SOLUTIONS MANUAL
INCOME TAXATION, 2015 Edition
By TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION
TRUE OR FALSE-SET A
1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. FALSE
TRUE OR FALSE-SET B
1. FALSE
2. TRUE
3. FALSE
4. TRUE
5. TRUE
*Nonpayment of “tax”
MULTIPLE CHOICE
1. C
2. D
3. C
4. B
5. D
6. C
7. C
8. B
9. D
10. D
11. D
12. C
13. A
14. D
15. C
6.
7.
8.
9.
10.
TRUE
FALSE
FALSE
FALSE
FALSE
11.
12.
13.
14.
15.
TRUE
FALSE
TRUE
FALSE
TRUE
16.
17.
18.
19.
20.
TRUE
TRUE
FALSE
TRUE
TRUE
6.
7.
8.
9.
10.
TRUE
TRUE
TRUE
FALSE
TRUE
11.
12.
13.
14.
15.
FALSE
FALSE
TRUE
FALSE
TRUE*
16.
17.
18.
19.
20.
TRUE
FALSE
TRUE
TRUE
FALSE
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
C
A
C
D
C
A
C
D
C
D
A
D
A
A
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
C
C
B
A
C
D
D
A
B
D
A
A
A
D
C
46.
47.
48.
49.
50.
A
C
C
D
A
CHAPTER 2 - INDIVIDUAL TAXPAYERS
ERRATUM: PAGE#71, ANSWER FOR Q#6: CGT=P400,000 P24,000
PROBLEMS
2-1
1.
2.
3.
4.
5.
P50,000
6. P125,000
P50,000
7. P150,000**
P50,000
8. P0***
P50,000
9. P30,000
P100,000
10. P0
**Assume that all the requirements to qualify for additional exemption under the “Foster Child Act” were
complied with
***Reciprocity clause applies to a nonresident alien engaged in trade or business. The taxpayer in the
problem is a nonresident alien not engage in trade or business. Dividend income from a domestic
corporation is not considered as income derived from trade or business.
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
2-2
1.
Taxpayer is a resident citizen
1.1 Taxable income = P720,000
1.2 Income tax payable = P20,400
1.3 Final tax on passive income = P9,000
Gross business income, Philippines
Gross business income, USA
Compensation income, Philippines
Business expenses, Philippines
Business expenses, USA
Basic personal exemption
Taxable income
Tax Due
2.
P195,400
Withholding tax on compensation income
Crdtble withholding tax on bus. income
(50,000)
(125,000)
Income Tax Payable
P20,400
Dividend income – DC
Interest income bank deposit
Final Tax on Passive Income
P5,000
4,000
P9,000
Taxpayer is a nonresident citizen
2.1 Taxable income = P650,000
2.2 Income tax payable = (P2,000)
2.3 Final tax on passive income = P9,000
Gross business income, Philippines
Compensation income, Philippines
Business expenses, Philippines
Basic personal exemption
Taxable income
Tax Due
3.
P1,000,000
500,000
400,000
(700,000)
(430,000)
(50,000)
P720,000
P1,000,000
400,000
(700,000)
(50,000)
P650,000
P173,000
Withholding tax on compensation income
Crdtble withholding tax on bus. income
(50,000)
(125,000)
Income Tax Payable
(P2,000)
Dividend income – DC
Interest income bank deposit
Final Tax on Passive Income
P5,000
4,000
P9,000
Taxpayer is a resident alien
3.1 Taxable income = P650,000
3.2 Income tax payable = (P2,000)
3.3 Final tax on passive income = P9,000
(same with resident citizen)
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
4.
Taxpayer is a nonresident alien engaged in trade or business
4.1 Taxable income = P700,000
4.2 Income tax payable = P14,000
4.3 Final tax on passive income = P14,000
Gross business income, Philippines
Compensation income, Philippines
Business expenses, Philippines
Taxable income
Tax Due
P189,000
Withholding tax on compensation income
Crdtble withholding tax on bus. income
(50,000)
(125,000)
Income Tax Payable
P14,000
Dividend income – DC
Interest income bank deposit
Final Tax on Passive Income
5.
P1,000,000
400,000
(700,000)
P700,000
P10,000
4,000
P14,000
Taxpayer is a nonresident alien not-engaged in trade or business
5.1 Taxable income = P470,000
5.2 Income tax payable = P67,500
5.3 Final tax on passive income = P0
Compensation income, Philippines
Dividend income – DC
Interest income bank deposit, Phls.
Total GROSS Income
X
Income Tax Due
Less: Withholding tax on compensation
Income Tax Payable
P400,000
50,000
20,000
P470,000
25%
P117,500
(50,000)
P67,500
2-3
1.
Taxpayer is a resident citizen
a. Taxable income = P1,026,100
b. Income tax payable = P293,352
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600
Solution:
From Phils.
Income from employment
Business income
Deductible business expenses
Interest income on personal loans**
P180,000
850,000
(610,000)
6,000
From Abroad
P280,000
960,000
(730,000)
3,000
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
Total
P460,000
1,810,000
(1,340,000)
9,000
Dividend income from foreign corp.
6,800
2,000
Prizes from singing contest
5,600
Interest income on bank deposits
4,200
Interest income on money market placements
1,600
Royalty income
50,000
Winnings/ prizes from lotteries, raffles
16,900
Lotto winnings
--50,000
Basic Personal exemption
Additional exemption
Taxable income
TAX DUE:
First P500,000
Excess @ 32%
**All incomes regardless of source are taxable. However, personal expenses are not
allowed as deduction from the gross income
Final Tax on Passive income:
Interest income on bank deposits
Interest income on money market placements
Royalty income
Winnings/ prizes from lotteries, raffle draws
Total
@
Dividend income from domestic corp.
Royalty income from sale of books
Total
@
TOTAL FINAL TAX ON PASSIVE INCOME
10,800
7,500
90,000
45,000
P153,300
20%
5,700
68,000
P73,700
10%
P30,660
7,370
P38,030
Capital Gains Tax:
Sale of lot (P1,060,000 x 6%)
Sale of house and lot (P950,000 x 6%)
Total
2.
P63,600
57,000
P120,600
Taxpayer is a non-resident citizen
a. Taxable income = P388,400
b. Income tax payable = P91,520
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600
Solution:
Income from employment
Business income
Deductible business expenses
Interest income on personal loans
Dividend income from foreign corp.
Prizes from singing contest
Basic Personal exemption
Additional exemption
Taxable income
TAX DUE:
From Phils.
P180,000
850,000
(610,000)
6,000
6,800
5,600
(50,000)
P388,400
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
8,800
5,600
4,200
1,600
50,000
16,900
50,000
(50,000)
P1,026,100
P125,000
168,352
P293,352
First P250,000
Excess @ 30%
P50,000
41,520
P91,520
Final Tax on Passive income:
 As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on
passive income of a nonresident citizen is the same with that of a resident citizen.
Capital Gains Tax:
 CGTs for NRCs = RCs
3.
Taxpayer is a resident alien (Same treatment with a non-resident citizen taxpayer)
a. Taxable income = P388,400
b. Income tax payable = P91,520
c. Final tax on passive income = P38,030
d. Capital gains tax = P120,600
2-4
a.
Special Alien employed by ROHQ = P145,000 computed as follows:
On Compensation income:
P850,000 x 15%
P127,500
On other Income (Apply rules on NRA-NETB)
P50,000
Dividend Income from a dom. corp.
Int. Inc. Phil. bank deposit
20,000
Int. Inc. fr. Bank dep. under FCDS
exempt
Total Other Income
P70,000
Tax rate @
25%
17,500
TOTAL TAXES
P145,000
 Being a nonresident alien-not engaged in trade or business for income taxation purposes, a
Special Alien is not entitled to personal exemptions.
b.
Filipino Citizen employed by ROHQ = P218,500
Compensation income (Subject to basic tax):**
Gross Compensation
Less: Personal exemption (50k + 50k)
Net Taxable Income
computed as follows:
P850,000
(100,000)
P750,000
First P500,000
P125,000
80,000 P205,000
Excess of P250,000 @ 32%
Passive Income, Phls. (Subject to Final Tax)
P5,000
Dividend Income from a dom. corp. @ 10%
4,000
Int. Inc. Phil. bank deposit @ 20%
4,500
13,500
Int. Inc. fr. Bank dep. under FCDS @ 7.5%
P218,500
TOTAL TAXES
 **Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have the
option to be taxed either at 15% on their gross compensation income or based on Section
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
24(A) of the tax code. However, Filipinos exercising the option to be taxed at 15% preferential
rate must meet all the three (3) requirements as discussed in page 79. In the problem
provided, the Filipino counterpart failed to meet the “compensation threshold test” of at least
P975,000. Consequently, the taxpayer shall be subject to tax base on Section 24(A) of the tax
code.
c.
Filipino Citizen employed by an OBU = P141,000 computed as follows:
Compensation income (Subject to 15% F.Tax)***
P127,500
P850,000 x 15%
Passive Income, Phls. (Subject to Final Tax)
Dividend Income from a dom. corp. @ 10%
P5,000
Int. Inc. Phil. bank deposit @ 20%
4,000
Int. Inc. fr. Bank dep. under FCDS @ 7.5%
4,500
13,500
TOTAL TAXES
P141,000
 ***Filipinos employed by OBUs as well as Petroleum Contractors/Subcontractors shall be
subject to 15% Final Tax on their “compensation income”.
 The 15% tax rate is a final tax on “gross compensation” income. Hence, personal exemptions
shall not be deducted from such income.
d.
Filipino Citizen employed by a Petroleum Contractor = P141,000
(refer to computations in assumption “c”)
e.
Filipino Citizen employed by ROHQ with gross compensation income of P1,250,000 =
P346,500 OR P201,000 computed as follows:
Compensation income (Subject to basic tax):****
P1,250,000
Gross Compensation
Less: Personal exemption (50k + 50k)
(100,000)
Net Taxable Income
P1,150,000
First P500,000
Excess of P650,000 @ 32%
Passive Income, Phls. (Subject to Final Tax)
Dividend Income from a dom. corp. @
10%
Int. Inc. Phil. bank deposit @ 20%
Int. Inc. fr. Bank dep. under FCDS @ 7.5%
TOTAL TAXES
P125,000
208,000 P333,000
P5,000
4,000
4,500
13,500
P346,500
OR
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
Compensation income (Subject to final tax):****
Gross Compensation
Tax rate
P1,250,000
15% P187,500
Passive Income, Phls. (Subject to Final Tax)
P5,000
Dividend Income from a dom. corp. @
10%
Int. Inc. Phil. bank deposit @ 20%
4,000
Int.Inc. fr.Bank dep.underFCDS @7.5%
4,500
13,500
TOTALTAXES
P201,000
 ****Filipinos employed by ROHQs/RHQs holding managerial or technical position shall have
the option to be taxed either at 15% on their gross compensation income or based on Section
24(A) of the tax code, provided, however, that Filipinos exercising the option to be taxed at
15% preferential rate must meet all the three (3) requirements as discussed in page 79.
2-5
a.
b.
c.
