DISCUSSION QUESTIONS

Q01. What are the classification of income as to the tax rates being applied?
Q02. Who is a resident alien for income tax purposes
Q03. What are the different taxable bases of individual taxpayers?

Q04. What is meant by “schedular income taxation system?”

Q05. What tax rates are imposed on the taxable income of ordinary individuals?
Q06. Who are considered as non-resident aliens engaged in business in Philippines?

Q07. What are the classifications or types of income earned by individuals?

Q08. Distinguish gross income from net income?
Q09. What are the classifications of expenses incurred/paid by individuals?

Q10. What are those income items that are to be disregarded and therefore excluded in the computation
of the declarable gross income on the individuals’ income tax returns?
Q11. What are those expenses items that are to be disregarded and therefore excluded in the allowed
deductions, claimable on the income tax returns?
Q12. Who are considered special individual taxpayers?

Q13. Who are those individuals falling under the category of ordinary taxpayers?
Q14. How do you determine the amount of the taxable net income of a resident citizen?
Q15. Explain the income taxation rules for a legally married couple.

Q16. How do you compute for the taxable net income of a resident alien or a non-resident citizen?
Q27. Distinguish those income derived from employment, from business or from other sources.
Q18. How are individual taxpayers classified or categorized?

Q19. Discuss the system/scheme of individual income taxation being prescribed under the Tax Code.
Q20. For income tax purposes, who is considered a non-resident citizen individual?
PROBLEMS
Instructions/Required: For each of the following cases in the taxable year 2019, in good form, present the
solutions leading to the correct answers using the applicable formats, formulas or computational patterns:

Problem 01. During the current year 2019 an employee has salaries and other income from employment of
P680,000 15% of which is exempt from income tax. He has no income from business butt has P12,000 income
subject to final income tax as well as P25, gain from sale of his computer laptop . He is married and has the
following dependents: his wife, grandfather, sister and her two children. He spent P7,500 for health and
hospitalization insurance premiums.

Compute the taxable net income and income tax due.

Problem 02. The following data in the current year 2019 belong to an individual who is both a self-employed,
having his own hardware store business, and likewise an accountant of Nestle Company;
From Phil. From Abroad
1. Employment Income P480,000 P510,600
2. Business Income 970,000 720,000
3. Other Income 120,500 40,500
4. Business Expenses 610,500 520,000
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 15 % of business expense in Philippines is disallowed
10% of other income abroad is not subject to income tax

Compute the taxable net income and income tax due , assuming the taxpayer is a:
a. Resident citizen, single with his young brother and a legally adopted son as dependents.
b. Non-resident citizen engaged in business in the Philippines with a live-in partner and their recognized
natural child as dependents.

Problem 03. A parent and child, resident citizens, provided us the following data for the year 2019:
Father Son
Compensation Income P390,000 P 0
Business Income 960,000 900,000
Other Income 20,000 35,000
Business Expenses 500,000 600,000
Civil Status widow single
Dependent Children three none
Health Hospitalization Insurance Premium 2,450 4,560
In April of the year, the father gave as a birthday gift to his son a house and lot worth P850,000. Said property
realized a rental income of P64,000 during the year. The donor’s tax return was filed and the gift tax was paid
as of the end of the year.

Determine the taxable net income and income tax due for each taxpayer.

Problem 04. A married couple, with eight dependent children, gave us their financial data in year 2019.
Compensation Income of husband P480,000
Compensation Income of wife 370,000
Business Income of husband 980,000
Business Income of wife 620,000
Other Income of Couple 40,000
Business Expenses of husband 640,000
Business Expenses of wife 340,000
Other Business Expenses of couple 75,000
Health Hospitalization Insurance payments 3,800

Determine the taxable net income and income tax due for each of the spouses.

