Chapter 1 - Principles of Taxation: Erratum: Citizens & Residents Nra-ETB Nra - Netb (2) Royalties - Page

CHAPTER 1 – PRINCIPLES OF
TAXATION
TRUE OR FALSE-SET
A
1. FALSE 9. TRUE 17. FALSE 25 FALSE
.
2. TRUE 10. TRUE 18. FALSE 26 TRUE
.
3. TRUE 11. TRUE 19. FALSE 27 FALSE
.
4. TRUE 12. TRUE 20. TRUE 28 TRUE
.
5. TRUE 13. FALSE 21. TRUE 29 TRUE
.
6. FALSE 14. FALSE 22. TRUE 30 FALSE
.
7. TRUE 15. FALSE 23. TRUE
8. FALSE 16. FALSE 24. FALSE
MULTIPLE CHOICE
1. A 21. D 41. D 61 C
.
2. C 22. D 42. A 62 C
.
3. B** 23. D 43. A 63 C
.
4. D 24. D 44. B 64 C
.
5. C 25. B 45. C 65 A
.
6. B 26. A 46. C
7. C 27. A 47. B
8. C 28. D 48. A
9. D 29. C 49. C
10. D*** 30. C 50. D
11. A 31. A 51. D
12. D 32. C 52. C
13. D 33. D 53. B
14. C 34. C 54. D
15. C 35. A 55. A
16. D 36. C 56. A
17. A 37. D 57. A
18. A 38. C 58. D
19. C 39. D 59. C
20. B 40. A 60. A
**Statement 1 – False; similarity of tax from license fee, not a distinction.

***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”.
Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”
CHAPTER 2 - INDIVIDUAL TAXPAYERS
ERRATUM:
(1) FWT % of Royalty income
Citizens &
Residents NRA- NRA-
ETB NETB
(2) ROYALTIES
| Page
SolutionsManual-IncomeTaxation(2018Edition)byTabag&Garcia
B. Royalties on books, as well as other 20% 20% 25%
literary works and musical 10% 10% 25%
compositions
(2) PAGE 79; Illustration #6 Question#2: ANSWER SHOULD BE P154,000. Include PCSO winnings @ 20%
PROBLEM SOLVING:
2-1
1. RC 4. NRA-NETB
2. RC 5. NRC
3. RC 6. RA
2-2
TAX TYPE Tax RATE TAX TYPE Tax RATE
Exempt -
1 FWTx 20% 19
2 FWTx 7.5%/ 15%TL 20 FWT 20%
3 BTx Tax Table 21 FWTx 25%
4 FWTx 20% 22 BTx Tax Table
5 Exempt - 23 Exempt -
10 BTx Tax Table 28 BTx Tax Table
11 FWTx 20% 29 BTX Tax Table
12 FWTx 10% 30 FWTx 20%
13 FWTx 20%* 31 FWTx 25%
14 BTx Tax Table* 32 CGT 5%&10%/1
5%
15 BTx Tax Table 33 Exempt Sub.to
OPT***
1
16 FWTx 20% 34 BTx Tax
Table
17 FWTx 20% 35 BTx Tax
Table****
18 BTx Tax Table
*Prizes received from Philippine sources exceeding P10,000 are subject to 20% final tax
rate.
On the other hand, Other WINNINGS (regardless of amount) are subject to
20% final tax rate. **PCSO/Lotto winnings under TRAIN Law:
≤
Amoun
P10,00 RC, NRC, NRAE NRANE 25
t 0 RA,
exempt T T exempt %
> 20% FWT 20% 25
P10,00 FWT %
0 FW
T
***Stock Transaction Tax on sale of shares of DC listed in the Local Stock Exchange:
Prior to TRAIN Law = ½ of 1% of GSP
TRAIN Law = 6/10 of 1% of
GSP ****CGT on Real Properties
Must be pertaining to a real property classified as capital asset located in the
Philippines. However, if it is sold to the Government, the tax may either be
CGT or Basic Tax at the option of the individual taxpayer.
2-3
1.
a. Exempt
2 | Page
b. Exempt
c. Income Tax Due = P130,000
d. P746,000 computed as follows:
Tax Due:
1st P2,000,000 P490,000
Excess over P2M = (P800,000 x 32%) 256,000
Total P746,000
2. Income Tax Payable = P95,000 computed as follows:

Gross sales P2,800,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P950,000
Tax Due:
1st P800,000 P130,000
Excess over P800,000M = 45,000
(P150,000 x 30%)
Tax Due P175,000
Less: CWT (80,000)
Income Tax Payable P95,000

Less (250,000)
Balance subject to 8% tax P2,550,000 x
8%
Tax Due P204,000
Less: CWT (80,000)

Rental income (P380,000/95%) 400,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P1,350,000
Tax Due:
1st P800,000 P130,000
Excess over P800,000M = 165,000
(P550,000 x 30%)
Tax Due P295,000
Less: CWT (80,000)
5. The 8% optional tax is not applicable because the total of the gross sales and other operating income
exceeded the revised vat threshold of P3,000,000.

Gross receipts P4,000,000
Cost of direct services (1,800,000)
Other operating expenses (825,000)
Tax Due:
1st P800,000 P130,0
00
Excess over P800,000M = (P575,000 x 172,500
30%)
Tax Due P302,500
Less: CWT (80,000)
7. The 8% optional tax is not applicable because the gross receipts exceeded the revised vat threshold of
P3,000,000.
3 | Page
Compensation income P1,400,0
00
Gross sales 2,800,00
0
Cost of sales (1,200,00
0)
Operating expenses (650,00
0)

Tax Due:
1st P2,000,000 P490,0
00
Tax Dueover P2M = (P350,000 x 32%)
Excess P602,0
112,000
Income Tax Payable 00 P212,000
Less: CWT
On compensation income (310,00
9. The 8% optional tax is applicable because gross sales
0)
did not exceed On business income (80,000) the revised vat threshold of P3,000,000. The
income tax payable shall be computed as follows:
Gross sales
8% Tax on sales 2,800,0
P224,0
00
00
xADD: Tax due on compensation income 8%
Income
st Tax
1 P800,000Payable P130,000 P144,000
Tax Due
Excess over P800,000 = (P600,000 x P,000
180,000 P534,0
310,00
 30%) 00
0 For
mixed Less: CWT
On compensation income (310,00
0)
On business income (80,00
0)
income earners, P250,000 is not deducted for purposes of computing the
8% tax  The 8% tax is not applicable to compensation income.
2-4
1. Taxpayer is a resident citizen
1.1 Taxable income = P1,050,000
1.2 Income tax payable = P80,000
1.3 Final tax on passive income = P57,500
1.4 Total income tax expense = P262,500
Gross business income, Philippines P1,000,000

Gross business income, USA 500,000
Business expenses, Philippines (700,000)
Business expenses, USA (430,000)
Compensation income, Philippines 600,000
Dividend income-foreign corp. 40,000
Interest income-bank deposit abroad 30,000
Raffle draw winnings 10,000
Basic personal exemption -
Taxable income P1,050,000
Tax Due [(P130,000)+(250,000 x 30%)]
P205,000
Creditable withholding tax on bus. income (125,000)
Dividend income – DC (50k x 10%) P5,000

Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 15% 6,000
Royalty income from composition @10% 2,500
PCSO winnings (P200,000 x 20%) 40,000
Final Tax on Passive Income P57,500
Basic income tax due P205,000 The question is tax expense; ignore Final
taxes on passive income 57,500 the income tax payable of P80,000.
4 | Page
Total income tax expense P262,500
2. Taxpayer is a nonresident citizen

2.1 Taxable income = P910,000
2.2 Income tax payable = P38,000
Gross business income, Philippines P1,000,000

Business expenses, Philippines (700,000) ***Assume situs is without the Phls.
Compensation income, Philippines 600,000
Dividend income-foreign corp. ***
Taxable income P910,000
Tax Due [(P130,000)+(110k x 30%)] P163,000
Creditable withholding tax on bus. Income (125,000) Assume the tax withheld pertain to
Income Tax Payable P38,000 Income derived in the Phls.
Dividend income – DC (50k x 10%) P5,000

Interest income FCDS deposit @ 15% exempt
PCSO winnings (P200,000 x 20%) 40,000
Basic income tax due P163,000

Final taxes on passive income 51,500
3. Taxpayer is a resident alien

3.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
3.2 Income tax payable = P38,000 (same answer with
#2.2; nonresident citizen) 3.3 Final tax on passive
income = P57,500 (same answer with #1.3; resident citizen)
3.4 Total income tax expense = P220,500 computed as follows:
4. Taxpayer is a nonresident alien engaged in trade or business

4.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
4.2 Income tax payable = P38,000 (same answer with #2.2; nonresident citizen)
Dividend income – DC (50k x 20%) P10,000 Use 20% rate for DI from DC instead of
10%
Interest income FCDS deposit @ 15% exempt
PCSO winnings Exempt**
 **Unfortunately, unlike RCs, NRCs and RAs, the PCSO exemption of NRAET under TRAIN
Law was retained.

