UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
3.1 Taxpayer and Tax base
Classification of individual taxpayers
1. Citizens
 Resident citizens (RC)
 Non-resident citizens (NRC) means a Filipino citizen:
 Who establishes to the satisfaction of the
Commissioner the fact of their physical presence
abroad with a definite intention to reside therein;
 Who leaves the Philippines during the taxable year
to reside abroad, either as immigrant or for
employment on a permanent basis;
 Who works and derive income from abroad and
whose employment thereat requires him to be
physically present abroad most of the time during
the taxable year
 Who is previously considered as a non-resident
and who arrives in the Philippines at anytime
during the taxable year to reside thereat
permanently shall be considered non-resident for
the taxable year in which he arrives in the
Philippines with respect to his income derived from
sources abroad until the date of his arrival;
 Who stays outside the Philippines more than 183
days.
2. Aliens
 Resident aliens (RA) – means an individual whose
residence is within the Philippines and who is not a
citizen thereof.
 Non-resident aliens (NRA) – means an individual
whose residence is not within the Philippines and who
is not a citizen thereof
 Engaged in trade of business within the Philippines
(NRAETB)
 Not engaged in trade or business within the
Philippines (NRANETB)
Note:
a) The term trade or business includes the performance
of the functions of a public office
b) The term trade, business or profession shall not
include performance of services by the taxpayer as
an employee
c) A non-resident alien individual who shall come in the
Philippines and stay therein for an aggregated period
of more than 180 days during the calendar year shall
be deemed a non-resident alien doing business in
the Philippines.
General Principles of Individual tax situs:
 Only resident citizens are taxable for income derived
from sources within and without the Philippines. All
other individual income taxpayers are taxable only
for income derived from sources within the
Philippines
 A seaman is considered as an OCW provided the
following requirements are met:
 Receives compensation for services rendered
abroad as a member of the complement of a
vessel; and
 Such vessel is engaged exclusively in
international trade
Note: An overseas contract worker (OCF) is taxable
only on income derived from sources within the
Philippines
Different individual income taxes:
1. Income tax – basic tax is at 5% to 32%
(progressive tax rate)
2. Final tax on passive incomes (proportional tax
rate)
3. Capital gains tax on capital gains
Formula for Individual Income Tax:
Gross income (excluding passive income &
capital gains)
xx
Less
Allowable deduction
Net taxable income
Less
Tax rate
Net income tax due
Less
Tax credit if any
Tax payable or still tax due if any
xx
xx
%
xx
xx
xx
Current progressive tax rates table:
Over
P10,000
30,000
70,000
140,000
250,000
500,000
But not
over
P10,000
30,000
70.000
140,000
250,000
500,000
-
The tax
shall be
5%
P500
2,500
8,500
22,500
50,000
125,000
Plus
10%
15%
20%
25%
30%
32%
Excess
over
P10,000
30,000
70,000
140,000
250,000
500,000
Allowable Deductions for Individuals
1) With gross compensation income derived from
employer-employee relationship only
 Premium
payments
on
health
and/or
hospitalization insurance
 Basic and additional personal exemption
2)
Gross income from business or practice of profession
 Itemized deductions or optional standard
deduction
 Premium
payments
on
health
and/or
hospitalization insurance
 Basic and additional personal exemption
Who cannot avail of deduction from gross income?
1) Non-resident aliens not engaged in trade or business
in the Philippines
2) Resident Citizens who avail the 8% of Gross Income in
computing tax income (Under the TRAIN)
Premium payment on health and/or hospitalization
insurance - It is an amount of premium on health and/or
hospitalization paid by individual taxpayer for himself and
members of his family during the taxable year.
Requisites for Premium payments to be Deductible:
1) Insurance must have actually been taken
2) The amount of premium deductible does not exceed
P2,400 per family or P200 per month during the
taxable year
3) That said family has a gross income of not more than
P250,000 for the taxable year
4) In case of married individual, only the spouse claiming
additional exemption shall be entitled to this
deduction.
Who may avail of the Premium Payments?
1) Individual taxpayers earning purely compensation
income during the year
2) Individual taxpayer earning business income or in
practice of his profession whether availing of itemized
or optional standard deductions during the year
3) Individual taxpayer earning both compensation and
the business or practice of profession during the year
Who may avail basic and additional personal exemption?
1) Only to individual resident citizen, non-resident citizen
and resident alien (whether business or compensation
income earners)
2) Non-resident alien engage in trade or business may
be entitled to personal exemptions subject to
reciprocity, i.e.
 the country of which he is a subject or citizen has
an income tax laws and
 the income tax law of his country allows personal
exemption to citizen of the Philippines not
residing therein, bud deriving income there from
and not to exceed the amount allowed in
Philippine Tax Code.
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Page 1 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
What are basic and additional personal exemptions?
1) Basic personal exemption – The basic personal
exemption is P50,000 exempt income of an individual
whether single, head of the family or married
individual (each married individuals)
4.
Head of the family:
 Unmarried or legally separated person with one
or both parents, or one or more brothers or
sisters, or one or more legitimate, recognized
natural or legally adopted children living with
dependent upon the taxpayer for their chief
support (chief support means more than one-half
of the requirement for the support)

2)
What are itemized deductions?
1. Ordinary and necessary expenses
2. Interests
3. Taxes
4. Losses
5. Bad debt
6. Depreciation of property
7. Depletion of oil, gas wells and mines
8. Charitable & other contributions
9. Research and development
10. Pension trust contributions of employees
11. Premium
payments
on
health
and/
hospitalizations insurance
where such brother/sister or children are not
more than 21 years of age, unmarried and not
gainfully employed, or where such dependents
regardless of age, are incapable of self-support
because of mental or physical defect
Additional personal exemption – The additional
personal exemption is P25,000 exempt income of an
individual for each of the qualified dependent children
or senior citizen not exceeding four (4) in number.
The proper claimant of the additional exemption in
case of married individual is the husband being the
head of the family, except, under the following cases:
 husband is unemployed
 husband is working abroad like an OFW or a
seaman
 husband explicitly waived his right
of the
exemption in favor of his wife in the withholding
exemption certificate
 husband is the guilty spouse in a legal separation
(the innocent spouse may be categorized as Head
of the Family (HF) plus additional personal
exemption if court awards custody)
 husband purely in business while wife purely
receiving compensation
Qualified Dependent
 Child or children
 legitimate, illegitimate, legally adopted
 living with the taxpayer and dependent upon the
taxpayer of chief support
 not exceeding 21 years old, unless incapable of
self-support due to mental or physically defect
 unmarried and not gainfully employed
become gainfully employed at the closed of such
year.
For any other event and for which there no
specify rules applicable for the abovementioned,
the status of the taxpayer at the end of the year
shall determine his exemptions (strictly construed
against the taxpayer.
What is optional standard deductions? -In case of
individual taxpayer’s OSD is a deduction equivalent to
40% of the gross receipts in lieu of Cost of Sales and
itemized deductions.
3.1.2.
Corporations
Domestic Corporation (DC) – created or organized
in the Philippines or under its laws
2. Foreign Corporation
 Resident foreign corporation (RFC) – created
or organized other than Philippines laws;
engaged in trade or business within the
Philippines
 Non-resident foreign corporation (NRFC) –
created or organized other than Philippine
laws; not engaged in trade or business within
the Philippines
3. Special Corporation
1.
1
2
3
4
Senior citizen
 any resident citizen of the Philippines
 at least sixty (60) years old, including those who
have retired from both government officers and
private enterprises, and
 has an income of not more than Sixty thousand
peso (P60,000) per annum subject to the review
of the National Economic Development Authority
(NEDA) every three years.
What are rules for a change of status?
1. If the taxpayer should marry or should have
additional dependents during the taxable year, he
may claim the corresponding exemption if full for
such year.
2. If the taxpayer should die during the taxable
year, his estate may claim his corresponding
exemption as if he died at the close of such year
3. If the spouse or any dependent should marry or
become 21 years of age, during the year or
should become gainfully employed, the taxpayer
may claim the exemption as if the spouse or
dependent or dependent died or as if such
dependent married, become 21 years of age or
or
5
6
Private educational
institutions & nonstock
profit
hospitals
Resident
international
carriers
Non-resident
cinematographic
film owner/lessor
Non-resident
owner/lessor
of
vessels
Non-resident
owner/lessor
of
aircrafts,
machineries
&
equipment’s
Offshore
banking
units
SITUS
TAX
RATE
TNI
10%
Gross Philippine
billings
2.5%
Gross income
Philippines0
25%
Gross income
from rentals,
leases, charter
fees, Philippines
Gross income
from rentals,
leases, charter
fees, Philippines
Interest income
from FC
transactions
4.5%
7.5%
10%
What is a corporation?
It includes the following but not limited hereto:
1) Partnerships, no matter how created or organized
2) Joint-stock companies
3) Joint accounts
4) Associations
5) Insurance companies
It excludes the following:
1) General professional partnership
2) Joint venue or consortium formed for the purpose
of undertaking construction projects or engaging
in petroleum, coal, geothermal and other energy
operations pursuant to an operating or
===================================================================================================
Page 2 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
consortium agreement under a service contract
with the Government

3.1.3 Partnerships – is a business organization owned by
2 or more persons who contribute their industry or
resources to a common fund for the purpose of
dividing the profits among themselves.
Type of
partnership
1. Ordinary partnership or a business partnership –
is one formed for profit, hence it is taxable as
corporation.
2. General professional partnership (GPP) – is
formed for the exercise of a common profession.
A GPP is not treated as a corporation and is not a
taxable entity; hence, exempt on its regular
income. but the partners are taxable in their
individual capacity with respect to their share in
the income of the partnership.
3.1.4. Joint Ventures
A joint ventures is a business undertaking for a
particular purpose.
It may be organized as a
partnership or a corporation. 2 Types of joint ventures
 Exempt joint ventures
Exempt joint ventures are those formed for the
purpose of undertaking construction project, or
engaging in petroleum, coal, geothermal and
other energy operations, pursuant to an
operating consortium agreement under a service
contract with the Government. This type of joint
venture is not treated as a corporation and is tax
exempt on its regular income, but the venture are
taxable to their share in the net income of the
joint venture, similar to GPP.
 Taxable joint ventures
All other joint ventures are taxable as a
corporation
3.1.5. Estates and trusts
Estate – refers to the mass of properties left by a
deceased person.
 Estates under judicial settlement are treated as
individual taxpayer and are taxable on the
income of the properties left by the decedent
 Estate under extra judicial settlement are exempt
entities. The income of the properties of the
estate is taxable to the heirs.
Trust – a right to the property, whether real or
personal, held by one person for the benefit of
another.
 A trust that is irrevocably designated by the
grantor is treated as an individual taxpayer
taxable on the income of the property held in
trust.
 A revocable trust on the other hand, are not
taxable entities. The income of properties held
under revocable trust is taxable to the grantor.
A Trust is a stipulation in favor of 3 rd persons. Under
Art 1440 of the New Civil Code (NCC),
 a person who establishes a trust is called the
trustor;
 one in whom confidence is reposed as regards to
property for the benefit of another person is
known as the trustee; and
 the person for whom benefit the trust has been
created is referred to as the beneficiary.
3.1.6 Co-ownerships – is joint ownership of a property
formed for the purpose of preserving the same and/or
dividing its income.
 A co-ownership that is limited to property
preservation or income collection is not a taxable
entity and is exempt but the co-owners are
taxable to their share on the income of the coowned property.
A co-ownership that reinvests the income of the
co-owned property to other income producing
properties or ventures will be considered an
unregistered partnership, hence taxable as a
corporation.
3.1.7 Tax exempt individuals and organization
a) Individual taxpayer – Both those who are working
in the private and public sector being paid the
statutory minimum wage as determine by the
Tripartite Minimum Wage Board covering their
basic, holiday, overtime, night differential and
hazard pay shall be exempt from income tax
and is not required to file income tax return.
Note: Only commission and honorarium among
others things are subject to income tax of a
minimum wage earner.
b)
Corporation
Corporation exempt from income taxation
enumerated under Sec 30 of NIRC
1. Labor,
agricultural
or
horticultural
organization not organized principally for
profit;
2. Mutual savings bank not having a capital
stock represented by share, and cooperative
bank without capital stock organized and
operated for mutual purposes and without
profit;
3. Beneficiary society, order or association,
operating for the exclusive benefit of the
members such as a fraternal organizations
operating under the lodge system, or a
mutual aid association or a nonstock
corporation
organized
by
employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or
associations, or non-stock corporation or
their dependents;
4. Cemetery Company owned and operated
exclusively for the benefits of its members;
5. Non-stock
corporation
or
association
organized and operated exclusively for
religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset
shall belongs to or inure to the benefit of any
member, organizer, officer or any specific
persons;
6. Business league, chamber of commerce, or
board of trade not organized for profit and no
part of the net income of which inure to the
benefit of any private stockholder or
individual;
7. Civic league or organizations not organized
for profit but operated exclusively for the
promotion of social welfare;
8. A non-stock and non-profit educational
institution;
9. Government educational institution;
10. Farmers’ or other mutual typhoon or fire
insurance
company, mutual ditch or
irrigation company, mutual or cooperative
telephone company, or like organizations of a
purely local character, the income of which
consists solely of assessment, dues, and fees
collected from members for the sole
purposes of meeting its expenses and;
11. Farmers’, fruit growers’ or like association
organized and operated as a sales agent for
the purpose of marketing the products of its
members and turning back to them the
proceeds of sales, less the necessary selling
===================================================================================================
Page 3 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
expenses on the basis of the quantity of
produce finished by them.
professional net income. Ordinary gain is taxable
in full while ordinary loss is deductible in full.
Note: Exemptions applies only to income derived
from related activities. Any income derived from
unrelated activities is subject to regular income tax.
Effect of Situs on Dealings is Properties
 If the taxpayer is taxable on world income
such as in the case of resident citizens and
Domestic Corporation, the rules of dealings
in properties apply to all properties
regardless of location.
 If the taxpayer is taxable only on Philippine
income, the rules of dealings in properties
will be applied only to properties located in
the Philippines.
Government Owned & Controlled Corporations
(GOCC’s)
1. General rule: These corporation are taxable as
any other corporation.
2. Except the following:
 GSIS
 SSS
 PHIC
 PCSO
4.
Regional or Area headquarters
1. If limited to supervision or communication
activities – not subject to income tax
2. If it is operating headquarters – subject to a 10%
of taxable income
General principles of corporate tax situs:
1. Only Domestic Corporation are taxable for
income derived from sources within and without
the Philippines.
2. All other corporate income taxpayer are taxable
for income derived from sources within the
Philippines
3.2 GROSS INCOME
3.2.1. Inclusions in the gross income
The term items of gross income or inclusions in gross
income is a broad category pertaining to all items of
income subject to taxation namely:
1) Gross income subject to final tax
2) Gross income subject to capital gain tax
3) Gross income subject to regular tax
Exempted interest income from regular income
taxation:
 Interest income earned by landowners in
disposing their lands to their tenants in
pursuant to the Comprehensive Agrarian
Reform Law
 Imputed interest income
5.
What is gross income subject to regular tax? – It
means all income derived from whatever source,
including but not limited to the following:
1. Compensation
2. Gross income from profession, trade of business
3. Gains from dealings in property
a) dealings in ordinary assets
b) dealings in capital assets other than
domestic stocks and real properties
6.
Royalties
Royalties earned from sources within the
Philippines are generally subject to final income
tax, except when they are active by nature.
Active royalty income and royalties earned from
sources outside the Philippines are subject to
regular income tax.
7.
Dividends
This pertains to dividends declared by foreign
corporation such as cash, property and script
dividends from foreign corporation are items of
gross income subject to regular income tax.
