INCOMME

TAXATION WITH SPECIAL TOPICS

IN TAXATION BOURSiO

Based on NIRC
as amended under
RA10963-Tax Reform
for Accelaration and Inclusion Act
(Train Law)
Vityy3

JMA 2019
EDITION

ENRICO D. TABAG
EARL JIMSON R. GARCIA
INCOME
TAXATION
WITH SPECIAL TOPICS
IN TAXATION
Based on NIRC as amended under RA10963-Tox Reform
for Accelaration and Inclusion Act (Train Law)

2019
EDITION

ENRICO D. TABAG
EARL JIMSON R. GARCIA
 Table of Contents
Chapter TOPIC Page
Brief Contents 1 Fundamental Principles of Taxation. **********'' *'

Definition of Taxation
. *****'********
*** ****

The Three (3) Inherent Powers

Chapter TOPIC Page ofthe State.
Fundamental Principles of Taxation Similarities among the three (3) inherent powers of the State
1
Individual Taxpayers
. . .

59
Fringe Benefit Tax and De Minimis Benefits Distinctions among the three (3) inherent powers of the
138 State...
******* **************.************ ************* **********
Co-Ownership, Estates and Trusts 177 Purposes of
laxauon.... ..*******
5 Income Taxes for Corporations 204 Theory and Basis of Taxation. ********:**************

Partnerships 276 Manifestation of Lifeblood Doctrine. **** *****'***** 7

Gross Income 292 Scope of the Power of Taxation.. ********'****************** 10
8 Inclusions and Exclusions from Gross Income Essential Elements of 10
316 Tax
9 Dealings in Properties 382 Aspects of Taxation.. * ******* ***
*** 11
10 Deductions from Gross Income 403 Nature/Characteristic of the State's Power to Tax 11
11 Installment Reporting of Income and 467 Exceptions to non-delegation rule *** *******'****** ** 11
Installment Payment of Capital Gains Tax Classification of Taxes. * ******************** 4
12 Optional Standard Deductions (0SD) and 480 Principles of Sound Tax System 7
Inherent Limitations of Taxation
Foreign Income Tax Credit 8
501 Constitutional Limitations of Taxation.
13 Accounting Periods and Methods ********* ****'* * 19
14 Tax Remedies 513 Situs of Taxation. 27
15 PEZA and BOI Registered Enterprises 553 Tax distinguished from other terms or imposts. 28
16 Barangay Micro Business Enterprise (BMBE) 571 Double Taxation. . ** ***" 32
17 Personal Equity Retirement Account (PERA) 575 Means of Avoiding or Minimizing the burden of

18 Magna Carta for Senior Citizens and PWDs 579 Taxation....

***'**°*'' ********'****** 33
Kinds of Exemption from
Taxation. ******************. 36
Sources of Tax Laws. 38
Nature of Internal Revenue Laws .. 39
Construction (Interpretation) of Tax Laws. 40
Taxpayers' Suit.. 41
Chapter exercises. 42

IndividualTaxpayers.****e*** ********* 59
 UenntiON....-.
*o**-*** *********************** 59
Classification of IndividuaB Taxpayers . 59 138
Fringe Benefit Tax and De Minimis Benefits..
Citizens ofthe Phitippines 59
Introduction 138
********
Nonresident citizens ofthe Philippines..********'*** 60 138
Definition . ****** * ***** ********
139
Overseas Contract Workers (OCWs).. **********
01 Tax treatment offringe benefits. - *****

Resident citizen... **************'***** 61 139

Nature of Fringe Benefit Tax. *** ******

Alien (Foreign)taxpayers 61 tems of Fringe Benefits subject to final t a x . . . 140

Tax Base and Tax Rates. ***********'************''*'******' 64 Tax exemptfringe benefits. * * * * * * *
141
67 Computation of Fringe Benefit Tax 143
Ordinary income.. **************** ******** ********

144
68 Tax Base and Tax Rate .
Passive incomes. ****** *** *******************
*********'******

68 145
Summary of Income and Applicable Tax . .
Valuation of fringe benefit '*******************

69 Deductible expense ofthe employer 145

Graduated Tax Table (Table 2-2). ***********' *****'***
******'***

Computation of Basic Income Tax Due . 69 De Minimis Benefits.. *******************: 146

148
Self-employed andior Professionals (SEP).. 70 P90,000 Ceiling for Bonuses and Other Benefits. ..

8% Optional Income Tax for SEP **

71 Excess ofde minimis over their respective ceilings 148
78 Representation and Transportation allowances (RATA) 150
Passive Incomes Subject to Final Taxes (Table 2-3) . .

79 Communication allowance.. ******* 150

Final withholding tax . . * **************** ****'*' **

81 Special rules in computing monetary value of housing

Deposit Substitutes. *****''**** ********* **
152
82 benefits...... *****************

****
*
**"*** ******

Interest income on long-term deposits. . ' * * ' ****

Special rules in computing monetary value of motor vehicle

Pre-termination oflong-term deposits. ****** ***"
83 152
s . * * **************'*******

85 Non-taxable housing benefits.. 156

Informer's Reward. ********
**********.

* ********'******
86 Other Fringe benefits. 156
Capital Gains Tax (Table 24) ****'***'**'"'* *****"*****'* ************************"

Tax of 6/10 of 1% Use ofaircraft and helicopters 158

Other Percentage Tax (Stock Transaction
************* *******

89 158
of Gross Selling Price).. ***********************

93
Filing of return *****'*****'*''*"**° ** ****** a*****

Sale of Principal Residence. *************''**'*****

159
Income 95 Chapter Exercises. *****""
**''********'. ****'*

Computing Taxable 177

***** * ***.

Format in
Co-Ownership Estates and Trusts
. .

...

Creditable vs. Final Tax.. 97 177

Co-ownership..
"*************'****°******"****

********'*'*

Quarterly Tax Retuns. 100 Income Tax of an Estate 179

102 Deductions from the gross income of an estate 182
Income Tax Due of Married Individuals
****
. *************

104 Computation of Taxable Income of the:

Senior Citizensand PWDs..
Minimum Wage Earners. . r**********" * **'*"****
106 Estate 183
FILING of Income Tax Retuns... ****
109 Beneficiary. 183
114 Termination of extrajudicial settlement 194
Chapter Exercises..
**** *'*
.

iv]
i
 185
* * * ** * * * * ' ' ° ' * **
*****t'*''*

Income Tax of a
Trust.. Tax on branch profitremittance.. ''
222
185 *****'''** **'** **'**''*
' * * * ' ' **'

Taxable to thetrustee. 224

Income
grantor/trustor.. 186 Special Corporations.
Income Taxable the
to *''*'''''***'

186 Proprietary educational institutions and nonprofit hospitals

to the beneficiary . **
* * *
225
Income taxable **'**'***** ** *******
of the: Special Rules on Capital Expenditures of proprietary
Taxable Income
Computation of 226
4* **''*°'*****'****"* ****
187 educational institutions.. ******'** ******'****
227
Trust... * * * * . *****

187 Applicable taxes of educational institutions.. '****''

Beneficiary.
'****"'*'*'*"
228
s*******"*" *****°''''''*''

187
Proprietary Non-profithospitals. **************''****.

230
Classification of Trusts. trusts Internationalcarriers. **'**'''''**'*''*'******
**'***'*****'*****

Tax Returns of two or more IS ..**** . .

189 230
Consolidated Gross Philippine Billings for international carriers. *****"

'***'*'*****°******'*** *****'''***
190 235
Filing of Tax Returns. Offshore Banking Units (OBUs)
****''**'*'*'********''*"**'*
.

'***''*"''"* ****' **''*******

191 236
ChapterExercises.. ROHQvs RHQ. ''*'**'*'*'''*''''
:*''**'*'''**'**'****''*

237
204
Corporate Taxpayers Improperly Accumulated Earnings Tax (IAET)
*******'

5 Corporation D e f i n e*
d " '.
''*
. *'***********"****'**°***
204
Revised Formula in computing IAET .
***'' **"
240
205 242
Joint venture or consortium.
*****'********

Filing ofCorporate Tax Returns.. *'**' '**** *

*********'**'

Joint stock companies * * * * ' * * ' " ' ' * ' * ° ' *********** 206 250
Chapter Exercises.
**''''' '**'**'**'***''''''''** '*****.

206 276
Joint accounts *********** ****''*********''''****'******

Partnership . .
Tax exemptcorporations. **'*''**********"**********''*"
206 6 Partnership defin.
* * * : **********"* ****
276
276
Types ofcorporations..
'*****''''**'"*'"*'*****°
207 General Professional Partnership (GPP).. *****'''***"

net income of a
Tax Rate and Basis in Computing the Tax Due 207 Computation of Distributive share in the
Government owned and controlled corporations (GOCCs) GPP
********'**'********************'''''**°'°'** 277
277
''*'*****'''*''''*''***'****''

*** **ttsttsdsnagap* 208 Commercial Partnership

****ti****'* ****** ***
the net income of a
Regular Corporate Income Tax (RCIT).:**** *******' 209 Computation of Distributive share in
Commercial Partnership ********'**'********'************

Minimum Corporate Income Tax 210 280

Allowable deductions to GPPs
************** ******
. .

Gross income for MCIT purposes.. 211 281

Allowable deductions to partners of GPPs *****"****

Excess MCIT and MCIT cary over . 213 281

GPPsusing Itemized Deductions 282
Quarlertyand Annual Corporate Tax Due.. ******' 215
GPPs using OptionalStandard Deductions (0SD)..
Relief from MCIT... 217 284
*' *'''*''"**********" *******'***''''""**°'
Chapter Exercises s ***********'************

Corporations exempt from MCIT. *su************** 217 a 292

15% Gross Income Tax (GIT}/ 1 Gross Income unueat
292
tax
Optional corporate income Income Defined. ******* *'***' ******

292
218 Income from whatever sOurce.. ************°'**'** **

Passive incomes subject to final tax 219 294

Return of capital vs. Return on capital
********'
... . .

Income derived under FCOS a 294

by depository bank. 219 Form ofincome.
Capital gains subject to capital gains tax .
220 Valuation ofincome. *****
294
Tax Treatmeht of the
co-venturer's respectve share in the
joint venture profit
fmprdpisbtayssrisstugasassteaitr 220
[vi
 .
**********
****'***'.

294 328
***'*°************.
*****''*'"

Classification of
income. ****'*°°*

296 Rent income. **'*************'***

*
* ' '

329
Incomefrom Leasehold improvement..
Taxableincome taxable
. .
'********'"
296 Leasehold improvement-pretermination of lease... 329
to be 331
Requisites forincome *'*'****'*****
***"
297 Royalty income... *
*
*************

income. 331
receiptof
Constructive
income
t a x*
. '.* * *""*'''''"
298 Dividend income. *****'*** *****'****** *****'***

332
of Philigpine Tax treatment of dividend income. ******'*'
Characteristic **'°'*'''** .
298 333
Tax Systems
. . .
Types ofdividends.. ****''
*''*************''**'***' **|

income
System ..
298 Prizes and Winnings..
''***'****'**********************
334
Global Tax
Schedular vs. taxation 300 distributive shares from the income of
***"" Pensions &Partners
taxation vs. Netincome 336
Gross income ***''"'***********'*''***** 301 a GPP ****'*********'***''****"*****'*'*"
336
Situs ofincome 301 Annuity income. * ************* * * * * ' ' ' * * * ' * * " ' * * *

338
detemining
the situs of income. Informer'sreward.. '****''* '*'''''

Rules in 304
Situs of Dividend. 339
305 EXCLUSIONS from the Gross Income.
''*'
* * *
*****"***'**'*

Chapter Exercises.
'''****"
339
from taxation...
of exemption
* * * * *

Exclusions from Gross

Income .. 316 Nature
340
Inclusions and Grounds for granting tax exemption.
316
8 INCLUSIONS in the Gross Income.
Compensaton income.
*****'*'''***

******"*****°"*******
317 Tax exemption, tax amnesty and condonation..
342
343
Nature power to grant tax exemption..
* ' * * ' * " "

income.. 317 of 344

Forms and measurement ofcompensation Items excluded from the gross income.
**********'

income. 319 347

Classification ofcompensation Proceeds of Life Insurance . .
*******°***'*'****

termination of
Compensation income after Return premium fromlife insurance,
of
employee-employer relationship
319 348
Endowment, and annuity contracts.
****'"****
. .
'*'**'''''*******

Fringe benefits and 13h month pay 320 endowment

Assignment of life insurance,
***""*****"

320 348
Fixed or variable allowances. s * ***"* **
and annuity contracts.. * ********''' *''*".
349
Advances and Reimbursements for travelling and Gifts, bequests and devises.. * '********'''***|

321 349
entertainmentexpenses. Compensation for damages
***********''**"

351
321
Premiums on life insurance. Retirement benefits, pensions and gratuities
****""

Tips and gratutes...********'**'""'""***'*''***"'****'"**" " 321 351

Reasonable Private Benefit Plan... *********"***

Vacation and sick leave allowances. 322

Separation pay due to death, illness, any
* ****""
or
354
Representation and transportation allowances . 322 cause beyond the control ofthe employee.
354
Stipends of resident physicians 322 Separation pay due to
retrenchment.. * * * ° * *

Service fees vs. Royalties . 322 Retirement benefits and termination

leave pay
Cost of living allowance ofgovernment employees.
355
(COLA) . . 323
Business income . Pensions received by aliens from foreign
Bad debt recovery
323 ****.
355
Governments. * * * ' * ' ' ' ' * * ' * * * *
**''

323 356
Tax refund. 13th month pay. 356
Cancellation of debts 325 Cost ofleaving allowances (COLA).
***'"*' ********'** 325 to SSS, GSIS,
Court-approved debt restructuring.. Voluntary Contributions employees
of
Gains derived from 327 356
Philhealth and Pag-lbig
Interest income . dealings in property ... 327 Incomes and gains subjectto final taxes...
357
****** *** *"*"
327
vii
vil
 gross
excluded
irom the
Miscellaneous
items
357 Optional treatment of foreign income tax payments . 411
income.
****''*'******* '****'** *

359 Interest for unpaid taxes. **'*"''**''''******'*****''''*'* ***' 412

Chapterexercises. 382 Interest expense ***********'"'***** 413
Properties.. ***

Dealings in 382
* ********'****"**"""****''***
Limitation on
interestexpense. 415
9 Ordinary assets . .
382 Optional treatment of interest expense ***** 416
Capital assets. Losses..
Gains and 383
Income Taxfor Capital Nondeductible interest, bad debts and Losses (Related
Applicable
basictax..
********'''* 384 Parties) 417
subject to
Capitalgains Losses.... 418
of capital gains
Rules in the recognition''***''"***"*"'******'**''' 384 Casualty losses '***'***'*""*****"********* ************' *' 418
and losses.. **''''*'''''****'''*'*°***
384 Measurement of Partial and Total casualty losses. 418
Holding penod.
i***''''"*'''' ******
384 Net operating loss carry over (NOLCO) '''''****''*' 420
Net capital loss carry-over. 385 Requisites for NOLCO to be deductible . 420
and Losses..
***'''**''''*'
* * * *

ComputationofGains
385 Taxpayers not allowed to claim NOLCO. *****'''' 422
Cost basis ofproperty sold
or exchanged .. ...

***''''****| *****

7-2003. 386 NOLCO for Mines Otherthan Oil and Gas Wells 423
Definition of Terms under RR
Guidelines in determining whether
a real Special types of CapitalLosses.. '*********'*********** 427
or capital asset 386 Wash sales . 427
Property is ordinary
an
. .
***********'* '***'***'**.

Capital gains subjectto percentage

taxes. 391 Short sales. **'*******'''**'''''**" ******'*****' 430

Capital assets subject to capital gains taxes .

*****
393 Shrinkage in the value ofstocks. 431
394 Securities becoming worthless 431
Chapter Exercises *''**'''''''"'*''''''''°'**'** ******'***''*

431
10 Deductions from Gross Income. unununusuonsa 403 Wagering losses. **** *******'*** * ****''.

