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P u b l i s h e d i n c o o p er a t i o n w i t h
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Carlo June Tibayan
ADVISER: Atty. Rita Linda V. Jimeno
Building 2
Building 3
Park
Portion rented to
Parking Lot
You will not find the answer in the computation. When we talk of RPT, its
always the Local Government Code of 1991 which governs exemption or taxability
of properties for purposes of RPT.
Ang sabi sa Local Government Code of 1991, the following properties are exempt
from payment of real estate tax: Real properties owned by the government of the
Republic of the Philippines or any of its instrumentalities or agencies, provided,
that the beneficial use thereof does not inure to the benefit of a non-exempt entity.
In other words, even if it is owned by the government, if the beneficial use pertains
to a non-exempt entity, it will no longer be exempt from payment of real estate tax.
The Local Government Code does not say, actually, directly, exclusively
used for governmental purpose. Ang sinabi lang niya, lahat ng pagaari ng
gobyerno ay libre sa RPT subalit kung ang gamit niya ay para sa tao o para sa
taxpayer na hindi tax exempt, then hindi na siya magiging exempt. So, following
that rule when you are asked, is this portion of the property subject to RPT?
(Pointing to building 1 up to parking lot) EXEMPT. The portion which pertains to a
non-exempt entity (portion rented to KFC, McDo, Jollibee) is no longer exempt
from payment of real property tax.
Recent jurisprudence
There are a lot of cases, new cases decided by the SC applying this
doctrine. We have two cases, the one involving Iloilo Fishing Port and Navotas
Fishing Port. What happened there in those two cases decided by the SC in 2010
and 2009? Lets take the case of Iloilo, ang city government ng Iloilo, ni-reclaim
yung shoreline at kinonvert into a fishing port. After conversion, a portion thereof
was rented to tenants, the local government of Iloilo assessed real estate tax on
the portion occupied by tenants because they were paying rentals. So ang issue
dito ay, Paano ang taxability ng lupa ng gobyerno na ang isang portion ay
ginagamit ng government at ang kabilang portion ay ginagamit ng non-exempt
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
entity? Applying the rule under the Local Government Code of 1991, ang sabi ng
Korte Suprema, The portion of the fishing port rented out to tenants and paying
rentals will be suject to real estate tax because those are not exempt anymore
from payment of RPT. Following the same doctrine is the Navotas Fishing Port.
Ganun din ang sitwasyon, pina-rent naman. Yung portion na pinarent sa public
and paying rentals, hindi na raw exempt from payment of real estate tax.
Build-Operate-Transfer Agreement
Okay, now there is another doctrine as far as RPT is concerned. Under a
Build-Operate-Transfer Agreement (BOT) the government owns the property. Here
comes a third person, a tax payer, a private entity entering into an agreement with
the government that the private entity will build, operate, and then later on transfer
the improvements to the government. The agreement is: the private entity builds,
operates and then eventually transfers the infrastructure to the government after a
certain period of time.
What is the question? During the BOT agreement while the property is
owned by the government, is the property subject to RPT?
Ang sabi ng SC, it is subject to RPT because the beneficial use in the
mean time that there is a BOT pertains to a non-exempt entity, and what the
government has at that time is merely a contingent benefit Why? Because its
benefit is contingent upon the subsequent transfer to the government and while it
is being used by the non-exempt entity under the Local Government Code of
1991, it will not be exempt from payment of real estate tax.
Income realized by government agency from projects
Now, lets continue. DSWD, a governmental agency, realizes income out of
projects. Yung mga batang kinukuha nila, matatandang kinukuha nila, their
educational courses in the meantime that they are in the hospice. So meron silang
mga projects, DSWD realizes income out of these projects, lets say P50,000. Ang
tanong satin ay: Is it income from DWDs point of view? Is it INCOME? YES.
Because income is anything that flows into the wealth of the taxpayer other than a
return of capital or anything that increases his net worth or anything that flows into
the wealth of the taxpayer other than a return of capital. Therefore, the P50,000
from the projects is income for taxation purposes. Is the rental income? Let us say,
P100,000. Is this income on the part of DSWD? Yes, because income is anything
that flows into the wealth of the taxpayer or anything that increases his net worth
other than return of capital. Income, from the economic point of view in taxation, is
anything that flows into your wealth or anything that increases your net worth other
than a mere return of capital.
When income realized by DSWD is not subject to income tax
So are these P50,000 from projects and P100,000 rental income subject to
income tax? Is the answer found in the Constitution? NO. Is the answer found in
the general rule that the government is exempt from payment of tax? NO. Saan
hahanapin ang sagot? Nasa codal, Sec. 27. As far as the P50,000 income from
the projects is concerned, it is income and not taxable because it is in the exercise
of governmental function.
But the rental income of P100,000 is out of proprietary function and
therefore subject to income tax.
Donation given to DSWD is income
Sumunod na tanong: let us say that X gives DSWD P500,000, tinanggap ni
DSWD. 1) Nung tinanggap ng DSWD yung P500,000 from X, is that income on the
part of DSWD? YES. Because income is anything that flows into your wealth or
anything that increases your net worth other than a return of capital. Sa tax, laging
black or white pero konting movement, nag-iiba yung point of view. So we should
get used to it. It is income because, from your end? Ang tanong is, Did it increase
my net worth other than return of capital? Is it flow of wealth into me? The answer
is yes and so be it, the answer is yes, it is income.
Donation to DSWD not subject to Estate or Donors Tax
When X gives to DSWD, is it subject to estate or to donors tax? Estate tax-the way or mode of transfer from X to DSWD is taking effect upon death.
Testamentary succession, bequests, taking effect upon death, the question will be,
Is it subject to estate tax? But if the mode of transfer from X to DSWD is taking
effect during the lifetime, the question is, Is it subject to donors tax? Yan ang
tatandaan ninyo. Basta ang mode of transfer ay taking effect upon death, ang
laging tanong sa inyo ay estate tax. Pag nakita ninyo that the mode of transfer is
inter vivos, then ang tanong sa inyo is, is it subject to donors tax? Ngayon, either
way, is it subject to estate or donors tax? You will not find the answer in the
Constitution. It is not in RPT. It is in Sec. 86 for Estate Tax and Sec. 101 for
Donors Tax which we refer to as Transfers for Public Use. When a transfer is
made in favor of the government or any of its agencies or instrumentalities, we call
it transfer for public use, and if the mode of transfer is taking effect upon death,
we say that the transfer is exempt from estate tax. If the mode of transfer is taking
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
effect during the lifetime, we say that the same is exempt from donors tax.
Donors Tax is Sec.101 and Sec. 86 is Estate Tax.
Donor can claim the gift as a deduction from Gross Income
Now from the point of view of X, can X claim the same as deduction?
Magtanong kayo kung bakit maraming nagbibigay. Maraming nagbibigay dahil
talagang dakila ang puso, dalisay. Pure ang intention na makatulong. But in
recognition of that purity of intention and the effect of your gift, the government
gives a benefit in favor of the donor and the benefit is in the nature of deductibility
from gross income. May tax consequence ang pagbibigay kasi nire-recognize ng
government ang pagtulong ng isang taxpayer by way of giving of gift. When X
gives P500,000, it means may income siya kasi hindi siya makakapagbigay kung
wala siyang kita. Yan ang tandaan ninyo. Ang presumption dito ay, si X ay may
kita na more than P500,000. Kasi walang taxpayer na normal ang isipan na
magbibigay ng ikahihirap nya. Kaya siya nagbibigay kasi may sobra. So pag
nagbigay siya ng sobra, yung gobyerno nirerecognize natin ang purity of intention
and the effect of your gift by way of allowing you to claim as deduction, the gift that
you made.
Building 2
Building 3
Office
Swimming Pool
Library
Parking Lot
Canteen
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
P100,000 rental income is an income from real property and therefore according to
the last paragraph, it is not exempt from payment of income tax.
Interest income from interest on investment, generally taxable
Let us assume that the GEI put P50,000 and P100,000 in a financial
institution, earning interest of 10%. All in all P15,000. Is the P15,000 interest
income, an income? Yes. Is it subject to income tax? Yes. Because according to
the last paragraph of Sec. 30, income from an activity conducted for profit of the
GEI, will no longer be exempt from payment of income tax. Yes or no? Yes! So
this one is subject to income tax. Of course there are BIR Rulings, not BIR
Regulations. The government educational institutions may seek a particular BIR
ruling, if it can prove that the P15,000 income and the income from rental income
will be devoted by the school for educational purpose, pwede ma-exempt. That is
an exception to the rule, that is not the general rule. Without a specific ruling to the
effect that this income, P15,000 and P100,000 rental ay dine-devote sa
governmental purpose or sa educational purpose, hindi mae-exempt yan by
reason of last paragraph of Sec.30.
Meaning of regardless of disposition
Let us assume that the P15,000 is not exempt; theres no specific ruling.
P15,000 is not exempt but the P100,000 is exempt. Lets presume that the 50,000
and 15,000, 65,000 ginamit ng skwelahan, the school used the P65,000 income
which is not exempt from income tax for purchase of computers, improvement of
the school. Will that fact now exempt the P15,000 and P50,000 from payment of
income tax? NO. Because ang sabi sa Sec.30 last paragraph ay regardless of
disposition. Yan ibig sabihin nung regardless of disposition.
Gifts, bequests, devises as items of exclusion from computation of gross
income
Next, X gives GEI P500,000. Is it income on the part of the school? YES.
Because income is anything that flows into the wealth of the taxpayer other than
mere return of capital. Is it taxable income on the part of the GEI when the GEI
receives P500,000? NO, because of Sec. 32 (b) (3). Gifts, bequests and devises
are items of exclusion from the computation of the gross income of the decedent.
Pag kayo tumanggap ng regalo, yun ay income sa inyo pero hindi siya taxable
income. Hindi siya subject sa income tax. Bakit? According to Sec. 32 (b) (3), gifts,
bequests and devises are items of exclusion from your computation of gross
income. So pag binigyan ka ng limandaang libong piso at ikaw si GEI, income yan
sa iyo. Gawin nating kayo at ako para mas madali. Kayo si GEI tapos binigyan ko
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
kayo ng P500,000. Income sa inyo? Oo. Taxable income sa inyo? HINDI. Bakit?
Nakasulat sa batas na lahat ng tinatanggap na regalo ay hindi part ng gross
income for income tax purposes.
Gifts to Government Educational Institution not subject to estate or donors
tax
Ang susunod na tanong, pag binigyan kita ng P500,000 yan ba ay subject
sa estate or donors tax? You will again find the answer under the NIRC, right? If
you give in favor of the government, transfers for public use again, and are
therefore exempt from either estate or donors tax.
CT
CHURCHES
CONVENTS
A, D, E,
MOSQUES
used
Non-Profit Cemeteries
P L B I
Question:
Barrister: Maam for Sec. 30 po, last paragraph, the regardless of disposition,
does this fall under those characterized as one-time transactions?
Atty. Lumbera: Ah kung one-time transaction iba yan kasi one time transaction,
remember that in an activity conducted for profit, the presumption is regular.
Because if its a one-time transaction, you can seek for an exemption from BIR.
Kasi hindi mo ma-establish that you are engaging in business activity. Ang
premise dito is habitual, regular. You are entering into commercial transactions on
a more or less habitual or regular basis which give you profits. Pag regular kasi
yung transaction mo, commercial activities and you are a government educational
institution, ibig sabihin nawawala na ang serbisyong publiko ng inyong institusyon.
Thats the reason why.
Charitable
Religious
RPT
Educational
TAX
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
Exempt property No. 2. One is government, exempt property No. 2 All real
properties actually, directly and exclusively used for charitable, religious and
educational purposes. Sa Local Government Code of 1991 nakalagay yan. It shall
be exempt from RPT.
Determination of purpose of a charitable Institution
Lets take the case of a charitable institution. Lets say that this is Bahay ng
Mga Taong Walang Pag-asa (BTWP). Kinukupkop ang mga tao diyan, mga taong
walang pag-asa. How will you know if it is a charitable institution? You look at the
incorporation documents, the SEC documents. Because each charitable institution
should be registered as a charitable institution with documents, registered before
the SEC, wherein the primary purpose is stated. Doon niyo makikita yan. Without
any document proving that indeed the organization is a charitable one, no
exemption will be allowed.
Exemption of a charitable institution from payment of Real Estate Tax
Let us say that this is Building1, Building 2, it has a canteen, kitchen, office,
park, entertainment area, parking lot, plus KFC, McDo, Jollibee, paying rentals of
P100,000 to BTWP, a charitable institution. Is it subject to or exempt from the
payment of RPT? Are the Building1 to Parking Lot exempt from payment of RPT?
EXEMPT. Basis? Constitution and the Local Government Code of 1991 which
states expressly that, all real properties actually, directly and exclusively used for
charitable, religious and educational purpose shall be exempt from payment of
RPT.
Building
1
Building 2
Canteen
Park
Entertainment
Area
Parking
Lot
Kitchen
Office
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
Gift given to the charitable institution, not subject to Estate or Donors Tax
If you give in favor of the government, it is not subject to estate or donors
tax. 100% exempt. If you give to a charitable institution and the question is, is it
subject to estate or donors tax? It will not be subject to either estate or donors
tax, provided, that not more than 30% is used for administration purposes.
Nakalagay yan, Sec. 87 and 101 of the tax code. So theres a qualification. It
cannot be subject to estate or donors tax, provided, that the donee does not use
more than 30% of the gift or the donation for administration purposes.
corporate taxpayer, which gave out P500,000 to the charitable institution. Ang
assumption natin is yung amount na binigay ko galing sa income ko from
business. But I have the right to claim as deduction only to the extent of 10% of my
taxable income, not 10% of the donation. 10% of my taxable income.
Lumberas taxable income for 2011
Donation
P1,000,000
P500,000
Gift is subject to Estate or Donors tax if more than 30% of the gift is used
for administration purposes
What if ikaw na donee eh ginamit mo ang more than 30% ng binigay ko
para sa administration purposes? Ang sagot lang diyan ay simple. Nagbibigay ka
para makatulong sa institusyon, hindi para paswelduhin ang mga tao na
empleyado ng institusyon. Hindi para bayaran ang kuryente ng institusyon at hindi
para bayaran ang telepono, sabon, tubig. Hindi ganyan ang pagbibigay ko. Ang
pagbibigay ko ay para makatulong sa mga taong walang pag-asa na magkaroon
ng pagasa. Thats the reason why I am giving and that is why there is a
requirement that when the donee (recipient) uses more than 30% for
administration purposes, then the entire donation or gift will be subjected to
donors or estate tax. The reason I am giving you is not for you to live but para
matulungan yang mga taong yan. Kung bubuhayin lang din kita eh hindi yan
donasyon sa akin, hindi kita binibigyan ng pag-asa na mabuhay. Ang binibigay ko
sayo ay pera para mabuhay ang institusyon. So, if you violate that rule then I have
the right to cancel the donation. If theres a condition for the gift and the donee
violates the condition for the gift, the donor has the right to rescind, Thats the
logic.
Gift given to the charitable institution as deduction
Now on the part of X, can X claim as a deduction the amount of P500,000
given to the charitable institution? If Lumbera is a purely compensation income
earner, only three (3) are allowed as deductions (PE, AE, PHHI) and this is not
one of the three. Therefore, no deduction can be allowed.
But if Lumbera were a corporate taxpayer or a business income owner
individual, and she gives P500,000 to the institution, she has the right to claim it as
deduction, with limitation. Whats the limitation? If Lumbera were a corporate
taxpayer, deduction is limited to 5% of my taxable income only. And if an
individual, 10% of my taxable income. What does it mean? Si Lumbera is a
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
Ngayon eto bang property na ito ng simbahan ay subject sa real estate tax
or hindi? Lahat ng ito, except this portion rented to KFC, McDo, Jollibee, will be
exempt from real property tax. Basis? Constitution. Maliwanag pa sa sikat ng
araw. Itong portion rented to KFC, McDo, Jollibee ang hindi exempt. Bakit?
Because it is not actually, directly and exclusively used for religious purposes.
Parsonage
Quarters
Kitchen
Office
Parking Lot
Park
Canteen
Lets talk about the income of the church. P50,000 out of pamisa,
pabinyag, pakumpil. Income? YES. Yung mga pamisa ninyo sa simbahan. Yan
bay income? YES. Is it subject to income tax? Can you use again as basis the
Constitution? No, again because the Constitution only pertains to RPT. So what
again will be the basis for your answer? Sec. 30 of the Tax Code. Nakasulat na
naman diyan, paragraph (e). So is it subject to income tax? NO. Because
according to sec. 30, this is income as such of an organization devoted for
religious purpose and therefore exempt.
Rental income paid to religious institution, subject to income tax
What about the income from rent paid by KFC, McDo and Jollibee?
Income? YES. Subject to income tax? YES. Whats the basis? Not the
Constitution, but the last paragraph of Sec. 30 which states that, income of
whatever kind and character from real and personal properties or from an activity
conducted for profit, regardless of disposition, shall no longer be exempt from
payment of income tax.
Interest income of religious institution, subject to income tax
If the Church decides to put the money in a lending institution, financial
institution, earning interest, is it income? YES. Subject to income tax? YES. Basis?
Last paragraph of Sec. 30.
Donation given to the Church, not subject to income tax
Now lets continue, X gives P500,000 sa simbahan sa paniniwalang kung
nagbigay sa simbahan eh sa langit didiretso. Pero maraming nagbibigay sa
simbahan kasi ganyan tayong mga Pilipino. So, nagbigay sa simbahan, income on
the part of the church? Yes. Because income is anything that flows into the wealth
of the taxpayer other than mere return of capital. Is it taxable income on the part of
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
10
the church? No. Because, gifts bequests and devises are items of exclusions from
the computation of the gross income of the church.
kung korporasyon. The rules are the same for religious and charitable institutions.
Walang pinagkaiba.
Question, what about those that you give to the pari? Income on the part of
the pari? Yes, because that increases his net worth. Is it taxable income on the
part of the pari? Dalawa ang sagot diyan.
1) One is that this is income but not taxable because it is in the nature of a
gift. Ibinigay mo kay father, ang konsiderasyon gratuitous. Now if you give it to the
pari because it is in the form of a gift, it is true that it is income but it is not taxable
because of Sec. 32 (b) (3) but it should be subjected to donors tax. It should be
subjected to the rules of donors tax.
2) The other answer is, it is considered as income because it is an income
from exercise of profession. Hindi naman ako nagbibigay sa pari dahil pari siya.
Nagbigay sa pari dahil nagbigay siya ng serbisyo. In consideration of the services
rendered by the priest, it should be treated as income and taxable income in the
exercise of profession, but not subject to donors tax.
Ako (Atty. Lumbera), personally, I consider that as taxable income because
the reason that I give it to the priest is because of the service that he renders
although ang nature nga ng serbisyo is religious. So, thats an exercise of
profession and therefore it should be treated as taxable income. What kind of
income is that? Income from exercise of profession, but it will not be subjected to
donors tax because I did not give it gratuitously without consideration. I gave it for
the service rendered by the priest.
Building 2
Park
Dorm 1
Canteen 1
K
Canteen 2
E
Dorm 2
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
11
tax? Building 1 & 2, park and canteen 1--exempt. The dorm? Exempt? YES
because that is actually, directly and exclusively used for educational purpose.
Ilagay natin to, Constitutional Provision No. 2. So ang sabi naman dun
sa isang constitutional provision, All revenues and assets of non-stock non-profit
educational institutions as well as all lands, buildings and improvements actually,
directly and exclusively used for educational purpose shall be exempt from taxes
and duties. Taxes here refer to all national internal revenue taxes, duties here
refers to tariff and customs duties. So if you compare the two, this one is a lot
broader than this (constitutional provision No. 1). Because there, the constitutional
exemption is limited to RPT, here, all internal revenue taxes and tariff and customs
duties. So makikita niyo agad ang distinction sa constitution pa lang.