5. Taxpayer is a nonresident alien not-engaged in trade or business

Compensation income, Philippines P600,000
Dividend income - DC 50,000
Dividend income from foreign corp. - Assume situs is “without or abroad”
5 | Page
Interest income bank deposit, Phls. 20,000
Interest income on FCDS deposit Exempt
Royalty income from composition 25,000
PCSO winnings 200,000
Total GROSS Income P905,000 x
25%
Income Tax Due/expense P226,250
2-5
1. Taxpayer is a resident citizen
a. Taxable net income = P1,076,100
b. Income tax payable = P212,830
c. Final tax on passive income = P68,030
d. Capital gains tax = P120,600
Solution:
From Phils. From Abroad
P180,000 Total
Income from employment P280,000 P460,00
0
Business income 850,000 960,000 1,810,00
0
Deductible business expenses (610,000) (730,000) (1,340,00
0)
Interest income on personal loans** 6,000 3,000 9,000
Dividend income from foreign corp. 6,800 2,000 8,800
Prizes from singing contest 5,600 - 5,600
Interest income on bank deposits 4,200 4,200
Interest income on money market placements 1,600 1,600
Royalty income 50,000 50,000
Winnings/ prizes from lotteries, raffles 16,900 16,900
Lotto winnings --- 50,000 50,000
Basic Personal exemption -
Additional -
exemption P1,076,10
Taxable 0
income TAX
P130,00
DUE:
0
First P800,000
Excess = P276,100 @ 30% are not 82,830
**All incomes regardless of source are personal expenses
allowed as deduction from P212,83
taxable. However, the gross income 0
Final Tax on Passive income:

Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Royalty income 90,000
Lotto winnings 150,000
Winnings/ prizes from lotteries, raffle draws 45,000
Total P303,300
@ 20% P60,66
0
Dividend income from domestic corp. 5,700 -

Royalty income from sale of books 68,000 -
Total P73,700
@ 10% 7,370
TOTAL FINAL TAX ON PASSIVE P68,03
INCOME 0
Capital Gains Tax:

Sale of lot (P1,060,000 x 6%) P63,600
Sale of house and lot (P950,000 57,000
x 6%) Total P120,600
6 | Page
2. Taxpayer is a non-resident citizen
a. Taxable income = P438,400
b. Income tax payable = P39,600
c. Final tax on passive income = P68,030
d. Capital gains tax = P120,600 Solution:
From Phils.
Income from employment P180,000
Business income 850,000
Deductible business expenses (610,000)
Interest income on personal loans 6,000
Dividend income from foreign corp. 6,800
Prizes from singing contest 5,600
Basic Personal exemption -
Additional exemption -
TAX DUE:
First P400,000 P30,000
Excess = P38,400 x 25% 9,600
P39,600
§ As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the
final tax on passive income of a nonresident citizen is the same with that of a resident citizen.
Capital Gains Tax:

§ All individual taxpayers are subject to the same types of CGTs
3. Taxpayer is a nonresident alien engaged in trade

a. Taxable income = P438,400 (same with a non-resident citizen taxpayer)
b. Income tax payable = P39,600 (same with a non-resident citizen taxpayer)
c. Final tax on passive income = P38,600; The exemption on PCSO/Lotto winnings was
retained on NRAETB
d. Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)

Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Dividend income from domestic corp 5,700 rate is 20%
Winnings/ prizes from lotteries, raffle draws 45,000
Total P159,000
@ 20% P31,800
Dividend income from domestic corp.@ 20% - -
Royalty income from sale of books 68,000 -
@ 10% 6,800
TOTAL FINAL TAX ON PASSIVE INCOME P38,600
7 | Page
2-6
a. Taxable income of the husband = P1,165,000
b. Taxable income of the wife = P890,000
c. Consolidated tax due of the husband and the wife = P396,500
Husband Wife
INCOME:
Compensation income P 850,000 P650,00
0
Income-Profession [P800,000/2)] 400,000 400,00
0
Income from trading business 250,000 -
LESS:
Expenses-practice of profession [ P320,000/2)] (160,000) (160,00
0)
Expenses – trading business (100,000) -
Basic Personal exemption - -
Additional exemption (75,000) -
TAXABLE INCOME P1,165,000 P890,00
0
Tax due:
First P800,000 P130,000 P130,00
0
In excess of P500,000 @ 30% 109,500 27,00
Total 0
P239,500 P157,00
Consolidated Tax Due
0
P396,500
Note: Personal expenses are not deductible. The Personal exemptions and Premium payments for health
insurance are no longer deductible beginning Jan. 1, 2018 under TRAIN Law.
2-7
a. Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P150,000 x 15%*) P22,500
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%) 300,000
Total capital gains tax P322,500
& *CGT on shares of DC under TRAIN Law
& Sale of shares in the local stock exchange is subject to transaction tax of 6/10 of 1% of GSP
under TRAIN Law
b.
Dividend income from domestic corp. P40,000 x 10% P4,000
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20% 3,400
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 15% 1,500
Interest income on government bonds = P10,000 x 20% 2,000
Royalty – literary = P10,000 x 10% 1,000
Royalty other than literary = P12,000 x 20% 2,400
Total Final tax on passive income of Daniel and Kat P14,300
c.
Business income P600,000
Rental income net of tax (P200,000/95%)/2 100,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P6,000 + (P2,000/2)] 7,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P350,000 +(75,000/2)] (387,500)
Personal exemption -
Taxable net income of Daniel P597,000
d.
Gross income from practice of profession (P360,000/90%) P400,000
| Page
Dividend income from resident corp. 20,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P4,000 + (P2,000/2)] 5,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P200,000 +(75,000/2)] (237,500)
Taxable net income of Kat P565,000
2-8
1. Income tax payable, first quarter = P-
2. Income tax payable, second quarter = P17,600
3. Income tax payable, third quarter = P38,427.5
4. Income tax payable, fourth quarter = P67,297.5
5. Final tax on passive income = P15,800
6. Capital gains tax = P600,000 x 6% = P36,000
6
1st Q 2nd Q 3rd Q Q4/Year
Gross Profit from Sales P300,00 P600,000 P910,00 P1,200,00
0 0 0
Business e-xpenses (120,000 (262,000) (405,89 (426,700)
) 0)
Taxable income
P180,00 P338,000 P304,11 P773,300
0 0
Tax Due (Tax Table)
- P17,600 P56,027 P123,325
Less: Tax
Pai - - - -
d
Q1
Q2 - (17,600) (17,600)
Q3 - (38,427.5)
Income Tax
Payable P- P17,600 P38,427. P67,297.5
5
Note: The amounts shown above are cumulative.
(Amounts are cumulative) Amount % Tax

Dividend received from domestic corp. 30,000 1 P3,000
0
Interest income from
BPI 16,000 2 3,20
0 0
UCPB 18,000 2 3,60
0 0
Metro Bank 30,000 2 6,00
Total final tax on passive income 0 0
P15,80
0
2-9 CASE A: 2017 Taxable Year

a. The Taxpayer is a Special Alien Employee (SAE).
Income Tax Due = P850,000 x 15% = P127,500
9 | Page
b. The Taxpayer is a Special Filipino Employee (SFE), however, the income tax due is based on the old
graduated tax table. The 15% preferential rate is not applicable because the compensation income is
lower than P975,000.
TNI = 750,000 + 100,000 – basic personal exemption of P50,000 = P800,000
Basic Tax Due (old rate) = 125,000 + (300,000 x 32%) = P221,000
c. The Taxpayer is a Special Filipino Employee (SFE) employed by an OBU.
Income Tax Due = P850,000 x 15% = P127,500
d. The Taxpayer is a Special Filipino Employee (SFE) employed by an PC/SC. Income Tax Due =
P850,000 x 15% = P127,500
CASE B: 2018 Taxable Year; The Preferential Tax Rate of 15% is no longer applicable
Answers for letters a-d are the same

computed as follows: TNI = P850,000 Income
Tax Due = P130,000 + (P50,000 x 30%) =
P145,000
2-10
a. P6M x 6% = P360,000
b. ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
c. Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
d. Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-11
a. P15M x 6% = P900,000
b. P20M x 6% = P1,200,000
c. P0
2.12 C.G. Tax = none; the transaction resulted to a loss

2.13 C.G. Tax = P100,000 x 15% = P15,000; TRAIN Law
2.14 C.G. Tax = (P150,000 x 15%) = P22,500; TRAIN Law
2.15 C.G. Tax = none; subject to business tax of 6/10 of 1% of GSP; TRAIN Law
TRUE OR FALSE
2. TRUE 7. FALSE; Train 12. TRUE
Law
3. TRUE 8. TRUE 13. FALSE; TRAIN Law
4. TRUE 9. FALSE 14. TRUE; Prior to 2018
5. TRUE 10. FALSE; Abroad 15. FALSE;
MULTIPLE CHOICE
1. D 16. B 31. D
2. C 17. A 32. C
3. A 18. A 33. (P9,500)
4. A 19. B 34. B
5. A 20. D 35. C
6. A 21. C 36. D
7. D 22. B 37. D
8. D 23. D 38. D
9. B 24. D 39. C
10. D 25. A 40. D
11. B 26. B 41. B
12. A 27. D 42. B
13. D 28. B 43. B**
14. D 29. D 44. D
15. C 30. D 45. B
**Under the TRAIN Law, 1st Quarterly payment shall be on or before May 15 of
the following year.
Supporting Computations (Multiple Choice):

(2)
Gross income, Philippines P800,00
0
Gross income, USA 600,00
0
10 | Page
Expenses, Philippines (400,00
0)
Expenses, USA (300,00
0)
(3 to 5)
Gross income, Philippines P800,00
0
Expenses, Philippines (400,00
0)
(19)
Copyright (11,250/90%)x10% P1,250
Royalty (12,000/80%) x 20% 3,000
Share from Trade Partnership 30,000
(treated as dividend income)
(270,000/90%) x10%
FWT P34,250
(21)
Interest from FCDU (212,500/85%)x15% P37,50
0
Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/90%) x10% 16,000
FWT P64,000
(22)
Interest from FCDU (212,500/85%)x15% exemp
t
Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/80%) x20% 36,000
FWT P46,500
(28) CGT = 1.5/4 X P4M X 6% =

