(TEMIZED DEDUCTIONS VIS-A-VIS OPTIONAL STANDARD DEDUCTION * gene al, (here shall be allowed at the option af the ® (1) ltemized deductions, or ° {) Optional Standerd Deduction (OSD) al the rate of arty pereent (40%). @ In cake of jowou kaxpayere (EXC NRANETO), OND shall @ of 40% of GS/GK, » Wy cane of FREE ORAUaNE, ‘he shall be computed at the rate o SS INCOME, @ NOT be allowed to @ (1) individual taxpayers earning PURE compensation inncome; and * (2) those who opted to be taxed at 8% flat income tax fate on thelr income from business/practice of profession, iatHOW TO AVAIL THE OPTION OF OSD @ Unless the , who is jifies in the income tr cum hearin to le the Oe hal be ered as avail ie DEDUCTIONS. S * Petr, shall be RREVOC AGRE Pe ee retum, sha ‘or the e year for which the return is made. Election to claim either the itemized deductions or the OSD for the taxable year must be signified by checking the appropriate box in the ITR filed for the 1° QTR. or initial QTR. of the taxable year after the commencement of a new business/practice of profession. @ An individual who claimed for the OSD shall not be required to submit an AFS with his ITR. © But liable to the Business tax (OPT or VAT), in aooition to income tax. : aE eeTAXATION OF GPPS © GPP is not subject to income tax @ since it is only acting as a “pass-through” entity where its income is ultimately taxed to the partners comprising it. @ For purposes of computing the distributive share of the partners, the net income of the GPP shall be computed in the same manner as a corporation. © As such, a GPP may claim either the ® (1) Itemized deductions which are ordinary and necessary, incurred or paid for the practice of profession; or ® @ in lieu thereof, it can opt to avail of the OSD allowed to corporations in claiming the deductions in an amount not exceeding 40 % of its gross income. © But ae GPP is subject to business tax (either VAT orTAXATION OF THE DISTRIBUTIVE SHARES OF THE PARTNERS @ However, the partners shall be liable tn Bey income tax on their separate and individual capacities for their respective distributive share in the net income of the GPP. ® The distributable net income of the partnership may be determined by claiming either itemized deductions or OSD. © The share in the net income of the partnership, actually or constructively received, shall be reported as taxable income of each partner. © The partners comprising the GPP can no longer claim further deduction from their distributive share in the net income of the GPP and are not allowed to avail of the 8% income tax rate option since their distributive share from the GPP is already net of cost and expenses. @ If the partner also derives other income from trade, busi Practice of profession apart and distinct from the share inthe net income of GPP, the deduction that can be claimed from the other income would either be the itemized deductions or OSD.oe Do WE RECONCILE THE TAX LIABILITY OF = OF GPP UNDER SEC. 26 VIS-A-VIS SEC. 34(L), NIRC? @ Each partner shall report as “GROSS INCOME” income his distributive share, actually or constructively , in the net income of the partnership (Sec. 26, NIRC) > Bat oe meee aes partner actually or ly rece a using the OSD) should be reported as * because it is already net ofHOW DO WE RECONCILE THE TAX LIABILITY OF MEMBERS OF GPP UNDER SEC. 26 VIS-A-VIS SEC, 34(L), NIRC? @ Each partner shall report as “GROSS INCOME” income his distributive share, actually or constructively received, in the net income of the partnership (Sec. 26, NIRC) © Under RR 8-2018, the distributive share of the partner actually or constructively received (after using the OSD) should be reported as TAXABLE INCOME” because it is already net of cost and expenses. @ That a GPP and the partners comprising such partnership may avail of the OSD only once, EITHER by the GPP or the partners comprising the partnership. (Sec. 34(L), NIRC)GOCCS EXEMPT FROM INCOME TAX (SEC. 27€C, NIRC) @GSIS @SSS © PHIC @ LWDs @ The TRAIN Law removed PCSO from the list of GOCCs exempt from income tax. @ All GOCCs other than the above are subject to income tax upon their