82 INCOME TAXATION ‘How miuch is Saddam's total itmne tax (ootmAl tax plus final taxes) daring the year? Problem 10-19 _Quartenly Income Tax Data of Highland Corporation, a,domestic corporation, for the year 20x, fare as follows: (Data are all nonewmulative) ‘sales (noncumitatve) ling expenses Sefore i PeenetaRsconebition 120,000 180,000 100,000 160,000 Interest expenaee 10000 10000 15,000. -—15,000 Contributign (dedweuble in fal) 20,000 40,000 Other severe: ‘Dividend isoone (domestie, , 40,000 Royalty income 60,000 p Rent income _ 30000 30000 30,000 30,000 Tnterestincome => 381000 10,000 15,000 20,000 “The gross profit a 40% based on sales. ‘Required: Compute the following: 1. Quarterly income tax due and payable 2, Tncome tax etill duc and payable in the fourth quarter. 3, Total pasaive income tax Problem 10-14 ‘Income Tax Still Due ; Mariposa Co.;, a domestic .corporation, reported the following tax payments for the firet to “the third quarters of the taxable yedr (cumulative amount}: Quarters : Bint Second Thi Business income 27500000 Pa,000,000 15,500,000 {eemized allowable deductions --1.800,000 . 2,500,000 8.000.009 Tasable income Bipoo00 Bl.soo.o00 Pa.s00.000 Income ax P 320,000 480.900 P_ $00,000 Use: Payment previous quarters woe = 320000 Income tax paymense Exaiomm - Eic0.000 For the fourth quarter, the company reported the following’ ee 77500, i aly 5004 Itemized allowable deductions oo [a geraeeracnmerren ; Se ear pl aaieeeee eae 00.00 Income tax withheld per BIR Form 2307 furnished by credit card company 40, Required: Determine the income tax stil due and payable at Year-end mR nee pigs Shae Quarters pe ‘FeODS Reon 0 FDO 0. oeao0e Chapter 11 INCOME TAX OF INDIVIDUALS INDIVIDUAL TAXPAYERS Individual taxpayers are natural persons with income derives within the territorial jurisdiction of a taxing authority. These individual taxpayers are classified as citizens and aliens. « Under Art. IV, Section I of the Philippine Constitution, a Filipinc Citizen is he who is/has: a. Those who are citizens of the Philippines at the time of the adoption of the 1987 Philippine Constitutions b. born (by birth) with father and/or mother as Filipino citizens; ¢. bom before January 17, 1973 of Filipino mother who elects Philippine citizenship upon reaching the age of majority; or d. acquired Philippine citizenship after birth (naturalized) in "accordance with the Philippine laws. “An Allien is a foreign-born person who is not qualified to acquire Philippine citizenship by birth or after birth, Classifications of Citizens Citizens are classified into (a) Resident Citizen and (b) Non- Resident Citizen. 11, Resident Citizen (RC| is a Filipino citizen who stayed ‘Permanently in the Philippines or stayed outside the Philippines for less than 183 days during the taxable year. A citizen of the Philippines residing therein is taxable for al income derived from sources within and without the Philippines. (825298, RC)504 INCOME TAXATION 2. Nonresident Citizen is a Filipino citizen who stayed outside the Philippines for 183 days or more during the taxable year and hhas established proof to the BIR Commissioner of his definite intention to reside outside the Philippines on a permanent basis ‘as an immigrant or employee. (se. 2, Rew Reg 999) ‘A nonresident citizen is taxable only on income derived from sources within the Philippines, (0-238, MR) i jerives income from 'A citizen of the Philippines who works and derives income abroad and whose employment requires him to be physically present abroad most of the time (at least 183 days) during the faxable year is to be classified as nonresident citizen. cum mang No. 128-99) i ilippi wor a ‘gn individual citizen of the Philippines who is working an deriving income from abrcad as overseas contract worker is taxable only 6n income from, sources within the Philippines. scciian wh io a cxitip-of the Philippines and who reodives en ie oa rondered ubrocd aa s member of the ‘complement of a vessel engaged exclusively in international trade corset oo ee a ciaca worker eet 8 ora eee ae Alm tons om le a oy te aes a a Te Gh the Tt i neh income derived from sources abroad until the date of his arrival to” the Philippines. Ilustration ci i en, rked and. ice ie, ue tga re Filed Gl Daring 2000, Donal Fe 2 ae CS 200 feturned to the Philippines and earned P80,000 salary from his ‘employment here. i ar 200B a5 How much would be his gross: taxable income for year 2 basis for Philippine income tax computation under each of th following independent assumptions? Chapter 11. Income Tax of Individuals. 585 Assumption 1: Mr. Perio went abroad on January 200B ond returned to the Philippines on March 200B. For the taxable year 200B, Mr. Perio was out of the cotintry for Jess than 183 days. Hence, he is a resident citizen, Consequently, his income earned from all sources is taxable in the Philippines. For year 200B, hi. taxable income before exemption is P280,000. Assumption 2: Mr. Perio was in Saudi Arabia since June 1, 200A and returned to the Philippines on March 2008. Although Mr. Perio is already a resident citizen in year 2008, with Tespect to his income earned outside the Philippines he is still a nonresident citizen; hence, not subject to Philippine income tax (rege 480, por 5). His taxable income before exemption would only be limited to his earnings within the Philippines, which is P80,000. Assumption 3: Mr. Perio went to Saudi on March 1, 200B and returned to the Philippines on December 5, 200B. ‘Mr. Perio was out of the country for more than 183 days. As of the end of the year 200B, he is a nonresident citizen, Hence, he is taxable only for income earned within. His taxable income before exemption for the year 200B is P80,000. Classifications of Aliens Asa rule, an alien individual, whether a resident or not of the Philippines, is taxable only for income derived from sources within the Philippines. (52220, niko) e Aliens are classified as cither a Resident Alien, or Nonresident Alien. . 1, Resident Aliens (RA) are persons who are not citizens of the Philippines but are residing within the Philippines includi foreign individuals who have stayed in the Philippines for more than one year from date of arrival. (see20%, Mio) 2. Nonresident Aliens (NRA) are foreign individuals whosé ” residences are not within the Philippines, Sec. 22G of the NIRC classifies Nonresident Aliens as follow: a, Those engaged in trade or business within the Philippines (NRAETB)586 Notes regarding residency: a INCOME TAXATION ‘Those who have: stayed within the Philippines for more than 180 days during-the taxable year shall be deemed nonresident aliens doing business in the Philippines. A nonresident alien who is engaged in trade or business and thas business income in the Philippines also belongs in ‘this group. (se25Ai). RC] & b. Those not engaged in trade or usinéss within ‘the Philippines (NRANETB) ig ave st sd ena elenioaime tie ee eee een ee i jon wit re of stay-of ‘The intention with regard to the length and nature of an alien determines whether he is a resident