TAX-602
ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 44  October 2022 CPA Licensure Examination
TAXATION
A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL
TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS
1.
Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at the rates
established in the following schedule (resident citizens, non-resident citizens, resident alien, estate and
trust):
a. Effective January 1, 2018
If the taxable income is:
Over
But not over
P
250,000
P
250,000
400,000
400,000
800,000
800,000
2,000,000
2,000,000
8,000,000
8,000,000
The tax shall be
0%
20%
P
30,000
130,000
490,000
2,419,000
Plus
b. Effective January 1, 2023
If the taxable income is:
Over
But not over
P
250,000
P
250,000
400,000
400,000
800,000
800,000
2,000,000
2,000,000
8,000,000
8,000,000
The tax shall be
0%
15%
P
22,500
102,500
402,500
2,202,500
Plus
Of excess over
P
25%
30%
32%
35%
250,000
400,000
800,000
2,000,000
8,000,000
Of excess over
P
20%
25%
30%
35%
250,000
400,000
800,000
2,000,000
8,000,000
2. Final Tax Rates on Certain Passive Income from Philippine Sources.
a. Rates of Tax Certain Passive Income
1) Sec. 24 (B)
– For residents or citizens;
2) Sec. 25 (A) (2) – For non-resident aliens engaged in trade or business.
a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders)
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Royalties (except royalties on books and other literary works and musical compositions)
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec.
24 (A)]
f. Winnings (except winnings amounting to P10,000 or less from Philippine Charity Sweepstakes
Office (PCSO) games which shall be exempt)
g. Royalties on books and other literary works and musical compositions
20%
20%
20%
20%
20%
20%
10%
3) Sec. 25 (B) – For non-resident aliens not engaged in trade or business
a. Interest from any currency bank deposit
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders)
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Royalties, in general
e. Royalties on books, as well as other literary works and musical compositions
f. Prizes
g. Other winnings
a. Interest income received by individual taxpayer (except nonresident individual) from a depositary bank under expanded foreign
currency deposit system
b. Interest income from long-term deposit or investment in the form
of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments
evidenced by certificates in such form prescribed by Bangko
Sentral ng Pilipinas (BSP)
If pre-terminated before fifth year, a final tax shall be imposed based
on remaining maturity:
4 years but less than 5 years
3 years but less than 4 years
Less than 3 years
25%
25%
25%
25%
25%
25%
25%
RES/CIT
7.5% (old)
NRA-ETB
NRA-NETB
15% (new)
Exempt*
Exempt*
Exempt
Exempt
25%
5%
12%
20%
5%
12%
20%
25%
25%
25%
*also applies to non-resident citizens
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
TAX-602
TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS
4) Cash and/or Property Dividends
a. Cash and/or property dividends actually or constructively
received from a DOMESTIC CORP. or from JOINT STOCK CO.,
INSURANCE or MUTUAL FUND COMPANIES and REGIONAL
OPERATING HEADQUARTERS of multinationals (beginning
January 1, 2000}
b. Share of an individual in the distributable net income after tax of
a PARTNERSHIP (OTHER THAN a general professional
partnership) of which he is a partner (beginning January 1,
2000)
c. Share of an individual in the net income after tax of an
ASSOCIATION, a JOINT ACCOUNT, or a JOINT VENTURE or
CONSORTIUM taxable as a corporation of which he is a member
or co-venturer (beginning January 1, 2000)
RES/CIT
NRA-ETB
NRA-NETB
10%
20%
25%
10%
20%
25%
10%
20%
25%
Provided, however, that the tax on dividends shall apply only on income earned on or after January 1, 1998.
Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after
January 1, 1998, be subject to this tax.
5) Exercises:
a. Identify whether the following are subject to final tax or not (year 2018). Taxpayer is RESIDENT CITIZEN unless
otherwise stated (Y/N).
Final tax?