taxable income as are imposed upon corporations engaged in a similar business or activityCGT FROM SALE OR OTHER DISPOSITION OF LANDS AND BUILDINGS (SEC. 27D(5), NIRC © A 6% FINAL TAX is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a Corporation and are tre: ‘ated as capital assets, based on the GSP/FMV in accordance with Sec. ver is higher, of such lands and/or buildings.SALE-OF MACHINERIES AND EQUIPMENT BY A CORPORATION IS NOT SUBJECT TO THE CAPITAL GAINS TAX UNDER SEC. 27(0)(5) OF THE TAX CODE. @ Since machineries and equipment are not among the ORDINARY ASSETS enumerated in Sec. 39(A)(1), NIRC, the same are considered as CAPITAL ASSETS. None of the properties were used in petitioner’s trade or ordinary course of business because petitioner never commenced operations. They were not part of the inventory. None of them were stocks in trade. Based on the definition of capital assets under Sec. 39, NIRC, they are capital assets. © In relation to this, Sec. 27D(5), NIRC treats the sale of land and buildings, and the sale of machineries and equipment, differently. Domestic corporations are imposed a 6% capital gains tax only on the presumed gain realized from the sale of lands and/or buildings, BUT does not impose the 6% CGT tax on the gains realized from the sale of machineries and equipment. @ Therefore, being a capital asset which is NOT subject to the final CGT, MACHINERIES and EQUIPMENT are considered as ‘OTHER CAPITAL ASSETS”, the gain or loss sustained from the sale of which shall be REPORTED in the ANNUAL INCOME TAX RETURN as capital gains or losses derived from the disposition of “OTHER CAPITAL ASSETS” accounted for at 100% (and that capital losses are also allowed only to be deducted to the extent of capital gains) subject to the normal corporate income tax. @ SMI-ED Phils. Tech v. CIR, G.R. 175410, Nov. 12, 2014, [Per J. Leonen, 2™ Div.GROSS PHIL. BILLINGS (SEC. 28A(3), NIRC e An international carrier doing business in the Philippines shall pay a tax of 2%% on its “Gross Philippine Billings” e GPB - REFERS to gross revenue for transportation of PASSENGERS, CARGO OR MAIL originating from the Philippines up_to final destination, regardless of the place of sale or payments of the passage or freight documents. © Provided, That international carriers doing business in the Philippines may avail of a PREFERENTIAL RATE or EXEMPTION from the tax @ on the basis of an applicable _tax TREATY or international agreement to which the PhilS. is a signatory or on the basis of RECIPROCITY such that an international carrier, whose home country grants income tax exemption to Phil. carriers, shall likewise be exempt from the tax imposed under this provision. @ As added by RA 10378.ARE DEMURRAGE AND DETENTION FEES DEEMED WITHIN THE SCOPE OF GPB? © NO. For DEMURRAGE FEES which are in the nature of RENT for the use of property of the carrier in the Phils. for the time the vessel may have been detained beyond the time specified in the contract is considered income from Phil. source and is subject to regular corporate income tax under Sec. 28(A)(1), NIRG, as the other types of income of the on-line carrier.” @ DETENTION FEES are charges imposed when the consignee holds on to the carrier’s CONTAINER OUTSIDE OF THE PORT beyond the free time that is allotted. These are considered Phil.-sourced income of international sea carriers, they being collected for the use of property or rendition of services in the Phils., and are subject to the'30% regular corporate income tax under Sec. 28(A)(1), NIRC. © Assn of international Shipping Lines v SOF, GR 222239, Jan, 15, 2020 [Per J. Lazaro-Javier, 1% Div.]ARE ALL THE INCOME DERIVED BY A NONPROFIT RECREATIONAL CLUB SUBJECT TO INCOME TAX? ° e ® SEC. 30, NIRC. Case law provides that in order to constitute “income,” there must be realized “gain. Clearly, because of the nature of membership fees and assessment dues as funds inherently dedicated for the maintenance, preservation, and upkeep of the clubs’ general operations and facilities, nothing is to be gained from their collection. Further, given these recreational clubs' non-profit nature, membership