Building 2
Building 1
Park
K
Dorm 1
Canteen 1
Canteen 2
Dorm 2
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
12
Lets have a variance. Dorm and canteen maintained and operated by the
school is exempt from real estate tax. Dorm and canteen operated by the
concessionaire, subject to real estate tax or not? Agreement with the
concessionaire is, I pay the school 10% of gross sales, thats the agreement. Is it
subject to real property tax or not? EXEMPT. Bakit? Ang sinasabi actually, directly
and exclusively used, hindi naman sinasabi na actually, directly and exclusively
maintained and operated by the school. Ginagamit ba exclusively for educational
purpose? Yes. Then, still exempt.
Rental income from KFC and McDo. Income? YES. Taxable? Subject to
tax. YES. Basis? Last paragraph of Sec. 30.
Kanina real property tax ang pinag-uusapan, dorm and canteen maintained
and operated by the school. Yung binabayad ninyo sa dorm and canteen pag
kumakain kayo, income? Yes. Taxable income on the part of the school? Yes.
Exempt o taxable? TAXABLE. Basis? Last paragraph of Sec. 30. You will imagine
ha, na lahat ng bagay doon umiikot. Kasi nandun lang eh. Taxable? OO. Ano sabi
ng batas? Notwithstanding the provisions, income of whatever kind and character
from real or personal properties, or activity conducted for profit comma regardless
of disposition comma shall no longer be exempt from payment of tax.
Payment of concessionaire to the school
Now, lets change the scenario. Dorm and canteen operated by a
concessionaire. The payment of the concessionaire, income? YES. Subject to tax?
YES! Basis? Last paragraph of Sec. 30. That is already income from an activity
conducted for profit.
Income paid to dorm and canteen outside campus
Dorm 2, canteen 2, operated and maintained by the school. Payment for
the dorm and canteen food, income on the part of the school? YES. Subject to
income tax? YES. Basis? Last paragraph of Sec. 30.
Amount paid by concessionaire for income from dorm and canteen outside
campus
Outside of the campus, operated and maintained by a concessionaire, the
amount paid by the concessionaire, income? YES. Subject to tax? YES. Basis?
Last paragraph of Sec. 30. Hindi siya mahirap. Kailangan lang alamin niyo ang
sitwasyon para alam ninyo kung ano ang ia-apply in relation to the Constitution.
Over-All Chairman: Jan Raphael Salud | Vice-Chairperson for Academics: Jonalyn Porquez and Michael Quesada | Vice-Chairperson for Logistics: Cristina Elaine Mangrobang
Vice-Chairperson for Finance: Amerissa Base | Vice-Chairperson for Secretariat: Patricia David | Vice-Chairperson for Recruitment: Kathleen May Clareza
13
Properties inside the campus of the PEI exempt from real property tax
Portion rented out to KFC, McDo, Jollibee
Building 1
K
Building 2
A
Park
Dorm 1
Canteen 1
Canteen 2
Dorm 2
So how do we treat the assets and the revenues of a PEI? Lets talk about
RPT. Building 1, building 2, park, dorm1, canteen 1, canteen and dorm operated
by the school, are these subject to real property tax or exempt? Can you use as
basis the Constitution? NO. Sabi nga nila taxable eh. So dapat raw taxable yan
unless there is a law exempting them. So anong babalikan nating batas? Local
Government Code of 1991 which states that, All real properties actually, directly
and exclusively used for charitable, religious and educational purpose shall be
exempt from tax. So ano ang kongklusyon natin? Basta ginagamit sa pagaaral,
kahit ang gumagamit o ang mayari ay non-stock non-profit or proprietary
educational institution, EXEMPT.
Reason for exemption from real estate tax of properties used for education
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14
P 50,000
P100.000
Total
P150,000
If the income from unrelated trade or activity exceeds 50% of the entire
income, the entire income is taxed at the regular rate of 30%. If its the other way
around:
Income from tuition fee
P100,000
P 50,000
Total
P150,000
P50,000 does not exceed 50% of P150,000 which is P75,000. The entire
income shall be taxed at the preferential rate of 10%.
PEIs distinguished from charitable, religious and non-stock non-profit
cducational Institutions
Unlike in charitable, religious and non-stock non-profit, you segregate. You
take the income independently of each other and then you apply the rules
independently. If youre talking about PEIs, the income is grouped together and its
either taxed at 10% (all) or all at 30%. Now the preferential tax treatment will be
allowed only if the income from unrelated trade or activity does not exceed 50% of
its total income. Otherwise if it exceeds, the P150,000 will be subjected to tax at
30%. Just like an ordinary domestic corporation. So the exemption is not full, this
is only partial exemption. Thats what we are saying.
Interest income of PEI from lending institution
Now what if the school decided to put the money in a lending institution
earning income of P15,000. Interest, income? YES. Is the interest of P15,000 in
our example subject to income tax? Pano na naman gagawin diyan? Isasama yan
as UTA (Unrelated Trade or Activity). Mababago ngayon yung sum total. You dont
take the income independently of each other. You just group them into either
Unrelated Trade or Activity (UTA) or RTA (Related Trade or Activity) and then you
get the sum.
Income from tuition fee (RTA)
P100,000
P 15,000
P 50,000
Total
P165,000
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15
If the income from unrelated trade or activity does not exceed 50% of its
total, then the total is taxed at 10%. If it exceeds 50%, the total is taxed at 30%.
Hindi to full exemption, partial only. Ok?
Charitable Hospital
Proprietary Hospital
Stock corporation
BUILDING 1
BUILDING 2
CHARITY WARD
CANTEEN
LABORATORY
PHARMACY
DORM
OFFICE
MEDICAL ARTS
BUILDING
FLOWER SHOP
Ano ang set up ng ospital? Lagyan natin ng school, complete with nursing
school! Parang St. Lukes katabi ang Trinity College of Asia. Ang studyante ng
Trinity College dun nagpa-practice sa St. Lukes. Pero ang school hindi part ng
ospital, separately incorporated. So pag eskwelahan ang pinaguusapan, ano ang
ia-apply? Ang itatanong niyo, charitable or proprietary? YAN. Titignan, stock ba?
STOCK. Non-stock? NON-STOCK. Yan ang mga rules. O meron ditong ward. So
proprietary hospital with charity ward. May laboratory, canteen, may KFC, McDo,
Jollibee, may flower shop at may medical arts building. Yan, lets take the very
simple case of a proprietary hospital with this layout.
Ang tanong natin, yan bang ospital ay exempt from real property tax for all
the real properties? NO. Not a single square inch of the hospital will be exempt.
Bakit? Because it is a proprietary hospital at ang nakalagay sa Local Government
Code ay, Only those properties which are actually, directly and exclusively used
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16
for charitable, religious and educational purpose, so hindi yan nagfo-fall doon.
Everything will be subjected to real property tax.
Income of hospital
portion ha. Yung charity ward portion, that portion can be treated as devoted for
charitable purpose and therefore may be exempt from the payment of real estate
tax.
Charitable hospital
SCHOOL
BUILDING 1
BUILDING 2
CHARITY WARD
CANTEEN
LABORATORY
PHARMACY
DORM
OFFICE
FLOWER SHOP
BUILDING 1
BUILDING 2
CHARITY WARD
CANTEEN
LABORATORY
PHARMACY
DORM
OFFICE
MEDICAL ARTS
BUILDING
FLOWER SHOP
Lets have a run down. So dito, lahat ng yan ay exempt from real property
tax, pero itong medical arts building portion, hindi exempt. Bakit? Because this is
not actually, directly and exclusively used for charitable purpose. Ang hindi lang
exempt ay ang Medical Arts Building and the portion rented to KFC, McDo,
Jollibee because this is not actually, directly and exclusively used for charitable
purpose. But the rest will be exempt from RPT. Basis? Constitution and Local
Government Code of 1991.
Other income
What about the income from board and lodging, laboratory fees,
examinations, rental income from medical arts building, from the pharmacy, from
the canteen, how do we treat these income? Very simple. Income as such,
EXEMPT. But the rental income from the medical arts building and rental income
from KFC, McDo, Jollibee, according to last paragraph of Sec. 30, income of
whatever kind and character from real or personal properties or from an activity
conducted for trade or profit, regardless of the disposition, shall no longer be
exempt from payment of tax.
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17
B. Corporations
1.
2.
3.
4.
5.
6.
7.
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18
and a domestic corporation are taxable for income within and outside of the
Philippines.
Tax credit
The income of whatever kind of alien from the Philippines is taxable here.
And because they are citizens of another country, they are also subjected to tax in
the country wherein they are citizens. Thats double taxation in the broad sense.
Corporations, the same thing. This is a clear case of taxation in the broad sense,
not prohibited under the Constitution, not encouraged but not illegal. The law
recognizes the harsh effects of taxation in the broad sense and therefore the law
also in income taxation provides for the remedies to reduce the harsh effects of
double taxation such as: 1) tax credit; and 2) tax sparing rule. For branch profit
remittances, these are the two means on how to reduce the harsh effects of
double taxation in the broad sense kasi doon ita-tax din yan. Remember that our
Ang mga nakalista diyan ay una: (1) interest. Ano ang interest? One is
interest on bank deposits and two, interest on loans. How will you know if the
interest paid and received, syempre ang point-of-view dito ay sino ang nagbayad o
binayaran? Ang binayaran. Kayo ang pinaguusapan. Hindi ako na nagbayad. So
kaninong point-of-view dito sa interest, yung tumanggap ng bayad o yung
nagbayad? Yung binayaran! Ano ang sabi ng batas? Ang importante diyan ay, of
residents, corporate or otherwise. So resident corporations which may be either
resident foreign corporations or domestic corporations, or when we talk about
individuals, resident citizens and resident aliens. Derived from Philippine sources.
Interest income from bank deposit in the Philippines
Bangko. May deposito ka sa bangko ko, nandito sa Alabang. Binigyan kita
ng P10 na interest on bank deposits. Income? Yes. Within or without? Within.
Bakit? Ang bangko ay nasa Alabang. Nasa loob ng mapa ng Pilipinas in
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19
bank in the Philippines so that your family can benefit. Within or without?
WITHOUT. Kahit ang bayad eh nasa loob ng Pilipinas. Bakit? Because the
services were rendered outside of the Philippines.
Sale of real or personal property
Lets summarize the income from sale of real property or personal
property. Location is the rule. If youre talking about income realized from sale of
property, the rule is where the property is located. Kahit pa tayo ay nagbayaran sa
labas ng bansa, wala tayong pakialam. Nasaan ang real property? Nasa mapa ba
ng Pilipinas? OHO. Kahit ang bayaran natin ay doon sa Paris, dineposito sa Hong
Kong, Pilipinas ba ang real property? Oo. WITHIN.
Tangible personal properties
Ganun din . Where it is located. Location is the rule.
Intangible personal properties
What about intangible personal properties? Where is their location? If you
sell shares of stocks, credits, debentures, notes, promissory notes, these are
intangible personal properties. You dont look at the paper. NO. The certificate of
stock, hindi yan ang tinitignan. Ano ang magde-determine ng location ng shares of
stock, debentures, notes, promissory notes? Yung bang papel na lumalakad,
bitbit? Hindi. What is the location of intangible personal properties? DOMICILE OF
THE OWNER. Thats the rule. So hindi pinag-uusapan kung nasan ang papel.
Pag ang binenta ay intangible personal property, the intangible personal property
follows the domicile of the owner.
Shares of stocks in a foreign corporation, ang may-ari ay Pilipino. Eh yung
shares of stocks na yun pag binenta kahit san ibenta, ang lokasyon nun ay
Pilipinas. Bakit? Susunod yun sa ating buntot! Domicile. Lets be very, very
careful.
So sale of property, LOCATION. Kahit anung klase, real property or
personal property, tangible personal property, you can see, location. Intangible
personal property, DOMICILE OF THE OWNER is the rule. The only time that we
dont follow the domicile of the owner is in estate or donors tax under Sec. 104.
Thats a specific law. So thats not a general rule.
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20
US income
RP income
2010
P1,000,000
P500,000
2009
P2,000,000
P700,000
2008
P3,000,00
P2,000,000
TOTAL= P6M
TOTAL=P3.2M
Three years prior to the declaration of the dividends, the income from the
Philippines is P3.2M which is less than 50% of its total income (P9.2M). Then the
entire P100,000 is not from within. Only a portion is from within. How do you get
the portion?
Income from Philippines (P3.2M)
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Gross income
Lets talk about a resident citizen. So we are sure about who the taxpayers
are, then from the source of income alam natin ang taxability. Now lets go to the
third factor, that is, the kind of income they receive so that we will be able to know
kung taxable ba o hindi at kung taxable, anung klaseng buwis ang babayaran. Ill
give you the description of the kinds of taxes para isang bagsakan tayo later.
Withholding tax
What is withholding tax? When income is realized and received, the payor
of the income is under the obligation to withhold the corresponding tax due and
remit the same to BIR. There are two kinds: 1) final withholding tax (FWT); and 2)
creditable withholding tax (CWT). If the income is subjected to final withholding,
your income is taxed with finality and no other tax can be collected. And your
income subjected to FWT will not be included anymore in the gross income.
Kunwari sa prizes and winnings, pag nanalo ka sa Willing Willie at binigay sayo
ang premyo, meron yung withholding tax na 20%. The income, the prize and the
winnings are subjected to final tax. I (the payor of the winnings) am under the
obligation to deduct the withholding tax and the tong, equivalent to tax, will be
remitted to the BIR by me (the payor). Whatever prizes and winning realized or
earned, you will not be taxed anymore forever for that and you will not add that
income to your gross income for purposes of Net Income Tax (NIT).
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22
Kind
(A)
(B)
(C)
(D)
Income
within
Income
without
Net
income
tax
Passive
income
Capital
gains on
shares of
stock not
traded in
local
stock
exchange
Capital
gains on
sale of real
property
located in
Philippines
RC
NIT
FWT
FWT
FWT
RA
NIT
FWT
FWT
FWT
NRA-ETB
NIT
FWT
FWT
FWT
NRANETB
GIT
25%
GIT 25%
FWT
FWT
DC
NIT 30%
FWT
FWT
FWT
RFC
NIT 30%
FWT
FWT
NRFC
GIT
30%
GIT 30%
FWT
of
taxpayer
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23
PASSIVE INCOME
Now lets go to letter (B), look at the provisions of the law. 1) Passive
income, interest on bank deposit. Si Lumbera may peso bank account sa China
Bank, Alabang. Kumita ng interest, P100. Income? YES. Within or without?
WITHIN. Subject to tax? YES. What kind of tax? FWT. What is the rate? 20%.
Interest income from dollar account in Philippine bank
Si Lumbera may dollar account sa China Bank, Alabang, kumita ng interest
$10. Income? YES. Within or without? WITHIN. Subject to tax? YES. What kind of
tax? FWT. What rate? 7 %. Under the Expanded Foreign Currency Deposit Act,
its 7.5%.
Interest income from time deposit in Philippine bank is exempt
Si Lumbera, may peso time deposit account. I did not pre-terminate for five
years. Interest is P3,000. Income? Yes. Within or without? WITHIN. Subject to
tax? NO. EXEMPT.
Interest income from peso account in US bank
Si Lumbera ay may peso account sa isang US Bank. Kumita ng interest
P100. Income? YES. Within or without? WITHOUT. Subject to tax? YES. What
kind of tax? NIT. Bakit hindi FWT? Kasi yung letter B sa interest ay dapat interest
sa Pilipinas. So lahat ng interest na wala sa B dahil nasa ibang bansa ay nasa A.
Pag wala sa B, nasa A. Pag wala sa C, nasa A. Pag wala sa D, nasa A. So dapat
alam mo si B, C, and D para alam mo kung nasaan siya.
Interest income from dollar account in US
Si Lumbera may dollar account sa States, kumita ng interest, $100.
Income? YES. Within or without? WITHOUT. Subject to tax? YES. What kind of
tax? NIT.
Interest income from peso and dollar account in US Bank
Si Lumbera merong peso and dollar account sa States. Time deposit.
Kumita ng interest, hindi ko prine-terminate for 5 years. Income? YES. Within or
without? WITHOUT. Subject to tax? YES. What kind of tax? NIT. Bakit, anong
rason? Hindi kasi natin pwedeng utusan ang ibang bansa na maging withholding
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24
agent natin. Hoy Barack Obama! Make sure that all the taxes will be remitted to
me! sabi ni PNoy. In the same manner na sabi ni Barack kay PNoy, PNoy, remit
also the withholding taxes due from citizens of the United States derived from the
Philippines. You cannot do that. Theres no such thing as a withholding tax
agreement among nations. So anung gagawin? Balik ka sa NIT, without prejudice
to the taxes to be paid in the United States of America where these income are
derived from. Thats tax credit again.
Royalties
Lotto in US
Lotto sa States, exempt sa States, income? YES. Within or without?
WITHOUT. Subject to tax? YES. Even if exempt outside of the Philippines. What
kind of tax? NIT.
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Sa P33K, NIT. Sa P66K, NIT. Lahat ng yan NIT kasi ang nakasulat diyan
dividends subject to FWT are dividends issued by a domestic corporation. Basahin
niyo. Nakalagay diyan, derived from domestic sources.
What are capital assets and what are ordinary assets? When a problem
involves an asset, an asset will remain just an asset and without tax effect if you
do not move the asset. Movement in the sense that there is transfer of ownership.
You will not be able to realize gains and losses without movement of asset.
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26
kung ang pinaguusapan eh ang pagkakabili ko at the budget amount pero wala
talaga akong pagkakalugi. Bakit? Yung alleged devaluation ginagamit ko. Thats
equivalent to use so wala akong lugi.
Shares of stock not traded in local stock exchange
So lets go back to letter C. Capital Gain on Sale of Shares of Stock in a
Domestic Corporation. In other words, yung shares of stock mo sa isang domestic
corporation ay capital. Hindi mo ginagamit. Let us say I purchased the shares of
stock at P1,000. The fair market value now is P500. I sell it now at P800, may
income ako? How much? P300. Within or without? WITHIN. Subject to tax? YES.
What kind of tax? Letter C, Capital Gains on Shares of Stock in a Domestic
Corporation, if not traded in the local stock exchange, at the rate of 5% for the first
P100,000 then 10% for the amount in excess of P100,000.
When shares of stock are traded in local stock exchange
If traded in the local stock exchange, magkano ang gain ko? P300.
Income? YES. Within or without? WITHIN. Subject to tax? YES. What kind of tax?
Percentage tax equivalent to of 1% of the gross selling price under Sec. 127 of
the NIRC. If traded, it is not income tax, it is always percentage tax equivalent to
of 1% of the gross selling price.
Transfer for less than adequate and full consideration
Lets take the other side of the coin. Same shares of stock in a domestic
corporation not traded through the local stock exchange. The purchase price is
P1,000. The current fair market value is P500. I sell it at P10. Income? No. LOSS.
May income tax? WALA. May tax? MERON. Donors tax. Thats Sec. 100. If you
sell an asset other than real property under Sec. 24 (d) for an insufficient
consideration, the difference between the consideration and the fair market value
at the time of sale will be treated as a gift subject to donors tax.
Lumberas Properties in
RP
House in RP
FMV-P500,000
Purchase Price- P1,000,000
Parlor in US
Parlor in RP
FMV-P500,000
Gross Selling Price- P800,000
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Capital Gains Tax on Sale of Real Property. The asset is real property,
located in the Philippines, capital. Yun ang requirement. Si Lumbera may bahay sa
Pilipinas, bahay sa States, parlor sa Pilipinas, parlor sa States, purchased at
P1,000,000 each. The fair market value now is P500,000. I sold each one of them
at P800,000. Bahay sa Pilipinas, may income? YES. Within or without? WITHIN.
Subject to tax? YES. What kind of tax? Capital gains tax (CGT) equivalent to 6%
of the fair market value or gross selling price, whichever is higher.
House in US, sold at a gain
Bahay sa States, may income? Yes. Within or without? WITHOUT. Subject
to tax? YES. What kind of tax? NIT.
