SESSION 1 DISCUSSIONS
GENERAL PRINCIPLES OF TAXATION
WHAT IS TAXATION? Taxation is one of the inherent powers of the State whose purpose is to raise revenue in support of the Government. It is
affected upon the community or class of individuals subject to inherent limitations provided by law.
WHAT ARE THE THEORIES OF TAX LAW?
Lifeblood theory → Taxes being the lifeblood of the government is necessary to carry out operations, and it cannot run without money.
Necessity theory → It emphasizes the indispensable role of taxation as a means for the government to fulfill its functions and meet the needs
of society.
Benefits protection / reciprocity theory → A citizen pays from his property the portion demanded in order that he may be secured in the
enjoyment of the benefits of organized society. A person cannot object to or resist the payment solely because no personal benefit to him can
be counted out arising from the tax. / Every person who is able must contribute his share in the burden of running the government.
Government is expected to respond in the form of tangible and intangible benefits.
SCOPE OF LEGISLATIVE TAXING POWERS. Only the legislative has the full discretion as to the persons, property, occupation, business to be
taxed, provided these are all within the State’s territorial jurisdiction. It can also fully determine the amount or rate of tax, the kind of tax to
be imposed, and method of collection.
GR: The power to tax is exclusively vested in the legislative body, being inherent in nature. Hence, it may not be delegated.
Non-Delegable Legislative Powers
1. Selection of subject to be taxed
2. Determination of purposes for which taxes are levied
3. Fixing of the rate/amount of taxation
4. Situs of tax
5. Kind of tax
*** These powers cannot be delegated without infringing upon the theory of separation of powers.
EXPS:
1.
2.
Delegation to Local Government - LGUs have the power to create their own sources of revenue and to levy taxes, fees, and charges.
a. The constitutional provisions do not change the doctrine that municipal corporations do not possess inherent powers of
taxation; what it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of
revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative authority relative to
the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. Thus, in
interpreting statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations.
Delegation to the President - the authority of the President to fix tariff rates, import or export quotas, tonnage and wharfage dues or
other duties and imposts.
a. When Congress tasks the President or his/her alter egos to impose safeguard measures under the delineated conditions, the
President or the alter egos may be properly deemed as agents of Congress to perform an act that inherently belongs as a
3.
matter of right to the legislature. It is basic agency law that the agent may not act beyond the specifically delegated powers or
disregard the restrictions imposed by the principal.
Delegation to Administrative Agencies - when the delegation relates merely to administrative implementation that may call for some
degree of discretionary powers under sufficient standards expressed by law or implied from the policy and purpose of the act subject
to the following tests:
a. Completeness Test - the law must be complete in all aspects when it leaves the legislature for it to be valid, the only thing left
to do is to implement the law
b. Sufficient Standard Test - there must be a sufficient standard to define the boundaries of the authority of the delegate. This is
done by defining the legislative policy and the circumstances under which it is to be pursued and implemented.
IS THE POWER TO TAX THE POWER TO DESTROY? The power to tax is not the power to destroy for as long as the Supreme Court sits. (Justice
Malcolm)
JUDICIAL REVIEW
- Where do you file if you want to question the constitutionality of tax laws? RTC pwede, but some lawyers go directly to the SC
because of its concurrent jurisdiction with the Supreme Court
BASIC PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
- Fiscal adequacy (sufficient to meet the needs of the government)
- Administrative feasibility (your tax laws are adequately implemented)
- In LGUs they can still impose taxes on peddlers
- Tax sa cigarettes, supposedly for the rehabilitation or treatment centers for those with smoking problems
- Theoretic justice (those who earn more should pay more)
CHARACTERISTICS OF TAXATION
1. It is an enforced contribution
a. It is not voluntary and its imposition is in no way dependent upon the will or consent of the person being taxed.
2. It is proportionate in character
a. The share of the taxpayer on the public burden is essentially based on one’s ability to pay.
3. It is levied by the law-making body of the state
a. The power to tax is vested unto the Congress e.g. House of Representatives (from which the tax bill is introduced) and the
Senate. The Congress determines who to tax, what to tax, and how it shall be collected. They are not involved in the collection
thereof.
4. It is levied for public purpose or purposes
a. Taxes are spent to support the government e.g. they are not used for private purposes.
5. It is generally payable in money
a. The government, in the exercise of its civil remedy in collecting the tax due, may by distraint of personal property or by levy of
real property, take the same to satisfy the tax liability if the taxpayer has no money.
i.
Generally payable in money
ii.
