ALDERSGATE COLLEGE INCOME AND BUSINESS TAXATION

SCHOOL OF BUSINESS AND ACCOUNTANCY

MODULE 2: TAX ON INDIVIDUALS

Posttests
I. Questions

1. What are the different kinds of individual taxpayers? Explain or describe each
kind.
(a) Resident citizens of the Philippines- An individual is a citizen of the Philippines by
definition of the Constitution of the Philippines. Under the Constitution, an individual
maybe a citizen at birth (i.e., one whose father or mother is a citizen of the
Philippines), or may become a citizen of the Philippines sometime after birth (i.e.,
one who is naturalized in accordance with the law).
(b) Non-resident citizens of the Philippines- a citizen who
a. Establishes to the satisfaction of the Commissioner of Internal Revenue
the fact of his physical presence abroad with a definite intention to reside therein;
or
b. Leaves the Philippines during the taxable year to reside abroad as an
immigrant; or for employment on a permanent basis; for work and derives income
from abroad and whose employment thereat requires him to be physically abroad
most of the time during the taxable year.
c. Was previously a nonresident citizen and who arrives in the Philippines
during the taxable year in which he arrives in the Philippines with respect to his
income derived from sources abroad until the date of his arrival in the Philippines.
(c) Resident aliens- an individual whose residence is within the Philippines and who
is not a citizen thereof. An individual whose residence is within the Philippines and
who is not a citizen thereof is a non-resident alien. What makes an alien a resident
or non-resident alien is his intention with regard to the length and nature of his stay.
(d) Non-resident aliens engaged in business in the Philippines- By provision of law,
an alien who shall come to the Philippines and stay for an aggregate period of more
than one hundred eighty days during a calendar year shall be considered a non-
resident alien in business, or in the practice of profession, in the Philippines.
(e) Non-resident aliens not engaged in business in the Philippines, but with income
from the Philippines- an alien who shall come to the Philippines and stay for an
aggregate period of more than one hundred eighty days during a calendar year shall
be considered a non-resident alien in business, or in the practice of profession, in
the Philippines.

2. What are the three categories of income subject to tax of a resident citizen? How
is each category taxed?
1. Passive Income –subject to final tax

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2. Capital Gains – subject to capital gains tax

3. Other Income - subject to graduated income tax rate

3. What is the meaning of withholding final tax on income?

Final Withholding Tax is a kind of withholding tax which is prescribed on certain
income payments and is not creditable against the income tax due of the payee on
other income subject to regular rates of tax for the taxable year. Income Tax withheld
constitutes the full and final payment of the Income Tax due from the payee on the
particular income subjected to final withholding tax.

4. Discuss change of status as affecting personal and additional exemptions.

If the taxpayer marries or should have additional dependent(s) as defined above
during the taxable year, the taxpayer may claim the corresponding personal or
additional exemption, as the case may be, in full for such year.
If the taxpayer dies during the taxable year, his estate may still claim the personal
and additional exemptions for himself and his dependent(s) as if he died at the
close of such year.
If the spouse or any of the dependents dies or if any of such dependents marries,
becomes twenty-one (21) years old or becomes gainfully employed during the
taxable year, the taxpayer may still claim the same exemptions as if the spouse
or any of the dependents died, or as if such dependents married, became twenty-
one (21) years old or became employed at the close of such year.
5. What are the rules on centavos in the formula for taxable income and income
tax?

In the taxable income, centavos shall be dropped in the income tax arrived at
with the application of the tax rates, fifty or more centavos shall be considered as
one peso, and less than fifty centavos shall be disregarded. (These rules on
centavos apply to all taxpayers, on their respective tax formulas.)

II.Problems

1. How much is the basic personal exemption, and the additional exemptions, if
any, in each of the following cases?

(a) The taxpayer, a citizen of the Philippines, has an illegitimate child, two years old.
Basic Exemption: 50,000
Additional Exemption: 25,000
(b) The taxpayer, a citizen of the Philippines, has a brother, twenty-five years old,
who is crippled.
Basic Exemption: 50,000
Additional Exemption: 0
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(c) The taxpayers, citizens of the Philippines, are husband and wife, both earning.
Basic Exemption: 50,000
Additional Exemption: 0
(d) The taxpayers are husband and wife, citizens of the Philippines. The wife earns
compensation income. The husband is in business.
Basic Exemption: 50,000
Additional Exemption: 0
(e) The taxpayers are husband and wife, citizens of the Philippines, both with
compensation income, with six qualified dependent children.
Basic Exemption: 50,000 each
Additional Exemption: 100,000 in total generally the husband