Taxable income of the husband = P1,260,000
Taxable income of the wife = P1,075,000
Consolidated tax due of the husband and the wife = P677,200
Solution:
Husband
INCOME:
Compensation income [P.6M + (.5M/2)]
Compensation income [P.4M + (.5M/2)]
Income-Profession(H): [200,000+(400,000/2)]
Income-Profession(W): [100,000+(400,000/2)]
Income from business (P800,000/2)
LESS:
Expenses-profession(H):[P80,000 +(120,000/2)]
Expenses-profession(W): [P40,000 +(120,000/2)]
Business expenses (P250,000/2)
Basic Personal exemption
Additional exemption
TAXABLE INCOME
Wife
P 850,000
400,000
400,000
P650,000
300,000
400,000
(140,000)
(100,000)
(125,000)
(50,000)
P1,075,000
(125,00)
(50,000)
(75,000)
P1,260,000
Tax due:
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
First P500,000
In excess of P500,000 @ 32%
Total
Consolidated Tax Due
P125,000
243,200
P368,200
P677,200
P125,000
184,000
P309,000
Note: Personal expenses are not deductible. The Premium payments for health insurance are likewise
nondeductible because the total gross income of the family exceeded the threshold of P250,000.
2-6
a.
Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P100,000 x 5%) + P50,000 x 10%
P10,000
300,000
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%)
Total capital gains tax
P310,000
Note: Sale of shares in the local stock exchange is subject to transaction tax of ½ of 1% of gross selling
price
b.
Dividend income from domestic corp. @ 10%
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20%
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 7.5%
Interest income on government bonds
Royalty – literary
Royalty other than literary
Total Final tax on passive income of Daniel and Kat
Note: Interest income on long-term deposit is tax exempt
c.
Business income
Rental income net of tax (P200,000/95%)/2
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P6,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P350,000 +(75,000/2)]
Personal exemption
Taxable income of Daniel
P600,000
100,000
5,000
7,000
7,500
250,000
15,000
(387,500)
(50,000)
P547,000
Gross income from practice of profession (P360,000/90%)
Rental income net of tax (P190,000/95%)/2
Dividend income from resident corp.
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P4,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P200,000 +(75,000/2)]
Personal exemption
Taxable income of Kat
P400,000
100,000
20,000
5,000
5,000
7,500
250,000
15,000
(237,500)
(50,000)
P515,000
d.
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
P4,000
3,400
750
2,000
1,000
2,400
P13,550
2-7
2-8
a.
b.
c.
d.
e.
f.
Income tax payable, first quarter = P32,500
Income tax payable, second quarter = P14,500
Income tax payable, third quarter = P19,233
Income tax payable, fourth quarter = P59,823
Final tax on passive income = P15,800
Capital gains tax = P600,000 x 6% = P36,000
Solution:
1st Q
P300,000
(120,000)
2nd Q
P500,000
(262,000)
3rd Q
P710,000
(405,890)
P180,000
P238,000
P304,110
Q4/Year
P980,000
(426,700)
(50,000)
P503,300
P32,500
P47,000
Tax Due (Tax Table)
Less: Tax Paid
Q1
(32,500)
Q2
Q3
Income Tax Payable
P32,500
P14,500
Note: The amounts shown above are cumulative amounts
P66,233
P126,056
(32,500)
(14,500)
(32,500)
(14,500)
(19,233)
P59,823
Gross Profit from Sales
Business expenses
Personal exemption
Taxable income
(Amounts are cumulative)
Dividend received from domestic corp.
Interest income from
BPI
UCPB
Metro Bank
Total final tax on passive income
P19,233
Amount
30,000
%
10
Tax
P3,000
16,000
18,000
30,000
20
20
20
3,200
3,600
6,000
P15,800
2-9
Gross compensation income
SSS premium contributions
Philhealth contributions
Pag-ibig contributions
Union dues
Basic exemption
HHIP (P200 x 6 mos.)
Taxable income
P180,000
(3,600)
(2,400)
(1,800)
(2,200)
(50,000)
(1,200)
P118,800
Gross compensation income
SSS premium contributions
Philhealth contributions
Pag-ibig contributions
Union dues
Basic exemption
Additional exemption
HHIP (max.)
Taxable income
P250,000
(3,600)
(2,400)
(2,000)
(1,000)
(50,000)
(100,000)
(2,400)
P88,600
Note: SSS loan is nondeductible
2-10
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2-11
P6M x 6% = P360,000
2-12
a.
b.
c.
P15M x 6% = P900,000
P25M x 6% = P1,500,000
P0
2-13
CGT = P0; the sale resulted to a capital loss
2-14
MV using the Adjusted Net Asset
Method (RR 6-2013)
Less:
Purchase price
Expenses on the acquisition
Expenses on sale
Net capital gain
P350,000
P200,000
20,000
10,000
Capital Gains Tax:
(P100,000 x 5%) + (P20,000 x10%)
(P230,000)
P120,000
P7,000
2-15
Selling Price
Less:
Purchase price
Expenses on the acquisition
Expenses on sale
Net capital gain
P550,000
P320,000
30,000
20,000
Capital Gains Tax:
(P100,000 x 5%) + (P80,000 x10%)
(P370,000)
P180,000
P13,000
2-16
1
2
3
4
5
Final tax?
Y
Y
N
N
Y
Tax %
20%
7.5%
Graduated
Graduated
20%
16
17
18
19
20
Final tax?
Y
N
Y
Y
Y
Tax %
7.5%
Exempt
10%
10%
10%
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*Prizes received from
Philippine
sources
exceeding P10,000 are
6
7
8
9
10
11
N
Y
Y
Y
N
N
Graduated
20%
10%
20%
Graduated
Graduated
12
13
Y
20%
Y*
20%
N
Graduated
N
Exempt
14
15
21
22
23
24
25
26
27
2
8
2
9
3
0
N
N
N
N
Y
Y
Y
Graduated
Graduated
Exempt
Exempt
25%
20%
5%;10%
CGT
Y
20%
N
Graduated
N
Graduated
TRUE OR FALSE-SET A
1. TRUE
6. FALSE
11. FALSE
2. FALSE
7. FALSE
12. FALSE*
3. TRUE
8. TRUE
13. TRUE
4. TRUE
9. TRUE
14. FALSE
5. TRUE
10. FALSE
*Filipino counterparts of Special Aliens are subject to either 15% Final Tax or Basic Tax on their Gross
“compensation” income, at their option.
TRUE OR FALSE-SET B
1. TRUE
6. TRUE
11. TRUE
2. TRUE
7. TRUE
12. TRUE
3. TRUE
8. FALSE**
13. TRUE
4. TRUE
9. FALSE
14. TRUE
5. FALSE
10. TRUE
15. FALSE
**NRA-NETB are subject to 25% “final tax”, not CWT
MULTIPLE CHOICE
1. A
16. A
31. D
46. D
2. D
17. C
32. C
47. B
3. B
18. D
33. B
48. D
4. D
19. B
34. A
49. D
5. D
20. D
35. A
50. D
6. D
21. B
36. B
7. D
22. C
37. D
8. D
23. D
38. D
9. A
24. D
39. B
10. C
25. B
40. A
11. D
26. D
41. B
12. D
27. B
42. D
13. B
28. A
43. A
14. B
29. D
44. C
15. B
30. D
45. B
Supporting Computations (Multiple Choice):
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SolutionsManual-IncomeTaxation(2015Edition)byTabag &Garcia
subject to 20% final tax
rate. On the other hand,
Other
WINNINGS
(regardless of amount)
are subject to 20% final
tax rate. Refer to Table
2-3
(12)
Gross income, Philippines
Gross income, USA
Expenses, Philippines
Expenses, USA
Basic personal exemption
Taxable income
P800,000
600,000
(400,000)
(300,000)
(50,000)
P650,000
Gross income, Philippines
Expenses, Philippines
Basic personal exemption
Taxable income
P800,000
(400,000)
(50,000)
P350,000
Gross income, Philippines
Expenses, Philippines
Basic personal exemption
Taxable income
P800,000
(400,000)
(40,000)
P360,000
(13 and 14)
(15)
(36)
Copyright (11,250/90%)x10%
Royalty (12,000/80%) x 20%
Share from Trade Partnership
(treated as dividend income)
(270,000/90%) x10%
Taxable income
P1,250
3,000
30,000
P34,250
(38)
Gross business income, Philippines
Business expenses, Philippines
Basic personal exemption
Taxable income
P1,000,000
(300,000)
(50,000)
P650,000
CHAPTER 3 – FRINGE BENEFITS
PROBLEM SOLVING
P3.1
Subject to FBT
1.
P120,000
2.
3.
50,000
4.
5.
6.
250,000
7.
8.
9.
60,000
10.
-
Subject to Basic Tax
-
Exempt
P80,000
5,000/ yr. (RR 8-2012)
360,000
45,000
15,000
1,500
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P3.2
(a)P65,176
Payment for the groceries of the manager
P90,000
Manager’s tuition fee*
48,500
Total monetary value of the F. Benefits
P138,500
Divide by GUMVF
68%
GUMV
P203, 676
x FBT Rate
32%
Total Fringe Benefit Tax
P65,176
*cost of educational assistance, as a general rule, is subject to FBT except in instances as provided for in
page 127.
(b) January 10, 2016 or within 10th day of the month following the end of the calendar quarter in which the fringe
benefits were granted to the recipient.
(c) P2,900,000 computes as follows:
Salary per quarter (net of CWT)
Add: CWT per quarter
Total gross compensation income per quarter
X
Total gross compensation income in 2015
Less:
Basic personal exemption
Additional personal exemption (2 x P25,000)
Taxable Income for 2015
P510,000
240,000
P750,000
4 quarters
P3,000,000
(50,000)
(50,000)
P2,900,00
0
P3.3
a)
b)
c)
d)
e)
f)
P3.4
Yes
GUMV = P330,000/68%=P485,294
No. FBT is a final tax, hence, nonreturnable
FBT = P485,294 x 32% = P155,294
Within 10th day of the month following the end of the calendar quarter in which the fringe benefits were granted to
the recipient.
No. It is subject to basic tax instead of FBT.
P466,000 computed as follows:
Compensation income
Monthly transportation allowance**
13th month pay
Christmas bonus (P5,000 is de minimis)
Christmas bonus (in excess of P5,000)
Productivity incentive pay (de minimis under RR 1-2015)
Uniform allowance (15,000-5,000)
Medical allowance (entire amount is de minimis)
Rice subsidy [24,000-(1,500 x 12)]
Total (known as 13th Month Pay & Other Benefits)
Tax Exempt 13th Month Pay & Other Benefits
Personal exemption
Taxable income
P480,000
36,000
De Minimis
Benefits
P5,000
Taxable
Benefits
P40,000
20,000
10,000
5,000
10,000
10,000
18,000
6,000
76,000
(82,000)
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(50,000)
P466,000
**Fixed Allowances received regularly shall be treated as part of basic compensation income
P3.5 P130,000 computed as follows:
Compensation income
P180,000
De Minimis
Benefits
Taxable
Benefits
P30,000
5,000
2,500
5,000
2,500
10,000
2,000
1,500
500
18,000
5,000
2,500
40,000
(40,000)
13th month pay and mid-year bonus
Christmas bonus
Uniform allowance (7,500-5,000)
Actual Medical allowance (P12,000-10,000)
Medical allowance to dependents (P2,000-1,500)
Rice subsidy [entire amount is de minimis]
Monetized vacation leave [7,500-(500x 10)]
Total (known as 13th Month Pay & Other Benefits)
Tax Exempt 13th Month Pay & Other Benefits
Personal exemption
Taxable income
P3.6 P152,000 computed as follows:
3-month piano lesson
Personal car insurance
Salaries of Bobby’s driver and maids
Tuition fee Bobby’s 18-yearold child
Bobby’s Taxable benefit
P45,000
20,000
30,000
75,000
P152,000
P3.7
1.
