QUESTIONS TO ASK IN INCOME

TAXATION:
1. Did you receive anything? ( in cash
or in kind/ legal or illegal source)
2. If you did, is it income?
3. If yes, is it taxable?
4. If it is taxable, how do you
determine taxability and what kind
of tax do we impose?
NOTE: In question number 3,
taxability of income depends on the
KIND OF TAXPAYER, SOURCE OF
INCOME, AND KIND OF INCOME.
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in analyzing any problem involving

income taxation, the first thing to
do is to determine who the
taxpayer is
The only two exceptions where
knowing the taxpayer is
immaterial are:

(1) where the transaction involves

sales of shares of stock of a
domestic corporation because it is
subject to 1% of stock transaction
tax or 5%/10% capital gains tax on
net capital gain whether the seller
is an individual, citizen or alien or a
corporation, domestic or foreign and
(2) where the real property sold is a
capital asset located in the
Philippines which is subject to 6%
capital gains tax.
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WHO ARE THE TAXPAYERS?

(1). INDIVIDUALS
(A). CITIZENS
(I). RESIDENT CITIZENS;
(2). NON-RESIDENT CITIZENS;
(B). ALIENS
(1). RESIDENT ALIENS;
(2). NON-RESIDENT ALIENS;
(I). NON-RESIDENT ALIENS
ENGAGED IN T/B;
(II). NON-RESIDENT ALIENS NOT
ENGAGED IN T/B
NOTE: ESTATES AND TRUSTS ARE
TREATED AS INCOME TAX PAYERS;

3. Estates and Trusts (Section 60,

NIRC)
a. Estates
b. Revocable trust
c. Irrevocable trust

WHO ARE THE TAXPAYERS?

(2). CORPORATIONS
(A). DOMESTIC CORPORATIONS;
(B). FOREIGN CORPORATIONS;
(I). RESIDENT FOREIGN
CORPORATIONS;
(2). NON-RESIDENT FOREIGN
CORPORATIONS.
NOTE: PARTNERSHIPS ARE TREATED
AS CORPORATE TAXPAYERS WHICH
ARE FURTHER CLASSIFIED INTO
GENERAL PROFESSIONAL
PARTNERSHIPS (GPP) OR GENERAL
CO-PARTNERSHIPS (GCP)

B. Corporations
3. Partnerships
a. Taxable partnership (Sec73(D),
NIRC)
b. Exempt partnership
i. General Professional
Partnership (Section 26, NIRC)
ii. Joint venture or consortium
undertaking construction activity or
engaged in petroleum operations
with operating contract with the
government
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Gross income
- means income, gain or
profit subject to tax.

Net income
means gross income less
statutory deductions and/or
exemptions (Sec. 31, NIRC)

Taxable income
means the pertinent items of
gross income specified in the Tax
Code, less the deductions and/or
personal and additional
exemptions, if any, authorized for
such types of income by the Tax
Code or other special laws (Sec.
31, NIRC).
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The taxable income here does not

include
a. Tax on certain passive income
under Section 24(B)
b. Capital gains from sale of shares of
stock not traded in the Stock
exchange under Section 24(C)
c. Capital gains from sale of real
property under Section 24(D)
(These are subject to preferential tax
rates.
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 For married individuals, the husband

and wife shall compute separately
their individual income tax based on
their respective total taxable
income provided that if any income
cannot be definitely attributed to or
identified as income exclusively
earned or realized by either of the
spouses, the same shall be divided
equally between the spouses for the
purpose of determining their
respective taxable income
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 Under RA 9504, minimum wage

earners shall be exempt from the
payment of income tax on their
taxable income. Holiday pay,
overtime pay, night shift
differential pay and hazard pay
shall likewise be exempt from tax.

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INDIVIDUAL TAXPAYERS:

Resident citizens:
a. Passive income
within the Phils - Final Tax
outside the Phils - Net Income
Tax (NIT)
b. Dividends:
Issued by DC - Final Tax
Issued by FC NIT

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INDIVIDUAL TAXPAYERS:

c. Sale of Shares of Stocks treated as capital

assets
NOTE: The shares of stocks contemplated
by law are those issued by DC. Shares of
stocks from FC are subject to NIT.
1. Gains from Sale of capital shares of
stocks - Capital Gains Tax (CGT)(FWT) if not
traded thru the local stock exchange.
If traded thru the stock exchange, % tax
under Section 127 of the NIRC;
2. Gains from Sale of ordinary shares of
stocks - NIT
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INDIVIDUAL TAXPAYERS:
d. Sale of Real Property
1. If the property is within the
Philippines - 6% CGT (FWT) if it is
a capital asset. Otherwise, NIT if
it is an ordinary asset.
2. If the property is outside the
Philippines it is always subject to
NIT whether ordinary or capital
asset.
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Exemption from CGT for sale of real

property: Requisites [Sec 24 (D)
(2), NIRC] (see notes)
i. The real property must be the
actual principal residence of the
taxpayer/seller
ii. Seller must inform the BIR of his
intention to avail of the exemption
(within 30 days from sale)
iii. Seller must build or purchase
another principal residence within
18 months from sale

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Exemption from CGT for sale of real

property: Requisites [Sec 24 (D)(2),
NIRC] (see notes)
iv. Proceeds from the sale should be
used in building/purchasing new
principal residence
v. 6% CGT will be applied
proportionately to proceeds not used
for new principal residence.

All kinds of taxpayers can avail of the

exemption from payment of CGT for sale of
real property, except corporate taxpayers.
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Summary of rules on individual

taxpayers:
1. Among all individual taxpayers,
only RC is taxed for income within
and outside the Phils.
2. All kinds of taxpayers are similarly
taxed for income within EXCEPT:
a. NRA engaged in t/b- 20% Final tax
on cash and property dividends
b. NRA not engaged in t/b are taxed
on the gross
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Summary of rules on individual

taxpayers:
3. All kinds of individual taxpayers
are subject to CGT on sale of
shares of stock
4. All kinds of individual taxpayers
may be exempt from 6% CGT on
sale of real property

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CORPORATE TAXPAYERS:
Note that MCIT is in lieu of 30%
corporate net income tax while IAET
is in addition to all other taxes
imposed upon the corporation.
A foreign corporation can NEVER be
subjected to CGT on sale of real
property because under the
Constitution, they are NEVER
allowed to own real property in the
Philippines.
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