholding tax labas ng Pilipinas, income? YES. Within or without? WITHOUT. Subject to tax?
agreement among nations. So anung gagawin? Balik ka sa NIT, without prejudice YES. What kind of tax? NIT.
to the taxes to be paid in the United States of America where these income are
derived from. That’s tax credit again. Lotto in Philippines
Royalties Lotto sa Pilipinas, income? YES. Within or without? WITHIN. Subject to

tax? NO. EXEMPT. Nakasulat sa batas.
Let’s go to the next kind of passive income. Royalties. Si Lumbera gumawa
ng kanta. Ni-record ni Ogie Alcasid, dinistribute sa Pilipinas. Dinistribute din sa Lotto in US
States, binenta doon. I earned royalties from both. Pilipinas, income? Within or Lotto sa States, exempt sa States, income? YES. Within or without?
without? Within. Subject to tax? YES. What kind of tax? FWT. What rate? 10%. Or WITHOUT. Subject to tax? YES. Even if exempt outside of the Philippines. What
royalties on literary and musical compositions. kind of tax? NIT.
Musical composition recorded in Philippines, sold in foreign countries Lotto won in Philippines by an immigrant
Yung musical composition ko ni-record sa Philippines, binenta sa ibang Baliktarin natin. Naalala niyo yung nanalo ng Lotto na US immigrant sa
bansa, I earned royalties, income? YES. Within or without? WITHOUT. Subject to Olongapo ng P700M? Lotto winnings, income? YES. Within or without? WITHIN.
tax? YES. What kind of tax? NIT. Balik ka sa A. Bakit? Wala sa B. Nasa A ka Subject to tax in the Philippines? NO. EXEMPT. In the States, subject to tax?
dapat. YES. Subject to tax, 30%. Because he is a non-resident citizen there and being a
Prizes and winnings non-resident citizen there in the states, taxable ang income outside. Hindi yun
tinax sa Pilipinas, sa States tinax yun because the winner is a non-resident citizen
Prizes and winnings. Si Lumbera nanalo sa Willing Willie, P1,000,000. in the States and in the States lahat ng lotto winnings of a non-resident citizen,
Income? YES. Within or without? WITHIN. Subject to tax? YES. What kind of tax? kahit saan nakuha, taxable.
FWT. What rate? 20%.
Shares of stock in domestic corporation
Prizes won outside the country
Dividends. Si Lumbera may shares of stock in a domestic corporation,
Si Lumbera nanalo sa Price is Right sa US, income? YES. Within or P100,000. Income? YES. Within or without? WITHIN. Subject to tax? YES. What
without? WITHOUT. Subject to tax? YES. What kind of tax? NIT. Isasama sa kind of tax? FWT. What rate? 10%.
gross income.
Dividends received by resident citizen from foreign corporation
Amount derived from illegal gambling in Philippines
Si Lumbera resident citizen, tumanggap ng dividends from a foreign
Si Lumbera nanalo sa Jueteng sa Pilipinas P100,000. Yung jueteng sa corporation, P100,000. Income? YES. Within or without? WITHIN. Subject to tax?
Pilipinas, income? YES. Within or without? WITHIN. Subject to tax? YES. What YES. What kind of tax? NIT. If 3 years prior to the declaration of dividends, the
kind of tax? FWT. What rate? 20%. income from the Philippines is less than 50% of its total income, then only 33% is
within. 66% is without. Is P100,000 income? How much is within, how much is
without? P33K is within, P66K is without. Am I subject to tax for both? YES.
Because within and without ang nakasulat for resident citizens. What kind of tax?
25
Sa P33K, NIT. Sa P66K, NIT. Lahat ng yan NIT kasi ang nakasulat diyan CAPITAL GAINS AND LOSSES
dividends subject to FWT are dividends issued by a domestic corporation. Basahin
niyo. Nakalagay diyan, “derived from domestic sources.” Capital and ordinary assets
Dividends received by resident citizen from domestic corporation What are capital assets and what are ordinary assets? When a problem
involves an asset, an asset will remain just an asset and without tax effect if you
Si Lumbera resident citizen, tumanggap ng dividends from a domestic do not move the asset. Movement in the sense that there is transfer of ownership.
corporation, P100,000. Income? YES. Within or without? WITHIN. Subject to tax? You will not be able to realize gains and losses without movement of asset.
YES. What kind of tax? FWT. What rate? 10%.
I’ll give you an example. I have a watch which I bought at P20,000 10
Dividends received by resident citizen from foreign Corporation with income years ago. I’m using it everyday of my life. Today, the value of my watch is only
less than 50% is derived from Philippine sources for the last three years P2,000. Did I incur a loss, or meron ba akong gain? WALA. Hindi natin masasabi
prior to declaration of dividends unless I move the asset. If I sell my asset, magkano ang fair market value
ngayon? P2,000. If I sell it to you at P3,500, what do I get? GAINS. How much?
Si Lumbera tumanggap ng P100,000 dividends from a foreign corporation P1,500 even though P3,500 is lower than P20,000 purchase price. If I sell the
whose income from the Philippines three (3) years prior to declaration of dividends watch now at P10, what do I get? LOSS. How much? P1,990. This is how we
is less than 50% of its total income. Is P100,000 income? YES. Within or without? recognize gains and losses when we talk about assets.
33% is within, 66% is without. Subject to tax? YES. All? YES. What kind of tax?
NIT. Everything, 100% is income taxable, because si Lumbera being a resident Classification of assets
citizen and the kind of tax is always NIT. Hindi mo sine-segregate. For passive
income to be subjected to FWT, it should be derived from Philippine sources. Assets are classified into two: ordinary and capital. Pag sinabing capital
Isang sentence lang yun. All passive income derived from Philippine sources is assets, these are defined in Sec. 39 of the NIRC. Unfortunately, Sec. 39 defines it
FWT. All passive income from outside the Philippines is NIT kapag resident citizen in the negative. The heading is capital assets but when you look at the definition,
ka. every asset listed is ordinary, everything other than those listed is capital asset.
Ang nakalista iyong ordinary; ang hindi nakalista yun ang capital.
Capital gains on sale of shares of stock not traded through the local stock
exchange So paano natin made-determine? Ang ordinary ay ginagamit sa trade or
business. Ang capital ay hindi ginagamit sa trade or business. So kung si Lumbera
So let’s go to letter C, Capital Gains on Sale of Shares of Stock Not Traded ang pinag-usapan mula ulo hanggang paa, wala akong business, lahat ng pagaari
through the Local Stock Exchange. Ang sabi natin, if shares of stock in a domestic ko mula ulo hanggang paa ay capital asset. It may be capital asset which is real
corporation are capital in character, sold, not traded through the local stock property, capital asset which is tangible personal property or capital asset which is
exchange. First P100,000 of the gains realized, the rate is 5%. The gain realized in intangible personal property. If Lumbera is in trade or business, I may have both
excess of P100,000 is subject to tax at the rate of 10%. capital and ordinary asset, for example, this is my business, pre-bar review. That
aircon is ordinary but my aircon in the house is capital. The clock there is ordinary,
but my clock in the house is capital.
So first thing you do when you are faced with a problem with an asset is
ask, capital or ordinary? Second, is there movement of the asset? Movement in
the sense that is there a transfer of ownership? If there’s a transfer of ownership,
that’s the only time you say that you realize gain or loss. Doon ka lang
makakapagsabi na nalugi ka o tumubo ka. Kasi pag hindi mo tina-transfer ang
ownership, hindi mo malalaman kung tumubu o nalugi ka. Parang relo, lugi ako
26
kung ang pinaguusapan eh ang pagkakabili ko at the budget amount pero wala Shares of stock traded in local stock exchange sold at a loss
talaga akong pagkakalugi. Bakit? Yung alleged devaluation ginagamit ko. That’s
equivalent to use so wala akong lugi. Now, another example. Same scenario, bought at P1,000. The fair market
value now is P500. I sold at a loss, P10, but traded through the local stock
Shares of stock not traded in local stock exchange exchange. May income ako? WALA. May income tax ako? WALA. May tax? OO.
Ano? Dalawa. 1) Percentage tax equivalent to ½ of 1% of the gross selling price;
So let’s go back to letter C. Capital Gain on Sale of Shares of Stock in a and of course 2) Donor’s tax under Sec. 100. Tandaan ninyo taxes are the
Domestic Corporation. In other words, yung shares of stock mo sa isang domestic lifeblood of the government, hindi pwedeng nalulugi ang gobyerno. Kaya kung
corporation ay capital. Hindi mo ginagamit. Let us say I purchased the shares of nalugi gobyerno sa isa, babawiin niya sa isa. Yun ang nakasaad sa batas.
stock at P1,000. The fair market value now is P500. I sell it now at P800, may
income ako? How much? P300. Within or without? WITHIN. Subject to tax? YES. Shares of stock in foreign corporation, not traded through local stock
What kind of tax? Letter C, Capital Gains on Shares of Stock in a Domestic exchange and sold outside the country
Corporation, if not traded in the local stock exchange, at the rate of 5% for the first
P100,000 then 10% for the amount in excess of P100,000. Sa kabilang ibayo, si Lumbera may shares of stock in a foreign corporation
na nasa USA, same amount purchased at P1,000. The fair market value is P500.
When shares of stock are traded in local stock exchange Ibinenta ko sa States not traded through the local stock exchange, binenta ko ng
P800. May income? YES. Magkano? P300. Within or without? Without. Subject to
If traded in the local stock exchange, magkano ang gain ko? P300. tax? YES. What kind of tax? NIT.
Income? YES. Within or without? WITHIN. Subject to tax? YES. What kind of tax?
Percentage tax equivalent to ½ of 1% of the gross selling price under Sec. 127 of Shares of stock in foreign corporation traded or not traded through local
the NIRC. If traded, it is not income tax, it is always percentage tax equivalent to ½ stock exchange, sold outside the country at a loss
of 1% of the gross selling price.
What if binenta ko at a loss, P10. Traded or not traded doon sa States.
Transfer for less than adequate and full consideration Binenta ko at a loss. May income? WALA. May income tax? Wala. Walang income
eh. May tax? YES. Donor’s tax, Sec. 100 of the Tax Code. Where property other
Let’s take the other side of the coin. Same shares of stock in a domestic than real property described under Sec. 24 (b) is sold for insufficient consideration,
corporation not traded through the local stock exchange. The purchase price is the difference between the consideration and the fair market value at the time of
P1,000. The current fair market value is P500. I sell it at P10. Income? No. LOSS. transfer shall be subject to donor’s tax.
May income tax? WALA. May tax? MERON. Donor’s tax. That’s Sec. 100. If you
sell an asset other than real property under Sec. 24 (d) for an insufficient Capital gains tax on sale of real property
consideration, the difference between the consideration and the fair market value
at the time of sale will be treated as a gift subject to donor’s tax. Lumbera’s Properties Lumbera’s Properties in
in US RP
Reason for imposition of donor’s tax Purchase Price- P1,000,000
Anong rason? Sabi ng gobyerno simple, “Eh sira ulo ka nagbebenta ka ng House in US House in RP FMV-P500,000
lugi, sino bang normal na tao ang magbebenta ng lugi? Ginagawa mo yan siguro
ng sadya. Whatever is your purpose, lugi ako-gobyerno. Nalugi ka? Wala akong Purchase Price- P1,000,000
pakialam sa lugi mo! Ako ang gobyerno ah, nalugi rin ako kasi binenta mo ng lugi. Parlor in US Parlor in RP FMV-P500,000
Hindi uubra yun, ikaw lang ang nalugi, ako tutubo.” Bakit? Donor’s tax yan eh,
Sec. 100. Whatever I lost because of tax due because you sold at a loss, I will Gross Selling Price- P800,000
make bawi from you, Sec.100, if it is a transfer for insufficient consideration.
27
Capital Gains Tax on Sale of Real Property. The asset is real property, Vehicles
located in the Philippines, capital. Yun ang requirement. Si Lumbera may bahay sa
Pilipinas, bahay sa States, parlor sa Pilipinas, parlor sa States, purchased at KOTSE. Kotse sa bahay sa Pilipinas for personal use. Kotse sa bahay sa
P1,000,000 each. The fair market value now is P500,000. I sold each one of them States for personal use. Kotse sa parlor sa Pilipinas, ginagamit as service. Kotse
at P800,000. Bahay sa Pilipinas, may income? YES. Within or without? WITHIN. sa parlor sa States, ginagamit as service. Apat na kotse worth P1M each, fair
Subject to tax? YES. What kind of tax? Capital gains tax (CGT) equivalent to 6% market value now is P500K, sold at P800K with a gain of P300K.
of the fair market value or gross selling price, whichever is higher.
Lumbera’s US cars Lumbera’s RP cars
House in US, sold at a gain
Car in US (personal use) Car in RP (personal use) Purchase Price- 1M
Bahay sa States, may income? Yes. Within or without? WITHOUT. Subject FMV-P500,000
to tax? YES. What kind of tax? NIT. Car in US (for business) Car in RP (for business) Purchase Price- 1M
FMV-P500,000
Parlor in RP, sold at a gain
GSP-P800,000
Parlor sa Pilipinas, P300,000 ang base. Income? YES. Within or without?
WITHIN. Subject to tax? YES. What kind of tax? NIT. Car in the Philippines, sold at a gain
Parlor in US, sold at a gain Kotse sa Pilipinas, may income? YES. Within or without? WITHIN. Subject
Parlor sa States, may income? YES. Magkano? P300,000. Within or to tax? YES. What kind of tax? NIT. Ano yung D? Real Property. So wala sa B, C
without? WITHOUT. Subject to tax? YES. What kind of tax? NIT. at D. So, A. NIT.
House in RP, sold at a loss Car in the US, sold at a gain
I sold at a loss, P10 each. Bahay sa Pilipinas, may income? YES. Kotse sa States, ganun din. Wala sa D, nasa A siya, NIT.
PRESUMED. Subject to tax? YES. Capital Gains Tax on Sale of Real Property Kotse sa Pilipinas for business use, wala rin sa D. Sa A siya.
equivalent to 6% of the fair market value or gross selling price, whichever is
higher. Kotse sa US for business use, wala rin sa D. A siya.
House in US, sold at a loss ‘Pag wala sa B, C, D, nasa A kahit anong mangyari. Because A refers to all
income other than B, C, D. NIT.
Bahay sa States, sold at a loss. May income? WALA. May income tax?
WALA. May tax? OO. Sec. 100, donor’s tax. Cars, sold at a loss
Parlor in RP, sold at a loss I sold the car at P10 each, at a loss. Anong mangyayari, may income ba
ako? WALA. Subject to income tax? HINDI. Subject to tax? YES. Lugi si gobyerno.
Parlor sa Pilipinas, sold at a loss, may income? Wala. May income tax? Donor’s tax, Sec. 100.
WALA. May tax? Oo, donor’s tax, Sec. 100.
Parlor in US, sold at a loss
Parlor sa States, sold at a loss, may income? WALA. May income tax?
WALA. May tax? Oo. Donor’s tax.
28
Requirements for exemption from payment of capital gains tax Exemption from CGT in case of co-ownership of property
Can you be exempt from the payment of CGT of 6%? YES, if what you sell If we are co-owners of a property, house and lot, but I am the only one
is the actual principal residence. Actual principal residence does not require staying there, when we sell the house and lot, I am the only one entitled to claim
absolute, continuous, uninterrupted stay. The stay may be interrupted by the exemption in proportion to my share in the co-ownership. You cannot claim
temporary absence due to work, studies and similar circumstances. So the because you are not actually residing in the house and lot.
requisites are:
Payment of CGT in case of expropriation and foreclosure of mortgage
1) you sell your actual principal residence;
In case of involuntary transfers of property such as foreclosures of
2) you inform BIR within 30 days from the sale that you are availing of the mortgage and expropriation proceedings, when is capital gains tax due? CGT for
exemption; expropriation proceedings is due at the time of full payment of just compensation,
that’s the only time that we pay the CGT. Pag kinuha ang property mo at hindi ka
3) you use the proceeds to build or purchase another actual principal pa binabayaran ng gobyerno, aba’y luging-lugi ka naman kung ngayon pa lang eh
residence within a period of 18 months from the date of sale; magbabayad ka na ng CGT, wala pa ngang binayad sa iyo eh. So hindi pa. Kapag
binayaran ka na ng just compensation, that’s the only time that CGT becomes
4) you avail of the exemption once every 10 years; and due.
5) the historical cost of the property sold shall be considered in In foreclosures of mortgage, the CGT is due after the expiration of the
determining the application of the exemption. redemption period when there is no redemptioner. It is sold in public auction, the
If these requisites are present, then the taxpayer may be exempt from the certificate of sale is registered and then one year after and there is no redemption,
6% CGT. The exemption, however, requires the deposit in an escrow agreement the title will be consolidated. It will be given to the buyer in the public auction.
in a bank. The amount of 6% CGT will be deposited in a bank, escrow agreement, That’s the only time that CGT is due. Why? Because that’s the only time that there
signed by BIR, taxpayer and the bank. If you comply with the requisites for is transfer of ownership. When mortgage is foreclosed, there is no transfer of
exemption, you may require the bank to release to you the deposit but without ownership. There is transfer of ownership only after the expiration of the
interest income because that belongs to the government. If you fail to comply, the redemption period and there is no redemptioner. The title of the property will be
amount deposited will be released to BIR and you are presumed not to have paid consolidated in the name of the buyer in the public auction who will be held liable
the tax. Therefore, penalties and surcharges will be collected from you. for the CGT.
Exemption from CGT if land and house are not owned by same person Tax liability of non-resident citizen
There are instances when the land is owned by a different owner from the The non-resident table is very easy because all you have to do is take out
house. Iba ang may-ari ng lupa, iba ang may-ari ng bahay. Ang nakatira dito sa the income outside of the Philippines. Any income outside of the Philippines will
lupa eh yung may-ari ng bahay. Ibinenta pareho. Sino ang entitled sa exemption? not be subjected to tax in the Philippines. But those income may be subjected to
The owner of the house in proportion to the value of the house. The owner of the tax in the country where the income is derived. So it’s the same banana, Net
land cannot avail the exemption because it is not his actual principal residence. Income Tax, FWT, FWT, FWT, FWT but only for the income realized within the
Philippines. All income outside of the Philippines will no longer be subjected to tax.
This is found in Section 32, par. A, No. 1. There is no fringe benefits tax as far as a
non-resident is concerned because he cannot be an employee in the Philippines.
Once he becomes an employee in the Philippines, he is automatically considered
as a resident citizen.
29
Non-resident citizen may be entitled to exemption from capital gains tax Resident alien may be entitled to exemption from payment of CGT
In case of capital gains tax on sale of real property and the taxpayer is a Can we apply the exemption from the 6% capital gains tax? Again we go
non-resident citizen, can he claim for the exemption for the 6% capital gains tax? back to the requisites:
The requisites for exemption for the 6% CGT are : 1) that it must be his actual
principal residence; 2) within 30 days he informs BIR; and 3) he uses the proceeds 1) That it must be his actual principal residence – so pwede kasi he is a
to buy or build another principal residence. Among all these requisites which resident alien.
among them should be present so that the exception will or will not be applied? It
is the fact of residence. Ang tanong natin dito ay anong ibig sabihin ng actual Can he sell? Before the alien can sell, he has to own right? Can an alien
principal residence because a non-resident citizen is not residing in the own so that he can sell? Yes. But he cannot buy a residential lot. So papaano siya
Philippines. Because if he has actual principal residence in the Philippines, he will magkakaroon ng residential lot? Minana niya yung property, dun siya nakatira, dito
not be a non-resident citizen. Ang ibig sabihin ng actual principal residence is the siya nagta-trabaho, ibinenta niya then he bought a condominium unit. He cannot
place where one has the intention of returning to whenever one is absent. It does buy a residential lot, but he can build a house. And he can sell the house. Wala
not require absolute, continuous, uninterrupted stay. It may be interrupted by naman yang prohibition eh. Ang prohibition lang ay bumili ng lupa. Pero pwedeng
temporary absence due to work or similar status or similar circumstances. ikaw ang may-ari ng lupa. Ako magtatayo ng bahay, alien ako. Pwede ba? Pwede.
Can I sell the house? Yes, because I own the house. And if I buy another house
Perfect example nito ang mga OFW. Nagta-trabaho sa ibang bansa. They without the land, pwede ba? Pwede. Pwede ba akong mag-build uli ng
go home once in a while. Their families are here. They have their homes here. So panibagong bahay sa isang lupang hindi akin? Pwede. So the possibility is still
the concept of actual principal residence can still be applied to a non-resident there.
citizen specially if he were an OFW. Even an immigrant, pwede pa rin siya. Bakit?
Because Philippines is his domicile. The residence is outside the Philippines but Exemption from CGT in case owner is an alien who is a former Filipino
his domicile/permanent residence is still in the Philippines. The exemption can still citizen
be applied. Pwede rin na alien ka, foreigner ka, ang ninuno mo ay Pilipino
Resident alien (RA) pinamanahan ka ng lolo’t lola mo and then you head back to the Philippines to
work here. You live in your house inherited from your lola, you sell the same and
Let’s talk about resident aliens. A resident alien is taxed in the same use proceeds to build another one on a lot which is not owned by you. Pwede?
manner as a non-resident citizen. Parehong-pareho. So ibig sabihin, the same rule Pwede. Or kung ayaw mo na mag-build bumili ka ng condominium unit, pwede?
applies for all income derived from the Philippines other than B, C, D. Pwede. So you can still claim the exemption. So meron pa ring posibilidad ito.
So lets have a rundown. Resident Alien- all income derived within the Non-resident alien engaged in trade or business (NRA-ETB)
Philippines--NIT. All passive income within the Philippines--FWT. Same rates,
same tax. Capital gains on sale of shares of stock of a domestic corporation-- If you know the first table, you will definitely know this. It’s the same. So
same. Capital gains on sale or real property located in the Philippines--same. But itong tatlong ‘to you will notice, are taxed similarly. The only difference is that the
everything located outside of the Philippines will not be subjected to tax if we are non-resident alien engaged in trade or business is subject to 20% tax on dividends
talking about a resident alien. So parehong-pareho siya ng non-resident citizen. received from a domestic corporation, not 10%. You will find this in the codal
provision.
30
Non-resident alien engaged in trade or business (NRA-ETB) may be exempt Capital gains tax rate for non-resident not engaged in trade or business
from CGT
But of course, capital gains tax on sale of shares of stock is constant for all
Can non-resident aliens engaged in trade or business be exempt from 6% kinds of individual taxpayers. Capital gains tax on sale of real property is also
capital gains tax? Yes, same scenario as resident alien. Because there is a applicable.
possilibility that he is actually residing in the Philippines and he established a
residence in the Philippines. Pero ako sasabihin ko sa inyo, among these kinds of Non-resident not engaged in trade or business working in Philippines
taxpayers, the least possibility of the exemption is a non-resident alien engaged in
trade or business because of the fact that he is a non-resident alien. Hindi nga yan If you look at Sec. 25 par. B, C, and D, makikita ninyo dyan naka-specify
nakatira sa Pilipinas. Kung yan ay may bahay sa Pilipinas na actual principal na aliens. Those who are employed in offshore banking units, multinational
residence eh di ibig sabihin resident alien siya. But the law says there is a companies, and those employed by oil petroleum service contractors. Very
possibility for the exemption from the 6% CGT if we are talking about a non- peculiar yung parteng yan. These are aliens who are working in the Philippines in
resident alien engaged in trade or business. those three companies and because of their work here, definitely they must be
residing in the Philippines. Hindi naman pwedeng ‘pag alas siete ng umaga andito
Non-resident alien not engaged in trade or business sa Pilipinas at pagka alas siete ng gabi magpe-plane out of the Philippines. They
(NRA-NETB) are working here, but the law classifies them as non-resident aliens not engaged
in trade or business. These three, while working here and presumably residing
The easiest among the kinds individual of taxpayers of course is non- here, are taxed on 25% on the gross. But if there is a Filipino counterpart in the
resident alien not engaged in trade or business. This time he will be taxed on the same company, performing the same functions and duties as the alien, and the
gross and withheld. Peculiar ang circumstance niya because: 1) he is not residing Filipino counterpart is given by the company the option to be taxed at the rate of
in the Philippines; 2) he is an alien; and 3) he is not engaged in trade or business. 15% on the gross, then the alien will also be entitled to claim 15% on the gross
The tax is on the gross but withheld. Withholding tax. And the tax is on the gross, instead of 25%.
but without deductions.
When alien may choose GIT of 15%
Tax rate on all passive income of non-resident not engaged in trade or
business Is there a need for the Filipino to choose GIT of 15% before the alien can
choose GIT 15%? No. As long as the option is available to the Filipino, the alien
All passive income of a non-resident alien not engaged in trade or can avail of the GIT 15% rate. So what are those situations? I am the alien, you
business. What are these passive income? Interest on bank deposits, royalties, are the Filipino counterpart. We are performing the same functions.
prizes and winnings, as well as dividends shall be subject also to GIT (gross
income tax), not to final withholding tax. It is taxed on the gross. At what rate? The presumption here is that we are occupying key and valuable positions
25%. The rate is even higher at 25%. If you compare this one against all the in the company, otherwise the company would not uproot you from another
individual taxpayers, this is found in Sec. 26, you will find out that all the income country. We do not uproot a janitor from another country. In other words, we are
from the Philippines of a non-resident alien not engaged in trade or business is very in demand as far as our skills, experience are concerned. Walang ibang
taxed higher, much higher, than the ordinary taxpayer. The rate is 25% and it available sa Pilipinas. But in our company ikaw ay Pilipino same ang function mo
covers all income, including passive income. So interest on bank deposits, sa akin. Ang presumption here is that, because I am uprooted from another
royalties, prizes and winnings, dividends these are not taxed at the regular rate, country, I must be getting a very high salary. Who would want to work in another
but at 25% on the gross. country and leave it? Bayaran mo ang aking board and lodging, bigyan mo ako ng
sasakyan, ang pamilya ko most likely kasama ko, plus malaking-malaki ang
sweldo ko. Ikaw na Pilipino ka magrereklamo ka pag ang sweldo mo mas mababa
sa sweldo ko.
31
So pareho kami ng sweldo. All the benefits that are given to me as a resident alien not engaged in trade or business, pero nakatira sa Pilipinas dahil sa
consequence of being uprooted will be given to you also. Magrereklamo ka kasi kanilang trabaho. At saan siya nakatira? Pwede nagpagawa siya ng bahay sa lupa
bawal din yan sa Labor Code. So yan ang sitwasyon natin. ng kaibigan niya, pwedeng condominium siya at ibinenta niya at bumili siya ng
bagong condominium. Pwede naman siya ay dating Pilipino o pinamanahan ng
Possible tax rates as to non-resident not engaged in trade or business, but ninuno niyang Pilipino at dun siya tumira habang nagtatrabaho dito sa Pilipinas at
working in Philippines inayawan niya at binenta niya at bumili siyang muli ng kanyang bagong titirahan.
So the possibility of exemption is still there.
First, our company does not give us an option. So you as a resident citizen,
your tax will be NIT, and me, non-resident alien is GIT of 25%. Fringe benefits given to non-resident not engaged in trade or business
(NRA-NETB), part of gross income and not subject to fringe benefit tax
Second, our company gives us an option to be taxed at GIT of 15%.
So the possible scenarios are: Take note, a non-resident alien not engaged in trade or business may
a. GIT 15% ka (resident citizen), GIT 15% ako (non-resident alien) receive employer-employee benefits which are in the nature of fringe benefits
b. NIT ka (resident citizen), GIT 15% ako (non-resident alien) when you compare it with ordinary resident citizen. These are fringe benefits
received from multinational companies, oil petroleum service contractor, offshore
Whether you choose to be taxed at GIT 15% will not matter. The option is banking units. How will the fringe benefits of a non-resident alien not engaged in
available. Then NIT ka or GIT 15%. Ako syempre pipiliin ko GIT 15% kasi it is a lot trade or business be subjected to tax? May it be subjected to fringe benefit tax?
lower than GIT 25%. Why would you choose GIT 15% instead of NIT? Because NO. Everything will be part of all income subjected to gross income tax at 25% or
most likely because of your very high salary or remuneration, mas maliit ang tax GIT 15%. All income including the fringe benefits received by a non-resident alien
mong babayaran ‘pag nag GIT 15% ka kesa sa mag NIT ka. not engaged in trade or business under Sec. 25, par. B, C, and D will not be
subjected to fringe benefits tax but to GIT gross income tax at the rate of 25%.
Advantage of GIT of 15% Sasabihin niyo, eh lugi ang gobyerno dun kasi the 32% is higher than 25%. Hindi,
Inuproot ako papunta sa Pilipinas. Magkano kaya magiging sweldo ko? because the 32% is based on the grossed up monetary value. The 25% is based
Lets say P1,000,000 a month. In a year, my basic pay is P12,000,000. So you, the on the gross, so mas malaki pa rin ang tax na babayaran because this is 25% of
Filipino should get P12,000,000 also. So P12,000,000 ka, ako P12,000,000 Gross the total income that you realize.
Income. Anong deductions mo? Maximum of P150,000: P50,000 for personal DOMESTIC AND FOREIGN CORPORATIONS
exemption and 100,000 for four children assuming that you have 4 so P150,000. Corporations
So your taxable net income is P11,850,000. Magkano ang rate niyan pag NIT?
The tax shall be P125,000+32% excess over P500,000. Kinds of taxes collected from a corporation:
Compare mo yan sa 15% ng P11,850,000. Kaya ikaw mamimili ka ng GIT 1) Net Income Tax (NIT)
15% most likely kasi mas malaki pa ang babayaran mo pag nag NIT ka. But the 2) Withholding Tax (WT)
option is given to you, if you want the government to earn more from you, good, 3) Gross Income Tax (GIT)
fine. 4) Minimum Corporate Income Tax (MCIT)
Non-resident not engaged in trade or business (NRA-NETB) may be entitled 5) Improperly Accumulated Earnings Tax (IAET)
to exemption from CGT 6) Intercorporate Dividends Tax
7) Branch Profits Remittance Tax
Is a non-resident alien not engaged in trade or business entitled to claim 8) Gross Philippine Billings Tax (2 ½ %)
exemption from the 6% capital gains tax on sale of real property? Yes, specially
those three aliens above-mentioned. Because they are perfect examples of non- Nos. 1 to 7 are most commonly used forms of tax for corporations.
32
Please take note that except for MCIT and NIT, which are in lieu of each Let us say in the year 2011, you started your business. First year of
other, everything will be collected from the corporation all at the same time. So operation, everything palabas ang pera mo. Let us say that your revenue is
makikita ninyo ang mga negosyo napakaraming taxes na binabayaran iba-iba sa P500,000 but because this is your first year of operations your expenses
loob ng isang buwan, sa loob ng isang taon. In addition of course, because they amounted to P600,000. So lugi ka ng P100,000. ‘Pag nalugi ka ng P100,000 lugi
are engaged in trade or business, the corporation will be subjected to value-added ang gobyerno kasi kahit i-multiply mo yan ng one million percent, it is zero. Zero
tax. tax yan. In other words you are operating at a loss. When your expenses or
deductions are more than your revenues, you are operating at a loss you call it--
NIT: So we know NIT, it’s the same concept as in an individual taxpayer. Net Operating Loss, which may be carried over to the succeeding year. This is
only applicable to a corporate taxpayer. How many years can we carry over a net
WT: Withholding tax same concept. Just to refresh your memory there are operating loss? Three. Versus Net Capital Loss Carry Over which is carried over
two kinds, final withholding tax wherein the income is no longer subjected to any one year lang and applicable only to individuals.
other kind of tax and the income is not included in the gross income from NIT. But
if the income is subjected to creditable withholding tax the income will have to be Net Operating Loss Carry Over
included in the gross income for the purposes of computing the NIT because of the 1st 2nd 3rd 4th
Example
nature of the withholding tax. It will however be credited against the tax due. Kaya
ang tawag dun ay creditable withholding tax.
2011 2012 2013 2014 2015
GIT: the tax is on the gross income Revenues 500,000 700,000 700,000 1,000,000 1,000,000
Expenses 600,000 800,000 800,000 1,100,000 1,100,000
Minimum Corporate Income Tax (MCIT)
Net Operating Loss (100,000) (100,000) (100,000) (100,000) (100,000)
Now let’s discuss MCIT. MCIT is minimum corporate income tax imposed
at the rate of 2% of the gross income beginning the fourth year following the Let us say 2012, aba nag-increase revenues, pero lugi na naman ako, zero
commencement of its operations, provided, that the 2% is higher than the net tax na naman. 2013 zero tax na naman. 2014 nag-one million mark ako because I
income tax. What is the regular net income tax rate for corporations? 30%. inputted additional capital, pero lugi na naman ako zero tax na naman. Lugi na
naman ang gobyerno sa akin. Sabi ng gobyerno, dito sa 2015 pag ikaw ganyan pa
MCIT is a kind of tax which is in lieu of NIT. This is collected at the rate of din, niloloko mo na ako. Walang normal na tao na nagbi-business ng 5 taon, lugi
2% of the gross income and beginning the fourth year following the at magtutuloy. Kasi hindi yan natural sa taong nagbi-business. There is something
commencement of its operations provided that the 2% is higher than the 30% NIT. wrong with you or your business. You better forget it, otherwise you will be
incurring more losses. If you want to continue there is no problem with me, sabi ng
When MCIT was introduced, a lot of people thought it was sort of a gobyerno, anyway whatever loss you sustain is yours, not mine. Because
privilege or a reprieve since 2% lang ang rate but in reality it is not. This is one beginning the 4th year following the commencement of its operations, beginning
way of increasing the collection from the corporate taxpayers. 2015, if you continue this financial statement, I will collect P1,000,000 x 2% which
is P20,000. Bayaran mo yan, that is your MCIT. From 2015 onwards, until such
Let us say in the year 2011, you started your business. It’s pretty normal time that your net income tax is higher than the 2% of the gross, you will
for a corporate taxpayer or for anybody, specially in business, to have losses. continuously pay.
Namumuhunan ka talaga sa business so normal na may losses ka at normal din
na sa unang taon or the first few years of your operations hindi ka kumikita. Kaya
di ba naririnig niyo ang ROI, return of investment, in other words what’s the period
you can honestly say that you are earning. Kasi kung magbi-business ka at palugi
ay manahimik ka na lang sa bahay mo at manood ng TV. Syempre nakakapagod
yung mag-business ka nang lugi.
33
MCIT also applicable to corporations under rehabilitation, insolvency and the corporation. In other words, corporate taxpayers will now be forced to
receivership distribute dividends to stockholders. But whether they distribute or they retain, the
government earns. If they distribute, the government earns from the stockholders.
MCIT is also applicable to corporations being rehabilitated, corporations If they don’t distribute, government earns Improperly Accumulated Earnings Tax
under insolvency and those under receivership. There is receivership beginning from the corporation.
the date of approval of receivership. It is treated as newly-created ordinary
corporation. Therefore MCIT concept will apply. What happens if a corporation is Corporations not subject to Improperly Accumulated Earnings Tax
under receivership? That means it has been in existence for a long period of time,
and at one point its liability is greater than its assets, it cannot satisfy its liabilities. There following are corporations which are not subject to Improperly
It doesn’t mean that the corporation is not earning. That corporation is still earning Accumulated Earnings Tax:
except that all earnings are used to pay for the liabilities. Therefore, as far as the
corporation is concerned, it is operating at a loss because even though it has 1) Government
revenues, all of the revenues are used to pay the liabilities. So Net Loss pa rin 2) Banks and financial institutions, because they are allowed to retain
siya. Therefore--not taxable, no income tax. So each corporation which is under earnings. Why? In case of bank run
receivership shall be treated as a newly created corporation subject to the concept 3) Insurance companies to support all insurance claims assuming that the risk
of MCIT. insured against happened at the same time.
Improperly Accumulated Earnings Tax (IAET) Holding company
What is IAET? This is paid on top of other corporate taxes. It is a tax What is a holding company? Diba naririnig niyo na ang holding company
equivalent to 10% collected from the corporation because of earnings retained ng Lopez Group of Companies is First Philippine Holding Company Inc. Lahat ng
beyond its reasonable business means. According to the Corporation Code, when companies/ corporations held by the Lopez Group like Meralco, ABS CBN, yan
a corporation realizes profits, it should be distributed as dividends. Sabi each yung holding company. Anyway, ang trabaho ng holding company if these are the
corporation is only allowed to retain a certain percentage of its surplus profits. ‘Pag corporations owned by C stockholder, interlocking directors, interlocking
sinabing surplus profits--tubo, kinita ng corporation. All of the profits should be stockholders.
apportioned, retained according to the Corporation Code. It can retain a certain Ang ginagawa nila, yung profits nila ilalagay sa isang company. This is a
percentage and the rest should be distributed as dividends. separate corporation which holds the assets of XYZ. In other words, jina-juggle
Recipient of dividends, liable for final withholding tax niya yung mga pondo. May banks, may food, this one has assets this one lends
from this. Makikita mo yung fiduciary relationship among the corporations with the
If profits are distributed as dividends, the stockholders, if individuals, will be holding company. This is one way in which the company’s profits are being spent
held liable for FWT at the rate of 10% but 20% for non-resident alien engaged in by another corporation. Kasi pwedeng pabilhin nila ito ng isang asset tapos sila
trade or business. But the rest in general at 10%. ang gagamit. One way of diverting the funds here papunta doon and not be
distributed as profits in the form of dividends, dito ililipat.
Improperly Accumulated Earnings Tax, taxed at 10%
Putting up of holding company is a prima facie presumption that corporation
So if the corporation will not distribute dividends, the government loses is trying to avoid payment of 10% tax on dividends
10%. Kaya babawiin ng gobyerno. Saan babawiin? Sa corporation na ayaw
magbigay ng dividends. The corporation will now be held liable for IAET at the rate Mere putting up of a holding company is a prima facie presumption,
of 10%. The same 10% that the government loses when the corporation does not disputable however, that the corporation is trying to avoid, hindi evade, the
distribute the dividends to stockholders. It will have to be covered, but this time, payment of 10% tax on dividends that are supposed to be distributed to
not from the stockholders (because it will become his dividend income), but from stockholders. Makikita nyo yan sa codal provision. Because this is disputable, the
34
burden of proof is on the corporation. Otherwise, the corporation will be subjected Tax sparing rule
to Improperly Accumulated Earnings Tax of 10%.
What is this tax sparing rule? Ang sabi dyan we will collect tax branch profit
Intercorporate dividends remittance tax of 15% only instead of 30% provided that in the country where it is
remitted, the same income shall be taxed in the minimum of 15%, to cover 30%-
In the case of individuals, when a corporation issues dividends on 15% = 15%.
individuals, the dividends are classified as passive income subject to FWT of 10%
or 20% or GIT. Kitang-kita sa table hindi ba? So ano ang taxes dito? 1) Right to receive income 2) right to remit. And
you pay branch profit remittance tax on top of the income tax at the rate of 15%
So a corporation is a stockholder, and the corporation receives dividends, provided that, under the tax sparing rule, the same income remitted shall be taxed
we don’t consider it as passive income. There’s a separate category, the law will in the minimum of 15% outside of the Philippines. What happens if in the USA the
refer to it as intercorporate dividends. And there’s a tax on the intercorporate rate of income tax is 40%? How much is the branch profit remittance tax? 15%. If
dividends, the rate is at 15%. Withholding pa rin siya, its also in the nature of final in the US it is 25%, tayo 15%. If in the US 2%, tayo 30%. In the minimum 15%.
withholding tax but we call it intercorporate dividends tax. And the rate is not 10%,
not 20% or not GIT 15% or 25% but at the rate of 15%. Gross Philippine Billings Tax (GPBT)
Branch Profit Remittance Tax only applies to RFCs Dito nagkaka-lituhan ang dami-daming kaso, BOAC case, ang haba-haba,
ang dami-dami. Meron pa akong estudyante, nagdi-diskusyon nag-aaway away
Of course, this is applicable only to a resident foreign corporation (RFC). dun sa facts of the case, mga landing rights. Ngayon may settled case na,
Here is X, a US corporation principal place of business is USA, puts up a branch X napakadali. Gross Philippine billings ano ibig sabihin ng Gross Philippine Billings?
Phils. in the Philippines. If you are the branch hindi mo patitigilin dito ang lahat ng Tao, goods, at mail matter na nag-originate sa Pilipinas. Syempre ang tao, goods
kinikita mo, normal yon. Ayaw mo nasa Pilipinas ang pondo mo. So when X Phils. at mail matter ‘di naman pwedeng lilipad sa hangin. Iyan ay papunta sa ibang
earns income from the Philippines, it is a resident foreign corporation. The income bansa originating either by air, by land, wala namang by land papuntang ibang
derived from the Philippines shall be subjected to tax from the moment it received bansa tama? or by sea. Tingnan mo naman ang mapa ng Pilipinas ‘pag papunta
the income. In addition to that, when X Phils. remits its income to the USA, the act sa ibang bansa--by air and by sea lang yan. Ang issue dito paano mo mata-tax-
of remittance is again subjected to tax. That’s double taxation in the broad sense an? Galing sa Pilipinas ang mail matter papuntang South Africa. Ang tao
and we call the tax BPRT at the rate of 15% for the amount applied for regardless papuntang South Africa. Kung eroplano South African Airlines bumababa ng
of the amount approved by the Bangko Sentral for remittance. We remit and apply Pilipinas, hindi naman tayo bumibili ng ticket sa South Africa kasi ‘di ka
for the approval of the BSP because you are remitting currencies. Hindi pwedeng makakapunta dun kung wala kang ticket. Pano ka bibili ng tickets? So yung mga
magremit lang nang remit at ‘pag inapply mo ma-aaprove, no. Because the tickets binibenta through agencies here in the Philippines. So bili ka ng ticket from
Central Bank regulates all currencies circulating within the Philippines. And it Philippines to USA probably, then from US to another country before you fly to
maintains a certain circulation of both peso and foreign currencies. Sila nag mo- South Africa using South African Airlines. Ang tanong dito, yun bang ticket na
monitor kaya pag nag-apply ka for remittance outside of the Philippines, hindi binenta na hindi binili sa Pilipinas dahil ang eroplano ay walang landing rights,
normally pinapayagan agad yung buong account na inapplyan mo because the paano kaya tina-tax? Because the corporation is earning income from the
Central Bank considers that circulation of currencies in the Philippines. So once Philippines but it doesn’t have any landing rights, wala ring sales office sa
the income is remitted to the principal place of business at the rate of 15% subject Pilipinas. Ibang usapan kung merong sales office, ibig sabihin, resident foreign
to the rule tax sparing. corporation siya. Eh pano kung wala at binibili mo sa internet ang ticket? Paano i-
tax yun?
Simple ang rule, ‘pag walang landing rights sa Pilipinas, lahat ng income
na kinita sa Pilipinas out of the sales of the tickets ang tawag dun Gross Philippine
Billings (GPB). Ang tax nun ay NIT, net income tax. Pag may landing rights, yun
35
ang Gross Philippine Billings Tax at 2 ½ %. Meron nang decided case ibibigay ko Royalties na kinikita ng corporation. Bakit? Sila ang exclusive distributor ng
sa inyo para hindi na kayo mahirapan. Sinettle na. Kasi nga nagkaka-lituhan. (See shampoo na ito with all natural ingredients. Royalties na kinita sa Pilipinas:
South African Airways vs. CIR, GR No. 180356, February 16, 2010) Income? Yes. Within or without? Within. Subject to tax? Yes. What kind of tax?
FWT. What rate? 20%.
So these are the kinds of taxes of a corporation. Let’s go back to the first
table. Domestic corporations are subject to tax for all income within and without. Yung same shampoo dinistribute sa USA kumita ng royalties si parlor
We follow the same rules. All income from within and outside of the Philippines- corporation. Income? Yes. Within or without? Without. Subject to tax? Yes. What
Net Income Tax at the rate of 30%. kind of tax? NIT.
PASSIVE INCOME OF CORPORATIONS Prizes and winnings
Passive income, what are the passive income of a corporation? Interest on The corporation was given an award the Best Parlor in Muntinlupa.
bank deposits, royalties, prizes and winnings and dividends. Kasama sa award ay ang check drawn in the name of the corporation P10,000. In
the USA, it was also awarded as the Best Foreign Parlor in the USA. May plaque,
Balikan natin ang individual taxpayer review natin. Si Lumbera may time may check $10,000. What will be the treatment of the winnings of the corporation.
deposit peso account sa Pilipinas. Taxable? What kind of tax on interest? FWT. Yung award sa Muntinlupa: Income? Yes. Within or without? Within. Subject to
Sa labas ng Pilipinas meron akong bank deposit peso and dollar account its NIT. tax? Yes. What kind of tax? Basahin ninyo sa codal, missing dyan ang prizes and
winnings pagdating sa corporation tinanggal. The words prizes and winnings from
Si Lumbera merong librong ginawa, ibenenta sa Pilipinas. FWT-10%. Pag the passive income of the corporation is missing. It was deleted purposely. Bakit
binenta sa labas NIT. Prizes and winnings sa Pilipinas-20% of the winnings. wala? Because all prizes and winnings earned and realized by the corporation are
Nanalo ako sa Price is Right sa US, it is NIT. prizes and winnings realized in the pursuit of its ordinary trade or business.
Dividends received from a domestic corporation FWT at the rate of 10%. Therefore, ordinary income, kaya NIT. NIT yan pareho. Wala namang corporation
Dividends received from a foreign corporation is NIT. Madali lang naman siya eh. na nanalo sa lotto at sa jueteng. Assuming that they earned winnings because of
Balikan natin yan using a corporation. an award, then these are winnings received through a corporation, not through the
stockholders or to the directors of a corporation but through the juridical entity.
Parlor with branch in Philippines and branch outside Philippines Therefore these are treated as ordinary income subject to NIT not FWT.
Halimbawa ang business ko parlor. May branch sa Pilipinas, may branch So all passive income are the same as individuals except for prizes and