or nonresident. ae 7 i nonen If one comes to the Philippines with a definite purpo: ed. as can be promptly accomplished, he may be consider: nonresident. When his transaction can be accomplished with extended period making his temporary home in the Philippines, he becomes a resident. ‘A foreigner who shall live in the Philippines with no definite intention as to his stay is a resident, ‘A foreigner who has acquited residency in the Philippines shall only become a nonresident when he gctually departs with the intentlort: of abandoning his residency in the ‘Summary Application (CLASSIFICATION OF TAXPAYERS AND SITUS OF INCOME Subject o spec teat or ea came a pred ow genera a 15% Chapter 11 Income Tax of Individuals 087 Special Taxpayers : Special Taxpayers are those alien individuals of Filipino citizens who are taxed with a fifteen percent (15%) tax rate based on their gf088 compensation income when the following conditions are met: 1. They are employed occupying managerial and/or technical positions with regional or area headquarters of multi-national corporations, petroleum. service. contractors." and subcontractors, or offshore banking units. (sec2sc @ D, MIRG, (See. 1 82 eu Regs. . 112010), and 2. If the special’ taxpayer is an alien, all of his gross compensation income received is guibject to 1596 final tax. 3. If the taxpayer is a Filipino citizen, he has the option to be * taxed at 15% final tax based on’ his gross compensation income received or at a regular income tax rate (5% to 32%) based on the net taxable compensation income-if his gross annual taxable compensation is at least P975,000.00 (whether or not actually received). (Sec. 9, Re. Regs. No 1120105 Illustration Mr. E, a Filipind holding a managerial position in a Regional Operating Headquarters of Multinational Company receives a tionthly salary and éost of living allowance in the amount of 70,000 and 7,080, respectively for the entire year 1. If Mr. B opted to be taxed at 15% final tax, the amount of final tax on his gross compensation income would be ‘Annual salary (P70,000 x 12 months) 840,000 Annual comgof living allowance (©7,000 x 12 months) _ 84,000 13: month pay (P840,000/12) —70,000 Gross annual compensation income 994,000 ‘Multiplied by final tax of, 15% Final tax on gross income at 15% 2149.10 2. If Mr, © opted to be taxed at regular tax rate, the amount of normal income tax due would be Gross annual compensation income 0 994,000 Less: Nontaxable 13% month pay.se INCOME TAXATION ‘Taxable compensation before = personal exemption 924,000 Less: Personal exemption 50,000 Net taxable income. 862,000 ‘Tax on P500,000 P125,000 ‘Tax oni excess (P374,000 x 32%) 119,680 Normal income tax due 244,680 Notes: TS" cnange in compensation by the said employees) subsequent recivng {hs tan te compensation theshold of P6000 for the calender year shall ‘Saurthat th cployecs compensation inoome be subject to regalar income {ezine (See page 562 Nona Scedular Tax Rat of Individual Taxpayes 2. "In any case, a Filipino epecial taxpayer's compensation ince will be ‘subject to a withholding tax of 15%. Marginal Income Earners (MIEs) ‘These are individuals: 1. whose activities are principally for subsistence or livelihood that do not realize gross sales or receipts exceeding P100,000 in any 12-month period; 2. not deriving compensation as employee; and, 3. who are’ not licensed professionels, consultants, artists, sales gente, brokers and others sinilanly situated, including all there whose income have been subjected to witholdng tax. MIBs includes the following: + agricultural growers/producers(farmers/fishermen) selling directly to ultimate consumers; ‘+ small sari-sari stores; e ‘small carinderias or “turo-turos"; and + drivers/operators of a single unit tricycle! MIE are subject to income taxes but exempt from payment of business taxes (i.e. VAT or any Percentage Tax). jeuc No. 72014) PERSONAL EXEMPTIONS Personiil exemptioné‘are the arbitraxy amounts allowed by law as ‘a deduction from. thé,igrops compgngation income and/or net Chapter 11. Income Tax of Individuals 589, bbissiness income and/or professional income as the case may be, for personal, living, or family expenses. ‘These deductions, which include both the exemptions -of the individual taxpayer, his family and his dependents, are considered to be the equivalent of the minimum subsistence. Personal exemptions arc granted only to individual taxpayers who have earnings not subjected to final taxes. Kinds of Personal Exemptions i Personal exemptions may be classified into: 1, Basig personal exemption is a deductible allowance granted by the law, to reduce the taxable income of an individual taxpayer. exe 354, RG. ‘The new R.A. 9504 provides that the basic personal exemption for individual taxpayer amounts to 50,000 whether ha/she is ‘married, head of family or single. In the case of married individual, only the spouse deriving income is allowed to deduct personal exemption. Mlustration Mr, Tanada, a Filipino Citizen with income within, married to Miss Smith, an American Citizén residing in USA, has compensation income of P150,000 in the Philippines. He ‘would like to know their personal exemptions. ‘The personal exemption of Mr. Tanada is P50,000. Note: As a Filipine Citizen with income derived within, only Mr. Tanada is ‘lowed to have a basic personal exemption. His wile has no personal ‘exemption because she is not a Filipino Citizen and has no income derived ‘within the Philippines 2, Additional exemption is a deductible allowance in addition to the basic personal exemption allowed for qualified dependent children of an individual taxpayer. ‘The new R.A. 9504 provides that the amount of additional exemption for each qualified dependent child (not exceeding four} is P25,000.a INCOME TAXATION, Mlustration For the taxable year 200A, Mr. Cruz, married and with six qualified dependent children has a compensation income of 200,000. Assuming that Mr. Cruz is a Filipino Citizen, how much is his (otal personal exemption? ‘The total personal exemptions allowed to Mr, Cruz would be Basic personal exemption $0,000 ‘Add: Additional exemptions (P25,000 x 4 children) .00,000 ‘Total personal exemptions 150,000 ‘Taxpayers Allowed for Personal Exemption 1 ‘The following individual taxpayers with compensation or business income in the Philippines are entitled to personal exemptions: Citizens of the Philippines, whether resident or nonresident; Resident aliens; Estates and Trusts; and Nonresident alien engaged in trade or business within (VRAETR) in certain cases. (5e:9, eu Regs. No.2) Fey The following are the requisites before a nonresident. alien individual doing business in the Philippines may be granted personal,exemptions: 1. The country of which the nonresident alien is a subject or @ citizen has an income tax law; 2. Such income tax law of the foreign country. allows personal ‘exemptions to a Filipino citizen deriving income therefrom but not residing therein (principle of reciprocity); 3. The nonresident alien files an income tax return (ITR) in the Philippines in due time; and 3, Such ITR'is trie and accurate, covering ll income received from sources within the Philippines. (see 5 9, mmc) ‘ 591 Taxpayers Not Allowed for Persone! Exemption The following taxpayers are not allowed for personel exemption: 1. Nonresident aliens engaged in trade ines “i Phllippines not enjoying reiprociy.claseey, nes ™ the 2. Nonresident aliens not ¢: in trade or busi aes gaged in trade or business in the 3. Corporations; and 4, Partnerships, 5 Principle of Reciprocity Personal exemptions of nonresident alien engaged in trade or business (NRAPTB) in the Philippines. shall be ay bj i ; i subject to Stipulated in the reciprocity iippt Governinent ou: ta tostenne Se, Philippine Under the principle of reciprocity, the allowan: 1 08 0 xemption for NRAETB is equal to the amount of exemptions alowed ia the income tax law In the county of whieh he i "2 not to exceed the ami perso fon i ap fol oe the amount fed a pertoal exemption in The term “personal exemption” in the’ Philippines i both the basic personal exemption sx sil meqjand additivnal eeseon Srepption for qualified dependent children not exceeding four. (so Accordingly, if the reciprocity tax treaty sti > ipulates to allow basic personal exemption, the Philippines will only allow aoe "Personal exemption subject to limit. However, if the tax treaty stipulates tNat both basic personal and additional exemptions be allowed d ; lowed a8 exemptions, based on _Teciprocity principle the Philippines will also grant bot “ditional exemptions subject to limit. eee592 INCOME TAXATION Iustration Mr, Smith, single and a nonresident American doing business in ate Sr ea you to dtermine he pereonal exemption for 2008. ‘Assume that the American Government allows a Filipino Citizen a personal exemption amounting to P20,000, and the Philippine Government allows P50,000. How. much is the allowable personal exemption of Mr. Smith in the Philippines? ‘The allowable personal exemption of Mr. Smith is P20,000, The Jower amount between P50,000 and P20,000, ‘a. If the American Government allows a single resident Filipino Citizen a personal exemption of P75,000, what is the personal ‘exemption of Mr. Smith? ‘The allowable personal exemption of Mr. Smith is P50,000. eee eg a Hi aac, ae ial sec oe ere ra eee ae re ete ae Ree ee oe ne a psn nero uti oie fc to resident Filipino Citizens doing business in their country, ten pe Ci ape ne et c. If Mr. Smith is married with a qualified dependent child and the law in his country provides the following personal exemptions: ‘Basie for married individual 100,000 Additional exemption for each qualified dependent child 20,000 How much is the amount of the personal exemption of Mr Smith? ‘The personel exemption of Mr. Smith is P70,000 determine: as follows: Chapter 11 Income Tax of Individuals: 593 Foreign Personal exemptions: Philippines _Countsy Allowed Basic-married P50,000 P10,000 P50,000 Additional’ 25,000 20,000 _20.000 Total personal exemptions 70,000 For as long as there is reciprocity, R.A. 8424 allows additional exemption to NRARBT because the term “allowance for personal exemption” includes both basic and. additional exemption. (ac 35, mec) Requisites for Additional Exemptions The following requirements should be miet by the depend ats of the individual taxpayer to qualify as dependents and be allowed with additional exemption: The dependent must be: 1. a taxpayer’s child, whether legitimate, illegitimate or legally adopted; 2. chiefly depending for support on the taxpayer; 3. living with the taxpayer; 4. not married; not gainfully employed, and not more tf in 21 ears old. (sx 35/3, 110) ‘The law allows the continuous additional exemption even if the “dependent child is more than 21 years old, with the provision stating “or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.” se. 3521 part, Na) Meaning of Dependent Dependent means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent met the criteria provided under Sec. 35 (b) of NIRC A legitimate child is one who was conceived or born of spouses within wedlock. An illegitimate child is one conceived and born outside marriage. (amily Code ofthe Phipines)504, > INCOME TAXATION A, natural ‘chili8"one) conceived! of parents who, at! the time of conception, without being married, were qualified ‘to. marry (New Civil Code of the Philippines): cy J Hence; an‘ illegitimate ‘child under the» Fathily Code of. th Philippines is a natural child under the New Civil Code of u Philippines. Gee Se, miko) Hote: In view ‘6f the Family ode which males no distinetion between + spurious and natural child; aa illegitimate child can sow We considered as Gualified dependent and qualifies the claimant to the’ status of head of fami (Rev: Reg. 2-98, Sec.2 79224. Meaning of Living with the Taxpayer ‘The term “living with” may be construed that the taxpayer and his dependents reside under one roof, or do nat necessarily reside under one roof with consideration on the character of the ~ separation. ‘The dependent has the status of living with the taxpayer in the following circumstances: a. The parents are absent from home due to business or work. b. The dependens is sway at school or ona visit. c. Through ‘force of circumstances) “a parent is’ obliged to inaintain his dependent. children with relatives or nen- relatives. Meaning of Gainfully Employed” + ‘The child is “gainfully employed” when he has cemnings deriving from employment, work or trade that will remove him from the status of chief support from the taxpayer. Meaning of Chief Support eaten Chief support refers to’ the principal or main’ support whe money or in kind extended continuotisly.to'the @ependent, that if withdrawn, the dependent will have aidestitute ifs. To be regarded as main support, the’ spy one-half of the requirements for support té © ‘Chapter 11 Income Tax of Individuals: 585, that if two legally separated man and woman contribute equal support to their dependent nei 7 Rend ae UePendent child, neither of them may qualify as ‘A man or woman who provides chief support to parents, brothers or sisters may qualify as head of family, entitled to the basic Personal exemption of P50,000, but not’ entitled to additional ‘exemptions. Iustration Compute the personal exemption of Mr. Weygan, «Fino, legal ‘separated with the following dependents: a a 8. Children: A, 30 years old and jobless; B, 19 years old student but gainfully employed; C, 22 years old mentally retarded, b. 55-year old father, ©. 