GR: Cash / Cheque
iii.
EXC: Overpayment and instead of refund, they give you a tax credit certificate, which you will also pay to the
government
6. It is levied on persons and property
a.
The object to be taxed must be subject to the jurisdiction of the taxing state. This is necessary in order that the tax can be
enforced. Although a state can tax all persons subject to its jurisdiction for all their property left by them within its jurisdiction
to seize upon person or property for purposes of taxation.
REQUISITES OF A VALID TAX
- Uniform
- Person or property being taxed should be within the jurisdiction of the taxing authority
- Tax must not impinge on the inherent and constitutional limitations of the power of taxation
- It should be for public purpose
DIFFERENCE OF TAX & OTHER FEES
TAX
TARIFF / CUSTOM DUTIES
TAX
TOLL
Tax v. Toll
-
Tax, exercise of the state of the power of taxation; for public purpose
Toll, police power; maintenance of the road
TAX
-
LICENSE FEE
Tax v. Drivers License,
- License is regulation
DIRECT & INDIRECT TAXES
- Direct (You pay directly such as income tax, capital gains tax, professional tax)
- Indirect (It is the manufacturer or seller, but they can pass on the burden of paying the taxes to the end user e.g. Jollibee, Shell,
medicine) kasi even if the law says dapat manufacturer or seller or service provider who should pay, the law also declares that VAT is
an indirect tax, they can pass the burden to the end user
Can you impose taxes retroactively?
- Tax laws and prospective not retroactive
- When can it be retroactive?
- If the law specifically or expressly states that it should be applied retroactively
- If it becomes beneficial to the public
Can you set off or can you apply compensation to taxes?
- Compensation (debtor-creditor, extinguishment of obligations)
- Is it applicable to taxes?
-
No. The government & the tax payers are not creditors & debtors of each other. Kahit na nagoverpayment ka, di deemed na
utang yung overpayment mo as utang sa gobyerno.
- E.g. 1,000 lang talaga, pero pinay mo 1,500.
Pero kailan pwede set off? Solutio indebiti. ERRONEOUS PAYMENT IN GOOD FAITH.
- Solutio indebiti is payment by mistake. It is receiving payment by mistake that is not due or does not have the right to
demand such payment. It creates an obligation to return such payment.
- LGU allows setting off.
What is the concept of Equitable Recoupment?
- Where the tax refund of a tax illegally, erroneously or overpaid is barred by prescription, a tax presently assessed against the taxpayer
may be set off against the tax whose refund is now barred by prescription
- Di pinapayagan sa PH kasi of the lifeblood theory
What is a taxpayer’s suit?
- Can you file it? Yes. Kahit wala trabaho.
- But can you file about just any act of the government?
- No. Dapat allegations on illegal collection or disbursement of public funds derived from taxation, otherwise it's just an ordinary
suit not taxpayers suit
- Locus standi / legal standing
INHERENT LIMITATIONS
1. Territoriality / Situs
a. Cannot be outside of the PH
2. Public purpose
a. New palace? NO.
3. International comity
a. Tax on China? No.
b. Signatory to tax treaties, pacta sunt servanda
4. Non-delegability of tax powers / Inherently legislative
a. Except president tariff rate, LGU taxes
5. Tax Exemptions of government entities, agencies, and instrumentalities
a. National government to the Local Government tapos LGU will impose taxes on the National government? Bawal.
Mobilia secuntur personam. “Movable things follow the person.”
A maxim meaning that, when the owner of personal property (and not real property) changes his domicile, the law of the new domicile governs
the property even if the property is physically located in a different jurisdiction.
- Shares of stock (Intangibles)
- Kung asaan ang owner, dun ang tax.
- E.g. Facebook stocks, nasa PH ka, sino mag iimpose? PH government BUT if the American government already collected taxes prior to
the receipt of dividends, you can use proof of payment for the PH so PH won’t collect it anymore
- Manny Pacquiao case of tax evasion because of the failure to give proof of payment of his payment of taxes in America
CONSTITUTIONAL LIMITATIONS
Tests: Completeness & Sufficient Standard Test
1.
2.