sa labas ng Pilipinas. Ang kanyang income ay talagang business lang. Income winnings. ‘Pag individual prizes and winnings are FWT. Pag corporation prizes
from the parlor in the Philippines all income NIT 30%. Income from outside of the and winnings are NIT.
Philippines of the parlor- NIT.
Dividends
Passive income
If the recipient of dividends is also a domestic corporation, this shall be
Peso and dollar account in the Philippines- income ba yon? Yes. Within the exempt. Intercorporate dividends received by a domestic corporation from another
Philippines? Yes. Anong klaseng tax? FWT. For peso account, 20% FWT and for domestic corporation shall be exempt.
the dollar account it is 7 ½ %.
Capital gains on sale of shares of stock
My bank account outside of the Philippines kumita ng interest peso and
dollar account. Income? Yes. Within or without? Without. Subject to tax? Yes. Now as to capital gains tax on sale of shares of stock, it stays constant. Ito
What kind of tax? NIT. ang hinding hindi nagbabago on all kinds of taxpayers. It is always FWT ‘pag not
36
traded 5% and 10%. ‘Pag it is traded ½ of 1% of the gross selling price. You will treated as ordinary assets, now domestic corporations will be held liable on
notice this, yan ang pinaka constant sa lahat. 6% capital gains tax on sale of real property on all lands and buildings not
directly used in the operations of the business. And therefore the 6% capital
Capital gains on sale of real property gains tax is to be collected on all lands and buildings and improvements not
directly used in the operations of the business.
The previous rule or conduct is that a corporation is not subjected to 6%
Capital Gains Tax because ang presumption natin ay all corporate taxpayers Employer-employee benefits
owned these properties in the course of its ordinary trade or business. But later on
however, mapapansin ninyo if you read the newspapers sa business section ang Syempre walang employer-employee benefits dyan.
non-performing assets (NPA). Ang bangko, ang kanyang primary function ay
tumanggap ng deposito at magbigay ng dineposito. Incidental thereto, it is allowed Minimum Corporate Income Tax applied to DCs
by the Central Bank to extend loan facilities. So this is not the primary business of
banks. Is MCIT applicable in domestic corporations? Yes, provided that the 2% is
higher than the net income tax due on the corporation.
When you extend loan facilities at hindi nagbabayad ng utang magfo-
foreclose ka ng mortgage. Ikaw nag-mortgage ka ng property mo inutang mo 1M, Branch Profit Remittance Tax not applicable to DCs
ang worth ng property ay P1.5M. Laging mas malaki yung value ng property kesa Is a domestic corporation subject to branch profit remittance tax? No.
dun sa inutang mo. Normally it is up to 75% of the assessed value of the property.
The loan is definitely lower than the value of the property. So kung ikaw ang Improperly Accumulated Earnings Tax applied to DCs
debtor at hindi ka nakabayad, ang utang mo P1M ang hindi mo binayaran
P600,000 pag finorclose mo ang property na P1.5M tubo ka na. Kasi P600,000 na Is a domestic corporation subject to Improperly Accumulated Earnings
utang tapos 1.5M na property. In foreclosure of mortgage, the petition for Tax? Yes. Pwede yan.
foreclosure will state P600,000 hindi P1.5M the value of the property. So when it is
foreclosed by the bank, and the bank is normally the highest bidder in the auction, Resident Foreign Corporation
the bank satisfies the loan of P600,000 for a consideration of P1.5 M worth of
Taxable only on all income derived from Philippine sources. As you can
property. That property is acquired by the bank not in the ordinary course of its
see from the table, this is from Sec. 27. All income from the Philippines is the
trade or business. Hindi nga yan ginagamit ng bangko eh naka-tengga lang. Kaya
same. Net income tax is 30%. Passive income, interest on bank deposits,
nga maraming bentahan ng foreclosed properties because these are not used by
royalties, prizes and winnings derived from Philippine sources shall be taxed at the
the bank in its ordinary course of trade or business. Ang tawag natin diyan kung
same rate of FWT as individuals. For interest on bank deposits its 20%, for
titingnan talaga ang realidad ay capital asset ng bangko. Pero dati lahat ng asset
royalties 20%..
na yan ang classification ay ordinary kasi daw finoreclose ng bangko. So dati nung
ordinary yan, P1.5M ang value ng property, binili mo ng P600,000 to satisfy the Intercorporate dividends
loan, eh hindi naman nagbabalik ng sobra ang bangko. So P600,000 ang utang,
that’s why the bank can re-sell the property at a much lower price, but not lower Domestic corporation giving dividends to a resident foreign corporation-
than P600,000. So it will resell the property at P1M, when it acquired the book exempt. Dividends received by a resident foreign corporation from a domestic
value declared is P1.5M, when it will re-sell at P1M, the bank loses, P1.5 minus corporation shall be exempt.
P1M, loss, no tax. But in truth, tumubo si bangko because the loan is P600,000.
But on paper the bank loses P500,000 because the book value is P1.5 sold at Prizes and winnings
P1M. Lugi P500,000. Pag lugi, may income? Wala. May kinita ang gobyerno?
Wala. Sabi ngayon ng lehislatura, di pu-pwede yun. Those assets, while it’s true (Net Income Tax) NIT
that they are not directly used in the operations of the bank and those are formerly
37
Minimum Corporate Income Tax applied to RFCs Capital gains tax on sale of real property by NRFC
Is this available to a resident foreign corporation? Yes. What is your basis? This does not apply to a corporate taxpayer of course.
Why is it that it is applicable to a resident foreign corporation. Before you say yes,
tell me why. Where in the codal? Nandyan lang yan eh. “Minimum corporate Employer-employee benefits
income tax on a resident foreign corporation” [Section 28 (A) (2)] Anong page yan
para Makita nung iba, 49, page 49 hanapin. This is not applicable.
Branch Profit Remittance Tax on FCs Prizes and winnings of NRFC
Is branch profit remittance tax imposed on a foreign corporation? Of (Gross Income Tax) GIT.
course. Intercorporate dividends of NRFC
Capital gains tax on sale of shares of Stock Intercorporate dividends if received by a non-resident foreign corporation it
Same yan, constant. is no longer exempt. It is subject to what rate? 15% final withholding tax.
Capital gains tax on sale of real property Minimum Corporate Income Tax in NRFC
Not applicable, because all foreign corporations are not allowed to own real MCIT will it be applicable to a non-resident foreign corporation? Even if you
properties in the Philippines. All corporate taxpayers also not allowed to claim the do not read the law. 2% of the gross income provided that the 2% is higher than
exemption from the 6% capital gains tax. the net income tax. Eh wala namang net income tax due. Kaya MCIT is not
applicable to a non-resident foreign corporation.
NON-RESIDENT FOREIGN CORPORATIONS
Improperly Accumulated Earnings Tax, not applicable
Tax liability of non-resident foreign corporation (NRFC)
Is it applicable to a foreign corporation, whether resident or non-resident?
Ito ang pinakamadali. Non-resident foreign corporation shall be taxed only Applicable ba yan? Sa tingin niyo. This is how you think. Ano ba yung improperly
for all income derived in the Philippines, GIT what is the rate? Hindi nagbabago accumulated earnings tax, ito yung tax pag ang korporasyon ay hindi nagbigay ng
ang rate. Hindi katulad doon sa individuals nagbabago, dito hindi. GIT 30% pa rin. tubo. ‘Pag resident foreign corporation, ang kinita sa Pilipinas ay ibabato sa
All passive income 30% except intercorporate dividends and prizes and winnings. kabilang bansa. Ang tubo niyan ay wala sa Pilipinas. Hindi naman natin pwedeng
sabihin na “Hoy, USA X, magkano ang tinubo niyo sa inyong kumpanya?
Prizes and winnings of NRFC Idistribute niyo nga papunta sa amin.” Hindi pwede, because we don’t have
jurisdiction. In the same manner as a non-resident foreign corporation, lalo na yan
Prizes and winnings will be GIT also. hindi nga sila engaged sa trade or business sa Pilipinas. So hindi natin sila pwede
pwersahin na i-declare kung magkano ang kinita at tinubo ng korporasyon. At pag
Capital gains tax on sale of shares of stock di niyo dineclare, ay tataxan naming kayo. Papano tayo magtatax sa kabilang
It is always constant 5% and 10% if not traded through the local stock bansa? That’s why this is not applicable to either a resident foreign corporation or
exchange. If traded through the local stock exchange, it is not income tax but a non-resident foreign corporation because of the nature of the business.
percentage tax of ½ of 1% of the gross selling price.
38
Branch Profit Remittance Tax Non-resident Citizen
This is not applicable here. Recipient is a non-resident citizen, ang nagbigay ng 100 foreign
corporation. Income? Yes. Within or without? General rule 100 within. Pag ang
Dividends in NRFC general rule ang sinabi natin at within lahat, subject to tax? Yes. What kind of tax?
NIT.
This is the summary, if the issuing corporation is a domestic corporation,
these are the recipients of the dividends, the tax is FWT. If 1-3 10%. If non- ‘Pag ka exception to the rule, 33 within, 67 without. Subject to tax? Yes.
resident alien engaged in trade or business 20% and non-resident alien non- How much? Only 33 is subject to NIT, 67 is not subject to NIT.
resident alien not engaged in trade or business GIT 25% or 15% depending kung
may counterpart. Resident Alien
If the recipient is a domestic corporation and a resident foreign corporation, Resident alien, income-100. Income? Yes. Within or without? General rule
these taxpayers are exempt from payment of FWT. But if this (non-resident foreign 100 within. Exception to the rule, 33 within, 67 without. Kung general rule, taxable?
corporation) is the recipient it is subject to 15% FWT on intercorporate dividends. Yes. Anong klaseng tax? NIT.
What about if the issuing corporation is a foreign corporation and the Exception to the rule, 33 taxable NIT, 66 not subject to tax.
recipients are these. What will be the tax treatment of the dividends received by
these individual taxpayers and these corporations from a foreign corporation? Sige Non-resident alien engaged in trade or business, dividends
nga, inaral na natin yan, binabaliktad ko lang ang point of view. What do you think.
The table states these rules. Paano kung ang nag-issue ay foreign corporation. Non-resident alien engaged in trade or business- 100,000 dividends from a
Isa-isahin natin, rundown. foreign corporation. Income? Yes. Lahat ng yun, income. Within or without?
General rule buong 100 income. Subject to tax? Oo. Anong klaseng tax? NIT.
Exception to the rule, lahat ay income, but only 33 is within, 66 without. Therefore
only 33 is subject to tax, anong klaseng tax? NIT.
INDIVIDUAL TAXPAYERS
Non-resident alien not engaged in trade or business
Resident Citizen
Non-resident alien not engaged in trade or business. Income ba lahat? Oo.
Recipient is a resident citizen, foreign corporation is the issuing Eto magtataka kayo, eh foreign corporation yun, non-resident alien not engaged in
corporation. Income? Yes. Within or without? Sec.42 kahapon. (see previous trade or business ang tumanggap, nasa labas ng Pilipinas meron pa pala tayong
discussion) Within. May exception to the rule ka. So pag sinabing general rule, tax? Yan ang nakakapagtaka diyan, di ba? This is our typical thinking. Foreign
buong P100,000 kahapon within. Pag exception to the rule, 33% ang within, 67% corporation, nasa labas, ang tumanggap, alien. Eh pano magkakaron ng tax? The
ang without para hindi na tayo bumalik sa computation. Subject to tax? Yes. What reason for the tax is very simple. Because the foreign corporation for that matter,
kind of tax? NIT. whatever kind, is deriving income from the Philippines. And when it derives income
from the Philippines, this income contributes to the general income of the
Ulit. Resident citizen receiving dividends from a foreign corporation. corporation wherever it is located. And when it distributes its profits, part of the
Income? Yes. Within or without? General rule lahat within. Taxable? Yes. What profits distributed is derived from the Philippines. That’s why may collection. So
kind of tax? NIT. don’t tell me that just because the issuing corporation is a foreign corporation and
the recipient is also an alien, it will not be subjected to tax. No. As long as income
Exception to the rule, 33 within, 67 without. Taxable? Yes. Lahat? Yes. is derived from the Philippines by the foreign corporation then whenever it
What kind of tax? NIT lahat. distributes dividends to whomever among these types of taxpayers, we are going
to collect tax.
39
Non-resident alien not engaged in trade or business - 100,000, income? (8) Annuities;
Yes. Within or without? Everything is within, general rule. If everything is within, (9) Prizes and winnings;
subject to tax? Yes. What kind of tax? GIT. What rate? Either 25 or 15% (10) Pensions; and
depending on the situation. (11) Partner's distributive share from the net income of the general professional
partnership.
If only 33 is within exception to the rule, then only is within then only 33 is
subject to tax. What kind of tax? GIT. Do you have to memorize them? No. Do not memorize them. Because ang
sabi ng batas: “Gross income refers to all kinds of income from whatever source
Corporations, dividends derived, meaning from legitimate or illegitimate sources, of whatever kind, whether
If a foreign corporation issues dividends in favor of a domestic corporation- in cash or in kind, such as but not limited to the following.” In other words, the list
income? Yes. Within or without? General rule, lahat ay within. Subject to tax? Yes. is not exclusive. Wala sa listahan na ‘pag nagnakaw ka ay part ng gross income.
What kind of tax? NIT. Not FWT. Kasi ang dividends pag ang recipient ay ‘Pag nagbenta ka ng shabu ay kasama sa gross income. It will definitely be part of
corporation is not subjected to FWT. Pag ang dividends ang nag-issue ay the computation of the gross income of a taxpayer. In fact class, we’ll discuss how
domestic corporation, exempt. Pag nag-issue ay foreign corporation, NIT siya. these kinds of income will be subjected to tax.
Hindi siya exempt. NIT.
Compensation or gross income from exercise of profession
‘Pag ang tumanggap ay resident foreign corporation sa Pilipinas. Within or
without? Within pa rin lahat according to Section 42 general rule. Income? Yes Ang alam natin ‘pag compensation ang sitwasyon ay may tao.
entire 100 within. Subject to tax? Oo taxable pag within eh. Anong klaseng tax? Compensation for services rendered, meaning that this income is derived from
NIT. employer-employee relationship. When you speak of services rendered pursuant
to an employer-employee relationship, what you receive is particularly referred to
Non-resident foreign corporation ayan na naman kayo sasabihin na naman as compensation. If you render service and there is no employer-employee
eh parehong nasa labas ng bansa, di dapat yan ay without, without na. Aba’y hindi relationship, you refer to it as gross income from the exercise of profession which
eh sabi ng Section 42. Non-resident foreign corporation tumanggap galing sa is the “G” (in C-G-GD-I-R-R-A-P-P-P). But when you render service not pursuant
isang foreign corporation, income ba yan? Oo. Its either the entire 100 is subject to to an employer-employee relationship and what you receive is gross income from
tax or only 33 is subject to tax, but either way, it is GIT. the exercise of profession, most likely there’s another kind of tax that will be
collected: value added tax- because that’s a sale of service.
When you sell service and there is no employer-employee relationship, two
ITEMS OF INCLUSION kinds of taxes are collected 1) income tax for income for rendition of service
without employer-employee relationship, 2) for the act of sale of service which is
The items of inclusions in the gross income of a taxpayer of whatever kind value-added tax. Like for example consultancies, security agencies, it is a sale of
is covered in Section 32 (A): service, janitorial, accounting services, these are the sale of services but there’s
(1) Compensation for services in whatever form paid, including, but not limited to no employer-employee relationship. So whatever income you will derive will still be
fees, salaries, wages, commissions, and similar items; subjected to income tax which is the gross income from the exercise of profession
(2) Gains derived from dealings in property; but in addition to that, value-added tax will be collected.
(3) Gross income derived from the conduct of trade or business or the exercise of
a profession; Gains derived from Dealings in Property
(4) Dividends;
(5) Interests; Here we will be talking about capital gains on sale of shares of stocks,
(6) Rents; capital gains on sale of real property, sale of ordinary assets. So these are the
(7) Royalties; transactions wherein you will have gains, either capital gains on sale of shares of
40
stocks, capital gains on sale of real property, gains derived from sale of capital Annuities
assets other than shares of stocks and real property, ordinary gains in sale of
ordinary assets. So those are the possibilities. If we sell ordinary assets and you It may be out of a personal contract, similar to an insurance that you took,
have gains, what do we collect? NIT because that is all income (see Table 1) or because of your employment, whatever, the term annuities, hindi naman siya
When you sell assets which is capital but not shares of stocks or real property nasa B, hindi sa C, hindi sa D, kaya nasan siya? (A) (see Table 1). Anong klaseng
located in the Philippines and you have gains, where do you fall? (A) sa table- NIT tax? Doon sa (A).
yan. That’s how you apply the table.
Prizes and winnings
Dividends
Of course sabi natin passive income ito. So general rule, passive income.
There’s no other concept of dividends except profits distributed by a Final withholding tax yan. Except when the prizes and winnings are outside of the
corporation. Philippines in which case NIT ka. And prizes and winnings which are exempt: 1)
PCSO and lotto winnings exempt 2) prizes and winnings in sports competitions
Interest sanctioned by the national sports commission 3) exempt prizes and winnings
awarded pursuant to educational, scientific, cultural, charitable, literary and so
There are two kinds of interest: 1) interest on loans 2) interest on bank forth, provided the winner is not required to render future service and that the
deposits. When we talk about bank deposits then where will we fall? Its on passive winner did not actively participate to join the contest. All prizes and winnings
income (see Table 1) (B). But when we talk about interest on loans, that means derived therefrom are income but exempt. And then prizes and winnings of
you are extending loans and that is engaging in trade or business. Whether it is corporations are always treated as ordinary income. Therefore saan siya magfa-
isolated or habitual, where will you fall? (A) (see Table 1). So that’s all income net fall? Tingnan mo lang dun sa unang table letter (A) (see Table 1).
income tax ka.
Partners’ distributive share in general professional partnership
Rentals
Yesterday I told you that there are two kinds of partnership, GCP and GPP.
Pag nagpaparenta ka, meron kang properties, di ba? When you receive A GPP is exempt as an entity from income tax. But whether GCP or GPP pag
rentals the rentals are income from engaging in trade or business. Kasi di ka dinistribute na ang profits di ba partnership is a contract wherein partners
naman magpaparenta ng wala kang business. Or assuming that it is isolated, contribute money, property or industry to a common fund and then divide the
whether it is isolated or regular ang business mo renting out properties, real, profits among themselves. once the profits are distributed to the partners, the
personal, tangible or intangible, whatever kind of property, what kind of income do partners will be reclassified into an individual. And then every profit distributed to
you receive? Where will you fall? Sa (A) (see Table 1). Bakit? Wala siya sa (B), you as a partner will be treated as a part of gross income of the partner subject to
(C), or (D) kaya dun siya babagsak. Titingnan mo ngayon kung sino ka sa table. tax. What kind of tax? Wala siya sa B, C, D nasa (A).
Ganun lang yun very easy.
When we talk about the sale of property being rented out, pag binenta mo Pensions
na si property na pinarerentahan mo, anong unang tatanungin mo, anong klaseng
asset yun ordinary or capital? Syempre pinarerentahan mo, business yun, When we talk about pensions we are talking about employer-employee
ordinary. So when you sell, and you gain profits, you realize gains where will you relationship. But of course yung pensions kasi na salita is a general term. So let’s
fall? (A). Choose. Kaya sabi ko sa inyo yang boxes na yan, these are very helpful. look at retirement benefits which are treated also as pensions. As a general rule,
If you have that in your vision, hindi na kayo mawawala. all pensions and retirement benefits are income. They are considered as
compensation, therefore taxable. Except for the following: 1) all pensions which
are also treated in general terminology as retirement benefits, these are
“compensation” because they have been received pursuant to an employer-
41
employee relationship, they are income and taxable. Compensation for services rendered including fees, commissions and other
But the following shall not be considered as subject to tax: similar items
1) SSS retirement benefits
2) GSIS The concept is limited to an employer-employee relationship. Let’s not
3) pensions under US Veterans Act are income but exempt from tax memorize the enumeration. Let’s do it this way:
4) retirement benefits under RA 7641 provided, that the employee is at
least 50 years of age, the employee renders continuous service for 10 years and Phase 1- Hiring - What can I give you when I hire you? I can give you a hiring or
he availed of retirement once as far as the employer is concerned and a signing bonus when I recruit you from another employer because I want your
reasonable retirement plan is maintained by the employer, approved by the BIR service. You are the best janitor in Manila. Therefore, your expertise as a janitor is
and no part of the fund is used by the employer other than for the benefit of the very crucial to my office. I will recruit you and give you a signing bonus.
employee. These are the requisites under RA 7641 to be exempted from the
payment of income tax. All other retirement benefits will be income subject to tax. Phase 2 - Employment Proper - Dito napakaraming pwede nating ibigay at
napakaraming tawag, designation of the benefit. Of course you will have your
What about benefits due to death of an employee which shall be treated basic pay, overtime pay, holiday pay, hazard pay, night shift differential when
also as forming part of retirement and pension? Income but exempt. you’re working during nighttime. You may have all kinds of bonuses, 13th month,
14th, 15th, productivity bonus, medical bonus, educational bonus, quarterly bonus,
Because there is death, please be very careful, pag may nakita mong mid-year bonus, kahit ano pa yan diyan siya maka-classify. Meron pa tayong
namatay laging dalawa ang point of view, isa income, isa estate tax. When you die Christmas basket pag ka Pasko, meron pang pa-bahay, pa-kotse, meron ka pang
and retirement benefits are given because of your death, of course it is not you equipment tulad ng cellphone, laptop. Bukod dyan, pwede ko pa kayong bigyan ng
who are receiving the benefits, it is your family. That is income but that is exempt representation and transportation allowance. I can also give you scholarships,
from income tax. The next question is, are these same benefits received by your lahat ng gusto ninyo, clothing allowance, manicure allowance, pedicure allowance,
heirs part of your gross estate subject to estate tax? Yan ang tanong, kasi bigyan kita ng security guard, medical allowance, toothache allowance, dental
namatay ka, dapat ikaw ang tatanggap, kaso namatay ka. So hindi mo allowance, food allowance, bukod sa medical may medicine allowance pa, meron
matatanggap, dahil namatay ka, ang tanong naman sa kabilang side ay, is the pang laundry allowance, meron pang travel allowance, shares, golf course shares,
retirement benefit due to you were it not for your death, part of your gross estate or playing rights, meron pa kayong insurance na ako ang magbabayad, health
subject to estate tax? card, only in the Philippines. Meron pa kayong vacation leave, sick leave, ang mga
lalaki may paternity leave, ang mga babae maternity leave, birthday leave, lahat
The rule is: Yes. But your gross estate is entitled to claim the same amount isipin niyo nay an. Cellphone load, I will pay for your telephone bill ano pa sige
as a deduction. Add to the gross estate, claim as a deduction. If your estate does mauubos ang board. These are the benefits that you will receive from an employer
not want to it as a deduction, good on the part of the government. But the rule is, because of your employment.
add-deduct. Sasabihin ninyo eh sira-ulo ang batas. Idadagdag saka aawasin.
Huwag na lang idagdag at huwag na lang magbawas. Bawal. Bakit? Because Phase 3- Post Employment- Una muna is resignation. Syempre wala kang
gross estate as defined under Section 85 is the value of all properties, real or retirement pay, bibigyan lang kita ng financial assistance for the services that you
personal, tangible or intangible, and your retirement benefits are therefore part of have rendered in the office, let’s say seven years ka, very crucial ang ginagawa
your gross estate. So they should be, they must be included in the gross estate. If mo. Terminal leave, retirement, o di kaya namatay ka, or ang office may
you don’t want to claim it as a deduction, fine. The requirement is add, before you redundancy, retrenchment at saka installation of labor-saving device o kaya
deduct. Otherwise, it will result to double deduction if you don’t add and you dinismiss kita for a cause dahil naawa ako sayo binigyan kita ng financial
deduct. Ano ang first deduction? When you don’t include in the gross estate that’s assistance. Dinismiss kita without cause, nagdemandahan and all, reinstatement
already a deduction, and if you claim the deduction that’s double deduction, if you plus backwages. Or in lieu of reinstatement, separation pay plus backwages plus
don’t add and you only deduct. Ang sabi nga ng batas, Section 85 you must add moral damages plus exemplary damages plus attorney’s fees plus costs of suit.
because that is part of the gross estate. Yan ang mga posibilidad. Meron pa tayong tinatawag na permanent physical
42
disability naputol ang katawan, babayaran. On top of all of this, in case of physical De minimis benefits
disability, meron pang binabayaran sa’yo pwede ka pa mag-claim either sa SSS or
sa GSIS di ba? Pwede kang bayaran. Or kung wala ka naman binayaran ka ng If a minimum wage earner receives these benefits, these are exempt. On
company. top of this, an employer may also give de minimis benefits, privileges of small
value, which under the law are treated as income but not subject to tax provided,
So these are the possibilities of employer-employee benefits that an the limitations as to the amount are complied with. So clothing or uniform
employer may give to an employee. It may be all or some or whatever. How do we allowance is P4,000, medical is P10,000, laundry allowance P300 per month, rice
treat them, from the point of view of the employee or from the point of view of the subsidy P1,500 per month or an equivalent of one sack of rice in the amount of
employer? Do we need to memorize these? No. P1,500 per month, small gifts for anniversaries, birthdays and whatever, these are
de minimis benefits privileges of small value. When these are given to a
There are three kinds of employees for taxation purposes: 1) managerial or managerial or supervisory employee, not exceeding the amount fixed by law,
supervisory 2) rank and file 3) and what we have now minimum wage earners. these are income, but exempt. If a rank and file receives these benefits not
Isama na natin ang de minimis benefits, again napakahaba. Ilan lang naman ang exceeding the amount provided for by law, these are also income but exempt. If a
may amount na memorize mo, subsidy, clothing allowance, medical expenses, minimum wage earner receives de minimis benefits within the limit, not exceeding
laundry allowance, di ba? Do we need to memorize the fringe benefits listed? No the amount provided for by law these are exempt. So a minimum wage earner,
need. Kasi lahat yan pwede mo nang i-classify. These are employer-employee exempt for statutory minimum wage, exempt for the overtime pay, holiday pay,
benefits period. Whether managerial, rank and file or minimum wage earner, he night shift differential and for the de minimis benefits not exceeding the limits
receives a basic pay, of course. It may be paid monthly, weekly, quarterly, provided for by law, the same shall also be exempt from payment of tax. What if
whatever, regardless of the frequency of payment, a taxpayer employee is given a the de minimis benefits given to are in excess of the limits, what happens? Dito
basic pay of the employer. What will be the tax treatment? It is treated as tayo magkakagulo. Lahat ng excess, tagalugin natin ha. The excess will be
compensation subject to net income tax because it is letter (A) (see Table 1). transferred to another box (see Table 2) which is called “Other Benefits”. If the
excess here together with the other benefits do not exceed the P30,000 limit,
Rank and File you call it also compensation, net income tax is the remember? Then the excess together the other benefits not exceeding P30,000
consequence. Minimum wage earner who earns statutory minimum wage as are exempt.
defined under the law depending on where the services rendered and the amount
promised magkano na ngayon after May 1? It’s the same P404, but the COLA is But if the de minimis benefits exceed the limits provided for by law and
increased to P22. Additional P22 for COLA. The statutory minimum wage is when they are transferred and grouped as Other Benefits they exceed the limit of
technically compensation as well but there is a different term, statutory minimum P30,000, the excess, if you are a managerial or supervisory employee, will be
wage, but this is exempt from tax. treated as fringe benefits, subject to fringe benefits tax of 32% based on the
grossed-up monetary value.
On top of this, an employee may render additional service beyond working
hours; they also receive overtime pay, holiday pay when he works during holidays If a rank and file receives de minimis benefits in excess of the limit, the
as provided by law, they also may claim hazard pay and night shift differential. Pag excess will be transferred to “Other benefits” if not exceeding P30,000 together
ka managerial and supervisory employee is not entitled to this. But happens if he with all, exempt. But if it exceeds, the excess will be treated as compensation
is paid? I will deal with that later. If a rank and file receive these payments, this will subject to net income tax. Isasama siya igu-grupo grupo mo.
form part of compensation, ginugrupo yan and it forms part of the NIT. Now if a minimum wage earner is in the same situation, exceeding de
minimis benefits, the excess shall be transferred here in “Other benefits”. If they
don’t exceed, exempt, but if they exceed, the excess shall be treated as
compensation and this time, they will stop being considered as a minimum wage
earner and they will be treated as an ordinary rank and file therefore everything
will be subjected to tax. Naintindihan?
43
Now a minimum wage earner with statutory minimum wage- exempt, here
exempt, here exempt, here exempt, and does not have other benefits exceeding
Overtime
the limits, but on the side, has a business. Minimum wage earner ka pero alam mo
Pay In case Other
naman entrepreneurial tayong mga Pilipino, to augment the income nagbebenta Holiday De excess Benefits
ng cellphone load, nagpapautang ng kung anu-ano may business on the side, but Pay, Minimis is in case
they receive de minimis here, they will still be considered as minimum wage Kinds of Hazard, within < excess is
earner all income here from employment will be exempt but all income from Employees Basic Pay NSD limit P30,000 >P30,000
business will be taxed just like an ordinary business income. So yung business
income lang niya ang tina-tax, the rest of the employer-employee benefits exempt Fringe
pa rin, kung hindi mag-exceed sa P30,000. Pag nag-exceed ka ng P30,000 yun Benefits -
ang triggering point nun pag nag-exceed ka ng P30,000 sa other benefits, ibig 32%
sabihin tigil ka na as minimum wage earner ang treatment mo will be like an Grossed
Up
ordinary rank and file. All the tax treatment will be that of an ordinary rank and file. Compensation Not Monetary
This is the summary. Now we’re going to apply this table to all of this regardless of 1) Managerial - NIT Entitled Exempt Exempt Value
how you call the benefit. We don’t have to distinguish if it is a fringe benefit, de
minimis benefit. What kind of benefit are you talking about? Nandito lahat. (See Compensation
Table 2) 2) Rank and File - NIT NIT Exempt Exempt NIT
This table, however, will never be applied at all if the benefit given to the
employee is: 3) Minimum Wage
Earner Statutory Minimum Wage-
a) furnished by the employer for the convenience of the employer, or NIT; will
b) necessary in the trade or business of the employer. now
be
In other words, if any of the two situations is present, when a benefit is considere
given to you, disregard the table, that is not even income from your end, because d
there is no increase of your net worth. I repeat, if any of these two is present in a as Rank
situation when a benefit is given to you, disregard the table completely, this is not and File &
income at all. Therefore, no tax from your end. everythin
g
will be
Ok let’s do exercises by applying the table here. Kasi ‘yang table na ‘yan,
Exempt Exempt Exempt Exempt taxed
ang background n’yan ay dapat makita niyo in the light of the kind of business of
that the employer is engaged in. That’s the premise. The premise always is: the
benefits given are to be taken in relation with the kind of business that the
employer is engaged in so that you will know whether the benefit given to you is Hiring or signing bonus
related to the trade or business or not. ‘Yan ang premise lagi, no two businesses
are exactly the same. Particular ito sa kind of business na involved ang employer. O simulan na natin hiring or signing bonus. I have a parlor business. I hired
Wala namang employer na walang business, kaya ka nga nakakapag-hire ng you. I recruited you as the best janitor in Metro Manila giving you a signing bonus
empleyado, ‘di ba? So ang tanong natin diyan ay, ‘Paano natin ma-aaply ang table of P3,000. Kayo si janitor, kayo ang empleyado. Income? Yes. Within or without?
na ‘yan ng simple dito sa lahat ng klase ng benefits na inyong matatanggap?’ Within. Subject to tax? Yes. What kind of tax? NIT.
44
Pero kung ikaw ay hinire ko at binigyan kita ng signing bonus dahil ikaw ay furnished a) for my convenience? If the answer is yes, not income exempt;
high-ranking officer. Kaya kita ire-recruit because of your knowledge, skills and all, b)necessary to the trade or business? Example you are our head cutter who
and I give you a signing bonus of P200,000. Income from your end? Yes. Within or services clients, I give you kotse, parlor ang business ko eh. Pero kung binigyan
without? Within. Subject to tax? Yes. What kind of tax? Basic pay ba siya? Hindi. ko ang janitor ko, binigyan ko ng kotse, bahay, at pa-kain ko. Aba, those are not
Eto ba siya? (Overtime Pay, Holiday Pay, Hazard, NSD) Hindi. Eto ba siya? (De necessary for my trade or business. Those are not for my convenience. Therefore,
minimis) Hindi. Eh ‘di dun siya babagsak (Other Benefits). Apat lang yan eh. income, taxable sa inyo. Pero kung kayo ay head barber ko at nagse-service ka sa
Exceeding P30,000 sigurado. Sa dulo ng taon, since in excess of P30,000, fringe mga kliyenete natin at ang ating business ay 24 hours. Kaya kelangan bigyan kita
benefit ‘yun (32% of the Grossed up monetary value). ng bahay sa gilid ng parlor na binabayaran ko para ang kliyente pag dumating ng
alas-dos ng umaga, pwede kang gisingin para gupitan ang kliyente. These are
Eh kung ikaw ay MWE, janitor, P100,000 ang signing bonus mo, NIT na absurd situations, but the reason I am pointing this out to you is para makita ninyo
siya (under the last column). kung ano kaya yung “for the convenience of the employer,” ano kaya ang ibig
sabihin ng, “necessary for the employer’s trade or business.” If those benefits are
Basic pay given to you for my conveniece or necessary for my trade or business, so be it.
But that’s not income from your end, not taxable, not income.
Next, basic pay, holiday pay, hazard pay, night shift differential, its there.
Bonuses whatever you call them, 13th, 14th, 15th, 16th, 17th, 18th hanggang 50th But if they are not furnished for my convenience nor are they necessary for
month bonus, mid-year bonus, productivity bonus, incentive bonus, Christmas my trade or business, where will they fall? Last column. (See Table 2) Other
bonus lahat ng klase ng bonus whatever you call them. Income ba yan sa inyo? Benefits. Then, titingnan mo kung sino ka, rank and file, minimum wage earner ka,
Yes. Is it necessary for the trade or business? Ay, no, no, no. no. Is it for your managerial or supervisory. Titingin lang, ang utak susunod agad. Hindi niyo
convenience? No, no, no, no. So, ang tanong natin, income ba yan sa inyo? Yes. kelangan memoryahin ang batas.
Within or without? Within. Subject to tax? Yes. What kind of tax? Ay depende. If
you are a managerial or supervisory employee, that will be treated as coming from Equipment
other benefits and other benefits exceeding P30,000- fringe benefits ang katapat
mo. Kung ikaw ay rank and file, NIT ka. Siguradong kung ikaw ay minimum-wage Cellphone, laptop, personal computers, ‘yan, equipment that I furnish you.
earner, tanggal ka na sa classification, balik ka na dun sa rank and file. Ang tanong: are these necessary in carrying on your trade or business? If you are
a janitor, do you need a laptop? That’s income from your end. But if you are my
Christmas basket, basket of fruits, may santol, mangga, grapes, orange. cashier or accountant, then those are necessary for your trade or business and
Meron ‘yang amount, meron bang income? Yes. Within or without? Within. Subject those are not income from your end. Otherwise, if the benefits such as these do
to tax? Ay depende. Pag nandito titingnan mo ngayon, de minimis ba siya? not apply, then you go back to the table.
Nakasulat ba sa batas na de minimis ang Christmas basket? Wala. Kayo naman.
So how do you treat that? Very simple (See Table 2). Nasa dulo siya, dun siya sa Representation and transportation allowance
Other Benefits together with Other Benefits not exceeding thirty. Exempt. Exempt.
Exempt. If exceeding thirty, the excess shall be treated as pag managerial- fringe Parlor - I give you P100, go to Divisoria, buy pangkulot. Ginawa mo sa
benefits, rank and file- NIT. P100, ipinangkain mo, nabusog ka. May income ka? Oo, nabusog ka eh. Pero
kung pinambili mo ng pangkulot at ginastos mo ang P100 sa pamasahe, at
Housing pagbalik mo sa akin. Sinabi mo, “Ma’am, eto ang resibo, eto ang pangkulot.”
Liquidated. That’s not income from your end. Pero pag ipinangkain mo, whether
Pa-bahay, pa-kotse. Housing in English. Housing privileges and car liquidated or not, that’s income from your end. Taxable. Anong klaseng tax? Eh
privileges. Sa madaling salita sa Tagalog, may pa-bahay ka na, pa-kotse ka pa. titingnan muna natin kung ikaw ba eh managerial, rank and file or minimimum
Pagsasama-samahin natin ‘yan, house, board and lodging, kotse, other privileges. wage earner. Titingnan mo lang, wala siya sa una, pangalawa, pangatlo. Pang-
What will be the tax treatment? Are these benefits given to you because they are apat siya (See Table 2). Oh ha? Ganyan magbasa, hindi naman siya BP (basic
45
pay), OP (overtime pay), hindi siya DMB (de minimis benefits). Other Benefits Food allowance
siya. Yun lang naman ang qualification ng benefits that you will receive.
Andito na siya na-discuss na natin ‘yan.
Scholarships
Medicine
I send you to law school in San Beda Alabang as my head cutter so that
you’ll study law. Tuition fee, allowance, book allowance, baon, I give you all, Part na ng medical allowance.
income on your end? Yes. Taxable? Yes. What kind of tax? (See Table 2) One,
two, three, andun siya sa Other Benefits na naman. But if I send you to Ricky Laundry allowance
Reyes Haircutters Academy, I’ll pay for all expenses, that will benefit me so that is
not income from your end. This is the thought: very simple naman eh, hindi naman P300. Kapag nag-exceed, doon (Other Benefits).
siya mahirap. Wala ditong mga preference of credits, wala. Titingnan mo lang ang
sitwasyon, kasi talagang ang tax is situational, so you have to relate to the reality Travels
of the situation.
You are my head cutter in the parlor, go to Hong Kong and attend
Clothing allowance seminars for the latest haircuts. Income from your end? Hindi. I will give you
allowances paid by the office. Income from your end? Yes. What kind of tax do
De minimis benefits, in excess, kitang-kita (See Table 2). Alangan naman you pay? Depende kung sino ka.
sabihin mo sa yong boss, “Pag di mo ako binigyan ng clothing allowance, papasok
ako ng hubo’t hubad.” Country club shares
Medical allowance If shares are given to you because of your employment, how do you treat
that? Hindi yan basic pay. Dun siya magfa-fall sa Other Benefits. Eh, milyun-
May limit din, P10,000. milyon yan eh. Janitor binigyan mo ng shares sa Tagaytay Highlands, san ka
babagsak? Rank and file ka? Other Benefits ka.
Manicure/ pedicure allowance
Playing rights
Dun siya sa Other Benefits.
Playing rights in a club, sports club, will that be a benefit to you? Is that
income from your end? Playing rights, pag naglaro ka binabayaran ka, income
Security guard ‘yan. ‘Di ba maglalaro ka lang dun, charge sa company kasi company share ‘yon
and then you are given the right to play, paid for by the company. Of course, may
If I give you a personnel, assigned personnel, a security or a physical income ka. Bakit? Sa halip na pera mo ibabayad mo eh hindi ka maglalabas ng
being. You are my janitor, I give you security. Income from your end. But if you pera, company magbabayad. Is there income from your end? Yes. How do you
were the president of the company or my comptroller, or my chief accountant or treat that? Other Benefits sa dulo (see Table 2).
financial officer, or treasurer of the company and I give you a security officer, that
is necessary in trade or business. Therefore, not income from your end. Health cards
Dental allowance Now the trend is: health cards are treated as ordinary and necessary
expense on the part of the employer. Syempre, ayaw kasi na mamomroblema
Itong dental kino-consider din sa medical allowance so P10,000 ang limit. kayo pag may sakit kayo, hindi ka rin makakapagtrabaho dahil wala ka ring pera
46
pampagamot. At pag wala kayong pera pampagamot, mangungutang kayo sa taxable because you are as if rendering service and you are working. So what you
akin, ‘di ba? O ‘di kaya wala kang pambayad, lalo kayong magkakasakit sa receive is your basic pay, ‘di ba? Pero kung ang iyong terminal leave, ay
kakaisip ng pambayad. So ang effect nito ay sa ating opisina. Kaya ngayon, ang converted into cash because you are retiring and converted it to cash, that will
trend is: health cards will not be treated as income because necessary na ‘yun. form part of retirement benefits, income but not taxable.
Vacation leave and sick leave Birthday leave
10 days or less commutation of vacation leave. De minimis benefits- Birthday leave. Nag-leave ka, para kang nagtatrabaho pero bayad ka. O eh
income but not taxable. In excess of ten days, that's already taxable. What kind of ‘di basic pay. Part ng basic pay mo. ‘Di ka naman nag bibirthday ng tatlong beses
tax? (see Table 2) ‘Yun, timingin lang kayo sa dulo (Other Benefits). isang taon eh.
Commutation of sick leave Utilities
Kalahating araw, 1/4 day kinompute and converted into cash-income, Cellphone load, telephone bill- these are utilities paid for by your office. Of
taxable. Bakit mas favorable sa employee pag vacation leave kesa sick leave? course, it can never be necessary in your trade or necessary or for my
Syempre ang binibiyayaan ng batas ay ang masisipag pumasok. Kaya marami convenience that I pay for your utilities. Therefore, these are automatically income,
kang vacation leave na converted into cash, hindi ka tamad, ‘di ba? Pag ikaw ay taxable. What kind of tax? Other Benefits. As you can see, you don't have to
may sakit, hindi pinaguusapan dito ang kasipagan or katamaran. Ang memorize the rules. Tingnan, sino ba ako? Ano ba ako?
pinaguusapan dito ay, “Dapat ka bang pumasok o hindi?” Dahil kung may sakit ka,
hindi ka dapat pumasok dahil baka makahawa ka pa sa opisina, kaya hindi kita Financial assistance/Resignation
bibigyan ng reward. Kaya isang araw lang na ma-convert into cash, income
taxable. Pero ang vacation leave, sampung araw, pababa, ikinonvert into cash, Kung ako ay nag-resign at binigyan ng financial assistance? Sino ka ba?
income, but not taxable. De minimis benefits ‘yan. Pero pag nag-exceed, the Hindi ‘yan sigurado dito. Bakit? Pano magiging financial assistance ay necessary
excess will be falling under Other Benefits. for trade or business, ay no way. Dun siya magfa-fall.
Maternity leave Retirement
Maternity leave, pag nag maternity leave ka, paid for ka. Eh ‘di income. Of course, as I mentioned to you kanina, these are income but not subject
Basic pay ang matatanggap mo eh. Ngayon, sino ang nagbabayad sa’yo? Ang to tax. Retirement/death benefits, income, not taxable.
kompanya mo ba o SSS? SSS. Kung binayaran ka ng kompanya mo, income yan,
at taxable kasi compensation ‘yan. Pag binayaran ka ng SSS, ano ang binayad Redundancy, retrenchment, installation of labor-saving device
sa’yo? Compensation mo. Kaya ‘yan ay taxable pa rin, di ba? Mga lalaki, hindi
niyo naiintindihan ito. Kaming mga babae naiintindihan namin ‘yan. Income but not taxable because these are for causes beyond the control of
the employee.
Terminal leave
Dismissal for cause
Terminal leave. Ibig sabihin nito, you're about to retire and whatever leave
credits that you have earned and accumulated will be either converted into cash or Dismissed for cause and you were given financial assistance. Of course,
i-aapeal mo at hindi ka na papasok and you are paid. ‘Yan ang sitwasyon. If you whatever financial assistance you will receive will fall under Other Benefits.
avail of the terminal leave and you don't go to office and you are paid, then that is
47
Dismissed without cause reimbursement given by your employer kung meron kang private insurance plan.
‘Yan ang mga posibilidad dito. Physical disability-- naputol ang kamay,
Final judgment ruling: reinstatement plus backwages, plus damages, moral naaksidente ka, nabali ang katawan mo. So ano ang mga posibilidad mong
damages, exemplary damages, attorney's fees, and costs of suit. How do we treat matanggap? Either your employer may reimburse it to you and/or your own private
them? When you are reinstated, you're back to work. Whatever you receive is insurance covering the damage. Either way, whichever or both ang bigay sa’yo
basic pay and all other benefits. Backwages is income, taxable because these are ang rules ay very simple. Lahat ng gastos for actual damages - not income, not
supposed to be the income while you were working were it not for the fact that you taxable. Pero kung moral, exemplary damages, these are income, taxable. Loss of
were dismissed without cause. So income, taxable. earning capacity: ni-reimburse ka, binayaran ka in the form of damages, income,
not taxable kasi actual damages ‘yun. Attorney’s fees and costs of suit assuming
Moral damages and exemplary damages are income, taxable. Isang na nagdemandahan kayo para mabayaran ka for the physical disability. These are
sentence lang pagdating sa damages. The only damage exempt from income tax all in excess of actual expense, income and taxable.
are actual damages. Kahit anong klaseng pinagmulan ng damages, the only
damage na income but not taxable ay actual damages. Kaya yung damages for As you can see, hindi siya mahirap aralin. ‘Yun lang ang tingnan kahit
loss of earning capacity these are actual damages, right? Income, not taxable. So anong tawag, may honey, sweetheart, whatever, kahit anong pangalan ng
para hindi kayo nalilito, kahit anong klaseng damages, isa lang ang sentence: benefits, these are the rules. SSS, GSIS benefits or costs as I mentioned to you
actual damages lang ang income at hindi taxable. The rest of the kinds of are all income but not subject to tax. Ano pa? PAGIBIG, Philhealth benefits of
damages are income, taxable. course these are all income but not taxable as far as the employee is concerned.
Attorney's fees and costs of suit assuming nagdemandahan kayo at