Problem 05. A taxpayer with a legitimate child, illegitimate child and a senior citizen dependents,
furnished us his business data for the taxable year 2019 as follows:

Items of Income and Expenses Philippines America

a. Gross profit from sales P950,000 P800,000
a. Cost of Sales 700,000 600,000
b. gain from sale of business assets 60,000 15,000
c. Income exempt from income tax 50,000 0
d. Income subject to final income tax 15,000 0
e. Business expenses 600,000 450,000
f. Non-deductible business expenses (included in (e) 35,000 48,000
g. Personal family and living expenses 165,000 35,000

Determine the taxable net income and income tax due.

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Problem 06. An individual taxpayer, sole proprietor of a drug store, presented us his data for year 2019:
Compensation Income from employment P928,000
Business Income 850,000
Business Expenses 980,000
Income from sale of his jewelry 40,000
Health Hospitalization Insurance Premium Paid 5,750
If he is unmarried but has a nephew dependent,
25% of his employment income is exempt from income tax.
compute for his taxable net income and income tax due:

Problem 07. A taxpayer who is resident entrepreneur, is a divorcee, and has his 15-year old sister as
dependent. For the current taxable year 2019, he had the following data in the Philippines:
Salary from employment, gross monthly P620,000
Allowances from employment, gross monthly 15,000
Commission Income from employment 100,000
Interest Income on bank deposit at final tax 4,000
Cash dividend at final income tax 8,500
Gross Business Income P1,930,000
Other Income (25% is income exempt) 280,000
Business Expenses 1,480,000
30% of the above expenses is not deductible

Determine his taxable net income and income tax due.

Problem 08. A special employee (resident alien) of an Offshore Banking Unit in the Philippines provided us his
financial data for the current taxable year 2019 as follows:
a. Regular salary, monthly P250,000
b Overtime pay in the year 185,000
.
c. Employment income exempt 69,000
b. Business income abroad 975,000
Business expense abroad 650,000
d One legitimate child dependent
.
e. HHIP paid 3,600

Compute the taxable base and the income tax due..

Problem 9. An employee serving as a messenger in a company in the Philippines, but is classified as a minimum
wage earner had the following data in the current taxable year 2019:
a. Basic salary, including cost of living allowance P153,700
b. Overtime pay 13,500
c. Hazard Pay 6,000
d. Holiday pay 3,500
e. Night shift differential pay 1,800
f. 13th month pay, bonus, incentive pay 12,600
g. De-minimis benefits exempt from income tax 17,000
h. Interest income from bank deposit at final tax 5,000
i. Commission income from sale of friend’s property 300,000
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 j. Gain from sale of his computer Laptop 16,500
k. Transportation allowance monthly 3,000

Compute the taxable net income and income tax du of the MWE.

Problem 10. A clerk- employee of a government agency, classified as a minimum wage earner furnished us his
employment data in the current year 2019 as follows:

1. Statutory minimum wage items P180,000

2. Other compensation income exempt from income tax P42.500
3. 13th month, bonus, exempt from income tax P30,000
4. Gross business income from canteen P650,000
5. Business expenses from canteen P320,000
6. HHIP payments, P3,250
7. Prizes/winnings from Lotto Draw of PCSO P6,000

Compute the taxable net income and income tax due.

TEST MATERIALS

Instructions/Required: For each of the following cases for the current taxable year 2018, in good form,
present the solutions leading to the correct answers using the applicable formats, formulas or formulas:

Data: A resident individual self-employed, a widow, has the following data in the current year 2018:
a. Compensation income from employment in the Philippines, P200,000
b. Business income in the Philippines, P800,000.
c. Business income abroad , P700,000
d. Business expenses in the Philippines, P600,000
e. Business expenses abroad , P500,000
f. Minor dependents supported by her are: sister, illegitimate son, two legitimate daughters.
g. Health hospitalization premium paid P2,600.

