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Transfer & Business Taxation (Tabag & Garcia) 3rd Edition
Etnolinguistica (Bicol University)
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SOLUTIONS MANUAL
TRANSFER & BUSINESS TAXATION, 3rd Edition
By: TABAG & GARCIA
CHAPTER 1 – SUCCESSION & TRANSFER TAXES
TRUE OR FALSE
1. T
2. T
3. T
4. T
5. F
MULTIPLE CHOICE
1. D
2. A
3. D
4. C
5. C
6. A
7. B
8. A
9. B
10. A
11. D
6.
7.
8.
9.
10.
T
F
T
T
T
11.
12.
13.
14.
15.
T
T
T
T
F
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
C
C
B
D
C
B
D
C
B
B
B
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
D
B
D
D
B
D
A
D
B
A
D
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
D
B
B
D
B
D
D
B
D
B
B
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
B
C
D
D
A
B
A
D
D
D
B
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
A
A
A
C
D
B
A
C
C
D
CHAPTER 2 – GROSS ESTATE
TRUE OR FALSE – SET A
1. T
6.
2. T
7.
3. F
8.
4. T
9.
5. T
10.
TRUE OR FALSE – SET B
1. T
6.
2. F
7.
3. F
8.
4. T
9.
5. T
10.
MULTIPLE CHOICE
1. A
16.
2. B
17.
3. D
18.
4. B
19.
5. C
20.
6. C
21.
7. A
22.
8. B
23.
9. A
24.
10. A
25.
11. C
26.
12. B
27.
1|
T
T
T
T
T
11.
12.
13.
14.
15.
T
F
F
T
T
16.
17.
18.
19.
20.
F
T
T
T
T
F
T
T
T
F
11.
12.
13.
14.
15.
T
F
F
T
F
16.
17.
18.
19.
20.
T
T
T
F
T
D
C
B
D
A
D
A
B
A
C
C
C
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
C
B
B
A
B
B
D
C
B
D
C
C
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
C
D
C
C
C
D
D
C
C
C
B
D
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13.
14.
15.
D
A
C
28.
29.
30.
D
B
D
43.
44.
45.
B
C
B
58.
59.
60.
C
C
A
Supporting Computations:
23.
Bank deposit in the foreign branch of a domestic bank
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Exclusion from the gross estate
P500,000
300,000
1,000,000
800,000
200,000
P2,800,000
23.
House and lot, family home in Quezon City
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Inclusion from the gross estate
P1,500,000
300,000
1,000,000
800,000
200,000
P3,800,000
25.
Shares of stocks, domestic corp.
(certificate kept in UK)
Shares of stocks, domestic corp.
(certificate kept in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Intangibles subject to reciprocity
P250,000
100,000
200,000
50,000
P600,000
26.
Land & building, Philippines
House and lot, Philippines
Shares of stocks, domestic corp. (certificate kept in UK)
Shares of stocks, domestic corp. (certificate kept in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Gross Estate
33.
34.
35.
36.
P2,000,000
3,500,000
250,000
100,000
200,000
50,000
P6,100,000
(P12M/100,000) x 1,000 shares = P120,000
(P10M/100,000) x 1,000 shares = P100,000
P110 x 1,000 shares = P120,000
(P140 + P80/2) x 1,000 shares = P110,000
44.
Land
Shares of stock
Vintage car
Painting
2|
Consideration
received
P1,500,000
100,000
50,000
250,000
Transfer & Business Taxation(3
FMV upon
transfer
P1,500,000
50,000
80,000
400,000
r d
FMV upon
death
P2,000,000
150,000
100,000
500,000
Gross Estate
None. Valid sale
None. Valid sale
P50,000
250,000
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INCLUSION IN THE GROSS ESTATE
P300,000
44.
Bequests to charitable institutions are considered exclusions from the gross estate only if the
problem clearly states that not more than 30% were used for administrative purposes.
PROBLEM SOLVING:
PROBLEM 1
(1) P19,300,000
(2) P19,300,000
(3) P11,800,000
Family home in the Philippines
Parcel land of with vacation house in Malaysia
Farm land in the Philippines
Shares of stock of a domestic corporation deposited in a
bank safety deposit box in Malaysia
Shares of stock of a foreign corporation the entire
business of which is in the Philippines, deposited in a bank
safety deposit box in Malaysia
Receivable from a friend who has no property whatsoever
Receivables under insurance policies:
 Life insurance policy, taken by the decedent on his
own life, with his estate as revocable beneficiary
 Life insurance policy, taken by the decedent, with
his daughter as revocable beneficiary
 Life insurance policy, taken by the decedent on his
own life, with his son as irrevocable beneficiary
 Life insurance (group) taken by the employer of
the decedent, with the estate as revocable
beneficiary
 Property insurance, for a loss of property
 Accident insurance, for injury sustained
TOTAL GROSS ESTATE
(4) P14,300,000
Citizen/
Resident
(# 1 & 2)
P8,000,000
5,000,000
3,000,000
2,000,000
NRA with R
NRA w/o R
(# 3)
P8,000,000
(# 4)
P8,000,000
3,000,000
3,000,000
2,000,000
500,000
500,000
300,000
300,000
300,000
200,000
200,000
200,000
300,000
300,000
300,000
-
-
-
-
-
-
50,000
50,000
P19,300,000
50,000
50,000
P11,800,000
50,000
50,000
P14,300,000
PROBLEM 2
To Juan
To Pedro
To Maria
To Sisa
Total Gross Estate
P25,000,000
18,000,000
15,000,000
20,000,000
P78,000,000
PROBLEM 3
1.
2.
3.
4.
5.
3|
P230,0000
P1,100,000
P0
P5,000,000
P1,000,000 + [1M x (1M x 10% x 1.5)] = P1,150,000
Transfer & Business Taxation(3
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MODIFIED IDENTIFICATION
EXERCISE A
1. Included
2. Included
3. Excluded
4. Included
5. Excluded
6. Excluded
7. Included *
8. Excluded
9. Excluded**
10. Excluded
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Included***
Excluded**
Excluded**
Included
Included
Included
Excluded
Excluded**
Excluded
Included
*Included in the gross estate if the beneficiary is the estate, administrator or executor. In case of doubt,
the item should be taxable.
**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in
the gross estate before deducting the same from the gross estate.
*** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem
clearly states that not more than 30% were used for administrative purposes.
EXERCISE B
EXERCISE C
1.
2.
3.
4.
5.
P0; valid sale
P0; valid sale
P0; valid sale
P4,000,000
P6,000,000
1.
2.
3.
4.
5.
P10M
P20M
P5M
P10M
P0
CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE
TRUE OR FALSE
1. T
2. T
3. T
4. T
5. T
6. F
MULTIPLE CHOICE
1. C
2. D
3. D
4. C
5. C
6. B
7. B
8. D
9. C
4|
7.
8.
9.
10.
11.
12.
T
T
T
F
F
F
13.
14.
15.
16.
17.
18.
F
F
T
F
T
T
19.
20.
21.
22.
23.
24.
T
T
T
F
T
T
25.
26.
27.
28.
29.
30.
T
T
F
T
F
T
12.
13.
14.
15.
16.
17.
18.
19.
20.
C
B
A
A
A
D
D
D
D
23.
24.
25.
26.
27.
28.
29.
30.
31.
A
A
A
B
B
B
C
A
C
34.
35.
36.
37.
38.
39.
40.
41.
42.
C
A
C
B
B
C
D
A
D
45.
46.
47.
48.
49.
50.
51.
52.
53.
C
B
A
A
C
C
A
A
A
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10. A
21. C
32. D
43. D
11. B
22. D
33. C
44. D
Supporting Computations:
7.
Mourning clothing of the decedent’s surviving spouse
Mourning clothing of the decedent’s dependent children
Expenses of the wake preceding the burial
Publication charges for death notices
Telecommunication expenses incurred in informing relatives
of the deceased
Cost of burial plot
Interment fees and charges
Expenses for the performance of the rites & ceremonies
incident to interment
Actual Funeral Expenses
Limit: 5% of Gross Estate (P2M x 5%)
ALLOWED (Lower Amount)
15.