binayaran ka, what is in excess of what you actually spent is income and taxable.
But commensurate to what you spent and incurred is not income because it’s just EXCLUSIONS
a reimbursement of your expense.
Ito talaga mememoryahin niyo. Items of exclusions are:
Separation pay plus backwages
1) items of income;
Separation pay is income but not taxable because this is for a cause 2) they have the effect of decreasing the tax due;
beyond the control of the employee. The rest here we apply the same rules. 3) they are treated as exemptions and therefore they are strictly construed
Backwages, income, taxable. What kind of tax? Basic pay. Kasi ito, plus all other against the taxpayers/claimants.
benefits that you receive ‘yan, iaapply ang table. Damages as a rule: income,
taxable. Attorney's fees, costs of suit in excess of what you have spent is income, You have to memorize these items of exclusions because the list is
taxable. And what you spent in commensurate to what you incurred as expense exclusive. If you do not fall within any of those enumerated items, as far as the
will just be reimbursed as expense therefore, not income, not taxable. income is concerned, then collect tax. Whatever is not in the list of exclusions will
be in the inclusions, even though the inclusion is not in the list. ‘Yan ang rule, pag
Reimbursements for physical disability including damages ‘di sinabi na ang bangus ay exempt, ay siya. ‘Wag i-exempt si bangus. Pero kung
nakalagay na si bangus ay exempt at ‘wag tayong mag-impose ng tax.
What will be the tax treatment? Naputol si katawan ko, ni-reimburse ka ng
nagastos mo, that’s not income, because it is just a reimbursement of your actual What are the items of exclusions? As I discuss these items, I will correlate
expense. Pero if you’re awarded, if you’re given moral damages, exemplary them with the other kinds of taxes.
damages, ‘yan ay income taxable.
Loss of earning capacity. Kasi yung physical disability, pwede ‘yang

