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Income Taxation - tabag & garcia
Auditing Theory (Mindanao State University)
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SOLUTIONS MANUAL
INCOME TAXATION
2018 Edition
By: TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION
TRUE OR FALSE-SET A
1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7. TRUE
8. FALSE
MULTIPLE CHOICE
1. A
2. C
3. B**
4. D
5. C
9.
10.
11.
12.
13.
14.
15.
16.
TRUE
TRUE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
17.
18.
19.
20.
21.
22.
23.
24.
FALSE
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
FALSE
25.
26.
27.
28.
29.
30.
FALSE
TRUE
FALSE
TRUE
TRUE
FALSE
21.
22.
23.
24.
25.
D
D
D
D
B
41.
42.
43.
44.
45.
D
A
A
B
C
61.
62.
63.
64.
65.
C
C
C
C
A
6.
B
26.
A
46.
C
7.
C
27.
A
47.
B
8.
C
28.
D
48.
A
9.
D
29.
C
49.
C
10.
D***
30.
C
50.
D
11.
A
31.
A
51.
D
12.
D
32.
C
52.
C
13.
D
33.
D
53.
B
14.
C
34.
C
54.
D
15.
C
35.
A
55.
A
16.
D
36.
C
56.
A
17.
A
37.
D
57.
A
18.
A
38.
C
58.
D
19.
C
39.
D
59.
C
20.
B
40.
A
60.
A
**Statement 1 – False; similarity of tax from license fee, not a distinction.
***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”.
Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”
CHAPTER 2 - INDIVIDUAL TAXPAYERS
ERRATUM:
(1) FWT % of Royalty income
(2) ROYALTIES
B. Royalties on books, as well as other literary works
and musical compositions
(2)
Citizens &
Residents
NRA-ETB
NRA-NETB
20%
10%
20%
10%
25%
25%
PAGE 79; Illustration #6 Question#2: ANSWER SHOULD BE P154,000. Include PCSO winnings @ 20%
PROBLEM SOLVING:
2-1
1. RC
2. RC
3. RC
4.
5.
6.
NRA-NETB
NRC
RA
2-2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
TAX TYPE
FWTx
FWTx
BTx
FWTx
Exempt
BTx
BTx
BTx
BTx
BTx
FWTx
FWTx
FWTx
BTx
BTx
Tax RATE
20%
7.5%/ 15%TL
Tax Table
20%
Tax Table
Tax Table
Tax Table
Tax Table
Tax Table
20%
10%
20%*
Tax Table*
Tax Table
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
TAX TYPE
Exempt
FWT
FWTx
BTx
Exempt
FWTx
FWTx
FWTx
FWTx
BTx
BTX
FWTx
FWTx
CGT
Exempt
Tax RATE
20%
25%
Tax Table
25%
20%
20%
10%
Tax Table
Tax Table
20%
25%
5%&10%/15%
Sub.to OPT***
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16
FWTx
20%
34
BTx
Tax Table
17
FWTx
20%
35
BTx
Tax Table****
18
BTx
Tax Table
*Prizes received from Philippine sources exceeding P10,000 are subject to 20% final tax rate.
On the other hand, Other WINNINGS (regardless of amount) are subject to 20% final tax rate.
**PCSO/Lotto winnings under TRAIN Law:
Amount
RC, NRC, RA,
NRAET
NRANET
≤ P10,000
exempt
exempt
25%
> P10,000
20% FWT
20% FWT
25% FWT
***Stock Transaction Tax on sale of shares of DC listed in the Local Stock Exchange:
Prior to TRAIN Law = ½ of 1% of GSP
TRAIN Law = 6/10 of 1% of GSP
****CGT on Real Properties
Must be pertaining to a real property classified as capital asset located in the Philippines. However, if it is sold
to the Government, the tax may either be CGT or Basic Tax at the option of the individual taxpayer.
2-3
1.
a.
b.
c.
d.
2.
3.
4.
Exempt
Exempt
Income Tax Due = P130,000
P746,000 computed as follows:
Tax Due:
1st P2,000,000
Excess over P2M = (P800,000 x 32%)
Total
Income Tax Payable = P95,000 computed as follows:
Gross sales
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P150,000 x 30%)
Tax Due
Less: CWT
Income Tax Payable
Income Tax Payable = P124,000 computed as follows:
Gross sales
Less
Balance subject to 8% tax
x
Tax Due
Less: CWT
Income Tax Payable
Income Tax Payable = P215,000 computed as follows:
Gross sales
Rental income (P380,000/95%)
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P550,000 x 30%)
Tax Due
Less: CWT
Income Tax Payable
P490,000
256,000
P746,000
P2,800,000
(1,200,000)
(650,000)
P950,000
P130,000
45,000
P175,000
(80,000)
P95,000
P2,800,000
(250,000)
P2,550,000
8%
P204,000
(80,000)
P124,000
P2,800,000
400,000
(1,200,000)
(650,000)
P1,350,000
P130,000
165,000
P295,000
(80,000)
P215,000
5.
The 8% optional tax is not applicable because the total of the gross sales and other operating income exceeded the revised vat threshold of P3,000,000.
6.
Income Tax Payable = P222,500 computed as follows:
Gross receipts
Cost of direct services
Other operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P575,000 x 30%)
Tax Due
Less: CWT
Income Tax Payable
7.
P4,000,000
(1,800,000)
(825,000)
P1,375,000
P130,000
172,500
P302,500
(80,000)
P222,500
The 8% optional tax is not applicable because the gross receipts exceeded the revised vat threshold of P3,000,000.
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8.
9.
Income Tax Payable = P212,000 computed as follows:
Compensation income
Gross sales
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P2,000,000
Excess over P2M = (P350,000 x 32%)
Tax Due
Less: CWT
On compensation income
On business income
Income Tax Payable
P1,400,000
2,800,000
(1,200,000)
(650,000)
P2,350,000
P490,000
112,000
P602,000
(310,000)
(80,000)
P212,000
The 8% optional tax is applicable because gross sales did not exceed the revised vat threshold of P3,000,000. The income tax payable shall be computed
as follows:
Gross sales
2,800,000
x
8%
8% Tax on sales
P224,000
ADD: Tax due on compensation income
1st P800,000
P130,000
Excess over P800,000 = (P600,000 x 30%)
180,000
310,000
Tax Due
P,000
P534,000
Less: CWT
On compensation income
(310,000)
On business income
(80,000)
Income Tax Payable
P144,000
&
&
For mixed income earners, P250,000 is not deducted for purposes of computing the 8% tax
The 8% tax is not applicable to compensation income.
2-4
1.
Taxpayer is a resident citizen
1.1 Taxable income = P1,050,000
1.2 Income tax payable = P80,000
1.3 Final tax on passive income = P57,500
1.4 Total income tax expense = P262,500
Gross business income, Philippines
P1,000,000
Gross business income, USA
Business expenses, Philippines
Business expenses, USA
Compensation income, Philippines
Dividend income-foreign corp.
Interest income-bank deposit abroad
Raffle draw winnings
Basic personal exemption
Taxable income
500,000
(700,000)
(430,000)
600,000
40,000
30,000
10,000
P1,050,000
Tax Due [(P130,000)+(250,000 x 30%)]
Creditable withholding tax on bus. income
Income Tax Payable
P205,000
(125,000)
P80,000
Dividend income – DC (50k x 10%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (P200,000 x 20%)
Final Tax on Passive Income
P5,000
4,000
6,000
2,500
40,000
P57,500
Basic income tax due
Final taxes on passive income
Total income tax expense
2.
P205,000
57,500
P262,500
The question is tax expense; ignore
the income tax payable of P80,000.
Taxpayer is a nonresident citizen
2.1 Taxable income = P910,000
2.2 Income tax payable = P38,000
2.3 Final tax on passive income = P51,500
2.4 Total income tax expense = P214,500
Gross business income, Philippines
P1,000,000
Business expenses, Philippines
Compensation income, Philippines
Dividend income-foreign corp.
Raffle draw winnings
Basic personal exemption
Taxable income
(700,000)
600,000
***
10,000
P910,000
Tax Due [(P130,000)+(110k x 30%)]
Creditable withholding tax on bus. Income
Income Tax Payable
P163,000
(125,000)
P38,000
***Assume situs is without the Phls.
Assume the tax withheld pertain to
Income derived in the Phls.
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Dividend income – DC (50k x 10%)
Interest income bank deposit-Phls.@20%
P5,000
4,000
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (P200,000 x 20%)
Final Tax on Passive Income
exempt
2,500
40,000
P51,500
Basic income tax due
Final taxes on passive income
Total income tax expense
P163,000
51,500
P214,500
3.
Taxpayer is a resident alien
3.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
3.2 Income tax payable = P38,000 (same answer with #2.2; nonresident citizen)
3.3 Final tax on passive income = P57,500 (same answer with #1.3; resident citizen)
3.4 Total income tax expense = P220,500 computed as follows:
Basic income tax due
P163,000
Final taxes on passive income
57,500
Total income tax expense
P220,500
4.
Taxpayer is a nonresident alien engaged in trade or business
4.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
4.2 Income tax payable = P38,000 (same answer with #2.2; nonresident citizen)
4.3 Final tax on passive income = P16,500
4.3 Total income tax expense = P179,500
Dividend income – DC (50k x 20%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings
Final Tax on Passive Income
&
Use 20% rate for DI from DC instead of 10%
**Unfortunately, unlike RCs, NRCs and RAs, the PCSO exemption of NRAET under TRAIN Law was retained.
Basic income tax due
Final taxes on passive income
Total income tax expense
5.
P10,000
4,000
exempt
2,500
Exempt**
P16,500
Taxpayer is a nonresident alien not-engaged in trade or business
Compensation income, Philippines
Dividend income - DC
Dividend income from foreign corp.
Interest income bank deposit, Phls.
Interest income on FCDS deposit
Royalty income from composition
Raffle draw winnings
PCSO winnings
Total GROSS Income
x
Income Tax Due/expense
P163,000
16,500
P179,500
P600,000
50,000
20,000
Exempt
25,000
10,000
200,000
P905,000
25%
P226,250
Assume situs is “without or abroad”
2-5
1.
Taxpayer is a resident citizen
a.
Taxable net income = P1,076,100
b.
Income tax payable = P212,830
c.
Final tax on passive income = P68,030
d.
Capital gains tax = P120,600
Solution:
From Phils.
From Abroad
Income from employment
P180,000
P280,000
Business income
850,000
960,000
Deductible business expenses
(610,000)
(730,000)
Interest income on personal loans**
6,000
3,000
Dividend income from foreign corp.
6,800
2,000
Prizes from singing contest
5,600
Interest income on bank deposits
4,200
Interest income on money market placements
1,600
Royalty income
50,000
Winnings/ prizes from lotteries, raffles
16,900
Lotto winnings
--50,000
Basic Personal exemption
Additional exemption
Taxable income
TAX DUE:
First P800,000
Excess = P276,100 @ 30%
**All incomes regardless of source are taxable. However, personal expenses are not allowed as deduction from
the gross income
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Total
P460,000
1,810,000
(1,340,000)
9,000
8,800
5,600
4,200
1,600
50,000
16,900
50,000
P1,076,100
P130,000
82,830
P212,830
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Final Tax on Passive income:
Interest income on bank deposits
Interest income on money market placements
Royalty income
Lotto winnings
Winnings/ prizes from lotteries, raffle draws
Total
@
10,800
7,500
90,000
150,000
45,000
P303,300
20%
Dividend income from domestic corp.