P90,0000
(32)
0
Rental income (P308,750/95%) 325,000
Cost of sales (500,00
0)
Business expenses (425,00
0)
Taxable Net Income P1,050,000
TAX DUE:
1st P800,000 P130,00
0
In excess = P250,000 x 30%
Total 75,000
P205,00
Income Tax Payable 0 P57,500
Less: CWTx (65,000)  Assume inclusive of the CWT from
** rental income
Quarterly tax payments (82,500)
(33)
0 Taxable Net Income P1,725,00
Rental income (P308,750/95%) 325,000 0
Less (250,00 TAX DUE:
0) x 8%
Total P138,00
0
Less: CWTx (65,000)
Quarterly tax payments (82,500)
11 | Page
Income Tax Payable (P9,500)
(34)
Rental incomeNet
Taxable (P308,750/95%)
Income 325,000
P1,975,000
Quarterly
TAX DUE: tax payments (82,50
x 0) 8%
Basic Tax on Compensation incomeP158,000
Total
[P30,000
Less: + (P200,000 x 25%)]
CWTx 80,000
(65,000)
(35)
Professional income, gross P600,00
0
Rental income, gross 50,000
Wagering gains 50,000
Kickbacks from suppliers 40,000
Professional expenses (325,00
0)
Taxable net income P415,000
(36)
Interest income – BDO; P20,000 x P4,00
20% 0
Interest income FDCU – P50,000 x 7,500
15%
Total FWT P11,500
(37)
CGT, residential house, P5M x 6% P300,00
0
CGT, shares = P150,000 x 15%
(38)
Gross sales, Phils. P5,000,00
0
Gross sales, Ukraine 3,000,000
Sales returns and allowances (500,000)
Sales returns and allowances-Ukraine (200,000)
Cost of sales, Philippines (1,500,00
0)
Cost of sales, Ukraine (800,000)
Business expenses, Philippines (500,000)
Business expenses, Ukraine (300,000)
Total CGT
CHAPTER 3 – FRINGE BENEFITS

PROBLEM SOLVING
P3.1
Subject to FBT Subject to Basic Tax Exempt

1. P120,000 -
-
2. - P80,000
3. 50,000 -
4. - 5,000/ yr. (RR
8-2012)
5. - 360,000
6. 250,000 -
12 7.
| Page - 45,000
8. - 15,000
9. 60,000 -
10. - 1,500
P3.2
a) Yes
b) GUMV = P325,000/65%=P500,000
c) No. FBT is a final tax, hence, nonreturnable
d) FBT = P500,000 x 35% = P175,000
e) Within 10th day of the month following the end of the calendar quarter in which the fringe benefits were
granted to the recipient. f) No. It is subject to basic tax instead of FBT.
P3.3 P957,000 computed as follows:

Compensation income P900,00
0
Monthly transportation allowance** 36,000
De Minimis Other Benefits
Benefits
13th month pay - P75,000
Christmas bonus (P5,000 is de minimis) P5,000 -
Christmas bonus (P5,000 de minimis under RR 1- 5,000 20,000
2015)
Productivity incentive pay (de minimis under RR 1- 10,000 -
2015)
Uniform allowance (15,000-5,000) 5,000 10,000
Medical allowance (entire amount is de minimis) 10,000 -
Rice subsidy [24,000-(1,500 x 12)] 18,000 6,000
Total (known as 13th Month Pay & Other Benefits) 111,000
Tax Exempt 13th Month Pay & Other Benefits; (90,000) 21,000
TRAIN Law Taxable income P957,00
0
**Fixed Allowances received regularly shall be treated as part of basic compensation income
Productivity incentive pay not exceeding P10,000 shall be exempt de minimis
Christmas Gift/Bonus = 1st P5,000 shall be exempt de minimis
13 | Page
P3.4 P540,000 computed as follows:
Compensation income P540,00
De Minimis Taxable 0
Benefits Benefits
13th month pay and mid-year bonus P67,500
Christmas gift P5,000 5,000
Uniform allowance (7,500-5,000) 5,000 2,500
Actual Medical allowance (P15,000-10,000) 10,000 5,000
Medical allowance to dependents (P2,000-1,500) 1,500 500
Rice subsidy [entire amount is de minimis] 18,000 -
Monetized vacation leave [24,000-(2,000x 10)] 20,000 4,000
Total 13th Month Pay & Other Benefits 84,500
Tax Exempt 13th Month Pay & Other Benefits; 90,000 -
TRAIN Law Taxable income P540,00
0
P3.5
1. 4.
a) P165,000 x 50% = P82,500 a. P1,200,000
b) P82,500/65% x 35% = P44,423 b. P1,200,000/65% x 35% = P646,154
5.
2. a. P800,000
a) P4.5M x 5% /4 x 50% = P28,125 b. P800,000/65% x 35% = P430,769
b) P28,125/65% x 35% = P15,144 6.
3. a. P1,200,000/5 = P240,000
a) P4.5M b. P240,000/65% x 35% = P129,230
b) P4.5M/65% x 35% = P2,423,077
TRUE OR FALSE
1. FALSE 6. FALS 11. FALS
E E
2. FALSE 7. TRU 12. TRU
E E
3. TRUE 8. TRU 13. TRU
E E
E E
E E
MODIFIED
IDENTIFICATION
1. B 6. B 11. A 16. A
2. B 7. B 12. A 17. B
3. A 8. B 13. B 18. B
4. B 9. B 14. A 19. B
5. B 10. B 15. B 20. B
MULTIPLE
14 | Page
CHOICE
1. C 11. C 21. D 31 D 41. D
.
2. A 12. A 22. A 32 B 42. C
.
3. D 13. A 23. D 33 A 43. D
.
4. D 14. B 24. C 34 D 44. D
.
5. D 15. B 25. D 35 A 45. A
.
6. D 16. D 26. A 36 C 46. A
.
7. B 17. C 27. D 37 C 47. A
.
8. A 18. B 28. B 38 D 48. B
.
9. D 19. C 29. D 39 B 49. D
.
10. C 20. D 30. B 40 D 50. A
.
51. D
52. D
53. C

(* #13)
The journal entry in letter “a” is the journal entry provided in related revenue regulations. Nonetheless, the authors
believe that the journal entry should have been:
Compensation expense (@ GUMV) Pxx
Cash Pxx
Consequently, from the journal entry shown above, the account debited as “fringe benefit tax expense” in revenue
regulations should not form part of the employer’s “Taxes Expense” but as a component of the employer’s
“Compensation expense”.
#22. P97,500/65% = P150,000
(23)
To managerial – fringe benefit expense P1,300,00
0
Fringe benefit tax expense (P1.3M/68% x 35%) 700,000
Rank and File 5,000,00
0
Total P7,000,000
(24)
Expenditure attributable to Managerial
employees (P1.2M x 20%) P240,000
Divide by GUMVF 65%
Grossed-up monetary value P369,231 x FBT rate 35%
15 | Page
Fringe Benefit Tax P129,231
(25) Total deductible expense = P1,200,000 + 129,231 = P1,329,231 (26)

Salaries and wages gross of CWT P816,000
Fixed monthly allowance** 60,000
Total compensation income subject to graduated rate P876,000
*Fixed Allowances received regularly per payroll are considered part of regular compensation
subject to graduated rate (RR 10-2008)
(27)
Allowance not subject to liquidation P48,000
Divide by GUMVF 65%
GUMV P70,588 x FB rate 35%
FBT P25,846
(29)
Annual rental P637,500 x 50%
Monetary value of housing benefit P318,750
Divide by GUMVF 65%
GUMVF P490,385
X FBT rate 35%
FBT P171,635
Add: Annual Rental 637,500
Total Deductible Expense P809,135
(30) (33)
v P2,000,000 x 5% x 50% = P50,000  (P5,000,000-2,000,000) = P3,000,000
v P50,000/ 65% x 35% = P26,923  P3M/ 65% x 35% = P1,615,385
(31) (35)
v P3,000,000 x 5% x 50% / 12 = P6,250  P1,000,000 / 65% = P1,538,462
v P6,250/ 65% x 35% = P3,365  P1,538,462 x 35% = P538,462
(32) (36)
v P5,000,000  P800,000 / 65% = P1,230,769
v P5M/ 65% x 35% = P2,692,308  P1,230,769 x 35% = P430,769
(37)
 (P1,000,000/5) / 65% =
P130,000  P130,000 x 35%
= P45,500
(52) Pedro is taxable on excess benefits only