What is tax basis? – It refers to the cost, carrying
amount or depreciated cost of an asset. The cost
of an asset is the value forgone to acquire it. It is
the purchase price or the fair value of
consideration paid in acquiring the property.
Tax treatment of ordinary gains and losses –
ordinary gains are separate items of gross income
subject to regular income tax, while ordinary
losses are items of deductions from gross income
in the determination of taxable business or
Rents
Rent income arises from leasing properties of any
kind. It is a passive income but is not subject to
final tax under the NIRC, hence is subject to
regular income tax
Special considerations on rent
1) Obligations of the lessor that are assumed by
the lessee are additional rental income to the
lessor
2) Advance rentals are
a) Item of gross income upon receipt if
 Unrestricted
 Restricted to be applied in future
years of upon the termination of the
lease
b) Not an item of gross income if
 It constitutes a loan
 It is a security deposit to guarantee
payment
or
rent
subject
to
contingency which may or may not
happen
3) Leasehold improvements made by the lessee
on the leased property are recognized by the
lessor as income using the spread-out
method or outright method.
Determination of Gains or losses in dealings in
property:
Selling price
xx
Les
Tax basis or adjusted
s
basis
of
the
assets
disposed
xx
Gain or loss
xx
What is Selling price? – It includes the amount
realized from the sale and other disposition of
property which shall include:
 the sum of money received and
 fair value of non-cash property received
Interests
Interest income refers interest income other than
passive interest income subject to final tax. A
taxable interest income must have been actually
paid out of an agreement to pay interest, it
cannot be imputed. Examples:
 interest income from lending activities to
individuals and corporation by banks
 Interest income from bonds and promissory
notes
 interest income from bank deposits abroad
===================================================================================================
Page 4 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
Note:
 Dividends declared by domestic corporation
are subject to 10% final tax if the recipient is
an individual taxpayer and
 Dividends declared by domestic corporation
are exempt if the recipient is a domestic or a
resident foreign corporation
 Stock dividends is exempt from income tax
but when the declaration confers to the
recipient a different interest or right after the
stock dividend declaration or when stocks
dividends are subsequently redeemed such
that it amounts to payment of cash
dividends, the fair market value of the stock
dividends received is taxable.
8.
9.
Annuities
The excess of annuity payments received by the
recipient over premium paid is taxable income in
the year of receipt.
Prizes and winnings
Prizes and winnings that are exempted from final
tax are not items of gross income subject to
regular income tax. Exempt prizes and winnings:
a) Prizes received without effort to join a
contest
b) Prizes in athletic competition sanctioned by
their respective national sports association
c) Winnings from PCSO or lotto
Rules of taxable prizes and winnings to individual
taxpayer:
Prizes
Less than P10,000
More than P10,000
Winnings other than
PCSO and Lotto
Earned from Sources
Within
Abroad
Regular tax
Regular tax
Final Tax
Regular tax
Final tax
Regular tax
10. Pensions – this pertains to pensions and
retirement benefits that fail to meet the exclusion
criteria and hence subject to regular tax.
11. Partner’s share in the net income of the general
professional partnership
The partnership itself is not subject to regular
income tax as they are merely viewed as passthrough entities. These entities do not pay tax on
their regular income. However, the partners are
the ones subject to regular tax on their share in
the net income of the general professional
partnership
3.2.2. EXCLUSIONS / EXEMPTIONS FROM GROSS
INCOME
a) Proceeds of life insurance exempt if the
proceeds are retained by the insurer, the
interest thereon is taxable.
b)
Return of insurance premium – the amount
received by insured, as a return of premiums paid
by him under life insurance, endowment, or
annuity contracts, either during the term or at the
maturity of the term mentioned in the contract or
upon surrender of the contract. The amount
received by the insured as a return of premium
on any insurance contract is a return of capital,
hence excluded from gross income.
c)
Gift, bequest or devise exempt income
therefrom is taxable.
Compensation for personal injuries or sickness,
whether by suit or agreement
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc.
Requisites:
d)
e)
f)




In the service of the same employer for at
least 10 years
At least 50 years old
must be availed of only once
retirement plan must be approved by the BIR
prior to implementation
 separation pay because of death,
sickness, or other physical disability or
for any cause beyond the control of the
official or employee (e.g. retrenchment,
redundancy or cessation of business)
 SSS benefits< retirement gratuities<
pensions and other similar benefits
received by citizens and aliens who
come to reside permanently here from
foreign sources private or public
3.2.3. INCOME FROM COMPENSATION
Employer – Employee relationship
 Employer – refers to person to whom an
individual performs any service, of whatever
nature, as employee of such person. It is the
person who has control over the payment of the
employee.
 Employee – refers to any individual who is a
recipient of wages.
Elements of employer – employee relationship under
the law
1) Selection and engagement of employees
2) Payment of wages
3) Power of dismissal
4) Power of control
Type of employees as to function
1) Managerial employees
2) Supervisory employees
3) Rank and file employees
The
1)
2)
3)
following are not considered employees
Consultant
Directors
Talents and Artists
Type of employees as to taxability
1) Minimum wage earners – refers to a worker in the
private sector who is paid the minimum wage or
to an employee in the public sector with
compensation income of no more than the
statutory minimum wage (Salary 1 to 3)
2) Special employees – special aliens subject to the
15% final income tax on compensation income,
such as those holding managerial or technical
position in a Regional or area headquarters (RHQ)
or Regional operating headquarters (ROHQ)
3) Regular employees – an employee subject to the
regular progressive income tax
Requirements to Filipinos Employed by RHQs and
ROHQs:
1) Position and function test – the employee must be
occupying and actually exercising a managerial
or supervisory position
2) Compensation threshold test – the employee
must have a gross annual taxable income of at
least P975,000
3) Exclusivity test – employee is not a consultant or
contractual personnel and is solely employed by
RHQs or ROHQs.
Gross compensation income – generally includes all
remuneration received under an employer – employee
relationship.
Non-taxable or exempt Compensation
===================================================================================================
Page 5 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
1)
2)
3)
4)
Benefits excluded and/or exempted under the
NIRC and special laws
a) Remuneration received as incidents of
employment
 Exempt retirement benefits under RA
7641, including exempt retirement
gratuities to government official and
employees
 Exempt termination benefits
 Benefits
from
the
US
Veterans
Administration
 Social Security, retirement gratuities,
pensions and similar benefits from
foreign government agencies, and other
institutions, private or public
 Benefits from SSS, under the SSS Act of
1954, as amended
 Benefits from GSIS, under the GSIS Act
of 1937, as amended
b) Employee mandatory contribution to GSIS,
SSS, PhilHealth, HDMF and union dues
c) Certain benefits of minimum wage earners
d) De minimis benefits
e) 13th month pay and other benefits not
exceeding P82,000 (TRAIN P90,000)
benefits exempt under treaty or international
agreement
benefits necessary to the trade, business or
conduct of professional of the employer
benefits for the convenience or advantage of the
employer
Exempt benefits of minimum wage earners
1) Basic minimum wages
2) Holiday pay
3) Overtime pay
4) Night shift differential pay
5) Hazard pay
Note:
A minimum wage earner must not have other items of
taxable income aside from these benefits to be
exempt.
De Minimis Benefits – are facilities or privileges such
as entertainment, medical services, or courtesy
discounts on purchases that are of relatively small
value and are furnished by the employer merely as a
means of promoting health, goodwill, contentment or
efficiency of his employees. De minimis benefits are
petty fringe benefits and are exempt from income tax.
De Minimis Benefits was restricted to mean only the
following:
a) Monetized unused vacation leave credits of
private employees– not exceeding 10 days during
the year
b) Monetized unused vacation and sick leave credits
of government official and employees
c) Medical cash allowance to dependents of
employees – not exceeding P750 per employee
per semester of P125/month.
d) Rice subsidy – P1,500 or 1 sack of 50-kg per
month amounting to not more than P1,500
e) Uniform and clothing allowance – not exceeding
P5,000 per annum
f)
Actual medical assistance – not exceeding
P10,000 per annum
g) Laundry allowance – not exceeding P300/ month
h) Employee achievement award – monetary value
not exceeding P10,000
i)
Gifts given during Christmas – not exceeding
P5,000 per employee
j)
Daily meals allowance – not exceeding 25% of the
basis minimum wage
Note:
Hence, the following petty benefits are taxable de
minimis benefits
 Excess de minimis over their limits
 Other benefits of relatively small value that are
not included in the de minimis list.
Treatment of taxable de minimis benefits
1) For rank and file employees – treated as
compensation income as “other income” under
13th month pay and other benefits”
2) For managerial and supervisory employees –
fringe benefit subject to final fringe benefits tax
Classification of Gross Compensation Income
1) Regular
compensation
–fixed
amount
of
remuneration
2) Supplemental
compensation
–
other
performance-based pay to employees with or
without regard to the payroll period
3) 13th month pay and other benefits –not exceeding
P82,000 is an exclusion from gross income
( under The Train Law this amount increases to
P90,000).
3.2.4. Income from Business
1) Business income – arises from habitual
engagement in any commercial activity involving
regular sales of goods or services by an individual
or a corporation. The income from business, legal
or illegal, registered or unregistered is taxable
2) Professional income – the gross income from
exercise of a profession or business gross income
from the sales of service.
3.2.5. Passive income
What is final tax?
A tax imposes on passive income, also known as final
income tax.
1. It is constituted as a full and final payment of the
income tax due from the payee on a particular
type of income subject to final withholding tax
(FWT). The finality of the withholding tax is
limited only to the payee’s income tax liability
and does not extend to other taxes that may be
imposed on said income.
2. The income subjected to final income tax is no
longer subject to the net income tax; otherwise
there would be a violation of prohibited double
taxation.
3. The liability for the payment of the tax rests
primarily on the payor as withholding agent.
4. The payee is not required to file an income tax
return for the particular income subjected to FWT.
5. The rate of the final tax is multiplied to the gross
income. Thus deductions and/or personal and
additional exemptions are not allowed.
What are passive incomes? – Income derived from
sources within the Philippine such as:
1. Interest under the expanded foreign currency
deposits system;
2. Interest, yields, or other monetary benefits from
deposits, deposit substitutes, trust funds or
similar agreement;
3. Royalties
from
intellectual
creation
(e.g.
composition, authorship, literary works);
4. Prizes and winnings;
5. Dividends from Domestic Corporation or share of
a partner in the distribution income of an ordinary
partnership
3.2.6. Capital gains
What are the 2 kinds of assets?
1) Ordinary assets – assets used in business such as
===================================================================================================
Page 6 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
a)
b)
c)
d)
2)
Stock in trade of a taxpayer or other real
property of a kind which properly be included
in the inventory of the taxpayer if on hand at
a close of the taxable year
Real property held by the taxpayer primarily
for sale to customers in the ordinary course
of his trade or business
Real property used in trade or business (i.e.
buildings
and/or
improvements) of a
character which is subject to the allowance
for depreciation.
Real property used in trade or business of the
taxpayer
7)
Interest payments must not be between related
taxpayers
8) Interest must not be incurred to finance
petroleum operation
9) In case of interest incurred in the acquisition of
property, use in trade, business or profession,
the same was not treated as a capital
expenditures
10) The interest is not expressly disallowed by law
to be deducted from gross income of the
taxpayer.
Deductible amount of interest expense: - The
deductible amount of interest expense is the gross
interest expense reduced by the following
percentage of the interest income:
Capital assets – any assets other than ordinary
assets
Effectivity
Gains on dealings in properties:
1) Ordinary gains – arises from the sale, exchange
and other disposition, including pacto de retro
sales and other conditional sales, or ordinary
assets.
2) Capital gain – arises from the sale, exchange and
other disposition, including pacto de retro sales
and other conditions sales of capital assets.
Jan 1, 1998
Jan 1, 1999
Jan 1, 2000
Nov 1, 2005
Jan 1, 2009
Rationale of the deduction limit: - the limit is
intended to recover the tax savings of taxpayers
who are taking advantage of high regular tax
savings created from interest expense and a lower
final tax on deposit interest income.
Taxation of gains on dealing in properties:
Type of Gains
Applicable taxation scheme
Ordinary gains
Regular income tax
Capital gains
General
rule:
Regular
income tax
Exception: Capital gains tax
Optional treatment of interest expense: - Interest
incurred in financing the acquisition of property
used in trade or business may, at the option of the
taxpayer, be claim as:
1) An outright deduction from gross income or
2) A capital expenditure claimable through
depreciation
Capital gains subject to capital gains tax:
1) Capital gains on the sale of domestic stock sold
directly to buyer
2) Capital gains on the sale of real properties not
used in business
Other deductible interest expense
1) Interest from tax delinquency
2) Interest from scrip dividends
What is a capital gains tax? – A tax imposed on sale of
stock of a domestic corporation not listed and traded
thru a local stock exchange, held as capital asset and
sale of real property in the Philippine held as a capital
asset.
Examples of non-deductible interest:
1) Interest on personal loans
2) Interest incurred with a related party
3) Discounted interest applicable to future periods
for individual taxpayers
4) Interest expense incurred to finance petroleum
operations
5) Interest on preferred shares
6) Imputed interest
How to compute capital gain tax of individual
taxpayer?
1. On sale of shares of stock
 Not over P100,000
= 5%
 Excess of P100,000
=10%
2.
On sale of real property
 Gross selling price or the current fair market
value, whichever is higher = 6%
3.
Gains from other capital assets = regular income
tax
3.3 Deduction from gross income
3.3.1. Itemized deductions
a) Ordinary and necessary expenses
b) Interest
Requisites on the deductibility of interest (RR132000):
1) There must be a valid indebtedness
2) The indebtedness must be that of the taxpayer
3) The indebtedness must be connected with the
taxpayer’s trade, business or exercise of
profession
4) Interest expense must have been paid or
incurred during the taxable year
5) Interest must have stipulated in writing
6) Interest must legally due
Percentag
e
41%
39%
38%
42%
33%
c)
Taxes
Taxes paid or incurred within the taxable year in
connection with the taxpayer’s trade, business or
exercise of profession shall be allowed as
deduction, except:
1) Philippine income taxes , except fringe benefit
tax
 Final income tax & stock transaction tax
 Capital gains tax
 Regular income tax
2) Foreign income, if claimed as tax credit
3) Estate tax and donor’s tax
4) Special assessment
Other non-deductible taxes
1) Business tax
 VAT
 Other percentage tax
2) Surcharges or penalties on delinquent taxes
Rationale of non-deductibility
Income taxes are not costs of earning income but
are impositions on net income accruing only after
income is earned, hence not deductible.
===================================================================================================
Page 7 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
Note:
 Foreign income tax is not a cost of earning
income, however, it is allowed under the NIRC
to be claimed as deduction if not claimed as
tax credit.
 Special assessment is not a tax expense but is
capitalized to the cost of the land.
Bad debts refer to debt due to taxpayer which were
actually ascertained to be worthless and were
charged off within the taxable year.
Requisites of claims for deduction of bad debt:
1) The debt must have been ascertain to be
worthless
2) It must be charged off within the taxable year
3) It must be connected with the taxpayer’s
profession, trade or business
4) The taxpayer must be under the accrual basis
of accounting
5) It must not be incurred from related party
Examples of deductible taxes:
1) Documentary stamp tax
2) Occupational tax
3) License tax
4) Fringe benefit tax
5) Local taxes, except special assessment
6) Community tax
7) Municipal tax
8) Foreign income tax, if not claimed as tax credit
Note:
 The accounting bad debt expense called
“estimated bad debt expense” is not deductible
in taxation because it is a mere estimate rather
than an actual loss. The deductible bad debt
expense
pertains
to
the
write-off of
uncollectible receivable after having been
actually ascertained to be worthless.
Only basic tax is deductible: - is allowed as
deduction. Tax surcharges for late payments are
avoidable and unnecessary expenses; hence, nondeductible. Moreover, allowing these as deduction
will relax policy on tax collection.