Royalty income from sale of books
Total
@
TOTAL FINAL TAX ON PASSIVE INCOME
Capital Gains Tax:
Sale of lot (P1,060,000 x 6%)
Sale of house and lot (P950,000 x 6%)
Total
2.
5,700
68,000
P73,700
10%
P60,660
7,370
P68,030
P63,600
57,000
P120,600
Taxpayer is a non-resident citizen
a.
Taxable income = P438,400
b.
Income tax payable = P39,600
c.
Final tax on passive income = P68,030
d.
Capital gains tax = P120,600
Solution:
Income from employment
Business income
Deductible business expenses
Interest income on personal loans
Dividend income from foreign corp.
Prizes from singing contest
Basic Personal exemption
Additional exemption
Taxable income
TAX DUE:
First P400,000
Excess = P38,400 x 25%
From Phils.
P180,000
850,000
(610,000)
6,000
6,800
5,600
P438,400
P30,000
9,600
P39,600
Final Tax on Passive income:
§
As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on passive income of a nonresident
citizen is the same with that of a resident citizen.
Capital Gains Tax:
§
All individual taxpayers are subject to the same types of CGTs
3.
Taxpayer is a nonresident alien engaged in trade
a.
Taxable income = P438,400 (same with a non-resident citizen taxpayer)
b.
Income tax payable = P39,600 (same with a non-resident citizen taxpayer)
c.
Final tax on passive income = P38,600; The exemption on PCSO/Lotto winnings was retained on NRAETB
d.
Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)
Final Tax on Passive income:
Interest income on bank deposits
Interest income on money market placements
Royalty income
Dividend income from domestic corp
Winnings/ prizes from lotteries, raffle draws
Total
@
Dividend income from domestic corp.@ 20%
Royalty income from sale of books
@
TOTAL FINAL TAX ON PASSIVE INCOME
10,800
7,500
90,000
5,700
45,000
P159,000
20%
68,000
10%
rate is 20%
P31,800
6,800
P38,600
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2-6
a.
b.
c.
Taxable income of the husband = P1,165,000
Taxable income of the wife = P890,000
Consolidated tax due of the husband and the wife = P396,500
Husband
INCOME:
Compensation income
Income-Profession [P800,000/2)]
Income from trading business
LESS:
Expenses-practice of profession [ P320,000/2)]
Expenses – trading business
Basic Personal exemption
Additional exemption
TAXABLE INCOME
Wife
P 850,000
400,000
250,000
P650,000
400,000
-
(160,000)
(100,000)
(75,000)
P1,165,000
(160,000)
P890,000
P130,000
109,500
P130,000
27,000
Tax due:
First P800,000
In excess of P500,000 @ 30%
Total
P239,500
P157,000
Consolidated Tax Due
P396,500
Note: Personal expenses are not deductible. The Personal exemptions and Premium payments for health insurance are no longer deductible
beginning Jan. 1, 2018 under TRAIN Law.
2-7
a.
Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P150,000 x 15%*)
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%)
Total capital gains tax
& *CGT on shares of DC under TRAIN Law
& Sale of shares in the local stock exchange is subject to transaction tax of 6/10 of 1% of GSP under TRAIN Law
P22,500
300,000
P322,500
b.
Dividend income from domestic corp. P40,000 x 10%
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20%
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 15%
Interest income on government bonds = P10,000 x 20%
Royalty – literary = P10,000 x 10%
Royalty other than literary = P12,000 x 20%
Total Final tax on passive income of Daniel and Kat
P4,000
3,400
1,500
2,000
1,000
2,400
P14,300
c.
Business income
Rental income net of tax (P200,000/95%)/2
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P6,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P350,000 +(75,000/2)]
Personal exemption
Taxable net income of Daniel
P600,000
100,000
5,000
7,000
7,500
250,000
15,000
(387,500)
P597,000
Gross income from practice of profession (P360,000/90%)
Rental income net of tax (P190,000/95%)/2
Dividend income from resident corp.
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P4,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P200,000 +(75,000/2)]
Personal exemption
Taxable net income of Kat
P400,000
100,000
20,000
5,000
5,000
7,500
250,000
15,000
(237,500)
P565,000
d.
2-8
1.
2.
3.
4.
5.
6.
Income tax payable, first quarter = PIncome tax payable, second quarter = P17,600
Income tax payable, third quarter = P38,427.5
Income tax payable, fourth quarter = P67,297.5
Final tax on passive income = P15,800
Capital gains tax = P600,000 x 6% = P36,000
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Gross Profit from Sales
Business e-xpenses
Personal exemption
Taxable income
1st Q
P300,000
(120,000)
2nd Q
P600,000
(262,000)
3rd Q
P910,000
(405,890)
P180,000
P338,000
P304,110
Q4/Year
P1,200,000
(426,700)
P773,300
-
P17,600
P56,027
P123,325
P-
-
(17,600)
P17,600
P38,427.5
(17,600)
(38,427.5)
P67,297.5
Tax Due (Tax Table)
Less: Tax Paid
Q1
Q2
Q3
Income Tax Payable
Note: The amounts shown above are cumulative.
(Amounts are cumulative)
Dividend received from domestic corp.
Interest income from
BPI
UCPB
Metro Bank
Total final tax on passive income
Amount
30,000
%
10
Tax
P3,000
16,000
18,000
30,000
20
20
20
3,200
3,600
6,000
P15,800
2-9
CASE A: 2017 Taxable Year
a.
The Taxpayer is a Special Alien Employee (SAE).
Income Tax Due = P850,000 x 15% = P127,500
b.
c.
d.
The Taxpayer is a Special Filipino Employee (SFE), however, the income tax due is based on the old graduated tax table. The 15%
preferential rate is not applicable because the compensation income is lower than P975,000.
TNI = 750,000 + 100,000 – basic personal exemption of P50,000 = P800,000
Basic Tax Due (old rate) = 125,000 + (300,000 x 32%) = P221,000
The Taxpayer is a Special Filipino Employee (SFE) employed by an OBU.
Income Tax Due = P850,000 x 15% = P127,500
The Taxpayer is a Special Filipino Employee (SFE) employed by an PC/SC.
Income Tax Due = P850,000 x 15% = P127,500
CASE B: 2018 Taxable Year; The Preferential Tax Rate of 15% is no longer applicable
Answers for letters a-d are the same computed as follows:
TNI = P850,000
Income Tax Due = P130,000 + (P50,000 x 30%) = P145,000
2-10
a.
b.
c.
d.
P6M x 6% = P360,000
ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-11
a.
b.
c.
2-12
2-13
2-14
2-15
P15M x 6% = P900,000
P20M x 6% = P1,200,000
P0
C.G. Tax = none; the transaction resulted to a loss
C.G. Tax = P100,000 x 15% = P15,000; TRAIN Law
C.G. Tax = (P150,000 x 15%) = P22,500; TRAIN Law
C.G. Tax = none; subject to business tax of 6/10 of 1% of GSP; TRAIN Law
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6.
7.
8.
9.
10.
FALSE
FALSE; Train Law
TRUE
FALSE
FALSE; Abroad
11.
12.
13.
14.
15.
TRUE
TRUE
FALSE; TRAIN Law
TRUE; Prior to 2018
FALSE;
MULTIPLE CHOICE
1. D
2. C
3. A
4. A
5. A
16.
17.
18.
19.
20.
B
A
A
B
D
31.
32.
33.
34.
35.
D
C
(P9,500)
B
C
6.
A
21.
C
36.
D
7.
D
22.
B
37.
D
8.
9.
D
B
23.
24.
D
D
38.
39.
D
C
10.
D
25.
A
40.
D
11.
B
26.
B
41.
B
12.
A
27.
D
42.
B
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13.
D
28.
B
43.
B**
14.
D
29.
D
44.
D
15.
C
30.
D
45.
B
**Under the TRAIN Law, 1st Quarterly payment shall be on or before May 15 of the following year.
Supporting Computations (Multiple Choice):
(2)
Gross income, Philippines
Gross income, USA
Expenses, Philippines
Expenses, USA
Basic personal exemption
Taxable income
P800,000
600,000
(400,000)
(300,000)
P700,000
(3 to 5)
Gross income, Philippines
Expenses, Philippines
Basic personal exemption
Taxable income
P800,000
(400,000)
P400,000
(19)
Copyright (11,250/90%)x10%
Royalty (12,000/80%) x 20%
Share from Trade Partnership
(treated as dividend income)
(270,000/90%) x10%
FWT
P1,250
3,000
30,000
P34,250
Interest from FCDU (212,500/85%)x15%
Royalty (94,500/90%) x 10%
DI from DC (144,000/90%) x10%
FWT
P37,500
10,500
16,000
P64,000
Interest from FCDU (212,500/85%)x15%
Royalty (94,500/90%) x 10%
DI from DC (144,000/80%) x20%
FWT
exempt
10,500
36,000
P46,500
(21)
(22)
(28)
CGT = 1.5/4 X P4M X 6% = P90,0000
(32)
Gross sales
Rental income (P308,750/95%)
Cost of sales
Business expenses
Taxable Net Income
P1,650,000
325,000
(500,000)
(425,000)
P1,050,000
TAX DUE:
1st P800,000
P130,000
In excess = P250,000 x 30%
75,000
Total
P205,000
Less: CWTx
(65,000)**
Quarterly tax payments
(82,500)
Income Tax Payable
P57,500
& Assume inclusive of the CWT from rental income
(33)
Gross sales
Rental income (P308,750/95%)
Less
Taxable Net Income
TAX DUE:
x
Total
Less: CWTx
Quarterly tax payments
Income Tax Payable
P1,650,000
325,000
(250,000)
P1,725,000
8%
P138,000
(65,000)
(82,500)
(P9,500)
(34)
Gross sales
Rental income (P308,750/95%)
Taxable Net Income
TAX DUE:
x
Total
Less: CWTx
P1,650,000
325,000
P1,975,000
8%
P158,000
(65,000)
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Quarterly tax payments
Basic Tax on Compensation income
[P30,000 + (P200,000 x 25%)]
Income Tax Payable
(82,500)
80,000
P90,500
(35)
Professional income, gross
Rental income, gross
Wagering gains
Kickbacks from suppliers
Professional expenses
Taxable net income
P600,000
50,000
50,000
40,000
(325,000)
P415,000
(36)
Interest income – BDO; P20,000 x 20%
Interest income FDCU – P50,000 x 15%
Total FWT
P4,000
7,500
P11,500
(37)
CGT, residential house, P5M x 6%
CGT, shares = P150,000 x 15%
Total CGT
P300,000
22,500
P322,500
(38)
Gross sales, Phils.
Gross sales, Ukraine
Sales returns and allowances
Sales returns and allowances-Ukraine
Cost of sales, Philippines
Cost of sales, Ukraine
Business expenses, Philippines
Business expenses, Ukraine
Taxable net income
P5,000,000
3,000,000
(500,000)
(200,000)
(1,500,000)
(800,000)
(500,000)
(300,000)
P4,200,000
CHAPTER 3 – FRINGE BENEFITS
PROBLEM SOLVING
P3.1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Subject to FBT
P120,000
50,000
250,000
60,000
-
Subject to Basic Tax
-
Exempt
P80,000
5,000/ yr. (RR 8-2012)
360,000
45,000
15,000
1,500
P3.2
a)
b)
c)
d)
e)
f)
P3.3
Yes
GUMV = P325,000/65%=P500,000
No. FBT is a final tax, hence, nonreturnable
FBT = P500,000 x 35% = P175,000
Within 10th day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.