4.
a)
b)
P165,000 x 50% = P82,500
P82,500/68% x 32% = P38,824
(50,000)
P130,000
a.
b.
P1,200,000
P1,200,000/68% x 32% = P564,705
a.
b.
P800,000
P800,000/68% x 32% = P376,470
a.
b.
P1,200,000/5 = P240,000
P240,000/68% x 32% = P112,941
5.
2.
a.
b.
P4.5M x 5% /4 x 50% = P28,125
P28,125/68% x 32% = P13,235
a.
b.
P4.5M
P4.5M/68% x 32% = P2,117,647
6.
3.
TRUE OR FALSE
1. TRUE
6.
2. FALSE
7.
3. TRUE
8.
4. TRUE
9.
5. TRUE
10.
MODIFIED IDENTIFICATION
1. B
6.
2. B
7.
FALSE
TRUE
TRUE
TRUE
TRUE
11.
12.
13.
14.
15.
FALSE
TRUE
TRUE
TRUE
TRUE
B
B
11.
12.
B
B
16.
17.
B
B
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3.
4.
5.
B
B
B
MULTIPLE CHOICE
1. C
11.
2. A
12.
3. D
13.
4. D
14.
5. D
15.
6. D
16.
7. B
17.
8. A
18.
9. D
19.
10. C
20.
8. B
9. B
10. B
C
A
A*
B
B
D
C
B
C
D
13. B
14. B
15. B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
A
D
C
D
A
D
A
B
P787,500
18. B
19. B
20. B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
A
D
A
C
D
A
C
C
D
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
D
D
C
D
D
C
A
B
B
D
Explanations (Modified Identification)
4. Vacation leave exceeding “10” days for “private” employees are subject to basic and creditable withholding tax,
NOT fringe benefit tax.
5. Vacation and sick leave credits of government employees regardless of the # of days are treated as de minimis
benefits.
6 and 7. Sick leave credits of private employees, regardless of the # of days, are subject to basic and creditable
withholding tax.
Sick leave credit, regardless of the number of days shall be subject to basic and creditable withholding tax unless the
sick leave credits were provided to government employees. If the problem is silent, assume the sick leave credits were
provided to private employees.
Supporting Computations (Multiple Choice):
(2)
Statement 2: False. Fringe benefits are other benefits in addition to basic compensation (salaries)
(* #13)
The journal entry in letter “a” is the journal entry provided in related revenue regulations. Nonetheless, the authors believe that
the journal entry should have been:
Pxx
Compensation expense (@ GUMV)
Pxx
Cash
Consequently, from the journal entry shown above, the account debited as “fringe benefit tax expense” in revenue regulations
should not form part of the employer’s “Taxes Expense” but as a component of the employer’s “Compensation expense”.
(23)
To managerial – fringe benefit expense
Fringe benefit tax expense
Rank and File
Total
P1,360,000
640,000
5,000,000
P7,000,000
(24)
Expenditure attributable to Managerial employees
(P1M x 20%)
Divide by GUMVF
Grossed-up monetary value
x FBT rate
Fringe Benefit Tax
P200,000
68%
P294,118
32%
P94,118
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(25)
(26)
Total deductible expense = GUMV of P294,188
Salaries and wages gross of CWT
P380,000
Fixed monthly allowance**
60,000
Total compensation income subject to graduated rate P440,000
*Fixed Allowances received regularly per payroll are considered part of regular compensation subject to
graduated rate (RR 10-2008)
(27)
Allowance not subject to liquidation
Divide by GUMVF
GUMV
x FB rate
FBT
P48,000
68%
P70,588
32%
P22,588
Groceries
Plumbing materials
Clothes and shoes
Total monetary value of fringe benefits
Divide by GUMVF
GUMV
X FBT rate
FBT
P10,000
5,000
15,000
P30,000
68%
P44,118
32%
P14,118
(28)
(30)
Annual rental
x
Monetary value of housing benefit
Divide by GUMVF
GUMVF
X FBT rate
FBT
Add: Annual Rental
Total Deductible Expense
(31)
P637,500
50%
P318,750
68%
P468,750
32%
P150,000
637,500
P787,500
(34)
 P2,000,000 x 5% x 50% / 12 = P4,1667.67
 P4,1667.67 / 68% x 32% = P1,960.78
(32)
 (P5,000,000-2,000,000) / 12 = P250,000
 P250,000/ 68% x 32%
= P117,647.05
(36)
 P3,000,000 x 5% x 50% / 12 = P6,250
 P6,250/ 68% x 32% = P2,941.18
(33)
 P1,000,000 / 68%
 P1,470,588 x 32%
= P1,470,588
= P470,588
 P800,000 / 68%
 P1,176,471 x 32%
= P1,176,471
= P376,471
(37)
 P5,000,000 / 12*
 P416,667/ 68% x 32%
Monthly monetary value
= P416,667
= P196,078.42
(38)
 (P1,000,000/5) / 68%
 P294,118 x 32%
CHAPTER 4 – INCOME TAX FOR CORPORATIONS
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= P294,118
= P94,118
PROBLEM SOLVING:
(P4.1)
CASE A (Domestic Corporation):
1. P1,636,500
2. P81,250
3. P550,000
Solution
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Interest income from BPI deposits-USA
Dividend income-resident foreign corp.
Dividend income-nonresident foreign corp.
Taxable income
Tax rate
Normal Corporate Income Tax Due
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS @ 7.5%
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
Philippines
P10,000,000
200,000
3,500,000
2,800,000
100,000
45,000
-
Abroad
P5,000,000
2,250,000
1,100,000
50,000
80,000
30,000
Philippines
100,000
150,000
200,000
50,000
Final Tax
P20,000
11,250
40,000
10,000
P81,250
Capital Gains Tax
Gain on sale of shares sold directly to a buyer
[(100,000x 5%) + (50,000 x 10%)]
Sale of real property in the Philippines
(SP of P9M** x 6%)
Total Capital Gains Tax
P10,000
540,000
P550,000
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV
CASE B (Resident Foreign Corporation):
4. P1,093,500
5. P81,250 (Same with Case A)
6. P550,000 (Same with Case A)
Solution:
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Dividend income-resident foreign corp.
Taxable income
Tax rate
Normal Corporate Income Tax Due
Total
P15,000,000
(200,000)
(5,750,000)
(3,900,000)
150,000
80,000
45,000
30,000
P5,455,000
30%
P1,636,500
P10,000,000
(200,000)
(3,500,000)
(2,800,000)
100,000
45,000
P3,645,000
30%
P1,093,500
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CASE C (Non-Resident Foreign Corporation):
7. P2,038,500 computed as follows:
Gross sales
Sales returns
Cost of goods sold
GROSS INCOME
ADD:
Interest income from trade receivable
Dividend income-resident foreign corp.
Interest income from BPI deposits-Phils.
Income from money market placement
Royalty income
Total “Gross” Income
Tax rate
Final Tax Due (Basis: Gross income)
P10,000,000
(200,000)
(3,500,000)
P6,300,000
100,000
45,000
100,000
200,000
50,000
P6,795,000
30%
P2,038,500
(P4.2) P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The incomes
provided in the problem were all derived in U.S.
(P4.3)
Current account, BDO @ 20%
Savings deposit, BPI @ 20%
Interest income from government bonds @ 20%
Royalty income from various domestic corporations @ 20%
US dollar deposit, FCDU @ 7.5%
Total final taxes on passive income
P120,000
100,000
40,000
20,000
60,000
P340,000
(P4.4)
Gross profit from sales
Business expenses
Taxable income
NCIT
MCIT (Gross Profit x 2%)
TAX DUE (Higher)
Less: Income tax withheld
Tax Paid Q1
Tax Paid Q2
Tax Paid Q3
Income Tax Payable
Q1
P1,600,000
(1,200,000)
400,000
120,000
32,000
Q2
P3,200,000
(2,400,000)
800,000
240,000
64,000
Q3
P4,800,000
(3,400,000)
1,400,000
420,000
96,000
Q4
P6,200,000
(4,200,000)
P2,000,000
600,000
124,000
P120,000
(30,000)
-
P240,000
(70,000)
(90,000)
P90,000
P80,000
P420,000
(130,000)
(90,000)
(80,000)
P120,000
P600,000
(230,000)
(90,000)
(80,000)
(120,000)
P80,000
(P4.5)
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MCIT
NCIT
TAX DUE (Higher)
Excess MCIT
Year 4
Year 7
Income Tax Payable
Year 4
100,000
30,000
P100,000
Year 5
60,000
70,000
P70,000
Year 6
50,000
60,000
P60,000
Year 7
40,000
30,000
P40,000
Year 8
20,000
90,000
P90,000
-
(70,000)
-
-
P100,000
P0
P60,000
P40,000
(10,000)
P80,000
(P4.6)
1.
2.
3.
4.
P120,000
P690,000
P210,000
P495,000
Tax Due
Excess MCIT Prior Yr
W/holding tax-Prior Yr
W/holding -During the Yr
Tax Paid Previous Qtr(s)
Tax Payable
Q1
NCIT P300,000
(90,000)
(30,000)
(60,000)
P120,000
Q2
MCIT P990,000
(30,000)
(150,00)
(120,000)
P690,000
Q3
NCIT P1,410,000
(90,000)
(30,000)
(270,000)
(810,000)
P210,000
Q4
NCIT P2,010,000
(90,000)
(30,00)
(375,000)
(1,020,000)
P495,000
(P4.7)
Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Tax due of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Tax due of DEF Company = P1.5M
Joint Venture
ABC Co.
DEF Co.
Gross income
P50,000,000
P30,000,000
P20,000,000
Business expenses
(30,000,000)
(20,000,000)
(15,000,000)
Taxable income
P20,000,000
P10,000,000
P5,000,000
Tax Rate (NCIT)
30%
30%
30%
Tax Due
P6,000,000
P3,000,000
P1,500,000
Note: The co-venturer’s share in the income of the joint venture is treated as inter-corporate dividends, hence,
nontaxable.
Case B (Tax Exempt Joint Venture)
7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of ABC Company = P24M
10. Tax due of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Tax due of DEF Company = P3.3M
Joint Venture
Gross income
P50,000,000
Business expenses
(30,000,000)
Share in the income of the
-
ABC Co.