12-year ol illegitimate son, and 4. Supporting a senior citizen (60 years old). ‘The total personal exemption would be Basie personal exemption P. 50,000 Add: Additional exezaptions: ‘ Child ~ mentally retarded 25,000 legitimate child 25,000 _ 50,000 ‘otal personal exemptions Rules in Claiming Additional Exemptions An individual taxpayer claims additonal exemption with the following guidelines: ‘ 1, Ionly one spause is deriving taxable income, only said spouse may claim the additional exemption. ‘Ilustration For the taxable year 200A, Mr. Cruz, married to Mrs. Cruz, a Plain housewife, with 6 qualified dependent children, has a compensation income of P130,000. How much is the personal. exemption of the couple?596 INCOME TAXATION, ‘The total personal exemptions would be MrCrz Mrs. Cn ___Total Basic personel exemption P 50,000 P -0- P 50,000 ‘Add: Additional exemptions: ; (P25,000x.4) 100,000 100,000 Total personal exemptions _-P4S0,000 P= O= 150,000 2. If both:of the spouses earn income during the taxable year, only one of the spouses can claim additional exemptions for dependent qualified children. (see ase, sq To minimize tax, usually the spouse with higher earnings claims the additional exemption. When both spouses earn compensation income, the husband shall be the proper claimant of the additional exemption. However, the wife may claim the additional exemptions in the following cases: 2 a. The husband explicitly waives his right in favor of his wife, b. ‘The husband has no income, or: ¢. The husband works abroad. (sxe 795, mo) Illustration : For the taxable year 200A, Mr. Cruz and Mrs. Cruz, both Filipinos with 6 dependent iren, have compensation income’ of -P300,000 and business income of 200,000, respectively. How much is the total personal exemption of the couple? ‘The total personal exemptions would be ‘MrCriz” Mrs Calg "Total Basic personal exemption P.50,000 —P50,000 100,000 Add: Additional exemptions . (25,000 x 4) 100,000, =~. _100,000, ‘Total personal exemptions Bis0.000 50,000 £200,000 Chapter 11. Income Tax of Individuals . a7 3, If legally separated from the spouse with a qualified dependent child, he may avail a basic personal exemption of P50,000, ‘and the additional exemptions shall be allowed to the spouse who has custody of the child or children. Illustration Mr. Cruz ahd Mrs. Cruz, both Filipinos and legally separated, with one dependent ‘child under the custody of Mrs. Cruz, have compensation income during the year amounting to 240,000 and business income of P250,000, respectively. ‘The personal exemptions of Mr. Cruz and Mrs. Cruz would be , Mr.Crz Mrs. Cruz ‘Baste personal exemption *'P50,000 P50,000 ‘Add: Additional exeraption (F25,000 x 1) 25,000 Total personal exemption, 50000 75,000 4. An unmarried individual with a child out of wedlock who is a recognized natural vlild vari claim a personal exemption ‘amounting to P50,000, plus additional exemption(a). Illustration Miss Roces, a single mother Filipino, with one qualified dependent child who is acknowledged by his father, has compensation income amounting to P280,000. If Miss Roces chiefly support her child, how much is her’ personal exemption? ‘The personal exemption of Miss Roces would be Basic personal exemption — head of the family P 50,000 ‘Add: Additional exemption (P25,000 x 1) 25,000 Total personal exemption * B75,000 Note: As a rule, peréonal exemptions are deducted first from compensation Jncome. Any excess of personal exemption over compensation income is deductible rom business net income.598. INCOME TAXATION Chapter 14 599 CHANGE OF STATUS ‘The rules for change of status are summarized as follows: Illustration Miss Dina Maligawan is single and chiefly supporting her parents and four (4) brothers who qualify to be dependents. CHANGE OF STATUS SUMMARY In this case, Miss Maligawan’s basic personal exemption is (R.A. 9504) 50,000. But she cannot claim additional exemptions for her - ae parents and four (4) qualified dependent brothers. ‘Change of Status: "| ‘Thisvear | Next year 1. Married P30,000 | 50,000. 2. Died P30,000, DEPENDENTS OTHER THAN CHILDREN ee ene eee leoees (Brother, slater, parents and/or senior citizen) 4, Widowed with qualified dépendent not f 5 ‘yanpilon his child 50,000 | 50,000 : Basic | Additional 5. Widowed without dependents 'P50,000 | 50,000 Single, with dependent other than 50,000 | - 0 - 6. Legally separated with 1 qualified * children ‘dependent child 75,000 | 75,000 ‘Head of family, with dependent other | P50,000 | - 0 - 7. Legally separated with qualified than children dependent not his child 50,000 | 50,000, |. Married, with dependent other than, sooo | = 0 - 8. Legally separated without dependents | 50,000 | 50,000 children. 9. Not legally separated 50,000 _| _P50,000 % DEPENDENT CHILDREN (Gaximum of Four) ‘Adaltional Exemption Dependent Senior Citizen ‘Change of Statu This-year | Rest year f 1 Born 25,000 | 25,000 A Senior Citizen shall mean any resident of the Philippines who is 2). Reach ei chia | 25,000 ve Bre RONG A ene oe ee i i at least 60 years old, including one who is retired from either patel aaitacapeee olwreee government office or private enterprise, and has an income of not himecit 25,000 | 25,000 more than P60,000. per year subject to review by NEDA every 3 4. Marries 25,000 aa ‘seeps 5. Gainfully employed 'P25,000 ee 6. Dies 25,000 ‘The benefactor of a senior citizen shall be entitled only to the basic personal exemption equivalent to P50,000 or as allowed under the Tax.Code for head of family. He shall NOT, however, be entitled to claim the additional exemption of P25,000 for "supporting a senir citizen, tev. ag, 1 42008; Sec. 7,26 7432; RA 9508) Dependents Other than Children ‘The Tax Code provides that’ additional exemption is to be granted to qualified dependent. children of an individual taxpayer. Accordingly, a taxpayer with dependents other than his children (example: sister, brother, parents, and senior citizen) is not entitled to additional exemption. (se. 95 (0) NRC as amended nj RA. 9504 ‘The Baybay vs. CIR, CTA Case No. 5280 dated Dee. 20, 1996 is no _ longer applicable because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of June 6, 2008 provides that ‘additional exemption is’ ‘applicable to qualified. dependent » children. When the law does not include it excludes. ~ Under “ex posteriori deropateprir” principle — the ue law governs. The old CTA decision is superseded by the Special Laws ~ RA. 424 & R.A, 9804 which are superior to decision. Furthermore. BIR reiterated in ite Ravenna Ractlatinna If an individual taxpayer supports dependents other than his children, he may retain the basic personal exemption of P50,000, without additional exemption. :600 INCOME TAXATION No. 4 = 2006, Sec. 7 last paragraph that “No personal exemption is allowed for senior citizen. Illustration Mr. Siegfred Erorita, single, is taking care and providing chief support to Lolo Rado, a senior citizen. ‘The personal exemption of Mr. Erorita would only'be 50,000, (Se: 2 RA o808) CLASSIFICATION OF TAXES ON INDIVIDUALS ‘Taxes on individual taxpayers are classified as: 1, Normal (Tabular) graduated tax; 2. Passive income tax, and 3. Capital gains tax. ‘Normal (Tabular) Tax: 8 ce The tax rate to be used in computing income tax due of an individual taxpayer is the normal graduated tax rate as provided in the Section 24(A) of the NIRC. Individual taxpayer's taxable income subject to normal (tabular) tax is income derived from compensation, business and profession. It may also include capital gains and passive income not subjected to final taxes, The income tax on these earnings