Note:
 Interest for late payment of tax is held
deductible but as interest expense rather than
as tax expense
d)
Losses
Losses actually sustained during the taxable year
and not compensated by insurance or other
indemnity shall be allowed as deductions.
Requisites for the deduction of losses:
1) It must be incurred in trade, profession or
business of the taxpayer
2) It must pertain to property connected with
trade, business or profession, if the loss arises
from fires, storms, shipwrecks, or other
casualties,
or
from
robbery,
theft
or
embezzlement (the loss must be an ordinary
loss)
3) The loss must not be compensated by
insurance or indemnity contract
4) A declaration of loss must have been filed by
the taxpayer within 45 days from the date of
discovery of the casualty or robbery, theft or
embezzlement giving rise to the loss
5) The loss must not have been claimed as
deduction for estate tax purposes in the estate
tax return
Types of losses
1) Ordinary loss
2) Capital loss
Note:
 Losses from ordinary assets are deemed
normal to the taxpayer’s trade, business or
profession, hence, deductible in full.
 Losses on capital assets are deemed by law as
unnecessary expenses, hence deductible only
on the extent of capital gains.
Examples of deductible ordinary losses
1) Loss on disposal or destruction of any ordinary
assets
2) Loss due to voluntary removal of building
incident to renewal or replacement
3) Permanent or irreversible loss in value of assets
due to changes in business conditions only to
the extend actually realized
4) Abandonment loss
e)
Examples of capital losses not deductible as bad
debts:
1) Bad debt from personal receivable
2) Securities becoming worthless of taxpayers
other than domestic banks and trust companies
a substantial part of whose business is the
receipts of deposits
3) Loss on capital investments in partnership, joint
ventures or corporation
Bad debt
Subsequent recovery of bad debts – under the NIRC,
the recovery of bad debts previously allowed as a
deduction in the preceding years shall be included
as part of the gross income in the year of recovery
to the extent of the income tax benefit of said
deduction.
f)
Depreciation – refers to the gradual exhaustion in
the value of tangible business properties brought by
the ordinary wear and tear through usage or
obsolescence by the passing of time.
It is a
provision for the periodic return of the invested
capital on the property throughout its useful life.
There shall be allowed as a depreciation deduction
a reasonable allowance for the exhaustion, wear
and tear (including reasonable allowance for
obsolescence) of property used in the trade or
business.
Depreciation method:
1) Straight line method
2) Declining balance method
3) Sum of the year digit method
4) Any other methods which may be prescribed by
the Secretary of Finance upon recommendation
of CIR
Special rules on depreciation
1) Life tenancy to a property – in case of property
held by one person for life with remainder to
another person, the deduction shall be
computed as if the life tenant were the
absolute owner of the property and shall be
allowed to the life tenant
2)
Properties held in trust – in case of property
held in trust, the allowable deduction shall be
apportioned between the income beneficiaries
and the trustees in accordance with the
pertinent provisions of the instrument creating
the trust, or in the absence of such provisions,
on the basis of the trust income allowable to
each.
===================================================================================================
Page 8 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
3)
4)
g)
Revaluation on properties – the depreciation of
an asset must be premised on its acquisition
cost, and not on its reappraised value.
Taxpayer using the revaluation model in
accounting for items of property, plant and
equipment under PAS 16 are not allowed to
deduct the depreciation of the revalued surplus
on the value of property as this is not a actual
expense.
2)
Rules on depreciation of passenger vehicles
a) Substantiation of the purchase with
sufficient evidence such as official receipts
and other documents bearing the total
purchase price including specific motor
vehicle identification number of the
vehicles
b) Substantiation of the direct connection or
relation of the vehicle to the development,
operation, and/or conduct of the trade or
business or profession of the taxpayer
c) Only one vehicle for land transport is
allowed for an official and employee and
the value of which shall not exceed
P2,400,000
d) No depreciation shall be allowed for
yachts, helicopters, airplanes or aircrafts
and land vehicle which exceeded the
threshold, unless the main line of business
is transport operation or lease of
transportation equipment and the vehicle
purchased are used in said operations
Intangible exploration and development costs:
1) Intangible costs in petroleum operations
include any incidental and necessary costs of
drilling wells or preparing wells for petroleum
production and which have no salvage value
2) Intangible costs in mining operations include
the costs of diamond drilling, tunneling, and
other improvements of a nature that is not
subject to allowance for depreciation.
Tax treatment of intangible exploration and
development costs:
1) Before commercial production – capitalized as
costs of the wasting asset
2) After
commencement
of
commercial
production, if incurred with:
 Non-producing wells or mines, deducted in
the period paid or incurred
 Producing wells or mines, at the option of
the taxpayer, either:
 Capitalized and amortized using the
cost-depletion method or
 Deducted in the year paid or incurred
Depletion
Depletion expense is a provision for the periodic
return of capital investments in wasting assets such
as minerals, gas & oil.
Stages of wasting assets activities
1) Exploration stage – it involves ascertaining the
existence, location, extent or quality of any
deposit or mineral.
2) Development stage – commences when
deposits of ore or minerals are shown to exist
in sufficient commercial quantity.
3) Commercial production – is the stage of actual
extraction, processing and sale
The expense Option on Non-producing Mines: After commercial production has commenced,
exploration and development drilling expenses
incurred on non-producing mines may be deducted
outright but the deductible amount shall not exceed
25% of the net income from mining operations
without the benefit of any tax incentives under
existing laws.
The unclaimed balance of the
expense shall be carried forward to the succeeding
years until fully deducted.
Common rules for both mining and oil operation:
Taxpayers engaged in wasting assets shall classify
their expenditures into:
1) Cost of acquisition or improvement of tangible
properties or
2) Intangible
exploration,
drilling
and
development costs
Treatment of tangible development costs: - Tangible
develop
costs
include
the
acquisition
or
improvement of tangible property which are of a
character subject to the allowance for depreciation.
This may include construction of mine-plant, roads,
buildings, processing plants and installation of
heavy equipment on-site.
Treatment of tangible development costs: - tangible
exploration and development drilling costs are
capitalized and deducted through allowance for
depreciation subject to the following rules:
1) Petroleum operations:
 Properties directly used in petroleum
operations – the NIRC prescribes either
straight line method or declining balance
method at the option of the taxpayer. A
shift from straight line method to declining
balance method is allowed. The useful life
shall be 10 years or such shorter life as
may be permitted by the CIR.
 Properties not directly used in petroleum
operation – the NIRC prescribed the
straight line method on the basis of an
estimated useful life of 5 years.
Mining operations
 If the expected life of property used in
mining is 10 years or less, the taxpayer
can use the normal rate of depreciation.
 If the expected life is more than 10 years,
the property can be depreciated over any
number of years between 5 years and 10
years.
Application of the matching rule:
Taxpayers subject to on world income can deduct
depreciation and depletion expense on properties
wherever situated. Those taxable only on Philippine
income are only allowed to claim depreciation and
depletion on properties located within the
Philippines.
Charitable contributions
Research & development
Pensions
h)
i)
j)
3.3.2. Items not deductions
1) Expenses non-deductible under the meaning of closed
and completed transaction
a) Decrease in value of properties or investment
such as
 Decrease in value of securities such as stock
or bonds
 Decrease in value of FOREX or FOREX
denominated receivables
 Decrease in value of machineries, equipment
and building brought by obsolescence
b)
Estimated future losses such as
===================================================================================================
Page 9 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
Estimate loss on bad debts or uncollectible
receivable
 Estimated loss on lawsuit not yet confirmed
by a final judgment
c) Loss on properties covered with insurance or
indemnity contracts
Expenses non-deductible under the matching principle
a) Expense on exempt income
 Expenses incurred to finance the acquisition
of a tax-exempt security
 Premiums paid for the life insurance of an
officer where the taxpayer –business itself is
the beneficiary
 Expense on EFCDU or OBU from foreign
currency operation
 Expenses
of
non-profit
organizations,
government agencies and cooperative from
their exempt operations cannot be deducted
within the gross income subject to regular
tax

2)
b)
Expenses on income subject to a special tax
regime
 Expenses of new enterprises registered with
the Tourism Infrastructure and Enterprises
Zone Authority (TIEZA) under RA 9353
 Expenses of enterprise registered PEZA
under RA 7916
c)
Business expenses of taxpayers subject to final
income tax such as
 Non-resident alien, not engaged in trade or
business
 Non-resident foreign corporations
Expenses and taxes on income subject to final tax
or capital gains tax
 Selling expenses of domestic stocks directly
to buyer
 Selling expenses of real properties classified
as capital assets
 Expenses
of
petroleum
service
subcontractors in supplying goods and
services to petroleum service operators
d)
3)
e)
Foreign business expenses of taxpayers taxable
only on Philippine income such as
 Resident alien and non-resident alien
engaged in trade or business in the
Philippines
 Resident foreign corporation
f)
Loss of income not yet recognized in gross
income
 Write-off of receivable under the cash basis
of accounting
 Destruction of unharvested farm fruits or
vegetables
 Death of animal offspring
Expenses non-deductible under the lists of NIRC
a) Personal, living or family expenses
b) Amount paid out for new buildings or permanent,
or betterment made to increase the value of any
property or estate
c) Any amount expended in restoring property or in
making good the exhaustion thereof
d) Premiums paid on any life insurance policy
covering the life of any officer or employee, or
any person financially interested in any trade or
business carried on by the taxpayer, individual, or
corporate, when the taxpayer is directly or
indirectly a beneficiary under such policy
3.3.3. Optional standard deduction (OSD)
Under the OSD, the allowable deduction of the taxpayer is
simply presumed as a percentage of gross sales or receipt
for individuals and gross income for corporations. There is
no need to support every item of expenses. However,
does not relieve the taxpayer of the responsibility to
deduct withholding tax on income payments as required
by the NIRC and the regulations.
Who can claim OSD?
OSD is a proxy to itemized deductions. As a rule, all
taxpayers who are subject to tax on taxable net income
can claim deductions, except the following:
a) Non-resident alien engaged in trade or business (NRARTB)
b) Taxpayers mandated to use itemized deductions
Mandatory itemized deductions (RR2 – 2014)
1) Corporation mandated to use the itemized deduction
a) Exempt
GOCCs
and
non-stock
non-profit
corporation with no taxable income
b) Those with income subject to special /
preferential tax rates and
c) Those with income subject to regular corporate
income tax and special/preferential tax
2) Individual taxpayers mandated to use the itemized
deduction:
a) Exempt individuals under the NIRC and special
laws with no other taxable income
b) Those with income subject to special/preferential
tax rates and
c) Those with income subject to regular income tax
special/preferential income tax
Percentage of optional standard deduction:
1) Individual
taxpayers
–
40%
of
total
sales/revenues/receipts/fees
a) Those selling goods under the accrual basis –
40% of sales
b) Those selling services under the cash basis – 40%
of gross receipts
c) Those selling services under the accrual basis –
40% of gross receipts
2) Corporate taxpayers – 40% of gross income
Rules on determination of OSD for individual taxpayers
1) Gross Sales – it includes only sales contributory to
income subject to regular tax. Since sales returns,
allowances and discounts re not contributory to
income, they must be deducted from the total
recorded sales. In short, the tax concept of “gross
sales” is the accounting concept of “net sales”.
2) Gross receipts – means amounts actually or
constructively received during the taxable year. For
sellers of services employing the accrual basis of
accounting, the term “gross receipts” shall mean
amounts earned as gross revenue during the taxable
year.
Optional Standard Deduction and NOLCO
NOLCO cannot be claimed simultaneously with OSD
because NOLCO is an item of deduction while OSD is a
proxy of all itemized deductions.
NOLCO is deemed
included in the claimable OSD.
Optional Standard Deduction and Net Capital Loss CarryOver
OSD do not replace net capital loss carry-over of
individual taxpayers. The net capital loss carry-over is
used in the measurement of net capital gain which is an
item of gross income. In other works, it is not an item of
deduction. Hence, a net capital loss carry-over from the
prior year can still be deducted against the net capital
gain of the current year even if the taxpayer opted to
deduct optional standard deduction for the current year.
3.3.4. Deductions allowed under special laws
===================================================================================================
Page 10 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
Special allowable itemized deductions
Special deductions are other items of deductions
which may or may not partake the nature of an expense
but is allowed by the NIRC or by special laws as
deductions.
Special deductions include deduction
incentives to taxpayers in assisting and in complying with
certain legal requirements.
Special allowable Deductions:
1) Special expenses under the NIRC and special laws
a) Income distribution from a taxable estate or trust
b) Transfer to reserve fund and payments to policies
and annuity contracts of insurance companies
c) Dividend distribution of a Real Estate Investment
Trust (REIT) under RA 9856
d) Transfer to reserves of funds of taxable
cooperatives
e) Discounts to senior citizens under RA 9257
Conditions for deductibility of sales discount to
senior citizens:
 Only that portion of the gross sales
exclusively used, consumed or enjoyed by
the senior citizen shall be eligible for the
deductible sales discount
 The gross selling price and the sales discount
must be separately indicated in the official
receipts
or
sales
invoice
by
the
establishment for the sale of goods or
services to the senior citizen
 Only the actual amount of the discount
granted or sales discount not exceeding 20%
of the gross selling price can be deducted
from gross income, net of VAT, if applicable.
 The discount can only be allowed as
deduction from gross income for the same
taxable year that the discount is granted
 The business establishment giving sales
discount to qualified senior citizen is required
to keep a separate and accurate records of
sales, which shall include the name, TIN, ID.
gross sales/receipts, discount granted, date
of transaction and invoice number for every
sale transaction to senior citizen
f)
Discounts to persons with disability under RA
9442
 Similar to senior citizens, person with
disability is entitled to 20% discount from
certain establishments such as hotels, and
similar lodging establishments, restaurant,
sports, and recreation centers places of
culture, leisure and amusement, drugstore
on the purchase of medicine, medical and
dental services in private facilities, and
domestic air, sea, and land transport.
2) Deduction incentives under special laws
a) Additional compensation expense for senior
citizen employee under RA 9257. Under RA 9257,
private establishments employing senior citizens
shall be entitled to additional
Conditions
for
deductibility
of
additional
compensation:
 Employment shall have to continue for at
least 6 months
 The annual taxable income of the senior
citizen does not exceed the poverty level as
determined by the NEDA
b)
Additional compensation expense for persons
with disability under RA 7277 as amended by RA
9442. Private entities that employ persons who
meet the required skills or qualification, either as
regular employees, apprentice or learner, shall be
entitled to an additional deduction, from their
gross income, equivalent to 25% of the total
amount paid as salaries and wages to disabled
persons. Requisites for Deductibility:


The entity present proof as certified by the
DOLE that disabled persons are under their
employ.
The disabled employee is accredited with the
DOLE and the DOH as to his disability, skills
and qualification
c)
Cost of facilities improvements for persons with
disability in accordance with RA 7277 as
amended by RA 9442. Under RA 7277, private
entities that improve or modify their physical
facilities in order to provide reasonable
accommodation for disabled persons shall also be
entitled to an additional deduction from their
income, equivalent to 50% of the direct costs of
the improvements or modifications.
d)
Additional training expenses under the RA 8502 –
Jewelry industry Development Act of 1998. Under
RA 8502, and its implementing rules and
regulations, a qualified jewelry enterprise duly
registered and accredited with the Board of
Investment (BOI) is entitled to an additional
deduction from taxable income of 50% of the
expenses incurred in training schemes approved
by Technical Education and Skills Development
Authority (TESDA). The same shall be deductible
during the year the expenses were incurred.
