CHAPTER 12
INCOME TAX OF CORPORATIONS
Problem 12 – 1 TRUE OR FALSE
1. False – for tax purposes, a corporation does not include both general professional partnership and joint venture with a consortium service contract with the government. 2. False – domestic corporations refer only to corporations that are created or organized
under Philippine laws. Foreign corporations are also operating in the Philippines but not created under Philippine laws.
3. False – nonresident corporations are taxed based on gross income within.
4. False – Only domestic corporations are to be taxed for income within and without. 5. True
6. True 7. True
8. False – the MCIT is applicable also to resident foreign corporations for their income derived within.
9. True
10. False – Not taxable because the corporation is a foreign corporation.
11. False – 30%, but legally, foreign corporations are not allowed to own real property in the Philippines as provided by anti-dummy law.
12. False – interest income of resident foreign corporation is subject to a final tax of 20%, but interest income of nonresident foreign corporation is subject to normal corporate tax. 13. True
Problem 12 – 2 TRUE OR FALSE
1. True 2. True
3. False – MCIT is applicable only to corporation that are subject to normal tax rate. 4. True
5. False – Other fixed or determinable annual, periodic or casual gains, profits and income are not treated as branch profit.
6. True 7. True 8. True 9. True
10. False – exempt from income tax and VAT.
11. False – not imposed also to insurance companies 12. True
Problem 12 – 3 TRUE OR FALSE
1. False – the net additions to reserve funds are not part of income but instead deducted from gross income.
2. True
3. False – In general, GOCCs are subject to corporate income tax. 4. True
5. False – royalties received in the active pursuit of business is subject to a normal tax of 30%. 6. True 7. True 8. True 9. True
10. False – If the unrelated income of the proprietory educational institution exceeds the related income, the income tax rate applicable would be the corporate income tax of 30%.
11. False – Sale of real property outside the Philippines by a resident foreign corporation is not subject to tax in the Philippines.
12. False – 10% based on gross income within
Problem 12 – 4 Problem 12 – 5 1. C 1. B 2. A 2. A 3. A 3. D 4. D 4. A 5. C 5. B 6. A 6. B 7. A 7. A 8. B 8. D 9. A 9. B 10. C 10. C
11. A* 11. D – Only family-closed corporation is subject to IAET.
12. A 12. A
13. B 13. C
*This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government. As a rule, foreign corporations are not allowed to own and acquire real properties in the Philippines as provided by the anti-dummy law. (PD 715, May 28, 1975)
Problem 12 – 6 1. Letter C Taxable income Income tax due Gross income (P8,000,000 + P4,000,000) P12,000,000 Business expenses (P5,000,000 + P3,000,000) ( 8,000,000) Gain on sale of warehouse (P3,000,000 – P2,000,000) 1,000,000
Net taxable income P5,000,000
Corporate income tax (P5,000,000 x 30%) P1,500,000
Note: The land and warehouse sold is an ordinary asset. Hence, subject to normal tax.
2. Letter B
Gross income within P8,000,000
Business expenses ( 5,000,000)
Gain on sale of warehouse (P3,000,000 – P2,000,000)* 1,000,000
Net taxable income P4,000,000
Corporate income tax (P4,000,000 x 30%) P1,200,000
*This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government.
Problem 12 – 7 D
Gross income within P2,800,000
Multiplied by normal corporate tax rate 30%
Income tax due P 840,000
Problem 12 – 8 Not in the Choices = P2,700,000.
