Chapter 8 - Regular Income Tax: Exclusion from Gross income CHAPTER 8 REGULAR INCOME TAX: EXCLUSIONS FROM GROSS INCOME Chapter Overview and Objectives This chapter discusses the items of income that are excluded from gross income, hence not subject to income tax under the NIRC. It also includes discussions of. other exempt income under special laws, treaties, or contracts. After this chapter, readers must be able to demonstrate: 1, Mastery of the list of exclusions from gross income 2. Comprehension of exclusion conditions or limitations of certain items of income 3. Knowledge of the list of entities exempt under the NIRC and special laws. EXCLUSIONS FROM GROSS INCOME Exclusions from gross income are income which will not be subject to income tax. They are not included in gross income subject to regular tax, capital gains tax, or final tax. Under Sec. 32(B) of the NIRC, the following items shall not be included in gross income and shall be exempt from taxation: Proceeds of life insurance policy Amount received by the insured as a return of premium Gift, bequest, devise, or descent Compensation for injuries or sickness Income exempt under treaty Retirement benefits, pensions, gratuities, etc. ;. Miscellaneous items 1. Income in the Philippines of foreign government or foreign government owned and controlled corporations Income of the government and its pulitical subdivisions Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements Prizes and awards in athletic sports competitions Contributions to GSIS, SSS, PhilHealth, Pag-Ibis, and union dues Contributions to Personal Equity Retirement Account (PERA) PERA investment income and PERA distributions Pamoop> oN Mowe 249sia ncome Tax Exiuson fom Gross Income ts not exceeding P90,000 ures, or certificates of indebtedness wig chapter 8 - Reg benef 8, 13% month pay and other 9. Gains from sal often ee maturity of more than . net gen stares mua nd EXCLUSION FROM GROSSINCOME me. Life is surance is a return of capital. 'B. Amount received by the insured as a return of premlum - The amount Feceived by the insured asa return of premiuims paid by him under life insurance, ‘ndowment or annuity contracts either during the term or at the maturity ofthe {erm mentioned in the contractor upon surrender ofthe contract, ‘The amount received by the in ium on any insurance contracts a retur of capital; hence its excluded from gross income, insurance policy with annual premium payments of P20, berto outives the policy after the 10° year, he ‘willbe paid a PS00, ‘Scenario 1 Alberto died on the 8 year of coverage and his proceeds. The entire insurance proceed: ofPI,000,000 is lected the P1,000,000 ble. nce company negotiated for an extension of the insurance company shall pay P1,050,000 on the The P',000,000 proceeds wil not be taxed upon callection, but the 50,000 excess representing interest is taxable item of ross income. Scenario3 ‘Alberto outlived the policy and collected the maturity value of P500,000, ‘The total proceeds shall be analyzed as: Total proceeds Return of premium (720,000 x10 Return on capita (item of gross P 500,000 200.000 2 eo.009 chapter 8 - Regular income Tax: Exclusion from Gross Income Scenarto+ ‘ter 6 years of payment, Alberto assigned the policy to Gino who paid him P130,000. Glino continued the premium payments for two more years afer which Alberto died. tino 1,000,000 insurance proceeds. ‘The assignment oF sale of the policy by Alberto to Glino for P130,000 resulted énto 120,000 (P20,000x 6) return of premiums and P10,000 taxable return on copftal ‘The receipt of the insurance proceeds by Gtino resulted in P170,000 return of copital {730,000 + (P20,000 x 2)] and P830.000 taxable return on capital There s lass of ife In doe the purchaser ofthe life insurance policy. Hence, resting to note that the entire proceeds thin the purview of the NIRC exemption; he Property insurance contracts of property insurance contracts in excess of the tax basis of the or destroyed isa taxable return on capital sd by fire when the 0. Antec recovered the The total proceeds shall be analyzed as follows: Total proceeds Less: Bass of property destroyed (return of capital) Return on capita (tem of gross income) P 2,000,000 1.200.000 B_200,000 Gifts, Bequests, and Devises or Descunt - The value of property acquired by if, bequest, devise, or descent: Provided, however, that income from such Property as well ax git, bequest, devise, or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income. sd a restaurant business as a gift on A ad total properties amounting to P400,000. ‘earned since January 1, 2020, The restaurant posted an additional P150,000 cash Income from April i to December 31, 2020. 