For Income to be Taxable For Income to be Taxable
1.
1. There must be GAINThere must be GAIN 2.
2. It must be REALIZED or RECEIVED, actually It must be REALIZED or RECEIVED, actually or constructivelyor constructively 3.
3. It must NOT be EXCLUDED by law or It must NOT be EXCLUDED by law or by treatyby treaty Examples of NOT INCOME
Examples of NOT INCOME 1.
1. Money held in TRUSTMoney held in TRUST 2.
2. Increase in the value Increase in the value of the property prior to dispositionof the property prior to disposition 3.
3. Deposit without interestDeposit without interest 4.
4. Proceeds are mere return in capitalProceeds are mere return in capital
COMPUTATION OF TAXABLE INCOME COMPUTATION OF TAXABLE INCOME 1.
1. Individual earning PURELY COMPENSATORY INCOMEIndividual earning PURELY COMPENSATORY INCOME Gross Compensation
Gross Compensation
-- Personal & Additional ExemptionPersonal & Additional Exemption
-- Premium payments on health or hospital insurance (P2400/year)Premium payments on health or hospital insurance (P2400/year) TAXABLE INCOME
TAXABLE INCOME 2.
2. Individual DOING BUSINESSIndividual DOING BUSINESS Gross Revenue/Sales Gross Revenue/Sales -- Cost of SalesCost of Sales GROSS INCOME GROSS INCOME
-- Allowable DeductionsAllowable Deductions
-- Personal & Additional ExemptionPersonal & Additional Exemption TAXABLE INCOME
TAXABLE INCOME 3.
3. Domestic or FC doing businessDomestic or FC doing business Gross Revenue/Sales
Gross Revenue/Sales -- Cost of SalesCost of Sales GROSS INCOME GROSS INCOME
-- Allowable DeductionsAllowable Deductions TAXABLE INCOME TAXABLE INCOME
SITUS OF TAXATION SITUS OF TAXATION
The place or authority that has the right to impose and collect taxesThe place or authority that has the right to impose and collect taxes Interest
Interest Residence Residence of of the the debtordebtor Compensation
Compensation for for personal personal services services Place Place of of performanceperformance Rent
Rent and and royalty royalty Location Location of of the the propertyproperty Gain from sale of real property
Gain from sale of real property Gain from sale of personal Gain from sale of personal property
property
Place of sale Place of sale Produced here and Sold Produced here and Sold without without Partly within, Partly within, partly without partly without Produced without and
Produced without and Sold here
Sold here
Taxpayer sells it abroad Taxpayer sells it abroad through a sales office through a sales office Produced here and Sold Produced here and Sold here
here
Income within Income within
Purchased without and Purchased without and sold within
sold within
Purchased within and Purchased within and Sold within
Sold within
Purchased within and Purchased within and Sold without
Sold without
Income without Income without Gain from sale of shares of stock
Gain from sale of shares of stock of DOMESTIC CORPORATION of DOMESTIC CORPORATION
Regardless of place of sale, it is Philippine Regardless of place of sale, it is Philippine source
source Dividend
Dividend income income From From DC DC From From FCFC Income Income within the within the Philippines Philippines
Income within the Philippines IF Income within the Philippines IF more than 50% corporation’s more than 50% corporation’s worldwide income is derived worldwide income is derived from Philippine sources from Philippine sources TAX ON CORPORATIONS
TAX ON CORPORATIONS DOMESTIC CORPORATIONS DOMESTIC CORPORATIONS In
In General General 30% 30% of of TAXABLE TAXABLE INCOME INCOME from from ALL ALL sourcessources Optional Gross Optional Gross Income Taxation Income Taxation 15% of GROSS INCOME 15% of GROSS INCOME
Election of such will be irrevocable for 3 consecutive Election of such will be irrevocable for 3 consecutive taxable years
taxable years Gross Sales Gross Sales
-- Sales returns, discounts and allowancesSales returns, discounts and allowances -- Cost of goods soldCost of goods sold
GROSS INCOME GROSS INCOME For sale of service: For sale of service: Gross Receipts Gross Receipts
-- Sales returns, discounts and allowancesSales returns, discounts and allowances GROSS INCOME
GROSS INCOME Minimum Corporate
Minimum Corporate Income Tax (MCIT) Income Tax (MCIT)
2% of GROSS INCOME 2% of GROSS INCOME
*same Gross Income computation as with Optional Gross *same Gross Income computation as with Optional Gross Income Taxation
Income Taxation When applied: When applied:
a.
a. Beginning on the 4Beginning on the 4thth taxable year immediatelytaxable year immediately following the year in which such corporation following the year in which such corporation commenced its business operation
commenced its business operation b.
b. The computation of MCIT is greater than the regularThe computation of MCIT is greater than the regular taxable income
taxable income c.
c. Where corporation has zero or negative taxableWhere corporation has zero or negative taxable income
income To whom applied: To whom applied:
a.
a. Domestic corporationsDomestic corporations b.
Carry-over of Excess MCIT: Carry-over of Excess MCIT:
Excess of MCIT over the regular income tax shall be carried Excess of MCIT over the regular income tax shall be carried forward and credited against regular income tax for the forward and credited against regular income tax for the succeeding 3 years when regular income tax is higher than succeeding 3 years when regular income tax is higher than MCIT
MCIT
MCIT may be suspended by the Sec.
MCIT may be suspended by the Sec. of Finance onof Finance on 1.
1. Prolonged labor disputeProlonged labor dispute 2.
2. Force majeureForce majeure 3.
3. Legitimate business reversesLegitimate business reverses Exempted from MCIT:
Exempted from MCIT: a.
a. RFCRFC –– international carrierinternational carrier b.
b. RFCRFC –– offshore banking unitoffshore banking unit c.
c. RFCRFC –– regional operating headquartersregional operating headquarters d.
d. Those under Economic ZonesThose under Economic Zones Improperly Improperly Accumulated Earnings Accumulated Earnings Tax (IAET) Tax (IAET)
10% of IAET of domestic and closely-held
10% of IAET of domestic and closely-held corporationscorporations Closely-held Corporations
Closely-held Corporations a.
a. Those at least 50% in value of the outstandingThose at least 50% in value of the outstanding capital stock, or
capital stock, or b.
b. At least 50% of total combined voting power of allAt least 50% of total combined voting power of all classes of stock
classes of stock c.
c. Owned directly or indirectly by not more than 20Owned directly or indirectly by not more than 20 individuals
individuals
Prima facie evidence of IAET: Prima facie evidence of IAET:
1.
1. Corporation is a mere holding company orCorporation is a mere holding company or investment company
investment company Holding company
Holding company corporation having practicallycorporation having practically no activities except holding property and collecting no activities except holding property and collecting income therefrom
income therefrom 2.
2. Earning or profits of corporation are permitted toEarning or profits of corporation are permitted to accumulate beyond the reasonable needs of the accumulate beyond the reasonable needs of the business
business Exception: Exception:
The use of undistributed earnings and profits for The use of undistributed earnings and profits for REASONABLE NEEDS of the BUSINESS
REASONABLE NEEDS of the BUSINESS a.
a. Immediate needs of the businessImmediate needs of the business b.
b. Reasonably anticipated needsReasonably anticipated needs 3.