Gross income within P15,000,000
Less: Allocated operating expenses (P30,000,000 x 15/75) 6,000,000
Net taxable income P 9,000,000
Multiplied by normal corporate tax rate 30%
Income tax due P2,700,000
Problem 12 – 9
1. Letter D
Domestic corporation:
Total net income (P160,000 + P240,000) P400,000
Multiplied by normal tax rate 30%
Income tax due P120,000
Less: Tax credits:
Local P42,000
Foreign, Actual, P60,000 – lower
limit (P120,000 x 240/400) = P72,000 60,000 102,000
Income tax still due and payable P18,000
Supporting computation: Philippines Foreign
Gross income – within P450,000
– without (P180,000 + P75,000 + P190,000) P445,000
Deductions – within (290,000)
- without (P80,000 + P25,000 + P100,000) . (205,000)
Net income P160,000 P240,000
2. Letter C
Resident foreign corporation
Deductions within (205,000)
Net income P240,000
Multiplied by normal corporate income tax 30%
Income tax due P 72,000
Less: Local 42,000
Income tax still due and payable P 30,000
Problem 12 – 10 D
Net income from PAGCOR (P30,000,000 - P28,000,000) P2,000,000 Net income from NAPOCOR (P10,000,000 – P4,000,000) 6,000,000
Total net income P8,000,000
Multiplied by normal corporate tax rate 30%
Income tax due P2,400,000
Problem 12 – 11 C
Net income from National Power Corporation P 8,000,000
Net income from National Books Store 5,000,000
Total net income P13,000,000
Multiplied by corporate normal tax 30%
Income tax due P 3,900,000
Problem 12 – 12 A
Gross profit (P3,000,000 – P1,400,000) P1,600,000
Capital gains on sale of paintings 940,000
Operating expenses before charitable contribution (P800,000 – P100,000) (700,000)
Net income before charitable contribution P1,840,000
Charitable contributions - limit (P1,840,000 x 5%), lower ( 92,000)
Actual – P100,000 .
Net taxable income P1,748,000
Multiplied by corporate normal tax rate 30%
Income tax due P 524,400
Problem 12 – 13 C
Operating expenses P4,000,000
Less: Net operating loss – 4th year 100,000
Gross income P3,900,000
Multiplied by MCIT rate 2%
Minimum corporate income tax P 78,000
Domestic and resident foreign corporation taxed during the taxable year with MCIT
cannot enjoy the benefit of NOLCO. Nevertheless, the running of the three (3) year
period for the expiry of NOLCO is not interrupted by the fact that such corporation is
subject to MCIT. (Rev. Reg. 14-2001)
Problem 12 – 14 B
Operating loss (P 200,000)
Gross income P 800,000 Multiplied by minimum corporate income tax rate 2%
Income tax payable 4th year P 16,000
5th year net income P320,000
Multiplied by normal tax rate 30%
Income tax due P 96,000
Less: Excess of minimum income tax over normal tax 16,000
Net income tax payable P 80,000
Problem 12 – 15
1. Letter A
Net income per GAAP
Add: Allowance for bad debts
Income before incentive to CHED contribution
Less: Incentive to CHED contribution (P300,000 x 50%) Net taxable income
Multiply by normal corporate income tax rate Income tax due
P5,000,000 150,000 P5,150,000 150,000 P5,000,000 30% P1,500,000 2. Letter C
Net income per GAAP Add: Operating expenses Gross income
Multiply by minimum corporate income tax rate Minimum corporate income tax – higher
P 5,000,000 80,000,000 P85,000,000 2% P 1,700,000 Normal tax (P5,000,000 x 30%) P1,500,000 Problem 12 – 16 1 . Letter A
Income tax payable – current year MCIT (P8,000,000 x 2%) P 160,000 2
. Letter C
Net operating income (P8,000,000 – P7,000,000) P1,000,000
Multiplied by normal tax rate 30%
Normal tax P 300,000
Less: Excess of MCIT 100,000
Income tax payable P 200,000
Problem 12 – 17 A
None. There is no excess corporate MCIT over NCIT in year 3 to be applied on year 4 because the MCIT is not yet applicable for the company as it only has 3 years of operation in year 3.
