Exercise Drill No. 3: The tax concept of income Check the appropriate box whether the following are exempt or taxable: Item ql t Taxable | Exempt a: Winnings from gambling - Income from swindling Selene & Indemnity for moral damages [. Harvested fruits from an orchard Compensation income Interest income Ll Amount received by the insured in excess of evpitr ia after insurance premiums paid ‘ vie ASS SO 8. | Proceeds of life insurance received by the heirs: oftheinsured 9. | Gain on sale of goods by the home office t to its» branch 10. | Gain on sale of goods and:services BeorEem ao wish : fe relatives frigda s 11. | Gain on sale of goods by a parent corporation to a subsidiary corporation 12. | Appreciation in the value ofland iy ee! os) yo ‘ 13. | Birth of animal offspring 14. | Income ofa registered Barangay Micro-Business ta Enterprise 1900.0 15. | Cancellation of debt out of gratuity of theo | } creditor i é "| 16. | Cancellation of debt by the creditor in exchange of services rendered by the debtor 17. | Matured interest from coupon bonds 18. | Receipt of bank loan 84 Scanned with CamScannerChapter 3 - Introduction to Income Ta x 19. | Salaries of aminimum wa 20..| PCSO or lotto winnings eee eetner Ta 21. | Benefits from GSIS, SSS, Pag-Ibig or PhilHealth 22. | Discovery of hidden treasure Exercise Drill No. 4: Income taxpayer classification Indicate the appropriate classification for each of the following taxpayers: DC - Domestic corporation i ¢ é RC - Resident citi: RFC - Resident foreign corporation NRC- Won:tesident citizen NRFC - Non-resident foreign corporation RA - Resident alien NRA-ETB - Non-resident alien engaged in trade or business NRA-NETB - Non-resident alien not engaged in trade or business NT - Nota taxpayer Person or Entity Classification A fat Mexican tourist A hardworking overseas Filipino worker aa An expatriate employee aleiy|e A Filipino who is privately employed in the Philippines gn [An unemployed Filipino residing in the Philippines 6. | A Chinese businessman who has his domicile in the Philippines for 6 months 7. | AJapanese who married a beautiful Filipina and has been residing in the Philippines for 2 years z 8. |'A 2™4 year Korean college student studying inthe. Philippines 9. ||A corporation incorporated under Philippine law : 10. | A foreign corporation doing business in the = a - Philippines 1 i 11, | Trust designated by the donor as irrevocable ‘ 13. | A business partnershi 14, | A joint venture organized under a |__| not operating in the Philippines 15. | An estate of a Filipino citizen judiciall in Japan 16. | An estate of a Filipino citizen ex foreign law and is tra-judicially My ly. administered. 12. | Trust designated by the donor as revocable s: x : [a7 patiulnistered in the Philippines Sion 7 ered in the Philippin Fin the Philippines 7 A taxable joint venture organized in Hy) A Non-profit corporation organizedintne + Philippines i fo 85 Scanned with CamScannerExercise Drill No. 6: Location and situs of income me Compute how much is earned within and earned outside the Philippines from each the following independent cases: Income description Within Without 1. | Rim Gonzales earned P100,000 interest income; 40% of these were from non- resident debtors. 2. | A finance company earned P1,000,000 royalties from a franchise; 40% of these were derived abroad. 3. | Ray Gatchiearned P100,000 rent from OFWs from his apartment in the US. He also earned P40,000 rent from his Philippine condominium unit, Chester, a resident citizen, works home online and submits his output to clients, He collected P100,000 service fee from foreign clients and P20,000 from |__| resident clients, Mark rendered audit services to client in Afghanistan for P500,000. The services Were paid in Afghanistan, 86 Scanned with CamScannerChapter 3 - Introduction to Income Tax Income description Within Without 6. | July has a store ina tourist park In Baguio City, Philippines. He earned a total of P40,000 gain from selling souvenir items. 40% were from foreign tourists. 7. | Don Flores sold at a gain of P2,000,000 to aclient abroad a commercial building located in Quezon City, Philippines. 8. | John sold his stocks ina domestic corporation to a foreign investor at a gain of P50,000. 