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Answer key 1 and 2
BS Accountancy (New Era University)
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SOLUTIONS MANUAL
INCOME TAXATION, 2022 edition
By: TABAG & GARCIA
CHAPTER 1 Ð 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
C
6.
B
26.
A
46.
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 Ð False; similarity of tax from license fee, not a distinction.
***Statement 1 Ð False; should be ÒjurisdictionÓ instead of Òsymbiotic relationÓ.
Statement 2 Ð False; should be Òsymbiotic relationÓ instead of ÒjurisdictionÓ
CHAPTER 2 - INDIVIDUAL TAXPAYERS
PROBLEM SOLVING:
2-1
1. RC
2. RC
3. RC
4.
5.
6.
NRA-NETB
NRC
RA
2-2
TAX TYPE
Tax RATE
TAX TYPE
Tax RATE
1
FWTx
20%
19
Exempt
-**
2
FWTx
15%
20
FWT
20%**
3
BTx
Tax Table
21
FWTx
25%**
4
FWTx
20%
22
BTx
Tax Table
5
Exempt
23
Exempt
6
BTx
Tax Table
24
FWTx
25%
7
BTx
Tax Table
25
FWTx
20%
8
BTx
Tax Table
26
FWTx
20%
9
BTx
Tax Table
27
FWTx
10%
10
BTx
Tax Table
28
BTx
Tax Table
11
FWTx
20%
29
BTX
Tax Table
12
FWTx
10%
30
FWTx
20%
13
FWTx
20%*
31
FWTx
25%
14
BTx
Tax Table*
32
CGT
15%
15
BTx
Tax Table
33
Exempt
Sub.to OPT***
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.
Other WINNINGS (regardless of amount) are subject to 20% final tax rate.
**PCSO/Lotto winnings under CREATE Law:
Amount
RC, NRC, RA, NRAET
NRANET
f P10,000
exempt
25% FWT
> P10,000
20% FWT
25% FWT
***Stock Transaction Tax on sale of shares of DC listed in the Local Stock Exchange = 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.
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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 = P195,000 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 on rent (P400,000 Ð P380,000)
Other 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
(20,000)
(80,000)
P195,000
5.
The 8% optional tax is not applicable because the total of the gross sales and other non-operating income exceeded the revised vat threshold of
P3,000,000.
6.
Income Tax Payable = P302,500 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; none was provided in the problem
Income Tax Payable
P4,000,000
(1,800,000)
(825,000)
P1,375,000
P130,000
172,500
P302,500
P302,500
7.
The 8% optional tax is not applicable because the gross receipts exceeded the revised vat threshold of P3,000,000.
8.
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
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9.
2-4
10.
The 8% optional tax is applicable because the 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
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.
Taxpayer is a resident citizen
a.
Taxable income = P1,050,000
b.
Income tax payable = P80,000
c.
Final tax on passive income = P57,500
d.
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
Taxable income (within and without)
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 Ð 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
11.
The question is tax expense; ignore
the income tax payable of P80,000.
Taxpayer is a nonresident citizen
a.
Taxable income = P950,000
b.
Income tax payable = P50,000
c.
Final tax on passive income = P51,500
d.
Total income tax expense = P226,500
Gross business income, Philippines
P1,000,000
Business expenses, Philippines
Compensation income, Philippines
Dividend income-foreign corp.
Raffle draw winnings
Taxable income
(700,000)
600,000
40,000
10,000
P950,000
Tax Due [(P130,000)+(150k x 30%)]
Creditable withholding tax on bus. Income
Income Tax Payable
P175,000
(125,000)
P50,000
Dividend income Ð 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
exempt
2,500
40,000
P51,500
Basic income tax due
Final taxes on passive income
Total income tax expense
12.
P205,000
57,500
P262,500
Assume the tax withheld pertain to
Income derived in the Phls.
P175,000
51,500
P226,500
Taxpayer is a resident alien
a.
Taxable income = P950,000 (same answer with #11.a; nonresident citizen)
b.
Income tax payable = P50,000 (same answer with #11.b; nonresident citizen)
c.
Final tax on passive income = P57,500 (same answer with #10.c; resident citizen)
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d.
13.
Total income tax expense = P232,500 computed as follows:
Basic income tax due
Final taxes on passive income
Total income tax expense
Taxpayer is a nonresident alien engaged in trade or business
a.
Taxable income = P950,000 (same answer with #11.a; nonresident citizen)
b.
Income tax payable = P50,000 (same answer with #11.b; nonresident citizen)
c.
Final tax on passive income = P56,500
d.
Total income tax expense = P231,500
Dividend income Ð DC (50k x 20%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (@ 20% under CREATE Act)
Final Tax on Passive Income
&
P10,000
4,000
exempt
2,500
40,000
P56,500
Use 20% rate for DI from DC instead of 10%
**Under the CREATE Act, PCSO winnings amounting to more than P10,000 is subject to 20% FWT if received by RCs, NRCs,
RAs and NRAs-ETB. The FWT rate is 25% if received by NRA-NET, regardless of amount.
Basic income tax due
Final taxes on passive income
Total income tax expense
14.
P175,000
57,500
P232,500
Taxpayer is a nonresident alien not-engaged in trade or business
Compensation income, Philippines
Dividend income - DC
Dividend income from resident 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
P175,000
56,500
P231,500
P600,000
50,000
40,000
20,000
Exempt
25,000
10,000
200,000
P945,000
25%
P236,250
NOTE: The creditable withholding tax on business income shall be ignored because it is not applicable to a nonresident alien Ònot
engaged in businessÓ.
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
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
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
Taxable income
TAX DUE:
First P800,000
Excess = P276,100 @ 30%
**All incomes, regardless of source, are generally taxable. However, personal expenses are not allowed as
deduction from the gross income.