3. Substantial investment of earning in an unrelatedSubstantial investment of earning in an unrelated business
business 4.
4. Investment in bonds and other long tInvestment in bonds and other long t erm securitieserm securities 5.
5. Accumulation of earnings in excess of 100% of paid-Accumulation of earnings in excess of 100% of paid-up capital
up capital
Those considered as reasonable needs: Those considered as reasonable needs:
1.
1. Allowance for increase of accumulated earnings upAllowance for increase of accumulated earnings up to 100% of paid-up capital
to 100% of paid-up capital 2.
2. Earnings reserved for expansion, improvement andEarnings reserved for expansion, improvement and repairs as approved by Board of Directors
repairs as approved by Board of Directors 3.
3. Earnings reserved for compliance with any loan orEarnings reserved for compliance with any loan or obligation established under a legitimate business obligation established under a legitimate business agreement
agreement 4.
4. In case of subsidiaries of foreign corporation,In case of subsidiaries of foreign corporation, reserved or intended for investments in the reserved or intended for investments in the Philippines
Philippines 5.
5. Those required by law to be Those required by law to be retainedretained 6.
6. Anticipated losses or reverses in businessAnticipated losses or reverses in business Corporations NOT COVERED by IAET:
Corporations NOT COVERED by IAET: a.
a. Banks and other financial institutionsBanks and other financial institutions b.
b. Insurance companiesInsurance companies c.
c. Publicly held corporationsPublicly held corporations d.
d. Taxable partnershipsTaxable partnerships e.
e. General Professional PartnershipsGeneral Professional Partnerships f.
f. Non-taxable joint venturesNon-taxable joint ventures g.
g. Those registered in Economic ZonesThose registered in Economic Zones Non-Profit Non-Profit Proprietary Proprietary educational educational institutions and institutions and hospitals hospitals
10% of TAXABLE INCOME on related 10% of TAXABLE INCOME on related trade, business or activity except trade, business or activity except on certain PASSIVE INCOMES on certain PASSIVE INCOMES Private educational institutions are Private educational institutions are exempt from VAT
exempt from VAT
30% on ENTIRE 30% on ENTIRE TAXABLE INCOME IF TAXABLE INCOME IF gross income from gross income from unrelated trade, unrelated trade, business or activity business or activity exceeds 50% of total exceeds 50% of total income income Non-profit and
Non-profit and non-stock education stock education institutions
institutions
EXEMPT from tax on revenues and assets ACTUALLY, EXEMPT from tax on revenues and assets ACTUALLY, DIRECTLY and EXCLUSIVELY used for educational purposes DIRECTLY and EXCLUSIVELY used for educational purposes Liable for taxes on:
Liable for taxes on: a.
a. Income derived from any of their real Income derived from any of their real propertiesproperties b.
b. Any activity conducted for profitAny activity conducted for profit c.
c. Interest income from any bank deposits and foreignInterest income from any bank deposits and foreign currency deposits
currency deposits GSIS / SSS / PHIC /
GSIS / SSS / PHIC / PCSO / Local Water PCSO / Local Water District District EXEMPT EXEMPT Corporation EXEMPT Corporation EXEMPT from taxation under from taxation under Section 30
Section 30
Subject to INCOME TAX on their income from Subject to INCOME TAX on their income from
a.
a. Any of their properties, real or personalAny of their properties, real or personal b.
b. Activities conducted for profit regardless of theActivities conducted for profit regardless of the disposition made of such income
disposition made of such income Incentives to Incentives to Registered Registered Enterprises under Enterprises under Investment Priorities Investment Priorities Plan Plan Income
Income Tax Tax Holiday Holiday Pioneer Pioneer firmsfirms –– 6 years from6 years from commercial operation
commercial operation Non-pioneer firms
Non-pioneer firms –– 4 years from4 years from commercial operation
Newly registered firms
Newly registered firms –– fully exemptfully exempt from income taxes
from income taxes
(all above can be extended for more (all above can be extended for more than 1 year but no registered firm than 1 year but no registered firm may avail of this for a period may avail of this for a period exceeding 8 years)
exceeding 8 years) Registered expanding firms
Registered expanding firms –– exemptexempt for 3 years from commercial for 3 years from commercial operation
operation
(no extension is allowed) (no extension is allowed) Additional
Additional
deduction for labor deduction for labor expense
expense
1
1stst5 years from registration5 years from registration –– 50% of50% of the wages
the wages
The above is doubled if the activity The above is doubled if the activity is located in less developed areas is located in less developed areas Special Economic
Special Economic Zone
Zone
In lieu of taxes, 5% of the Gross Income shall be remitted In lieu of taxes, 5% of the Gross Income shall be remitted to the national government
to the national government
RESIDENT FOREIGN CORPORATIONS RESIDENT FOREIGN CORPORATIONS In
In General General Same Same with with Domestic Domestic Corporations Corporations except except it it willwill be based on INCOME sourced WITHIN the be based on INCOME sourced WITHIN the Philippines
Philippines Optional Gross Income Taxation
Optional Gross Income Taxation Minimum Corporate Income Tax Minimum Corporate Income Tax (MCIT)
(MCIT) Brach
Brach Profit Profit Remittance Remittance 15% 15% of of the the total total profits profits applied applied for for remittance remittance oror earmarked for remittance without any deduction earmarked for remittance without any deduction for the tax component
for the tax component
Remittance by a branch to its head office except Remittance by a branch to its head office except those registered in Economic Zones
those registered in Economic Zones What is not included:
What is not included:
Any income from sources not connected with the Any income from sources not connected with the conduct of its business in the
conduct of its business in the PhilippinesPhilippines International
International Air Air Carrier Carrier 2.5% 2.5% on on GROSS GROSS PHILIPPINE PHILIPPINE BILLINGS BILLINGS (GPB)(GPB) GPB:
GPB:
Gross revenue derived from Gross revenue derived from
a.
a. Carriage of persons, excess baggage,Carriage of persons, excess baggage, cargo and mail
cargo and mail b.
b. Originating from PhilippinesOriginating from Philippines c.
c. In a continuous and uninterrupted In a continuous and uninterrupted flightflight d.
d. Irrespective of the place of sale and theIrrespective of the place of sale and the place of payment of ticket or passage place of payment of ticket or passage document
document
For a flight which originates in the Philippines For a flight which originates in the Philippines and transshipment takes place in any port and transshipment takes place in any port outside the Philippines on another airline, only outside the Philippines on another airline, only the aliquot portion of the cost of the ticket the aliquot portion of the cost of the ticket corresponding to the leg flown from the corresponding to the leg flown from the Philippines to the point of transshipment shall Philippines to the point of transshipment shall form part of GPB
form part of GPB When not applicable: When not applicable:
1.
1. To domestic corporations like PAL orTo domestic corporations like PAL or CebuPac
CebuPac 2.
2. Offline carriersOffline carriers those who have nothose who have no landing rights in the Philippines
landing rights in the Philippines
If selling tickets in the Philippines,If selling tickets in the Philippines, income from such shall be subject to income from such shall be subject to regular income tax of a resident regular income tax of a resident foreign corporation
foreign corporation 3.