No. It is subject to basic tax instead of FBT.
P957,000 computed as follows:
Compensation income
Monthly transportation allowance**
P900,000
36,000
De Minimis
Benefits
Other Benefits
13th month pay
Christmas bonus (P5,000 is de minimis)
P5,000
Christmas bonus (P5,000 de minimis under RR 1-2015)
5,000
Productivity incentive pay (de minimis under RR 1-2015)
10,000
Uniform allowance (15,000-5,000)
5,000
Medical allowance (entire amount is de minimis)
10,000
Rice subsidy [24,000-(1,500 x 12)]
18,000
Total (known as 13th Month Pay & Other Benefits)
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law
Taxable income
**Fixed Allowances received regularly shall be treated as part of basic compensation income
Productivity incentive pay not exceeding P10,000 shall be exempt de minimis
Christmas Gift/Bonus = 1st P5,000 shall be exempt de minimis
P75,000
20,000
10,000
6,000
111,000
(90,000)
21,000
P957,000
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P3.4 P540,000 computed as follows:
Compensation income
P540,000
De Minimis
Benefits
13th month pay and mid-year bonus
Christmas gift
Uniform allowance (7,500-5,000)
Actual Medical allowance (P15,000-10,000)
Medical allowance to dependents (P2,000-1,500)
Rice subsidy [entire amount is de minimis]
Monetized vacation leave [24,000-(2,000x 10)]
Total 13th Month Pay & Other Benefits
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law
Taxable income
P3.5
1.
P5,000
5,000
10,000
1,500
18,000
20,000
Taxable
Benefits
P67,500
5,000
2,500
5,000
500
4,000
84,500
90,000
P540,000
4.
a)
b)
P165,000 x 50% = P82,500
P82,500/65% x 35% = P44,423
a.
b.
P1,200,000
P1,200,000/65% x 35% = P646,154
a.
b.
P800,000
P800,000/65% x 35% = P430,769
a.
b.
P1,200,000/5 = P240,000
P240,000/65% x 35% = P129,230
5.
2.
a.
b.
P4.5M x 5% /4 x 50% = P28,125
P28,125/65% x 35% = P15,144
a.
b.
P4.5M
P4.5M/65% x 35% = P2,423,077
6.
3.
TRUE OR FALSE
1. FALSE
2. FALSE
3. TRUE
4. TRUE
5. TRUE
MODIFIED IDENTIFICATION
1. B
2. B
3. A
4. B
5. B
MULTIPLE CHOICE
1. C
2. A
3. D
4. D
5. D
6. D
7. B
8. A
9. D
10. C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
6.
7.
8.
9.
10.
FALSE
TRUE
TRUE
TRUE
TRUE
11.
12.
13.
14.
15.
FALSE
TRUE
TRUE
TRUE
TRUE
6.
7.
8.
9.
10.
B
B
B
B
B
11.
12.
13.
14.
15.
A
A
B
A
B
C
A
A
B
B
D
C
B
C
D
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
A
D
C
D
A
D
B
D
B
16.
17.
18.
19.
20.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
B
A
D
A
C
C
D
B
D
A
B
B
B
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
D
C
D
D
A
A
A
B
D
A
D
D
C
Supporting Computations (Multiple Choice):
(* #13)
The journal entry in letter “a” is the journal entry provided in related revenue regulations. Nonetheless, the authors believe that the journal entry should have
been:
Compensation expense (@ GUMV)
Pxx
Cash
Pxx
Consequently, from the journal entry shown above, the account debited as “fringe benefit tax expense” in revenue regulations should not form part of the
employer’s “Taxes Expense” but as a component of the employer’s “Compensation expense”.
#22.
P97,500/65% = P150,000
(23)
To managerial – fringe benefit expense
Fringe benefit tax expense (P1.3M/68% x 35%)
Rank and File
Total
P1,300,000
700,000
5,000,000
P7,000,000
(24)
Expenditure attributable to Managerial employees
(P1.2M x 20%)
Divide by GUMVF
Grossed-up monetary value
x FBT rate
Fringe Benefit Tax
P240,000
65%
P369,231
35%
P129,231
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(25)
(26)
Total deductible expense = P1,200,000 + 129,231 = P1,329,231
Salaries and wages gross of CWT
P816,000
Fixed monthly allowance**
60,000
Total compensation income subject to graduated rate
P876,000
*Fixed Allowances received regularly per payroll are considered part of regular compensation subject to graduated rate (RR 10-2008)
(27)
Allowance not subject to liquidation
Divide by GUMVF
GUMV
x FB rate
FBT
P48,000
65%
P70,588
35%
P25,846
Annual rental
x
Monetary value of housing benefit
Divide by GUMVF
GUMVF
X FBT rate
FBT
Add: Annual Rental
Total Deductible Expense
P637,500
50%
P318,750
65%
P490,385
35%
P171,635
637,500
P809,135
(29)
(30)
(33)
v
v
P2,000,000 x 5% x 50% = P50,000
P50,000/ 65% x 35% = P26,923
v
v
P3,000,000 x 5% x 50% / 12 = P6,250
P6,250/ 65% x 35%
= P3,365
v
v
P5,000,000
P5M/ 65% x 35% = P2,692,308
(31)
v
v
(P5,000,000-2,000,000) = P3,000,000
P3M/ 65% x 35% = P1,615,385
v
v
P1,000,000 / 65%
P1,538,462 x 35%
= P1,538,462
= P538,462
v
v
P800,000 / 65%
P1,230,769 x 35%
= P1,230,769
= P430,769
v
v
(P1,000,000/5) / 65% = P130,000
P130,000 x 35% = P45,500
(35)
(32)
(36)
(37)
(52)
(53)
Pedro is taxable on excess benefits only
Pedro is exempt as a minimum wage earner but his business income is taxable
CHAPTER 4 – CO-OWNERSHIP, ESTATES AND TRUSTS
PROBLEM SOLVING
P4.1
1.
Income tax payable of the estate = P26,000
2.
Income tax payable of Louie = P0
3.
Income tax payable of Floyd = P8,150
Gross income (gross of 5% tax)
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Taxable income
Louie
P 325,000
(117,000)
12,000
Estate
P800,000
(420,000)
P220,000
Floyd
P 380,000
(105,000)
8,250
7,500
P290,750
P0
P8,150
P26,000
Tax Due/Payable (TRAIN Law)
P380,000
P4.2
1.
Income tax payable of the estate = P30,000
2.
Income tax payable of Louie = P4,000
3.
Income tax payable of Floyd = P18,150
Estate
Rental income of the estate
Deductible operating expenses (estate)
Income distributed to Louie
Income distributed to Floyd
Taxable income
Tax due/payable
Gross Income
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Amount received from the Income of the estate
Taxable income
Income Tax Due/Payable
P1,000,000
(500,000
(50,000)
(50,000)
P400,000
P30,000
Louie
P 325,000
(117,000)
12,000
50,000
P270,000
P4,000
Floyd
P 380,000
(105,000)
8,250
7,500
50,000
P340,750
P18,150
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P4.3
1.
2.
Income tax payable of the trust = P220,000
Income tax payable of Pedro = P113,475
Gross income of the Trust
Deductible business expenses of the trust
Income distributed to Pedro during the year
Dividend income from resident foreign corporation
Net Taxable income
Income Tax payable
P3,000,000
(1,800,000)
(200,000)
100,000
P1,100,000
P220,000
Compensation income of Pedro
Rental income (gross)
Rental expenses
Dividend from foreign corporation
Taxable income
Tax Due
Tax payments (Quarter 1-3)
CWTx on rent
Income Tax Payable-Pedro
MULTIPLE CHOICE
1.
D
2.
A
3.
D
4.
D
5.
D
6.
A
7.
D
8.
C
9.
A
10.
A
11.
D
12.
B
13.
A
14.
D
15.
A
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
P800,000
500,000
(80,000)
8,250
P1,228,250
P258,475
(120,000)
(25,000)
P113,475
D
C
C
D
D
B
B
D
C
D
C
D
D
D
D
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
Supporting Computations (Multiple Choice):
20.
Income of the estate
Expenses
Distribution of income to Francis
Taxable income of Ramos
21.
Francis’ own income
Income of the estate received by Francis
Taxable income of Ramos
B
D
D
C
C
D
B
D
D
D
B
D
C
B
A
P600,000
(150,000)
(120,000)
P330,000
P500,000
120,000
P620,000
39.
Compensation income
Business income
Income of the trust taxable to the grantor
Taxable income of Ramos
P1,500,000
1,000,000
1,000,000
P3,500,000
41.
Trust’s income
Business expenses
Income distributed to Princess
Taxable income of the Trust
P10,000,000
(2,000,000)
(1,500,000)
P6,500,000
42.
Compensation income (Gross amount)
Income of the trust received Princess
Taxable income of Princess
P2,500,000
1,500,000
P4,000,000
43-45.
# 44
TRUST 1
Taxable Net income
Tax due:
1st P2,000,000
Excess @ 32%
Tax due/paid
Versus allocated tax due
Income Tax Payable-Trust 1
P4,000,000
P490,000
640,000
1,130,000
1,244,000*
P114,000
# 45
TRUST 2
Net income
Tax due:
1st P2,000,000
Excess @ 32%
Tax due/paid
Versus Share
Income Tax Payable-Trust 2
P6,000,000
P490,000
1,280,000
1,770,000
1,866,000**
P96,000
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# 43
Consolidated:
Taxable Net income
Tax Due (Consolidated):
1st P8,000,000
Excess @ 32%
Total Consolidated TAX DUE
Less Paid:
Trust 1
Trust 2
Consolidated Income Tax Payable
Share in the Consolidated Tax due:
Trust 1
(4/10) x P3,110,000
Trust 2
(5,980/9,960)
P10,000,000
P2,410,000
700,000
P3,110,000
(1,130,000)
(1,770,000)
210,000
1,244,000*
1,866,000**
CHAPTER 5 – INCOME TAX FOR CORPORATIONS
ERRATUM: PAGE 234
TABLE 5-3: Capital Gains subject to CAPITAL GAINS TAX (CGT)
1.)
CAPITAL gains from sale of shares of stock not traded in
the local stock exchange
DC
RFC
UNDER TRAIN LAW, beginning Jan. 1, 2018
Tax Base: Net Capital gain
Tax Rate:
15%
NC***
***NC (No Changes); apply the old rates; 5% first P100,000 gain + 10% in excess of P100k
NRFC
NC***
PROBLEM SOLVING:
(P5.1)
CASE A (Domestic Corporation) – TRAIN Law:
1.
P1,674,000
2.
P92,500
3.
P562,500
Solution
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Interest income from BPI deposits-USA
Interest income from money market placement
Dividend income-resident foreign corp.
Dividend income-nonresident foreign corp.
Royalty income
Taxable income
Tax rate
Normal Corporate Income Tax Due
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS @ 15%
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
Gain on sale of shares sold directly to a buyer
[(150,000x 15%)
Sale of real property in the Philippines
(SP of P9M** x 6%)
Total Capital Gains Tax
**SP = Cost + Gain = P4M + 5M = P9M;
Philippines
P10,000,000
200,000
3,500,000
2,800,000
100,000
45,000
-
Philippines
100,000
150,000
200,000
50,000
Abroad
P5,000,000
2,250,000
1,100,000
50,000
80,000
100,000
30,000
25,000
Total
P15,000,000
(200,000)
(5,750,000)
(3,900,000)
150,000
80,000
100,000
45,000
30,000
25,000
P5,580,000
30%
P1,674,000
Final Tax
P20,000
22,500
40,000
10,000
P92,500
Capital Gains Tax
P22,500
540,000
P562,500
SP is higher than FMV
CASE B (Resident Foreign Corporation) – TRAIN Law:
4.
