1. What is income or capital? (A) General Definition.

- Except when otherwise provided in this Title, gross

income means all income derived from whatever source, including (but not
Income limited to) the following items:
- All wealth, which flows into the taxpayer other than as a mere return of
capital. (1) Compensation for services in whatever form paid, including, but not
- Flow of Wealth; Source of Wealth limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the
Capital exercise of a profession;
- Fund or property which can be used in producing goods or services (3) Gains derived from dealings in property;
- Fund or property; Wealth (4) Interests;
(5) Rents;
2. What is taxable? (6) Royalties;
(7) Dividends;
Income is taxable as under Title II of NIRC.
(8) Annuities;
(9) Prizes and winnings;
Section 31. Taxable Income Defined. - The term taxable income means the
(10) Pensions; and
pertinent items of gross income specified in this Code, less the deductions
(11) Partner's distributive share from the net income of the general
and/or personal and additional exemptions, if any, authorized for such types
professional partnership.
of income by this Code or other special laws.
5. What are the categories of income under NIRC?
3. When is income recognized?
Categories of Income Tax:
REQUISITES FOR INCOME TO BE TAXABLE
1. There must be a gain or profit.
1. Net Income Tax
2. The gain must be realized or received.
2. Optional Corporate Income tax
3. The gain must not be excluded by law or treaty from taxation.
3. Minimum Corporate Income Tax
TESTS ON TAXABILITY OF INCOME 4. Improperly Accumulated Earnings Tax
1. Flow of Wealth Test – The determining factor for the imposition of income 5. Preferential Rates or Special Rates of Income Tax
tax is whether any gain was derived from the transaction. 6. Gross Income Tax
2. Realization Test - unless the income is deemed "realized," there is no 7. Final Income Tax8. Fringe Benefits Tax
taxable income. 9. Capital Gains Tax
3. Economic-Benefit Principle Test -flow of wealth realized is taxable only to
the extent that the taxpayer is economically benefited.
6. Distinguish between global system and schedular system of
- When there is a FLOW of wealth other than mere return of capital during taxation. How will you assess the tax system that we have in the
the taxable period. Philippines, is it global or schedular?

Global System Schedular System

4. How does the Tax Code (NIRC) defined gross income? A system employed where the tax A system employed where the
system views indifferently the tax income tax treatment varies and is
base and generally treats in common made to depend on the kind or
all categories of taxable income of
the individual.
A system which taxes all categories
of income except certain passive
incomes and capital gains. It
prescribes a unitary but progressive
rate for the taxable aggregate
incomes and flat rates for certain
passive incomes derived by
individuals.
category of taxable income of the
taxpayer.
A system which itemizes the
different incomes and provides for
varied percentages of taxes, to be
applied thereto.
premium, and designated himself as beneficiary of the proceeds of
insurance.
B. Employer secures life insurance of his employee and pays the
premium but the heirs of the employee are the beneficiaries.
C. Cancellation or condonation of indebtedness by a friend creditor to
a friend debtor gratuitously.
D. When in payment of the obligation, property is trusted.
E. The creditor is a stockholder of a corporation when that corporation
is a debtor.

11. What is the tax treatment of de minimis benefits? Distinguish under

7. What is the concept of net income taxation and gross income Sec. 33, NIRC (De minimis of wage). When is de minimis benefits not
taxation? If you are ask, which is more advantageous, NIT or GIT? taxable?

NIT - Means gross income less deductions and/or personal and additional De Minimis Benefits - benefits which are relatively small in value offered by
exemptions (Sec. 31, NIRC). the employer as a means of promoting goodwill, contentment, efficiency of
GIT - Employees.

Fringe Benefits – any good, service, or other benefit furnished or granted by

8. What is compensation income? How is it taxed?
Income arising from an employer-employee (ER-EE) relationship. It means
all remuneration for services performed by an EE for his ER, including the
cash value of all remuneration paid in any medium other than cash [Sec.
78(A)], unless specifically excluded by the Tax Code.
It includes, but is not limited to, salaries and wages, honoraria and
emoluments, allowances (e.g., transportation, representation,
entertainment), commissions, fees (including directors’ fees, if the director is,
at the same time, an employee of the payor-corporation), tips, taxable
bonuses, fringe benefits except those subject to Fringe Benefit Tax (FBT)
under Section 33 of the Tax Code, and taxable pensions and retirement pay
(e.g. retirement benefits earned without meeting the conditions for
exemption thereof, such as retirement of less than 50 years of age.)
9. Who are considered minimum wage earners?
an employer, in cash or in kind, in addition to basic salaries of an individual
employee [Sec. 33, NIRC];
Fringe Benefits and De Minimis are not considered compensation subject to
income tax and withholding tax.
12. May a rank and file employee granted fringe benefit? If so, what is
the tax treatment of the benefit.
In the case of rank and file employees, fringe benefits other than those
excluded from gross income under the Tax Code and other special laws, are
taxable under the individual normal tax rate.
13. May a managerial/supervisory employee be granted a de minimis
benefit? If so, what is the tax treatment of the benefit as far as his
concern?

10. What are the tax implocations of the ff instances:

A. Employer secures life insurance of his employee and pays the