Problem 12 – 18
1. Letter A
Income tax payable P 200,000
Divided by MCIT tax rate 2%
Gross income P10,000,000
2. Letter C
Income tax expense P 150,000
Divided by corporate normal income tax rate 30%
Net taxable income P 500,000
The excess of MCIT over NCIT shall be recorded in the corporation’s books as an asset under the account title “Deferred Charges, MCIT.” This asset account shall be carried forward and may be credited against the normal tax due for a period not exceeding three taxable years immediately succeeding the taxable year(s) in which the same has been paid. (Rev. Regs. No. 9-98)
Problem 12 – 19 C
Rental income (P1,900,000/95%) P2,000,000
Capital gains 500,000
Total gross income P2,500,000
Operating expenses (2,350,000)
Net taxable income P 150,000
Multiplied by corporate normal tax 30%
Income tax due P 45,000
Excess of MCIT over NCIT P 40,000
Add: Expanded withholding tax (P2,000,000 – P1,900,000) 100,000
Total creditable income tax P140,000
Less: Income tax due 45,000
Tax refund P 95,000
Problem 12 – 20 A
Gross income (P1,600,000 – P1,200,000) P400,000
Less: OSD (P400,000 x 40%) 160,000
Net income P240,000
Multiplied by normal tax rate 30%
Income tax due P 72,000
Capital gains tax (P1,600,000 x 6%) P96,000
Problem 12 – 21
1.
Letter DDomestic Corporation:
a. Not traded in local exchange: Selling price
Cost (P110 x 12,000 shares) Capital gain
Tax on P100,000 x 5%
Tax on excess (P280,000 – P100,000) x 10% b. Traded in local exchange (P1,800,000 x .005)
c. Sale of land abroad (P3,000,000 – P2,500,000) x 30% d. Sale of land – Philippines (P1,200,000 x 6%)
P1,600,000 1,320,000 P 280,000 P 5,000 18,000 P 23,000 9,000 150,000 72,000 P254,000 Note: OSD is not applicable to land sold in Japan because the land is a capital asset.
2.
Letter AResident Foreign Corporation a. b. c. d. (P1,200,000 x 6%) Total P 23,000 9,000 72,000 P104,000
3. Answer not in the choices = P122,000.
Nonresident Foreign Corporation a. b. c. d. (P1,200,000 – P900,000) x 30% Total P 23,000 9,000 90,000 P122,000 Problem 12 – 22 C
Interest from savings deposits (P3,000,000 x 20%) P 600,000
Royalty income (P1,000,000 x 20%) 200,000
Interest from a depository bank EFCD (P1,500,000 x 7.5%) 112,500
Total passive final tax P 912,500
Dividend from a domestic corporation received by a domestic corporation is tax exempt. Dividend from a nonresident foreign corporation is subject to normal tax.
Problem 12 – 23
1. Letter B
Domestic Corporation
b. P300,000 @ 20% c. P100,000 @ 20%* d. P 80,000 @ 20% Total 60,000 20,000 16,000 P171,000 2. Letter B = Resident foreign corporation (same as letter 1)
3. Letter C
Nonresident foreign corporation a. Exempted b. (P300,000 @ 30%) c. (P100,000 @ 30%) d. (P 80,000 @ 30%) Total P90,000 30,000 24,000 P144,000 *It is assumed that the royalty income from franchising is a passive income.
Problem 12 – 24
1. Letter B
Dividend income - (PCB and Magnolia are both domestic corporations) Exempt Interest income on US dollar loans ($3,000 x 10% x P50) P15,000 2. Letter C
Interest on Philippine peso loans P2,000,000
Operating expenses ( 900,000)
Taxable income P1,100,000
Multiplied by normal corporate tax 30%
Income tax due P 330,000
Problem 12 – 25 A Related income P1,000,000 Unrelated income 1,500,000 Total revenue P2,500,000 Operating expenses (3,000,000) Net loss (P 500,000)
Minimum corporate income tax (P2,500,000 x 2%) P50,000
Problem 12 – 26
1. Letter D
2. Letter A
Educational income: 200A 200B
Tuition and miscellaneous fees P4,000,000 P6,000,000
Sales of canteen 700,000 1,600,000
Sales of bookstore 300,000 400,000
Non-educational income:
Rent income (net/95%) P5,200,000 P5,500,000
Sale of scrap materials 60,000 20,000
Total unrelated P5,260,000 P5,520,000
Costs and expenses:
Cost of sales – canteen (P400,000) (P 800,000)
Cost of books sold ( 240,000) ( 320,000)
Operating expenses (2,000,000) (3,000,000)
Purchase of library books (1,000,000) (1,500,000) Cost of classroom construction ( 500,000)
Purchase of school furniture . ( 200,000) Total costs and expenses (P4,140,000) (P5,820,000 )
Net taxable income P6,120,000 P6,700,000
200A Income tax (P6,120,000 x 30%) P1,836,000
200B Income tax (P6,700,000 x 10%) P670,000
Less: CWT from rent
200A (P5,200,000 - P4,940,000) 260,000
200B (P5,500,000 – P5,225,000) . 275,000
Income tax still due and payable P1,576,000 P395,000
A proprietory educational institution has an option to either deduct its capital expenditures on depreciable assets during the year for the expansion of school facilities (outright expense) or deduct allowances for depreciation on such assets, [Sec. 34 (A) (2), NIRC]. In this case, it is more advantageous for BCU to treat capital expenditures on depreciable assets as outright expense.
