IV.

Gross Income
A. Gross Income Defined, Sec. 32 (A), NIRC
B. Gross Income v. Net Income v. Taxable Income, Sec. 31, NIRC
C. Sources of Income Subject to Tax - RMC 50-2018
1. Compensation income
Sec. 32(A) (1), NIRC
Sec. 78 (A), NIRC
Sec. 2.78.1 (A), RR 2-98, as amended
Sec. 2(a) to (e), RR 8-2018

RMC No. 034-08

Backwages - BIR Ruling No. DA-073-2008

Convenience of the Employer Rule

Collector v. Henderson, 1 SCRA 649

i. Fringe Benefits
Definition - Sec. 33 (B), NIRC
Tax base - Sec. 2.79 (D) (1) (2), Revenue Regs. 2-98, as amended

ii. Exceptions - Sec. 33 (C), NIRC; Sec. 2.79 (D) (3), RR 2-98, as amended
Exempt under special laws
Retirement insurance and hospitalization benefit plans
Benefits to rank and file employees - Sec. 2(m), RR 8-2018

iii. De minimis benefits RR 03-98

RR 10-00
RR 05-08
RR 010-08
RR 005-11
RR 008-12
RR 001-15
Sec. 6, RR 11-2018

iv. Bonuses, 13th month pay, other benefits, unless exempt in Sec. 32 (8), NIRC
v. GSIS, SSS, Philhealth, Pag-ibig contributions and union dues

2. Income from Business, Sec. 32(A) (2), NIRC

3. Professional Income, Sec. 32 (A) (2), NIRC; Sec. 2 (n), RR 8-2018

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4. Income from dealings in property, Sec. 32 (A) (3), NIRC

Rodriguez v. Collector, 28 SCRA 1119
Gonzales v. CTA, 14 SCRA 71
Gutierrez v. CTA, IO 1 Phil 1 73
i. Type of properties aa. ordinary assets bb. capital assets
- What is capital asset
Sec. 39(A) (1 ), NIRC
Rev. Regs. 07-03
- Distinction between ordinary asset and capital asset.
- Long term capital gain v. short term capital gain Sec. 39 (B), NIRC

ii. Types of gains from dealings in property

aa. Ordinary income v. capital gain, Sec. 39 and Sec. 22 (Z), NIRC
bb. Actual v. presumed gain, Secs. 6 (E), 24(D), 27(D)(5), 100, NIRC
 cc. Net capital gain (loss), Sec. 39(A) (2) and (3), NIRC
Tuason v. Lingad, 58 SCRA 170
Ferrer v. Collector, 5 SCRA 1022 Calasanz v. Commissioner, 144
SCRA 664 Gonzales v. CTA, Ibid.

iii. Special rules pertaining to income/loss from dealings in property

aa. Computation of the amount of the gain (loss), Sec. 40(A), NIRC
- Basis of the property sold, Sec. 40(B), NIRC
- Basis of property exchanged in corporate adjustment, Sec. 40
(C) (5), NIRC
- Recognition of gain/loss in exchange of property General rule,
Sec. 40 (C) (1), NIRC

Exceptions
- Where no gain/loss shall be recognized, Sec. 40 (C) (2), NIRC
Revenue Memorandum Order (RMO) 17-16
Meaning of tax-free exchange/merger/ consolidation/ de
facto merger, Sec. 40(C) (6), NIRC
Com v. Rufino, 148 SCRA42
RMO 26-92
Rev. Regs. 18-2001
Rev. Memorandum Ruling (RMR) No. 01-01
RMR 01-02
RMO 32-2001
RMO 17-2002
RMR02-2002
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- Transaction where gain is recognized but not the loss

Exchange not solely in kind

Sec. 40 (C)(3), NIRC
Sec. 40 (C)(4) NIRC

Wash sales/compared with short elling

Sec. 38, NIRC
Sec. 39, (F) (I), NIRC

Transactions between related taxpayers

Sec. 36 (B)