Complete on its face
Equal protection, uniformity
a. Case collection of garbage fee, equitable, but it's not a tax but rather police power kasi regulation
3. Progressive
a. Pay in accordance with your resources
4. Non-impairment clause
5. Non-imprisonment of poll tax
6. Bills emanate from the HR
7. Veto Power of the President
a. Tax Amnesty recently
b. Congress can override ⅔ of the House, Senate voting separately
c. If Congress does not to anything, it will lapse into a law as in
8. Freedom of the Press
9. Freedom of Religion
- Bible selling, taxable
- Actual, direct, exclusive
a. Churches - real property tax only but if they sell that is not exempted (mga tinda) pag may rental
b. They can be subjected to OTHER type of taxes
10. Non stock non profit educational institutions
a. Can be exempted also
Double Taxation: Is it allowed?
It is not unlawful but it is precluded by law.
Direct double taxation is not allowed
Indirect double taxation is allowed.
FORMS OF ESCAPE
- Tax Evasion - presupposes a malicious intent like not declaring everything or not paying the right
- Tax Shifting - changing the burden, VAT
Foundations of Big Corporations
- GMA (Kapuso Foundation), ABS-CBN (Bantay Bata…)
- Why? Instead of paying taxes they are doing charity.
- E.g. GMA, 1 Billion pesos na kita, yan basis for the 30% corporate income tax, I will donate 500 Mil to Kapuso Foundation, the
effect is 500M na lang income, yun na yung basis ng income tax is that. I will be paying less taxes.
- Donation to Kapuso Foundation is a charitable institution, exempt
Tax Exemptions
- Always construed in favor of the government
- You have the burden of proving you are exempted
SESSION 2 DISCUSSIONS
Who are taxable entities?
●
●
●
●
●
Not just natural persons but also juridical persons
○ Partnerships is generally taxable
○ Not taxable partnership: General Professional Partnerships
Corporations also subject to tax
Estates are also taxable, e.g. estate tax (also a juridical entity which is born when a person dies)
After persons, look at transactions
○ Sale (taxable sale)
○ Donation (is it a taxable donation)
Or is it something that you exclude, not part of the taxable subject, etc
○ Deductions for individuals, deductions for corporations
Resident Citizen
Non-resident Citizen
Who are citizens of the Philippines?
1.
2.
3.
4.
Those who are citizens of the Philippines at the time of the
adoption of the 1987 Constitution
Those whose fathers or mothers are citizens of the
Philippines
Those born before January 17, 1973 of Filipino mothers who
elect Philippine citizenship upon reaching the age of majority
Those who are naturalized in the accordance
Resident Alien
Non-Resident Alien (ETB, NETB)
An individual whose residence is
within the Philippines but who is
not a citizen thereof.
An individual whose residence is
not within the Philippines and
who is not a citizen thereof.
ETB - An alien who stays in the
Philippines for an aggregate
period of more than 180 days.
NETB - An alien who stays in the
Philippines for 180 days or less.
How will you know if a person is
a resident of the Philippines?
Basis: Imelda Marcos case
Animus revertendi (intention to
return)
For what are they taxable?
Income derived from sources
within & without the PH
Why? → Benefits protection
theory. A resident citizen for all
income derived in & out because
of the BPT.
How will you know if a person is
a non-resident citizen of the
Philippines?
1. No intention to return
2. Sources only within; if
they have a small sari
sari store in the PH, they
are taxable for income
from that sari sari store,
but if working abroad, the
PH government does not
have jurisdiction to
impose & collect taxes
from income from abroad
How will you know if a person is
a resident alien of the
Philippines?
1.
Income derived from
sources within
Example: Basketball players, they
have intention to return because
their jobs are here but they
remain to be aliens because they
have not renounce their foreign
citizenship; Solen Heussaff’s
husband, his family & house is
A non-resident alien engaged in
trade or business
1. Continuous & habitual
2. Not an isolated
transaction
Continuous period of at least 180
days
Examples:
Mark Zuckerberg, non-resident,
non-citizen (Facebook)
Elon Musk, non-resident,
Example: Mga nakapangasawa ng
AFAM, who do not elect the
citizenship of their foreign
spouse, they remain to be a PH
citizen but they have no intention
of returning
here but he has not renounced
his foreign citizenship
non-citizen (X)
Stanley Pringle, PBA salary is
subject to PH tax, but other
business abroad, not subject to
tax
Purely compensation income
earner → Purely from
compensation
A non-resident alien NOT
engaged in trade or business
1. Isolated transactions
2. Taxable from sources
within, but it is not
income tax, they are
imposed final withholding
tax, not the regular
income tax.
What is compensation? Monetary
payment as a consequence of an
employer-employee relationship.
Mixed income earners → Derives
income not solely from an
employer-employee relationship
Examples:
Taylor Swift concert →
non-resident alien NOT engaged
in trade or business
CAPITAL ASSET V. ORDINARY ASSET (types of properties from which income may be derived)
1.