21Gross income crate 8 - Regu rca TO = 0.00 t Mark 1 3 sue properties Wort 4,000 donated income shal be ncaa net eg cee TRE PS0 00 Kone gg i ct re nation eel of gy fir the dome. income inthe tax re" ‘indistinguished from exCR40E® .» ye evaluated in determining, whether ‘The transferor’ intention OF MORO eg are characterized BY ure liberality oy cer gare en an el An exchange ala, fmvivesa conser Eplment aaet pee sans 6 Roy ee ratutes given wnder ae 2 ee rmplayes. Hence, they are subject 0 come ty, managerial or supervisory employees ig as ot major anniversary gifts granted by efit subject to income tax ‘The cransfer of properties bythe employer (0 generally subject to fringe benefit tx Ci Ere employer to employees are de mi 1. Compensation for injuries and sickness = amounts recewed through acadent or health ins ‘Workmen's Compensation Acts as Seaton fr personal injuries or sickness ps the amounts of any damages cant whether by suitor agreement, on account of such injuries or sickness ‘by a jeepney He paid P100,000 for hospitalization expenses. He sued aoa esos awarded by the court 2 total indemnity of P340,000 iows. P200,000 indemnity for his pain, anguish and sufferings, P40,000, ies and P100,000 as rembursement for his hospital bi ‘The P200.000 indemity and the P100,000 relmbursement for hospitalization expenses drenon-tarable returns of capital. Note that health isa capital iter with infinite value However the 40.000 reimbursement for lost salary Isa recovery of lst profit: hence, an tem of gross come lustration2 Pogi's brand new car which he Bought for 1,200,000 was totally wrecked in a car Mr. Pgi escaped unharmed. He was paid P1 300,000 forthe accident. ‘he 710000 exces ineniy santo of rs income Noe tha the ow pata Pesala en mn oetnsorpopety nn ee Income exempt under treaty Income tems that are eile by ine goverment fe tat eayapeemens oversde p {ase of oft nae the exemption dete of narrauna com 252 ich the ational agreement to luded from income tax. It chapter 8- Regular Income Tax: Exclusion fom Gross Income fF. Retirement Benefits, Pensions, Gratulies and others benefits [Retirement benefit under RA. 7641 and those recelved by officals and pyees of private firms in accordance with a reasonable private benefit plan ed by the employer mneumonics: 1-10-50-RPEP) ent of retirement benefit exemption. mmployee has been in the services of the same crap 0) years. ‘The retiring employee is at least fifty (50) years of age at the time of retirement. 4, The employer maintains a reasonable private benefit plan. the officials or ig co such offi employees the ‘and wherein itis provided in said ‘at no time shall any part of the corpus or income of the fund be used for, or fed to, ay purpose other than for the exclusive benefit ofthe said officials and employees. ‘To be exempt, the retirement benefit plan must be a “rusteed" plan where the fund is Raid under the management of a trustee free from both emplayer and employee control. “The 10-year service period requirement pertains to cumulative yeors of employment auth the same employer. It does not need to be continuous years of employment. A Tequirement for continuous employment would be prejudicial to working women Mlustration 1 nga was employed in 1990 when she was 25 years old. In 2020, she availed of the early retirement program of her employer. ‘Angel satisfied the 10-year cumulative employment requirement but she is only 45 years ld (ue. 25 + (2010-1990) at the time of her retirement. The retirement benefit is taxable isan inclusion in gross income as compensation income. Mustration 2 ipsounne that Angel joined another employer and worked therein for 7 more years ater ‘which she retired from her employment ‘Although Angel s 50 years old by then, she only 7 years under the employ of her second employer, The second retirement benefit is aso taxable as compensation income since she failed the residency requirement. 253Cchapler 8 - Regular Income Tex: Exlusion ftom Gross Income Mlustration 3 Assume instead worked therein another empl efit from the second employer is tax ee ra to rbot extn can be led fon once nang 2, Separation or Termination Requisite of exemption: 1. The separation or termi deaths, or other physica 2. The same must be due to any cause beyond the control of the employee op official such as: a. Redundancy b. Retrenchment Closure of employer's business 4 e ion must be due to jobsthreatening sickneys, Employee lay-off Downsizing of employer's business Sickness or death ofthe employee ‘The phrase “beyond the control of the employee” connotes involuntariness on the part of the employee. In other words, the separation must not be of his own making ‘Abandonment of office such as the registration and subsequent appointment to another office is considered as a voluntary separation and does not fall within the purview ase “for any cause beyond the control of such official or ing 054-2001) oF separation benefits does not extend to: legal deductuons repaid by the employer upon termination (BIR Ruling 003-2004 2. Terminal leave pay or the commutation of accumulated unused leave credits (BIR Ruling No, 199-2 To avail ofthe tax exemy or certificate of exemy required documents