fees and assessment dues cannot be considered as funds that would represent these clubs’ interest or profit from any investment. In fact, these fees are paid by the clubs’ members without any expectation of any yield or gain (unlike in stock subscriptions), but only for the above-stated purposes and in order to retain their membership therein. This stands in contrast to the fees received by recreational clubs coming from their income-generating facilities, such as bars, restaurants, and food concessionaires, or from income-generating activities, like the renting out of sports equipment, services, and other accommodations because_regardless of the purpose of the fees’ eventual use, gain is already realized from the moment they are collected . ANPC v. BIR, GR 228539, June 26, 2019 [Per J. Perlas-bernabe, second div.]TAX-FREE EXCHANGE (SEC. 40(C )(2), NIRC © Requisites: @ (1) A person transferred his property to a corporation; @ (2) Alone, or together with others, NOT EXCEEDING 4; © (3) In exchange for shares of stock of the corporation @ (4) of which as a result of such exchange, the transferor/s, COLLECTIVELY , gains or MAINTAINS CONTROL of said corporation.iS THE SAID TRANSFER SUBJECT TO VAT. & DST? @No. Sale or exchanges of property used for business for shares of stocks covered under this subsection shall not be subject to VAT. (Sec. 40(C )(2), NIRC; @ VAT exempt Transactions. - Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended. Sec. 109(1)(X), NIRC. @ Exempt from DST. Transfer of property pursuant to Sec. 40(C)(2), NIRC. (Sec. 199 (m), NIRC)FOR PURPOSES OF AVAILING THE TAX EXEMPTION, IS PRIOR CONFIRMATION OF TAX EXEMPTION REQUIRED? © NO. Prior BIR confirmation or tax ruling shall not be required for purposes of availing the tax exemption. © There is nothing in Sec. 40(C )(2), NIRC, which requires the taxpayer to first secure a prior confirmatory ruling before the transaction may be considered as a tax-free exchange. © The BIR should not impose additional requirements not provided by law, which would negate the availment of the tax exemption. © Instead of resorting to formalities and technicalities, the BIR should have made its own determination of the merits of respondents’ claim for exemption in respondents’ administrative application for refund. | © CIR v. Lucio 4 GR 241424, Feb. 26, 2020 [Per J. uioa, First Div,INDIVIDUALS REQUIRED TO FILE ITR (1) Every Resident Citizen_on his income derived from sources within and without the Philippines; © Pure compensation income earners NOT qualified to the SUBSTITUTED FILING; © PURELY SELF-EMPLOYED INDIVIDUALS or PROFESSIONALS = © MIXED INCOME EARNERS (2) Every Nonresident Citizen_on his income from sources within the Philippines; (3) Every Resident Alien_on his income derived from sources Within the Philippines; and 4) Every Nonresident Alien Engaged in Trade or siness on his income from sources within the PhilippinesINDIVIDUALS NOT REQUIRED i FILE (TR Pure compensation income earners who are "qualified to the SUBSTITUTED FILING regardless of the amount of taxable income. 2. MWE, or any individual who is exempt from income tax pursuant to the provisions of the Tax Code and other laws, general or special. 3. Senior citizens who qualify as MWEs. 4. An individual whose sole income has been subjected to FWT. 5. Nonresident citizens on his income from sources outside the Phils. 6. Non-resident alien who is not engaged in trade or business in the Phils.SUBSTITUTED FILING © Applicable only to INDIVIDUALS @ Receiving PURE COMPENSATION INCOME regardless of amount @ From only ONE EMPLOYER in the Phils. during the calendar year @ TAX WITHHELD = TAX DUE @ The Certificate of Withholding filed by the employer duly stamped “RECEIVED” by the BIR shall be the substituted filing by such employers.ITR FORM (INDIVIDUALS & CORPORATIONS) @ now consist of maximum of 4 pages in paper or electronic form.ON INSTALLMENT PAYMENT OF INCOME TAX (SEC. 56) © When the tax due is IN EXCESS OF P2,000. © First payment - due on or before April 15 (filing of AITR) © Second installment -due on or before October 15 following the close of