Real property tax for the year 2013
Notarized interest bearing promissory note
Accrued interest on the promissory note at the time of
death
Income tax due for 2013
Allowable deductions
(Disregard standard deduction)
54.
55.
B
D
P1,500
3,200
40,000
5,000
3,000
20,000
12,000
5,000
P89,700
P100,000
P89,700
P100,000
100,000
20,000
200,000
P420,000
23.
Income tax from practice of profession - 2013
Income tax from practice of profession for Jan.-June ‘13
Real property taxes for 2013
Deductible taxes
P300,000
100,000
150,000
P550,000
35.
ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN
41.
Value to take/Initial Basis
Mortgage paid
Initial basis
2nd Deduction:
(850/1,000 x P100,000**)
Final Basis
X Vanishing rate
VANISHING DEDUCTION
P900,000
(50,000)
850,000
(85,000)
P765,000
40%
P306,000
** Mortgage P150,000 – 50,000
54.
Shares, domestic corporation
Tangible personal property
Gross Estate
5|
Transfer & Business Taxation(3
P500,000
1,500,000
2,000,000
r d
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ELIT (500,000 x 2,000/2,500)
Taxable Estate
TAX DUE
1st P500,000
In excess of P500,000 = (1,100,00 x 8%)
Estate Tax Due
(400,000)
P1,600,000
Gross Estate (Tangible property Phils.)
ELIT (1,200,000 x 6,000/10,000,000)
Taxable Estate
P6,000,000
(720,000)
P5,280,000
P15,000
88,000
P103,000
55.
PROBLEM SOLVING
Problem 1
Case A:
Case B:
Case C:
Case D:
Case E:
P150,000
P200,000
P150,000
P150,000
P0
Problem 2
ASSUME GROSS ESTATE OF P2,000,000
Embalming charges
P15,000
Burial apparel of the decedent
3,500
Cost of coffin
125,000
Mourning apparel of the surviving spouse during the burial
5,000
Mourning apparel of the minor child
2,000
Snacks and drinks during the wake
12,500
Honoraria of priest for daily masses before burial
2,000
Telecommunication charges to inform relatives
1,000
Charges for death notice published in a newspaper
8,000
Cost of video footage of the burial and interment
12,000
Funeral car service during interment
4,000
Honorarium of priest who celebrated the mass during interment
2,000
Cost of tombstone
30,000
ACTUAL FUNERAL EXPENSE
P232,000
Vs. Limit (P5% of P2M)
100,000
ALLOWABLE FUNERAL EXPENSE
P100,000
NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to
“medical expenses”
Problem 3
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable
Collectible portion (400/1,200) x
500,000
Uncollectible portion of the claim
6|
Transfer & Business Taxation(3
r d
P500,000
(166,667)
P333,33
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3
Case C: P0. Debtor is not insolvent
Problem 4
DUE FROM PEDRO
P200,000
Assets of Pedro
P400,000
Less: Due to the BIR for unpaid taxes
(200,000)
Balance
200,000
Collectible by Juan
X 200/600
(66,667)
UNCOLLECTIBLE PORTION
(Deductible from Juan’s Gross Estate)
P133,333
Problem 5
Question 1: P550,000 computed as follows:
Unpaid taxes on the estate before death
P150,000
Unpaid mortgage on the estate
200,000
Unpaid loans arising from debt instruments
125,000
(notarized)
Unpaid loans arising from debt instruments (not
75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Total Deductible Claim Against the Estate
P550,00
0
Question 2: P2,097,000 computed as follows
Ordinary Deductions:
Claim against insolvent person
Unpaid taxes on the estate before death
Unpaid mortgage on the estate
Funeral expenses
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses
Unpaid loans arising from debt instruments
(notarized)
Unpaid loans arising from debt instruments (not
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Casualty loss
Special Deductions:
Standard deduction
Medical expenses
Total Allowable deduction from the gross
estate
P100,000
150,000
200,000
200,000
100,000
125,000
75,000
65,000
1,000,000
82,000
P2,097,00
0
Problem 6
Question 1: P217,500
Question 2: P217,500
7|
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Same answer with question #1. Whether or not the estate was
settled judicially is irrelevant in the determination of allowable
deduction for judicial expenses.
Solution:
Expenditures incurred for the collection of assets
and payment of debts
Attorneys fees (1/2 were incurred after six
months)
P40,000 x 1/2
Accountant’s fees
Executor’s commission
Appraiser’s fees
Court fees
Cost of preserving and distributing the estate
Cost of storing or maintaining the property of the
estate
Brokerage fees for selling property of the estate
Total allowable judicial expenses
Problem 7
Loss due to shipwreck, two (2) months after the decedent’s death.
Robbery loss, seven (7) months after the decedent’s death. The
decedent’s executor was allowed by the Bureau of Internal
Revenue to extend the filing (within the period allowed by the Tax
Code) of estate tax return due to a meritorious reason
Allowable Deduction
P100,000
20,000
25,000
15,000
2,500
18,000
15,000
12,000
10,000
P217,50
0
P500,000
2,000,000
P2,500,000
Problem 8
Value to take
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(750/4,500) x 562,500
Final Basis
x Vanishing rate
Vanishing Deduction
P937,500
(187,500)
P750,000
(93,750)
P656,250
40%
P262,500
Problem 9
Value to take
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(1,500/1,980) x 170,000
Final Basis
x Vanishing rate
Vanishing Deduction
8|
Transfer & Business Taxation(3
P1,500,000
-----P1,500,000
(128,788)
P1,371,212
80%
P1,096,970
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Problem 10
Case A:
Case B:
Case C:
Case D:
Case E:
P1,000,000
P1,000,000
P1,000,000
P0
P0
Problem 11
Case A:
Case B:
Case C:
Case D:
Case E:
P500,000
P500,000
P150,000
P500,000
P0
Problem 12
Case A: P1,000,000
Case B: P500,000
Case C: P0
Case D: P500,000
Case E: P600,000
Case F: P750,000; [ (1M/2) + (500,000/2)]
Problem 13
Gross Estate
Funeral expenses
Actual P300,000 – 120,000 = P180,000
Limit = P3M x 5% = P150,000
Standard deduction
Medical expenses
Taxable Estate
P3,000,000
(150,000)
(1,000,000)
(400,000)
P1,450,000
CHAPTER 4 – PROPERTY RELATIONS
TRUE OR FALSE
1. T
2. T
3. T
4. T
5. T
MULTIPLE CHOICE
1. A
2. B
3. B*
4. C
5. C
9|
6.
7.
8.
9.
10.
F
F
T
F
F
11.
12.
13.
14.
15.
T
F
T
T
F
16.
17.
18.
19.
20.
F
T
T
T
T
7.
8.
9.
10.
11.
D
D
B
C
D
13.
14.
15.
16.
17.
B
D**
A
D
D
19.
20.
21.
22.
23.
C
C
A
A
D
Transfer & Business Taxation(3
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25.
26.
27.
28.
29.
C
D
C
A ***
D
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6.
D
12.
C
18.
C
24.
B
30.