P1,093,500
5.
P81,250
6.
P10,000
Solution:
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Dividend income-resident foreign corp.
P10,000,000
(200,000)
(3,500,000)
(2,800,000)
100,000
45,000
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Taxable income
Tax rate
Normal Corporate Income Tax Due
P3,645,000
30%
P1,093,500
Philippines
100,000
150,000
200,000
50,000
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS @ 7.5% (not amended)
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
Final Tax
P20,000
11,250
40,000
10,000
P81,250
Capital Gains Tax
Gain on sale of shares sold directly to a buyer
[(100,000 x 5%) + (50,000 x 10%)]
P10,000
CASE C (Non-Resident Foreign Corporation) – TRAIN Law:
7.
P2,059,750 computed as follows:
Gross sales
Sales returns
Cost of goods sold
GROSS INCOME
ADD:
Interest income from trade receivable
Interest income from BPI deposits-Phils.
Income from money market placement
Dividend income-resident foreign corp.
Royalty income
Total “Gross” Income
Tax rate
ADD:
Dividend income from DC = P75,000 x 15%
CGT on shares of DC:
[(P100k x 5%) + P50k x 10%)]
TOTAL FINAL TAXES
P10,000,000
(200,000)
(3,500,000)
P6,300,000
100,000
100,000
200,000
45,000
50,000
P6,795,000
30%
P2,038,500
11,250
10,000
P2,059,750
(P5.2)
P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The incomes provided in the problem were all
derived in U.S.
(P5.3) RFC –TRAIN Law:
Current account, BDO @ 20%
Savings deposit, BPI @ 20%
Interest income from government bonds @ 20%
Royalty income from various domestic corporations @ 20%
US dollar deposit, FCDU @ 7.5%
Total final taxes on passive income
P120,000
100,000
40,000
20,000
60,000
P340,000
(P5.4) – TRAIN Law
Gross profit from sales
Business expenses
Taxable income
RCIT
MCIT (Gross Profit x 2%)
Q1
P1,600,000
(1,200,000)
400,000
120,000
32,000
Q2
P3,200,000
(2,400,000)
800,000
240,000
64,000
Q3
P4,800,000
(3,400,000)
1,400,000
420,000
96,000
Q4
P6,200,000
(4,200,000)
P2,000,000
600,000
124,000
P120,000
(30,000)
-
P240,000
(70,000)
(90,000)
P90,000
P80,000
P420,000
(130,000)
(90,000)
(80,000)
P120,000
P600,000
(230,000)
(90,000)
(80,000)
(120,000)
P80,000
TAX DUE (Higher)
Less: Income tax withheld
Tax Paid Q1
Tax Paid Q2
Tax Paid Q3
Income Tax Payable
(P5.5)
MCIT
RCIT
TAX DUE (Higher)
Excess MCIT
Year 4
Year 7
Income Tax Payable
Year 4
100,000
30,000
P100,000
Year 5
60,000
70,000
P70,000
Year 6
50,000
60,000
P60,000
Year 7
40,000
30,000
P40,000
Year 8
20,000
90,000
P90,000
-
(70,000)
-
-
P100,000
P0
P60,000
P40,000
(10,000)
P80,000
(P5.6)
1.
2.
3.
4.
P120,000
P690,000
P210,000
P495,000
Tax Due 2018
Excess MCIT 2017
Excess W/holding Tax 2017
W/holding - 2018
Quarterly Tax Payments
Tax Payable
Q1
NCIT P300,000
(90,000)
(30,000)
(60,000)
P120,000
Q2
MCIT P990,000
(30,000)
(150,00)
(120,000)
P690,000
Q3
NCIT P1,410,000
(90,000)
(30,000)
(270,000)
(810,000)
P210,000
Q4
NCIT P2,010,000
(90,000)
(30,00)
(375,000)
(1,020,000)
P495,000
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(P5.7)
Case A (Taxable Joint Venture)
1.
Taxable income of the joint venture = P20M
2.
Income tax payable of the joint venture = P6M
3.
Taxable income of ABC Company = P10M
4.
Income tax payable of ABC Company = P3M
5.
Taxable income DEF Company = P5M
6.
Income tax payable of DEF Company = P1.5M
Gross income
Business expenses
Taxable income
Tax Rate (RCIT)
Tax Due
Joint Venture
P50,000,000
(30,000,000)
P20,000,000
30%
P6,000,000
ABC Co.
P30,000,000
(20,000,000)
P10,000,000
30%
P3,000,000
DEF Co.
P20,000,000
(15,000,000)
P5,000,000
30%
P1,500,000
Joint Venture
P50,000,000
(30,000,000)
P20,000,000
P0
ABC Co.
P30,000,000
(20,000,000)
14,000,000
P24,000,000
30%
P7,200,000
DEF Co.
P20,000,000
(15,000,000)
6,000,000
P11,000,000
30%
P3,300,000
Joint Venture
P50,000,000
Bryan
30,000,000
Rianne
20,000,000
(30,000,000)
P20,000,000
(6,000,000)
P14,000,000
(20,000,000)
P10,000,000
(15,000,000)
P5,000,000
Bryan
30,000,000
Rianne
20,000,000
(20,000,000)
P10,000,000
(15,000,000)
P5,000,000
Case B (Tax Exempt Joint Venture)
7.
Taxable income of the joint venture = nil; tax exempt
8.
Income tax payable of the joint venture = nil; tax exempt
9.
Taxable income of ABC Company = P24M
10. Income tax payable of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Income tax payable of DEF Company = P3.3M
Gross income
Business expenses
Share in the income of the joint venture
Net/ Taxable income
Tax Rate (NCIT)
Tax Due
(P5.8)
Case A:
1.
Taxable income of the joint venture = P20M
2.
Tax due of the joint venture = P6,000,000
3.
Taxable income of Bryan = P10M
4.
Taxable income Rianne = P5M
5.
Final tax due of Bryan (10%) = P980,000
6.
Final tax due of Rianne (10%) = P420,000
Gross income
Business expenses
Taxable income
Less: Tax Due @ 30%
Distributable income
Share in income
Bryan @ 70%
Rianne @ 30%
P9,800,000
4,200,000
Case B:
7.
Taxable income of the joint venture = nil; tax exempt
8.
Income tax payable of the joint venture = nil; tax exempt
9.
Taxable income of Bryan = P24,000,000
10. Taxable income Rianne = P11,000,000
11. Final tax due of Bryan = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Rianne = P0 ; subject to basic and creditable withholding tax
Joint Venture
Gross income
P50,000,000
Business expenses
Net income
(30,000,000)
P20,000,000
Distributable income
Share in income
Bryan @ 70%
Rianne @ 30%
Taxable income
P20,000,000
P14,000,000
6,000,000
14,000,000
P24,000,000
6,000,000
P11,000,000
(P5.9)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
[(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
(P6M-4M) x 30% = P600,000
P6M x 30% = P1,800,000
P6M x 2.5% = P150,000
P6M x 1.5% = P90,000
P6M x 25% = P1,500,000
P6M x 4.5% = P270,000
P6M x 7.5% = P450,000
*P3,350,000 x 10% = P335,000; * from #1
P1,005,000; same computation with #1
nil; exempt
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(P5.10)
1.
2.
3.
[8M] x 2.5% = P200,000
[8M x 1%) = P80,000
nil; tax exempt on the basis of reciprocity
(P5.11)
1.Related
2.Related
3.Related
4.Related
5.Related
6.Unrelated
(P5.12) Proprietary Educational Institution:
Gross income, related activities
Gross income, unrelated activities (excluding rental income)
Rental income from commercial spaces (gross of 5% WT) – unrelated
Expenses, related activities
Expenses, unrelated activities
Taxable income
Tax Rate (RCIT); Unrelated income > Related income
Tax Due
Less: CWT on rental income (P2M x 5%)
Quarterly tax payments for the first 3 quarters
Income Tax Payable
P5,000,000
5,000,000
2,000,000
(2,000,000)
(3,000,000)
P7,000,000
30%
2,100,000
(100,0000)
(500,000)
P1,500,000
(P5.13)
Question 1:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Depreciation expense-classrooms
Depreciation expense-furniture and equipment
Taxable income
x Tax Rate
Tax Due
Question 2:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Construction of additional classrooms
Acquisition of furniture and equipment
Taxable income
x Tax Rate
Tax Due
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(75,000)
(50,000)
P2,105,000
10%
P210,500
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(1,300,000)
(400,000)
P530,000
10%
P53,000
(P5.14)
1.
2.
Income Tax Due (Payable) = P249,000 – CWT 15,000 = P234,000
Improperly accumulated earnings tax = P46,425
Solution:
Gross income (gross of 1% WT)
Business expenses
Gain on sale of business asset
NOLCO in 2016
Taxable income
ADD:
2016 NOLCO
Interest on peso bank deposit (P5,000/80%)
Dividends from a domestic corporation
Gain on sales of shares, not listed and traded subjected to capital gains
tax (P150,000-115,000)
DEDUCT:
NCIT (P830,000 x 30%; higher than MCIT)
Final Tax on Passive income (6,250 x 20%)
Capital gains tax on shares (35,000 x 5%)
Dividends paid during the year
P1,500,000
(600,000)
60,000
(130,000)
P830,000
130,000
6,250
35,000
35,000
206,250
249,000
1,250
1,750
120,000
(372,000)
BALANCE
RE Jan. 1
RE Dec. 31, 2017
LESS: Amount that may be retained (Par of Outs. Sh.)
IMPROPERLY ACCUMULATED EARNINGS
x IAET RATE
IMPROPERLY ACCUMULATED EARNINGS TAX
P664,250
200,000
P864,250
(400,000)
P464,250
10%
P46,425
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(P5.15)
1.
2.
P103,000
P117,000
Solution:
2017:
CGT on Land = P1.5M x 6%
CGT on shares:
1st P100,000 capital gain @ 5%
In excess of P100,000 capital gain @ 10%
Total capital gains tax
P90,000
P5,000
8,000
13,000
P103,000
2018:
CGT on Land = P1.5M x 6%
CGT on shares = P180,000 x 15%
Total capital gains tax
P90,000
27,000
P117,000
(P5.16)
1.
2.
P16,500
P36,000
Solution:
2017:
Sale#3; capital gain = P190,000:
1st P100,000 capital gain @ 5%
In excess of P100,000 capital gain @ 10%
P5,000
9,000
Sale#4; capital gain = P50,000; CGT@ 5%
Sale#5; capital loss = P30,000; CGT = none
Total capital gains tax
P14,000
2,500
P16,500
2018:
Sale#3; capital gain = P190,000:
CGT = P190,000 x 15%
Sale#4; capital gain = P50,000; CGT@ 5%
CGT = P50,000 x 15%
Sale#5; capital loss = P30,000; CGT = none
Total capital gains tax
P28,500
7,500
P36,000
TRUE OR FALSE
1. TRUE
11. TRUE
21. FALSE
2. FALSE
12. TRUE
22. TRUE
3. TRUE
13. FALSE
23. FALSE
4. TRUE
14. TRUE
24. FALSE
5. FALSE
15. FALSE
25. TRUE
6. TRUE
16. TRUE
26. TRUE
7. TRUE
17. FALSE
27. TRUE
8. TRUE
18. FALSE
28. TRUE
9. TRUE
19. TRUE
29. TRUE
10. FALSE
20. TRUE
30. FALSE
(10) it shall be “prolonged labor dispute” resulting from temporary closure of the business
(15) treated as inter-corporate dividend, hence, nontaxable
(17) should be from “within and without”
(17) shall be ROHQ
(21) shall be IAET
(24) only if the taxpayer is a financial institution
(30) passive incomes are not subject to branch remittance tax
MULTIPLE CHOICE
1.