Final Tax on Passive income:
Interest income on bank deposits
Interest income on money market placements
Royalty income
Lotto winnings
Winnings/ prizes from lotteries, raffle draws
Total
@
Dividend income from domestic corp.
Royalty income from sale of books
Total
@
TOTAL FINAL TAX ON PASSIVE INCOME
10,800
7,500
90,000
150,000
45,000
P303,300
20%
5,700
68,000
P73,700
10%
P130,000
82,830
P212,830
P60,660
7,370
P68,030
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Capital Gains Tax:
Sale of lot (P1,060,000 x 6%)
Sale of house and lot (P950,000 x 6%)
Total
2.
P63,600
57,000
P120,600
Taxpayer is a non-resident citizen
a.
Taxable income = P438,400
b.
Income tax payable = P39,600
c.
Final tax on passive income = P68,030
d.
Capital gains tax = P120,600
Solution:
From Phils.
P180,000
850,000
(610,000)
6,000
6,800
5,600
P438,400
Income from employment
Business income
Deductible business expenses
Interest income on personal loans
Dividend income from foreign corp.
Prizes from singing contest
Taxable income
TAX DUE:
First P400,000
Excess = P38,400 x 25%
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 = P68,600;
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 corporation
Lotto winnings
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
150,000
45,000
P309,000
20%
68,000
10%
rate is 20%
P61,800
6,800
P68,600
2-6
a.
b.
c.
Taxable income of the husband = P1,240,000
Taxable income of the wife = P890,000
Consolidated tax due of the husband and the wife = P419,000
Husband
INCOME:
Compensation income
Income-Profession [P800,000/2)]
Income from trading business
LESS:
Expenses-practice of profession [ P320,000/2)]
Expenses Ð trading business
TAXABLE INCOME
Wife
P 850,000
400,000
250,000
P650,000
400,000
-
(160,000)
(100,000)
P1,240,000
(160,000)
P890,000
P130,000
109,500
P130,000
27,000
P262,000
P419,000
P157,000
Tax due:
First P800,000
In excess of P500,000 @ 30%
Total
Consolidated Tax Due
Note:
à
Personal expenses are not deductible.
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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 (deposit substitute) = P10,000 x 20%
Royalty Ð 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 Ð New York Stock Exchange P30,000/2
Expenses [P350,000 +(75,000/2)]
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 Ð New York Stock Exchange P30,000/2
Expenses [P200,000 +(75,000/2)]
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 = P27,600
Income tax payable, third quarter = P28,427.5
Income tax payable, fourth quarter = P67,297.5
Final tax on passive income = P15,800
Capital gains tax = P600,000 x 6% = P36,000
Gross Profit from Sales
Business expenses
Personal exemption
Taxable income
1st Q
P300,000
(120,000)
2nd Q
P650,000
(262,000)
3rd Q
P910,000
(405,890)
P180,000
P388,000
P504,110
Q4/Year
P1,200,000
(426,700)
P773,300
-
P27,600
P56,027
P123,325
P-
-
(27,600)
P27,600
P28,427.5
(27,600)
(28,427.5)
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
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
2-10
a.
b.
c.
P15M x 6% = P900,000
P20M x 6% = P1,200,000
P0
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2-11
2-12
2-13
2-14
C.G. Tax = none; the transaction resulted to a loss
C.G. Tax = P80,000 x 15% = P12,000; TRAIN Law
C.G. Tax = P160,000 x 15% = P24,000; 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.
MULTIPLE CHOICE
1. D
2. C
3. A
4. A
5. A
FALSE
TRUE
TRUE
FALSE (should be final tax)
FALSE (should be located in the Phils.)
16.
17.
18.
19.
20.
B
A
A
B
D
31.
32.
33.
34.
35.
B
C
D
D
D
6.
A
21.
C
36.
C
7.
D
22.
B
37.
D
8.
9.
D
B
23.
24.
D
D
38.
39.
B
B
10.
D
25.
A
40.
B**
11.
B
26.
B
41.
D
12.
A
27.
D**
42.
B
13.
D
28.
B
43.
A
14.
D
29.
C
44.
C
15.
C
30.
A
45.
D
11.
12.
TRUE
FALSE
46.
47.
48.
49.
A
C
B
C
**Commission Ð should be: Commissioner or the BIR
***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
Taxable income
P800,000
600,000
(400,000)
(300,000)
P700,000
(3 to 5)
Gross income, Philippines
Expenses, Philippines
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
7|P a g e
Solutions Manual-Income Taxation(2022 Edition) by Tabag & Garcia
Downloaded by Junmar AMIT (junmar.amit@g.msuiit.edu.ph)
lOMoARcPSD|13311282
(29)
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
(30)
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)
(31)
Gross sales
Rental income (P308,750/95%)
Taxable Net Income
TAX DUE:
x
Total
Less: CWTx
Quarterly tax payments
Basic Tax on Compensation income
[P30,000 + (P200,000 x 25%)]
Income Tax Payable
P1,650,000
325,000
P1,975,000
8%
P158,000
(65,000)
(82,500)
80,000
P90,500
(32)
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
(33)
Interest income Ð BDO; P20,000 x 20%
Interest income FDCU Ð P50,000 x 15%
Total FWT
P4,000
7,500
P11,500
(34)
CGT, residential house, P5M x 6%
CGT, shares = P150,000 x 15%
Total CGT
P300,000
22,500
P322,500
(35)
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
8|P a g e
Solutions Manual-Income Taxation(2022 Edition) by Tabag & Garcia
Downloaded by Junmar AMIT (junmar.amit@g.msuiit.edu.ph)