CAPITAL ASSET
ORDINARY ASSET [SOUR]
Includes property held by the taxpayer, whether or not
connected with his trade or business other than SOUR.
Properties held by the taxpayer used in connection with his trade or
business which includes the following:
Example:
(a) Jewlery not used for trade or business
(b) Residential houses and lands owned and used as such
(c) Automobiles not used in trade or business
(d) Stock and securities held by taxpayer other than dealers of
securities
1.
2.
3.
4.
Stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year
Property held by the taxpayer primarily for sale to customers
in the Ordinary course of trade or business
Property Used in the trade or business of a character which is
subject ot the allowance for depreciation provided in the NIRC
Real property used in trade or business of the taxpayer
Example:
(a) Condominium building owned by a realty company, the units
of which are for rent or sale
(b) Machinery and equipment of a manufacturing concern subject
to depreciation
(c) Motor vehicles of a person engaged in transportation business
ORDINARY ASSET - asset that we use in the ordinary course of business. E.g. buying and selling used cars, when you buy the car is it ordinary
or capital? ORDINARY kasi engaged ka in the business of B&S cars.
But if you’re not engaged in such, if you bought for your personal use, is it considered ordinary or capital asset? CAPITAL ASSET.
SAN BEDA example. School bus, is it ordinary or capital asset? Ano ba negosyo ng san beda? CAPITAL ASSET SIYA.
What if whiteboard marker? Ordinary asset because it is used in the ordinary course of business.
Alak? Capital or ordinary? CAPITAL.
GROSS INCOME
GROSS INCOME means all income derived from whatever source, including but not limited to the following: [CGGIRRDAPPT]
1. Compensation for services in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items
2. Gross income derived from the conduct of trade or business or the exercise of a profession
3. Gains derived from dealings in property
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner’s distributive share from the net income of the general professional partnership
Compensation
Look at employer-employee
relationship
What if walang E-ER e.g.
consultant? Subject ka parin sa
tax pero withholding tax na siya.
Minimum wage earners - not
subject to income tax
Gross income from trade or
business or a profession
Gains in Trade in the practice of a
trade or a profession
Included sa income yung kinita
mo sa pagbebenta ng balot
But assuming that you are a
consultant, nag witthold na sila
(creditable holding tax), …
Next meeting more explanation
Gains from dealings with
property
Interests
Interest income
E.g. Bank interest, should be
included in your taxable income
Also first 250k of your income is
already tax exempt
Royalties
Rent
Dividends
Partner’s distributive share from
the net income of the general
partnership
Royalties
- [In relation to Intellectual
Property, for artistic and
literary works]
- Like books you buy, that
should form part of his
income, kahit dead na
their families should
include his royalties part
ng income of his estate
If you rent out more than 50k,
you need a business permit. It
should also be subject to VAT w/n
you reach the 3Mil mark
Dapat winiwithold ng lessee yung
tax, dapat pag binayaran ka ng
lessee na withhold na, tapos si
lessee ireremit yan sa BIR
Only way a mere stockholder can
derive income from being a
stockholder of a corporation
Pero yung dividends, para siyang
consultancy fee. Nagdeclare ang
corporation ng 50 pesos ng
dividend per share, you own 1
share, so necessarily you will
receive 50%, but subject to
Withholding tax, so you will
receive 45 pesos, which is
kasama pa sa consolidation ng
income mo for the whole year.
Pero yung winithwold na 10%,
pwede mo iclaim na deduction
later on
EXEMPT. Why? General
professional partnership is
exempt. Go back to your law on
partnership.
--Recap:
Dividends - the only way a
stockholder can earn in a
corporation, kapag nag declare na
ng dividends
Iba iba yung treatment pag
domestic corporation nag issue
ng dividends per
Resident
Non resident
What is a partnership?
Partnership is when 2 or more
bind themselves together to
contribute money, property, or
industry to a common fund with
the intention of dividing the
profits among themselves.
From that definition, what is the
purpose of putting up a
partnership? To acquire income,
for profit.
Yung GPP, what is the primary
purpose for putting up that
partnership? NO. It is for the
practice of a common profession.
Therefore, in theory, nagtayo ka
ng GPP not to obtain profit but to
practice a common profession.
The GPP as a juridical entity is
not taxable. Pero dapat a
common profession. E.g. may
isang CPA, may isang lawyer, may
isang real estate broker nagtayo
ng partnership. Real estate
consultancy. Is that partnership
considered a GPP? NO. Why? Kasi
hindi naman common yung
profession na pina practice nila.