3. International
International Shipping Shipping 2.5% 2.5% on on GROSS GROSS PHILIPPINE PHILIPPINE BILLINGSBILLINGS Offshore
Offshore Banking Banking Units Units 10% 10% FINAL FINAL TAX TAX ofof any interest any interest income derived income derived from foreign from foreign currency loans currency loans granted from granted from residents residents EXEMPT EXEMPT Income derived
Income derived byby OBU fromOBU from foreign currency transactions foreign currency transactions from
from a.
a. non-residentsnon-residents b.
b. other OBUother OBU c.
c. local commercial bankslocal commercial banks d.
d. branches of foreignbranches of foreign banks authorized by banks authorized by BSP to transact with BSP to transact with OBU OBU Regional
Regional Area Area Headquarters Headquarters EXEMPTEXEMPT Regional Operating Regional Operating Headquarters Headquarters 10% on TAXABLE INCOME 10% on TAXABLE INCOME
NON-RESIDENT FOREIGN CORPORATIONS NON-RESIDENT FOREIGN CORPORATIONS In
In General General 30% 30% on on GROSS GROSS INCOME INCOME from from all all sourcessources within the Philippine even passive within the Philippine even passive incomes EXCEPT capital gains on sale of incomes EXCEPT capital gains on sale of domestic shares
domestic shares Cinematographic Film owner, lessor or
Cinematographic Film owner, lessor or distributor
distributor
25% on GROSS INCOME 25% on GROSS INCOME Owner or lessors of vessel chartered by
Owner or lessors of vessel chartered by Philippine nationals
Philippine nationals
4.5% on GROSS INCOME 4.5% on GROSS INCOME Owner or lessors of aircraft,
Owner or lessors of aircraft, machineriesmachineries and other equipment
and other equipment
7.5 on GROSS INCOME 7.5 on GROSS INCOME
ITEMS
ITEMS INCLUDEDINCLUDED IN GROSS INCOMEIN GROSS INCOME 1.
1. Derived from conduct ofDerived from conduct of trade or business or trade or business or exercise of a profession exercise of a profession 2.
2. Rents Rents Improvements Improvements by by Lessee:Lessee: a.
a. Lessee Lessee introduced introduced improvements improvements perper agreement with lessor, lessor may report agreement with lessor, lessor may report income either
income either 1.
1. At the time of completion on the basis ofAt the time of completion on the basis of FMV of such building or improvement FMV of such building or improvement 2.
2. Spread over the life of the leaseSpread over the life of the lease considering the estimated depreciated considering the estimated depreciated value of such at the termination of the value of such at the termination of the lease
lease b.
b. Lease is terminated not through purchase byLease is terminated not through purchase by lessor and lessor comes into possession prior lessor and lessor comes into possession prior to the time originally fixed, lessor is to the time originally fixed, lessor is considered to receive additional income for considered to receive additional income for that year IF value of building exceeds the that year IF value of building exceeds the amount already reported as income
amount already reported as income c.
c. Destroyed before expiration of lease, lessor isDestroyed before expiration of lease, lessor is entitled to deduct as loss the amount entitled to deduct as loss the amount previously reported as income less any salvage previously reported as income less any salvage value to the extent that such loss was not value to the extent that such loss was not compensated for by insurance
compensated for by insurance 3.
3. Interests Interests (see (see Allocation Allocation of of Income Income and and Deductions Deductions at at thethe last page)
last page) 4.
4. Prizes & winningsPrizes & winnings 5.
5. Compensation Compensation forfor services
services
Not allowed to deduct any other deduction from Not allowed to deduct any other deduction from their salary their salary 6. 6. AnnuitiesAnnuities 7. 7. RoyaltiesRoyalties 8.
8. Dividends Dividends Notes Notes on on Dividends Dividends a.a. When When corporationcorporation receives interest which receives interest which are tax free
are tax free itit becomes TAXABLE as becomes TAXABLE as DIVIDENDS when it DIVIDENDS when it DISTRIBUTES the same DISTRIBUTES the same to its SHAREHOLDERS to its SHAREHOLDERS b.
b. Dividend paid by DC toDividend paid by DC to NRFC
NRFCtaxable in FULLtaxable in FULL Dividends paid in Dividends paid in Securities other Securities other than Stock than Stock
Considered as income, in the Considered as income, in the amount of FMV, when amount of FMV, when received by stockholder received by stockholder Dividends paid in Dividends paid in Property Property
If paid in stock of another If paid in stock of another corporation
corporation notnot considered a stock dividend considered a stock dividend
Basis is FMV at the time the Basis is FMV at the time the dividend becomes payable dividend becomes payable Sale of Stock Sale of Stock received as received as Dividends Dividends
GR: stock dividends are NOT GR: stock dividends are NOT TAXABLE
TAXABLE Exception: Exception:
When it causes CHANGE in When it causes CHANGE in the corporate identity or in the corporate identity or in the nature of the shares the nature of the shares issued whereby proportional issued whereby proportional interest of the stockholders interest of the stockholders after distribution is after distribution is ESSENTIALLY DIFFERENT from ESSENTIALLY DIFFERENT from his former interest
his former interest Sale of Stock Sale of Stock received as received as Dividends Dividends
GAIN or LOSS from such sale GAIN or LOSS from such sale is treated as arising from sale is treated as arising from sale or exchange of CAPITAL or exchange of CAPITAL ASSET ASSET Stock Declaration Stock Declaration and Subsequent and Subsequent Redemption Redemption
If after stock dividends are If after stock dividends are declared, a corporation declared, a corporation cancels or redeems the same cancels or redeems the same making such redemption making such redemption essentially equivalent to a essentially equivalent to a DISTRIBUTION of a TAXABLE DISTRIBUTION of a TAXABLE DIVIDEND DIVIDEND Distribution in Distribution in Liquidation Liquidation
When corporation distributes When corporation distributes ALL its properties or assets in ALL its properties or assets in COMPLETE LIQUIDATION, COMPLETE LIQUIDATION, GAIN realized is TAXABLE GAIN realized is TAXABLE 9.
9. Gains Gains derived derived fromfrom dealings in property dealings in property
Gain or loss in exchange of property is recognized Gain or loss in exchange of property is recognized when:
when: a.
a. Property received in exchange is essentiallyProperty received in exchange is essentially different from the property disposed different from the property disposed b.
b. Property received has market valueProperty received has market value 10.
10. Pensions Pensions EXEMPTEXEMPT 11.
11. Partner’s Partner’s distributivedistributive share from net income of share from net income of GPP
GPP
GPP is TAX EXEMPT BUT the income of the GPP is TAX EXEMPT BUT the income of the individual partners are subject to tax
individual partners are subject to tax
Income derived from other sources Income derived from other sources Recovery of damages (compensation for Recovery of damages (compensation for injury; from tortuous act)
injury; from tortuous act)
Not taxable Not taxable Recovery of items previously deducted
Recovery of items previously deducted from gross income
from gross income
Taxable Taxable Forgiveness
Forgiveness of of indebtedness indebtedness If If it it amounts amounts toto 1.
1. Payment Payment of of income income (person(person performing a service)
2.
2. Capital transaction (corporationCapital transaction (corporation forgiving the debt of a
forgiving the debt of a stockholder)stockholder)
TaxableTaxable 3.