Introduction . * *****"*'*****''******************'*°*''*°'* 403 Loss on merger or consolidation... ''*'' 431

Deductions in general. 403 Other types of losses. ********** 433
Exclusions vs. Deductions. 404 Nondeductible losses. **************** ***** '****'*'**""
433
Capital expenditure vs. Revenue expenditure.. 405 Bad debts.. 434
Deductions vs. Tax Credit. *****'''*""'"***'****''''***" 405 Depreciation expense.******** ********'''**''***" 435
ltemizeddeductions. 406 Depreciation of motor vehicles. **************
435
Ordinary and necessary expenses. *****'"***'*'***** 407 Amortization of goodwill...
***'***'''*'''"******"************* 436
Salaries/compensaion expense .. 407 Depreciation ofmining operations. ************** ** 436
Additional compensation Depletion expense..
****************'*'''°"*'****'''**** 436
expense for Senior Citizens 408
Aditional compensation .

Charitable and other contributions. 437

expense for PWDs. 408
* * * * * * * *

Travel expenses . 442

Research and development expense.***''''''''****
Rental expenses. 408 443
Pensiontrustcontributions.
Entertainment, amusement and 408
Premium payment on life insurance. 444
Taxes expense.************'* recreation expenses. 409
*************"

**' Other deductions under special laws. 444

410

ix
x
 income...
*'*******
**** ****

445
Chapterexercises
formixed ********""*******'"******.**.
Deductions
446 513
Installment ''**'''***'""*****************"'****** ****.'. ***
and
of
Income Tax assessment and collection ' **************** 514
Installment
Reporting
Gains
Tax. .
*******a**naues

467 Letter of Authority (LOA) *******'*****"*** ************* 514

11 Payment
of Capital
ncome.
. **********

467 Preliminary Assessment Notice (PAN) .******* 515

Computation ofReportablebe reported on installment basis When is Preliminary Assessment Notice (PAN) not
Cases where
income may
467 required?.. .nsenssss** '*****'******' 515
Who has the authority to issue PAN?. 516
Pce.
*"*"*°*******'*'"
468 *********

Computation of Selling Prescription Period for assessment and collection 516

Pice.
'*****'****''''**
468 Suspension of Prescription Periods 518
Computation of
Contract *******'**************'*"

Basis..
*
'*""""" "**''''***''*
*******
468 Issuance of Preliminary Assessment Notice (PAN). 519
Computation ofInitial Issuance of Final Assessment Notice (FAN)/ Formal Letter
Property.
*"**''*'''"************
469
Sale ofMovable ofDemand (FLD)... 519
471
****************

Sale ofReal Property. Disputed Assessment. 520

Gains Tax ****'°****

473 (PROTEST) Motion for Request for Reconsideration versus 520

Installment PaymentofCapital
.

******"***'****"*
477 Request for Re-investigation. *****************

ChapterExercises. Standard
Final Decision on a Disputed Assessment (FDDA) . 525
Credit and Optional
Foreign Income Tax Claim for Refund.. 525
12 Deductions (0SD)..
480 Remedies ofthe government. * * * * * * * *** ** 528
Income tax credit. 480 Distraint, in general. 528
Requisites for tax credits.. ******'''''''''"'''''''"**"
481 Constructive distraint...****'*'***** . 528
Limitations on tax credits. ********"***"'"****''******
482 Actual distraint.. 529
483 Levy 531
Statutory formula in computing tax credit. . .****r* *************************"

Forteiture....... ****** ***********"'******* 531

Option to avail tax credit as deduction from the Enforcement oftax lien.. 531
gross income... .. 485
CompromiSe.*********'"****"*"****"****"***" 531
Optional standard deductions (0SD).. 486
Cases which cannot be compromised * ' * * * * *
433
Cost ofgoods sold for OSD purposes. 487 533
Civil action. * *********"****'"*****°'************"
OSD for GPP. 488 Criminal action.. 534
534
Chapter exercises. 493 No injunction to restrain taxcollection....
**"******"
Tax credit certificate.. 534
13 Accounting Periods and Methods.. 501 536
Accounting period. 501 Chapter exercises.
Accounting methods ... PEZA and B0I Registered Enterprises . 553
Books of accounts
502 15 Declaration of Policy ***********' ****** 553
503 555
Issuance of Receipts and invoices IncomeTax Holiday ********* *** ********** *****

Retention periods.
.. 505 5% Special Tax on Gross Income **** ***************** 555
505 Withholding Taxes 556
Registration requirements. 506 556
Chapter exercises. Sharing ofthe 5% Gross Income Tax.. ********°**°'***

506 Exemption from LGU Permits 556

14 Tax Remedies..ssmmsmndasssnmsgussssBBnrtssusuussn. *''*****°****
.
********

557
Summary of Remedies for 513 Tax Treatment of Sales ********'''***********|

taxpayers and the government

[xiil
[xi]
 FiScalIncenuves....********'"************''**'.
' * * '****''**
558
**

***''''**°***
562
Non-Fiscal I n c e n t v e s .

BO! RegisteredEnterprises
563
563
. . ''***** ****'°'**

FiscalIncentives
Non-Fiscal Incentives
Business
***''"*******'********

Enterprise..
564
571 Ctapter7
BarangayMicro 571
**********'****

16 Definiton and Fees .

***"***************'"'*'**
572
Registration
Registration..
*'''''*'*'****
572 Fundamental Principles
Who are Eligilefor '***'''****"******"***********
572
Incentives. '****''" **** **

574
of Registration
..

Revocation (PERA)..
Personal Equity
and Retirement Account 575
17
***********""""**'''""***
575
Regulatory Agencies. *****''***''"'****"*****
575 Taxation Defined
Definition of Terms.
PERA
Tax Treatment of Taxation is the process or means by
576
PERAIncome. which the sovereign (independent state), Under American Jurisprudence
PERA Distribution . .
****'"''''*"*""************°****'*
576 through its law making body (the the power to tax is considered
PERA...
A . 576
Employer's Contributionto employee's legislature), imposes burdens upon inherent in a sovereign State
577 subjects and objects within its jurisdiction because it is a necessary
Tax Credit.
* ****""*****"''**''''***""********

for the purpose of raising revenues to carry attribute of sovereignty. Without

Guidelines for Registration . *****""'" 577 this power no sovereign State
and PWDS. . out the Tegitimate objects of government.
Magna Carta for Senior Citizens 579 can exist or endure. The power
18 Declaration of Policies and Objectives . .
579
In simple terms, it is the act of levying a tax
to apportion the cost of government among
to tax proceeds upon the theory
that the existence of a
Definition ofTerms 579
****'****°"**"'"'*'''*'*"

those who, in some measure, are privileged govemment is a necessity and

Income Tax of Senior Citizens . 580 to enjoy its benefits and must therefore this power is an essential and
Benefits and Privileges of Senior Citizens. 581 bear its burdens. It is a power inherent in inherent attribute of sovereignty
Availment of Privileges..**strste 583 every sovereign state being essential to the belonging as a matter of right to
'*****''
existence of every government. Hence, every independent state or
Treatment of Sales Discount to SCs 583 even if not mentioned in the constitution, state
on******
government. No sovereign
Government assistanc8 583 the state can still exercise the powwer. can continue to exist without the
Additional Compensation expense for Therefore, any constitutional provision means to pay its expenses, and
employers.. 584
that for those means, it has the
The Office for Senior Citizens Affairs regarding the state's power to tax should
Persons with Disability (PWD).
(OSCA). 585
not be interpreted as a "grant of power", but
right to compel all citizens and
**********"*" 587 property ithin its limits to
Income Tax of PWDs merely a limitation, on the state's power to contribute, hence the
587 tax. Taxes, n the other hand, are the
Benefits and Privileges of emergence of the power to tax.
Treatment of Sales DiscountPWDs. 587 enforced proportional contributions or (51 Am. Jur., Taxation 40).
to PWDs 589 charges from persons and property levied
Additional Compensaion ****** state by
expense for employers 589 by the law-making body of the
Invoicing Requirements.. 589
of
virtue of its sovereignty for the support
Exercises for Special the government and all public
needs.
Topics (Chapters 15-18). 591

xii)
 The Authors

ENRICO D. TABAG, CPA, MBA

Asst. Professor, University of Santo Tomas AMV College of
Accountancy
Reviewer in Taxation, Professional Review and Training Center,
Incorporated (PRTC)
Reviewer in Taxation, Center for Training and Development, Incorporated
Former: Program Chair, BSMA, UST AMV College of Accountancy
(CTDI)
Former Faculty/Special Lecturer
Far Eastern University
University ofthe East- Manila
Miriam College Foundation
Colegio de San Juan de Letran
Jose Rizal University
St. Paul University

EARL JIMSON GARCIA, CPA, MBA

Asst. Professor, University of Santo Tomas-AMV College of Accountancy
CPA Reviewer in Taxation-Philippine Accountancy Review for Excellence (PAReX)
Member, CPA Board Syllabus Revision Task Force
Former Chairperson, University of Santo Tomas-AMV College of Accountancy
Former Reviewer in Taxation, Review School of Accountancy (ReSA)
Former Faculty/Special Lecturer
Far Eastern University
Miriam College Foundation
Colegio de San Juan de Letran
St. Paul University
Jose Rizal University
Angeles University Foundation
College of the Holy Spirit
Saint Mary's University (Nueva Vizcaya)

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 Trinye Beneht Ta
managerial

supervisoryof employee. The regulations

rial or
which are do not cover those
s part taxable
bene are subject withholding compensation income because
Chapler incomes are

with RR
No.2-98.
to
as amende
tax on
The tax
to employees is shown in Table 3-1
compensation in
accordance
treatment of fringe benefits
below: given
such

Fringe Benefit Tax Table 3-1: TaxTreatment of Fringe Benefits

FringeBenefits Part of Basic Salaries or Subject to Basic Tax and
Taxable Compensation Subject
givento
Yes
CWT on compensation to FBT
tax reform program
Rank&File Yes No
Prior to the
enactment of the
comprehensive

Revenue Code (NIRC), the onh Supervisory/ No No Yes

Internal Managerial
the National taxed were those which
popularly known as
income that were effectively Taxable compensaton income in the table refers to salaries presentedintheIncomeTax Returmof
forms of employee income tax was automaticaly
were given in cash.
This was because an an individual taxpayer.
at source by
the government. Additional "FBs given to supervisory ana managerial employees are taxable, nonetheless, it is subject to
withheld and collected other non-cash
in the forms of perkS and fringe benefit tax, a final withholding tax, not the graduated tax rate for compensation income
compensation which was given
rise to inequity in the distribution of
benefits were virtually untaxed, giving
of salaries in the form of untaxed perks The Labor Code distinguishes a rank-and-file employee from a
the tax burden. The provision
Hence, the Fringe Benefit
became a popular means of tax avoidance.
managerial employee. It provides that a managerial employee is one who
the progressivity of the income tax is vested with powers of prerogatives to lay down and execute
Tax (FBT) was proposed to enhance
and to broaden the tax base. management policies andlor to hire, transfer, suspend, lay-off, recall
discharge, assign or discipline employees, or to effectively recommend
Definition of a Fringe Benefit and Fringe Benefit Tax such managerial actions. All employees not falling within this definition
The term "compensation" under Section 2.78.1 (A) of RR 2-98, as are considered rank-and-file employees.
amended, means all remuneration for services performed by an employee
for his employer under an employer-employee relationship, unless Nature ofa Fringe Benefit Tax
specifically excluded by the Code. The name by which the remuneration the
Fringe Benefit Tax (FBT) is a monetary burden imposed by
for services is designated is immaterial. Thus, salaries, wages, benefit furnished or granted by
emoluments and honoraria, allowances, commissions (e.g. transportation,
SOvereignty on any good, service, or other
in addition to basic salaries, to an
an employer, in cash or in kind,
representation, entertainment and the like), fees including director's fees, individual employee, other than a rank and file employee.
if the director is, at the same time, an employee of the
employerlcorporation; taxable bonuses and fringe benefits except those
which are subject to the fringe benefits tax under Sec. 33 of the Code, The FBT is a final tax imposed on the employee by withheld the
1, 2018 or upon the
taxable pensions and retirement pay; and other income of a similar nature mployer, computed at 35% (beginning January monetary value (GUMV) of
constitute compensation income. erectivity of TRAIN Law) on the grossed-up an employee who holds a
the employer to
inge benefit granted by Being a final tax, the FBT is
collected
On the other hand, a "fringe benefit" is anagerial or supervisory position.
any goods, service or othe at the firm's level rather
benefits furnished or granted by an at source the employer, meaning,
by
to basic salaries. In short, it is a employer
in cash or in kind, in
additio Wnheld tax administration. For one,
form of pay which ian at the taxpayer's level to facilitate of
property, services, cash may be in the form
at the firm's level and the problem
or cash
equivalent to supplement a stated pay To dation of benefits is easier The Bureau of Internal
the performance of services. individuals is avoided.
Under the tax code, Ocating benefits among
to fringe benefit tax cover fringe benefits subjec with fewercorporate
tax returns.
only those fringe benefits given eue(BIR) has also to
contend
or furnished to a

138 139
 rnnd inefi i
Tax Exempt Fringe Benefits
Trng Benefit Tar
whether the employer i The following fringe benefits shall
regardiess of dn not tbe
FBTIS effective or a corporation (regardiese benefittax subject to basic tax or
individual professional partnership
the government r O 1) Fringe efits which are fringe
or not},
(n ts authonzed andexempted from income
is taxable
whether the
corporation
withheld and paid by the employer tax under any special law such
FBT shail be as
instrumentaities
the FB) on or before the 10th Contributions required under S$$ law
the empioyer is the
one hiabie to pay day
of the month folowing
the calendar quarter Contributions required under GSIS law
Similar contributions under
an
to Tax Premiums for group insurance ex1stng iaw
tems of Fringe Benefits subject h of
Unless exempt the folowing
items of fringe benefits received a employees
managenal empioyee shall subject fringe benefit
be to tay 2) If the grant of tringe benefits to the
supervisory or nature of, or empioyee s required oy the
1) Housing necessary to the trade. business
2) Expense account employer. or
profession of the
3) Vehicle of any kind
4) Househoid personnel, such as maid, driver and others TLLUSTRATION 2:
5) interest on ioan at less than market rate to the extent of the Outstation Allowance (covers meals and tip-related expenses are
diferenoe between the market rate and actual rate granted themanagerial and supervisory empioyees of Phiipoine granted t
6) Membership fees. dues and other expenses borne by the Gaming Management
Corporation (PGMC) who will be away from the office site for at least 8 nours to
empioyer for the empioyee in social and athletic clubs and similar visit lotto franchise holders for repairs andior
inspecton of equipment eased by
organizatons PGMC from Philippine Charity Sweepstakes Office PCSO
Expenses for foreign travel Shcuid ne
aforementioned allowance be subjected to tax
8) Holiday and vacation expenses
9 Educational assistanoe to the empioyee or his dependents Answer: No
10) Lfe or health insurance and other non-life insurance premiums or The allowance is
similar amounts in excess of what the law allows. required by the nature ct or necessary to he rade or
business of PGMC,. hence. not subject to the finge Denefits tax
prescribed in Section 33(A) of the Tax Code Consequenty ts not
LLUSTRATION 1: Covered Employees subject to Income Tax and to withnoiding tax By the same token, the
aforestated allowance which may be ncurred or expected to de incumred
Ara was hired by Ear to be the later's
ensbie her to perform her duties well, Ear
secretary and personal assistant. To by the managerial and supervisory empioyees in the perfomance of ther
provided a condo unit duties cannot be considered as part of compensation subject to
his unit which Ana couid use as her temporary residence. is the (adjacent
to
fair market withholding tax even if the empioyees fail to accounttiquidate the
value of the use of the condo
by Ana a "tringe benefit" that is subject to finge same considering that said expenses are pre-computed on a daily basis
benefittax imposed under Sedtion 33 of the Natonal internal and are paid to employees while on an assignment or duty (8R Ruing
Revenue Code?
No. 013-2002 dated Apri 5, 2002)
Answer: No.
Ana is nether a
managerial rior a supervisory employee. Onily
benefits granted to
managerial or supervisory employees are thnge 3 De minimis benefits (refer to page 146)
to the fringe benefns tax. suDye