(53) Pedro is exempt as a minimum wage earner but his business income is taxable
CHAPTER 4 – CO-OWNERSHIP, ESTATES AND TRUSTS
16 | Page
PROBLEM SOLVING P4.1
1. Income tax payable of the estate = P26,000
2. Income tax payable of Louie = P0
3. Income tax payable of Floyd = P8,150
Louie Floyd Estate
Gross income (gross of 5% P P P800,000
tax) 325,000 380,000
Deductible expenses (117,00 (105,000) (420,000)
0)
Dividend from foreign 12,000 8,250
corporation
Prize, supermarket raffle 7,500
Taxable income P220,00 P290,750 P380,000
0
Tax Due/Payable (TRAIN
Law) P0 P8,150 P26,000
P4.2
1. Income tax payable of the estate = P30,000
2. Income tax payable of Louie = P4,000
3. Income tax payable of Floyd = P18,150 Estate
Rental income of the estate P1,000,00
0
Deductible operating expenses (estate) (500,00
0
Income distributed to Louie (50,000
)
Income distributed to Floyd (50,000
Taxable income )
Tax due/payable P400,00
0
P30,000
Louie Floyd
Gross Income P 325,000 P
380,000
Deductible expenses (117,000) (105,00
0)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle 7,500
Amount received from the Income of the 50,000 50,00
estate 0
Taxable income P270,000 P340,75
Income Tax Due/Payable 0
P4,000 P18,15
0
P4.3
1. Income tax payable of the trust = P220,000
17 | Page
2. Income tax payable of Pedro = P113,475
Gross income of the Trust P3,000,00
0
Deductible business expenses of (1,800,00
the trust 0)
Income distributed to Pedro during (200,000
the year )
Dividend income from resident 100,000
foreign corporation P1,100,00
Net Taxable income 0
Income Tax payable P220,00
0
Compensation income of Pedro P800,00

0
Rental income (gross) 500,000
Rental expenses (80,000
)
Dividend from foreign corporation 8,250
Taxable
P1,228,25
income Tax
0
Due
P258,47
5
Tax payments (Quarter 1-3) (120,000
)
CWTx on rent (25,000
Income Tax Payable-Pedro )
P113,47
5
MULTIPLE CHOICE
1. D 16. D 31. B
2. A 17. C 32. D
3. D 18. C 33. D
4. D 19. D 34. C
5. D 20. D 35. C
6. A 21. B 36. D
7. D 22. B 37. B
8. C 23. D 38. D
9. A 24. C 39. D
10. A 25. D 40. D
11. D 26. C 41. B
12. B 27. D 42. D
13. A 28. D 43. C
14. D 29. D 44. B
15. A 30. D 45. A

20.
Income of the estate P600,000
Expenses (150,000)
18 | Page
Distribution of income to Francis (120,000)
Taxable income of Ramos P330,000
21.
Francis’ own income P500,000
Income of the estate received by Francis 120,000
39.
Compensation income P1,500,00
0
Business income 1,000,000
Income of the trust taxable to the grantor 1,000,000
Taxable income of Ramos P3,500,000
41.
Trust’s income P10,000,0
00
Business expenses (2,000,000)
Income distributed to Princess (1,500,000)
Taxable income of the Trust P6,500,000
42.
Compensation income (Gross amount) P2,500,00
0
Income of the trust received Princess 1,500,000
Taxable income of Princess P4,000,000
43-45.
# 44 TRUST 1 # 45
TRUST 2
Taxable Net income P4,000,00 Net income P6,000,00

0 0
Tax due: Tax due:
1st P2,000,000 P490,00 1st P2,000,000 P490,00
0 0
Excess @ 32% 640,000 Excess @ 32% 1,280,00
0
Tax due/paid 1,130,000 Tax due/paid 1,770,000
Versus allocated tax due 1,244,000* Versus Share 1,866,000**
Income Tax Payable-Trust 1 P114,000 Income Tax Payable-Trust 2 P96,000
# 43
Consolidated:
Taxable Net income P10,000,00
0
19 | Page
Tax Due (Consolidated):
1st P8,000,000 P2,410,000
Excess @ 32% 700,000
Total Consolidated TAX DUE P3,110,000
Less Paid:
Trust 1 (1,130,000)
Trust 2 (1,770,000)
Consolidated Income Tax Payable 210,000
Share in the Consolidated Tax due:

Trust 1
(4/10) x 1,244,000*
P3,110,000
Trust 2
(5,980/9,960) 1,866,000**
CHAPTER 5 – INCOME TAX FOR CORPORATIONS
ERRATUM: PAGE 234

TABLE 5-3: Capital Gains subject to CAPITAL GAINS TAX (CGT)
1.) CAPITAL gains from sale of shares of stock

not traded in the local stock exchange
NRFC
DC RFC
UNDER TRAIN LAW, beginning Jan. 1, 2018
Tax Base: Net Capital gain
Tax Rate: 15% NC*** NC***
***NC (No Changes); apply the old rates; 5% first P100,000
gain + 10% in excess of P100k
PROBLEM SOLVING:
(P5.1)
CASE A (Domestic Corporation) – TRAIN Law:
1. P1,674,000
2. P92,500
3. P562,500
Solution
Philippines Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,0
00
Sales returns 200,000 (200,000)
Cost of goods sold 3,500,000 2,250,000 (5,750,00
20 | Page
0)
Operating expenses 2,800,000 1,100,000 (3,900,00
0)
Interest income from trade receivable 100,000 50,000 150,000
Interest income from BPI deposits-USA - 80,000 80,000
Interest income from money market 100,000 100,000
placement
Dividend income-resident foreign corp. 45,000 - 45,000
Dividend income-nonresident foreign corp. - 30,000 30,000
Royalty income - 25,000 25,000
Tax rate 30%
Normal Corporate Income Tax Due P1,674,000
Philippines Final
Tax
Interest income from BPI deposits-Phils. @ 100,000 P20,000
20%
Interest income from FCDS @ 15% 150,000 22,500
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P92,500
Capital Gains Tax

Gain on sale of shares sold directly to a buyer P22,500
[(150,000x 15%)
Sale of real property in the Philippines 540,000
(SP of P9M** x 6%)
Total Capital Gains Tax P562,500
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV
CASE B (Resident Foreign Corporation) – TRAIN Law:

4. P1,093,500
5. P81,250
6. P10,000
Solution:
Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000 Dividend income-
resident foreign corp. 45,000

Tax rate 30%
Normal Corporate Income Tax Due P1,093,500
21 | Page
Philippines Final
Tax
Interest income from BPI deposits-Phils. @ 100,000 P20,000
20%
Interest income from FCDS @ 7.5% (not 150,000 11,250
amended)
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P81,250
Capital Gains
Tax
Gain on sale of shares sold directly to a
buyer P10,000
[(100,000 x 5%) + (50,000 x 10%)]
CASE C (Non-Resident Foreign Corporation) –

TRAIN Law:
7. P2,059,750 computed as follows:
Sales returns (200,000)
Cost of goods sold (3,500,000)
GROSS INCOME P6,300,000

ADD:
Interest income from trade receivable 100,000
Interest income from BPI deposits- 100,000
Phils.
Income from money market placement 200,000
Dividend income-resident foreign 45,000
corp.
Total “Gross” Income P6,795,000
Tax rate 30% P2,038,500
ADD:
Dividend income from DC = P75,000 11,250
x 15%
CGT on shares of DC:
[(P100k x 5%) + P50k x 10%)] 10,000
TOTAL FINAL TAXES P2,059,750
(P5.2) P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The
incomes provided in the problem were all derived in U.S.
(P5.3) RFC –TRAIN Law:

Current account, BDO @ 20% P120,000
Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Royalty income from various domestic corporations @ 20%
US dollar deposit, FCDU @ 7.5% 60,000
Total final taxes on passive income P340,000
22 | Page
(P5.4) – TRAIN Law
Q1 Q2 Q3 Q4
Gross profit from sales P1,600,000 P3,200,000 P4,800,000 P6,200,00
0
Business expenses (1,200,000) (2,400,000) (3,400,000) (4,200,00
Taxable income 0)
400,000 800,000 1,400,000 P2,000,00
0
RCIT 120,000 240,000 420,000 600,000
MCIT (Gross Profit x 2%) 32,000 64,000 96,000 124,000
TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000

Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (90,000) (90,000) (90,000)
Tax Paid Q2 (80,000) (80,000)
Tax Paid Q3 - (120,000)
Income Tax Payable P90,000 P80,000 P120,000 P80,000
(P5.5)
Year 4 Year 5 Year 6 Year 7 Year 8
MCIT 100,000 60,000 50,000 40,000 20,000
RCIT 30,000 70,000 60,000 30,000 90,000
TAX DUE (Higher) P90,00

Excess MCIT P100,000 P70,000 P60,000 P40,000 0
Year 4
Year 7 - (70,000) - - -
Income Tax Payable (10,00
0)
(P5.6) P100,000 P0 P60,000 P40,000 P80,00
0
1. P120,000
2. P690,000
3. P210,000
4. P495,000
Q1 Q2 Q3 Q4
Tax Due 2018 NCIT MCIT P990,000 NCIT P1,410,000 NCIT
P300,000 P2,010,000
Excess MCIT 2017 (90,000) - (90,000) (90,000)
Excess W/holding Tax (30,000) (30,000 (30,000) (30,00)
2017 )
W/holding - 2018 (60,000) (150,00 (270,000) (375,000)
)
Quarterly Tax (120,00 (810,000) (1,020,000)
Payments Tax 0)
Payable P120,000 P690,00 P210,000 P495,000
0
23 | Page
(P5.7) Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Income tax payable of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Income tax payable of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Income tax payable of DEF Company = P1.5M
Joint Venture ABC Co. DEF Co.
Gross income P50,000,000 P30,000,000 P20,000,00
0
Business expenses (30,000,000) (20,000,000) (15,000,00
Taxable income 0)
P20,000,000 P10,000,000 P5,000,00
0
Tax Rate 30% 30% 30%
(RCIT) Tax P6,000,000 P3,000,000 P1,500,00
Due 0
Case B (Tax Exempt Joint Venture)

