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PROFESSIONAL REVIEW & TRAINING CENTER, INC.

TAXATION SIA/TABAG
TAX 2806 - Income Tax on Individuals MAY 2020

LECTURE NOTES

A. CLASSIFICATION OF INDIVIDUAL ü A seaman who is a citizen of the Philippines


TAXPAYERS and who receives compensation for services
1. Resident Citizen (RC) rendered abroad as a member of the
2. Nonresident Citizen (NRC) complement of a vessel engaged exclusively
3. Overseas Contract Worker (OCW) in international trade shall be treated as an
4. Resident Alien (RA) overseas contract worker. (Section 23 (C), RA
5. Non-resident Alien (NRA) 8424)
a) Engaged in trade or business (ETB)
b) Not engaged in trade or business (NETB) ü In order for seafarers or seamen to be
6. Special Employees (Prior to TL) considered as OCW’s or OFW’s they must be
a) Special Alien Employees (SAE) duly registered as such with the Philippine
b) Special Filipino Employees (SFE) Overseas Employment Administration (POEA)
with a valid Overseas Employment Certificate
B. NONRESIDENT CITIZEN (OEC) with a valid Seafarer’s Identification
Record Book (SIRB) or Seaman’s Book issued
The following are considered nonresident citizens by the Maritime Industry Authority (MARINA).
(Section 22 (E), RA 8424):
1. A citizen of the Philippines who establishes to D. RESIDENT ALIEN
the satisfaction of the Commissioner of the
fact of his physical presence abroad with a Resident Alien means an individual whose
definite intention to reside therein. residence is within the Philippines and who is not
a citizen thereof. (Section 22 (F), RA 8424)
2. A citizen of the Philippines who leaves the
Philippines during the taxable year to reside Under RR No. 2, the following are considered as
abroad, either as an immigrant or for resident alien:
employment on a permanent basis; 1. An alien actually present in the Philippines
who is NOT a mere transient or sojourner;
3. A citizen of the Philippines who works and
derives income from abroad and whose A person who comes to the Philippines for a
employment thereat requires him to be definite purpose which in its nature may be
physically present abroad most of the time promptly accomplished is a transient.
during the taxable year;
2. An alien, who comes to the Philippines for a
4. A citizen who has been previously considered definite purpose, which, by its nature, would
as nonresident citizen and who arrives in the require an extended stay making his home
Philippines shall likewise be treated as a temporarily in the Philippines;
nonresident citizen for the taxable year in
which he arrives in the Philippines with 3. An alien who shall come to the Philippines
respect to his income derived from sources with no definite intention as to his stay
abroad UNTIL the date of his arrival in the (floating intention).
Philippines.
An alien who has acquired residence in the
NOTE: All those citizen taxpayers which will Philippines retains his status as a resident until
not qualify on the above enumerations will be he abandons the same and actually depart from
considered as RCs. the Philippines.

C. OVERSEAS CONTRACT WORKER E. NON-RESIDENT ALIEN

ü Overseas Contract Workers (OCW’s) refer to 1. Engaged in trade or business (Section 25


Filipino citizens employed in foreign (A), RA 8424)
countries, commonly referred to as Overseas
Filipino Workers (OFW), who are physically ü An alien individual ACTUALLY engaged in
present in a foreign country as a consequence trade or business in the Philippines; and
of their employment thereat. ü An alien who comes in the Philippines for
an aggregate period of more than 180
ü Their salaries and wages are paid by an days during the calendar year during any
employer abroad and is not borne by any calendar year shall be DEEMED a non-
entity or person in the Philippines. resident alien doing business in the
Philippines.
ü To be considered as an OCW or OFW, they
must be duly registered as such with the 2. Not engaged in trade or business – those
Philippine Overseas Employment NRA not included in no. 1 above.
Administration (POEA) with a valid Overseas
Employment Certificate (OEC). (RR No. 1-
2011)

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EXCEL PROFESSIONAL SERVICES, INC.