48
Section 32 (B), 1) Proceeds of a life insurance policy, received by the So if you’re asked, P1M 10% interest and return of premium, are these
insured or his heirs. If such amounts are held by the insurer under an agreement included in the gross estate of Mr. Y? Very simple, if the wife and the children
to pay interest, the interest shall form part of the gross income of the taxpayer. were the designated executors or administrators, whether the designation is
revocable or irrevocable, include. But if they are not the designated executors or
X is an employer, Y is an employee. Y took a life insurance over his life, administrators, if the designation is irrevocable exclude from the gross estate of
paying premiums of P5,000 annually. Proceeds of the insurance-- P1M, interest of Mr. Y. What is the reason? I have only one sentence even if you don’t read estate
10% will be paid if Y survives over the paying period of 20 years. Plus, there will taxation, Section 85. The rule found in estate tax on when youre going to include
be a return of premium if Y survives the paying period. Ganyan ‘yan eh iba-iba ang or exclude is very simple: If at the time of death, the decedent has interest or
stipulations and paying periods pero pag buhay ka pa, hindi ka na magbabayad control over the property or any portion or interest of the property, include. If he
after 20 years, kanya-kanya ‘yang diskarte. Stipulation ‘yan sa kontrata. designates himself, his estate, his executor, administrator, pag namatay siya may
Designated beneficiaries- the wife and children of Y. control siya, na hindi niya ‘to ginawa tama? At kahit namatay siya ang magbe-
benefit hindi siya, pero meron pa rin na kanyang kadugo na magbe-benefit kaya
Question: 1) When Y is alive and paying for the premium of P5,000 presumably meron siyang degree of control or interest, included kahit non-revocable eh. Dun
derived from his compensation income, can Y claim the P5,000 premium as a sa pangalawa, pag dinesginate naman niya hindi niya kamag-anak o di kaya wala
deduction from his gross income? Yes or no? No. Why? Because the only siyang relasyon, pag revocable, included. Bakit? Kasi kung hindi siya namatay,
allowable deductions for compensation income earners are PE (Personal may posibilidad na ni-revoke niya at pinalitan niya ng somebody na may relasyon
exemption), AE (additional exemption), and PHHI. Ano yung PHHI? Premiums for sa kanya. Because of that degree of control, included. Pero yung from the start isa
health and/or hospitalization, hindi life insurance. hindi related sa kanya yung beneficiary, irrevocable pa, mamatay o mabuhay man
si Y, wala siyang mapapakinabangan diyan. Kaya excluded. That’s rule found in
Y dies. Tigok these three (P1M, 10% and return of premium) received by estate tax. So if last year, tinanong ‘to, naka-enumerate lahat-lahat kung included
the wife and the children, income on the part of the wife and children? Yes. or excluded, sa gross estate. Takang-taka ako bakit nahihirapan. Eh simple,
Included, excluded? Excluded. Item of exclusion no. 1. Everything is excluded? meron ka bang degree of control? Meron ka bang relasyon sa beneficiary in such
No. P1M is excluded, 10% is income, included in the gross income, the return of a way na pwede kang magbenefit kahit patay ka na? ‘Yung pamilya mo? Pag oo
premium is excluded, that’s Section 32 B (2). ang sagot include mo. So these are the rules.
Now since there is death, there is a question about estate tax, are these Lets have a variation from income tax point of view.
three received by the wife and children part of the gross estate of Mr. Y and
therefore subject to estate tax? Section 85 (E), meron kayong makikita items of X is the employer, Y is the employee. Y insured his life, same scenario
exclusion in the gross estate, proceeds of life insurance policy. Nakita? So designating as beneficiary his wife and children. Sabi ni X, “You are my treasured
according to the law, Section 85 (E), when a person dies part of his estate include employee. You work 24 hours a day. Kawawa ka naman, kumuha ka ng life
proceeds of his life insurance policy, tama? So alin d’yan at alin ang hindi at bakit insurance. Let me pay and let me shoulder the P5,000 premium that you are
isasali. What are the rules under Sec. 85? There are two kinds of life insurance paying.” What is the effect of X, the employer, shouldering the P5,000 premium on
policy proceeds under Sec. 85: 1) life insurance taken by the deceased during his the part of Y? Income on the part of Y? Yes. Taxable? Yes. What kind of tax do we
lifetime, insuring his life, designating himself, his estate, his executor, administrator pay? Depende. Andun sa pang-apat na box, (See Table 2) Other Benefits ‘yan.
as the beneficiary, whether designation is revocable or irrevocable- include in
gross estate. 2) the second type of proceeds of life insurance under Sec. 85 which Y dies, benefits go to the wife and the children, income on the part of the
are included in the gross estate of Mr. Y, is when Mr. Y takes a life insurance, wife and the children. Included? excluded? P1M is excluded. 10% is income
insuring himself, designating as beneficiary any person other than these: himself, taxable. ROP, not income, excluded.
his estate, his executor, administrator. When the designation is revocable, include
but if the designation is irrevocable, exclude in the gross estate. Dahil namatay, may estate tax. Ano na naman ang sagot kung may estate
tax? ‘Yan ang rules, kung si wife at si children ay mga executors or administrators,
49
revocable or irrevocable, include in the gross estate of Mr. Y. Kung ito naman ang Gifts, bequests, devises
case, pag revocable, include. Pag irrevocable, exclude. Number 3: Gifts, bequests, devices (my favorite), provided however, that if
the property received as a gift realizes income, the income shall form part of the
Now third variation, X insured the life of Y, designating as beneficiary, X gross income of the taxpayer-recipient. Pinamanahan ka ng tatay mo, sampung
and his business. X pays P5,000 premium, proceeds P1M 10% interest and ROP. apartments na pinarerentahan, yung value ng apartment, income excluded, not
subject to tax. Pero yung renta ng apartment, income at taxable. Natural, alangan
Y dies, proceeds go to X. Question: When X is paying for the premium, can naman pati income eh kasali pa. Syempre hindi. The income of the property
X claim as deduction from his gross income from business the P5,000 premium? received as a gift will be treated as forming part of the gross income of the
No. 1) that’s not a necessary expense. 2) Section 36 (A) (4) nakasulat. ‘Wag recipient-donee, whether the mode of transfer is succession or simple gift, taking
n’yong mememoryahin ang mga numero ha? Kaya ko lang na memorize sa tagal effect upon death or during lifetime, it does not matter. Property received as a gift
ko nang pagtuturo. Pangalawa, kelangan kong sabihin kung nasaan. X, the is income but not taxable because it is an item of exclusion. If it realizes income,
employer, cannot claim as deduction the premiums paid on life insurance taken by the income is treated included and taxable.
him over the life of his employees and designating as beneficiaries the employer
or his business directly or indirectly. ‘Yun ang scenario niyan. Treaty
Y dies, proceeds go to X and his business. P1M: included, excluded? Hay darlings, hindi na tayo magdi-discuss because a treaty is treated as
Excluded. May distinction ba yung Section 32 B (1)? May distinction ba na, if the forming part of the law of the land and therefore we respect. If a treaty signed by
life insurance is taken by the deceased? Wala. So excluded. Yun ang sinasabi ng PNoy or whoever the president is, exempts certain income from the payment of
batas. 10% interest. Included? Excluded? Included. ROP- excluded. Nakasulat ‘di tax, then so be it, we shall comply.
ba? Ang hilig niyong mag-amendya ng batas eh, ‘yan ang nakasulat kaya ngayon
nakikita ninyo yung importansya ng codal. Kasi nakasulat eh. Compensation for injuries and sickness
Dahil namatay si Y, kasama ba itong tatlong ito sa gross estate niya? Pag binasa ninyo ‘yan ano ang pwedeng coverage niyan? 1)
Namatay si Y, ininsure ni X ang buhay ni Y ang proceeds ng life insurance Compensation for injuries and sickness because of employment. That’s a
napunta kay X. ‘Yun ang scenario. Tigok si Y, dahil tigok, ang tanong, kasama ba possibility. 2) Compensation for injuries and sickness because of an accident and
‘yan sa gross estate ni Mr. Y? Yes or no? Sasabihin niyo, “Ah, the life insurance is you are compensated for an accident, or you may not be compensated for the
taken by not by Y, but X. So, hindi mag-aaply no. 1.” This is how you eliminate, accident. Nagdemanda ka, whatever is the source of the compensation, if it is
and life insurance is taken again by X. So hindi mag-aapply ‘yan. What will it be? accident or injury, excluded from the gross income, not subject to tax. What is
Included or excluded? Excluded. Bakit? Anong partisipasyon ni Y? Mabuhay, excluded? As I’ve told you, only the reimbursement for the actual damage shall be
mamatay. Ganun lang. He does not have any interest at all whether he is alive or excluded and not subject to tax. But all other kinds of damages such as moral,
dead. Right? Because it is X who took the life insurance over the life of his exemplary, attorney’s fees, costs of suit, ‘yan ay income, taxable.
employee. Therefore, Y, alive or dead, does not have any benefit out of these
proceeds. Whether the designation is revocable or irrevocable, wala tayong Actual damages, damages for loss of earning capacity, these are income
pakialam because Y does not have any benefit out of the proceeds whether alive but not taxable because they are items of exclusion from the computation of the
or dead. These are items of exclusions no. 1 and 2. Ang number 2 likewise, is not gross income of the taxpayer.
limited to life insurance. It may cover other types of insurance like motor vehicle
insurance. If there is a provision for return of premium, if the property is not Prizes and winnings
exposed to the risk insured against, as long as there is return of premium that is
not even income at all. Prizes and Winnings and other miscellaneous items nadiscuss na natin ito.
Prizes and winnings in sports competitions sanctioned by the national sports
commission -excluded.
50
As you can see, in our formula, Net Income Tax the formula is:
th
13 month pay and other benefits in an amount not exceeding P30,000 –
Excluded Gross Income
less: Allowable deductions
Nadiscuss na natin ito, umiikot na tayo in circles. Taxable Net Income
x Rate
So these are the items of exclusions. ‘Wag na ‘wag kalilimutan. San siya Tax Due
importante? Sa pagco-compute ng gross income ninyo. What is the effect? The less: Tax Credit
effect is reduced taxable income. Therefore, reduced tax due. Because of that, this Net Income Tax
is in the nature of exemption, strictly construed against the taxpayers.
Thus, if the income of the taxpayer is subject to creditable withholding tax,
DEDUCTIONS that income will first be included here (Gross Income). At the end of the day, the
creditable withholding tax will be credited. But if the income is subjected to FWT, I
Ang haba ng deductions, dalawa lang naman yan, Section 34 and 35 pero mentioned this to you yesterday: like interest, dividends, royalties, prizes and
ang haba ng pahina. Actually this is the simplest concept in income tax. Isa lang winnings, if your income consists of that, your income, prizes and winnings, lahat
ang sasabihin ko sa deduction: deductions are allowed only in income subject to ng passive income, capital gains on sales of shares of stocks, and capital gains on
NIT. Yun lang, wala na. Following that rule, if your income is subject to FWT, sales of real property, falling in B, C, D (see Table 1) as we describe them, will be
concept of deduction does not apply. If the taxpayer’s income is subject to GIT, the subjected to FWT. Therefore, not included here anymore. Kaya walang deductions
concept of deduction does not apply, as well. If the taxpayer is a non-resident alien na allowed.
not engaged in trade or business, concept of deduction does not apply. If the
taxpayer is a non-resident foreign corporation, the concept of deduction does not But if your income is passive income outside of the Philippines, resident
apply. Whatever kind of taxpayer we’re talking about, if your income is letters B, C, citizen ka, taxable ka ba do’n? Yes. What kind of tax? NIT. Kaya ‘yon, although
D (see Table 1) doon, the concept of deductions will not apply. I’ll give you a passive income ‘yon, but that passive income will be subjected to NIT, deductions
summary on how deductions will apply. Pag ikaw ay tao, at compensation income will be applied. Royalties outside of the Philippines of a resident citizen. What kind
earner, ito lang ang deductions mo: PE, AE, PHHI under Section 34 (M). Pag ikaw of tax? NIT. Hindi ‘yun FWT, and the concept of deductions will be applied. But if
ay tao, compensation income plus business income or purely business income we talk about passive income in the Philippines, the passive income is subject to
earner ka, ang deductions mo ay PE, AE, buong Sec. 34 or OSD (Optional what kind of tax? FWT. The concept of deductions will not be applied. Nakuha ang
Standard Deduction). So when you read it, PE+AE+34 or PE+AE+OSD. picture in relation to the table?
Very simple ito, tao, compensation earner lang, PE, AE, PHHI. Pag ikaw ay
Pag naman ikaw ay korporasyon, 34 or OSD. Ano yung 34? Itemized tao, compensation income plus business income or purely business, ang
deductions. And this table applies only if taxpayer’s income is subject to NIT. deductions mo ay PE, AE kasi tao, buong Sec. 34 or OSD. Korporasyon anong
Income subject to FWT, no deductions. Taxpayers non-resident alien not engaged klaseng deductions? Itemized deductions under Sec. 34 or OSD.
in trade or business and non-resident foreign corporation- no deduction.
Distinctions between deductions and exclusions
By the way, how do we distinguish deductions from exclusions?
1) Exclusions are items of income, deductions are items of expense.
2) Exclusions and deductions are both treated as exemptions, and