7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of ABC Company = P24M
10. Income tax payable of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Income tax payable of DEF Company = P3.3M
Gross income P50,000,000 P30,000,000 P20,000,00
0
0)
Share in the income of the - 14,000,000 6,000,000
joint venture Net/ Taxable P20,000,000 P24,000,000 P11,000,0
income 00
Tax Rate 30% 30%
(NCIT) Tax P0 P7,200,000 P3,300,00
Due 0
(P5.8) Case
A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Bryan = P10M
4. Taxable income Rianne = P5M
5. Final tax due of Bryan (10%) = P980,000
6. Final tax due of Rianne (10%) = P420,000
Joint Venture Bryan Rianne
Gross income P50,000,000 30,000,000 20,000,00
0
Taxable income P20,000,000 0)
P10,000,000 P5,000,00
24 | Page
Less: Tax Due @ 30% (6,000,000) 0
Distributable income P14,000,000
Share in income
Bryan @ 70% P9,800,000
Rianne @ 30% 4,200,000
Case B:
7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of Bryan = P24,000,000
10. Taxable income Rianne = P11,000,000
11. Final tax due of Bryan = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Rianne = P0 ; subject to basic and creditable withholding tax
Joint Venture Bryan Rianne
Gross income P50,000,000 30,000,000 20,000,00
0
Net income P20,000,000 0)
P10,000,000 P5,000,00
0
Distributable income P20,000,000

Share in income
Bryan @ 70% P14,000,000 14,000,000
Rianne @ 30% 6,000,000 6,000,000
Taxable income P24,000,000 P11,000,0
00
(P5.9)
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
2. (P6M-4M) x 30% = P600,000
3. P6M x 30% = P1,800,000
4. P6M x 2.5% = P150,000
5. P6M x 1.5% = P90,000
6. P6M x 25% = P1,500,000
7. P6M x 4.5% = P270,000
8. P6M x 7.5% = P450,000
9. *P3,350,000 x 10% = P335,000; * from #1
10. P1,005,000; same computation with #1
11. nil; exempt
(P5.10)
1. [8M] x 2.5% = P200,000
2. [8M x 1%) = P80,000
3. nil; tax exempt on the basis of reciprocity
(P5.11)
1.Related 4.Related
2.Related 5.Related
25 | Page
3.Related 6.Unrelated
(P5.12) Proprietary Educational Institution:

Gross income, related activities P5,000,00
0
Gross income, unrelated activities (excluding rental 5,000,00
income) 0
Rental income from commercial spaces (gross of 5% 2,000,00
WT) – unrelated 0
Expenses, related activities (2,000,00
0)
Expenses, unrelated activities (3,000,00
0)
0
Tax Rate (RCIT); Unrelated income > Related 30%
income
Tax Due 2,100,000 Less: CWT on rental income (P2M x
5%) (100,0000)
Quarterly tax payments for the first 3 quarters (500,000)
Income Tax Payable P1,500,000
(P5.13)
Question 1:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Depreciation expense-classrooms (75,000)
Depreciation expense-furniture and (50,000)
equipment
Taxable income P2,105,000 x Tax Rate 10%
Tax Due P210,500
Question 2:
0
Miscellaneous fees 1,200,00
0
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,00
0)
Other operating expenses (2,600,00
0)
Construction of additional (1,300,00
classrooms 0)
Acquisition of furniture and (400,00
equipment 0)
Taxable income P530,000 x Tax Rate
10%
26 | Page
Tax Due P53,000
(P5.14)
1. Income Tax Due (Payable) = P249,000 –
CWT 15,000 = P234,000
2. Improperly accumulated earnings tax =
P46,425 Solution:
Gross income (gross of 1% WT) P1,500,000
Business expenses (600,000)
Gain on sale of business asset 60,000
NOLCO in 2016 (130,000)
0
ADD:
2016 NOLCO 130,000
Interest on peso bank deposit (P5,000/80%) 6,250
Dividends from a domestic corporation 35,000
Gain on sales of shares, not listed and traded
DEDUCT:
subjected to capital
NCIT (P830,000 gainshigher
x 30%; tax (P150,000-115,000)
than MCIT) 35,000
249,000 206,25
Final Tax on Passive income (6,250 x 20%) 1,250 0
Capital gains tax on shares (35,000 x 5%) 1,750
Dividends paid during the year 120,000 (372,00
0)
BALANCE P664,250
RE Jan. 1 200,000 RE Dec. 31, 2017 P864,250 LESS: Amount that may
be retained (Par of Outs. Sh.) (400,000)
IMPROPERLY ACCUMULATED EARNINGS P464,250 x
IAET RATE 10%
IMPROPERLY ACCUMULATED EARNINGS TAX P46,425
(P5.15)
1. P103,000
2. P117,000
Solution:
2017:
CGT on Land = P1.5M x 6% P90,000
CGT on shares:
1st P100,000 capital gain @ 5% P5,000
In excess of P100,000 capital gain @ 10% 8,000 13,000
2018:
CGT on Land = P1.5M x 6% P90,000
CGT on shares = P180,000 x 15% 27,000
27 | Page
(P5.16)
1. P16,500
2. P36,000
Solution:
2017:
Sale#3; capital gain = P190,000:
1st P100,000 capital gain @ 5% P5,000
In excess of P100,000 capital gain @ 10% 9,000 P14,000
Sale#4; capital gain = P50,000; CGT@ 2,500
5%
2018: Sale#5; capital loss = P30,000; CGT = -
Sale#3; capital gain = P190,000:
none
CGT = P190,000 x 15% P28,500
Sale#4; capital gain = P50,000; CGT@ 5%
CGT = P50,000 x 15% 7,500
Sale#5; capital loss = P30,000; CGT = none -
TRUE OR FALSE
1. TRUE 11. TRUE 21. FALSE
2. FALSE 12. TRUE 22. TRUE
3. TRUE 13. FALSE 23. FALSE
5. FALSE 15. FALSE 25. TRUE
6. TRUE 16. TRUE 26. TRUE
9. TRUE 19. TRUE 29. TRUE
10. FALSE 20. TRUE 30. FALSE
(10) it shall be “prolonged labor dispute” resulting from temporary closure of the business
(15) treated as inter-corporate dividend, hence, nontaxable
(17) should be from “within and without”
(17) shall be ROHQ
(21) shall be IAET
(24) only if the taxpayer is a financial institution
(30) passive incomes are not subject to branch remittance tax
MULTIPLE CHOICE
1. D 21. D 41. A 61. A
2. B 22. B 42. D 62. A
3. C 23. A 43. D 63. A
4. B 24. C 44. B 64. A
5. D 25. D 45. B 65. B
6. D 26. B 46. C 66. C
28 | Page
7. C 27. D 47. C 67. C
8. B 28. D 48. A 68. B
9. B 29. A 49. D 69. A
10. B 30. C 50. D 70. A
11. A 31. B 51. D 71. A
12. D 32. C 52. A 72. D

13. B 33. A 53. B 73. A
14. D 34. D 54. B 74. A
15. C 35. C 55. D
16. B 36. D 56. C
17. C 37. C 57. B
18. B 38. B 58. C
19. C 39. B 59. B
20. D 40. C 60. D

(4).
Domestic RFC NRFC
Gross Income, Philippines P975,000 P975,000 P975,00
0
Expenses, Philippines (750,000) (750,000)
Gross Income, Malaysia 770,000
Expenses, Malaysia (630,000)
Interest on bank deposit - - 25,000
Taxable income 365,000 225,000 P1,000,00

Tax Rate 0
Tax Due 30% 30% 30%
P109,500 67,500 300,000
(5)
.
Gross profit from sales P3,000,00
0
Business expenses (1,800,000
)
Dividend income from a resident corporation 50,000
Dividend income from a nonresident corporation 40,000
Capital gain on sale of land in China 200,000
Interest income from notes receivable 20,000
29 | Page
Tax Due @ 30% P453,000
(6).
Sale of land-Phils. P2M x 6% P120,000
Sale of shares of DC = P120,000 x 15% 18,000
Capital gains tax P138,000
(7)
.
Interest income on peso bank deposit @ 20% P6,000
Interest income on foreign currency bank deposit @ 3,750
15%
Interest income on treasury bills @ 20% 2,000
(8)
.
To Louie @ 10% P10,00
0
To Floyd @ 10% 10,000
To Zeus @ 10% 10,000
To JJ @ 20% 20,000
To Francis @ 25% 25,000
To Chen, a domestic corporation Exem
pt
To a resident foreign corporation Exem
pt
To a nonresident foreign corporation @ 15% 15,000
Total withholding taxes P90,000
(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500
(11).
Interest income from loans P10,000,0
00
OPEX (P12M x 10/15) (8,000,00
0)
0
Income Tax Rate 30%
Income Tax Due P600,000
(12 and 13)

Solution:
G Income P5,000,000 P3,000,000 P2,000,00
0
Expenses (3,000,000) (2,000,000) (1,500,000
)
30 | Page
TNI P2,000,000 P1,000,000 P500,0
NCIT 00
Tax 30% 30% 30%
Due P600,000 P300,000 P150,0
(14). 00
G Income P5,000,000 P3,000,000 P2,000,000
Sh. in Inc. 1,400,000 600,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P2,400,000 P1,100,0
NCIT 00
Tax Due - 30% 30%
- P720,000 P330,00
(17). Income Tax Due = 0 (P10M-P4M) x 30% = P1,800,000
(18). Income Tax Due = P10M x 2.5% = P250,000
(20). Income Tax Payable = P8M x 2.5% = P200,000
(21). Tax Expense (Income Tax & Common carrier’s tax):
= (P8M x 2.5% ) + (P8M x 25% x 3%CCT) = P200,000 + 60,000 = P260,000
(22). Branch Remittance Tax = P2M x 15% = P300,000
(27).
Gross income, related activities P5,000,000
Gross income, unrelated activities (except 5,000,000
rental income)
Rental income from commercial spaces 2,000,000 P12,000,000
(gross of 5% WT)
Expenses, related activities 2,000,000