140
141
 Fringe Benefit Tar Frinye Benefit Tag
the employer
or advantage of corporation's purposes. The
live in the expensive
benefits is for the
convenience
the apartment, spouses had no choice but to
quests, to accommodate officials, since
of the company used it to
4) If the grant
and to entertain entertain
employer. The entrance fee should not be customers.
of his employer, and considered income since it is an
ILLUSTRATION 3: membership expense
therein is merely incidental to his
lustration # 1. of increasing and duties
Use the same data in sustaining the business of his employer.
CASE A, His wife merely accompanied him
Question 1: to New York on a
s the fair market
value of the use of the
condo unit by Ana a "compensatinn secretary, and at the employer-corporation's business trip as his
under Section 24A of the Tax Code and nd at details of the plans of a request, for the wife to look
income" that is subject to basic tax building that his employer intended to
creditable withholding tax on
compensation income? construct. Such must not be considered taxable income.
consequently to
Answer: No. employer.
The condo unit is provided for the Cconvenience of the Ruling:
hence does not constitute a
taxable fringe benefit. Being his The Supreme Court ruled that the claims are
to be accessible to Earl not part of taxable
personal secretary, it is necessary for Ana income because no part of the allowances in
question redounded to
anytime. their personal benefit, nor were such amounts retained them. The
by
bills were paid directly by the employer-corporation to the creditors.
Question 2: The rental expenses and subsistence allowances are to be
is the fair market
Assuming Ana is a managerial or supervisory employee, considered not subject to income tax. The taxpayer's high executive
Ana "fringe benefit" subject to FBT?
value of the use of the condo by a position and social standing, demanded and compelled the couple to
Answer: No. live in a more spacious and expensive quarters. Such "subsistence
As explained in question #1, if the grant of benefits is for the
convenience or advantage of the employer, irrespective of the allowance was a separate account from the account for salaries and
wages of employees. The company did not charge rentals as
employee's rank, the benefit shall not be subject to fringe benefit tax deductible from the salaries of the employees. These expenses are
and basic tax on compensation income.
company expenses, not income by employees which are subject to

CASE B:
tax (Collector vs Henderson)
Arthur Henderson and Marie Henderson filed their annual income tax with the
BIR. Arthur is president of American International Underwriters for the Computation of Fringe Benefit Tax
In general, fringe benefit taxrate is 35% (beginning January 1,
Philippines, Inc., which is a domestic corporation engaged in the o
insurance
business 2018 or upon the effectivity of TRAIN Law). However, FBT rate for
general non-ife insurance, and represents a group of American business is 25%. The
companies engaged in the business of general non-lfe insurance. nonresident alien not-engaged in trade or
The BIR demanded payment for alleged deficiency taxes. In their computation, Computation of the fringe benefits tax is done by: the
benefit granted or determining
the BIR included as part of taxable income: 1) Evaluating the value of the
Arthur's allowances for rental, residential expenses, subsistence, water, monetary value. factor) of
percentage (gross monetary
electricity and telephone expenses 4) Determining the proportion or
to the FBT.
the Marikina Gun and Country Club which was paid by his
Entrancefee to the benefit which is subject benefit by
monetary value ofthe fringe
employer for his account, and Determining the grossed-up of the fringe benefit by the gross
Travelling allowance of his wife value
aividing the monetary
factor, and
The taxpayer's justifications are as follows: monetary value monetary value factor by the
FBT rate.

Multiplying the grossed-up

As to allowances for rental and utilities, Arthur did not
receive money T0
the allowances. Instead, the
apartment is furnished and for by
paid nis
employer-corporation (the mother company of American International, Io
142 143
 Frinje Benefit Tay
ringe Benefit Tae
sation, The fringe
benefits are therefore
tax vary depending
on how
the compleo considered as part of the grossed-up so that the income
total benefit. The
FBT Rates
of fringe
benefit
FBT tends to reco
Over th tax the fringe benefit represents grossed-up monetary
rates
is that the
The
are taxed.
The r e a s o n
follows the
income taxatin"
n of valu e This includes the net amountthe ofentire income earned by the
the rate
employees
of the employee so enarv value
monetary value of any property received (known money received or the net
income tax table 3-2 below as
employees as
shown in ceived by the employee from the "monetary value") and the
amount of FBT recei
Such employer.
RATE
BENEFITTAX BASE AND NRA-NETB Valuation of fringe benefits
TABLE 3-2: FRINGE CITRA,NRAET f aranted in money, the value is the amount granted.
Classification of Taxpayers PxX Pxx
If aranted in property and ownership is transferred to the
Monetary value
factor
65% 75% value is the fair market value of the property. employee, the
value
Divide by gross monetary Pxx Pxx
Grossed-up monetary value 25%
Ifgranted in property but ownership is not
transferred to the employee,
35% the value is equal to the depreciation value of the property
x FBT Rate
Pxx PXX
Fringe benefittax Deductible expense of the employer
NOTE: If the fringe benefit is given to a rank and file employee, or to a
the FBT rate was 32%
Prior to Jan. 1, 2018, supervisory or managerial employee, but is not subject to fringe benefit tax
the deduction for the employer is the monetary value of the fringe benefit. On
ILLUSTRATION4: value and the fringe benefit tax of the the other hand, if the fringe benefit is given to a supervisory or managerial
Determine the grossed-up monetary employee and is subject to fringe benefit tax, the deduction is the grossed-up
applicable) for 2018 taxable year
following (if
1. P39 grocery allowance for the personal
consumption of an executive of monetary value of the fringe benefit which compose of the fringe benefit
ABC Corporation. expense and the fringe benefit tax.
2. P40,800 expenses paid by an executive of ABC Corporation duly
receipted for in the name of ABC Corporation and is not in the nature of ILLUSTRATION 5:
Assume an employer furnished cash fringe benefit subject to fringe benefit tax
personal expense.
3. P40,800 expenses incured by an executive ABC Corporation in
of amounting to P975,000
connection with attending business meeting or convention.

4 P40,800 grocery allowance for the personal consumption of oneof Question 1:

ABC Corporation's rank and fle employees. What should be the appropriate journal entry in the books of the employer?
Answers: Answer
1. GUMV=P39k165%=P60,00; FBT=P39k/65% x 35%=P21,000 Fringe beneft expense P975,000
2. GUMV= P40,800*; FBT PO (monetary value)
*The expenditure is not in the nature of personal expense of the company s Fringe benefit tax expense 525,000
executive, hence, it is not a fringe benefit taxable to the employee. t is an
(P975,000/65%) x 35%
ordinary business expenditure of ABC Corporation
P1,500,000
GUMV= P40,800; FBT= P0; same explanation with #2 Cash (GUMV) **(P975,000/65%).
GUMV P40,800 same with monetary value ***The P1,500,000 grossed-up
monetary value is composed of
the BIR.
and P525,000 paidlremitted to
FBT PO subject to basic tax P975,000 paid to the employee

The grossing up of
fringe
benefits was adopted in order to align tne
tax treatment of fringe benefits with salaries
and wages. Compensaio Question 2: benefit is not subject
to fringe benefit tax,
what
incomes presented in the
income
tax returns of individual ASSume that the cash fringe
taxpayers are should be the appropriate journal
entry of the employer?
gross amounts, meaning, the income tax
payable on it in are included u
Answer:
144
145
 frinye Beuefit Ti
P975,000
subsidy of not more than
Tringe Bencfit Tag
Fringe benefit expense P2,000 per month or 1 sack
(Compensation expense)
per month.
(50kg.) rice

Cash
P975,000
5. tlniforms given employees by the
to
employer not
Der annum (as amended by RR 8-2018). exceeding P6,000
DE MINIMIS BENEFITS
Actual medical assistance given not
such as
entertainment, medical service. ech as medical allowance to cover exceeding P10,000 per
medical and healthcare
annum
Facilities and Privileges otherwIse known as " needs,
on purchases, annual medicallexecutive check-up, maternity assistance and
annua
routine
or so called
"courtesy" discounts employer to his emplovees consultations.
furnished or offered by
an
Minimis Benefits," subject to income tax and and
considered as compensation
are not facilities or privileges are of 7, Laundry allowance not exceeding P300 per month.
consequently to withholdi tax, if such
or furnished by the employer merel
small value and are offered contentment or efficiency of
relatively 8. Employees achievement awards (e.g. for length of service or safety
the health, goodwill,
as means of promoting 2-98 RR 10-2008 as amended achievement, which must be in the form of a tangible personal property
2.78.1 (A)(3) of RR
his employees [Section other than cash or gift certificate with and annual monetary value not
RR 1-2015].
by RR 5-2011, RR 8-2012 and exceeding P10,000 under an established written plan which does not
de minimis benefits not subject discriminate in favor of highly paid employees).
The following shall be considered
tax on compensation income of both
to income tax as well as withholding
9. Gifts given during Christmas and major anniversary celebrations not
managerial and rank and file employees:
exceeding P5,000 per employee per annum (RR 8-2012).

Monetized unused vacation leave credits of private employees

not
1. shift not
exceeding "10 days" during the year. 10. Daily meal allowance for overtime work and night/graveyard
leave credits 25% of the basic minimum wage on a per region basis
Payment of monetized unused "vacation" exceeding
such benefit is given on account of overtime work or if given
to
as payment of "sick" leave,
well provided
exceeding 10 days as

regardless of number of days shall be added to "other benefits" employees on night/graveyard shift.
with a P90,000 ceiling. Any amount exceeding the P90,000
work or nightlgraveyard shit,
ceiling discussed in page 148 shall be subject to basic and The grant of meal allowance, if not for overtime
05-2011). However, meal allowance and
creditable withholding tax on compensation income (R.R. No. 8- should be subject to income tax (RR
to the employees are exempt from tax if
2018) lodging furnished by the employer Meal allowance, in
furnished for the "advantage or convenience
of the employer'.
within the premises of the employer.
2. Monetized value of vacation and sick leave credits paid to this particular case, should be furnished
government officials and employees.
virtue of a collective bargaining
Compared to employees in the private sector, payment or 11. Benefits received by an employee by that the
incentive schemes provided
monetized unused "vacation and sick" leave credits to agreement (CBA) and Productivity the two (2) items above
value received from
government officials/employees regardless of the number of total annual monetary per taxable year
days shall be exempt from tax on e mpensation income. exceed P10,000.00 per employee
Combined, do not

3. Medical cash allowance to

(RR 1-2015). all other
dependents of employees not exceeding all inclusive. Meaning,
P1,500 per semester or P250 a month. lists of de minimis benefits are enumerations abovwe
he foregoing included in the
which are not
Denefits given by employersminimis benefits (RR &-2012; RR 1-2015).
shall not be considered de
A****hses*us*tl****t*******

146
* *********

eenenase** *************

** nsaeesi**********
 Frinye Benefit tae ringe Beneft Tae
All other benefits given
by employers which
ration of de minimis
enumeration
are not
and"Other Benefiten fits but should
benefits shall not
fall under the be considered
included in the
pay/bonuses de minimis
P90,000 Ceiling
for 13thmonth therefore subject to the classification of "other benefits"
P90,000 and is
relation to PD o851 limit would form ceiling.
the P90,000 lim The excess of the
the Tax Code in as part of an benefits over
Section 32(B(7)(E)of that 13" montin pay
and other
bene
entitfits bject to income tax and individual's gross income and
would be subj
amended by
RA10653 provides
of public
and private taxes. Refer also
so to Table 3-3 for
the
applicable creditable withholding
officials and employees withholding tax on compen re de minimis benefits. applicable tax on fringe benefits and
received by creditable
tax and the total ovon
January 1, 2018,
income
exempt from
provided, however,
that beginning
10963-TRAIN Law).
Otherwise, the Fixed or Variable allowances
exce
shall not exceed P90,000
(RA income and would be be s this
subject to
individual's gross
would form part of an withholding taxes. In general, fixed or variable
creditable allowances which are
income tax and applicable nublic officer or employee or officer or employee of a received by a
amount of R90 addition to the regular compensation, fixed for his private entity, in
RR 3-2015, as amended, provides
that the ,000 position or office, is
"only" apply to 13 month pay and other compensation subject to
income tax and
withholding tax on compensation income [Sectionconsequently,
exclusion (as amended) shall creditable
2.78.1(8X11'a" and "b
benefits" prescribed under the provÍsions of 2.78.1 (A) of RR 2-98
and shall not appIy to otner compensation as amended by RR 10-2008]. Examples of fixed or variable allowances
RR 2-98 (as amended) under an employer-employee relationship sh are transportation allowance, representation
received by an employee allowance, communication
other allowances. allowance, living away from home allowance (LAFHA), and the like.
as basic salary and

include: Reasonable amounts of reimbursements/advances for traveling and

"Other Benefits" under these regulations
entertainment expenses which are pre-computed on a daily basis and are
Christmas bonus paid to an employee while he is on an assignment or duty need not be
Productivity incentive bonus
subject to the requirement of substantiation and to withholding.
Loyalty awards
Gifts in cash or in kind and other benefits of similar nature actualy
received by officials and employees of both government and
Business related expenses/ Allowances subject to liquidation
private offices
Any amount paid specifically, either as advances or reimbursements
Further, RR 3-2015 emphasized that this exclusion from gross for travelling, representation and other bona fide ordinary and necessary
income is not applicable to: expenses incurred or reasonably expected to be incurred by the employee
in the performance of his duties are not compensation subject to
(1) Self-employed individuals; and
(2) Income generated from business withholding, if the following conditions are satisfied:
I t is for ordinary and necessary travelling and representation or
Excess of de minimis benefits over their entertainment expenses paid or incurred by the employee in the
respective ceilings pursuit of the trade, business or profession;
and
The amount of de minimis
benefits conforming to the ceiling of de for the foregoing
minimis benefits shall not be The employee is required to account/liquidate
considered in
ceiling of "other benefits" excluded from the determining the P90,000 expenses in accordance
with the specific requirements of
32B(7)(e) of the Code as amended by gross income under Sectio pursuant to Sec. 34
substantiation for each category of expenses
other hand, the excess of the
de minimis
RA10963-TRAIN Law. On the of the tax code.
tive
benefits over their respeu
ceilings prescribed under this
other benefits subject to tax regulation shall be considered as p
only on the excess 149
over the P90,000 ceg
148
 Frinje Benefit talay TABLE3-3:

RENEFITS/DE MINIMIS and in Excess of the

FRINGE B E N E F

TAKON

CEILING in De Minimis Benefits

Allowance

Representation
and Transportation
Allowances (RATA) Or Fringe Benefit

and Transportation (Supervisory & Up)

Representation
Appropriations Act
to certain officialeed Fringe Benefit
Section 34 of the General reimbursements f nd (Rank and File)
under are
considered e
one's duties rather tha
the government
employees of performance
incurred in the De Minimis?
expenses of RATA, if not returned
However, the excess De Minimis?
compensation.
additional income of the emplovee
constitutes taxable compensation
the employer,
the BIR (i.e. BIR Ruling No. DA.
Under several rulings issued by No

250-04), the foregoing

rule shal likewise apply to reasonable amounts ne
and representation of privato
Yes
J Yes

reimbursements or advances for travelling

which are paidto
on a daily basis and
employees which are pre-computed Such allowance should not
Subject to

any employee while

on assignment or duty. Conforming

Fringe Conforming
to withholding tax. On the other to the ceiling to the
be considered compensation subject ofDe
Benefit Tax
ceiling of
allowances which are fix in
hand, transportation and representation Minimis De Minimis
amounts and are regularly received by the employees as part of their Benefits? Benefits?
are subject to basic tax.
monthly compensation
Communication Allowance
Communication allowance (phone allowance) granted o No Yes
Yes
employees are not subject from fringe benefit tax and tax on
compensation on the basis that communication allowance is deemed
required by the nature of the job of the employees and deemed necessary In"excess" In"excess"
to business and redounds to the convenience and benefit. of P90,000 of P90,0000
limit when limit when
added with added with
"other "other
benefits? benefits?

