Tax 1: Quiz #6: Gross Income (with inclusions and Exclusions)
1. As a rule, income from whatever source is
taxable. Income from whatever source may come
from:
I. Gains arising from exploration of property
II. Gambling gains
III. Income from illegal business or from
embezzlement
IV. Recovery of receivable previously written off
V. Tax refunds
VI. Compensation for injury suffered
VII. Gracious condonation of debt
a. I & II
b. I, V, & V
c. IV, V & VII
d. I, II, III, IV, & V
2. Statement 1: A gain from sale of shares of a
domestic corporation shall be considered derived
from the Philippines regardless of where the
shares were sold.
Statement 2: A gain from sale of a foreign
corporation shall be considered derived from the
country where the corporation has created or
organized.
a. Statements 1 and 2 are False
b. Statement 1 is True but Statement 2 is
False
c. Statement 1 is False but Statement 2 is True
d. Statement 1 and 2 are True
3. Which of the following statements is incorrect?
a. Income from business is never subject to final
withholding tax
b. Income from exercise of profession may be
exempt from income tax
c. Income from business may be subject to
capital gains tax
d. Income from exercise of profession may be
subject to income tax
4. Which of the following is not taxable income?
a. Bad debts previously deducted as items of
expense and partially recovered subsequently.
b. Tax expense previously disallowed as
deduction from taxable income, fully
refunded subsequently.
c. Income from gambling
d. Income from various financing
5. The proceeds received under a life insurance
endowment contract is not considered part of
gross income:
a. If it is so stated in the life insurance
endowment policy
b. If the price for the endowment policy was not
fully paid
c. Where payment is made as a result of the
death of the insured contract
d. Where the beneficiary was not the one who
took out the endowment
6. The following are examples of nontaxable
compensation for injuries, except
a. Actual damages for injuries suffered
b. Compensatory damages for unrealized
profits
c. Moral damages for grief, anxiety, & physical
sufferings
d. Exemplary damages
7. Mr. Joe, an American residing in Hong Kong
came to the Philippines to sing the American
national anthem at a professional boxing
championship match held in the Araneta
Coliseum. He was paid P100,000,000 as talent
fee. His Philippine Income tax due:
a. P320,000 c. P250,000
b. P285,000 d. P150,000
8. Ana sued Pedro for breach of promise to many.
Pedro lost the case and duly paid the court’s
awards that included, among others, P100,000
as moral damages for the mental anguish Ana
suffered. Did Ana earn a taxable income
a. She had a taxable income of P100,000 since
income is income from whatever source
b. She had no taxable income because it was a
donation
c. She had taxable income since she made a
profit
d. She had no taxable income since moral
damages are compensatory
9. Pedro, Single, received the following during the
taxable year:
P2,000,000 Proceeds of his life insurance paid
at an annual premium of P15,000
within 25 years
P1,000,000 Proceeds of his mothers’ life
insurance paid at an annual
premium of P10,000 within 20 years
P4,000,000 House and lot inherited from his
mother
 P200,000 Rent income from inherited > In addition to the regular compensation fixed for
properties his position or office, in general
For income tax purposes , how much of the above 15. Which of the following statements is incorrect?
items must be included in his gross income? a. Gains, profits, and income are to be included
a. P7,200,000 c. P200,000 on the gross income for the taxable year in
b. P1,200,000 d. P1,825,000 which they are received by the taxpayer
unless they are included when they accrue to
10. Mr. Santiago purchased a life annuity for him in accordance with approved method of
P100,000 which will pay him P10,000 a year. The accounting followed by him.
life expectancy of Mr. Santiago is 12 years old. b. If a person sues in one year on a pecuniary
Which of the following will Mr. Santiago be able to claim or for property, and money of property is
exclude from his gross income? recovered on a judgment therefore in a later
a. P10,000 c. P100,000 year, income is realized in that year, assuming
b. P20,000 d. P120,000 the money or property would have been
income in the earlier year if then received.
11. Mr. Anakin, an employee of Fuerte Corporation c. Bad debts or accounts charged off because of
is receiving a monthly salary (net of 10% the fact that they were determined to be
withholding tax) of P18,000. Due to an worthless, which are subsequently recovered,
outstanding accomplishment in July, 2026, the whether or not by suit?, constitute income for
corporation gave him 200 shares of stock of the the year in which it recovered, regardless of
corporation with a par value of P100 per share the date when amounts were charged off.
and a fair market value of P150. The fair value on d. None of the choices
the date of receipt is P152 per share.
a. P270,000 c. P50,000 16. Which of the following is not taxable
b. P240,000 d. P270,400 a. Living quarters or meals furnished to an
employee for the convenience of the
12. Proceeds of insurance taken by a corporation on employer
the life of an executive to indemnify it against loss b. Tips or gratuitous payments paid directly to an
in case of his death is: employee by a customer of the employer
a. Part of taxable income which are not accounted for by the employee
b. Exempt from income tax to the employer.
c. Partly empty, partly taxable c. Pensions, retirement, and separation pay in
d. Subject to final tax general.
d. Fixed or variable transportation representation
13. After working for 30 years and due to old age, and other allowances which are received by a
Rufino retired from his employment on Dec. 31, public officer or employee of a private entity.