is generally computed based on. the following schedule: NORMAL (SCHEDULAR) TAX RATE OW INDIVIDUAL TAXPAYER (See. 24(A) of IRC) at over FLO 000 3 ‘Over P10,000 but not over P30,000 | F500 ‘Ores F90,000 but not‘ever P70,000 | P2.500 «16% ofthe excues over P30.000 ‘OrerF70,000 but not over P140,000 | P5,503 + 20x ef meexcens over P70,000 P22;500. + 25% ofthe excess over P240,000 + 10% ofthe exons over P10,000 ‘Over P140,000 but nat over P250,000 ‘Over F250,000 but nat aver PS00,000 | P50,000 + 30% of excean ever P250,000 125,000 + 22% of the excess over P500,000 ‘over £500,000 Chapter 11. Income Tax of Individuals 01 Taxable Income Taxable income means the pertinent items of gross income, less the deductions and/or basic personal and additional exemptions, and special deductions, if any, authorized for such types of income by the NIRC or other special laws (sve. 31, NRC}. ‘The amount of taxable income is the basis of income tax rate to arrive at income'tax due. ‘The individual taxpayer's taxable income may be computed ‘as follows: jar Form 1700 & 1701) ‘Compenisation income Less: Personal exemptions Health/hospitalization insurance paid Net taxable compensation, Business income Less: Business expenses allowed Net business income ‘Add: Capital gains, not subjected to final tax Poa Passive income without (for resident citizen) vox ex Total taxable income Ex Prox Prox ie ke Income Tax Due ‘The income tax due of an individual taxpayer is based on his/her net taxable income. The income tax rate to be used is the normal (tabular) income tax rate as provided by Section 24(A) of the NIRC. ‘The tax due on the respective income earned by husbandand wife should be computed separately. In case a family business income could not be specifically identified whether earned by either of the couple, such income shall be divided equally between the spouses to determine their respective individual taxable iricome. (kA. 727) At the end of the taxable year, the husband and wife will accomplish a single income tax return wherein’ their respective taxes are to be combined. The single ITR to be accomplished is BIR Form 1700 if the income is purely compensation. If the income is a combination of compensation and business income, the single ITR to be accomplished is BIR Form 1701602 INCOME TAXATION Tilustration Assume the following income of Mr. Scott and Mrs. Ann Saboy: ‘Mz. Saboy Mrs. Saboy Compensation income 'P300,000 - P180,000 ‘Withholding taxes 34,000 24,500 Rent income of P120,000 is derived from the couples’ conjugal Property: They have four (4) qualified dependent children, ‘The income tax of MA and Mrs. Saboy can be determined as. follows: ‘Mr. Saboy Mrs. Sabor ‘Compensation income 'P300,000 180,000 Less: Personal exemptions: Basie maried 50,000 0,000 50,000 ‘Additional exemption (P25,00024) 100,000 _100,000 x ‘Taxable gompenaation income 150,000 130,500 ‘Add: Rent fncome (P120,000/2) 60,000" 60,000 ‘O8D (120,000 x 4061/2 28000) 28,000) ‘otal tezable income +E16.000 Fi66,000 Tneame tax 02 P140,000 22,500 P23,500 Tncome tax on expeas! Mr. Saboy (P186,000 -P14¢,000) x 25% 11,500 re, Saboy (165,000 ~ 140,000) x 25% 6.500 Income tex due 54900 29,000 Less: Pex credit withholding taxes 24.000 24,500) Income tax sill due and payable Boo. paso Notes: 1 los the Mba end wie wil ie «sine Tt ee rps ca tte a tbe combined beat tesa taping tc) 2” each pase th coe sted clan s/he pero! Cpt Tis abt poeta ot es Ta Sa ‘ideo! abi ct when he waa gil sales tle ie e Passive Income Passive income is an incomé earned from allowing other to use one’s rights, or game of chance or investment, which the taxpayer “merely waits for the Intome to come in. The law subjects passi income, to final tax. Once'subjected to a final tax, it is no included in the taxableincome subject to normal (tabular) Deductions and exemption’ do not apply to items subject to fi tax. 2 # Chapter 11 Income Tax of Individuals, 603 Passive income is classified as follows: a, Interest, prizes, royalties, etc., b. Cash or property dividends, The applicable rates for passive incéme ate shown: in the Summary of Tax Base and Tax Rate on Individual Taxpayers. Capita Gains Tax ‘These taxes are imposed on sales or exchanges of properties not used in business. Capital gains and their respective taxes have been discussed in Chapter 7 of this book. Comprehensive Illustration Mr. Guillermo Miraflores, married and a resident citizen, received the following income in 200A: Source of income Within Without Pao0o rrooes ‘nterest income Dividend income 30,000 * 0,000 Prizes 10,000 30,000 Lottery winninge 40,000 70,000, Royalty, books: 0/000 0,000, Royal: mining 180,000 90,000 Interest foreign currency deposits 100,000 85,000 ‘Winnings, Philippine Lotto 1,000,000 Sale land (capital assets), cost 50%; zonal 10% higher "$0000 600,000 _ Seles of shares not traded, cot 50% 250,000 200,000 > Rent income 175,000 160,000, _ The applicable taxes of Mr. Miraflores would be ‘A: Final tax on passive income withheld at source by the income payor: ‘inal tax on interest income: Interest income-within (P20,000 x 20%) P 4.000 Interest on Foreign Currency Deposit-within (P100,000x7.5%) 7-800 Einso0 ‘inal tex on dividend income (P50,000 x 1025) B 5.000 Final tax on royalties: Raytity on books wile (P60,000 x 10%) P.6,00., Royalty on mining-within (F180,000 x 20%) 38,000 ‘Binal tax on winnings: Latecy: 000 ial taxon Hesy wiinigs-wehin 40.000 20%) Boo ‘Sales of ln feet vale ia higher) (P500,000 x 11086 1.6%) 39,000 Sales of thares of stock - within (outside local stock exchanasl ren nnn04 INCOME TAXASUN Less: Cost of shares of stock (P250,000/2) 25,000 Gain onsale of shares of sock 126.000 ‘or on fiat P100,000 x 5% Peso Tasron excess (P125,000 ~P100,000) x 10%) 2500 7.500 Ba0.500 B. Income subject to normal (tabular) tax: . Sourses ofIncome Mithin Without entincome Pi75,000. P 160,000 Pelco 10000. 30,000 eee 100,000 re 80,000, Totes 70.000. Royalty, book 50,000, roe mice 0/000 Interest otelgn currency deposit 35,000, Gaia on sale of and (P600,090-P200,000) 300,000 Galt on sale of sock, not traded : {P200,000-7100,000) 100, Totals 17068.000 ‘Ad: Income within (P175,000 + P10,000) 188.000 . "185,000 income before optional deduction 1,250,000 [ese Optional deduction (P1,250 000 x 40%) Pr500.000 tnoame before personal exemption 750,000 ead: etaenil exception © pesie 30,000 eee ®7o0;000 P 125,000 “Tax on P500,000 “Test on excets (P700,000-PS00,000)x 32% ee Income fax die and payable SUMMARY OF TAX EASE AND TAK RATES OM INDIVIDUAL TAXPAYERS eon or nem 2 | ee [ae Tae feeabriner Se co eee : eerste panties a" | Sites foceasrent aes [talieer nana cai ont So ee) Ses ‘Wel 1 ol be ateg Pon Bete an acon aRSTT] Saag en ww ‘Chapter 11 Income Tax of individuals : ‘005 ‘EU ~ Fal Witkin Ta, "GHW Grose come Wit NONRESIDENT ALIENS’ (NRA) INCOME TAXES ‘The Nonresident. Allens’ income taxes shall be goveried by the following rules: 1. NRA Engaged in Business. If the NRA is engaged in business (NRAEBT) in the Philippines, he shall be taxed in the same manner as a Nonresident Citizen, except for the following ‘income derived within: ‘© Dividends subject to 20% on gross amount, and b. Cinematographic film owner at 25% on gross income. Mlustration ‘ Shawar Mah, an Indian national engaged in moncy-lending business in the Philippines, reports the following business income and experises during the year: Business income 'P900,000 $600,000 ~ Business expense 400,000 500,000 Dividend income 100,000 80,000 ‘Assume that India, does not provide personal exemptions to foreigners. Shawar Mah's income tax in the Philippines is computed as follows: Normal (tabular) tex: Philippines Business income 'P900,000 Business expense a 400,000, Net taxable income 'P500,000 Income taxon P500,000 |. 