Yes
J
Exempt
Exempt EXCESS is
from tax &
from tax & subject to basic
creditable
creditable & creditable
withholding
withholding
fax
withholding tax
tax

150
151
 Fringe Benefit Táe
TABLE 3-4: SPECIAL RULES IN COMPUTING
MONETARY VALUE HOUSING
THE OF BENE
EFITS ILLUSTRATION 6 Tringe Bencfit Ta
Employer leases a residential property
for | Monetary Value: Rental paid x 50% SPECIAL
The
RULES IN COMPUTING
the use oftheemployee following illustrations are
MONETARY VALUE)
property for the Monetary Value: The higherbetween FMV in the Real Requlations 3-98 (as amended under
based on the
Employer owns a residential
illustrations under
uSe of the employee property declaration orZonal value x 5% x50%eal RA10963-TRAIN Law. Revenue
Employer purchases residential property
in exclusive of interest
Monetary Value: Acquisition cost, exclusive CASE A:
installmentfor use of theemployee
x5% x 50% ** In 2018, a domestic
Monetary Value of the Benefit: The higher bettween of its branch manager, corporation paid for the
Employer purchases residential property and the acquisition cost or Zonal value as
Mr. Juan Dela monthly rental of a residential house
transfers ownership to employee determined hu there is no transter of Cruz, amounting to
the CIR. ownership) P156,000. (Assume
Question 1: What is the
Employer purchases residential property and Monetary Value: The higher between the FMVinh Question 2: What is the monetary value of the benefit?
transfers ownership to employee on a lesser real property declaration or Zonal as determined h
ythe Question 3: How much isgrossed-up monetary value of the benefit?
the fringe benefit
amount CIR lesscosttothe employee Question 4: Total amount deductible tax?
Annual Beriefit= FMV or Zonal, whichever is higher x 5% income? by the employer from its
Monetary value of the benefit = FMV or Zonal, whichever is higher x 5% x 50% gross
Annual Benefit = Acquisition cost exclusive of interest x 5%
Question 5: What is the
appropriate journal entry to record the
the above benefit? provision of
Monetary value of the benefit = Acquisition cost exclusive of interest x 5% x 50%
Answers:
Question 1: P78,000
TABLE 3-6: RULESandINmaintains
COMPUTING THEMONETARY
fleet of
VALUE OF MOTOR VEHICLES Question 2: P120,000
1) Employer owns a Monetary Value: Acquisition cost of vehicles not Question 3: P42,000
motor vehicles for the use of the business normally used for business divided by 5 years x 50% Question 4: P198,000
and employees
2) Employer leasesmaintains a fleet of motor Monetary Value: Amount of rental payments not Solution:
vehicles for the use of the business and the normally used for business purposes x 50% Rental payment
employeesS P156.000
Employer purchases vehicle in the name of Monetary Value: Acquisition cost 50%
Monetary value P78,000
employee. Divide by
4) Employer provides employee with cash for Monetary Value: Cash received 65%
the purchase of the vehicle, and GUMV P120,000
ownership is x Fringe benefit tax rate
placed in the name of the employee. 35%
5) Employer purchases the vehicle on Monthly Fringe benefit tax expense P42,000
Monetary Value: Acquisition cost exclusive of interest Add: Rentals paid
nstallment ownership is placed in the divided by 5 years 156,000
name of the employee. Total Deductible Expense P198,000
6) Employer shoulders a portion of the amount Monetary Value: Amount shouldered by employer
of the purchase price of vehicle and Question 5: To record the transaction, the following joumal entries
ownership is placed in the name of the
shouldbe made bytheemployerfor the month:
employee. Fringe benefit expense P156,000
Fringe benefit tax expense 42,000
Cas Rental yment) P156,000
F.B. Tax Payable 42,000

152
153
 Fringe Beneft a. ringe Benefit Tar
NOTE:

is 50% onlv of
Fringe benefit expense is PO
NOTE value of the benefit The "Fringe benefit tax expense" in
Although the monetary deductible amount of the employer i the this case is
rental payment, the
total the deductible from the employer' already the amount
rental payment and the applicable fringe benefit The employer, shall not s gross income as fringe benefit
total the actual
of further expense.
amount (P198,000) is considered as total monetary value of the benefit claim other deduction such as the
tax. The entire because the cost for the use of the
incurred by the employer. Therefore the residential property has been or ill
compensation expense be recovered as
the monetary value of the benefit shou gross income under "Depreciation deduction from its
special rules in computing for purposes of computing the expense" (RR 3-98).
be taken into consideration only he
To record the
fringe benefit tax. transaction, the following journal entries should be
made:
CASE B Fringe benefit tax expense P11,218
a condominium unit.
In 2018, the said corporatinn
A domestic corporation owns
for the residential use of its Assistant
Fringe benefit tax payable P11,218
furnished and granted the said property
value of the property per BlIR assessment
Vice President. The fair market
market value as shown in its current Real
CASEC
amounts to P10,000,000, while its fair Using the same data in Case B and
assuming that the
is P5,000,000 with a remaining useful life of ten acquisition
Determine the following: cost of the
Property Declaration amounts to P8,000,000.
benefit?
property (10) years. How much
1: Monthly Monetary value of the is the monthly fringe benefit expense?
benefit?
2: Monthly Grossed-up monetary value of the Answers: P41,667 computed as follows:
3: Monthly Fringe benefit expense? FMV per BIR assessment (Higher) P10,000,000
3: Monthly Fringe benefit tax expense? Less: cost
(5.000,.000)
4: Total amount deductible by the employer for the month? Excess of FMV over cost 5,000,000
5: Journal entry to record the provision of the above benefit? Divide by its remaining life 10years
Answers: Fringe benefit expense (for the year) 500,000
1: P20,833 Divide by 12 months
2: P32,051 Monthly fringe benefit expense P41,667
3: PO NOTE:
4:P11,218 Fringe benefit expense for the month is P41,667
5:P11,218 If the zonal value or fair market value of the said property is greater
Solution: than its cost subject to depreciation, the excess amount shall be used
FMV per BIR assessment (Higher) P10,000,000
5% in computing additional depreciation expense allowed as a deduction
Value of the benefit 500,000 from the employer's gross income as fringe benefitexpense and shal
The
X
50% be amortized throughout the remaining useful life (RR 3-98).
Annual Monetary value P250,000 this as provided in the foregoing
journal entry for the month in
case
Divide by 12
months
Monthly monetary value P20,833
revenue regulationshallbe
Fringe benefit expense P41,667
Divide by
65% benefit tax expense
11,218
Grossed-up monetary value (annual) P32,051 FringeIncome constructively realized P41,667
x Fringe benefit tax rate
35% 11,218
Fringe benefit tax for the year P11,218 Fringe benefittax payable
Deductible by the employer for the year P11,218

154 155
 Frinfe Benefit u
Non-taxable Housing Benefits
taxable frino.
nge
ringe Beneft Tt
ot treated as taxab fringe benefits
considered

be
shall not b. Not

The following
housing
benefits

code:
Representation and
transportation allowance given regularly
(Page 163) monthly
33- tax on
a basis are not taxable
benefits (Section from the perimete fringe benefits but
meters)
(within 50
able as comp npensation income subject to basic tax
under Sec. 24A)
or adjacent Tax Code.
unit inside f the
adjacent" to the
nee
Housing
1) the business premises. "inside or ses
is situated
taxable fringe
benefit. A
unit which Sng for foreign travel
A housing considered as a
business if itis Expenses
business
shall not be premises
of the hided 2) Exoenses in connection with attending business meeting or
of a to the perimeter of the
considered
adjacent from the ad.ss, nention (inland travel expenses) such as food, beverages and
unit is (50)
meters
"convenience o r onve
m a x i m u m of fifty during foreign travel (except lodging cost in a hotel) at an
within the c o n s i d e r e d to
be for the perimage transportation

be meters from the meter of

unit shall
A housing
if the s a m e is
within fifty (50)
required to be de
on-call due t average of $300 per day are considered
tax.
reasonable expenses and shall
to The
not be subject fringe benefit
of the employer"
are cost of economy and business
and the employees No. DA-6R6
the business premises operation (BIR
Ruling -04, ass airplane ticket shall not be subject to fringe benefit tax. However
of the employer's Philippines, Inc. and RI
the nature
Foreign Holiday 20% of the cost of first class airplane ticket shall be subject to fringe
December 15,
2004 issued to Sohbi Koghei (Phils.), Inc
2004 issued to absence of documentary evidence showing that the
henefit tax. In the abroad
No. DA-241-04, May 7,
Ruling travel was in connection with business meeting or
employee's
unit for three (3) months or Cost of ticket, including cost of hotel
for a stay in the housing
entire
convention, the
2) Temporary housing accommodations and other expenses shouldered by employer shall be
less. Forces of the
officials of the Armed treated as taxable fringe benefits.
3) Housing privilege of military
Philippines. paid for by
Traveling expense of family members of employees
Other Fringe Benefits employer shall be treated as taxable fringe benefit.
the amount
of the benefit representing
Under this category, the value value of the
should also be the "monetary" or his dependents
given or paid by the employer 3) Educational assistance to the employee
assistance is treated as taxable fringe
benefit. In general, cost of educational

benefit except:
connected with the employer's trade,
1) Expense account a. When the study is directly between the
benefits or treated as is a written contract
Expense account may be taxable as fringe business or profession and there to
account
that the former is under obligation
compensation income depending on the nature of the expense employee and employer
for a period of time
provided to employees. remain in the employ of the employer
a. Taxable as fringe benefits dependents through a competitive
. When given to employee's
Expense accounts paid for or reimbursed by employer (such as of the company.
Scheme under scholarship program
personal expenses like groceries) are taxable fringe benetitS.
soOcial and
However, if the expenses were receipted in the name of tne
employees borne by employer in
employer and do not partake the nature of "personal expenses 9) Membership dues or fees of
attributable to employees, such expense accounts should not athletic clubs or other similar organizations.
are treated
taxable as fringe benefits. It should neither be included in insurance premiums
other non-life
determination of the individual or health insurance and
taxpayers' taxable compensation re

income. as taxable benefits.

156

157
 rinte Beneft t.lay
as taxable fringe benefits: PROBLEMS
treated from income
shall not be income tax P3. vtermine
exempted if the
6) The following
benefits which are
authorized and
law (Page 155).
following incomes are
of exempt from tax
a. Fringe
the Tax Code
or under any special
of or necessary to
benefittax by puttinga subject to basic tax, fringe
under
required by the
nature
the vided below. If the value of the benefit check mark in the column
b. The fringe benefit is of the employer (Page 155). amount.
is
provided, indicate the correct
c o n v e n i e n c e or advantage of
or profession
trade, business the
benefit is for the Amount
C. When the fringe Subject to Subject toExempt
employer (Page 166). the employee FBT
Contributions of the employer
for the beneit of to Officer's expense account not
P120,000 Basic Tax
d. benefit plans subject to liquidation
and hospitalization
insurance
retirement,
file employees.
Benefits given to rank and 170.
e Non-taxable housing benefits discussed in Page 2. Officer's expense account
subject to liquidation
80,000
discussed in this chapter.
g. Other non-taxable benefits
Personal expenses of the
company officers, paid for or 50,000
Use of Aircraft and Helicopters reimbursed by the company-
owned and maintained by the
The Use of aircraft and helicopters
but treated as business expense employer
employer is not a taxable fringe benefit
ofthe employer. 4. Annual uniform allowances 6,000
granted to an executive
Filing of Returns
calendar quarter in which 5. Housing benefits of officials of 360,000
10 day of the month following the end of the the Philippine Army
the fringe benefits were granted to the recipient.

6 Housing benefits of officials of 250,000

a domestic corporation

7. Housing unit furnished to an

employee, where said unit was 45,000
situated inside or adjacent to
the premises of the business

8. Monetized unused vacation 15,000

leave credits not exceeding 10
days
9. Household personnel beneit 60,000
by an officer of a domestic
corporation.
1,500
10. Annual medical cash allowance
to dependents
158
159
 apler rervises
-

trufe Bencf ig Iringe Benefil tig

Ckasler terises
P3.5. SPECIAL RULES
FRINGE BENEFITS MPUTING THE MONETARY
P3.2. In 2018, Garcia Realty Corporation paid P325,000 to Wilde
of Garcia ed VALUE OF
O
an executive of ss 1. XYZ Co. a
residential house for the
rent per agreeme use of
vacation
expenses
of Mike, e
a How much is the
was
P165,000 per month. its branch manager.
Resort,
representing
the following? hHow much monetary value of the
Company.
Answer
fringe
benefit?
benefit?
is the
fringe benefit tax for thebenefit for the month?
a. ls this a
taxable
base of the fringe in the retis month?
b How much is the tax
taxable fringe
benefit be
included
turnable 2.
XYZ Company owns residential
property which is assigned to its
C. Should the officer for use. The following data
of Mike for the year? collected?
Cost pertain to the residential
income
the fringe
benefit tax property
d. How much is remitted? Fair market value per BIR P5,000,000
benefit tax
When is the fringe is the fringe 4,500,000
e.
Mike is a rank
and file employee, benefit Fair market value per
Assessor's
Assuming
benefit tax?
office 3,000,000
subject to fringe
Sports, Incorporated How much is the
employed by Chris
resident citizen
a.
monetary value of the benefit for the
P3.3. LJ is a
during 2018: quarter?
from his employer
He received the following P900,000 b. How much is the fringe benefit tax
Basic compensation income for the quarter?
75,000
13 month pay allowance 36,000 Ising the same data in no. 2, and
P3,000 monthly transportation assuming that XYz Company
Productivity incentive pay
10,000 transferred the ownership of the residential
property in the name of the
25,000 officer, answer the following:
Christmas bonus
Uniform allowance
16,000 a.How much is monetary value of the benefit?
10,000 b.How much is the fringe benefit tax?
Actual medical allowance
36,000
Rice subsidy
Required: Determine LJ's
taxable net income Chen Company purchased a motor vehicle for the use of its manager.
The vehicle was registered in manager's name. The cost of the
P3.4. A rank and file employee received the following compensation and
vehicle was P1,200,000 used partly for personal purposes and partly
for the benefit of the company. Compute the following.
benefits received during 2018:
a. Monetary value of the benefit
Basic compensation income P540,000 b. Fringe benefit tax
13 month pay 45,000
Mid-year bonus 22,500
5. Using the same data in no. 4 and assuming that Chen shouldered only
Christmas gift 10,000
a portion of the cost of the car in the amount of P800,000 and the
Uniform allowance 7,500
balance paid by the manager, determine the following:
Actual medical allowance 15,000
Medical allowance to dependents 2,000 a. Monetary value of the benefit
Rice subsidy 18,000 b. Fringe benefit tax
Monetized vacation leave for 12 days (P2,000/day) 24,000 the
Required: Determine the employee's taxable net income 6. Using the same data in no. 4 and assuming that Chen purchased
basis. Determine the
car in the name of the manager on installment
following:
a. Monetary value of the benefit
b. Fringe benefit taxx