2026 as a rank-and-file employee of Tumagay
Corporation. As a consequence of his retirement, 17. One of the following compensation income of an
he received the following from his employer: individual taxpayer is not an exclusion from gross
Salary for 2026 P250,000 income
Christmas gift P35,000 a. Monetized vacation leaves not exceeding 10
Anniversary bonus P2,000 days a year
Loyalty award P10,000 b. Separation pay of an employee who resigned
Retirement pay P750,000 from his employment
Based on the above data, the amount subject to tax c. Retirement benefits of an employee who has
of Rufino’s? worked for an employer for at least 10 years,
a. P250,000 c. P1,037,500 who at the time of retirement is not less than
b. P252,500 d. P257,500 50 years of age and who avails of the
retirement for the first time.
14. Under the TRAIN, the term ‘taxable income’ as d. De minis benefits
applied to individuals means the pertinent items
of gross income specified in the Tax code, less 18. Gross income from within the Philippines of a
deductions if any, authorized for such types of resident alien subject to final withholding tax at
income by the Tax Code or other special laws. source
 a. Dividend income from a resident foreign pertains to her income and expenses in the year
corporation 2023:
b. Share from the net income after tax of a Salary, net of P30,000 withholding P370,000
domestic general partnership in trade Interest income, bank deposit- BPI, Manila 40,000
c. Interest income from investments in bonds Rent expense, apartment house 36,000
d. Gain from sale of capital assets Health insurance premium paid 5,000
How much is the taxable compensation income?
19. Sandra, a nonresident Korean stockholder, > P400,000
received dividend income of P300,000 in 2024
from Super Bowl Corp, a foreign corporation 25. Romel, a single resident citizen, has one
doing business in the Philippines. The gross qualified dependent child. During 2024, he earns
income of the foreign corporation from sources and spends the following:
within and without the Philippines for the past Gross income from practice of profession (net) 225k
three years preceding 2021 were provided as Expenses in connection with the practice
follows. of profession 50k
Source 2021 2022 2023 Hospitalization insurance premium paid 2k
Philippines 16M 15M 12M How much is the taxable income?
Abroad 8M 11M 13M > P200,000
Sandra is subject to:
a. Business income tax on P180,000 26. Nicanor, an employee of ABC Corp., suffered an
b. Basic income tax on gross income of accident at work and died. The following are
P300,000 information were made available by the
c. Final withholding tax of 25% on P180,000 employer:
d. Final withholding tax of 25% on gross Basic salary 600,000
income of P300,000 13th month pay & other benefits 100,000
Commission 100,000
20. Recoveries of damages shall not form part of the Separation pay 500,000
taxable income when it represents compensation Gross compensation income 1,300,000
for personal inquiries arising from: How much is the total exclusion from gross income?
I. Libels > P590,000
II. Defamation
III. Slander 27. Which of the following may be excluded from
IV. Breach of promise to marry gross income due to its nature?
V. Alienation of affection > Pension foreign sourced dividend, raffle prize
a. I & II c. I, II, III, IV, & V in the amount of P20,000, and retirement pay
b. I, II, & II d. None of the choices
28. Which of the following is FALSE?
21. Which of the following items is not part of gross > all income are taxable such as all exclusions
income to be reported in the income tax return? from gross income are exempted
a. Increase in value of land > all passive income subjected to final tax are
b. Gamblings winnings not items of gross income
c. Prize of P10,000 > all income expected by ae of treaty are
d. Gain from sale of store’s aircon exempted from income tax

22. Which is not a creditable withholding income tax?
> withholding income tax on passive income
23. Not an income derived from sources within the
Philippines for income tax purposes.
> Interest derived from bonds, issued by a
foreign corporation
29. Which is False?
> a minimum wage earner’s basic salary
becomes taxable if it will exceed the P250,000
30. Which is False?
> Income are all wealth which flows to the
taxpayer

24. IU, married, resident citizen, has four qualified 31. False is applying the rules in determining source
dependent children. The following information of income?