P30,000,000
(20,000,000)
14,000,000
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DEF Co.
P20,000,000
(15,000,000)
6,000,000
joint venture
Net/ Taxable income
Tax Rate (NCIT)
Tax Due
P20,000,000
P0
P24,000,000
30%
P7,200,000
P11,000,000
30%
P3,300,000
Rico
30,000,000
(20,000,000)
P10,000,000
Earl
20,000,000
(15,000,000)
P5,000,000
(P4.8)
Case A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Rico = P10M
4. Taxable income Earl = P5M
5. Final tax due of Rico (10%) = P980,000
6. Final tax due of Earl (10%) = P420,000
Gross income
Business expenses
Taxable income
Less: Tax Due @ 30%
Distributable income
Share in income
Rico @ 70%
Earl @ 30%
Joint Venture
P50,000,000
(30,000,000)
P20,000,000
(6,000,000)
P14,000,000
P9,800,000
4,200,000
Case B:
7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of Rico = P24,000,000
10. Taxable income Earl = P11,000,000
11. Final tax due of Rico = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Earl = P0 ; subject to basic and creditable withholding tax
Joint Venture
Rico
Gross income
P50,000,000
30,000,000
Business expenses
(30,000,000)
(20,000,000)
Net income
P20,000,000
P10,000,000
Distributable income
Share in income
Rico @ 70%
Earl @ 30%
Taxable income
P20,000,000
P14,000,000
6,000,000
14,000,000
P24,000,000
(P4.9)
1.
2.
3.
4.
5.
Earl
20,000,000
(15,000,000)
P5,000,000
[(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
(P6M-4M) x 30% = P600,000
P6M x 30% = P1,800,000
P6M x 2.5% = P150,000
P6M x 1.5% = P90,000
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6,000,000
P11,000,000
6.
7.
8.
9.
10.
11.
P6M x 25% = P1,500,000
P6M x 4.5% = P270,000
P6M x 7.5% = P450,000
*P3,350,000 x 10% = P335,000; * from #1
P1,005,000; same computation with #1
P0; exempt
1.
2.
3.
[5M + 3M] x 2.5% = P200,000
[5M x 2.5%) + (3M x 1%)] = P155,000
[5M + 3M] x 2.5% = P200,000; No GPB on Gross receipts from USA to Russia
(P4.10)
(P4.11)
1. Related
2. Related
3. Related
4.Related
5.Related
6.Unrelated
(P4.12)
Gross income, related activities
Gross income, unrelated activities (excluding rental income)
Rental income from commercial spaces (gross of 5% WT)
Expenses, related activities
Expenses, unrelated activities
Taxable income
Tax Rate (NCIT); Unrelated income  Related income
Tax Due
Less: Quarterly tax payments for the first 3 quarters
Income Tax Payable
P5,000,000
5,000,000
2,000,000
(2,000,000)
(3,000,000)
P7,000,000
30%
2,100,000
(500,000)
P1,600,000
(P4.13)
Question 1:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Depreciation expense-classrooms
Depreciation expense-furniture and equipment
Taxable income
x Tax Rate
Tax Due
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(75,000)
(50,000)
P2,105,000
10%
P210,500
Question 2:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Construction of additional classrooms
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(1,300,000)
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Acquisition of furniture and equipment
Taxable income
x Tax Rate
Tax Due
(400,000)
P530,000
10%
P53,000
(P4.14)
1.
2.
Income Tax Due (Payable) = P249,000 – CWT 15,000 = P234,000
Improperly accumulated earnings tax = P46,425
Solution:
Gross income (gross of 1% WT)
P1,500,000
Business expenses
(600,000)
Gain on sale of business asset
60,000
NOLCO in 2011
(130,000)
Taxable income
ADD:
2011 NOLCO
130,000
Interest on peso bank deposit (P5,000/80%)
6,250
Dividends from a domestic corporation
35,000
Gain on sales of shares, not listed and traded subjected to
capital gains tax (P150,000-115,000)
35,000
DEDUCT:
NCIT (P830,000 x 30%; higher than MCIT)
249,000
Final Tax on Passive income (6,250 x 20%)
1,250
Capital gains tax on shares (35,000 x 5%)
1,750
Dividends paid during the year
120,000
BALANCE
RE Jan. 1
RE Dec. 31, 2015
LESS: Amount that may be retained (Par of Outs.
Sh.)
IMPROPERLY ACCUMULATED EARNINGS
x IAET RATE
IMPROPERLY ACCUMULATED EARNINGS TAX
P830,000
206,250
(372,000)
P664,250
200,000
P864,250
(400,000)
P464,250
10%
P46,425
(P4.15) P1.5M x 6% = P90,000
(P4.16) (Sale 3 = P14,000) + (Sale 4 = P2,500) = P16,500
TRUE OR FALSE - SET A
1. TRUE
6.
2. TRUE
7.
3. FALSE*
8.
4. TRUE
9.
5. TRUE
10.
*Imposed only if MCIT > NCIT
TRUE OR FALSE – SET B
1. FALSE
6.
2. FALSE
7.
3. TRUE
8.
4. TRUE
9.
FALSE
FALSE
TRUE
TRUE
FALSE
11.
12.
13.
14.
15.
FALSE
TRUE
FALSE
TRUE
TRUE
FALSE**
TRUE
FALSE
FALSE
11.
12.
13.
14.
TRUE
TRUE
TRUE
TRUE
16.
17.
18.
19.
20.
TRUE
TRUE
FALSE
FALSE
FALSE
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5. TRUE
10. TRUE
15. FALSE
**If the labor dispute will result to a temporary closure of a business, it may be a valid ground for the
suspension of MCIT.
MULTIPLE CHOICE
1.
D
14.
C
27.
C
40.
D
2.
B
15.
B
28.
41.
D
3.
C
16.
A
29.
B
42.
D
4.
B
17.
C
30.
B
43.
B
5.
D
18.
D
31.
C
44.
B
6.
C
19.
B
32.
A
45.
D
7.
D
20.
D
33.
D
46.
C
8.
B
21.
D
34.
D
47.
B
9.
B
22.
A
35.
B
48.
C
10.
B
23.
C
36.
B
49.
B
11.
A
24.
D
37.
C
50.
D
12.
C
25.
C
38.
C
13.
B
26.
D
39.
A
Supporting Computations (Multiple Choice):
(4).
Domestic
RFC
NRFC
Gross Income, Philippines
P975,000
P975,000
P975,000
Expenses, Philippines
(750,000)
(750,000)
Gross Income, Malaysia
770,000
Expenses, Malaysia
(630,000)
Interest on bank deposit
25,000
Taxable income
365,000
225,000
P1,000,000
Tax Rate
30%
30%
30%
Tax Due
P109,500
67,500
300,000
(5).
Gross profit from sales
P3,000,000
Business expenses
(1,800,000)
Dividend income from a resident corporation
50,000
Dividend income from a nonresident corporation
40,000
Capital gain on sale of land in China
200,000
Interest income from notes receivable
20,000
Taxable income
P1,510,000
Tax Due @ 30%
P453,000
(6).
Sale of land-Phils. P2M x 6%
Sale of shares of domestic corp.
[(P100,000 x 5%)+(P20,000 x 10%)]
Capital gains tax
P120,000
7,000
P127,000
(7).
Interest income on peso bank deposit @ 20%
Interest income on foreign currency bank deposit
Interest income on treasury bills @ 20%
Total final taxes on passive income
P6,000
1,875
2,000
P9,875
(8).
To Louie @ 10%
To Floyd @ 10%
To Zeus @ 10%
To JJ @ 20%
P10,000
10,000
10,000
20,000
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To Francis @ 25%
To Chen, a domestic corporation
To a resident foreign corporation
To a nonresident foreign corporation @ 15%
Total withholding taxes
25,000
Exempt
Exempt
15,000
P90,000
(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500
(11).
Interest income from loans
OPEX (P12M x 10/15)
Taxable income
Income Tax Rate
Income Tax Due
P10,000,000
(8,000,000)
P2,000,000
30%
P600,000
(20).
Gross income, related activities
Gross income, unrelated activities (except rental income)
Rental income from commercial spaces (gross of 5% WT)
Expenses, related activities
Expenses, unrelated activities
Taxable income
Tax rate (unrelated income>related income)
Tax due
Less: Quarterly tax payments
Withholding tax on rental income
Tax payable
P5,000,000
5,000,000
2,000,000
2,000,000
3,000,000
P500,000
100,000
P12,000,000
(5,000,000)
P7,000,000
30%
P2,100,000
(600,000)
P1,500,000
(21).
Income from tuition fees
Miscellaneous school fees
Dividend income from foreign corp.
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (related income>unrelated income)
Tax due
Less: Withholding tax on rental income
Tax payable
P3,500,000
1,500,000
2,000,000
2,000,000
P9,000,000
(4,000,000)
P,000,000
10%
P500,000
(100,000)
P400,000
(22).
Tuition and other fees
Rental income (gross of 5% WT)
OPEX
CAPEX
Taxable income
P5,000,000
50,000
(1,500,000)
(2,000,000)
P1,550,000
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Tax rate (related income>unrelated income)
Tax due
Less: Withholding tax on rental income
Tax payable
10%
P155,000
(2,500)
P152,500
(#s 28 TO 36).
‘08
NCIT
MCIT
DUE (Higher)
EXCESS MCIT
TAX DUE
MCITCO
‘06
‘07
‘09
TAX PAYABLE
P25,000
100,000
100,000
75,000
P100,000
-
‘09
P130,000
150,000
150,000
20,000
P150,000
‘10
P200,000
190,000
200,000
P200,000
‘11
P0
300,000
300,000
300,000
P300,000
‘12
‘13
P100,000
50,000
100,000
P100,000
‘14
P150,000
60,000
150,000
P150,000
P8,000
40,000
40,000
32,000
P40,000
(150,000)
P0
P40,000
P1,000
50,000
50,000
49,000
P50,000
(75,000)
(20,000)
P100,000
P150,000
P105,000
P300,000
(100,000)
P0
CHAPTER 5 – PARTNERSHIPS, ESTATES AND TRUSTS
PROBLEM SOLVING
P5.1
1.
2.
‘15
Income tax due of the partnership = P0 (tax exempt)
Income tax due of LJ = P397,000
LJ’s gross income from his trading business
LJ’s expenses from his trading business
Share from the net income of a GPP
Royalty, books published in USA
Salaries, gross of withholding tax
Basic exemption
Taxable income
Tax Due (Tax Table)
LJ
P1,000,000
(600,000)
400,000
150,000
450,000
(50,000)
P1,350,000
P397,000
P5.2
Case A (Ordinary Partnership):
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P50,000
1.
2.
Tax due of the partnership = P240,000
Tax due of Rivera = P0
3.
Tax due of Reyes = P50,000
RR Partnership
Rivera
Reyes
Gross Income
P2,000,000
P800,000
P1,000,000
Allowed Deductions
(1,200,000)
(900,000)
(700,000)
Basic exemption
(50,000)
(50,000)
Taxable income
P800,000
(P150,000)
P250,000
Tax Rate
30%
Tax Table
Tax Table
Tax Due
P240,000
P0
P50,000
Note: The partners’ share in the net income of the partnership is treated as dividend income subject to a
final tax rate of 10%.