therefore, strictly construed against the taxpayer.
51
age, not married, not gainfully employed, living with and dependent upon the
3) In exclusions, the gross income is reduced, therefore the tax is parent for chief support of the child and regardless of age, if incapable of self-
reduced; in deductions, the expenses are weighed against the support by reason physical or mental disability.
gross income.
5 ang anak natin, 3 sa akin, 2 sa’yo. P50,000 (sa akin), P50,000 (sa’yo).
Therefore, they both have the effect of reducing the tax due. That’s why Additional exemption- I claim for P75,000 that’s alright, but you will be claiming
they are both treated as items of exemptions. Those are the points of comparisons only P25,000. Pwede ka bang mag-P50,000 plus P50,000? Hindi, kasi pag
between exclusions and deductions. tumingin ako sa’yo, lima. Ang sabi ng batas maximum of four. Clear? Okay.
Personal and additional exemptions Now, marami kang babae, kaming anim, tig-i-tig-isang anak sa amin, wala
kang pinakasalan, lahat ng tig-i-tig-isang anak nasa amin. P50,000+P25,000 (ako)
Personal exemption, P50,000 per person on the assumption that the ganun din kayo. Ikaw, P50,000 ka lang. Pano kung may anak ka pa sa ibang
person is earning income and the income is purely compensation income. Without babae? Anak sa’yo lima. May anak ka sa amin tig-i-tig-isa, may anak ka sa ibang
the income, hindi pwedeng magpa-refund sa BIR. babae na lima nasa ‘yo lahat. How much can you claim for additional exemption?
P50,000+P25,000 ako. Ikaw? Maximum of four, eh. How many can you still claim?
Additional exemption of P25,000 per child maximum of four. Let us do 3 only. Tatlo na lang siya. Pwede ba siyang mag-apat? ‘Di ba anim ang anak niya,
some examples. Ikaw at ako. You’re my boyfriend. We have one child, without nasa amin tig-i-tig-isa, wala sa kanya. ‘Di tayo kasal eh. Pero meron siyang limang
marriage, both are working. PE- P50,000 (ikaw) PE-P50,000 (ako). Sinong may anak sa isang babae na nasa kanya. Labing isa ang anak niya, lima buo, anim
karapatan sa P25,000? Okay, additional exemption refers only to children ha? hindi. So, ano ang pwede nating i-claim na exemption? Tayong anim
Wala ditong parents, brothers and sisters. Dependents for purposes of claiming P50,000+P25,000 sigurado. Ikaw, additional exemption. Tatlo ka lang. Ang tanong
additional exemption refer only to children of whatever status and kind, not more ni’yo, bakit ganun? Eh hindi naman anak ni Lumbera ‘yan. Anak niya sa ibang
than 21 years of age, not married, not gainfully employed, living with and babae. Bakit kanya tatlo lang? Bakit siya hindi pwedeng mag-apat? Kasi pag
dependent for chief support upon the taxpayer and regardless of age, if incapable tumingin ako sa’yo ilan na pag nag-apat ka? Lima na. Bawal sabi ng batas.
of self-support by reason physical or mental disability. Hanggang apat lang. Walang sinabi ang batas na, ‘the four children should be our
common children.’ Nakalagay ba? Wala. Basahin ninyo. Because if you allow that
Not married with one child, the child is living with me and dependent upon to happen, you will be encouraging an illegitimate relationship. You are favoring
me for chief support. So P50,000 + P25,000, then P50,000 ka. What is the more ‘yung hindi kasal kesa sa kasal.
meaning of “living with”? Does it mean that the child does not go to the father?
That the child does not stay in the father’s house? No. Ang ibig sabihin ng “living Next kasal, magpakasal tayo. Ang kasal wala kang anak sa iba. Puro
with,” is majority of the time is spent with the parent claiming the exemption. Ano legitimate, nagsasama tayo. Iba ang rules pag kasal, P50,000 plus P50,000 but
naman yung ‘chief support”? Ibig sabihin is that, the parent claiming for additional the husband has the right to claim for the additional exemption, maximum of four
exemption should be providing for the basic needs of the child at saka education. children.
It does not mean that the other parent is not supporting the child, it may be joint
support. So that’s the meaning of “living with and dependent upon the taxpayer for Madali pag kasal. Ngayon pano kung kasal at may anak ka sa iba either
chief support”. prior or during the marriage? Ayan, complications. Whether prior to marriage or
during the marriage, ang requirement, pwede mo bang ma-claim as dependents
So, 2 ang anak natin, nasa iyo ang isa, nasa akin ang isa. ‘yung mga anak mong illegitimate? Pwede. May bawal ba? Wala. Ano lang ang
P50,000+P25,000 (sa akin), P50,000+P25,000 (sa’yo). Pwede ko bang kunin? repercussions? Pag-aawayan natin ‘yan. Its either you claim for our children, you
Non-transferrable ang PE at AE. Pwede ko bang sabihin: “Ako naman ang babae, prioritize our legitimate children as dependents. But I cannot require you to get our
inanakan mo ako ng inanakan eh. Ako na lang ang P50,000+P50,000 ikaw legitimate children as our only dependents to the exclusion of your illegitimate
P50,000+0. No pwede. Kelangan ma-comply natin yung not more than 21 years of children. The assumption here is that: the illegitimate children are living with you
52
and dependent upon you for chief support and because they are living with you, Premiums on Health and Hospitalization insurance (PHHI)
they must be living with me as well. Kasi mag-asawa tayo eh. ‘Di ba? Okay, so
kung sila ay nakatira sa atin, the prerogative is on you. Choose among our Section 34. Premiums on health and hospitalization insurance in the
illegitimate children or our legitimate children, but maximum of four. Pero iisipin amount of P2,400 per family, provided, that the gross annual income does not
niyo, “Teka muna, ‘di ba dapat maximum of four pag legitimate plus illegitimate?” exceed P250,000. Sino kaya ang pwedeng mag-avail nito? Minimum wage earner
Wala namang sinabi ang batas, maximum of four lang ang nakasulat. Pag pwede mag-avail nito.
tumingin ako sa’yo apat lang at hanggang apat ke ‘yan ay legitimate, illegitimate.
Basta tayo magtapat, wala kaming partner na partner tayo ngayon bukas hindi. Optional Standard Deduction
Basta may anak, forever tayong partner in the eyes of the law. The fact that we
are separated later on or we are not married do not matter as far as the Ano naman ang OSD? Optional Standard Deduction. This used to be
exemptions are concerned. available only to individuals. But now, both corporations and individual taxpayers
are entitled to claim for OSD. The rate before is 10% now its 40%. How do we
Now, as a husband, can you waive the additional exemption? Yes. In distinguish OSD from itemized deductions under Sec. 34? In itemized deductions
writing. But if the husband is a non-resident citizen, whose income is purely under Sec. 34, require supporting documents. Resibo to support the expense.
outside of the Philippines and therefore not subject to tax, then there is no need for ‘Yung OSD, there is no need for receipts to support the expense. But there is a
your waiver. Automatically the spouse, wife, will be allowed to claim the additional need for receipts of your gross income so that you can arrive at 40% of your gross
exemption. Another instance where the wife can automatically claim for the income as a deduction. You cannot just change from OSD to itemized, and
additional exemption is when the wife is tamad, without income. You don’t have itemized to OSD, hindi pwede. You need special permission from the Bureau of
anything to waive in my favor. Internal Revenue before you can change. And as a general rule, if you’re starting
out your business and there’s no specification on what kind of deductions you will
Anong effect ng legal separation sa exemption? Wala, kasal tayo. Para be availing of, it’s always itemized. Absolutely, BIR will not allow you to change
tayong mag-asawa. Annulled, eh single. But that doesn’t mean that because we deductions from OSD to itemized, or itemized to OSD in one taxable period.
are single again iibahin natin ang rules, back to being single, maximum of four pag
nakatingin ako sa’yo. Ke magka-anak ka sa iba o hindi, magkaroon ka ng Applicability of itemized deductions
illegitimate children sa iba, wala akong pakialam. Pag tumingin ako sa’yo ilan na?
Kelangan ba yung apat na yun ay anak natin? Oo, sinabi ng batas. Otherwise, if We are now going to continue with our discussion with deductions.
we do that then there’s a possibility na each person may have more than when Yesterday, we finished with personal exemptions, additional exemptions and
you look at them together. Kasi pag ganun, pwede mangyari, pwede ka mag-claim optional standard deductions. And now we are going to start and finish with
ng apat, apat din ako, eh di walo. Walo is certainly more than four. Section 34, which is a long provision of the Tax Code and our itemized deductions,
as I’ve mentioned to you yesterday. The itemized deductions are available only to
What happens in case of change of status among the dependents, taxpayers engaged in trade or business. It either applies to an individual taxpayer
children. Parang FIFO, first in first out. Change of status within the year is treated or a corporation. It is does not apply to non-resident aliens engaged in trade or
as change of status at the end of the year. So kung namatay ang dependent mo, business and non-resident foreign corporation.
nag-asawa, nagkaroon ng trabaho, or umalis sa’yo or no longer dependent upon
you for chief support within the year, it is as if at the end of the year. So during the Criteria for deductibility
year, pwede mo pa s’yang i-claim as dependent. But after the taxable year, no Now, masyadong mahaba ang codal provision ng Section 34. But take
more. So ano naman ang mangyayari pag may nagbagong ganon, sa susunod na note that the criteria in the deductibility of Section 34 of the items listed under
taon? ‘Di ba nag first-in first out ka, eh kung may susunod na pumapasok naman Section 34 are based on the following:
meron namang pwedeng kapalit, basta related sa’yo. Children kasi ang
requirement. 1. It must be actually paid or incurred. In other words, dapat nagastos. Kapag
hindi mo nabayaran, hindi mo pwedeng i-claim as a deduction.
53
2. It must be necessary in the trade or business, and doon. Networth. Assests and liabilites. Lahat are assets. Although, hindi siya naka-
specifiy, nandoon yung amount. General restrictions kung ano ‘yung assest mo.
3. It must be reasonable in amount. Eh kung ‘yung asset mo is worth P20,000.00, ano ‘yang assets ang makakapag
produce, makakagamit ng P50K worth na kuryente? These are the things the BIR
Meaning of “necessarily incurred in trade or business”
will look into, but the BIR need not go into your place of business and see kung
What is the meaning of “necessarily incurred in trade or business?” It ilan ba ang electric fans. No need for the BIR to visit your place because from the
means that, the expenses claimed as deductible should be related to the particular financial documents submitted to the BIR, meron na silang idea kung ano yung
kind of business that you are engaged in. Dapat related talaga doon sa klase ng asset, kung ano ang pinagkakagastusan mo. The BIR is not blind. Kahit pa ‘yan
business na ikaw ay meron. Example: Ang suka, patis, toyo ay expenses sa audited financial statements na nakalagay eh number value, peso value. There is
restaurant. Ang suka, patis, toyo ay hindi expenses sa parlor. So ito ang ibig a history behind the number, and the history is precisely the business operations
sabihin ng “related to the kind of business you are engaged in.” We always co- that you are having everyday in one taxable review. So we know kung anong
relate all these deductions to the kind of business you are engaged in, such that klaseng asset mo ang pe-pwede sa claim for deduction, depende kung anong
pag hindi talaga related sa business mo, it will be disallowed by the Bureau of klaseng business meron ka. So that’s how it is determined. These 3 are: a)
Internal Revenue. And lastly of course, it should be reasonable in amount. actually paid or incurred; b) reasosnable in amount; and c) incurred in trade or
business. These are the standards viewed by the BIR in allowing or disallowing
Standard of reasonableness any item of deduction that you claim as a deduction from your gross income.
What is the standard of the reasonableness of the amount? There is no Itemized deductions limited to those liable for Net Income Tax
specific standard by the Bureau of Internal Revenue. Neither does the Code
provide kung ano ba ng ibig sahibin ng “reasonableness” of the amount. But this We are now going to discuss each one of them and how relevant for the
has something to do with the physical set-up of your business. We have to look computation of the tax due of a particular taxpayer. So I’ll give you an example
into the things that the BIR considers to determine whether or not the expense is para mas mabilis. Please take note ‘yung limitations. The taxpayer’s income is
reasonable in amount. Of course, we have to look at the number of the employees subject to NIT because if the income is subject to FWT, there is no applicaton of
that you have, the land area of the business, ‘yung ino-occupy ninyo. Ano bang this table. If you are talking about a non-resident alien not engaged in trade or
klaseng business? Example, ha? Nagke-claim ka ng kuryente, utiliy, bills, business or a non-resident foreign corporation, this concept will not also be
telephone, electricity, water. Nagke-claim ka ng water na P50,000.00 a month as applicable. And this is where it is applied. The taxpayer whose income is subject
deductible expense, but it turns out that your business has a 4-square meter area. to NIT, will have to compute for his gross income and then the allowable
Where did you get the P50K expense? Eh 4-square meter lang ang location ng deductions. We will be talking about Section 34 although all of them are items of
business mo. All considering, wala ka man lang aircon. So these are the things the deductions from the gross income of the taxpayer. What kind of business does X
BIR will look into. have? Let’s say a parlor. Y is an empoyee of X. X hires Y as an employee and
pays Y P20,000.00 monthly as basic pay. Income on the part of Y? Yes. Assume
Determination of reasonableness of amount the parlor is in the Philippines, in Muntinlupa. Within or without? Within. Subject to
Tax? Yes. What kind of tax? NIT. Is Y entitiled to claim deductions? Yes! Ulit. X is
Pupunta ba ang BIR para tingnan ang business mo? Take note that the the employer. X pays Y a basic pay of P20,000.00. Income on the part of Y? Yes.
BIR conducts tax mapping. Ano ‘yang tax mapping? Ano ‘yong minamapa? Every Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT. Is Y entitled
BIR office, Regional Office, Revenue District Office has a territorial jurisdiction. So to deductions? Yes. What are the deductions available to Y? Ayun o. Personal
every year, the BIR nagmamapa. Ang tawag dun tax mapping. It goes into every exemption of P20,000.00, additional exemption of P25,000.00 per child maximum
office, every commercial or area na meron sa kanyang jurisdiction. So doon pa of 4, and premium for health and hospitalization insurance.
lang, nakikita na nila. Kitang-kita kung anong klaseng business meron ka. Number
two, take note that in the financial statements of the taxpayer nakalagay doon
how much are the equiptment, assets. Naka-indicate ‘yun hindi ba? Nakalagay
54
Itemized deductions carrying on the trade or business, provided that, he really proves that Y rendered
work nighttime and overtime work rendered. OK? So far so good? Uulitin ko ‘yung
Let’s talk about Section 34. E-I-T-L-B-D-D-C-P-H. These are the itemized examples na binura natin kahapon. X gives Y de minimis benefit within the limits
deductions. EXPENSES, INTEREST, TAXES, LOSSES, BAD DEBTS, provided for by law. I-group na natin. Income on the part of Y? Yes. Within or
DEPRECIATION, DEPLETION, CHARITABLE CONTRIBUTIONS, PREMIUM without? Within. Subject to Tax? No. Exempt whatever the kind of employee Y is.
PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCE and On the part of X, can X claim the same as deductible expense? ‘Yan ha? Titingnan
RESEARCH AND DEVELOPMENT. These are the items provided for under ninyo, may demarcation line ‘yan ha? Diyan makikita ninyo na whatever it is,
Section 34 of the itemized deductions. E-I-T-L-B-D-D-C-P-H. ‘Yan ang Section 34. taxable or not, the question as to deductibility is not answered automatically, it
does not follow that if it is taxable here (on the part of the employee), it is
I. Expenses deductible (as an expense on the part of the employer). Can X claim the de
A. Reasonable allowance for wages and salaries miniminis benefits he gave to Y within the limits provided for by law as deductible
business expense? Yes. This is considered as a reasonable business expense.
Let’s start with letter E. EXPENSES.What are the expenses which are What if X gives Y de minimis benefits in the amount of P300,000.00? Income on
available as deductions to a taxpayer who is engaged in trade or business? the part of Y? Yes. Within or without? Within. Subject to tax? Yes. The exception
Reasonable allowance ito ‘yung mga examples. Reasonable allowance for wages of the limit, if beyond the limit it shall be treated as Other Benefits right? Subject to
and salaries including fees, commissions, and other similar items paid by an tax? Yes. What kind of tax? If Y were a managerial/supervisory employee, that will
employer to an employee. ‘Yan ang example n’yan. What are the possible be treated as a fringe benefit subject to 32% Fringe Benefit Tax. If Y were a rank
business expenses? What are the examples of business expenses that are and file, he will be subjected to NIT.
allowed as deductions? Number 1, reasonable allowance for wages, salaries,
commissions, fees, and other similar items. Now we are going back to what we On the part of X, can X claim the same as deductible expense? Yes or no?
had yesterday. X pays Y salary, basic pay of P20,000.00. Income on the part of Y? No. If you are the BIR, would you allow the P300,000 de minimis benefits paid by
Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT. Is Y X to Y considering that Y merely receives P20,000 monthly basic pay? Certainly
entitled to claim for deductions? Yes, because Y is a tao. On the part of X, the not, because this time you will have to consider the reasonableness of the amount
question is: Can X claim the pay as deduction from his gross income realized from as the criterion in determining whether it is allowable or it will be disallowed. Can
business? Yes. That is an example of a deductible business expense. Now, X you imagine you have a parlor, binigyan mo, halimbawa ng de minimis benefits na
gives Y overtime pay and nightshift differential. Y receives overtime pay and medical expenses of P100,000. Sinong normal na tao na parlor ang iyong
nightshift differential. Income on the part of Y? Yes. Within or without? Within. business, hindi naman multi-national company? You are probably a 10-employee
Subject to Tax? Yes. Y cannot be a minimum wage earner, right? P20,000.00 parlor and are going to give each of them P300,000. This time you will have to
certainly is more that the P404 per day given to a minimum wage earner. Is this disallow it. Your employee is receiving P20,000.00. Who on earth would give his
income on the part of Y? Yes. Subject to tax? Yes. What kind of tax? NIT. Ay, employee P300,000 worth of de minimis benefit? You mut be out of your mind.
sandali muna. If Y were a managerial employee and he is not entitled to overtime This is the standard that we follow. Kailangan kasi titingnan niyo ‘yung physical set
pay and nightshift differential and yet he is paid by the employer, this will belong up ng inyong business before the claim will be allowed. What else? Binigyan kita
to the last column of Other Benefits. And together with other benefits, if it exceeds ng kotse, ginagamit ni Y para magservice ng mga customers. Income on the part
P30,000, that will be treated as a fringe benefit subject to Fringe Benefit Tax of of Y? No, because it is necessary in carrying on the trade or business of the
32% based on the Grossed- Up monetary value. Will he be entitled to claim as employer. When X gives the car to Y, ginagamit ba ni Y saan? Sa business ni X. It
deduction for the overtime pay he was paid if he was a managerial employee? No. is necessary to the trade or business ni X therefore, income on the part of Y? No,
That is tax to his income subject to final withholding tax. Right? But if Y were an certainly. When X buys the car, for P500,000, can X claim the value of the car as
ordinary rank and file employee of X, then this will be subject to NIT and Y will be deductible expense? No. Bakit? Kasi capital expenditure. The pera of P500,000 is
entitled to claim deductions of personal exemption, additional exemption, and converted into kotse. It is as if hindi niya nagastos si P500,000. Tandaan ninyo ito:
premium for health and hospitalization insurance. On the part of X, can X claim when an expense is capital expenditure, hindi capital asset, ha? Capital
these as deductible business expenses? Yes, because these are necessary in expenditure, meaning an expense is used to acquire asset or to improve an
55
exisiting asset, or to increase the economic or beneficial life of an existing asset, determination of your net worth you will have to declare your net worth, you will
we call this capital expenditure, which is not a deductible expense on the part of have to declare the book value of an asset. So by the year 2016, the car is zero
the taxpayer. Si taxpayer X naglabas ng limang daanlibong piso pero ang book value. But it does not mean that it has no value. At the end of 2016, the book
P500,000 is no longer P500,000 but a car. May nawala ba kay X? Wala. What value is zero but it may have salvage value or it may have fair market value by the
happened to the car? When X purchased the car, it is in the nature of a capital year 2016. Alam naman natin yan. Pag bumili ka ng kotse, hindi ba 5 years ang
expenditure. Now, here is the car. How do you classify the car as an asset? On payment period? Full devaluation but that’s the book value. But when you sell your
the part of X? Ulit. P500,000, ibinili mo ng kotse sa Nissan Westgate. Inilabas mo car after 5 years, you realize money, right? So, when X decides to sell the car in
ang P500,000. Ikaw si X. Si P500,000 naging kotse na may apat na gulong. When 2016 at P60,000, the taxpayer incurs a loss of P250,000. But if X sells it at
X spends P500,000 that is in the nature of a capital expenditure because you P450,000, gains ang tawag dun. Anong tawag dun? Ordinary gains. ‘Yung
acquire an asset used in the trade or business. When the car is now present, how ordinary gains ba, idadagdag niyo agad sa gross income niyo? Hindi. Mamaya
do you classify the car as an asset? It is called an ordinary asset. tuturuan ko kayo kung papaano. Paano ang ordinary loss pag binenta ng 2013
nabenta ng P100,000 ang kotse? Eh anong tawag mo doon? Ordinary loss ako.
Depreciation Magkano? P200,000. ‘Yun bang ordinary loss dinideduct sa gross income? Hindi.
Mamaya maiintindihan natin kung saan napupunta ang orinary loss at ordinary
Now on the part of X. While it is true that he cannot claim the P500,000 as gains. Ituturo ko ‘yan sa inyo. Let’s continue. Ano pa ang ibang benefits? Bonuses.
a business expense deduction, X, however, can claim depreciation of the ordinary 13th, 14th, 15th bonuses. Income on the part of Y? Yes. Within or without? Within.
asset, the car, as a deduction. That is the counterpart. On the part of Y, the value Subject to Tax? Yes. What kind of tax? If Y were a managerial employee, anong
of the car is not an income and is not taxable. On the part of X, he cannot claim as mangyayari sa excess? Treated as Other Benefits. If Y were rank and file, then
business expense deduction of P500,000. But because it is now an ordinary asset, NIT. On the part of X, can X claim the same as deduction? Yes, provided,
meaning the asset is used in trade or business and in the nature of a capaital reasosnable in amount. Empleyado mo P20,000 ang suweldo. And kinikita mo sa
expenditure, the car will now be subjected to depreciation as a deduction. So isang taon ay isang milyon. Nagbigay ka ng 13th, 14th, 15th, 16th, 17th, 18th month
every year, if X purchased the car in the year 2011, every year the P500,000 book pay bonuses, you must be out of your mind. The reasonableness of the amount
value is reduced this way: X will now report his asset in the book of assets: car, will be very, very important. All of the things mentioned yesterday, we’ve
date of purchase, 2011; magkano? P500,000 and every year he will have to claim enumerated, are these allowed as deductible expense on the part of X? Yes,
depreciation in the amount of P100,000. Depreciation for tangible personal provided, they are necessary in carrying on the trade or business, and they are
property is 5 years. Pag nangutang kayo ng kotse, maximum payment period is 5 reasonable in amount. Now, let’s continue.
years because it is reasonable period of time of whole depreciation of car. Real
property, it is between 15-25 years. So, kung real property naman ang binili mo, B. Reasonable allowance for utility
the amount that you spend for the real property is not a deductible business
expense, but every year you can depreciate the property for 15 years. It is referred Anong example ng “deductible business expense?” Reasonable allowance
to as a non-cash expense. Depreciation is not cash. Bakit? Kasi every year, the for utility. Utility. X has a parlor. X pays PLDT, Meralco and MWSS. Y has a
taxpayer X can claim the P100,000 as depreciation expense deduction pero wala house. Y pays PLDT, Meralco and MWSS monthly. When Y pays PLDT, these
siyang ginagastos na P100,000 kasi nagastos na niya ‘yan noong binili si kotse. institutions, for ultity, income on the part of these utility companies? Yes. Within or
So this is how it is done. So by the year 2016, P100,000 na lang ang book value. without? Within. Subject to Tax? Yes. What kind of tax on these companies?
You call it book value. When you hear book value, it is the value you declare in Corporations ‘yan siguro. NIT ‘yan. Anong rate? 30%.
the book of assets of a taxpayer who is engaged in trade or business. When you
are not engaged in trade or business, you do not record purchases. Ako, wala When Y pays the utility companies monthly, can Y claim as deduction this
akong business. Noong bumili ako ng relo, nirecord ko at every year utility payment? No. Why? Because it is not one of the personal exemption,
nadedepreciate? Walang basis sa akin ‘yan. Kayo ay bili nang bili and all our additional exemption, and premium for health and hospitalization insurance.
assets are capital and not used in trade or business. So, we don’t do this. But if we
are engaged in trade or business, this is important because every year, in the X pays these utility companies. Income on these companies? Yes. Within
or without? Within. Subject to Tax? Yes. What kind of tax? NIT. What rate? 30%.
56
Can X claim those utility payments as deductible business expense? Yes. Pero si compensation income earner, is only entitlted to personal exemption, additional
Y hindi pwede. Bakit? Because it is not personal exemption, additional exemption, exemption, and premium for health and hospitalization insurance. Hindi ba? X paid
and premium for health and hospitalization insurance. Number three on business P10,000 for the parlor. Income of the part of A? Yes. Within or without? Within.
expense. Subject to Tax? Yes. What kind of tax? NIT. Is A entitled to claim deductions? Yes,
if A were here (individual), ‘yan ang deductions nya (personal exemption,
C. Reasonable allowance for rentals additional exemption, and premium for health and hospitalization insurance,
Section 34 or OSD). Ito (korporasyon), ‘yan ang deductions nya (Section 34 or
Reasonable allowance for rentals, provided, the lessee does not acquire OSD). On the part of X, can X claim the P10,000 payment to A in the form of
any interest other than as a mere possessor. Y rents from A this house, paying A rentals as deductible business expense? Yes, because that is actually incurred
P5,000 monthly. A also owns the land and the building occupied by X and used as necessary on the trade or buiness and is reasonable in amount and the lessor
a parlor, paying rentals of P10,000 mothly. When Y pays A P5,000, income on the does not acquire any interest other than that as a mere possessor.
part of A? Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax on
the part of A? NIT. Is A entitled to claim deductions? Yes. Is A entitled to claim Let’s have a variation. The parties agree that after the contract of lease, all
deductions from the gross income from the rentals? Yes. What kind of deductions the improvements introduced by X and Y to the property shall be for the lessor.
can A avail of? Ano? Kung kayo si A na nagpaparenta kay Y, ano ang pwedeng Lahat ng major improvements introduced by X and Y to the house and to the
deductions kay A? Kung si A ay tao, personal exemption, additional exemption, parlor will belong to the lessor. While the lease is ongoing and X and Y are paying
and premium for health and hospitalization insurance, Section 34 or OSD. Kung si A, is A entitled to claim depreciation on the house and the parlor as deduction? A
A ay korporasyon, Section 34 or OSD lang. Bakit hindi yung una? Kasi engaged in is the owner of the house and the parlor rented out to X and Y. Is A entitled to
trade or business ng pagpaparenta. Si A ang may-ari ng bahay. Ikaw si A, may-ari claim depreciation of the parlor and the house as deduction? Yes, because A is
ng bahay. Nagpaparenta ka sa akin. Kumikita ka. Ang tanong sa iyo, kapag the owner of the house and the parlor who is engaged in trade in buiness. The
binayaran kita ng limang libo, income? Yes. Within or without? Within. Subject to parlor and the house, in so far as A is concerned, are both ordinary assets.
Tax? Yes. What kind of tax? NIT sa iyo. Ano ang pwede mong dedudcitons? Yun Therefore, A is entitled to claim depreciation of assets of the house and the parlor.
ang tanong. Hindi yung renta. Lahat ng rent mong kinikita hindi lang yung galing Habang nagbabayad si X and Y kay A, si A ay entitled to claim as deduction of the
kay Y kasi kumikita ka from your properties in the form of rentals. Para hindi kayo house and the parlor. X and Y, on the other hand, introduced improvements on the
nalilito, ganito yung technique: source, you pay. When you pay, the payment parlor and the house. For the improvements introduced by X and Y, question: Can
becomes the source of the payee who would also spend. That’s the source for A claim depreciation for those improvements? No. Not yet, because A is not the
another taxpayer who will spend. When that taxpayer spends, there’s another owner of the improvements. According to the contract, the improvement will only
source who will spend. It’s like that. So everybody becomes a taxpayer, pero hindi belong to A after the contract of lease. Therefore, who is entited to claim as
‘yun circle. Everybody becomes a taxpayer kasi nagmomove yung pera. Pag depreciation of the improvments? Only X. Why? Can Y claim depreciation on the
nagmove, umiiikot yung pera. Habang umiikot yung pera may tumatanggap at may improvement introduced to the house? No. Why? Bakit? Bacause Y is only entitled
pinanggagalingan. So the source becomes a taxpayer. When he spends the to personal exemption, additional exemption, and premium for health and
income that he derives, then there’s a recipient of the income who will eventually hospitalization insurance. Kailangnan kasi alam mo yung sitwasyon. Naiintindihan
become the source who will use that money to pay another person. And when he ‘nyo yung tinatanong ko? Naintindihan din kung bakit ganun ang sagot? Bakit si Y
pays, that person becomes the source. The procedure is the same for everybody ay hindi pwede mag-claim ng depreciation ng improvement? Kasi si Y ay hindi
depending on who you are as a source and as a recipient. Because when you engaged in trade or business. Bakit naman si A ay hindi pwedeng mag-claim as
receive, alangan naman na ‘yung pera mo hindi gagalaw. Hindi ka na kakain? Of depreciation dun sa improvement introduced by Y? Kasi hindi siya ang may-ari.
course you have to spend. And when you spend, what you have spent becomes Magiging may-ari lang siya pagkatapos ng kontrata. Dito naman kay X: Can X
income doon sa payee. And when that becomes an income on the part of the claim depreciation on the improvements introduced by him? Yes. Can A claim
payee, that is expense from your end. Naintindihan nyo na? So ang tanong depreciation on the improvement introduced by X? No, because he is not yet the
kanina, “Can Y claim the rental fee given to A as deduction?” On the part of Y, can owner. But can A claim depreciation on the parlor? Yes, because that is his
Y claim the P5,000 as a deduction? No, because Y being a tao, purely
57
property. But can X claim depreciation on the parlor? No, because he is not the depreciation is after the expiration of the lease to own agreement. That’s the only
owner of the parlor. He is merely leasing and renting. time that he will be able to determine that he is the owner of the property. OK? So
far so good?
Natapos si contract of lease. Kanino napunta ang improvements? Kay A.
Who owns the improvements? A. Can A claim depreciation for the improvements? Let us go a little further. X and Y decided to buy the parlor and the house
Yes, both in the house and the parlor because now A owns everything, the home from A. X and Y bought the property from A. Here, X pays A P10,000,000 and
including the improvement introduced by Y, and the parlor including the P4,000,000. When X and Y pay A P10M and P4M pesos respectively, is there
improvements introduced by X. The agreement in the contract of lease between X income on the part of A? Yes. What kind of income does A realize? Ordinary
and Y further states that: X and Y shoulder the Real Property Tax (RPT) for the income. So the ordinary income is subjected to tax? Yes. What kind of tax, P10M
house and the parlor. Agreement: during the contract of lease, the lessee and P4M na binayaran ni X and Y? Si A ba magkakaroon ng taxable income
shoulders the RPT. What is the effect of X and Y shouldering the RPT? Is that assuming na may income? Yes. What kind of tax? NIT. ‘Yun ‘yong letter A doon.
income on the part of A? Yes, because income is anything that flows to the wealth Wala siya sa B, wala siya sa C, wala siya sa D. Is A liable for the 6% Capital
of the taxpayer other than the mere return of capital. Can Y claim the payment of Gains Tax (CGT)? No. Never, because the house and parlor from the point of view
the RPT as deductible expense? No, because Y is not engaged in trade or of A are both ordinary assets. Tingnan niyo ha? From the point of view ni Y, the
business and tax paid is not an item of deduction. On the part of X, can X claim house is a capital asset. But from the point of view ni A, the house is an ordinary
the RPT as deductible business expense? No, because under the law, it should be asset. As far as the parlor is concerned, both from the point of view of X and A, the
the owner who pays the tax. Now, can A claim the RPT as deductible expense? parlor is an ordinary asset. Whether from X or from A’s point of view, hindi
No, he was not the one who incurred the expense. Tama? Nasususndan? Naa- magiging subject ‘yun sa capital gains tax. Bakit? Because you are not selling real
appreciate nyo ba? Paiba-iba ang sagot depende sa sitwasyon. Hindi property, capital in nature, located in the Philippines. Real property located in the
minimemorya. Kailang isipin mo ano ba ang sitwasyon, ano ba ang sinasabi ng Philippines but not capital in nature, 6% CGT will not be applied. Can Y claim P4M
batas. Tatlo lang naman ang criteria eh: 1) necessary; 2) actually paid or incurred as deductible expense? No, because Y is entitled only to personal exemption,
and; 3) reasonable in amount. Sa taxpayer, ‘yun lang. Kapag marunong ka nun additional exemption, and premium for health and hospitalization insurance. Can X
mag-apply, wala tayong pakialam sa rules. Hindi nyo kailangan memoryahin. claim P10M as deductible expense? No, because that is a capital expenditure.
Titingnan lamang kung ano ang sitwasyon. So when X and Y shoulder the RPT, A Can X claim depreciation for the parlor when he purchased it? Yes, because he is
realizes income. Within or without? Within. Subject to tax? Yes. What kind of entitled to depreciation. Can Y claim depreciation for the house? Never, because
income on the part of A? NIT, because that’s part of Other Income, hindi ba? Nasa Y is not engaged in trade or business and it is not personal exemption, additional
letter A. exemption, and premium for health and hospitalization insurance.
Lagyan natin ng improvement itong lease. Lease to own agreement. X and D. Expense which is not contrary to law, morals, public policy,
Y instead of paying P5,000 and P10,000 respectively, now pays A P20,000 and customs and traditions
here P25,000 on the condition that after 5 or 10 years of payment, the parlor and
the house will belong to X and Y, respectively. Lease to own agreement. When X Another example of deductible business expense is an expense which is
and Y pay A, P20,000 and P25,000, income on the part of A? Yes. Within or not contrary to law, morals, public policy, customs and traditions, whether the
without? Within. Subject to Tax? Yes. What kind of tax? NIT. Can Y claim the business is legal or illegal, are allowed as deductions. Illegitimate expenses or
P20,000 payment as deduction? No, that’s not personal exemption, additional expenses contrary to law, morals, public policy, customs and traditions, whether
exemption, and premium for health and hospitalization insurance. Can X claim the the business is legal or illegal will not be allowed as a deduction. Let me give you
P25,000 as deduction? No, because this time, while he is paying the rentals, he an example. Si Y nagyoyosi sa public place. Hinuli. Magbayad ka ng limang daan.
acquires interest other than as a mere possessor. Therefore, this is now a capital Walang pambayad. Magko-community service ng walong oras. Sabi niya, “ayoko
expenditure and not a deductible expense. But while it is true that it is a capital mag-community service. Mr. Officer (B), can I just give you P200?” “OK!” Income
expenditure, can X claim depreciation by paying rent under a lease to own on the part of B? Yes. Within or without? Within. Subject to Tax? Yes. What kind of
agreement? No. Not yet, because the only time that he will be allowed tax? NIT. Can Y claim as a deductible expense? No, that’s not personal
58
exemption, additional exemption, and premium for health and hospitalization sa “I”? Yes or no? Yes, because the loan is incurred, the interest is paid in
insurance plus it is an illegal expense. connection with the trade or business of X. If X uses the P110,000 loan para mag-
shopping sa Hong Kong, can X claim as a deduction? No, because that is not
Baliktarin natin. Let us say, si Y empleyado ni X sa pagbebenta ng shabu. incurred in connection with his trade or business. If the creditor and the debtor are
Pusher si Y. Gawin nating illegal ang business ni X. Pusher si Y, but a legitimate related to each other according to Section 36, paragraph D, X will never be
employee as a pusher. X pays Y P20,000 per week as salary. Income on the part allowed to claim the interest as deductible expense. Section 36 (B).
of Y? Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT.
Can X claim the P20,000 pesos weekly basic pay paid to Y as a deductible Related debtors and creditors under Section 36 (B)
business? Can X claim the P20,000 salary paid by X to Y as an employee pusher?
Yes, that is a legitimate expense in an illegitimate business. Nahuli si Y as a Who are related debtors and creditors? 36(B). Disregarding the title, ang
pusher, nagbayad sa officer ng P30,000 si X. When a bribe is paid to B, income on pinag-uusapan ‘yung mga tao. Who are these related debtors and creditors?
the part of B? Yes. Within or without? Within. Subject to Tax? Yes. What kind of
tax? NIT. Can X claim the bribe paid to be as a deductible business expense? No. 1) Between or among family member;
That is an illegitimate expense in an illegitimate business. The rule is: legitimate 2) Between the stockholder and the corporation, wherein the
expenses, whether the business is legal or illegal, are allowed as a stockholder owns more than 50% of the authorized capital stock of the
deduction. Illegitimate expenses, whether the business is legal or illegal are corporation;
not allowed as a deduction. So these are the examples of business expenses
that are allowed as a deduction from the gross income of a taxpayer who is 3) Between two corporations, where there is common
engaged in trade or business. stockholder owning more than 50% of the authorized capital stocks
of each corporation;
II. Interest
4) Between fiduciary and a beneficiary; between a grantor and a
Let us go to “I”. INTEREST. Interest on loans incurred in connection with fiduciary of trust; and lastly, between two fiduciary of different trust created by
trade or business. Y borrowed from X P100,000 to be used by Y for the tuition fee the same creditor.
of his children. X borrowed from Y the same amount of P100,000 pesos to be
used by X as additional capital for the parlor. Interest is 10%. Y pays X P110,000. Kapag ang nag-utangnan is ang mga ‘yan, kahit pa related sa trade or business ay
Is there income on the part of X? Yes. How much? P10,000. P100,000 is just a hindi pwedeng i-caim ni X as deduction ‘yung interest na binayaran. ‘Yan ang
return of capital. Subject to tax on the part of X? Yes. What kind of tax? NIT. Is X inasabi ng batas. Bakit? Because of the fiduciary relationship among these
entitled to claim for deduction for the income from lending? Yes. What are the persons and entitites, which can create the situation of kunwari meron utang wala
possible deductions on the part of X? E-I-T-M-V-P-P-R (Section 34) or OSD. Can naman pala.
Y claim as deduction the interest on the loan by him to X? No, because according
to the law, Y, being a mere compensation earner, is entitled only to personal Limitations on interest
exemption, additional exemption, and premium for health and hospitalization
insurance. Ang interest on loan is allowed on the part of X but the same is limited to
the following:
Let’s go to the side of X. X pays Y P110,000. Is there income on the part of
Y? Yes. How much? P10,000 because the P100,000 is just a return of capital. 1. If the interest is paid in advance. Tuso si C. Noong pinautang ng
Subject to tax on the part of Y? Yes. What kind of tax? NIT. Is he entitled to claim P100,000, ang interest na 10% na binigay kay X ay paid in
for deduction? What are the kind of deductions? Ayun ulit (Section 34 or OSD). advance. Binawasan ng interest. The only time that C will be
Kung korporasyon or personal exemption, additional exemption, and premium for allowed to the interest on loan as a deduction is upon full payment
health and hospitalization insurance, Section 34 or OSD kung tao. On the part of of the loan.
Y, can Y claim the 10% interest paid to X as deductible interest on the loan? Clear
59
2. If X and C, for both bad debt and interest, are related to each other, bad debts, provided that the financial status of X and Y shows incapacity to pay
according to Section 36 (B) of the Code, no interest on loan or bad the obligation to C, which means that the debts are completely written off or
debt will be allowed as a deduction on the part of X and C. charged off. ‘Yan ang technical term.
3. On interest on loan, if X, payor of interest, realizes income, the Written-off or charged-off