Conditions for deductibility:
 A qualified jewelry enterprise must submit to
the BIR a certified true copy of its Certificate
of Accreditation issued by BOI
 The training scheme must be approved and
certified by TESDA
e)
Additional contribution expense under the Adopta School Program under RA 8525. Under this
program, private entities are allowed to assist a
public school to in particular aspect of
educational program within an agreed period of
time. The assistance maybe an aid, contribution
or donation in cash or in kind but not limited to
infrastructure, physical facilities, real estate
property, training and skills development,
learning support, reading materials, computer
and science laboratories, health and nutrition
packages, and assistive learning devices for
students with special needs.
Qualification of participating schools:
Any government schools in all levels may
participate in the program. Priorities shall be
given to schools located in the poorest province,
low income municipalities, and other local
government units experiencing severe classroom
shortages,
insufficient
budget,
or
having
numerous poor but high performing learners.
Qualification of Adopting Private Entity
1) It must have a credible track record
2) It must have been in existence for at least
one year
3) It must not have been prosecuted and found
guilty of engaging in illegal activities such as
money
laundering
and
other
similar
circumstances.
Tax Deductible Incentive
Contributions to the government in priority
activities are deductible in full while those made
in non-priority activities are deductible subject to
limit. Aside from the usual regular deductible
contribution expense, an adopting entity shall be
allowed an additional deduction from gross
income equivalent to 50% of the contribution of
===================================================================================================
Page 11 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
the adopting entity for the “Adopt-A-SchoolProgram”.
exchange that may otherwise be used for milk
importation.
Conditions for deductibility:
1) The deduction shall be availed of in the
taxable year in which the expense is paid or
incurred
2) The expense is substantiated with sufficient
evidence, such as official receipts or delivery
receipt and other adequate records
 The amount of expenses being claimed
as deductions
 Direct connection or relation of the
expenses to the adopting private entity’s
participation in the “Adopt-a-SchoolProgram”.
 Proof or acknowledgement of receipt of
the contributed or donated property by
the recipient public school.
3) The application together with the approved
MOA endorsed by the National Secretariat,
shall be filed with the RDO having jurisdiction
over the place of business of the adopting
private entity, copy furnished the RDO
having jurisdiction of the property, if the
contribution is in the form of real property.
Tax Deduction Incentives:
The expenses incurred by a private health
institution in complying with the rooming-in and
breast-feeding practices, shall be deductible
expenses for income tax purpose up to twice the
actual amount incurred. Meaning, the cost of
compliance shall be claimed as part of the
regular itemized deduction and additional
expense for the same amount shall be
claimed under special itemized allowable
deduction.
Illustrative Problem:
St Claire Medical Hospital, a private hospital,
previously set up a milk storage facility and a
milk bank. The total annual cost of the 2 facilities
were as follows:
Storage
Milk
Facility
Bank
Supplies
P100,000 P120,000
Staff salaries
210,000
90,000
Maintenance
50,000
70,000
Total
P360,000 P280,000
Less: Fees collected
from patients
0
190,000
Excess Expense
P360,000
P90,000
Procedure for availment.
:
1) Memorandum of Agreement
2) Supporting evidence
3) Applying for Certificate of Tax Incentives and
Tax Exemption and submit the following
documents to the Secretariat:
 Duly authorized or approved MOA
 Duly notarized deed of donation
 Official receipts and other documents
showing the actual value of the
contribution or donation
 Certificate of Title and Tax declaration, if
the donations is in the form of property
 Other adequate records showing direct
connection or correlation of the expense
being claimed as deduction to the
adopting entity’s participation in the
program
Valuation of deductions (RR10-2003)
1) Cash assistance contribution or donations
shall be based on the actual amount
appearing in the official receipt issued by the
done
2) Assistance other than money
 Personal property – acquisition cost of
assistance or contributions
 Consumable goods – acquisition cost or
value at date of donation whichever is
lower
 Services – the value of service rendered
by the donor and the service provider
and the public school as fixed in the
MOA or the actual expense incurred by
the donor, whichever is lower
 Real property – fair value (higher of
zonal value or assessed value) at the
time of contribution or the depreciated
cost of the property whichever is lower.
f)
Additional deductions for compliance to Roomingin and Breast-feeding practices under RA 7600 as
amended by RA 10028. The purpose of RA 10028
is to encourage, protect and support the practice
of breast-feeding which is believed to provide
distinct benefits to the mother and the infant
aside from saving the country’s valuable foreign
Solution:
 The total regular itemized deduction is
P450,000 (P360,000 + P90,000)
 The special itemized allowable deduction
allowed as additional deduction is
P450,000, same amount as the regular
itemized deduction.
Conditions for Deductibility
1) The deduction shall apply for the taxable
period when the expense were incurred
2) All
health
or
non-health
facilities,
establishments and institutions shall comply
with the IRR of RA 10028 within 6 months
after its approval
3) The facility, establishment or institution
secure a “Working Mother-Baby-Friendly
Certificate” from the Department of Health to
be filed with the BIR
Note:
 Government
hospital
cannot
claim
deductions since it is non-taxable
 However,
government
facilities,
establishments and institutions will receive
additional appropriation equivalent to the
savings they may derive as a result of
complying with RA 10028.
g)
Additional free legal assistance expense under RA
9999.
Lawyers or professional partnership
providing pro-bono legal services are given
deduction incentives for their free legal services.
Requirement for Availment:
Lawyers
or
professional
partnership
rendering actual free legal services shall secure a
certification from the Public Attorney’s Office
(PAO), the DOJ or association accredited by the
SC indicating that the said legal services to be
provided are within the services defined by the
SC, and that the agencies cannot provide the
legal services to be provided by the legal counsel.
Tax Deduction Incentive
===================================================================================================
Page 12 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
The practicing lawyer or professional
partnership shall be entitled to an allowable
deduction from gross income equivalent to the
amount that could have been collected for the
actual performance of the actual free services
rendered or up to 10% of gross income derived
from the actual performance of the legal
profession whichever is lower. For the purpose of
this incentives, the free legal services must be
exclusive of the 60-hour mandatory free legal
assistance rendered to indigent clients as
mandatorily required under the Rule on
Mandatory Legal Aid Services for Practicing
Lawyers.
Computation of Special Free Legal Service
Expenses (Whichever is Lower)
Actual free services provided
xx
Compare Deduction Limit
Gross receipts
Xx
Less: Direct cost of service
Xx
Gross income from operation
xx
x
tax deductible incentive
rate
10%
xx
Special “free legal service
expense (lower figure)
xx
Computation of Net Income
Gross receipts
Les
Direct cost
s
Gross income from operation
Add
Other gross income
Total gross income
Les
Regular
itemized
s
deduction
Special free legal service
expense
Net income
h)
xx
xx
xx
xx
xx
xx
xx
xx
xx
Additional productivity incentive bonus expense
under RA 6971. Under the Productivity Incentive
Acts of 1990 (RA 6971), a business enterprise
which adopts a productivity incentive program is
entitled to a special additional deduction
equivalent to 50% of the total productivity
bonuses given to employees under the program.
In addition, business enterprises providing
manpower training and special studies to rank
and file employees as accredited by the TESDA
are also entitled 50% additional deduction of the
total grant for local training and special studies.
However, the deduction incentive will not be
allowed on bonuses accruing during the
pendency of a strike or lockout arising from any
violation of the productivity incentive program.
3.4 Accounting periods - it is the length of time over which
income is measured and reported.
Type of Accounting period:
1) Regular accounting period – 12 months in length
 Calendar year – starts from January 1 and ends
December 31. This accounting period is available
to both corporate taxpayers and individual
taxpayer. Under the NIRC, the calendar year shall
be used when the
 taxpayer’s annual accounting period is other
than a fiscal period
 taxpayer has no annual accounting period
 taxpayer does not keep books
 taxpayer is an individual

Fiscal year – a fiscal accounting period is any 12
month period that ends on any day other than
December 31. The fiscal accounting period is
available only to corporate income taxpayer
2)
Short accounting period – less than 12 months
Deadline of filing the income tax return: - Under the NIRC,
the return is due for filing on the 15 th day of the four
month following the close of the taxable year of the
taxpayer. The regular tax due is payable upon filing of the
income tax return.
Instances of short accounting period:
1) Newly commence business – the accounting period
covers the date of the start of the business until the
designated year-end of the business.
2) Dissolution of business – the accounting period covers
the start of the current year to the date of dissolution
of the business.
3) Changes of accounting period by corporate taxpayers
– the accounting period covers the start of the
previous accounting period up to the designated yearend of the new accounting period.
4) Death of the taxpayer – the accounting periods covers
the start of the calendar year until the death of the
taxpayer.
5) Termination of the accounting period of the taxpayer
by the CIR – the accounting period covers the start of
the current year until the date of the termination of
the accounting period.
Note:
The BIR approval is required in changing an accounting
period, it is not automatic.
3.5 Accounting methods
Types of accounting method:
1) The general methods
a) Cash method – recognition of income and
expense dependent on inflow or outflow of cash,
e.g. rental income are realized from receipt not
on when earned.
b) Accrual method – under this method:
 Income, gains and profits are include in gross
income when earned regardless whether
received or not.
 Expense are allowed as deduction when it
incurred, regardless whether paid or not
2)
Installment and deferred payment method – under
this method, gross income is recognized and reported
in proportion to the collection from the installment
sales.
Installment method is available to the following
taxpayers:
a) Dealers of personal property
b) Dealers of real properties, only if their initial
payment do not exceed 25% of the selling price.
c) Casual sale of non-dealers in property, real or
personal, when their selling price exceeds P1,000
and their initial payment do not exceed 25% of
the selling price
Definition of terms:
a) Initial payment – means total payments made by
the buyer, in cash or property, in the taxable year
the sale was made. The term “initial payment”
means not only the down payment but it also
includes the installment payment made in the
year of sale.
b) Selling price – means the entire amount for which
the buyer is obligated to seller, it is computed as
follows:
Cash received and/or receivable
Ad
FMV
of
property
received
or
d
receivable
Mortgage or any indebtedness
assumed by the buyer
Pxx
xx
Xx
===================================================================================================
Page 13 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
Selling price
c)
Contract price – is the amount receivable in cash
or other property from the buyer. It is usually the
selling price in the absence of an agreement
whereby the debtor assumes indebtedness on the
property
Deferred payment method: - is a variant of the
accrual basis and is used in reporting income when a
non-interest bearing is received as consideration in
sale.
Under this method, the gross income is
computed based on the present value (discounted
value) of a note receivable from the contract. The
discount interest on the note is amortized (i.e. spread)
as interest income over installment term.
Note:
 The difference between the face value and the
present value of the note, (is known as discount)
will not be recognized in gross income at the date
of sale but will be deferred and recognized as
interest income
 The discount is amortized as interest income
upon every collection on the balance of the note
a.
3)
Percentage of completion method – under this
method,
the
estimated
gross
income
from
construction is reported based on the percentage of
completion of the construction project. There are
several methods of estimating project completion in
practice but the output method based on engineering
survey is prescribed by the NIRC.
4)
Outright and spread-out method – under RR No. 2, the
net income from leasehold improvements can be
reported using either of the following method at the
option of the taxpayer:
a) Outright method – the lessor may report as
income at the time when such buildings or
improvements are completed the FMV of such
buildings or improvements subject to the lease
b) Spread-out method – the lessor may spread over
the life of the lease the estimated depreciated
value of such buildings or improvement at the
termination of the lease and report as income for
each year of the lease an aliquot part thereof.
The depreciated value of the leasehold
improvement is computed as follows:
Excess useful life over lease term
÷
Useful life of the improvement
Percentage
x
Cost of improvement
Depreciated value
5)
revenue district office where the taxpayer
registered or required to register:
 An authorized agent bank
 Revenue Collection Officer
 Duly authorized city or municipal treasurer
xx
B.
Electric filing & E-submission – the e-filling of tax
returns including attachments in electronic format
shall be made through the internet to the BIRs Large
Taxpayer Service Division through the BIR website.
Taxpayer under EFPS system shall e-pay their tax
online through internet banking service. The account
of the taxpayer will be auto-debited for the amount of
taxes to be paid.
C.
D.
Large taxpayers and non-large taxpayers
Income tax credits
E.
Venue and time of filing of tax returns
Where to file return?
 Legal residence – authorized agent bank;
revenue district officer; collection agent of
duly authorized treasurer
 Principal place of business
 With the office of the Commissioner
When to file return?
 Under the NIRC, the return is due for
filing on the 15th day of the 4th month
following the close of the taxable year of
the taxpayer. The regular tax due is
payable upon filing of the ITR.
 First quarter – April of current year
 Second quarter – August 15 of current
year
 Third quarter – November 15 of current
year
 Final quarter – April 15 of the following
year
G.
Modes of payment
 Cash
 Installment – when the tax due is in excess of
P2,000, the taxpayer may elect to pay in 2
equal installment:
 1st installment – April 15
 2nd installment – on or before July 15
H.
Use of tax tables
xx
xx
%
xx
xx
OLD Table
Over
P10,000
30,000
70,000
140,000
250,000
500,000
Crop year basis
Farming income is commonly recognized using the
cash basis or accrual basis, however, long-term crops
or those that takes more than one year to harvest
may be accounted for under the crop year basis.
Under this method, farming income is recognized as
the difference between the proceeds of harvest and
expenses of the particular crop harvested.
The
expense of each crop is accumulated and deducted
upon the harvest of the crop.
Reconciliation of income under PFRS and income under tax
accounting:
3.6 Tax return preparation and filing tax payments
A. Manual filing – the traditional manual system of filing
income tax return is by paper document where
taxpayer fill-up BIR forms to report income, expenses
or any declaration required to be filed with the
Bureau. The income tax return shall be filed to the
following, in descending order of priority, within the
is
But not
over
P30,000
70,000
140,000
250,000
500,000
P500
2,500
8,500
22,500
50,000
125,000
10%
15%
20%
25%
30%
32%
Excess
over
P10,000
30,000
70,000
140,000
250,000
500,000
TRAIN TABLE
Over
P400,000
800,000
2,000,000
8,000,000
I.
But
not
over
P250,000
800,000
2,000,000
8,000,000
Excess
over
P30,000
130,000
490,000
2,410,000
25%
30%
32%
35%
P400,000
800,000
2,000,000
8,000,000
Accomplishing of various income tax returns and
forms
3.7 Withholding taxes
A. Time of withholding – the final withholding tax,
withholding tax on compensation and expanded
withholding tax return shall be filed in triplicate by
every withholding agent or payor who is either an
===================================================================================================
Page 14 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
B.
C.
D.
E.
F.
G.
H.
I.
individual or corporation on or before the 10 th day of
the month following the month in which withholding
was made. The return shall be filed and the tax shall
be paid with the authorized agent bank of the RDO
having jurisdiction over the withholding agent’s place.
Income payments subject to withholding
Year-end withholding tax and requirements
Venue and time of filing of withholding tax returns
Venue and time of payment
Modes of payment
Time of payment
Use of tax tables and rates
Use of various withholding tax returns and forms
3.8 Compliance requirement
A. Administrative requirements
B. Attachments to the income tax returns, including CPA
certificate per NIRC requirements
C. Keeping of books of accounts and records, including
report of inventories
D. Prescriptive period of maintain books of accounts and
other accounting periods
4.
C an American singer was engaged to sing for one week at
the Western Philippine Plaza after which she returned to
USA. for income tax purposes she shall be classified as
a. Resident alien
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or
business
d. Resident citizen
5.
Situs of taxation is world/global taxation?
a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien
6.
It is important to know the source of income for tax
purposes (i.e from within and without the Philippines)
because
a. Some individuals and corporate taxpayers are
taxed on their worldwide income while others
are taxable only upon income from sources
within the Philippines
b. The Philippines imposes income tax only on income
from sources within
c. Some individual taxpayers are citizens while others
are aliens
d. Export sales are not subject to income tax
7.