125,000 Final tax on dividend income within B.20,000 (P 100,000 x 20%) ote: Income eared outside the Philppies bya nonresident sic is no} subject o tax {nthe Philippines, Shawar Mah's income witha i not granted « personal exception ‘ecste his Income within not subject to eiprociy . NRA Not Engaged in Business. If the NRA is not engaged in business (NRANEB7) in the Philippines, he shall be taxed at a final tax of 25% based on his gross income within; except for valien employed by (a) regional or area headquarter establishedINCOME TAXATION in the Philippines by multinationial.company, (b) offehore “banking units, () petroleum service contractor and subcontractor. They are taxed at 15% of salaries within. ‘Se: 2516/1, NRC) ~ Iitustration ‘Mr. George Bush, a nonresident alien not doing business in the Philippines, earned the following income during the year: “Bhilippines U.S.A, ‘Net income from business $100,000 Prizes . 100,000 30,000 Royalty income _ «00000 __60,000 Total : 200.000 90.000 ‘The Philippine income tax of Mr. Bush would be Gross income - Philippines 300,000, Muitiplied by applicable tax rate ii 25% Philippine income tax due 275.000 Summary and Treatment of Different Taxpayers’ Income a ia | Wider | ial | Goel | ewe | Tae Goeeresm | Ye | tec| vee] te | ae | Sammie Seer [YS] JS [HSS] | te | eee amos ) S| Sec Ye | Ye | Settee no | 3S | rate tecamey ne || sommes S| ok | Seite S| k | See SS | ve | pte so | ne | searpmainon fmeeneaD. vo | ne | eocomm eae Chapter 11. Income Tax of Individuals 607 ae SECREA ete ie cept nl nd ce ore bn ‘See: ni ier nef hae of tock ute he stock cache Se oeememees S55: Son ft andr ue rm Hcp e.g 16009 babar oped eee eee TAX CREDIT ‘The tax that was withheld by source shall be applied as a reduction of the tax liability of the taxpayer in the taxable year o1 quarter in which the income was earned or received. Illustration- Tax credit within In 200A, Mr. Restic Bspanola, married and with four (4) qualified dependent children, reports the following income and expenses Salary, net of WT P5,000; SSS premium P2,000 P905,000 Rent income of commercial space, net of WT 5% 95,000 Expenses, 40% connected with rent income . 150,000 Royalty income on mining claim, net of WT 20% 160,000 ‘Commission income, net of WT 10% «= 27,000 The computation of income tax payable of Mr. Espanola subject to, scheduler tax would be ‘ Gross salary (P205,000 + P5,000) P210,000 Rent income (P95,000/95%) 'P100,000 Less: Rent expenses (P150,000 x 40%) 160,000 40,000 Commission (P27,000/30%) 30,000 Total net income before personal exemption 280,000 less: Personal exemptions: e Basic (married) P 50,000 ‘Additional (P25,000 x 4) 100,009 _150,000 Taxable income u 2130.00608 INCOME TAXATION ‘Tax on P70,000 ‘Tax on exéeess (P130,000-P70,000) x 20% Tex due Less: Tax credit Withholding ta: 2n salary 5,000 Withholding tax on rent income (P100,000 x 5%) 5,000 ‘Withhvisling tax on commission {(P30,000 x 10%) 3,000 13,000 “Income tax still due and payable E7500 Note: Royalty income is subject to final tax; hence, it should not toe included in the cemputation of income subject to schedular tax SSS premjum is nontaxable Tax Credit for Taxes Paid to Foreign Country ‘Taxes paid by an’ individual to a foreign country shall be subject to the following rales: 1, An alien individual shall not be allowed credits for the taxes ‘paid to foreign countries se: 24;¢(04) 1uaq). It is because he shall ‘be taxed on income derived within the Philippmes only. 3 2. At the option of the taxpayer, the income tax paid by resident citizen to any foreign country may be treated as an item of deduction or tax credit (Sec 24C13), MRC). ‘ 3. The total amount of the credit shall not exceed the proportion of the tax against which such credit is taken, which the taxpayer's income from sources without the Philippines taxable under this Title bears to his entire taxable income for the same taxable year (see.24,0/4b, nq, d Limit of Tax Gredit Paid to Foreign Country s Per Sec. 34(4) of the NIRC, the rule applicable to tax credit paid foreign country will be the lower of actual tax paid or the amot derived by computing the tax limit as follows: s Formula: ‘One Foreign Country Tax ‘Taxable income from foreign country ,_—Pailippine Credit “Taxable income from all sources* income ‘Hote: The taxable income used to compute the limit on foreign tax er vi ric and additional exemptions. | Chapter 11. Income Tax of Individuals * ‘Two or More Foreign Countries ‘The rame formula is used ae th sed as that of one fori thatthe allowable tax credit wil be the lowe ofthe Gan 1. Atul tax paid to foreign county; 2. Limit on tax credit comy ip : iputed using in from foreign country (os mace vial taxable income 3. Limit on tax credit com i iputed us aon foreign country (as numerator), @*able income from Mustration i ee oy wo ten outside the Philippines. The information regarding 1 Dee income and income taxes paid for 200A are as‘ollong: USES Seats tice Tunable thoome Jacome tax pa Tile x Potsio00 USA 75.008 i 175,000 ‘The income tax paid in the Philippi: is partial lippines is only a part 5 Feet in the quarter income tase pecan Hf the taxpayer chose tax cre for the income taxes paid ign countries, income tax still due 2 Philippines would have been computed ee ES eee &: Computation of Philippine income tax before tax credit ‘Taxable income from all sources: Philippines > Japan 'P220,000 USA 200,000 Hongkong 300,000 ‘Taxable income before exemption Less: Personal exemption : 800,000 abe moana Sy 50,000 » Tax on excess (P750,000-P a pone Cmammenezeeim sam TS610 * . INCOME-TAXATION b. Determination of allowable tax credit foreign (lower) mt 1: Actua ax paid forign (-70,000 + P175,000) 2s5.000 “Limit 2: ineiidaal tsa income forelgn ee Japan (F200,000/ P0000) =F 205,000 r {USA (P300,000/ 800,000) .P205,000 mit 2: Total taabe income foreign {§200,000 + Ps00,070 =P120,000)/"800,000) xP205,000, (lower) BX48,625 ¢. Determination of Philippine income tax still due Philippine income tax before tax credit 208,000 Lesst Tax credits: i i 25, a Foreign: Limit (lower) x P148,6: Local quarterly income tax paid __15,000 _ 163,625 Philippine income tax still due PALS fit pono lees than PDO ote: in otmputing the income tax, fractional part of pes ‘hal be disregarded. Ire factional part PO 0 or mor, feshall be rouaded ff toPL00. ea. 330) SALARY