deductible interest shall be restricted by 33% of the interest income.
Anong ibig sabihin ng “written off” or “charged off?” Hindi binubura, literally.
Tax arbitrage Metaphorically, sa libro ni C binubura. Bakit? Paano ba mag write off? Literal.
Binubura. ‘Yan. Anong ibig sabihin ng written off or charged off? Pag may utang
Anong ibig sabihin ng pangatlo? Hindi ba si X nagbabayad ng 10% ang ibang tao at hindi nakakabayad. Paano mo sasabihin na hindi ka
interest? Sampung libong piso (P10,000). Kumita ng isang libo sa bangko. May nababayaran? Ikaw ay naniningil, nag exert ka ng effort na maningil at kahit anong
utang siya, nagbayad siya ng interest. Sa kabilang side, meron naman siyang effort mo ng paniningil, walang maibayad. ‘Yan ang sinasabing written off. Without
kinitang interest (kasi nilagay sa bangko yung inutang at kumita ng interest on effort extended to make singil, you cannot say the loan is written off. X and Y are
loan). Ang rule ay: dahil mayroon kang binayaran na interest at may kinita ka, incapable of paying the loan. Kailangan na singilin mo. There is effort to collect
hindi mo deduction lahat ang sampong libo. Kasi may kinita ka parang walang and despite the effort exerted, for a long period of time of exerting the effort, X and
nawala sa iyo. Yun ang logic. Ang logic ay nagbayad ka ng interest sa utang, sa Y did not pay. So, ‘yun ang sinasabing written off. Hindi pwede basta na lang,
kabilang side naman may kinita ka na interest. So technically, wala kang ‘yung due date ng utang ay December 25. Eh January 1 na ngayon i-write off na
binayaran kapag inoff-set mo yung dalawa. Tama? So sabi ng batas, yung interest lang natin. Ay, hindi pe-pwede. Kailangan mo muna ipakita na ikaw ay naningil. Eh
na ide-deduct ni X kapag ganito ang sitwasyon ay limited ng 33% ng kanyang wala ka naman yata paniningil na ginawa. Sa batas nga, kung hindi ka
interest na kinita. Anong ibig sabihin? One thousand pesos times 33%; 67% lang nagdedemand, walang delay hindi ba? So kailangn maningil ka. Naningil ka ba?
nito (P1,000 na kinita sa deposito sa bangko) ang pwede niyang ideduct. Bakit? Hindi. Ay hindi pwedeng mag-claim si C ng bad debt. Requirement kasi ito.
Kasi kumita siya ng isang libong interest. Kaya kapag pinag-ganun mo ‘yung Kailanan ba ng insolvency proceedings against X and Y para masabi ni C na
dalawa, ‘yung kanyang ginastos ay na-ooff-set ng nabayaran sa kanya. pwede na siya mag-claim ng bad debt? Hindi. Ang sinasabi lang ng batas ay
kailangan nag exert ka ng effort and despite the effort, hindi nagbabayad at ayaw
magbayad dahil ang kanyang financial status ay nagpapakita na walang
pambayad. ‘Yon. Now that’s the time that he can claim the bad debt as deduction
from the gross income of Mr. C. Kapag nagbayad naman si X and Y, ang 10%
interest on loan ay pwede i-deduct ni X; declared naman siya as income ni C.
III. Bad debts Nakikita naman ang point of view from A? Nag-iiba ‘yan. Now, pwede nating
X and Y borrowed from C respectively, P100,000 plus interest of 10%. X gawing buhay. Buhay si debtor, buhay si creditor. By the way, ‘yung Section 36
and Y failed to pay C. Hindi nakabayad si X and Y. Is there a possibility of (B), ‘yung mga tao doon are also applicable to bad debts. Interest on loans and
deduction on the part of Y? Never. On the part of X, can X claim as deduction the bad debts. Kapag yan ang nag-utangnan, hindi pwede i-claim as bad debts at
interest? No, because of missing requirement number 1 (actually paid or incurred). interest on loans.
Ano ba naman eh. Tatlo lang ang requirement. Bakit hindi pwede i-deduct ni X ang
10% interest? Ay, hindi naman siya nagbayad. Ay, anong pag-uusapan pa? Kung
walang ginastos, bawal magdeduct. On the part of C, what is the tax Tax benefit rule
consequence? C will now be able to claim “B”, BAD DEBTS. That’s what you call
bad debts. Masamang utang. Hindi nababayaran. That is bad debt on the part of Paano kung X and Y failed to pay C and C claimed bad debts as
C. The utang of Y which was not paid to C is considered as bad debt on the part of deductions? 5 years later, here comes X and Y at nagbayad ng utang kay C. What
C. C can claim P100,000 utang ni Y. Likewise C can claim P110,000 utang of X as is the effect of the subsequent payment of a bad debt which has been previously
bad debt. So C, when X and Y failed to pay him, is allowed to claim P220,000 as claimed by the creditor as a deduction from the gross income? Tax benefit rule
60
applies. It should be declared, the entire amount paid should be declared as because Y is a compensation income earner and he is not entitled sa interest on
income by C in the year of the recovery to the extent of the income tax benefit loan.
received when he was allowed to claim bad debts as deductions and now satisfied
by X and Y. That is tax benefit rule. Sa madaling sabi, kung hindi nakabayad si X Sa point of view ni C, ano naman ang income tax consequence? That is
and Y at dineduct ni C as bad debts, after madeduct ni C, nagzero out na yung bad debt on the part of C. And C is entitled to claim how much? P110,000 as bad
utang, nagkaroon siya ng benefit kasi nabawasan ang kanyang gross income kasi debt. Special Procedure side, ano ang gagawin ni C? Si C ay magpa-file ng claim
deduction yun. Zero-out. Ngayon, si X and Y nagbabayad. Tatangappain ba niya? as a creditor doon sa judicial proceedings sa estate ni Y. Bakit hindi pwede mag-
Oo, tanggapin niya. Anong gagawin? Bayad si utang pero nagkaroon siya ng extra judicial settlement si Y? Kasi si Y namatay na may utang. Estate tax point of
benepisyo as far as tax is concerned, because he was previously allowed to claim view. Namatay si Y, hindi nakabayad ng utang. Ano ang mangyayari doon sa
the same as deduction. Ngayon meron siyang “Other Income”. Now, is that namatay? Pwede bang mag-claim ang estate ni Y ng claims against the estate?
income? Yes. Subject to Tax? Yes. What kind of tax? NIT. ‘Yung buong utang na Nakasulat sa Section 86. Magkano? P110,000 kasi ‘yun ang hindi nabayaran.
binayaran will be treated as other income kasi si X and Y hindi nabayaran ‘yung
P110,000 each. So si C, anong pwede kay C na deduction? P220,000 bad debts. Balik tayo kay X naman. Si X namatay. Ganun din, hindi nabayaran si C na
Tama? 5 years later, dumating si X and Y nagbabayad ng P220,000. Anong pinagkautangan. Una, income ba? Can X claim the amount borrowed as a
magiging treatment sa P220,000 na binayad? Under the tax benefit rule, this will deduction? No, kasi X did not incur any expense. On the part of C, bad debt.
be treated as Other Income. Subject to tax? Yes. What kind of tax on the part of Magkano? P110,000. Special Procedure side. C filed a claim against the estate of
C? NIT. ‘Yan kapag buhay. X. The estate of X will now be entitled to claim as deduction the claim against the
estate. Section 86. Deductions from the gross estate.
Bad debts in case of death of debtor
After the judicial settlement of the estate, the estates of X and Y pay C.
Patayin natin. Si Y nangutang kay C ng P100,000, interest is 10%, total of What is the effect of the subsequent payment of the estates of X and Y to C? Tax
P110,000. X borrowed from C same amount with 10% interest. Hindi nakabayad si benefit rule applies. C will now have to declare the same as part of his gross
X and Y kay C. Namatay si X and Y. X and Y died without paying P110,000 each income in the year of recovery to the extent of the income tax benefit he received
to C. What are the tax consequences of the debts of X and Y from income tax and when he was allowed to claim bad debt as a deduction. But never will there be an
estate tax purposes? That’s the question. Huwag malilito. One at a time. Isa- instance that C will be allowed to claim bad debt whether X and Y are dead or
isahin. Namatay si Y hindi nabayaran si C. May income si C? Wala. Hindi alive if C and X, and C and Y are related to each other according to Section 36
nabayaran. So walang income tax consequence. Can the estate of Y claim the (B).
same as deduction, interest on loans? Hindi. Bakit? Hindi nagbayad, eh. Can C
claim bad debt, the unpaid loan of Y? Yes. That is bad debt. How much?
P110,000. From the point of view of estate tax, can the estate of Y claim P110,000 Bad debt in case of death of creditor
as claims against the estate? Section 86. Claims against the estate. Kapag
namatay si Y na hindi nababayaran, saan maniningil si C? Sa estate ni Y. Tama? Baliktarin natin. Ang namatay ay si C. Buhay si X and Y na hindi
‘Yan ang proseso, Special Procedure. Hindi ba? Hindi naman pwede mag-extra makabayad kay C. What are the tax consequences? Isa-isa. Income tax. Hindi
judicial settlement of estate ang kay Y dahil may utang siya na naiwan. Anong mabayaran si C. May income consequence kay Y? Wala ngang nilabas na pera,
gagawin ni C? Doon sa judicial settlement of estate magpa-file ng claim as a eh. Eh, si C na namatay, anong mangyayari? Meron sa income tax. The estate of
creditor. ‘Yan ang Special Procedure side. Sa estate tax side, anong gagawin sa C is an income taxpayer. Agree? Therefore, bad debts will be allowed as a
estate ni Y? Ang estate ni Y ay pwedeng mag-deduct ng claims against the estate. deduction. ‘Di ba sinasabi ko sa inyo? Nasaan ba ‘yan? Nandito ah. Estate. Now,
How much? P110,000 ang claims against the estate. Naiintindihan? Isa-isa. anong mangyayari sa estate tax? Si C namatay at hindi nabayaran ang utang.
Simpleng problema, ha? Namatay si Y. May utang. Hindi nabayaran si C. Anu-ano
ang titingnang mga angulo? ‘Yung bang estate ni Y ay pwedeng magdeduct ng Claims against insolvent persons
10% interest on loan? No, because unang-una hindi nga nabayaran. Pangalawa,
61
Eto, ha? This are claims against insolvent persons. Claims against deduction the RPT? No, because even though it is related to his trade or business
insolvent persons. Section 86. Anong mangyayari dyan? ‘Yung estate ni C ay leasing, he was not the one who incurred the expense. Can Y claim the RPT
magdadagdag muna ng P110,000 from Y at P110,000 from X, so P220,000. Add shouldered by him on behalf of A? No, because Y, as a purely compensation
to the gross estate and claim as deduction claims against insolvent persons. income earner, is not entitled to any deductions of taxes. His deductions are
Nabasa n’yo ‘yan? Add first to the gross estate. How much? P110,000 from Y and limited to personal exemption, additional exemption, and premium for health and
P110,000 from X. The estate will now be allowed to claim P220,000 as a hospitalization insurance.
deduction. Add first before you deduct. Add before deduction because gross
estate is defined as the value of all the properties whether real or personal, Let’s go to X. When X pays the LGU RPT, is there income on the part of
tangible or intangible. Credit is an intangible personal property, therefore part of A? Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT.
the gross estate of Mr. C. Naintinidian? Hindi ba pag nag-settle ng estate si Mr. C Can X claim the RPT he paid as a deductible expense? Yes or no? No, because
naka-enumerate naman kung sinu-sino ang mga may utang? So sa estate even though he was the one who incurred it, he is not supposed to pay for it.
proceedings, maniningil na ngayon ng utang. After the settlement proceedings, Therefore, X is not allowed to claim the RPT as a deduction.
nagbayad ngyon si X at si Y sa estate ni Mr. C. What is the effect of the
subsequent payment of X and Y to the estate of Mr. C.? Tax benefit rule applies. Now, Y imported gunting para gamitin sa bahay niya. Si X nag-import ng
The estate will have to declare it as part of its gross income. No longer Mr. C gunting, ginagamit sa parlor. Nagbayad ng P10,000 for the gunting. Upon
because he is already dead, 6 feet under the ground. The estate will now realize importation, nagbayad ng tariff and customs duties na P200 si Y. When Y buys the
other income. And that is income on the part of the estate subject to income tax. gunting and imports the gunting, can Y claim P10,000 as deductible expense? No,
Paano kung settled na ang estate? Fully settled na at saka nagbayad. What because Y is not entitled to that. Y is only entitled to personal exemption,
happens to the payment of X and Y? It will be divided proportionately among the additional exemption, and premium for health and hospitalization insurance.
heirs and the heirs will now have to shoulder the income tax. Kung na-settle na, X, same scenario. Can X claim the P10,000 as business expense? No,
andun na sa heirs. ‘Yung P220,000 i-divide mo sa heirs. Who will shoulder? The because it is a capital expenditure. Can X claim depreciation of the gunting as a
heirs in proportion to the amount of the income they realized. ‘Eto yung mga deductible expense? Yes, because X is engaged in trade or business. Can X claim
konsepto na wala sa codal. the tariff and customs duties of P100 paid for the gunting used in trade or
business? Yes, because the tax is actually paid or incurred in connection with his
trade or business. After payment, X and Y realized that they overpaid the tariff and
IV. Taxes customs duties by P50. They filed a claim for refund. In 2016, the refund was
approved, returned 50 pesos to Y and to X 50 pesos.
Now let’s continue. We are through with E, I, B. Now let’s talk about T.
TAXES. What are the requisites for taxes to be deductible? Effect of subsequent refund of tax previously paid
1. Actually paid or inccured; What is the effect of the subsequent refund of a tax which has been
2. Necessary in carrying on the trade or business; and previously claimed as a deduction from the gross income?
3. Reasonable in amount.
On the part of Y, what is the effect of the refund of P50? Income? No. That
is a return of the expense. Tama? May income ba siya? Wala. Binalik lang sa
Wala namang pinagbago eh. Balikan natin ang example. A is the owner of the kanya yung P50 eh.
house leased out to Y. Agreement: Y shoulders the Real Property Tax (RPT). X
rents from A the parlor. Agreement is X shoulders the RPT for the parlor. When Y On the part of X, what is the effect? Tax benefit rule applies. P50 will be
pays A, Y pays the RPT to whom? Local government Unit (LGU). When Y pays considered a part of the gross income in the year of the refund. Why? Because the
the LGU RPT for the property owned by A, income on the part of A? Yes. Within or amount of tax of P200 he claimed as a deduction is refunded, he will have to
without? Within. Subject to Tax? Yes. What kind of tax? NIT. Can A claim as
62
declare the amount refunded as part of his gross income in the year money is kind of tax? NIT. Is Y entitled to claim casualty loss as deduction from gross
received. income? No, because Y is not engaged in trade or business and he is allowed only
personal exemption, additional exemption, and premium for health and
But from Y, no income. Bakit? Sinauli lang sa kanya ang pera niya. Wala hospitalization insurance as deductions. After nakaw, B returned the gunting to Y.
namang benefit sa kanya noong binayaran nya ang tax due, hindi ba? Wala. So Return of the income. The value of the gunting 3 years after is P2,000. When B
sinauli lang sa kanya. That’s just a return of his capital. Clear? returned the P2,000 worth of kalawagnin na gunting na ninakaw niya kay Y,
income on the part of Y? No. That’s just a return of the gunting.
Distinction between tax as deduction from gross income and tax as
deduction from gross estate When B steals the gunting from X, may income on the part of B? Yes.
Within or without? Within. Subject to tax? Yes. What kind of tax? NIT. What is the
Now, what is the distinction between tax as a deduction from the gross effect of pagnanakaw ni B ng gunting kay X? X can now claim casualty loss as a
income and tax as a deduction from the gross estate? Section 86. ‘Yang para deduction from his gross income. 3 years after, B returns the gunting, kalawangin.
isang bagsakan tayo. Makikita niyo diyan sa Section 86. Taxes. So makikita niyo The value of the gunting at the time of the return is P2,000. What is the effect of
diyan taxes as deduction din sa gross estate. ‘Yung ‘T’ sa gross income ay ‘tax’. the subsequent return of the property which has been previously claimed as a
So what is the distinction? When is the tax deductible for income tax purposes and casualty loss? Tax benefit rule again applies. And X will declare P2,000 the value
estate tax purposes? of the recovered property as part of his gross income subject to NIT. Tax benefit
1. Sa income tax, dapat ang tax ay paid. Sa estate tax, ang tax ay hindi paid. rule applies.
Unpaid and due sa estate tax. Requisites for deductibility of casualty loss
2. Sa income tax, paid and incurred in connection with trade and business. In What are the requisites for casualty loss?
estate tax, unpaid whether the tax is due in connection with trade or
business or not yet. 1. The asset must be used in trade or business;
‘Yun ang disitinctions. Pag namatay ang isang tao, hindi tinatanong, “Oh, ‘yan 2. The loss must have arisen out of theft, robbery, embezzlement, fire,
bang tax na yan related sa business or not? Walang ganun. Ang ating lang storm, earthquake or any other natural calamity, provided, the same is
qualification sa tax for estate tax purposes is not paid and due and whether or not not compensated by insurance. If partly compensated by insurance,
related to trade or business. Sa income tax, mas particular ang requirement. The the only amount that can be claimed is that portion not compensated
tax must be paid and in relation to trade or business para maging deductible. by the insurance;
V. Casualty loss 3. It must be determined by B as unrecoverable at the time that the loss is
claimed. Dapat may proof ka na unrecoverable. Hindi pwede na basta
From the provisions of Section 34, there are many kinds of losses. We ka na lang magsasabi na nawala ni Mr. B. Anong mga possibleng
have wagering losses, loss from wash sales, capital losses, ordinary losses, proof? Police report na nananakaw si gunting. Pag walang police
casualty loss. There are many kinds. For the purpose of our discussion now, I will report, paano ka magke-claim?
only discuss casualty loss. I will discuss capital loss, ordinary loss, wagering Distinction between casualty loss as deduction from gross income and as
losses, loss from wash sales separately later para hindi kayo nalilito. So, dito deduction from gross estate
muna tayo sa casualty loss.
Now, you look at Section 86. Estate tax. Casualty loss is again another
Y bought gunting worth P10,000. Imported. Ninakaw ang gunting ni B. X form of deduction from the estate. What is the distinction between the two? So you
bought gunting for P10,000. B stole the gunting of X. When B stole the gunting, will see there casualty loss. The same requisites. The loss must have arisen out of
income on the part of B? Yes. Within or without? Within. Subject to tax? Yes. What theft, robbery, embezzlement, or from fire, shipwreck, natural or any other natural
63
calamity. Anong distinction? You will see na pare-pareho lang. Si X and Y walang makita. Eh kung meron man makita, naubos. Kaya nagdedeplete. Kaya
nanakawan ng gunting. Nanakaw si gunting. Nanakaw si gunting at namatay ang tawag diyan depletion.
kinabukasan si X and Y. Ano ang posibilidad na deduction? Si Y hindi pwedeng
mag-claim ng deduction for income tax purposes. Sa estate pwede siya mag-
claim. Si X pwedeng mag-claim either income or estate. Pero kapag nag-claim
siya ng income, hindi na pwede sa estate tax. Kung sa estate tax nagclaim, hindi VII. Charitable and other contributions
pwede sa income tax. Nakuha? You can only claim casualty loss either from
Charitable contributions. X and Y donated P500 to: 1) the government; 2)
income or estate tax. Period. Kapag na-claim mo na sa isa, hindi na pwede sa isa.
charitable institutions; 3) religious institutions; 4) non-stock, non-profit educational
But the requisites are all the same.
institutions; 5) proprietary educational institutions; 6) proprietary hospital; 7)
Another distinction is in estate tax. Even if the loss is sustained after death charitable hospital. X gives to the same institutions 500.
but within 6 months after death, pwede pa i-claim ang casualty loss. Kasi bakit 6
Mga katanungan: When Y gives P500 each to these institutions, income on
months? Kasi ang payment ng estate tax is 6 months after death. So kahit na
the part of these institutions? Yes. Taxable income? No, because they are
namatay today, nawala kinabukasan, 6 months pwede pa if casualty loss is
excluded from the computation. These are not taxable income because they are
incurred after death, but within a period of 6 months from death. That casualty loss
excluded from the computation of the gross income of the recipients of X and Y.
can still be claimed as deduction for purposes of estate tax.
Are they subject to estate and donor’s tax? When Y gives to these institutions,
subject to estate or donor’s tax. Oh, walang sasagot ng ano ha? Paisa-isa lang.
VI. Depreciation Gobyerno? Exempt.
Depreciation. Capital expenditures. We are talking here of depreciation of Charitable institutions? Exempt, provided, not more than 30% is used for
ordinary assets. Assets which are used in trade or business. If you are not using administration purposes.
the asset for trade or business, you cannot claim depreciation as a deduction.
Religious institutions? Same answer (exempt, provided, not more than
30% is used for administration purposes).
VI. Depletion Charitable institutions? Same answer (exempt provided not more than 30%
is used for administration purposes).
Now, depletion. This is a very unique kind of deduction. It is allowed only to
businesses that are engaged in exploration of natural resource. Depletion. Bakit Proprietary educational institutions? Yes. Subject to tax? Donor’s or estate
“depletion?” Anong ibig sabihin ng “depletion?” Naubos. Kaya natural resources tax? Yes, wala ditong qualification.
kasi if you’re engaged in mining, you’re not even sure if masu-sustain mo ‘yung
Charitable hospital. Subject to donor’s or estate tax? No, provided, not
business dahil baka wala kang mahukay. Or, assuming na may mahukay,
more than 30% is used for administration purposes.
kinabukasan naubos. This is precisely the reason why ‘yung depletion, unlike
depreciation, ang depreciation ini-staggered. Ang depletion hindi. You claim Isa pang tanong: Can Y claim the P500,000 given to these institutions as
depletion one time because of the nature of the business the taxpayer is engaged deduction? No, because that’s not personal exemption, additional exemption, and
in, provided, of course, that the depletion claimed as a deduction is reasonable in premium for health and hospitalization insurance.
amount. What will constitute depletion? You have equipment sa paghuhuhkay
para makakita ng mineral. Eh, iyon milyon-milyon. Hindi ka naman naghuhukay na Let’s go to X. X gave to these institutions? Income? Yes. Taxable income?
ginastos mo isang libong piso. Mahal ang equipment. Then meron possibility na No, because these are gifts, and gifts are items of exclusion on the computation of
64
the gross income on these institutions. Subject to estate or donor’s tax? Ito IX. Research and development
nanaman.
Research and development. Si Y nagpa-feasibility study kung pwede
So the government? Exempt. siyang lumipat ng bahay from Muntinlupa to Quezon City. Nagbayad kay E ng
limang libong piso. Income sa part ni E? Yes. Within or without? Within. Subject to
Charitable institutions? No, provided, not more than 30% is used for gifts tax? Yes. What kind of tax? NIT. Can the amount paid to E be claimed as
purposes. deductible expense? No, because Y is not entitled to that. Deduction of Y is limited
to personal exemption, additional exemption, and premium for health and
Religious institutions and non-stock, non-profit, itong tatlo? Not subject to hospitalization insurance.
estate or donor’s tax, provided, not more than 30% is used for administration
purposes. X paid E the same amount of P5,000 for feasibility study on whether he
can put up a branch of his parlor in Quezon City. Income on the part of E? Yes.
Proprietary educational institutions? Include. 30% rule applies. Within or without? Within. Subject to tax? Yes. What kind of tax? NIT. On the part
Proprietary hospital? Taxable. Include. of X, can X claim the research and development as a deduction? Yes, because
that is actually paid or incurred in relation to the trade or business of Mr. X.
Charitable hospital? No, provided, not more than 30% is used for
administration purposes. X commissioned E to make a feasibility study of whether or not he can put
up Taho business. Binayaran niya si E. Can X claim research and development as
Can X claim the P500,000 as deduction from the gross income from the deduction from income from the parlor? No, because that is not related to his trade
parlor of X? or business that he is engaged in.
Donation in favor of the government? Yes. Items that may NOT be allowed as deduction from gross income
Charitable institutions? Yes or no? Yes, but up to the extent of 10% of the Now, what are the items that can never be allowed as deduction at all
gross income of X. If X were a tao, and 5% if X were a corporation. Hindi ba? times? Section 36 (A).
Binaliktad ko lang.
1. Personal, family and living expenses. Hindi pwede i-claim as deduction.
Proprietary educational institutions and hospital? Allowable deductions? Pambili ng damit, sapatos, gasoline, sariling kotse, kuryente sa bahay, pambili
Yes? Proprietary educational institution and hospital? Allowed as a deduction from ng pagkain, alahas, relo, sapatos, pang tuition ng mga anak. Hindi pwede i-
the gross income? Tingnan nyo ang Section 34 (H). Do we apply the 5% and 10% claim as deduction. Bakit? You are already entitled to personal exemption of
also? Sa proprietary educational institutions, applicable. Sa proprietary hospital, P50,000, additional exemption of P25,000 per child, maximum of 4.
hindi. Proprietary educational institutions, 5% and 10 % apply.
2. Expenses for minor repairs.
3. Making good an existing asset. Bakit? Because these are in the nature of
VIII. Premium for health and hospitalization insuarance capital expenditures. How do we distinguish major from minor repairs? Let’s
look at this room. We don’t like the color of this room. We change it to red.
PHHI. Premium for health and hospitalization insuarance. Nadiscuss na
That’s major repair. But when, ano bang mga dumi na ‘yan, pinastahan lang
natin nag marming beses.
natin ng kapiraso, pininturahan. It is minor repair. Nasira si bombilya- minor
repair. Ayaw ko ng ilaw na ganyan. Pinalitan lahat ng bombilya ginawang
bilog- major repair. Table. I don’t like this table anymore. This is so small.
Change all tables- major kasi capital expenditure. Nabali doon. Pinukpok,
65
pininturahan- minor repair. Deductible kapag minor repair. Major repair ay and gains, we are talking of assets. Meron tayong binibiling assets. Wala namang
hindi deductible because major repairs and the application of assets are business na walang assets eh. Hindi ba? If you are not engaged in trade or
capital expenditures. Because you are not allowed as deduction for the capital business, lahat ng assets mo capital. At kapag ikaw ay hindi engaged in trade or
expenditure, you will be entitled to depreciation of the asset, or the application business, ‘yung assets mo na capital, kapag nagbenta ka ng real property na
of the asset, or the cost of the major repair. ‘Yun ang kapalit nya. capital asset located in the Philippines ang katapat mo agad ay Final Withholding
Tax (FWT) or Capital Gains Tax (CGT) na 6%. Anu-ano yung mga assets mo, ha?
4. And lastly, of course, which we discussed yesterday, Premium on life Real property, tangible personal property, intangible personal property, right?
insurance taken by the employer on the life of his employee when the Habang binibili mo ‘yung asset mo, walang effect sa income tax. Walang epekto.
beneficiary, directly or indirectly, is the business of the employer or himself. Let Ang effect ay sa net worth mo which has nothing to do with taxation. ‘Yung net
us give an example. Y insures his life paying P5,000. Premium proceeds: 10% worth mo, ‘yung assets minus liabilities, kung gusto mong malaman kung gaano
interest, P1M, and return of premium (ROP), designating as beneficiary the ka kayaman, doon importante siya. Pero kung gusto mo malaman kung magkano
wife and children. X insured his life same amount, insuring his life, 10% ang babayaran mong buwis, hindi magma-matter yung assets. Bakit? Kasi the
interest, P1M, and ROP, designating his wife and children as beneficiary time you realize gains or income or loss is when you move the asset.
paying P5,000 as premium. While X and Y are alive, can X and Y claim
deduction from their gross income? Y cannot because he is only entitled to Movement of assets
personal exemption, additional exemption, and premium for health and
hospitalization insurance. What about X? X cannot also claim P5,000 as When we say you “move,” it is a technical term. “Movement of asset” is the
deduction from gross income because it is not related to his trade or business. transfer of ownership. Transfer of ownership, hindi physical movement. You move
When X and Y die, the proceeds go to their respective wife and children. the asset in such a way that there is transfer of ownership. That’s the only time
Income? Pagdating kay Y, P1M is income, but excluded. That’s an item of that you’ll realize gains or losses. Now, what will be the basis of the gains or the
exclusion number 1. The 10% interest is income that is taxable. What kind of loss if you are not a business income earner? It is always the fair market value at
tax? NIT. ROP is not income. On the part of X, ganun din. The 10% interest is the time of sale, at the time of the transaction. What could be the movement? It is
income taxable. P1M is income but excluded and not subject to tax. ROP is not donation, certainly. There is transfer of ownership and there is consideration
not even income. Clear? X insured the life of Y. Proceeds of 10% interest, because if you donate something, you do not realize gain. You do not realize loss.
P1M, and ROP to designated beneficiary X. Y dies. What is the effect of the Right? You do not consider gain or loss, because you gave it. Now, if you move
death of Y, in so far as income taxation is concerned from the point of view of the asset and there is consideration because there is transfer of ownership, that’s
X? While paying the premium, X cannot claim as deduction from the gross the time that you will realize gain or loss.
income the P5,000. That’s Section 36, paragraph A, number 4. When Y dies, Ordinary gains
10% interest goes to X and a taxable income. P1M goes to X. Income, but
excluded. ROP is not even an income because that’s return of capital. On the So, kayo nagtatrabaho lang, walang business. Relo. Kapag binenta mo
part of Y, there is no tax consequence, whether from income or estate tax ang relo na binili mo ng P20,000 na ngayon ay P5,000 na lang, kapag benenta ko
point of view because his only participation is to live and die. Open and close ng P6,000 kikita ka. Yes? Magkano? Isang libo. What happens to the P1,000?
the eyes for X. Remember the items of inclusion: C-G-R-D-Y-R-A. Ang isang ‘G’ diyan ay, “gains
derived from dealings with property.” So you classify the P1,000 as gains derived
from dealings with property. Right? But since it is a capital asset but not real
Concept of gains and losses property, it does not fall under letter B right? It does not fall under letter C, it does
So we are going to teach you the concept of ordinary loss, ordinary gain, not fall under letter D. Therefore, it falls under letter A. The P1,000 is gross
capital loss, capital gain, net capital loss carry over, net operating loss carry over, income, but subject to tax (NIT).
which is technically under Section 34, pero hindi ko pa talaga diniscuss para Ordinary loss
maintindihan natin because this is of different treatment. When we talk about loss
66
If you incur a loss, P5,000 ang Fair Market Value (FMV) and I sold it at Transfer for insufficient consideration
P10. I lost. How much? P4990. ‘Yung P4990 isasama ko sa letter F, losses. Hind
ba? At ike-claim ko as deduction? No. In the first place, that ‘L’ is not part of the If I sell at a loss at P50,000, may income ako? Wala. May income tax
personal exemption, additional exemption, and premium for health and consequence? Wala. Loss, eh. May tax due? Oo. Section 100 again.
hospitalization insurance. I am not affected by F, by the loss, because I am not
engaged in trade or business. Ordinary gains in sale of personal property
‘Yung bang loss ko na P4990 may effect sa income ko? Wala. May effect Kotse. Car. I purchased at P1M. Now the FMV is P500,000. I sell it at
ba sa tax due? Wala. Bakit? Hindi kasi siya pwede i-claim as a deduction. Bakit? P800,000. May income? Yes. Magkano? P300,000. Anong gagawin ko sa
Unang-una, hindi ako engaged in trade or business and because I am not P300,000? Ibato mo sa gross income, because you are not engaged in trade or
engaged in trade or business, and losses is not one of the three. So what happens business, at wala kang ibang gagawin kundi ‘yung P300,000 ay ibato sa gross
to the loss? Nothing. It will not affect my income tax. It has nothing to do with income. Subject to deductions? Yes. What kind of deductions? Personal
income taxation. But since there is no income tax due, the government losses, and exemption, additional exemption, and premium for health and hospitalization
when the government losses, it will have to recover the loss. How? Section 100. insurance because you are not engaged in trade or business.
Transfer for Less than Adequate and Full Consideration. Ordinary loss in sale of personal property
Capital Gains Tax How about a loss? P50,000. May income ako? Wala. Wala akong ibabato
Lumbera is a purely compensation income earner. I have a house worth, I sa gross income kasi at a loss. Magkano loss ko? P450,000. What is the effect of
purchased it for P3M. I sold it in 2005, now the FMV is P4M and I sold it for P7M. the loss of P450,000 and I am not engaged in trade in business? Simple. Nothing
What kind of asset? Capital. Located in the Philippines, right? When I sold it at when it comes to income taxation. But is there tax consequence? Yes. Section
P7M, is there a tax consequence? Yes, because it is letter B. Capital Gains from 100 applies.
Sale of Real Property located in the Philippines. Depreciation of real and personal properties
I am Lumbera, resident citizen, the tax due is 6% of the FMV or the gross Now let’s change the scenario. Lumbera is engaged in trade or business.
selling price, whichever is higher. Now, what if I have a house worth P4M and I Situation number 2 is that Lumbera is engaged in trade or business. Same assets
sold it for P50,000. May income ako? Wala. What is the nature of the asset? Real and you are engaged in trade or business. Bumili ka ng parlor. Purchase price is
property. Capital. Is there tax consequence, income tax? Yes, because according P2M. Can I claim as deduction the purchase price of P2M? Yes or no? No. Why?
to the law, gains from sale of real property is 6% of the fair market value, P4M or Because this is capital expenditure. When I bought this parlor, what do I do with
the gross selling price, P50,000, whichever is higher. the books of asset? Real property bought in 2011 for P2M. Depreciation period? I
Gains in sale of real property not located in Philippines presume that this is bagong-bago, the economic use is 20 years. So magkano ang
bawas sa isang taon sa P2M? P100,000. So 2012: P1.9M; 2013: P1.8M; 2014:
I have a house located in the USA. The same, P4M ‘yung FMV now. I sold P1.7M and then 2015: P1.6M; 2014: P1.5M; 2015: P1.4M and so on and so forth,
it at P7M. I have gains of P3M. How do you call the gains? Capital gains. But the hanggang maubos, hanggang maging zero book value. Kung tangible personal
property is located outside of the Philippines. Is there income? Yes. What happens property, car, iba naman. Iba’t ibang date yan eh. Alangan naman sa isang taon
to the income of P3M? Ibabato mo siya sa gross income. That will form part of bibilhin mo lahat. In 2012, bumili ng kotse worth P1M. Depreciation period? 5
gross income and the gross income together with the P3M gains will be subjected years (P1,000,000/5= P200,000. So P800,000; P600,000; P400,000; P200,000;
to NIT after taking the deductions of personal exemption, additional exemption, P0 book value by 2017. Ano pa? Intangible personal property. Ano kaya? Shares
and premium for health and hospitalization insurance. Why are we not collecting of stocks. Magkano bili natin? P1M. 2014, nag-invest. Shares of stocks. Capital in
6% CGT? Because the 6% is allowed only if the property is located in the character, eh. Ginagamit sa trade or business. P200,000 ang depreciation.
Philippines. Nagdedepreciate din ‘yan. IIang taon? Limang taon. Bawal i-deduct ang business
67
expense? Yes, pero allowed mag-depreciate. So kapag tinanong kayo nandito sa particular time. So let us look at aircon 2 because it was bought in the year 2014.
2014, magkano ang deduction in the form of depreciation ng 2014? P100,000, In the year 2016, aircon 2 is an ordinary asset. Let’s look at 2016. Assuming that
plus P100,000, plus P40,000, equals P240,000 ang depreciation expense as of we are now in 2016. Aircon 2 is an ordinary asset. Now (after 2 years), what is the
2014 as a deduction. Pagdating ng 2015, ganun din ‘yan. Depende kung ano ang book value of aircon 2? P30,000 (depreciation is P10,000 each year). Sabi ko,
binili mo kung paano ito dinedepreciate. Let’s say 2012: P20,000. Depreciation book value of P30,000. Nabenta ng P35,000. What do I realize? P5,000 ordinary
magkano? 16-12-8-4-0. Ok. In 2013, mahal ang gunting na panggupit (binili ng gain. Ang income na ordinary gain na ‘yan, ay ibabato mo dito para maging part of
P10,000). 8-6-4-2-0. Isususlat mo lahat ‘yan. Nung 2014, si aircon na nabili ko the gross income? Hindi. You recognize the gain but only to the extent of the
naging obsolete. Nag issue ng regulation ang DENR: “All aircons of this size losses. How does it work? So for aircon 2, ‘yung ordinary gain is P5,000. Ito
destroy the environment.” Mahal. P80,000. Na-phase out. So the asset na nabili (P5,000), hindi isasaksak doon (Letter A) katulad ni Lumbera na hindi engaged in
ko at ginagamit at that time was ordinary. Na phase-out. Ano ang gagawin ko trade or business. I call this, personal terminology ko ‘to, “side stepping”. The
doon? Illagay ko sa stock room. Bumili ngayon ako ng bagong aircon na ganyang “sidestepping” refers to the recognition of gains up to extent of the losses. We
klase. Aircon 2 noong 2014. Magkano? P50,000. 40-30-20-10-0 book value. recognize gains up to the extent of the losses. That’s under Section 39 (C) of the
Ganyan ako magdepreciate. Si gunting, hindi na uso o hindi kaya nasira na. Tax Code. So here you gain P5,000 for the same year of 2016. Gunting 2.
Inilagay nanaman sa bodega. Gunting 2. Bumili nanaman ako noong 2015. Binili Magkano ang book value? P16,000. Ibenenta mo si gunting 2, ordinary asset.
ko ng P15,000, nasira si gunting. Magkano? P20,000. 16-12-8-4-0 book value. Nabenta mo ng P10,000. Lugi. Loss. Magkano? P6,000. How do you call that?
Habang hawak ko si asset, ang effect sa akin ay depreciation lang. ‘Yun lang ang Ordinary loss. For the year 2016, assuming these are the two transactions
pwede mong gawin. I-dedepreciate yung asset and claim depreciation as involving movements of assets. Then for the year 2016, year end, I have ordinary
deduction. When I purchase the asset, no deduction will be allowed, but gains of P5,000 and ordinary loss of P6,000. Therefore, what I arrived at the end
depreciation will be allowed. That will already have an effect on the tax due of the year is net ordinary loss of P1,000. What happens to the loss? Ito ba
because depreciation is a form of deduction for the gross income. isasama mo sa allowable decoctions para lumiit ‘yung gross income mo? No!
According to Section 39, you only recognize gains up to the extent of the losses.
Recognition of gains and losses in sale of ordinary assets You are allowed 1 benefit. Your gain of P5,000, which could have been easily
added to your gross income, and if added will of course increase your tax due. But
But what happens when you move these assets? So kanina, si Lumbera ay because of recognition of gains versus losses, the loss has the effect of reducing
purely compensation income earner and I moved the asset. I should know that your gains and therefore you don’t have anything to add here. Therefore, the effect
gains and losses affect income tax. Now, I am engaged in trade or business. What to you is reduced tax as well. But when you arrive at the end of the year at an
are the effects of the recognition of the gains and losses on ordinary and capital ordinary loss, wala nang mangyayari because the net ordinary loss is not the “L”
assets? The rule is: all gains and losses are recognized. The term is recognition of here. Tapos na ang usapan. Now, kasi take note: lugi naman ako kasi loss sa
gains and losses. How do you recognize gains and losses? Very simple. Let’s take dulo. Hindi ka lugi kahit loss sa dulo kasi nagbenefit ka naman ng isang beses.
the case of aircon 1 and aircon 2 and gunting 1 and gunting 2. Ordinary asset. Ano? Noong nag-gain ka ng P5,000 at nabawasan ng P6,000. Ang effect noon ay
When aircon 1 in the year 2014 has book value of P12,000 and still being used in sa halip na maglagay ka ng gross income na limang libo, wala kang sinama sa
trade or business, the asset is ordinary. When aircon 1 in 2014 became obsolete gross income kaya ka nagbenefit ng isang beses.
and you transferred it to the bodega, the asset is converted from ordinary to
capital. When gunting 1 is being used in trade or business, ordinary asset. But Now, when at the end of the year you realize net ordinary gains, pwede