So considered yan as a regular
partnership which is subject to
corporate income tax. But a GPP
is exempt from the payment of
corporate income taxes.
Eh sinong natatax? Yung partner
mismo. Again, go back to the
definition. FOR THE PURPOSE OF
DIVIDING THE PROFITS AMONG
THEMSELVES. Ibig sabihin kumita
ka, may share ka sa earnings ng
partnership. Yun ang iniinclude
mo sa computaotin ng gross
income.
Prizes and Winnings
-
-
-
Sports & no-sports
Sports → its taxable, its income. Not taxable if sanctioned by
the PH sports commission. Therefore, si manny pacquaio
taxable since private competition. Kaya nagka tax evasion
case. Mere nonfiling of the income tax return is a prima facie
presumption of tax evasion
Hidilyn → she won in the olympics, exempt ang napanalunan,
nagkadebate kasi dapat ang exempt lang ay napanalunan niya
as a winner, pero yung donation sa kaniya ng free supply ng
gasoline, houses na bigay nila villar, dapat daw yun ay exempt
from tax. Sabi ng donors, nag donate na nga kami,
magbabayad pa kami ng donors tax.
- Atty Dizon: bc there's a special law exempting from
donors tax donations to winners of these athletic
competitions
- But GR, if not sanctioned by the PH sports
commission, should be taxed
FIBA cash, taxable or not taxable? →
- Atty IDK the sport. What should you do? QUALIFY. If
the FIBA is sanctioned by the PH sports commission,
then the earnings are exempt. Otherwise the earnings
should be included in the computation of the
taxpayers gross income.
Annuities & Pension
-
-
-
In relation to pension
Annuity - proceeds ng life insurance, pwede ito yung
tinatanggap sa SSS as pension. Kahit term ay pension, for tax
purposes ito yung pension na sinasabi. E.g. Life insurance na
after 10 yrs, we will pay you 5k every year, ganyan annuity
Pension - SSS, GSIS annuity but by law tax exempt sila, not
considered as part of your gross income pero yung PENSIONS,
you always think about your retirement pay. LABOR LAW. Sabi
ng batas if you retire, you are entitled to at least 1/2 months
pay for every year of service. E.g. 10 year service, 100k per
month, for every year of service you should have 50,000
pesos. You will have 500k when you retire. It is taxable. When
is it not taxable (exception), if the ff: requirements are met
- Your retirement plan is approved by both DOLE & BIR
- At least 50 years old ng retirement
- Continuous employee of that same employer for a
period of at least 10 years
- You are availing of the proceeds or the benefits of the
retirement plan only once
If all 4 are present, then that retirement pay will not be
included in the computation of your gross income
In the absence of a retirement plan, retirement pay is always
taxable. Pag walang retirement plan yung office, ang basis ng
retirement benefit mo ay yung sinasabi ng batas, which is ½
month pay, for every year of service, 6 months or a fraction
-
What if hindi sports? Tignan mo lang if there is an ACTIVE
participation on the part of the tax payer, then the winning is
subject to tax.
- Catriona Gray, taxable yun pagkapanalo niya. Syempre
active participation yon
- Ano yung winnings na walang active participation?
When Leni Robredo won the Ramon Magsaysay award
na may cash prize. She did not nominate herself, she
was chosen. And because there was a cash prize
there and walang active participation on her part, the
cash prize is not subject to tax.
- Maria Ressa, Nobel. No active participation on their
part, therefore their winnings are not subject to tax
- LOTTO, covered by a special law, prior to the train law
everything lottery is tax free, then the train law then
said first 10k lang tax free, the rest taxable
-
thereof is considered 1 year. The only way it will not be
included in the computation of your gross income, all four
requirements dapat.
Dean Ulan’s example.
- No retirement plan → subject to withholding tax
- W Retirement plan approved → retirement pay will be
exempted
- He teaches again for 20 years → will he receive a
retirement pay? Yes but he can no longer avail of the
exemption since number 4 says it has to be done only
once
SESSION 3 DISCUSSIONS
SOURCES OF INCOME SUBJECT TO TAX
1.
2.
3.
4.
5.
6.
7.
8.
9.
COMPENSATION INCOME → Includes all remuneration for services rendered by an employee for his employer unless specifically
excluded under the NIRC.