D
2.
B
3.
C
4.
B
5.
D
6.
D
7.
C
8.
B
9.
B
10.
B
11.
A
12.
D
13.
B
14.
D
15.
C
16.
B
17.
C
18.
B
19.
C
20.
D
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
B
A
C
D
B
D
D
A
C
B
C
A
D
C
D
C
B
B
C
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
A
D
D
B
B
C
C
A
D
D
D
A
B
B
D
C
B
C
B
D
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
A
A
A
A
B
C
C
B
A
A
A
D
A
A
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Supporting Computations (Multiple Choice):
(4).
Domestic
P975,000
(750,000)
770,000
(630,000)
365,000
30%
P109,500
Gross Income, Philippines
Expenses, Philippines
Gross Income, Malaysia
Expenses, Malaysia
Interest on bank deposit
Taxable income
Tax Rate
Tax Due
RFC
P975,000
(750,000)
NRFC
P975,000
225,000
30%
67,500
25,000
P1,000,000
30%
300,000
(5).
Gross profit from sales
Business expenses
Dividend income from a resident corporation
Dividend income from a nonresident corporation
Capital gain on sale of land in China
Interest income from notes receivable
Taxable income
Tax Due @ 30%
P3,000,000
(1,800,000)
50,000
40,000
200,000
20,000
P1,510,000
P453,000
(6).
Sale of land-Phils. P2M x 6%
Sale of shares of DC = P120,000 x 15%
Capital gains tax
P120,000
18,000
P138,000
(7).
Interest income on peso bank deposit @ 20%
Interest income on foreign currency bank deposit @ 15%
Interest income on treasury bills @ 20%
Total final taxes on passive income
P6,000
3,750
2,000
P11,750
(8).
To Louie @ 10%
To Floyd @ 10%
To Zeus @ 10%
To JJ @ 20%
To Francis @ 25%
To Chen, a domestic corporation
To a resident foreign corporation
To a nonresident foreign corporation @ 15%
Total withholding taxes
P10,000
10,000
10,000
20,000
25,000
Exempt
Exempt
15,000
P90,000
(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500
(11).
Interest income from loans
OPEX (P12M x 10/15)
Taxable income
Income Tax Rate
Income Tax Due
P10,000,000
(8,000,000)
P2,000,000
30%
P600,000
(12 and 13)
Solution:
G Income
Expenses
TNI
NCIT
Tax Due
Joint Venture
P5,000,000
(3,000,000)
P2,000,000
30%
P600,000
ABC Co.
P3,000,000
(2,000,000)
P1,000,000
30%
P300,000
DEF Co.
P2,000,000
(1,500,000)
P500,000
30%
P150,000
(14).
G Income
Sh. in Inc.
Expenses
TNI
NCIT
Tax Due
Joint Venture
P5,000,000
(3,000,000)
P2,000,000
-
ABC Co.
P3,000,000
1,400,000
(2,000,000)
P2,400,000
30%
P720,000
DEF Co.
P2,000,000
600,000
(1,500,000)
P1,100,000
30%
P330,000
(17).
Income Tax Due = (P10M-P4M) x 30% = P1,800,000
(18).
Income Tax Due = P10M x 2.5% = P250,000
(20). Income Tax Payable = P8M x 2.5% = P200,000
(21). Tax Expense (Income Tax & Common carrier’s tax):
= (P8M x 2.5% ) + (P8M x 25% x 3%CCT) = P200,000 + 60,000 = P260,000
(22). Branch Remittance Tax = P2M x 15% = P300,000
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(27).
Gross income, related activities
Gross income, unrelated activities (except rental income)
Rental income from commercial spaces (gross of 5% WT)
P5,000,000
5,000,000
2,000,000
Expenses, related activities
Expenses, unrelated activities
Taxable income
Tax rate (unrelated income>related income)
Tax due
Less:
Quarterly tax payments
Withholding tax on rental income
Income Tax payable
P12,000,000
2,000,000
3,000,000
(5,000,000)
P7,000,000
30%
P2,100,000
P500,000
100,000
(600,000)
P1,500,000
(28).
Income from tuition fees
Miscellaneous school fees
Dividend income from foreign corp.
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (related income>unrelated income)
Tax due
Less:
Withholding tax on rental income
Income Tax payable
P3,500,000
1,500,000
2,000,000
2,000,000
P9,000,000
(4,000,000)
P,000,000
10%
P500,000
(100,000)
P400,000
(29).
Tuition and other fees
Rental income (gross of 5% WT)
OPEX
CAPEX
Taxable income
Tax rate (related income>unrelated income)
Tax due
Less:
Withholding tax on rental income
Income Tax payable
P5,000,000
50,000
(1,500,000)
(2,000,000)
P1,550,000
10%
P155,000
(2,500)
P152,500
Gross Receipts
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (not a non-profit hospital)
Tax due
Less:
Withholding tax on rental income
Tax payable
P8,500,000
1,500,000
(8,200,000)
P1,800,000
30%
P540,000
(75,000)
P465,000
Tuition fees
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (unrelated income is higher)
Tax due
Less:
Withholding tax on rental income
Tax payable
P4,800,000
5,200,000
(9,450,000)
P550,000
30%
P165,000
(260,000)
(P95,000)
(30).
(31).
(#s 38 TO 45).
2008
2009
2010
2011
2012
2013
2014
2015
NCIT
P25,000
P130,000
P200,000
P0
P100,000
P150,000
P8,000
P1,000
MCIT
100,000
150,000
190,000
300,000
50,000
60,000
40,000
50,000
DUE (Higher)
100,000
150,000
200,000
300,000
100,000
150,000
40,000
50,000
EXCESS MCIT
TAX DUE
MCITCO
75,000
20,000
-
300,000
-
-
32,000
49,000
P100,000
P150,000
P200,000
P300,000
P100,000
P150,000
P40,000
P50,000
2008
(75,000)
2009
(20,000)
2011
TAX PAYABLE
P100,000
P150,000
P105,000
P300,000
(100,000)
(150,000)
-
P0
P0
P40,000
P50,000
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CHAPTER 6 – PARTNERSHIPS, ESTATES AND TRUSTS
PROBLEM SOLVING
P6.1
1.
Income tax due of the partnership = P0 (tax exempt)
2.
Income tax due of LJ = P310,000
LJ
LJ’s gross income from his trading business
P1,000,000
LJ’s expenses from his trading business
(600,000)
Share from the net income of a GPP
400,000
Royalty, books published in USA
150,000
Salaries, gross of withholding tax
450,000
Basic exemption
NA
Taxable income
P1,400,000
Tax Due (TRAIN Law); P130k + (P600k x 30%)
P310,000
P6.2
Case A (Ordinary Partnership):
1.
Tax due of the partnership = P240,000
2.
Tax due of Rivera = P30,000
3.
Tax due of Reyes = P55,000
RR Partnership
Rivera
Reyes
Gross Income
P2,000,000
P800,000
P1,000,000
Allowed Deductions
(1,200,000)
(400,000)
(500,000)
Basic exemption
Taxable income
P800,000
P400,000
P500,000
Tax Rate
30%
TRAIN Table
TRAIN Table
Tax Due
P240,000
P30,000
P55,000
Note: The partners’ share in the net income of the partnership is treated as dividend income subject to a final tax rate of 10%.
Case B (General Professional Partnership):
3.
Tax due of the partnership = P0; exempt
4.
Tax due of Rivera = P110,000
5.
Tax due of Reyes = P184,000
RR Partnership
P2,000,000
(1,200,000)
P800,000
EXEMPT
P0
Gross Income
Allowed Deductions
Basic exemption
Share in partnership income
Taxable income
Tax Rate
Tax Due
Rivera
P800,000
(400,000)
Reyes
P1,000,000
(500,000)
320,000
P720,000
TRAIN Table
P110,000
480,000
P980,000
TRAIN Table
P184,000
P6.3
1.
2.
3.
4.
5.
6.
7.
8.
9.
Income tax payable/(refundable) of the partnership = P352,500
Income tax payable/(refundable) of Villamin = P12,600
Income tax payable/(refundable) of Francis = P0
Final tax on passive income of the partnership = P11,500
Final tax on passive income of Villamin = P40,783
Final tax on passive income of Francis = P95,767
Capital gains tax of the partnership = P150,000
Capital gains tax of Villamin = P0
Capital gains tax of Francis = P18,000
Partnership:
Gross profit from sale of services
Direct cost of services
Business Expenses
Rental Income in business assets (gross)
(P142,500/95%)
Taxable income
X tax rate
Tax due
Quarterly tax payments
Withholding tax on rent
Income tax payable
Interest Income on peso bank deposits @ 20%
Interest income-FCDS @ 15%
Final Tax on passive income of the partnership
Capital gains tax on real property (2.5M x 6%)
DISTRIBUTABLE INCOME:
Taxable income
Total income subject to final tax
Capital gain
Less:
Basic tax due
Final tax due
Capital gains tax
DISTRIBUTABLE INCOME
P3,500,000
(1,500,000)
(700,000)
150,000
P1,450,000
30%
P435,000
(75,000)
(7,500)
P352,500
P4,000
7,500
P11,500
150,000
P1,450,000
70,000
300,000
(435,000)
(11,500)
(150,000)
P1,223,500
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Villamin:
Gross income from sole-proprietorship business
Allowable business expenses
Dividend Income-resident foreign corp.
Basic exemption
Taxable income
Tax due (TRAIN Table)
Quarterly tax payments
Income tax payable
Final Tax; share in partnership income = (P1,223,500 x 3/9 X 10%)
Capital gains tax - Villamin
925,000
(670,000)
120,500
P375,500
P25,100
(12,500)
P12,600
P40,783
P0
Francis:
Income Tax payable
(No income subject to basic tax)
P0
Dividend Income @ 10%
Royalty Income @ 20%
Share in partnership income (P1,223,5003 X 6/9 x 10%)
Total final tax on passive income
Capital gains tax on shares of stock
(P120,000 x 15%)
P8,500
7,000
81,567
P95,767
18,000
P6.4
1.
2.
3.
4.
Income tax payable of the business partnership = P114,000
Income tax payable of the GPP = P0
Income tax payable of Louie = PIncome tax payable of Floyd = PBusiness
Partnership
P800,000
(420,000)
P380,000
30%
P114,000
Gross income
Deductible expenses
Net or Taxable income
Tax rate
Income tax due/payable
Louie
P 325,000
(117,000)
12,000
37,500
P57,500
P-
Louie and Floyd
Gross Income
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Share in income of GPP
Basic exemption
Additional exemption
Taxable income
Income tax payable (TRAIN Law)
GPP
P500,000
(375,000)
P125,000
EXEMPT
Floyd
P 380,000
(205,000)
8,250
7,500
87,500
P178,250
P-
NOTE:
§
The share in the net income of the business partnership, the dividend income from a domestic corporation and royalty from books are subject to
a final tax rate of 10%.
§
The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% final tax
MULTIPLE CHOICE
1.
A
2.
C
3.
B
4.
B
5.
B
6.
7.
8.
9.
10.
A
A
D
B
C
11.
12.
13.
14.
15.
D
A
B
C
B
16.
17.
