9.

Gross Income
-all income subject to tax

Net income- regeres to gross income less than deductions and exclusions

taxable income- the pertinent items of gross income specified in the NIRC, less
allowable deductions and exclusion.

Compensation income- all renumeration for services performed by an employee

performed for his employer under an EER, unless specifically excluded by the Code.

Fringe Benefit- HEVHIMTHEL

a. housing benefit
b. personal expenses
c. vehicle
d. household expense
e. interest foregone by employer interest rate v. market rate
f. membership fees in social/athletic club
g. foreign travel
h. holiday expense
i. educational assistance
j. life or non-life premium expenses
any good, service, or other benefit furnished or granted in cash or in kind, other
than the basic compensation by an employer to an individual employee (except rank-
and-file employee)
- when required by the nature of or necessary to the trade, business or profession
of the employer, or where such fringe benefit is for the benefit is for the
convenience and advantage of the employer, it shall not be subject to fringe
benefit tax(employer's convenience rule)

- if the income did not arise from EER, the income will be classified as income
from business, trade or profession.

INCOME FROM DEALINGS IN PROPERTY

Capital asset does not include (SISRED)
a. stock in trade of the taxpayer
b. other property of a kind which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable year
c. property held by the taxpater primarily for sale to customets in the ordinary
course of his trade or business
d. real property used in trade or business of the taxpayer
e. property used in the trade or business, of a character which is subject to the
allowance for depreciation

Sale of Real Property

Tax implocation=
Ordinary Asset- sale subject to normal graduated tax rate
-subject to other business tax(VAT or other percentage tax)
Capital Asset- 6% CGT
- no business tax implication

RR 7-2003
Taxpayer is engaged Real Estate business-
-all the RP acquired by taxpayer shall be classified as ordinary asset
Taxpayer is Real Estate Lessor
- all RP leased or offered for lease shall be considered as an ordinary asset

Taxpater NEREB
-uses his RP for his business-ordinary asset
- if not used in business- capital asset

-so long as the property is or has been used for business, whether for the benefit
of the owner or any of its members or SH, it shall be considered as an ordinary
asset

When taxpayer change business from REB to NREB

- abandoned and idle real properties shall not result in the re-classification of
the RP held by it from ordinary asset to capital asset

Real Property usedby an exempt corporation in its exempt operations, such as a

corporation included in the enumeration of Sec. 30 of the Code, shall not be
considered used for business purposes, and therefore, considered as capital asset.

Special rules on capital transactions:

1. loss limitation Rule- capital losses can only be deducted to the extent capital
gain. Capital losses cannot be deducted on ordinary gain.
2. Holding Period Rule- the recognition of gain or loss will depend on the holding
period of a capital asset-
12 months or less- short term capital transaction- 100% of gain or loss arising
from the transaction shall be recognized
more than- long term capital transaction- 50% of loss or gain shall be recognized
3. Net Capital Loss Carry-Over (NCLCO) Rule- incurrence of a loss in a taxable year
that can be carried over to the succeeding year and be credited against the capital
gain during such succeeding year. The amount to be deducted from the capital shall
be to the extent of the taxable income during the year the loss was sustained.

Individual Taxpayer v. Corporate Taxpayer

LLR
i-applicable
c-applicable

HPR
i- applicable
c- N/A

NCLCO
i- applicable
c- N/A

exc.
1. sale of ordinary asset
2. sale of RP classified as capital asset
3. sale of unlisted shares of stock
4. sale of listed shares of stock subject to 6/20 of 1% stock transaction tax
5. sale of nranetb- subject to 25% final withholding tax

NCLCO v. NOLCO
Applicability
NCLCO- Individual Taxpayer
NOLCO - Individual and Corporate

Amount to be carried over

NCLCO- ltd to the amount of the taxable income the year the loss was sustained
NOLCO- no limitation
Period of carry-over
NCLCO- succeeding year
NOLCO- next 3 succeeding years

TAX FREE EXCHANGES

1. transfer of property iin exchange of shares of stocks in order to obtain
corporate control
2. merger or consolidation solely in kind

-to qualify as a tax free exchange, a person transfers property to a corporation in

exchange for stocks issued by that corp., and as a result of such exchange, said
person, alone or togewith others, not exceeding 4 persons, gains control of said
corp.

Requisites for the non-recognition of gain or loss

1. transferee is a corporation
2. transferee exchanges its shares of stock for property/ies of the transferor
3. transfer is made by a person, acting alone or together with others, not
exceeding 4 persons
4. as a result of the exchange the transferor, alone or together with others, not
exceeding four persons, gains control of the transferee

-if all req are present the transaction will not recognize any gain or loss. it
will be classified as a tax free exchange

control- ownership of stocks in a corp by possessing at least 51% of the total

voting power of all classes of stocks entitled to vote.
- only those persons who transferred property for stocks in the same transaction
may be counted up to the maximum of 5