D
*Change Aug. 3, 1998 TO August 3, 1988
** Under conjugal partnership of gains, fruits earned during marriage, regardless of source, are
common properties
Supporting Computations
No. 22 and 23
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Income from exclusive property of the
spouse
Jewelry owned before the marriage
Other properties at the time of her death
Gross Estate
Exclusive
P2,500,000
1,000,000
5,000,000
Conjugal
500,000
200,000
300,000
P8,800,000
1,000,000
P1,700,000
No. 24 and 25
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Jewelry owned before the marriage
Other properties at the time of her death
Gross Estate
Exclusive
P2,500,000
P2,500,000
Common
1,000,000
5,000,000
500,000
300,000
1,000,000
P7,800,000
No. 26
Conjugal properties
Conjugal Deductions:
Funeral expenses
Actual = P45,000
Limit = (P500,000 + 200,000) x 5% = 35,000
Judicial expenses
Claim against the estate
Net Conjugal properties
Divide
Share of the Surviving Spouse
P200,000
(35,000)
(20,000)
(45,000)
P100,000
2
P50,000
No. 27
Real property, Philippines
Real property, USA
Funeral expenses
10 |
Transfer & Business Taxation(3
P4,000,000
5,000,000
(200,000)
r d
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Judicial expenses (200,000 – 50,000)
Claim against insolvent persons
Unpaid taxes
Balance
Standard Deductions
Medical expenses (max.allowed)
Family Home (P1,500,000/2)
Share of the surviving spouse (P8,550,000/2)
Net Taxable Estate
(150,000
(50,000)
(50,000)
P8,550,000
(1,000,000)
(500,000)
(750,000)
(4,275,000)
P2,025,000
No. 28
Exclusive
Common
Total
Conjugal real properties
P5,000,000
Conjugal family home
1,500,000
Exclusive properties
P2,500,000
Total
P2,500,000
P6,500,000
P9,000,000
Ordinary Deductions:
Funeral expenses
(75,000)
Actual P300,000 x 25% = P75,000
Limit = 5% x P9M = P450,000
Casualty losses***
(100,000)
Miscellaneous deductions (P1M x 75%)
(750,000)
(825,000)
Net
P2,400,000
P5,675,000
P8,075,000
Special Deductions:
Standard Deductions
(1,000,000)
Medical expenses (P500,000 x 50%)
(250,00)
Family Home (1,500,000/2)
(750,000)
Share of the surviving spouse (5,675,000/2)
(2,837,500)
Net Taxable Estate
P3,275,000
ERRATUM: DISREGARD ….Exclusive Properties are NET of Casualty Losses***
No. 29 ABSOLUTE COMMUNITY OF PROPERTY
Exclusive
P2,400,000
Properties-Land
Other personal property owned before marriage
Other personal property acquired during marriage
Gross Estate
Ordinary Deductions
Funeral expenses
Judicial expenses
Net conjugal before special deductions
Share of surviving spouse (P1,800,000/2)
11 |
Transfer & Business Taxation(3
P2,400,000
Common
1,600,000
500,000
P2,100,000
(200,000)
(100,000)
P1,800,000
P900,000
r d
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No. 30 CONJUGAL PARTNERSHIP OF GAINS
Exclusive
P2,400,000
1,600,000
Properties-Land
Other personal property owned before marriage
Other personal property acquired during marriage****
Gross Estate
Ordinary Deductions
Funeral expenses
Judicial expenses
Vanishing Deductions*****
Net Estate Before Special Deductions
Standard deductions
Medical expenses
Share of the surviving spouse (P200,000/2)
Share of surviving spouse (P1,800,000/2)
Common
P500,000
P500,000
P4,000,000
Total
P4,500,000
(200,000)
(100,000)
(1,120,000)
P2,880,000
200,000
P3,080,000
(1,000,000)
(500,000)
(100,000)
P1,480,000
****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common.
Value to take
1st Deduction: Mortgage paid
Initial basis
2nd Deduction: Proportionate deduction
(1,500/4,500) x 300,000
Final Basis
x Vanishing rate
Vanishing Deduction
P1,500,0 00
P1,500,000
(100,000)
P1,400,000
80%
P262,500
*****
PROBLEM SOLVING
PROBLEM 1:
(a)P1,624,773 (b)P4,132,955
(c)P3,691,250
Exclusive properties
Conjugal properties*
ELIT**
Vanishing Deductions ***
Transfer for Public Use ****
Net Estate
Share of the Surviving Spouse (4,132,955/2)
Net Taxable Estate
1st P2,000,000
In excess of P2,000,000 @ 11%
ESTATE TAX DUE
(d)P321,038
Exclusive
P2,000,000
(175,227)
(200,000)
P1,624,773
Common
Total
P5,000,000
(867,045)
P7,000,000
P4,132,955
P5,757,728
(2,066,478)
P3,691,250
P135,000
186,038
P321,038
*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible
properties within the Philippines.
**ELIT:
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Funeral expenses
Judicial expenses
Claim against the estate
TOTAL ELIT
X
ALLOWABLE ELIT
P200,000
800,000
1,725,000
P2,725,000
7,000/22,000
P867,045
**VANISHING DEDUCTIONS:
Value to take
P500,0 00
1st Deduction: Mortgage paid
Initial basis
P500,000
2nd Deduction: Proportionate deduction
(500/7,000) x 867,045
(61,932)
Final Basis
P438,068
x Vanishing rate
40%
Vanishing Deduction
P175,227
****
Since the properties were already classified as exclusive and common, it should be assumed that
the exclusive properties were already inclusive of transfer for public use.
PROBLEM 2:
(Decedent: Resident Citizen)
a) Vanishing deduction = P1,676,200
b) Net exclusive property of the decedent = P7,923,800
c) Net community property = P17,800,000
d) Net Taxable estate = P15,323,800
e) Estate tax due = P2,279,760
Exclusive properties
Ordinary Deductions:
Conjugal properties
Funeral expenses
Judicial expenses
Claims against conjugal properties
Claims against exclusive properties*
Legacy against exclusive properties **
VANISHING DEDUCTION***
Amount received under RA4917
Net exclusive/conjugal
Special Deductions:
Standard deduction
Medical expenses
Share of the surviving spouse
NET TAXABLE ESTATE
ESTATE TAX DUE
Exclusive
P10,000,000
Conjugal
Total
20,000,000
(200,000)
(300,000)
(200,000)
(400,000)
(1,676,200)
P7,923,800
(1,500,000)
P17,800,000
P30,000,000
(200,000)
(300,000)
(200,000)
(400,000)
(1,676,200)
(1,500,000)
P25,723,800
(1,000,000)
(500,000)
(8,900,000)
P15,323,800
P2,279,760
*From the information provided in the problem, the amount of P400,000 as “claim against exclusive
property” should pertain to the unpaid mortgage on the land inherited. Therefore, the present decedent
paid P100,000 on the original amount of the mortgage (P500,000). This should be taken into
consideration in computing the vanishing deduction.
** LEGACY AGAINST EXCLUSIVE PROPERTIES
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Legacy means bequest or inheritance of personal properties. The deductible legacy/devised (bequests)
under the tax code are:
 Transfer for “public use” (Rule: Include both in the “Gross Estate” as well as in the “Deductions
from the Gross Estate) ; and
 Bequests to charitable institutions wherein not more than 30% of the bequest was used for
administrative purposes (Rule: Same as transfer for public use)
From the information provided above, the problem was silent as to the type of the legacy. In case of
doubt, the two types of transfers enumerated above should not be assumed. Therefore, the item should
be treated as a simple “legacy” or “transfer in contemplation of death” which is added only in the gross
estate.
Value to take
Mortgage Paid (refer to explanation above)
Initial basis
2nd Deduction: 2,900/30,000 x P1.1M
Final Basis
x rate
Vanishing Deduction***
P3,000,000
(100,000)
P2,900,000
(106,333)
P2,793,667
60%
P1,676,200
PROBLEM 3:
(Decedent: Resident Alien)
(a) Net Taxable estate = P3,570,000;
House and lot, USA *
Investment in stock, Philippines
Investment in stock, USA
Investment in bonds, USA
Cash in bank, Philippines
Cash on hand, Philippines
Accounts receivable
Car, Philippines
Legacy in favor of Philippine National Red Cross**
Devise to Quezon City for children’s playground**
Total Gross Estate
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible) ***
Special Deductions:
Standard deduction
Medical expenses
Net Taxable Estate
Estate Tax Due
(b)Estate tax due = P307,700
P2,000,000
800,000
1,000 000
700,000
300,000
50,000
200.000
800,000
50,000
70,000
P5,970,000
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(1,000,000)
(500,000)
P3,570,000
P307,700
NOTE (Problem 3)
*Family home is not allowed as a deduction for single decedent
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**To be deductible, the legacy/devise should be included first in the decedent’s gross estate
***Assume the debtor is an insolvent person.
PROBLEM 4
(Decedent: Resident Alien)
a) Vanishing deduction = P441,463
b) Net Taxable estate = P3,200,000
c) Estate tax due = P386,739
Land
House and Lot, furniture and appliances
Other tangible personal properties
Amount received under RA4917
Claims against insolvent persons
Ordinary deductions:
Funeral expenses
Judicial expenses
Other claims against conjugal properties
Claims against insolvent persons
Unpaid mortgage**
VANISHING DEDUCTION*
Net exclusive/conjugal
Special deductions:
Standard deduction
Medical expenses
Share of the surviving spouse
TAXABLE ESTATE
Estate Tax Due
Exclusive
P3,000,000
Conjugal
P5,000,000
1,200,000
1,000,000
50,000
Total
P10,250,000
(200,000)
(100,000)
(500,000)
(50,000)
(350,000)
(441,463)
P2,208,537
P6,400,000
P8,608,537
(1,000,000)
(120,000)
(3,200,000)
P4,288,537
P386,739
Value to take/Initial Basis***
2nd Deduction: 2,500/10,250 x 1,200,000
Final Basis
x rate
Vanishing Deduction*
P2,500,000
(292,683)
P2,207,317
20%
P441,463
** P700,000 – 350,000 = P350,000
***The amount paid on the mortgage should not be considered in computing the vanishing deduction
because the amount pertains to a mortgage entered into by Pedro during his lifetime. To be deductible,
the mortgage should have been assumed on the property at the time of inheritance.