18.
19.
20.
A
D
B
B
B
Supporting Computations (Multiple Choice):
15.
(P2M-1M) x 30% = P300,000
16.
P0; Subject to 10% final tax
17.
18.
Partnership net profit (net of 30% tax)
(P800,000 x 70%)
Other Income:
Interest income, net
Dividend income (tax exempt)
Total distributive income
P560,000
Share of T (50%)
Applicable tax (10% final tax)
P294,000
P29,400
8,000
20,000
P588,000
P600,000 – P350,000 x 50% = P125,000
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19.
Share in GPP’s income
Own income (P150,000-70,000)
Basic exemption
Taxable income of Ramos
P125,000
80,000
P205,000
20.
Gross income
Expenses
x
Net income after corporate tax
Add:
Dividend received from a domestic corp. (tax exempt)
Bank interest income, Metrobank (net of final tax)
Distributable net income
P750,000
(200,000)
70%
385,000
20,000
80,000
P485,000
Juan: P485,000 x 55% x 10%
Ponce: P485,000 x 45% x 10%
P26,675
P21,285
CHAPTER 7 – CONCEPT OF INCOME
MULTIPLE CHOICE
1.
C
2.
D
3.
B
4.
A
5.
D
6.
D
7.
A
8.
D
9.
B
10.
D
11.
C
12.
A
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
C
D
C
B
D
A
C
C
A
D
D
D
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
D
B
B
A
D
A
D
D
B
B
B
B
Supporting Computations:
32. P300,000 4/12 = P100,000
33.
Gain on sale of personal property purchased in the Philippines
and sold in Hongkong
Compensation received for personal services in the Philippines
Rent income from real property in Malaysia
Gain from sale in the Philippines of shares of a foreign corporation
Deductions identified with:
Philippine income
Foreign income
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000)
Philippine Net Income
37.
38.
39.
40.
41.
42.
43.
44.
C
D
D
C
C
C
D
A
P200,000
100,000
(80,000)
(9,000)
P211,000
34.
Gross Receipts
Rental expenses
Salaries expense
Basic exemption
Taxable income
35.
P600,000
(120,000)
(100,000)
(50,000)
P330,000
(Resident Alien)
Gross Income
Business expenses
Dividend income from foreign corp. (50,000 x 60%)
Basic exemption
Taxable income
P2,000,000
(1,200,000)
30,000
P830,000
36.
Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000
37.
(Domestic Corp = Taxable on income within and without
Gross Income
Allowable deductions
Dividend income from domestic corp.
Dividend income foreign corp. (95% from R.P.)
Dividend income foreign corp. (60% from R.P.)
Dividend income foreign corp. (25% from R.P.)
Taxable income
P10,000,000
(4,000,000)
exempt
1,000,000
800,000
400,000
P8,200,000
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38.
(Resident Foreign Corp = Taxable on income from Philippine sources only
Gross Income
Allowable deductions
Dividend income from domestic corp.
Dividend income foreign corp. (80% from R.P.)
(P1M X 80%=considered from Phil. sources)
Dividend income foreign corp. (60% from R.P.)
(P800,000 x 60%)
Dividend income foreign corp. (25% from R.P.)
(entire amount is considered income from sources outside of
the Phils.)
Taxable income
P10,000,000
(4,000,000)
exempt
800,000
480,000
-
P7,280,000
39.
DI-Microsoft
DI-Intel (P400,000 x 60% x 30%)
DI - IBM
Interest income – BDO @ 20%
FCDS deposit @ 7.5%
Royalty income @ 20%
Total final taxes on passive income
P72,000
120,000
60,000
20,000
P272,000
DI-Microsoft & Intel @ 30% basic tax
DI - IBM
Interest income – BDO @ 20%
Interest income U.K. @ 30%
FCDS deposit @ 15%
Royalty income @ 20%
Total final taxes on passive income
P270,000
120,000
210,000
120,000
20,000
P740,000
40.
CHAPTER 8 – INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
PROBLEM SOLVING:
P8.1
INCOME SUBJECT TO BASIC TAX:
Basic salary (P900,000+P300,000)
P1,200,000
Director’s fee
200,000
Business income:
Retail business
250,000
Apartment rental (P190,000/95%)
200,000
Dividend income from a resident corporation
50,000
13th, Xmas and MidYear Bonus = (P180,000 – 1st 5,000 as de minimis
85,000
– P90,000 exclusions)
Gross Income subject to basic tax (Q#1)
P1,985,000
LESS:
Business expenses
(125,000)
Basic exemption
Net Taxable income
P1,860,000
Income tax due – TRAIN Law (Q#4); [P130k + (P860k x 30%)]
P448,000
INCOME SUBJECT TO FINAL TAX:
Cash dividend from a domestic corporation @ 10%
Interest from savings deposit @ 20%
Royalties from book publications @ 10%
Prizes from contest won @ 20%
PCSO winnings @ 20%
Total final taxes on passive income (Q2)
INCOME EXEMPT FROM TAX:
Xmas Bonus and other benefits (P5k de minimis + 90,000)
Stock dividend from a domestic corporation
Damages received from injuries and sickness
Proceeds-life insurance coverage of his father
Total income exempt from tax (Q3)
P5,000
4,000
5,000
10,000
10,000
P34,000
P95,000
25,000
85,000
300,000
P505,000
P8.2
1)
2)
3)
P10,000
P15,000
P715,000 computed as follows:
Gross profit from sales (P2.5M – P1.5M)
Taxable recovery-receivables
Taxable tax refunds (P30,000 x 50%)
Rent income excluding security deposit
Operating expenses excluding bad debts
Write-off during the year
Taxable income
P1,000,000
10,000
15,000
250,000
(500,000)
(60,000)
P715,000
P8.3
1)
2)
3)
2016 income = (P240,000 x 2) + 60,000 = P540,000
2017 income = only the annual real property tax of P60,000
2018 income (lump-sum) = P240,000 + 60,000 + P3,000,000 = P3,300,000
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4)
2018 income (spread-out) = P400,000 computed as follows:
Annual rental
Annual real property tax
Annual income from leasehold improvement:
Cost
P3,000,000
x
5/10
Remaining BV after lease term
P1,000,000
Divide by remaining lease term
10 years
Total income 2018
P240,000
60,000
P100,000
P400,000
P8.4
Ramon Magsaysay award
Athlete of the year award
Prize for winning an Olympic Medal
Gift from Mayor Erap
Gift from Honda Cars
Total amount exempt from income tax
P8.5
P8.6
P8.7
P8.8
P8.9
P50,000
100,000
500,000
250,000
1,000,000
P1,900,000
P0; The P800,000 should be exempt from income tax
P1,000,000; The interest income from expanded foreign currency deposit
Taxable Proceeds = P1,000,000 – P600,000 = P400,000
Income within = None. The ratio of income within over total income for the past 3 years < 50%.
Salary for the first quarter
Honorarium as speaker in one of ABC’s team building activities
Retirement pay; (Taxable; failed to meet the age requirement)
Commissions
Fee as a member of ABC’s board of directors (compensation income if he is an
employee at the same time)
10 days monetized vacation leave
Interest income from time deposit
Productivity incentive pay and 13th month pay
(Productivity pay= 1st P10,000 is de minimis under RR 1-2015)
(Total of excess of productivity of P10,000 + 60,000 bonus is not more than
P90,000, hence tax exempt)
Total compensation income subject to tax
P180,000
10,000
2,500,000
30,000
50,000
Exempt
FW Tax/E
Exempt
P2,770,000
P8.10
INCOME
A.
B.
C.
D.
E.
F.
G.
H.
Rental income (gross)
•
From an apartment unit in USA,
•
From a parcel of land in Makati
Royalties from book
•
Published in the Philippines
•
Published in USA
Interest income earned on notes receivable
•
From a debtor who resides in USA
•
From a debtor who resides in Manila
Net profit from sales, merchandising business
•
From Philippine outlet
•
From USA outlet
Dividend income from two domestic corporations. Gross income
from the Phils. for the past 3 years
•
60% of its world income
•
85% of its world income
Dividend income from two resident foreign corporations. Gross
income from the Philippines for the past 3 years was equivalent
to:
•
40% of its world income
•
60% of its world income
Prizes received from Supermarket raffle:
From the Philippines:
•
ABC Supermarket
•
DEF Superstore
From USA:
•
UVW Supermarket
•
XYZ Supersavers
Prizes and winnings from lotto
•
Philippine lotto
•
USA lotto
BASIC EXEMPTION (assume 2018 taxable year)
TOTAL
Q#1
Income within
Q#2
Income without
P180,000
P240,000
30,000
20,000
15,000
Q#3
Taxable
income (RC)
Q#4
Taxable
income (NRC)
P240,000
180,000
FWT
20,000
P180,000
FWT
15,000
25,000
25,000
200,000
300,000
200,000
200,000
60,000
80,000
-
FWT
FWT
FWT
FWT
12,000
40,000
8,000
40,000
20,000
12,000
8,000
12,000
-
8,000
FWT
8,000
FWT
-
6,000
14,000
6,000
14,000
-
200,000
100,000
Exempt
100,000
Exempt
-
P643,000
P1,168,000
P425,000
25,000
300,000
P907,000
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P8.11
DIVIDEND
1. 10% F.Tax
2.
3.
4.
5.
6.
7.
10% F.Tax
Basic Tax
Exempt
Basic Tax
Exempt
N.taxable
26.
27.
28.
29.
30.
Final Tax
Exempt
Exempt
Exempt
Exempt
INJURIES/DAMAGES
8. Exempt
9.
10.
11.
12.
13.
14.
PRIZES/AWARDS
15. Basic tax
Exempt
Basic Tax
Exempt
Basic Tax
Exempt
Basic Tax
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Exempt
Exempt
Exempt
Exempt
Basic Tax/FWT
Depending on the
Basic Tax/FWT
amount
20% FWT; TRAIN Law
Basic Tax
20% final tax (individual taxpayer)
Basic Tax (abroad)
VARIOUS PROCEEDS/INCOME
TRUE OR FALSE
1. TRUE
8. TRUE
15. FALSE
2. FALSE
9. TRUE
16. FALSE
3. TRUE
10. TRUE
17. TRUE
4. FALSE
11. TRUE
18. FALSE
5. FALSE
12. TRUE
19. FALSE
6. TRUE
13. TRUE
20. FALSE
7. FALSE
14. FALSE
21. FALSE
#7 – should be CWT not FWT
#14 – should be upon recovery
#20 - if not in single sum (like installment or annuity), it may include an interest, subject to tax
#21 – the interest is subject to tax
22.
23.
24.
25.
TRUE
FALSE
TRUE
FALSE
MULTIPLE CHOICE
1.
C
2.
B
3.
D
4.
D
5.
B
6.
B
16.
17.
18.
19.
20.
21.
A
D*
C
B
C**
D
31.
32.
33.
34.
35.
36.
D***
C****
C
A
D
C
46.
47.
48.
49.
50.
51.
A
D
D
B
B******
C
7.
8.
9.
10.
11.
12.
13.
14.
15.
22.
23.
24.
25.
26.
27.
28.
29.
30.
C
A
C
C
D
D
D
C
D
37.
38.
39.
40.
41.
42.
43.
44.
45.
C
D
D*****
A (TRAIN Law)
D
B
D
D
D
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
B
C
D
D
D
C
A
B
B
C
B
B
C
A
C
C
B
C
B
*the P40,000 is subj. to FWT
**should be from banks only
***indirect dividends are subj. to FWT
**** Statement “II” is subject to FWT
*****ERRATUM: letter “D” shall be real property not used in business
******The interest is subject to FWT
Supporting Computations (Multiple Choice):
No. 13.
