THE AWESOME NOTES
TAXATION; NIRC Page "1 of 38
INCOME TAXATION
INCOME TAX SYSTEM
GLOBAL TAX SYSTEM
the total allowable deductions as well as
personal and additional exemptions, in case of
qualified individuals, or the total allowable
deductions only, in case of corp,
are deducted from the gross income
- to arrive at a net taxable income
subject to graduated tax rates, in case
of an individual, or corporate tax date,
in the case of corp.
GIST:
all items of gross income, deductions
and personal and additional
exemptions, if any,
are reported in one income tax
return
- to be filed at least annually,
- and the applicable tax rate
applied on the tax base.
SCHEDULAR TAX SYSTEM
different types of income are subject to
different sets of graduated or flat income rates.
the applicable tax rate/s will depend
on
- the classification of the taxable
income
and the basis could be
- gross income (without
deductions) or
- net income (the gross
income less allowable
deductions)
SEMI-SCHEDULAR OR SEMI-GLOBAL TAX
SYSTEM
a system of taxation wherein both global and
schedular tax system is being applied,
depending on the kind of income.
GLOBAL TAX SYSTEM IS APPLIED FOR
1. compensation income
2. business or professional income
3. capital gain and passive income not subject
to Final Withholding Tax; anf
4. other incomes
SCHEDULAR TAX SYSTEM IS APPLIED FOR
1. passive investment income subject to Final
Withholding Tax
2. capital gain from the sale or transfer of
shares of stocks of a domestic corps; and
3. real properties classified as capital assets
"
PHILIPPINE FOLLOWS SEMI SCHEDULAR
OR SEMI GLOBAL TAX SYSTEM.
FEATURES OF PHILIPPINE
INCOME TAX LAW
DIRECT TAX
the tax burden is borne by the income recipient
upon whom the taxis imposed
PROGRESSIVE TAX
tax bases increases as the tax rate increases.
ff consti: Congress shall evolve a
progressive systeM of taxation
COMPREHENSIVE
baed on: citizenship principle, residence
principle and source principle.
- any of the 3 is enough to justify the imposition
of income tax on the resident citizen and
domestic corp that are taxed on worldwide
income.
SEMI-SCHEDULAR OR SEMI-GLOBAL
SYSTEM OF TAXATION
CRITERIA IN IMPOSING
PHILIPPINE INCOME TAX
CITIZENSHIP PRINCIPLE
• RESIDENT CITIZENS; taxable both for
income from sources within and income
without the Philippines
• NON-RESIDENT CITIZENS; taxable only for
income from sources within the Phil
RESIDENCE PRINCIPLE
• RESIDENT ALIENS; taxable only for income
from sources within the Phil, and exempt
from sources outside.
SOURCE PRINCIPLE
• NON-RESIDENT ALIENS; are subject to Phil
income tax only on income from sources
within the Phil
this is despite of the fact that he never
set foot in the Phil.
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 THE AWESOME NOTES
TAXATION; NIRC
KINDS OF TAXPAYERS
TYPES
1. personal income tax on individuals
2. regular corporate income tax corp corp
3. minimum corporate income tax on corp
4. capital gain tax (such as: [a] sale of shares
of stocks of a domestic corp by a person
who is not a dealer in securities and ; [b] on
sale of real property classified as a capital
asset by a person who is not a real estate
dealer or developer)
5. tax on passive investment income (such as:
interest, dividend, royalty)
6. fringe benefit tax
7. branch profit remittance tax on Phil
branches of foreign corp
8. tax on improperly accumulated earning tax
of corp
9. final withholding tax on certain income.
TAXABLE PERIOD
CALENDAR METHOD
ITR, whether for an individual or for cop,
assoc, or partnership, are required to be filed
on Dec. 31st of every year
FISCAL PERIOD
corporation, assoc, or partnership may with the
approval of the Commissioner of IR, file their
returns and compute their income on the basis
of a fiscal year
- an accounting period of 12 months
ending on the last day of the month
other than Dec.
DOES NOT APPLY TO
- individual taxpayer
SHORT PERIOD
an accounting period of a taxpayer for less
than 12 mos, as when the annual accounting
period of a subsidiary is changed to conform
with the annual accounting period adopted by
its foreign parent company
for easy consolidation of their audited
worldwide financial statements.
THIS IS AS AN EXE TO THE RULE
- that the accounting period or taxable
year consist of 12 months.
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"
INDIVIDUAL TAXPAYERS
CITIZENS
• RESIDENT; taxable for income from sources
within and without
see mamalateo's book pg, 78. may
question ako.
• NON-RESIDENT; taxable only for income
from sources within the Phil, and exempt for
income from sources outside the Phil.
FOR IMMIGRANTS AND
EMPLOYEES OF A FOREIGN
ENTITY ON PERMANENT BASIS
- treated as non-resident citizens
FOR OVERSEAS CONTRACT
WORKERS
- to be deemed as non-resident citizen,
he must be physically present abroad
most of the time during the calendar
year (183 days).
- however, physical presence abroad
need not be continuous.
ALIENS
• RESIDENT; aliens actually present in the Phil
who is not mere transient or sojourner (those
who comes to the Phil for a definite urpose,
which in its nature may be promptly
accomplished),
but whose purpose is of such nature
that an extended stay may be
necessary for its accomplishment, and
to that end the alien makes his home
temporarily in the Phil
AN ALIEN LOSES HIS RESIDENT
STATUS
~ if he actually leaves the Phil
• NON-RESIDENT
ENGAGED IN TRADE OR BUSINESS
IN THE PHILIPPINES
- if the aggregate period of his stay in
the Phil is more than 180 days during
any calendar year.
- same tax treatment as for income
incurred by Resident Alien; such as
1. e n t i t l e d t o d e d u c t i o n s a n d
exemptions
2. graduated income tax rate of 5%
to 32%
3. passive investment income 20%
FIT
NOT ENGAGED IN TRADE OR
BUSINESS IN THE PHILIPPINES
- if the aggregate period of his stay is
less than 180 days
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 THE AWESOME NOTES
TAXATION; NIRC
- the tax treatment for income from
sources within shall be
1. 25% GIT for compensation
income, business or professional
income, capital gain, passive
investment income and others
2. C a p i t a l G a i n Ta x o r S t o c k
Transaction Tax for sale or
exchange of shares of stocks in a
domestic corp and from real
property located in the Phil.
SPECIAL CLASSES OF INDIVIDUAL
EMPLOYEES
FF EMPLOYEES ENTITLED TO
PREFERENTIAL TAX RATES
alien individual employed by:
1. Regional or area headquarters and regional
operating headquarters of multinational
companies in the Phil
2. Offshore banking units established in the
Phil
3. Foreign service contractor or sub-contractor
engaged in petroleum operations in the
Phil.
RATE: 15% preferential income tax
rate in their gross compensation
income from sources within.
- by way of FIT.
FILIPINOS EMPLOYED IN MULTINATIONAL
C O M PA N I E S A L S O E N J O Y S T H E
PREFERENTIAL TAX RATE OF 15%
- for Filipinos employed and occupying the
same position as those of aliens employed by
the entities mentioned above,
Regardless of WON
- there is an alien executive occupying
the same position
HOW DOES THIS WORKS
- only when Filipino employed in RHQ
or ROHQ choose to be taxed at 15%
preferential tax rate on their gross
income or at the graduated tax rates.
MINIMUM WAGE EARNERS
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"
CORPORATIONS
DOMESTIC CORPORATIONS
corporations created or organized in the Phil or
under its laws.
FOREIGN CORPORATION
RESIDENT FOREIGN CORP
- foreign corporation engaged in trade
or business in the Phil
- subject to either preferential tax rate
or corporate income tax/minimum
corporate income tax.
NON-RESIDENT FOREIGN CORP
- foreign corporation not engaged in
trade or business in the Phil
- for income from sources within,
subject to 35% Final Corporate Income
Tax, which must be withhold by the
Philippine payor of the income.
WHEN DEEMED ENGAGED IN
TRADE OR BUSINESS IN THE PHIL
continuity of commercial dealings and
arrangements, and contemplates, to
that extent, the performance of acts or
works or the exercise of some of the
functions normally incident to, and in
progressive prosecution of commercial
gain or for the purpose of business
organization.
TEST:
there must be continuity of
conduct and intention to
establish a continuous
business, such as
appointment of a local
agent, not of
temporary character
BEST EXAMPLE OF RFC
PHILIPPINE BRANCH OF A
FOREIGN CORPORATION DULY
LICENSED BY THE SEC
~ in here,the taxpayer is the branch
and not the foreign corp itself.
EXE: should the FC transact
business in the Phil directly
and independently of its
branch. (Marubeni Case)
2 TYPES OF RFC
• those that do not derive any income
from sources within the Phil, thus
exempt from income tax
ie. Regional or Area HQ
- for the amount received by it
do not include fees or
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 THE AWESOME NOTES
TAXATION; NIRC
compensation for services
rendered.
• those that are engaged in trade or
business in the Phil and thus
subject to income tax, at:
1. preferential tax rate; or
2. normal corporate income tax
rate or minimum corporate
income tax rate, whichever is
higher
BRANCHES ENGAGED IN TRADE
OR BUSINESS IN THE PHILIPPINES,
ENTITLED TO PREFERENTIAL TAX
RATE
1. the ROHQ of multinational corp in
the Phil authorized to sell various
services to their affiliates,
subsidiaries or branches within the
Asia-Pacific Region and are taxed
at 10% on their income from
sources within
2. offshore banking units and foreign
currency deposit units of
Philippine branches of foreign
banks, are taxed at 10% on their
interest income on foreign
currency loans to residents
3. International air carriers (whether
online or offline), and international
shipping lines are taxed on their
Gross Phil Billings at 2.5%
4. foreign service-contractors and
sub-contractors engaged in
petroleum operations in the Phil
5. Registered enterprises with PEZA,
SBMA, CDA, CJHDA and other
special zones and freeport zones.
ALL OTHERS, the tax will be either of
the ff, whichever is higher
• Normal Corporate Income Tax: 35%
corporate income tax based on net
taxable income from sources within;
or
• Minimum Corporate Income Tax:
2% of their gross income from
sources within.
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"
JOINT VENTURES
ELEMENTS OF JV
1. each party to the venture must make a
contribution, not necessarily of capital, but
by way of services, skill, knowledge,
material or money
2. profits must be shared among the parties
3. there must be a joint proprietary interest
and right of mutual control over the subject
matter of the enterprise; and
4. usually there is a single business
transaction
WHEN TAXABLE
1. a domestic corp jointly owner by individuals
and by 2 or more existing DC or FC, that is
incorporated under the law of the Phil, duly
registered and licensed by the SEC (this is
even if the JV is engaged in business of
construction or energy-related activity)
2. Unincorporated JV or consortium, engaged
in any other line of business other than
construction or energy-related activity, with
operating contract with the govt.
EXAMPLES:
1. joint emergency operations of 2
business companies
2. leasing of 24 properties by 3
siblings to various tenants under
common management for 15
years
3. insurance pool or clearing house
composed of 41 non-life insurance
corp for he purpose of allocating
and distributing the risk.
WHEN EXEMPT
1. unincorporated joint venture engaged in
consortium or energy project
2. foreign joint venture or consortium that
does not sell goods nor perform services in
the Phil. (only among non-resident foreign
corp connected with local project in the
Phil.)
W H E N I T I S TA X A B L E ( A S
PARTNERSHIP)
after the completion of the construction
project and taxable on subsequent
sale or lease of the developed
condominium floors or units to
customers. (regular income tax and
expanded withholding tax)
EXE TO EXE:
the ff is still not taxable
1. allocation of floors, units or lots;
being a mere return of capital
2. distribution of developed lots or
units; akin to partitioning
commonly owned property
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 THE AWESOME NOTES
TAXATION; NIRC
PARTNERSHIP
GEN RULE: same treatment as an ordinary
corporation.
10% in the distributable net income
after tax of a partnership
- akin to 10% dividend tax for shs of a
corp.
AFTER-TAX NET INCOME PROFIT
- the net profit of the partnership
computed in accordance with the
generally accepted principles of
accounting, less the corporate income
tax.
NOTE:
the taxable income declared by the
partnership for a taxable year after
deducting the corporate income tax
imposed
• shall be deemed to have been
actually or constructively received
by the partners in the same taxable
year, and
• shall be taxed to them in their
individual capacity, whether actually
distributed or not.
EXE: WHEN NOT TAXABLE
1. GPP
2. unincorporated Joint Venture or Consortium
engaged in construction or energy-related
projects.
GENERAL PROFESSIONAL PARTNERSHIP
is a partnership formed by persons for the sole
purpose of exercising their common
profession,
no part of the income of which is
derived from engaging in any trade or
business.
WHO IS TAXABLE THEN
THE PARTNERS themselves and not the
partnership (although the partnership may be
required to file ITR)
are liable for the payment of income
tax in their individual capacity
- computed on their respective
distributive shares of the partnership
profit.
- whether their shares are actually
distributed or not. (Principle of
Constructive Receipt of Profit)
- NIT 5% - 32%
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"
ESTATE AND TRUST
ESTATE; defined
created by operation of law, when an individual
dies, leaving properties to his compulsory or
other heirs.
TRUST; defined
is a legal arrangement whereby the owner of
the property (the trustor) transfers ownership to
a person (the trustee) who is to hold and
control the property belonging to the owner's
instructions, for the benefit of a designated
person/s (the beneficiary/ies)
GEN RULE: taxed same as an individual.
EXE:
• entitled to the deduction in computing the ext
taxable income of estate or trust, for he
amount of
1. income for the year which is to be
distributed currently by the fiduciary to
the beneficiaries; and
2. the income collected by a guardian of
an infant which is to be held or
distributed as the court may direct.
HOWEVER; the amount deductible
- shall be included in computing the
taxable income of the beneficiaries,
whether distributed to them or
not.
• ALSO: in re; for the income received by
the estate, as a deduction in computing
the taxable income of the estate or trust
the income received by the estate of
tue deceased person during the period
of administration or settlement of the
estate, should the fiduciary, in his
discretion, distributed to the legatee,
heir or beneficiary
HOWEVER; the amount so allowed to
be deducted shall be included in
computing the taxable income of the
LHB
NOTE: IN RE; TRUST
• income of trust, will be taxed to the trustor,
where the trust executed by him is revocable
• income of trust us taxable to the trustee,
where the trust is irrevocable
• they are only entitled to personal exemption
equivalent to a single individual in the
amount of 20k.
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TAXATION; NIRC Page "6 of 38
"