An exemption allowed to a taxpayer who has qualified
legitimate illegitimate, or legally adopted children
a. Additional exemption
b. Special additional personal exemption
c. Optional standard deduction
d. Basic personal exemption
8.
The following except one may claim personal exemption
a. Non-resident alien not engaged in trade or
business
b. Non-resident alien engaged in trade or business
c. Resident alien
d. Citizens
9.
Which of the following taxpayers whose personal
exemption is subject to the law on reciprocity under the
Tax Code?
a. Non-resident citizen with respect to his income
derived from outside the Philippines
b. Non-resident alien who shall come to the
Philippine and stay herein for an aggregate
period of more than 180 days during any
calendar year
c. Resident alien deriving income from a foreign country
d. Non-resident alien not engaged in trade or business in
the Philippines whose country allows personal
exemption to Filipinos who are not residing but are
deriving income from said country
10.
Under the Tax Code who of the spouses is the proper
claimant of the additional exemption in respect to any of
the dependent children?
a. The husband if his income is higher than the income
of the wife
b. The spouse who has the bigger income
c. The husband
d. The wife who has the bigger income
MULTIPLE CHOICE PROBLEMS. Select the correct answer
for each item by writing the letter of your choice on the answer
sheet. Submit necessary solution to support your answer if
needed. NO SOLUTION WILL BE MARK INCORRECT!
A. INDIVIDUAL TAXATION
1.
2.
3.
One of them is not considered non-resident citizen
a. A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of this
physical presence abroad with a definite intention
reside therein
b. A citizen of the Philippines who leaves the Philippines
during the taxable year to reside abroad either as an
immigrant or for employment on permanent basis
c. A citizen of the Philippines who works and derives
income from abroad and whose employment thereat
requires him to be physically present abroad most of
the time during the taxable year
d. A citizen of the Philippines who went on a
business trip abroad and stayed there in most
of the time during the taxable year
A non-resident citizen arrived in the Philippines on July 1,
2000 to reside here permanently after working as nurse in
the United States of America for many years
Which of the following statements is correct with respect
to Ms. A’s classification for income tax purposes?
a. She shall be classified as non-resident citizen
for the year 2000 with respect to her income
derived from sources abroad from January 1,
2000 until the date of her arrival in the
Philippines
b. She shall be classified as non-resident citizen for the
whole year of 2000
c. She shall be classified as resident citizen for the whole
year of 2000
d. She shall be classified as neither resident non-resident
citizen for the year 2000
B an Expert Physicist was hired by a Philippines
corporation to assist in its organization and operation for
which he had to stay in the Philippines for an indefinite
period. His coming to the Philippines was for a definite
purpose which in its nature would require an extended
stay and to that end makes his home temporarily in the
Philippines. The American management expert intends to
leave the Philippines as soon as his job is finished
For income tax purposes, the American management
expert shall be classified as
a. Resident alien
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or business
d. Resident citizen
11. Mr. H and Mrs. W married couple had the following data in
year? Only Mr. H has gainful employment earning gross
income. Two dependents a legitimate son 21 years old and
daughter 19 years old but newly-wed. The personal and
additional exemption of the couple
a. H – P100, 000; W – P50, 000
b. H – P100, 000; W – P0
c. H – P50, 000; W – P50,000
===================================================================================================
Page 15 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
d.
H – P50, 000; W – P0
12. One of the following is not a head of the family for income
tax purposes
a. Widower supporting his mother in law 50 years
old
b. Unmarried taxpayer supporting his mother 50 years
old
c. Married but legally separated taxpayer supporting a
legitimate child 6 years old
d. Legally separated taxpayer supporting a brother 22
years old physically incapacitated
13. A taxpayer single has the following dependents who live
with him
a. Jimy brother 23 years old taking up Engineering
course
b. Dea sister married
c. Jomen adopted child gainfully employed
d. .
Generally non-resident aliens not engaged in trade or
business are subject to 25% final tax on their gross income
in the Philippines
a. True, true
b. True, false
c. False, false
d. False, true
19. “Global system of income taxation” means
a. All types of income except those subject to final
tax are aggregated to arrive at gross income
b. Separate graduated rates are imposed on different
types of income
c. Capital gains are excluded in determining gross
income
d. Compensation income and business/professional
income are taxed at different place in the world
20.
For income tax purposes the taxpayer can claim:
Basic personal exemption
Additional exemption
a. P50, 000
Zero
b. P50, 000
P8, 000
c. P100, 000
Zero
d. P50, 000
P25, 000
Which of the following income of an individual taxpayer is
subject to final tax?
a. P10, 000 prize in Manila won by a resident citizen
b. Dividend received by a resident citizen from a
resident corporation
c. Share in the net income of a general professional
partnership received by a resident alien
d. Dividend received by a non-resident alien from
a domestic corporation
14. The taxpayer is a married non-resident alien engaged in
business in the Philippines with two (2) qualified
dependent children. His country gives a non-resident
Filipino with income there from a basic personal exemption
of P4, 000. He is entitled to total personal exemptions of
a. P54, 000
b. P32, 000
c. P28, 000
d. P48, 000
21. Interest received by non-resident individuals from a
depository bank under the expanded foreign currency
deposit system is exempt from tax
Passive income received by a resident citizen from
resources outside the Philippines shall be generally subject
to Section 24 (A) and not to final tax
a. True, true
b. True, false
c. False, false
d. False, true
15.
22.
One of the following is not qualified as dependent for
income tax purposes
a. Illegitimate child 16 years old living in the United
States due to his studies
b. Senior citizen not related to the taxpayer with a
yearly income of P60, 000 living with and taken care
of by the taxpayer
c. Legitimate child 21 years old with a monthly income
of P2, 000 living with the taxpayer in Manila
d. Brother 24 years old incapable of self-support
because of physical disability
16. Life insurance premiums paid by an individual taxpayer is
deductible from gross income for an maximum amount of
P2, 400 provided the family’s gross income for the year
does not exceed P250, 000
The premium on health and/ or hospitalization insurance is
deductible by the spouse who claimed the additional
exemption in case of married taxpayer
a. True, true
b. True, false
c. False, false
d. False, true
17.
Which of the following will change the status of the
taxpayer?
a. Marriage of a dependent within the taxable year
b. Dependent becoming 21 years old during the year
c. Dependent gaining employment during the year
d. Marriage of taxpayer himself during the year
18. Filipinos as well as alien employees of regional or area
headquarters
established
in
the
Philippines
by
multinational companies shall be subject to final tax of
15% of gross compensation income in the Philippines
A non-resident alien driving income from Philippines
sources claims that he is entitled to personal exemptions.
Which of the following is not a condition for the allowance
of personal exemptions to said non-resident citizen?
a. That he has stayed in the Philippines for an aggregate
period of more than 180 days
b. That his country has an income tax law that allows
personal exemptions to Filipinos not residing therein
c. That he has filed a true and accurate return of his
total income from all sources within the Philippines
d. That he is married to a Filipina
23. Which of the following statements is incorrect?
a. To be subject to final tax passive income must be from
Philippines sources
b. Passive income earned outside of the Philippines is
not subject to final tax but subject to Section 24(A)
Net Income Tax\
c. An income which is subject to final tax is excluded
from the computation of income subject to Section 24
(A) Net Income Tax
d. An income which is subject to creditable
withholding tax is excluded in the computation
of income subject to Section 24(A)
24.
Proceeds of sale of real property classified as principal
residence and capital asset are exempt from the 6%
capital gains tax if used to build or buy a new principal
residence within 18 months from the date of sale or
disposition
Gain from sale of real property classified as capital asset
to the Government may be taxed under Section 24 (A) or
capital gains tax at the option of the individual taxpayer
a. True, true
b. True, false
c. False, false
d. False, true
===================================================================================================
Page 16 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
25. One of the following is not a deposit substitute
a. Bankers acceptance
b. Promissory notes
c. Repurchase agreements
d. Debt instruments issued for interbank call loans
with maturity of not more than 5 days to cover
deficiency in reserves against deposit liabilities
26. Which of the following statements is incorrect?
a. A prize of P10, 000 is subject to 20% final
b. Wining from Philippine Charity Sweepstakes are
exempt from income tax
c.
Royalties on books literary works and musical
composition are subject to 10% final withholding tax
d. Interest income from long term deposit is exempt
from income tax
27. 1st statement - Cash and or property dividends received
from domestic corporation by a non-resident alien not
engaged in trade of business are subject to 25% final tax
2nd statement - Share of an individual in the distributable
net income after tax of a general professional partnership
is subject to final tax
a. True, true
b. True, false
c. False, false
d. False, true
33. F sold his residential house to Ms. P for P5M. Its FMV when
he inherited it was P6M although its presents FMV is P8M
The tax on the above transaction is
a. P360,000 CGT
b. P480,000 CGT
c. P30% donors tax
d. VAT
34. Continuing #33 but assuming the residential house is
located abroad the capital gains tax is;
a. P360,000
b. P480,000
c. P120,000
d. P0
35.
G bought a plot of land with a cash payment of P2, 000,
000 and a purchase money mortgage of P2, 500, 000. In
addition G paid P10, 000 for title insurance policy. G’s
basis in this land is
a. P2,000,000
b. P2,010,000
c. P4,500,000
d. P4,510,000
36.
H an accrual – basis taxpayer owns a building which was
rented to M under a 10 – year lease expiring August 31,
2016. On January 2, 2013 M paid P30, 000 as
consideration for cancelling the lease. On November 7,
2013, H leased the building to P under a 5 – year lease. P
paid HP 10,000 rent for 2 months November and
December and an additional P5, 000 for the last month’s
rent. What amount of rent income should H report in its
2013 income tax return?
a. P10,000
b. P15,000
c. P40,000
d. P45,000
28. 1st statement – Non-resident individual taxpayer are also
subject to 7.5% final tax on their income from expanded
foreign currency deposit
2nd statement – there can be a 6% capital gains tax on sale
of a real property in USA
a. True, true
b. True, false
c. False, false
d. False, true
29. Which is covered by gross income taxation?
a. Resident alien
b. NRA – ETB without Reciprocity Law
c. NRA – not ETB
d. Not resident citizen
30. Which is governed by Hybrid gross income taxation?
a. A resident Filipino with compensation income only
b. NRA – ETB with the benefit of reciprocity law
c. A non resident citizen with the business income only
d. A resident citizen who is considered a mixed
income earner
31.
E Resident Filipino taxpayer single supporting three minor
(illegitimate) children one of them living abroad showed
the following data for taxable year 2000
Salary from ABC Co. (net of P40, 000
Withholding tax)
P350,000
Professional fee from various schools
(net of 10% withholding tax)
135,000
Expenses incurred practice of profession
(Living expenses including tuitions
fees of children 25% thereof)
80,000
Health and or hospitalization insurance
Premium paid
5,000
How much personal exemption may Mr. E claim?
a. P25,000
b. P50,000
c. P75,000
d. P100,000
32. How much is Mr. E taxable income?
a. P380,000
b. P355,000
c. P350,000
d. P330,000
37. The
a.
b.
c.
d.
following are subject to Net Income Taxation except
Resident Citizen
Domestic Corporation
Non Resident Citizen engaged in business
Non Resident Corporation
38. Mr L a cemetery lot dealer sold real properties to different
buyers as follows;
Selling Price
Cost
House & Lot
P2,000,000
P1,250,000
Farm Lot
P 800,000
P 300,000
Cemetery Lot
P
45,000
P
20,000
The house and lot were sold to acquire a condominium
unit for Mr. L new principal place of residence. What is Mr.
L capital gains tax?
a. P170,700
b. P168,000
c. P 48,000
d. P 50,700
39.
In June 2005 J received a piece of land fairly valued at P1,
000, 000 from his wealthy best friend as a birthday gift.
Since J had no use of the said donated land he
immediately sold it to G for only P500, 000. What is the
total tax liability of J?
a. P 30,000
b. P 60,000
c. P210,000
d. P360,000
40. Mr. S an individual calendar year taxpayer purchased 100
shares of Core Co. Common stock for P15, 000 on
December 15, 2015 and an additional 100 shares for P13,
000 on December 30, 2015. On January 3, 2016 S sold the
shares purchased on December 15, 2015 for P13, 000.
What amount of loss from the sale of core’s stock is
deductible on Mr. S 2015 and 2016 income tax returns?
===================================================================================================
Page 17 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
a.
b.
c.
d.
2015
P0
P0
P1,000
P2,000
2016
P0
P2,000
P1,000
P0
41. Mr. O received the following in December
Thirteenth month pay
15,000
Christmas bonus
15,000
Monetized vacation leave for 5 days 10,000
The taxable compensation income to Jose is
a. P40,000
b. P0
c. P25,000
d. P20,000
42. Lessor had the following information for the given taxable
year
Cost of Leasehold improvement
P1,000,000
Annual rent
100,000
The estimate life of leasehold improvement is 50 years.
The term of the lease is 40 years. At the end of the
twentieth (20th) year the lease was terminated for valid
causes done by the lessee
What is the taxable income to be reported by the lessor at
the end of the 20th year?
a. P100,000
b. P125,000
c. P605,000
d. P700,000
c.
d.
47. Mr. C a widower has two sons by his previous marriage. C
lives with Mrs. J who is legally married to Mr. J. They have a
child name Jill. The children are all minors and not
gainfully employed. How much personal exemption can Mr.
C claim?
a. P 50,000
b. P 75,000
c. P100,000
d. P125,000
48.
45.
1st statement – In case of an individual taxpayer and the
income tax on the annual return exceeds two thousand
pesos such tax may be paid in two equal instalments
2nd statement – if an individual’s annual income tax is paid
in instalment. First payment shall be made when the
return is files and the rest shall be paid on or before July
15 following the close of the year
a. True, false
b. True, true
c. False, true
d. False, false
46. Mr. A a non resident alien stockholder received a dividend
income of P300, 000 in 2016 from a foreign corporation
doing business in the Philippines. The gross income of the
foreign corporation from within and without the Philippines
for three years preceding 2016 are as follows
Source of
2013
2014
2015
income
From
P16,000,000 P12,000,000 P14,000,000
within the
Philippines
From
18,000,000
14,000,000
16,000,000
without
the
Philippines
How much of the dividend income received by Mr. A is
considered income from sources within the Philippines?
a.
b.
Zero
P150,000
A privilege granted to a taxpayer to deduct or set off
against Phil. Income tax the income war profits and excess
profits taxes that he has paid or has accrued to a foreign
country
a. Tax exemption
b. Tax deduction
c. Tax consolidation
d. Tax credit
49. A married to M had the following during the taxable year
Gross Income
From the practice of profession
P700,000
Rental income of their conjugal
300,000
property
Allowable deductions
For the practice of profession
520,000
For the property rented to tenants
140,000
The taxable income before exemptions of Mr. A is
a. P340,000
b. P180,000
c. P260,000
d. P170,000
43. What is the allowable deduction of lessee on the 20th year?
a. P600,000
b. P625,000
c. P100,000
d. P500,000
44. The following individuals are required to file an income tax
return except
a. non-resident alien engaged in trade or business
b. non-resident alien not engaged in trade or
business
c. resident citizen
d. non-resident citizen
P300,000
P270,000
50.
K sold for P10 M her Baguio rest house with a FMV of P12
M to buy a new principal residence. If K utilized P8 M of the
proceeds of the sale in acquiring a new principal residence
the capital gains tax payable is
a. P720,000
b. P600,000
c. P144,000
d. P120,000
51. Which of the following is not correct?
a. An individual citizen of the Phils. Who is working and
deriving income from abroad as an overseas contract
worker is taxable only on income from sources within
the Phils
b. A seaman who is a citizen of the Phils. and who
receives compensation for services rendered abroad
as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as
an overseas contract worker
c. An alien individual is taxable only on income derived
from sources within the Phils
d. A citizen of the Phils. is taxable on income
derived from sources within and without the
Phils
52. Optional standard deduction is allowed to except
a. Non-resident alien engaged in business
b. Non-resident alien not engaged in business
c. Resident alien
d. General professional partnership
53. 1st statement – the fact that an individual’s name is signed
to a filed return shall be prima facie evidence for all
purposes that the return was actually signed by him
2nd statement – if a taxpayer is unable to make his return
the return may be made by his guardian or representative
the latter assuming the responsibilities of making the
return and incurring penalties if the same was erroneous
a. True, false
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Page 18 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
b.
c.
d.