the calendar year.DECLARATION OF INCOME TAX OF THOSE ENGAGED IN BUSINESS OR PRACTICE OF PROFESSION © First Qtr - May 15 (Sec. 74(A) @ Second Qtr - Aug. 15 ® Third Qtr. - Nov. 15 of the current year © 4% Qtr. (FAR) - May 15 (Sec. 74B) (Note: But RR 8-2018 provides that it-should be APRIL 15 under Sec. 51C))RATES OF WHT © Beginning Jan. 1, 2018, rate of EWT shall not be less than 1% but not more than 15%. @FWT & EWT returns shall be filed and payment made not later than the last day of the month following the close of the quarter during which the withholding was made.NEW ESTATE TAX RATE (SEC. 84) © Fixed at 6% © based on the FMV © of the taxable net estate e@ effective Jan. 1, 2018‘LAW GOVERNING THE IMPOSITION OF ESTATE TAX @ It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. ® Accordingly, the tax rates and procedures prescribed under RR 12-2018 shail govern the estate of decedent who died on or after the effectivity date of the TRAIN Law, i.e., January 1, 2018.DEDUCTIONS FROM GROSS ESTATE OF RESIDENTS AND CITIZENS (SEC. 86(A) A. ORDINARY DEDUCTIONS (1) Claims against the estate (2) Claims of the Deceased against insolvent person _ (3) Unpaid mortgages, taxes, casualty losses (4) Property previously taxed | (5) Transfers for public use {6) Amounts received by heirs under RA 4917 B. SPECIAL DEDUCTIONS (1) FAMILY HOME - P10 Million (2) STANDARD DEDUCTION - P5 Million C. Net share of the surviving spouse in the conjugal or community property“STANDARD DEDUCTION. elf the decedent is a citizen or a resident alien, -@a deduction in the amount of ~ P5,000,000 -e@shall be allowed without need of substantiation.eany ecwart cecatved by the heirs @ from the decedent's employer eas a consequence of the death of the decedent- employee em accordance with BAa3? @ shall also be allowed as deduction from the gross # provided that such amount is included in the gross estate of the decedent.NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL PROPERTIES(SEC. 86C) @Net share is 50% of the conjugal or community properties : @As diminished by ordinary deductions @MUST BE REMOVED FROM THE GROSS ESTATE to ensure that ONLY the decedent’s interest in the estate is taxed for purposes of determining the taxable net estate © (Conjugal properties less ordinary conjugal deductions/2) = SSSDEDUCTIONS FROM THE GROSS ESTATE OF NONRESIDENT ALIENS (SEC. 86(B) A. ORDINARY DEDUCTIONS (1) Claims against the estate (2) Claims against insolvent persons (3) Unpaid mortgages, taxes and casualty losses (4) Property previously taxed (5) Transfer for public use B. SPECIAL DEDUCTION (1) Standard deduction - P500,000 C. Net share of the surviving spouse in the conjugal or community property |Oo DEATH (DELETED) (SEC. 89) Filing of Notice of Death - no longer required)AX RE IS IRED TO BE FILED (SEC. 90A) © In ALL CASES OF TRANSFERS SUBJECT TO ESTATE Sa © REGARDLESS of the GROSS VALUE OF THE ESTATE e the said estate consists REGISTRABLE PROPERTY such as real property, motor vehicle: shan =a stock or ct Snir operty for which a c' arance {e ) from the BIR i requeed as a condition precedent for the transfer ownership thereof in the name of the transferee, the executor, or the administrator, or any of the le heirs, as the case may be. y eal © NOTE: TRAIN Law DELETED - “or where though EXEMPT ; S VALI EXCEEDS P00, ap /ALUE OF THE ESTATEWHEN ETR SHOULD BE SUPPORTED WITH CERTIFIED STATEMENT BY CPA(SEC, 90A) ETRs showing a gross value exceeding P5 Million shall be supported with a Statement duly certified by a CPA far decedent's who died January 1, 2018 containing the following: (1) ITEMIZED ASSETS of decedent (RESIDENT & CITIZEN), WHEREVER SITUATED, with their corresponding FMV/ZV at the time of his death, or in the case of a NONRESIDENT ALIEN, of that part of his GE situated in the Phils. ; (2) ITEMIZED DEDUCTIONS from gross estate; and (3) Amount of tax due whether paid or still due and outstanding (NOTE: TRAIN Law AMENDED THIS - previous gross value of the estate - P2 MillionTIME AND PLACE OF FILING ETR (SEC. 90B & D) @ To be filed within 1 year from the decedent’s death. In case of judicial partition, the Court