FRINGE BENEFITS
PROFESSIONAL INCOME
INCOME FROM BUSINESS
INCOME FROM DEALINGS IN PROPERTY
PASSIVE INVESTMENT INCOME
ANNUITIES, LIFE INSURANCE PROCEEDS OR OTHER TYPES OF INSURANCE
PRIZES AND AWARDS
PENSIONS, RETIREMENT BENEFIT, SEPARATION PAY
Fringe Benefits
Two benefits - normal and fringe
Fringe - not rank and file employees e.g. housing plan given to a supervisor
Pag rank and file employees, subject to regular income tax
Kapag hindi rank and file, fringe benefits tax → 35%
Scenario 1: ORDINARY INCOME TAX.
Ordinary assets - ordinary course of business, (e.g. San Beda white board marker, arm chair)
E.g. san beda has white board marker, binenta kay Mr. C, what type of tax will you apply there?
Ordinary income tax kasi ordinary ibebenta
Scenario 2: CAPITAL GAINS
On the other hand kung ang ibebenta ay capital assets, e.g. san beda will sell the church, anong klaseng tax ang babayaran? Capital gains. At
what rate? Ask if personal asset or real asset. Personal is 15% pero there has to be a gain.
About capital gains; Personal Property:
Example: I bought a land cruiser for 4M. I sold to Mr. C. But it depreciated because 1 year na. Di ko na pwede benta ng 4M. Dahil binenta ko
siya ng 3.5M, meron ba akong gain? Wala.
Dahil walang gain at we’re talking about personal property, meron ba akong babayarang capital gain stock? Wala.
Pag personal property pero capital asset, you look at the gain.
Pag walang gain, walang tax but you have to file the return.
About capital gains; Real Property:
Kung capital asset pero real property, it does not matter if there is a gain because if you are selling REAL PROPERTY, there is a presumed gain.
Example: House was bought at 4M, sold at 3.5M. Was there a gain? No.
Are you still supposed to pay capital gain stock? Yes. Basis is the fair market value or the zonal value, whichever is higher.
What rate? 6%.
Again, if the asset is ordinary, no CG to be thought about, all you have to do is to include the proceeds of the sale as an ordinary income, and
include it in the computation of the taxpayers ordinary income tax.
But if what is being sold is a CAPITAL ASSET
1. Check if it is real or personal property
a. CAPITAL ASSET, PERSONAL PROPERTY →, There has to be an ACTUAL GAIN.
i.
No gain, no CGT to include it in the ordinary income. But if with actual gain, compute 15% on the basis of the gain.
ii.
Example: I bought 2M vintage, 4M ko sinell. It's a capital asset but it's a personal property. There is an actual gain of
2M pesos. Yung 15 percent mo based dun sa 2M gained, not on the deed price, not on the acquisition price, but on the
actual gain.
b. CAPITAL ASSET, REAL PROPERTY → , it does not matter kung may gain or wala.
i.
Yung 6% will now be based on the fair market value or the zonal market value.
ii.
Where do you get the FMV? Titignan niyo kung may prior sale na katulad na property, or tignan mo magkano na ba
bentahan ng property. Yung zonal value hindi yan yung nakikita sa tax declaration, it's the one BIR posts. You look at
where the property is located. Assessed value yung nasa tax declaration made by the assessors office.
Now may naaeexempt ba sa pagbabayad ng CAPITAL GAINS TAX.
- FAMILY HOME. Basta tinitirhan siya ng pamilya. Pag binenta mo yung family home mo, maeexept ka sa CGT if matupad mo
requirements
- Example: Certificate sa barangay, tapos yung proceeds papagawa ulit ng bagong family home kunwari magmmigrate ka sa
America. Di ka na pwede mag ask for exemption sa CGT. dapat kasi to build new family home. Pwede condo or two storey one
hectare, basta dapat family home and if namatay na yung mayari at nagbebenta mga anak, pwede parin ma exempt provided at
least 1 legitimate heir still intends to live in that property.
Dapat nagbabayad din ng documentary stamp tax. Magkaiba yung sa personal at real.
Intangible properties
- Properties you cannot touch hear see e.g. shares of stock.
- Pag shares of stocks ipinaguusapan, oridnary ba yan or capital.
- Ordinary - broker ka, trabaho mo yun
- Capital - extrang pera nag invest ka sa corporation, condo units. Pwede siya capital asset
- Tignan mo naman after yung issuer. Sila yung nagissue ng share. If issuer is a corporation that is not a public company (di nagttrade),
iba ang tax implication. Pero if nagissue ay nagttrade, iba ang tax implication.
E.g.