The non-educational income in 200A is greater than the educational income; therefore, the tax rate to be used in 200A should be the normal corporate income tax of 30%. On the other hand, a special tax rate of 10% should be used in 200B because the educational income is greater than the non-educational income. [Sec. 27 (B), NIRC]
Problem 12 – 27 D
P-0-, Government educational institutions are tax-exempt.
Problem 12 – 28 B
Income tax payable (P700,000 x 0.025) P17,500
Problem 12 – 29 A
Manila to Beijing (P5,000 x 2,000)
Manila – Hong Kong – Beijing (P6,000 x 4,000) x P3,000/P6,000 Manila to Hong Kong (P3,000 x 2,000)
Total reportable gross income within Multiplied by applicable rate
Income tax P10,000,000 12,000,000 6,000,000 P28,000,000 2.5% P 700,000
Problem 12 – 30 A
Within Dragon Films American Aircraft
Gross receipts P10,000,000 P20,000,000
Multiplied by special tax rate 25% 7 ½%
Philippine income taxes P 2,500,000 P 1,500,000
Note: Gross income means gross receipts. The aforementioned resident foreign corporations are
subject special tax rates (final taxes). They are not allowed to deduct costs or expenses from their gross receipts. The cost of service is only applicable for MCIT purposes. (Sec. 27(E)(4), NIRC)
Problem 12 – 31 A
Operating net income after tax P24,000,000
Tax rate on branch remittance 15%
Branch profit remittance tax P 3,600,000
Branch profit remittance, net of tax (P24,000,000 x 85%) P20,400,000
Dividend income from Pharma Co. 7,000,000
Total branch profit remittance P27,400,000
Note: Sec. 28 (A) (4) of NIRC provides that the following income within of a foreign
corporation shall not be treated as branch profit for tax purposes unless the same are
effectively connected with the conduct of the trade or business in the Philippines:
1. Interest, dividends, rents, royalties;
2. Remuneration for technical services;
3. Salaries, wages, premiums, annuities, emoluments;
4. Other fixed or determinable annual, periodic or casual gain, profits, income and
capital gains.
Problem 12 – 32 B
Income tax (P80,000/80%) x 20% P20,000
Note: Although cooperatives are tax-exempt, they are still subject to final income taxes on interest income.
Problem 12 – 33 A
All of the transactions of Unlad Cooperative are exempt from income taxes.