Expenses, unrelated activities 3,000,000 (5,000,000)
Tax rate (unrelated income>related income) 30%
Tax due P2,100,000
Less: Quarterly tax payments P500,000
Withholding tax on rental income 100,000 (600,000)
Income Tax payable P1,500,000
(28).
Income from tuition fees P3,500,000
Miscellaneous school fees 1,500,000
Dividend income from foreign corp. 2,000,000
31 | Page
Rental income (gross of 5% WT) 2,000,000 P9,000,00
OPEX (4,000,00
0
Taxable income 0)P,000,00
0 1%
Tax rate (related income>unrelated income) P500,00
0
Tax due 0(100,00
P400,00
0)
0
(29).
Tuition and other fees P5,000,000
Rental income (gross of 5% WT) 50,000
OPEX (1,500,000)
CAPEX (2,000,000)
Less: Withholding tax on rental income
Income Tax payable
Tax rate (related income>unrelated income) 10%
Tax due P155,000
Less: Withholding tax on rental income (2,500)
Income Tax payable P152,500
(30).
Gross Receipts P8,500,000
Rental income (gross of 5% WT) 1,500,000
OPEX (8,200,000)
Tax rate (not a non-profit hospital) 30%
Tax due P540,000
Tax payable P465,000
(31).
Rental income (gross of 5% WT) 5,200,000
OPEX (9,450,000)
Tax rate (unrelated income is higher) 30%
Tax due P165,000
Tax payable (P95,000)
(#s 38 TO 45).
2008 2009 2010 2011 2012 2013 2014 2015
NCIT P25,000 P130,000 P200,000 P0 P100,00 P150,000 P8,000 P1,000
32 | Page
0
MCIT 100,000 150,000 190,000 300,000 50,000 60,000 40,000 50,000
DUE (Higher) 100,000 150,000 200,000 300,000 100,000 150,000 40,000 50,000
EXCESS 75,000 20,000 - 300,000 - - 32,000 49,000
MCIT
TAX DUE P100,00 P150,000 P200,000 P300,000 P100,00 P150,000 P40,00 P50,000
0 0 0
MCITCO -
2008 (75,000)
2009 (20,000)
2011 (100,000) (150,000) -
TAX P100,000 P150,000 P105,000 P300,000 P0 P0 P40,000 P50,000
PAYABLE
CHAPTER 6 – PARTNERSHIPS, ESTATES AND

TRUSTS
PROBLEM SOLVING P6.1
1. Income tax due of the partnership = P0 (tax exempt)
2. Income tax due of LJ = P310,000
LJ
LJ’s gross income from his trading P1,000,00
business 0
LJ’s expenses from his trading (600,000
business )
Share from the net income of a GPP 400,000
Royalty, books published in USA 150,000
Salaries, gross of withholding tax 450,000
Basic exemption NA
Taxable income
P1,400,00
Tax Due (TRAIN Law); P130k +
0
(P600k x 30%)
P310,00
0
33 | Page
P6.2
Case A (Ordinary Partnership):
1. Tax due of the partnership = P240,000
2. Tax due of Rivera = P30,000
3. Tax due of Reyes = P55,000
RR Rivera Reyes
Partnership
Gross Income P2,000,00 P800,000 P1,000,00
0 0
Allowed (1,200,00 (400,000) (500,00
Deductions 0) 0)
Basic exemption - - -
Taxable income
P800,00 P400,000 P500,00
0 0
Tax Rate 30% TRAIN Table TRAIN
Tax Due Table
P240,00 P30,000 P55,00
0 0
Note: The partners’ share in the net income of the partnership is treated as dividend income subject to a final tax
rate of 10%.
Case B (General Professional Partnership):

3. Tax due of the partnership = P0; exempt
4. Tax due of Rivera = P110,000
5. Tax due of Reyes = P184,000
RR Partnership Rivera Reyes
Gross Income P2,000,000 P800,000 P1,000,00
0
Allowed Deductions (1,200,000) (400,000) (500,000
)
Basic exemption -
Share in partnership - 320,000 480,000
income Taxable
income P800,000 P720,000 P980,00
0
Tax Rate EXEMPT TRAIN Table TRAIN
Tax Due Table
P0 P110,000 P184,00
0
P6.3
1. Income tax payable/(refundable) of the partnership = P352,500
2. Income tax payable/(refundable) of Villamin = P12,600
3. Income tax payable/(refundable) of Francis = P0
4. Final tax on passive income of the partnership = P11,500
5. Final tax on passive income of Villamin = P40,783
6. Final tax on passive income of Francis = P95,767
7. Capital gains tax of the partnership = P150,000
8. Capital gains tax of Villamin = P0
34 | Page
9. Capital gains tax of Francis = P18,000
Partnership:
Gross profit from sale of services P3,500,00
0
Direct cost of services (1,500,00
0)
Business Expenses (700,00
0)
Rental Income in business assets (gross) 150,00
(P142,500/95%) 0
0
X tax 30%
rate Tax P435,00
due 0
Quarterly tax payments (75,000
)
Withholding tax on rent (7,500)
Income tax payable P352,50
0
Interest Income on peso bank deposits @
20% P4,000
Interest income-FCDS @ 15% 7,500
Final Tax on passive income of the P11,50
partnership 0
Capital gains tax on real property (2.5M x 150,00
6%) 0
DISTRIBUTABLE INCOME:
0
Total income subject to final tax 70,000
Capital gain 300,00
0
Less:
Basic tax due (435,00
0)
Final tax due (11,500
)
Capital gains tax (150,00
DISTRIBUTABLE INCOME 0)
P1,223,50
0
Villamin:
Gross income from sole-proprietorship business 925,00
0
Allowable business expenses (670,00
0)
35 | Page
Dividend Income-resident foreign corp. 120,50
0
Basic exemption -
Tax due (TRAIN Table) 0
P25,10
0
Quarterly tax payments (12,500
Income tax payable )
Final Tax; share in partnership income = (P1,223,500 x P12,60
3/9 X 10%) 0
P40,78
3
Capital gains tax - Villamin P0
Francis:
Income Tax payable P0
(No income subject to basic tax)
Dividend Income @ 10% P8,50

0
Royalty Income @ 20% 7,000
Share in partnership income 81,56
(P1,223,5003 X 6/9 x 10%) Total final 7
tax on passive income P95,76
7
Capital gains tax on shares of stock
18,00
(P120,000 x 15%)
0
P6.4
1. Income tax payable of the business partnership = P114,000
2. Income tax payable of the GPP = P0
3. Income tax payable of Louie = P-
4. Income tax payable of Floyd = P-
Business
Partnership GPP
Gross income P800,000 P500,00
0
Net or Taxable income P380,000 0)
P125,00
0
Tax rate 30%
Income tax due/payable P114,000 EXEMP
T
Louie and Floyd Louie Floyd

Gross Income P 325,000 P
380,000
36 | Page
0)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle - 7,500
Share in income of GPP 37,500 87,500
Basic exemption - -
Additional exemption - -
Taxable income P57,500 P178,25
Income tax payable (TRAIN Law) P- 0
P-
NOTE:
§ The share in the net income of the business partnership, the dividend income from a domestic
corporation and royalty from books are subject to a final tax rate of 10%.
§ The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% final tax
MULTIPLE
CHOICE
1. A 6. A 11 D 16. A
.
2. C 7. A 12 A 17. D
.
3. B 8. D 13 B 18. B
.
4. B 9. B 14 C 19. B
.
5. B 10. C 15 B 20. B
.

15. (P2M-1M) x 30% = P300,000
16. P0; Subject to 10% final tax
17.
Partnership net profit (net of 30% tax) P560,000
(P800,000 x 70%)
Other Income:
Interest income, net 8,000
Dividend income (tax
exempt)
Total distributive income
Share of T (50%) P294,000

Applicable tax (10% final tax) P29,400
18. P600,000 – P350,000 x 50% = P125,000
37 | Page
19
.
Share in GPP’s income P125,00
0
Own income (P150,000-70,000) 80,000
Basic exemption -
20
.
Gross income P750,000 Expenses (200,000) x 70%
Net income after corporate tax 385,00

0
Add:
Dividend received from a domestic corp. (tax exempt) 20,000
Bank interest income, Metrobank (net of final tax) 80,000
Distributable net income P485,000
Juan: P485,000 x 55% x P26,675

10%
Ponce: P485,000 x 45% x P21,285
10%
CHAPTER 7 – CONCEPT
OF INCOME
MULTIPLE CHOICE
1. C 13. C 25. D 37. C
2. D 14. D 26. B 38. D
3. B 15. C 27. B 39. D
4. A 16. B 28. A 40. C
5. D 17. D 29. D 41. C
6. D 18. A 30. A 42. C
7. A 19. C 31. D 43. D
8. D 20. C 32. D 44. A
9. B 21. A 33. B
10. D 22. D 34. B
11. C 23. D 35. B
12. A 24. D 36. B
38 | Page
Supporting Computations:
32. P300,000 4/12 = P100,000
33.
Gain on sale of personal property purchased in the Philippines P-
and sold in Hongkong
Compensation received for personal services in the Philippines 200,000
Rent income from real property in Malaysia - Gain from sale in the
Philippines of shares of a foreign corporation 100,000
Deductions identified with:
Philippine income (80,000)
Foreign income -
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000) (9,000)
Philippine Net Income P211,000
34.
Gross Receipts P600,00
0
Rental expenses (120,00
0)
Salaries expense (100,00
0)
Basic exemption
(Resident Alien)
Gross Income P2,000,00
0
Business expenses (1,200,00
0)
Dividend income from foreign corp. 30,000
(50,000 x 60%)
Basic exemption -
Taxable income
36. Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000
37. (Domestic Corp = Taxable on income within and without