PROBLEM 5
1.
2.
3.
15 |
Real Property inherited by the decedent during the
marriage.
Income earned during marriage from the property in the
preceding number.
Property acquired by the decedent with cash owned
Transfer & Business Taxation(3
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Conjugal
Partnership
E
Absolute
Community
E
C
E
E
C
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before the marriage
Personal belongings used exclusively by the decedent
Jewelry for the exclusive use of one of the spouses
Property unidentified when and by whom acquired
Lot acquired before the marriage by the surviving spouse
(surviving spouse had a previous marriage and legitimate
children in that previous marriage)
8. Income from the lot above
9. Cash – income during marriage
10. Exclusive property was sold, and was repurchased using
conjugal property
4.
5.
6.
7.
E
C
C
E
E
C
C
E
E
C
C
E
C
C
CHAPTER 5 – ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE
MULTIPLE CHOICE
1. B
2. C
3. D
4. C
5. C
6. C
7. C
8.
9.
10.
11.
12.
13.
14.
A
D
A
D
D
A
D
15.
16.
17.
18.
19.
20.
21.
A
C
C
A
D
A
C
22.
23.
24.
25.
26.
27.
28.
C
A
C
D
C
A
B
29.
30.
31.
32.
C
D
A
B
Supporting Computations:
No.5
Estate tax due (for P4M)
Estate tax credit (3/4 x P355,000) vs P80,000
Estate tax payable
P355,000
(80,000)
P275,000
No. 6
Estate tax due (for P500,000)
Less: Estate tax credit
Estate tax payable
P55,000
(20,500)
P34,500
Limit 1:
Singapore: 300/1,000 x P55,000
USA: 100/1,000 x P55,000
Limit
P16,500
5,500
Actual
P30,000
4,000
Allowed
P16,500
4,000
P20,500
P22,000
34,000
22,000
P20,500
Limit 2:
400/1,000 x P55,000
ALLOWED TAX CREDIT (LOWER AMOUNT)
No. 7
Gross Estate
Deductions
Share of the surviving spouse (5,000,000 x 60% x 50%)
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Transfer & Business Taxation(3
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P10,000,000
(5,000,000)
(1,500,000)
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Net taxable estate
P3,500,000
Tax Due
P300,000
Estate tax credit (2.8/3.5 x P300,000) vs P124,500
(124,500)
Estate tax payable
P175,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000
Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000
No. 8
Estate tax due (for P500,000)
Less: Estate tax credit
Estate tax payable
P71,000
(41,417)
P29,583
Limit 1:
Japan: 300/1,200 x P71,000
USA: Exclude for purposes of computing Limit 1
HK: 450/1,200 x P71,000
Limit 2: (Include USA)
700/1,200 x P71,000
ALLOWED TAX CREDIT (LOWER AMOUNT)
Limit
P17,750
26,625
Actual
P20,000
45,000
Allowed
P17,750
26,625
P44,375
P41,417
65,000
41,417
P41,417
No. 9 and 10
Property inherited
Property acquired through own labor
Funeral expenses
Judicial expenses
Claims against the estate
Notarized
Not notarized
Standard deduction
Net Taxable/Distributable estate
Net Taxable
P1,400,000
3,600,000
(200,000)
(200,000)
Net Distributable
P1,400,000
3,600,000
(240,000)
(200,000)
(40,000)
(1,000,000)
P3,560,000
(40,000)
(20,000)
P4,500,000
No. 28
Letter “a” ……….The Bureau of Internal Revenue can ask payment from the heirs to whom the estate has
been disturbed …….. change to Distributed
PROBLEM SOLVING
Problem I:
(1)P200,000
(2)P0; not allowed
Net Taxable Estate
P10,000,000
Estate Tax Due [P465,000 + (5M x 15%)]
Estate tax credit (4/10 x P1,215,000) vs P200,000
Estate tax payable
P1,215,000
(200,000)
P1,015,000
Problem II:
Net Taxable Estate
17 |
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P2,000,000
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Estate Tax Due
Estate tax credit
Estate tax payable after tax credit
P135,000
(67,500)
P67,500
Net Taxable Estate
P2,000,000
Limit 1:
Canada: 500/2,000 x P135,000
USA: 500/2,000 x P135,000
Limit 2:
1,000/2,000 x P135,000
ALLOWED TAX CREDIT
Limit
P33,750
33,750
Actual
P150,000
110,000
Allowed
P33,750
33,750
P67,500
P67,500
260,000
67,500
P67,500
Problem III:
(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770
(c ) Net Distributable Estate = P4,427,230
House and lot, USA *
Investment in stock, Philippines
Investment in stock, USA
Investment in bonds, USA***
Cash in bank, Philippines
Cash on hand, Philippines
Accounts receivable
Car, Philippines
Legacy in favor of Philippine National Red Cross**
Devise to Quezon City for children’s playground**
Total Gross Estate
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
Medical expenses
NET TAXABLE ESTATE
Estate Tax Due
Estate Tax Credit
Limit: [(3,200/5,970) x 307,700 = P164,930
Actual: P250,000
ESTATE TAX DUE AFTER ESTATE TAX CREDIT
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
P2,000,000
800,000
1,000 000
700,000
300,000
50,000
200.000
800,000
50,000
70,000
P5,970,000
(900,000)
(1,000,000)
(500,000)
P3,570,000
P307,700
(164,930)
P142,770
NOTE:
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedent’s gross estate
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*** Considered as Estate “within”
TOTAL GROSS ESTATE (Refer above)
Ordinary Deductions:
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for children’s playground
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
Medical expenses
Estate Tax Due after tax Credit
NET DISTRIBUTABLE ESTATE
P5,970,000
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(500,000)
(142,770)
P4,427,230
Problem IV:
Real property, Philippines
Claim Against Insolvent Persons
Real property, USA
Real property, Japan
Net estate, Malaysia
Total Gross Estate (common)
Funeral expenses (maximum)
Judicial expenses (P200,000-100,000)
Claim against insolvent persons
Unpaid taxes
Net estate before special deductions
X (Share of the surviving spouse)
Net estate of the decedent in the conjugal properties
Standard Deduction
Family Home
Medical Expenses
NET TAXABLE ESTATE
TAX DUE:
1ST P500,000
In excess of P500,000 @ 8%
ESTATE TAX DUE
Estate Tax Credit (None; No Estate Tax Payments abroad)
ESTATE TAX PAYABLE
19 |
Transfer & Business Taxation(3
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P4,000,000
50,000
3,000,000
2,000,000
(1,000,000)
P8,050,000
(200,000)
(100,000)
(50,000)
(50,000)
P7,650,000
1/2
P3,825,000
(1,000,000)
(1,000,000)
(500,000)
P1,325,000
P15,000
66,000
P81,000
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Total Gross Estate (common; as computed above)
Funeral expenses (actual)
Judicial expenses (actual)
Claim against insolvent persons
Unpaid taxes
Net estate before special deductions
X (Share of the surviving spouse)
Net estate of the decedent in the conjugal properties
Standard Deduction
Family Home
Medical Expenses (actual)
Estate Tax
NET DISTRIBUTABLE ESTATE
P8,050,000
(300,000)
(200,000)
(50,000)
(50,000)
P7,450,000
1/2
P3,725,000
----------(650,000)
(81,000)
P2,994,000
CHAPTER 6 – DONOR’S TAX
TRUE OR FALSE
1. T
2. T
3. F
4. T
5. T
6. T
MULTIPLE CHOICE
1. A
2. A
3. C
4. C
5. B
6. D
7. D
8. D
9. D
10. C
7.