9. | Villanueva received P20,000 dividends from a domestic corporation and P30,000 dividend income from a non- resident foreign corporation. 10. | Andrew Johnson received P40,00 dividends from a resident foreign corporation; 60% of its historical income « is from the Philippines. 11. | Abreeza, Inc. manufactures in the Philippines and sells to unaffiliated export clients. A total of P100,000 gross income was earned during the period. 12. | Marawi manufactures abroad and sells to its Philippines branch at market prices. Production cost abroad were P200,000. Billings to branch totaled P300,000 while branch sales totaled P450,000. 13. | James Fernandez received P100,000 dividends from a resident foreign corporation which realized 40% of its income in the Philippines. 14. | Kevin received P20,000 dividend from a non-resident foreign corporation. 15. | Macahambus plant manufactures tables and sells to resident clients. A total of. P400,000 gross income was realized , during the period. 87 Scanned with CamScanneri Tax Chapter 3 - Introduction to Income 3 1 Multiple Choice - Theory: Part «cut iin . When paid for, which of the following items may involve a return ain oe : a. House and lot c. Dignity b. Life d. Health i i ? ich is not a requisite of gross income? f aye on capital c. Exempted by law b. Realized benefit d. Not exempted by law 3. Which is taxable item of income? a, Increase in numbers of a herd of animals b. Compensation for personal injuries c. Moral damages d. Interest on moral damages 4. Which is not subject to income tax? a. Donation © Sales of goods b. Sale of service d. Barter of goods 5. The total consideration received from the sale of. service constitute a. Return on capital c. Either a or b b. Return of. capital d. Both aand b, 6. The total consideration received from the sale of goods ata gain represents | a. Return on capital c. Either a or b b. Return of capital d. Both a and b 7. The total consideration received from the sale of goods at a loss represents a. Return on capital c. Either a or b b. Return of capital d. Both'a and b 8. Why is income subject to taxation? , a. Income is the most prevalent source of a taxpayer's wealth. Income is the best measure of taxpayers’ ability to pay tax. © Rich people tend to have more income than the poor. - d. Any of these. 2 Fs yt Income tax may be imposed for the following purposes, except a. To:provide large amounts of revenues To limit corruption we rica To offset Tegressive sales and consumption taxes... the distribution of °° To mitigate the evils arising from the inequalities in bi oe od. os 88 Scanned with CamScannerChapter 3 - Introduction to Income Tax 10. Which is not an item of gross income because of the absence of an undertakin; from the taxpayer? 8 a. Proceeds ofa life insurance policy b. Forgiveness of indebtedness as an act of gratuity c. Revaluation surplus on properties 1 d, Service fees 11. Which is subject to income tax? a. Proceeds of life insurance policy received by the family of the insured b. Excess of proceeds over the premiums paid received by the taxpayer c, Life insurance proceeds received by the corporation from the insurance of a deceased officer d. None of these 12. Which of the following is exempted from income taxation because of the absence of ability to pay? a. Damages received from patent infringement suit b. Unrealized income from investments c. Gainon sale of goods “ d. Inheritance i 13. Which of the following constitutes taxable income? |, a. Return of premium on life insurance received by the insured b. Moral damages received from slander c. , Proceeds of crop insurance 60 d. Compensation for personal injury 14. Which is specifically exempted from income taxation by virtue of | legal exemption? a, Minimum wage ; b. Gain on sale of prohibited drugs c. Unrealized gain d.. All of these i ib s not a constructive receipt of income? 