CO-OWNERSHIP
FOR INCOME TAX PURPOSES
• the individual co-owners in a co-ownership
report their shares of the income from the
property owned in common by them in their
individual tax returns for the year, and
• the co-ownership is not considered as a
separate taxable entity or corp

TA X A B L E A S U N R E G I S T E R E D
PARTNERSHIP; when
should the co-owner invest the income of the
co-ownership in any income producing
activities, after partition
- taxable as corp.

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TAXATION; NIRC Page "7 of 38
"

IT DOES NOT INCLUDE

1. deposit of property that does not increase
INCOME TAXATION the networth of the taxpayer
2. increase in networth due to correction of
errors in book entries
INCOME TAX; defined 3. voluntary assessment by a corporation paid
tax on all yearly profits arising from property, by its shs
professions, trades or offices or a tax on a 4. security deposit paid to a lessor
person's income, emoluments, profits and the 5. contributions by lot owners for the memorial
like. park care funds, and
6. loan proceeds are not income of the
NATURE borrower
A DIRECT TAX
- on actual or presumed income (gross or net) NATURE
of the taxpayer received, accrued, or realized
during the taxable year. TAXABLE INCOME; defined
the pertinent items of gross income specified in
GENERAL PRINCIPLES the NIRC,
LESS the deductions and/or personal
GEN RULE: and additional exemptions, if any,
there must be an actual income, gain or profit - authorized for such type of income by
the NIRC or other special laws
EXE:
in sale of real property located in the Phil WHEN IS INCOME TAXABLE
classified as a capital asset 1. there is income, gain or profit
- presumed gain. 2. such is received, accrued or realized during
the taxable year; and
TAX BASE: 3. not exempt from income tax.
6% CGT ON
WHEN INCOME IS TAXABLE
• the actual consideration or
• the FMV
- whichever is higher EXISTENCE OF INCOME
- whether the seller makes a profit or
incurs a loss from the sale.

INCOME

INCOME; defined
amount of money coming to a person or REALIZATION OF INCOME
corporation within a specified time, whether for
payment of services, interest or profit from
investment. TEST OF REALIZATION
Unless otherwise specified, income
means cash or its equivalent.

IT INCLUDES
1. increase in inventory at the end of the
taxable year (but increase in the value of
real property is merely an increase in the
capital, and not as an income)
2. transfer of appreciated to employee for ACTUAL VS. CONSTRUCTIVE
services rendered; and RECEIPT
3. just compensation paid by government for
property acquired by expropriation.

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TAXATION; NIRC Page "8 of 38
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RECOGNITION OF AN INCOME INSTALLMENT DEFERRED PERCENTAGE

income is recognized after the ff conditions has PAYMENT PAYMENT COMPLETEION
been met:
1. the earning process is complete ir virtually appropriate this includes: is applicable in
complete; and when: 1. agreement of case of:
- collections of purchase and b u i l d i n g ,
2. an exchange has taken place the proceeds of sale which construction,
sale and income contemplate that installation
MEANING: extends over a conveyance is c o n t r a c t s
relatively long not to be made covering a
the revenue must be earned before periods of time at the outset, but period in excess
they are received, and amount and there is only after all or of 1 year
received in advance are not treated as strong possibility substantial - whereby, gross
revenue of the period in which they are that full portion of the income derived
collection will not selling price has from such
earned be made been paid contract may be
2. sales in which reported upon
METHOD OF ACCOUNTING there is an the basis of the
immediate percentage of
transfer of title, completion
the vendor being
CASH METHOD ACCRUAL protected by
METHOD mortgage or
other liens as to
d e f e r r e d
all items of gross a method of payments
income received accounting for
during the year shall income in the period in here: methods in
be accounted for in it is earned, if installment determining the
such taxable year; regardless of payment has. percentage of
been made, the completion of a
and whether it has been taxpayer shall contract:
the only expense received or not. only recognize 1. cost incurred
actually paid shall - same as for the the gross profit under the
on sale in contract as of
be claimed as expenses, it shall be proportion to the the end of the
deductions during accounted for in the cash collected tax year are
the year (regardless period they were during the year compared with
of the taxable year incurred, and not in the estimated
total to be
when the services is the period they are performed; or
performed or the paid 2. the work
expenses incurred). performed on
the contract as
of the end of the
admits both actual tax year is
and constructive compared with
receipt of cash or its the estimated
work to be
equivalent preformed.

IN SALE OF
R E A L
PROPERTY
does not exceeds 25% of
exceeds 25% of the selling price
the selling price

NOTES: IN RE: PERCENTAGE METHOD

ADDED REQUIREMENT FOR LONG-TERM
CONTRACT
- a contract taking more than a year for completion

certificate of the architect or engineer showing the

percentage of completion during the taxable year of the
entire work performed under the contract

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TAXATION; NIRC Page "9 of 38
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TEST IN DETERMINING WHETHER INCOME

IS EARNED FOR TAX PURPOSES
GROSS INCOME
REALIZATION TEST
there is no taxable income until
- there is a separation from capital of GROSS INCOME; defined
something of exchangeable value, thereby income, gain, or profit subject to tax
supplying the realization or transmutation
which would result in the receipt of income. IT INCLUDES:
IN HERE: stock dividend is not treated FOR COMPUTING NORMAL CORPORATE
as an income INCOME TAX
- as it merely represent the equity 1. c o m p e n s a t i o n f o r p e r s o n a l a n d
interest in the corporation that professional services
declared it. 2. business income
3. income derived from whatever sources,
CLAIM OF RIGHT DOCTRINE whether legal or illegal
A K A : D O C T R I N E O F O W N E R S H I P,
COMMAND OR CONTROL EXE: tax exempt by Consti, tax treaty
taxable gain is conditioned upon and statutes
• the presence of a claim of right to the alleged
gain and FOR COMPUTING MINIMUM CORPORATE
• the absence of a definite unconditional INCOME TAX
obligation to return or repay that which would all items of income and profits
otherwise constitute gain.
EXE:
ECONOMIC BENEFIT TEST, 1. exempt income
A K A : D O C T R I N E O F P R O P R I E TA RY 2. income subject to FIT
INTEREST
any economic benefit to the employee that ALSO: RR 9-98
increases his networth, whatever may have OTHER MISCELLANEOUS INCOME
been the mode by which it is effected, is - gain from non-recurring sale of equipments
taxable

HENCE: IN STCOK OPTION CONCEPT OF INCOME FROM WHATEVER

the difference between the FMV of the SOURCES DERIVED
shares at the time the option is
exercised and the option price
constitute additional compensation
income to the employee at the time of
the exercise. (note: not at the time of
the grant)

SEVERANCE TEST GROSS INCOME vs NET INCOME vs

NOT SURE HERE, BUT IN MAMALATEO'S TAXABLE INCOME
B O O K : I N C O M E F R O M W H AT E V E R
SOURCE GROSS NET INCOME TAXABLE
all income not expressly excluded or exempted INCOME INCOME
from the class of taxable income irrespective of
income, gain or gross income the pertinent
the voluntary or involuntary action of the profit subject to less statutory items of gross
taxpayer in producing the income, and tax deductions and income specified
regardless of the source of income, is taxable. exemptionsqq in the NIRC,
LESS the
deductions and/
ALL EVENTS TEST or personal and
under accrual method of accounting, an additional
expense was deductible for the taxable year in exemptions, if
any,
which all the events had occurred which - authorized for
determined the fact of the liability and the such type of
amount thereof could be determined with income by the
NIRC or other
reasonable accuracy. (when performed and not special laws
when the fact of obligation to perform is
determined.