F. GENERAL PRINCIPLES: SOURCES OF INCOME Interest from a depositary bank RC & RA 15%**
SUBJECT TO INCOME TAX under the expanded foreign
currency deposit system NRC, NRA- 0%
1. RC – World ETB
2. NRC, RA, OCW, NRA-ETB, NRA-NETB – Within
the Phils. only Interest income from long-term RC, NRC, Exempt
deposit or investment (at least 5 RA, NRA-
G. TYPES OF INCOME TAX APPLICABLE TO years maturity) ETB
INDIVIDUAL TAXPAYERS
In case of pre-termination of the
1. Final Withholding Tax long-term deposit or investment,
2. Capital Gains Tax on Sale of Shares of Stock depending on the holding period: RC, NRC,
3. Basic tax - 5 years or more RA, NRA- Exempt
- 4 years to less than 5 years ETB 5%
H. FINAL WITHHOLDING TAX - 3 years to less than 4 years 12%
- Less than 3 years 20%
GENERAL PRINCIPLES:
ü It is a tax deducted from the
** 7 ½% if received prior to 2018
income/proceeds to be paid to the income
earner (payee) or seller;
v ROYALTIES
ü It is constituted as full and final payment of
the income tax liability;
TP RATE
ü The income subjected to this tax is no longer
Royalties from:
subject to basic income tax;
a) Literary works RC, NRC, 10%
ü It cannot be credited or deducted from the
b) Books RA, NRA-
basic income tax due the BIR;
c) Musical compositions ETB
ü The liability for the payment of the tax is
primarily on the payor as the withholding
agent. Other Royalties 20%

KINDS: v DIVIDENDS
1) Tax on certain passive income TP RATE
2) Capital Gains Tax on Sale of Real Property a) Dividends actually or
3) Fringe Benefit Tax constructively received from: RC, NRC, 10%
i. Domestic Corporation RA
I. FINAL WITHHOLDING TAX (FWT) ON ii. Joint Stock Company
PASSIVE INCOME iii. Insurance or mutual fund
company; and
v GENERAL PRINCIPLES iv. Regional operating
headquarters of a
1. Applicable only to passive income from multinational company.
sources within the Philippines. b) Share in the distributable net
income after tax of a NRA-ETB 20%
2. The payee is not required to file an income partnership (except GPP)
tax return for the particular income subjected c) Share in the net income after
to final withholding tax (FWT). tax of:
1. Association
v FORMULA 2. Joint Account
3. Taxable Joint Venture or
Passive Income PXXX Consortium
Rate XX%
Final Withholding Tax PXX
v PRIZES
v KINDS OF PASSIVE INCOME
(PIDRO) TP RATE
1. Interest Income Amount is more than P10,000.
2. Royalties RC, NRC,
3. Dividends NOTE: If the amount of the prize RA, NRA- 20%
4. Prizes does not exceed P10,000, the ETB
5. Other winnings same is subject to BASIC TAX.

v INTEREST INCOME v WINNINGS

TP RATE PRIOR TO TRAIN LAW:


a) Interest from any currency RC, NRC, RA NRA-ETB
bank deposit; and PCSO/Lotto Winnings Exempt Exempt
b) Yield or any other monetary
benefit from: RC,NRC, Other Winnings 20% 20%
i. Deposit substitutes RA, NRA- 20%
ii. Trust funds ETB
iii. Similar
arrangements as
above

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EXCEL PROFESSIONAL SERVICES, INC.

4) Household personnel, such as maid, driver


TRAIN LAW: and others;
PCSO and Lotto RC, NRC, RA NRA-ETB 5) Interest on loan at less than market rate to
Winnings the extent of the difference between the
Not more than P10,000 Exempt Exempt market rate and the actual rate granted;
6) Membership fees, dues and other expenses
More than P10,000 20% Exempt borne by the employer for the employee in
social and athletic clubs or other similar
Other Winnings 20% 20% organizations;
7) Holiday and vacation expenses;
8) Educational assistance to the employee or his
J. CAPITAL GAINS TAX (CGT) ON SALE OF dependents;
REAL PROPERTY 9) Life or health insurance and other non-life
insurance premiums or similar amounts in
The rules below are applicable to all individual excess of what the law allows; and
taxpayers. 10) Expenses for foreign travel;

