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INDIVIDUAL INCOME TAXATION
Situs of Income
Real property:
Location of the property
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INDIVIDUAL INCOME TAXATION
1. Itemized Deductions
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INDIVIDUAL INCOME TAXATION
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INDIVIDUAL INCOME TAXATION
13. 13th month pay and other benefits not exceeding P82,000
14. Gains from sale of bonds, debentures or certificates of indebtedness with maturity more
than 5 yrs.
15. Gain from redemption of shares in mutual funds
16. Other exempt income under NIRC and special laws
1.- 2. Proceeds of life insurance and Amounts received by the insured as a return of
premium
These are considered as a return of capital.
3. Gift, bequest, devise, or descent
This is subject to transfer tax. However, income derived after the transfer of the property
is subject to income tax.
4. Compensation for injuries and sickness
Since health is an item of infinite value any amount received to compensate for injuries
and sickness is a return of capital. However, the amount received to compensate for the
loss of salary is subject to income tax.
5. Income exempt under treaty
Treaty agreements override provisions of the revenue tax.
6. Retirement benefits, pensions, gratuities and other benefits
Requisites to avail the retirement benefits exclusion:
a) First time availment of retirement benefit exclusion
b) The employee must have been in service of the employer for 10 cumulative years
c) The retiring employee is at least 50 years of age
d) The employer maintains a reasonable private benefit plan. The plan must also be a
trusteed plan.
Other Benefits:
1. Separation or termination pay
Requisites to avail separation or termination exclusion:
a) Must be due to job-threatening sickness, deaths, or other physical disability; and
b) Must be due to any cause beyond the control of the employee
*doesn’t extend to backwages or illegal deduction paid upon termination and
terminal leave pay or the payment of accumulated unused leave credits.
*the employee or his heirs shall request for a ruling or certificate of exemption
(CTE) from the BIR and shall be filed to the RDO of the employer.
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INDIVIDUAL INCOME TAXATION
2. SSS Benefits, retirement gratuities, and other similar benefits from foreign
government agencies and other institutions, private or public received by resident, non-
resident citizen or aliens who come to settle permanently in the Philippines.
3. United States Veteran Administration administered benefits
4. SSS and GSIS benefits
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INDIVIDUAL INCOME TAXATION
3) Income of cooperatives
Cooperatives that only transacts with their members are exempt.
Cooperative that also transact with non-members are also exempt if their
accumulated reserve and undivided savings do not exceed P10,000,000. Otherwise
the amount of surplus allocated for interest on capital is subject to regular income
tax.
Special considerations
1. Property Repairs and Improvements
If increase Capitalize
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INDIVIDUAL INCOME TAXATION
General Principles
Nondeductible Expenses
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INDIVIDUAL INCOME TAXATION
General Rule:
Other Requisites:
Subsequent Recovery:
Bad debts that have been recovered that have been deducted, shall be part of
Gross Income in year of recovery and up to the extent of tax benefit of the recovered
bad debts.
Additional Info:
Examples:
Bad debts expense sustained under cash basis should not be deducted even if the
taxpayer changed to accrual basis.
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INDIVIDUAL INCOME TAXATION
General Rule:
Note:
1. Personal Loans
2. Imputed Rate
3. Redeemable Preference Shares
4. Discount or Pre-deducted interest
A.3. Taxes
Requisite:
Non-Deductible:
Special Consideration
1. Deduction, or
2. Tax Credit
1) If there is only one country: Lower of the country limit and the Foreign Tax
Paid
((Foreign Taxable Income / World Taxable Income) x Philippine Income Tax Due
before Foreign Tax Credit)
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INDIVIDUAL INCOME TAXATION
2) If there are two or more countries, lower of the two limits below
a. Total of each country’s creditable tax using the lower of the limit per
country and actual tax paid; and
b. The ratio of the total taxable foreign income to the world taxable income
multiplied to the Philippine income tax due
Basic Formula:
((Foreign Taxable Income / World Taxable Income) x Philippine Income Tax Due
before Foreign Tax Credit)
Requisites:
Ceiling on Deduction
Non-accredited NGOs
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INDIVIDUAL INCOME TAXATION
B.1. Losses
General Rule
Other Requisites:
1. Total Destruction
Tax Basis of old property – claimed as a loss
Entire Replacement Cost – capitalized subject to depreciation
2. Partial Destruction
Deductible up to the extent of the tax basis of the old property
Any excess is capitalized subject to depreciation
Additional Info:
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INDIVIDUAL INCOME TAXATION
B.2. Depreciation
Special Rules:
1. Life Tenancy
- Deduction shall be computed as if the life tenant were the absolute owner
of the property and shall be allowed to the life tenant.