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CLASSIFICATION OF INCOME AS TO SOURCES OF INCOME SUBJECT TO TAX

SOURCE
GROSS INCOME INCLUDES (BUT NOT
INCOME WITHIN AND INCOME WITHOUT LIMITED) THE FF
1. compensation for services in whatever form
KIND OF DETERMINING FACTOR paid, including, but not limited to fees,
INCOME
salaries, wages, commissions and similar
INTEREST residence of the person paying the its
interest 2. derived from the conduct of trade or
business or the exercise of profession
COMPENSATI place of performance 3. derived from dealings in property
ON (services) 4. interest
SALE OF for goods produced and sold in the
5. rents
PERSONAL Phil 6. royalties
PROPERTY - income within 7. dividends
8. annuities
for goods produced abroad and sold
outside Phil 9. prizes and winnings
-income without 10. pensions and
11. partner's distributive shares from the net
produced within but sold outside and
vice versa
income of the GPP
- partly within and partly without
COMPENSATION INCOME
SALE OF for stocks of DC
SHARES OF - always income within COMPENSATION; defined
STOCK
for stocks of FC all remuneration for services performed by an
- treated as personal property, employee for his employer under an emp-emp
hence, would depend where the relationship, unless specifically excluded by
stock was sold
the code.
SALE OF location of the real property
R E A L COMPENSATION INCOME; includes
PROPERT - cash value of all remuneration paid
un any medium other than cash, such
RENTALS AND the location of the property or where as; honorarium, benefits and
ROYALTIES it is to be used,
- with regard to royalties, as to the allowance, personal emergency relief
compensation. allowance, longevity pay, subsistence
allowance, hazard pay, annuities,
DIVIDENDS if from DC pension, etc.
- always from sources within

if from FC ITEMS NOT INCLUDED

- only treated as income within if the
ff are present:
50% 3 YEAR RULE
1. at least 50% of its gross income is
from sources within the Phil; and
2. such gross income must be for the
3 year period, ending with the close
of the taxable year preceding the
declaration of such dividenc
INCOME PARTLY WITHIN AND PARTLY
WITHOUT
COMPUTED BY:
first deducting the expenses, losses or other
deductions apportioned or allocated thereto
and a ratable part of any EL/Od which cannot
be definitely allocated to some items of or
classes of gross income
FORMULA: in determining the allowable
deduction to the gross income derived within
GROSS INCOME (PHIL) X EXPENSE W
GROSS INCOME (W)
renumeration paid for
1. agricultural labor paid entirely in
products of the farm where the
labor is preformed
2. domestic service in private home
3. casual labor not in the course of
the employer's trade or business;
and
4. services by citizen or resident of
the Phil for foreign organization or
international organization
5. also those subject to GIT or FIT
and not NIT
note: FREE BOARD AND LODGING is
includible in the gross income for purposes of
computing the taxable income, when:
- ie. driver of a lawyer
• if the lawyer is a corporate lawyer, the
value of the board and lodging shall be
included in the gross
- as the employer has no place of
business where the free board and
lodging may be given

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 THE AWESOME NOTES
TAXATION; NIRC
• if the lawyer is self-employed, the driver
shall be taxed only as to his wage, not
including the value of the free board and
lodging
PROVIDED:
1. the board and lodging is given
within the premises of the place of
business of the employer; and
2. it is given as a condition of
employment
OTHERWISE:
- the value of the board and lodging
shall be included in the gross of the
employer.
FRINGE BENEFIT
any good, service or other benefits furnished
or granted in cash or in kind by an employer to
an individual employee.
EXAMPLES OF FRINGE BENEFIT,
such as, but not limited to the ff:
1. housing
2. expense account (eto yung
expenses incurred by a
managerial employee which he
can be reimbursed)
3. vehicle of any kind
4. household personnel, such as
maid, driver and others
5. interest on loan at less than the
market rate to the extent of the
difference between the market
rate and actual rate granted
6. membership fees, dues and other
expenses borne by the employer
for the employee in social and
athletic clubs or other similar
organizations
7. expenses for foreign travels
8. holiday and vacation expenses
9. educational assistance to the
employee or his dependents
10. life or health insurance and other
non-life insurance premiums or
similar amounts in excess of what
the law allows
SPECIAL TREATMENT OF FRINGE BENEFIT
TAX
GEN RULE: 32% fringe benefit tax
EXE:
• 25% FBT: if received by NRANET/B
• 15% FBT: received by an alien individual
employed by a R/AHQ, ROHQ, Offshore
banking units,mor foreign petroleum service
contractor or sub-contractor, or any of their
Filipino individual employees who are
employed and occupying same position as
those held by the alien employees.
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WHO ARE LIABLE TO PAY FOR FBT
• THE EMPLOYER; if received by managerial
and supervisory employees. but allowed to
the same as business expense
• THE EMPLOYEE; for rank-and-file
employees, subject to NIT and withholding. in
the sense, it is not subject to FBT.
WHEN FRINGE BENEFIT IS NOT SUBJECT
TO FRINGE BENEFIT TAX
1. those received by rank-and-file employees
2. required by the nature of or necessary to
the trade, business or profession of the
employer
3. given for the convenience or advantage of
the employer
4. authorized and exempted from income tax
under the code or any soecial laws
5. contribution of the employer for the benefit
of the employee to retirement, insurance
and hospitalization benefit plans (but in
excess, shall be subject to FBT. ie. in
excess than what is required by SSS or
GSIS)
6. de minimis benefits
7. RR no 3-98: for housing units
• situated inside or adjacent to the
premises of a business or factory
(deemed adjacent to the remises of
the business if; it is located within the
maximum 50 meters from the
perimeter of the business enterprise.
• temporary housing unit fir 3 months or
less
DE MINIMUS BENEFITS; defined
limited to facilities or privileges
furnished or offered by an employer to
his employee that are
1. relatively of small value; and
2. offered or furnished by the
employer as a means of promoting
the health, goodwill, contentment,
or efficiency of his employees.
PROFESSIONAL INCOME
fees received by a professional from the
practice of his profession
PROVIDED: That there is no emp-emp
relationship between him and his
client.
- otherwise, it is deemed
compensation income.
WHY THE NEED TO DISTINGUISH AGAINST
COMPENSATION INCOME
- in compensation income, no allowable
deduction is allowed.
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INCOME FROM TRADE OR BUSINESS
FOR MANUFACTURING, MERCHANDISING
AND MINING BUSINESS
total sale
LESS: cost of goods sold
PLUS: any income from investments
and from incidental or outside
operations or source
NOTE: subtraction should not be made
for depreciation, depletion, selling
expenses or losses, or for items not
ordinarily used in computing the cost
of good sold.
TRADE OR BUSINESS; defined
continuity of commercial dealings and
arrangements,
and contemplates, to the extent,
• the performance of acts or works or
the exercise of some of the
functions normally incident to, and
• in progressive prosecution of,
commercial gain or for the purpose
and object of the business
organization.
INCLUDES INCOME FROM LEASE OF REAL
PROPERTY
RC, NRC, RA, NRAET/B
- graduated rate NIT
NRENET/B
- 25% final withholding tax
DC
- 35% corporate tax, or 2% minimum corporate
income tax, whichever is higher
NRFC
- 35% corporate tax, subject to withholding.
INCOME FROM DEALINGS IN PROPERTY
TYPES OF PROPERTY
ORDINARY ASSET
1. stocks in trade of the taxpayer or 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
2. property held by the taxpayer primarily for
sake to customers in the ordinary course of
his trade or business
3. property used in the ordinary corse of his
trade or business, of a character which is
subject to allowance for depreciation
4. real property used in trade or business of
the taxpayer
ie. real estate dealer
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CAPITAL ASSET
those, which is not classified as an ordinary
asset
in case of deed of exchange executed by the
parties voluntarily and without financial
consideration, both parties (deemed 2
transactions) shall be subject to capital gain
tax.
NOTE: for capital gain tax, it is payable by the
seller, ordinarily. however, if without valuable
consideration, both the transferor and
transferee are liable to capital gain tax.
NOTE: ordinary asset is subject to graduated
income tax rates or normal corporate income
tax, and expanded withholding tax. while
capital asset, for RC, NRC, Aliens (whether a
resident or not) and DC, shall be subject to
final capital gain tax based on 6% of the gsp or
fmv at the time of the sale, whichever is higher.
NOTE: for FC., always subject to normal
corporate income tax and expanded
withholding tax.
TYPES OF GAIN FROM DEALING IN
PROPERTY
ORDINARY INCOME VS CAPITAL GAIN
what distinguishes capital gain from ordinary
income is that, the latter is derived from sale of
capital assets, while the former is derived from
sale of ordinary assets
- ordinarily, capital gain is included in the gross
income, which shall be subject to NIT.
EXE:
1. sale of shares of stocks of a DC and
FC following 50% 3 YEAR RULE
2. sale or exchange of real proper located
in the Phil held as a capital asset
ACTUAL GAIN VS PRESUMED GAIN
AS A GEN RULE: there must be an actual
gain.
EXE: presumed gain for sale of real property
located within the Phil, based on the gsp or
fmv, whichever is higher.
and sale of shares of stock of a DC, not
traded.
NET CAPITAL GAIN VS NET CAPITAL LOSS
NET CAPITAL GAIN; defined
excess of gain from sale or exchange of capital
assets, over losses from such sale or
exchange
NET CAPITAL LOSS; defined
excess of losses from sale or exchange of
capital assets, over gains from such sale or
exchange
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LONG TERM CAPITAL GAIN VS SHORT
TERM CAPITAL GAIN
material only for individual taxpayer
IN RE: LONG TERM CAPITAL GAIN
- gain from sale or exchange of capital asset,
held for more than 12 months
- only 50% of which is taxable in case of gain
or 50% of which is deductible, in case of loss
IN RE: SHORT TERM CAPITAL GAIN
- gain from sale or exchange of capital asset
held for less than 12 mos
- 100% of the gain realized by an individual is
taxable.
DOES NOT APPLY: to those transaction where
gain is presumed.
COMPUTATION OF THE AMOUNT OF GAIN
OR LOSS
IF THE PROPERTY IS ACQUIRED BY
PURCHASE
- Basis: the acquisition cost
IF THE PROPERTY IS ACQUIRED BY
INHERITANCE
- basis; FMV at the time of the acquisition or
GSP, whichever is higher
IF ACQUIRED BY DONATION OR GIFT
- Basis; shall be the sane as if the property
was in the hands of the donor who did not
acquire the property by way of gift. so kung
anu yung value nung property when the donor
purchased or acquired by inheritance, yun
yung basis na gagamitin ni donee.
EXE: if the basis is greater than the
FMV of the property at the time of the
gift, the FMV shall be used as a basis
IF THE PROPERTY WAS ACQUIRED FOR
LESS THAN ADEQUATE CONSIDERATION
IN MONEY OR MONEY WORTH
- Basis: the amount paid by transferee or buyer
WHEN THE PROPERTY WAS ACQUIRED IN
A TRANSACTION WHERE GAIN OR LOSS IS
NOT RECOGNIZED
- Basis: the entire amount of the gain or loss
shall be recognized.
ELEMENT WHE GAIN ARE NOT
TA X A B L E A N D L O S S N O T
DEDUCTIBLE:
1. it is a contract of exchange
2. the parties are parties to the
merger or consolidation; and
3. t h e s u b j e c t m a t t e r i s o n e
specifically provided by law.
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INCOME TAX TREATMENT OF CAPITAL
LOSS
CAPITAL LOSS LIMITATION RULE
losses fro sale or exchange of capital asset
shall be allowed only to the extent of he capital
gain from such sale or exchange.
GIST: capital loss can only be
deducted from the capital gain
- for transaction involving capital
assets in the same taxable year.
RATION:
as ordinary loss are those related to
trade or business, while capital loss is
not related to trade or business.
NOTE HOWEVER THAT
ordinary loss may be deducted from
capital gain, as capital gain is included
in the gross income.
APPLIES TO : individual and corp.
EXE: Banks, incorporated under Phil
Laws.
NET LOSS CARRY-OVER RULE
any capital loss sustained by the taxpayer
during a taxable year, shall be treated in the
succeeding taxable year as a loss from sake or
exchange of a capital asset held for not more
than 12 mos
REQUISITES:
1. applies only to individual taxpayer
2. the loss should not exceed the net
income for the taxabke year when
the loss was incurred
3. here must be a capital gaun from
which the carriedover loss can be
deducted.
SALE OF PRINCIPAL RESIDENCE
exempt to FIT, if all the requisites are present:
1. what was disposed of is the principal
residence of the taxpayer
2. proceeds of which is fully utilized in
acquiring or constructing a new principal
residence
3. acquisition or construction of the new
residence is within 18 mos from the sale or
disposition
4. the historical cost or adjusted basis of the
real property sold or disposed shall be
carried to the hew principal residence built
5. taxpayer should inform the BIR of his
intention to avail of he exemption within 30
days from sale or disposition
6. can only be availed once every 10 years
7. applcable only to individual taxpayer
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PASSIVE INVESTMENT INCOME NOTE: discounts are treated in the same