8.
9.
10.
11.
12.
F
T
F
F
T
F
13.
14.
15.
16.
17.
18.
F
F
F
F
F
F
19.
20.
21.
22.
23.
24.
F
F
F
F
F
T
25.
26.
27.
28.
29.
30.
T
T
F
T
F
F
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
D
B
C
D
D
B
D*
A
B
C
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
C
A
D
C
C
D
C
D
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
B
C
D
A
B
D
C
B
D**
D
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
A
B
A
A
C
B
B
D
D
A
Supporting computation:
No. 17.
ERRATUM: Letter “C”:
A gift to the International Rice Research Institute…… is exempt from gift *
No. 19. If the sale is considered fictitious, the entire value at the date of sale is subject to donor’s tax.
No. 22.
Letter “a” – onerous transfer
Letter “b” - To be considered valid donation, the renunciation should be specifically and categorically done in
favor of identified heir(s) to the exclusion or disadvantage of the other co-heir(s) in the hereditary estate.
Letter “c” – gratuitous transfer, subject to donor’s tax
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No. 25.
Donation to
Gross Gifts (2M/2) /2
Less Dowry
Net taxable gift
Pedro
P500,000
(10,000)
P490,000
Clara
P500,000
P500,000
No. 28.
DONEE
Son
D. in Law
P2,500,000
(10,000)
P2,490,000
-
Gross Gifts (5M/2)
Less Dowry
Net taxable gift
No. 32-34.
NG (3/1)
Tax Due (P25,000 x 2%)
GG (5/1)
Dowry
PNG 3/1
TNG
Tax Due
Tax Paid 3/1
D.T. Payable
GG (7/1)
PNG 3/1 and 5/1
TNG
Tax Due
Total Taxes Paid 7/1
Husband
125,000
P500
Wife
125,000
P500
P100,000
(10,000)
125,000
P215,000
P100,000
(10,000)
125,000
P215,000
P2,600
(500)
P2,100
P2,600
(500)
P2,100
100,000
100,000
215,000
215,000
P315,000
P315,000
6,600
6,600
P13,200
No. 39.
Taxable gift
Tax Due
Tax Credit P4,500 vs. (200/300 x P6,000=P4,000)
D.T.Pyable
P300,000
P6,000
(4,000)
P2,000**
**Change Choice “d” from P2,200 to P2,000
PROBLEM SOLVING
Problem I:
ITEM
A
B
C
D
E*
F
G
H
21 |
Q#1
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
Q#2
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
Transfer & Business Taxation(3
Q#3
P800,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
r d
Q#4
P800,000
Q#5
P800,000
-
250,000
100,000
1,500,000
-
1,500,000
100,000
-
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I
Land 1**
Land 2***
Land 3****
Car
GROSS GIFT
500,000
5,000,000
200,000
P16,550,000
500,000
5,000,000
200,000
P16,550,000
500,000
5,000,000
200,000
P16,550,000
500,000
200,000
P3,000,000
500,000
200,000
P3,450,000
*The question is “gross gifts”, hence, disregard the mortgage.
**Sale of Land #1 is a transfer with insufficient consideration. However, unlike in Estate
Taxation, Transfer with insufficient consideration for donor’s tax purposes is not taxable
if the property donated is a real property classified as capital asset subject to capital
gains tax.
*** Sale of Land # 2 is considered bonafide or valid sale.
****Sale of Land #3 is a transfer with insufficient consideration. Nonetheless, the sale is
subject to donor’s tax because the property was not subjected to capital gains tax.
Capital gains tax on real properties are applicable only on sale of real properties
classified as capital assets located in the Philippines.
Problem II:
ITEM
A
B
C
D
E
F
Car, Alabang
Car, Malaysia
Land Cebu
GROSS GIFT
Q#1
P4,500,00
1,000,000
1,500,000
2,000,000
3,000,000
500,000
200,000
200,000
P12,900,000
Q#2
P4,500,00
3,000,000
200,000
P7,700,000
Problem III:
1.P0
2.P5,000
3.P10,000
43,000
Problem IV:
Donation-Red Cross (exempt under a special law)*
P100,000
Donation to Manila City Hall *
300,000
Mortgage on the land (400,000 x ¼)
100,000
Total deductions from the gross gifts
P500,000
*Exempt donations which partake the nature of deductions and are, therefore , deductible from
the gross gifts to arrive at taxable net gifts.
Problem V (Donations to Relatives and Strangers)
Relative
P50,000
46,000
Cash to his son on account of marriage
Cash to PPCRV for 2013 election
Jewelry to his auntie
Shoes and bags to his girlfriend
22 |
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Books to the City of Makati
Second hand car to his first cousin
Brand new SUV to his second cousin (subject to revocation)
Shares of stocks of a domestic corp. to his best friend
Car to his daughter (a donation mortis causa)
Forgiven a loan due from his brother(50,000-25,000)
Sports equipment to his brother in law
Parcel of land to the Philippine government for public use
Gross Gifts
NOTE:




20,000
500,000
25,000
P621,000
150,000
75,000
1,000,000
P1,275,000
Cash to PPCRV. Not considered as donation under the tax code. It is subject to the rules and
regulations of the COMELEC under the election code of the Philippines.
City of Makati AND Land for Public Use. Although the donation is exempt, it shall be considered
in the determination of “gross gifts”
Gift subject to revocation is not a gift.
Donation mortis causa is a donation subject to estate tax, not donor’s tax.
Problem VI
Tax payable on:
1) March 1 = P2,000
2) May 30 = P18,000
3) June 30 = P90,000
4) July 31 = P0
5) September 30 = P447,200
Solution
Gross Gifts
Dowry
Net taxable gift
Donor’s Tax Due/ Payable – March 1
P200,000
P200,000
P2,000
Gross gift
Less: Mortgage assumed by the donee
Add: Prior net gift
Taxable gift – May 30
P500,000
(100,000)
200,000
P600,000
Donor’s Tax Due
Less: Tax paid
Donor’s tax payable-May 30
P20,000
(2,000)
P18,000
Donor’s tax payable-June 30
(P300,000 x 30%)
P90,000
Donor’s tax payable-July 31 (Bantay Bata)
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Problem VII
1)
2)
3)
4)
5)
Gross Gift
Dowry
Mortgage assumed
Prior net gift
Taxable gift
September 30
Relative
P1,500,000
(10,000)
(300,000)
600,000
P1,790,000
Tax Due
Less: Tax Payments
Tax Payable
P107,200
(20,000)
P87,200
Stranger
P1,500,000
(300,000)
Total
P1,200,000
@30%
P360,000
360,000
P447,200
January 15, 2012 = P32,000
April 1, 2012 = P6,000
December 25, 2012 = P0
March 30, 2013 = P30,000
May 25, 2013 = P0
Solution
Gross Gifts-Jan. 1, 2012
Less: Encumbrance
Taxable gift
Donor’s tax due/payable-Jan. 1, 2012
P1,000,000
(200,000)
P800,000
P32,000
Gross gift – April 1, 2012
Add: Prior net gift
Taxable gift
Donor’s Tax Due
Less: Tax paid
Donor’s tax payable-Apr. 1, 2012
P100,000
800,000
P900,000
P38,000
(32,000)
P6,000
December 25, 2012
P0
March 30, 2013
P100,000 x 30%
P30,000
May 25, 2013
Gross gift
Deductions
Taxable gift
Tax Due
The rule that gift of not more than
P100,000 is exempt is applicable only to
donations made to relatives.