Illegal transactions
Sec. 96 RR 2-40

- Gains and losses attributable to the failure to exercise privileges

or options to buy/sell property, Sec. 39 (F) (2), NIRC

- Percentage of gain or loss taken into account (note: for

individuals only); holding period rule, Sec. 39 (B) NIRC

bb. Income tax treatment of capital loss

- Capital loss limitation rule (applicable to both corporations and

individuals), Sec. 39 (C) NIRC
- Net loss Carry-Over Rule (applicabl only to individuals), Sec. 39 (D),
NIRC

iv. Income from dealings in capital asset ubject to special rules

aa. Dealing in real property situated in the Philippines
 RR 07-03
RR 13-99
RR 8-98
RMC 45-02

bb. Dealings in shares of stock of Philippines corporations

Definition of 'shares'
Sec. 22(L), NIRC
shares listed and traded in the stock exchange
Sec. 127 (A), NIRC
shares not listed and traded in the stock exchange
Sec. 24(C), NIRC
Sec. 27(D)(2) NIRC
Sec. 28(A)(7)( c) NIRC
Sec. 127, NIRC
Sec 55 RR 2-40
RR 6-2008
RR 6-2013
RMC 73-07
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cc. Other capital assets

v. Sale of Principal Residence

Sec. 24(D) (2), NIRC
RR 13-99, as amended by RR 14-2000, RR 17- 03, RR 30-03

5. Passive investment income

a. Interest income
Sec. 32(A)(4) NIRC
Sec. 24(B)(1) NIRC
Sec. 22(Y) NIRC
Sec. 22(FF) NIRC
Sec. 28 (A) (4), NIRC
Sec. 27(D)(3), NIRC
Sec. 28 (B) (5) (a), NIRC
Sec. 57, RR 2-40
Rev. Regs. 10-98
RMC 018-11
RMC 07-15

b. Dividend Income, Sec. 32 (A) (7), NIRC

i. Dividends, defined, Sec. 73 (A) (first paragraph) NIRC
ii. Kinds of dividends
aa. Cash dividend
bb. Stock dividend — Sec. 73 (B), NIRC
cc. Property dividend
dd. Liquidating dividend
Sec. 24 (B) (2), NIRC
Sec. 25 (A) (2) and (B), NIRC
Sec. 28 (A) (7) (d), NIRC
Sec. 28 (B) (5) (a), NIRC
Sec. 73 (D), NIRC
Commissioner v. Wander Phils., 160 SCRA 573
ee. Disguised dividend
RMO 31-90
Secs. 250-253, 58, 71 RR 2-40
CIR v. Manning, 66 SCRA 14
Republic v. dela Rama, 18 SCRA 861
c. Royalty income
 Sec. 24 (B) (1), NIRC
Sec. 25 (A) (2), NIRC
Sec. 27 (D) (1), NIRC
Sec. 28 (A) (7) (a), NIRC
Sec. 28 (B) (1), NIRC
Sec. 42 (A) (4), NIRC
RMC 44-05
RMC 77-2003
d. Rental income
Sec. 32 (A) (5), NIRC
Sec. 28 (B) (2); (3); (4), NIRC
Sec. 74, 79, 58 RR 2-40
Limpan v. CIR, 17 SCRA 703

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i. Lease of Personal Property
ii. Lease of real property
iii. Tax Treatment of

aa. Leasehold improvements by lessee - Sec. 49, RR 2-40

bb. VAT added tor rental/paid by the lessee
cc. Advance rental

6. Annuities/Proceeds from life insurance/other type of insurance

Sec. 32(A) (8), NIRC
Sec. 48 RR 2-40

7. Prizes and awards, Sec. 32(A)(9), NIRC

8. Pensions/retirement benefits/separation pay, Sec. 32(A)(l0), NIRC
9. Partner's distributive ssharese from the net income of the GPP - Secs. 26 and 32 (A) (11 ),
NIRC
10. Income from any source whatever
a. Forgiveness of indebtedness, Sec. 50, RR 2-40
b. Recovery of accounts previously written off,
Sec. 34(E)(l ), NIRC;
tax benefit rule - RR 05-99
c. Receipt of tax refunds or credit, Sec. 34(C)(l), NIRC
d. Campaign contributions - RR 007-11

D. Situs/Sources of Income
1. Meaning of situs of income
2. Classification of income as to source
Sec. 42 (A) and (B), NIRC
Sec. 152-165, RR2
a. Gross or taxable income from sources within the Philippines
Sec. 42(A), (B), NIRC
Sec. 28(A)(3)(a) and (b), NIRC
Commissioner v. BOAC, Ibid.
NDC v. Commissioner ( 151 SCRA 4 72), Ibid.
Howden v. Collector (13 SCRA 601 ), Ibid.

b. Gross or taxable income from sources without the Philippines, Sec. 42 (C) and
(D), NIRC
c. Income partly within/partly without the Philippines, Sec. 42 (E), NIRC

3. Source Rules in determining income from within and without

a. Interests - residence of debtor
b. Dividends - residence of corporation paying dividend
c. Services - place of performance of service
d. Rentals and royalties - location of property or interest in such property
e. Sale of real property - location of real property
f. Sale of personal property - place of sale/title passage rule
g. Shares of stock of domestic corporation - place of incorporation of the
corporation whose shares are sold