1st slide

TITLE
2ND SLIDE DEFINITION
IT REFERS TO INCOME RECEIVED OR EARNED BUT IT IS NOT TAXABLE AS INCOME BECAUSE EXEMPTED
BY LAW OR BY TREATY

3RD SLIDE

1. THE ITEM OF THE RECEIPT DOES NOT FALL WITHIN THE DEFINITION OF INCOME FOR INCOME
TAX PURPOSES
INCOME – IN ITS BROAD SENSE, MEANS ALL WEALTH WHICH FLOWS INTO THE TAXPAYER
OTHER THAN AS A MERE RETURN ON CAPITAL. IT INCLUDES THE FORMS OF INCOME
SPECIFICALLY DESCRIBED AS GAINS DERIVED FROM SALE OR OTHER DISPOSITION OF CAPITAL
ASSET
FOR EXAMPLE
- DAMAGES RECOVERED FOR LOSS OF LIFE OF SPOUSE
- DAMAGES RECOVERED IN ANNULMENT OF MARRIAGE
- DAMAGES RECOVERED IN LIBEL AND SLANDER SUITS

2. A PROVISION OF THE TAX CODE OR SPECIAL LAW EXEMPTS IT FROM INCOME TAX
- THIS IS EXPRESSLY PROVIDED IN “THE NATIONAL INTERNAL REVENUE CODE OF THE
PHILIPPINES UNDER SECTION 32, (B) EXCLUSIONS FROM GROSS INCOME

4th slide
SLIDE 5 PROCEEDS OF LIFE INSURANCE POLICY

INDEMNITY MEANS security or protection against a loss or other financial burden

QUESTION: IT SHOULD BE POINTED OUT THAT WHEN THE INSURED OUTLIVES THE POLICY, THE
PROCEEDS FROM LIFE INSURANCE LESS THE TOTAL AMOUNT OF PREMIUMS PAID SHOULD BE
INCLUDED IN THE GROSS INCOME

OUTLIVED MEANS (of a person) live longer

ANSWER: YES, BECAUSE THE INSURED OUTLIVED THE POLICY. ONE IMPORTANT REQUISITE IN ORDER
THAT THE PROCEEDS OF LIFE INSURANCE SHALL BE EXEMPT FROM TAX IS THE DEATH OF THE
INSURED

SLIDE 6 AMOUNTS RECEIVED BY THE INSURED AS A RETURN OF PREMIUM

ANSWER: A PORTION OF THE PROCEEDS RECEIVED BY THE INSURED IS SUBJECT TO TAX BECAUSE
MUTYA OUTLIVE THE POLICY/ OUT OF THE 1,500,000, ONLY 500,000 IS TAXABLE BECAUSE THE
1,000,000 REPRESENTS THE AMOUNT OF PREMIUMS PAID BY THE INSURED

THUS,
PROCEEDS RECEIVED BY THE INSURED 1,500,000
LESS: PREMIUMS PAID 1,000,000
AMOUNT SUBJECT TO TAX 500,000

SLIDE 7: GIFT, BEQUEST, DEVISE, OR DESCENT

GIFT MEANS VOLUNTARY TRANSFER OF PROPERTY FROM ONE PERSON TO ANOTHER WITHOUT ANY
CONSIDERATION OR COMPENSATION THEREFOR

BEQUEST IS THE ACT OF GIVING PERSONAL PROPERTY, BY WILL. THE PERSON TO WHOM GIFTS OF
PERSONAL PROPERTY ARE GIVEN BY VIRTUE OF WILL IS KNOWN AS LEGATEE

DEVISE IS THE TRANSMISSION OF REAL PROPERTY BY VIRTUE OF A WILL. DEVISEE IS A PERSON TO

WHOM GIFTS OF A PARTICULAR REAL PROPERTY ARE GIVEN BY VIRTUE OF A WILL

ANSWER: ONLY 400,000, WHICH REPRESENTS THE RENTAL INCOME OF THE APARTMENT. THE
5,000,000 VALUE OF THE APARTMENT IS SUBJECT TO ESTATE TAX. HENCE IT IS EXEMPT FROM
INCOME TAX.

DONATIONS INTER VIVOS MEANS THE VALUE OF THE PROPERTY RECEIVED DURING THE LIFETIME OF
THE DONOR
DONATIONS MORTIS CAUSA(TRANSFERS AT DEATH) ARE EXCLUDED FROM GROSS INCOME.
HOWEVER, THE RECEPIENT OF SUCH PROPERTY IS TAXED ON THE INCOME PRODUCED BY THE
PROPERTY AFTER THE TRANSFER
SLIDE 8 COMPENSATION FOR INJURIES OR SICKNESS

ANSWER:
A. HOSPITAL BILLS AND MEDICINES- NOT TAXABLE, THEY ARE MERE REIMBURSEMENTS OF
EXPENSE INCURRED BY MAINGAT
B. RECOVERY OF LOST OF INCOME – TAXABLE, IT IS A COMPENSATION FOR LOSS OF PROFITS OR
INCOME
C. COST OF PERIODIC CHECK UP- NOT TAXABLE, IT DOES NOT CONSTITUTE INCOME
D. COST OF DVD PLAYER – NOT TAXABLE, IT ONLY COMPENSATES A LOSS OF CAPITAL
E. MORAL DAMAGES – NOT TAXABLE, IT IS PURELY COMPENSATORY IN NATURE
F. ATTPRNEY’S FEES – NOT TAXABLE, IT IS NOT A RETURN OF LOST OF INCOME
SLIDE 9 INCOME EXEMPT UNDER TREATY

THE BASIS OF THIS EXEMPTIONIS THE PRINCIPLE OF RECIPROCITY AND AMITY AMONG NATIONS

PRINCIPLE OF RECIPROCITY In international relations and treaties, the principle of reciprocity

states that favours, benefits, or penalties that are granted by one state to the citizens or legal
entities of another, should be returned in kind
SLIDE 11
RETIREMENT BENEFIT UNDER RA 7641
REASONABLE PRIVATE BENEFIT PLAN MEANS A PENSION, GRATUITY, STOCK BONUS OR PROFIT
SHARING PLAN MAINTAINED BY AN EMPLOYER FOR THE BENEFIT OF SOME OR ALL OF HIS OFFICIALS
OR EMPLOYEES
SEPARATION OR TERMINATION
TAKE NOTE OF 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
SLIDE 12
SOCIAL SECURITY BENEFITS
ANSWER: BOTH THE PENSION AND THE SOCIAL SECURITY BENEFITS ARE EXEMPT. NOTE THAT THESE
BENEFITS WERE EARNED ABROAD WHEN THE TAXPAYER WAS A NON-RESIDENT. UNDER THE SITUS
RULE, THE FOREIGN INCOME OF NON-RESIDENS IS NOT TAXABLE IN THE PHILIPPINES. THIS HOLDS
TRUE EVEN IF THE TAXPAYER SUBSEQUENTLY RECEIVES THE INCOME AS A RESIDENT OF THE
PHILIPPINES
SLIDE 13
DOCTRINE OF INTERNATIONAL COMITY MEANS The legal principle that political entities (such as
states, nations, or courts from different jurisdictions) will mutually recognize each other's
legislative, executive, and judicial acts.
SLIDE 14
PERA MEANS PERSONAL EQUITY RETIREMENT ACCOUNT