2. Properties held in trust
- Deduction shall be apportioned between the beneficiaries and the
trustees in accordance with the pertinent provisions of the instrument
creating the trust, or in the absence of such, the basis of the trust income
allowable to each.
3. Depreciation on Revalued Properties
- Depreciation of an asset must be premised on its acquisitions.
4. Depreciation on Passenger Vehicles
a. Purchased with sufficient evidence such as official receipts and other
documents bearing total purchase price including specific motor vehicle
ID.
b. Connected to conduct of work
c. ONLY 1 LAND VEHICLE for land transport for an official and employee
and value should not exceed Php 2, 400, 000
d. No depreciation for yachts, helicopters, airplanes or aircrafts and land
vehicles that exceed the threshold unless the main line of business of
said transports are used in transportations or lease of transportation.
B.4 Depletion
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INDIVIDUAL INCOME TAXATION
Tax Treatment:
A. Before commercial production – capitalized as cost of wasting
asset
B. After commencement of commercial production
o Non-producing wells or mines – deducted in the period
paid or incurred
deductible amount shall not exceed 25% of the net
income from mining operations computed without
the benefit of any tax incentives under existing
laws.
Actual exploration and development expenditures
minus 25% of the net income from mining shall be
carried forward to the succeeding years until fully
deducted.
o Producing wells or mines – either: (at the option of
taxpayer)
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INDIVIDUAL INCOME TAXATION
Requisites:
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INDIVIDUAL INCOME TAXATION
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INDIVIDUAL INCOME TAXATION
annual taxable income of senior citizen is below the poverty level by NEDA
2. Additional claimable compensation expense for persons with disability
For private establishments employing disabled persons:
Deductions = 25% of total amount paid as salaries and wages to disabled
persons
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INDIVIDUAL INCOME TAXATION
Deduction = 50% of the total productivity bonuses given to employees under the
program
For business enterprises providing manpower training and special studies to
rank-and-file employees as accredited by TESDA:
Additional deduction = 50% of the total grant for local trainings and special
studies
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INDIVIDUAL INCOME TAXATION
Additional Information:
1. Gross Sales – include only sales that contributes to income subject to tax. Sales Return,
Allowances and Discounts are deducted to recorded sales. Tax Concept of “Gross Sales”
is equal to Accounting Concept of “Net Sales”.
2. Gross Receipts – under accrual basis, “gross receipts” means amount earned as gross
revenue during the taxable year.
3. Net Operating Loss Carry Over (NOLCO) – OSD and NOLCO cannot be claimed
simultaneously. NOLCO is an item of deduction while OSD is for all itemized deduction. In
short, NOLCO is included in OSD.
4. Net Capital Loss Carry Over (NCLCO) – NCLCO is deducted against net capital gain,
hence, an item of gross income and not part of deductions. In short, NCLCO not part of
itemized deduction and can still be claimed even if the taxpayer opted for OSD.
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INDIVIDUAL INCOME TAXATION
PERSONAL EXEMPTIONS
1. Basic personal exemption
a. RA 9504 - 50,000:
i. Single individual, including separated spouse without a dependent, widow
or widower
ii. Head of the family
iii. Married individual
b. RA 9504 – 20,000:
i. Taxable estates
Treated as an individual taxpayer and is allowed P20,000 personal
exemption
*An estate under extra-judicial settlement is NOT a taxpayer. The income of
estate is taxable to the heirs
Case Claimant
In general Husband
If husband waived his right Wife
One of the spouse is unemployed or The employed or resident spouse within the
non-resident citizen deriving income Philippines shall be automatically entitled
from foreign sources to claimant
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INDIVIDUAL INCOME TAXATION
One of the spouse is deriving from The spouse with income subject to regular
pure passive sources tax shall be the claimant
When legally separated The spouse having custody of the children
*If the taxpayer’s dependent is no longer qualified to be a dependent within the taxable year the
taxpayer may still claim the corresponding exemptions in full as if the change happens at the
close of such year
3. Premium for health and hospitalization insurance (PHHI)
Requisites:
a. Deduction shall not exceed P200/month or P2,400 a year
b. Total family income shall not exceed P250,000
c. Deduction is claimable by the spouse who actually paid the premiums
d. Deduction is allowed to the spouse claiming the additional exemption
ALLOWABLE DEDUCTIONS
Compensation Business or practice of
earner profession
Basic personal exemption
Additional personal exemption
PHHI
Itemized deductions or OSD
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INDIVIDUAL INCOME TAXATION
Who shall file Income Tax Return Who are NOT required to file Income Tax
Return
A resident citizen engaged in trade, business Minimum wage earners
or practice of profession within and without the
PH
A resident alien, non-resident citizen or non- An individual whose gross income does not
resident alien individual engaged in trade, exceed his total personal and additional
business or practice of profession within the exemptions
PH
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