manner as interest income
INTEREST INCOME
interest received or credited to the account of INTEREST INCOME FROM PHILIPPINE
the depositor or investor are included in their CURRENCY DEPOSIT AND DEPOSIT
gross income SUBSTITUTE
UNLESS: they are exempted from tax
or subject to FIT • 20% FIT of gross interest income
- includes depositor enterprise
INTEREST; defined registered with PEZA, SBMA, CDA
amount which a depository bank may pay on and other economic zones and free
savings and time deposits in accordance with port zones and senior citizens
the rates authorized by the BSP
• 25% GIT for NRANET/B
DEPOSIT SUBSTITUTES; defined
an alternative form of obtaining fund from the • when exempt from tax
public, other than deposits, if the depositor is an
through the issuance, endorsement or 1. employee trust fund or
acceptance of debt instruments for the 2. accredited retirement plan
borrower's own account,
for the purpose of INTEREST INCOME ON FOREIGN
1. r e l e n d i n g o r p u r c h a s i n g o f CURRENCY DEPOSIT
receivables and other obligations,
or • 7.5% FWT on gross interest income
2. financing their own needs or the from foreign currency deposit with OBU
need of their agent or dealers. or FCDU in the Philippines.

OBTAINING FUNDS FROM THE PUBLIC; if from sources without

means: - for individual (RC); subject to
- borrowing from 20 or more individual or graduated income tax rate
corporate lenders at any one time. - for DC; normal corporate income
tax of 35%
EX OF INSTRUMENTS
banker's acceptance, promissory notes, • 10% FWT on interest income from
repurchase agreements. foreign currency transaction

NOTE: not deemed as deposit substitute INTEREST INCOME FROM

debt instrument TRADITIONAL LOANS BY LOCAL
- debt instrument issued for inter-bank call BANKS AND OTHER CREDITORS
loans with maturity of not more than 5
days to cover deficiency in reserves subject to graduated income tax rate NIT,
against deposit substitute, including those or normal corporate income tax.
between banks and quasi-banks.
GEN RULE: not subject ti creditable
YIELD; defined withholding tax
synonymous with interest
- it is the difference between the amount the EXE:
lender or investor loaned or placed and the 1. NRANET/B - 25% FIT
amount he received upon maturity of the 2. NRFC - 20% FIT
deposit substitute or debt instrument, which in 3. m a d e b y a To p 1 0 , 0 0 0
no case be lower than the rate prevailing at the Corporation
time of the issuance or renewal of said debt
instrument. INTEREST ON FOREIGN LOANS
EXTENDED BY NRFC
OTHER TRUST ARRANGEMENT; defined
on yield or income not previously subjected to GEN RULE:
FIT, pertaining to all and other trust and similar 20% FWT, exe lower rate is imposed
arrangements, whether covered by a trust under tax treaty.
indenture or agreement or by an investment or
portfolio management agreement or any other EXE: when not taxable, if the loan is
similar document involving the investment or granted by:
management of funds. 1. foreign govt

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2. financial inst owned, controlled or
enjoying refinancing from foreign govt
3. int'l or regional financing institution
established by governments
INTEREST INCOME FROM LONG-TERM
DEPOSITS OR INVESTMENTS OF
INDIVIDUALS IS EXEMPT
EXE: should the holder of the certificate
pre-terminate the deposit or investment
before the 5th year, a final tax shall be
imposed on the entire income and shall be
deducted and withheld by the depository
bank; at the ff rate
• 4 years to less than 5 years - 5%
• 3 years to less than 4 years - 12%
• less than 3 years - 20%
NOTE: if the depositor or investor is a
corporation, interest income from long
term deposit is always taxable and not
subject to preferential tax rate.
DIVIDEND INCOME
DIVIDEND; defined
a corporate profit set aside, declared and
ordered by the directors to be paid to the shs
on demand or at a fixed time
IT COMPRISES
any distribution whether in cash or other
property in the ordinary course of
business, even though extraordinary in
amount made gy DC, Joint Stock Co.,
Partnership, Joint Account, Association,
Insurance Co., to shareholders or
members out of its earnings or profits.
CASH DIVIDEND
is disbursement to shs of the accumulated
earnings, and the corporation parts
irrevocably with all interest therein.
- when declared and paid to the
shs, such cash becomes the
absolute property of the shs and
cannot be reached by creditors of
the shs.
PROPERTY DIVIDEND
is a dividend payable in property, which
may be investments in shares of stock of a
corporation, or real property, or some
other property owned by the corporation,
paying the dividend
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STOCK DIVIDEND
is a dividend payable in reserve or
increase of additional stock of the
corporation. it involves no disbursement,
and the corporation parts with nothing to
the shs who receive, not an actual
dividend but a certificate of stock.
GEN RULE:
not subject to tax, as it does not
constitute income, neither it
confers no different interest or
right than did the old.
EXE: WHEN STOCK DIVIDEND
IS TAXABLE
1. if it constitute an income;
when it gives a shareholder
an interest different from than
which his former stockholding
represented
2. subsequent cancellation and
redemption of the stock
dividend; equivalent to cash
dividend
ROYALTY INCOME
is a valuable property that can be developed
and sold in a regular basis for consideration,
GEN RULE: an ordinary income, as it
is being developed and sold on a
regular basis. an active income
EXE: deemed a passive income when
- profit or gain received for the use of
intellectual property
RENTAL INCOME
LEASE OF PERSONAL PROPERTY
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EXCLUSION FROM GROSS INCOME EXEMPTION UNDER THE CONSTITUTION

the items that are not included in the
determination of gross income either because EXEMPT FROM TAX:
1. they represent retrun of capital or are not income derived by national govt or its
an income, gain or profit political subdivision from the exercise of
2. they are subject to another kind of internal any essential govt functions or from any
revenue tax; or public utility.
3. they are income, gain or profit that are
expressly exempt from income tax under NOTE: while LGU has no power to tax the
the Constitution,tax treaty or general or National Government, but the latter may
special laws. tax the former, so long as it is not being tax
for profit arising from
• the operation of public utilities and
EXCLUSION DEDUCTION • the exercise of essential govt
functions.
refers to flow of refers to the amount HENCE: only limited when the profit is
wealth to the received, which the from the exercise of proprietary functions.
taxpayer which are law allows to be
not treated as part deducted from gross EXEMPTION UNDER THE TAX CODE
of the gross income income in order to
arrive at net income PROCEEDS OF LIFE INSURANCE

EXEMPT FROM TAX

VS. TAX CREDIT The proceeds of life insurance policies
paid to the heirs or beneficiaries upon the
death of the insured, whether in a single
sum or otherwise,

HOWEVER
if such amounts are held by the insurer
under an agreement to pay interest
thereon,
TAXPAYER WHO MAY AVAIL OF THE the interest payments shall be
EXCLUSION included in gross income.