3. GiftGiftExemptExempt Income
Income derived derived from from illegal illegal business business TaxableTaxable Recovery
Recovery of of lost lost earnings earnings TaxableTaxable Refunds
Refunds and and Tax Tax Credits Credits GR: GR: taxes taxes previously previously claimed claimed andand allowed as deductions BUT subsequently allowed as deductions BUT subsequently was refunded or granted as tax credit was refunded or granted as tax credit should be declared as part of gross should be declared as part of gross income of that year
income of that year Exceptions: (some) Exceptions: (some)
a.
a. Taxes Taxes assessed assessed against against locallocal benefits of a kind tending to benefits of a kind tending to increase the value of the property increase the value of the property assessed
assessed b.
b. Taxes which are not allowable asTaxes which are not allowable as deductions under the law
deductions under the law
PASSIVE INCOME PASSIVE INCOME Domestic Domestic Corporation Corporation Resident Foreign Resident Foreign Corporation Corporation Non-Resident Non-Resident Foreign Foreign Corporation Corporation Interest
Interest under under FCDU FCDU 7.5% 7.5% 7.5% 7.5% ExemptExempt Income derived by
Income derived by depositary BANK from depositary BANK from Foreign Currency Foreign Currency transactions with transactions with NON-RESIDENTS, NON-RESIDENTS, OBUs, etc OBUs, etc Exempt Exempt
Interest income from Interest income from Foreign Currency Foreign Currency loans granted by a loans granted by a BANK to RESIDENTS BANK to RESIDENTS other than OBUs other than OBUs
10% 10%
Royalty of all types Royalty of all types WITHIN the WITHIN the Philippines Philippines 20% 20% 20% 20% 30%30%
Royalty WITHOUT the Royalty WITHOUT the Philippines
Philippines
Taxable Income Taxable Income under 30% tax rate under 30% tax rate
Exempt Exempt Interest on Bank Interest on Bank Deposits Deposits 20% 20% Dividend from Dividend from Domestic Domestic Corporations Corporations (Inter-corporate Dividends) corporate Dividends) Exempt Exempt 15% Exempt Exempt 15% Sale of Shares of Sale of Shares of Stock not listed and Stock not listed and not traded through a not traded through a local stock exchange local stock exchange held as Capital Asset held as Capital Asset
5% or 10% of net 5% or 10% of net capital gains capital gains Sale of shares of Sale of shares of stock listed and stock listed and traded through local traded through local stock exchange stock exchange
.5% of gross selling .5% of gross selling price or gross value price or gross value
Sale of Real property Sale of Real property held as Capital Asset held as Capital Asset
6% of gross selling 6% of gross selling price or current price or current market value, market value, whichever is higher whichever is higher Normal Normal corporate tax corporate tax
Sale of Real property Sale of Real property held as Capital Asset held as Capital Asset made to Government made to Government or GOCCs or GOCCs 6% of gross selling 6% of gross selling price or current price or current market value OR market value OR under normal under normal income tax rate income tax rate Sale of Real Property
Sale of Real Property held as Ordinary held as Ordinary Asset when seller is Asset when seller is habitually engaged in habitually engaged in real estate business real estate business
1.5%, 3% or 5% of 1.5%, 3% or 5% of gross selling price or gross selling price or
current market current market
value value Sale of Real Property
Sale of Real Property held as Ordinary held as Ordinary Asset when seller is Asset when seller is not habitually not habitually engaged in real engaged in real estate business estate business 7.5% of gross selling 7.5% of gross selling price or current price or current market value market value
Sale of Real Property Sale of Real Property held as Ordinary held as Ordinary Asset when seller is Asset when seller is exempt from exempt from creditable creditable withholding tax withholding tax Exempt Exempt ITEMS
ITEMS EXCLUDEDEXCLUDED FROM GROSS INCOMEFROM GROSS INCOME 1.
1. Gifts, Gifts, Bequests Bequests & & Devices Devices Must Must be be characterized characterized byby a.
a. Disinterested generosity, andDisinterested generosity, and b.
b. Pure liberalityPure liberality
Most critical consideration: Giver’s intention or Most critical consideration: Giver’s intention or motive
motive
But, income derived from those properties shall But, income derived from those properties shall be included in the gross income
be included in the gross income 2.
2. Income exempt underIncome exempt under Treaty
3.
3. Amount Amount received received byby insured as Return of insured as Return of Premium Premium Received either Received either a.
a. during the termduring the term b.
b. at the maturity of the termsat the maturity of the terms c.
c. upon surrender of the contractupon surrender of the contract 4.
4. Life Life Insurance Insurance Proceeds Proceeds of of such such paid paid to to the the heir heir or or beneficiariesbeneficiaries upon the DEATH of the insured to avail of the upon the DEATH of the insured to avail of the total exemption
total exemption
If the insured SURVIVES, there is only PARTIAL If the insured SURVIVES, there is only PARTIAL EXEMPTION to the extent that the proceeds EXEMPTION to the extent that the proceeds constitute return of capital
constitute return of capital
If such is held by the insurer under an agreement If such is held by the insurer under an agreement to pay interest, the interest payments shall be to pay interest, the interest payments shall be included in the gross income
included in the gross income 5.
5. Compensation for InjuriesCompensation for Injuries or Sickness
or Sickness
Includes the AMOUNT OF DAMAGES received on Includes the AMOUNT OF DAMAGES received on account of such injuries (physical) or
account of such injuries (physical) or sicknesssickness However, if damages only amount to return of However, if damages only amount to return of capital, it is EXEMPT
capital, it is EXEMPT 6.
6. Retirement Retirement Benefits,Benefits, Gratuities, Pensions Gratuities, Pensions
Includes: Includes:
a.
a. Amount received as a consequence ofAmount received as a consequence of SEPARATION for any cause beyond control SEPARATION for any cause beyond control Sickness must be job threatening rendering Sickness must be job threatening rendering the taxpayer incapable of working
the taxpayer incapable of working b.
b. Benefits Benefits received received from from a a foreignforeign government by non-resident citizens or government by non-resident citizens or aliens who reside permanently in the aliens who reside permanently in the Philippines
Philippines c.
c. Veterans benefitVeterans benefit d.
d. SSS benefitSSS benefit e.
e. GSIS benefitGSIS benefit f.
f. Benefit from RA 7641Benefit from RA 7641 Conditions:
Conditions: 1.
1. At least 60 years oldAt least 60 years old 2.
2. 5 years of service at the time of5 years of service at the time of retirement
retirement Limited exemption: Limited exemption:
½ month salary for every year of service ½ month salary for every year of service g.
g. Reasonable Private Benefit PlanReasonable Private Benefit Plan Conditions:
Conditions: 1.
1. At least 50 years oldAt least 50 years old 2.
2. In the service of the same employer forIn the service of the same employer for at least 10 years at the time of at least 10 years at the time of retirement
retirement 3.
3. Approved by BIRApproved by BIR
h.
h. Terminal Leave payTerminal Leave pay
Amount paid for the commutation of leave Amount paid for the commutation of leave credits
credits
Excludable only for government employees Excludable only for government employees 7.