Vehicles
KOTSE. Kotse sa bahay sa Pilipinas for personal use. Kotse sa bahay sa
States for personal use. Kotse sa parlor sa Pilipinas, ginagamit as service. Kotse
sa parlor sa States, ginagamit as service. Apat na kotse worth P1M each, fair
market value now is P500K, sold at P800K with a gain of P300K.
Lumberas US cars
Lumberas RP cars
Purchase Price- 1M
FMV-P500,000
Purchase Price- 1M
FMV-P500,000
GSP-P800,000
Bahay sa States, sold at a loss. May income? WALA. May income tax?
WALA. May tax? OO. Sec. 100, donors tax.
Parlor in RP, sold at a loss
Parlor sa Pilipinas, sold at a loss, may income? Wala. May income tax?
WALA. May tax? Oo, donors tax, Sec. 100.
28
Can you be exempt from the payment of CGT of 6%? YES, if what you sell
is the actual principal residence. Actual principal residence does not require
absolute, continuous, uninterrupted stay. The stay may be interrupted by
temporary absence due to work, studies and similar circumstances. So the
requisites are:
If we are co-owners of a property, house and lot, but I am the only one
staying there, when we sell the house and lot, I am the only one entitled to claim
the exemption in proportion to my share in the co-ownership. You cannot claim
because you are not actually residing in the house and lot.
If these requisites are present, then the taxpayer may be exempt from the
6% CGT. The exemption, however, requires the deposit in an escrow agreement
in a bank. The amount of 6% CGT will be deposited in a bank, escrow agreement,
signed by BIR, taxpayer and the bank. If you comply with the requisites for
exemption, you may require the bank to release to you the deposit but without
interest income because that belongs to the government. If you fail to comply, the
amount deposited will be released to BIR and you are presumed not to have paid
the tax. Therefore, penalties and surcharges will be collected from you.
Exemption from CGT if land and house are not owned by same person
There are instances when the land is owned by a different owner from the
house. Iba ang may-ari ng lupa, iba ang may-ari ng bahay. Ang nakatira dito sa
lupa eh yung may-ari ng bahay. Ibinenta pareho. Sino ang entitled sa exemption?
The owner of the house in proportion to the value of the house. The owner of the
land cannot avail the exemption because it is not his actual principal residence.
The non-resident table is very easy because all you have to do is take out
the income outside of the Philippines. Any income outside of the Philippines will
not be subjected to tax in the Philippines. But those income may be subjected to
tax in the country where the income is derived. So its the same banana, Net
Income Tax, FWT, FWT, FWT, FWT but only for the income realized within the
Philippines. All income outside of the Philippines will no longer be subjected to tax.
This is found in Section 32, par. A, No. 1. There is no fringe benefits tax as far as a
non-resident is concerned because he cannot be an employee in the Philippines.
Once he becomes an employee in the Philippines, he is automatically considered
as a resident citizen.
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29
In case of capital gains tax on sale of real property and the taxpayer is a
non-resident citizen, can he claim for the exemption for the 6% capital gains tax?
The requisites for exemption for the 6% CGT are : 1) that it must be his actual
principal residence; 2) within 30 days he informs BIR; and 3) he uses the proceeds
to buy or build another principal residence. Among all these requisites which
among them should be present so that the exception will or will not be applied? It
is the fact of residence. Ang tanong natin dito ay anong ibig sabihin ng actual
principal residence because a non-resident citizen is not residing in the
Philippines. Because if he has actual principal residence in the Philippines, he will
not be a non-resident citizen. Ang ibig sabihin ng actual principal residence is the
place where one has the intention of returning to whenever one is absent. It does
not require absolute, continuous, uninterrupted stay. It may be interrupted by
temporary absence due to work or similar status or similar circumstances.
Can we apply the exemption from the 6% capital gains tax? Again we go
back to the requisites:
Perfect example nito ang mga OFW. Nagta-trabaho sa ibang bansa. They
go home once in a while. Their families are here. They have their homes here. So
the concept of actual principal residence can still be applied to a non-resident
citizen specially if he were an OFW. Even an immigrant, pwede pa rin siya. Bakit?
Because Philippines is his domicile. The residence is outside the Philippines but
his domicile/permanent residence is still in the Philippines. The exemption can still
be applied.
Resident alien (RA)
Lets talk about resident aliens. A resident alien is taxed in the same
manner as a non-resident citizen. Parehong-pareho. So ibig sabihin, the same rule
applies for all income derived from the Philippines other than B, C, D.
So lets have a rundown. Resident Alien- all income derived within the
Philippines--NIT. All passive income within the Philippines--FWT. Same rates,
same tax. Capital gains on sale of shares of stock of a domestic corporation-same. Capital gains on sale or real property located in the Philippines--same. But
everything located outside of the Philippines will not be subjected to tax if we are
talking about a resident alien. So parehong-pareho siya ng non-resident citizen.
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30
Capital gains tax rate for non-resident not engaged in trade or business
But of course, capital gains tax on sale of shares of stock is constant for all
kinds of individual taxpayers. Capital gains tax on sale of real property is also
applicable.
Non-resident not engaged in trade or business working in Philippines
If you look at Sec. 25 par. B, C, and D, makikita ninyo dyan naka-specify
na aliens. Those who are employed in offshore banking units, multinational
companies, and those employed by oil petroleum service contractors. Very
peculiar yung parteng yan. These are aliens who are working in the Philippines in
those three companies and because of their work here, definitely they must be
residing in the Philippines. Hindi naman pwedeng pag alas siete ng umaga andito
sa Pilipinas at pagka alas siete ng gabi magpe-plane out of the Philippines. They
are working here, but the law classifies them as non-resident aliens not engaged
in trade or business. These three, while working here and presumably residing
here, are taxed on 25% on the gross. But if there is a Filipino counterpart in the
same company, performing the same functions and duties as the alien, and the
Filipino counterpart is given by the company the option to be taxed at the rate of
15% on the gross, then the alien will also be entitled to claim 15% on the gross
instead of 25%.
When alien may choose GIT of 15%
Is there a need for the Filipino to choose GIT of 15% before the alien can
choose GIT 15%? No. As long as the option is available to the Filipino, the alien
can avail of the GIT 15% rate. So what are those situations? I am the alien, you
are the Filipino counterpart. We are performing the same functions.
The presumption here is that we are occupying key and valuable positions
in the company, otherwise the company would not uproot you from another
country. We do not uproot a janitor from another country. In other words, we are
very in demand as far as our skills, experience are concerned. Walang ibang
available sa Pilipinas. But in our company ikaw ay Pilipino same ang function mo
sa akin. Ang presumption here is that, because I am uprooted from another
country, I must be getting a very high salary. Who would want to work in another
country and leave it? Bayaran mo ang aking board and lodging, bigyan mo ako ng
sasakyan, ang pamilya ko most likely kasama ko, plus malaking-malaki ang
sweldo ko. Ikaw na Pilipino ka magrereklamo ka pag ang sweldo mo mas mababa
sa sweldo ko.
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resident alien not engaged in trade or business, pero nakatira sa Pilipinas dahil sa
kanilang trabaho. At saan siya nakatira? Pwede nagpagawa siya ng bahay sa lupa
ng kaibigan niya, pwedeng condominium siya at ibinenta niya at bumili siya ng
bagong condominium. Pwede naman siya ay dating Pilipino o pinamanahan ng
ninuno niyang Pilipino at dun siya tumira habang nagtatrabaho dito sa Pilipinas at
inayawan niya at binenta niya at bumili siyang muli ng kanyang bagong titirahan.
So the possibility of exemption is still there.
Fringe benefits given to non-resident not engaged in trade or business
(NRA-NETB), part of gross income and not subject to fringe benefit tax
Take note, a non-resident alien not engaged in trade or business may
receive employer-employee benefits which are in the nature of fringe benefits
when you compare it with ordinary resident citizen. These are fringe benefits
received from multinational companies, oil petroleum service contractor, offshore
banking units. How will the fringe benefits of a non-resident alien not engaged in
trade or business be subjected to tax? May it be subjected to fringe benefit tax?
NO. Everything will be part of all income subjected to gross income tax at 25% or
GIT 15%. All income including the fringe benefits received by a non-resident alien
not engaged in trade or business under Sec. 25, par. B, C, and D will not be
subjected to fringe benefits tax but to GIT gross income tax at the rate of 25%.
Sasabihin niyo, eh lugi ang gobyerno dun kasi the 32% is higher than 25%. Hindi,
because the 32% is based on the grossed up monetary value. The 25% is based
on the gross, so mas malaki pa rin ang tax na babayaran because this is 25% of
the total income that you realize.
DOMESTIC AND FOREIGN CORPORATIONS
Corporations
Kinds of taxes collected from a corporation:
1)
2)
3)
4)
5)
6)
7)
8)
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Please take note that except for MCIT and NIT, which are in lieu of each
other, everything will be collected from the corporation all at the same time. So
makikita ninyo ang mga negosyo napakaraming taxes na binabayaran iba-iba sa
loob ng isang buwan, sa loob ng isang taon. In addition of course, because they
are engaged in trade or business, the corporation will be subjected to value-added
tax.
NIT: So we know NIT, its the same concept as in an individual taxpayer.
WT: Withholding tax same concept. Just to refresh your memory there are
two kinds, final withholding tax wherein the income is no longer subjected to any
other kind of tax and the income is not included in the gross income from NIT. But
if the income is subjected to creditable withholding tax the income will have to be
included in the gross income for the purposes of computing the NIT because of the
nature of the withholding tax. It will however be credited against the tax due. Kaya
ang tawag dun ay creditable withholding tax.
GIT: the tax is on the gross income
Minimum Corporate Income Tax (MCIT)
Now lets discuss MCIT. MCIT is minimum corporate income tax imposed
at the rate of 2% of the gross income beginning the fourth year following the
commencement of its operations, provided, that the 2% is higher than the net
income tax. What is the regular net income tax rate for corporations? 30%.
MCIT is a kind of tax which is in lieu of NIT. This is collected at the rate of
2% of the gross income and beginning the fourth year following the
commencement of its operations provided that the 2% is higher than the 30% NIT.
When MCIT was introduced, a lot of people thought it was sort of a
privilege or a reprieve since 2% lang ang rate but in reality it is not. This is one
way of increasing the collection from the corporate taxpayers.
Let us say in the year 2011, you started your business. Its pretty normal
for a corporate taxpayer or for anybody, specially in business, to have losses.
Namumuhunan ka talaga sa business so normal na may losses ka at normal din
na sa unang taon or the first few years of your operations hindi ka kumikita. Kaya
di ba naririnig niyo ang ROI, return of investment, in other words whats the period
you can honestly say that you are earning. Kasi kung magbi-business ka at palugi
ay manahimik ka na lang sa bahay mo at manood ng TV. Syempre nakakapagod
yung mag-business ka nang lugi.
Let us say in the year 2011, you started your business. First year of
operation, everything palabas ang pera mo. Let us say that your revenue is
P500,000 but because this is your first year of operations your expenses
amounted to P600,000. So lugi ka ng P100,000. Pag nalugi ka ng P100,000 lugi
ang gobyerno kasi kahit i-multiply mo yan ng one million percent, it is zero. Zero
tax yan. In other words you are operating at a loss. When your expenses or
deductions are more than your revenues, you are operating at a loss you call it-Net Operating Loss, which may be carried over to the succeeding year. This is
only applicable to a corporate taxpayer. How many years can we carry over a net
operating loss? Three. Versus Net Capital Loss Carry Over which is carried over
one year lang and applicable only to individuals.
Net Operating Loss Carry Over
Example
Revenues
Expenses
Net Operating Loss
1st
2011
500,000
600,000
(100,000)
2nd
2012
700,000
800,000
(100,000)
3rd
2013
700,000
800,000
(100,000)
4th
2014
1,000,000
1,100,000
(100,000)
2015
1,000,000
1,100,000
(100,000)
Let us say 2012, aba nag-increase revenues, pero lugi na naman ako, zero
tax na naman. 2013 zero tax na naman. 2014 nag-one million mark ako because I
inputted additional capital, pero lugi na naman ako zero tax na naman. Lugi na
naman ang gobyerno sa akin. Sabi ng gobyerno, dito sa 2015 pag ikaw ganyan pa
din, niloloko mo na ako. Walang normal na tao na nagbi-business ng 5 taon, lugi
at magtutuloy. Kasi hindi yan natural sa taong nagbi-business. There is something
wrong with you or your business. You better forget it, otherwise you will be
incurring more losses. If you want to continue there is no problem with me, sabi ng
gobyerno, anyway whatever loss you sustain is yours, not mine. Because
beginning the 4th year following the commencement of its operations, beginning
2015, if you continue this financial statement, I will collect P1,000,000 x 2% which
is P20,000. Bayaran mo yan, that is your MCIT. From 2015 onwards, until such
time that your net income tax is higher than the 2% of the gross, you will
continuously pay.
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Holding company
Ang ginagawa nila, yung profits nila ilalagay sa isang company. This is a
separate corporation which holds the assets of XYZ. In other words, jina-juggle
niya yung mga pondo. May banks, may food, this one has assets this one lends
from this. Makikita mo yung fiduciary relationship among the corporations with the
holding company. This is one way in which the companys profits are being spent
by another corporation. Kasi pwedeng pabilhin nila ito ng isang asset tapos sila
ang gagamit. One way of diverting the funds here papunta doon and not be
distributed as profits in the form of dividends, dito ililipat.
Putting up of holding company is a prima facie presumption that corporation
is trying to avoid payment of 10% tax on dividends
Mere putting up of a holding company is a prima facie presumption,
disputable however, that the corporation is trying to avoid, hindi evade, the
payment of 10% tax on dividends that are supposed to be distributed to
stockholders. Makikita nyo yan sa codal provision. Because this is disputable, the
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ang Gross Philippine Billings Tax at 2 %. Meron nang decided case ibibigay ko
sa inyo para hindi na kayo mahirapan. Sinettle na. Kasi nga nagkaka-lituhan. (See
South African Airways vs. CIR, GR No. 180356, February 16, 2010)
So these are the kinds of taxes of a corporation. Lets go back to the first
table. Domestic corporations are subject to tax for all income within and without.
We follow the same rules. All income from within and outside of the PhilippinesNet Income Tax at the rate of 30%.
Balikan natin ang individual taxpayer review natin. Si Lumbera may time
deposit peso account sa Pilipinas. Taxable? What kind of tax on interest? FWT.
Sa labas ng Pilipinas meron akong bank deposit peso and dollar account its NIT.
Si Lumbera merong librong ginawa, ibenenta sa Pilipinas. FWT-10%. Pag
binenta sa labas NIT. Prizes and winnings sa Pilipinas-20% of the winnings.
Nanalo ako sa Price is Right sa US, it is NIT.
Dividends received from a domestic corporation FWT at the rate of 10%.
Dividends received from a foreign corporation is NIT. Madali lang naman siya eh.
Balikan natin yan using a corporation.
Parlor with branch in Philippines and branch outside Philippines
Halimbawa ang business ko parlor. May branch sa Pilipinas, may branch
sa labas ng Pilipinas. Ang kanyang income ay talagang business lang. Income
from the parlor in the Philippines all income NIT 30%. Income from outside of the
Philippines of the parlor- NIT.
Passive income
Peso and dollar account in the Philippines- income ba yon? Yes. Within the
Philippines? Yes. Anong klaseng tax? FWT. For peso account, 20% FWT and for
the dollar account it is 7 %.
My bank account outside of the Philippines kumita ng interest peso and
dollar account. Income? Yes. Within or without? Without. Subject to tax? Yes.
What kind of tax? NIT.
So all passive income are the same as individuals except for prizes and
winnings. Pag individual prizes and winnings are FWT. Pag corporation prizes
and winnings are NIT.
Dividends
If the recipient of dividends is also a domestic corporation, this shall be
exempt. Intercorporate dividends received by a domestic corporation from another
domestic corporation shall be exempt.
Capital gains on sale of shares of stock
Now as to capital gains tax on sale of shares of stock, it stays constant. Ito
ang hinding hindi nagbabago on all kinds of taxpayers. It is always FWT pag not
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traded 5% and 10%. Pag it is traded of 1% of the gross selling price. You will
notice this, yan ang pinaka constant sa lahat.
Capital gains on sale of real property
The previous rule or conduct is that a corporation is not subjected to 6%
Capital Gains Tax because ang presumption natin ay all corporate taxpayers
owned these properties in the course of its ordinary trade or business. But later on
however, mapapansin ninyo if you read the newspapers sa business section ang
non-performing assets (NPA). Ang bangko, ang kanyang primary function ay
tumanggap ng deposito at magbigay ng dineposito. Incidental thereto, it is allowed
by the Central Bank to extend loan facilities. So this is not the primary business of
banks.
When you extend loan facilities at hindi nagbabayad ng utang magfoforeclose ka ng mortgage. Ikaw nag-mortgage ka ng property mo inutang mo 1M,
ang worth ng property ay P1.5M. Laging mas malaki yung value ng property kesa
dun sa inutang mo. Normally it is up to 75% of the assessed value of the property.
The loan is definitely lower than the value of the property. So kung ikaw ang
debtor at hindi ka nakabayad, ang utang mo P1M ang hindi mo binayaran
P600,000 pag finorclose mo ang property na P1.5M tubo ka na. Kasi P600,000 na
utang tapos 1.5M na property. In foreclosure of mortgage, the petition for
foreclosure will state P600,000 hindi P1.5M the value of the property. So when it is
foreclosed by the bank, and the bank is normally the highest bidder in the auction,
the bank satisfies the loan of P600,000 for a consideration of P1.5 M worth of
property. That property is acquired by the bank not in the ordinary course of its
trade or business. Hindi nga yan ginagamit ng bangko eh naka-tengga lang. Kaya
nga maraming bentahan ng foreclosed properties because these are not used by
the bank in its ordinary course of trade or business. Ang tawag natin diyan kung
titingnan talaga ang realidad ay capital asset ng bangko. Pero dati lahat ng asset
na yan ang classification ay ordinary kasi daw finoreclose ng bangko. So dati nung
ordinary yan, P1.5M ang value ng property, binili mo ng P600,000 to satisfy the
loan, eh hindi naman nagbabalik ng sobra ang bangko. So P600,000 ang utang,
thats why the bank can re-sell the property at a much lower price, but not lower
than P600,000. So it will resell the property at P1M, when it acquired the book
value declared is P1.5M, when it will re-sell at P1M, the bank loses, P1.5 minus
P1M, loss, no tax. But in truth, tumubo si bangko because the loan is P600,000.
But on paper the bank loses P500,000 because the book value is P1.5 sold at
P1M. Lugi P500,000. Pag lugi, may income? Wala. May kinita ang gobyerno?
Wala. Sabi ngayon ng lehislatura, di pu-pwede yun. Those assets, while its true
that they are not directly used in the operations of the bank and those are formerly
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Employer-employee benefits
Not applicable, because all foreign corporations are not allowed to own real
properties in the Philippines. All corporate taxpayers also not allowed to claim the
exemption from the 6% capital gains tax.
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INDIVIDUAL TAXPAYERS
Resident Citizen
Recipient is a resident citizen, foreign corporation is the issuing
corporation. Income? Yes. Within or without? Sec.42 kahapon. (see previous
discussion) Within. May exception to the rule ka. So pag sinabing general rule,
buong P100,000 kahapon within. Pag exception to the rule, 33% ang within, 67%
ang without para hindi na tayo bumalik sa computation. Subject to tax? Yes. What
kind of tax? NIT.
Ulit. Resident citizen receiving dividends from a foreign corporation.
Income? Yes. Within or without? General rule lahat within. Taxable? Yes. What
kind of tax? NIT.
Exception to the rule, 33 within, 67 without. Taxable? Yes. Lahat? Yes.
What kind of tax? NIT lahat.
Non-resident Citizen
Recipient is a non-resident citizen, ang nagbigay ng 100 foreign
corporation. Income? Yes. Within or without? General rule 100 within. Pag ang
general rule ang sinabi natin at within lahat, subject to tax? Yes. What kind of tax?
NIT.