15. Which of the following i ideration of service a. Forgiveness of indebtedness in consit b... Matured detachable interest coupons 1 ¢.,,, Deposit of income to taxpayer's bank accounts t d. Cash salary of an employee 16. Transfers for insufficient consideration are subject to a. Income tax c. Either aor b b. Transfer tax d. Both aor b 89 Scanned with CamScannerChapter 3 - Introduction to Income Tax Multiple Choice - Theory: Part 2 ‘ 1. Which of the following is not an income taxpayer classification? i iti i ‘ign corporation a. Resident citizen c. Resident foreign 9 b. Non-resident alien d. General professional partnership 2. Aresident alien naturalized in accordance with Philippine laws is a a. Resident citizen b._ Resident alien ; ¢c. Non-resident alien engaged in trade or business d. Non-resident alien not engaged in trade or business 3. Whois nota resident alien? An alien who stayed in the Philippines for more than two years, An alien who married and stayed in the Philippines for one year. An alien who stayed in the Philippines for more than one year. An alien who established his intention before the CIR to stay in the Philippines for an extended Period of time. aoop 4. Which taxpayer is not a natural Person? a. Resident citizen b. Taxable estate ¢. Non-resident alien engaged in trade or business a. Non-resident alien not engaged in trade or business " A Filipino who has been a. Resident alien b. Non-resident alien © Non-resident citizen d. Non-resident citizen not engaged in trade or business 6. , SrA A fee ade otra the Philippines is classified as a nor a 180 days aes dave ifhe stayed herein for less than b. 1year d.2 years abroad for more than 183 days is classified asa 7. An American who showed Proof to ‘i if Internal Revenue of his intention to ta mete classified as a ee a. Resident citizen c.NRA- b. Resident alien NRA yess of the Commissioner df the Philippines as an immigrant i 8. A Japanese who is staying in the Philj a. Resident alien ‘PPines for 183 days is'a b. Non-resident alien ¢. Non-resident alien engaged in trade or business 90 Scanned with CamScannerChapter 3 - Introduction to Income Tax n d. “Non-resident alien not engaged in trade or business 3 tolling 9, ACanadian who is staying in the Philippines for more than one year isa a. Resident alien t b, Non-resident alien c. Non-resident alien engaged in trade or business!" ~ 1" Hut d. Non-resident alien not engaged in trade or business 10. A corporation incorporated according to Philippines laws is a a. Domesticcorporation — c. Non-resident corporation b, Resident corporation; _ d. De jure corporation,; 11. A foreign ‘corporation ‘which is not atithorized to. conduct business in the Philippines is a . a Domestic corporation c. Non-1 -resident corporation b. Resident corporation “d. De jure corporation 12. Which is taxable on world income? ansteh erie 1 i a Resident corporation c.Resident citizen °°" b. Non-resident citizen” me 13. A foreign corporation which operates a branch in the Philippines is a a. Domesticcorporation _ c. Non-resident corporation b Resident corporation d. De jure corporation 14. A partnership which dominantly operates business abroad isa a. Domesticcorporation' c. Non-resident corporation: von 41) 3 b. Resident corporation °\d.Dejure corporation: 01) 20! 1 15. Which is required to pay income tax? ))j:)..1) 0) oo: {1 vO ein a. Revocable trusts KES f oiidd b. Estates under extrajudicial settlement ae I f c. Co-ownership i , 1 pHfozti J d. Business partnership 1 ities HOU @ 16. Which is not an income taxpayer? t i : st 2 a. Non-resident foreign corporation. i b. Non-resident alien not engaged in trade or, business c.. Joint venture engaged in energy, operation pursuant to a service contract with the government fi ‘Irrevocable trusts ()() (5 i) i yoictive 17. Which of the following taxpayers is taxable, only, on ‘income earned. from the Philippines? a. Resident corporation _c. Resident citizen b. Domesticcorporation di All of these 91 Scanned with CamScannerIntroduction to Income Tax Chapter 3 i f the following are taxable only on income earned from sources withj, d 18. All of the Philippines, except c. Non-resident corporation a. Residentalien d, Domestic corporation b. Non-resident citizen Multiple Choice - Theory: Part 3 1, The place of taxation is a. Situs rule b. Situs "4 = to Shino, a resident Chine. * -resident citizen, Ient money i 7 2 felebtedness as collateralized by a property located in Japan. The inte, income is earned in i c. Japan. b were meals: d. Japan, China and the Philippines. ich is an i ct statement regarding situs of income? a ean roe income is earned in the domicile of the taxpayer. b. Interest income is earned in the residence of the debtor. c. Royalty is earned where the intangible is employed. d. Rentis earned in