FROM EMPLOYMENT i i is is periodic net pay If u married individual taxpayer is employed, his peri from salary is computed as follows: (All amounts assumed) Basic salary per month Pig;poagg ‘Overtime and holiday pay ope Gross taxable income Less: Deductions: ‘Absences and tardiness 1,200.00 SSS, employee's share 400.00 Phil-health eae 75: Pag-ibig, 360.00 Union dues 100.00 Withholding tax 3,753.20 Net take home pay Withholding Taxes on Salaries 2 that’ Withholding taxes on salaries are income taxes temporarily based on estimate. The exact amount oft salary would only be determined at the end of the year when last pay for the year is computed and paid. ms i is from his If the only source ot the taxpayer's income is fro smployment, his Annual IT (BIR Form. 1700) is nol Chapter 11. Income Tax of individuals et ‘enough as compliance, Basically, the withholding tax for each pay period is computed as follows: Gross salary for the pay period times number of paydays in the year Less: Personal exemption Prox Health insurance premium, if any xox Estimated net taxable income Times applicable tax rate Estimated income tax for the year Divided by number of pay period for the year Estimated withholding tax for'the payday Ghalgk # Mlustration Mr, Joel Awingan is single ana employed with a monthly salary of 'P25,090, Suppose that there is no change in his salary during the Period, and no other deductions, cxcxpt the withholding tar, ‘The computation of estimated withholding tax is as follows: Estimated salary for the year (P25,000 x 12) 300,000 Less: Personal exemption 50,000 Net taxable income P250,000 Since the annual income tax for’ P250,000 taxable income is P50,000 ‘and salaries are paid once in a month, then the ‘withholding tax for the payday is computed as: Annual income tax 50,000.00 Divided by number of months in a year 12 Withholding tax for the month SELF - EMPLOYED INDIVIDUALS A self-employed individual is'an individual taxpayer whose income is derived solely from *is own business. Mlustration Assume that a single individual taxpayer is a single proprietor of a trading business. His proprietorship has business income for the quarter is P120,000. The operating expense amounted to -P50,000. His first quarter income tax return would be:12 INCOME TAXATION Business income P120,000 Less: Business expenses 50,000 Net estimated taxable income 70,000 Chapter 14. Income Tax of Individuals 613 Assume that the overhead cost is P250,000. The journal entry would be ‘The tax for the.P70,000 taxable income per normal (tabular) tax rate is P8,500. Note: For a self-employed taxpayer, his quarterly ITR is not to be reduced by ‘personal exemption. The personal exemption ie allowed oniy in his annual income tax return, when all hig income is consolidated in one annial income tax return. Income Tax on Professional or Talent Fees: In general, professionals are required to collect a 12% VAT based on the gross receipts which shall be remitted to the BIR on the 20% day of the suicceeding month. (ea. 9337) In addition, Revenue Regulation No. 30-2003 provides that professional or talent fees for services rendered by an individual shall be subjected to a creditable withholding of income tax on the gr002 professional, promotional and talent feee or any other form of remuneration for the services af the following individuals: 1, Practice of Profession. Ten percent (10%) creditable ‘withholding tax for an annual income of 720,000 and below and 15% for income more than P720,000. (eu Rep. 0:00 ~ 2005 See Say Ilustration . ‘On October 2004, Jose Peralta, a CPA and VAT-registered — professional, obtained several accounting services as follows: Date Professional service rendered December 1 Management advisory System installation Auditing ‘Total ‘Add: VAT (P600,000 x 12%) Total Less: Creditable withholding tax (P600,000 x 10%) Gross receipts inclusive of VAT : GENERAL JOURNAL Ay bee Page Hamat Th aes Dessipions Debt [Gri Taft | cast 613,000 zl ‘ese einai 0,00, lesional neo, aie aoe ‘Output var a “FRE Sarai ome [pasion orn 7 2500 12/5 | apse VAT 7,008 q AT parable aa 7200. “Taya cone carpe co iedilabie witihaling eae. ocome tne payable Hon Notes: 1 The exeitahin tex ems ng ta P0000 fe withheld by the cient, 2. The VAT is 12% of the professional fee received, or P72,000, (P600,000 x 12%). 38. The income tas still due and payable would be ‘Total professional fee (net of value-added tax) 600,000 Less: Operating expenses 250,000 Retin 350,000 20: Personal exemption 50,000 Net taxable income 700,000 ‘Income tax on F250,000 50,000 “Tax on excess (P300,000 ~ P250,000) x 302% 5,000 ‘Total income tax 965,000 Less: Creditable withholding tas, 60,000 Tneome tax sill due and payable B_5,000 2. Professional athletes, entertainers, musical and movie directors. a. Ten percent (10%) - if the annual income does not exceed P720,000, b. Mifteen percent (15%) - if the annual income exceeds 720,000. ‘Talent fees are entitled for optional standard deduction of 40% if no operating expenses are claimed as deductions.614 INCOME TAXATION Mlustration In 200A, Manny Pacquiao (married having four qualified dependent children) acted in the movie ‘Mata sa Kameo,” with fa contract talent fee of P20,000,000 plus 12% VAT. He opted to deduct OSD since no official receipt can substantiate his operating expenses. ‘Assumi following: 1. Greditable withholding tax. 2. Cash received. 3. Income tax still duc and payable. that Pacquiao is VAT-registered, compute for the The creditable withholding tax is computed as follows: ‘Talent fee per contract 20,000,000 Multiplied by withholding tax rate 15% Creditable withholding tax B_3,000,000 ‘ote! The thomhdlding tax rate Used fs 15% because (he lots profeysiomad income exoceds P720,000 in a year. (Rev. Reg. Na 30-2008) The actual cash received would be P19,400,000, determined as follows: 120,000,000 2,400,000 ‘Talent fee per contract ‘Ada: VAT (P20,000,000 x 12%) Total e 22,400,000 Less: Creditable withholding tex 3,000,000 ‘Actual cash received B19,400,000 — days of the succeeding month-when the income was received Consequently, the net cash received by Pacquiao would be ‘P17,000,000, (P19,400,000 - P2,400,000). ee [At the end of the year, income tax still due and payable is” Talent fee per contract - Less: Optional standard deduction "(P 20,000,000 x 40%) « Net taxable income fps te Personal exemptions (P50,000) + (P25,000 x 4) “Taxable income eee | Chapter 11 Income Tax of Individuals : 615, ~ Income tax on P500,000 P Income tax on excess (P11,850,000 ~ P500,000) x 32% Income tax due 125,000 —8.632,000 P-3,757,000 Less: Creditable withholding tax 3,000,000 Income tax still due and payable P_757,000 INDIVIDUAL INCOME TAX RETURN (ITR) ‘The following individual taxpayers are required to file inéome tax return that should be filed in triplicate: 1. Resident Filipino Citizen on his income from all sources a. Individuals deriving compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year; b, Employees deriving compensation income regardless of the amount, whether from a single or several