(f) The taxpayers are husband and wife, citizens of the Philippines, with six qualified
dependent children. The husband is in business. The wife is in the practice of a
profession.
Basic Exemption: 50,000 each
Additional Exemption: 100,000 in total generally the husband
(g) The taxpayers are husband and wife, citizens of the Philippines, legally
separated, with five qualified dependent children. The court gave custody of the
children to the wife.
Basic Exemption: 50,000 each
Additional Exemption: 100,000 in total for the wife, zero for the husband
(h) The taxpayer is a citizen of the Philippines. Within the year he got married and
had a legitimate child.
Basic Exemption: 50,000
Additional Exemption: 25,000
(i) The taxpayer was a citizen of the Philippines. Within the year he died.
Basic Exemption: 50,000
Additional Exemption: 0
(j) The taxpayer, citizen of the Philippines, had a qualified dependent child at the
beginning of the year. Within the year the child died.
Basic Exemption: 50,000
Additional Exemption: 25,000
(k) The taxpayer, citizen of the Philippines, had a qualified dependent child at the
beginning of the year. On July 1 of the year the child celebrated his twenty-first
birthday.
Basic Exemption: 50,000
Additional Exemption: 25,000

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(l) The taxpayer, citizen of the Philippines, had a qualified dependent child at the
beginning of the year. Within the year the child got married.
Basic Exemption: 50,000
Additional Exemption: 25,000
(m) The taxpayer, citizen of the Philippines, had a qualified dependent child at
the beginning of the year. Within the year the child became gainfully employed.
Basic Exemption: 50,000
Additional Exemption: 25,000
(n) The taxpayer, citizen of the Philippines, had a child twenty-four years old. Within
the year the child became insane.
Basic Exemption: 50,000
Additional Exemption: 0
(o) The taxpayer is a resident alien with a qualified dependent child.
Basic Exemption: 50,000
Additional Exemption: 0
(p) The taxpayer is a non-resident alien engaged in business in the Philippines, with
a legitimate child one-year-old. His country would give a Filipino engaged in
business in his country, not residing in the country, a basic personal exemption of
P60,000 and an additional exemption fora dependent child of P9.000.
Basic Exemption: 50,000
Additional Exemption: 0
(q) The taxpayer is a non-resident alien, not engaged in business in the Philippines,
but with income from the Philippines. His country would give a non-resident
Filipino, not engaged in business in his country, but with income in the country, a
basic personal exemption of P60.000.
Basic Exemption: 0
Additional Exemption: 0

2. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price, at fair market value, on a direct sale to a

buyer, of shares of stock of a domestic
corporation held as capital asset P600,000 Cost of the shares of stock 540,000
Holding period of the asset 2 years

The capital gain tax? 3,000

3. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price, at fair market value, on a direct sale to a

buyer, of shares of stock of a domestic

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corporation held as capital asset P600,000 Cost of the shares of stock

450,000 Holding period of the asset 6 months

The capital gain tax? 10,000

4. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price, at fair market value, on a direct sale to a

buyer, of shares of stock of a domestic
corporation held as capital asset P600,000 Cost of the shares of stock
650,000 Holding period of the asset 22 years

capital gain tax? 0

5. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price on a direct sale to a buyer, of shares of

stock of a domestic corporation held as
capital asset for two years P500,000
Fair market value of the shares at the time of sale 550,000 Cost of the shares
200,000

The capital gain tax? 20,000

6. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price on a direct sale to a buyer, of shares of stock of a

domestic corporation held as capital asset for six months
P700,000
Expenses on the acquisition of the shares 25,000
Purchase price of the shares 500,000
Expenses on the acquisition of the shares 200,000
The capital gain tax? 0

7. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Direct sales to buyers, on one day, of shares of stock of A Co. and of B Co. held as
capital assets:
A Co.:
Selling price P500,000 Cost 410,000
B Co.:
Selling price P600,000 Cost 450,000
Capital gain tax of sale of A Co. shares? 4,500
Capital gain tax on sale of B Co. shares? 10,000

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13. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Shares of a resident foreign corporation held as capital assets were sold in the
Philippines directly to a buyer:
Selling price of the shares P500.000 Cost of the share 200,000
Capital gain tax? 35,000

14. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Shares of stock of a domestic corporation held as capital assets were sold thru the
Philippine Stock Exchange.
Selling price, net of stock broker’s P400,000
commission
Cost (purchase price plus stock broker’s 100,000
commission)
Capital gain tax? 0

15. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price, at fair market value, of land and building in the Philippines, held
as capital asset P5,000,000
Cost of the land and building 3,000,000 Holding period of the land and building
2 years
Capital gain tax? 300,000

16. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Selling price, at fair market value, of land and building in the Philippines, held
as capital asset P5,200,000
Cost of the land and building 5,500,000 Holding period of the land and building
6 months
Capital gain tax? 312,000

17. The taxpayer is a citizen of the Philippines residing in the Philippines.

Selling price of land and building in the Philippines

held as capital asset 4,500,000
Fair market value at the time of sale 5,000,000 Cost of the land and building
4,000,000
Capital gain tax? 300,000

18. The taxpayer is a citizen of the Philippines, residing in the Philippines.

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Selling price of land and building in the Philippines

held as capital asset P3,000,000
Commission of the broker who facilitated the sale 150,000
Purchase price of the land 1,200,000 Commission of the broker who facilitated
the purchase 50,000
Capital gain tax? 180,000

19. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Real property in the Philippines sold was held as capital asset

Selling price P5,000,000
Fair market value at the time of sale
5,500,000
Expenses of the sale 200,000 Cost of the real property 4,000,000
Capital gain tax? 330,000

20. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Real properties sold were held as capital assets. Selling prices

of real properties in the Philippines:
Land in Quezon City, Philippines P6,000,000
Land and building in Makati City, Philippines 7,000,000 Cost:
Land in Quezon City 5,000,000
Land and building in Makati City 7,500,000
Capital gain tax on the sale of real property in Quezon City? 360,000
Capital gain tax on the sale of real property in Makati City? 420,000

21. The taxpayer is a citizen of the Philippines, residing in the Philippines.

Land in Malaysia, held as capital asset, was sold to a buyer in the
Philippines:
Selling price P3,000,000 Cost 1,000,000
Capital gain tax? 0

22. The taxpayer is a resident citizen of the Philippines with the following data in a
calendar year:
Net income from business P2,500,0
00
Interest on Philippine peso bank savings
deposit
with the Bank of the Philippine Islands 40,000
Interest on Philippine peso bank time
deposit with

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the Banco de Oro, with maturity

of five years 50,000
Interest on bonds of the Banko Sentral Ng 30,000
Pilipinas
Interest on foreign currency deposit under
the
expanded foreign currency deposit system 100,000

Dividend from a domestic corporation 40,000

Dividend from a resident foreign corporation 20,000

Royalties from on books authored 100,000

Final tax on each of the passive income with
final tax?
Interest: 8,000+7500= 15,500
Dividend from domestic corp: 4,000
Royalties: 20,000
How much was the passive income of the year, net of final withholding income tax?
240,500

23. Mr. Luis Zobel, a resident citizen, had income from within and outside the
Philippines. Data for a year follow:
Gross income, within the Philippines P120,872.94
Gross income, outside the Philippines 190,425.30
Deductible expenses, within the Philippines 58,924.65
Deductible expenses, outside the Philippines 156,539.41
How much was the income tax at the end of the year? 13,666.84

24. Mr. Ruben Ramirez, a citizen and resident of the Philippines, was a minimum
wage earner in Manila. Data in a calendar year:
Basic salary P139,430
Hazard pay 12,000
Overtime pay 30,000
Night shift differential pay 4,000
Holiday pay 1,000
How much was the income tax at the end of the year? Zero, minimum wage earner is
exempt from income tax.

25. Mr. Benjamin de Dios is a resident citizen. He is employed and had the following
data in a taxable year:

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Salaries, before payroll deductions 335,615

Allowances 20,598
Payroll deductions:
SSS contributions 5,325
Philhealth contributions 2,950
Pag-ibig contributions 1,950
Labor union dues 2,000
Payment of loan to employer 25,000
How much was the withholding income tax? 59,837.60
Was an income tax return required to be filed at the end of the
year? yes

26. Mr. Filemon Borja, a resident citizen of the Philippines, an employee, had no
child at the beginning of the year. A child was born within the year. He had the
following data for the year:
Salary, net of exclusions for SSS, etc. 295,0
00
Thirteenth month pay 30,0
00
Christmas bonus 30,0
00
Productivity incentives pay 20,0
00
Withholding income tax on the compensation income 51,5
00
Was an income tax return required to be filed at the end of the year? Yes
What would the income tax return have shown? Net income tax due of 4,500