 > for gain on sale of personal property, the said official or employer-employee
place of sale determines the source of the income relationship
d. Yes, his status was only changed to a
32. Which is FALSE in applying the rules in co-terminus only because of lack of plantilla
determining source of income. positions
> for dividends, the place of registration of the
corporation 39. For income tax purposes, the sources of service
income are important for the taxpayer who is a
33. If refunded, this is taxable: a. Domestic corporation
> Percentage tax b. Filipino citizen residing in Quezon City
c. Non-resident Filipino citizen working &
34. Which of the following is TRUE? residing in Tokyo, Japan
> incomes from illegal activities activities are d. A korean who is married to a Filipina &
always taxable residing in their family home located in Pasig
City, who obtained Filipino citizenship by
35. This is incorrect regarding dividends naturalization
> taxable subject to final tax if received by a
non- resident citizen from a non-resident 40 to 43 are based on the following information:
corporation Mr. X a resident citizen, presented to you the
following items of income for the taxable year 2022:
36. Which of the following is taxable income? Salary as professor, net of creditable
a. Gifts, bequests, & devices Withholding tax of P2,000 18,000
b. Amounts received as rewards for giving Honorarium as member of board of directors
information instrumental in the discovery of ABC Corp 10,000
of violation of the tax code & seizure of Rental income from apartment house 12,000
smuggled goods Interest income from deposit maintained
c. Proceeds from life insurance under the expanded foreign currency
d. Separation days received by an employee due Deposit system 4,500
to a cause beyond his control Interest income on notes receivables 15,000
Professional fees received as a CPA 25,000
37. The following are excluded from gross income, Interest credited on savings account on BPI 3,000
except? Royalty income from book publications 30,000
a. Retirement benefits received from GSIS, SSS, Prizes received from contest won 12,000
or accredited retirement plan Winnings from town lottery 9,000
b. Value of property received by a person as Mid-year bonus 18,000
donation or inheritance 13th month pay & year-end bonus 45,000
c. Gain from sale of long-term bonds, Compensation for injuries suffered in an
debentures & indebtedness accident 20,000
d. Separation pays received by a retiring
employee under a voluntary retirement 40. Compute the amount of income subject to final
program of the corporate employer tax
a. P46,500 c. P54,000
38. Mr. X has been a permanent employee of the b. P58,500 d. P49,500
government from January 1 2022 and was forced
to take a terminal leave with pay. Is the terminal 41. Compute the amount of income excluded from
leave pay of Mr. X in 2022 exempt from tax? gross income.
a. No, since X’s appointment was under the a. P83,000 c. P141,500
discretion of the appointing authority, Mr. X’s b. P108,500 d. P35,000
employment is within such jurisdiction
b. No, it falls within the meaning of the phrase for 42. Compute for the gross compensation income
any cause beyond the control of said official or a. P88,000 c. P30,000
employer-employee relationship b. P93,000 d. P108,000
c. Yes, it falls within the meaning of the
phrase for any cause beyond the control of
43. Compute the business income to be included in
the gross income
a. P40,000 c. P12,000
b. P52,000 d. P42,000
44. To start a business of their own, employees A&B
opted for an early retirement. A retired after 15
years of service while B retired after 8 years of
service. At the time of retirement, A was 55 years
old while B was 60 years old. In the absence of a
retirement plan or agreement providing for
retirement benefits, the retirement benefits they
received.
a. Shall be taxable income of A
b. Shall not be taxable of A and B
c. Shall be taxable income of A and B
d. Shall be taxable income of B
45. JR was a passenger of an airliner that crashed.
He survived the accident but sustained serious
physical injuries which required hospitalization for
3 months. Following negotiations with the airlines
and its insurer, an agreement was reached under
the terms of which JR was paid some amounts.
Which of the following amounts constitute taxable
income?
a. P500,000 for his hospitalization
b. JR received from his employer the amount of
P200,000 representing the cash equivalent of
his earned vacation & sick leaves
c. P250,000 as moral damages
d. P300,000 for loss of income during the
period of his treatments & recuperation.
46. It is important to know the source of income for
tax purposes because:
a. Some individual & corporate are taxed on
their worldwide income while others are
taxable only upon income from sources
within the Philippines
b. The Philippines imposes income tax only on
income from sources within
c. Some individuals taxpayers are citizens while
others are aliens
d. Export sales are not subject to income tax
47. ABC Corp. secured an income tax holiday for 5
years as a pioneer industry. On the 4th year of
the tax holiday, ABC corp declared & paid cash
dividend to its stockholders, all of whom are
individuals. Are the dividends taxable?
a. The dividends are taxable; the tax
exemptions of ABC corp do not extend to
its stockholder?
b. The dividend are tax exempt because of
ABC’s income tax holding
c. The dividend taxable if they exceed 50% of
ABC’s retained earnings
d. The dividends exempt if paid before the end of
ABC’s fiscal year
48. Refund of the following taxes excluded from the
gross income except:
a. 6% capital gains tax on sale of real property
b. Tax erroneously paid on inter vivos donations
in the government
c. Special assessment on property specifically
benefited by infrastructure project of the
government
d. Fringe benefit tax paid by the employer
49. Which of the following is taxable to a
non-resident alien engaged in trade or business
in the Philippines?
a. Payments earned from services rendered in
Australia
b. Interest on loan whereby the debtor is
domiciled in Japan
c. Rent income on condominium units at
s_____ at the Fort Taguig City
d. Gain on sale of his car located in Italy.
50. Which of the following is not subject to income
tax:
a. Moral damages awarded to ____ for mental
anguish on account of libelous articles
written about ____
b. P5,000 received by a person from a raffle
c. Excess remittance of dollar from a sister on
the US due to bank’s error whereby the
originally intended remittance has USD 1,000
instead of the P1,000,000
d. Interest income on 360,000 PCSO lotto
winning