P200,000
(200,000)
P0
P0
Problem VIII
1) October 8, 2014 = P9,800
2) November 4, 2014 = P1,200
June 6, 2014
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Gross Gift
Dowry
Mortgage assumed
Taxable gift
Donor’s Tax Payable
Husband
P240,000
(10,000)
(2,000)
P228,000
Wife
P240,000
(10,000)
(2,000)
P228,000
P3,120
P3,120
October 8, 2014
Husband
P30,000
---
Gross Gift
Dowry
Prior Net Gift
Taxable gift
P228,000
@30
Donor’s Tax (Tax Table)
Tax Paid-June 6
Donor’s Tax Payable
Wife
P30,000
(10,000)
228,000
P248,000
P3,920
(3,120)
P800
P9,0000
November 4, 2014
Husband
P7,000
(5,000)
P2,000
@30
P600
Total
P6,240
Total
P9,800
Wife
P7,000
(5,000)
P2,000
@30
P600
Total
Mrs.Ramos
P115,000
(90,000)
P25,000
@30
P7,500
Total
Donor’s Tax Payable
June 6, 2013
Mr.Ramos
P115,000
(90,000)
P25,000
@30
P7,500
Mrs.Ramos
P191,000
(10,000)
(2,500)
P178,500
Total
Gross Gifts
Dowry
Mortgage assumed
Prior net gifts
Taxable gift
October 10, 2013
Mr.Ramos
P191,000
(10,000)
(2,500)
P178,500
Gross Gifts (strangers)
Exempt
Prior Net Gift
Taxable gift
Donor’s Tax Payable
P1,200
Problem IX
1) October 10, 2013 = P3,140
2) April 4, 2014 = P13,500
Gross Gifts (strangers)
Exempt
Taxable gift
Donor’s Tax
Tax paid
Donor’s Tax Payable
25 |
P1,570
P1,570
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P1,570
P15,000
P3,140
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Gross Gifts
Dowry
Prior net gifts
(none; different year)
Taxable gift
Donor’s Tax Payable
Problem X
(1)P7,000
(2)P2,600
(3)P69,800
Gross Gifts
Dowry (beyond 1 year)
Mortgage assumed
Taxable gift
Donor’s Tax Payable
Gross Gifts
Dowry
Prior net gift
Taxable gift
Donor’s Tax
Donor’s tax paid
Donor’s Tax Payable
Gross Gifts
Dowry
Prior net gift
Taxable gift
Donor’s Tax
Donor’s tax paid
Donor’s Tax Payable
April 4, 2014
Mr.Ramos
P45,000
-
Mrs.Ramos
P45,000
(10,000)
-
P45,000
@30
P13,500
Total
P35,000
Exempt
(4)P30,000
Feb. 15, 2014
Mr.Macariola
P200,000
(50,000)
P150,000
P1,000
March 30, 2014
Mr.Macariola
P200,000
150,000
P350,000
8,000
(1,000)
P7,000
June 1, 2014
Mr.Macariola
P-
P13,500
Mrs.Macariola
P200,000
(50,000)
P150,000
P1,000
Total
Mrs.Macariola
P-
Total
P2,000
P7,000
Mrs.Macariola
P100,000
(10,000)
150,000
240,000
P3,600
(1,000)
2,600
Total
P2,600
October 12, 2014
Gross Gifts
Dowry (claimed June 1)
26 |
Mr.Macariola
Donation to
Donation to a
Stranger
Relative
P200,000
P200,000
-
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Donation to a
Relative
P400,000
-
Total
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Mortgage assumed
Prior net gift
Taxable gift
(50,000)
150,000
@30%
Donor’s Tax
Donor’s tax paid
Donor’s Tax Payable
Total
Donation by Clifford:
Gross Gifts
(50,000)
240,000
590,000
350,000
550,000
P45,000
P54,000
P17,000
(8,000)
P9,000
P19,400
(3,600)
P15,800
P69,800
P100,000
@30%
Donor’s Tax
P30,000
ERRATUM: Ronald
Change to Clifford
CHAPTER 7 – BUSINESS TAXES
MULTIPLE CHOICE
1. A
2. D
3. D
4. D
5. D
6. C
7.
8.
9.
10.
11.
12.
B
C
D
C
A
C
13.
14.
15.
16.
17.
18.
D
C
B
C
A
D
19.
20.
21.
22.
23.
24.
C
D
D
A
D
C
25.
26.
27.
28.
29.
30.
A*
D
C**
A
A
C
* The end-use (person using the communication facility is the one liable for OCT, not the communication company.
**3% CCT is applicable only to domestic carriers transporting passengers by land, not by air or sea.
CHAPTER 8 – VALUE ADDED TAX
TRUE OR FALSE-PART A
1. T
6.
2. F
7.
3. F
8.
4. T
9.
5. T
10.
TRUE OR FALSE-PART B
1. T
6.
2. T
7.
3. T
8.
4. F
9.
5. F
10.
MULTIPLE CHOICE
1. D
21.
2. C
22.
3. A
23.
4. D
24.
27 |
F
F
F
T
T
11.
12.
13.
14.
15.
F
F
F
F
F
16.
17.
18.
19.
20.
T
F
F
T
T
F
F
F
T
F
11.
12.
13.
14.
15.
F
F
T
F
T
16.
17.
18.
19.
20.
T
T
T
F
F
A
B
D
C
41.
42.
43.
44.
B
C
A
B
61.
62.
63.
64.
B
C
A
C
Transfer & Business Taxation(3
r d
21.
22.
23.
24.
25
F
F
T
F
F
81.
82.
83.
84.
D
C
D
C
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5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
D
D
D
D
D
B
A
C
C
A
A
D
C
C
A
D
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
A
C
C
D
C
D
B
C
B
A
D
A
B
B
B
B
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
C
D
D
B
D
D
C
C
D
B
C
B
D
D
C
A
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
A
B
B
C
D
A
C
B
D
A
D
D
A
D
B
C
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
B
D
A
B
D
D
B
C
D
C
D
ERRATUM:
Illustration #6 …. Medical fees (included in the hospital bills)
Supporting Computations:
No. 14 To be exempt, the contributions from each member in item “III” should not exceed P15,000.
No. 21 Item “a” is composed of selling price and the applicable output vat
No. 23
Output Vat (P280,550 +P152,400) x 12%
Input vat (P110,220+P101,250) x 12%
Vat Payable
P51,954
(25,374.6)
P26,578
Output Vat, 3rd quarter (P150,000 x 12%)
Input vat, 3rd quarter (P120,000 x 12%)
Deferred input vat – previous quarter
Vat Payable (Carry-over)
P18,000
(14,400)
(6,000)
(P2,400)
No. 24
No. 40
AR, July 1
Billings, July-Sept.
AR, Sept. 30
Collections
Output vat @ 12%
Input vat on purchases @ 12%
Vat Payable
P180,000
850,000
(120,000)
P910,000
109,200
(57,600)
P51,600
No. 42
Output vat (P10M x 12%)
Input vat on materials
Input vat on capital goods
28 |
P1,200,000
(480,000)
(36,000)
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(P3Mx12%) /60 mos.
Vat Payable June 30, 2014
P684,000
No. 44
Sales, shares held as inventory
Cos of shares, held as inventory
Gross income
Vat rate
Output vat
Les: Input vat
Supplies expense
Rent expense
Vat payable
P5,000,000
(2,000,000)
3,000,000
12%
P360,000
12,000
24,000
(36,000)
P324,000
No. 52
Domestic sales (P600,000 x 12%)
Add: Transaction deemed sales
Jan. 4 consignment (P200,000 x 12%)
Goods consumed on Fe. 27 (P50,000 x 12%)
Property dividends (P150,000 x 12%)
Total Output Vat
P72,000
24,000
6,000
18,000
P120,000
No. 63
Output tax (1,500,00 x 12%)
Less: Input taxes
Purchases (800,000 x 12%)
Machinery (240,000/60 x 3mos.)