Pag ka exception to the rule, 33 within, 67 without. Subject to tax? Yes.
How much? Only 33 is subject to NIT, 67 is not subject to NIT.
Resident Alien
Resident alien, income-100. Income? Yes. Within or without? General rule
100 within. Exception to the rule, 33 within, 67 without. Kung general rule, taxable?
Yes. Anong klaseng tax? NIT.
Exception to the rule, 33 taxable NIT, 66 not subject to tax.
Non-resident alien engaged in trade or business, dividends
Non-resident alien engaged in trade or business- 100,000 dividends from a
foreign corporation. Income? Yes. Lahat ng yun, income. Within or without?
General rule buong 100 income. Subject to tax? Oo. Anong klaseng tax? NIT.
Exception to the rule, lahat ay income, but only 33 is within, 66 without. Therefore
only 33 is subject to tax, anong klaseng tax? NIT.
Non-resident alien not engaged in trade or business
Non-resident alien not engaged in trade or business. Income ba lahat? Oo.
Eto magtataka kayo, eh foreign corporation yun, non-resident alien not engaged in
trade or business ang tumanggap, nasa labas ng Pilipinas meron pa pala tayong
tax? Yan ang nakakapagtaka diyan, di ba? This is our typical thinking. Foreign
corporation, nasa labas, ang tumanggap, alien. Eh pano magkakaron ng tax? The
reason for the tax is very simple. Because the foreign corporation for that matter,
whatever kind, is deriving income from the Philippines. And when it derives income
from the Philippines, this income contributes to the general income of the
corporation wherever it is located. And when it distributes its profits, part of the
profits distributed is derived from the Philippines. Thats why may collection. So
dont tell me that just because the issuing corporation is a foreign corporation and
the recipient is also an alien, it will not be subjected to tax. No. As long as income
is derived from the Philippines by the foreign corporation then whenever it
distributes dividends to whomever among these types of taxpayers, we are going
to collect tax.
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(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional
partnership.
Do you have to memorize them? No. Do not memorize them. Because ang
sabi ng batas: Gross income refers to all kinds of income from whatever source
derived, meaning from legitimate or illegitimate sources, of whatever kind, whether
in cash or in kind, such as but not limited to the following. In other words, the list
is not exclusive. Wala sa listahan na pag nagnakaw ka ay part ng gross income.
Pag nagbenta ka ng shabu ay kasama sa gross income. It will definitely be part of
the computation of the gross income of a taxpayer. In fact class, well discuss how
these kinds of income will be subjected to tax.
Compensation or gross income from exercise of profession
Ang alam natin pag compensation ang sitwasyon ay may tao.
Compensation for services rendered, meaning that this income is derived from
employer-employee relationship. When you speak of services rendered pursuant
to an employer-employee relationship, what you receive is particularly referred to
as compensation. If you render service and there is no employer-employee
relationship, you refer to it as gross income from the exercise of profession which
is the G (in C-G-GD-I-R-R-A-P-P-P). But when you render service not pursuant
to an employer-employee relationship and what you receive is gross income from
the exercise of profession, most likely theres another kind of tax that will be
collected: value added tax- because thats a sale of service.
When you sell service and there is no employer-employee relationship, two
kinds of taxes are collected 1) income tax for income for rendition of service
without employer-employee relationship, 2) for the act of sale of service which is
value-added tax. Like for example consultancies, security agencies, it is a sale of
service, janitorial, accounting services, these are the sale of services but theres
no employer-employee relationship. So whatever income you will derive will still be
subjected to income tax which is the gross income from the exercise of profession
but in addition to that, value-added tax will be collected.
Gains derived from Dealings in Property
Here we will be talking about capital gains on sale of shares of stocks,
capital gains on sale of real property, sale of ordinary assets. So these are the
transactions wherein you will have gains, either capital gains on sale of shares of
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stocks, capital gains on sale of real property, gains derived from sale of capital
assets other than shares of stocks and real property, ordinary gains in sale of
ordinary assets. So those are the possibilities. If we sell ordinary assets and you
have gains, what do we collect? NIT because that is all income (see Table 1)
When you sell assets which is capital but not shares of stocks or real property
located in the Philippines and you have gains, where do you fall? (A) sa table- NIT
yan. Thats how you apply the table.
Annuities
It may be out of a personal contract, similar to an insurance that you took,
or because of your employment, whatever, the term annuities, hindi naman siya
nasa B, hindi sa C, hindi sa D, kaya nasan siya? (A) (see Table 1). Anong klaseng
tax? Doon sa (A).
Prizes and winnings
Dividends
Theres no other concept of dividends except profits distributed by a
corporation.
Interest
There are two kinds of interest: 1) interest on loans 2) interest on bank
deposits. When we talk about bank deposits then where will we fall? Its on passive
income (see Table 1) (B). But when we talk about interest on loans, that means
you are extending loans and that is engaging in trade or business. Whether it is
isolated or habitual, where will you fall? (A) (see Table 1). So thats all income net
income tax ka.
Of course sabi natin passive income ito. So general rule, passive income.
Final withholding tax yan. Except when the prizes and winnings are outside of the
Philippines in which case NIT ka. And prizes and winnings which are exempt: 1)
PCSO and lotto winnings exempt 2) prizes and winnings in sports competitions
sanctioned by the national sports commission 3) exempt prizes and winnings
awarded pursuant to educational, scientific, cultural, charitable, literary and so
forth, provided the winner is not required to render future service and that the
winner did not actively participate to join the contest. All prizes and winnings
derived therefrom are income but exempt. And then prizes and winnings of
corporations are always treated as ordinary income. Therefore saan siya magfafall? Tingnan mo lang dun sa unang table letter (A) (see Table 1).
Partners distributive share in general professional partnership
Rentals
Pag nagpaparenta ka, meron kang properties, di ba? When you receive
rentals the rentals are income from engaging in trade or business. Kasi di ka
naman magpaparenta ng wala kang business. Or assuming that it is isolated,
whether it is isolated or regular ang business mo renting out properties, real,
personal, tangible or intangible, whatever kind of property, what kind of income do
you receive? Where will you fall? Sa (A) (see Table 1). Bakit? Wala siya sa (B),
(C), or (D) kaya dun siya babagsak. Titingnan mo ngayon kung sino ka sa table.
Ganun lang yun very easy.
When we talk about the sale of property being rented out, pag binenta mo
na si property na pinarerentahan mo, anong unang tatanungin mo, anong klaseng
asset yun ordinary or capital? Syempre pinarerentahan mo, business yun,
ordinary. So when you sell, and you gain profits, you realize gains where will you
fall? (A). Choose. Kaya sabi ko sa inyo yang boxes na yan, these are very helpful.
If you have that in your vision, hindi na kayo mawawala.
Yesterday I told you that there are two kinds of partnership, GCP and GPP.
A GPP is exempt as an entity from income tax. But whether GCP or GPP pag
dinistribute na ang profits di ba partnership is a contract wherein partners
contribute money, property or industry to a common fund and then divide the
profits among themselves. once the profits are distributed to the partners, the
partners will be reclassified into an individual. And then every profit distributed to
you as a partner will be treated as a part of gross income of the partner subject to
tax. What kind of tax? Wala siya sa B, C, D nasa (A).
Pensions
When we talk about pensions we are talking about employer-employee
relationship. But of course yung pensions kasi na salita is a general term. So lets
look at retirement benefits which are treated also as pensions. As a general rule,
all pensions and retirement benefits are income. They are considered as
compensation, therefore taxable. Except for the following: 1) all pensions which
are also treated in general terminology as retirement benefits, these are
compensation because they have been received pursuant to an employer-
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disability naputol ang katawan, babayaran. On top of all of this, in case of physical
disability, meron pang binabayaran sayo pwede ka pa mag-claim either sa SSS or
sa GSIS di ba? Pwede kang bayaran. Or kung wala ka naman binayaran ka ng
company.
So these are the possibilities of employer-employee benefits that an
employer may give to an employee. It may be all or some or whatever. How do we
treat them, from the point of view of the employee or from the point of view of the
employer? Do we need to memorize these? No.
There are three kinds of employees for taxation purposes: 1) managerial or
supervisory 2) rank and file 3) and what we have now minimum wage earners.
Isama na natin ang de minimis benefits, again napakahaba. Ilan lang naman ang
may amount na memorize mo, subsidy, clothing allowance, medical expenses,
laundry allowance, di ba? Do we need to memorize the fringe benefits listed? No
need. Kasi lahat yan pwede mo nang i-classify. These are employer-employee
benefits period. Whether managerial, rank and file or minimum wage earner, he
receives a basic pay, of course. It may be paid monthly, weekly, quarterly,
whatever, regardless of the frequency of payment, a taxpayer employee is given a
basic pay of the employer. What will be the tax treatment? It is treated as
compensation subject to net income tax because it is letter (A) (see Table 1).
Rank and File you call it also compensation, net income tax is the
consequence. Minimum wage earner who earns statutory minimum wage as
defined under the law depending on where the services rendered and the amount
promised magkano na ngayon after May 1? Its the same P404, but the COLA is
increased to P22. Additional P22 for COLA. The statutory minimum wage is
technically compensation as well but there is a different term, statutory minimum
wage, but this is exempt from tax.
On top of this, an employee may render additional service beyond working
hours; they also receive overtime pay, holiday pay when he works during holidays
as provided by law, they also may claim hazard pay and night shift differential. Pag
ka managerial and supervisory employee is not entitled to this. But happens if he
is paid? I will deal with that later. If a rank and file receive these payments, this will
form part of compensation, ginugrupo yan and it forms part of the NIT.
De minimis benefits
If a minimum wage earner receives these benefits, these are exempt. On
top of this, an employer may also give de minimis benefits, privileges of small
value, which under the law are treated as income but not subject to tax provided,
the limitations as to the amount are complied with. So clothing or uniform
allowance is P4,000, medical is P10,000, laundry allowance P300 per month, rice
subsidy P1,500 per month or an equivalent of one sack of rice in the amount of
P1,500 per month, small gifts for anniversaries, birthdays and whatever, these are
de minimis benefits privileges of small value. When these are given to a
managerial or supervisory employee, not exceeding the amount fixed by law,
these are income, but exempt. If a rank and file receives these benefits not
exceeding the amount provided for by law, these are also income but exempt. If a
minimum wage earner receives de minimis benefits within the limit, not exceeding
the amount provided for by law these are exempt. So a minimum wage earner,
exempt for statutory minimum wage, exempt for the overtime pay, holiday pay,
night shift differential and for the de minimis benefits not exceeding the limits
provided for by law, the same shall also be exempt from payment of tax. What if
the de minimis benefits given to are in excess of the limits, what happens? Dito
tayo magkakagulo. Lahat ng excess, tagalugin natin ha. The excess will be
transferred to another box (see Table 2) which is called Other Benefits. If the
excess here together with the other benefits do not exceed the P30,000 limit,
remember? Then the excess together the other benefits not exceeding P30,000
are exempt.
But if the de minimis benefits exceed the limits provided for by law and
when they are transferred and grouped as Other Benefits they exceed the limit of
P30,000, the excess, if you are a managerial or supervisory employee, will be
treated as fringe benefits, subject to fringe benefits tax of 32% based on the
grossed-up monetary value.
If a rank and file receives de minimis benefits in excess of the limit, the
excess will be transferred to Other benefits if not exceeding P30,000 together
with all, exempt. But if it exceeds, the excess will be treated as compensation
subject to net income tax. Isasama siya igu-grupo grupo mo.
Now if a minimum wage earner is in the same situation, exceeding de
minimis benefits, the excess shall be transferred here in Other benefits. If they
dont exceed, exempt, but if they exceed, the excess shall be treated as
compensation and this time, they will stop being considered as a minimum wage
earner and they will be treated as an ordinary rank and file therefore everything
will be subjected to tax. Naintindihan?
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Now a minimum wage earner with statutory minimum wage- exempt, here
exempt, here exempt, here exempt, and does not have other benefits exceeding
the limits, but on the side, has a business. Minimum wage earner ka pero alam mo
naman entrepreneurial tayong mga Pilipino, to augment the income nagbebenta
ng cellphone load, nagpapautang ng kung anu-ano may business on the side, but
they receive de minimis here, they will still be considered as minimum wage
earner all income here from employment will be exempt but all income from
business will be taxed just like an ordinary business income. So yung business
income lang niya ang tina-tax, the rest of the employer-employee benefits exempt
pa rin, kung hindi mag-exceed sa P30,000. Pag nag-exceed ka ng P30,000 yun
ang triggering point nun pag nag-exceed ka ng P30,000 sa other benefits, ibig
sabihin tigil ka na as minimum wage earner ang treatment mo will be like an
ordinary rank and file. All the tax treatment will be that of an ordinary rank and file.
This is the summary. Now were going to apply this table to all of this regardless of
how you call the benefit. We dont have to distinguish if it is a fringe benefit, de
minimis benefit. What kind of benefit are you talking about? Nandito lahat. (See
Table 2)
This table, however, will never be applied at all if the benefit given to the
employee is:
Kinds of
Employees
Basic Pay
Overtime
Pay
Holiday
Pay,
Hazard,
NSD
De
Minimis
within
limit
In case
excess
is
<
P30,000
Other
Benefits
in case
excess is
>P30,000
1) Managerial
Compensation
- NIT
Not
Entitled
Exempt
Exempt
Fringe
Benefits 32%
Grossed
Up
Monetary
Value
Compensation
- NIT
NIT
Exempt
Exempt
NIT
3) Minimum Wage
Earner
Exempt
NIT; will
now
be
considere
d
as Rank
and File &
everythin
g
will be
taxed
Exempt
Exempt
Exempt
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44
Pero kung ikaw ay hinire ko at binigyan kita ng signing bonus dahil ikaw ay
high-ranking officer. Kaya kita ire-recruit because of your knowledge, skills and all,
and I give you a signing bonus of P200,000. Income from your end? Yes. Within or
without? Within. Subject to tax? Yes. What kind of tax? Basic pay ba siya? Hindi.
Eto ba siya? (Overtime Pay, Holiday Pay, Hazard, NSD) Hindi. Eto ba siya? (De
minimis) Hindi. Eh di dun siya babagsak (Other Benefits). Apat lang yan eh.
Exceeding P30,000 sigurado. Sa dulo ng taon, since in excess of P30,000, fringe
benefit yun (32% of the Grossed up monetary value).
Eh kung ikaw ay MWE, janitor, P100,000 ang signing bonus mo, NIT na
siya (under the last column).
Basic pay
Next, basic pay, holiday pay, hazard pay, night shift differential, its there.
Bonuses whatever you call them, 13th, 14th, 15th, 16th, 17th, 18th hanggang 50th
month bonus, mid-year bonus, productivity bonus, incentive bonus, Christmas
bonus lahat ng klase ng bonus whatever you call them. Income ba yan sa inyo?
Yes. Is it necessary for the trade or business? Ay, no, no, no. no. Is it for your
convenience? No, no, no, no. So, ang tanong natin, income ba yan sa inyo? Yes.
Within or without? Within. Subject to tax? Yes. What kind of tax? Ay depende. If
you are a managerial or supervisory employee, that will be treated as coming from
other benefits and other benefits exceeding P30,000- fringe benefits ang katapat
mo. Kung ikaw ay rank and file, NIT ka. Siguradong kung ikaw ay minimum-wage
earner, tanggal ka na sa classification, balik ka na dun sa rank and file.
Christmas basket, basket of fruits, may santol, mangga, grapes, orange.
Meron yang amount, meron bang income? Yes. Within or without? Within. Subject
to tax? Ay depende. Pag nandito titingnan mo ngayon, de minimis ba siya?
Nakasulat ba sa batas na de minimis ang Christmas basket? Wala. Kayo naman.
So how do you treat that? Very simple (See Table 2). Nasa dulo siya, dun siya sa
Other Benefits together with Other Benefits not exceeding thirty. Exempt. Exempt.
Exempt. If exceeding thirty, the excess shall be treated as pag managerial- fringe
benefits, rank and file- NIT.
Housing
Pa-bahay, pa-kotse. Housing in English. Housing privileges and car
privileges. Sa madaling salita sa Tagalog, may pa-bahay ka na, pa-kotse ka pa.
Pagsasama-samahin natin yan, house, board and lodging, kotse, other privileges.
What will be the tax treatment? Are these benefits given to you because they are
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pay), OP (overtime pay), hindi siya DMB (de minimis benefits). Other Benefits
siya. Yun lang naman ang qualification ng benefits that you will receive.
Food allowance
Andito na siya na-discuss na natin yan.
Scholarships
Medicine
I send you to law school in San Beda Alabang as my head cutter so that
youll study law. Tuition fee, allowance, book allowance, baon, I give you all,
income on your end? Yes. Taxable? Yes. What kind of tax? (See Table 2) One,
two, three, andun siya sa Other Benefits na naman. But if I send you to Ricky
Reyes Haircutters Academy, Ill pay for all expenses, that will benefit me so that is
not income from your end. This is the thought: very simple naman eh, hindi naman
siya mahirap. Wala ditong mga preference of credits, wala. Titingnan mo lang ang
sitwasyon, kasi talagang ang tax is situational, so you have to relate to the reality
of the situation.
Clothing allowance
De minimis benefits, in excess, kitang-kita (See Table 2). Alangan naman
sabihin mo sa yong boss, Pag di mo ako binigyan ng clothing allowance, papasok
ako ng hubot hubad.
Medical allowance
May limit din, P10,000.
Security guard
If I give you a personnel, assigned personnel, a security or a physical
being. You are my janitor, I give you security. Income from your end. But if you
were the president of the company or my comptroller, or my chief accountant or
financial officer, or treasurer of the company and I give you a security officer, that
is necessary in trade or business. Therefore, not income from your end.
Dental allowance
Itong dental kino-consider din sa medical allowance so P10,000 ang limit.
Playing rights in a club, sports club, will that be a benefit to you? Is that
income from your end? Playing rights, pag naglaro ka binabayaran ka, income
yan. Di ba maglalaro ka lang dun, charge sa company kasi company share yon
and then you are given the right to play, paid for by the company. Of course, may
income ka. Bakit? Sa halip na pera mo ibabayad mo eh hindi ka maglalabas ng
pera, company magbabayad. Is there income from your end? Yes. How do you
treat that? Other Benefits sa dulo (see Table 2).
Health cards
Now the trend is: health cards are treated as ordinary and necessary
expense on the part of the employer. Syempre, ayaw kasi na mamomroblema
kayo pag may sakit kayo, hindi ka rin makakapagtrabaho dahil wala ka ring pera
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46
taxable because you are as if rendering service and you are working. So what you
receive is your basic pay, di ba? Pero kung ang iyong terminal leave, ay
converted into cash because you are retiring and converted it to cash, that will
form part of retirement benefits, income but not taxable.
Birthday leave
10 days or less commutation of vacation leave. De minimis benefitsincome but not taxable. In excess of ten days, that's already taxable. What kind of
tax? (see Table 2) Yun, timingin lang kayo sa dulo (Other Benefits).
Birthday leave. Nag-leave ka, para kang nagtatrabaho pero bayad ka. O eh
di basic pay. Part ng basic pay mo. Di ka naman nag bibirthday ng tatlong beses
isang taon eh.
Utilities
Cellphone load, telephone bill- these are utilities paid for by your office. Of
course, it can never be necessary in your trade or necessary or for my
convenience that I pay for your utilities. Therefore, these are automatically income,
taxable. What kind of tax? Other Benefits. As you can see, you don't have to
memorize the rules. Tingnan, sino ba ako? Ano ba ako?
Maternity leave
Retirement
Maternity leave, pag nag maternity leave ka, paid for ka. Eh di income.
Basic pay ang matatanggap mo eh. Ngayon, sino ang nagbabayad sayo? Ang
kompanya mo ba o SSS? SSS. Kung binayaran ka ng kompanya mo, income yan,
at taxable kasi compensation yan. Pag binayaran ka ng SSS, ano ang binayad
sayo? Compensation mo. Kaya yan ay taxable pa rin, di ba? Mga lalaki, hindi
niyo naiintindihan ito. Kaming mga babae naiintindihan namin yan.