shall be Mlustration 1 ‘Ywonne isan employee of Goldfish Company w' ‘Yvonne's last paycheck shows the following det 254 ie employee or his heirs shall request for a ruling fom the BIR. The request for a CTE and other at the RDO where the employer is registered. losed its business during the year ‘chapter 8 - Regular Income Tax: Exclusion from Gross Income Unpaid salary in the ast two months P 30,000 corzeenh oly 15,000 Separation Pa ore Bass.009 ‘The current month salary and the P30,000 backwoges are subject to income tax. The 7104000 separation pay sam exlsion fom gross come: hence net tance Mlustration 2 Henson's employer was downsizing ‘among others to be laid off. To avoid filed a resignation letter to the compa ss operations. Henson was identified 5 of inefficienctes on his part, Henson received a separation pay of P120,000, ‘The separation pay is axable as compensation income since the underlying reason of the severance of the employment (ce. resignation) is within the control of the employee. Henson got terminated witho employer decided to terminate his services but granted him P1,000,000 separation ‘The P1,000,000 separation pay is taxable as STD does not normally render the employee incapable of working. 3. Social Security Benefits, Retirement Gratuities, and Other similar benefits {rom foreign government agencies and other institutions, private or public, received by resident or non-resident citizens or aliens who come to settle permanently in the Philippines Mustration John was an OFW employed by Microsoft Corporation in the USA. John retired and returned to permanently settle in the Philippines. He is paid a $2,000 monthly pension from Microsofts pension fund and another $800 monthly benefit from the US social security benefit. Both the pension and the social securiy benefits are exempt. Note that these benefits ‘were carned abroad when the taxpayer was a non-resident Under situs rule, the foreign Income of non-residents is not taxable in the Philippines. This holds true even if the taxpayer subsequently recelves the Income as a resident of the Philippines 4. United States Veterans Administration (USVA) - administered benefits tunder the laws of the United States received by any person residing In the Philippines. 255chapter 8 - Regular income Tax: Excuson fom Grose Income ‘Mustration ei Mr, jackson is a retired US serviceman from © Filipina and setted sn the Phibppines. Hess rece! the USVA. The USVA beneficis excluded in beneficiares of Flipino veterans wh |S Social Security Systems(SS5) benefits under RA 6282 6 GSIS benefits under RA 6291 including retirement gratuity received py government officials and employees (war. He married a beg 2 $1,000 monthly benene a ross income. The some rule applies £0 USVA benef * fought under the American flag in World War G. Miscellaneous items 1. Income derived on investments in the Philippines in loans, stocks, bonds, or other domestic securitles, or from interest on deposits in banks in the Philippines by: a Foreign governments ‘Financing institutions owned, controlled, or enjoying refinancing from foreign government ‘c. International or regional financial institutions established by foreign ‘governments ‘These are exempt under the exemption doctrine of international comity 2. Income derived by the government and its polltical subdivisions from: ‘a. Any publicunlity or b, Exeraise of essential government function Government agencies and instrument The general rule with governm: because of their public service nai in income-producin gencies and instrumentalities is exemption . However, taxation applies when they engage ‘hare proprietary or commercial in nature. This exemption does not extend to government-owned and con corporations (GOCCS), GOCCs are generally taxable as regular corporations because their operations are proprietary in nature. 3. Prizes and Awards made primarlly in recognition of religious, charitable stent educational arte leary reve achlevements toy fe ‘a. The recipient was selected without any action on his part to enter the contest or proceeding; and ts not required to render substantial future services as 3 jing the prize or award. 256 ‘chapler 8 - Reguar Income Tax Exelusion fom Gross Income prizes of this kind partake the nature of a un: from income tax. These transfers are also exer rect certed effort for the grant of the prize such reaiured to render service prize such as joining a contest or 1s nan exchange: hence, taxable as income. ransfer and hence, exempt Examples of exempt prizes: a. Nobel Prize award 4. Prizes and Awards In Sports Competitions granted to athletes: ‘a. In local or international competitions and tournaments: b. Whether held in the Philippines or abroad; and Sanctioned by their national sports associations. 