Problem 12 – 34 B
1
. Letter A
Income tax due – 1st quarter [(P495,000/99%) – P480,000) x 30% P 6,000 Less: 1% creditable withholding tax (P495,000/99%) – P495,000 P5,000
200A excess tax credit used in first quarter 200B 1,000 6,000 Income tax still due and payable – 200B first quarter P 0
-2
. Letter C
Income tax due – 2nd quarter [(P792,000/99%) – P700,000) x 30% P 30,000
Income tax due – 1st quarter [(P495,000/99%) – P480,000) x 30% ( 6,000) Withholding tax – 2nd quarter [(P792,000/99%) – (P495,000/99%) x 1% ( 3,000)
Remaining excess tax credit – 200A (P10,000 – P1,000) ( 9,000) Income tax still due and payable – 2nd quarter 200B P 12,000
Problem 12 – 35 C
Gross receipts (P2,940,000/98%) P3,000,000
Less: OSD (P3,000,000 x 40%) 1,200,000
Net taxable income P1,800,000
Multiplied by corporate normal tax rate 30%
Income tax due P 540,000
Less: Creditable income taxes paid
1st Qtr. (P1,960,000/98%) x 60% x 30% P360,000
2% creditable tax 2nd quarter’s gross receipts
(P2,940,000/98%) – (P1,960,000/98%) x 2% 20,000 380,000 Income tax still due and payable – 2nd Qtr. P 160,000
With the issuance by the BIR of RMC No. 16-2010 in relation to RR No. 2-2010, the taxpayers are no longer allowed to change methods (OSD to Itemized Deductions or vice versa) from quarter to quarter within the same taxable year. The said RMC provides that the method adopted for the 1st quarter shall be the same method to be applied to the succeeding quarters of the same
taxable year as well as in the preparation of the annual ITR of the said taxable year.
Problem 12 – 36 C
Income tax from ordinary net income (P1,000,000 – P900,000) x 30% P30,000 Final income taxes:
Interest income on peso savings (P100,000 x 20%) 20,000 Expanded foreign currency deposit (P100,000 x 7.5%) 7,500
Total income taxes P57,500
Problem 12 – 35 A
Income tax on interest income from peso savings bank (P100,000 x 30%) P 30,000 Tax on cash dividend – domestic corporation (P100,000 x 30%) 30,000 Tax on cash dividend from a resident foreign corporation (P100,000 x 30%) 30,000
Total income tax P90,000
Problem 12 – 36 C
3 rd Quarter 4 th Quarter
Gross income - cumulative P880,000 P1,120,000
Itemized deductions - cumulative (704,000) (896,000)
Net taxable income P176,000 P 224,000
Multiplied by normal corporate income tax 30% 30%
Income tax due P 52,800 P 67,200
Total income tax paid in previous quarters - tax credit ( 52,800)
Income tax still due and payable P 14,400
Problem 12 – 37 C
Regular tax (P1,000,000 – P900,000) x 30% P 30,000
Final tax on interest income – peso deposit (P100,000 x 20%) 20,000 Final tax on interest income – EFCD (P100,000 x 7.5%) 7,500
Total income tax P 57,500
Problem 12 – 38 A
Interest income from peso savings bank (P100,000 x 30%) P 30,000 Cash dividend from domestic corporation (P100,000 x 30%) 30,000 Cash dividend from a resident foreign corporation
with 100% earnings in the Philippines (P100,000 x 30%) 30,000
Total income tax P 90,000
Problem 12 – 39 C
Cash dividend from a domestic corporation (P100,000 x 30%) P 30,000 The cash dividend received from a resident foreign corporation is considered income outside the Philippines because its earnings within does not reached 50%.
Problem 12 – 40 D
Zero because the earnings of the said resident foreign corporation have no tax situs in the Philippines.