Q01. If a resident alien, the taxable net income is

a. P300,000 b. P250,000 c. P350,000 d. no answer

Q02. If a resident citizen, the taxable net income is:

a. P75,000 b. P500,000 c. P1,000,000 d. no answer

Q03. In year 2018, aliens employed by a regional operating headquarter established in the Philippines by
multi-national corporation shall be taxed at:
a. 25 % of gross income c. 25 % of net income
b. 15 % of gross income d. 15 % of net income

Q04. Mr. Raul Delta donated a parcel of land to his son, 20 years old and single. The gift tax on the property
was not paid. However, his son took possession of the property and received the rental income. In the
current year 2018 a tax assessment on the income derived from the property was issued against Mr.
Delta’s son. In this case:
a. The assessment against the son must be deferred
b. The income should be included in the father’s income tax return.
c. The assessment against the son is valid.
d. Answer not given
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Q05. The schedular system of income taxation means:
a. Capital gains are excluded from determining gross income.
b. Separate graduated tax rates are imposed on different types of income.
c. All types of income are added together to arrive at taxable gross income.
d. All of the above

Data: A Filipino widower has two minor children dependents, one of whom is 24 years old but is mentally
defective. The taxpayer owns a merchandising company with business operations within and without the
Philippines. The following were his transactions in the current year 2018:

In Philippines In Australia
a. Gross sales P926,000 P645,000
b. Sales returns and discounts 15,000 10,000
c. Cost of goods sold 510,000 380,000
d. Other income 47,000 31,600
e. Operating business expenses 320,000 219,000
f. 20 % of the business expenses in Philippines and in Australia are non-deductible.
g. Health, hospitalization, insurance payments, P2,100

Q06. If a resident citizen, the taxable net income is:

a. P203,400 b. P92,000 c. P228,400 d. no answer

Q07. If a non-resident alien, the taxable net income is:

a. P203,400 b. P92,000 c. P117,000 d. no answer

Data: In the current year 2018, a married couple earned employment income of P235,000 and business
income of P685,000 for the husband and wife respectively. Business expenses incurred was P427,000.
Health and hospitalization insurance premium payment was P2,350. They have five dependents.

Q08. The taxable net income of the couple are:

a. H - P185,000, b. H- P135,000, c. H- P185,000, d. no answer
W- P158,000 W- P208,00 W- P155,600

Data: In the current year 2018, Richard, a widower had income from employment of P312,750. Other
Income was P34,000 which is inclusive of P13,000 income subjected to final income tax. His HHIP payments
totaled P3,500. He had with him, living and for chief support the following dependent:
 Legitimate daughter, 20 yrs. old who got married in November of the year.
 Recognized natural son, 18 yrs. old who died in December of the year.
 Illegitimate son, 7 years old.
 Legally adopted daughter, 19 yrs. Old, first time gainfully employed in the year.
 Legitimate son who lives permanently with his grandmother who provides chief support
since October of the year.

Q09. The taxable net income is:

a. P233,750 b. P208,750 c. P183,750 d. no answer

Data: Cyril Vance is a self-employed contractor. He has two children with his common-law wife and all of
them are living with and dependent upon him for chief support. The following are his financial data in the
year 2018:
a. Business income P1,650,000
b. Business expenses P1,400,000
c. 30 % of the business expenses is not deductible
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d. 15 % of the business income is subject to final income taxes

Q10. The taxable net income is:

a. P150,000 b. P372,500 c. P322,500 d. no answer

Q11. The following data in the current year 2018 belong to an individual taxpayer, He is a resident citizen,
single but with a legally adopted child as dependent.
Philippines. From Abroad
Gross Income P 980,000 $ 20,000
Business Expenses 600,000 10,900
Conversion Rate $1.00 equals P50.00.

The taxable net income is:

a. P760,000 b. P785,000 c. P305,000 d. no answer

Q12. A non-resident alien is an employee with a managerial position in a foreign petroleum contractor in
the Philippines. He is married and has 6 qualified dependent children. In the current year 2018 he has paid
P3,850 as health hospitalization insurance premium and likewise earned employment income of P1,275,000
net of withheld income tax.