NOTE: the reservation of the right to

designate or substitute the beneficiary for
another is not important for income tax
purposes, although it is material for estate
tax purposes.

RATION WHY PROCEEDS OF LIFE

INSURANCE IS EXEMPT FROM TAX
- as proceeds of life insurance is really a
contract of indemnity, rather than an
income to the heirs or beneficiaries.

RETURN OF PREMIUM PAID

The amount received by the insured, as a
return of premiums paid by him under life
insurance, endowment, or annuity
contracts,
either during the term or at the
maturity of the term mentioned in
the contract or upon surrender of
the contract.

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AMOUNT RECEIVED UNDER LIFE
INSURANCE, ENDOWMENT OR
ANNUITY CONTRACT
EXEMPT FROM TAX
amount received, other than the amount
by reason of the death of the insured and
interest payment on such amount, under
life insurance, endowment or annuity
contract.
EXE: when taxable
if the amount received exceeds the
aggregate premium or consideration paid,
whether or or paid during the taxable year,
- the excess shall be included in
the gross income
NOTE:
in case of transfer for valuable
consideration by assignment or otherwise,
of life insurance, endowment or annuity
contract, or any interest therein
ONLY THE ACTUAL VALUE
• of such consideration and
• the amount of the premium and
other sum subsequently paid by
the transferee
- are exempt from tax.
VALUE OF THE PROPERTY ACQUIRED
BY GIFT, BEQUEST, DEVISE OR
DESCENT
EXE: taxable yung income from the
property.
The value of property acquired by gift,
bequest, devise, or descent: Provided,
however, That income from such property,
as well as gift, bequest, devise or descent
of income from any property, in cases of
transfers of divided interest, shall be
included in gross income.
AMOUNTS RECEIVED THROUGH
ACCIDENT OR HEALTH INSURANCE
EXEMPT FROM TAX
amounts received, through Accident or
Health Insurance or under Workmen's
Compensation Acts, as compensation for
personal injuries or sickness,
PLUS the amounts of any
damages received,
- whether by suit or agreement, on
account of such injuries or
sickness.
(compensation for personal
injuries and damages)
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NOTE: WHEN DAMAGES
AWARDED BY THE COURT IS
TAXABLE
• insider profit recovered by a
corporation from the insider, are
taxed to the corp
• when it is in the nature of
compensation (ie. accrued
vacation allowance or sick
leave credit)
INCOME EXEMPT UNDER TAX TREATY
Income of any kind, to the extent required
by any treaty obligation binding upon the
Government of the Philippines.
NOTE: for exemption to apply, it must be
categorically and unmistakable expressly,
and cannot be just implied therein.
NORE: no exemption of interest on govt
securities.
RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
Retirement benefits received under
Republic Act No. 7641
those received by officials and employees
of private firms, whether individual or
corporate, in accordance with a
reasonable private benefit plan maintained
by the employer:
PROVIDED,
1. That the retiring official or
employee has been in the
service of the same employer
for at least 10 Years and
2. is not less than 50 years of
age at the time of his
retirement:
Provided, further, That the benefits
granted under this subparagraph
shall be availed of by an official or
employee only once.
EXE TO EXE: when always
exempt from tax: terminal leave
pay
when separation is caused by:
1. death
2. sickness
3. other physical disability
4. from causes beyond the
control of the employee or
official (involuntary and the
cause is not initiated by him)
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REASONABLE PRIVATE BENEFIT PLAN;

means
a pension, gratuity, stock bonus or profit-
sharing plan maintained by an employer
for the benefit of some or all of his officials
or employees,
• wherein contributions are made by such
employer for the officials or employees,
or both, for the purpose of distributing to
such officials and employees the
earnings and principal of the fund thus
accumulated, and
• wherein its is provided in said plan that
at no time shall any part of the corpus or
income of the fund be used for, or be
diverted to, any purpose other than for
the exclusive benefit of the said officials
and employees.

LIKEWISE; the ff shall be exempt

1. SSS Benefits
2. GSIS benefits
3. P a y m e n t u n d e r U S v e t e r a n
Administration
4. Retirement benefit from foreign
government agencies, and other
institutions, private or public
5. separation pay for causes beyond the
control of the employee

WINNINGS, PRIZES, AWARDS

WHN EXEMPT FROM TAX

• Prizes and awards made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary, or
civic achievement

PROVIDED
1. The recipient was selected
without any action on his part
to enter the contest or
proceeding; and
2. The recipient is not required to
render substantial future
services as a condition to
receiving the prize or award.

• Prizes and Awards in Sports

Competition. - All prizes and awards
granted to athletes in local and
international sports competitions and
tournaments whether held in the
Philippines or abroad and sanctioned by
their national sports associations.

REQ FOR EXEMPTION

that it must be sanction by
Philippine Olympic Committee

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DEDUCTIONS FROM GROSS INCOME SALE OF STOCK IN TRADE BY A REAL

ESTATE DEALER AND DEALER IN
PRELIMINARY SECURITIES
• deduction are construed strictly against the
taxpayer claiming it. NOT ALLOWED TO CONSIDER
the amount representing return of capital
3 TYPES OF DEDUCTION FROM GROSS through cost of sales
INCOME
1. itemized deduction in Sec. 34 (A) to (J) and RATHER
(M) available to all kinds of taxpayer what is deducted is
engaged in trade or business or practice of THE TOTAL COST
profession in the Phil specifically identifiable to the real
2. OSD in Sec. 34 (L) available only to property or shares of stock sold or
individual taxpayer deriving business, exchanged.
professional, capital gains and passive
income not subject to FIT. EXE: WHEN ESTIMATED COST
3. Special deductions in Sec. 37 and 38, both IS PROPER
of the Tax Code, and in special laws like - for computation of the cost of
BOI law (EO 226) building projects on pre-sale
stage.
GEN RULE on the theory that income
1. deduction must be paid or incurred in tax is a tax in gross or net
connection with the taxpayer's trade, income.
business or profession
2. deduction must be supported by adequate SALE OF SERVICES
receipts or invoices the entire gross receipts are treated as
3. additional requirement to the withholding part of the income

see: requisites for deductibility of HENCE: NO DEDUCTION, right?

expenses - as they do not take or assume
any risk of loss similar to seller of
WHEN RECEIPT/ INVOICES SHALL inventory of goods.
NOT BE REQUIRED
- in case of OSD ITEMIZED DEDUCTION

