gross income

Formula: 2

In the case of seller of goods: In the case of seller of services:

Gross Sales xxx Gross Receipts xxx

Less: Sales Returns (xxx) Less: Sales Returns (xxx)
Sales Discounts (xxx) Sales Discounts (xxx)
Sales Allowances (xxx) Sales Allowances (xxx)
Cost of goods sold (xxx) Cost of services (xxx)
Gross Income xxx Gross Income xxx
Review 3
Gross Income means all income derived from whatever including but not limited to the following
items:
✓ Compensation for services

✓ Gross income from conduct of trade or business or exercise of profession

✓ Gains derived from dealings in property

✓ Interests

✓ Rents

✓ Royalties

✓ Dividend

✓ Annuities

✓ Prizes and winnings

✓ Pensions

✓ Partner’s distributive share from net income of the GPP

Review 4
Exclusions from Gross Income:
✓ Life Insurance

✓ Amount Received by insured as Return of Premium

✓ Gifts, Bequests, and Devices

✓ Compensation for Injuries or Sickness

✓ Income Exempt under Treaty

✓ Retirement Benefits, Pensions, Gratuities, etc.

✓ Miscellaneous Items

✓ GSIS, SSS, Medicare and Other Contribution

✓ Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness with a

maturity of more than five (5) years

✓ Gains from Redemption of Shares in Mutual Fund
Compensation paid in promissory note 5

In 2018, Mary received from Pia a promissory note with a face value of P 100,000 for
services rendered. The note will mature in 2019. At the time of receipt in 2018 the note may
be sold to a bank at a discount of 18%. Pia paid the note upon maturity in 2019.

How much income is subject to tax in 2014?

Face Value ₱ 100,000

Less: Discount (100k*18%) 18,000
Taxable Income ₱ 82,000
Gross income from farming 6
The following data pertains to Boquerin:
o Sale of products raised in the farm – 450,000.00

o Sale of livestock – 325,000.00

o Gain on sale of farm equipment – 40,000.00

o Rent income of farm equipment – 7,000.00

How much is the gross income of Boquerin?

Sale of farm products ₱ 450,000.00

Sale of livestock 325,000.00
Total 775,000.00
Add: Gain on sale of farm equip. ₱40,000.00
Rent income of farm equip. 7,000.00 47,000.00
Gross Income 822,000.00
dealings in properties
 8

Remember!
DEALINGS IN PROPERTIES – involve sale, exchanges, and other disposition of properties
such as ordinary assets or capital assets.

CAPITAL ASSETS other than

ORDINARY ASSETS
domestic stocks and real properties

Subject to REGULAR INCOME TAX Subject to REGULAR INCOME TAX

 Capital losses are deductible only to the extent of 9
capital gains from dealings of capital assets other than
Remember! domestic stocks or real properties
TREATMENT TREATMENT
OF OF
ORDINARY GAINS AND LOSSES CAPITAL GAINS AND LOSSES
ORDINARY ORDINARY NET CAPITAL NET CAPITAL
GAINS LOSSES GAINS LOSSES
Separate items of Items of deductions Is not an item of
Is an item of gross
Gross Income from gross income deduction against
income
gross income
Subject to regular
income tax Subject to regular
income tax
Taxable in full Deductible in full
 10

Remember!
DETERMINATION OF NET CAPITAL GAIN OR NET CAPITAL LOSSES
Other than Domestic Stocks and Real Properties

“HOLDING PERIOD RULE”

INDIVIDUAL CORPORATION

Not more than 1 year – 100%

Does not apply to corporations
More than 1 year – 50%
Individual taxpayer 11

Mr. Makati sold various properties as follows in 2016:

NET CAPITAL
GAINS
Is an item of gross
income
Subject to regular
income tax

EXCLUDES
• Domestic Stocks
• Real Properties
Integrative illustration 12
Mr. Tayabas had the following dealings in properties during the year:

REMEMBER:
• Holding Period Theory
• Definition of NCG

INDIVIDUAL CORPORATION
dealings in properties:
effects of situs
 14

Remember!

WORLD INCOME PHILIPPINE INCOME

Applicable only to:

a) Resident Citizens
b) Domestic Corporations
Apply to all properties regardless of Apply only to properties located in the
location Philippines.
 Effect of situs on dealings in properties 15
John Hay, a Filipino Citizen, reported the following gains and (losses) from dealings in
properties:

Both Individual and Corporation Individual

Corporation
dealings in properties:
net capital loss carry
over

Remember!
NET CAPITAL LOSS CARRY
OVER
Actual Net Capital Loss
Limit 1 – The amount of net
income in the year the net capital
loss was sustained
Limit 2 – The available net
capital gain in the following year
17
• The net capital loss
carry over is strictly
for one year only and
is applicable only to
individual taxpayers
• Corporate taxpayers
are not allowed
 Net capital loss carry over 18
NET CAPITAL LOSS CARRY
OVER

Actual Net Capital Loss

Limit 1 – The amount of net

income in the year the net capital
loss was sustained

Limit 2 – The available net

capital gain in the following year

Step 1: Step 2:

Step 3: