Gross Income

• Means all income derived from whatever source, including (but

not limited) to the following items:
1. Compensation for services in whatever form paid, including
but not limited to fees, salaries, wages, commissions and
similar items;
2. Gross income derived from the conducts of trade or
business or the exercise of a profession;
3. Gains derived from dealings in property
4. Interests
5. Rents
Gross Income
5. Royalties
6. Dividends
7. Annuities
8. Prizes and Winnings
9. Pensions
10.Partner’s distributive share from the net income of the
general professional partnership.
Other Taxable Income
1. Income from illegal activities
2. Recovery of receivables previously written off
3. Tax refunds
4. Compensation for injury suffered
5. Gratuitous condonation of debt.
Gifts and Inheritance

- They are not taxable for Income Tax

purposes
- They are subject to donor’s or estate tax.
INCOME – all wealth that flows into the
taxpayer, other than return of capital.

CAPITAL – the investment which is the source

of income.
VALUATION OF INCOME
- The amount of income recognized is generally the
value received or which the taxpayer has the right to
receive.
Compensation for personal services
a. Paid in cash - actual amount paid is taxable
b. Paid in kind - compensation income is the fair
value of the property received.
c. Tips and gratuities - Taxable
Compensation Paid in Promissory Note
a. If the note can be discounted, the fair value of the
note upon receipt is the fair discounted value.
Condonation of debt
a. Debtor rendered services to the creditor – taxable
income to the debtor.
b. No services rendered – taxable to the creditor as gift
given to the debtor
c. Creditor is a corporation while debtor is a stockholder
– it has the effect of the payment of dividend
d. Creditor is the stockholder while debtor is the
corporation – amount condoned is considered as an
additional investment.
TAXABLE INCOME
- Pertinent items of gross income specified in the TAX
CODE, less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income by
the Tax Code or other special laws.
REQUISITES for INCOME to be TAXABLE
1. There must be a gain
2. The gain must be realized or received.
Doctrine of Constructive Receipt
- It is not the actual receipt but the right to receive that
determines when to include an amount in the gross
income.
3. The gain must not be excluded by the law from taxation.
SITUS (SOURCE/PLACE) OF INCOME
Source – refers to the activity, or property, or labor that gave
rise or produced the income.

Situs – the place of taxation of the income or the country

which has jurisdiction to impose the tax. Factors affecting
Situs of Income:
a. Residence or Domicile
b. Nationality
c. Source of income
RULES in determining the “SITUS OF INCOME”
1. Interest – residence of the debtor.
2. Income from services - place of performance of the
service rendered.
3. Rentals – location of the property or place where the
intangible is used.
4. Gain on sale of real property – the location of the real
property
5. Gain on sale of personal property – place of sale except
sale of shares of domestic corporation
RULES in determining the “SITUS OF INCOME”
6. Dividend income
Domestic Corporation - Purely from Phil source
Foreign Corporation – based on the ratio of the
Gross Income of the FC for the preceding 3
years prior to declaration of dividends
If ratio is <50% : sources outside the Phil
If ratio is > 50% : sources is partly within and
without
RULES in determining the “SITUS OF INCOME”
7. Mining – place where mine is located
8. Farming – place where farm is located
9. Manufacturing – where produced and sold
 Gain on sale of personal property purchased in the Philippines and 400,000
sold in Hongkong
Compensation received for personal services in the Philippines 200,000
Rent income from real property in Malaysia 300,000
Gain from sale in the Philippines of shares of a foreign corporation 100,000

Deductions identified with:

Philippine Income 80,000
Foreign income 120,000
Deductions unidentified with any particular income 30,000

Compute the Philippine net income.

A resident alien had the following data in 2018
Gross income, Philippines P2,000,000
Business expenses 1,200,000

Dividends received:
From a domestic corporation (net)
60% of its income came from the Phil 90,000
40% of its income came from the Phil 72,000
From a resident foreign corporation (gross)
60% of its income came from the Phil 50,000
40% of its income came from the Phil 40,000

1. Compute the taxpayer’s taxable income

2. Final withholding taxes on dividends
Sandara, a non resident citizen, received a dividend income of
P300,000 in 2015 from Super Bowl Corporation, a foreign
corporation doing business in the Philippines. The gross income of
the foreign corporation from sources within and without the
Philippines for the past three years preceding 2015 is provided as
follows:

Sources 2012 2013 2014

Philippines 14,000,000 10,000,000 12,000,000
Abroad 10,000,000 16,000,000 18,000,000

Compute the amount of income subject to tax for 2015.

QUIZ NO. 1
1. Park, a Domestic Corporation, received a dividend income of P500,000
in 2015 from B Corporation, a foreign corporation doing business in the
Philippines. The gross income of the foreign corporation from sources
within and without the Philippines for the five years is provided as
follows:

Sources 2011 2012 2013 2014 2015

Abroad 10,000,000 14,000,000 10,000,000 12,000,000 16,000,000
Philippines 12,000,000 10,000,000 16,000,000 18,000,000 20,000,000

Compute the amount of income subject to tax for 2015.

F5 Corporation, a nondomestic corporation had the following data in
2018
Gross income, Philippines P10,000,000
Allowable itemized deductions/expenses 4,000,000

Dividends received:
From a domestic corporation 1,000,000
From a resident foreign corporation (gross)
80% of its income came from the Phil 1,000,000
60% of its income came from the Phil 800,000
25% of its income came from the Phil 400,000

1. Compute the taxpayer’s taxable income

2. Final withholding taxes on dividends