Closed Corporation, family corp.
First identify, ordinary or capital? Since im not in the business or buying shares, capital.
Step 2, nagttrade ba? Closed corporations assumption is di nagttrading.
What type of tax should you pay? Since its a capital asset issued by a corporation that is not trading, it is now subject to capital gain stocks
(may dalawa):
- Original issuance of share
- Selling mo
Usually pag par value mo nabili. Walang CG kasi it is a personal property, so you have to look if may actual gain.. Pero pag binenta sayo ng ibang
tao, look if may actual gain, if meron may capital gain stock kak at 15%
But if you are a broker, they are considered as ordinary assets.
Issuer is trading, that will not be subject to capital gains tax,it will only be subjected to stock transaction tax. STT.
[If malimutan mo sa bar yung rate, just say at the rate provided for by law.]
EXCLUSIONS
Ibig sabihin income siya pero excluded sa pag compute ng gross income. Income parIn siya.
LAGCIRRM
1. Life insurance
2. Amount received by insured as return of premium
3. Gifts Bequests and Devises
4. Compensation for injuries
5. Income exempt under treaty
6. Retirement benefits
7. Miscellaneous items
NOTE: The exclusion of income should not be confused with the reduction of gross income by application of allowable deductions. Exclusions
are not taken into account in determining gross income, however deductions are subtracted from the gross income.
Life insurance
- I bought an insurance, i died, my beneficiary is my daughter. Yung proceeds nung life insurance from the POV of max, did it increase
her net worth? Yes. But is it taxable? No. Di naman niya pinagkitaan yung death. Compensation yun for her loss kaya hindi siya
sinasama.
- From the POV of the deceased’s estate: if the designation of the daughter is irrevocable, necessarily the proceeds of the
insurance will go to her. It will be an item of exclusion. On the other hand if her designation is revocable, she will not receive
the proceeds of the life insurance, it will go back to my estate, it will be included in the computation of my gross estate, it will
be included in the computation in my estate tax.
Amount receive as return of premium
You pay for insurance 10 years, if you are still alive after 10 years, ibabalik nila yun.
Kunwari kumuha ako ngayon, if i outlive the policy, i will receive the premium, that is income because it will increase my income pero it will
not be taxable.
Gifts Bequests and Devises
I donated to Mr. B. from his POV, Is it income? Yes. Should it be included in the computation of his gross income? No. when i donated i paid
donors tax.
Compensation for injuries
Sa SSS, kapag na covid ka, may sickness benefit ka. Pag nanganak ka, may maternity benefit ka. SSS law, ECC law, pag naputulan ka ng thumb,
mas mahirap daw.
Kunwari naputulan ka ng thumb, binayaran ka ng ECCC at nakakuha ka sa SSS. It increased your net worth so income siya pero di siya kasama
sa computation dahil compensation siya for your injury
Retirement benefits penguins gratuities
GR included in the computation
Item of exclusion siya after the 4 requisites
- Plan approved by DOLE BIR
- 50 years old
- Continuous employment in the same employer not less than 10 years
- Particular benefit availed only once
Miscellaneous items
- Research, pag nag donate ako ng research sa IRTM for cure for covid, preventive siya it does not cure theillness. From my POV, is the
donation subject to donors tax? No educational purposes. From their POV is the donation kasama sa income tax? No din. Kasmaa siya
sa miscellaneous items.
Income exempt under treaty
DEDUCTIONS
NOTE: Dati may exemptions pero wala na yung under train law. Dati if may anak ka may certain amounts you can claim exemptions for. Now,
yung first 250K of your income subject to 0%. Again, it IS subject to tax at 0%. You don’t say you are exempted. Ang exempted lang from
income tax under the law ay MINIMUM WAGE EARNER. But ifyou are earning up to 250K you are not a minimum wage earner so you are subject
to tax but at 0%
Dlang type ang deduction
Optional standard deduction - automatic may deduction on your gross receipts, but it will only apply to mixed income earners
Itemized deduction - need mo attach sa ITR yung mga resibo nung mga cinaclaim mong deductions
E.g. i buy office supplies, water, electricity, health benefits = these are legitimate business expenses na pwede sa itemizied deduction
Bakit pag purely compensation walang deduction? Problema mo na yun, yung trip to hong kong niyo, wala kinalaman gobyerno diyan. Di siya
legitimate deduction kaya walang deductions.
Pwede lang sa corporations and mixed income.