00
Allowable deductions (4,000,00
0)
Dividend income from domestic corp. exempt
Dividend income foreign corp. (95% from R.P.) 1,000,000
Dividend income foreign corp. (60% from R.P.) 800,000
39 | Page
38. (Resident Foreign Corp = Taxable on income from Philippine sources only
Allowable deductions (4,000,000)
Dividend income from domestic corp. exempt
(P1M X 80%=considered from Phil. sources)
(P800,000 x 60%)
Dividend income foreign corp. (25% from R.P.) -
(entire amount is considered income from
sources outside of the Phils.)
39.
DI-Microsoft -
DI-Intel (P400,000 x 60% x P72,00
30%) 0
DI - IBM -
Interest income – BDO @ 20% 120,00
0
FCDS deposit @ 7.5% 60,000
Royalty income @ 20%
Total final taxes on passive
income
40.
DI-Microsoft & Intel @ 30% P270,0
basic tax 00
DI - IBM -
Interest income – BDO @ 20% 120,00
0
Interest income U.K. @ 30% 210,00
0
FCDS deposit @ 15% 120,00
0
Royalty income @ 20% 20,000
CHAPTER 8 – INCLUSIONS AND EXCLUSIONS FROM

GROSS INCOME PROBLEM SOLVING:
P8.1
INCOME SUBJECT TO BASIC TAX:
40 | Page
SolutionsM a n u Income
Gross a l - I n csubject
o m e Ttoa basic
x a t i tax
o n ((Q#1)
2 0 1 8 E d i t i o nP1,985,000
)byTabag&Garcia
LESS:
Basic exemption -
Basic salary (P900,000+P300,000) P1,200,00
0
Director’s fee 200,000
Business income:
Retail business 250,000
Apartment rental (P190,000/95%) 200,000
Dividend income from a resident corporation 50,000
13th, Xmas and MidYear Bonus = (P180,000 – 1st 85,000
5,000 as de minimis – P90,000 exclusions)
Net Taxable income P1,860,000
Income tax due – TRAIN Law (Q#4); P448,00
[P130k + (P860k x 30%)] 0
INCOME SUBJECT TO FINAL TAX:

Cash dividend from a domestic corporation @ P5,000
10%
Interest from savings deposit @ 20% 4,000
Royalties from book publications @ 10% 5,000
Prizes from contest won @ 20% 10,000
PCSO winnings @ 20% 10,000
Total final taxes on passive income (Q2) P34,000
INCOME EXEMPT FROM TAX:

Xmas Bonus and other benefits (P5k de P95,00
minimis + 90,000) 0
Stock dividend from a domestic corporation 25,000
Damages received from injuries and 85,000
sickness
Proceeds-life insurance coverage of his
father
41 | Page
P8.2
1) P10,000
2) P15,000
3) P715,000 computed as follows:
Gross profit from sales (P2.5M – P1.5M) P1,000,00
0
Taxable recovery-receivables 10,000
Taxable tax refunds (P30,000 x 50%) 15,000
Rent income excluding security deposit 250,000
Operating expenses excluding bad debts (500,000)
Write-off during the year (60,000)
Total income exempt from tax (Q3)

P8.3
1) 2016 income = (P240,000 x 2) + 60,000 = P540,000
2) 2017 income = only the annual real property tax of
P60,000
3) 2018 income (lump-sum) = P240,000 + 60,000 +
P3,000,000 = P3,300,000
4) 2018 income (spread-out) = P400,000 computed as follows:
Annual rental P240,000 Annual real property
tax 60,000
Annual income from leasehold improvement:
Cost P3,000,000
x 5/10
Remaining BV after lease term P1,000,000
Divide by remaining lease term 10 years P100,000
Total income 2018 P400,000
P8.4
Ramon Magsaysay award P50,000
Athlete of the year award 100,000
Prize for winning an Olympic 500,000
Medal
Gift from Mayor Erap 250,000
Gift from Honda Cars 1,000,00
0
Total amount exempt from income tax P1,900,000
P8.5 P0; The P800,000 should be exempt from income tax

P8.6 P1,000,000; The interest income from expanded foreign currency deposit
P8.7 Taxable Proceeds = P1,000,000 – P600,000 = P400,000
P8.8 Income within = None. The ratio of income within over total income for the past 3 years < 50%.
42 | Page
P8.9
Salary for the first quarter P180,00
0
Honorarium as speaker in one of ABC’s team building 10,000
activities
Retirement pay; (Taxable; failed to meet the age 2,500,00
requirement) 0
Commissions 30,000
Fee as a member of ABC’s board of directors 50,000
(compensation income if he is an employee at the same
time)
10 days monetized vacation leave Exempt
Interest income from time deposit FW
Tax/E
Productivity incentive pay and 13th month pay Exempt
(Productivity pay= 1st P10,000 is de minimis under RR 1-
2015)
(Total of excess of productivity of P10,000 + 60,000
bonus is not more than P90,000, hence tax exempt)
Total compensation income subject to tax P2,770,000
P8.10
INCOME Q#1 Q#2 Q#3 Q#4
Income Income Taxable Taxable
within without income income
A. Rental income (gross) (RC) (NRC)
• From an apartment unit in USA,
- P240,000 P240,000
• From a parcel of land in Makati P180,000 180,000 P180,000
B. Royalties from book

• Published in the Philippines 30,000 FWT FWT
• Published in USA 20,000 20,000
C. Interest income earned on notes

receivable • From a debtor 15,000 15,000
who resides in USA
• From a debtor who resides in Manila 25,000 25,000 25,000
D. Net profit from sales, merchandising business

• From Philippine outlet 300,000 300,000 -
• From USA outlet 200,000 200,000 200,000
E. Dividend income from two domestic

corporations. Gross income from the Phils.
for the past 3 years 60,000 - FWT FWT
• 60% of its world income
• 85% of its world income 80,000 - FWT FWT
F. Dividend income from two resident foreign

corporations. Gross income from the
43 | Page
Philippines for the past 3 years was - 40,000 40,000 -
equivalent to:
• 40% of its world income
• 60% of its world income 12,000 8,000 20,000 12,000
G. Prizes received from Supermarket raffle:
From the Philippines:
• ABC Supermarket 8,000 - 8,000 8,000
• DEF Superstore 12,000 - FWT FWT
From USA:
• UVW Supermarket - 6,000 6,000 -
• XYZ Supersavers - 14,000 14,000 -
H. Prizes and winnings from lotto
• Philippine lotto 200,000 - Exempt Exempt
• USA lotto 100,000 100,000 -
BASIC EXEMPTION (assume 2018 - -

taxable year)
TOTAL P907,000 P643,000 P1,168,0 P425,000
00
P8.11
DIVIDEND INJURIES/DAMAGE PRIZES/AWARDS
S
1. 10% F.Tax 8. Exempt 15. Basic tax
2. 10% F.Tax 9. Exempt 16. Exempt
3. Basic Tax 10. Basic Tax 17. Exempt
4. Exempt 11. Exempt 18. Exempt
5. Basic Tax 12. Basic Tax 19. Exempt
6. Exempt 13. Exempt 20. Basic Tax/FWT Depending on the
7. N.taxable 14. Basic Tax 21. Basic Tax/FWT amount
22. 20% FWT; TRAIN Law
23. Basic Tax
24. 20% final tax (individual taxpayer)
25. Basic Tax (abroad)
VARIOUS/INCOME
PROCEEDS
26. Final Tax
27. Exempt
28. Exempt
29. Exempt
30. Exempt
TRUE OR FALSE
1. TRUE 8. TRUE 15. FALSE 22. TRUE

2. FALSE 9. TRUE 16. FALSE 23. FALSE
3. TRUE 10. TRUE 17. TRUE 24. TRUE
4. FALSE 11. TRUE 18. FALSE 25. FALSE
5. FALSE 12. TRUE 19. FALSE
44 | Page
7. FALSE 14. FALSE 21. FALSE
#7 – should be CWT not FWT
#14 – should be upon recovery
#20 - if not in single sum (like installment or annuity), it may include
an interest, subject to tax #21 – the interest is subject to tax
MULTIPLE CHOICE
1. C 16. A 31. D*** 46. A
2. B 17. D* 32. C**** 47. D
3. D 18. C 33. C 48. D
4. D 19. B 34. A 49. B
5. B 20. C** 35. D 50. B******
6. B 21. D 36. C 51. C
7. B 22. C 37. C 52. B
8. B 23. A 38. D 53. C
9. C 24. C 39. D***** 54. D
10. A 25. C 40. A (TRAIN 55. D
Law)
11. C 26. D 41. D 56. D
12. C 27. D 42. B 57. C
13. B 28. D 43. D 58. A
14. C 29. C 44. D 59. B
15. B 30. D 45. D 60. B
61. C
*the P40,000 is subj. to FWT