Write-off 2013
2013 Income (Loss) before
write off
P50,000
P350,000
10,000
(50,000)
30,000
20,000
2014 Recovery
P20,000
10,000
30,000
2014 TAXABLE
RECOVERY
P20,000
20,000
P40,000
No. 14.
2013 Income(loss) before write-off
Write-off
2014 Recovery
TAXABLE RECOVERY
Case A
P120,000
40,000
P40,000
P40,000
Case B
P60,000
40,000
P10,000
P10,000
Case C
(P40,000)
50,000
P50,000
P0
No. 17.
Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income
Refund of income tax = not an income
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No. 25.
Rent for 2015 and 2016 (prepaid rent is taxable yr. of receipt
regardless of accounting method)
Annual real property tax
Total annual income
P3,600,000
30,000
P3,630,000
No. 26.
2016
Rent
Annual real property tax
Income from improvement
[(P36M x **5/15) / 10]
Total annual income
P30,000
2017
P2,400,000
30,000
None; completed
only end of 2017
P2,430,000
2018
P2,400,000
30,000
1,200,000
P3,630,000
Lease Term: 12.5 years
Remaining Lease term after completion of the improvement: 10 years
Useful life of the improvement: 15 years
Remaining useful life of the improvement after termination of the lease: 5 years**
No. 27 – LUMP SUM METHOD
Annual Rent 2017
Annual real property tax
Income from improvement
Total annual income
2017
P2,400,000
30,000
36,000,000
P38,430,000
No. 28.
Royalty – as an author @ 10%
Other royalties
x
Total final tax on royalty income
P10,000
P800,000
20%
160,000
P170,000
No. 47.
Proceeds from the taxpayers life insurance
Less premiums paid (P15,000 x 25)
Rent income from inherited properties
Taxable income
P2,000,000
(375,000)
P1,625,000
200,000
P1,825,000
CHAPTER 9– DEALINGS IN PROPERTIES
PROBLEM SOLVING
P9.1 Question #1
Gross income
P360,000
Business expenses
(280,000)
Add: Net capital gains
Short term capital loss (@100%)
(60,000)
Long term capital gain (@100%)
40,000
Net Capital Gain (Loss)
(20,000)
Net Taxable Income in 2017
P80,000
*capital losses are deductible only from capital gains.
*holding period and capital loss carry-over are not applicable to corporate taxpayers.
P9.1 Question #2
2018
Gross income
P500,000
Business expenses
(350,000)
Net Capital Gain
Short term capital gain (@ 100%)
80,000
Capital loss (@ 100%)
(20,000)
60,000
Net Taxable Income in 2018
P210,000
*holding period and capital loss carry-over are not applicable to corporate taxpayers.
*capital losses are deductible only from capital gains.
P9.1 Question #3
Gross income
P360,000
Business expenses
(280,000)
Short term capital loss (@100%)
P(60,000)
Long term capital gain (@50% )
20,000
Net capital loss
(P40,000)
Basic Exemption
(50,000)
Net Taxable Income in 2017
P30,000
*Personal exemption is allowed prior to effectivity of RA 10963 (TRAIN Law)
P9.1 Question #4
Gross income
Business expenses
Add: Net capital gains
Short term capital gain (@100%)
Long term capital loss (@50%)
Net capital loss carry over (NCLCO) from 2017
P500,000
(350,000)
80,000
(10,000)
(30,000)**
40,000
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Net Taxable Income in 2018
P190,000
*Personal exemption is no longer allowed upon effectivity of RA 10963 (TRAIN Law)
***NCLCO must not exceed the taxable income during the year the net capital loss was incurred.
P9.2
Taxable income exclusive of capital gains and losses
Add(Deduct): Ordinary gains(loss)
Gain on sale of land used in business, for 3 years
Loss on sale of machinery used in business, for 8 months
P400,000
P50,000
(26,000)
Add: Net capital gains
Loss on sale of securities held for 3 years
(8,000)
Loss on sale of securities held for 3 months
(6,000)
Taxable income for Royale, Inc.
*capital losses are deductible only from capital gains
*holding period and capital loss carry-over are not applicable to corporate taxpayers.
P424,000
P9.3
Ordinary income
Add: Net capital gain:
Long term capital gain @ 50%
Long term capital loss @ 50%
Taxable Income
P9.4
(1)P25,000:
P9.5
(1)P5,000:
P140,000
P20,000
(5,000)
15,0000
P155,000
(2)P(P80,000);
(3)(P55,000)
Capital gain on sale of bonds (@50%)
P25,000
Capital loss on sale of car @ 100%
(80,000)
Net capital loss
(P55,000)
*net capital loss from the taxable period of a prior year is deductible only from net capital gains in the current year.
*sale of shares of domestic corporations held as capital assets are subject to CGT
*sale of real properties held as capital assets located in the Philippines are subject to CGT
(2)(P5,000);
Capital gain on sale of bonds (@100%)
P45,000
Capital loss on sale of car @ 50%
(40,000)
Net capital gain 2018
P5,000
Capital loss carry-over from 2017
P5,000
*net capital loss from the taxable period of a prior year is deductible only from net capital gains in the current year.
*sale of shares of domestic corporations held as capital assets are subject to CGT
*sale of real properties held as capital assets located in the Philippines are subject to CGT
P9.6
2017
2018
Ordinary income
P48,900
P85,700
Add: Net capital gain
2017: P15,895-P18,960 = (P3,065)
2018: =P45,700 x 50% = P22,850
P22,850
Net capital loss carry-over from 2017
----Basic exemption
(50,000)
No longer allowed
Additional exemption
(25,000)
No longer allowed
Taxable Income
(P26,100)
P33,550
*net capital loss from the taxable period of a prior year is deductible only from net capital gains in the current year.
*sale of shares of domestic corporations held as capital assets are subject to CGT
*sale of real properties held as capital assets located in the Philippines are subject to CGT
MULTIPLE CHOICE
1.
C
2.
D
3.
D
4.
A
5.
D
6.
D
7.
D
8.
D
9.
A
10.
C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
B
D
B
D
D
D
C
A
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
D
C
C
C
D
D
C
A
A
Supporting Computations (Multiple Choice):
18. P1,200,000 x 6% = P72,000
Sale of vacant lot used as warehouse is an ordinary asset
19.
CGT = 1,000 shares x P10 x 5% = P500
22.
Total net sales from his trading business
Cost of sales
Gain on sale of vacant lot used in business
Ordinary income/gain
P 500,000
(300,000)
50,000
P250,000
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23.
24.
25.
Capital Gain (On Sale of personal Car) = (P100,000-P50,000) x 50% = P25,000
Capital Loss (On Sale of personal computer) = (P10,000-P20,000) x 50% = (P5,000)
Net capital gain = P25,000 – P5000 = P20,000
CHAPTER 10 – DEDUCTIONS FROM GROSS INCOME
PROBLEM SOLVING:
P10.1
1.
P129,500
2.
P239,000
3.
P10,000
Solution:
Interest
Expense
Taxes and licenses
Documentary stamp taxes
Other percentage taxes
Refund of local business taxes and licenses in 2017
Interest expense on bank loan
[P150,000 – (P100,000 x 33%)]
Tax assessment for underpayment of OPT
Interest expense on tax assessments
Surcharges on tax assessments
Tax Expense
Taxable tax
refunds
40,000
4,000
120,000
-
-
10,000
-
117,000
75,000
12,500
P129,500
P239,000
P10,000
**The limitation on the deductibility of interest expense was legislated specifically to address the tax arbitrage arising from the difference between the
20% final tax on interest income and the regular corporate income tax rate (RCIT) under which interest expense can be claimed as a deduction.
P10.2
Solution:
2016
Annual Rent
P2,400,000
Annual real property tax
30,000
Depreciation exp. – Leasehold Improvement**
(P9.5M/9.5 years x 6/12)
Deductible Expense
P2,430,000
v **Remaining lease term upon completion of the improvement = 9.5 years
v Useful life of the improvement = 15 years
v Depreciation expense for 2018 = 6 months from July to December 2018
2017
P2,400,000
30,000
2018
P2,400,000
30,000
P2,430,000
500,000
P2,930,000
P10.3
Interest expense (P1M x 10%)
Less: 33% x (P1M x 12%)
Deductible Interest Expense
P10.4
P100,000
(39,600)
P60,400
Deductible Interest = P25,000.
*Interest paid or accrued on taxes related to business of practice of profession, such as those paid for deficiency or delinquency (since
taxes are considered indebtedness) are deductible as interest expense, provided that, the tax is a deductible tax. It is deductible in
“full”. It shall not be reduced by 33% of interest income subject to final tax. Stock Transaction Tax is a nondeductible tax, hence, the
related interest expense on such assessment shall not be deductible from the gross income.
P10.5
1.
2.
3.
P0; P720,000
P360,000; P360,000
P720,000; P0
PREPAID INTEREST
“Prepaid interest” of an individual under cash basis is deductible not in the year that the interest was paid in advance but in the year that
the indebtedness was fully paid. However, if the indebtedness is payable in periodic amortization, the amount of interest which corresponds to the
amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year. Prepaid interest shall likewise be allowed
as deduction from the gross income “at the time of payment” for businesses engaged in rendering services using cash basis of accounting.
P10.6 Question#1
Interest expense (bank loan)
Less: 33% x P4,000
Allowable interest expense on bank loan
P20,000
(1,320)
P18,680
Acquisition cost of computers
ADD: Interest expense
Capitalizable cost of the computers
P200,000
20,000
P220,000
Question#2
Depreciation expense
(P220,000/8 x 9/12)
P20,625
P10.7
Interest paid for late payment of 2016 income tax
Surcharge and compromise penalty for late payment of 2016 income tax
Interest on bonds issued by Omega
Deductible interest
P50,000
250,000
P300,000
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P10.8
Professional tax
P750
Gravel and sand tax
20,000
Road user’s tax on his delivery trucks
50,000
Local annual fixed tax for his delivery trucks
10,000
Other local business taxes
12,000
Total deductible taxes
P92,750
Real property tax on his residential house is not deductible, it is considered as personal expense not related to trade, business, or practice of
profession. However, Real property taxes on real properties used in business are deductible taxes.
P10.9
Plane tickets
P100,000
Transportation expenses-officers (136,000 + 64,000)
**200,000
Transportation expenses-messengers
80,000
Deductible expenses
P380,000
**Not subject to FBT. Regularly received allowances as part of compensation package.
Special assessment is a non-deductible expense
P10.10.
Deductible Premium = P75,000
P10.11
(1)
Gross business income
Business expenses
Net income before capital gains and contributions
Contributions deductible in full (accredited NGO)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000x10%= P60,000)
Add (Deduct):
Net capital gain
Compensation income
Taxable Net Income
P1,000,000
(400,000)
P600,000
(30,000)
Gross business income
Business expenses
Net income before capital gains and contributions
Contributions deductible in full (accredited NGO)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000 x 5% = P30,000)
Add:
Net capital gain
Taxable Net Income
P1,000,000
(400,000)
P600,000
(30,000)
(20,00)
30,000
600,000
P1,180,000
(2)
(20,00)
30,000
P580,000
P10.12.
1.
2.
Total Charitable and other contributions with limit = P250,000 + 300,000 = P550,000
Total nondeductible contributions = P200,000 + 350,000 = P550,000
P10.13.