True, true
False, true
False, false
54. 1st statement – an individual may employee either
calendar year or fiscal year as basis for filing its annual
income tax return
2nd statement – the return of any individual shall be filed
on or before the 15th day of April of each year covering
income for the preceding year
a. True, false
b. True, true
c. False, true
d. False, false
55. Z is a Filipino immigrant living in the United States for
more than 10 years. He is retired and he came back to the
Philippines as a balikbayan. Every time he comes to the
Philippines he stays here for about a month. He regularly
receives a pension from his former employer in the United
States amounting to US$1,000 a month. While in the
Philippines with his pension pay from his former employer
he purchased three condominium units in Makati which he
is renting out for P15, 000 a month each. Does the
US$1,000 pension become taxable because he is now in
the Philippines?
a. Yes income received in the Philippines by non-resident
citizens is taxable
b. Yes income received in the Philippines or abroad by
non-resident citizens is taxable
c. No income earned abroad by non-resident
citizens are no longer taxable in the Philippines
d. No the pension is exempt from taxation being one of
the exclusions from gross income
56.
57.
K sold for P10 M her Baguio rest house with a FMV of P12
M to buy a new principal residence. If K utilized P8 M of the
proceeds of the sale in acquiring a new principal residence
the capital gains tax payable is
a. P720,000
b. P600,000
c. P144,000
d. P120,000
Skylar sold his bachelor’s pad for P1,200,000 to acquire a
two bedroom loft at Princeville condominium for
P3,200,000 with a fair market value of P3,500,000. How
much is the capital gains tax?
a. P 72,000
b. P192,000
c. P210,000
d. Zero
58. In the preceding number a sale of principal residence to
purchase a new principal residence shall be exempt from
tax if done
a. Once every 10 years and reported to BIR within 18
months from sale
b. Once every 18 years and reported to BIR within 10
months from sale
c. One every 10 years and reported to BIR within 2
months from sale
d. Once every 10 years and reported to BIR within
1 month from sale
59. Dondon and Helena were legally separated. They had six
minor children all qualified to be claimed as additional
exemptions for income tax purposes. The court awarded
custody of two of the children to Dondon and three to
Helena with Dondon directed to provide full financial
support for them as well. The court awarded the 6 th child
to Dondon’s father with Dondon also providing full
financial support. Assuming that only Dondon’s gainfully
employed while Helena is not for how many children could
Dondon claim additional exemptions when he files his
income tax return?
a.
b.
c.
d.
Six children
Five children
Three children
Two children
60. Keynard Inc. A Philippines corporation sold through the
local stock exchange 10,000 PLDT share that it bought 2
years ago. Keynard sold the shares for P2 million and
realized a net gain of P2, 000,000. How shall it pay tax on
the transaction?
a. It shall declare a P2 million gross income in its
income tax return deducting its cost of acquisitions
an expense
b. It shall report the P200,000 in its corporate income
tax return adjusted by the holding period
c. It shall pay 5% tax on the first P100,000 of the
P200,000 and 10% tax on the remaining P100,000
d. It shall pay a tax of one half of 1% of the P2 million
gross sales
61.
Which theory in taxation states that without taxes a
government would be paralyzed for lack of power to
activate and operate it resulting in its deduction?
a. Power to destroy theory
b. Lifeblood theory
c. Sumptuary theory
d. Symbiotic doctrine
62. The payor of passive income subject to final tax is required
to withhold the tax from the payment due the recipient.
The withholding of the tax has the effect of
a. A final settlement of the tax liability on the
income
b. A credit from the recipient’s income tax liability
c. Consummating the transaction resulting in an income
d. A deduction in the recipients income tax return
63. Guidant Resources Corporation a corporation registered in
Norway has a 50MW electric power plant in San Jose
Batangas. Aside from Guidant’s income from its power
plant which among the following is considered as part of
its income from sources within the Philippines?
a. Gains from the sale to an Ilocos Norte power
plant of generator bought from the United
States
b. Interest earned on its dollar deposits in a Philippine
bank under the Expanded Foreign Currency Deposit
System
c. Dividends from a two year old Norwegian subsidiary
with operations in Zambia but derives 60% of its gross
income from the Philippines
d. Royalties from the use in Brazil of generator sets
designed in the Philippines by its engineers
64. Anktryd Inc. Bought a parcel of land in 2015 for P7 million
as part of its inventory of real properties. In 2016 it sold
the lad for P12 million which was its zonal valuation. In the
same year it incurred a loss of P6 million for selling
another parcel of land in its inventory. These were the only
transactions it had in its real estate business. Which of the
following is the applicable tax treatment?
a. Anktryd shall be subject to a tax of 6% of 12 million
b. Anktryd could deduct its P6 million loss from its
P5 million gain
c. Anktryd’s gain of P5 million on shall be subject to the
holding period
d. Anktryd’s P6 million loss could not be deducted from
its P5 million gain
65. Aplets Corporation is registered under the laws of the
Virgin Islands. It has extensive operations in Southeast
Asia. In the Philippines its products are imported and sold
at a mark-up by its exclusive distributor Kim’s Trading Inc.
The BIR complied a record of all the imports of Kim from
Aplets and imposed a tax on Aplets net income derived
from its exports to Kim. Is the BIR correct?
===================================================================================================
Page 19 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
a.
b.
c.
d.
66.
Yes Aplets is a non-resident foreign corporation
engaged in trade or business in the Philippines
No the tax should have been computed on the basis
of gross revenues and not net income ‘
No Aplets is a non-resident foreign corporation
not engaged in trade or business in the
Philippines
Yes Aplets is doing business in the Philippines through
its exclusive distributor Kim’s Trading Inc.
Passive income includes income derived from an activity
in which the earner does not have any substantial
participation. This type of income is
a. Usually subject to a final tax
b. Exempt from income taxation
c. Taxable only if earned by a citizen
d. Included in the income tax return
67. In 2016, Juliet UIbod earned P500,000 as income from her
beauty parlor and received P250,000 as Christmas gift
from her spinter aunt. She had no other receipts from the
year. She spent purposes her gross income for 2016 is
a. P750,000
b. P500,000
c. P350,000
d. P600,000
68. Federico a Filipino citizen migrated to the United States
some six years ago and got a permanent resident status
or green card. He should pay his Philippine income taxes
on
a. The gains derived from the sale in California U.S.A of
jewelry he purchased in the Philippines
b. The proceeds he received from a Philippine insurance
company as the sole beneficiary of life insurance
taken by his father who died recently
c. The gains derived from the sale in the New York
Stock Exchange of shares of stock in PLDT a
Philippine corporation
d. Dividends received from a two year old foreign
corporation whose gross income was derived solely
from Philippine sources
69. An example of a tax where the concept of progressivity
finds application is the
a. Income tax on individuals
b. Excise tax on petroleum products
c. Value added tax on certain articles
d. Amusement tax on boxing exhibitions
70. Income is considered realized for tax purpose when
a. It is recognized as revenue under accounting
standards even if the law does not do so
b. The taxpayer retires from the business without
approval from the BIR
c. The tax payer has been paid and has received in cash
or near cash the taxable income
d. The earning process is complete or virtually
complete and an exchange has taken place
71. Which among the following taxpayers is required to use
only the calendar year for tax purpose
a. Partnership exclusively for the design of
government infrastructure projects considered
as practice of civil engineering
b. Joint stock company formed for the purpose of
undertaking construction projects
c. Business partnership engaged in energy operations
under a service contract with the government
d. Joint account (cuentas en participation) engaged in
the trading of mineral ores
72. In March 2016, Tonette who is found of jewelries bought a
diamond ring for P750,000, a bracelet for P250,000, a
necklace for P500,000 and a brooch for P500,000. Tonette
derives income from the exercise of her profession as a
licensed CPA. In October 2016, tonette sild her diamond
ring, bracelet and necklace for only P1.25 million incurring
a loss of P250, 000. She used the P1.25 million to buy a
solo diamond ring in November 2016 which she sold for
P1.5 million in September 2017. Which among the
following describes the tax implications arising from the
above transactions?
a. Tonette may deduct his 2016 loss from her 2016
professional income
b. Tonette may carry over and deduct her 2016
loss only from her 2017 gain
c. Tonette may carry over and deduct her 2016 loss from
her 2017 professional income as well as from her gain
d. Tonette may not deduct her 2016 loss from both her
2016 loss from both her 2017 professional income and
her gain
73. Anion Inc. received a notice of assessment and a letter
from BIR demanding the payment of P3 million pesos in
deficiency income taxes for the taxable year 2015. The
financial statements of the company show that it has been
suffering financial reverses from the year 2016 up to
present. Its asset position shows that it could pay only
P500, 000 which it offered as a compromise to the BIR.
Which among the following may the BIR require to enable
it to enter into a compromise with Anion Inc.?
a. Anion must show it has faithfully paid taxes before
2016
b. Anion must promise to pay its deficiency when
financially able
c. Anion must waive its right to the secrecy of its
bank deposits
d. Anion must immediately deposit the P500,000 with
the BIR
74. Levox Corporation wanted to donate P5 million as prize
money for the world professional billiard championship to
be held in the Philippines. Since the Billiard sports
Confederation of the Philippines does not recognize the
event if was held under the auspices of the International
Professional Billiards Association Inc. Is Levox subject to
the donor’s tax on its donation?
a. No so long as the donated money goes directly to the
winners and not through the association
b. Yes since the national sports association for
billiards does not sanction the event
c. No because it is donated as prize for an international
competition under the billiards association
d. Yes but only that part that exceeds the first P100,000
of total Levox donations for the calendar year
75. The excess of allowable deductions over gross income of
the business in a taxable year is known as
a. Net operating loss
b. Ordinary loss
c. Net deductible loss
d. NOLCO
B. CORPORATION TAXATION
76. For purposes of computing the MCIT which will not form
part of cost of goods sold for traders
a. Invoice cost
b. Import duties
c. Freight
d. Wharfage
77. Based on the preceding number nut the taxpayer is a
manufacturer which will not form part of cost of goods
sold?
a. Raw materials used
b. Direct labor & overhead
c. Freight & insurance
d. Import duties
===================================================================================================
Page 20 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
78. based on No. 76 but the taxpayer is a seller of services
which will not form part of cost of services?
a. Salaries & supplies
b. Employee benefits
c. Depreciation & rental expenses
d. Interest expense
79. Statement 1: The MCIT is only effective in the 5 th year
following the year in which the corporation commenced its
business
Statement 2: non-resident corporations are also covered
by MICT
a. True, true
b. False, false,
c. False, true
d. True, false
80. Non-Resident Corporations need not file any income tax
returns.
Tax EXEMPT Corporations are also required to file an ITR
for administrative purposes only
a. True, true
b. False, false,
c. False, true
d. True, false
81. To record MCIT the account deferred charges MCIT is
a. Debited
b. Credited
c. Memo entry only
d. No entry required
82. To record application of excess MCIT vs. NORMAL income
tax what account is credited
a. Income tax payable
b. Cash in bank
c. Retained earnings
d. Deferred charges MCIT
83. To record expired portion of MCIT what account is debited
a. Retained earnings
b. Income tax payable
c. Deferred charges MCIT
d. Provision for income tax
84. One of the following is not accepted basis of relief from the
MCIT
a. Prolonged labor dispute
b. Force majeure problems
c. Legitimate business reverse
d. Law suits filed by the company
85. Which is not a characteristics of corporate income tax
a. Progressive tax
b. Direct tax
c. General x
d. Natural tax
86. 1st statement: Non stock non – profit corporation are tax
exempt from their income from all operations
2nd statement: Interoperate dividends are tax exempt if the
recipient is a foreign corporation
a. True, true
b. False, false,
c. False, true
d. True, false
87. Which of the following corporation may not file a income
tax return?
a. Domestic Corporation
b. Resident Corporation
c. Non-Resident Corporation
d. Special Corporation
88. Which is governed by gross income taxation
a. Domestic corporation
b.
c.
d.
Resident corporation
Non-resident corporation
Educational institutions
89. One of the following corporations cannot claim tax credit
for foreign taxes paid abroad
a. Private educational Institutions
b. Resident International Carriers
c. Investment companies
d. Domestic Hospitals
90. 1st statement: Foreign income tax may be treated by a
corporate taxpayer as tax credit but not as deduction from
gross income
2nd statement: Being a holding company is conclusive
evidence of improper accumulation of profit’
a. True, true
b. False, false
c. True, false
d. False, true
91. The improperly accumulated earning tax shall not apply to
the following except
a. Insurance companies
b. Corporations formerly registered with PEZA
c. Publicly held corporations
d. Bank & Non-Bank Financial Intermediaries
92. 1st statement: Domestic corporation not falling number
under the definition of closely held corporations are
considered publicly held corporations
2nd statement: A closely Corporation under the Corporation
Code are the same
a. True, true
b. False, false
c. False, true
d. True, false
93. It is the reasonable a test used in determining the
reasonable needs of a business to justify the accumulation
of earnings which will exempt the corporation from paying
IAE
a. Urgency test
b. Reasonable need test
c. Immediacy test
d. Excise tax
94. The
a.
b.
c.
d.
IAE tax is essentially a
General tax
Property tax
Regulatory or penalty tax
Excise tax
95. 1st Statement: MCIT shall apply to all corporations
2nd statement: IAET shall apply only to Domestic
Corporation
a. True, true
b. True, false
c. False, false
d. False true
96. A domestic corporation provided the following data
Gross
sales
Sales
returns
Cost of
goods
sold
Busines
s
expense
s
13
P2,040,00
0
40,000
14
2,800,00
0
100,000
15
3,000,00
0
16
4,000,00
0
1,000,000
700,000
1,500,00
0
1,500,00
0
950,000
210,000
1,200,00
0
1,200,00
0
===================================================================================================
Page 21 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
The income tax due after tax credit if any for taxable year
2015 is
a. P15,000
b. P40,000
c. P60,000
d. P90,000
97. Income derived by a depository bank under the expanded
foreign currency deposit system from foreign currency
transactions with local commercial banks shall be subject
to a final tax rate of
a. Seven and one half percent (7 ½%)
b. Twenty percent (20%)
c. Ten percent (10%)
d. Five percent (5%)
98. The following corporations are except from the Minimum
Corporate Income Tax except
a. Non-profit hospitals
b. Proprietary educational institutions
c. Non-stock non-profit educational institutions
d. Resident corporations
99. Which of the following is not exempted from improperly
accumulated earnings tax?
a. Publicly – held corporations
b. Bank and other non-bank financial intermediaries
c. Insurance companies
d. Resident corporation
100.
101.
Amos Corp. Had P600,000 in compensation expense for
book purposes in 2016. Included in this amount was a P50,
000 accrual for 2016 non shareholder bonuses Amos paid
the actual 2016 bonus for P60,000 on march 1, 2017. In its
2016 tax return what amount should Amos deduct as
compensation expense?
a. P600,000
b. P610,000
c. P550,000
d. P540,000
What was Kelly’s taxable income for the year ended
December 31, 2016?
a. P170,000
b. P330,000
c. P345,000
d. P380,000
104. A DOMESTIC CO. Provide the following data
Gross
income
Net income
102. In 2016 Cable Corp. A calendar year corporation
contributed P80, 000 to a qualified charitable organization.
