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CHAPTER 9 Regular Income Taxation
CHAPTER 9 Regular Income Taxation
Tax: Inclusion in
Gross Income
Chapter 9
Group 5
Aguirre, Eljane
Calutan, Florence Claire
Maballo, Tricia Mae
ITEMS OF GROSS INCOME SUBJECT TO REGULAR
TAX
Gross income includes, but is not limited to, the following items:
• INTEREST INCOME
ㅡ interest income other than passive interest income subject to final tax
ㅡ a taxable interest income must have been actually paid out of an agreement
to pay interest
Examples of interest income subject to regular income tax:
1. Obligations of the lessor that are assumed by the lessee are additional rental
income to the lessor.
2. Advance rentals are:
• DIVIDENDS
ㅡ These pertains to dividends declared by foreign corporations.
ㅡ Declared by domestic corporations are generally subject to 10% final tax if
the receipt is an individual taxpayer and exempt if the receipt is a domestic or a
resident foreign corporation.
ㅡ Cash, property, and script dividends from foreign corporations are items of
gross income subject to regular income tax.
Stock dividends
ㅡ are exempt from income tax, but when the declaration confers to the
recipients a different interest or right after the stock dividend declaration
ㅡ are subsequently redeemed such that it amounts to payment of cash dividend
Liquidating dividends
ㅡ is not income
ㅡ considered an amount in exchange for the investment of the investor and are
subject to the rules of dealings in properties
• ANNUITIES
ㅡ The excess of annuity payments received by the recipient over premium paid
is taxable income in the year of receipt.
• PRIZES AND WINNINGS
ㅡ Prizes and winnings that are exempted from final tax are not items of gross
income subject to regular income tax
Within Abroad
Prizes
P10,00 and below Regular tax Regular tax
More than P10,000 Final tax Regular tax
PCSO and lotto, exceeding Final tax N/A
P20,000
PCSO and lotto, not exceeding Exempt N/A
P20,000
Winnings from other sources Final tax Regular tax
• PENSIONS
ㅡ These pertain to pensions and retirement benefits that fail to meet the
exclusion criteria and hence subject to regular tax
1. not subject to final tax, capital gains tax, and special tax regime
2. not excluded or exempted by law, treaty, or contract from taxation.
5. REIMBURSEMENTS OF EXPENSES
ㅡ Expenses of the taxpayer that are reimbursed or paid by the costumer or
client constitute additional income to the taxpayer,
Examples:
1. When the lessee pays ownership costs of the lessor such as real property tax
and insurance on the property, the payment constitutes income to the lessor.
2. When a client reimburses the out-of-pocket expenses of a professional
practitioner, the reimbursements are income to the practitioner.
6. CANCELLATION OF INDEBTEDNESS
ㅡ cancellation of indebtedness may amount to gratuity or payment of internet
1. ACCOUNTING METHODS
ㅡ adopted by the taxpayer has a direct effect on the reportable amount of gross
income subject to regular income tax
2. SITUS RULES
ㅡ all taxpayers are taxable only on Philippine income except resident citizens
and domestic corporation which are taxable on global income.
• For taxpayers taxable only on Philippine income, only their items of gross
income subject to regular tax from sources within the Philippines are included in
gross income.
• For taxpayers taxable on Global income, their items of gross income subject to
regular tax from sources within and without the Philippines are included in
gross income.
ㅡ The amount of all items of gross income shall be included in the gross
income for the taxable year in which received by the taxpayer, unless, under
methods of accounting permitted, any such amounts are to be properly
accounted for as of a different period.
END