Of course, as I mentioned to you kanina, these are income but not subject
to tax. Retirement/death benefits, income, not taxable.
Financial assistance/Resignation
Kung ako ay nag-resign at binigyan ng financial assistance? Sino ka ba?
Hindi yan sigurado dito. Bakit? Pano magiging financial assistance ay necessary
for trade or business, ay no way. Dun siya magfa-fall.
Terminal leave
Dismissal for cause
Terminal leave. Ibig sabihin nito, you're about to retire and whatever leave
credits that you have earned and accumulated will be either converted into cash or
i-aapeal mo at hindi ka na papasok and you are paid. Yan ang sitwasyon. If you
avail of the terminal leave and you don't go to office and you are paid, then that is
Dismissed for cause and you were given financial assistance. Of course,
whatever financial assistance you will receive will fall under Other Benefits.
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reimbursement given by your employer kung meron kang private insurance plan.
Yan ang mga posibilidad dito. Physical disability-- naputol ang kamay,
naaksidente ka, nabali ang katawan mo. So ano ang mga posibilidad mong
matanggap? Either your employer may reimburse it to you and/or your own private
insurance covering the damage. Either way, whichever or both ang bigay sayo
ang rules ay very simple. Lahat ng gastos for actual damages - not income, not
taxable. Pero kung moral, exemplary damages, these are income, taxable. Loss of
earning capacity: ni-reimburse ka, binayaran ka in the form of damages, income,
not taxable kasi actual damages yun. Attorneys fees and costs of suit assuming
na nagdemandahan kayo para mabayaran ka for the physical disability. These are
all in excess of actual expense, income and taxable.
As you can see, hindi siya mahirap aralin. Yun lang ang tingnan kahit
anong tawag, may honey, sweetheart, whatever, kahit anong pangalan ng
benefits, these are the rules. SSS, GSIS benefits or costs as I mentioned to you
are all income but not subject to tax. Ano pa? PAGIBIG, Philhealth benefits of
course these are all income but not taxable as far as the employee is concerned.
EXCLUSIONS
Ito talaga mememoryahin niyo. Items of exclusions are:
1) items of income;
2) they have the effect of decreasing the tax due;
3) they are treated as exemptions and therefore they are strictly construed
against the taxpayers/claimants.
You have to memorize these items of exclusions because the list is
exclusive. If you do not fall within any of those enumerated items, as far as the
income is concerned, then collect tax. Whatever is not in the list of exclusions will
be in the inclusions, even though the inclusion is not in the list. Yan ang rule, pag
di sinabi na ang bangus ay exempt, ay siya. Wag i-exempt si bangus. Pero kung
nakalagay na si bangus ay exempt at wag tayong mag-impose ng tax.
What are the items of exclusions? As I discuss these items, I will correlate
them with the other kinds of taxes.
48
So if youre asked, P1M 10% interest and return of premium, are these
included in the gross estate of Mr. Y? Very simple, if the wife and the children
were the designated executors or administrators, whether the designation is
revocable or irrevocable, include. But if they are not the designated executors or
administrators, if the designation is irrevocable exclude from the gross estate of
Mr. Y. What is the reason? I have only one sentence even if you dont read estate
taxation, Section 85. The rule found in estate tax on when youre going to include
or exclude is very simple: If at the time of death, the decedent has interest or
control over the property or any portion or interest of the property, include. If he
designates himself, his estate, his executor, administrator, pag namatay siya may
control siya, na hindi niya to ginawa tama? At kahit namatay siya ang magbebenefit hindi siya, pero meron pa rin na kanyang kadugo na magbe-benefit kaya
meron siyang degree of control or interest, included kahit non-revocable eh. Dun
sa pangalawa, pag dinesginate naman niya hindi niya kamag-anak o di kaya wala
siyang relasyon, pag revocable, included. Bakit? Kasi kung hindi siya namatay,
may posibilidad na ni-revoke niya at pinalitan niya ng somebody na may relasyon
sa kanya. Because of that degree of control, included. Pero yung from the start isa
hindi related sa kanya yung beneficiary, irrevocable pa, mamatay o mabuhay man
si Y, wala siyang mapapakinabangan diyan. Kaya excluded. Thats rule found in
estate tax. So if last year, tinanong to, naka-enumerate lahat-lahat kung included
or excluded, sa gross estate. Takang-taka ako bakit nahihirapan. Eh simple,
meron ka bang degree of control? Meron ka bang relasyon sa beneficiary in such
a way na pwede kang magbenefit kahit patay ka na? Yung pamilya mo? Pag oo
ang sagot include mo. So these are the rules.
Lets have a variation from income tax point of view.
X is the employer, Y is the employee. Y insured his life, same scenario
designating as beneficiary his wife and children. Sabi ni X, You are my treasured
employee. You work 24 hours a day. Kawawa ka naman, kumuha ka ng life
insurance. Let me pay and let me shoulder the P5,000 premium that you are
paying. What is the effect of X, the employer, shouldering the P5,000 premium on
the part of Y? Income on the part of Y? Yes. Taxable? Yes. What kind of tax do we
pay? Depende. Andun sa pang-apat na box, (See Table 2) Other Benefits yan.
Y dies, benefits go to the wife and the children, income on the part of the
wife and the children. Included? excluded? P1M is excluded. 10% is income
taxable. ROP, not income, excluded.
Dahil namatay, may estate tax. Ano na naman ang sagot kung may estate
tax? Yan ang rules, kung si wife at si children ay mga executors or administrators,
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revocable or irrevocable, include in the gross estate of Mr. Y. Kung ito naman ang
case, pag revocable, include. Pag irrevocable, exclude.
Now third variation, X insured the life of Y, designating as beneficiary, X
and his business. X pays P5,000 premium, proceeds P1M 10% interest and ROP.
Y dies, proceeds go to X. Question: When X is paying for the premium, can
X claim as deduction from his gross income from business the P5,000 premium?
No. 1) thats not a necessary expense. 2) Section 36 (A) (4) nakasulat. Wag
nyong mememoryahin ang mga numero ha? Kaya ko lang na memorize sa tagal
ko nang pagtuturo. Pangalawa, kelangan kong sabihin kung nasaan. X, the
employer, cannot claim as deduction the premiums paid on life insurance taken by
him over the life of his employees and designating as beneficiaries the employer
or his business directly or indirectly. Yun ang scenario niyan.
Actual damages, damages for loss of earning capacity, these are income
but not taxable because they are items of exclusion from the computation of the
gross income of the taxpayer.
Prizes and winnings
Prizes and Winnings and other miscellaneous items nadiscuss na natin ito.
Prizes and winnings in sports competitions sanctioned by the national sports
commission -excluded.
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50
As you can see, in our formula, Net Income Tax the formula is:
th
Gross Income
less: Allowable deductions
Taxable Net Income
x Rate
Tax Due
less: Tax Credit
Net Income Tax
Thus, if the income of the taxpayer is subject to creditable withholding tax,
that income will first be included here (Gross Income). At the end of the day, the
creditable withholding tax will be credited. But if the income is subjected to FWT, I
mentioned this to you yesterday: like interest, dividends, royalties, prizes and
winnings, if your income consists of that, your income, prizes and winnings, lahat
ng passive income, capital gains on sales of shares of stocks, and capital gains on
sales of real property, falling in B, C, D (see Table 1) as we describe them, will be
subjected to FWT. Therefore, not included here anymore. Kaya walang deductions
na allowed.
But if your income is passive income outside of the Philippines, resident
citizen ka, taxable ka ba don? Yes. What kind of tax? NIT. Kaya yon, although
passive income yon, but that passive income will be subjected to NIT, deductions
will be applied. Royalties outside of the Philippines of a resident citizen. What kind
of tax? NIT. Hindi yun FWT, and the concept of deductions will be applied. But if
we talk about passive income in the Philippines, the passive income is subject to
what kind of tax? FWT. The concept of deductions will not be applied. Nakuha ang
picture in relation to the table?
Very simple ito, tao, compensation earner lang, PE, AE, PHHI. Pag ikaw ay
tao, compensation income plus business income or purely business, ang
deductions mo ay PE, AE kasi tao, buong Sec. 34 or OSD. Korporasyon anong
klaseng deductions? Itemized deductions under Sec. 34 or OSD.
Distinctions between deductions and exclusions
By the way, how do we distinguish deductions from exclusions?
1)
2)
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51
3)
Therefore, they both have the effect of reducing the tax due. Thats why
they are both treated as items of exemptions. Those are the points of comparisons
between exclusions and deductions.
Personal and additional exemptions
Personal exemption, P50,000 per person on the assumption that the
person is earning income and the income is purely compensation income. Without
the income, hindi pwedeng magpa-refund sa BIR.
Additional exemption of P25,000 per child maximum of four. Let us do
some examples. Ikaw at ako. Youre my boyfriend. We have one child, without
marriage, both are working. PE- P50,000 (ikaw) PE-P50,000 (ako). Sinong may
karapatan sa P25,000? Okay, additional exemption refers only to children ha?
Wala ditong parents, brothers and sisters. Dependents for purposes of claiming
additional exemption refer only to children of whatever status and kind, not more
than 21 years of age, not married, not gainfully employed, living with and
dependent for chief support upon the taxpayer and regardless of age, if incapable
of self-support by reason physical or mental disability.
Not married with one child, the child is living with me and dependent upon
me for chief support. So P50,000 + P25,000, then P50,000 ka. What is the
meaning of living with? Does it mean that the child does not go to the father?
That the child does not stay in the fathers house? No. Ang ibig sabihin ng living
with, is majority of the time is spent with the parent claiming the exemption. Ano
naman yung chief support? Ibig sabihin is that, the parent claiming for additional
exemption should be providing for the basic needs of the child at saka education.
It does not mean that the other parent is not supporting the child, it may be joint
support. So thats the meaning of living with and dependent upon the taxpayer for
chief support.
So, 2 ang anak natin, nasa iyo ang isa, nasa akin ang isa.
P50,000+P25,000 (sa akin), P50,000+P25,000 (sayo). Pwede ko bang kunin?
Non-transferrable ang PE at AE. Pwede ko bang sabihin: Ako naman ang babae,
inanakan mo ako ng inanakan eh. Ako na lang ang P50,000+P50,000 ikaw
P50,000+0. No pwede. Kelangan ma-comply natin yung not more than 21 years of
age, not married, not gainfully employed, living with and dependent upon the
parent for chief support of the child and regardless of age, if incapable of selfsupport by reason physical or mental disability.
5 ang anak natin, 3 sa akin, 2 sayo. P50,000 (sa akin), P50,000 (sayo).
Additional exemption- I claim for P75,000 thats alright, but you will be claiming
only P25,000. Pwede ka bang mag-P50,000 plus P50,000? Hindi, kasi pag
tumingin ako sayo, lima. Ang sabi ng batas maximum of four. Clear? Okay.
Now, marami kang babae, kaming anim, tig-i-tig-isang anak sa amin, wala
kang pinakasalan, lahat ng tig-i-tig-isang anak nasa amin. P50,000+P25,000 (ako)
ganun din kayo. Ikaw, P50,000 ka lang. Pano kung may anak ka pa sa ibang
babae? Anak sayo lima. May anak ka sa amin tig-i-tig-isa, may anak ka sa ibang
babae na lima nasa yo lahat. How much can you claim for additional exemption?
P50,000+P25,000 ako. Ikaw? Maximum of four, eh. How many can you still claim?
3 only. Tatlo na lang siya. Pwede ba siyang mag-apat? Di ba anim ang anak niya,
nasa amin tig-i-tig-isa, wala sa kanya. Di tayo kasal eh. Pero meron siyang limang
anak sa isang babae na nasa kanya. Labing isa ang anak niya, lima buo, anim
hindi. So, ano ang pwede nating i-claim na exemption? Tayong anim
P50,000+P25,000 sigurado. Ikaw, additional exemption. Tatlo ka lang. Ang tanong
niyo, bakit ganun? Eh hindi naman anak ni Lumbera yan. Anak niya sa ibang
babae. Bakit kanya tatlo lang? Bakit siya hindi pwedeng mag-apat? Kasi pag
tumingin ako sayo ilan na pag nag-apat ka? Lima na. Bawal sabi ng batas.
Hanggang apat lang. Walang sinabi ang batas na, the four children should be our
common children. Nakalagay ba? Wala. Basahin ninyo. Because if you allow that
to happen, you will be encouraging an illegitimate relationship. You are favoring
more yung hindi kasal kesa sa kasal.
Next kasal, magpakasal tayo. Ang kasal wala kang anak sa iba. Puro
legitimate, nagsasama tayo. Iba ang rules pag kasal, P50,000 plus P50,000 but
the husband has the right to claim for the additional exemption, maximum of four
children.
Madali pag kasal. Ngayon pano kung kasal at may anak ka sa iba either
prior or during the marriage? Ayan, complications. Whether prior to marriage or
during the marriage, ang requirement, pwede mo bang ma-claim as dependents
yung mga anak mong illegitimate? Pwede. May bawal ba? Wala. Ano lang ang
repercussions? Pag-aawayan natin yan. Its either you claim for our children, you
prioritize our legitimate children as dependents. But I cannot require you to get our
legitimate children as our only dependents to the exclusion of your illegitimate
children. The assumption here is that: the illegitimate children are living with you
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52
and dependent upon you for chief support and because they are living with you,
they must be living with me as well. Kasi mag-asawa tayo eh. Di ba? Okay, so
kung sila ay nakatira sa atin, the prerogative is on you. Choose among our
illegitimate children or our legitimate children, but maximum of four. Pero iisipin
niyo, Teka muna, di ba dapat maximum of four pag legitimate plus illegitimate?
Wala namang sinabi ang batas, maximum of four lang ang nakasulat. Pag
tumingin ako sayo apat lang at hanggang apat ke yan ay legitimate, illegitimate.
Basta tayo magtapat, wala kaming partner na partner tayo ngayon bukas hindi.
Basta may anak, forever tayong partner in the eyes of the law. The fact that we
are separated later on or we are not married do not matter as far as the
exemptions are concerned.
Now, as a husband, can you waive the additional exemption? Yes. In
writing. But if the husband is a non-resident citizen, whose income is purely
outside of the Philippines and therefore not subject to tax, then there is no need for
your waiver. Automatically the spouse, wife, will be allowed to claim the additional
exemption. Another instance where the wife can automatically claim for the
additional exemption is when the wife is tamad, without income. You dont have
anything to waive in my favor.
Anong effect ng legal separation sa exemption? Wala, kasal tayo. Para
tayong mag-asawa. Annulled, eh single. But that doesnt mean that because we
are single again iibahin natin ang rules, back to being single, maximum of four pag
nakatingin ako sayo. Ke magka-anak ka sa iba o hindi, magkaroon ka ng
illegitimate children sa iba, wala akong pakialam. Pag tumingin ako sayo ilan na?
Kelangan ba yung apat na yun ay anak natin? Oo, sinabi ng batas. Otherwise, if
we do that then theres a possibility na each person may have more than when
you look at them together. Kasi pag ganun, pwede mangyari, pwede ka mag-claim
ng apat, apat din ako, eh di walo. Walo is certainly more than four.
What happens in case of change of status among the dependents,
children. Parang FIFO, first in first out. Change of status within the year is treated
as change of status at the end of the year. So kung namatay ang dependent mo,
nag-asawa, nagkaroon ng trabaho, or umalis sayo or no longer dependent upon
you for chief support within the year, it is as if at the end of the year. So during the
year, pwede mo pa syang i-claim as dependent. But after the taxable year, no
more. So ano naman ang mangyayari pag may nagbagong ganon, sa susunod na
taon? Di ba nag first-in first out ka, eh kung may susunod na pumapasok naman
meron namang pwedeng kapalit, basta related sayo. Children kasi ang
requirement.
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doon. Networth. Assests and liabilites. Lahat are assets. Although, hindi siya nakaspecifiy, nandoon yung amount. General restrictions kung ano yung assest mo.
Eh kung yung asset mo is worth P20,000.00, ano yang assets ang makakapag
produce, makakagamit ng P50K worth na kuryente? These are the things the BIR
will look into, but the BIR need not go into your place of business and see kung
ilan ba ang electric fans. No need for the BIR to visit your place because from the
financial documents submitted to the BIR, meron na silang idea kung ano yung
asset, kung ano ang pinagkakagastusan mo. The BIR is not blind. Kahit pa yan
audited financial statements na nakalagay eh number value, peso value. There is
a history behind the number, and the history is precisely the business operations
that you are having everyday in one taxable review. So we know kung anong
klaseng asset mo ang pe-pwede sa claim for deduction, depende kung anong
klaseng business meron ka. So thats how it is determined. These 3 are: a)
actually paid or incurred; b) reasosnable in amount; and c) incurred in trade or
business. These are the standards viewed by the BIR in allowing or disallowing
any item of deduction that you claim as a deduction from your gross income.
Itemized deductions limited to those liable for Net Income Tax
We are now going to discuss each one of them and how relevant for the
computation of the tax due of a particular taxpayer. So Ill give you an example
para mas mabilis. Please take note yung limitations. The taxpayers income is
subject to NIT because if the income is subject to FWT, there is no applicaton of
this table. If you are talking about a non-resident alien not engaged in trade or
business or a non-resident foreign corporation, this concept will not also be
applicable. And this is where it is applied. The taxpayer whose income is subject
to NIT, will have to compute for his gross income and then the allowable
deductions. We will be talking about Section 34 although all of them are items of
deductions from the gross income of the taxpayer. What kind of business does X
have? Lets say a parlor. Y is an empoyee of X. X hires Y as an employee and
pays Y P20,000.00 monthly as basic pay. Income on the part of Y? Yes. Assume
the parlor is in the Philippines, in Muntinlupa. Within or without? Within. Subject to
Tax? Yes. What kind of tax? NIT. Is Y entitiled to claim deductions? Yes! Ulit. X is
the employer. X pays Y a basic pay of P20,000.00. Income on the part of Y? Yes.
Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT. Is Y entitled
to deductions? Yes. What are the deductions available to Y? Ayun o. Personal
exemption of P20,000.00, additional exemption of P25,000.00 per child maximum
of 4, and premium for health and hospitalization insurance.
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Itemized deductions
Lets talk about Section 34. E-I-T-L-B-D-D-C-P-H. These are the itemized
deductions. EXPENSES, INTEREST, TAXES, LOSSES, BAD DEBTS,
DEPRECIATION, DEPLETION, CHARITABLE CONTRIBUTIONS, PREMIUM
PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCE and
RESEARCH AND DEVELOPMENT. These are the items provided for under
Section 34 of the itemized deductions. E-I-T-L-B-D-D-C-P-H. Yan ang Section 34.
I.
Expenses
carrying on the trade or business, provided that, he really proves that Y rendered
work nighttime and overtime work rendered. OK? So far so good? Uulitin ko yung
examples na binura natin kahapon. X gives Y de minimis benefit within the limits
provided for by law. I-group na natin. Income on the part of Y? Yes. Within or
without? Within. Subject to Tax? No. Exempt whatever the kind of employee Y is.
On the part of X, can X claim the same as deductible expense? Yan ha? Titingnan
ninyo, may demarcation line yan ha? Diyan makikita ninyo na whatever it is,
taxable or not, the question as to deductibility is not answered automatically, it
does not follow that if it is taxable here (on the part of the employee), it is
deductible (as an expense on the part of the employer). Can X claim the de
miniminis benefits he gave to Y within the limits provided for by law as deductible
business expense? Yes. This is considered as a reasonable business expense.
What if X gives Y de minimis benefits in the amount of P300,000.00? Income on
the part of Y? Yes. Within or without? Within. Subject to tax? Yes. The exception
of the limit, if beyond the limit it shall be treated as Other Benefits right? Subject to
tax? Yes. What kind of tax? If Y were a managerial/supervisory employee, that will
be treated as a fringe benefit subject to 32% Fringe Benefit Tax. If Y were a rank
and file, he will be subjected to NIT.