RETURN OF CAPITAL IN GENERAL

(COST OF SALES OR SERVICES) FF DEDUCTIBLE ITEMS
the amount representing return of capital 1. expenses
• should be deducted from the proceeds from 2. interest
sales of assets and 3. taxes
• should not be subject to income tax. 4. losses
5. bad debts
SALE OF INVENTORY OF GIIDS BY 6. depreciation
MANUFACTURERS AND DEALERS OF 7. charitable and other contributions
PROPERTIES 8. contribution to pension trust
the proceeds here consist of the ff
1. the return of the capital (not taxable); EXPENSES
and
2. the gain from sale of goods or REQUISITES
properties 1. it must be ordinary and necessary
2. it must be paid or incurred during the
DEDUCTIBLE taxable year
• cost of goods manufactured and sold 3. it must be paid or incurred in carrying
(for manufacturers) and on or which are directly attributable to
• cost of sales (for dealers) the development, management,
operation and/or conduct of the trade,
business or exercise of profession
4. it must be supported by adequate
invoices or receipt
5. it is not contrary to law, public policy or
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6. the tax required to be withheld on the
expense paid or payable is shown to
have been remitted to the BIR
2 KINDS OF DEDUCTIBLE EXPENSES
1. ORDINARY EXPENSE; a payment,
which is normal in relation to the
business of the taxpayer and the
surrounding circumstances
2. N E C E S S A R Y E X P E N S E S ;
expenditure appropriate or helpful in
the development of the taxpayer's
business or that the same is proper for
the purpose of realizing a profit or
minimizing a loss
NOTE: CAPITAL EXPENDITURE
IS NOT DEDUCTIBLE
ie. expenses incurred in effort to
establish its goodwill.
RATION: because it is not a
business expense. it is a capital
expenditure. haha
SUBJECT TO TEST OF
REASONABLENESS
PAID AND INCURRED DURING THE
TAXABLE YEAR
HENCE: expenses are deductible in the
year they were incurred and not in the year
that they were billed.
KINDS OF EXPENSES
1. salaries, wages and other forms of
compensation for personal services
actually rendered, including the
grossed-up monetary value of the
fringe benefit subjected to fringe
benefit tax which tax should have been
paid
2. traveling or transportation expenses
3. cost of materials
4. rentals and/ or other payments for use
or possession of property
5. repairs and maintenance
6. expenses under lease agreement
7. entertainment/ recreation expenses
8. political campaign expenses
9. training expenses
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WA G E S , S A L A R I E S A N D O T H E R
F O R M S O F C O M P E N S AT I O N ,
INCLUDING THE GROSSED-UP
MONETARY VALUE OF THE FRINGE
BENEFIT SUBJECT TO FBT WHICH
SHOULD HAVE BEEN PAID
3 KINDS OF EXPENSES
CONTEMPLATED HERE
1. salaries and wages
2. other forms of compensation for
personal services actually rendered;
and
3. the grossed-up monetary value of
fringe benefit subject to FBT which
should have been paid
OTHER KINDS OF COMPENSATION
• BONUS
To be Deductible
- the bonus must arise from the
personal service that had been
rendered in carrying the trade or
business. otherwise, not deemed
an ordinary or necessary expense
NOTES
extra bonus must be given in gf. hence, if
given during the time when the company is
suffering from losses, it is deemed not
normal to the business, and consequently
not treated as an ordinary or necessary
expense.
GROSSED-UP MONETARY VALUE OF
FRINGE BENEFIT
with respect to the benefits given to
managerial employees, not pursuant to
trade or business
may be claimed as a deduction,
provided;
- FBT (FIT) has been paid.
HENCE: Fringe Benefit can be
deducted from the gross only
when
1. if given in pursuit of its trade
or business; or
2. e v e n i f n o t , i f g i v e n t o
managerial employees and
the FBT has been paid
NOTE: BRIBES, KICKBACKS AND
OTHER SIMILAR PAYMENTS
- not deductible, as they are not ordinary
or necessary expense to the trade,
business or profession, and being contrary
to law, public policy and morals.
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 THE AWESOME NOTES
TAXATION; NIRC
TRAVELING OR TRANSPORTATION
EXPENSE
DEDUCTIBLE
a reasonable allowance for travel
expenses, here and abroad, while away
from home
in pursuit of trade, business or
profession
HOWEVER: ff Sec. 34(1)(a)(ii)
- deemed fringe benefit. so follow the rules
on fringe benefit whether it is deductible or
not.
RENTALS AND/OR OTHER PAYMENTS
FOR USE OR POSSESSION OF
PROPERTY
DEDUCTIBLE
reasonable allowance for rentals and/or
the payments which are required as a
condition for the continued use or
possession for the purpose of trade,
business or profession,
of property to which the taxpayer
• has nit taken or is not taking
title; or
• in which he has no equity other
than that of a lessee, user or
possessor
REPAIR AND MAINTENANCE &
COST OF MATERIALS
FF ARE NOT DEDUCTIBLE ITEMS:
when treated as a capital expenditure
1. any amount paid out for new buildings
or for permanent improvements or
betterment made to increase the value
of any property or estate
2. any amount expended for restoring
property or in making good the
exhaustion thereof, for which an
allowance is or has been made
EXE: in private educational
institution, where it may opt to
deduct it either as:
a. e x p e n d i t u r e s o t h e r w i s e
considered as capital outlays
of depreciable assets,
incurred during the taxable
year for the expansion of
school facilities; or
b. allowance for depreciation
thereof.
RATION WHY ALLOWED
to give it an opportunity to expand
and/or improve its facilities.
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EXPENSES UNDER LEASE
AGREEMENT
EXPENSES FOR PROFESSIONALS
FF ARE DEDUCTIBLE EXPENSES
1. the cost of supplies used by him or in
the practice of his profession
2. those paid in the operation and repair
of transportation equipment used in
making professional calls
3. dues to professional societies and
subscription to professional journals
4. rents paid for office rooms
5. expense of the fuel, light, water,
telephone, etc., used in such office;
and
6. hire of office assistants
7. amount of books, furniture and
professional instruments and
equipment, the useful life of which is
short.
HENCE: if the useful life of books,
furniture and equipment is of
permanent character
- not deductible.
NOTE: premium paid for
insurance in malpractice is
deductible. but the tuition fees for
pre-bar classes and bar
examination fees is not deductible.
ENTERTAINMENT AND RECREATION
EXPENSE
CONDITION OF DEDUCTIBILITY
• that it is directly connected to the
development, management and
operation of the TB/P of the taxpayer
or, that it is directly related or in
furtherance of his TB/P
• not to exceed the ceiling as he Sec of
Finance may by rules and regulation
prescribe, upon the recommendation of
the Commissioner;
taking into consideration
- the nature and character of the
industry TB/P of the taxpayer
provided further
- that such is not contrary
to LMPP
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 THE AWESOME NOTES
TAXATION; NIRC
RR NO 10-2002
LIMITATION OF THE AMOUNT TO BE
DEDUCTIBLE FROM THE GROSS
• IF ENGAGED IN SELLING GOODS;
amount to be deducted shall not
exceed .5% of the gross receipt
• IF ENGAGED IN SELLING SERVICES;
amount not more than 1% of its gross
receipt.
POLITICAL CAMPAIGN EXPENSES
NOT DEDUCTIBLE
- as it is not directly attributable, to the
development, management, operation
and/or conduct of a trade, business or
profession
TRAINING EXPENSES
NOTE: SUBSTANTIATION REQUIREMENT
no deduction from gross income shall be
allowed, unless the taxpayer shall substantiate
it with sufficient evidence of
1. the amount of the expenses being
deducted; and
2. the direct connection or relation of the
expenses being deducted to the
development, management, operation and/
or conduct of the TBP
FURTHERMORE: Esso vs Commissioner
CONDITION FOR EXPENSES TO BE
DEDUCTIBLE (BUSINESS TEST)
1. the expense must be ordinary and
necessary
2. it must be paid and incurred within taxable
year
3. paid and incurred while carrying trade or
business
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INTEREST
the amount paid by a debtor to his creditor for
the use or forbearance of money
the amount of interest expense paid or
incurred within a taxable year on
indebtedness in connection with the
taxpayer's trade, business or exercise
of profession,
- shall be allowed as deduction from
the taxpayer's gross income
REQUISITES FOR DEDUCTIBILITY
1. there must be a valid and existing
indebtedness
2. the indebtedness must be that of the
taxpayer
3. the interest must be legally due and
stipulated in writing
4. interest expense must be paid or
incurred during the taxable year
5. the indebtedness must be connected
with the taxpayer's TB/P
6. the interest payment arrangement must
not be between related taxpayers as
expressed in Sec. 34(B)(2)(b), in re to
Sec. 36(B)
7. the interest is not expressly disallowed
by law to be deducted from the
taxpayer's gross income (ie. interest on
indebtedness to finance petroleum
operations
8. the amount of interest deducted from
gross income does not exceed the limit
set forth in the law. (33%)
NON-DEDUCTIBLE INTEREST
EXPENSE
• INTEREST PAID IN ADVANCE
EXE:
if the entire amount of principal
obligation has been paid on the
year the debt was incurred and the
interest paid
- the entire amount of interest
corresponding to the principal is
deductible
if only a portion of the principal
has been paid
- interest expense to be deducted
shall only be in an amount
corresponding to the amount the
principal paid.
say: 1M yung utang. 20% interest.
800k yung inadvance, yung 200k
represent the interest. this was
incurred on 2013. supposing at the
end of 2013, debtor was only able
to pay the amount of 500k. in
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 THE AWESOME NOTES
TAXATION; NIRC
here, the amount deductible for
the interest expense shall be
- 100k. (50% of principal obligation
x interest paid)
• NO DEDUCTION SHALL BE ALLOWED
BETWEEN RELATED PARTIES
THE FF ARE RELATED PARTIES
1. m e m b e r s o f t h e f a m i l y,
brother/sister, whether full or
half blood
2. between an individual and a
corporation, in which more
than 50% in value of its OCS
is owned directly or indirectly
by such individual
3. between grantor and fiduciary
of any trust
4. between fiduciary of a trust
and beneficiary of a trust, if
the same person is the
grantor with respect to each
trust
• IF THE INDEBTEDNESS WAS
INCURRED TO FINANCE PETROLEUM
OPERATION
INTEREST SUBJECT TO SPECIAL
RULES
• INTEREST PAID IN ADVANCE
• I N T E R E S T P E R I O D I C A L LY
AMORTIZED
• INTEREST EXPENSE INCURRED TO
ACQUIRE PROPERTY FOR USE OF
TB/P
IN HERE;
OPTIONAL TREATMENT OF
INTEREST EXPENSE
the taxpayer has the option to:
1. use the interest expense as a
deduction; or
2. t r e a t i t a s a c a p i t a l
expenditure subject to
allowance and depreciation
SHOULD TAXPAYER OPT TO
T R E AT I T A S I N T E R E S T
EXPENSE
- the full amount may be deducted
in the year it was incurred
OTHERWISE; IF HE OPT IT AS
CAPITAL EXPENDITURE
- he can only deduct the periodic
amortization of such expenditure
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NOTE: once the taxpayer elects to
treat the interest as an interest
expense, by deducting it to the
gross income, he can no longer
apply the same as capital
expenditure.
- otherwise, would constitute
double tax benefits which is not
authorized under the law.
• REDUCTION OF INTEREST EXPENSE/
INTEREST ARBITRAGE
the law provides that interest
expense shall be reduced by 33%
of the interest interest income.
FORMULA:
Interest Income
X 33%
LESS: interest expense
interest expense allowed as
deduction
QUERY: if no interest income, is
the whole amount of interest
expense deductible?
TAXES
all taxes, national or local, paid or accrued
during the taxable year in connection with TB/P
of the taxpayer are deductible from gross
income.
REQUISITES FOR DEDUCTIBILITY
1. payment must be for taxes
2. taxes are imposed by law upon
the taxpayer
3. taxes must be paid or accrued
during the taxable year in
connection with the taxpayer's TB/
P; and
4. taxes are not specifically excluded
bylaw from being deducted from
the taxpayer's gross income
NON-DEDUCTIBLE TAXES
1. Philippine income tax
2. Foreign income tax, should the
taxpayer avail of the tax credit
benefit.
3. Estate and donor's taxes
4. Special assessments on real
property OR taxes assed against
local benefits of a kind tending to
increase the value of the property
assessed.
5. Electric energy consumption tax
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TREATMENT OF SURCHARGES/ TAX CREDIT TAX DEDUCTION

INTERESTS/ FINES FOR
DELINQUENCY
gross income gross income
LESS: deductions LESS: deductions
NET INCOME NET INCOME
X tax rate X tax rate
INCOME TAX DUE INCOME TAX DUE
LESS: tax credit
N E T I N C O M E TA X
PAYABLE

LIMITATIONS
FOR RC AND DC
- only when they should
signify in the return their
desire to avail of the said
credit
- for the amount of income
taxes paid or incurred by
them during the taxable
year to an foreign country
LIMITATION
FOR NRAET/B
- the allowed deduction for
taxes shall only be up to
the extent of taxes
incurred in connection with
their income from sources
within the Phil

T R E AT M E N T O F S P E C I A L
ASSESSMENT
F O R E S TAT E A N D
PARTNERSHIP
- to avail the tax credit
benefit, the distributable
share of the income of
such partnership or trust is
reported for purposes of
income tax.
NOTE: failure to signify to
avail the tax credit benefit,
barred to claim the same.
- but may still use the tax
paid in foreign country as
deduction.

reduces the tax liability reduces the taxable

itself income or net income,
which serves as the basis
for the tax

LIMITATIONS ON TAX CREDIT

• the amount of the credit in respect to the
tax paid or incurred to any country shall
not exceed
the same proportion of the tax
against which such credit is taken,
- which the taxpayer's taxable
income from sources within such
country, under this title, bears to
his entire taxable income for the
same taxable year.