when gunting 1 became kalawangin at hindi mo na ginagamit, it can be converted mangyari ‘yun. Baliktarin natin. Ang gunting ay nabenta mo ng P8,000. So P8,000
into capital asset. The only time that an asset is not converted from ordinary to versus loss, na 6K. Ang mangyayari sa ‘iyo ay may ordinary gain na P2,000. Ano
capital is, if the business is real estate development and it involves land. When ang gagawin mo diyan? Eto ibabato mo dun (gross income). In which case, lalaki
lands are in a taxpayer who is engaged in real estate and development and sale of ang tax due mo. Pero, lugi ka pa ba? Hindi. Bakit? Nagbenepisyo ka na. Ano?
real property, all lands are treated forever as ordinary asset even if the land Noon ang loss ay nirecognize versus the gains of P8,000 kasi kung walang loss,
become idle land. It doesn’t change its classification from ordinary to capital, or kung hindi ka inallow na i-offset ‘yung loss versus the gains, P8,000 sana ang
from ordinary to capital, depending on the current use of the taxpayer at any napasama roon at nag-increase ang tax due mo. There is no such thing as
68
NOLCO na net ordinary loss carry over. Walang NOLCO na net ordinary loss carry 2017, ganun din an proseso mo: recognition of gains and losses. So kung sa
over. Ang NOLCO ay NET OPERATING LOSS CARRY OVER. So, this is how 2017, nag-arrive ka ng gross capital loss na P3,000; net capital gains for the
you recognize gains and losses of ordinary assets. All ordinary gains, i-grupo. All succeeding year is P6,000. You can carry over P3,000. So next year, sa halip na
ordinary loss, i-grupo. Then i-offset. If at the end of the year you have net ordinary ita-tax ka ng P6,000 sa gross income, ang ibabato mo lang ay P3,000, because
gains, ibato mo sa gross income, and that’s the only time that it will have an effect. you have a net capital loss carry over. What happens if in the year 2017, net
But on transaction basis, no effect yet. If at the end of the year, you realize net capital loss ka? Loss. It can happen. Anything can happen. Succeeding year, net
ordinary loss, manahimik ka na. Wala nang mangyayari. Bakit? Meron ng capital loss ka ng P2,000. Itong 2017, ito ‘yung net capital loss mo. Are you still
benepisyong nangyari sa iyo nang inoff-set si loss against the gains? Tigil na. allowed to carry over? Yes. The net capital loss, magkano? P5,000. Anong effect
Wala ka nang magagawa. ‘nyan? Wala. The net capital loss walang effect dito. Now, ang tanong: sa 2018,
pwede pa bang mag-carry over? Oo. Isang libo lang. Bakit? Yung P2,000 mo for
Recognition of gains and losses in sale of capital assets the coming year ay ‘yung net carry over mo na P3,000. Ang charge sa P3,000
carry over is P2,000 kaya P1,000 na lang. ‘Yun na lang ang pwede mo i-carry
Now, let’s go to capital assets. Aircon 1. Binili rin noong 2014. Aircon 1 over. Isang libo lang ang carry over. Ulit. Walang problema pag net capital gain ka
became obsolete in 2014. So kung 2016, the book value is at P4,000 each. So sa 2017 kasi kitang-kita mo ang effect ng net capital loss carry over, eh. It reduces
aircon 1, which is a capital asset has a book value of P1,000. Nasa bodega. Hindi in otherwise, at the end of the year, you sustained capital loss, and you will be
mo maipakilo. Somebody, a collector of that kind of aircon, found out and carrying it for the succeeding year, and for the succeeding year, gain ka, you will
purchased the aircon. Collection item daw niya. Binili si aircon. Binenta. Magkano? not feel the effect. The net capital gain is reduced by the net capital loss carry
P6,000. Anong tawag mo diyan? Capital gains. In capital assets, you apply the over. Kapag sa succeeding year net capital loss ka, will you still be allowed to
holding period if the individual is engaged in business. So, if the asset is held, carry over? Of course, walang problema.
nakasulat diyan, Section 39 (B). If the asset is held for not more than 12 months,
ano ang percentage ng recognition? 100%. More than 12 months? 50%. Kapag But, katulad dito for the current year, P2,000 na loss sinundan mo ng
mahaba ang panahon na hinawakan, kalahati lang daw ang marerecognize. P3,000 na loss rin. Ang sabi i-carry over ang net capital loss na P5,000. Pagdating
Simply, Aircon 1, kailan ba binili? 2014. Kelan binenta? 2016. More than 12 ng 2018, hindi mo pwede i-carry over yung P2,000 dito. Bakit? Kasi nacharge mo
months? Oo. So anong sabi? Irecognize mo yung 50%. Sa halip na P6,000, na sa capital loss for the year 2011, kaya isang libo na lang.
P3,000 ang capital gains. OK? Gunting 1. Kalian binili? 2013. Ibenenta ng 2016.
Capital asset. Magkano? P2,000. Anong tawag dito? Capital loss. Ilang taon Baliktarin natin ang sitwasyon. Sa susunod, 2017 net capital gain mo ay
hinawakan ang gunting? More than 12 months. So 50% ng P2,000 ay P1,000. P2,000. Meron kang net capital loss sa susunod na taon (2018) na ike-carry over
That’s capital loss. Anong gagawin nanaman diyan? O, sa loob ng isang taon na P3,000. So at the end of the year, the taxpayer sustained net capital loss na
capital gains. Magkano? Hindi anim na libo. You apply the holding period so P1,000. Pwede mo ba i-carry over yung P1,000? Hindi na. Kasi isang taon ka lang
P3,000. Capital loss, magkano? P2,000, kapag ang asset is not held for more pwede mag-carry over. Naiintindihan? Sa second year ka na, kasi pwede mag-
than 12 months. P1,000, sa loob ng isang taon. Ang net capital gains P2,000. carry over, eh. Kasi nagbenepisyo ka na. Ano yung benefit mo? ‘Yung gain mo
Anong gagawin? Ito ba ay ita-tax sa Letter B doon? Hindi. Hindi naman real nareduce ng loss. Number 4, inallow ka ng holding period. Number 3, nag net
property ‘yan. Ordinary pa. So anong gagawin? Ibato mo sa A and it will have an capital loss carry over ka pa. Sobra-sobra na benepisyo mo, manahimik kayo.
effect on the tax due (NIT). ‘Yan ang sabi ng gobyerno. The government recognizes that you incurred losses
and it will have an effect on you. But it has to be within a certain limit. What is the
Net Capital Loss Carry-over limit? Inallow na kita na may holding period ka pa nga. Benefit na ‘yan sa iyo.
Pangalawa, ‘yan gains mo nareduce ng loss like the loss was charged against the
Eh, paano kung may capital loss sa dulo? Meron tayong tinatawag na Net gains. Number 3, kapag sa dulo may capital loss ka pa, pwedeng i-carry over. Ay,
Capital Loss Carry Over (Section 39 [D]). We can carry it over in the succeeding sobra naman kung loss na hindi mo na carry over, eh ike-carry over mo pa sa
year. Net capital loss carry over can be carried only by an individual taxpayer susunod na taon. Ay, luging-lugi na ang gobyerno sa inyo. Tama na. So these are
engaged in trade or business, and the carrying over is for the succeeding year
only. What is the effect of the net capital loss carry over? This is year 2016. Sa
69
the benefits. This is how you recognize gains and losses. All assets, whether Y has a painting worth P2M. Exchanged for shraes of stock in XY merged
ordinary or capital. This is how you recognize. corporation worth P3M. Gains? P1M. Do not recognize. Why do you not
recognize gains and losses in the merger or consolidation? The answer is
Holding Period and NOLCO not allowed if taxpayer is a Corporation simple: Because X and Y own XY merged corporation. Whatever assets or
liabilities XY will have will be incurred by X and Y separate corporation.
What are the modes? Holding period is allowed only if the taxpayer is Therefore, no gains or losses sustained. No gains realized. No loss sustained.
individual. NOLCO is allowed only, again, if the taxpayer is an individual, and the Kasi sila din ang may-ari.
net capital loss may be carried over to the succeeding year only. Such that if the 4. When an individual, together with others, not exceeding 4 (he plus 3),
taxpayer is a company, no holding period is allowed. Therefore, all gains and exchanges property for shares of stocks in a corporation and he, alone or
losses are recognized at 100%. There is no such thing as NOLCO (corporate together with others not exceeding four, gains control of the corporation.
taxpayer), and therefore, if the company sustained a capital loss at a given period, Whatever gain or losses sustained by the individual when the property is
no more benefit for the succeeding year. This is how it’s done. Now you see the exchanged for shares, do not recognize. Example: Car worth P1M, pinagpalit
relationship of ordinary gains, ordinary loss, capital gains and capital loss. With ng shares na P1.5M. Whatever gain or loss sustained, do not recognize.
this computation. Now, kitang-kita n’yo yan. Hindi ka kasi n’yan nagpi-physical Bakit? Siya ang may control ng korporasyon at habang siya ang may control,
labor. Nagmomove ka ng asset. So what is the effect of the movement of the kaya niyang pakitain. So ngayon, kumita ang korporasyon, ang loss ay
asset? Recognition of gains and losses, which will have either, a direct effect on matatakpan. Kapag may gains, ang kanilang kinita ay siya ang magbebenefit
the gross income, or indirect effect on the gross income, but never on the issue of kasi sa kanya ang korporasyon. Kaya walang gains, walang loss. OK?
deductibility. What will be the effect is that, the tax due will either increase or 5. Wash sales. Naglaba. Kapag naglalaba ka, ano ang natatanggal? Dumi.
decrease because of the recognition of gains and losses. That is the general rule. Kapag naglalaba ka, naglilinis ka. So shares of stocks owned if at any given
Instances when gains and losses are not recognized point in time ‘yung shares of stocks, let us say P1M, and then you sell it today
at P300,000, you sustain loss. Right? P700,000. That loss will not be
When are gains and losses not recognized? Kailan naman tayo hindi recognized in wash sales if 30 days prior to the sale today or 30 days after the
dumadaan sa ganung proseso ng recognition of gains and losses? When are sale today, you acquire similar shares of stocks as those ones that you sold
gains and losses not recognized? Section 40, (C)[2]. and you incurred loss. It is as if you did not lose at all and therefore the loss of
P700,000 is not recognized. But if you sell the shares of stocks at P1.4M, you
1. When you are selling real property located in the Philippines, capital in have gained P400,000 and 30 days prior to or 30 days after you purchased
character. The gains and losses are not recognized in that manner because similar shares of stocks as the ones sold, ALL gains recognized. In wash
the tax due is 6% capital gains tax. sales, gains are recognized, loss are not recognized. All gains are
recognized in wash sales. Losses are not recognized because it is as if no loss
2. When shares of stocks in a domestic corporation, capital in character, sold and was sustained.
traded. Ngayon, no recognition of gains and losses, because the tax is 5% for
the first 100K and 10% in excess of 100K.
Under Number 4, an individual exchanges property for shares of stocks in a
3. If there is a valid merger or consolidation of two corporations and shares of corporation and he, together with others not exceeding four, gains control of the
stocks are exchanged for shares, or shares are exchanged for property, or corporation. Whatever gains or loss, whatever gains he realizes or loss he
property is exchanged for property, or property is exchanged for stocks. sustains, do not recognize. Ang tawag dito sa Numbers 3 and 4, ‘yung terminology
Whatever gains or losses, no gain, no loss recognized. Example: Corporation ay tax-efficient transfers. Kapag naintindihan n’yo ‘yan when you become lawyers,
X, Corporation Y. Corporation X has a car worth P1M. Corporation Y has a transactions tax efficient transfers, hindi ba naririnig nyo ‘to: “Naku meron akong
painting worth P2M. They merged. XY Corporation is born. There are shares mga properties, ililipat ko na lang sa korporasyon”. ‘Yan ‘yon, ha? Because your
of stocks of P500,000. Car is exchanged for P500,000 shares of stocks to XY property is used to buy shares in a corporation. And when you buy shares, that is,
merged corporation. X incurred a loss of P500,000. Do not recognize the loss. na-exchange and when you buy shares, you gain control of the corporation, no
70
tax. No tax ang effect. Nothing. Kasi no gain, no loss recognized. Tax efficient of the 7 ½% tax. Example. OFW ka. Nagtatrabaho ka sa States. Ang pamilya mo
transfer of property. ay nasa Pilipinas. Kapag nagremit ka ng iyong kinita, hindi ka pwede basta
magremit na nagdedeposit ka ng account mo doon at iwi-withdraw dito. Meron
Number 1. Valid merger or consolidation wherein shares are exchanged for tayong tinatawag na remittance account na kini-create para lahat ng remittances
property, shares are exchanged for stocks, property for stocks, property for doon papasok. Parang Western Union din ‘yan except dito bangko. OK? ‘Yung
property. These are tax-efficient exchanges of property. No gain, no loss account mo na foreign currency but a remittance account is exempt from tax in
recognized and therefore no tax consequence. recognition of the principle that: All non-residents are not subject to income tax for
income outside. And they remit it, the benefit of the government is in lieu of the tax
Number 2. When an individual exchanges property for shares and he to be earned out of the bank account, it is exempt now. Bakit ini-exempt? Kasi
alone, or together with others not exceeding four, gains control of the corporation, nagbebenefit ‘yung gobyerno dahil ang foreign currency natin dumadami. So the
no gain or loss recognized. Therefore, no tax consequence as well. Ito yung mga remittance account, na-withdraw mo. Siyempre remittance account ‘yan, hindi ka
naririnig n’yo. Tax efficient transfer of property. So the reason why I took this out of pwede magsave. Walang remittance na nag-stay ang pera kasi ginastos mo kaya
Section 34 and did not discuss in Section 34 ay para hindi magulo. Now you see nga pinadala. Si dollar, inilipat mo sa ordinary dollar account. This is no longer a
these effects. These are not deductions. remittance account. This is expanded foreign currency deposit and therefore, no
X. Losses longer exempt.
LOSSES. The only loss that effectively reduces your gross income is Another situation: Resident Citizen. Ang bangko mo ay nasa labas ng
casualty loss. That’s the only loss. Then you will have to recognize casualty losses Pilipinas. Kapag foreign currency deposit doon, ‘yon ang current currency doon.
together with gains and all losses, as a general rule, are recognized up to the Pero ang peso ko ay foreign currency doon. Tama? ‘Yung peso account ko sa
extent of the gain only. Such that, if at the end of the year the taxpayer realizes ibang bansa ang foreign currency account doon. At ang dollar account ko sa
gains, that’s the time na ibabato mo sa gross income which will have an effect on kanilang bansa is ordinary currency account doon. So kung resident citizen ako at
the tax due. But if at the end of the year you incur loss, manahimik ka na. Wala na. may peso account ako sa ibang bansa, that is a foreign currency account sa ibang
Wala nang mangyayari. You are not allowed to deduct that loss whether ordinary bansa. Anong posibleng tax doon pag nagbigay ng interest? Kapag nagbigay ng
or capital loss from the gross income. You cannot claim the same as deduction interest, ita-tax iyon. It may be either in the form of FWT, kasi parepareho lang ang
from your gross income. Why? Because you have already been benefited: (1) tax system natin, eh or treated as foreign currency account. Dito sa Pilipinas, may
When the gains are reduced by the loss because the los are recognized up to the tax ba ‘yung interest? Oo. Anong tax natin? NIT. ‘Yung foreign currency doon,
extent of the gain; (2) Holding periods, in case of individual taxpayer, has the peso account at ang dollar account doon, ordinary. Pagdating doon, ordinary ‘yon.
effect of reducing the gains and losses; (3) When a taxpayer is an individual and ‘Yung peso account na ‘yun ang foreign currency account doon. May interest
net capital loss is allowed to be carried over for the succeeding year only. These P100. Anong mangyayari sa akin? Resident citizen ako. NIT pereho. Peso and
are your benefits already. These benefits have the effect of reducing your gross dollar account outside. Resident citizen ako. NIT. Pareho. Eh, ano ang tawag nya
income because hindi mo na isasama sa gross income, or the gain is completely doon? Pero ‘pag ang pera mo ay pumasok sa Pilipinas na remittance, ibang
eaten up by the loss and therefore, the effect at the end of the day is the tax is usapan. Codal ‘yan. Remittance account, makikita n’yo sa bangko, this requires
reduced. Ang administrative provision ng income tax ay idi-discuss with remedies. kasi special permit from the Bangko Sentral ng Pilipinas for a bank. May authority
Doon ko siya idi-discuss para kita niyo kung saan ginagamit ang administrative dito to accept remittances. OFW nasa Saudi ka. Magbubukas ka doon ng
provisions. Ha? Doon ko idi-didscuss when I take up remedies. remittance account sa PNB. Naka-match agad ‘yan. So lahat ng pera mo mama-
match sa account na ‘yan. Ire-remit sa account mo sa Pilipinas, lahat ng pera na
Question on foreign currency account: pumapasok sa Pilipinas walang tax. Lahat ng earning nila, money in the foreign
country, walang tax kasi non-resident citizen ka. Kapag pumasok sa remittance
Liwanagin natin. Pag ika’y may bank account na dollar account, foreign account sa Pilipinas, walang tax. Pero pag ginastos mo, may tax na ‘yan. Kasi
currency account. I-distinguish natin. If the foreign currency account is at the same kapag ginastos mo, anong consequence? May kikita. Alangan naman saan mo
time a remittance account, the code says that the account is exempt from payment gagastusin? Palabas ng Pilipinas ulit? Hindi. ‘Yung inward remittance account,
71
nandito ngayon sa isang account. Kapag ikaw, ordinary account lahat ng kinita real property. If you are engaged in development and sale of property, each sale
n’yan passive income. Pag winithdraw mo, ginastos mo, may kinikita na, may tax of real property is considered sale of goods.
doon. ‘Yon ang pinagbabawian ng gobyerno.
Sale of service. There is no employer-employee relationship involved.
Now you see and you will realize tax is a very dynamic topic and subject. Services are rendered and for the services, you are paid.
Kelangan lang talaga alam na alam mo yung step-by-step ng transaction kasi in
every step of the way may pagbabagong mangyayari. At depende sa tax. Hindi ka Sale of service may cover lease, rentals. When there is a lease, there is
pwede mag-generalize. Kailangan hihimayin mo unti-unti because every step of sale of service.
the transaction you will have to think about what is the tax consequence. That is
why avoidance is really an art. Because every step of the way may tax due eh. Importation of goods. Galing sa ibang bansa at dadalhin sa loob ng
You can see from our example. So how will you avoid? There are many ways of Pilipinas. Kung gagamitin mo sa bahay mo ang iyong inimport, walang pakialam.
avoiding. I will not teach you yet. Not yet. But there are so many ways that are Pagdating sa Pilipinas, importation of goods. Paano ini-import? Walang land. By
legitimate manner of reducing your tax due. If nasa business ka, lalong maganda air and sea. Pagdating niyan sa Bureau of Customs sa Pilipinas, that’s
‘yan. But when you become lawyers, come to mama. But not now, because you importation. Bago mo ilabas sa warehouse ng Bureau of Customs, magbabayad
have to learn the basic of what is right and what is wrong. ka ng VAT. Kapag inilabas mo, kapag binenta mo, each sale, VATable. Kung
kakainin mo, walang VAT. Pero may VAT ang importation.
VALUE ADDED TAX (VAT)
Transactions deemed sale
VAT is the easiest tax under the NIRC but the most technically worded
provision of the law. Admitted ‘yan. Walang kokontra d’yan. Napakadali lang. Now, in sale of goods we have Transactions Deemed Sale (TDS).
Marunong kayong mag-add, mag-multiply? Walang division. Addition and Transactions deemed sale is found in Section 106 (B). There is no actual sale but
multiplication at subtraction. Wala ditong division. Value added tax (VAT) is value the goods are being sold and subjected to value added tax:
added tax. Tax is added to the value. It is a form of indirect tax which is collected 1. Transfer, use, consumption of goods intended originally for sale in the
or imposed for: ordinary course of trade or business. Meron kang restaurant. Ang
1. Every/each sale of goods in the course of trade or business; binebenta mo ay tapsilog. Araw-ayaw mong niluluto sa bahay mo. Kumuha
ka ng tapsilog na stock. Deemed sold. Because the tapsilog is sold in the
2. For each sale of service in the course of trade or business; and ordinary course of trade or business. Kinain mo, nilamon mo. Deemed
sold. Period.
3. For each importation of goods. Walang service ha. This time whether trade
or business related or not. 2. Transfer in favor of creditors. May utang ka na isang libong piso kay Mr. X.
Wala kang pangbayad. Sabi mo kay Mr. X, “Kumain ka ng tapsilog araw-
It is a form of tax imposed on each sale of goods in connection with the trade or araw.” Ok sige kasi walang pambayad. Kumain si Mr. X. Bawat tapsilog na
business, or each sale of service in connection with trade or business, or each kinakain, deemed sold.
importation of goods whether related to trade or business or not. These are the
only three transactions covered by VAT. 3. Transfer in favor of investors. Hindi mo maisauli ang investment at tubo.
Ang sabi mo, “Kumain ka ng tapsilog equivalent to investment”. “Agree.”
Meaning of sale Everyday kumakain ng tapsilog. All tapsilogs eaten by the investor deemed
sold.
What is the meaning of sale? Sale may refer to actual sale or barter or
exchange. There is transfer of ownership. Sale of goods. Goods will even cover 4. Consignment of goods. Goods not sold within 60 days from the
consignment, all are deemed sold on the 61st day.
72
not applicable to you except that it adds up your expense. Let us assume that you
5. Closure of establishment and all stocks remaining shall be deemed sold. are engaged in delivery of tapsilog to government offices. So you ordered for 1
Tapsilogan sinara mo. Titingnan ngayon kung ilang kilo ng baka ang nasa tapsilog. My business is delivery of tapsilog. Anong mga purchases mo? Gasoline
refrigerator. Ilang tapsilog ang kayang gawin para doon sa kilo ng baka? pag ikaw ay naglalakbay. Maraming purchases. Tama? So itong tapsilog na binili
All are deemed sold. nya ng P112 at nagcompute ka. Per tapsilog is now P150, cost pa lang sa iyo.
Kayo namili ng tapsilog sa kanya, ikaw nagparasyon ka. P150 may tubo na siya
diyan. Binenta sa iyo plus 12%. Magkano? P150 x 12% = P168. P168 ang
Transactions deemed sale, not applicable in sale of service and importation tapsilog. Magkano output mo? P18. Output is P18. Magkano input mo? P12. P18
output less input of P12 is P6. Go to BIR remit the P6 that is VAT payable.
This is how it’s done: Whatever kind of business that you have, if you have
these five transactions, these are all deemed sold. VATable. Subjected to VAT. Remedy in case input tax is more than output tax
There are no transactions deemed sold in sale of service and importation. Ang
importation kasi, ay either imported or hindi. Pag hindi ko dinala sa Pilipinas If marami kang purchases, ibig sabihin your input is more that your sales, if
walang importation. Kapag nasa gitna pa ng dagat, wala pang importation. Kapag your input is more than your output, marami kang pinamili kesa nabenta, what will
dumating sa Pilipinas, importation na ang tawag diyan. Kahit tumalon sa barko at happen? The excess input you go to BIR, ask for refund. But of course, money will
nasa gitna pa lamang ang barko, imporatation. Importation starts from there. Now, not be given to you. It will form part of credit, either tax credit for the succeeding
what is the rate? 12% tax added to the value. Basis? Gross selling price for sale of quarter because VAT is computed on a quarterly basis but paid on a monthly
goods. For the sale of service, the gross receipts. For importation of goods, the basis. Computed quarterly but remitted to BIR monthly. Ganun ‘yan. So ikaw, if
value or the amount determined by the Bureau of Customs. you have excess input, you may credit for the succeeding quarter, or if at the end
of the year, if you still have excess input, you will credit it with your other
Output and input tax obligations such as income tax due from your business.
In addition to the 12%, we have what we call zero-rated and exempt. Excess output is VAT payable
Sasabihin n’yo, ang tanga naman ng batas. I-multiply mo ang zero sa limang
milyong piso, zero. Ang exempt wala ring VAT. So what is the difference? Later, I’ll This is how you do it. Input-output, input-output. Ganun lang ito nang
inform you of the distinction between the two and which is more beneficial to the ganun. And then you remit monthly to BIR. If you have excess output, that is VAT
tax payer. So, you multiply by 12% and the buyer pays. So ito ang magandang payable. Pay to BIR. Hindi ka nagbabayad sa BIR bawat benta. Kokompyutin mo
sample: Tapsilog P100. Ibenenta mo sa iyong tindahan. Magkano selling price mo ‘yan on a quarterly basis and you remit on a monthly basis, and if at the end of the
after adding the cost? P100. Buy tapsilog. Ikaw nagbayad ka ng P100 na selling year you have excess output, meaning, you have more sales than purchases, then
price plus 12%, bigyan mo siya ng P112. The P12 is called the output tax from pay to BIR. But if you have excess input, meaning you have more purchases than
your end. And he (buyer), calls it input tax. Output tax is the value added tax on sales, then you also go to BIR and request for refund or credit, the same with your
sales and input tax is the value added tax on purchases. OS-IP. Output for sales. other tax obligations. So as you are moving along the taxable period, you may
Input for purchases. credit it for the succeeding quarter. Very simple and Value Added Tax. Kaya sabi
ko sa inyo, multiplication, addition, subtraction. Walang division na ginagamit. So
Ikaw naman may output kang P12, ano naman ang posibleng mong input? ‘yan ang ginagawa n’yo.
Bumili ka ng gasolina, nagbayad ka ng kuryente. Pag naggagasolina ka, may tax
dun. Bumili ka ng gasul may VAT. Nagbayad ka ng kuryente may VAT. May Relevance of input and output tax to income tax
telepono ka, may VAT. Lahat ng purchases mo, 12% ang binabayad mo. Ang
tawag doon sa 12% na binayaran mo ay ‘Input’. Ang tawag doon sa binenta mo, How relevant is this to income tax? Very relevant! When you compute for
‘Output.’ So ikaw may output na 12%, ikaw ay may input na 12%. Kinain mo si your gross income, the gross income of the taxpayer who is engaged in trade or
tapsilog. Walang silbi sa iyo si Input. Bakit? Nilamon mo. Walang silbi sa iyo business reflects your revenue from your operation. Your output tax represents the
because you are not engaged in trade or business. And being an end-user, it is 12% of your sales, and therefore, that should jive with gross income. Pag iyan ay
73
hindi nag-match with the gross income doon sa output tax mo, you are doing Zero-rated transactions
something.
Zero-rated transactions. Anong nakasulat? Section 106. What are the zero-
Now, your input tax represents your expenses, purchases in your trade or rated transactions? ‘Yan ay hindi ko ini-expect na memoryahin ninyo. Ano ba ang
business, and therefore, the 12% input tax should also coincide with your “zero–rated transaction?” Tingnan ninyo ang mga examples diyan.
allowable deductions in the form of expenses. Anu-ano ‘yung mga expenses mo?
Reasonable allowance for wages. Wala ‘yan VAT. Pag nagbayad ka ng wage, Export sale
walang VAT. Reasonable allowance for utility: PLDT, Merealco, MWSS, gasolina.
Kapag bumili ka ng may VAT, may input tax ka na 12%. Dapat ‘yun mag-match sa Kapag ikaw ay nag-iimport, times 12%. Kapag ikaw ay naglabas, times 0%.
deduction mo. Nagbayad ka ng renta sa lupa doon sa parlor. That’s a sale of Niloloko tayo. Ay, bakit imumultiply pa ng 0%? Kapag zero-rated kasi, kaya
service. So there’s VAT. Input tax ang binayaran mo. Purchases mo ‘yan eh. So ginagawang zero-rated, may benepisyo kasi ang gobyerno. Kapag nag-export ka
dapat ang input tax mo na kini-claim versus the output tax, mag-match doon sa ng tubig, ang bayad niya padadaanin sa foreign currency ang bayad at
expenses mo. Tinitingnan ‘yan ng BIR. Income tax is paid the following year. Ang pinadadaan sa bangko. Wala namang nagbabayad na pinadadala sa LBC. So it
bayaran is the following year. The requirement for VAT is quarterly. You compute goes through the bank and it is in foreign currency.
but you remit monthly. So from January to December, if you remit in January, BIR Benefits of exportation
has advance notice of how much your sales are for the month of January. When
you remit in February, March, April, May hanggang December, BIR has an idea As you bring water outside, there are two benefits to the government.
how much your gross sales are, which will represent your gross income. Advance
notice ‘yan sa BIR. Such that, kapag nagbayad ka the following year ng income 1. foreing currency reserve is increased; and
tax mo at hindi nag-match doon sa na-file mo sa VAT return, patay ka. You are
doing something. ‘Yan ang relationship niyan. Hindi pwedeng maghiwalay. 2. we promote locally manufactured products
Kailangan laging magkabuntot. VAT is a tax on business. So this will match up
with your gross income on the business that you have. ‘Yun ang sinasabi nating
relationship ng income and VAT. Comparing it to an importation wherein we destroy locally manufactured products
because of the dating ng mga produktong imported. And secondly, kapag tayo ay
Excess input tax may be credited and applied to VAT liabilites in succeeding nagbabayad, ang ating foreign currency reserve ay nababawasan.
quarter or to other tax liabilities
Sale of gold bars
Now, output less input. Grugrupuhin mo sa isang quarter, ano ba ng aking
nabenta na may VAT? Kunin sa isang quarter diyan, ano ba ang pinamili ko na Nagbenta ng ginto sa Bangko Sentral ng Pilipinas. Dumadami ang ating
may VAT? Kunin. I-match n’yo. Pag sobra ang output, go to BIR, VAT payable. reserve para sa paglililok ng salapi. Kailangan natin ‘yan. So kapag nagbenta ka,
Pag ang sobra ay input, punta ka sa BIR, refund. Miss Kim Ynarez. Or hindi kaya may benepisyo ang gobyerno. Dahil nagbigay ka ng benepisyo sa gobyerno, sa
as you are moving along the quarters of the year, i-credit mo na agad ang excess halip na times 12%, times 0%.
input. Pwede. Kapag sa dulo nag-excess ka, “Oi Ms. Kim Ynarez, i-aaplly ko po
ito sa aking income tax due. Sayang naman. Pwede ba?” Pwede! ‘Yun ang tax
credit. ‘Yan ang mga pwedeng mangyari sa inyo. Mahirap ba ang VAT? Hindi.
VAT on sale of service
Napakadali.
Now we go to Section 108. Sale of service. Madami din ‘yan. Sample na
lang natin. Walang zero-rated sa importation, ha? Wala. Zero-rated lang sa sale of
goods and service. Sa sale of service. Noong unang panahon, 10 years ago, ‘yung
repacking, ‘yung sachet, dito ‘yun nauso sa Asia. So mga 10-15 years ago, meron
74
bagong industriya sa Pilipinas. Ang kanyang ginagawa ay mag-repack. Sa ibang II. Sale of residential unit, low-cost housing unit
bansa, sa US halimbawa, mahal ang service na iyan. So ang ginagawa ng mga
producer ng toothpaste sa US, ipadadala sa Pilipinas ng naka balde-balde na Real estate developer. Low-cost housing unit. You buy from him. VATable?
toothpaste. Ang trabaho sa Pilipinas mag-repack. Pagka-repack, naka-sachet, Exempt. Ikaw, bumili ka ng lima sa kanya. Buy and sell ka of low-cost housing
ibabalot sa kahon ilalabas ulit ng bansa. Ang bayad sa Pilipinas for the service ay unit. Ikaw tumira ka. When you buy from him 5 units, VATable? Exempt. Now the
foreign currency coursed through the BSP. ‘Yun nanaman. Nakinabang nanaman housing units are in your possession. Tinirahan mo. Binenta mo kay Mr. Blue.
ang Pilipinas. ‘Yan nanaman ang halimbawa ng times 0%. VATable? No. You are not engaged in trade or business. May tax ka? 6% CGT.
Can you be exempt? Yes, if all the requisites for exemption are present.
Effectively zero-rated sales
Ikaw naman bumili ka ng lima sa kanya all low-cost housing units,
Ang isang effectively zero-rated ay hindi talaga zero-rated. Kaya lang, VATable? Exempt. 109. You sell the 5 units. VATable? Yes. Subject to CGT? No,
upon the recommendation of the Secretary of Finance, the President may declare because this is an ordinary asset from your end.
a particular transaction as effectively zero-rated. Perfect example are the
industries within the economic zones. The transations therein are not exactly zero- III. Rentals of residential unit
rated. If you look at the Code, they are treated as effectively zero-rated because of
certain conditions. Lease of residential units when the rental do not exceed P10,000. Owner
of 10 units leases to 10 lessees. Rental from each is P9,999.99. VATable?
Distinctions between zero-rated transactions and exempt transactions Exempt. This is exempt under the Tax Code. When you sell the apartment units,
VATable? Yes. If the rent is P10,500. VATable? Yes. Nandoon kasi ‘yan sa mga
Now, how do we distinguish zero-rated from exempt. These are the examples niya. Kaya kailangan basahin ninyo para lang alam ninyo kung
distinctions: In zero-rated, the transaction is not subject to VAT at all stages and hanggang saan ba ang exempt at ang hindi. Pwede din kuwentong kutsero
the input tax is allowed to be credited against the output tax. Exempt transactions katulad ng ginagawa natin kasi pagminemorize, masisisra ang ulo natin. Kasi yung
are not subject to VAT only at a particular stage and the input tax is not allowed to example ko, kuwento ‘yan ng codal para makita niyo. Hindi yung codal lang ang
be credited. iniintindi. So ano pa ang stage ang exempt?
Let us look at Section 109. ‘Yan ang mga exempt. These transactions are Let’s go to Letter V. Basahin ninyo ang letter V. Ito ang example niyan, ha?
not subject to VAT. Only at a particular stage. After that stage, provided in the law, Ang tindahan ko ay tindahan ng kandila. Ang gross sales ko ay P1,000,000.
VATable na. Unlike zero-rated na kahit anong stage, times 0%. Tingnan natin ang VATable? Hindi. Kasi ang nakasulat diyan, wala sa listahahn at hindi nag-exceed
Section 109. sa P1,500,000 ang gross sales. Exempt. Am I liable for tax? Yes. If you are
exempt under letter V, exempt ka sa VAT pero ang ii-impose sa iyo ay percentage
I. Sale or importation of agricultural and marine food products in their tax equivalent to 3% of your gross sales.
original state
Ang tindahan ko ay tindahan ng kandila. Ang gross sales ko ay
Number 1. Mr. A. May baboy siya sa bakuran. Binili ito ng alive. VATable? P1,600,000. VATable? Yes. Hindi na ako exempt.
Exempt. Si baboy na oink-oink kinatay niya. Itininda niya sa palengke. Pork chop,
liempo laman-loob, pigi, ulo. Nakalatag. Binili. Si dead na baboy na chop-chop na. Uulitin natin para makita ninyo ang Letter V. Unang sinabi ko ay ang
VATable? Exempt. Ang natira na part ng baboy na hindi nabenta, ginawa niyang tindahan ko ay tindahan ng kandila. Ang gross sales ko walang P1,500,000.
tocino, BBQ flavor at longganisa. Isinabit sa palengke. Binili ang longganisa. VATable? Exempt. ‘Yan ang letter V. Sumunod, ang tindahahn ko ay tindahan ng
VATable? No. Exempt. Nakasulat. Binili ang porkchop, prinito at sinerve with itlog kandila. Ang gross sales ko ay P3,000,000. VATable? Oo. Hndi na exempt.
and kamatis, porksilog. Kinain mo sa restaurant niya. VATable. Kapag niluto mo,
VATable. Si longganisa ganun din. Binili mo sa kanya. Exempt. Kapag niluto mo si May piggery ako. Baboy. Ang baboy ko 20,000. I sold the 20,000 baboy at
longganisa, binenta mo sa restaurant. Binili mo, kinain mo. VATable. P10,000 each. Magkano yan? P2,000,000. VATable? Yes or no? Nakalagay sa
75
109. Kanina, kapag nagbaneta ka ng baboy, exempt. Ngayon gawin nating 20,000 tax. But there is a big difference. P1,200 is the output but in zero-rated
baboy, isang libo bawat isa. Magkano yun? P2,000,000. Lagpas P1,500,000. transactions, the input tax attributable to the zero-rated transaction is allowed to be
VATable? Yes or no? Bakit ‘No’? Mentioned in the preceeding paragraph. So kung credited against the output tax. Therefore, your total input tax is P192. So P1,200
nasa listahan ng A-U, exempt. Basta ‘yan ang dinidescribbe niyong sale. Kapag – P192 = P1,008. Your VAT payable is lower because you were allowed to credit
wala sa listahahn ng A-U at hindi nag-exceed ng P1,500,000, exempt. Ano ang the input tax atttributable to the zero-rated transaction. Since the government
konklusyon? Pag wala sa listahan ng A-U at nagexceed ng P1,500,000, VATable. benefited from your zero-rated transaction, the government gives you something in
Kaya ang tindahahn ko ng kandila ng P3,000,000 ang gross sales ay VATable. return by allowing you to credit the input tax attributable to the zero-rated
Naiintindihan? transaction against the output tax. ‘Yan ang ibig sabihin ng distinctions. The
example is very simple para lang makita ninyo but whatever kind the transaction
Another distinction between zero-rated transactions and exempt we have, this is the procedure. Ang difference lang ay hundred of thousands. Sa
transactions malalaking businesses, billions of pesos ang pinag-uusapan. But everything
follows the same procedure.
The other disitinction is in zero rated transaction. The input tax is allowed
to be credited against the output tax. In exempt transaction, the input tax is not Effect of failure to register for VAT when registration is required
allowed to be credited against the output tax. Anong ibig sabihin noon? Alin ang
may benepisyo ang gobyerno? Zero rated. Ang exempt walang benepisyo ang What is the effect of registration for VAT? Hindi ba kapag nakakita kayo ng
gobyerno. Sa zero-rated may benepisyo ang gobyerno kaya binibigyan din ng business establishments, may mga diploma sa business? Makikita niyo doon ‘VAT
benepisyo ang taxpayer. Ito lagi ang example ko. Napakasimple pero nakakatawa. exempt.’ Meron din ‘VAT-registered.’ Anong effect? Kapag ikaw ay required na
magrehistro for VAT purposes and you do not register, that is the worst scenario.
In exempt transactions, input tax is not allowed to be credited against output Because if you are required to register and you failed to register, you cannot
tax collect the 12% output. Hindi ka pwede magpatong ng 12%. And your input tax
from your purchases will not be allowed as a credit. In the end you shoulder the
We have 3 baboys. For the 3 baboys, inalagaan mo, pinakain mo, 12% from your own project. That’s the worst scenario.
gumastos ka. Bumili ka ng tubig. Magkano? P500. VATable? VAtable ng 12%.
Nagbayad ka ng input tax. Magkano? P60. Bumili ka ng kuryente. Magkano? Effect of registration for VAT when registration is not required
P1,000 X 12%. Input tax mo ay P120. Ano pa ang gusto niyo? Nagbayad ka ng
telepono kasi nag-oorder ka. Telephone expense P100 X 12% is equal to P12. Now, what if you are not required to register at nagpabibo ka? I want to
Total na binayaran mong input tax is P192 for the 3 baboys, so P64 per baboy. Si register for VAT. Ide-deny ba ng BIR? No! Now if you are not required and you
baboy 1, ibenenta mo ng oink-oink alive ng P5,000. Exempt. Zero output. Baboy 2 register, then you must collect the 12% for every sale. At hindi pwedeng sabihin ng
ibenenta mo rin pero kinatay mo, niluto mo at ibenenta mo sa restaurant mo. mga bumibili sa iyo na, “Hoy, hindi ka naman dapat nagparehistro, hindi na ako
Nakabenta ka ng P10,000 X 12%. VATable output is P1,200. So sa isang taon sa magbabayad ng 12%”. Hindi pwede because you are registered, you will be
lahat ng trasaction mo, output less input. Output is P1,200 less input of magkano? treated as a regular VAT-registered taxpayer. Now, what happes to your input tax?
P192? NO! The input tax attributable to baboy 1 is an exempt transaction, is not Then you can credit. So para kang rehistrado talaga. So kung gusto mong
allowed to be credited against the output tax therefore P64 X 2 = P128. Kaya ang magpabibo, eh ‘di magparehistro ka. Basta hindi pwede na since hindi ka naman
VAT payable is P1,072. Pay to BIR. VAT payable. That’s exempt transaction. Input dapat magparehistro eh percentage tax na lang ang babayaran mo. Hindi pwede,
tax is not allowed to be credited against output tax. registered ka eh. Yun ang requirements ha? Now, kapag hindi ka rehistrado at
kailangan mo magparehistro, then ikaw ang magbabayad from your own pocket
In zero-rated transactions, input tax is allowed to be credited against output kasi you failed to collect the output. So you shoulder the output. And secondly,
tax yung input naman na nagasto mo, hindi mo pwede i-credit.
Let us presume the same scenario but this time you exported the baboy.
Binili ng Japanese. Pinadala mo si baboy 1. P5,000 X 0% is equal to P0 output
76
Best proof for purposes of tax credit
Now, what is the best proof of crediting input with the output? ‘Yung mga
resibo to show your purchases na naka-indicate yung 12% VAT as your input. So
‘yun ang mga supporting documents for crediting of input against output. Without
those receipts, sorry hindi kayo pwede mag-credit.
Input and output tax, not material to an end-user
Kapag ikaw ang end-user, lugi ka talaga. If you are not engaged in trade or
business, end-user ka lang, lugi ka kasi walang bisa ang input na binabayaran mo.
Ito ang nature ng VAT: indirect tax kasi ito. So it does not matter whether nag-
purchase ka from VAT or non-VAT registered entity because end-user ka. Magma-
matter ‘yun kung ikaw ay hindi end-user. So input tax is only material to a taxpayer
who is also engaged in trade or business. But if you are not, sorry. Parang tayo.
Kapag nag-gagasolina tayo, walang bisa ang 12% nating binabayaran. Bakit? Eh
hindi tayo VAT-registered eh.
That in all things,
x------------------------------------------------------------------------------------x
Lead Transcriptionist : Michael Quesada God may be Glorified!