161
160
 Chapler trer
Chapler eries
ringe Benef1 Benefit 7Tae ODIFIED) IDENTIFICATION
nge Benefit Ta
MODI
Determine whether
whether or
or not the
followingis subject to
fringe benefit tax.
the benefit is subject to
fringe benefit tax, otherwise, write B.
write False
TRUE OR FALSE correct,
otherwise,
furnish.
Wri further that the employee is holding
True if the
statement
is
goods, service or otner
benefits
basic salar
Assur
unless stated otherwise. supervisory or managerial
Write is any incuding
nosition
1. A fringe
benefit
employer
in cash
or in kind,
pos Fringge benefit required by the nature of
granted by
an or
individual employees. to the fringe
beneit tax is taxa 1.
the employer.
business of
necessary to trade or
is subject
2. A fringe
benefit which
tax is taxa
einae benefit for the convenience or
advantage of the
the employee. the fringe
benefit
axable Car plan
for managerial emplovees
age
employer.
employer.
income ofbenefit which
is not subject
to
A fringe Daily meal allowance tor managerial emplovees
3 of the employee.
income
cover
only those frino
hdanetized unusea vacauon leave credits of
private employees not
benefits subject
to fringe benefit tax exceeding 10 days.
4. Fringe managerial or supervisory
emplovee
furnished to a
benefits given or
as a final income tax on tho e
5. Fringe benefit
tax shall be
treated
employer on a quarterly basis.
Aonetized unused vacation leave credits of
government employees in
and paid by the excess of 10 days.
employee withheld benerit is the actual
value of the finge
The grossed-up monetary Monetized value or SICK leave credits not exceeding 10 days.
amount received by
the employee. Monetized value or sick leave credits of private employees in excess
the fringe benefit shall be of 10 days.
7. The grossed-up monetary value of
of fringe benefit by the
determined by dividing the monetary value g Compensation income or supervisory and managerial employees.
grossed upmonetary value factor. dO Housing units situated inside or adjacent to business or factory
is the employer, whether he is (located within 50 meters from the perimeter of business).
8. The person liable for fringe benefit tax
partnership or a corporation regardless of
an individual, professional
not or the government and its
whether the corporation is taxable or 11, House benefits to the Chief Finance Officer of the company
instrumentalities
who is vested with powers of
12. Allowances received by supervisory and managerial employees not
9. A managerial employee is one
subject to liquidation.
prerogatives to lay down and execute management policies and/or to
hire, transfer, suspend, lay-off, recall discharge, assign or discipline 13. Used by employee of aircraft (including helicopters) owned/maintained
employees, or to effectively recommend such managerial actions. the employer.
14. Cost of 1 class/business class airplane ticket for business travel or
10. The grant of fringe benefits to the employee is exempt from tax if such convention abroad in excess of 70%.
grant is required by the nature of, or necessary to the trade, business 15. De minimis benefits received by an executive of a company.
or profession of the employer.
11. The amount on which the fringe benefit tax rate is applied is the
16. Educational assistance (Master of Science in Accountancy) granted to
12.
monetary value of the fringe benefit.
The
Fe, the Finance Manager of ABC Company. No written contract was
amount on which the fringe benefit tax rate is
amount deductible by the employer from its
applied is the executed by Fe and ABC.
gross income. 17. Premiums borne by the employer for the group insurance of its
13. Grossed-up monetary value is reflected in the books of accounts as employees
fringe benefit expense and fringe benefit tax expense. 18. Contributions of the employer for the benefit of the employeeto
14. Failure to withhold the
required tax on salary is collectible from the retirement, insurance and hospitalization benefit plans.
employer. T. Reimbursement of transportation expenses paid to a messenger of
15. Failure to withhold the
correct amount due to false the company
supplied by the employee shall be the information
liability of the employee. . Contributions made by an employer to SSS, GSIS and similar
laws in excess of what the law requires
as
Contributions under existing
contributions.

162
163
 Chapler rerriseslrinfe Benefit Tu
Eyercises4Frinfe
Beneft t, .
P50,000 winnings from PCSO and Philippine lotto
Chaster d. Prizes from S&R (P10,000), Gateway (P10,000), and Glorieta
(P10,000) or a total of P30,000

ieh of the following iIs a fringe benefit not covered by the fringe
of the
MULTIPLE CHOICE
answer.
Which
the
correct 5. benefit tax
the letter of
Choose De minim benefit.
a.

is
correct?
b.
Housing privileges granted to rank and file employees.
tax on the
aroe

Principles following
statements

final
withholding Dssed Fringe benefits granted as a result of the nature of the
Which of the tax is a granted by he C.
1. benefit benet business, trade, or profession of the employer.
The fringe the fringe
value of
managerial
I. holds a or
up
monetary
employee
who
d. All of these.
employer
to an
supervisory position. regardless
of whether th.
the
benefit tax
is effective
partnership or a The following earnings are subject to fringe benefit tax, except
Fringe professional 6. Salary of a rank and file employee
I. an
individual,
corporation is tavah le a.
employer is of
whether the
Housing necessary for trade and for the convenience of the
(regardless b.
corporation
cover only those frinae employer
or not). regulations allowance for the convenience of the employer and
The fringe
benefit tax
or supervisory CFood
Il. furnished to managerial necessary in the conduct of the business
benefits givenor those benefits which
do not cover
The regulations b e c a u s e these
are subiect d. All of the above
employees. income,
of compensation in accordance
are part on compensation
withholding tax
The following
exempt fringe benefits, except for one
are
to creditable 7.
Fringe benefits given to rank and file employee.
amended.
as
with RR No.2-98, I, Il and lIlI a.
C. for the convenience of the employee.
a. only d. None of the above b. Fringe benefit given
l and ll only the fringe benefit is required by the nature of or
C. When
business or profession of the
forms of
incentives to employees. necessary to the trade,
2. Statement 1: Fringe benefits are services, or other
employer.
benefits include salaries, a month.
Statement.2 Fringe individual employee. d. Rice benefit amounting to P1,500
benefit given by employer
to an
1 is correct benefits tax?
benefits is not subject to the fringe
statement
a. Only
statement 2 is correct 8. Which of the following the employee
b. Only
a. Contributions of
the employer for the benefit of
C. Both statements are correct benefit plans
insurance and hospitalization
d. Both statements are not correct to retirement,
b. Housing
statements regarding fringe benefit tax is C. Expense account
3. Which of the following
wrong? d. Vehicle of any kind
a. Fringe benefit tax is imposed on the employee such
benefit born by the employer
b. The employer is the one liable for the payment of fringe Statement 1: Household of the employee
9. driver and other similar
personal
as salaries of household help,
tax
C. Both "a" and "b" taxable fringe benefits.
are
personal expenses to the fringe benefit
d. Neither "a" nor "b benefit which is not subject
Statement 2: A fringe employee.
4. This income of a resident alien holding managerial position is subject tax is returnable income of the
to basic tax
a. Statements 1& 2 are false
statement 2 is false
a. Fringe benefit tax b. 1 is true but
Statement
but statement
2 is true
b. Interest income from Philippine currency deposit with Security Statement 1 is false
Bank
C. Statements 1 and 2 are true
d.

164 165
 Chapter trerises
-
-

Friaye Benefit 7: kapter tercises ringe

The monetary value of
Beneft la
benefit tax is computed
based on the
14.
Fair market valuefringe benefit if
(BIR) or zonalgiven money is
in
10. Fringe of the fringe
benefit b. Amount granted value whichever is
a. Monetary value higher.
Book value of the fringe
benefit C. Depreciated value
b. the fringe benefit
C. Grossed-up monetary value of
benefit
d. Acquisition cost plus other incidental costs
d. Fair value of the fringe
15. St ement 1: if the employer
did not
grossed-up moneta withhold the fringe benefit tax
11. Which of the following
statements regarding etary and Subsequently isdiscovered
and assessed
by the BIR, the related
value is correct?
fringe benefittax not allowed as a
value of the fringe benefit is sime Simply gross income.
deduction from the employ
loyer's
The grossed-up monetary entire income earned by the
a figure meant to
represent the tatement Fringe benefit tax includes
2:
additional
employee. value includes the net amount a
the employer to tne employees in addition to the basicbenefit granted
salary.
by
. The grossed-up monetary a. Statements 1 & 2 are false
the net monetary value
of any propertu
money received, benefit tax. b. Statement 1 is true but statement 2 is false
amount of fringe
received, and the the fringe benefit io C.Statement 1 is false but
statement2 is true
I. The grossed-up monetary value of d. Statements 1 and 2 are true
the monetary value of the fringe beneft
determined by dividing
2018.
by 65% starting January 1, C. 1, l and Ill 4A Statement 1: The exemption of any
fringe benefit from the fringe
a. only benefit tax shall not be interpreted to mean exemption from any other
d. None of the above
b. I and ll only income tax imposed under the Tax Code except if the same is ikewise
expressly exempt from any other income tax imposed under the Tax
on which the fringe benefit tax
12. Which statement is wrong? The amount Code or under any other existing law.
rate is applied is:
a. The monetary value of the fringe
'benefit
benefit Statement 2: If the fringe benefit is exempted from the fringe benefit
b. The grossed-up monetary value of fringe tax, the same may, however still form part of the employee's gross
C. The amount deductible by the employer from his/its gross
income compensation income which is subject to income tax, hence, likewise
subject to withholding tax on compensation income payment.
d. Reflected in the books of accounts in the two accounts of
a. Statements 1 & 2 are false
"fringe benefit expense" and "fringe benefit tax expense" Statement 1 is true but statement 2 is false
b.
13. If both the fringe benefit expense and the fringe benefit tax expense c. Statement 1 is false but statement 2 is true
are allowed as deductions from gross income of a corporation, the d. Statements 1 and 2 are true
entry in the books of accounts is
a. Fringe benefit expense XXX 17. Cost of life or health insurance and other non-life insurance premiums
be treated as taxable
Fringe benefit tax expense XXX bone by the employer for his employee shall
Cash xxx fringe benefit, except benefit of the employee
b. Fringe benefit tax expense XXX a. Contributions of the employer for the
SSS and GSIS laws.
Cash XXX pursuant to provision of existing
for the group
C. Fringe benefit expense XXX b. Cost of premiums borne by the employer
Fringe benefit tax expense xxX insurance of his employees.
Income constructively XXX C. Both "a" and "b".
received d. None of the above
Cash xXX
d. Any of the above

166 167
 tringe Benefit lás Rasler ttercises Triny Bencfit T
Ctaer tterusis
benefit is true?
a. Statements 1 &2 are false
regarding fringe b. Statement 1 is true but
the following
statements
but which
are paid for
or
Statement 1 is talse but statement 2 is false
18. Which of incurred by the
employee
benefits, statement 2 is true
Expenses taxable fringe d. Statements 1 and 2 are
the employer
are
receipted for and
true
r e i m b u r s e d by are duly in
when the expenditures
expenditures do not
Dart Computation of FBT
EXCEPT and the
n a m e of
the employer a t t r i b u t a b l e to the
emplo
the expense
ee he
much is the allowable deduction from
the nature of
a personal
and file, whether granted
undera 22. stic Corporation which granted business income of a
the rank and paid
Benefits given to are subject to fringe officers in P97,500 fringe benefits
or not
to its key 2018?
collective bargaining agreement
a. P150,000
C. P99,000
benefit from the fringe benefit
benefit tax. tav
b. P100,000
of any fringe from any other d. 65,000
The exemption
to mean exemption
shal NOT be interpreted is likewise exempt by
law.
income tax unless
the same
C. I, and Il only 23. In
2018, ABC Corporation gave the following fringe benefits to its
employeees
only above
d. All of the To managerial employees
b. Iandlll only
To rank and file employees
P1,300,000
beneft tax include which of 5,000,000
SUBJECT to fringe
19. Fringe benefits NOT
the following? The allowable deduction from the gross income of the
authorized and exempted
from income tax
for the fringe benefits given to employees is corporation
I. Fringe benefits law.
under any special a. P2,000,000
under the Code or C. P6.320,000
of the employee
I. Contributions of the employer for the benefit b. P2,148,000 d. P7,000,000
and hospitalization benefit plans.
to retirement, insurance,
under a
II. Benefif given to the rank and file, whether granted 24, In 2018, ABC Corporation provided a 3-day vacation in Tagaytay to all
or not.
collective bargaining agreement of its employees of which 80% are rank and fle. Total expenses
IV. De minimis benefits. incurred by the company for the said vacation amounted to
C. All of the above
a. Iand Il only P1,200,000. The fringe benefit tax expense is
b. II and Ill only d. None of the above
a. P470,588 C. P84,000
benefits tax? b. P376,470 d. P129,231
20. Which of the following shall be subject to fringe
a. Housing privilege of Armed Forces of the Philippines.
b. Housing units situated inside or adjacent to business or factoory 25. Using the above data, the total deductible expense is
a. P1,294,118 C. P1,284,000
(located within 30 meters from the perimeter of the business. d. P1,329,231
C. Temporary housing for an employee who stays in the housing b. P294,118
unit for 3 months or less.
d. Housing privilege of an alien employee of an offshore banking Use the following data for thenexttwoquestions:
2018:
unit in the Philippines. From a managerial employee for taxable year
Salaries and wages- net of the following P681,200
12,000
21. Statement 1: Fringe benefits subject to fringe benefit tax is NOT -SSS and medicare contributions
among the items of gross income for purposes of computing the tax withheld 134,800
60,000
income tax liability under Section 24A of an individual employee.
Total fixed monthly allowance (P5,000/mo.)
48,000
Statement 2: A fringe benefit tax of 15% imposed on the grossed-
Allowance, not subject to liquidation 30,000
Gasoline allowance, subject to liquidation 68,000
up monetary value of the fringe benefit of an alien individual 13 month pay
employed 15,000
by regional or area headquarters of multinational Christmas bonus
company or by
regional operating headquarters of a multinational company.

168 169
 Chapter Etercises Tringe Ber
truje Benefit
Chapter Eerises
-

rate is
lag 31.
the
Assumne

company in
residential condominium
unit was purchased by the
allment for the executive's
subject to
graduated
free use.
income C. P816,000
of interest was
P3,000,000. At what Acquisition cost
26. The gross
compensation

d. P876,000
exany report
company report as the monthly monetary value ofamount should the
a. P440,000
the fringe benefit tax, the fringe benefit
b. P681,200
and respectively?
is
a. P4,166.67; P1,961 C. P2,000,000; P705,832
benefit

benefit tax
due from
the above
c. P24,941 P1.500,000; P326,400 d. P6,250;
P3,365
27. The fringe
a. P36,706 d. P25,846
32. Assume the
m e the residential condominium unit was
in installment, ownership of which will purchased by
b. P33,412 the
of the Monetary Value for any be transferred to the
on the
Determination
uisition
cutive. Acquis cost exclusive of interest was P3,000,000 with a
Special Rules Benefits nal value termined at P5,000,000. At what amount should the
and Vehicle
Housing company report as the monetary value of the
monetary value of a housin. fringe benefit and the
benefit tax, the
28. For purposes of the fringe
employee
where the housing i fringe benefit tax, respectively?
employer to ic a. P416,667; P196,078 C. P2,000,000; P705,832
benefit granted by as his usual place of residence
the employee b. P5,000,000;P2,692,308 d. P75,000; P35,294
provided for use by
owned by the employer.
depreciation for
the housing unit.
The amount of the fair market value the condominium unit
a.
value which 5% of
is 23 Assume residential was purchased by the
b. 50% of the annual
or zonal value,
whichever is higher. company in installment,costownership of which will be transferred to the
executive. Acquisition exclusive ofinterest was P3,000.000 witha
depreciation.
50% of the amount of determined at P5,000,000. The employee is required to
C.

d. Net book value zonal value

0av P2,000,000 to the employer before the transfer of ownershipis
for the annual rental of a made. At what amount should the company report as the monetary
29. In 2018, Mabuhay Corporation paid value of the fringe benefit and the fringe benefit tax, respectively?
manager amounting to
residential house used by its general
amount of Mabuhay Corporation is a. P3,000,000; P1,615,385 C. P250,000; P117,647.05
P637,500. The deductible
C. P468,750 b. P1,500,000; P326,400 d. P6,250; P2,941.18
a. P637,500
b. P318,750 d. P809,135
condominium unit is located in Cebu and that
34. Assume the residential months
to use the same for a period of three
Use the following datafor the nextfive questions:
executive was the free of
the executive is allowed
over-all performance of the
while he is completing an evaluation of
use the
Included in the compensation package of an
the company's residential condominium unit in Makati City, Philippines. amount should the company report
company's Cebu branch. At what benefit tax,
Data on the condominium unit for 2018 taxable year follows: as the monetary value of the fringe
benefit and the fringe

Fair market value in the Real Property Declaration P1,000,000 respectively? C. P2,000,000; P705,832
a. .P4,1667.67; P1,961
Zonal value 2,000,000 d. P0; PO0
b. P1,500,000; P326,400
Fair market value 2,500,000

30. How much is the monetary value of the fringe benefit and the fringe
benefit tax, respectively?
a. P4,167; P2,244 C. P2,000,000; P705,832
b. P50,000; P26,923 d. P6,127.45; P945,177

