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Ast TX 501 Individual, Estate and Trust Taxation (Batch 22)
Ast TX 501 Individual, Estate and Trust Taxation (Batch 22)
TAXATION TAMAYO/GARCIA
1. Classification of Individuals
a. Citizens 1) Those who are citizens of the Philippines at the time of the adoption of the
Constitution (on February 2, 1987);
2) Those whose fathers or mothers are citizens of the Philippines;
3) Those born before January 17, 1973 of Filipino mothers who elect Philippine
citizenship upon reaching the age of majority;
4) Those who are naturalized in accordance with law.
1) Resident citizen A citizen of the Philippines residing therein.
2) Non-resident 1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the
citizen fact of his physical presence abroad with a definite intention to reside therein;
2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis;
3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year;
4) A citizen who has been previously considered as non-resident citizen and who arrives in
the Philippines at any time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a non-resident citizen for the taxable year in
which he arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines;
5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to return to and reside in the Philippines as
the case may be.
b. Aliens Individuals who are not Filipinos.
1) Resident alien;
2) Non-resident alien doing business in the Philippines;
3) Non-resident alien not doing business in the Philippines.
1) Resident alien An individual whose residence is within the Philippines and who is not a citizen thereof.
1) An alien who lives in the Philippines with no definite intention as to his stay;
2) One who comes to the Philippines for a definite purpose which in its nature would
require an extended stay and to that end makes his home temporarily in the Philippines,
although it may be his intention at all times to return to his domicile abroad;
3) An alien who has acquired residence in the Philippines retains his status as such until
he abandons the same and actually departs from the Philippines.
2) Non-resident alien An individual whose residence is not within the Philippines and who is not a citizen thereon.
1) One who comes to the Philippines for a definite purpose which in its nature may be
promptly accomplished.
2) A non-resident alien individual who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days during any calendar year shall be deemed a
“non-resident alien doing business in the Philippines.”
2. Formats of Computation (Annual Return)
a. Pure compensation Gross compensation income P xxx
income Less: Basic personal exemption xxx
Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable compensation income P xxx
Tax due [Sec. 24 (A)] P xxx
Less: Tax withheld on compensation xxx
Foreign tax credits xxx xxx
Tax payable (overpayment) Pxxx
b. Pure business or Gross business/professional income Pxxx
professional income Less: Allowable deductions xxx
Net income before personal exemptions xxx
Less: Basic personal exemption xxx
Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable net income Pxxx
Tax due [Sec. 24 (A)] Pxxx
Less: Tax credits/payments
Prior years’ excess credits xxx
Tax payments for the previous quarters xxx
Creditable tax withheld xxx xxx
Tax payable (overpayment) Pxxx
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c. Mixed income Gross compensation income Pxxx
Less: Basic personal exemption xxx
Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable compensation income xxx
Gross business income xxx
Less: Allowable deductions xxx
Net income xxx
Total taxable income Pxxx
Tax due [Sec. 24 (A)] Pxxx
Less: Tax credits/payments
Prior years’ excess credits xxx
Tax payments for the first three quarters xxx
Creditable tax withheld for the first 3 quarters xxx
Creditable tax withheld for the 4th quarter xxx
Tax withheld from compensation xxx
Foreign tax credits xxx xxx
Tax payable (overpayments) Pxxx
3. Tax Base and Tax Rate
Taxpayer Tax Base Tax Rate
a. Resident citizen Net income within and without Sec. 24 (A)
b. Non-resident citizen Net income within Sec. 24 (A)
c. Resident alien Net income within Sec. 24 (A)
d. Non-resident alien engaged in trade or business Net income within Sec. 25 (A) (1)
e. Non-resident alien not engaged in trade or business Gross income within Sec. 25 (B)
f. Estate and trust Net income within and without Sec. 24 (A)
4. Personal Exemptions
a. Personal exemptions Personal exemptions are arbitrary amount allowed in the nature of a deduction from gross
defined or net income for personal, living or family expenses of the taxpayer. These have been
calculated to be roughly equivalent to the minimum of subsistence.
b. Kinds of personal 1) Basic personal exemption;
exemptions 2) Additional exemptions.
