INCOME TAXATION

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Atty. Erikson V. Eustaquio

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I. II. III. IV. V. VI. VII. VIII.

Tax Code Provisions When Income is Taxable General Principles of Income Taxation Definition of Terms Formula for Computation of Income Tax Gross Income Allowable deductions Filing of tax returns

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y Tax Code Provisions

y NIRC, as amended, Title II, Sections 22 to 83

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When is income taxable?

There is income, gain or profit Income, gain or profit is received or realized during the taxable year Income, gain or profit is not exempt from income tax Income-flow of wealth other than as a mere return of capital (Conwi vs. CIR, 213 SCRA 83)

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General Principles of Income Taxation in the Philippines (Section 23) Resident citizen-taxable on all income derived from sources within and without the Phils Non-resident citizen-taxable only on income derived from sources within the Philippines Citizen who is an OCW-taxable only on income from sources within the Philippines Seaman (of a vessel engaged exclusively in international trade)-considered OCW

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General Principles of Income Taxation in the Philippines (Section 23) Alien individual, whether resident or non-residenttaxable only on income derived from sources within the Philippines Domestic corporation-taxable on all income derived from sources within and without the Philippines Foreign corporation-whether or not engaged in trade or business in the Philippines, taxable only on income derived from sources within the Philippines

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General Principles of Income Taxation in the Philippines

Situs rules (Section 42) Interest income-residence of the obligor Dividends* Domestic corporation-within * Foreign corporation 50% of gross income within for 3 yearswithin Services-place of performance Rentals and Royalties-place of use Real Property-location of real property Personal property-place of sale (except shares of stock in a domestic corporation, within regardless of the place of sale)

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Definition of Terms (Section 22) Note the ff new definitions added by RA 9504, approved on June 17, 2008 GG-statutory minimum wage HH-minimum wage earner

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Formula for computation of income tax (Section 31) A. Global Gross income Less Allowable deductions Taxable income Tax rate Tax due Less: Tax credit Tax payable xx (xx) xx x% xx (xx) xx

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Formula for computation of income tax (Section 31) A. Global

Global tax rates: Citizens, resident aliens, NRAETB- 5%-32% NRANETB-25% Domestic corporations and RFC-30% (effective Jan 1, 2009; RA 9337) NRFC-30% (effective Jan 1, 2009; RA 9337)

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Formula for computation of income tax B. Schedular Item of income multiplied by tax rate.

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Gross Income (Section 32)

Income derived from whatever source, including but not limited to the ff: Compensation for services Gross income from conduct of trade, business, profession Gains from dealings in property Interests Rents Royalties Dividends Annuities Prizes and winnings Pensions Partners distributive share from the net income of a GPP

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Allowable Deductions (Sec 34 to 42) A. Compensation income earners: - Premium payments on health and/or hospitalization insurance (Section 34 M) - Personal exemptions (Section 35)

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Allowable Deductions B. Non-compensation income earners (Section 34) Individuals 1. Itemized deductions + premium on health/hospitalization insurance + personal exemptions; or 2. Optional standard deduction (40% of gross sales or gross receipts) + premium on health/hospitalization insurance + personal exemptions (see Section 34, L, as amended by RA 9504; approved on June 17, 2008)

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Allowable Deductions B. Non-compensation income earners (Section 34) Itemized deductions Expenses Interest Taxes Losses Bad debts Depreciation Depletion Charitable and other contributions Research and development

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Allowable Deductions B. Non-compensation income earners (Section 34) Itemized deductions Requirements for deductibility See detailed requirements for each Note Section 34K-proof of withholding

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Allowable Deductions Personal Exemptions (Section 35, as amended by RA 9504)

P50,000 for each individual taxpayer In case of married individual where only one spouse is working, only such spouse is allowed exemption Additional Exemptions-P25,000 for each dependent not exceeding 4 Note definition of dependents-limited to legitimate, illegitimate, or legally adopted child chiefly dependent upon and living with the taxpayer, not more than 21 years of age, unmarried, not gainfully employed or regardless of age, if incapable of self-support because of mental or physical defect Note: Change in status rules under Section 35(C) Death of taxpayer during the year-as if died at the end of the year Death majority, marriage of dependent during the year-as if died, reached age of majority, got married at the beginning of the year

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Allowable Deductions Corporate Taxpayers Itemized deductions Optional standard deduction for domestic and resident foreign corporations (Section 34L, as amended by RA 9504) 40% of gross income

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Filing of tax returns Individual tax returns- Section 51 Annual income tax return Corporate tax returns- Sections 52, 53, 76 Quarterly and cumulative Final adjustment return