employers curing the calendar year, the income tax of which has not been withheld cotrectly (Le. tax due is not equal to the tax withheld) resulting to collectible or refundable return; c. Employees whose monthly gros compensation income does not exceed statutory minimum wage and opted for non-withholdinig of tax on said income; d, Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject toa final tax; . Individuals receiving purely compensation income not otherwise subject to a final tax; and TAA i ett peley caper bowed aa single employer, although the income of which has been correctly withheld, but whose ‘spouse is not entitled to substituted filing. Substituted Filing of ITR. Individual taxpayers, receiving purely Compensation income, reardies of amount, fom only ne employer it the Philippines for the calendar jear whee income’ tx han been vthheldeorectly by the said emplayer shal tbe requled fle BIR Form 1700 fhe tar due por computation equa tax ihe : In tea of BIR Form 1700, the Annual formation Retum of income Tases Wibhedon Compensation and Pinal Wehbelding Taxes (IR Form 100%)618 INCOME TAXATION * fled their respective employers, duly stamped “received” by BIR, shall be fantamount tothe subetiated fling of income tax returns by sald employees (Sen 24834 Ret, Reg. 32002) 2. Nonresident Filipino Citizen on his income derived within the Philippines. < 3. Resident alien on his income derived within the Philippines. 4. Every nonresident alien engaged in’ trade or business or profession in the Philippines. (Sec sia) no) The following individual taxpayers are exempted from filing income tax returns: (See. $1/32).NRC) 1. An individual who is rot engaged in business or practice of profession whose gross income does not exceed his personal and additional exeme ions for dependents. 2. Minimum wage earners. —A 9s: Ret Regt No. 102008) 3. If his gross income does not exceed his total personal and additional exemptions for dependents. (seo 95, MRO) 4. If his pure compensation income derived from the Philippines and the pertinent income tax has been correctly withheld. (Se: 73, RC) 5. Regardless of amount, the following individuals are not required to file an income tax return: a a. An individual whose sole income has been subjected final withholding tax (se 57a, neq, such as interest, pi winnings, royalties, dividends, share of individual pers in a business partnership. b, Alien employees of regional or area headquarters of multi national corporations with respect to income received fro such corporations; Aliens employed by offshoré banking units with respect income received by them from such units; and oe | Chapter 11. Income Tax of Individuals on, 4. Alien employees of service contractors and sub-contractors engaged in petroleum exploration in the Philippines with Fespect to income received by them as such. ITR of Parent fo Include income of Children Under Section 51/5) of the NIRC, the income of unmarried minors derived from property received from a living parent shall be included in the returns of the parent, excej ‘a. When the donor's tax has been paid on such property, or b. When the transfer of such property is exempt from donor's tax. Financial Statements Attached to the ITR ‘The financial statements that are required to be attached’ with the income tax returns upon filing are: 1. Statement of Net Worth and Operations. This statement is to be attached with the income tax return of individual taxpayers if ‘the gross sales, receipts or output from business do not exceed P50,000 in any one quarter. 2. Balance Sheet and Profitand-Loss Statements. These statements are to be attached with the income tax return of individual taxpayers if the grogs sales, earnings, receipts, or output from business in any one quarter exceed P50,000 but donot exceed P150,000. 3. Other Statements. The following statements ate to be attached with the income tax returns if the gross sales, earnings, receipts oF output from business in any one quarter exceed P150,000. é a. Balance Sheet and Profit-and-Loss Statement certified by ‘an independent CPA. 2 ». Comparative Profit-and-Loss Statements for the current and Preceding taxable years. © Schedule of income producing properties and corresponding income therefrom, (sxc 232,100) a618, INCOME TAXATION ‘Annual Declaration and Quarterly Payments of Income Tax ‘The following dates are to be observed by an individual taxpayer in his declaration and quarterly payments of income taxes: 1, On or before April 15 of the following year for the taxable income of the previous year. i 2. April 15 of the same taxable year for the estimated incoime of the current year (se748, i) 3, Filing and payments’of individual's estimated ineome tax. fic Dates ber 16 of the current texable year [April 18 ofthe following calendar year when fal usted incoine tax return is due for ee S218 MR ‘The individual taxpayer's quarterly income tax has been illustrated on chapter 10 of this book. Installment Payment of Tax Individual taxpayers are allowed installment payment of their income taxes when the tax due exceeds P2,000. (s=S6A2, MRC) ‘The taxpayer other than a corporation may elect to pay the tax in two (2) equal installments in which case the tax installment dates are as follows: 3 1. April 15 - 1* installment payment on the required date of faling and payment. . July 15 - 24 installment payment, ie 45, 3. Ifany installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the penalty on delinquency. 17, i. 12, 13. 16. Chapter 11 Income Tax of Individuals 9 Chapter 11 - REVIEW QUESTIONS. Distinguish the following: ‘a: Filipino citizen from alien b. Resident citizen from nonresident alien cc. Resident alien from nonresident alien Who are “special taxpayers?" State the tax rules applicable if the special taxpayer is a/an (1) alien and (2) Filipino citizen. Who are marginal eamers? State their taxability. ‘State the categories ant amounts of personal exemptions. Who are the taxpayers allowed with personal exemptions? Explain the principle of reciprocity with respect to personal ‘exemption of NRAETB in the Philippines. Who are the taxpayers not allowed for personal exemptions? Who are the taxpayers entitled to additional personal exemptions? State the rules in claiming additional personal exemptions for spouses, Give the meaning of the following: a. Dependent . Living with the taxpayer ©. Gainfully employed What are the basic and additional personal exeinptions if dependents are other than the taxpayer's children? oe State the rules.on claimable additional personal exemption when the dependent is a senior citizen. : : How are changes in status during the taxable ‘year treated in claiming additional personal exemption? ‘What are the classifications of income taxes of individual taxpayers? What is a normal (tabular) income tax? Give the basic format of FER in computing an individual taxpayer taxable income. o ates What are the types of deductions that may be deducted individual taxpayer's income? 5 Differentiate tax due from net tax payable as shown in the ITR.