• the the amount of the tax credit shall not

exceed
the same proportion of the tax
against which such credit is taken,
- which the taxpayer's taxable
income from sources without the
Phil taxable under (income tax)
bears to his entire taxable income
for the same taxable year.

FORMULA
GROSS INCOME (PHIL)
GROSS INCOME (WORLD)
X income tax due in Phil
= Tax Credit

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 THE AWESOME NOTES
TAXATION; NIRC
LOSSES
GENERALLY CLASSIFIED INTO
1. those incurred in trade or business for profit
2. those incurred in any transaction entered
into for profit, although not connected with
the trade or business; and
3. casualty losses that arise from fire, storm,
shipwreck, or other casualty, or from
robbery or theft, even though not
connected with the trade or business of the
taxpayer.
REQUISITES FOR DEDUCTIBILITY
1. the losses must be that of the taxpayer
2. is actually sustained and charged off
within the taxable year
3. the loss is evidenced by a closed and
completed transaction
4. is not claimed as a deduction for estate
tax purposes
5. not compensated for by insurance or
otherwise
6. in case of an individual, the loss must
be connected with his TB/P, or incurred
in any transaction entered into for profit
through not connected with his TB/P
7. in case of casualty loss, it has been
reported to the IR within 45 days from
the date of the loss
OTHER TYPE OF LOSSES
CAPITAL LOSS
losses incurred from sales or exchange of
capital assets
LIMITATION ON THE AMOUNT
DEDUCTIBLE
- only to the extent of gains from
sale or exchange of capital assets
within the same taxable year.
SECURITIES BECOMING WORTHLESS
shall be deemed as loss from sale or
exchange of capital assets (treated as
capital loss)
- on the last day of such taxable
year.
NOTE: the securities must be a
capital asset.
- hence, if it is an ordinary asset, it
is not deductible from the gross.
LOSSES ON WASH SALES OF STOCKS
OR SECURITIES
see sec. 38
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WAGERING LOSSES
losses from wagering transaction is
allowed only to the extent of the gains
from such transactions
NET OPERATING LOSS CARRY-OVER
the net operating loss of the business or
enterprise for any taxable year
immediately preceding the current taxable
year,
which has not been previously
offset as deduction from gross
income
SHALL BE CARRIED OVER AS
DEDUCTION FROM THE
GROSS INCOME
- for the next 3 consecutive
taxable years immediately
following the year of such loss
EXE: WHEN IT CAN BE
CARRIED OVER EXCEEDING 3
YEARS
- the net operating loss of mines
other than oil and gas wells,
incurred in any of the first 10
years of operation
- can be carried over to
the first of the 5 taxable
years following the loss
IT SHALL NOT BE ALLOWED AS
DEDUCTION WHEN
• any net loss incurred in a taxable year
during which the taxpayer was exempt
from income tax; also
• it there is a substantial change in the
ownership of the business or enterprise
THERE IS NO SUBSTANTIAL
CHANGE OF OWNERSHIP
WHEN
not less than 75% in nominal
value of the outstanding issued
shares, if the business is in the
name of the corp, is held by or on
behalf of the same person
not less than 75% of the paid-up
calital of the corporation, if the
business is in the name of a
corporation, is held by or on
behalf of the same person.
NET OPERATING LOSS; defined
the excess of allowable deduction over
gross income of the business in a taxable
year
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 THE AWESOME NOTES
TAXATION; NIRC
BAD DEBTS
debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amount
due the taxpayer by others,
arising from money lent or from
uncollectible amount of income from
goods sold or services rendered
REQUISITES FOR DEDUCTIBILITY
1. t h e d e b t m u s t a c t u a l l y b e
ascertained to be worthless
2. the debt must have a value when
acquired or created
3. g e n u i n e c r e d i t o r - d e b t o r
relationship must exist
4. it must be charged within the
taxable year
5. the debt must not be between
related parties
6. it must be connected with the TB/
P of the taxpayer
FACTORS TO CONSIDER WON BAD
DEBT EXISTS
1. debtor has no property nor visible
income
2. d e b t o r h a s b e e n a d j u d g e d
bankrupt or insolvent
3. collateral shares have become
worthless
4. there are numerous debtors with
small amounts of debts and further
action on the account would entail
expenses exceeding the amount
sought to be collected.
NOTE:
unpaid wages cannot be claimed as
deduction (bad debt), unless the
claiming taxpayer included the same in
his gross.
EFFECT OF RECOVERY OF BAD
DEBTS
TAX BENEFIT RULE
where the creditor was allowed a
deduction of bad debts, but said debts
are subsequently recovered,
the previous deduction of bad
debt will nit be cancelled
- but the recovered amount will
be added in the computation
of the gross income.
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DEPRECIATION
is the gradual diminution in the useful value of
tangible property
resulting from wear and tear and
normal obsolescence.
ALSO APPLIES IN
amortization of the value of intangible assets,
the use of which in the trade or business is
definitely limited in duration.
REQUISITES FOR DEDUCTIBILITY
1. the allowance for depreciation
must be reasonable
2. it must be for property arising out
of its use in the trade or business
or out of its not being used
temporarily during the year; and
3. it must be charged off during the
taxable year from the taxpayer's
books of account
WHO MAY CLAIM
the person who sustains an economic
loss from the decrease in property
value due to depreciation.
USUALLY:
the person who owns and has
a capital investment in the
property
LIMITATION
depreciation cannot go beyond
acquisition cost of the property and
cannot be based on appraisal value
METHOD OF COMPUTING
DEPRECIATION ALLOWANCE
S T R A I G H T- L I N E M E T H O D ; b y
dividing the depreciable value over the
estimated useful life
DECLINING-BALANCE METHOD
SUM-OF-THE-YEARS- DIGIT
METHOD
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C H A R I TA B L E AND OTHER science and culture, and in

CONTRIBUTIONS
REQUISITES FOR DEDUCTIBILITY
1. the charitable contribution must
actually be paid or made to the
Phil gov't or any political
subdivision thereof exclusively for
public purpose, or any of
accredited domestic corporation or
association specified in the Tax
Code
2. it must be made within the taxable
year
3. i t m u s t n o t e x c e e d 1 0 %
(individual) or 5% (corporation) of
the taxpayer's taxable income
before charitable contribution
(whether deductible in full or
partial)
4. it must be evidenced by adequate
receipts or records
5. t h e a m o u n t o f c h a r i t a b l e
contribution of property other than
money shall be based on the
acquisition cost of said property.
AMOUNT THAT MAY BE DEDUCTED
FIRST: it must not exceed 10%
(individual) or 5% (corporation) of the
taxpayer's taxable income before
charitable contribution (whether
deductible in full or partial)
economic development according
to the National Priority Plan
determined by NEDA
2. foreign institutions or international
organization in pursuance of or in
compliance with agreements,
treaties, or commitments entered
into by the govt and the foreign
institutions or international
organizations or in pursuance of
special laws.
3. accredited NGO
PENSION TRUST CONTRIBUTION
the reasonable amount transferred or paid by
the employer into the pension trusts of the
employees
REQUISITES FOR DEDUCTIBILITY
1. such amount must not have been
previously allowed as deduction
2. such must be apportioned in equal
parts over a period of 10
consecutive years beginning with
the year in which the transfer or
payment is made
DEDUCTION UNDER SPECIAL LAWS

SECOND: full or partial.

WHEN PARTIAL DEDUCTION

if the donee is any of the ff:
1. the govt of the Philippines or any
of its agencies or any political
subdivision thereof, for its use
exclusively for public purpose
2. accredited DC or Assoc organized
and operated exclusively for
religious, charitable, scientific,
youth and sports development,
cultural or educational purpose, or
for rehabilitation of veterans
3. social welfare institutions; and
4. NGO

WHEN FULL DEDUCTION

if the donee is any of the ff:
1. the govt of the Philippines or any
of its agencies or any political
subdivision thereof, including fully-
owned government corporations,
exclusively to finance, to provide
for, or to be used in undertaking
priority activities in education,
health, youth and sports
development, human settlements,

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 THE AWESOME NOTES
TAXATION; NIRC
OPTIONAL STANDARD DEDUCTION
instead of availing of the itemized deduction,
- to claim a deduction in an amount not
exceeding 40% of their gross income
REQ: taxpayer must signify in his return his
intention to elect the OSD
OTHERWISE: failure to elect, deemed
to have chosen itemized deduction
NOTE: once election has been made,
it shall be irrevocable for the taxable
year for which the return was made.
WHO ARE ENTITLED TO AVAIL OSD
1. individual; exe NRANETB (so pwede lang
ay yung RC, NRC, RA)
2. corporation; exe NRFCNETB (so pwede
lang DC and RFC)
3. partnership; exe GPP
RATION WHY THE EXEMPTION
- because GIT applies to them, which
is not subject to deductions
- as for the GPP, exempt kasi sila sa
tax. individual partners yung taxable
not the GPP.
PERSONAL AND ADDITIONAL EXEMPTION
MINIMUM WAGE EARNERS LAW RA 9504
NOTE: FF EXEMPTION CAN ONLY BE
CLAIMED BY:
1. RC
2. NRC
3. OCW and Seamen;
4. RA and
5. NRAET/B (subject to qualifications)
BASIC EXEMPTION IN THE AMOUNT OF
Php 50,000.oo, for
1. single individual
2. married individual
3. head of the family
NOTE: if married individual
- if only one spouse is deriving an
income, he alone can can claim the
50k exemption. if both are earning,
both can claim 50k exemption
ADDITIONAL EXEMPTIONS FOR
TAXPAYERS WITH DEPENDENTS
Php 25,000.oo each
REQ:
1. only for married individual (valid)
2. allowed only foe each dependent not
exceeding 4 (so maximum ay 100k)
3. can be claimed only by one spouse, and if
legally separated, can be claimed only by
the spouse who has custody over the
children
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WHO IS A DEPENDENT
is a legitimate, illegitimate or legally
adopted child
1. chiefly dependent upon and living
with the taxpayer
2. such dependent is not more than
21 yrs of age, or regardless of
age, is incapable of self-support
because of mental or physical
defect
3. unmarried; and
4. not gainfully employed
BASED FROM THE FOREGOING, A
FAMILY OF SIX (husband, wife and 4
dependents)
- can claim up to 200k as personal
exemption
STATUS AT THE END OF THE YEAR RULE
if the change of the status will not benefit a
taxpayer
- such change shall be treated as if it occurred
at the close of the taxable year
HENCE: change of status of the taxpayer shall
be effective only if such change will benefit the
taxpayer.
ie. should the taxpayer have add a dependent
in the middle of the taxable year
- may claim the corresponding exemption may
be claimed in full for such taxable year
should one of the dependent die during the
taxable year
- the taxpayer may still claim 25k at the close
of the taxable year.
EXEMPTION CLAIMED BY NRA
REQ:
1. he must be a NRAET/B/exercise of
profession in the Phil
2. should file a true and accurate return of his
total income received by him from all
sources within the Phil
3. extent of personal exemption is equal to the
exemption allowed in the income tax law in
the country of which they are subject or
citizen,
• to the citizen of the Phil not residing in
such country
• not exceeding 25k
NOTE: minimum wage earners are exempt
from tax.
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ITEMS NOT DEDUCTIBLE

GEN RULE:
not deductible in the sense that the ff items are
not related to the TB/P of the taxpayer

FF ITEMS ARE NOT DEDUCTIBLE

• personal, living and family expense

• any amount paid out of new buildings or for

permanent improvements, or betterment
made to increase the value of the property or
estate (Capital Expenditures)

EXE: in intangible drilling and

development cost incurred in
petroleum operations, which are
deductible.

