The document discusses accounting periods and methods under Philippine tax law. It covers topics such as calendar versus fiscal year elections, cash versus accrual accounting methods, short period returns due to changes in accounting periods, installment sales computations, and allocation of income between related entities. It also discusses international taxation principles of residence-based and source-based taxation.
The document discusses accounting periods and methods under Philippine tax law. It covers topics such as calendar versus fiscal year elections, cash versus accrual accounting methods, short period returns due to changes in accounting periods, installment sales computations, and allocation of income between related entities. It also discusses international taxation principles of residence-based and source-based taxation.
The document discusses accounting periods and methods under Philippine tax law. It covers topics such as calendar versus fiscal year elections, cash versus accrual accounting methods, short period returns due to changes in accounting periods, installment sales computations, and allocation of income between related entities. It also discusses international taxation principles of residence-based and source-based taxation.
fiscal year; Prerogative of taxpayer; Calendar when - accounting period is other than fiscal year; or No annual accounting period; or Does not keep books of accounts; or Individual
RR # 03-2011 as amended by RR 09-2011.
Sec. 44 – (Accounting Method) Period in which items of gross income included; For the taxable year when received (Cash basis); Unlessunder methods of accounting permitted (Accrual basis or other methods); Incase of the death, income up to date of his death; Sec. 45 – (Accounting Method) Period for which deductions and credits taken; For taxable year in which “paid or accrued” or “paid or incurred”, depending on accounting method used in computing net income; In case of death, deductions up to date of death; Sec. 46 – Change of accounting period; Other than individual; Need the approval of BIR; Be made any time not less than 30 days prior to the date of filing the return; Subject to Sec. 47 (short period of return) Subject to doc stamps. RR 3-2011 as amended by RR 9-2011 Final or adjustment returns for a period of less than 12 months;
Sec. 47A – Returns of short period resulting from a change in
accounting period; Fiscal year to calendar year, short period return between the close of the fiscal year for which return was made and the following December 31. (Ex. June 1 to Dec. 31) Calendar year to fiscal year, short period return between the close of the last calendar year for which the return was made and the date designated as the close of the fiscal year. (Ex. Jan 1 to May 31) Final or adjustment returns for a period of less than 12 months;
Fiscal year to fiscal year, short period return between the close of the former fiscal year and the date designated as the close of the new fiscal year. (Ex. June 1 to July 31)
Sec. 47B – Income computed on basis of short period;
Fractional part of the year. Other instances of short period return • Newly commenced business • Date of the start of the business until designated year end of the business. • Dissolution of the business • Start of the current year up to date of dissolution. • Death of the taxpayer • Start of the calendar year until the death of the taxpayer. • Accounting period terminated by BIR Commissioner • Start of the current year until the termination of the accounting period. Filing of the ITR –
• It should be filed on the fifteenth (15th) day of the
fourth month following the close of the taxable year of the taxpayer. • Calendar period (December 31) – on or before April 15 • Fiscal period (ex. End period is June 30) – on or before October 15 Advanced income and payments –
• Advanced income is taxable upon receipt. This is
applicable only to the rendering of services but not on the sale of goods.
• Prepaid expenses is non – deductible unless used or
consumed. Applicable to sale of goods or rendering of services. Sec. 48 – Accounting for long – term contracts –
Covering a period in excess of 1 year;
Percentage of completion method; Certificate of Architects or Engineers; Expenditures be deducted from gross income are only those made during the taxable year on account of the contract. The same can be determined on the basis of remaining inventory of materials and supplies. Summary – Installment Sales Sec. 49A to C Personal Property – (subject to basic tax) (A) Ordinary sale (ordinary asset - inventories) RGP = collection x GPR GPR = gross profit / contract price Regardless of the 25% limit
(B) Casual sale (capital asset)
SP exceeds P 1,000 IP do not exceed 25% of the SP, otherwise deferred method. Observance of holding period (more than a year – 50%, if not 100%) Summary – Installment Sales Sec. 49A to C (C) Real Property – either basic tax or capital gains tax Ordinary asset – IP not exceeding 25% of SP, otherwise deferred; subject to basic tax; Capital asset – IP not exceeding 25% of SP, otherwise deferred; subject to Capital gains tax. RMC 35 - 2017 Formats of Computation - Installment 1. Selling Price (SP) (amount realized) Cash received P xxx FMV of the property received xxx Receivables xxx Unpaid mortgage assumed by the buyer xxx Selling Price (SP) P xxx
2. Contract Price (CP) (agreed to pay)
Selling Price P xxx Less: Mortgage assumed by the buyer xxx Balance P xxx Add: Excess unpaid mortgage over cost xxx Contract price P xxx 3. Initial Payments (IP) Down payment P xxx Expected installment collection in the year of sale xxx Excess of unpaid mortgage over cost xxx Initial Payments P xxx
4. Installment capital gain tax = Total CGT x collection/ CP
5. Realized Gross Profit (RGP) (if subject to basic tax)
RGP = Collections x GPR GPR = Gross Profit/ Contract Price Sec. 49D – Change from accrual to installment – … the income, for the year of change or any subsequent year, amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded.
Sec. 50 – Allocation of income and deductions –
distribution, apportionment, or allocation of gross income or deductions to two or more organizations, trade or businesses (whether incorporated or not, organized or not organized in the Philippines) owned directly or indirectly by the same interest is allowed upon determination of BIR Commissioner if it is necessary to prevent the evasion by the taxpayer. RR 2-1940; RAMO 1-1998; RMO 61-1998; RMC 26-2008, as amended by RR 02- 2013. In relation to sec. 50… • Income under this section has an international aspect termed international taxation. It has two fundamental principles. • Residence-based taxation • Residents taxed on income earned within and without the Philippines. • Source-based taxation • Non – residents is taxed on income within the Philippines only. In relation to sec. 49A… Four (4) ways of dealers who sell on installment plan to protect themselves in case of default are – 1. By agreement that title is to remain to the vendor until complete performance of the vendee; 2. By agreement that title would be conveyed immediately but subject to lien for unpaid portion; 3. By transfer of title to purchaser who at the same time executes a reconveyance in the form of a chattel mortgage to vendor; or 4. By reconveyance to a trustee pending performance of the contract. Leasehold improvement – • Taxable is the income from leasehold improvements. • Occurs when the life of the improvements exceeds the lease term. • Income on the part of the lessor. • Methods • Outright method – income is the FMV at the time of completion. • Spread – out method – income is based on the following formula: = Cost of improvement x (Excess useful life over lease term/ Useful life of the improvement) The answer shall be divided by the lease term. • RR # 2. Agricultural or Farming Income – • Animal husbandry or short – term crops – cash or accrual; • Long – term crops – • Perennial crops – Initial farm development costs are capitalized and amortized over the expected years of harvest. The harvest is accounted under cash or accrual method. • One time crops – crop year basis method. Formula - Proceeds of the harvest (accumulated expenses of the crop harvested) = Taxable income for the year Use of different methods –
• Taxpayers with more than one business may
consolidate the income applying the different methods.
• But these methods shall be applied consistently to