170 171
 ringe eucfit
hapler ,teruses rinye 13eneft Tag
tatter t n s lpha Company grants groca
ble allowance of P5,000
employee payable
every June 30 and per semester per
nextfive
questions: Accountant is
existing Com ensive December 31 basedsed on the
following data the package of the Chief
for dd in the nCar granted is:
Agreement with its employees
The benefit
Use the in the c o m p e n s a t i o n will be
transferre
name of
Included
P1.000,000.
The ownership a. Exempt from basic income tax
but subject to 10%
plan
worth
the car in
the n a m e
of the e m n l
groseee
withholding tax. creditable
the employee.
Assume the employer
purchases
the employer
report as the
beneftup
b. Exempt from basic income tax and to
creditable withholding
35. should the fringe tax
At what
amount
fringe
benefit and tax
value of the . Subject fringe benefit tax if the
to
monetary
c. P735,294; P235,294 employee recipient is a rank and file
respectively?
d. P500,000; P160,000
d. Subject to fringe benefit tax if the
a. P1.538,462: P538,462

b. P1.000,000; P320.000
emplbyee
recipient is a managerial
P800,000 to the
employee to pure
the employer provides is placed in the
ne
36. Assume Ownership of
the car ne A0. Fixed daily meal allowances granted employees are
vehicle of his
interest, brand new car Wor a. Exempt from income tax
any purchased a vorth
The employee as the
of the empioyee. should the employer report b. Subject to fringe benefit tax if the
At what amount recipient is a rank and file
P1.200.000. benefit and the fringe beneft
benefit employee
value of the fringe
grossed-up monetary C. Subject to fringe benefit tax if the recipient is a managerial
tax, respectively? c. P1,230,769; P430,769
a. P1.764706; P564,706 employee
d. P800,000; P256,000 d. Subject to basiC income tax regardless of employee's rank
b. P1,470.588: P470,588

installment in the name of

purchases the car in 41. Statement 1: Uniforms and clothing allowance not exceeding six
-

37.Assume the employer

At what amount should the employer reporttheas
thousand pesos (P6,000) per annum is an exempt de minimis benefit.
the employee. and the fringe benefit
value of the fringe benefit Statement 2: Actual medical benefits not exceeding P10.000 per
grossed-up monetary
tax, respectively? annum is an exempt de minimis benefit.
a. P1,470.588; P470,588 c. P130,000; P45,500 a. Statements 1 & 2 are false
b. P1,000,000; P320,000 d. P200,000; 64,000 b. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
DE MINIMIS BENEFITS d. Statements 1 and 2 are true
or privileges furnished
38. Statement 1: De minimis benefits are Facilities
or offered by an empioyer to his employees
that are of relatively small which are not
42. Other benefits received by employees from an empioyer
value and are offered or furnished by the employer merely as a
means
amended, are:
in the list of de minimis benefits under RR 8-2012, as
of promoting the health, goodwill, contentment, or efficiency of
his
if the benefits are of relatively small
a. Treated as de minimis
employees. value and are offered or furnished by the employer merely or
as

Statement 2: De Minimis benefit given to rank and file, employees or goodwill, contentment,
a means of promoting the health,
to managerial or supervisory employees are not subject to final
withholding tax for fringe benefit and creditable withholding tax.
efficiency of his employees.
of the value, if such benefits
a. Statements 1& 2 are false b. Treated as de minimis, regardless
the employer merely as a means of
b. Statement 1 is true but statement 2 is false are offered or furnished by of
contentment, or efficiency
Statement 1 is false but statement 2 is true promoting the health, goodwill,
d. Statements 1 and 2 are true his employees. provided in the
because the list
as
C. Not de minimis benefits
inclusive.
regulations are all
d. None of the above

172 173
 terClsc ises - fringe Benefit Tag
Eortses- ringe Benefit t,
Tag
Chapter The excess of de minimis
benefits
rescribed underthe regulations shall over their respective ceilin9s
be
which are paid for by the emplovo.
Considered as part of other benefits subject to tax
business expenses business
meetinaOr over the
excess Pg90,000 ceiling. only on the
to attend Or
is NOT tr
Reasonable
43.
travel of his
employee
? Not be considered in
benefits excluded tromdetermining
benefits.
Which b. the P82,000
the foreign taxable as fringe ceiling of other
not and local the gross
conventions are
(food,
beverages, income under the Code, as
Inland travel
expenses
cost a hotel or
in similar amended.
I.
except lodging of US$300 or less. Both "a" and "b"
transportation)
amounting
to an average per C.
Neither "a" nor "b"
establishment benefit tax. d.
to a fringe
not be subject airplane ticket shall
day, shall and business class

1. The cost of economy

benefit tax.
However, 30% of the inimun Wage Earners (MWEs) receiving "other benefits" exceeding
not be subject
to a fringe to a fringe limit shall be
ticket shall be subject the P90,000
class airline
cost of first a. Taxable on the excess benefits only
benefit tax. documents proving the Taxable on the excess benefits
be supported by b. as well as his salaries, wages
The expenses should conventions, otherwise
l.
actual
of the meetings
occurrences
or and allowances, just like an
employee receiving compensation
treated taxable fringe benefit. income beyond the statutory minimum wage.
they shall be C.1,lland llI C. Exempt from income tax
a. lonly None of the above
b. Iand Il only
d. d. None of the above

thousand pesos (P2,000) or one 48. The amount of P90,000 under "other benefits" which are excluded
Rice subsidy of two
44. 1s Statement
month amounting to not more than two from gross income shall
sack of 50 kg. rice per
de minimis benefit. Not be applicable to self-employed individuals.
thousand pesos is an exemptachievement awards, e.g., for length of
Employee I. Not be applicable to income generated from the conduct of
2 Statement must be in the form of a tangible
service, or safety achievement, which trade or business.
certificate, with an annual
personal property other than cash or gift Il. Shall be applicable to all types of income
monetary value not exceeding ten thousand pesos received by an a. lonly C. I, Il and Il
under an established written plan which does not b. Iand ll only d. None of the above
employee
discriminate in favor of employees is an exempt de minimis
highly paid
benefit. 49. "Other Benefits" under revenue regulations include
a. Statements 1 & 2 are false Christmas bonus
b. Statement 1 is true but statement 2 is false Productivity incentive bonus
.
C. Statement 1 is false but staterment 2 is true
II. Loyalty awards
d. Statements 1 and 2 are true nature
IV. Gifts in cash or in kind and other benefits of similar
received by officials and employees of
both
45. The amount of de minimis benefits conforming to the ceiling of de actually
minimis benefits shall be: government and private offices
C. I, ll and llI
a. Exempt from income tax, regardless of the rank of the a. Ionly
b. Iand Ill only d. 1, I1, Il and IV
employee
b. Not be considered in determining the P90,000 ceiling of other month
benefits excluded from the gross income under the Code, as u. Which of the following statements regarding
thirteenth (13
amended. pay is correct?
other benefits received by
C. Both "a" and "b" a. Thirteenth (13t month pay and
entities are
d. Neither "a" nor "b"
officials and employees
of public and private
creditable withholding tax on
exempt from income tax and

174 175
 Chaster terusts triaye Benehi Ta
the total exclusion o
compensation, provided that al no
exceed P90,000.
over the ceiling woul
b. The excess of de minimis benefits Would form
e total O
income only if the
part of an individual's gross total
exXCBs
benefits including bonuses exceeds P90,000 and wAes
would
subjectto income tax and applicable final withholding tav
C. Statements "a" and "b" correct
are
taxes
d. Neither statement "a" nor "b" is correct

51. Pedro, single, is a minimum wage earner of EDT Manufact

Corporation. In addition to his basic minimum wage of P144.00 actuning
2018 taxable year, he also received the following benefits:
Holiday pay, P25,000
Overtime pay, 12,000
Night shift differential, 19,000
The income subject to tax should be:
a. P56,000 C. P200,000
b. P31,000 d. nil

52. Pedro, single, isminimum wage earner of EDT

a
Corporation. Inaddition to his basic minimum Manufactunina
2018, he also received the wage of P144.000 for
following
De minimis, P60,000 (P20,000benefits
over the
13 month pay and other ceiling)
Pedro's income tax due should benefits, P122,000
a. P20,000
be:
C. P52,0000
b. P32,000
d. PO
53. Pedro, senior citizen, is
Manufacturing minimum wage earner
a
Corporation. Pedro is of EDT
consumer
products every weekend. alsoHeengaged in trading various
amounting
minimum
to P500,000 for 2018
taxable
derived profit therefrom
wage of year. In
received the followingP144,000 for 2018 taxable addition to his basic
De minimis, P40,000 additional benefits from year, he likewise
his
13th month pay and (all within the ceiling)employer
other benefits, P35,000
Pedro's taxable income
a. P644,000 should be:
b. P594,000 C. P500,000
d. P350,000

176
Chupler
Co-Ownership, Estates and Trusts

CO-OWNERSHIP

There is co-ownership when two or more heirs or beneficiaries

inherit an undivided property from a decedent, or when a donor makes a
gift of an undivided property in favor of two or more donees. Inheritance iss
subject to "Estate Tax" while Donation is subject to "Donor's Tax". Both
taxes are not income taxes but classified as "Transfer Taxes" which are
discussed in Volume 2 (Transfer and Business Taxation). Nonetheless,
incomes from such properties are subject to income tax.

Co-owners are taxed individually on their distributive share in the

income of the co-ownership. Meaning, co-ownership itself is not taxablee
for the reason that the activities of co-ownership are generally limited to
the preservation of the common property and the collection of the income
therefrom. Should the co-owners invest the income in business for profit,
they would be constituting themselves into a partnership and such shall be
taxable as a corporation as discussed in Chapter 6 Income Tax of a
Partnership.
When inherited property remained undivided for more than ten
the
years and no attempt was ever made to divide the same among nor held
O-neirs, nor was the property under administration proceedings
in trust, the property should be considered as owned by an unregistered
Parnership, consequently, taxable as corporation.

177
 Ca-amershid, Estates and rust
010nership, Estates and lrusts
Ouestion 3: What is the
applicable tax for the
LLUSTRATION 1: of the property from Noy to his heirs? gratuitous transfer inheritance)
of improvin
Answer: Estate Tax
tor tne purpose Estate taX
CASE A: a parcel
of land he and Donor's tax
(transfer taxes)
and Fe "bought"'
are discussed in volume 2.
Ana, Lorna interested
tenants.

s a m e before
leasing it out to Question 3: How much is the taxable
income of the
created? Answer: none co-ownership?
co-ownership A
Question 1: ls a cO-ownership Is not a taxable person
Answer.. No. undiviaed, T was acquired
by the owno distributed or shared by the
or
entity. Its income, however, Is
may be hot heirs/donees, thus, taxable to them in their individual
Though the property
transter (inheritance
or donation)
but by purchasa capacity.
through gratuitous of co-ownero
Fe fomed a parnersnp, nstead
Ana, Lorna and taxable as a corporaion. Consequently, Ana.
I
Partnership is generally tax purposes. Inco
Question 4: How much is the taxable income
of Allan in 2019?
"shareno/ders" Tor income
and Fe shall be considered
are aisCussed in Chapter 6.
Answer: P7,000,000
as well as the partners Solution:
tax of apartnership
Gross income of Allan
Allowable business expenses of Alan P6,000,000
CASE B: an undivided Share in net income of the (3,000,000)
resident citizen taxpayer died leaving co-ownership 4,000,000
On January 1, 2018, Noy, a
Mar and Pacquito valued at P60,000,000. The [(P15M-3M) 13]
parcel land to his heirs Allan,
of rentals. In 2019 Taxable income
P7,000,000
income producing property primarily through
property is an
the earned gross rentals amounting P15,000,000
to while expenditures
property Question 5: How much is the income tax payable of Allan in 2019?
was P3,000,000.
necessary to cary out the operations
Answer: P2,090,000
Taxable income P7,000,000
On the other hand, the heirs, who are all engaged in businesses in their own
TAX DUE (using the graduated tax
individual capacity, provided the following data for 2019 taxable year:
1st P2,000,000
rates)
P490,000
In excess of P2M; (P5M x 32%) 1,600,000
Allan Mar Pacquito Income Tax Payable P2,090,000
Gross business income P6,000,000 P5,000,000 8,000,000
Business expenses 3,000,000 2,500,000 6,000,000 INCOME TAX OF AN ESTATE
Income subject to final taxes (net) 200,000 320,000 500,000 Income tax of an estate refers to the tax
on income received by the estate during the A transfer tax is a tax on
Question 1: Is a co-ownership created? gratuitous transfer of property
period of administration or settlement. An
Answer: Yes. estate" is a mass of ali the property, rights, either through giftdonation
Since the property is undivided, the heirs are considered co-owners.
and obligations of a deceased person which Subject to donor's tax) or
The estate of Noy valued at P60M is through inheritance (subject to
not subject to income tax but to estate are not extinguished by his death, including
tax (a transfer tax discussed in Volume estate tax). A transfer tax is
2). those which have accrued thereto since the not an income tax because
Question 2: Assuming Noy was able to secure a opening of succession. For instance, the there is no taxable income
land titles were issued by the partition and three separate parcel of land. worth P60,000,000 in realized from the passage of
government before his death, naming his heirs as of
the rightful owners in his last will and
testament, is a co-ownership created'? ustration 1, CASE B above is the estate
to his
property to the heirs upon the
Answer: No. Noy. The passage of his property death of the decedent.
Tax
The property invoved is not an
undivided property. heirs upon his death is subject to Estate
Transter
(Refer to Volume 2 Business -
and
Taxes).

178
179
 (0
Estates and T 0unersha, lstales and Truts
Co-ownersha "usts Applicable tax

to the
period when tit The taxable come oí the estate is omputed t e same
Period"
refers al taxpayer. on549uerdy. the tar in
manner a
transferred
an die rereire mpusted s
finally e
araduated
usinga Code (as incOrre
Settlement

or is not yet decethe

the tar rate, for indtviduais under Setion
"Administration

a
decedent named by in ameriged under RA 1063 241)
left by
executor

properties period,
the a d m i n i s t r a t o r
appointed
he of the aw). Likewise, an esats is therwise known as tre
the
At this the
the administrat Tequired tn adopt the caiendar
ccounting period. nere pfior to the settiement of the estats.y+a
heirs/beneficiaries.
or
testament",
if any,
in-charge of the ri of "TR the
will o r d i s t r i b u t e d to

his "last be, is

temporarily
finaly
as r or administrator Sels property of a
c a s e may e s t a t e is thue decedent's estate for more
court, a s
the
such time
that the may
e a r n income,
the exe a0praised value place upon t at
the decedent s death, the
the e s t a t e until administration,
the estate
tha e taxable to the estate. Where the heir selis the property ater eesthe
under paid.
heirs. h i l e s h o u l d be Is
corresponding
income tax ment, the heir is taxabiE ingividuaily oni any profit derived
ILLUSTRATION 2:
following to
his lawful
heirs:
cOADUATED TAXRATEfor Individuals,
GRAD
Estates and Trusts
the TRAIN LAW-TAXABLE YEAR 2018-2022
PRIOR to 2018 2023 onwards
died leaving P5,000,000
A decedent TAX IMCOME TAX
Cash 15,000,000 INCOME

House and lot 5,000,000 5% Wt ver P250,000 Exempt Exempt

Not over

parcel
Vacant
of land 30,000,0000
P10,000
Commercial building 5,000,000 over
Over P250,000 but 20%h of excess over 15% of excess