Carry-over
Excess input vat
P180,000
96,000
12,000
97,000
205,000
(P25,000)
No. 64
Output tax on sale (2,000,000x 12%)
Output tax on sale of machinery (2,000,000x 12%)
Less: Input taxes
Purchases 1,000,000x 12%)
Unamortized input tax on machinery
(240,000- 12,000)
Carry-over
VAT Payable
P240,000
240,000
120,000
25,000
228,000
(373,000)
P107,000
No. 71 & 72
Output vat (P592,480 x 3/28)
Less: Input Vat
Purchases of goods (P100,000 x 12%)
Purchases of services (P20,000 x 12%)
Transitional input vat
VAT Payable
P63,480
P12,000
2,400
4,800
(19,200)
P44,280
No. 77
Change the year from 2010 to 2012
Output Vat for October 2012 = P3M x 12 = P360,000
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 Ratio of Initial Pay’t over Gross S.P. = P900,000/P3,000,000 = 30%
 If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale which is
treated as Cash Sale. Therefore, the entire output vat is due on the month of sale.
No. 78
Output Vat for 2013 = P0;
The entire output vat was paid in 2012
No. 80
Downpayment
1st installment payment
Total (vat inclusive)
Less: VAT (P224,000 x 3/28)
Initial Payment (exclusive of vat)
Divide by contract Price (P1,120,000 x 3/28)
Ratio of Initial Payment over SP
Output vat for 2012 (P200,000 x 12%)
P112,000
112,000
224,000
(24,000)
P200,000
1,000,000
20%
P24,000
No. 80
VAT ON CASH SALE:
(FMV is higher than SP) (P600,000 x 12%)
VAT ON DEFERRED SALE:
(Ratio of Initial payment over SP  25%
(Not qualifying under installment method)
(Treated as cash sale; SP is higher than FMV)
[(P336,000/1.12) x 12%]
TOTAL OUTPUT VAT
P72,000
36,000
P108,000
No. 83 and 84
Output vat (P336,000 x 3/28)
Input vat (56,000 + 11,200) x 3/28 x 300/500
Vat Payable
P36,000
(4,320)
P31,680
No. 85
OUTPUT VAT (P896,000 x 3/28)
INPUT VAT
Purchases of goods, vat business, vat included
(P224,000 x 3/28)
MIXED Transactions:
Purchases of supplies, for vat & non vat business
[(112,000 x 3/28) x (800,000/1,000,000)]
Purchase of depreciable asset, for use in vat and non vat business
[(P2,240 x 3/28) x (800,000/1,000,000)]
VAT PAYABLE
P96,000
(24,000)
(9,792)
P62,208
No. 86 and 87
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28
Export sales (zero rated)
INPUT VAT
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Purchases of goods, supplies and services for domestic sales and for export
(374,000 + 69,848 + 154,000 + 55,000) x 3/28
Vat Payable
(69,948)
(P5,127)
No. 88
Raw Materials (P560,000 x 3/28) x 400,000/1M
Supplies (P448,000 x 3/28) x 400,000/1M
Equipment (P300,000 x 12% x 400,000/1M)
INPUT VAT ATTRIBUTED TO EXPORT SALES
P24,000
19,200
14,400
P57,600
PROBLEM SOLVING
Problem 1:
a) P0
b) P134,400 x 3/28 = P14,400
c) PP201,600 x 3/28 = P201,600 (regardless of whether or not Abi is a vat registered exporter)
Not zero rated. To be zero rated, the problem should provide that Abi exported more than 70%
of its annual production
d) Vat exempt
Problem 2:
Cash sales (P660,800 x 3/28)
Sales on account (P246,400 x 3/28)
Transaction deemed sales:
(P22,400 + 16,800 + 19,040 + 8,960) x 3/28
Total output vat
Input vat (P291,200 x 3/28)
Vat Payable
P70,800
26,400
7,200
P104,400
(31,200)
P73,200
Problem 3:
OUTPUT:
Sales (P8M – 400,000) x 12%
Sales from consignment (March and Feb.)
(20+10) x P10,000 x 12%
Transactions deemed sales
January 8 consignment (20 x P10,000) x 12%
Goods withdrawn
Goods taken as payment to creditors
INPUT VAT
Purchase of goods, supplies, freight/insurance)
Capital goods (ASSUME USEFUL LIFE OF 4 YEARS)
(P1,100,000 x 12%) / 48 mos.
VAT PAYABLE
P912,000
36,000
24,000
6,000
3,600
P981,600
82,080
2,750
(84,830)
P896,770
Problem 4:
Business tax
31 |
VAT
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Gross receipts (collections) from:
Hotel rooms
Dining hall
Other revenues
Total
VAT
Gross receipts (collections) from disco operations @18%
TOTAL Business Taxes
P1,800,000
3,150,000
700,000
P5,650,000
12%
P678,000
P504,000
P1,182,000
Problem 5:
Output vat on gross receipts (collections) from
construction contracts with:
Bobads, City Condo & Urban Dev’t.
(P30M x 12%)
Less: Input vat on payments/advances made to:
Alpha (P12M x 90% x 12%)
Charlie (P4M-P1M) x 12%
Delta (P2M x 12%)
VAT PAYABLE, 1st Quarter 2014
P3,600,000
(1,296,000)
(360,000)
(240,000)
P1,704,000
Problem 6:
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale
Lot A: P25,000 x 12%; P25,000 x 12%
Lot B: P200,000 x 12%
Lot C: P40,000 x 12%; P20,000 x 12%
Vat Payable
No. 2013
P3,000
24,000
4,800
P31,800
Dec. 2013
P3,000
2,400
P5,400
Problem 7:
Output vat: school supplies and gift items (P560,000 + 336,000) x 3/28
Input vat:
 Directly attributable to vatable sales (P406,000 x 3/28)
 Not directly attributable to vatable sales (P21,112 x 3/28 x 800*/1,000**)
VAT PAYABLE
P96,000
(43,500)
(1,809.60)
P50,690.40
*(560,000/1.12) + (P336,000/1.12) = P800,000 vatable sales
**vatable sales + vat exempt sales (sale of books) = P1,000,000
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CHAPTER 9 – OTHER PERCENTAGE TAXES
TRUE OR FALSE-SET A
1. F
6. F
2. T
7. F
3. T
8. T
4. F
9. T
5. F
10. F
TRUE OR FALSE-SET B
1. T
6. F
2. T
7. F
3. F
8. T
4. T
9. F
5. T
10. F
MODIFIED IDENTIFICATION
1. A
6. C
2. A
7. A
3. E
8. A
4. C
9. C
5. C
10. C
MULTIPLE CHOICE
1. C
21. -----2. D
22. A
3. D
23. B
4. C
24. D
5. A
25. B
6. A
26. C
7. D
27. B
8. A
28. C
9. A
29. C
10. C
30. A
11. D
31. B
12. A
32. D
13. B
33. D
14. C
34. D
15. D
35. D
16. B
36. A
17. B
37. A
18. D
38. A
19. A
39. D
20. B
40. A
33 |
11.
12.
13.
14.
15.
T
F
F
T
T
16.
17.
18.
19.
20.
T
F (False, should be 20 days)
F
T
F
11.
12.
13.
14.
15.
T
F
F
T
T
16.
17.
18.
19.
20.
T
T
T
T
T
11.
12.
13.
14.
15.
C
A
A
A
A
16.
17.
18.
19.
20.
A
C
C
C
C
21.
22.
23.
24.
25.
C
A
A
A
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
D
C
A
D
D
C
B
C
B
B
A
C
C
C
A
A
----C
C
A
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
A
D
D
B
C
D
A
A
B
C**
A
C
C
C
C
D
D
D
C
A
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
C
B
D
D
B
B
A
D
D
D
Transfer & Business Taxation(3
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Supporting Computations:
No. 5 (P280,000 + P220,000) x 3% = P15,000
No. 6 (P50,000 + 100,000 – 75,000) x 3% = P2,250
No. 7
Gross receipts (refer to #6)
x vat rate
Output vat
Input vat (P11,200 x 3/28)
Vat Payable
No. 16
No. 17
No. 18
No. 22
No. 22
No. 26
No. 27
No. 30
No. 34
P75,000
12%
P9,000
(1,200)
P7,800
P6.5M x 12% = P780,000
P660,00 x 3% = P19,800
(P400,000 + P100,000) x 12% = P60,000
P10M x 2.5% = P250,000
P10M x 1.5% = P150,000
(P10M x 40%) 3% = P120,000
(P10M – P6M) X 30% = P1,800,000
Subject to vat, not franchise tax
AR, beg.