His income tax due is?

a. P191,250 b. P318,750 c. P225,000 d. no answer

Q13. A resident alien is married with 5 qualified children, all minors, and living with him. For the current
year 2018 he had the following financial data:
Gross Business Income P1,500,000
Gross Compensation Income 600,000
Business Expenses 1,350,000
Premiums paid on Health Insurance for the family 20,000
Prizes from the Phil. Charity Sweepstakes 100,000

His taxable net income is:

a. P600,000 b. P597,600 c. P575,000 d. no answer

Data: An individual resident taxpayer had the following financial data in the current year 2018:
An illegitimate child, and a cousin who are both underage, single, unemployed, living with and dependent
upon the taxpayer for chief support. He earned compensation income of P129,000 from employment as well
as from business and other income of P250,000. The actual hospitalization health insurance premium
payments were P5,000. Business expenses incurred were P 170,000.

Q14. The allowances and exemption is?

a. P50,000 b. P75,000 c. P100,000 d. no answer

Q15. The taxable net income is?

a. P109,000 b. P159,600 c. P134,000 d. no answer

Q16. For income tax purposes, it is important to know the source of income whether derived from within or
without the Philippines because:
a. Some individual taxpayers are citizen while others are not.
b. The Philippines imposes income tax only on income from sources within.
c. Some individual taxpayers are taxed on their worldwide income while others are taxable
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 only upon income from sources within the Philippines.
d. Export sales are not subject to income tax.

Q17. Which of the following statements is false?

a. A citizen of the Philippines residing therein is taxable on all income derived from sources within and
without the Philippines;
b. A non-resident citizen is taxable only on income derived within the Philippines;
c. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines;
d. A resident alien is taxed exactly in the same manner as a resident citizen.

Data: Mr. Charlie Cruz is engaged in operating a restaurant where he serves food and refreshments as well
as wines and liquors to his customers. In the current year 2018, the following are the pertinent data in his
sole- proprietorship business:
Gross sales of food and refreshments P484,800
Gross sales of wines and liquors P264,400
Cost of sales of food and refreshments P206,000
Cost of sales of wines and liquors P150,000
Operating business expenses P315,000

Q18. Taxpayer is unmarried but with a minor nephew and a recognized natural son (whose age is 21 years
and 5 months old) as dependents in the taxable year 2018..

The taxable net income of Charlie is

a. P359,200 b. P384,200 c. P28,200 d. no answer

Data: A mother gifted a lot in Bicutan City to her 19 year old daughter, on occasion of the latter’s opening
of her Beauty Spa business on April 1, of the current year 2018. Said property is earning yearly rental
income of P150,000 since the year 2011. They have net business income before allowed personal exemption
and rental income of P350,000 and P175,000 respectively.

Q19. If the donor’s tax was not yet paid, what are their reportable gross Income respectively?
a. M- P500,000, b. M- P450,000, c. M- P300,000, D- d. no answer
D- P175,000 D- P125,000 P275,000

Q20. If the donor’s tax was already paid, what are their declarable gross Income respectively?
a. M- P350,000,- b. M- P450,000, c. M- P300,000, d. no answer
D - P325,000 D - P125,000 D - P275,000

Q21. Which one of the following is a taxpayer not required to file an income tax return?
a. An estate which is not under administration.
b. A trust where the fiduciary must accumulate the income of the trust.
c. A trust where the fiduciary may accumulate or distribute the income of the trust at his discretion.
d. All of the above.

Q22. Ronald died in February 2017, leaving to his two children B and C a land. The two decided not to
partition the property and just divided the rentals among themselves for the year 2018.

Was a partnership formed which is subject to corporate income tax for the year 2018?
In the year 2018, the two did not divide the income from the land, instead, they invested the such income in
the purchase of an apartment to be rented out.

Is a partnership created by B and C?

a. Yes to 1st question and No to 2nd question
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b. Yes to both questions
c. No to 1st question and Yes to 2nd question
d. No to both questions