On the part of X, can X claim the same as deductible expense? Yes or no?
No. If you are the BIR, would you allow the P300,000 de minimis benefits paid by
X to Y considering that Y merely receives P20,000 monthly basic pay? Certainly
not, because this time you will have to consider the reasonableness of the amount
as the criterion in determining whether it is allowable or it will be disallowed. Can
you imagine you have a parlor, binigyan mo, halimbawa ng de minimis benefits na
medical expenses of P100,000. Sinong normal na tao na parlor ang iyong
business, hindi naman multi-national company? You are probably a 10-employee
parlor and are going to give each of them P300,000. This time you will have to
disallow it. Your employee is receiving P20,000.00. Who on earth would give his
employee P300,000 worth of de minimis benefit? You mut be out of your mind.
This is the standard that we follow. Kailangan kasi titingnan niyo yung physical set
up ng inyong business before the claim will be allowed. What else? Binigyan kita
ng kotse, ginagamit ni Y para magservice ng mga customers. Income on the part
of Y? No, because it is necessary in carrying on the trade or business of the
employer. When X gives the car to Y, ginagamit ba ni Y saan? Sa business ni X. It
is necessary to the trade or business ni X therefore, income on the part of Y? No,
certainly. When X buys the car, for P500,000, can X claim the value of the car as
deductible expense? No. Bakit? Kasi capital expenditure. The pera of P500,000 is
converted into kotse. It is as if hindi niya nagastos si P500,000. Tandaan ninyo ito:
when an expense is capital expenditure, hindi capital asset, ha? Capital
expenditure, meaning an expense is used to acquire asset or to improve an
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determination of your net worth you will have to declare your net worth, you will
have to declare the book value of an asset. So by the year 2016, the car is zero
book value. But it does not mean that it has no value. At the end of 2016, the book
value is zero but it may have salvage value or it may have fair market value by the
year 2016. Alam naman natin yan. Pag bumili ka ng kotse, hindi ba 5 years ang
payment period? Full devaluation but thats the book value. But when you sell your
car after 5 years, you realize money, right? So, when X decides to sell the car in
2016 at P60,000, the taxpayer incurs a loss of P250,000. But if X sells it at
P450,000, gains ang tawag dun. Anong tawag dun? Ordinary gains. Yung
ordinary gains ba, idadagdag niyo agad sa gross income niyo? Hindi. Mamaya
tuturuan ko kayo kung papaano. Paano ang ordinary loss pag binenta ng 2013
nabenta ng P100,000 ang kotse? Eh anong tawag mo doon? Ordinary loss ako.
Magkano? P200,000. Yun bang ordinary loss dinideduct sa gross income? Hindi.
Mamaya maiintindihan natin kung saan napupunta ang orinary loss at ordinary
gains. Ituturo ko yan sa inyo. Lets continue. Ano pa ang ibang benefits? Bonuses.
13th, 14th, 15th bonuses. Income on the part of Y? Yes. Within or without? Within.
Subject to Tax? Yes. What kind of tax? If Y were a managerial employee, anong
mangyayari sa excess? Treated as Other Benefits. If Y were rank and file, then
NIT. On the part of X, can X claim the same as deduction? Yes, provided,
reasosnable in amount. Empleyado mo P20,000 ang suweldo. And kinikita mo sa
isang taon ay isang milyon. Nagbigay ka ng 13th, 14th, 15th, 16th, 17th, 18th month
pay bonuses, you must be out of your mind. The reasonableness of the amount
will be very, very important. All of the things mentioned yesterday, weve
enumerated, are these allowed as deductible expense on the part of X? Yes,
provided, they are necessary in carrying on the trade or business, and they are
reasonable in amount. Now, lets continue.
B. Reasonable allowance for utility
Anong example ng deductible business expense? Reasonable allowance
for utility. Utility. X has a parlor. X pays PLDT, Meralco and MWSS. Y has a
house. Y pays PLDT, Meralco and MWSS monthly. When Y pays PLDT, these
institutions, for ultity, income on the part of these utility companies? Yes. Within or
without? Within. Subject to Tax? Yes. What kind of tax on these companies?
Corporations yan siguro. NIT yan. Anong rate? 30%.
When Y pays the utility companies monthly, can Y claim as deduction this
utility payment? No. Why? Because it is not one of the personal exemption,
additional exemption, and premium for health and hospitalization insurance.
X pays these utility companies. Income on these companies? Yes. Within
or without? Within. Subject to Tax? Yes. What kind of tax? NIT. What rate? 30%.
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56
Can X claim those utility payments as deductible business expense? Yes. Pero si
Y hindi pwede. Bakit? Because it is not personal exemption, additional exemption,
and premium for health and hospitalization insurance. Number three on business
expense.
C. Reasonable allowance for rentals
Reasonable allowance for rentals, provided, the lessee does not acquire
any interest other than as a mere possessor. Y rents from A this house, paying A
P5,000 monthly. A also owns the land and the building occupied by X and used as
a parlor, paying rentals of P10,000 mothly. When Y pays A P5,000, income on the
part of A? Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax on
the part of A? NIT. Is A entitled to claim deductions? Yes. Is A entitled to claim
deductions from the gross income from the rentals? Yes. What kind of deductions
can A avail of? Ano? Kung kayo si A na nagpaparenta kay Y, ano ang pwedeng
deductions kay A? Kung si A ay tao, personal exemption, additional exemption,
and premium for health and hospitalization insurance, Section 34 or OSD. Kung si
A ay korporasyon, Section 34 or OSD lang. Bakit hindi yung una? Kasi engaged in
trade or business ng pagpaparenta. Si A ang may-ari ng bahay. Ikaw si A, may-ari
ng bahay. Nagpaparenta ka sa akin. Kumikita ka. Ang tanong sa iyo, kapag
binayaran kita ng limang libo, income? Yes. Within or without? Within. Subject to
Tax? Yes. What kind of tax? NIT sa iyo. Ano ang pwede mong dedudcitons? Yun
ang tanong. Hindi yung renta. Lahat ng rent mong kinikita hindi lang yung galing
kay Y kasi kumikita ka from your properties in the form of rentals. Para hindi kayo
nalilito, ganito yung technique: source, you pay. When you pay, the payment
becomes the source of the payee who would also spend. Thats the source for
another taxpayer who will spend. When that taxpayer spends, theres another
source who will spend. Its like that. So everybody becomes a taxpayer, pero hindi
yun circle. Everybody becomes a taxpayer kasi nagmomove yung pera. Pag
nagmove, umiiikot yung pera. Habang umiikot yung pera may tumatanggap at may
pinanggagalingan. So the source becomes a taxpayer. When he spends the
income that he derives, then theres a recipient of the income who will eventually
become the source who will use that money to pay another person. And when he
pays, that person becomes the source. The procedure is the same for everybody
depending on who you are as a source and as a recipient. Because when you
receive, alangan naman na yung pera mo hindi gagalaw. Hindi ka na kakain? Of
course you have to spend. And when you spend, what you have spent becomes
income doon sa payee. And when that becomes an income on the part of the
payee, that is expense from your end. Naintindihan nyo na? So ang tanong
kanina, Can Y claim the rental fee given to A as deduction? On the part of Y, can
Y claim the P5,000 as a deduction? No, because Y being a tao, purely
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57
property. But can X claim depreciation on the parlor? No, because he is not the
owner of the parlor. He is merely leasing and renting.
Natapos si contract of lease. Kanino napunta ang improvements? Kay A.
Who owns the improvements? A. Can A claim depreciation for the improvements?
Yes, both in the house and the parlor because now A owns everything, the home
including the improvement introduced by Y, and the parlor including the
improvements introduced by X. The agreement in the contract of lease between X
and Y further states that: X and Y shoulder the Real Property Tax (RPT) for the
house and the parlor. Agreement: during the contract of lease, the lessee
shoulders the RPT. What is the effect of X and Y shouldering the RPT? Is that
income on the part of A? Yes, because income is anything that flows to the wealth
of the taxpayer other than the mere return of capital. Can Y claim the payment of
the RPT as deductible expense? No, because Y is not engaged in trade or
business and tax paid is not an item of deduction. On the part of X, can X claim
the RPT as deductible business expense? No, because under the law, it should be
the owner who pays the tax. Now, can A claim the RPT as deductible expense?
No, he was not the one who incurred the expense. Tama? Nasususndan? Naaappreciate nyo ba? Paiba-iba ang sagot depende sa sitwasyon. Hindi
minimemorya. Kailang isipin mo ano ba ang sitwasyon, ano ba ang sinasabi ng
batas. Tatlo lang naman ang criteria eh: 1) necessary; 2) actually paid or incurred
and; 3) reasonable in amount. Sa taxpayer, yun lang. Kapag marunong ka nun
mag-apply, wala tayong pakialam sa rules. Hindi nyo kailangan memoryahin.
Titingnan lamang kung ano ang sitwasyon. So when X and Y shoulder the RPT, A
realizes income. Within or without? Within. Subject to tax? Yes. What kind of
income on the part of A? NIT, because thats part of Other Income, hindi ba? Nasa
letter A.
Lagyan natin ng improvement itong lease. Lease to own agreement. X and
Y instead of paying P5,000 and P10,000 respectively, now pays A P20,000 and
here P25,000 on the condition that after 5 or 10 years of payment, the parlor and
the house will belong to X and Y, respectively. Lease to own agreement. When X
and Y pay A, P20,000 and P25,000, income on the part of A? Yes. Within or
without? Within. Subject to Tax? Yes. What kind of tax? NIT. Can Y claim the
P20,000 payment as deduction? No, thats not personal exemption, additional
exemption, and premium for health and hospitalization insurance. Can X claim the
P25,000 as deduction? No, because this time, while he is paying the rentals, he
acquires interest other than as a mere possessor. Therefore, this is now a capital
expenditure and not a deductible expense. But while it is true that it is a capital
expenditure, can X claim depreciation by paying rent under a lease to own
agreement? No. Not yet, because the only time that he will be allowed
depreciation is after the expiration of the lease to own agreement. Thats the only
time that he will be able to determine that he is the owner of the property. OK? So
far so good?
Let us go a little further. X and Y decided to buy the parlor and the house
from A. X and Y bought the property from A. Here, X pays A P10,000,000 and
P4,000,000. When X and Y pay A P10M and P4M pesos respectively, is there
income on the part of A? Yes. What kind of income does A realize? Ordinary
income. So the ordinary income is subjected to tax? Yes. What kind of tax, P10M
and P4M na binayaran ni X and Y? Si A ba magkakaroon ng taxable income
assuming na may income? Yes. What kind of tax? NIT. Yun yong letter A doon.
Wala siya sa B, wala siya sa C, wala siya sa D. Is A liable for the 6% Capital
Gains Tax (CGT)? No. Never, because the house and parlor from the point of view
of A are both ordinary assets. Tingnan niyo ha? From the point of view ni Y, the
house is a capital asset. But from the point of view ni A, the house is an ordinary
asset. As far as the parlor is concerned, both from the point of view of X and A, the
parlor is an ordinary asset. Whether from X or from As point of view, hindi
magiging subject yun sa capital gains tax. Bakit? Because you are not selling real
property, capital in nature, located in the Philippines. Real property located in the
Philippines but not capital in nature, 6% CGT will not be applied. Can Y claim P4M
as deductible expense? No, because Y is entitled only to personal exemption,
additional exemption, and premium for health and hospitalization insurance. Can X
claim P10M as deductible expense? No, because that is a capital expenditure.
Can X claim depreciation for the parlor when he purchased it? Yes, because he is
entitled to depreciation. Can Y claim depreciation for the house? Never, because
Y is not engaged in trade or business and it is not personal exemption, additional
exemption, and premium for health and hospitalization insurance.
D. Expense which is not contrary to law, morals, public policy,
customs and traditions
Another example of deductible business expense is an expense which is
not contrary to law, morals, public policy, customs and traditions, whether the
business is legal or illegal, are allowed as deductions. Illegitimate expenses or
expenses contrary to law, morals, public policy, customs and traditions, whether
the business is legal or illegal will not be allowed as a deduction. Let me give you
an example. Si Y nagyoyosi sa public place. Hinuli. Magbayad ka ng limang daan.
Walang pambayad. Magko-community service ng walong oras. Sabi niya, ayoko
mag-community service. Mr. Officer (B), can I just give you P200? OK! Income
on the part of B? Yes. Within or without? Within. Subject to Tax? Yes. What kind of
tax? NIT. Can Y claim as a deductible expense? No, thats not personal
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58
sa I? Yes or no? Yes, because the loan is incurred, the interest is paid in
connection with the trade or business of X. If X uses the P110,000 loan para magshopping sa Hong Kong, can X claim as a deduction? No, because that is not
incurred in connection with his trade or business. If the creditor and the debtor are
related to each other according to Section 36, paragraph D, X will never be
allowed to claim the interest as deductible expense. Section 36 (B).
Related debtors and creditors under Section 36 (B)
Who are related debtors and creditors? 36(B). Disregarding the title, ang
pinag-uusapan yung mga tao. Who are these related debtors and creditors?
1) Between or among family member;
2) Between the stockholder and the corporation, wherein the
stockholder owns more than 50% of the authorized
capital stock of the
corporation;
3) Between two corporations, where there is common
stockholder owning more than 50% of the authorized
of each corporation;
capital stocks
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2. If X and C, for both bad debt and interest, are related to each other,
according to Section 36 (B) of the Code, no interest on loan or bad
debt will be allowed as a deduction on the part of X and C.
bad debts, provided that the financial status of X and Y shows incapacity to pay
the obligation to C, which means that the debts are completely written off or
charged off. Yan ang technical term.
Written-off or charged-off
Tax arbitrage
Anong ibig sabihin ng pangatlo? Hindi ba si X nagbabayad ng 10%
interest? Sampung libong piso (P10,000). Kumita ng isang libo sa bangko. May
utang siya, nagbayad siya ng interest. Sa kabilang side, meron naman siyang
kinitang interest (kasi nilagay sa bangko yung inutang at kumita ng interest on
loan). Ang rule ay: dahil mayroon kang binayaran na interest at may kinita ka,
hindi mo deduction lahat ang sampong libo. Kasi may kinita ka parang walang
nawala sa iyo. Yun ang logic. Ang logic ay nagbayad ka ng interest sa utang, sa
kabilang side naman may kinita ka na interest. So technically, wala kang
binayaran kapag inoff-set mo yung dalawa. Tama? So sabi ng batas, yung interest
na ide-deduct ni X kapag ganito ang sitwasyon ay limited ng 33% ng kanyang
interest na kinita. Anong ibig sabihin? One thousand pesos times 33%; 67% lang
nito (P1,000 na kinita sa deposito sa bangko) ang pwede niyang ideduct. Bakit?
Kasi kumita siya ng isang libong interest. Kaya kapag pinag-ganun mo yung
dalawa, yung kanyang ginastos ay na-ooff-set ng nabayaran sa kanya.
Anong ibig sabihin ng written off or charged off? Hindi binubura, literally.
Metaphorically, sa libro ni C binubura. Bakit? Paano ba mag write off? Literal.
Binubura. Yan. Anong ibig sabihin ng written off or charged off? Pag may utang
ang ibang tao at hindi nakakabayad. Paano mo sasabihin na hindi ka
nababayaran? Ikaw ay naniningil, nag exert ka ng effort na maningil at kahit anong
effort mo ng paniningil, walang maibayad. Yan ang sinasabing written off. Without
effort extended to make singil, you cannot say the loan is written off. X and Y are
incapable of paying the loan. Kailangan na singilin mo. There is effort to collect
and despite the effort exerted, for a long period of time of exerting the effort, X and
Y did not pay. So, yun ang sinasabing written off. Hindi pwede basta na lang,
yung due date ng utang ay December 25. Eh January 1 na ngayon i-write off na
lang natin. Ay, hindi pe-pwede. Kailangan mo muna ipakita na ikaw ay naningil. Eh
wala ka naman yata paniningil na ginawa. Sa batas nga, kung hindi ka
nagdedemand, walang delay hindi ba? So kailangn maningil ka. Naningil ka ba?
Hindi. Ay hindi pwedeng mag-claim si C ng bad debt. Requirement kasi ito.
Kailanan ba ng insolvency proceedings against X and Y para masabi ni C na
pwede na siya mag-claim ng bad debt? Hindi. Ang sinasabi lang ng batas ay
kailangan nag exert ka ng effort and despite the effort, hindi nagbabayad at ayaw
magbayad dahil ang kanyang financial status ay nagpapakita na walang
pambayad. Yon. Now thats the time that he can claim the bad debt as deduction
from the gross income of Mr. C. Kapag nagbayad naman si X and Y, ang 10%
interest on loan ay pwede i-deduct ni X; declared naman siya as income ni C.
Nakikita naman ang point of view from A? Nag-iiba yan. Now, pwede nating
gawing buhay. Buhay si debtor, buhay si creditor. By the way, yung Section 36
(B), yung mga tao doon are also applicable to bad debts. Interest on loans and
bad debts. Kapag yan ang nag-utangnan, hindi pwede i-claim as bad debts at
interest on loans.
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Eto, ha? This are claims against insolvent persons. Claims against
insolvent persons. Section 86. Anong mangyayari dyan? Yung estate ni C ay
magdadagdag muna ng P110,000 from Y at P110,000 from X, so P220,000. Add
to the gross estate and claim as deduction claims against insolvent persons.
Nabasa nyo yan? Add first to the gross estate. How much? P110,000 from Y and
P110,000 from X. The estate will now be allowed to claim P220,000 as a
deduction. Add first before you deduct. Add before deduction because gross
estate is defined as the value of all the properties whether real or personal,
tangible or intangible. Credit is an intangible personal property, therefore part of
the gross estate of Mr. C. Naintinidian? Hindi ba pag nag-settle ng estate si Mr. C
naka-enumerate naman kung sinu-sino ang mga may utang? So sa estate
proceedings, maniningil na ngayon ng utang. After the settlement proceedings,
nagbayad ngyon si X at si Y sa estate ni Mr. C. What is the effect of the
subsequent payment of X and Y to the estate of Mr. C.? Tax benefit rule applies.
The estate will have to declare it as part of its gross income. No longer Mr. C
because he is already dead, 6 feet under the ground. The estate will now realize
other income. And that is income on the part of the estate subject to income tax.
Paano kung settled na ang estate? Fully settled na at saka nagbayad. What
happens to the payment of X and Y? It will be divided proportionately among the
heirs and the heirs will now have to shoulder the income tax. Kung na-settle na,
andun na sa heirs. Yung P220,000 i-divide mo sa heirs. Who will shoulder? The
heirs in proportion to the amount of the income they realized. Eto yung mga
konsepto na wala sa codal.
IV. Taxes
Now lets continue. We are through with E, I, B. Now lets talk about T.
TAXES. What are the requisites for taxes to be deductible?
1. Actually paid or inccured;
2. Necessary in carrying on the trade or business; and
3. Reasonable in amount.
Wala namang pinagbago eh. Balikan natin ang example. A is the owner of the
house leased out to Y. Agreement: Y shoulders the Real Property Tax (RPT). X
rents from A the parlor. Agreement is X shoulders the RPT for the parlor. When Y
pays A, Y pays the RPT to whom? Local government Unit (LGU). When Y pays
the LGU RPT for the property owned by A, income on the part of A? Yes. Within or
without? Within. Subject to Tax? Yes. What kind of tax? NIT. Can A claim as
deduction the RPT? No, because even though it is related to his trade or business
leasing, he was not the one who incurred the expense. Can Y claim the RPT
shouldered by him on behalf of A? No, because Y, as a purely compensation
income earner, is not entitled to any deductions of taxes. His deductions are
limited to personal exemption, additional exemption, and premium for health and
hospitalization insurance.
Lets go to X. When X pays the LGU RPT, is there income on the part of
A? Yes. Within or without? Within. Subject to Tax? Yes. What kind of tax? NIT.
Can X claim the RPT he paid as a deductible expense? Yes or no? No, because
even though he was the one who incurred it, he is not supposed to pay for it.