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
26)
27)
28)
29)
30)
Interest from peso bank deposit, Equitable – PCIB, Makati
Interest from Japanese yen bank deposit, Sumitomo Bank, Japan
Interest from USA dollar bank deposit, First USA Bank, New York
Interest income from a debt instrument not within the coverage of deposit substitute,
Philippines
Interest income from a debt instrument within the coverage of a deposit substitute, Philippines
Interest on government debt instrument and securities (regardless of number of lenders at the
time of the origination)
Interest from overdue accounts receivable, Philippines
Royalties, in general, Manila
Royalties, books published in Manila
Prize amounting to P30,000, Philippines
Prize amounting to P10,000, Philippines
Prize amounting to P40,000, USA
Winnings amounting to P30,000, Philippines
Winnings amounting to P10,000, Philippines
USA Sweepstakes winnings
Philippine Lotto winnings
Interest received from depository bank under expanded foreign currency deposit system
(jointly in the name of a non-resident citizen and his spouse who is a resident citizen)
Interest income from long-term deposit or investment evidenced by certificates issued by BSP
(issued by a financial institution other than a bank in denomination of P10,000)
Interest income from long-term deposit or investment evidenced by certificates issued by BSP
(issued by a bank to an individual in denomination of P10,000)
Dividend from a domestic corporation received on April 15, 2006
Share in distributive net income of local business partnership received on May 15, 2006
Share in net income after tax of an association, a joint account, or a joint venture or
consortium received on August 15, 2006
Share in the net income of a general professional partnership
Dividend from a foreign corporation
Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by a NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS
Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by a NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS
Interest income received by NONRESIDENT ALIEN individual from a depository bank under
expanded foreign currency deposit system
Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank
under expanded foreign currency deposit system
Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from
a domestic corporation.
Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a
domestic corporation
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Rate
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS
b.
TAX-602
b. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was transferred
to Mr. Y (a resident alien) who, in turn, held it for 8 years. How much is final withholding tax due?
Mr. X _____
Mr. Y _____
c. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and transferred it
to Mr. Y (a resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a resident citizen), who
held it until the day of maturity or for 5 years. How much is the final withholding tax due?
Mr. X _____
Mr. Y ________
Mr. Z __________
d. An instrument with maturity period of 10 years was held by Mr. X (a non-resident alien engaged in trade or business in
the Philippines) for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before subsequently
transferring it to Mr. Z (a non-resident alien not engaged in trade or business), who pre-terminated it after 4 years.
How much is the final withholding tax due?
Mr. X _____
Mr. Y _________
Mr. Z ___________
3. Capital Gains Tax
a. Sec. 24 (C) – Capital Gains from Sale of
Shares of Stock not Traded in the Stock
Exchange
Sale, barter, transfer and/or assignment of
shares of stock of publicly-listed companies
not compliant with mandatory minimum
public ownership (10% of the publiclylisted companies’ issued and outstanding
shares, exclusive of any treasury shares)
(RR No. 16-2012)
b. Sec. 24 (D) – Capital Gains from Sale of
Real Property Classified as Capital Asset
(Located in the Philippines)
c. Disposition of real property classified as
capital asset by individual to the
government or any of its political
subdivisions or agencies or to GOCCs
d.
Exemption from 6% capital gains tax on
sale/transfer of principal residence
e. Carry-over of historical cost or adjusted
basis
f.
Computation for the basis
of the new principal
residence
g.
Notification required
h.
Exemption once every 10
years
Taxable portion if no full
utilization of proceeds
i.
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Tax base: Net capital gains
Tax rates (old): 5% - not over P100,000
10% - excess of P100,000
Tax rate (new): 15%
Tax base: Gross selling price or fair market
value whichever is higher
Tax rate: 6% final tax
The tax to be imposed shall be determined either under Section 24
(A) for the normal rate of income tax for individual citizens or
residents or under Section 24 (D) (1) for the final tax on the
presumed capital gains of property at 6%, at the option of the
taxpayer-seller.
1) Exempt proceeds
Capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the
proceeds of which is fully utilized in acquiring or constructing a
new principal residence within 18 calendar months from the
date of sale or disposition shall be exempt from capital gains tax.
2) Escrow agreement
The buyer/tansferee shall withhold from the seller and shall
deduct from the agreed selling price/consideration the 6% capital
gains tax which shall be deposited in cash or manager’s check in
interest bearing account with an Authorized Agent Bank (AAB)
under an Escrow Agreement between the concerned Revenue
District Officer, the Seller and the Transferee, and the AAB.
The historical cost or adjusted basis of the real property sold or
disposed shall be carried over to the new principal residence built or
acquired.