5. Contributions for GSIS, $5S, Philealth, Pag-Ibig and Union dues of individuals ‘These pertain to the employee share in the premium contributions to Gi PhilHealth, Pag-Ibig and union dues, The portion of the salary thus contri ‘exempt from income tax. Under RMC No. 21-2011, the exclusion pertains only to the mandatory or compulsory monthly contributions. Voluntary contributions to Pag big I, GSIS er [668 in excess of the mandatory monthly contribution are taxable. Note that Pag bigs now called the Home Development Mutual Fund or HDMF. ustration ‘An employee has a gross compensation income of P400,000 in 2016. His employer deducted P5000 SSS, P4,000 PhilHealth, P3000 HOMF, P2,000 union dues and 180,000 creditable withholding tax “Thus the gross income subject to regular tax shall be computed as follows: Gross compensat me 400,000, Less: Excluded compensation income or contributions: P 5,000, 4,000 3000 —2000 14.000 Gross taxable compensation income Paseono ote: The creiable withholding ass no an exclusion in gress income but ata cregt which {deductible against the income tax due ofthe taxpaye 23719 Regular Income Tax. Exclusion om Gross Income philHealth, and HDMF contribution, 1m of deduction against grass inconr ‘Chapter ‘The employer's share in SSS, GSIS, exclusion from gross income but a 6 Contributions to Personal Equity Retirement Account ( 6 nan contributors voluntary retirement account estab Par unons of the contnbutor and oF his employer for the {nvested in qualified PERA investment products om Each OFW ts allowed to contribute up to P200.000 per year to a PERA cae oes re allowed 100.000 contributions per Year. Husband and wig tach contribute up to the maximum allowable contribution. cn Gsis Moreover, PERA coninbutors are allowed to claim 5% of thelr pegs 17. PBRAinvestment income and PERA dis ERA investment income are exempt from taxes regular meome lax). The PERA account assets wil be distributed back to the Contributor either in lump sum, ife pension or in upon reaching th lage of 5S orto his heirs or beneficiaries upon his or her death. PERA distributong are kewise exclusions m gross income of the contributor or his heirs of ibeneicianies asthe case may be. tions final tax, capital gains tax and 8, 13% Month Pay and Other Benefits received by officials and empl public or private entities nat exceeding P90,000 ren 13th month pay and other benefit will be discussed in detailin Chapter 10 9. Gains frm sal of bonds; debentures, rotor certificate of indbtedns with a maturity of more than 5 sears alice “ WF wounded wpon the same assunption that jon. that longterm vee tote frnongof ng term projets which sewed a jeceiprentt cnn ins noneer. dots ot incide “terest” (Kippon Life Insure Company of the Philippines vs. CIR, CTA Case No. 6142) eae ber 1, 2020. an individual taxpayer sold a 6-year term bond investment for nce bonds bea 8 nea ret aytble tery Decenie equred at ,000000 fev onfanoary 30200 258 Chapter 8 - Regular Income Tax. Exclusion rom Gross Income P8000 ‘me gain from the sale of the longterm bonds is exempt becouse the bonds have & maturity perod of ore than 5 years However, the acrued interest income sa item of ras ncome subject to regular income tx 40. Gains realized from redemption of shares in a mutual fund company the investor tna fon ® ‘The term mutual fand company shall mean an open-end and close-end vesmnen Te Fong az defined under the investment Company Ae " Mutual funds poo! the money invested by different investors and invest the money £ ‘earn investinent income which shall add up to the net assets of partic res from the fund asset Valu tosses by hi the fund. Mlustration ‘A taxpayer bought 10,000 shares from Golden Dragon Mutual Fund at P120 NAV per Share, The taxpayer redeemed his shares when the NAV per share was P180. ‘The 600,000 gain, computed as {(P180 ~ P120) x 10,000}, on redemption is excluded {from gross incame; hence, exempt from ta ‘The exemption is app: ded to rmtugate double taxation, Most of the items of income of mutual distribution of these to th income tax. On the other hand, the exemption may have been intended to promote the growth of mutual funds which are widely regarded as key partctpants 1m providing liquidity in most financial market OTHER EXEMPT INCOME UNDER THE NIRC AND SPECIAL LAWS, {L._ Minumum wage and certain benefits of Minimum wage earners 2. Income of Barangay Micro- Business Enterprises Act (RA 9178) 3. Income of cooperauves (RA 95: 4, Income of non-stock, non-p 5. Income of qualified employee trust fands 259‘Chapter 8 - Regular Income Tax Exclusion ftom Gross income 6: Business or profesional ncome of selfemployed and oF Professionals, opted tothe 8% income tax men ies ae I Enterprise (BMBE) Para ney Mecrzenc eng or enterprise engaged in the PrOdCON, Processing ae assay produces or commodtes, Mmchding aRTe-PrOCessIng. trae ‘nd services whose total assets including those arising from loans but exclusive gf Bre ay se anh the porclar business entty’s office, plant, and equipment ae ‘itused do nt exceed 3,000,000 ‘The tem service excludes those rendered by licensed professionals ang