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TAXATION – Individuals, Estates and Trusts (Batch 22)
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3) When the husband is a non-resident citizen deriving income from foreign sources.
h. Claimant of 1) The additional exemption may be claimed only by the spouse who has custody of the
additional exemption child or children;
in case of legally 2) The total amount of additional exemption that may be claimed by both shall not exceed
separated spouses the maximum additional exemption allowed.
i. Computation of 1) For married individuals, the husband and wife, shall compute separately their individual
married individual’s income tax based on their respective total taxable income.
income tax 2) If any income cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be divided equally between
the spouses for the purpose of determining their respective taxable income.
7. Optional Standard Deductions (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)
1) Persons covered The following may be allowed to claim OSD in lieu of the itemized deductions (i.e. items of
ordinary and necessary expenses allowed under Section 34 (A) to (J) and (M), Section 37,
other special laws, if applicable):
a) Individuals b) Corporations
(1) Resident citizen (1) Domestic corporation
(2) Non-resident citizen (2) Resident foreign corporation
(3) Resident alien
(4) Taxable estates and trusts
2) Determination of a) The OSD allowed to individual taxpayers shall be a maximum of forty percent (40%) of
the amount of gross sales (if on accrual basis) or gross receipts (if on cash basis) during the taxable year.
OSD for b) The “cost of sales” in case of individual seller of goods, or the “cost of services” in the case
individuals of individual seller of services, are not allowed to be deducted for purposes of determining
the basis of the OSD
c) For other individual taxpayers allowed by law to report their income and deductions under a
different method of accounting (e.g. percentage of completion basis, etc.) other than cash
and accrual method of accounting, the “gross sales” or “gross receipts” shall be
determined in accordance with said acceptable method.
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a. resident citizen. b. non-resident citizen.
4. An individual taxpayer asked you to assist him in the preparation of his tax return for his income in 2009.
He provided you the following information:
Gross sales, Philippines P1,500,000
Cost of sales, Philippines 500,000
Gross sales, Japan 7,000,000
Cost of sales, Japan 2,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
How much was the taxable income assuming the taxpayer was a:
a. resident citizen, married and has six (6) qualified dependent children.
b. non-resident citizen, head of family with two (2) qualified dependent brothers under optional standard
deduction.
c. non-resident alien engaged in business, single (his country allows personal exemption of P40,000 to single
Filipinos not residing in that country).
d. non-resident alien not engaged in business, married with four (4) qualified dependent children (his country
allows basic personal exemption of P40,000 to married individuals and additional exemption of P10,000 for
each dependent child to non-resident alien including Filipinos in that country).
5. A husband and wife, resident citizens, with one (1) qualified dependent child, had the following income and expenses
for the year 2009. The husband waived the additional exemption in favor of his wife.
Salary of the husband, net of P50,000 withholding tax P 450,000
Salary of the wife, gross of P60,00 withholding tax 600,000
Gross professional income, husband, gross of 15% withholding tax 1,500,000
Cost of services, husband 500,000
Expenses, practice of profession 300,000
Gross sales, wife 800,000
Cost of sales, wife’s business 300,000
Business expenses, wife 100,000
Gross rent income, lease of common property, gross of 5% withholding tax 700,000
Expenses, leased common property 200,000
Business income, Singapore 600,000
Business expenses, Singapore 150,000
Question 1 - How much was the taxable income of the husband and wife using itemized deduction?
2 – How much was the taxable income of the husband and wife using optional standard deduction?
9. Head of Family
a. Meaning of head of The term “head of family” means an unmarried or legally separated man or woman
family with any one of the following as dependent:
1) one or both parents;
2) one or more brothers or sisters; one or more legitimate, illegitimate,
recognized natural or adopted child;
3) senior citizen.
b. Requisites or 1) Dependent parent/s
qualifications of a) Living with the taxpayer;
dependents of head of b) Dependent upon the taxpayer for chief support.
family 2) Dependent brother, sister or child
a) Living with the taxpayer; d) Unmarried;
b) Dependent upon the taxpayer for chief support; e) Not gainfully employed.
c) Not more than 21 years old;
3) Senior citizen
c. Senior citizen Senior citizen or elderly shall refer to any resident Filipino citizen aged 60 years old and
above.
d. Requisites or The senior citizen, whose annual taxable income does not exceed the poverty level as
qualifications of senior determined by the NEDA for the corresponding taxable year:
citizen as dependent of a 1) must be living with and
benefactor 2) dependent upon his benefactor for his chief support.