Case B (General Professional Partnership):
3. Tax due of the partnership
4. Tax due of Rivera
5.
Tax due of Reyes
Gross Income
Allowed Deductions
Basic exemption
Share in partnership income
Taxable income
Tax Rate
Tax Due
RR Partnership
P2,000,000
(1,200,000)
P800,000
EXEMPT
P0
Rivera
P800,000
(900,000)
(50,000)
320,000
P170,000
Tax Table
P14,500
Reyes
P1,000,000
(700,000)
(50,000)
480,000
P730,000
Tax Table
P198,600
P5.3
1.
2.
3.
4.
5.
6.
7.
8.
9.
Income tax payable/(refundable) of the partnership = P352,500
Income tax payable/(refundable) of Villamin = P40,150
Income tax payable/(refundable) of Francis = P0
Final tax on passive income of the partnership = P7,750
Final tax on passive income of Villamin = P40,908
Final tax on passive income of Francis = P97,317
Capital gains tax of the partnership = P150,000
Capital gains tax of Villamin = P0
Capital gains tax of Francis = P7,000
Partnership:
Gross profit from sale of services
Direct cost of services
Business Expenses
Rental Income in business assets (gross)
(P142,500/95%)
Taxable income
X tax rate
Tax due
Quarterly tax payments
Withholding tax on rent
Income tax payable
Interest Income on peso bank deposits @ 20%
Interest income-FCDS @ 7.5%
Final Tax on passive income of the partnership
P3,500,000
(1,500,000)
(700,000)
150,000
P1,450,000
30%
P435,000
(75,000)
(7,500)
P352,500
P4,000
3,750
P7,750
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Capital gains tax on real property (2.5M x 6%)
DISTRIBUTABLE INCOME:
Taxable income
Total income subject to final tax
Capital gain
Less:
Basic tax due
Final tax due
Capital gains tax
DISTRIBUTABLE INCOME
150,000
P1,450,000
70,000
300,000
(435,000)
(7,750)
(150,000)
P1,227,250
Villamin:
Gross income from sole-proprietorship business
Allowable business expenses
Dividend Income-resident foreign corp.
Basic exemption
Taxable income
Tax due (tax table)
Quarterly tax payments
Income tax payable
Final Tax – (P1,227,250/3 X 10%)
Capital gains tax - Villamin
925,000
(670,000)
120,500
(50,000)
P325,500
P72,650
(32,500)
P40,150
P40,908
P0
Francis:
Income Tax payable
(No income subject to basic tax)
P0
Dividend Income @ 10%
Royalty Income @ 20%
Share in the distributive share of the partnership income
(P1,227,250/3 X 2 x 10%)
Total final tax on passive income
Capital gains tax on shares of stock
[(P100,000 x 5%) + (20,000 x 10%)]
P8,500
7,000
81,817
P97,317
7,000
P5.4
1.
2.
3.
Income tax payable of the business partnership = P114,000
Income tax payable of the GPP = P0
Income tax payable of Louie = P26,875
4.
Income tax payable of Floyd = P44,563
Gross income
Deductible expenses
Net or Taxable income
Tax rate
Income tax due/payable
Business
Partnership
P800,000
(420,000)
P380,000
30%
P114,000
GPP
P500,000
(375,000)
P125,000
EXEMPT
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Louie and Floyd
Gross Income
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Share in income of GPP
Basic exemption
Additional exemption
Taxable income
Income tax payable (tax table)
Louie
P 325,000
(117,000)
12,000
37,500
(50,000)
(50,000)
P157,500
P26,875
Floyd
P 380,000
(205,000)
8,250
7,500
87,500
(50,000)
P228,250
P44,563
NOTE:
 The share in the net income of the business partnership, the dividend income from a domestic corporation and
royalty from books are subject to a final tax rate of 10%.
 The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% final tax
P5.5
1.
2.
Income tax payable of the estate = P43,000
Income tax payable of Louie = P2,250
3.
Income tax payable of Floyd = P3,688
Gross income (gross of 5% tax)
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Basic exemption
Additional exemption
Taxable income
Tax Due (Tax Table)
Less CWTax (5%)
Income Tax Payable
Louie
P 325,000
(117,000)
12,000
(50,000)
(50,000)
P120,000
Floyd
P 380,000
(205,000)
8,250
7,500
(50,000)
P140,750
P18,500
(16,250)
P2,250
P22,688
(19,000)
P3,688
Estate
P800,000
(420,000)
(20,000)
P360,000
P83,000
(40,000)
P43,000
P5.6
1.
2.
3.
Income tax payable of the estate = P49,000
Income tax payable of Louie = P42,500
Income tax payable of Floyd = P35,188
Estate
Rental income of the estate (gross 5% tax)
Deductible operating expenses (estate)
Income distributed to Louie
Income distributed to Floyd
Basic exemption
Taxable income
P1,000,000
(500,000
(50,000)
(50,000)
(20,000)
P380,000
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Tax due (tax table)
Less: CWtx
Income Tax Payable
P89,000
(50,000)
P49,000
Gross Income
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Amount received from the Income of the estate
Basic exemption
Taxable income
Tax Due
Louie
P 325,000
(117,000)
12,000
50,000
(50,000)
P220,000
P42,500
Floyd
P 380,000
(205,000)
8,250
7,500
50,000
(50,000)
P190,750
P35,188
P5.7
1.
2.
Income tax payable of the trust = P310,600
Income tax payable of Pedro = P131,640
Gross income of the trust
Deductible business expenses of the trust
Income distributed to EDT during the year
Dividend income from resident foreign corporation
Basic exemption
Taxable income
Income Tax payable (tax table)
Compensation income
Rental income (gross)
Rental expenses
Dividend from foreign corporation
Basic exemption
Taxable income
Tax Due
Tax payments (Quarter 1-3)
CWTx on rent
Income Tax Payable-Pedro
P3,000,000
(1,800,000)
(200,000)
100,000
(20,000)
P1,080,000
P310,600
P800,000
500,000
(80,000)
8,250
(20,000)
P1,208,250
P351,640
(120,000)
(100,000)
P131,640
P5.8
1.
2.
3.
4.
5.
6.
7.
Taxable income of Trust 1 = P780,000
Taxable income of Trust 2 = P1,280,000
Consolidated taxable income of the Trust 1 and 2 = P2,080,000
Income tax payable of Trust 1 = P14,860
Income tax payable of Trust 2 = P26,540
Taxable income of Juan = P1,950,000
Taxable income of Pedro = P1,350,000
Trust 1
Gross income of the trust
P3,000,000
Trust 2
P3,000,000
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Consolidated
P6,000,000
Deductible business expenses of the trust
Income distributed to Rico during the year
Dividend income-resident corporation
Basic exemption
Taxable income
TAX DUE (PAID)
Total consolidated income
TAX DUE (Allocated Income Tax Due)
Trust #1=214,600/589,200 x P630,600
Trust #1=374,600/589,200 x P630,600
Less: Tax Paid
INCOME TAX PAYABLE
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
A
D
D
D
A
D
C
A
A
D
B
A
D
A
D
C
C
D
D
(1,800,000)
P229,460
P401,140
100,000
(20,000)
P1,280,000
P374,600
P214,600
P14,860
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
P374,600
P26,540
Juan
P1,000,000
1,000,000
(550,000)
50,000
500,000
(50,000)
P1,950,000
Compensation income
Gross business income
Business expenses
Dividend from foreign corporation
Amount received from the income of the trust
Basic exemption
Taxable income
MULTIPLE CHOICE
1.
A
2.
C
3.
B
4.
B
5.
B
6.
A
7.
A
8.
D
9.
B
10.
C
11.
B
12.
A
13.
B
14.
C
15.
B
16.
A
17.
D
18.
B
19.
C
20.
B
(1,800,000)
(500,000)
100,000
(20,000)
P780,000
P214,600
B
B
D
C
D
C
D
D
D
D
B
D
D
C
C
D
B
D
D
C
61.
62.
63.
64.
65.
Pedro
1,200,000
600,000
(400,000)
(50,000)
P1,350,000
C
B
C
D
D
Supporting Computations (Multiple Choice):
15.
(P2M-1M) x 30% = P300,000
16.
Subject to 10% final tax
17.
Partnership net profit (net of 30% tax)
P560,000
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(3,600,000)
(500,000)
200,000
(20,000)
P2,080,000
P630,600
18.
(P800,000 x 70%)
Other Income:
Interest income, net
Dividend income (tax exempt)
Total distributive income
8,000
20,000
P588,000
Share of T (50%)
Applicable tax (10% final tax)
P294,000
P29,400
P600,000 – P350,000 x 50% = P125,000
19.
Share in GPP’s income
Own income (P150,000-70,000)
Basic exemption
Taxable income of Ramos
P125,000
80,000
(50,000)
P155,000
20.
32.
Gross income
Expenses
x
Net income after corporate tax
Add:
Dividend received from a domestic corp. (tax exempt)
Bank interest income, Metrobank (net of final tax)
Distributable net income
P750,000
(200,000)
70%
385,000
Tita: P485,000 x 55% x 10%
Ghore: P485,000 x 45% x 10%
P26,675
P21,285
20,000
80,000
P485,000
Statement IV – subject to creditable withholding tax, not final tax
40.
Income of the estate
Expenses
Distribution of income to Francis
Basic exemption
Taxable income of Ramos
P600,000
(150,000)
(120,000)
(50,000)
P280,000
Francis’ own income
Income of the estate received by Francis
Basic exemption
Taxable income of Ramos
P500,000
120,000
(50,000)
P570,000
41.
60.
Compensation income
Business income
Basic exemption
Taxable income of Ramos
P1,500,000
1,000,000
(50,000)
P2,450,00
0
61.
Trust’s income
Income distributed to Atty. Lo Yer (Gross) (P8.5M / 85%)
Business expenses
Basic exemption
P40,000,000
(10,000,000)
(10,000,000)
(50,000)
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Taxable income of Ramos
P19,980,000
62.
Compensation income (Gross amount)
Income of the trust received by Niah (Gross)
Basic exemption
Taxable income of Ramos
P3,000,000
10,000,000
(50,000)
P12,950,000
63 – 65.
# 64
TRUST 1
Net income
Personal exemption
Taxable income
Tax due:
1st P500,000
Excess @ 32%
Tax due/paid
Versus Share
Tax Payable
# 63
Consolidated:
Net income
Personal exemption
Taxable income
Tax Due (Consolidated):
1st P500,000
Excess @ 32%
Total
Less Paid:
Trust 1
Trust 2
Income Tax Payable
Share in the Tax due:
Trust 1
(3,980/9,960***) x P1,238,600
Trust 2
(5,980/9,960)
P4,000,000
(20,000)
P3,980,000
P125,000
1,113,600
1,238,600
1,262,171*
P23,571***
# 65
TRUST 2
Net income
Personal exemption
Taxable income
Tax due:
1st P500,000
Excess @ 32%
Tax due/paid
Versus Share
Tax Payable
P10,000,000
(20,000)
P9,980,000
P125,000
3,033,600
P3,158,600
(1,238,600)
(1,878,600)
41,400
1,262,171*
1,896,429**
41,400 x 3,980/9,960*****
=23,571***
41,400 x 5,980/9,960
=17,829****
3,980+5,980 = 9,960*****
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P6,000,000
(20,000)
P5,980,000
P125,000
1,753,600
1,878,600
1,896,429**
P17,829****
CHAPTER 6 – CONCEPT OF INCOME
MULTIPLE CHOICE
1.