partnership and corporations engaged in consultancy, advisory and similar Services which are essentially carried out through licensed professionals. include any individi -ooperative, corporati ‘and/organized and existing und the treasurer of a city or municy ich buses entity or enterprise, n, OF other entity incorporated ne laws and registered with the office of To qualify asa BME, an enterprise must not be a branch or a subsidiary of a lage scale enterprise and ts policies, and modus operandi must not be determined bya large scale enterprise such as in the case of franchises. Te f the benefits and privileges of a BMBE, an applicant must secure a certificate iperate as a BMBE from the Office of the Treasurer of the city or municipality that has jurisdiction, Tax Exemption on Income from Operations Aside from other incentives afforded by the law, the income of BMBE from th return. However, thetr non-operating, passive, and capi appropriate type of income tax. ‘Mlustration hhas a bakery with total assets of P4,000,000 inclusive of a lot with a book hue of P1,200,000. 260 ‘chapter 8 - Regular Income Tax: Exclusion rom Gross income Gross income from sales of bread P 300.000 wmissory notes of retail store clients ¢ sale of recipe books . Seo idend income from domestic stocks. cate Dis 10,000 Note that 2,800,000. excluding the lot. Hence, business btained a certificate of authori as. BMBE, the following items of operating income are exempt from income tax, Gross income from sales of bread P 300,000 12.000 Raizgo fered as a BMBE, the P312,000 cotal operational icome tak income wl be subject to the rep fither way, the royal {income subject to regul tax Income and dividend income are exclusions in the gross {ax but are inclusions in the gross income subject to final Another illustration Charis Santana has derived a total oper counting and auditing firm with total assets of P2,500,000. He ¥ income of P1,000.000 mn 2014. 1,000,000 is taxable since Mr. Santana is a professional service provider fo be a BMBE. Revocation of BMBE Tax Exemptions ‘The income tax exemption of @ EMBE may be revoked for any of the following reasons: ‘Transfer of place of business of assets exceeds P3, ‘om business, or cessation suspension of operations for one year ‘or omitting required declarations or statements 261puny wi eb Af SE prey inset ons faves and fees if their accumulated reserve = cats {DIOM. Otherwise, the AMOUNE Of sung per Neat from non-related SOUrCeS is fully tara However, the income of any cooperative foregut n-stockand Non prone nities Mom atone tat oe no Ea Bar tcome fram operations, HOWeve table. for profit are exempt from income tax gy their income from unrelated sources, aed Esper wnt fos pata pension, stock Dons ope ease ian af an employe for the benefit of some o all his employees is exer from any income tax under the NIRC. Conditions for exemptions of employee trust funds Contributions are made to the trust by such employer, oF employees, or both for the purpose of distributing to such employees the earnings and principal tthe fund accumulated by the trust in accordance with such plan, tb. “The asst of the fund shal not be diverted for other purposes other than the ‘exclusive benefit ofthe employees. (QUALIFICATION OF EXEMPTION OF EXEMPT ENTITIES Tax mcenuve or exemption 1 highly disfavored in law. It is not automatic ‘Taxpayers with exempuons or tax incentives under any existing laws or contracts must establish their entitlement by filing required documents with the BIR BMBEs need fo secure a Certificate of Authority. Cooperatives need to secure a Certificate of Tax Exempoon/Ruling (CTE). Once exemption is established, it only operates prospecuvely. INCOME OF SELF-EMPLOYED OR PROFESSIONALS WHO OPTED TO BE TAXED AT 8% INCOME TAX ‘The income of self-employed and or professionals who opted to be taxed to the 64 income tax shall be excluded in gross income subject to regular tax, The 8% income ‘axis meu ofthe 3% percentage tax and the progressive income tax. chapter 8 - Regular Income Tax Exclusion om Gross Income INCOME SUBJECT TO FINAL TAX OR CAPITAL GAINS TAX ikems of come that are subject to final income tax or capital gatns tax are not tems of gr0ss income subject to regular income tax. Also, mcome items that are exempted in the coverage of flaal tax or capital gains tax are not taxable to the regular income tax EXCLUSIONS VS. DEDUCTIONS from gross income are not included in the amo income tax return, The amount of deduction: 103s income but is separately presented as dedi sncome tax return table gross luded in st ross, Exclu D) Note to readers Exeluston in gross income represents one ofthe exceptions to the general scope of the regular income tax Readers are advised to master or, at least familirize themselves with the list ond their respective excluston criteria before proceeding (0 the next chapters of the book This ts ‘mportont in ‘sisting readers in mastering the regular income