approving the project of partition shall furnish the CIR with a certified copy thereof and its order within 30 days after promulgation of such order. @ ETR shall be filed with the RDO having jurisdiction over the place of DOMICILE of the decedent at the time of death or if there be no legal residence in the Phils., with RDO 39-Quezon City. e TE: filing was within 6 months from death)CAN FILING OF ETR BE EXTENDED? (SEC 90C) @ Yes. The CIR or any of his duly authorized representatives shall have authority to grant, in_meritorious cases, a reasonable extension, not exceeding 30 days, for filing the ETR. @ The application for the extension of time to file the estate tax return must be filed with RDO where the estate is required to secure its TIN and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the ETR.TIME AND PLACE OF PAYMENT OF ESTATE TAX (SEC. 91) G.R. - the estate tax shall be paid at the time the return is filed by the executor, administrator or the heirs within one year from the date of death of the decedent.CAN THE PAYMENT OF ESTATE TAX BE EXTENDED? (SEC. 908) _ @ YES. When the CIR finds that the payment on the due date of the estate tax or of any part thereof wou ul hardship upon the estate or any of the heirs, he may extend time for payment of such tax or any part thereof ® not to exceed 5 years, in case the estate is settled through the oa or ® 2 years in case the estate is settled extrajudicially. @ In such case, the amount in res; of which the extension is shall be 2 ex on or re the date of the expiration of lod € al running of t] tatute of ‘imitatie ‘or ncy assessment as provided in Sec. 203 of the Tax Code shall be racpended for the period of any such extension. However, where the he request for extension is by reason of peatigence, intentional disregard of rules and Tr requist ulations, or rau! part 0 taxpayers, NO N granted by the CIR.CAN PAYMENT OF ESTATE TAX BE MADE BY INSTALLMENT? (SEC. 91C) YES. 1. For cash installment - within 2 years from the date of filing of ETR: 2. ETR shall be filed within 1 year from the date of a ee s death; The frequency, deadline and amount of each came shall be indicated in ETR, subject to the prior approval by the BIR; 4. No civil penaities or interest may be imposed on estates permitted to pay the estate tax due by installment. 5. in case of lapse of 2 years without the payment of the entire tax due, the remaining balance thereof shall be due and demandable subject to penalties and interest reckoned from the prescribed deadline;(1) If a bank has knowledge maintained a bank deposit account ALON another, it shall allow ANY DE account, See toe Oh FW of the amount (2) Withdrawal shall only be made within: 1 death. (3) For joint account, the FWT shall be based on @ The The Bank sel require te execuian, administrator, y oF any OF any of the legal heir/s from deposit account of the TIN of the estate of the de lent; Dessert (The bank shail issue_BIR Form 2306 certifying the withholding inal tax. (6) Bank Sepositis glteady declared for estate tax purposes and is/are indicated in issui y the concern tino longer be subject to the 6% FWHT. (7) in all cases, the 6% FWHT shall NOT BE REFUNDED, however, be CREDITED from the tax due in instances where the bank it account subjected to the FWT has been actually included ip the gross estate declared in the ETR of the decedent. RR 8-& THE GENERAL WAIVER OR RENUNCIATION ¢ OF RIGHTS — RIGHTS OVER THE INHERITANCE IN THE SETTLEMENT OF ESTATE OF THE DECEDENT SUBJECT TO ESTATE TAX? @ In the case of general waiver or renunciation of the rights over the inheritance in the settlement of estate of the decedent, the same is NOT SUBJECT TO ESTATE TAX and also to DONOR’S TAX. @ The law on accretion applies and the property waived is considered to pass through the other co-heirs by inheritance BY. OPERATION OF LAW; hence, it has no tax implication. @ When a compulsory heir renounces his share in the inheritance, it means that the property is not transferred to him, and therefore he could not donate the property which has never become his, hence, the RENUNCIATION IS NOT SUBJECT TO DONOR'S TAX.