B
2.
D
3.
D
4.
D
5.
A
6.
D
7.
B
8.
D
9.
C
10.
A
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
C
D
D
A
B
D
A
D
D
D
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
B
B
B
D
A
D
D
B
E
31.
32.
33.
34.
35.
D
B
B
C
D
Supporting Computations:
28. P300,000 4/12 = P100,000
29.
Gain on sale of personal property purchased in the Philippines
and sold in Hongkong
Compensation received for personal services in the Philippines
Rent income from real property in Malaysia
Gain from sale in the Philippines of shares of a foreign corporation
Deductions identified with:
Philippine income
Foreign income
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000)
Philippine Net Income
32.
33.
34.
(Resident Alien)
Gross Income
Business expenses
Dividend income from foreign corp. (50,000 x 60%)
Basic exemption
Taxable income
P200,000
100,000
(80,000)
(9,000)
P211,000
P2,000,000
(1,200,000)
30,000
(50,000)
P780,000
Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000
(Domestic Corp = Taxable on income within and without
Gross Income
P10,000,000
Allowable deductions
(4,000,000)
Dividend income from domestic corp.
exempt
Dividend income foreign corp. (95% from R.P.)
1,000,000
Dividend income foreign corp. (60% from R.P.)
800,000
Dividend income foreign corp. (25% from R.P.)
400,000
Taxable income
P8,200,000
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35.
(Resident Foreign Corp = Taxable on income from Philippine sources only
Gross Income
P10,000,000
Allowable deductions
(4,000,000)
Dividend income from domestic corp.
exempt
Dividend income foreign corp. (80% from R.P.)
800,000
(P1M X 80%=considered from Phil. sources)
Dividend income foreign corp. (60% from R.P.)
480,000
(P800,000 x 60%)
Dividend income foreign corp. (25% from R.P.)
(entire amount is considered income from sources
outside of the Phils.)
Taxable income
P7,280,000
CHAPTER 7 – INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
PROBLEM SOLVING:
P7.1
INCOME SUBJECT TO BASIC TAX:
Basic salary (P900,000+P300,000)
Director’s fee
Business income:
Retail business
Apartment rental (P190,000/95%)
Dividend income from a resident corporation
13th, Xmas and MidYear Bonus (net of P30,000
exclusions)
Gross Income subject to basic tax (Q#1)
LESS:
Business expenses
Basic exemption
Net Taxable income (Q#4)
Income tax due (Q#5)
P1,200,000
200,000
250,000
200,000
50,000
150,000
P2,050,000
(125,000)
(50,000)
P1,875,000
P565,000
INCOME SUBJECT TO FINAL TAX:
Cash dividend from a domestic corporation
Interest from savings deposit
Royalties from book publications
Prizes from contest won
Winnings town lottery
Total Income subject to final tax (Q2)
P50,000
20,000
50,000
50,000
50,000
P220,000
INCOME EXEMPT FROM TAX:
Stock dividend from a domestic corporation
Damages received from injuries and sickness
Proceeds-life insurance coverage of his father
Total income exempt from tax (Q3)
P25,000
85,000
300,000
P410,000
P7.2
1) P10,000
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2)
3)
P15,000
P715,000 computed as follows:
Gross profit from sales
Taxable recovery-receivables
Taxable tax refunds
Rent income excluding security deposit
Operating expenses
Write-off during the year
Taxable income
P1,000,000
10,000
15,000
250,000
(500,000)
(60,000)
P715,000
P7.3
1) P240,000 + 24,000 = P264,000
2) P240,000 + 24,000 = P264,000
3) P1,000,000
Income from improvement (Remaining BV after lease term)
(P3M x 5/15)
Remaining Lease Term after completion = 10 years
Remaining life after lease term = 5 years
P1,000,000
4) P100,000
Income from improvement (Remaining BV after lease term)
(P3M x 5/15)
Remaining Term after completion = 10 years
Remaining life after lease term = 5 years
P1,000,000
/10 years
=P100,000
P7.4
Ramon Magsaysay award
Athlete of the year award
Prize for winning an Olympic Medal
Winnings – Philippine lotto
Total Winnings and Awards exempt from income tax
P50,000
100,000
500,000
100,000
P750,000
If the Question was total amount exempt from income tax, the answer would have been:
Total Winnings and Awards exempt from income tax
P750,000
Gift from Mayor Alfredo Lim
250,000
Car from Honda as a gift
1,000,000
Total Amount exempt from income tax
P2,000,000
P7.5
P0; The P800,000 should be exempt from income tax
P7.6
P1,000,000; The interest income from expanded foreign currency deposit
P7.7
Taxable Proceeds = P1,000,000 – P600,000 = P400,000
P7.8
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Income within = None. The ratio of income without over total income for the past 3 years < 50%.
P7.9
Salary for the first quarter
P180,000
Honorarium as speaker in one of ABC’s team building activities
10,000
Retirement pay
Exempt
Commissions
30,000
Fee as a member of ABC’s board of directors
50,000
10 days monetized vacation leave
Exempt
Interest income from time deposit
F. Tax
Productivity incentive pay and 13th month pay
Exempt
(Productivity pay=P10,000 de minimis under RR 1-2015)
(Total of excess of productivity of P10,000 + 60,000 bonus is not
more than P82,000, hence tax exempt)
Total compensation income subject to tax
P270,000
P7.10
INCOME
A.
Rental income (gross)
 From an apartment unit in USA,
Q#1
Income
within
Q#2
Income
without
-
P240,000
Q#3
Q#4
Taxable income
Taxable income
(Resident Citizen) (Nonresident Citizen)
P240,000
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
B.
C.
D.
E.
F.
G.
H.
From a parcel of land in Makati
Royalties from book
 Published in the Philippines
 Published in USA
Interest income earned on notes receivable
 From a debtor who resides in USA
 From a debtor who resides in Manila
Net profit from sales, merchandising business
 From Philippine outlet
 From USA outlet
Dividend income from two domestic corporations.
Gross income from the Phils. for the past 3 years
 60% of its world income
 85% of its world income
Dividend income from two resident foreign
corporations. Gross income from the Philippines for
the past 3 years was equivalent to:
 40% of its world income
 60% of its world income
Prizes received from Supermarket raffle:
From the Philippines:
 ABC Supermarket
 DEF Superstore
From USA:
 UVW Supermarket
 XYZ Supersavers
Prizes and winnings from lotto
 Philippine lotto
 USA lotto
BASIC EXEMPTION
TOTAL
P180,000
30,000
20,000
15,000
20,000
-
25,000
200,000
300,000
200,000
200,000
60,000
80,000
-
-
-
12,000
40,000
8,000
40,000
20,000
12,000
8,000
12,000
-
8,000
-
8,000
-
-
6,000
14,000
6,000
14,000
-
200,000
100,000
-
-
P907,00
0
P643,00
0
(50,000)
P1,018,000
(50,000)
P375,000
300,000
Exercise 1:
D
B
A
D
B
C
P180,000
15,000
25,000
25,000
MODIFIED IDENTIFICATION:
1)
2)
3)
4)
5)
6)
180,000
(as dividend income)
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7)
8)
9)
10)
A
A
C
D
(year of service was not provided. Retirement benefits, in general, are taxable)
Exercise 2:
DIVIDEND
1. 10% F.Tax
2. 10% F.Tax
3. Basic Tax
4. Exempt
5. Basic Tax
6. Exempt
7. N.taxable
26.
27.
28.
29.
30.
INJURIES/DAMAGES
8. Exempt
9. Exempt
10. Basic Tax
11. Exempt
12. Basic Tax
13. Exempt
14. Basic
PRIZES/AWARDS
15. Basic
16. Exempt
17. Exempt
18. Exempt
19. Exempt
20. Basic Tax
21. Basic Tax
22. Exempt
23. Basic Tax
24. 20% final tax (individual taxpayer)
25. Basic Tax
VARIOUS PROCEEDS/INCOME
Final Tax
Exempt
Exempt
Exempt
Exempt
TRUE OR FALSE
1. T
2. F
3. T
4. F
5. F
MULTIPLE CHOICE
1.
C
2.
B
3.
B
4.
B
5.
B
6.
B
7.
C
8.
A
9.
C
10.
C
11.
B
12.
D
13.
B
14.
A
15.
D
6.
7.
8.
9.
10.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
T
F
T
F
F
C
B
D
D
B
A
C
C
A
C
D
C
D
D
C
11.
12.
13.
14.
15.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
F
T
F
F
F
C
D
D
C
A
C
D
D
D
D
B
D
D
D
A
16.
17.
18.
19.
20.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
F
T
F
T
F
D
D
D
B
C
B
C
D
D
D
C
A
B
B
C
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Supporting Computations (Multiple Choice):
No. 2. TIPS are not compensation income, but subject to basic tax only if not accounted for by the employees to the
employer. TIPS accounted for by the employee to the employer are not taxable income of the former.
No. 11.
Write-off
2013
P50,000
10,000
30,000
2013 Income (Loss)
before write off
P350,000
(50,000)
20,000
2014
Recovery
P20,000
10,000
30,000
2014 TAXABLE
RECOVERY
P20,000
20,000
P40,000
No. 12.
2013 Income(loss) before write-off
Write-off
2014 Recovery
TAXABLE RECOVERY
Case A
P120,000
40,000
P40,000
P40,000
Case B
P60,000
40,000
P10,000
P10,000
Case C
(P40,000)
50,000
P50,000
P0
No. 15.
Interest from Philippine Currency Certificate = subject to 20% final tax
Refund of income tax = not an income
No. 23.
Rent for 2015 and 2016 (prepaid rent is taxable
yr. of receipt regardless of accounting method)
Annual real property tax
Total annual income
P3,600,000
30,000
P3,630,000
No. 24.
Rent for 2016 (already reported in 2015)
Annual real property tax
Income from improvement
[(P36M x **3/15) / 12]
Total annual income
P0
30,000
600,000
P630,000
Lease Term: 12.5 years
Remaining Lease term after completion of the improvement: 12 years
Useful life of the improvement: 15 years
Remaining useful life of the improvement after termination of the lease: 3 years**
No. 26.
Royalty – as an author @ 10%
Other royalties
x
Total final tax on royalty income
P10,000
P800,000
20%
160,000
P170,000
No. 46.