Actual (w/ limit)
Limit [(6,200,000 – 2,500,000) x 5%]
P190,000
185,000
Allowed
Add: deductible in full (priority project)
Total
P185,000
100,000
P285,000
P10.14.
Gross Income
Cost of Sales
Sales
v
P5,000,000
3,000,000
P8,000,000
P8,000,000
Sales
(3,000,000)
COS
5,000,000
Gross Income
(950,000)
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of employees, gross of
P100,000 withholding tax and P50,000 SSS, Medicare and Pag-Ibig premiums
contributions
Fringe benefits given to rank and file employees
(300,000)
Fringe benefits given to managerial employees
(200,000)
(@Grossed-up monetary value)
Rent expense
(120,000)
Representation and entertainment expenses ( ½ % of N.Sales)
(40,000)
Net income before contributions
P3,390,000
Donation to religious and charitable institutions (Limit)
(339,000)
Limit: P3,390,000 x 10%
Taxable net income
P3,051,000
Representation expenses = limit is ½% of net sales (if merchandising) or actual whichever is lower. If service concern, limit is 1% of net revenues or
actual whichever is lower.
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P10.15
BV = P1M x 2/5
Vs. Cost to restore
Allowed (lower amount)
Less: insurance coverage
Deductible Loss
P400,000
200,000
P200,000
(100,000)
P100,000
P10.16.
(a)
P6,200,000
(2,500,000)
Sales
Cost of sales
OPEX:
Bad debts written-off
Salaries and wages excluding fringe benefits/de minimis
De minimis (P70,000 + P30,000)
Fringe benefits provided to rank and file employees
Fringe benefits provided to managerial employees
(GUMV = P156,000/65%)
Taxes and licenses
Tax assessment including interest
Utilities expense
Casualty losses
Depreciation expense
Net capital Gain(Loss)
Capital gain on sale of a 10-year bonds held for 8 years
Capital loss on sale of bonds of a domestic corporation
Dividend income:
From domestic corporation
From resident corporation
From nonresident corporation
Interest income:
From trade notes receivable
From bank deposits abroad
Other Income:
Recovery of bad debts written off preceding year
Refund of taxes and licenses for the preceding year
TAXABLE INCOME
20,000
350,000
100,000
50,000
240,000
50,000
115,000
100,000
60,000
40,000
(1,125,000)
Tax exempt
(20,000)
-
30,000
20,000
50,000
75,000
30,000
105,000
10,000
10,000
20,000
P2,750,000
P825,000
(75,000)
P750,000
NCIT@ 30% (higher than MCIT)
Less: Payments for the first 3 quarters
INCOME TAX PAYABLE
(b)
Interest income from peso bank deposit @ 20%
Interest income from U.S.$ deposit (Philippines) @ 15%
Royalty income @ 20%
Income from trust indenture with Security Bank @ 20%
Total final tax on passive income
10,000
6,000
8,000
5,000
P29,000
(c)
Capital gain on sale at P6M of land in the Philippines held for 10 years =
P6M x 6% = P360,000
Capital gain on sale of shares of stock of a domestic corporation held for
six (6) months, sold directly to a buyer
P15,000 x 15% = P750
Total Capital Gains Tax
TRUE OR FALSE
1. FALSE
2. FALSE
3. FALSE
4. TRUE
5. FALSE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. TRUE
MULTIPLE CHOICE
1.
B
2.
C
3.
B
4.
D
5.
C
6.
A
7.
C
8.
D
9.
D
10.
D
11.
A
12.
D
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
TRUE
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
D
B
A
A
B
A
C
B
C
B
C
D
21.
22.
23.
24.
25.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
P360,000
2,250
P362,250
TRUE
TRUE
TRUE
FALSE
TRUE
A
B
B
A
C
C
C
C
D
D
D
C
46.
47.
48.
49.
50.
51.
52.
D
C
C
B
B
D
B
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13.
14.
15.
D
D
C
28.
29.
30.
D
D
A
43.
44.
45.
C
D
C
Supporting Computations:
No. 17-19:
2016
P3,300,000
(2,400,000)
(1,475,000)
(P575,000)
140,000
28,000
Gross sales
Cost of sales
Deductions
GP(Loss)
Dividend – resident foreign corporation
Interest income on notes receivable
Capital gain (ignore holding period)
Capital loss (ignore holding period)
Income (Loss) before NOLCO
NOLCO
Taxable income
*** To the extent only of capital gain only
(P407,000)
2017
2,340,000
(1,070,000)
(1,025,000)
P245,000
16,400
13,000
274,400
(274,400)
P0
2018
P825,000
(380,000)
(459,000)
(P14,000)
32,000
18,500
***(18,500)
18,000
(18,000)
P0
No. 21.
The fire loss pertains to the residential house of the taxpayer, hence non-business related property. Unless there’s a capital gain, such
loss cannot be deducted from the taxpayer’s gross income.
No. 22.
Unlike in the preceding problem, the property destroyed by fire this time is a property used in business. Hence, deductible from the
taxpayer’s gross income less any proceeds from insurance.
No. 43.
No. 44.
Contribution to charitable org. (w/ limit)
Limit [(6,200,000 – 2,500,000) x 5%]
P190,000
185,000
Allowed
Add: deductible in full (priority project)
Total
P185,000
100,000
P285,000
ERRATUM: CHANGE TAXABLE YEAR TO 2017
Gross Income
Cost of Sales
Sales
Sales
COS
Gross Income
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of employees, net of
P100,000 withholding tax and P50,000 SSS, Medicare and Pag-Ibig premiums
contributions
Fringe benefits given to rank and file employees
Fringe benefits given to managerial employees
(@Grossed-up monetary value) = 136,000/68%
Rent expense
Representation and entertainment expenses ( ½ % of Net Sales)
Net income before contributions
Donation to religious and charitable institutions (Limit)
Limit: P3,390,000 x 10%; Actual= P500,000
NET INCOME BEFORE PERSONAL EXEMPTION
Basic personal exemption
Taxable income
•
P5,000,000
3,000,000
P8,000,000
P8,000,000
(3,000,000)
5,000,000
(950,000)
(300,000)
(200,000)
(120,000)
(40,000)
P3,390,000
(339,000)
P3,051,000
(50,000)
P3,001,000
Representation expenses
= Limit of ½% of net sales (if merchandising) or actual whichever is lower
= Limit of 1% of net revenues (if service concern) or actual whichever is lower
No. 46.
Current service costs
Past service costs
2012 (P1,600,000/10)
2013 (P1,200,000/10)
Deductible Contributions
2016
P2,000,000
2017
P2,000,000
2018
P2,000,000
160,000
P2,160,000
160,000
120,000
P2,280,000
160,000
120,000
P2,280,000
CHAPTER 11 – INSTALLMENT REPORTING OF INCOME
1.
2.
3.
4.
A
D
B
A
6.
7.
8.
9.
C
D
C
A
5.
A
10.
B
11.
12.
C
B
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CHAPTER 12 – FOREIGN INCOME TAX CREDIT AND OPTIONAL STANDARD DEDUCTION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
D
D
B
D
C
D
D
D
A
C
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
A
C
D
A
D
C
B
D
B
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
C
B
A
B
D
D
D
P6,370,000
A
31.
32.
33.
34.
A
C
B
D
Supporting Computations:
No. 11.
ERRATUM: CHANGE TAXABLE YEAR TO 2017
Net income, Philippines
Net income, Canada
Basic personal exemption
Taxable Income
Tax Due:
First P500,000
Excess:
(P2.7M-.5M)32%
Less Tax Credit:
Limit: (1,250/2750 x P829,000)
Actual
Income Tax Payable
P1,500,000
1,250,000
(50,000)
2,700,000
P125,000
704,000
P373,050
150,000
P829,000
(150,000)
P679,000
No. 12.
Net income, Philippines
Net income, Canada
Taxable Income
P1,500,000
1,250,000
2,750,000
Tax Due @ 30%:
Less Tax Credit:
Limit: (1,250/2,750 x P825,000)
Actual
Income Tax Payable
P825,000
P375,000
150,000
(150,000)
P675,000
No. 13.
Taxable income, world
P2,000,00
Tax Due @ 30%
Less Tax Credit:
L1:
Country X (600/200 x P600,000)
Paid
Allowed
P600,000
Country Y(400/200 x P600,000)
Paid
Allowed
Total L1
L2 (1/2 x 600,000)
Paid (Total)
P180,000
250,000
P180,000
P120,000
120,000
120,000
P300,000
300,000
370,000
300,000
(300,000)
(110,000)
P190,000
TAX CREDIT ALLOWED
Tax paid, three quarters
Income tax payable
No. 14.
Taxable income before tax credit, world
Taxes paid foreign countries
Taxable income
X
Tax Due
Less: Payments, 3 quarters
Tax payable
P2,000,000
(370,000)
P1,630,000
30%
489,000
(110,000)
P379,000
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No. 29.
Gross sales
Less:
Sales returns
Sales discounts
Net sales
Less: Cost of sales
Add: other income
Interest on notes receivable
Dividend income from resident corporation
GROSS INCOME FOR OSD purposes
Less:
OSD (P10,700,000 x 40%)
Basic personal exemption
TAXABLE INCOME
P12,000,000
1,000,000
500,000
100,000
100,000
(1,500,000)
P10,500,000
NOT ALLOWED
200,000
10,700,000
(4,280,000)
(50,000)
P6,370,000
No. 30.
No. 31.
No. 32.
Taxable income = P900,000 x 60% + 200,000 – 50,000 personal exemption = P690,000
Distributable income (GP; taxable) = P900,000-500,000 x 60% x 70% = P168,000
Distributable income (GPP; nontaxable) = P900,000-500,000 x 60% = P240,000
No. 33.
Share in the Distributable income (GPP; nontaxable) = (P10M – 2M – P1M) x 50% = P3,500,000
Atty King’s own income before personal exemption = P3,400,000
Atty King’s taxable income = P3.5M + P3.4M – basic exemption = P6,850,000
No. 34.
Share in the Distributable income (GPP; nontaxable; OSD) = (P10M – 2M) x 60% x 50% = P2,400,000
Atty King’s own income before personal exemption using OSD= P5M x 60% = P3,000,000
Atty King’s taxable income = P2.4M + P3M – basic exemption = P5,350,000
CHAPTER 13 – ACCOUNTING PERIODS AND METHODS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
B
B
A
C
A
D
B
C
D
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
A
D
D
D
C
C
A
B
D
21.
22.
23.
24.
25.
D
C
D
D
C
CHAPTER 14 – TAX REMEDIES
MULTIPLE CHOICE
1. D
2. B
3. C
4. A
5. D
6. D
7. C
8. D
9. D
10. D
11. D
12. D
13. C
14. B
15. D
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
D
C
B
C
C
D
B
B
C
B
C
C
B
C
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
D*
D
B
B
B
B
C
A
C
D
D
D
A
D
A
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
D
A
A
A
D
D
D
B
D
A
B
B
A
D
C
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
A
D
D
C
B
B
B
B
A
A
D
A
D
D
C
#17. The sixty (60)-day period for the submission of all relevant supporting documents shall not apply to requests for reconsideration under RR 18-2013.
#23. (the taxpayer has, nonetheless, the option to wait for the decision of the BIR even beyond the 180 day period nder RR 18-2013.)
If the protest is not acted upon by the Commissioner’s duly authorized representative within one hundred eighty (180) days, THE TAXPAYER MAY
EITHER:
a)
Appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period; or
b)
Await the final decision of the Commissioner’s duly authorized representative on the disputed assessment.
*#31. BASED ON #30
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