It shall be the duty of the benefactor of a senior citizen to register the senior citizen as
his dependent and himself/herself as benefactor in the RDO having jurisdiction over the
place where he/she and the senior citizen reside.
e. Benefactor Benefactor shall refer to any person, whether related to the senior citizen or not, who
takes care of him/her as a dependent.
f. Benefactor of senior The benefactor of a senior citizen shall NOT, however, be entitled to claim the
citizen not entitled to additional exemption of P25,000 (P8,000) per dependent (not exceeding four) allowable
claim additional only to a married individual or head of family with qualified dependent
exemption child/children under Sec. 35 (B) of the Tax Code.
g. Exemptions/discounts of 1) If the returnable income of a Senior Citizen is in the nature of compensation income
senior citizens but he qualifies as a minimum wage earner, he shall be exempt from income tax on
the said compensation. He is also exempted from income tax if his taxable income
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TAXATION – Individuals, Estates and Trusts (Batch 22)
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does not exceed his personal exemptions.
2) All establishments, supplying certain goods and services for their exclusive use and
enjoyment or availment, shall give a discount of 20%.
3) The monthly utilization of water and electricity by the Senior Citizen supplied by
public utilities will be subject to a 5% discount upon concurrence of certain
conditions.
4) Sale of any goods and services to Senior Citizens shall be exempt from the value-
added tax (e.g. medicines, professional fees of attending physicians and licensed
health workers, medical and dental services, actual fare for land transportation travel
as well as air transport services and sea shipping vessels, utilization of services in
hotels and similar lodging places, restaurants and recreation centers, admission fees
charged by theatres, cinema houses, etc. funeral and burial services for the death of
Senior Ciitizen)
h. Meaning of “living with” The term “living with” does not necessarily mean actual or physical togetherness at all
times and under all circumstances. As long as the other requirements of the law are
met, the dependent is considered living with the taxpayer, hence qualified, even if he is
not in actual physical togetherness with the taxpayer.
i. Meaning of “chief “Chief support” means principal or main support, not just partial support. It means
support” that the taxpayer is giving more than 50% of the dependent’s need for food, clothing
and shelter.
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TAXATION – Individuals, Estates and Trusts (Batch 22)
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d. Apportionment of the The tax computed on the consolidated income shall be apportioned to the different trusts,
consolidated income tax such that each trust shall have a share in the income tax on consolidated income.
to the different trusts The format of computation follows:
Taxable income of the trust x Consolidated income tax
Taxable income of all trusts
e. Tax payable of each Each trust shall pay an income tax still due computed as follows:
trust Income tax apportioned to the trust xxx
Less: Income tax already paid by the fiduciary of the trust xxx
Income tax still due xxx
f. Exercise
Mr. James Santiago created two (2) trusts designating Atty. Mars Bonafe and the Philippine Trust Company as trustees.
The common beneficiary of the two (2) trusts was his son, James II, married, and with two (2) qualified dependent
children. The following data were made available for the year 2009:
Trust No. 1 Trust No. 2
Gross income P600,000 P700,000
Business expenses 300,000 400,000
Income distribution to beneficiary 100,000 200,000
James Santiago II
Gross income P800,000
Business expenses 250,000
Income distribution received, gross of 15% creditable withholding tax 300,000
e. Exercise
A single taxpayer has the following data for the year 2009 (in thousands):
1st Q 2nd Q 3rd Q 4th Q
Gross compensation income P 40 P 40 P 40 P 40
Gross sales 600 500 400 700
Cost of sales 100 200 200 300
Business income 500 300 200 400
Business expenses (total itemized) 100 150 100 200
REQ: 1. Compute the tax due and payable for each quarterly return and the annual return using itemized deductions.
2. Compute the tax due and payable for each quarterly return and the annual return using optional standard
deduction.
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TAXATION – Individuals, Estates and Trusts (Batch 22)
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END
TX-501
TAXATION – Individuals, Estates and Trusts (Batch 22)