Therefore, X is not allowed to claim the RPT as a deduction.
Now, Y imported gunting para gamitin sa bahay niya. Si X nag-import ng
gunting, ginagamit sa parlor. Nagbayad ng P10,000 for the gunting. Upon
importation, nagbayad ng tariff and customs duties na P200 si Y. When Y buys the
gunting and imports the gunting, can Y claim P10,000 as deductible expense? No,
because Y is not entitled to that. Y is only entitled to personal exemption,
additional exemption, and premium for health and hospitalization insurance.
X, same scenario. Can X claim the P10,000 as business expense? No,
because it is a capital expenditure. Can X claim depreciation of the gunting as a
deductible expense? Yes, because X is engaged in trade or business. Can X claim
the tariff and customs duties of P100 paid for the gunting used in trade or
business? Yes, because the tax is actually paid or incurred in connection with his
trade or business. After payment, X and Y realized that they overpaid the tariff and
customs duties by P50. They filed a claim for refund. In 2016, the refund was
approved, returned 50 pesos to Y and to X 50 pesos.
Effect of subsequent refund of tax previously paid
What is the effect of the subsequent refund of a tax which has been
previously claimed as a deduction from the gross income?
On the part of Y, what is the effect of the refund of P50? Income? No. That
is a return of the expense. Tama? May income ba siya? Wala. Binalik lang sa
kanya yung P50 eh.
On the part of X, what is the effect? Tax benefit rule applies. P50 will be
considered a part of the gross income in the year of the refund. Why? Because the
amount of tax of P200 he claimed as a deduction is refunded, he will have to
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declare the amount refunded as part of his gross income in the year money is
received.
But from Y, no income. Bakit? Sinauli lang sa kanya ang pera niya. Wala
namang benefit sa kanya noong binayaran nya ang tax due, hindi ba? Wala. So
sinauli lang sa kanya. Thats just a return of his capital. Clear?
Distinction between tax as deduction from gross income and tax as
deduction from gross estate
Now, what is the distinction between tax as a deduction from the gross
income and tax as a deduction from the gross estate? Section 86. Yang para
isang bagsakan tayo. Makikita niyo diyan sa Section 86. Taxes. So makikita niyo
diyan taxes as deduction din sa gross estate. Yung T sa gross income ay tax.
So what is the distinction? When is the tax deductible for income tax purposes and
estate tax purposes?
1. Sa income tax, dapat ang tax ay paid. Sa estate tax, ang tax ay hindi paid.
Unpaid and due sa estate tax.
2. Sa income tax, paid and incurred in connection with trade and business. In
estate tax, unpaid whether the tax is due in connection with trade or
business or not yet.
Yun ang disitinctions. Pag namatay ang isang tao, hindi tinatanong, Oh, yan
bang tax na yan related sa business or not? Walang ganun. Ang ating lang
qualification sa tax for estate tax purposes is not paid and due and whether or not
related to trade or business. Sa income tax, mas particular ang requirement. The
tax must be paid and in relation to trade or business para maging deductible.
V. Casualty loss
From the provisions of Section 34, there are many kinds of losses. We
have wagering losses, loss from wash sales, capital losses, ordinary losses,
casualty loss. There are many kinds. For the purpose of our discussion now, I will
only discuss casualty loss. I will discuss capital loss, ordinary loss, wagering
losses, loss from wash sales separately later para hindi kayo nalilito. So, dito
muna tayo sa casualty loss.
Y bought gunting worth P10,000. Imported. Ninakaw ang gunting ni B. X
bought gunting for P10,000. B stole the gunting of X. When B stole the gunting,
income on the part of B? Yes. Within or without? Within. Subject to tax? Yes. What
kind of tax? NIT. Is Y entitled to claim casualty loss as deduction from gross
income? No, because Y is not engaged in trade or business and he is allowed only
personal exemption, additional exemption, and premium for health and
hospitalization insurance as deductions. After nakaw, B returned the gunting to Y.
Return of the income. The value of the gunting 3 years after is P2,000. When B
returned the P2,000 worth of kalawagnin na gunting na ninakaw niya kay Y,
income on the part of Y? No. Thats just a return of the gunting.
When B steals the gunting from X, may income on the part of B? Yes.
Within or without? Within. Subject to tax? Yes. What kind of tax? NIT. What is the
effect of pagnanakaw ni B ng gunting kay X? X can now claim casualty loss as a
deduction from his gross income. 3 years after, B returns the gunting, kalawangin.
The value of the gunting at the time of the return is P2,000. What is the effect of
the subsequent return of the property which has been previously claimed as a
casualty loss? Tax benefit rule again applies. And X will declare P2,000 the value
of the recovered property as part of his gross income subject to NIT. Tax benefit
rule applies.
Requisites for deductibility of casualty loss
What are the requisites for casualty loss?
1. The asset must be used in trade or business;
2. The loss must have arisen out of theft, robbery, embezzlement, fire,
storm, earthquake or any other natural calamity, provided, the same is
not compensated by insurance. If partly compensated by insurance,
the only amount that can be claimed is that portion not compensated
by the insurance;
3. It must be determined by B as unrecoverable at the time that the loss is
claimed. Dapat may proof ka na unrecoverable. Hindi pwede na basta
ka na lang magsasabi na nawala ni Mr. B. Anong mga possibleng
proof? Police report na nananakaw si gunting. Pag walang police
report, paano ka magke-claim?
Distinction between casualty loss as deduction from gross income and as
deduction from gross estate
Now, you look at Section 86. Estate tax. Casualty loss is again another
form of deduction from the estate. What is the distinction between the two? So you
will see there casualty loss. The same requisites. The loss must have arisen out of
theft, robbery, embezzlement, or from fire, shipwreck, natural or any other natural
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VI. Depreciation
walang makita. Eh kung meron man makita, naubos. Kaya nagdedeplete. Kaya
ang tawag diyan depletion.
Charitable institutions? Exempt, provided, not more than 30% is used for
administration purposes.
VI. Depletion
Charitable institutions? Same answer (exempt provided not more than 30%
is used for administration purposes).
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the gross income on these institutions. Subject to estate or donors tax? Ito
nanaman.
So the government? Exempt.
Charitable institutions? No, provided, not more than 30% is used for gifts
purposes.
Religious institutions and non-stock, non-profit, itong tatlo? Not subject to
estate or donors tax, provided, not more than 30% is used for administration
purposes.
Proprietary educational institutions? Include. 30% rule applies.
Proprietary hospital? Taxable. Include.
Charitable hospital? No, provided, not more than 30% is used for
administration purposes.
Can X claim the P500,000 as deduction from the gross income from the
parlor of X?
Donation in favor of the government? Yes.
Charitable institutions? Yes or no? Yes, but up to the extent of 10% of the
gross income of X. If X were a tao, and 5% if X were a corporation. Hindi ba?
Binaliktad ko lang.
Proprietary educational institutions and hospital? Allowable deductions?
Yes? Proprietary educational institution and hospital? Allowed as a deduction from
the gross income? Tingnan nyo ang Section 34 (H). Do we apply the 5% and 10%
also? Sa proprietary educational institutions, applicable. Sa proprietary hospital,
hindi. Proprietary educational institutions, 5% and 10 % apply.
3. Making good an existing asset. Bakit? Because these are in the nature of
capital expenditures. How do we distinguish major from minor repairs? Lets
look at this room. We dont like the color of this room. We change it to red.
Thats major repair. But when, ano bang mga dumi na yan, pinastahan lang
natin ng kapiraso, pininturahan. It is minor repair. Nasira si bombilya- minor
repair. Ayaw ko ng ilaw na ganyan. Pinalitan lahat ng bombilya ginawang
bilog- major repair. Table. I dont like this table anymore. This is so small.
Change all tables- major kasi capital expenditure. Nabali doon. Pinukpok,
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and gains, we are talking of assets. Meron tayong binibiling assets. Wala namang
business na walang assets eh. Hindi ba? If you are not engaged in trade or
business, lahat ng assets mo capital. At kapag ikaw ay hindi engaged in trade or
business, yung assets mo na capital, kapag nagbenta ka ng real property na
capital asset located in the Philippines ang katapat mo agad ay Final Withholding
Tax (FWT) or Capital Gains Tax (CGT) na 6%. Anu-ano yung mga assets mo, ha?
Real property, tangible personal property, intangible personal property, right?
Habang binibili mo yung asset mo, walang effect sa income tax. Walang epekto.
Ang effect ay sa net worth mo which has nothing to do with taxation. Yung net
worth mo, yung assets minus liabilities, kung gusto mong malaman kung gaano
ka kayaman, doon importante siya. Pero kung gusto mo malaman kung magkano
ang babayaran mong buwis, hindi magma-matter yung assets. Bakit? Kasi the
time you realize gains or income or loss is when you move the asset.
Movement of assets
When we say you move, it is a technical term. Movement of asset is the
transfer of ownership. Transfer of ownership, hindi physical movement. You move
the asset in such a way that there is transfer of ownership. Thats the only time
that youll realize gains or losses. Now, what will be the basis of the gains or the
loss if you are not a business income earner? It is always the fair market value at
the time of sale, at the time of the transaction. What could be the movement? It is
not donation, certainly. There is transfer of ownership and there is consideration
because if you donate something, you do not realize gain. You do not realize loss.
Right? You do not consider gain or loss, because you gave it. Now, if you move
the asset and there is consideration because there is transfer of ownership, thats
the time that you will realize gain or loss.
Ordinary gains
So, kayo nagtatrabaho lang, walang business. Relo. Kapag binenta mo
ang relo na binili mo ng P20,000 na ngayon ay P5,000 na lang, kapag benenta ko
ng P6,000 kikita ka. Yes? Magkano? Isang libo. What happens to the P1,000?
Remember the items of inclusion: C-G-R-D-Y-R-A. Ang isang G diyan ay, gains
derived from dealings with property. So you classify the P1,000 as gains derived
from dealings with property. Right? But since it is a capital asset but not real
property, it does not fall under letter B right? It does not fall under letter C, it does
not fall under letter D. Therefore, it falls under letter A. The P1,000 is gross
income, but subject to tax (NIT).
Ordinary loss
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If you incur a loss, P5,000 ang Fair Market Value (FMV) and I sold it at
P10. I lost. How much? P4990. Yung P4990 isasama ko sa letter F, losses. Hind
ba? At ike-claim ko as deduction? No. In the first place, that L is not part of the
personal exemption, additional exemption, and premium for health and
hospitalization insurance. I am not affected by F, by the loss, because I am not
engaged in trade or business.
Yung bang loss ko na P4990 may effect sa income ko? Wala. May effect
ba sa tax due? Wala. Bakit? Hindi kasi siya pwede i-claim as a deduction. Bakit?
Unang-una, hindi ako engaged in trade or business and because I am not
engaged in trade or business, and losses is not one of the three. So what happens
to the loss? Nothing. It will not affect my income tax. It has nothing to do with
income taxation. But since there is no income tax due, the government losses, and
when the government losses, it will have to recover the loss. How? Section 100.
Transfer for Less than Adequate and Full Consideration.
How about a loss? P50,000. May income ako? Wala. Wala akong ibabato
sa gross income kasi at a loss. Magkano loss ko? P450,000. What is the effect of
the loss of P450,000 and I am not engaged in trade in business? Simple. Nothing
when it comes to income taxation. But is there tax consequence? Yes. Section
100 applies.
If I sell at a loss at P50,000, may income ako? Wala. May income tax
consequence? Wala. Loss, eh. May tax due? Oo. Section 100 again.
Ordinary gains in sale of personal property
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particular time. So let us look at aircon 2 because it was bought in the year 2014.
In the year 2016, aircon 2 is an ordinary asset. Lets look at 2016. Assuming that
we are now in 2016. Aircon 2 is an ordinary asset. Now (after 2 years), what is the
book value of aircon 2? P30,000 (depreciation is P10,000 each year). Sabi ko,
book value of P30,000. Nabenta ng P35,000. What do I realize? P5,000 ordinary
gain. Ang income na ordinary gain na yan, ay ibabato mo dito para maging part of
the gross income? Hindi. You recognize the gain but only to the extent of the
losses. How does it work? So for aircon 2, yung ordinary gain is P5,000. Ito
(P5,000), hindi isasaksak doon (Letter A) katulad ni Lumbera na hindi engaged in
trade or business. I call this, personal terminology ko to, side stepping. The
sidestepping refers to the recognition of gains up to extent of the losses. We
recognize gains up to the extent of the losses. Thats under Section 39 (C) of the
Tax Code. So here you gain P5,000 for the same year of 2016. Gunting 2.
Magkano ang book value? P16,000. Ibenenta mo si gunting 2, ordinary asset.
Nabenta mo ng P10,000. Lugi. Loss. Magkano? P6,000. How do you call that?
Ordinary loss. For the year 2016, assuming these are the two transactions
involving movements of assets. Then for the year 2016, year end, I have ordinary
gains of P5,000 and ordinary loss of P6,000. Therefore, what I arrived at the end
of the year is net ordinary loss of P1,000. What happens to the loss? Ito ba
isasama mo sa allowable decoctions para lumiit yung gross income mo? No!
According to Section 39, you only recognize gains up to the extent of the losses.
You are allowed 1 benefit. Your gain of P5,000, which could have been easily
added to your gross income, and if added will of course increase your tax due. But
because of recognition of gains versus losses, the loss has the effect of reducing
your gains and therefore you dont have anything to add here. Therefore, the effect
to you is reduced tax as well. But when you arrive at the end of the year at an
ordinary loss, wala nang mangyayari because the net ordinary loss is not the L
here. Tapos na ang usapan. Now, kasi take note: lugi naman ako kasi loss sa
dulo. Hindi ka lugi kahit loss sa dulo kasi nagbenefit ka naman ng isang beses.
Ano? Noong nag-gain ka ng P5,000 at nabawasan ng P6,000. Ang effect noon ay
sa halip na maglagay ka ng gross income na limang libo, wala kang sinama sa
gross income kaya ka nagbenefit ng isang beses.
Now, when at the end of the year you realize net ordinary gains, pwede
mangyari yun. Baliktarin natin. Ang gunting ay nabenta mo ng P8,000. So P8,000
versus loss, na 6K. Ang mangyayari sa iyo ay may ordinary gain na P2,000. Ano
ang gagawin mo diyan? Eto ibabato mo dun (gross income). In which case, lalaki
ang tax due mo. Pero, lugi ka pa ba? Hindi. Bakit? Nagbenepisyo ka na. Ano?
Noon ang loss ay nirecognize versus the gains of P8,000 kasi kung walang loss,
kung hindi ka inallow na i-offset yung loss versus the gains, P8,000 sana ang
napasama roon at nag-increase ang tax due mo. There is no such thing as
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NOLCO na net ordinary loss carry over. Walang NOLCO na net ordinary loss carry
over. Ang NOLCO ay NET OPERATING LOSS CARRY OVER. So, this is how
you recognize gains and losses of ordinary assets. All ordinary gains, i-grupo. All
ordinary loss, i-grupo. Then i-offset. If at the end of the year you have net ordinary
gains, ibato mo sa gross income, and thats the only time that it will have an effect.
But on transaction basis, no effect yet. If at the end of the year, you realize net
ordinary loss, manahimik ka na. Wala nang mangyayari. Bakit? Meron ng
benepisyong nangyari sa iyo nang inoff-set si loss against the gains? Tigil na.
Wala ka nang magagawa.
Recognition of gains and losses in sale of capital assets
Now, lets go to capital assets. Aircon 1. Binili rin noong 2014. Aircon 1
became obsolete in 2014. So kung 2016, the book value is at P4,000 each. So
aircon 1, which is a capital asset has a book value of P1,000. Nasa bodega. Hindi
mo maipakilo. Somebody, a collector of that kind of aircon, found out and
purchased the aircon. Collection item daw niya. Binili si aircon. Binenta. Magkano?
P6,000. Anong tawag mo diyan? Capital gains. In capital assets, you apply the
holding period if the individual is engaged in business. So, if the asset is held,
nakasulat diyan, Section 39 (B). If the asset is held for not more than 12 months,
ano ang percentage ng recognition? 100%. More than 12 months? 50%. Kapag
mahaba ang panahon na hinawakan, kalahati lang daw ang marerecognize.
Simply, Aircon 1, kailan ba binili? 2014. Kelan binenta? 2016. More than 12
months? Oo. So anong sabi? Irecognize mo yung 50%. Sa halip na P6,000,
P3,000 ang capital gains. OK? Gunting 1. Kalian binili? 2013. Ibenenta ng 2016.
Capital asset. Magkano? P2,000. Anong tawag dito? Capital loss. Ilang taon
hinawakan ang gunting? More than 12 months. So 50% ng P2,000 ay P1,000.
Thats capital loss. Anong gagawin nanaman diyan? O, sa loob ng isang taon
capital gains. Magkano? Hindi anim na libo. You apply the holding period so
P3,000. Capital loss, magkano? P2,000, kapag ang asset is not held for more
than 12 months. P1,000, sa loob ng isang taon. Ang net capital gains P2,000.
Anong gagawin? Ito ba ay ita-tax sa Letter B doon? Hindi. Hindi naman real
property yan. Ordinary pa. So anong gagawin? Ibato mo sa A and it will have an
effect on the tax due (NIT).
Net Capital Loss Carry-over
Eh, paano kung may capital loss sa dulo? Meron tayong tinatawag na Net
Capital Loss Carry Over (Section 39 [D]). We can carry it over in the succeeding
year. Net capital loss carry over can be carried only by an individual taxpayer
engaged in trade or business, and the carrying over is for the succeeding year
only. What is the effect of the net capital loss carry over? This is year 2016. Sa
2017, ganun din an proseso mo: recognition of gains and losses. So kung sa
2017, nag-arrive ka ng gross capital loss na P3,000; net capital gains for the
succeeding year is P6,000. You can carry over P3,000. So next year, sa halip na
ita-tax ka ng P6,000 sa gross income, ang ibabato mo lang ay P3,000, because
you have a net capital loss carry over. What happens if in the year 2017, net
capital loss ka? Loss. It can happen. Anything can happen. Succeeding year, net
capital loss ka ng P2,000. Itong 2017, ito yung net capital loss mo. Are you still
allowed to carry over? Yes. The net capital loss, magkano? P5,000. Anong effect
nyan? Wala. The net capital loss walang effect dito. Now, ang tanong: sa 2018,
pwede pa bang mag-carry over? Oo. Isang libo lang. Bakit? Yung P2,000 mo for
the coming year ay yung net carry over mo na P3,000. Ang charge sa P3,000
carry over is P2,000 kaya P1,000 na lang. Yun na lang ang pwede mo i-carry
over. Isang libo lang ang carry over. Ulit. Walang problema pag net capital gain ka
sa 2017 kasi kitang-kita mo ang effect ng net capital loss carry over, eh. It reduces
in otherwise, at the end of the year, you sustained capital loss, and you will be
carrying it for the succeeding year, and for the succeeding year, gain ka, you will
not feel the effect. The net capital gain is reduced by the net capital loss carry
over. Kapag sa succeeding year net capital loss ka, will you still be allowed to
carry over? Of course, walang problema.
But, katulad dito for the current year, P2,000 na loss sinundan mo ng
P3,000 na loss rin. Ang sabi i-carry over ang net capital loss na P5,000. Pagdating
ng 2018, hindi mo pwede i-carry over yung P2,000 dito. Bakit? Kasi nacharge mo
na sa capital loss for the year 2011, kaya isang libo na lang.
Baliktarin natin ang sitwasyon. Sa susunod, 2017 net capital gain mo ay
P2,000. Meron kang net capital loss sa susunod na taon (2018) na ike-carry over
na P3,000. So at the end of the year, the taxpayer sustained net capital loss na
P1,000. Pwede mo ba i-carry over yung P1,000? Hindi na. Kasi isang taon ka lang
pwede mag-carry over. Naiintindihan? Sa second year ka na, kasi pwede magcarry over, eh. Kasi nagbenepisyo ka na. Ano yung benefit mo? Yung gain mo
nareduce ng loss. Number 4, inallow ka ng holding period. Number 3, nag net
capital loss carry over ka pa. Sobra-sobra na benepisyo mo, manahimik kayo.