Problem 12 – 41 C
Income subject to normal tax rate (P300,000/30%) Passive income (P60,000/20%)
Capital gains (P35,000: 5,000 at 5%, 30,000 at 10%) Total income
Less: Income taxes paid:
Income tax per annual tax return Final tax on passive income Capital gains tax
Amount subject to 10% surtax
P300,000 60,000 35,000 P1,000,000 300,000 400,000 P1,700,000 395,000 P1,305,000
Problem 12 – 42 A
Net taxable income (P300,000/30%) P1,000,000
Add: Passive income (P60,000/20%) 300,000
Capital gains (P100,000) + (P35,000/10%) 450,000
Total P1,750,000
Less: Income tax per ITR P300,000
Passive income final tax 60,000
Capital gain tax 40,000 400,000
IAET base P1,350,000
Multiplied by IAET tax rate 10%
IAET P 135,000
Problem 12 – 43
1. Letter A
Reserve funds, beginning P1,000,000
Add: Net additions to reserve funds during the year 500,000
Total P1,500,000
Less: Reserve funds, ending 900,000
Amount of reserve funds released P 600,000
2. Letter B
Gross premium collected P10,000,000
Add: Reserve funds release 600,000
Gross income P10,600,000
Less: Operating expenses P4,600,000
Net additions to reserve funds 500,000 5,100,000
Net income P 5,500,000
In the case of insurance companies, whether domestic or foreign doing business in the Philippines, the net additions, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts may be deducted from their gross income: Provided, however, that the released reserve be treated as income for the year of release. [Sec. 37 (A), NIRC; Sec. 129, Rev. Regs. No. 2]
Problem 12 – 44
1. Letter D
Franchise fee P10,000,000
Less: Creditable withholding tax (P10,000,000 x 2%) 200,000
Net amount of franchise fee P 9,800,000
2. Letter B
Franchise fee P10,000,000
Less: Pre-operating and training costs 6,000,000
Gross income P 4,000,000
Less: OSD (P4,000,000 x 40%) 1,600,000
Multiplied by normal tax rate 30%
Income tax due P 720,000
Less: Creditable withholding tax (P10,000,000 x 2%) 200,000
Income tax still due and payable P 520,000
When royalties are received in active pursuit of business, it is subject to 30% regular corporate income tax. If royalties are derived from passive income, these are generally subject to 20% final tax. (BIR Ruling No. DA (C-101) dated October 17, 2008)
Problem 12 – 45
Year 201A
Within Without Total Gross income: Philippines USA Japan Deductions: Philippines USA Japan Net income
Multiply by tax rate Income tax payable
Tax credit allowed – see supporting computation Income tax still due
P1,000,000 (800,000) . P 200,000 P 400,000 300,000 (200,000) (200,000) P300,000 P1,000,000 400,000 300,000 (800,000) (200,000) (200,000) P 500,000 30% P 150,000 ( 90,000) P 60,000
Supporting computation:
US Japan Total Tax credits: (P200,000/P500,000) x P150,000 = P60,000 vs. P80,000 Allowed, lower (P100,000/P500,000) x P150,000 = P30,000 vs. P30,000 Allowed, lower (P300,000/P500,000) x P150,000 = P90,000 vs. P100,000 Allowed, lower P 60,000 30,000 P90,000 90,000 P90,000 Problem 12 – 46Interest from savings deposit – Metrobank (P3,000,000 x 20%) P 600,000 Royalty income – Philippine Mining Company (P1,000,000 x 20%) 200,000 Interest from a depository bank under expanded foreign currency
deposit - PCI Bank ($30,000 x P50 x 7.5%) 112,500
Dividends from Zerxes, a resident foreign corporation (P500,000 x 30%) 150,000
Total final passive income taxes P1,062,500
Problem 12 – 47
Reported income before tax
Add: Loss from sale of shares of stock outside stock market Total
P10,000,000 5,000 P10,005,000
Less: Gains subject to final income tax:
(1) Gain from sale of stock in the stock market (2) Gain from sale of short-term debt securities (3) Gain from sale of real property
(P9,400,000 – P4,400,000)
Adjusted income subject to corporate income tax Multiply by normal corporate income tax Correct amount of income tax
Total reported income before tax Less: Normal corporate income tax Total accounting income after tax
P 25,000 10,000 5,000,000 5,035,000 P 5,630,000 30% P 1,689,000 P10,000,000 1,689,000 P 8,311,000 Problem 12 – 48 Total revenue P1,000,000 Operating expenses ( 10,000)
Service charge – credit card (P1,000,000/5%) x 3% ( 600,000)
Net income P 380,000
Multiplied by normal corporate tax 30%
Income tax due P 114,000
Less: Creditable expanded withholding tax (P1,000,000/5%) x ½% 100,000
Income tax still due and payable P 14,000
Problem 12 – 49
Taxable income (normal tax) Add: Income subject to final tax Income exempt from tax
Income excluded from gross income Amount of NOLCO deducted Total
Less: Dividends
Income tax paid for the year Improperly accumulated income Multiply by tax rate
Tax on improperly accumulated income
P 60,000 50,000 10,000 50,000 P150,000 200,000 P 900,000 170,000 P1,070,000 350,000 P 720,000 10% P 72,000 Problem 12 – 50 Tuition fees Miscellaneous fees Income from rents
Net income, school canteen Net income, book store Gross income
Less: Allowable deductions:
Payroll and administrative salary Other operating expenses Interest expense P1,425,420 762,330 82,100 P2,843,100 362,600 60,000 36,200 24,800 P3,326,700
Outright expense of capital expenditures for new six rooms Taxable income
Multiply by the applicable tax rate Income tax 750,000 3,019,850 P306,850 10% P 30,685
Note: The tax differential on interest income shall now be used because under R.A. 9337 specifically requires that the interest expense is to be reduced by 33% of the interest income subjected to final tax during the taxable year. It is assumed that the educational institution opted to treat the capital expenditures as outright expense to avail of a lower tax.