27. Mr. Arnulfo Gonzales is a minimum wage earner in Manila, with income from
other sources. Data for a calendar year follow:
Salaries P139,4
30
Overtime pay 25,000
Rice subsidy 25,000
Thirteenth month pay and other benefits 15,000
Gross income from business 679,0
00
Expenses of the business 326,7
82
Dividend from a domestic corporation 10,000
Capital gain on direct sale to buyer of shares of stock
of domestic corporation 50,000
Final tax on passive income? 1,000
Capital gain tax? 2,500

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Income tax at the end of the year (disregard consideration of quarterly income tax)?
None. Minimum wage earner is exempt from income tax

28. Mr. and Mrs. Conrad Cruz are citizens of the Philippines with three dependent
children. They had the following data on net income for a year (disregard
consideration of quarterly income tax):

Net income of Mr. Cruz P652,432,26 Net income of Mrs. Cruz 321,589,23 Net
income (joint) of Mr. and Mrs. Cruz 156,789,32
Mrs. Cruz is to claim the additional exemptions.
Income tax due from Mr. and Mrs. Cruz at the end of the year?

29. Mr. Rosendo Robles is a resident citizen of the Philippines with income from
business. Mrs. Robles is a resident citizen of the Philippines who is employed.
They have two qualified dependent children. From the data:
Mr. Mr
s.
Gross income P600,000
Expenses 200,000
Salaries and benefits, net of exclusions P242,0
00
(Disregard consideration of any quarterly income tax)
How much was the income tax withheld on the compensation
income?
How much was the income tax still due from the husband and the
wife?

30. Mr. Ruben Cancio, is a citizen and resident of the Philippines. The following data
were on his business net income in each of the quarters of a year:
First quarter P220,0
00
Second quarter 309,5
00
Third quarter 294,6
50
Fourth quarter 324,3
00
How much was the income tax due at the end of each of the first, second and third
quarters of the year? How much was the income tax due at the end of the year?

31. Mr. J, a citizen and resident of the Philippines, with six qualified dependent
children, was an employee during the first quarter of 2010, and a businessman
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from the second quarter to the end of 2010. His gross compensation income
during the first quarter of 2010, net of exclusions, and before withholding income
tax, was P72,000. For 2010, he had the following cumulative data on his
business:
Second Third Year
Gross income, business P420,00 P695.00 P847.000
0 0
Expenses, business 198,000 310,000 354,000

Show the income tax withheld (correctly done) from the compensation income of the first
quarter;
Show the income tax due at the end of the second, and third quarters of the year and
the income tax due at the end of the year
32. Mr. I is a citizen of the Philippines, with two qualified dependent children. He is in
merchandising business. He had the following data as at the end of each of the
first three quarters, and end, of a year:

1st Q 2nd Q 3rd Q Year

Net sales P280,000 P595,900 P795,000 P967,000
Dividend income from:
Domestic corporation 2,000 2,000 4,000 4,00
0
Resident corporation 2,000 2,000 4,00
0
Interest on trade notes
receivable 1,200 2,100 3,000 3,90
0
Capital gains on direct
sales to buyers, of:
Shares of stock of
domestic corporation 30,000 30,000 120,000 120,0
00
30,000
120,000
Bonds of domestic corporation
held for 6 months 30,00
0
Cost of sales 90,000 180,000 240,000 297,0
00
Operating expenses 110,000 184,100 245,000 320,9
00

Show the computation for the income tax due at the end of each of the first

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three quarters; Show the computation for the income tax still due or
refundable at the end of the year.

33. Ms. Kristine Cruz, is a citizen of the Philippines residing in Iraq. She had the
following data in a year:
Gross rent income from rental properties the Philippines P535,000
Gross income from employment in Iraq 457,911
Expenses on the rental property in the Philippines 358,000
Expenses related to the income from Iraq 259,672
Quarterly income tax paid in the Philippines 14,412
How much was the income tax still due or refundable for the year?

34. Mr. Lourdes Ligot is a subject and resident of a foreign country. She has a
qualified dependent child. Her income is from Philippine and foreign sources:

Income, Philippines 95,742

Income, foreign country of which he is subject 46,978 Dividend from a non-resident
corporation 20,000 How much was the income tax expense of the year: (a) If he is a
non-resident alien in business in the Philippines and the given income is net income
(Assume full reciprocity on personal exemptions)?
(b) If he is a non-resident alien not in business in the Philippines and the given
income is gross income?

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