Yan ang sabi ng gobyerno. The government recognizes that you incurred losses
and it will have an effect on you. But it has to be within a certain limit. What is the
limit? Inallow na kita na may holding period ka pa nga. Benefit na yan sa iyo.
Pangalawa, yan gains mo nareduce ng loss like the loss was charged against the
gains. Number 3, kapag sa dulo may capital loss ka pa, pwedeng i-carry over. Ay,
sobra naman kung loss na hindi mo na carry over, eh ike-carry over mo pa sa
susunod na taon. Ay, luging-lugi na ang gobyerno sa inyo. Tama na. So these are
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the benefits. This is how you recognize gains and losses. All assets, whether
ordinary or capital. This is how you recognize.
Holding Period and NOLCO not allowed if taxpayer is a Corporation
What are the modes? Holding period is allowed only if the taxpayer is
individual. NOLCO is allowed only, again, if the taxpayer is an individual, and the
net capital loss may be carried over to the succeeding year only. Such that if the
taxpayer is a company, no holding period is allowed. Therefore, all gains and
losses are recognized at 100%. There is no such thing as NOLCO (corporate
taxpayer), and therefore, if the company sustained a capital loss at a given period,
no more benefit for the succeeding year. This is how its done. Now you see the
relationship of ordinary gains, ordinary loss, capital gains and capital loss. With
this computation. Now, kitang-kita nyo yan. Hindi ka kasi nyan nagpi-physical
labor. Nagmomove ka ng asset. So what is the effect of the movement of the
asset? Recognition of gains and losses, which will have either, a direct effect on
the gross income, or indirect effect on the gross income, but never on the issue of
deductibility. What will be the effect is that, the tax due will either increase or
decrease because of the recognition of gains and losses. That is the general rule.
Instances when gains and losses are not recognized
When are gains and losses not recognized? Kailan naman tayo hindi
dumadaan sa ganung proseso ng recognition of gains and losses? When are
gains and losses not recognized? Section 40, (C)[2].
1. When you are selling real property located in the Philippines, capital in
character. The gains and losses are not recognized in that manner because
the tax due is 6% capital gains tax.
2. When shares of stocks in a domestic corporation, capital in character, sold and
traded. Ngayon, no recognition of gains and losses, because the tax is 5% for
the first 100K and 10% in excess of 100K.
3. If there is a valid merger or consolidation of two corporations and shares of
stocks are exchanged for shares, or shares are exchanged for property, or
property is exchanged for property, or property is exchanged for stocks.
Whatever gains or losses, no gain, no loss recognized. Example: Corporation
X, Corporation Y. Corporation X has a car worth P1M. Corporation Y has a
painting worth P2M. They merged. XY Corporation is born. There are shares
of stocks of P500,000. Car is exchanged for P500,000 shares of stocks to XY
merged corporation. X incurred a loss of P500,000. Do not recognize the loss.
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tax. No tax ang effect. Nothing. Kasi no gain, no loss recognized. Tax efficient
transfer of property.
Number 1. Valid merger or consolidation wherein shares are exchanged for
property, shares are exchanged for stocks, property for stocks, property for
property. These are tax-efficient exchanges of property. No gain, no loss
recognized and therefore no tax consequence.
Number 2. When an individual exchanges property for shares and he
alone, or together with others not exceeding four, gains control of the corporation,
no gain or loss recognized. Therefore, no tax consequence as well. Ito yung mga
naririnig nyo. Tax efficient transfer of property. So the reason why I took this out of
Section 34 and did not discuss in Section 34 ay para hindi magulo. Now you see
these effects. These are not deductions.
X. Losses
LOSSES. The only loss that effectively reduces your gross income is
casualty loss. Thats the only loss. Then you will have to recognize casualty losses
together with gains and all losses, as a general rule, are recognized up to the
extent of the gain only. Such that, if at the end of the year the taxpayer realizes
gains, thats the time na ibabato mo sa gross income which will have an effect on
the tax due. But if at the end of the year you incur loss, manahimik ka na. Wala na.
Wala nang mangyayari. You are not allowed to deduct that loss whether ordinary
or capital loss from the gross income. You cannot claim the same as deduction
from your gross income. Why? Because you have already been benefited: (1)
When the gains are reduced by the loss because the los are recognized up to the
extent of the gain; (2) Holding periods, in case of individual taxpayer, has the
effect of reducing the gains and losses; (3) When a taxpayer is an individual and
net capital loss is allowed to be carried over for the succeeding year only. These
are your benefits already. These benefits have the effect of reducing your gross
income because hindi mo na isasama sa gross income, or the gain is completely
eaten up by the loss and therefore, the effect at the end of the day is the tax is
reduced. Ang administrative provision ng income tax ay idi-discuss with remedies.
Doon ko siya idi-discuss para kita niyo kung saan ginagamit ang administrative
provisions. Ha? Doon ko idi-didscuss when I take up remedies.
Question on foreign currency account:
Liwanagin natin. Pag ikay may bank account na dollar account, foreign
currency account. I-distinguish natin. If the foreign currency account is at the same
time a remittance account, the code says that the account is exempt from payment
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nandito ngayon sa isang account. Kapag ikaw, ordinary account lahat ng kinita
nyan passive income. Pag winithdraw mo, ginastos mo, may kinikita na, may tax
doon. Yon ang pinagbabawian ng gobyerno.
Now you see and you will realize tax is a very dynamic topic and subject.
Kelangan lang talaga alam na alam mo yung step-by-step ng transaction kasi in
every step of the way may pagbabagong mangyayari. At depende sa tax. Hindi ka
pwede mag-generalize. Kailangan hihimayin mo unti-unti because every step of
the transaction you will have to think about what is the tax consequence. That is
why avoidance is really an art. Because every step of the way may tax due eh.
You can see from our example. So how will you avoid? There are many ways of
avoiding. I will not teach you yet. Not yet. But there are so many ways that are
legitimate manner of reducing your tax due. If nasa business ka, lalong maganda
yan. But when you become lawyers, come to mama. But not now, because you
have to learn the basic of what is right and what is wrong.
VALUE ADDED TAX (VAT)
VAT is the easiest tax under the NIRC but the most technically worded
provision of the law. Admitted yan. Walang kokontra dyan. Napakadali lang.
Marunong kayong mag-add, mag-multiply? Walang division. Addition and
multiplication at subtraction. Wala ditong division. Value added tax (VAT) is value
added tax. Tax is added to the value. It is a form of indirect tax which is collected
or imposed for:
1. Every/each sale of goods in the course of trade or business;
2. For each sale of service in the course of trade or business; and
3. For each importation of goods. Walang service ha. This time whether trade
or business related or not.
It is a form of tax imposed on each sale of goods in connection with the trade or
business, or each sale of service in connection with trade or business, or each
importation of goods whether related to trade or business or not. These are the
only three transactions covered by VAT.
Meaning of sale
What is the meaning of sale? Sale may refer to actual sale or barter or
exchange. There is transfer of ownership. Sale of goods. Goods will even cover
real property. If you are engaged in development and sale of property, each sale
of real property is considered sale of goods.
Sale of service. There is no employer-employee relationship involved.
Services are rendered and for the services, you are paid.
Sale of service may cover lease, rentals. When there is a lease, there is
sale of service.
Importation of goods. Galing sa ibang bansa at dadalhin sa loob ng
Pilipinas. Kung gagamitin mo sa bahay mo ang iyong inimport, walang pakialam.
Pagdating sa Pilipinas, importation of goods. Paano ini-import? Walang land. By
air and sea. Pagdating niyan sa Bureau of Customs sa Pilipinas, thats
importation. Bago mo ilabas sa warehouse ng Bureau of Customs, magbabayad
ka ng VAT. Kapag inilabas mo, kapag binenta mo, each sale, VATable. Kung
kakainin mo, walang VAT. Pero may VAT ang importation.
Transactions deemed sale
Now, in sale of goods we have Transactions Deemed Sale (TDS).
Transactions deemed sale is found in Section 106 (B). There is no actual sale but
the goods are being sold and subjected to value added tax:
1. Transfer, use, consumption of goods intended originally for sale in the
ordinary course of trade or business. Meron kang restaurant. Ang
binebenta mo ay tapsilog. Araw-ayaw mong niluluto sa bahay mo. Kumuha
ka ng tapsilog na stock. Deemed sold. Because the tapsilog is sold in the
ordinary course of trade or business. Kinain mo, nilamon mo. Deemed
sold. Period.
2. Transfer in favor of creditors. May utang ka na isang libong piso kay Mr. X.
Wala kang pangbayad. Sabi mo kay Mr. X, Kumain ka ng tapsilog arawaraw. Ok sige kasi walang pambayad. Kumain si Mr. X. Bawat tapsilog na
kinakain, deemed sold.
3. Transfer in favor of investors. Hindi mo maisauli ang investment at tubo.
Ang sabi mo, Kumain ka ng tapsilog equivalent to investment. Agree.
Everyday kumakain ng tapsilog. All tapsilogs eaten by the investor deemed
sold.
4. Consignment of goods. Goods not sold within 60 days from the
consignment, all are deemed sold on the 61st day.
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72
not applicable to you except that it adds up your expense. Let us assume that you
are engaged in delivery of tapsilog to government offices. So you ordered for 1
tapsilog. My business is delivery of tapsilog. Anong mga purchases mo? Gasoline
pag ikaw ay naglalakbay. Maraming purchases. Tama? So itong tapsilog na binili
nya ng P112 at nagcompute ka. Per tapsilog is now P150, cost pa lang sa iyo.
Kayo namili ng tapsilog sa kanya, ikaw nagparasyon ka. P150 may tubo na siya
diyan. Binenta sa iyo plus 12%. Magkano? P150 x 12% = P168. P168 ang
tapsilog. Magkano output mo? P18. Output is P18. Magkano input mo? P12. P18
output less input of P12 is P6. Go to BIR remit the P6 that is VAT payable.
Remedy in case input tax is more than output tax
If marami kang purchases, ibig sabihin your input is more that your sales, if
your input is more than your output, marami kang pinamili kesa nabenta, what will
happen? The excess input you go to BIR, ask for refund. But of course, money will
not be given to you. It will form part of credit, either tax credit for the succeeding
quarter because VAT is computed on a quarterly basis but paid on a monthly
basis. Computed quarterly but remitted to BIR monthly. Ganun yan. So ikaw, if
you have excess input, you may credit for the succeeding quarter, or if at the end
of the year, if you still have excess input, you will credit it with your other
obligations such as income tax due from your business.
Excess output is VAT payable
This is how you do it. Input-output, input-output. Ganun lang ito nang
ganun. And then you remit monthly to BIR. If you have excess output, that is VAT
payable. Pay to BIR. Hindi ka nagbabayad sa BIR bawat benta. Kokompyutin mo
yan on a quarterly basis and you remit on a monthly basis, and if at the end of the
year you have excess output, meaning, you have more sales than purchases, then
pay to BIR. But if you have excess input, meaning you have more purchases than
sales, then you also go to BIR and request for refund or credit, the same with your
other tax obligations. So as you are moving along the taxable period, you may
credit it for the succeeding quarter. Very simple and Value Added Tax. Kaya sabi
ko sa inyo, multiplication, addition, subtraction. Walang division na ginagamit. So
yan ang ginagawa nyo.
Relevance of input and output tax to income tax
How relevant is this to income tax? Very relevant! When you compute for
your gross income, the gross income of the taxpayer who is engaged in trade or
business reflects your revenue from your operation. Your output tax represents the
12% of your sales, and therefore, that should jive with gross income. Pag iyan ay
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hindi nag-match with the gross income doon sa output tax mo, you are doing
something.
Now, your input tax represents your expenses, purchases in your trade or
business, and therefore, the 12% input tax should also coincide with your
allowable deductions in the form of expenses. Anu-ano yung mga expenses mo?
Reasonable allowance for wages. Wala yan VAT. Pag nagbayad ka ng wage,
walang VAT. Reasonable allowance for utility: PLDT, Merealco, MWSS, gasolina.
Kapag bumili ka ng may VAT, may input tax ka na 12%. Dapat yun mag-match sa
deduction mo. Nagbayad ka ng renta sa lupa doon sa parlor. Thats a sale of
service. So theres VAT. Input tax ang binayaran mo. Purchases mo yan eh. So
dapat ang input tax mo na kini-claim versus the output tax, mag-match doon sa
expenses mo. Tinitingnan yan ng BIR. Income tax is paid the following year. Ang
bayaran is the following year. The requirement for VAT is quarterly. You compute
but you remit monthly. So from January to December, if you remit in January, BIR
has advance notice of how much your sales are for the month of January. When
you remit in February, March, April, May hanggang December, BIR has an idea
how much your gross sales are, which will represent your gross income. Advance
notice yan sa BIR. Such that, kapag nagbayad ka the following year ng income
tax mo at hindi nag-match doon sa na-file mo sa VAT return, patay ka. You are
doing something. Yan ang relationship niyan. Hindi pwedeng maghiwalay.
Kailangan laging magkabuntot. VAT is a tax on business. So this will match up
with your gross income on the business that you have. Yun ang sinasabi nating
relationship ng income and VAT.
Excess input tax may be credited and applied to VAT liabilites in succeeding
quarter or to other tax liabilities
Zero-rated transactions
Zero-rated transactions. Anong nakasulat? Section 106. What are the zerorated transactions? Yan ay hindi ko ini-expect na memoryahin ninyo. Ano ba ang
zerorated transaction? Tingnan ninyo ang mga examples diyan.
Export sale
Kapag ikaw ay nag-iimport, times 12%. Kapag ikaw ay naglabas, times 0%.
Niloloko tayo. Ay, bakit imumultiply pa ng 0%? Kapag zero-rated kasi, kaya
ginagawang zero-rated, may benepisyo kasi ang gobyerno. Kapag nag-export ka
ng tubig, ang bayad niya padadaanin sa foreign currency ang bayad at
pinadadaan sa bangko. Wala namang nagbabayad na pinadadala sa LBC. So it
goes through the bank and it is in foreign currency.
Benefits of exportation
As you bring water outside, there are two benefits to the government.
1. foreing currency reserve is increased; and
2. we promote locally manufactured products
Comparing it to an importation wherein we destroy locally manufactured products
because of the dating ng mga produktong imported. And secondly, kapag tayo ay
nagbabayad, ang ating foreign currency reserve ay nababawasan.
Sale of gold bars
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109. Kanina, kapag nagbaneta ka ng baboy, exempt. Ngayon gawin nating 20,000
baboy, isang libo bawat isa. Magkano yun? P2,000,000. Lagpas P1,500,000.
VATable? Yes or no? Bakit No? Mentioned in the preceeding paragraph. So kung
nasa listahan ng A-U, exempt. Basta yan ang dinidescribbe niyong sale. Kapag
wala sa listahahn ng A-U at hindi nag-exceed ng P1,500,000, exempt. Ano ang
konklusyon? Pag wala sa listahan ng A-U at nagexceed ng P1,500,000, VATable.
Kaya ang tindahahn ko ng kandila ng P3,000,000 ang gross sales ay VATable.
Naiintindihan?
Another distinction
transactions
between
zero-rated
transactions
and
exempt
The other disitinction is in zero rated transaction. The input tax is allowed
to be credited against the output tax. In exempt transaction, the input tax is not
allowed to be credited against the output tax. Anong ibig sabihin noon? Alin ang
may benepisyo ang gobyerno? Zero rated. Ang exempt walang benepisyo ang
gobyerno. Sa zero-rated may benepisyo ang gobyerno kaya binibigyan din ng
benepisyo ang taxpayer. Ito lagi ang example ko. Napakasimple pero nakakatawa.
In exempt transactions, input tax is not allowed to be credited against output
tax
We have 3 baboys. For the 3 baboys, inalagaan mo, pinakain mo,
gumastos ka. Bumili ka ng tubig. Magkano? P500. VATable? VAtable ng 12%.
Nagbayad ka ng input tax. Magkano? P60. Bumili ka ng kuryente. Magkano?
P1,000 X 12%. Input tax mo ay P120. Ano pa ang gusto niyo? Nagbayad ka ng
telepono kasi nag-oorder ka. Telephone expense P100 X 12% is equal to P12.
Total na binayaran mong input tax is P192 for the 3 baboys, so P64 per baboy. Si
baboy 1, ibenenta mo ng oink-oink alive ng P5,000. Exempt. Zero output. Baboy 2
ibenenta mo rin pero kinatay mo, niluto mo at ibenenta mo sa restaurant mo.
Nakabenta ka ng P10,000 X 12%. VATable output is P1,200. So sa isang taon sa
lahat ng trasaction mo, output less input. Output is P1,200 less input of magkano?
P192? NO! The input tax attributable to baboy 1 is an exempt transaction, is not
allowed to be credited against the output tax therefore P64 X 2 = P128. Kaya ang
VAT payable is P1,072. Pay to BIR. VAT payable. Thats exempt transaction. Input
tax is not allowed to be credited against output tax.
In zero-rated transactions, input tax is allowed to be credited against output
tax
tax. But there is a big difference. P1,200 is the output but in zero-rated
transactions, the input tax attributable to the zero-rated transaction is allowed to be
credited against the output tax. Therefore, your total input tax is P192. So P1,200
P192 = P1,008. Your VAT payable is lower because you were allowed to credit
the input tax atttributable to the zero-rated transaction. Since the government
benefited from your zero-rated transaction, the government gives you something in
return by allowing you to credit the input tax attributable to the zero-rated
transaction against the output tax. Yan ang ibig sabihin ng distinctions. The
example is very simple para lang makita ninyo but whatever kind the transaction
we have, this is the procedure. Ang difference lang ay hundred of thousands. Sa
malalaking businesses, billions of pesos ang pinag-uusapan. But everything
follows the same procedure.
Effect of failure to register for VAT when registration is required
What is the effect of registration for VAT? Hindi ba kapag nakakita kayo ng
business establishments, may mga diploma sa business? Makikita niyo doon VAT
exempt. Meron din VAT-registered. Anong effect? Kapag ikaw ay required na
magrehistro for VAT purposes and you do not register, that is the worst scenario.
Because if you are required to register and you failed to register, you cannot
collect the 12% output. Hindi ka pwede magpatong ng 12%. And your input tax
from your purchases will not be allowed as a credit. In the end you shoulder the
12% from your own project. Thats the worst scenario.
Effect of registration for VAT when registration is not required
Now, what if you are not required to register at nagpabibo ka? I want to
register for VAT. Ide-deny ba ng BIR? No! Now if you are not required and you
register, then you must collect the 12% for every sale. At hindi pwedeng sabihin ng
mga bumibili sa iyo na, Hoy, hindi ka naman dapat nagparehistro, hindi na ako
magbabayad ng 12%. Hindi pwede because you are registered, you will be
treated as a regular VAT-registered taxpayer. Now, what happes to your input tax?
Then you can credit. So para kang rehistrado talaga. So kung gusto mong
magpabibo, eh di magparehistro ka. Basta hindi pwede na since hindi ka naman
dapat magparehistro eh percentage tax na lang ang babayaran mo. Hindi pwede,
registered ka eh. Yun ang requirements ha? Now, kapag hindi ka rehistrado at
kailangan mo magparehistro, then ikaw ang magbabayad from your own pocket
kasi you failed to collect the output. So you shoulder the output. And secondly,
yung input naman na nagasto mo, hindi mo pwede i-credit.
Let us presume the same scenario but this time you exported the baboy.
Binili ng Japanese. Pinadala mo si baboy 1. P5,000 X 0% is equal to P0 output
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Technical Logistics
: Miguel Llave
Lay-out
Over-all Chairman
Vice-Chairpersons for Academics
Vice-Chairperson for Logistics
Vice-Chairperson for Finance
Vice-Chairperson for Secretariat
Vice-Chairperson for Recruitment