Vehicles P60,000,000 Over P10,000

P500+10%in
P250,000
upon death) excess of P10,000 not over P4)0,000 P250.000
Total (@ FMVs büt not over
upon his death are not
be received his lawful heirsthe heirs' taxable P30,000
The properties to of computing P22.500 20% in
income for purposes Over P400.000 but P30,000+25% in
income. P2,500 +15% in
part of their gross the definition of
does not come Within
Over P30,000
not over P800,000 of P400,000
excess of P400,000

income because it
excess
excess of P30,000
but not over
extrajudicially.
judicially o r
edent may
be settled in a court P70,000 P102,500+ 25% in
estate
The estate of a settlement of a n
Over P800,000 but P130,000+ 30% in

pertains to or
beneficiaries P8,500+20% in excess of P800,000
Judicial
settlement
settlement,
the heirs Over P70,000 excess of P800,000
inheritance. notOver
while in extrajudicial estate or their but not over
excess of P70,000
proceeding distribution of the P2,000,000
t h e m s e l v e s the
settle for P140,000 P402,500 + 30% in
or
administration
Over P2,000,000
P490,000+32% in
settlement P22,500+ 25% in excess of P2,000,000
Classification of Estates under Over P140,000
but not over
excess of

udicial"
Fiduciary/trustee files the ITR but not over
excess of P140,000
P2,000,000
Estate under administrator/executor) P8,000,00
P2,202,500+ 35% in
due thereon. P250,000
administration
and pays the tax
2,410,000+35%

Over P8,000,000 excess of P8,000,000

P50,000+ 30% in in excess of

beneficiaries file
the ITR of Over P250,000
Heirs and thereon. but not over
excess of P250,000 PB,000,000
Estates not under
"judicial" the tax due
the estate and pay
administration P500,000
ntraiudicial setlement o00 t 3?h in
 Cwnership, Estates and Trusts
Shown belowisthe pro-forma computation of the taxable income of
the estate and the heirs/beneficiaries:

Taxable income ofthe Estate

Gross income
Less: Deductions
Pxxx
Business expenses
Pxxx
Special Deduction
Distribution of estate 's income to beneficiaries XXX
Taxable income of the Estate
Pxxx
TaxDue Graduated Tax Rate] Pxxx
Taxable Income of the Beneficia
Compensation income, if any
Net income of the beneficiary from business PxXx
andlor practice of profession
Add
Amt. received from the income of the estate XXX
Taxable income PxXx
Tax Due Graduated Tax Rate PXXX

ILLUSTRATION 4:

On November 1, 2017, Juan Dela Cruz died leaving various property worth
The properties are income
P30,000,000 to his heirs; Pedro, Ana and Lorna.
The net income from rentals for 2017
producing properties deriving rental income. testament" was executed by the
amounted to P2,500,000. A "last will and
under
as the executor. In 2018, (while
decedent prior to his death assigning GJ
earned P4,750,000 (net of 5% creditable withholding tax
administration), the estate
on rent) and incurred operating expenses
of P2,000,000.

from the income of

Pedro (one of the lawful heirs) received P200,000
During 2018, were as follows.
the estate. Pedro's other income and expenses
Compensation income P800,000
1,500,000
Business income
Business expenses
600,000

183
 Estates and Tru.
Co-ownershis, rusts AXATION OF TRUSTs
0-wnership, Estates and Trusts
administration, how mih
uch
that the estate
is still under the Trust is a right on property, real or
benefit of another. It may be arrangedpersonal, held by one party for
Assume
Question 1:
in 2018?
taxable income of the estate the
under hich title to a prOperty s passed to inter-vivos or created by will
Answer: P2,800,000 estment with the income another for conservation or
therefrom and
Solution:
(4.75M+ 25M) P5,000,000 invedistributed in ultimately the corpus
(principai)
"Gross"rental income
Allowable business expenses
(2,000,000) to
be
expressed accordance
in the overning
with the
instrument. directions of the creator as

of income to
Pedro (heir) (200,000)
Distribution

Taxable income
P2,800,000 Trust agreement allows individuals to create sustained
lividual or entity. For instance, a benefits for
an in parent may place a sum of
much is the
taxable income of
Pedro? or other types of financial assets such money
in the hands of a trustee for the benefit of equity
Question 2: How prop as and debt
P1,900,000 computed as follows
nts
i n s t r u m e n t s

Answer:
Compensation income
P800,000 minor child.
an
incapacitated or

1,500,000
Business income
(600,000) TRUST:
Business expenses PARTIES to a
Amt. received from
the income of the
estate 200,000 Trustor
Person who establishes a trust.
P1,900,000 Trustee- One in whom confidence is
Taxable
income
of another person.
reposed as regards property for
the benefit
Beneficiary Person for whose benefit trust is created.
-

Settlement Fiduciary- any person or corporation that holds in trust an estateof

Termination of JudicialVExtrajudicial
or persons. A fiduciary may exist only if a legal trust is
another person
judicial/extrajudicial settlement of the
After termination of created
the property but instead
still do not divide
estate where the heirs with intention to Trusts
contribute to the estate money,
property, or industry Taxability of Income of
themselves, an unregistered partnership
divide the profts betweenlamong of corporate be taxable to the trustee, beneficiary
or
becomes liable for the payment The income of a trust may
is created and the estate October 15, 1957;
income tax. (Evangelista vs.
Collector, GR No. L-9996, grantor, a s the case may
be.
No. L-19342, May 25, 1972).
Oña vs. Commissioner, GR

On the other hand, if the heirs,

without contributing money, Taxabletothe "Trustee"it income is to be
the estate, simply divide
the fruits thereof
The income of the trust taxableto
is the "trustee" if the income or
property or industry to improve is created, and
individual
future distribution,
whether ordinary
between/among themselves, a co-ownership accumulated or held for The imposition
of the heirs, of the trust.
income received by each included in the corpus be a
income tax is imposed on the gain from sale of
assets
ultimate beneficiary may
and individual capacity. (Pascual Vs. affected by the fact that the administered in a
payable in their separate of the tax is not trust
October 18, 1988;
Obillos vs. the income of a
Commissioner, GR No. L-78133, from tax. Likewise,
Derson exempt the trustee.
Commissioner, GR No. L-68118, October 1985). 29, foreign country is taxable to
 states and Trts ,

ownershib, states dnd Trusts

helow iis
Shown below the
pro-forma computation of the
Trustand
a Beneficiary: taxable income of
of the c o r n . a
title to any part
"Grantor/Trustor"if
Taxableto the term trust, the TOr Trust
Taxableincome ofthe
U n d e r the of the to the grantor (Revocable
trust may be revested be revested to S t)
the Gross income
principal of principal that may grantor
of the corpus or Less: Deductions
The income Pxxx
the grantor. distributed for the benefit n t
shall be taxable to held or the Business expenses
trust may be
The income the
of Special Deduction: Pxxx
be
grantor trust, the
income of thetrust shall appliedo
for Distribution of trust's income to beneficiaries
Under the term ofthe Taxable income of the Trust XXX
the benefit of the grantor. Pxxx
|TaxDue |Graduated Tax Rate]
Pxxx
Taxable to the Beneficiaries
The income of the trust is
taxable to
Special Deductions:
Taxable Income of the Beneficiary
the income is to be Compensation income, if any
the beneficiaries if . Distribution of the
distributed to the beneficiaries.
Ih such a Net income of the
year's income to an beneficiary from business Pxxx
include in their heir or beneficiary; andlor practice of profession
case, the beneficiaries
return their distributive share in
the net and d:
income of the trust. The distribution of 2. Amount collected by
Amt. received from the income of the trust
a guardian of an XXX
the year's income to an heir or Taxable income of the Beneficiary
infant which is to be Pxxx
beneficiary is a special item of deduction held or distributed Tax Due [Graduated Tax Rate Pxxx
for the trust. At the same time, the
as the court may
income distributed (actual or
direct.
constructive) shall be treated as a
Classification of Trust
special item of income to the
1. Ordinary Trust- the income and corpus of the trust do not revert to the
heir/beneficiary. grantor. The trust income is accumulated and held for distribution too
are not allowed in case of a trust administered in a the beneficiaries. Under the Tax Code, ordinary trust is any of the
Special deductions
following trusts:
foreign country [Sec.61(C)-NIRC].
A trust where the income is accumulated or held for future
Computation of Taxable Income distribution under the terms of a will trust.
The principles applied in computing the taxable income of an estate, A trust where the income is to be distributed currently by the
as previously discussed, is also applicable in the determination of the fiduciary to the beneficiaries.
benefit of
taxable income of a trust. Hence, the Trust's taxable income is likewise A trust where the income is accumulated for the
in with contingent
computed the same manner as an individual taxpayer, except that the unborn or unascertained person or persons
basic personal exemption allowed is limited only to P20,000 (Section 62-
The tax due is also
interest. of a infant is
NIRC). based on the graduated rates provided under A trust where the income collected by a guardian
Section 24(A) of the Tax Code as shown in Table 2-2 of Chapter 2. and
held or distributed as the court may direct;
Moreover, calendar period shall be used as accounting period for tax is at the discretion of fiduciary, may
A trust where the income,
purposes. A trust is required to adopt the calendar year as its accounting beneficiaries or accumulated
be either distributed to the
period.

186 187
 Ce-oanerstis, Estates and
rusts t-ownershib, Estates and Trusts
trust where at any time
nsolidated Inco e Tax Returns (Two or more
63-NIRCH a
or th
the Where two or more
trusts is created trusts)
Revocable Trust (Section corpus
of the corpus of the
2. title to any part trust is the sam by the same
person, the following rulestrustor or grantor
grantor, same ne
revest in the the beneficiary
power to and shall apply
IS vested: or in
I n the grantor
either alone a The income of
1 taxable
The taxab income of all the
trusts shall be
not having mputed on such consolidated consolidated and the tax
conjunction with any person such part of the
the income.
ncolidated income shal be apportioned toThethetaxdifferent
adverse interest in
substantial of trust shall be computed on the
disposition of such part
of the corpus
included in
ach
that each trust shall have a share in
the income tax on
trusts, such
the income therefrom;
or
substantial computing the income.
consolidated
having a
In any person not
the disposition of
such taxable income The format of computaton follows (Tax Apportionment):
adverse interest in of the grantor
income
or the T
part of the corpus Sec. 63, NIRC). Apportioned Taxable income of the trust X Consolidated
therefrom. to a Trust Taxable income of all trusts income tax
not apply to employee's trust
3. Employees' Trust income tax shall Such proportion or said tax shall be assessed and collected from each
of pension, stock bonus, or profit-sharing plan of an
which forms part trustee which the taxable income of the trust administered by him bears
of some or all of his employees [Section
employer for the benefit to the consolidated income of the several trusts. Each trust shall pay an
income of an employees trust is likewise exempt
60(B)-NIRC]. The income tax still due or payable computed as follows:
as well as income derived from the
from the payment of final taxes Income Tax apportioned to a trust PxXx
funds are sourced from the employees
sale of real property whose Less: Income tax already paid
Pension Foundation, Inc. vs. CA and Xxx
trust fund [Miguel J. Ossorio Income tax payable Pxxx
CIR(G.R. No. 162175, June 28, 2010)1.
Trust ILLUSTRATION 5:
Requisites or Conditions for Exemption of Employee's
The employee's trust must form part
of a In 2018, George created three (3) trusts for his minor daughler. The following data
of were furnished by the trusts during 2018:
pension, stock bonus, or profit-sharing plan Income Tax Paid
an employer for the benefit of some or
all of Any amount Trust Gross Income Expenses Net Income
actually distributed 1 P5,000,000 P2,500,000 P2,500,000 P500,000
his employees
Contributions are made to the trust by such to any employee 2 10,000,000 5,000,000 5,000,000 1,200,000
employer, or employees, or both; or distributee shall
15,000,000 7,500,000 7,500,000 2,000,000
T h e contributions are made for the purpose of be taxable to him
in the year of and 3
distributing to such employees the earnings
distribution, to the Required: Compute the income tax payable of Trust 1,2
and principal of the fund accumulated by the Consolidated Tax Due
that it P30,000,000
trust in accordance with such plan; extent
Consolidated Gross Income
exceeds the amount
Under the trust instrument, it is impossible at
Consolidated expenses
(15,000,000)
contributed by such
any time prior to the satisfaction of all liabilities
Consolidated taxable income P15,000,000
or
with respect to employees under the trust, for employee
any part of the corpus or income to be (within distributee.
the taxable year or thereafter) used for, or Tax Due Section 24(A)] P2,410,000
diverted to, purposes other than for the On 1st P8,000,000 4.450,000
exclusive benefit of his employees. In excess over P8M35% P4,860,000
Due
Consolidated Income Tax

188 189
 Estatus and . .
C-cunestis, Trusts PROBLEMS
P4.1. (Estate)
of Trust 1 P4.1 d
Income Tax Still Due/Payable P810,000 two (2) years ag0 leaving an
His heirs were Louie andundivided
Trust 1 Pedro
Tax Apportionment to entals. property deriving
(2.500/15,000 x P4,860,000) from ation throu
administration through the decedents Floyd. The income
Less: Income tax already paid
(500,000) executor. The
property is under

Income tax still due/payable P310,000 provided in 2018: following data were

of Trust 2 Rental income of the estate

(gross of 5% tax)
Income Tax Stil Due/Payable
Trust 2 P1,620,00o Deductible operating expenses estate P800,000
Tax Apportionment to
(5,000/15,000 x P4,860,000)
420,000
Less: Income tax already paid (1,200.000) Personal Income/Expenses of the heirs:
Louie Floyd
Income tax still due/payable P420,000 Gross business income
P 325,000 P 380,000
Deductible businesS expenses
Dividend from domestic corporation 117,000 105,000
Income Tax Stil Due/Payable of Trust 3 25,000
Tax Apportionment to Trust 3 P2,430,000 Dividend from foreign corporation 30,000
12,000 8,250
(7,500/15,000 x P4,860,000) Prize, supermarket raffle
15,000 7,500
Less: Income tax already paid (2,000,000) Royalty, books
10,000 18,000
Income tax stilldue/payable P430,000 Additional Information
Louie is married with 2 dependent children while Floyd is single
without dependent children.
Filing of Income Tax Returns Required: Determine the following:
The following persons acting in any fiduciary capacity shall file the 1. Income tax payable of the estate
income tax return for an estate or trust (Section 65-NIRC) 2. Income tax payable of Louie
Guardians 3. Income tax payable of Floyd
Trustees
Executors/administrators
P4.2. (Estate)
Receivers Pedro died two (2) years ago leaving an undivided property deriving income
Conservators
All other persons from rentals. His heirs were Louie and Floyd. The property is under
or corporations acting in any fiduciary çapacity administration through the decedent's executor. The following data were
In case of two or more joint fiduciaries, return filed provided in 2018:
shall be a sufficient compliance with the
by one of them
The return may be filed in
requirements of the Tax Code.
Rental income of the estate P1,000,000
Authorized agent banks; Deductible operating expenses (estate) 500,000
Revenue District Officer; Income distributed to Louie 50,000
Collection agent; Income distributed to Floyd 50,000
Duly authorized city or municipal Treasurer in which the Dividend income from domestic corporation 100,000
has his legal residence or taxpaye 200,000
principal place of business. Interest income from U.S. $ deposits
Interest income from peso deposits 100,000

190
191
 rercises - Co
Chapler
Chapter Erervises
- Co-cenerskip,
Estates and
Trusts shib, Estates and Tusts
of the heirs: Required: Determine the
following:
Personal
Income/Expenses Louie Floyd 1. Income tax payable of the
P 325,000 P 380,000
Income tax payable of Pedro
trust
2.
Gross Income 117,000
25,000
105,000
Deductible expenses

from domestic corporation

12,000
30,000
Dividend
corporation 8,250
from foreign 15,000
Dividend
7,500
Prize, supermarket rafle
10,000 18,000 TDIE
MULTIPL CHoICE.
Ch0ose the letter of
the correct answNer.
Royalty, books
It arises when
es when ttwo or more
heirs or
1. beneficiaries
inherit an undivided
property from a decedent, or when a donor makes a
Additional Information:
children while Floyd is sin nroperty in favor or two or more donees gift of an undivided
Louie is married
with 2 dependent single a. Partnership
without dependent children. C. Joint account
b. Trust
d. Co-ownership
the following:
Determine
Required:
1. Income tax payable
of the estate Which of the following shall
qualify as co-ownership?
2. Income tax payable
of Louie I. Succession by several heirs to an undivided estate, the estate is
of Floyd not under administration;
3. Income tax payable
II. Donation of property to two or more beneficiaries.
a. Both I and II C. I only
P4.3. (Trust)
favor of Pedro. A large sum of money was b. Neither I nor II d. II only
Mr. Masigasig created a trust in
income of which is accumulated in favor of
entrusted to BDO (Trustee), the
Pedro. The following data were provided: Usethe following data for the next three (3)questions:
Gross income of the trust P3,000,000 Ana, Lorna, and Fe, are the heirs of Pedro who died on Nov. 1, 2017. The