**should be from banks only
***indirect dividends are subj. to FWT
**** Statement “II” is subject to FWT
*****ERRATUM: letter “D” shall be real property not
used in business ******The interest is subject to FWT
Supporting Computations
(Multiple Choice): No. 13.
Write-off 2013 Income (Loss) 2014 2014
2013
P50,000 before write
P350,000 Recovery
P20,000 TAXABLE
P20,000
10,000 off
(50,000) 10,000 RECOVERY
-
30,000 20,000 30,000 20,000 P40,000
No. 14.
Case A Case B Case C
2013 Income(loss) before write- P120,000 P60,000 (P40,00
off 0)
45 | Page
Write-off 40,000 40,000 50,000
2014 Recovery P40,000 P10,000 P50,000
TAXABLE RECOVERY P40,000 P10,000 P0
No. 17.
Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income
Refund of income tax = not an income
No. 25.
Rent for 2015 and 2016 (prepaid rent is taxable yr. of receipt
P3,600,000 regardless of accounting method)
Annual real property tax 30,000
Total annual income P3,630,000
No. 26.
2016 2017 2018
Rent - P2,400,000 P2,400,00
0
Annual real property P30,000 30,000 30,00
tax 0
Income from None; 1,200,00
improvement completed 0
[(P36M x **5/15) / only end of
10] 2017
Total annual income P2,430,000 P3,630,0
00
Lease Term: 12.5 years

Remaining Lease term after completion of the improvement: 10 years
Useful life of the improvement: 15 years
Remaining useful life of the improvement after termination of the lease: 5 years**
No. 27 – LUMP SUM METHOD

2017
Annual Rent 2017 P2,400,00
0
Annual real property tax 30,000
Income from 36,000,00
improvement 0
Total annual income P38,430,000
No. 28.
Royalty – as an author @ 10% P10,000
Other royalties P800,000
x 20% 160,000
Total final tax on royalty income P170,000
46 | Page
No. 47.
Proceeds from the taxpayers life insurance P2,000,000
Less premiums paid (P15,000 x 25) (375,000) P1,625,00
Rent income from inherited properties 0 200,00
0
0
CHAPTER 9– DEALINGS IN PROPERTIES

PROBLEM
SOLVING
P9.1 Question #1
Gross income P360,000
Add: Net capital gains
Short term capital loss (@100%) (60,000)
Long term capital gain (@100%) 40,000
Net Capital Gain (Loss) (20,000) -
Net Taxable Income in 2017 P80,00
capital losses are 0 deductible only from capital gains.
holding period and capital loss carry-over are not applicable to corporate taxpayers.
P9.1 Question #2
2018
0
0)
Net Capital Gain
Short term capital gain (@ 100%) 80,000
Capital loss (@ 100%) (20,000) 60,000
capital losses are deductible only from capital gains.
P9.1 Question #3
0
0)
Short term capital loss (@100%) P(60,000)
Long term capital gain (@50% ) 20,000
Net capital loss (P40,000) -
Basic Exemption (50,000
)
0
Personal exemption is allowed prior to effectivity of RA 10963
(TRAIN Law)
P9.1 Question #4
0
47 | Page
0)
Short term capital gain (@100%) 80,000
Long term capital loss (@50%) (10,000)
Net capital loss carry over (NCLCO) from 2017 (30,000)** 40,000
Personal exemption is no longer allowed upon effectivity of RA 10963 (TRAIN Law)
**NCLCO must not exceed the taxable income during the year the net capital loss was incurred.
P9.2
Taxable income exclusive of capital gains and losses P400,00
0
Add(Deduct): Ordinary gains(loss)
Gain on sale of land used in business, for 3 years P50,00
0
Loss on sale of machinery used in business, for 8 months (26,00
0)

Loss on sale of securities held for 3 years (8,000)
Loss on sale of securities held for 3 months (6,000) -
Taxable income for Royale, Inc.
P424,00
capitallosses are deductible only from capital gains 0
P9.3
Ordinary income P140,00
0
Add: Net capital gain:
Long term capital gain @ P20,000
50%
Long term capital loss @ (5,000) 15,000
50% 0
Taxable Income P155,000
P9.4
(1)P25,000: (2)P(P80,000); (3)
(P55,000)
Capital gain on sale of bonds (@50%) P25,000
Capital loss on sale of car @ (80,000)
100%
Net capital loss (P55,000)
net capital loss from the taxable period of a prior year is deductible only from net capital gains
in the current year.
sale of shares of domestic corporations held as capital assets are subject to CGT
sale of real properties held as capital assets located in the Philippines are subject to CGT
P9.5
(1)P5,000: (2)(P5,000);
Capital gain on sale of bonds (@100%) P45,00
Net capital gain 2018 P5,00
0
0
Capital loss carry-over from 2017 P5,00
48 | Page
0
Capital loss on sale of car @ 50% (40,00
0)
net capital loss from the taxable period of a prior year is deductible only from net capital gains
in the current year.
P9.6
2017 2018
Ordinary income P48,900 P85,700
Add: Net capital gain
2017: P15,895-P18,960 = (P3,065)
2018: =P45,700 x 50% = P22,850 P22,850
Net capital loss carry-over from --- ---
2017 (50,000) No longer
Basic exemption allowed
(25,000) No longer
Additional exemption
allowed
Taxable Income
(P26,100) P33,550
net capital loss from the taxable period of a prior year is
deductible only from net capital gains in the current year.
MULTIPLE CHOICE
1. C 11. A 21. D
2. D 12. B 22. D
3. D 13. D 23. C
4. A 14. B 24. C
5. D 15. D 25. C
6. D 16. D 26. D
7. D 17. D 27. D
8. D 18. C 28. C
9. A 19. A 29. A
10. C 20. B 30. A

18. P1,200,000 x 6% = P72,000
Sale of vacant lot used as warehouse is an ordinary asset
19. CGT = 1,000 shares x P10 x 5% = P500
22
.
Total net sales from his trading business P
500,000
Cost of sales (300,00
0)
Gain on sale of vacant lot used in business 50,000
Ordinary income/gain P250,000
49 | Page
23. Capital Gain (On Sale of personal Car) = (P100,000-P50,000) x 50% = P25,000
24. Capital Loss (On Sale of personal computer) = (P10,000-P20,000) x 50% = (P5,000)
25. Net capital gain = P25,000 – P5000 = P20,000
50 | Page

Chapter 1 - Principles of Taxation: Erratum: Citizens & Residents Nra-ETB Nra - Netb (2) Royalties - Page

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Chapter 1 - Principles of Taxation: Erratum: Citizens & Residents Nra-ETB Nra - Netb (2) Royalties - Page

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CHAPTER 1 – PRINCIPLES OF

**Statement 1 – False; similarity of tax from license fee, not a distinction.

CHAPTER 2 - INDIVIDUAL TAXPAYERS

2. Income Tax Payable = P95,000 computed as follows:

3. Income Tax Payable = P124,000 computed as follows:

4. Income Tax Payable = P215,000 computed as follows:

6. Income Tax Payable = P222,500 computed as follows:

Taxable net income P2,350,000

Gross business income, Philippines P1,000,000

Dividend income – DC (50k x 10%) P5,000

2. Taxpayer is a nonresident citizen

Gross business income, Philippines P1,000,000

Dividend income – DC (50k x 10%) P5,000

Basic income tax due P163,000

3. Taxpayer is a resident alien

4. Taxpayer is a nonresident alien engaged in trade or business

Basic income tax due P163,000

5. Taxpayer is a nonresident alien not-engaged in trade or business

Final Tax on Passive income:

Dividend income from domestic corp. 5,700 -

Capital Gains Tax:

Capital Gains Tax:

3. Taxpayer is a nonresident alien engaged in trade

Final Tax on Passive income:

1. Income tax payable, first quarter = P-

2. Income tax payable, second quarter = P17,600

3. Income tax payable, third quarter = P38,427.5

4. Income tax payable, fourth quarter = P67,297.5

5. Final tax on passive income = P15,800

6. Capital gains tax = P600,000 x 6% = P36,000

(Amounts are cumulative) Amount % Tax

2-9 CASE A: 2017 Taxable Year

Answers for letters a-d are the same

2.12 C.G. Tax = none; the transaction resulted to a loss

Supporting Computations (Multiple Choice):

(28) CGT = 1.5/4 X P4M X 6% =

Taxable Net Income P1,050,000

CHAPTER 3 – FRINGE BENEFITS

Subject to FBT Subject to Basic Tax Exempt

P3.3 P957,000 computed as follows:

Supporting Computations (Multiple Choice):

#22. P97,500/65% = P150,000

(25) Total deductible expense = P1,200,000 + 129,231 = P1,329,231 (26)

(52) Pedro is taxable on excess benefits only

CHAPTER 4 – CO-OWNERSHIP, ESTATES AND TRUSTS

Compensation income of Pedro P800,00

Supporting Computations (Multiple Choice):

Taxable Net income P4,000,00 Net income P6,000,00

Excess @ 32% 700,000

Total Consolidated TAX DUE P3,110,000

Consolidated Income Tax Payable 210,000

Share in the Consolidated Tax due:

CHAPTER 5 – INCOME TAX FOR CORPORATIONS

ERRATUM: PAGE 234

1.) CAPITAL gains from sale of shares of stock

Capital Gains Tax

CASE B (Resident Foreign Corporation) – TRAIN Law:

Taxable income P3,645,000

CASE C (Non-Resident Foreign Corporation) –

GROSS INCOME P6,300,000

(P5.3) RFC –TRAIN Law:

TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000

TAX DUE (Higher) P90,00