Itemized is only for items other than compensation income
Kung may utang yung corporation or partnership, nagbabayad ka ng interst, may interst expense, the taxes you already paid, losses
Losses and bad debts - loss is lugi, bad debts is may utang sa company or tax payer tapos based on the taxpayers assessment di na siya
mababayaran,
- Bale tinatanggap mo na di ka na mababayaran
- Pwede mo siya iclaim as itemized deductions
- What if after 10 years bigla akong binayaran? -> reversible naman siya, reversible accounting
Kunwari for 2020 may loss ka na 20K. Choice mo irecognize iacknowledge yung loss. You have an option kasi to carry over the loss.
E.g. You are looking for investors for your business this year. Investor nakita financial statements mo negative. If ikaw yung taxpayer gusto mo
pagandahin ng kaunti yung financials mo. PWede mo hindi irecognize lahat ng loss mo. Para sa financials mo di ka lugi. Tapos gagamitin mo
lang siya sa susunod na taon, pero may period lang din yan kung hanggang kailan mo icarry over.
Another updside. Lugi ka ngayon, pwede mo siya hindi lahat irecognize. The following year, nadoble mo kita ngayon. Dun mo ifufully recognize
ang iyong loss, dun mo siya icclaim na deduction.
Travel expenses pwede ba iclaim na expense? Yes basta legitimate business expense (e.g. CEO goes to China to canvass supplies) dapat
maclaim mo yan as deduction from your gross income
- Pag sinama ni CEO buong family niya, yung ginastos for the family can no longer be claimed as deduction, yung kaniya lang.
Depreciation of property
If you look at the book value of that car, in five years time, in an accounting point of view, it is considered fully depreciated with zero book
value.
CPG - there is always a presumed gain in real estates
Depreciation pwede mo iclaim as a deduction from your income.
E.g. MRI machines, may book value lang yan. Every year nagpprovision for depreciation expense, Ibig sabihin bumababa na yung value ng MRI
machine.
Depletion of oils and gas wells
Bakit kasama sa deductions?
Dapat may incentive kaya yung deppleton ng mines you can claim as a deduction for your gross income
Pension trust contributions
POWERPOINT
Compensation income
Not over 250K = 0%
250K - 400K = 15% of the excess of 250K
+400K-800K = 22,500 + 20% of the excess of 400K
+800K-2M = 102,500+ 25% of the excess of 800K
+2M-8M = 402,500 + 30% of the excess of 2M
+8M = 2,202,500+ 35% of the excess of 8M
Fringe benefits
Final tax of 35%
13 month pay
First P90,000.00 shall be excluded from the computation of gross
income
Personal exemptions
None because of the 250,000 threshold
Optional standard deduction
40% OSD is still allowed. However, in the case of mixed income
earners or those who earn less than P3M, 8% on gross receipts is
likewise an option. Once the 8% rate is elected, the 40% OSD may no
longer be availed of.
In case of a GPP, the OSD may be availed of only once by either the
GPP or the partners comprising such partnership
Interests, royalties, prizes, and other winnings
15% final tax on interest income received by an individual taxpayer
(except NR) from a depository bank under the expanded foreign
currency deposit system. However, if the holder pre-terminates the
deposit before the 5th year, a final tax shall be imposed on the entire
income, which shall be deducted by the bank from the proceeds of
the long-term deposit or investment
Purely self-employed and/or professionals
If gross sales/receipts and other non-operating income do not exceed
the P3M VAT threshold, taxpayer may opt to be taxed at:
a.
8% tax on gross sales or receipts in excess of P250,000 in lieu
of the graduated income tax rates; OR
b. Graduated scale
Quarterly filing of percentage tax returns for those who do not meet
the threshold
Mixed income earners
a.
All income from compensation shall be subject to graduated
scale and percentage tax
b. All income other than from compensation:
i.
If total gross sales/receipts does not exceed P3M,
graduated scale OR 8% tax on gross receipts
ii.
If total gross sales/receipts exceed P3M – graduated
scale
TP must signify his intent to elect 8% tax rate
8% rate option is NOT available to:
a.
b.
Purely compensation income earners
VAT registered taxpayers regardless of the amount of gross
sales or receipts and other non-operating income
c. TP exempt from VAT whose gross sales exceeded P3M
d. TP subject to other percentage taxes under Title V of the
NIRC (carriers, franchises, banks, insurance companies, etc.)
EXCEPT those who do not meet the P3M threshold
e. Partners in GPP
f. Individuals enjoying income tax exemption
8% option, once elected, shall be irrevocable and no amendment of
option shall be made for the taxable year it has been made