• any amount expended in restoring property

or in making good the exhaustion thereof, for
which allowance is or has been made (Major
Repairs)

• premium paid on any life insurance policy

covering life of any officer or employee, or of
any person financially interested in any trade
or business carried on by the taxpayer,
individual or corporation, when the taxpayer
is directly or indirectly a beneficiary under
such policy, or when such is not normal,
usual or customary.

NOTE: this only refers to the premium

paid for the life insurance of a rank-
and-file employee

AS: if given to managerial and

supervisory employees, such shall
constitute as a fringe benefit subject to
FBT/FIT
- and the same can be deducted only
after FBT/FIT has been paid.

NOTE: may case, yung ginawang

beneficiary ay yung heirs nung govt
employee not connected with the
company
- considered not usual or customary.
wala kasing insurable interest, at yung
payment ng premium would constitute
as a bribe,

• loss from sales or exchanges of property

between related parties

OTHER NON-DEDUCTIBILE ITEMS

1. interest expense, bad debts, and losses
from sakes of property between related
parties
2. non-deductible interest, taxes and losses
3. losses from wash sales of stock or
securities

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 THE AWESOME NOTES
TAXATION; NIRC
EXEMPT CORPORATIONS
P R O P R I E TA RY E D U C AT I O N A L
INSTITUTIONS AND HOSPITALS
THE FF ARE EXEMPT FROM TAX
1. non-stock, non-profit educational
institution
2. government educational institution
SUBJECT TO LOWER RATE OF 10%
OF THE NET INCOME; if the ff
requisites are present
1. it must be stock and non-profit
institution
2. it must be a private educational or
hospital institution
3. their gross income from unrelated
trade, business or other activity, if
any, does not exceed 50% of their
gross income from all sources;
and
4. must have been issued a permit to
operate from DECS, CHEF or
TESDA
UNRELATED TRADE, BUSINESS OR
OTHER ACTIVITY
any trade, business or other activity,
the conduct of which is nit substantially
related to the exercise or performance
by such educational institution or
hospital of its primary purpose or
function.
hence, if a school is selling balut and
earned 50k therefrom. its total income
amount to 90k,
- di entitled for a lower rate of 10%
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GOVERNMENT OWNED OR CONTROLLED
CORPORATION
GEN RULE: taxable. normal rate of 30% of its
net income
EXE: FF ARE EXEMPTED FROM TAX
1. SSS
2. PHIC
3. PCSO
4. GSIS
ALSO THE FF ARE EXEMPT SUBJECT TO
QUALIFICATION
those corporations whose income is derived
from
1. any Public Utility
2. Exercise of any Essential Govt Functions
accruing to the Govt of the Phil or to any of
its political subdivision
NOTE:
National Government can tax itself
except public utilities or exercising
essential govt function accruing to the
Govt of the Phil or any of its political
subdivision
For LGU; is prohibited from taxing the
ff
1. national givt
2. its agencies and instrumentalities
3. other LGU
OTHER EXEMPT CORPORATION OR
ASSOCIATION
1. L a b o r, a g r i c u l t u r a l o r h o r t i c u l t u r a l
organization not organized principally for
profit;
2. Mutual savings bank not having a capital
stock represented by shares, and
cooperative bank without capital stock
organized and operated for mutual
purposes and without profit;
3. A beneficiary society, order or association,
operating fort he exclusive benefit of the
members such as a fraternal organization
operating under the lodge system, or
mutual aid association or a nonstock
corporation organized by employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or
association, or nonstock corporation or their
dependents;
4. Cemetery company owned and operated
exclusively for the benefit of its members;
5. Nonstock corporation or association
organized and operated exclusively for
religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset
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shall belong to or inures to the benefit of - hence, it can be deduced that the
any member, organizer, officer or any partnership did not earn any income
specific person; other than from the exercise of
6. Business league chamber of commerce, or profession.
board of trade, not organized for profit and
no part of the net income of which inures to JOINT-VENTURE
the benefit of any private stock-holder, or see qualifications
individual;
7. Civic league or organization not organized
for profit but operated exclusively for the
promotion of social welfare;
8. A nonstock and nonprofit educational
institution;
9. Government educational institution;
10. Farmers' or other mutual typhoon or fire
insurance company, mutual ditch or
irrigation company, mutual or cooperative
telephone company, or like organization of
a purely local character, the income of
which consists solely of assessments,
dues, and fees collected from members for
the sole purpose of meeting its expenses;
and
11. Farmers', fruit growers', or like association
organized and operated as a sales agent
for the purpose of marketing the products of
its members and turning back to them the
proceeds of sales, less the necessary
selling expenses on the basis of the
quantity of produce finished by them;

NOTE: TAXABLE HOWEVER FOR INCOME

FROM
property, real or personal, or from an activity
conducted for profit
regardless of the disposition of the
proceeds of the sale or income.

ALSO:

GENERAL PROFESSIONAL PARTNERSHIP

REQUISITES
1. formed by person for the sole purpose of
exercising their common profession
2. no part of the income of which is derived
from engaging in any trade or business

OTHERWISE:
Treated as taxable corporation. same
treatment for taxable corp.
- subject to RCIT and their share in the
profit shall be deemed as dividend
subject to FIT

EXE: even though GPP engaged in

trade or business, but the income is a
passive income
- not subject to RCIT
- since the passive income is not
included in the gross income and
subject to a separate return and liable
for FIT

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(b) Any amount received by an official or
employee or by his heirs from the
employer as a consequence of separation
of such official or employee from the
service of the employer because of death
sickness or other physical disability or for
any cause beyond the control of the said
official or employee.
(c) The provisions of any existing law to
the contrary notwithstanding, social
security benefits, retirement gratuities,
pensions and other similar benefits
received by resident or nonresident
citizens of the Philippines or aliens who
come to reside permanently in the
Philippines from foreign government
agencies and other institutions, private or
public.
(d) Payments of benefits due or to become
due to any person residing in the
Philippines under the laws of the United
States administered by the United States
Veterans Administration.
(e) Benefits received from or enjoyed
under the Social Security System in
accordance with the provisions of Republic
Act No. 8282.
(f) Benefits received from the GSIS under
Republic Act No. 8291, including
retirement gratuity received by government
officials and employees.
(7) Miscellaneous Items. - (a) Income
Derived by Foreign Government - Income
derived from investments in the Philippines
in loans, stocks, bonds or other domestic
securities, or from interest on deposits in
banks in the Philippines by (i) foreign
governments, (ii) financing institutions
owned, controlled, or enjoying refinancing
from foreign governments, and (iii)
international or regional financial
institutions established by foreign
governments.
(b) Income Derived by the Government or
its Political Subdivisions. - Income derived
from any public utility or from the exercise
of any essential governmental function
accruing to the Government of the
Philippines or to any political subdivision
thereof.
(c) Prizes and Awards -
(e) 13th Month Pay and Other Benefits. -
Gross benefits received by officials and
employees of public and private entities:
Provided, however, That the total
exclusion under this subparagraph shall
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not exceed Thirty thousand pesos
(P30,000) which shall cover: (i) Benefits
received by officials and employees of the
national and local government pursuant to
Republic Act No. 6686; (ii) Benefits
received by employees pursuant to
Presidential Decree No. 851, as amended
by Memorandum Order No. 28, dated
August 13, 1986; (iii) Benefits received by
officials and employees not covered by
Presidential decree No. 851, as amended
by Memorandum Order No. 28, dated
August 13, 1986; and (iv) Other benefits
such as productivity incentives and
Christmas bonus: Provided, further, That
the ceiling of Thirty thousand pesos
(P30,000) may be increased through rules
and regulations issued by the Secretary of
Finance, upon recommendation of the
Commissioner, after considering among
others, the effect on the same of the
inflation rate at the end of the taxable year.
(f) GSIS, SSS, Medicare and Other
Contributions. - GSIS, SSS, Medicare and
Pag-ibig contributions, and union dues of
individuals.
(g) Gains from the Sale of Bonds,
Debentures or other Certificate of
Indebtedness. - Gains realized from the
same or exchange or retirement of bonds,
debentures or other certificate of
indebtedness with a maturity of more than
five (5) years.
(h) Gains from Redemption of Shares in
Mutual Fund. - Gains realized by the
investor upon redemption of shares of
stock in a mutual fund company as defined
in Section 22 (BB) of this Code.
SEC. 33. Special Treatment of Fringe
Benefit. -
(A) Imposition of Tax.- A final tax of thirty-
four percent (34%) effective January 1,
1998; thirty-three percent (33%) effective
January 1, 1999; and thirty-two percent
(32%) effective January 1, 2000 and
thereafter, is hereby imposed on the
grossed-up monetary value of fringe
benefit furnished or granted to the
employee (except rank and file employees
as defined herein) by the employer,
whether an individual or a corporation
(unless the fringe benefit is required by the
nature of, or necessary to the trade,
business or profession of the employer, or
when the fringe benefit is for the
convenience or advantage of the
employer).
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