the location of the property. c. Territoriality d. Gross income 4. Which statement is correct regarding situs of income? a. Thegain on the sale of real property is earned in the location of the property, b. The gain on sale of any property is earned in the place of sale. c. Merchandising income is earned in the residence of the proprietor. d. Manufacturing income is earned in the place of sale 5. Gains on the sale of goods manufactured and sold by the taxpayer within Philippines is subject to tax a. wherever sold. c. without the Philippines only. b._ ifsold abroad only. d. within the Philippines only. 6. Jan, a resident alien, bought a car manufactured in the Philippines and exporté the same at a gain to Carla, a non-resident citizen. Which is correct? a. The gain is subject to tax in the Philippines since the commodity involved i v2 manufactured in the Philippines, a ’ The gain is subject to’ tax in the Philippines since the buyer is a citizen of th Philippines. ’ c. The gain is both subject to tax in the Philippines and abroad since re commodity involved is manufactured in the Philippines. The gain is taxable in the Philippines since it is sold in the Philippines. ! f “fe92 Scanned with CamScannerChapter 3 - Introduction to Income Tax mS tn Ss ea A ae a non-resident alien, executed a contract of sale in Japs ‘edro shall purchase the lot: ilippines. Juan gains P1,000,000 in the exchange. lot:owned by Juan in the Philippit Which is true? a, Thegain is exempt since the gain is derived outside the Philippines. b. The gain is not subject to Philippine tax since Juan is a resident alien. c. The gain is subject to Philippine tax because Juan is a resident alien. d. The gain is subject to Philippine tax because the property is in the Philippines. Multiple Choice - Problems Problem 3-1 c Rica paid P20,000 annual premium on a life insurance contract which would pay her P1,000,000 in case of her death. After paying for 4 years, Rica assigned the policy to Carlos for P120,000. Compute the return on capital. a. P120,000 c. P40,000 b. P80,000 d.P0 Problem 3-2 Sophia purchased a P1,500,000 life insurance policy for P100,000. During the year, Sophia died and her heirs collected the entire proceeds, How much of the proceeds is exempt from income tax? a. P1,500,000 c.P100,000 i b. P1,400,000 d.P0 i Scanned with CamScannerProblem 3-13 Clyde received the following items during the year: P200,000 donation from a girlfriend, « P100,000 service:fee from professional services P300,000 inheritance from his deceased father P100,000.income from:illegal gambling P50,000 gain on sale ofthis personal car P250,000 profits from his bar restaurant Compute the total income subject to income tax. a. P1,050,000 “c. P550,000 b. P750,000 d. P500,000 Scanned with CamScannerProblem 3-23 : Sarah has the following items of income: Business income P 200,000 P 100,000 Professional fees 100,000 50,000 Compensation incomes.) 4 400,000 - Rent income 300,000 200,000 Interest income 30,000; 40,000 4, Assuming Sarah is a resident citizen, compute the total income subject &:P1,030,000 d. P1,420,000 2. Assuming Sarah is a resident alien, ‘compute the total income subject'to Philippit income tax. 5 os a. P1,420,000 c. P1,030,000 P1,; 180, 000 r id. _P390,000 Saiggitid ‘ ‘Assuming: Sarah’ is a resident corporation, compute the total income subject Philippine income tax. s $s tush ‘ a. P2,420,000. Pi, pase 2 _p1180,000 vdP390,000 . Assuming Sarah is a domestic corporation, compute the total income subject " lippine income tax. , Coe | P390,000° eos ¢/P1,180,000°" rat ae te . - P1,030,000 d. P1,420,000 ists : Scanned with CamScannerCase Problem 2 1 | Darlene earns franchise fees from’her Hot Burger franchise. He also deals in various properties. Johnny realized the following gains in'2021: 500,000 royalty fees from local Hot Burger outlets 200,000 royalty fees from foreign Hot Burger outlets P100,000 gain from sales of equipment to foreign franchisees e P200,000 gain from sales of equipment to local franchisees P50,000 gains from sale of investment in domestic stocks to foreign investors * P40,000 gains from sale of investments in foreign stocks to Filipino investors Required: Compute the total income earned from. sources a. Within the Philippines b. Without the Philippines Scanned with CamScanner