tax. 263chapter 8 - Regular Income Tax Exclusion from Grose Income CHAPTER 8: SELF-TEST EXERCISES Discussion Questions \e exclusions from gr What capital items are considered Enumerate the excluston cond ules on res. Tre caatustne froin gross compensation income In the determination & Eoumer 9, Whats a BMBE? 10. What are the exemption conditions of an employee trust fund? True or False 1 Tr The proceeds of fe insurance received by the heirs ofthe Insured upon his death Is excluded in gross income. received in excess of the premium paid in an insurance contragt an item ol gross income. in the gross income of the donee. yuries and sickness constitutes profit; hence, an inclusion in ross income rer stferen that the employee rendered more than 10 years of sevice for bi ‘benefit to be exempt. in employee can secure retirement benefit exemption only once in a 7. leis must that the employer maintains a reasonable pension benefi retirement benefitco be exempt. 8 An-employse must have rendered more than 10 years of service before claiming ‘exemption for his termination benefits. ‘9, The income of the Philippine government from essential public functions is ‘exempt from any income tax, 10. Prizes paid to corporations are an inclusion in gross income subject to final tax. 11 Only the mandatory poruon of GSIS, $55, PhilHealth, and union dues can be ‘excluded in gr035 compensation income. 12, Social security benefits. rebrement gratuities, and other benefits from foreign governments are excluded in gross income. 13, Social secure ber ment gratuines, and other benefits from foreign pr luded mn gross income, 414, The gain from redempnon of shares in mutwal fund 1s an exclusion in gross income subject to regular tax because its an inclusion mn gross income subject to capital gains tax 15. 13* month pay and other benefits are taxable only up to P 90,000. 264 exclusion in gross income. 12, Anon-stock, non-profit entity is subject to tax on income from unrelated activities 13. Ageneral professional partnership can be registered as a BMBE Income subject to regul 15. ASMBE must havea net asset nat exceeding P3,000.000 to be exempt Multiple Choice - Theory 1 1s of passive income from abroad are subject to regular income to ypines are generally subj is generally correct? a mel «Both statements b. Statement 2 Neither statement Fue with the regular income tax? ins of incotne are subject co final withholding tax. cervals, 6 Income tax returns are not required. 4d Allofthese 265Chapter 8 - Reguiar Income Tax. Exclusion from Gross Income income tax? tems of gross income not subject to Final tax, Accounting period ‘Both statements | and 2 are true. Neither statement 1 nor 2is true. 1 Staterment 2 tue. Deductions from gross income are a Personalexpenses. Either Aor B b. Business expenses d.Neither Anor B ring statement best distinguishes deductions from exclusion, from gross income’ Jedutions can be claimed by citizens while P250,000 income exemption Bath deductions and exclusions are deducted from gross income. 4 Allofthese. tax does not apply to len. c.non-resident citizen. resident citizen, 8. Proportional income tax does nut apply toa 2 Domestic corporation b. Resident foreign corporation ¢ Business partnership General professional partnership tncluded under the term “corporation”? partnership _¢. Non-profit charitable institution bk Go-ownership 4. Joint venture 30, The highest marginal tax rate for individual income taxpayers is a 25% b. 30% ‘Chapter 8 - Regular Income Tax: Exclusion from Gross Income me axpayer snot subject to reel tax? engaged nade orbusnes en cin trade or business €_Nonsreasdent alin engaged wiradeorbacoese GL Nomsreidenalien not engaged intr o bases 13, Which is correct with respect to exclusions from gross income? income but are subsequently deducted. income but are added to the taxable income. the computation of taxable income. 4, They are synonymous with deductions. 44, Which 1s correct with respect to deductions from gross income? a, They pertain to expenses of generating items of business ot professional gross income, bo, They are excluded from the determination of taxable income. lade all expenses incurred in the generation of any income, d._ They include P250,000 annual income exemption. 