Passive Income

6. Income realized from sale of a capital asset

14. Interest income from time deposit
Section 3.
Tax treatment of interest income derived from long-term deposits or
investment certificatesLong-term deposits or investment certificates as defined in section 22(F) of the NIRC of
1997 refers to certificate of time deposit or investment in the form of savings, trust funds,
deposit substitutes, investment management accounts and other investment with maturity
period of not less than five (5) years.
The long-term investment should not be terminated by the investor before the fifth (5 th)
year, otherwise they shall be subject to the graduated rates of
5% - four years to less than 5 years
12% - three years to less than four years
20% - less than three years.
16. Income from a property located in the Philippines of a Filipino citizen who
migrated abroad
Under Sec 24, par. b of the NIRC, income derived within the Philippines by a Filipino citizen
residing abroad is taxable.
34. Royalties
A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of
interest from any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements; royalties, except on
books, as well as other literary works and musical compositions xxx [Section 24 (B) (1)]
35. Dividend received from Domestic Corporation by individual
Dividend means any distribution made by a stock corporation out of its earnings or profits
and payable to its shareholders, whether in money or in other property and is considered as
an Income from Sources Within the Philippines and is therefore taxable, as provided for in
Sec. 42 (A) (2)(a) of the National Internal Revenue Code of the Philippines.
36. Prizes and winnings from sources within the Philippines amounting to more
than Php 10,000.00
Prizes and winnings from sources within the Philippines amounting to more than Php
10,000.00 is taxable and classified as passive income on the basis of NIRC Section 24 (B)(1)
which states that: A final tax at the rate of 20% is hereby imposed upon; prices (except
prices amounting to Php10,000 or less which shall be subject to tax under Section 24 (A);
and other winnings (except Philippine Charity Sweepstakes and Lotto winnings), derived
from sources within the Philippines.
44. Distributive share of individual partners in a taxable partnership, association,
joint account or joint venture consortium.
It is a passive income because it is an income subject to final withholding tax.Sec.24 B (2) A
final tax at the following rates shall be imposed upon the cash and/or property dividends
actually or constructively received by an individual from a domestic corporation or from a
joint stock company, insurance or mutual fund companies and regional operating
headquarters of multinational companies, or on the share of an individual in the distributable
net income after tax of a partnership (except a general professional partnership) of which he
is a partner, or on the share of an individual in the net income after tax of an association, a
joint account, or a joint venture or consortium taxable as a corporation of which he is a
member or co-venturer xxx Provided, however, That the tax on dividends shall apply only on
income earned on or after January 1, 1998. Income forming part of retained earnings as of
December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be
subject to this tax.
45. Fringe Benefits Granted to the Employee (Except Rank and File Employee)

46. On capital gains from sale, exchange, or other disposition of real property
classified as capital assets
48. Net capital gains from sale, barter, exchange of shares of stocks in a domestic
(except through stock exchange )
Sec 24 (C), NIRC provides:
Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The
provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is
hereby imposed upon the net capital gains realized during the taxable year from the sale,
barter, exchange or other disposition of shares of stock in a domestic corporation, except
shares sold, or disposed of through the stock exchange.
Not over P100,000.. 5%
On any amount in excess of P100,000 10%
Since the said shares of tax are not traded in the stock exchange, they are not
considered as capital asset. They are considered as passive income subject to final tax
because the individual has no active participation for the shares to realize gains.
49. Cash and/or property dividends (received by individuals)
Such dividends are considered passive income since the shareholders does not take an
active part in materializing the said income. Under par 2, sec 24 of the NIRC, the law is clear
that cash and/or property dividends received by individuals are considered passive income.
50. Royalties on books as well as other literary works and musical compositions
54. Capital gain from sale of shares of stock, not listed and traded through stock
exchange
55. Informers reward
The National Internal Revenue Code provides under sec. 282, Informers reward to person
Instrumental in the Discovery of Violation of the NIRC and in the Discovery and seizure of
smuggled goods that any person ho voluntarily gives definite and sworn information, not yet
in the possession of BIR, leading the discovery of frauds upon the internal revenue laws or
violations of any of the provisions thereof, thereby resulting in the recovery of revenues,
surcharges and fees and or the conviction of the guilty party and or imposition of any fee or
penalty shall be rewarded in sum of equivalent to ten percent of the revenues, surcharges or
fees recovered. However, the cash reward of informers shall be subject to income tax,
collected as final withholding tax, at the rate of ten percent
63. Prize of Php 100,000 for winning in the on-the-spot peace poster contest
sponsored by a local Lions Club.
It is a passive income subject to a final withholding tax of 20% the amount thereof being in
excess of Php 10,000 (Sec. 24 (B) (1), NIRC of 1997). The prize constitutes a taxable income
because it was made primarily in recognition of artistic achievement which he won due to an
action on his part to enter the contest (Sec. 32 (B) (7)(c), NIRC of 1997). Since it is an onthe-spot contest, it is evident that he must have joined the contest in order to earn the prize
or reward