Deductible business expenses of the trust

1,800,000 properties of Pedro comprised solely of real property valued at P50,000,000 at
Income distributed to Pedro during the year 200,000 the time of his death. The property is primarily deriving rental income. In
100,000
Dividend income from domestic corporation 2018, the property remained undivided and it derived a net rental income of
Dividend income from resident foreign corporation 100,000 P15,000,000.
Interest income from U.S. $ deposits 200,000
Interest income from peso deposits 100,000 3. For income tax purposes, the heirs will be tax on net rental income from

the inherited property for the year 2018 as:

Personal Income and Expenses ofPedro
Compensation income 800,000
a. Partners in a commercial partnership
b. Partners in a general professional partnership
Rental income (net) 475,000 C. Partners in an unregistered co-partnership
Rental expenses 80,000
d. Co-owners
Royalty income, books 300,000
Other royalty income 120,000 as taxable income of
the co-ownership?
4. What amount should be reported
Dividend from domestic corporation 30,000 C. P14,980,000
Dividend from foreign corporation a. P50,000,000
8,250 b. P15,000,000 d. nil
Prize, S&R raffle 15,000
Lotto winnings 10,000,000 individual returns as their
heir report in their
Tax payments (Quarter 1-3) 120,000 What amount should each
income of the property they
inherited?
share in the net rental
C. P10,000,000
a. P50,000,000 d. P5,000,000
b. P15,000,000

192 193
 rercuiscs(aoenerstis, tstates andd Irust
t: Chapler terises t dwnership
Chusler
ales and Trusts
co-ownership taxable?
10. Incomne received by the estate
6. Question 1: Is a
of co-owner taxable?
settlemer of theeestate, for tax during the od of administrati
Question 2: Is the share a. Income of the purposes
ses is or
estate known as
because the activities of the b. Income of the heirs C.
Income of
Answer to Question 1: No, of the property and the collectionS Owners the
are limited to the preservation of Income of the trustee
d.
testator
11, Statement 1:
For taxation
income therefrom.
ined in the
all be determined purposes, the taxable
same manner income of the estate
Yes, because each cO-owner is ed individual taxpayers. and basis as
in the case of
Answer to Question2
individually on their
distributive share in the income of the
ne
CO afement 2: The income from
the estate is
personal exemption of P20,000 no
longer allowed to deduct
ownership.
questions are correct. a. Statements 1 & 2 upon effectivity of RA10963.
a. Answers to both are false
for Question 1 is wrong. b. Statement 1 is true
b. Only the answer but
C. Only the answer for Question
2 is wrong.
CStatement 1 is false but statement 2 is false
d. Answers to both questions are wrong. d. Statements 1 and 2 are statement 2 is true
true
7. Statement 1: Co-owners are taxed individually on their distributive share
e 12 The following statements
in the income of the co-ownership.
rerer to the rules
income and the applIcable incorme tax
in
determining the taxable
Statement2: If co-owners invest the income in a co-ownership
in statements is correct? liability of an estate. Which of the
business for profit, they would constitute themselves into a partnership I. The items of gross income of the
and as such shall be taxable as corporation. estate are the same items as
the items of gross income of
individual taxpayers.
a. Statements 1& 2 are false
b. Statement 1 is true but statement 2 is false
II. Deductions from the gross income of the estate are the
the items of deductions allowed to same as
an individual
C. Statement 1 is false but statement 2 is true III. In addition to the allowable taxpayer.
d. Statements 1 and 2 are true deductions under Section 34 of the
Tax Code, the estate is allowed to
deduct the amount of income
of the estate during the taxable
8. When will an inherited property be considered as owned by an year that is paid or credited to
the legatee, heir or
unregistered partnership? beneficiary.
IV. The amount of income of the estate
When the property remained undivided for more than ten (10) or credited to the
during the year that is paid
years.
legatee, heir or beneficiary is subject
to final
withholding tax of 15%.
. When no attempt was ever made to divide the same among the
a. I and II only C. I, I1, II and IV
co-heirs, nor was the property under administration proceedings
b. I, II and II only d. None of the above
nor held in trust
a. Only condition I is required. 13. Which of the
b. Only condition II is required following is included in the income of the estate of a
C. Conditions I and II are required decedent?
d. None of the above a. Income received by the estate of a deceased person during the
period of administration or settlement of the estate.
9. It composed of all the property, b. Excess of selling price over the appraised value placed upon the
rights, and obligations of a deceased
person which are not extinguished by his death, including those which property at the time of death, where the property was sold after
have accrued thereto since the the settlement of the estate.
opening of succession. C. Appreciation in the value of property passed to the executor or
a. Estate C. Legatee
b. Devisee d. Testator administrator upon death of decedent.
kind to legatee or devisee.
a. Delivery of property in

194
195
 Chapter terises
ment 1: The income
Onerskip, Lstales dnd Trusts
18. Staten
of the
during the year is subject to final estate distributed to the beneficiary
withholding tax of 15%
2: The
Statement 2:
withholding tax on the income
is creditable
heneficiary against the total
tax distributed to the
a. Statements 1 & 2 are
false liability of the beneficiary.
b. Statement 1 is true but
statement 2 is false
CStatement 1 is false
but statement 2 is true
d. Statements 1 and 2
are true
19. Statem nt 1: Where prior to
the
or
administrator sells property settlement of the estate, the
of a executor or
lue place upon it at decedent's estate for more than the
praised value
the decedent's
income taxable to the estate. death, the excess is
atement 2: Where the devisee, legatee, or
Sta
the settlement, the devisee, legatee, or heir heir sells the property after
is taxable
profit derived. individually on any
a. Statements 1& 2 are
false
b. Statement 1 is true but statement 2 is false
Stateme is false but
statement 2 is true
d. Statements 1 and 2 are true

Use the following data for the next two questions:

Alamahinga Nha died lin 2017 eaving an estate
worth P10,000,000. The
estate is under administration. In 2018, the
properties in the estate earned a
aross income of 600,000 and the estate incurred
of
received P120,000 from the income of the P150,000.
expenses
Francis, one of the heirs, estate.
20. The taxable income of the estate is
a. P480,000 C. P310,000
b. P450,000 d. P330,000

21. Assume that Francis, head of the family, also earned net income of
P500,000 from his trading business. What amount should Francis report
as his taxable income for 2018?
a. P620,000 C. PS00,000
b. P570,000 d. P450,000

22. An agreement created by will or an agreement under which title to

property is passed to another for conservation or investment with the
income therefrom and ultimately the corpus to be distributed in
accordance with the directives of the creator as expressed in the
governing instrument.
a. Estatee C. Fiduciary
b. Trust d. Beneficiary

197
 Chaster Erercises
-

Ca-onertis, tstutes and T..

Trusts Chapter &eriseso
23. Estates and trust are Il. A trust where the
income i
nershib, stales and Trusts
unborn or unascertained
a. Treated as separate taxable
b. The tabular rates of tax
entities.
prescribed under Section 24A for interest. accumulated
person or r
for the
benefit of
individuals shall be used in computing the income tax of truste.
s or V. A trust where the persons with contingent
estates. held or distributed income
as collected by a
C. Personal exemption of P20,000 is no longer allowed beginnina V. A trust
where the the court may direct.guardian of an
infant is
January 1, 2018 may be either income, is at the
a. I and II only distriDuted to the discretion of the fiduciary,
d. All of the above
b. 1, II and III only
beneficiaries
C. 1, I1, III and accumulated.
or

24. Which of the following statements regarding trust agreement(s) is d. 1, IV only

11, IIL, IV and V
correct? atement 1: Revocable Irust
I. A trust is a right of property, real or personal, held by one party the arantortitle to any part of isa trust in which the
for the benefit of another. self or
grantor himself or in
the corpus of power to revest in
any person not the trust is
The creation of trusts may either be express or implied. vested in the
corpus on its income. having any substantial adversi
I. interest in the trust
III. Trusts are treated as separate taxable entities. Ctatement 2: The income of
a trust
erse
a. I, II and III C. I and III only income of the trust that may be held be taxed against
will
b. I and II only d. I only grantor
or grantor if the
distributed for the benefit of the
a. Statements 1& 2 are
25. The following are the classifications of Trusts, except b. Statement 1 is true false
but
Statement 1 is false but statement
a. Ordinary trust 2 is false
C.
b. Revocable trust statement 2 is true
d. Statements 1 and 2
C. Irrevocable trust are true
d. Employer'strust
29, Statement 1: Income tax
shall not
26. The following statement(s) part of pension, stock bonus, or apply to employee's trust which forms
refer to a Testamentary Trust, except: benefit of some or all of the profit-sharing plan of an employer for the
. It is created under a Last Will and Testament. employees.
Statement 2: Any amount actually distributed
I It exists in the Will only until the death of the Testator.
to any employee or
II. This type of trust is amèndable and revocable at
any time
distributee shall be taxable to him in the
the Testator's lifetime, but becomes
during that it exceeds the amount contributed year of distribution to the extent
irrevocable.upon the a. Statements 1& 2
by such employee or distributee.
Testator's death. are false
N. A Testamentary Trust is considered its own
legal entity, so it is
b. Statement 1 is true but
statement 2 is false
taxed separately from the individual Beneficiaries even C. Statement 1 is false but statement 2 is true
before the
death of the testator. d. Statements 1 and 2 are true
a. I only
C. V only
b. II only d. III and IV 30. Statemerit 1: For taxation
only purposes, the taxable income of a trust shall
be determined in the same manner and basis as in the
case of individual
27. Which of the
following statement(s) is/are correct description(s) of an taxpayers.
Ordinary Trust"? Statement 2: Prior to 2018, the income of the trust is allowed with a
A trust where the income is accumulated or held
for future personal exemption of P20,000.
distribution under the terms of a
II. A trust where the income testamentary trust. a. Statements 1 & 2 are false
is to be distributed b. Statement 1 is true but statement 2 is false
fiduciary to the beneficiaries. currently by the
C. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

198
199
 nerstib, tstutis aud t . hapler trdes
Chatier tteruses(A lrusts 'Unerstub, lstates aad Trusts
I1. The income of the
revocat trust is taxable
a. I only
statements refer to the rules
in determining the taxabl
able b. II only C.
Both I andagainst
II
the grantor.
31. The following of a trust. VWhich of the d.
income tax liability Neither
income and the applicable I nor II
following statements is/are
correct?
are the same items: 35. Which atement is true? Pre-tax
of income of the trust the Tc taxed to the income by a trust
I. The items gross
individual taxpayers.
a.
beneficiary if
Is taxed to trust if such such income is retained
items of gross income of are the same
b.
by the trust.
income of the trust Is taxed income
II. Deductions from the gross
allowed to an individual taxpayer,
as C. depending on who is in is distributed.
current
the items of deductions income. possession of the
deductions under Section 34 of thne
Il. In addition to the allowable d. All of the above.
Tax Code, the trust is allowed to deduct the amount of income.of
that is pala or credited to the
the trust during the taxable year 6 Statement 1: The income tax of
legatee, heir or beneficiary. manner as the income of the estate.
irrevocable trust is taxable in the same
trust during the year that is paid or
V. The amount of income of the Statement 2: In the case of two
beneficiary is subject to final or more
credited to the legatee, heir or
rcon
perso for the same benericiary, the taxable trusts created by the same
tax of 15%%. income of all
withholding C. 1, II, III and IV
nsolidated and tthe tax shall be
based on the consolidated trusts shall be
a. I and II only a. Statements 1 &2 are false income
b. I, II and III only d. None of the above
b. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
32. Which of the following statements is not correct? d. Statements 1 and 2 are true
a. An irrevocable trust is subject to income tax.
b. An irrevocable trust is taxed in the same manner as an individual
37. The income distributed to the beneficiaries of estates and trusts,
taxpayer. except
C. Prior to 2018, a taxable trust is allowed to claim personal income subject to final withholding tax and income exempt from tax, is
subject to
exemption of P20,000.
d. An irrevocable trust is taxed at a rate of 30% of net taxable a. Creditable withholding tax of 10%
income D. Creditable withholding tax of 15%
C. Final withholding tax of 20%
33. Which of the following income of the trust is not taxable to the trust? d. Neither final nor creditable withholding tax
a. Income of a trust which is to be accumulated or held for future
distribution consisting of ordinary income or gain from the sale of 38. Statement 1: Estates and trust can deduct from the gross income the
assets included in the corpus of the trust. same items of deductions authorized under the Tax Code as those

b Income of a trust, whether created by will or deed, for allowed to individual taxpayers.
accumulation of income, whether for an unascertained person or Statement 2: The scheduler tax rates under Section 24(A), which are
persons with contingent interest or otherwise. prescribed for individuals, will be used in computing the income tax of
C.Income ofa trust, where under the terms of a will or deed, the estates and trusts.
trustee may, in his discretion, distribute the income and a. Statements 1& 2 are false
false
accumulate it. b. Statement 1 is true but statement 2 is
2 is true
d. Income of a trust, which in full in
part, is subject to revocation Statement 1 is false but statement
anytime. d. Statements 1 and 2 are true

34. Which of the following statements is

I.
correct
A revocable trust exists when the
regarding revocable trusts?
reserves the right to
grantor
revoke his power to change at any time any part of the terms or
the trust.

200 201
 Chapter tteises
, Estates dnd l.
Trus eonersh. tstales and Trusts
Chaster &teruses
thefollowing data for the next two
(3) stions:
(2) questions:
following data for the nexttwo bigay created two (2) trusts
Mr. Mapagbigay
Use the In 2018, year, the two for
trust naming
created a
his eldech the trusts earned net income his minor son, Lucky.
Nag-aalangan receive the income ofthSOn, During
as follows:
In 2018, Mr. who will thust
revocable beneficiary
Kadudaduda as
abide with
the terms provided in Trust 1
son could
not the terms of the ust Trust 2 P4,000,000
If the eldest could change anytime
instrument, Mr.
Nag-aalangan
earned a net
income of P1.000t 6,000,000
the trust
For the current
taxable year,
earned a compensation
income of P1.500 Each trust
t filed their own inCome tax return and
filed
the grantor income of the trush paid the
income tax due as computed in their separate returns. corresponding
On the other hand, No part of the were
income of P1,000,000.
and business
the revocable beneficiary during
the year. Determine the
distributed to Determine the following:
following: 43, Consolidated tax due of the Trust
a. P1,1130,000 C. P3,1110,000
of the trust
39. The taxable income c. P950,000 b. P1,770,000 d. nil
a. P1,000,000 d. nil
b. P980,000 income tax payable of Trust 1
44, Additional
a. P96,000 C. P1,130,000
40. The taxable income of the grantor c. P3,000,000 b. P114,000 d. P1,770,000
a. P1,000,000
d. P3,500,000
b. P2,500,000 income tax
45. Additional payable of Trust 2
a. P96,000 C. P1,130,000
d. P1,770,000
Usethe following data for the next two (2) questions:
b. P114,000

a trust fund for the benefit of his

On January 1, 2018, Francis established
Lo Yer as the trustee. The
daughter, Princess. Francis appointed Atty.
the trust is a piece of lot with a dormitory earning
property transferred to
rental income.

revenues andincurred
During the year, the trust earned P10,000,000
Lo Yer gave Princess
expenses of P2,000,000. Out of the trust's income, Atty.
Princess earned compensation income off
P1,500,000. In the same year,
P1,850,000, net of withholding tax of P650,000.

Determine the following:

41. Taxable income of the trust
a. P5,000,000 c. P8,000,000
b. P6,500,000 d. P10,000,000

42. Taxable income of Niah

a. P1,500,000 c. P2,500,000
b. P1,850,000 d. P4,000,000

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