GROSS INCOME is broadly defined as any inflow of wealth to the

taxpayer from whatever source, legal or illegal, that increases net

worth,. It includes income from employment, trade, business or
exercise of profession, income from properties and other sources such
as dealings in properties and other regular or casual transactions.
ELEMENTS OF GROSS INCOME
1. It is return on capital that increases net worth
Return on capital that increases net worth is income subject to
income tax. Return of capital merely maintains net worth, hence,
it is not taxable.

Capital items deemed with infinite value

Life, Health and Human reputation. There are capital items that
have infinite value and are incapable of pecuniary evaluation.
Anything received as compensation for their loss is deemed a
return of capital.

a. Life.
The value of life is immeasurable by money. The proceeds of
life insurance policies paid to the heirs or beneficiaries upon
death of the insured, whether in a single sum or otherwise, are
EXEMPT from income tax.
The proceeds of a life insurance contract collected by an
employer as a beneficiary from the life insurance of an officer
or any person directly interested with his trade are likewise
exempt. These proceeds are viewed as advanced recovery of
future loss.

The following are taxable return on capital from insurance

policies:
  Any excess amount received over premiums paid by the
insured up surrender or maturity of the policy( the insured
outlives the policy)
 Gain realized by the insured from the assignment or sale of
his insurance.
 Interest income from the unpaid balance of the proceeds
policy.
 Any excess of the proceeds received over the acquisition
costs and premium payments by an assignee of a life
insurance policy.
b. Health
Any compensation received in consideration for the loss of
health such as compensation for personal injuries or tortuous
act is deemed a return of capital.
c. Human reputation/dignity
The value of one’ reputation cannot be measured financially.
Any indemnity received as compensation for its impairment is
deemed a return of capital exempt from income tax.
Examples include moral damages received from:
 Oral defamation or slander
 Alienation of affection
 Breach of promise to marry
Recovery of lost capital vs. recovery of loss profits
The loss or capital results in decrease in net worth while the
loss of profits does not decrease net worth. The recovery of
lost capital merely maintains net worth while the recovery of
lost profits increases net worth. Therefore, the recovery of lost
profits is a return on capital.
The following are taxable recoveries of lost profits:
  Proceeds of crop or livestock insurance
 Guarantee payments
 Indemnity received from patent infringement suit.

2. It is realized benefit.
The term realized means earned. It requires that there is a degree
of undertaking or sacrifice from the taxpayer to be entitled
benefit.
Requisites of a realized benefit:
a. There must be an exchange transaction. (sale or barter)
b. The transaction involves another entity or other parties.
c. It increase the net worth of the recipient.

3. It is not exempted by law, contract, or treaty.

The following items of income are exempted by law from
taxation; hence, they are not considered items from gross income.
a. Income of qualified employee trust fund.
b. Revenue of non-profit, non-stock educational institutions.
c. SSS,GSIS, Pag-IBIG, or PhilHealth benefits.
d. Salaries and wages of minimum wage earners and qualified
senior citizen
e. Regular income of Barangay Micro-Business Enterprises
(BMBEs)
f. Income of foreign governments and foreign government-
owned and controlled corporations
g. Income of international missions and organizations with
income tax immunity.

TYPES OF INCOME TAXPAYERS

 A. Individuals
1. Citizen
a. Resident citizen
b. Non-resident citizen
2. Alien
a. Resident alien
b. Non- resident alien
a. Engage in trade or business
b. Not engage in trade or business
B. Corporations
1. Domestic corporation
2. Foreign corporation
a. Resident foreign corporation
b. Non-resident foreign corporation
SPECIAL CONSIDERATIONS
1. Partnership
a. General Professional Partnership (not taxable)
b. General co-partnership (taxable0
2. Joint venture
a. Exempt joint venture engaged in oil exploration and
construction
b. Taxable joint venture
3. Estate
4. Trust
5. Co-ownership
Drills:
A. Identification of gross income
1. Compensation for injuries sustained
2. Income from donated property
3. PCSO or Lotto winnings
4. Gain on sale of inheritance
5. Increase in fair value of equity securities
6. Moral damages
7. Interest from moral damages
8. Income of the government
9. Winnings from gambling
10. Cancellation of debt out of gratuity
11. Benefit from SSS or GSIS
12. Income of non-profit institution from their properties.
13. Income of employee trust funds
14. Income of foreign government GOCCs
15. Accrued professional fees of a cash basis taxpayer
16. Collection of service fees receivables by an accrual basis
taxpayer.
17. Increase in Peso value of forex receivables by an accrual
basis taxpayer.
18. Salaries of minimum wage earner.

B. Identification of taxpayers
1. A branch of a domestic corporation
2. A branch of a foreign corporation operating in the Philippines.
3. A sole proprietorship
4. A co-ownership
5. A joint venture organized in the Philippines
6. A partnership of accountants selling cosmetics
7. A partnership doctors rendering medical services
8. A foreigner naturalized by law.
9. A fat American tourist
10. Employed Filipino worker under a secondment assignment abroad
11. An expatriate employee
12. A corporation organized in the Philippines with major operations
abroad.
13. Filipino who migrated in Canada
14. An OFW
15. An alien with a 2 year working VISA
16. An Filipino who stayed abroad for 181 days
17. An alien who is staying in the Philippines for 181 days
18. A revocable trust
19. An estate that is judicially settled
20. A one-person corporation