7. Miscellaneous Miscellaneous items items a.a. Income Income derived derived from from FOREIGNFOREIGN GOVERNMENTS
GOVERNMENTS b.
b. Income derived from GOVERNMENT or itsIncome derived from GOVERNMENT or its political subdivisions
political subdivisions c.
c. Prizes, awards in SPORTS competitionPrizes, awards in SPORTS competition sanctioned by National Sports Associations sanctioned by National Sports Associations wherever held
wherever held d.
d. Prizes and awardsPrizes and awards e.
e. 1313ththmonth pay and other benefitsmonth pay and other benefits f.
f. GSIS, SSS, Medicare, Pag-ibig contributionsGSIS, SSS, Medicare, Pag-ibig contributions & Union dues of individuals
& Union dues of individuals g.
g. Gains from sale of bonds, debentures orGains from sale of bonds, debentures or other certificate of indebtedness with a other certificate of indebtedness with a MATURITY OF MORE THAN 5 YEARS
MATURITY OF MORE THAN 5 YEARS h.
h. Gains from REDEMPTION OF SHARES inGains from REDEMPTION OF SHARES in mutual fund mutual fund FRINGE BENEFITS FRINGE BENEFITS Definition Definition
Fringe Benefit =Fringe Benefit =
a.
a. any good, service or other benefitany good, service or other benefit b.
b. furnished or granted in cash or in furnished or granted in cash or in kindkind c.
c. by an employer to an by an employer to an individual employeeindividual employee d.
d. except rank and file employeesexcept rank and file employees –– hence, only FB given or furnished tohence, only FB given or furnished to managerial or supervisory employees are subject to FBT
managerial or supervisory employees are subject to FBT
Imposition of aImposition of a Final tax of 32%Final tax of 32% on theon the grossed up monetary valuegrossed up monetary value of theof the
fringe benefits fringe benefits
Actual Monetary Value =
Actual Monetary Value = Grossed up monetary valueGrossed up monetary value 68%
68% Grossed
Grossed up up Monetary Monetary value value X X 32% 32% == Fringe Benefit TaxFringe Benefit Tax
Managerial Employees = those who are vested with powers or prerogatives toManagerial Employees = those who are vested with powers or prerogatives to
lay down and execute management polices and/or hire, transfer, suspend, etc. lay down and execute management polices and/or hire, transfer, suspend, etc. employees
employees
Supervisory Employees = those who effectively recommend such managerialSupervisory Employees = those who effectively recommend such managerial
actions if the exercise of such authority is not merely routinary or clerical in actions if the exercise of such authority is not merely routinary or clerical in nature but requires use of independent judgment
Rank-and-file Employees = all employees who are holding neither managerialRank-and-file Employees = all employees who are holding neither managerial
nor supervisory positions nor supervisory positions
Special Cases for Fringe Benefit Tax Special Cases for Fringe Benefit Tax
Received
Received by by non-resident non-resident alien alien not not engaged engaged in in trade trade or or business business 25%25% Received
Received by by alien alien or or Filipino Filipino employed employed by by ROH ROH or or RAH RAH 15%15% Received
Received by by employees employees in in a a SPEZA SPEZA 25% 25% or or 15%15%
Items of Fringe Benefits Items of Fringe Benefits
TaxableTaxable:: a. a. HousingHousing Monetary Value Monetary Value Employer leases a residential property for the use of the
Employer leases a residential property for the use of the employee and such is the usual place of residence of the employee and such is the usual place of residence of the employee employee 50% of the value 50% of the value of the benefit of the benefit Employer purchases a residential property on installment basis
Employer purchases a residential property on installment basis and allows the employee to use it
and allows the employee to use it as his usual residenceas his usual residence Employer purchases a residential property and transfers Employer purchases a residential property and transfers ownership to the employee
ownership to the employee
b.
b. Expense accountExpense account –– those personal expenses such as groceries, paid for orthose personal expenses such as groceries, paid for or reimbursed by the employer even if these are duly receipted for in the reimbursed by the employer even if these are duly receipted for in the name of the employer
name of the employer c.
c. Vehicle of any kindVehicle of any kind
Monetary Value Monetary Value Employer purchases vehicle in the name of
Employer purchases vehicle in the name of the employee regardless of usage of such the employee regardless of usage of such
100% of the acquisition cost 100% of the acquisition cost Employer pays for the car on installment basis
Employer pays for the car on installment basis and ownership of the car is placed in the and ownership of the car is placed in the name of the employee
name of the employee
Acquisition cost exclusive of Acquisition cost exclusive of interest
interest 5 years 5 years Employer shoulders a portion of the amount
Employer shoulders a portion of the amount of the purchase price of a vehicle owned by of the purchase price of a vehicle owned by the employee EXCEPT when the subsidy is the employee EXCEPT when the subsidy is declared part of the employee’s taxable declared part of the employee’s taxable compensation income subject to withholding compensation income subject to withholding tax
tax
Amount shouldered by the Amount shouldered by the employer
employer
Employer owns
Employer owns and maintains and maintains a fleet a fleet of of 50% 50% of of thethe
vehicles for the use of the business and the vehicles for the use of the business and the employees
employees
Acquisition cost exclusive of Acquisition cost exclusive of interest
interest 5 years 5 years Use
Use of of yacht yacht Depreciated Depreciated value value at at an an estimatedestimated useful life of 20 years
useful life of 20 years d.
d. Household personnel, such as maid, driver, etcHousehold personnel, such as maid, driver, etc e.
e. Interest on loan at less than market rate to the extent of the differenceInterest on loan at less than market rate to the extent of the difference between the market rate and actual rate are granted
between the market rate and actual rate are granted
Monetary Value Monetary Value Employer extends a loan to an
Employer extends a loan to an employee free of interest
employee free of interest
Computed at 12% Computed at 12% Loan
Loan given given at at a a rate rate lower lower than than 12% 12% Difference Difference of of thethe interest and the 12% interest and the 12%
f.
f. Membership fees, dues, and other expenses borne by the employer for theMembership fees, dues, and other expenses borne by the employer for the employee in social and athletic c
employee in social and athletic c lubs or other similar organizationslubs or other similar organizations g.
g. Expenses for foreign travelExpenses for foreign travel
Monetary Value Monetary Value Cost
Cost of of first first class class ticket ticket given given to to an an employee employee 30% 30% of of the the valuevalue Travel
Travel expense expense of of family family members members of of the the employee employee 100% 100% of of the the valuevalue
h.
h. Holiday and vacation expensesHoliday and vacation expenses i.
i. Educational assistance to employee or his dependentsEducational assistance to employee or his dependents j.
j. Life or health insurance and other non-life insurance premiums or similarLife or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows
amounts in excess of what the law allows
CertainCertain exemptionsexemptions on thoseon those taxable fringe benefitstaxable fringe benefits::
a.
a. HousingHousing 1.
1. Military officialsMilitary officials 2.
2. Situated inside or adjacent to the premises of a business or factorySituated inside or adjacent to the premises of a business or factory within 50 meters thereof
within 50 meters thereof 3.
3. Temporary housing for employee who stays for not more than 3Temporary housing for employee who stays for not more than 3 months
months b.
b. Expense AccountExpense Account 1.
1. Expense duly receipted for and in the name of the employer and is notExpense duly receipted for and in the name of the employer and is not in the nature of
2.