Cable’s 2016 net income was P820, 000. In 2016 what
amount can Cable deduct as charitable contributions?
a. P80,000
b. P45,000
c. P41,000
d. P51,000
103. For the year ended December 31, 2016 Kelly Corp. Had
net income per books of P300, 000 before taxes. Included
in the net income were the following items
Dividend income from an unaffiliated
domestic taxable corporation
Bad debt expense (represents the increase
in the allowance for doubtful account)
P50,000
80,000
2016
1,500,000
100,000
250,000
What income tax due for the taxable year 2015 is
a. P80,000
b. P72,000
c. P32,000
d. P40,000
105. Assuming the same problem in No.29. the income tax due
for the taxable year 2016 is
a. P75,000
b. P65,000
c. P30,000
d. P40,000
106. Assuming the same problem No. 29. However the
domestic corporation is a proprietary educational
institution. The income tax due for 2016 is
a. P75,000
b. P25,000
c. P32,000
d. P40,000
107. Williams a domestic corporation had the following data
Taxable
year
2015
2016
Aragorn Inc had the following items of income and
expenses
Gross Receipts
P500,000
Cos of salary of personnel
250,000
Directly engaged in business
Dividends received
25,000
The dividends were received from a domestic corporation.
The general and administrative expenses include cost of
utilized facilities cost of supplies of P25, 0000 and P15,
000, respectively. What amount should be reporter as
gross income for minimum corporate income tax purpose?
a. P210,000
b. P235,000
c. P250,000
d. P275,000
2015
2,00,000
The
a.
b.
c.
d.
Gross income
Deductions
1,000,000
980,000
1,100,000
500,000
income tax payable in 2015 is
P20,000
P0
P380,000
P100,000
108.
Assuming the same problem No. 32 the taxable income in
2016 is
a. P380,000
b. P0
c. 100,000
d. P50,000
109.
Assuming the same problem in No. 32 the income tax
payable in 2016 is
a. P153,600
b. P144,000
c. P114,600
d. P 94,600
110.
The following person’s signature must appear in the
corporation income tax return except
a. President
b. Vice president
c. Treasurer
d. External auditor
111.
Resident international
Philippine billing at
a. 2 ½%
b. 5%
c. 7 ½%
d. 10%
carriers
are
taxed
on
gross
===================================================================================================
Page 22 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
112.
Non-resident lessors of aircraft machineries and other
equipment are taxed on gross rentals, charter and other
fees at
a. 2 ½%
b. 4 ½%
c. 7 ½%
d. 10%
113.
Non-resident owner or lessor of vessels chartered by
Philippine nationals are taxed on gross rentals lease or
fees at
a. 2 ½%
b. 4 ½%
c. 7 ½%
d. 10%
114.
1st statement – A resident corporation is allowed to deduct
depreciation expense regardless of the property’s location
2nd statement – A private educational institution may at its
option elect either to deduct capital expenditures during
the taxable year or to deduct allowance for depreciation
thereof
a. True, false
b. True, true
c. False, true
d. False, false
115.
116.
117.
ABC Corporation sold a real property in Malolos Bulacan to
XYZ Corporation. The property has been classified as
residential and with a zonal valuation of P1, 000 per
square meter. The capital gains tax was paid based on the
zonal value. The Revenue District Officer (RDO) however,
refused to issue the Central Authorizing Registration for
the reason that based on his ocular inspection the
property should have a higher zonal valuation determined
by the Commissioner of Internal Revenue because the
area is already a commercial area. Accordingly, the RDO
wanted to make a recompilation of the taxes due by using
the fair market value appearing in nearby bank’s valuation
list which is practically double the existing zonal value.
What values must the RDO use as the basis for
determining the capital gains tax?
a. Fair Market Values or Zonal Values whichever is higher
b. Fair Market Values or Gross Selling Price
whichever is higher
c.
Fair Market Values or Assessed Values whichever is
higher
d. Fair Market Values or Bank’s Valuation whichever is
higher
In connection with the preceding number the RDO also
wanted to assess a donor’s tax on the difference between
the selling price based on the zonal value and the fair
market value appearing in a nearby bank’s valuation list,
should the difference in the supposed taxable value be
legally subject to donor’s tax?
a. Yes taxable value is difference between the selling
price and fair market value at the time of transfer
b. Yes taxable value is the difference between the zonal
values and selling price
c. No there was no transfer for insufficient
consideration of immovable are not subject to
donor’s tax
d. No there was a valid perfect and consummated
contract of sale and not donation
Weber Realty Company which owns a three hectare land in
Antipolo entered into a Joint Venture Agreement (JVA) with
Prime Development Company for the development of said
parcel of land. Weber Realty as owner of the land
contributed the land to the Joint Venture and Prime
Development agreed to develop the same into a
residential subdivision and construct residential house
thereon. They agreed they would dive the lots between
them. Does the JVA entered into by and between Weber
and Prime create a separate taxable entry?
a.
b.
c.
d.
Yes JVA is a taxable corporation
Yes JVA is a taxable partnership
No JVA is exempt from taxation
No JVA is a mere conduit
118.
Based on the preceding questions are the allocation and
distribution of the saleable lots to Weber and Prime
subject to income tax and to expanded withholding tax?
a. Yes allocation and distribution saleable lots are
taxable income subject to withholding tax
b. Yes allocation and distribution saleable lots are part of
the gross income and not subject to expanded
withholding tax
c. No allocation and distribution saleable lots are
exempt income in the likings of interoperate
dividends
d. No allocation and distribution of saleable lots of a joint
venture engaged in construction projects are exempt
from income tax
119.
Is the sale by Weber or Prime of their respective shares in
the saleable lots to third parties subject to income tax and
to expanded withholding tax?
a.
Yes the sale by Weber or Prime of their respective
shares in the saleable lots to third parties are part of
the gross income of a taxable corporation and not
subject to withholding tax
b. Yes the sale by Weber or Prime of their respective
shares in the saleable lots to third parties are not part
of the gross income but subject to expanded
withholding tax
c. Yes the sales by Weber or Prime of their
respective shares in the saleable lots to third
parties are both subject to income tax
to
expanded withholding tax
d. No the sales by Weber or Prime of their respective
shares in the saleable lots to third parties are exempt
from income tax
120.
Taxable on income within and without the Philippines?
a. Residential International Carrier
b. Non-residential cinematographic film makers
c. Non-stock non-profit hospitals
d. Non-resident owners or lessors of vessels
C. TAXATION ON PARTNERSHIP, ESTATE & TRUST
121. Mr. D and Ms. W are partners in a Partnership which
realized a gross income of P800, 000 with a corresponding
P350, 000 expenses in the year 2014. Mr. D is married
with 2 qualified dependent children he earned P400, 000
in his own business incurring P230, 000 a allowable
expenses while Ms. W had P450, 000 and P250, 000 gross
income and expenses respectively. they share profits and
losses as follows 4:6
If the partnership is a GPP the taxable income of Mr. D
subject to 5 – 32% is
a. P122,000
b. P180,000
c. P250,000
d. P320,000
122.
And
a.
b.
c.
d.
taxable income of Ms. W subject to 5 – 32% is
P180,000
P270,000
P420,000
P470,000
123.
If the partnership is an Ordinary Partnership its tax due is
a. P135,000
b. P148,000
c. P153,000
d. P108,000
124.
And the total tax liability of Mr. D is
a. P12,240
b. P18,900
===================================================================================================
Page 23 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
125.
126.
127.
128.
129.
130.
131.
132.
133.
c.
d.
P50,000
P32,500
The
a.
b.
c.
d.
total tax liability of MS. w is
P 32,500
P 18,360
P101,000
P 31,140
Samuel and John are co-owner by virtue of a property
given to them by their father. The co – ownership had a
gross rental income of P500, 000 (gross of 5% tax) and
expenses related to rental activity of P200, 000 but 10% is
now deductible for the year. Samuel and John share in the
profits at 75% and 25% respectively. Samuel withdrew
P50, 000 from the co – ownership net income for the year
John did not withdraw any amount. Samuel and John are
both single
The income tax the co- ownership
a. P102,400
b. P76,800
c. P80,000
d. P0
The
a.
b.
c.
d.
taxable income of Samuel is
P320,000
P190,000
P80,000
P0
Suppose Sam & John did not divide but instead invested
the P320,000 profit in another business venture where are
they earned a net income after deductions of P450,000
the tax due of the co- ownership is
a. P102,400
b. P76,800
c. P135,000
d. P0
1st statement – a CPA and a Dentist mat form GPP or an
ordinary partnership
2nd statement – Partnership and Corporation have separate
juridical personalities distinct from the owners
a. true, false
b. false, false
c. false, true
d. true, true
1st statement – the share of the partnership in the gross
income of the GPP is added to his own gross income
2nd statement – the share of the partner in the net income
of a GPP is also considered passive income
a. true, true
b. false, false
c. false, true
d. true, false
1st statement – GPP’s may claim the 10% OSD
2nd statement – a GGPP may be organized for p[profit also
a. true, true
b. false, false
c. false, true
d. true, false
1st statement – Co – ownership and partnership are the
same as to taxability
2nd statement - corporation and ordinary partnerships are
the same as to taxability
a. true, true
b. false, false
c. false, true
d. true, false
1st statement – a GPP has no separate juridical personality
since it is tax exempt
2nd statement – corporations
partnership but not GPP
a. true, true
b. false, false
c. false, true
d. true, false
may
form
a
taxable
134.
1st statement – the term taxpayer means any person
subject to income tax including estates & trusts
2nd statement - the income tax imposed upon individuals
shall also apply to the income of estate or of any property
held in trust
a. true, true
b. false, false
c. false, true
d. true, false
135.
1st statement – only estates earning income under judicial
administration are subject to income tax
2nd statement – in income taxation of estate the judiciary
or the trust or has the personal liability to pay the tax in all
cases
a. true, true
b. false, false
c. false, true
d. true, false
136.
1st statement – the estate is still the taxpayer after
administration or its settlement
2nd statement – the trust is the taxpayer if the income is to
be accumulated for the trustor or grantor
a. true, true
b. false, false
c. false, true
d. true, false
137.
All of the following are non-taxable trusts except one
a. revocable whose trusts
b. trusts whose income are reserved for the grantee
c. pension trusts created under conditions laid down by
law
d. trusts whose income are to be accumulated for
the trustor or grantor
138.
The share in the profits of a partnership in a general
professional partnership is regarded as received by him
and thus taxable although not yet distributed. The
principle is known as
a. actual receipt of income
b. advance reporting of income
c. accrual method of accounting
d. constructive receipt of income
139.
Fusion of two corporation for a specific undertaking
a. merger
b. consolidation
c. joint- account
d. joint – venture
140.
An
a.
b.
c.
d.
indivisible thing own by at least two individuals
joint – account
co – ownership
partnership
sociedad anominas
D.
1.
GROSS INCOME DEDUCTIONS
One of the following does not form part of gross income
a. interest
b. royalties
c. annuities
d. gift bequest and devises
2.
In computing allowable deduction for purposes of income
taxation:
1st statement – interest expense in connection with the
taxpayer’s business shall be reduced by an amount equal
===================================================================================================
Page 24 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
to thirty eight percent (33%) of interest income subject to
final tax.
2nd statement – interest incurred to acquire property used
in trade shall only be allowed to be treated as a capital
expenditure
a. true, false
b. true, true
c. false, true
d. false, false
3.
4.
5.
6.
7.
Patricia was injured in a vehicular accident in 2012. he
incurred and paid medical expenses of P10, 000 and legal
fees of P5, 000 during that year. in 2016, he recovered
P35, 000 as settlement form the insurance company which
insured the car owned by the other party involved in the
accident. from the above payments and transactions the
amount of income taxable to Patricia in 2016 is
a. P20,000
b. P25,000
c. P35,000
d. P0
One
a.
b.
c.
d.
of the following is not excluded from gross income
amounts received by insured as return of premium
life insurance proceeds
compensation for injuries as sickness
share in the net income of a general
professional partnership
To be allowed as a valid deduction charitable and other
contribution must not exceed
a. 5% of taxable income after charitable contribution
income of individuals
b. 10% of taxable income after charitable contribution in
case of individuals
c. 5% of taxable income before charitable of
contribution in case of individuals
d. 10% of taxable income before charitable
contribution in case of individuals
Premium paid for health and hospitalization insurance
shall be allowed as a deduction
a. the amount claimed does not exceed two thousand
five hundred pesos (P2,500) per year
b. must be claimed by each spouse separately
c. gross income of the family does not exceed two
hundred fifty thousand pesos (P250,00)
d. the amounts of premium payment claimed is not
exceeding two hundred fifty pesos (P250) a month
1st statement – the term quasi – banking activities means
borrowing funds from twenty or more persons at any one
time through the issuance endorsement or acceptance of
debt instruments of any kind other than deposits.
2nd statement – interest in government debt securities are
exempt income
a. true, false
b. true, true
c. false, true
d. false, false
8.
In the case of sale of land under the agrarian reform law
1st statement – interest earned by the owner/seller is
exempt income
2nd statement – capital gain in the sale of the lad is taxable
income
a. true, false
b. true, true
c. false, true
d. false, false\
9.
In computing net income no deduction shall any case be
allowed in respect to except
a. personal living or family expenses
b.
c.
d.
any amount paid out for new buildings or for
permanent improvements or betterment made to
increase the value of any property or estate
any amount expended in restoring property or in
making good the exhausted thereof which an
allowance is or has been made
premiums paid on any life insurance policy
covering the life of any officer or employee
when the immediate family members of such
employees are directly the beneficiary
10. Losses from wash sales of stock or securities shall not be
deductible except
a. the taxpayer is a dealer of securities or stock
and made in the course of business of such
dealer
b. the share of stock sold and then required or
repurchased are identical stock or securities
c. the shares of stock sold and then reacquired within a
period beginning thirty (30) days before the date of
such sale or disposition
d. the shares of stock sold and then reacquired within a
period ending thirty (30) days after such sale or
disposition
11. 1st statement – the allowable deduction for pension
payments to employees will only apply to those pension
plan that is funded
2nd statement – the pension trust deduction I composed of
the past service cost and the year present service cost
a. true, false
b. true, true
c. false, true
d. false, false
12.
SFI Inc. (SFI) has been in business for the past 10 years.
For the year 2004, it decided to establish a pension fund
for its employees. the pertinent data of the fund are us
follows;
Past service cost (lump sum payment)
Present service cost
P1,000,000
100,000
How much allowable deduction for pension cost SFI could
claim?
a. P1,000,000
b. P1,100,000
c. P 200,000
d. P 100,000
13. Assuming the same facts in number 12 the allowable
deduction of SFI for pension after 10 years
a. P1,000,000
b. P1,100,000
c. P200,000
d. P100,000
14. Mr. R was retired by his employer corporation and paid P1,
000,000 as a retirement gratuity without any deduction for
withholding tax. The corporation became bankrupt the
following year. Can the BIR subject the P1, 000,000
retirement gratuity to income tax?
1st answer – yes if the retirement gratuity was paid based
on a reasonable pension where Mr. R was 50 years old and
has served the corporation for more than 10 years
2nd answer – no if Mr. R was forced by the corporation to
retire beyond Mr. R’s control
a. both answer are wrong
b. both answer are correct
c. 1st answer is correct 2nd answer is wrong
d. 1st answer is wrong 2nd answer is correct
15. The widow of your best friend has just been paid P1,
000,000 on account of the life insurance of the decreased
===================================================================================================
Page 25 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
husband. she asks you whether she declare the amount
the amount for income tax purpose or the estate tax
purposes
1st advice – the proceeds of life insurance paid to the
beneficiary upon the death of the insured are exempt
income tax and need not be declared for income tax
purposes
2nd advice – the proceeds of life insurance would have to
be declared for estate tax purposes if the designation of
the beneficiary was irrevocable otherwise it need not be
declared
a. both advices are correct
b. 1st advice correct; 2nd advice wrong
c. both advices are wrong
d. 1st advice wrong and 2nd advice correct
16. ABC Corporation took two key men insurance on the life of
its President Mr. X. In one policy the beneficiary is the
corporation to compensate it for its expected loss in case
of death of its president. the other policy designates Mr.