Historical cost of old principal residence
Add: Additional cost to acquire new principal residence
Adjusted cost basis of the new principal residence
xxx
xxx*
xxx
*Cost to acquire new principal residence
xxx
Less: Gross selling price of old principal residence
xxx
Additional cost to acquire new principal residence
xxx
The Commissioner shall have been duly notified by the taxpayer within 30 days
from the date of sale or disposition through a prescribed return of his intention to
avail of the tax exemption.
The tax exemption can only be availed of once every 10 years.
If there is no full utilization of the proceeds of sale or disposition of principal
residence, the portion of the gain presumed to have been realized from the sale or
disposition shall be subject to capital gains tax.
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS
TAX-602
The taxable portion is computed as follows:
Unutilized portion
x Tax base
Gross selling price
j.
Filing of Final Capital Gains
Tax Return on sale of
principal residence
Computation of adjusted cost basis of the new principal residence:
Utilized portion
x Historical cost
Gross selling price
1) After depositing the amount representing the 6% capital gains tax, the
Buyer/Transferee and the Seller, shall jointly file, within thirty (30) days from the
date of sale or disposition of the principal residence, with the RDO having
jurisdiction over the property, in duplicate, the Final Capital Gains Tax Return
covering the property bought with no computed tax due stating that the
supposed tax due/amount so withheld by the buyer is maintained in an escrow
account, which amount will be used to satisfy future tax liability, if any, on the
subject transaction.
2) For purposes of capital gains tax otherwise due on the sale, exchange or
disposition of the said Principal Residence, the execution of the Escrow
Agreement shall be considered sufficient.
k. Exercises
a. An individual taxpayer holds shares of stock as investment (P120,000 par value). During the current year, he sells the
shares he bought for P100,000 for P180,000 directly to a buyer. How much is the capital gains tax and documentary
stamp tax on the sale, if any?
b.
An individual taxpayer holds shares of stock as investment which he bought from a publicly-listed company for
P500,000 (P500,000 par value). The shares are listed and traded in the local stock exchange. During the current
year, he sells them for P750,000.
Question 1 - How much is the percentage tax, if any?
2 – How much is the documentary stamp tax, if any?
3 – How much is the capital gains tax on the sale assuming the corporation from which the shares are
bought are not compliant with the mandatory minimum public ownership?
c.
An individual taxpayer invested P300,000 in the common shares of SMC Corp (P150,000 par value). During the
current year, he sold these shares to a buyer not through the local stock exchange for P250,000.
Question 1 - How much was the capital gains tax on the sale, if any?
2 – How much was the documentary stamp tax, if any?
3 – Assuming the shares are listed and traded in the local stock exchange, how much was the percentage
tax?
d.
During the year 2018, Ms. Kat Antonio sold her vacation house for P500,000. She acquired it for P700,000 two (2)
years ago. The fair market value of the vacation house at the time of sale was P800,000. Ms. Antonio was going to
use the proceeds to build her new principal residence within eighteen (18) months after informing BIR within thirty
(30) days of such intention. How much is the capital gain tax and the documentary stamp tax, if any?
e.
Mr. C. Avenido acquired his principal residence in 2016 at a cost of P1,000,000. He sold the said property on January
1, 2018, with a fair market value of P5,000,000 for a consideration of P4,000,000. Within the 18-month reglementary
period he purchased his new principal residence at cost of P7,000,000.
Question 1 - How much is the capital gains tax due?
2 – How much is the documentary stamp tax?
3 - How much is the basis of the new principal residence?
f.
Using the same data in letter e, if for example, Mr. Avenido acquired his new principal residence within the 18-month
reglementary period but did not utilize the entire proceeds of the sale in acquiring his new principal residence because
he only used P3,000,000 thereof in acquiring his new principal residence.
Question 1 - How much is the capital gains tax?
2 - How much is the basis of the new principal residence?
4.
Tax Rates for Special Aliens and their Filipino Counterparts
a. The provision on the preferential income tax rate of fifteen percent (15%) for qualified employees of Regional Headquarters, Regional Operating
Headquarters, Offshore Banking Units, and Petroleum Service Contractors and Subcontractors has been vetoed.
b.
Thepreferential incometaxrateofqualifiedemployeesofRegional Headquarters, Regional Operating Headquarters, Offshore Banking Units, and
Petroleum Service Contractors and Subcontractors shall no longer be applicable without prejudice to the application of preferential tax rates
under existing international tax treaties.
Sec. 25 (C)
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Persons Subject to Tax
Alien Individual Employed
by Regional or Area
Headquarters and
Regional Operating
Headquarters of
Multinational Co.