2. RATA which are fixed in amount and regularly given as part of monthlyRATA which are fixed in amount and regularly given as part of monthly compensation since it will be treated as
compensation since it will be treated as income of the employeeincome of the employee c.
c. VehicleVehicle
o
o Use of aircraft owned and maintained by Use of aircraft owned and maintained by the employerthe employer
d.
d. Expenses for Foreign TravelExpenses for Foreign Travel 1.
1. If it is reasonable for the purposes of attending business meetings orIf it is reasonable for the purposes of attending business meetings or conventions
conventions 2.
2. If it is for local travel expenses not more than $300 per day notIf it is for local travel expenses not more than $300 per day not including lodging
including lodging 3.
3. Cost of economy or business class ticketsCost of economy or business class tickets e.
e. Educational AssistanceEducational Assistance 1.
1. Employee was granted a scholarship by the employer and theEmployee was granted a scholarship by the employer and the education is directly connected to the trade or business of the education is directly connected to the trade or business of the employer, and there is a written contract that the employee must employer, and there is a written contract that the employee must remain in employ for a period of time
remain in employ for a period of time 2.
2. Assistance was extended to the employee’s dependents and wasAssistance was extended to the employee’s dependents and was provided through a scholarship program of the company
provided through a scholarship program of the company f.
f. Life or Health Insurance, etc. Premiums in excess of what the law allowsLife or Health Insurance, etc. Premiums in excess of what the law allows 1.
1. Contribution is pursuant to existing law such as Contribution is pursuant to existing law such as GSIS or SSSGSIS or SSS 2.
2. If it is group insurance of If it is group insurance of the employeesthe employees
Not TaxableNot Taxable::
a.
a. FB which are authorized and exempted from tFB which are authorized and exempted from t ax under special lawsax under special laws b.
b. Contributions of the employer for the benefit of the employee toContributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans
retirement, insurance and hospitalization benefit plans c.
c. Benefits given to rank and file employees, whether granted under aBenefits given to rank and file employees, whether granted under a collective bargaining or not
collective bargaining or not d.
d. De minimis benefitsDe minimis benefits
De Minimis Benefits De Minimis Benefits
Facilities or privileges furnished or offered by an employer to his employeesFacilities or privileges furnished or offered by an employer to his employees
that are of relatively small value and are offered and furnished by the that are of relatively small value and are offered and furnished by the employer merely as a means of promoting the health, goodwill, contentment or employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees
efficiency of his employees
Items of De Minimis Benefits:Items of De Minimis Benefits:
a.
a. Monetized unused vacation leave credits not exceeding 10 days during theMonetized unused vacation leave credits not exceeding 10 days during the year
year b.
b. Medical allowance for employee’s dependents not exceeding P125 perMedical allowance for employee’s dependents not exceeding P125 per month
month
c.
c. Rice subsidy of P1 500 or 1 sack of rice per monthRice subsidy of P1 500 or 1 sack of rice per month d.
d. Uniform and clothing allowance not exceeding P4 000 per yearUniform and clothing allowance not exceeding P4 000 per year e.
e. Medical benefits not exceeding P10 000Medical benefits not exceeding P10 000 f.
f. Laundry allowance of P300 per monthLaundry allowance of P300 per month g.
g. Employee achievement awards in the form of tangible personal propertyEmployee achievement awards in the form of tangible personal property other than cash with an annual monetary value not exceeding P10 000 other than cash with an annual monetary value not exceeding P10 000 received under an established written plan
received under an established written plan h.
h. Flowers, fruits, books given under special circumstances (illness, marriage,Flowers, fruits, books given under special circumstances (illness, marriage, etc)
etc) i.
i. Christmas and major anniversary celebration for employees not exceedingChristmas and major anniversary celebration for employees not exceeding P5 000 per year
P5 000 per year j.
j. Daily meal allowance for overtime work not exceeding 25% of the basicDaily meal allowance for overtime work not exceeding 25% of the basic minimum wage
minimum wage
The amount of de minimis benefit is not computed in determining the P30,000The amount of de minimis benefit is not computed in determining the P30,000
ceiling of ―other benefits‖ provided in Sec. 32(b) ceiling of ―other benefits‖ provided in Sec. 32(b)
o
o But, if the employer pays more than the ceiling prescribed, the excess isBut, if the employer pays more than the ceiling prescribed, the excess is
taxable as fringe benefit to the employee only taxable as fringe benefit to the employee only
Any amount given by the employer as benefits, whether deminis or not, shallAny amount given by the employer as benefits, whether deminis or not, shall
be deductible as business expense be deductible as business expense
DEDUCTIONS FROM GROSS INCOME DEDUCTIONS FROM GROSS INCOME Who may AVAIL of
Who may AVAIL of deductions?
deductions?
Individuals 1.
Individuals 1. CitizenCitizen 2.
2. Resident alienResident alien 3.
3. Non-resident alien doing businessNon-resident alien doing business in the Philippines
in the Philippines 4.
4. Members of GPPMembers of GPP Corporations 1.
Corporations 1. Domestic corporationsDomestic corporations 2.
2. Resident Foreign corporationsResident Foreign corporations 3.
3. Proprietary educational institutionsProprietary educational institutions & hospital
& hospital 4.
4. GOCCsGOCCs Who CANNOT AVAIL of
Who CANNOT AVAIL of deductions
deductions
1.
1. Individuals earning purely compensation incomeIndividuals earning purely compensation income 2.
2. Non-resident aliens not engaged in trade orNon-resident aliens not engaged in trade or business
business 3.
3. Non-resident Foreign corporationsNon-resident Foreign corporations Allowable
Allowable Deductions Deductions Individuals Individuals with with grossgross income from income from EMPLOYER-EMPLOYEE RELATIONSHIP EMPLOYEE RELATIONSHIP ONLY
ONLY
a.
a. Premium paymentsPremium payments on health or hospital on health or hospital insurance
insurance b.
b. Personal Personal andand additional
additional exemptions exemptions Individuals with gross
Individuals with gross income from BUSINESS or income from BUSINESS or
a.
a. Optional Optional StandardStandard Deduction or Deduction or
PROFESSION
PROFESSION Itemized Itemized DeductionsDeductions (For discussion on (For discussion on OSD, see attached OSD, see attached Reviewer
Reviewer)) b.
b. Premium paymentsPremium payments on health or hospital on health or hospital insurance
insurance c.
c. Personal Personal andand additional
additional exemptions exemptions Corporations
Corporations Itemized Itemized DeductionsDeductions ITEMIZED DEDUCTIONS
ITEMIZED DEDUCTIONS 1.
1. Bad Bad debts debts Requisites Requisites to to be be deductible:deductible: a.
a. Existing indebtedness due to taxpayerExisting indebtedness due to taxpayer b.
b. Debt is valid and legally demandableDebt is valid and legally demandable c.
c. Debt is connected to TBPDebt is connected to TBP d.
d. It must not be sustained in a transaction betweenIt must not be sustained in a transaction between related taxpayers
related taxpayers e.
e. Actually Actually ascertained ascertained to to be be WORTHLESS WORTHLESS andand UNCOLLECTIBLE as of the end of taxable year
UNCOLLECTIBLE as of the end of taxable year f.
f. Actually charged to the taxpayer at the end of theActually charged to the taxpayer at the end of the taxable year
taxable year Tax-Befit Rule: Tax-Befit Rule:
Recovery of bad debts previously allowed as deduction shall Recovery of bad debts previously allowed as deduction shall bebe included part of gross income in the
included part of gross income in the year of recoveryyear of recovery Ascertainment of worthlessness:
Ascertainment of worthlessness: 1.