Problem 12 – 51
(1)
Taxable income from operation (P1050,000/70%) P1,500,000
Add: NOLCO deducted 100,000
Interest income (P120,000/80%) 150,000
Capital gain (P230,000 – P5,000)/90% 250,000 Total income for GAAP reporting, before tax P2,000,000 (2)
Tax on income from operation (P1,500,000 x 30%) P450,000 Tax on interest income (P150,000 x 20%) 30,000 Tax on capital gain (P250,000 – P230,000) 20,000
Total income tax paid P500,000
(3)
GAAP income P2,000,000
Less: Total income tax (see 2) 500,000
Net income after tax – GAAP P1,500,000
(4)
Taxable income from operation P1,500,000
Add: NOLCO P100,000
Income subjected to final tax (P150,000 + P250,000) 400,000 500,000
Total P2,000,000
Less: Income tax paid 500,000
Net income after income tax P1,500,000
Multiplied by surtax rate 10%
IAET = Surtax P 150,000
Problem 12 – 52
1. 3 yearrd 4 yearth 5 th year 6 th year
Sales P1,000,000 P2,500,000 P4,000,000 P5,000,000
Rent income 200,000 300,000 100,000 50,000 Gross income P 600,000 P1,600,000 P1,700,000 P2,350,000 Operating expenses allowed ( 300,000) (1,300,000) (1,400,000) (1,500,000) Net taxable income P 300,000 P 300,000 P 300,000 P 850,000 Multiplied by NCIT rate 30% 30% 30% 30% Income tax due P 90,000 P 90,000 P 90,000 P 255,000 Quarterly tax paid ( 10,000) ( 20,000) ( 30,000) ( 40,000) Income tax still due and payable P 80,000 P 70,000 P 60,000 P 215,000 2. 3 yearrd 4 yearth 5 th year 6 th year Royalty income, net of tax P 80,000 P160,000 P120,000 P 40,000 Interest income, net of tax 20,000 32,000 16,000 24,000 Total passive income, net of tax P100,000 P192,000 P136,000 P 64,000 Divide by 80% 80% 80% 80% Total gross passive income P125,000 P240,000 P170,000 P 80,000 Multiplied by final tax rate 20% 20% 20% 20%
Final taxes P 25,000 P 48,000 P 34,000 P 16,000
Problem 12 – 53
1. Sales P10,000,000
Less: Cost of sales 6,000,000
Reportable gross income per ITR P 4,000,000
2. Gross profit P4,000,000
Less: Operating expenses:
Salaries P1,000,000
Depreciation 300,000
Supplies 200,000
Interest expense [P50,000 – (P32,000/80% x 33%) 36,800 1,536,800
Net taxable income per ITR P2,463,200
Note:
Interest income is subject to final tax of 20% Inter-corporate dividend is tax-exempt.
Losses on investment in securities is not deductible – capital loss
3. Final withholding tax paid (P32,000/80%) x 20% P 8,000
4. Net income before tax per GAAP P2,200,000
Less: Income tax (P2,463,200 x 30%) 738,960