Revenues (P4M + P1M)
AR, end
Gross receipts
Vat rate
Business tax due
P600,000
5,000,000
(960,000)
P4,640,000
12%
P556,800
No. 35
Covered by the Franchise
AR, beg.
Revenues
AR, end
Gross receipts
Franchise tax rate
Business tax due
Total Business Taxes
P600,000
4,000,000
(800,000)
P3,800,000
2%
P76,000
P176,800
NOT Covered by the Franchise
AR, beg.
Revenues
AR, end
Gross receipts
Franchise tax rate
Business tax due
P---1,000,000
(160,000)
P840,000
12%
P100,800
No. 42 P3M x 10% = P300,000
No. 34
Output vat (P5M x 12%)
Input Vat
 P300,000 x 12%
 P800,000 x 12% x 5/8
Vat Payable
P600,000
(36,000)
(60,000)
P504,000
No. 48
OPT%
GRT
Interest income from lending activities
from inst1uments with remaining terms of:
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Five years and less
More than five years
Dividends & equity shares from subsidiaries
Rental income
Net trading gains
Total Gross Receipts Tax
5,000,000
3,000,000
1,000,000
500,000
300,000
5%
1%
0%
7%
7%
P250,000
30,000
0
35,000
21,000
P336,000
Rentals from safety deposit boxes
Net foreign exchange gains
Net trading gains from trading of securities
Trust fees
Dividends from domestic corporations
Other service fees
Interest income from lending activities
from inst1uments with remaining terms of:
Five years and less
More than five years
Total Gross Receipts Tax
P880,000
220,000
660,000
110,000
30,000
220,000
OPT%
7%
7%
7%
7%
0%
7%
GRT
P61,600
15,400
46,200
7,700
0
15,400
700,000
800,000
5%
1%
35,000
8,000
P189,300
No. 49
No. 50
Interest income with maturity of less than 5 years (P500,000 x 5%)
Rentals (P500,000 x 7%)
Net trading loss = none; if net trading gain, tax is 7%
Gross receipt tax (GRT)
P25,000
35,000
P60,000
No. 51
Interest income with maturity of less than 5 years (P1M x 5%)
Rentals (P500,000 x 7%)
Net trading gain
[200,000 – (100,000 net trading loss previous month) x 7%]
Gross receipt tax (GRT)
P50,000
35,000
7,000
P92,000
No. 52
Interest withheld and paid (P100,000 x 5 years x 1%)
Adjusted amount of tax due to pretermination (P100,000 x 5 years x 5%)
Tax Payable
P5,000
25,000
P20,000
No. 55 P2M x 10% = P200,000
No. 56 [(P500,000 x 12%)-(300,000x12%)] = P24,000
No. 58 P2M x 2% = P40,000
No. 64 P7.5M x 18% = P1,350,000
No. 65 P5M x 18% = P900,000
No. 66 Not subject to OPT. Gross Receipts > 1,919,500, therefore, JC is subject to vat, not OPT
No. 70**
ERRATUM: CHANGE THE QUESTION TO : WHICH OF THE FOLLOWING IS SUBJECT TO PERCENTAGE TAX?
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“a” - not subject to percentage tax or any business tax…… Overseas communication into the Philippines.
“b” and “d” - subject to vat
“c” – not world or oriental championship. Subject to 10% OPT
No. 75
No. 77
No. 79
No. 80
No. 81
P350,000 x .005 = P1,750
[(P1,500,000 - P1,000,000) x 12] = P60,000
(120,000 – 30,000) x ½ x P30 x 1% = P13,500; Ratio = 45/75 = 60%; IPO rate = 1%
(2,000 x P25 x 4% = P2,000;
Ratio = 2/75 = 2.67%; IPO rate = 4%
(6,000 x P40 x .005% = P1,200
PROBLEM SOLVING
Problem I:
Gross receipts-passenger operations
(P8,000,000 x 3% CCT)
Gross receipts cargo operations
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat)
Total business taxes
P240,000
450,000
240,000
P930,000
Problem II:
1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3% = P42,000
2) VAT = P1,400,000 x 12% = P168,000
Problem III:
1) Income tax due = P625,000
Subject to 2.5% GPB:
 GR Passenger operations-Phils.
 GR cargo operations-Phils.
Total
GPB rate
Subject o NCIT (RR 15-2013):
 Demurrage, detention and Other fees
 Expenses on demurrage fees
Income subject to NCIT
NCIT rate
Total income tax due
P10,000,000
6,000,000
16,000,000
2.5%
1,000,000
(250,000)
750,000
30%
P400,000
225,000
P625,000
EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention fees, and other
charges relating to inbound and outbound cargoes are considered as income derived from
sources “within” the Philippines subject to regular tax rates.
2) Income tax due = P545,000
Subject to 2% GPB (Under a tax treaty):
 GR Passenger operations-Phils.
 GR cargo operations-Phils.
Total
GPB rate
Subject o NCIT (RR 15-2013):
36 |
Transfer & Business Taxation(3
P10,000,000
6,000,000
16,000,000
2%
r d
P320,000
Edition) by Tabag and Garcia
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

Demurrage, detention and Other fees
Expenses on demurrage fees
Income subject to NCIT
NCIT rate
Total income tax due
1,000,000
(250,000)
750,000
30%
225,000
P545,000
3) Business tax due = 3% CCT on cargo operations originating in the Philippines
= 3% x P6M = P180,000
4) Income tax due = P3,225,000
 An offline carrier is not an international carrier. Assume therefore that the income provided
were in the nature of commission income from international carriers.
 ***An offline carrier may be a domestic or resident foreign corporation. Since the original
problem pertains to an international carrier (resident foreign corporation), the offline carrier
provided in the problem should be treated as a resident foreign corporation taxable only on
its income from sources within the Philippines.
Solution:
Net income subject to NCIT:
 GR Passenger operations-Phils.
P10,000,000
 GR cargo operations-Phils.
6,000,000
 Demurrage, detention and Other fees
1,000,000
 Expenses-passenger operations-Phils.
(4,000,000)
 Expenses-cargo operations-Phils.
(2,000,000)
 Expenses on demurrage fees
(250,000) P10,750,000***
NCIT rate
30%
Income tax due
P3,225,000
5) Business tax due (offline carrier) = P2,040,000
 GR from Passenger operations-Phils.
P10,000,000
 GR from cargo operations-Phils.
6,000,000
 Demurrage, detention and Other fees
1,000,000
Vat rate
Business tax due
P17,000,000
12%
P2,040,000
Problem IV:
37 |
1.
P0. Not subject to business tax but subject to a capital gains tax of P2,500.
[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT
2.
P0. Not subject to business tax as well as income tax (CGT). The transaction resulted to a loss
amounting to P75,000, hence, not subject to CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share
3.
Subject to P6,000 value added tax
[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 12% = P6,000
4.
Subject to OPT (stock transaction tax) of P600 computed as follows:
P120,000 x .005 = P600
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5.
OPT = 5,000 shares x P18 x .005 = P450
1.
2.
P3,000 OPT.
P100 OPT.
1.
2.
3.
4.
5.
P1,053,000 OPT (amusement tax).
P5,850,000 x 18%
P1,053,000 OPT.
Subject only to a business tax due of 18% OPT.
P720,000 OPT
P4,000,000 x 18%
P55,500 OPT.
P1,850,000 x 3%
P108,000 Vat.
(P1850,000 x 12%) – [P750,000 x 12% + (P224,000 x 3/28)]
1.
P651,250
(P4M + 3.5M + 775,000) x 7% = P579,250
(P6M + 1.2M) x 1% = P72,000
2.
P578,500
[(P2.8M + 3.3M + 825,000) + (325,000 – 150,000)] x 7% = P497,000
(P7.2M + 950,000) x 1% = P81,500
Problem V:
ratio=10/35=28.5%; IPO rate= 2%; Tax due on=P150,000 x 2% = P3,000
P20,000 x .005
Problem VI:
Problem VII:
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