Transcriptionists : Patricia David and Amerissa Base
Technical Logistics : Miguel Llave
Lay-out : Carlo Tibayan1 and Michiko Cosico
Over-all Chairman Jan Raphael Salud

Vice-Chairpersons for Academics Jonalyn Porquez
Michael Quesada
Vice-Chairperson for Logistics Cristina Elaine Mangrobang
Vice-Chairperson for Finance Amerissa Base
Vice-Chairperson for Secretariat Patricia David
Vice-Chairperson for Recruitment Kathleen May Clareza
Unauthorized reproduction and distribution of this material is strictly

prohibited.
1
The Red Chronicles, Lay-out Artist

SBCA 2011 Acads Lumbera Tax Notes Washout Watermark PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SBCA 2011 Acads Lumbera Tax Notes Washout Watermark PDF

Uploaded by

Copyright:

Available Formats

1

1) Government agencies to which the state exercises governmental functions

Office Parking Lot KFC, McDo, Jollibee

Government Owned and Controlled Corporations (GOCCs)

MOSQUES used Educational TAX

Donation allowed as a deduction if donor is engaged in trade or business Non-Profit Cemeteries

Kung si Lumbera is a corporation or individual earning business income, P L B I

What if ikaw na donee eh ginamit mo ang more than 30% ng binigay ko

Income of Church, not subject to income tax

X gives P500,000 to the Church. Income? Yes. Taxable income? NO. Is it K A L Y E

Is it allowed as a deduction on the part of the donor? Now, if X the donor,

Donation not subject to estate or donor’s tax K A L Y E

Gift as a deduction from gross income of donor

Total P150,000 Income from tuition fee (RTA) P100,000

Income from interest (UTA) P 15,000

PHARMACY DORM OFFICE SCHOOL BUILDING 1 BUILDING 2

MEDICAL ARTS BUILDING FLOWER SHOP PORTION RENTED TO KFC, McDo,

PHARMACY DORM OFFICE

Income within and income without Tax credit

Income tax liability of resident citizen x tax rate

Final withholding tax (FWT) Withholding tax

Income of Lumbera from teaching

Si Lumbera nagtuturo sa inyo, pagod na pagod na. Sinwelduhan ako ng

Royalties Lotto sa Pilipinas, income? YES. Within or without? WITHIN. Subject to

House in RP, sold at a loss Car in the US, sold at a gain

Parlor in US, sold at a loss

Improperly Accumulated Earnings Tax (IAET) Holding company

PASSIVE INCOME OF CORPORATIONS Prizes and winnings

Branch Profit Remittance Tax on FCs Prizes and winnings of NRFC

Vacation leave and sick leave Birthday leave

Commutation of sick leave Utilities

Maternity leave Retirement

Attorney's fees and costs of suit assuming nagdemandahan kayo at

Loss of earning capacity. Kasi yung physical disability, pwede ‘yang

By the way, how do we distinguish deductions from exclusions?

1) Exclusions are items of income, deductions are items of expense.

2) Exclusions and deductions are both treated as exemptions, and

3. On interest on loan, if X, payor of interest, realizes income, the Written-off or charged-off

VI. Depreciation Gobyerno? Exempt.

Input and output tax, not material to an end-user

Lead Transcriptionist : Michael Quesada God may be Glorified!

Technical Logistics : Miguel Llave

Lay-out : Carlo Tibayan1 and Michiko Cosico

Over-all Chairman Jan Raphael Salud

Unauthorized reproduction and distribution of this material is strictly

You might also like