Proceeds from the taxpayers life insurance
P2,000,000
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Less premiums paid (P15,000 x 25)
Rent income from inherited properties
Taxable income
(375,000)
P1,625,000
200,000
P1,825,000
CHAPTER 8 – DEALINGS IN PROPERTIES
PROBLEM SOLVING
P8.1 Question #1
Gross income
P360,000
Business expenses
(280,000)
Add: Net capital gains
Short term capital loss (@100%)
(60,000)
Long term capital gain (@100%)
40,000
Net Capital Gain (Loss)
(20,000)
Net Taxable Income in 2014
P80,000
holding period and capital loss carry-over are not applicable to corporate taxpayers.
capital losses are deductible only from capital gains.
P8.2 Question #2
2015
Gross income
Business expenses
Net Capital Gain
Short term capital gain (@ 100%)
Capital loss (@ 100%)
Net Taxable Income in 2015
P500,000
(350,000)
80,000
(20,000)
60,000
P210,000
P8.1 Question #3
Gross income
Business expenses
Short term capital loss (@100%)
Long term capital gain (@50% )
Net capital loss
Basic Exemption
Net Taxable Income in 2014
P360,000
(280,000)
P(60,000)
20,000
(P40,000)
(50,000)
P30,000
P8.1 Question #4
Gross income
Business expenses
Add: Net capital gains
Short term capital gain (@100%)
Long term capital loss (@50%)
Net capital loss carry over from 2014
Basic Exemption
Net Taxable Income in 2015
P500,000
(350,000)
80,000
(10,000)
(30,000)
40,000
(50,000)
P140,000
P8.2
Taxable income exclusive of capital gains and losses
Add(Deduct): Ordinary gains(loss)
P400,000
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Gain on sale of land used in business, for 3 years
Loss on sale of machinery used in business, for 8 months
P50,000
(26,000)
Add: Net capital gains
Loss on sale of securities held for 3 years
(8,000)
Loss on sale of securities held for 3 months
(6,000)
Taxable income for Royale, Inc.
P424,000
capital losses are deductible only from capital gains
holding period and capital loss carry-over are not applicable to corporate taxpayers.
P8.3
Ordinary income
Add: Net capital gain:
Long term capital gain @ 50%
Long term capital loss @ 50%
Basic Exemption
Taxable Income
P8.4
(1)P25,000:
(2)P(P80,000);
P140,000
P20,000
(5,000) 15,0000
(50,000)
P105,00
0
(3)(P55,000)
Capital gain on sale of bonds (@50%)
P25,000
Capital loss on sale of car @ 100%
(80,000)
Net capital loss
(P55,000)
net capital loss from the taxable period of a prior year is deductible only from net capital gains in the current year.
sale of shares of domestic corporations held as capital assets are subject to CGT
sale of real properties held as capital assets located in the Philippines are subject to CGT
P8.5
(1)P5,000:
(2)(P5,000);
Capital gain on sale of bonds (@100%)
P45,000
Capital loss on sale of car @ 50%
(40,000)
Net capital gain 2015
P5,000
Capital loss carry-over in 2015
P5,000
net capital loss from the taxable period of a prior year is deductible only from net capital gains in the
current year.
sale of shares of domestic corporations held as capital assets are subject to CGT
sale of real properties held as capital assets located in the Philippines are subject to CGT
P8.6
2014
Ordinary income
Add: Net capital gain
P48,900
2015
P85,700
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2014: P15,895-P18,960 = (P3,065)
2015: =P45,700 x 50% = P22,850
P22,850
Net capital loss carry-over from 2014
----Basic exemption
(50,000)
(50,000)
Additional exemption
(25,000)
(25,000)
Taxable Income
(P26,100)
P33,550
net capital loss from the taxable period of a prior year is deductible only from net capital gains in the current year.
sale of shares of domestic corporations held as capital assets are subject to CGT
sale of real properties held as capital assets located in the Philippines are subject to CGT
MULTIPLE CHOICE
1.
C
2.
D
3.
D
4.
A
5.
D
6.
D
7.
D
8.
D
9.
B/A
10.
C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
A
D
B
D
D
D
C
A
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
D
C
C
C
D
D
C
A
A
Supporting Computations (Multiple Choice):
18. P1,200,000 x 6% = P72,000
Sale of vacant lot used as warehouse is an ordinary asset
19.
CGT = 1,000 shares x P10 x 5% = P500
20. Statement 2 is False. The capital loss should be recognized as of the last day of the taxable year.
22.
Total net sales from his trading business
P 500,000
Cost of sales
(300,000)
Gain on sale of vacant lot used in business
50,000
Ordinary income/gain
P250,000
23.
24.
25.
Capital Gain (On Sale of personal Car) = (P100,000-P50,000) x 50% = P25,000
Capital Loss (On Sale of personal computer) = (P10,000-P20,000) x 50% = (P5,000)
Net capital gain = P25,000 – P5000 = P20,000
CHAPTER 9 – DEDUCTIONS FROM GROSS INCOME
PROBLEM SOLVING:
P9.1
1.
2.
3.
P142,000
P104,000
P10,000
Solution:
Interest
Expense
Taxes and licenses
Documentary stamp taxes
Tax Expense
100,000
4,000
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Taxable tax
refunds
Fringe benefit taxes paid*
Refund of taxes and licenses for the preceding year
Income tax due for the year
Income tax payments for the year (first 3 quarters)
Refund of income tax payments for the preceding year
Interest income
From trade notes receivable
From peso bank deposits
From U.S.$ deposit
From bank deposits abroad
Interest expense on indebtedness
Surcharges on tax assessments
Interest expense on tax assessments
Reduction of interest expense (P100,000 x 33%)**
-
-
-
-
10,000
-
150,000
25,000
(33,000)
P142,000
-
-
P104,000
P10,000
* Should be part of compensation of expense
**The limitation on the deductibility of interest expense was legislated specifically to address the tax arbitrage arising from the
difference between the 20% final tax on interest income and the regular corporate income tax rate (RCIT) under which
interest expense can be claimed as a deduction.
P9.2
ERRATUM: DETERMINE THE FOLLOWING
1. Deductible expenses of Mike Leomar in 2014
2. Deductible expenses of Mike Leomar in 2016
Answers::
2014
P2,400,000
Annual Rent
Annual real property tax
30,000
Depreciation expe. – Leasehold Improvement**
(P9.5M/9.5 years x 6/12)
Deductible Expense
P2,430,000



2016
P2,400,000
30,000
4,750,000
P7,210,000
**Remaining lease term upon completion of the improvement = 9.5 years
Useful life of the improvement = 15 years
Depreciation expense for 2016 = 6 months from July to December 2016
P9.3
Gross income, Philippines
Business expenses, Philippines
Unallocated business expenses (P150,000 x 1.6/2)
Interest expense, Philippines
Unallocated interest expense (P80,000 x 1.6/2)
Taxable Net Income
P1,600,000
(500,000)
(120,000)
(100,000)
(64,000)
P816,000
P9.4
Interest expense (P1M x 10%)
Less: 33% x (P1M x 12%)
Deductible Interest Expense
P100,000
(39,600)
P60,400
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P9.5
Deductible Interest = P25,000.
*Interest paid or accrued on taxes related to business of practice of profession, such as those paid
for deficiency or delinquency (since taxes are considered indebtedness) are deductible as interest expense,
provided that, the tax is a deductible tax. It is deductible in “full”. It shall not be reduced by 33% of
interest income subject to final tax. Stock Transaction Tax is a nondeductible tax, hence, the related interest
expense on such assessment shall not be deductible from the gross income.
P9.6
1.
2.
3.
4.
P0; P0; P1,600,000
P533,333; P533,333; P533,333
P533,333; P533,333; P533,333
P533,333; P533,333; P533,333
Total interest = P6M loan – proceeds of P4.4M = P1.6M
P9.7
1.
2.
P533,333; P533,333; P533,333
P533,333
; P533,333; P533,333
P9.8 Question#1
Interest expense (bank loan)
Less: 33% x P4,000
Allowable interest expense on bank
loan
P20,000
(1,320)
P18,680
P9.8 Question#2
Acquisition cost of computers
ADD: Interest expense
Capitalizable cost of the computers
Depreciation expense
(P220,000/8 x 9/12)
P200,000
20,000
P220,000
P20,625
P9.9
Interest paid for late payment of 2014 income tax
Surcharge and compromise penalty for late payment of 2014
income tax
Interest on bonds issued by CTDI
Deductible interest
P50,000
250,000
P300,000
9.10
Professional tax
P750
Gravel and sand tax
20,000
Road user’s tax on his delivery vans
50,000
Local annual fixed tax for his delivery vans
10,000
Other local business taxes
12,000
Total deductible taxes
P92,750
Real property tax on his house is not deductible, it is considered as personal expense not related to trade, business, or
practice of profession. However, Real property taxes on real properties used in business are deductible taxes.
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9.11
Plane tickets
P100,000
Transportation expenses-officers (136,000 + 64,000)
**200,000
80,000
Transportation expenses-messengers
Deductible expenses
P380,000
**Not subject to FBT. Regularly received allowances as part of compensation package.
P9.12.
9.13
9.14
Deductible Premium = P75,000
None. There shares purchased and sold within the prohibited period are not identical.
(1)
SP (50 shares of Elsa)
Cost (50 shares of Elsa = P200,000 x 50/100)
Loss on Wash Sale
(2)
(3)
(4 )
P75,000
(100,000)
(P25,000
)
P0.
Cost of shares acquired on June 30 = P50,000 + loss on wash sale of P25,000 = P75,000
SP (75 shares of Elsa)
Adjusted cost (Q#3)
Capital Gain
P250,000
(75,000)
P175,00
0
9.15
(1)
Gross business income
Business expenses
Net income before capital gains and contributions
Contributions deductible in full (accredited NGO)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000x10%= P60,000)
Add (Deduct):
Net capital gain
Compensation income
Basic exemption
Taxable Net Income
P1,000,000
(400,000)
P600,000
(30,000)
(20,00)
30,000
600,000
(50,000)
P1,130,00
0
(2)
Gross business income
Business expenses
Net income before capital gains and contributions
Contributions deductible in full (accredited NGO)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000 x 5% = P30,000)
P1,000,000
(400,000)
P600,000
(30,000)
(20,00)
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Add:
Net capital gain
Taxable Net Income
P9.16.
P9.17.
30,000
P580,000
Charitable and other contributions with limit = P250,000 + 300,000 = P550,000
Actual (w/ limit)
Limit [(6,200,000 – 2,500,000) x 5%]
P190,000
185,000
Allowed
Add: deductible in full (priority project)
Total
P185,000
100,000
P285,000
P9.18.
Gross Income
Cost of Sales
Sales
P5,000,000
3,000,000
P8,000,000
Sales
P8,000,000
COS
(3,000,000)
Gross Income
5,000,000
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of
(950,000)
employees, net of P100,000 withholding tax and P50,000 SSS, Medicare
and Pag-Ibig premiums contributions
Fringe benefits given to rank and file employees
(300,000)
(200,000)
Fringe benefits given to managerial employees
(@Grossed-up monetary value)
Rent expense
(120,000)
Representation and entertainment expenses ( ½ % of N.Sales)
(40,000)
Net income before contributions
P3,390,000
Donation to religious and charitable institutions (Limit)
(339,000)
Limit: P3,390,000 x 10%
Net income before personal exemption
P3,051,000
Basic personal exemption
(50,000)
Taxable income
P3,001,000
 Representation expenses = limit is ½% of net sales (if merchandising) or actual whichever is lower. If service concern,
limit is 1% of net revenues or actual whichever is lower.