15, Which constitute a taxable item of gross income? ‘a. Compensation for personal injuries resin mutual funds trom sale of government bonds 4. Income exempt under treaty Multiple Choice - Theory 2 1. The proceeds of an insurance policy received by the corporation as beneficiary on the life insurance ofits officer is a agit b, ataxable income, 2. Mr. Buguey wi snsurance with his daughter, Ybon, as the ‘Yoon was paid the entire proceeds when Mr. Buguey died. |. an exclusion from gross income. A policy holder who outlived the policy and received a cash surrender value in isexernpt upon fa the amount representing a return of premiums. b. theentire amount received. ‘c. the excess of the amount received over the premiums paid. 4. Noneot these 287‘Chapter 8 - Regular Income Tax Exclusion from Gross Income 44 The assigament of an ncurance poly at an amount I €x2e35 OF the Premigg, iy is subject to ‘estate ta 4 any of these |S. Awidow who collected the lite insurance proceeds of her decease husband ig ‘a exempt to the entire amount of the proceeds. fe excess of the proceeds over the premiums paid b. income tax b. taxable: the hus {Siro nemanatie aren tremmega te premium, 6. The policyholder ofa life insurance contract outlived his insurance policy He way paid ?300 000 upon maturity ofthe policy. He paid P250,000 total premium, What fs the inclusion in gross income? a P300,000 «,P50.000 . P250,000 apo 7. Which of the following is subject to tax? a Proceeds of crop insurance b. Proceeds of livestock insurance ty under patent infringement suit iite of exemption ofa retirement benefit plan? 2 Lo years af employment b. The employer maintains a reasonable pension benefit plan. c. Theretiree must be a senior citizen 4. First me availment of retirement exemption 9, Termination benefits are exempt from income tax provided that the reason for termination is nd the employee’s control. _c within the employee's control. b. within the employer's cortrol. d. beyond the employe tem of exclusion from gross income? its politcal subdivisions and conirolled corporations 4. Income ot fore 11, Which of the roincome Development Corporation € Philippine Charity Sweepstakes Otfice 268 chapler 8 - Regular Income Tax: Exclusion from Gross income 4. Philippine Health Insurance Corporation 112. Which is not an acceptable ground for exemption of termi a. Mass employee lay-off iption of termination pay? ‘of gross income for taxati ion purposes? a Unrealized income « Income earned between related parties Gallof these 14, Which is sub a. Gainon b. Gainon Interest income on long-term bonds with a maturity period exceeding five years. 4. Interest income on long-term deposits by individual taxpayers. 15. Which ofthe following is not an exclusion from gross income? 4d. Social Security benefits ‘Multiple Choice - Problem: Part 1 1. Mr Bisligo collected the P1,000,000 insurance proceeds of Mr. Pantukan which he ‘ought from the latter for P400,000. Before the death of Mr. Pantukan, Mr. Bisligo sms of P200,000. Determine respectively the exclusion in gross income and the inclusion in gross income. ‘a P1,000,000: PO «,P400,000; P600.000 ', PO; 1,000,000 <. P600,000; P400,000 srrendered his life insurance policy and received a cash surrender 100,000 =: Determine respectively the total exc ross income, a. 800,000; P0 PO; P800,000 4 P700,000, P100,000, died. His heirs collected the P2,000,000 proceeds of his life insurance policy, Mr. Tarragoza previously paid a total payment of PS00,000 in Determine respectively the exclusion in gross income and the inclusion {In gross income. a 2,000,000: PO ..P2,000,000; PO 'b, 500,000; P1.500,000 4. PO; F2.000:000 269‘chapter 8 - Reguar Income Tax. Exclusion fom Gross Income insurance proceeds of his bu 4c Mr Malla colected the #5,000000 fe insurance ro iy Me Mallat orepegre. The buikig had a tan basis of 1 ne ig se eh gece gee omin groseneome e ‘c. P4,500,000; P500,000 4. 500,000; P4,500,000 «.P100,000 a.PO Juding its accrued incom, a 6. Ms. Sindangan received a condominium ind , 2014. The following day Inheritance from her deceased grandfather on At relates tothe property: Fair value of property P 125,000,000 Rent income earned before death of decedent 4,000,000 Rent income earned after death of decedent 6,000,000, Interest on deposits of rentals 100,000 (40% accruing after death) How much of the above income will be included in the gross income of He ‘Sindangan and in the gross income of the decedent? “ 4. P6,040,000, P4,060.000 c P4,060,000; P6.040,000 . P6.000,000; P4,000.000 d.P4,000,000; 6,000,000 7. Me. Dimataling was hurt in a bus accident. He received a total indemnity of 800,000 from the insurer of the bus. Mr. Dimataling, paid P250,000 in hospral bills due to the accident. Compute the total amount to be excluded in gross «.P550,000 4. P800,000 ‘of P2,000,000 oyer's retirement Sindangan was awarded a retirement gre Compute the total exclusion in gross income. a. 1,700.00 b. 1,300.00 .P800,000 46. P2,500,000 270 Income Tax Exclusion from Gross Income 2.200.000 .P1;809,000 1m collected a total sum of P100,000,000, ted PS.000,000 from rentals of in gross income? Compute the tatal exclusions from gross income, a. P3600 © P66,000 61.000 471,000 12. Mr Henares received the following during the year Donated properties » 200,000 Income of donated property before donation 50.000, Income of donated property after donation 20,000 Inherited properties 100,000 How much i taxable to Mr. Henares? a. P380,000 6.7 30,000 >. 