1. Taxpayer did in fact ascertain the debt to be worthlessTaxpayer did in fact ascertain the debt to be worthless in the year which
in the year which the deduction is soughtthe deduction is sought 2.
2. He acted in good faithHe acted in good faith When Bad Debts are not deductible: When Bad Debts are not deductible:
a.
a. For a bank, it is the BSP which determines theFor a bank, it is the BSP which determines the worthlessness of the debts
worthlessness of the debts b.
b. For insurance company, it must be declared insolventFor insurance company, it must be declared insolvent for bad debts to arise
for bad debts to arise 2.
2. Expenses Expenses In In General, General, to to be be deductible:deductible: a.
a. Amount of expenses must be reasonableAmount of expenses must be reasonable b.
b. It must be substantiatedIt must be substantiated c.
c. It must not be cIt must not be c ontrary to law, morals or public policyontrary to law, morals or public policy d.
d. If it is required to be withheld, it must have been paidIf it is required to be withheld, it must have been paid to BIR
to BIR
ORDINARY & NECESSARY ORDINARY & NECESSARY Requisites:
Requisites: a.
a. It must be ordinary AND necessaryIt must be ordinary AND necessary b.
b. It must be paid or incurred It must be paid or incurred during the taxable yearduring the taxable year c.
c. For the purpose of carrying on the TBPFor the purpose of carrying on the TBP d.
d. Including reasonable allowance forIncluding reasonable allowance for 1.
1. SalariesSalaries 2.
2. Travel expenses in pursuit of TBPTravel expenses in pursuit of TBP 3.
3. RentalsRentals 4.
4. Entertainment, amusement & recreational expensesEntertainment, amusement & recreational expenses directly connected with TBP
directly connected with TBP Substantiation requirement:
Substantiation requirement:
There must be sufficient evidence to
There must be sufficient evidence to substantiatesubstantiate a.
a. Amount of expenses deductedAmount of expenses deducted b.
b. Direct Direct connection connection of of the the expense expense to to thethe development, management, operation and/or development, management, operation and/or conduct of TBP
conduct of TBP
Ordinary expense = normal or usual in Ordinary expense = normal or usual in the TBPthe TBP
Necessary expense = appropriate and helpful in the Necessary expense = appropriate and helpful in the development of TBP
development of TBP
Business expense = expenditure related to TBP that is Business expense = expenditure related to TBP that is deductible in the year incurred
deductible in the year incurred
Capital expense = expenditure that improves or adds to the Capital expense = expenditure that improves or adds to the value of property or equipment
value of property or equipment
Not immediately deductibleNot immediately deductible
Deductible over time such as in the form ofDeductible over time such as in the form of depreciation
depreciation
Bribes, Kickbacks & Other Similar Payments: Bribes, Kickbacks & Other Similar Payments: not
not deductibledeductible
Representation Expense = expenses incurred in connection Representation Expense = expenses incurred in connection with conduct of TBP
with conduct of TBP a.
a. Entertaining, providing amusement and recreation to,Entertaining, providing amusement and recreation to, or meeting with guests
or meeting with guests b.
b. At a dining place, place of amusement, country club,At a dining place, place of amusement, country club, theater, etc.
theater, etc.
If the taxpayer is the registered member of country club, the If the taxpayer is the registered member of country club, the presumption is that such expenses are Fringe Benefits unless presumption is that such expenses are Fringe Benefits unless he can prove that these are actually representation expenses he can prove that these are actually representation expenses Entertainment facilities = refers to yacht, vacation home and Entertainment facilities = refers to yacht, vacation home and similar item of real or personal property used by taxpayer similar item of real or personal property used by taxpayer primarily for entertainment of guests or employees
3.
3. Losses Losses Requisites Requisites for for deductibility deductibility of of ORDINARY ORDINARY LOSS:LOSS: a.
a. Loss must be of the taxpayerLoss must be of the taxpayer b.
b. Actually sustained during the taxable yearActually sustained during the taxable year c.
c. Not compensated for by insurance or other forms ofNot compensated for by insurance or other forms of indemnity
indemnity d.
d. Incurred in TBP or property connected with TBP throughIncurred in TBP or property connected with TBP through force majeure or from robbery, theft
force majeure or from robbery, theft or embezzlementor embezzlement e.
e. Evidenced by a completed transactionEvidenced by a completed transaction f.
f. Not claimed as deduction for estate tax Not claimed as deduction for estate tax purposespurposes g.
g. Notice of loss filed with BIR within 45 days from date ofNotice of loss filed with BIR within 45 days from date of discovery
discovery Types of LOSSES: Types of LOSSES:
1.
1. Ordinary lossesOrdinary losses a.
a. Incurred in TBPIncurred in TBP
NET OPERATING LOSS CARRY-OVER (NOLCO) NET OPERATING LOSS CARRY-OVER (NOLCO) Excess of allowable deduction which has not been Excess of allowable deduction which has not been previously offset as deduction from gross income previously offset as deduction from gross income
Requisites: Requisites: 1.
1. Taxpayer was not exempt from income tax inTaxpayer was not exempt from income tax in the year of such NOL
the year of such NOL 2.
2. There has been no substantial change in theThere has been no substantial change in the ownership of the business enterprise
ownership of the business enterprise How applied:
How applied:
NOL shall be carried over as deduction from gross NOL shall be carried over as deduction from gross income for the next 3 consecutive taxable years income for the next 3 consecutive taxable years immediately following the year of such l
immediately following the year of such l ossoss For mines other than oil and gas wells, if loss is For mines other than oil and gas wells, if loss is incurred within its 1
incurred within its 1stst 10 years, carry-over will be10 years, carry-over will be for the next 5 years
for the next 5 years Notes on NOLCO: Notes on NOLCO: 1.
1. If there is change of ownership, for NOLCO toIf there is change of ownership, for NOLCO to be available the surviving entity must be the be available the surviving entity must be the one which accumulated the NOLCO or that the one which accumulated the NOLCO or that the transferor GAINS CONTROL of at least 75% of transferor GAINS CONTROL of at least 75% of outstanding issues or paid-up capital of outstanding issues or paid-up capital of transferee
transferee 2.
2. When individual claimed OSD or taxpayer paidWhen individual claimed OSD or taxpayer paid income tax under MCIT, he cannot claim income tax under MCIT, he cannot claim deduction of NOLCO simultaneously and the deduction of NOLCO simultaneously and the 3-year period for NOLCO shall continue to run year period for NOLCO shall continue to run b.
b. Incurred by property connected with TBP throughIncurred by property connected with TBP through force majeure or robbery, theft or embezzlement force majeure or robbery, theft or embezzlement
How applied: How applied: 1.
1. Total destructionTotal destruction –– replacement cost inreplacement cost in restoring the property in its normal operating restoring the property in its normal operating condition
condition
This shall not be more than the net bookThis shall not be more than the net book value of the property immediately before value of the property immediately before the casualty
the casualty 2.