Tax Rate
15% of gross income within the Philippines (same tax treatment shall apply to Filipinos
employed and occupying the same position as those of aliens employed by these
multinational companies)
Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a) of the Tax Code, as
amended, without prejudice to the application of preferential tax rates under existing international
tax treaties.
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS
Sec. 25 (D)
Sec. 25 (E)
Alien Individual Employed
by Offshore Banking Units
Alien Individual Employed
by Foreign Petroleum
Service Contractor and
Subcontractor
TAX-602
15% of gross income within the Philippines (same tax treatment to Filipinos employed and
occupying managerial and technical positions similar to those occupied by aliens employed
by these offshore banking units).
Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a)of the Tax Code,asamended,
withoutprejudicetotheapplicationof preferential tax ratesunderexisting international tax treaties.
15% of gross income within the Philippines (same tax treatment to Filipinos employed and
occupying the same position as those aliens who are permanent residents of a foreign
country but who are employed by petroleum service contractor and subcontractor in the
Philippines).
Under the TRAIN, subject to regular income tax rate under Section 24(A)(2)(a)of the Tax Code,asamended,
withoutprejudicetotheapplicationof preferential tax ratesunderexistinginternational tax treaties.
Exercises
a. At the start of the year, Adriano Santos, a Filipino holding a managerial position in an RHQ, receives a monthly salary and cost
of living allowance in the amount of P70,000 and P7,000 respectively. His 13th month and 14th month pays amount to P140,000.
How much is his income tax payable?
b. Ms. CCF, an alien employed in MCUD Corporation, a Petroleum Service Contractor received compensation income of ₱5,000,000.00 for 2018, inclusive of
₱400,000.00 13th month pay and other benefits. How much is the taxable net income and the income tax due?
5.
Integrative Cases
a.
A married resident citizen supports three (3) qualified dependent children and a brother-in-law who is a PWD, unmarried and not
gainfully employed. He has the following data on income and expenses for the year 2018:
Salary, Philippines
P 560,000
Gross business income, Philippines (gross sales, P1,700,000)
500,000
Business expenses, Philippines
180,000
Gross business income, USA (gross sales, P1,500,000)
900,000
Business expenses, USA
300,000
Interest income from bank deposit, Philippines
50,000
Interest income from bank deposit, USA
70,000
Interest income from domestic depository bank under EFCDS
80,000
Interest income from a debt instrument not within the coverage of deposit substitute, Philippines, gross of 20%
creditable withholding tax (issue price is P300,000)
50,000
Interest income from a debt instrument within the coverage of a deposit substitute, Philippines (issue price
P500,000)
60,000
Royalty on book published in the Philippines
100,000
Prize in a contest he joined in the Philippines
5,000
Philippine Charity Sweepstakes winnings
1,000,000
Gain from sale of shares of stock not traded through the local stock exchange (P200,000 par value)
150,000
Dividend received from a domestic corporation
40,000
Tax payments, first three (3) quarters
100,000
Question 1 - How much is the total final tax on certain passive income?
2 –How much is the capital gains tax and the documentary stamp taxes?
3 – Can the taxpayer avail of the 8% income tax option?
4 – How much is the taxable net income and income tax due and the business tax?
b. A resident alien individual supports two (2) qualified dependent adopted children and a foster child. He asks you to assist him in the
preparation of his tax return for his income in 2018. He provides you the following information:
Gross business income, Philippines (gross sales, P3,000,000)
P 1,000,000
Gross business income, Japan (gross sales, P7,000,000)
5,000,000
Business expenses, Philippines
200,000
Business expenses, Japan
800,000
Philippine Charity Sweepstakes winnings
500,000
Japanese Sweepstakes winnings
400,000
Interest income, Bank of Tokyo, Japan
100,000
Interest income received from a depository bank under EFCDS, Philippines
300,000
Interest on peso bank deposit, Philippines
100,000
Income taxes paid for the first three (3) quarters
50,000
Question 1 - Can the taxpayer avail of the 8% income tax rate?
2 - How much was the taxable net income and income tax due if he avails of the 8% income tax rate?
3 – How much was the final tax on passive income?
4 – Assuming the taxpayer failed to avail of the 8% income tax, how much is his taxable income and
the income tax due?
END
“Hardwork and determination can go a long way.” – Tamthewise
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