80,000 450.000 13, Me-Tacurong has the following data during the year: Baste salary 1.200.000 Income tax withbeld 5.000 136 month 9 ma 2,000 ‘{300 1700 mChapter 8 - Regular Income Ta Exclusion fom Gross Income 500 social fond 2000 exclusions from gross income: 1 P96,000 4.P88,000 compre olan sPiscon 2 Pinna the reas company tha ang coed 720008000 . A, Mang Antonia of PAOD DOD when he re Ocared. Dy Irn wih ad sgn op urn Pesce pane ae i ee Tete oe ONE mm gieo anon 5 Fone ‘rsmo0n Multiple Choice ~ Problems: Part 2 1. Wary ot his deteriorating health conditions. Mr. Benigno resigned from his job x ge 10 ater working as a supervisor for 12 years. He was pard F2,00 he P2,000,000 separation pay subject to income t for Mr. Benigno's termination was beyond his contra, , Yes because Mr. Benigno resigned. _Norbecause Mr. Benigno worked for the company for more than 10 years, Yes, because Mr, Benigno isnot yet 50 years old. on 1 25,2014, Mr. Reynon was terminated by his employer at age 60 due He joined the company in February 2006 and has since thea ofthe company. Is Mr. Reynon’s retirement pay exernpt rom, worked a teas Income tax? Yes, because is termination was beyond his control. . No, because he was employed for less than 10 years. ces because he isover 50 years ol. 4. No, because the employee is already a senfor citizen, 3. Ms. Henson reured from her job after 25 years of service. atthe age of 23 and was promoted from an accounting cl ‘was. paid P2,000,000 total retirement pension plan which was duly Ms Henson cor Ms. Henson's fest ret employment. How much is excluded from gross income? 2 Pe0,000 «© 2,000,000 b. P1.400000 4P0 Assuming Me. Henson transferred another years of sence. The second employer pension lund a5 retirement pay to Ms registered withthe aiR 100 out ofits non-contributory pension fund was also duly am chapter 8 - Regular Income Tax Exclusion from Gross income {sthe second retirement pay exempt from income tax? 2. Bo, because this s the seco ie Ms, Henson retired from employment. ty a senior eizen. 1@ Ms, Henson qualifies for renrement pay 1 an emphoyee must work under one employer until retirement ro retirement exemption chess competition that was sanctioned by 8 applying for accreditation from the national ‘gross income? av onal competion. GL Yes because the organizer 1s not an accredited sports organization covered teleport technol seconds, Due t t coveted Not where people can be transported over hhe was awarded by the scientific ‘award in 2015. The total award was ‘community tatement regarding the taxation ofthe award? on sn grass income subject to regular income tax since iy abroad on in grass income subject to final tax since it is more to regular tax since itis an Inclusion 1 items of gross income sub al tax 4. The award san exclusion in gross income. lowing relates tothe compensation income of Ms, Lamitan in 2017: P 2,400,000 125,000 150,000 12000 190,000 108,000 cc Creditable withholding taxes Employer's share in SSS, Philealth and HOMF Whats the total exclusion In gross income? a P225000 ©. P395,000 be, P230,000 <.P465.000 23‘Chapler 8 - Reguiat Income Tex. Exclusion from Gross Income 0,000 in the 10-year bonds of Co Investment in 2016 fora total con in 2014s ate ree FO 12ers She do me se ne P4000 Cent ‘me and the exclusion in gross income? yon0 710,000 <4.P0; 500,000 a. 500.000: PO b. 100,000; P400,000 epost. Which statement isincorrect? Be 7'300,006 gain is an exclusion in gross income. FTE 100,000 interest income is an exclusion in gross income subject regular tax. ‘The 700,000 interest income is an inclusion in grass income subject to fig . ‘The P300,000 is an inclusion in gross income subject to regular tax, butt 100,000 isan exclusion in gross ncome subject to Final tax. i ‘The following income relates to a proprietorship registered as a BMBE; Grose income from sales P 400,000 Dividend income - domestic ‘9,000 6800 Interest on deposits ‘Compute the total exclusion in grass income subject to regular tax. 2 "400000 (or15#00 B atso0 aro in the immediately preceding problem, compute the total inclusions in grow Income subject to final tax. ™ ro «-rogo0 bis a00 P9000 KKB, a multi-purpose credit cooperative, had the following income tn 2015: Income from related acnvities P 400,000 20,000 18,000 60,000 274 ‘chepter 8 - Regular Income Tax: Exctusion fom Gross Income Compute the total exclusion from gros income sujet to regular tax ofthe ‘cooperative, a PO b. P3800 ©. P438,000 .P400.000 13, In the Immediately preceding problem, compute the total inclusion in gross inconte subject to regular tax. a. 60,000 b. 99,000 © P460,000 4.P38,000 14. Anon-stock non-profit charitable entity received the following during 2015: Contributions from the public 1,600,000 Income from the sale of merchandise '500,000 Gain on the sale of properties 300,000 ‘Whats the total exclusion from gross income subject to regular tax? a. P2,200,000 P1.400.000 b. P1,900,000 ¢.P1,300,000 ity for P100.000 which will pay him P10,000 a Santiago is 12 years. Which ofthe following can 15, Mr, Santiago purchased a li aP 000 b. P2000 4.P 100,000