9.19
BV = P1M x 2/5
Vs. Cost to restore
Allowed (lower amount)
Less: insurance coverage
Deductible Loss
P400,000
200,000
P200,000
(100,000)
P100,000
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P9.20.
CASE A:
(a)
Sales
Cost of sales
OPEX:
Bad debts written-off
Salaries and wages excluding fringe benefits/de minimis
Fringe benefits provided to rank and file employees
Fringe benefits provided to managerial employees
(GUMV = P150,000/68%)
Taxes and licenses
Interest expense (exclude P25,000 surcharge)
Utilities expense
Casualty losses
Depreciation expense
Net capital Gain(Loss)
Capital gain on sale of a 10-year bonds
Capital loss on sale of bonds of a domestic corporation
Dividend income:
From domestic corporation
From resident corporation
From nonresident corporation
Interest income:
From trade notes receivable
From bank deposits abroad
Other Income:
Recovery of bad debts written off preceding year
Refund of taxes and licenses for the preceding year
TAXABLE INCOME
P6,200,000
(2,500,000)
20,000
350,000
50,000
220,588
50,000
125,000
100,000
60,000
40,000
(1,015,588)
30,000
(20,000)
10,000
30,000
20,000
50,000
75,000
30,000
105,000
10,000
10,000
NCIT@ 30%
Less: Payments for the first 3 quarters
INCOME TAX PAYABLE
(b)
20,000
P2,869,412
P860,824
(75,000)
P785,824
cannot be determined using the new/revised formula
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(c)
Interest income from peso bank deposit @ 20%
10,000
Interest income from U.S.$ deposit (Philippines) @ 7.5%
3,000
Royalty income @ 20%
8,000
Income from trust indenture with Security Bank @ 20% 5,000
Total final tax on passive income
P26,000
(d)
Capital gain on sale at P6M of land in the Philippines held
for 10 years = P6M x 6% = P360,000
Capital gain on sale of shares of stock of a domestic
corporation held for six (6) months, sold directly to a buyer
P15,000 x 5% = P750
Total Capital Gains Tax
P360,000
750
P360,750
CASE B:
(a)
Sales
Cost of sales
OPEX:
Bad debts written-off
Salaries and wages excluding fringe benefits/de minimis
Fringe benefits provided to rank and file employees
Fringe benefits provided to managerial employees
(GUMV = P150,000/68%)
Taxes and licenses
Interest expense (exclude P25,000 surcharge)
Utilities expense
Casualty losses
Depreciation expense
Net capital Gain(Loss)
Capital gain on sale of a 10-year bonds
Capital loss on sale of bonds of a domestic corporation
Dividend income:
From domestic corporation
From resident corporation
From nonresident corporation
Interest income:
From trade notes receivable
From bank deposits abroad
Other Income:
Recovery of bad debts written off preceding year
Refund of taxes and licenses for the preceding year
Basic Personal Exemption
Additional Personal Exemption (25,000 x 2)
TAXABLE INCOME
INCOME TAX DUE (TAX TABLE)
Income tax paid first 3 quarters
P6,200,000
(2,500,000)
20,000
350,000
50,000
220,588
50,000
125,000
100,000
60,000
40,000
(1,015,588)
30,000
(20,000)
10,000
30,000
20,000
50,000
75,000
30,000
105,000
10,000
10,000
20,000
(50,000)
(50,000)
P2,769,412
P851,212
(75,000)
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INCOME TAX PAYABLE
P776,212
(b)
Dividend income from domestic corporations @ 10%
Interest income from peso bank deposit @ 20%
Interest income from U.S.$ deposit (Philippines) @ 7.5%
Royalty income @ 20%
Income from trust indenture with Security Bank @ 20%
Total final tax on passive income
P6,000
10,000
3,000
8,000
5,000
P32,000
(c)
Capital gain on sale at P6M of land in the Philippines held
for 10 years = P6M x 6% = P360,000
Capital gain on sale of shares of stock of a domestic
corporation held for six (6) months, sold directly to a buyer
P15,000 x 5% = P750
Total Capital Gains Tax
P360,000
750
P360,750
TRUE OR FALSE
1. FALSE
11. TRUE
21. TRUE
2. FALSE
12. FALSE
22. TRUE
3. FALSE
13. FALSE
23. TRUE
4. TRUE
14. TRUE
24. FALSE
5. FALSE
15. TRUE
25. TRUE
6. TRUE
16. TRUE
7. TRUE
17. TRUE
8. TRUE
18. TRUE
9. TRUE
19. TRUE
10. TRUE
20. TRUE
MULTIPLE CHOICE
1.
B
16.
B
31.
C
2.
C
17.
A
32.
C
3.
B
18.
A
33.
D
4.
D
19.
C
34.
D
5.
C
20.
A
35.
D
6.
A
21.
C
36.
C
7.
D
22.
B
37.
D
8.
D
23.
C
38.
C
9.
D
24.
B
39.
D
10.
A
25.
D
40.
C
11.
D
26.
D
41.
C
12.
D
27.
D
42.
B
13.
D
28.
D
43.
B
14.
C
29.
A
44.
D
15.
B**
30.
C
45.
B
**Change the Question to “not entitled to claim NOLCO”
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Supporting Computations:
No. 6.



Sales less cost of sales of Merchandise inventory is part of the gross income, not deduction.
Loss on sale of investment is a capital loss which is deductible only from capital gains.
The sale of land classified as capital asset is subject to 6% capital gains tax
No. 16-18:
Gross sales
Cost of sales
Deductions
GP(Loss)
Dividend – resident foreign corporation
Interest income on notes receivable
Capital gain
Capital loss
Income (Loss) before NOLCO
NOLCO
Taxable income
*** To the extent only of capital gain
2012
P3,300,000
(2,400,000)
(1,475,000)
(P575,000)
140,000
28,000
(P407,000)
2013
2,340,000
(1,070,000)
(1,025,000)
P245,000
16,400
13,000
274,400
(274,400)
P0
2014
P825,000
(380,000)
(459,000)
(P14,000)
32,000
18,500
***(18,500)
18,000
(18,000)
P0
No. 36.
Actual (w/ limit)
Limit [(6,200,000 – 2,500,000) x 5%]
P190,000
185,000
Allowed
Add: deductible in full (priority project)
Total
P185,000
100,000
P285,000
No. 37.
Gross Income
Cost of Sales
Sales
Sales
COS
Gross Income
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of
employees, net of P100,000 withholding tax and P50,000 SSS, Medicare
and Pag-Ibig premiums contributions
Fringe benefits given to rank and file employees
Fringe benefits given to managerial employees
(@Grossed-up monetary value) = 136,000/68%
Rent expense
Representation and entertainment expenses ( ½ % of Net Sales)
Net income before contributions
Donation to religious and charitable institutions (Limit)
Limit: P3,390,000 x 10%; Actual= P500,000
NET INCOME BEFORE PERSONAL EXEMPTION
Basic personal exemption
Taxable income

P5,000,000
3,000,000
P8,000,000
P8,000,000
(3,000,000)
5,000,000
(950,000)
(300,000)
(200,000)
(120,000)
(40,000)
P3,390,000
(339,000)
P3,051,000
(50,000)
P3,001,000
Representation expenses
= Limit of ½% of net sales (if merchandising) or actual whichever is lower
= Limit of 1% of net revenues (if service concern) or actual whichever is lower
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No. 39.
Current service costs
Past service costs
2012 (P1,600,000/10)
2013 (P1,200,000/10)
Deductible Contributions
2012
P2,000,000
160,000
P2,160,000
2013
P2,000,000
160,000
120,000
P2,280,000
2014
P2,000,000
160,000
120,000
P2,280,000
CHAPTER 10 – INSTALLMENT REPORTING OF INCOME
1.
2.
3.
4.
5.
A
D
B
A
A
6.
7.
8.
9.
10.
C
D
C
A
B
CHAPTER 11 – FOREIGN INCOME TAX CREDIT AND OPTIONAL STANDARD DEDUCTION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
D
D
B
D
C
D
D
D
A
C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
A
C
D
A
D
C
B
D
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
D
C
B
A
B
D
B
A
D
Supporting Computations:
No. 11.
Net income, Philippines
Net income, Canada
Basic personal exemption
Taxable Income
Tax Due:
First P500,000
Excess:
(P2.7M-.5M)32%
Less Tax Credit:
Limit: (1,250/2750 x P829,000)
Actual
Income Tax Payable
P1,500,000
1,250,000
(50,000)
2,700,000
P125,000
704,000
P373,050
150,000
P829,000
(150,000)
P679,000
No. 12.
Net income, Philippines
Net income, Canada
Taxable Income
Tax Due:
Less Tax Credit:
Limit: (1,250/2,750 x P825,000)
Actual
P1,500,000
1,250,000
2,750,000
P825,000
P375,000
150,000
(150,000)
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Income Tax Payable
P675,000
No. 13.
Taxable income, world
P2,000,00
Tax Due @ 30%
Less Tax Credit:
L1:
Country X (600/200 x P600,000)
Paid
Allowed
P600,000
Country Y(400/200 x P600,000)
Paid
Allowed
Total L1
L2 (1/2 x 600,000)
Paid (Total)
P180,000
250,000
P180,000
P120,000
120,000
120,000
P300,000
300,000
370,000
300,000
TAX CREDIT ALLOWED
Tax paid, three quarters
Income tax payable
(300,000)
(110,000)
P190,000
No. 14.
Taxable income before tax credit, world
Taxes paid foreign countries
Taxable income
X
Tax Due
Less: Payments, 3 quarters
Tax payable
P2,000,000
(370,000)
P1,630,000
30%
489,000
(110,000)
P379,000
No. 29.
Gross sales
Less:
Sales returns
Sales discounts
Net sales
Less: Cost of sales
Inventory, beginning
Purchases
Purchase returns
Purchase discounts
Freight in
Goods available for sale
Inventory, end
Gross profit from sales
P12,000,000
1,000,000
500,000
300,000
5,000,000
(200,000)
(100,000)
150,000
515,000
(100,000)
(1,500,000)
P10,500,000
5,050,000
5,450,000
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Add: other income
Interest on notes receivable
Dividend income from resident corporation
GROSS INCOME
Less:
OSD (P10,500,000 x 40%)
Basic personal exemption
TAXABLE INCOME
100,000
100,000
200,000
5,650,000
(4,200,000)
(50,000)
P1,400,000
CHAPTER 12 – ACCOUNTING PERIODS AND METHODS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
B
B
A
C
A
D
B
C
D
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
A
D
D
D
A
C
A
B
D
21.
22.
23.
24.
25.
D
C
D
D
C
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