Chapter 9

Items of gross income or inclusions in gross income

 A board category pertaining to all items of income subject to taxation.

1. Gross income subject to FINAL TAX

2. Gross income subject to CAPITAL GAINS TAX
3. Gross income subject to REGULAR TAX

Items of gross income subject to Regular tax

*gross income includes, but NOT limited to the following items”:
1. Compensation for services in whatever form paid.
2. Gross income from the conduct trade, business or exercise of profession
3. Gains derived from dealing of property
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partnership distributive shares from the net income of general professional partnership

Compensation for services in whatever form paid

Compensation Income- types of employee benefits that are subject to REGULAR TAX.
*FRINGE BENEFITS of managerial or supervisory employees are not considered compensation income
and are subject to FINAL TAX

Gross income form conduct of trade, business or exercise of profession

-includes income from any trade or business, legal or illegal and whatever registered or
unregistered.

BUSINESS INCOME NOT INCLUDE IN GROSS INCOME SUBJECT TO REGULAR INCOME TAX

1. Business income from income tax such as

a. Gross income from BRGY. Micro Business (BMBE) under RA 9178
b. Gross income from enterprises enjoying tax holiday incentives under EO 226 which
have not yet graduated to their income tax holiday incentives
2. Business income subject to special tax regime such as:
a. Philippines Economic Zone Authority (PEZA)
- Registered enterprise
- Subject to 5% gross income
b. Tourism Infrastructure and Enterprise Zone (TIEZA)
 - Registered enterprise
- Subject to 5%gross income
c. Income of Self Employee and/or Individual (SE/P)
- Opted to be taxed under the 8% income tax
3. Business income subject to Final Tax
a. Subcontractor of petroleum service contractor subject 8% final tax
b. Business Income of Foreign Currency Deposit Units (FCDUs) and offshore banking
units (OBUs) from Philippine resident subject to 10% Final Tax

Gains from dealing properties

-Subject to regular income tax

*gains or losses in dealing in ordinary assets
*dealing in capital assets other than domestic stock and real property
Interest Income
- Taxable interest income must have been actually paid out of an agreementto pay
interest
- It cannot be imputed
Example of interest income subject to Regular Income Tax
1. Lending activities both individual and corporation by bank
2. Bonds and promissory notes
3. Bank deposits from abroad
Exempt interest income from land owners in disposing their lands to their tenants (Comprehensive
Agrarian Reform Law), imputed interest income does not constitute an actual income

Rents

- Rent income arise from leasing properties of any kind

- Passive income but not subject to final tax under NIRC
- Subject to regular income tax
Royalties

- Earned from source within the Philippines are generally subject to Final Income Tax
except when they are active by nature.
- Earned from sources outside Philippines are subject to regular income tax
Dividends
- Dividends declared by domestic corporation subject to 10% Final Income Tax
- Cash, property and script dividends from foreign corporation subject to Regular
Income Tax
Annuities
- the excess of annuity payment received by the recipient over premium paid is
taxable income in the year of receipt

Prizes and winnings

- prizes and winnings that are exempted for final tax are not items of gross income
subject to Regular Income Tax
Pensions
- pensions and retirement benefits that fail to meet the exclusion criteria, hence
subject to regular tax
Partners distributable share from the net income of general profession partnership

- merely viewed as pass through entities.