X’s wife as its irrevocable beneficiary
Question 1: are the insurance premiums paid by X
corporation in both policies deductible?
Question 2: will the insurance proceeds be treated as
income subject to tax by the corporation and by the wife?
a. yes to 1st and 2nd questions
b. yes to both questions
c. no to 1st questions and yes to 2nd question
d. no to both questions
17. A worked for a manufacturing firm but due to business
reverses, the firm offered a voluntary redundancy program
in order to reduce overhead expenses. Under the program
an employee who offered to resign would be given
separation pay equivalent to his 3 months basic salary for
every year of service. a accepted the offer and received
P800,000 as separation pay under the program. After all
the employees who accepted the offer were paid the firm
found its overhead still excessive. Hence it adopted
another program where various unprofitable departments
were closed. As a result B was separated from the service
B also received P800, 000 as separation pay. at the time of
separation both A and B have rendered at least 10 years
of service but A was 55 years old while B was only 45
years old as a result
a. both amounts are exempt from income tax
b. both amounts are subject to income tax
c. only Mr. A is subject to income tax
d. only Mr. B is subject to income tax
18. Which of the following expenses is deductible from gross
income?
a. contribution to a newspaper fund for needy
families when such newspaper organizes a drive
solely for charitable purposes
b. premiums paid by the self-employed employer for the
life insurance of his employees
c. contribution to the construction of a chapel of a
university that declares dividends to its stockholders
d. donation of prizes and awards to athletes in local and
international competitions and sanctioned by their
respective sport associations
19. Cash dividends received by a NON RESIDENT corporation
from a domestic corporation is
a. exempt from income tax
b. subject to final tax
c. part of taxable income
d. party exempt partly taxable
20. Cash dividends received by a domestic corporation from a
domestic corporation is
a. exempt from income tax
b. subject to final tax
c. part of taxable income
d.
partly exempt partly taxable
21. Shares obligations or bonds issued by a foreign
corporation shall be considered as intangible personal
property situated in the Phil’s if, how many percent of its
business is located in the Phil’s?
a. 33%
b. 50%
c. 75%
d. 85%
22. If a friend inquires whether or not the cost of educational
assistance to the employee and / or his dependents which
are borne by the employer be taxable. What will your
answer be?
1st answer – a scholarship grant to the employee by the
employer shall not be treated as taxable fringe benefits if
the education or study involved is directly connected with
the employer’s trade business or profession and there is a
written contract between them that the employee is under
obligation to remain in the employ of the employer for s
period of time that they have mutually agreed upon
2nd answer – the cost of educational assistance extended
by an employer to the dependents of an employee shall be
treated as taxable fringe benefits of the employee unless
the assistance was provided through a competitive
scheme under the scholarship program of the company
a. both answer are correct
b. both answer are wrong
c. only the first answer is correct
d. only the second answer is correct
23. As regards taxable year one of the following statements is
not correct?
a. the taxable year is the accounting period
b. the taxable year maybe less than 12 months
c. the taxable year of a sole proprietorship
business maybe fiscal or calendar year
d. the taxable year of a domestic corporation maybe
fiscal or calendar year
24. Which of the following taxes may be deducted from gross
income
a. special Assessment
b. transfer tax
c. documentary stamp tax
d. income tax
25. All of the following taxpayers are not entitled to tax credit
except
a. resident citizen with income only from the Phils
b. resident citizen with income only from abroad
c. resident alien with income from within and without
the Phils
d. non-resident citizens with income from within and
without the Phils
26. A operates a retail store and owns the following properties.
which of the following is capital assets in the hand of A
a. building which houses the retail store
b. fixture used in the retail store
c. inventory on hand at the end of the year
d. trade accounts receivable
27. A bought from XYZ Corp. 1,000 shares of stock Ninety
days thereafter the corporation was adjudged bankrupt
and its stock was worthless. the lose of A for income tax
purposes is
a. wagering loss
b. short term capital loss
c. long term capital loss
d. non – deductible loss for income tax purposes
28. Any amounts subsequently received on account of a bad
debt previously charged off and allowed as a deduction
===================================================================================================
Page 26 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
from gross income for prior years must be included in
gross income for the taxable year in which received. this is
a. end result doctrine
b. destination of income test
c. severance theory
d. equitable doctrine of tax benefit
b.
c.
d.
29. Which of the following statements on tax exemptions is
not correct
a. when an electric light and power franchise holder is
exempt under its franchise from property tax on its
poles wires and transformers its exemption does not
extend to the VAT of its importation of said articles
b. where a taxpayer receives as payment for the land
expropriated by the government tax exempt bonds
such tax exempt bonds should be included in the total
price to determine correct taxable profit therefrom
c. the salaries of the justices of the Supreme
Court are exempt from income tax
d. exemption granted to cooperatives does not extend to
be members thereof in the sale of their products
30. A was selected as the most outstanding teacher in her
region. Her name was submitted by the school principal
without her knowledge. she received a trophy and a cash
award of P15, 000
a. taxable income
b. subject to final tax
c. exempt from income tax
d. partly taxable partly exempt
31. This will not result to a taxable gain or loss
a. the sale by a corporation of its shares of stock
from the unissued stock over its par or stated
value
b. the sale by a corporation of its treasury stock over its
cost or other basis of acquisition
c. the purchase and retirement by a corporation of its
bonds at a price less than the issue price or face
value
d. the issuance by a corporation of its bonds at a
premium
32. Which of the following does not represent compensation
income?
a. honorarium as a guest speaker
b. emergency leave pay
c. vacation and sick leave pay
d. gratuitous condonation of obligation
33. One of the following is not subject to final tax
a. interest on savings deposit
b. royalties
c. prizes amounting to more than P10,000
d. professional fees paid to individuals
34. Gain on sale of domestic shares of stock in New York is
a. Income within the Phils
b. Income without the Phils
c. Income party within and without
d. Exempt from income tax
35. Noel Santos is a very bright computer science graduate.
He was hired by Hewlett Packard. To entice him to accept
the offer the arrangement that part of his compensation
would be an insurance policy with a face value of P20
Million. The parents of Noels are made the benefices of the
insurance policy. will the proceeds of the insurance form
part of the income of the parents of Noel and be subject to
income tax?
a. yes the proceeds of the insurance form part of the
gross income of the parents of Noel and be subject to
income tax
yes the proceeds of the insurance form part of the
income of the parent of Noel and be subject to final
withholding tax
no, the proceeds of the life insurance do not
form part of the gross income being exclusion
therefrom
no the proceeds of the insurance do not form part of
the gross income of the parents of Noel being
irrevocable beneficiaries
36. Pursuant to the preceding question can the company
deduct from its gross income the amount of the premium?
a. yes the premium may be deducted from the
company’s gross income for it is an ordinary and
necessary expense
b. yes the premium may be deducted from the
company’s gross income if the intended
beneficiaries are the immediate family members
of Noel Insured
c. no the premium may not be deducted from the
company’s gross income because the company was
not made the beneficiary of the insurance proceeds
d. no the premium may not be deducted from the
company’s gross income because it is not ordinary
and necessary expenses of the business
37. What are requisites of the business expense to be
deductible except?
a. ordinary and necessary
b. paid or incurred within the taxable year
c. substantiated with official receipts
d. must be reasonable
38. The following are examples of non – taxable compensation
for injuries except
a. actual damages for injuries suffered
b. compensatory damages for unrealized profits
c. moral damages for grief anxiety and physical
sufferings
d. exemplary damages
39. What would be the allowable deduction for P8, 000
contribution made by a resident citizen to a religious
organization from his P70,000 net income after
contribution?
a. P8,000
b. P7,000
c. P7,800
d. P3,500
40. A bought a condominium unit under installment basis to
be used as his office in the practice of his profession and
paying P10, 000 monthly. for income tax purposes the
P10,000 monthly payment shall be
a. treated as business rental, hence deductible
b. treated as capital expenditure, hence not
deductible
c. treated as depreciation expense hence deductible
d. treated as ordinary business expense
41. A domestic corporation made a borrowing from ABC bank
thereby incurring a business connected interest expense
of P60, 000 for taxable year 2016. During the same year
the corporation earned an interest income subject to final
tax in the amount of P100,000. the deductible interest is
a. P27,000
b. P33,000
c. P60,000
d. P0
42. In a year ABC Corp paid total premiums of P1, 000 for the
life insurance policy of the vice president where the
beneficiary is the corporation. At the end of the year ABC
received dividend of P100 because of the policy. the
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UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
corporation should indicate a claim for a deduction for life
insurance premium of
a. P1,000
b. P 900
c. P1,100
d. Zero
43. A dependent senior citizen will allow an individual resident
citizen taxpayer
a. to be classified as single
b. to be promoted to a head of a family
c. to be promoted to a head of a family and claim
one additional exemption
d. answer not given
44. Mr. A resident alien adopted a child in USA Mr. A personal
exemptions is
a. P 50,000
b. P 75,000
c. P100,000
d. none of the above
45. Mr. resident citizen send his child to USA for the latter’s
high school studies Mr. B personal exemption is
a. P 50,000
b. P 75,000
c. P100,000
d. none of the above
E. CAPITAL GAINS / FRINGE BENEFITS /OTHERS
46. Calendar year is
Tax payer is a citizen of the Philippines who is single
Capital gain on sale of bonds held for
P45,000
2 months
Capital gain on sale directly to buyer
120,000
of shares of domestic corporation held
for 16 months
Capital loss on sale of family car held
80,000
for 5 years
Capital loss on sale of land in the
60,000
Philippines held for 3 years on a
selling price of P800,000
Net capital loss in 2005 (net taxable
20,000
income of the year was P30,000)
The
a.
b.
c.
d.
net capital gain in 2016 was
P50,000
P5,000
zero
some other amount
47. Nutrition Chippy Corporation gives all its employees (rank
and file supervisors and managers) one sack of rice every
month valued at P800 per sack. During an audit
investigation made by the Bureau of Internal Revenue
(BIR) the BIR assessed the company for failure to withhold
the corresponding withholding tax on the amount
equivalent to the one sack of rice received by all the
employees contending that the sack of rice is considered
as additional fringe benefit for the supervisors and
managers. Therefore the value of the one sack of rice
every month should be considered as part of the
compensation of the rank and file subject to tax. For the
supervisors and managers, the employers should be the
one assessed pursuant to Section 33 (a) of the NIRC. Is
there a legal basis for the assessment made by the BIR?
a. yes benefits received by rank and file are subject to
compensation tax
b. yes benefits received by supervisory employees and
managerial employees are subject to fringe benefit
tax
c. no the benefit is a De minimis benefit exempt
from income tax
d. no the benefit is for the convenience of the employer
thus exempt
48. Which among the following fringe benefits is taxable?
a. those benefits which are given to rank and file
employees
b. contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization
benefit plans
c. benefits given to supervisory employees under
a collective bargaining agreement
d. de minimis benefits
49. 1st statement – monetized unused vacation leave credits
not exceeding 10 days is an exempt de minimis benefit
2nd statement – daily meal allowance for overtime work not
exceeding twenty five (25%) percent of the basic
minimum wage is exempt fringe benefit
a. true, false
b. true, true
c. false, true
d. false, false
50. 1st statement – laundry allowance not exceeding P300 per
month is exempt de minimis benefit
2nd statement – medical cash allowance to dependents of
employees not exceeding P750 per employee per
semester or one hundred twenty five pesos (P125) per
month is exempt de minimis benefit
a. true, false
b. true, true
c. false, true
d. false, false
51. 1st statement – flowers fruits and books or other similar
token items given to employees under certain
circumstances are exempt de minimis benefits
2nd statement – gifts given during Christmas and major
anniversary celebrations not exceeding P5, 000 per
employee per annum is exempt de minimis benefit
a. true, false
b. true, true
c. false, true
d. false, false
52. 1st statement – rice subsidiary of one thousand peso or
one sack of 50 kg. Rice per month amounting to not more
than one thousand five hundred pesos is an exempt de
minimis benefit
2nd statement – employee achievement awards e.g for
length of service or safety achievement which must be in
the form of a tangible personal property other than cash or
gift certificate with an annual monetary value not
exceeding ten thousand pesos received by an employee
under an established written plan which does not
discriminate in favor of highly paid employees is an
exempt de minimis benefit
a. true, false
b. true, true
c. false, true
d. false, false
53. 1st statement – uniforms and clothing allowance not
exceeding four thousand pesos per annum is an exempt
de minimis benefit
2nd statement – actual medical benefits not exceeding P10,
000 per annum is an exempt de minimis benefit
a. true, false
b. true, true
c. false, true
d. false, false
54. In case of foreign travel of employees for the purpose of
attending business meeting or conventions:
1st statement – such travel expenses shall not be treated
as taxable fringe benefits regardless of its amount
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Page 28 of 29
UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES
TAXATION
EDMUND E. HILARIO, CPA, MBA
CHAPTER 3.0 – Income Taxation (16 items)
2 ND SEMESTER 2019 – 2020
==================================================================================================
2nd statement – the cost of economy and business class
airplane ticket shall not be subject to the fringe benefit
tax. However 30 percent of the cost of first class airplane
ticket shall be subject to the fringe benefit tax
a. true, false
b. true, true
c. false, true
d. false, false
55. On August 12, 2016 A sold a land held as capital assets for
P2 M with a FMV of P1.8 M. A acquired the land for P1 M
and at the time of sale the property was subject to a
mortgage of P1.3 M. payments shall be; P100, 000 on the
date of sale and the balance shall be paid in equal
monthly instalments. the capital gain tax for 2016 is
a. P120,000
b. P 24,000
c. P 36,000
d. P 48,000
for calendar year. in addition Becky Corp. had the
following capital gains and losses during 2018
Short term capital gain
Short term capital loss
Long term capital gain
Long term capital loss
P8,500
(4,000)
1,500
(3,500)
Becky Corp. did not realize any other capital gains or
losses since it began operations. What is Becky’s total
taxable income?
a. P36,250
b. P38,500
c. P39,500
d. P40,500
56. How much is the allowable deduction from business
income of a domestic corporation which granted and paid
P340, 000 fringe benefits to its key officer in 2016?
a. P500,000
b. P160,000
c. P340,000
d. none of the above
57. In the year, Cadena de Amor Corporation gave the
following fringe benefits to its employees
To managerial employees
To rank and file employees
P1,020,000
5,000,000
The allowable deduction from the gross income of the
corporation for the fringe benefits given to employees is
a. P2,000,000
b. P1,500,000
c. P6,320,000
d. P7,000,000
58. The tax payer other than a corporation may elect to pay
the income tax due in two equal installments if the tax due
is
a. more than P100
b. more than P1,000
c. more than P2,000
d. more than P5,000
59. The
a.
b.
c.
d.
tax reform Act of 1997 took effect on
January 1, 1997
January 1, 1998
December 11, 1997
July 28, 1997
60. A feature of ordinary gains as distinguished from the
capital gains
a. gains from sale of assets not stock in trade
b. may or may not be taxable in full
c. sources are capital assets
d. no holding period
61. On capital gains tax on real property which of the following
statement is not correct?
a. the tax should be paid if in one lump sum within 30
days from the date of the sale
b. the installment payment of the tax should be made
within 30 days from receipt of each installment
payment on the selling price
c. the tax may be paid in installment if the initial
payment does not exceed 25% of the contract
price
d. the initial payment maybe more than down payment
62. Becky Corp. a calendar year corporation realized taxable
income of P36, 000 from its regular business operations
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