2. Partial destructionPartial destruction –– excess over the net bookexcess over the net book value immediately before the casualty should value immediately before the casualty should be capitalized subject to the depreciation over be capitalized subject to the depreciation over the remaining useful life of property
the remaining useful life of property 3.
3. Special lossesSpecial losses a.
a. Capital lossesCapital losses Allowed only to the
Allowed only to the extent of gains from such lossesextent of gains from such losses 1.
1. Losses from sale or exchange of capital assetLosses from sale or exchange of capital asset 2.
2. Losses resulting from securities (capital assets)Losses resulting from securities (capital assets) becoming worthless
becoming worthless 3.
3. Losses from short sales of propertyLosses from short sales of property 4.
4. Losses due to failure to exercise privilege orLosses due to failure to exercise privilege or option to buy or sell property
option to buy or sell property b.
b. Losses from wash sales of stock or Losses from wash sales of stock or securitiessecurities GR: not deductible
GR: not deductible
Exception: claim is made by a dealer in stock or Exception: claim is made by a dealer in stock or securities and made in ordinary course of business securities and made in ordinary course of business c.
c. Wagering lossesWagering losses Allowed only to the
Allowed only to the extent of gains from such lossesextent of gains from such losses d.
d. Abandonment lossesAbandonment losses e.
e. Losses due to voluntary removal Losses due to voluntary removal of building incidentof building incident to renewal of replacements
to renewal of replacements f.
f. Loss of useful value of capital assets due to chargesLoss of useful value of capital assets due to charges in business conditions
in business conditions
Deductible to the extent of actual loss sustained Deductible to the extent of actual loss sustained after improvements, depreciation or salvage value after improvements, depreciation or salvage value g.
g. Losses from sales or exchanges of property betweenLosses from sales or exchanges of property between related taxpayers
related taxpayers –– not deductiblenot deductible 4.
4. Taxes Taxes Requisites Requisites for for deductibility:deductibility: a.
a. Paid or incurred within the taxable yearPaid or incurred within the taxable year b.
b. In connection with TBPIn connection with TBP c.
c. Imposed directly on the taxpayerImposed directly on the taxpayer d.
d. Not specifically excluded by law from being deductedNot specifically excluded by law from being deducted from gross income
Deductible Taxes: Deductible Taxes:
a.
a. National or local taxesNational or local taxes b.
b. Paid or incurred during the taxable yearPaid or incurred during the taxable year c.
c. In connection with taxpayer’s TBPIn connection with taxpayer’s TBP Non-deductible Taxes:
Non-deductible Taxes: a.
a. Philippine income taxPhilippine income tax b.
b. Income tax imposed by authority of any country EXCEPTIncome tax imposed by authority of any country EXCEPT when taxpayer signifies his desire to avail of t
when taxpayer signifies his desire to avail of t ax creditax credit c.
c. Estate and donor’s taxesEstate and donor’s taxes d.
d. Taxes assessed against local benefits of a kind tendingTaxes assessed against local benefits of a kind tending to increase the value of
to increase the value of property assessedproperty assessed e.
e. Final taxesFinal taxes f.
f. Special assessmentsSpecial assessments Tax-Benefit Rule
Tax-Benefit Rule
Taxes, when refunded or credited, shall be included as part of Taxes, when refunded or credited, shall be included as part of gross income in the year of receipt
gross income in the year of receipt
For NRA-ETB and RFC, taxes paid or incurred shall be allowed For NRA-ETB and RFC, taxes paid or incurred shall be allowed as deduction insofar as they are connected to income within as deduction insofar as they are connected to income within Philippines
Philippines
TAX CREDIT TAX CREDIT
Right of an income taxpayer to deduct from his income tax Right of an income taxpayer to deduct from his income tax payable the foreign income tax he has paid to his foreign payable the foreign income tax he has paid to his foreign country
country Who can claim? Who can claim?
a.
a. CitizenCitizen b.
b. Resident aliens deriving income from within or withoutResident aliens deriving income from within or without the Philippines IF there is reciprocity
the Philippines IF there is reciprocity c.
c. Domestic corporationDomestic corporation d.
d. Members of GPPMembers of GPP
Limitation on the amount that may be taken as tax credit: Limitation on the amount that may be taken as tax credit: Not to exceed the same proportion of tax against which such Not to exceed the same proportion of tax against which such credit is taken
credit is taken
When credit may be taken: When credit may be taken:
a.
a. Year in which the taxes accruedYear in which the taxes accrued b.
b. Year in which the taxes were paidYear in which the taxes were paid 5.
5. Depreciation Depreciation a.a. A gradual diminution in theA gradual diminution in the 1.
1. service or useful value of service or useful value of tangible propertytangible property 2.
2. amortization of intangible propertyamortization of intangible property b.
b. Due from exhaustion, wear and tear, and normalDue from exhaustion, wear and tear, and normal obsolescence
obsolescence
For NRA-ETB and NRC, applicable only when such property is For NRA-ETB and NRC, applicable only when such property is located in the Philippines
located in the Philippines
Requisites for deductibility: Requisites for deductibility:
a.
a. Allowance for depreciation must be reasonableAllowance for depreciation must be reasonable b.
b. It must be for property It must be for property used for employment in TBused for employment in TB c.
c. Allowance must be charged offAllowance must be charged off d.
d. Schedule of the allowance must be attached to theSchedule of the allowance must be attached to the return
return e.
e. The depreciation value cannot be beyond theThe depreciation value cannot be beyond the acquisition cost
acquisition cost Methods of Depreciation: Methods of Depreciation:
1.
1. Straight-line methodStraight-line method Cost
Cost –– Salvage valueSalvage value Estimated Life Estimated Life 2.
2. Declining balance methodDeclining balance method Cost
Cost –– Accumulated depreciation X rateAccumulated depreciation X rate Estimated Life
Estimated Life 3.
3. Sum of years digit methodSum of years digit method Nth period X (Cost
Nth period X (Cost –– Salvage value)Salvage value) Sum of the year’s digits
Sum of the year’s digits Special types of Depreciation: Special types of Depreciation:
a.
a. Petroleum operationsPetroleum operations
Useful life: 10 years or shorter as may be permitted by Useful life: 10 years or shorter as may be permitted by Commissioner
Commissioner
Useful life of property not used directly: 5 years under Useful life of property not used directly: 5 years under straight line method
straight line method b.
b. Mining operationsMining operations Useful life: 10 years Useful life: 10 years
If expected life greater than 10 years: depreciate over If expected life greater than 10 years: depreciate over any number of years between 5 and the expected life any number of years between 5 and the expected life 6.
6. Interest Interest Requisites Requisites for for deductibility:deductibility: a.
a. There must be an indebtednessThere must be an indebtedness b.
b. Indebtedness must be that of the taxpayerIndebtedness must be that of the taxpayer c.
c. Indebtedness must be connected with TBPIndebtedness must be connected with TBP d.
d. There must be an interest expense paid or incurredThere must be an interest expense paid or incurred upon such indebtedness and during the taxable
upon such indebtedness and during the taxable yearyear e.
e. Interest must have been stipulated in writingInterest must have been stipulated in writing f.
f. Interest must be legally due and demandableInterest must be legally due and demandable g.
g. Interest payment arrangement must not be betweenInterest payment arrangement must not be between related taxpayers