REQUISITES: The following fringe benefits are not subject to


1) The real property must be a capital asset; FBT:
and 1) Housing privilege of military officials of the
2) It must be located in the Philippines. Armed Forces of the Philippines (AFP);
2) A housing unit which is situated inside or
FORMULA: adjacent (within 50 meters from the
perimeter of the business premises) to the
Tax Base PXXX premises of a business or factory;
Rate 6% 3) Temporary housing for an employee who
CGT PXXX stays in a housing unit for three (3) months
or less;
TAX BASE: 4) Expenses incurred by the employee which are
paid by the employer and expenses paid for
Highest

1. Selling Price
2. Fair Market Value by the employee but reimbursed by his
3. Zonal Value employer, provided:
a. The expenditures are duly receipted for
OPTIONS OF THE SELLER IN CASE OF SALE and in the name of the employer; and
TO GOVERNMENT: b. It does not partake the nature of a
1. Pay 6% CGT; or personal expense attributable to the
2. Pay Basic Tax. employee;
5) Representation and transportation allowances
REQUISITES FOR EXEMPTION: which are fix in amounts and are regularly
1. The property sold must be the principal received by the employees as part of their
residence of the seller; monthly compensation (subject to basic tax);
2. Proceeds is fully utilized in acquiring or 6) Inland travel expenses (such as expenses for
constructing a new principal residence; food, beverages and local transportation)
3. Utilization must be made within 18 calendar during foreign travel;
months from the date of sale or disposition; 7) Lodging cost in a hotel (or similar
4. Notify the BIR Commissioner within 30 days establishments) amounting to an average of
from the date of sale or disposition of the US$300.00 or less per day during foreign
intention to avail the exemption; travel;
5. The said exemption can only be availed once 8) Cost of economy and business class airplane
every 10 years. ticket for foreign travel;
9) 70% of the cost of first class airplane ticket
K. FRINGE BENEFITS TAX for foreign travel;
10) Educational assistance to the employee,
Fringe Benefits Tax (FBT) - is a final withholding provided:
tax imposed on the grossed-up monetary value of a. The education or study is directly
the fringe benefit furnished, granted or paid by connected with the employer’s trade,
the employer to managerial or supervisory business or profession; and
employees, whether such employer is an b. There is a written contract between them
individual, professional partnership or that the employee is under obligation to
corporation, regardless of whether the remain in the employ of the employer for
corporation is taxable or not, or the government a period of time they have mutually
and its instrumentalities. (Section 33, RA 8424, agreed upon;
RR No. 3-98) 11) Educational assistance to the dependents of
the employee, provided that the assistance
The term “FRINGE BENEFIT” means any good, was provided through a competitive scheme
service, or other benefit furnished or granted by under the scholarship program of the
an employer in cash or in kind, in addition to Company;
basic salaries, to an individual employee (except 12) Contributions of the employer for the benefit
rank and file employee) such as but not limited to of the employee:
the following: a. Pursuant to the provisions of existing law,
HEV – HIM - HELF such as under SSS and GSIS; or
1) Housing; b. Similar contributions arising from
2) Expense Account; provisions of any other existing law;
3) Vehicle of any kind;

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EXCEL PROFESSIONAL SERVICES, INC.

13) The cost of premiums borne by the employer MONETARY VALUE


for the group insurance of his employees;
14) Fringe benefits which are authorized and In GENERAL, the valuation of fringe benefits shall
exempted from income tax under the Tax be as follows:
Code or under any special law;
15) Contributions of the employer for the benefit KIND OF FRINGE BENEFIT VALUATION
of the employee to retirement, insurance and
hospitalization benefit plans; 1) Money Amount of money
16) Benefits given to the rank and file;
17) The fringe benefit is required by the nature of 2) Non-cash property and Fair Market Value vs.
or necessary to the trade, business or ownership is Zonal Value
profession of the employer; or transferred (whichever is higher),
18) When the fringe benefit is for the if applicable
convenience or advantage of the employer;
19) The following de minimis benefits: 3) Non-cash property and Depreciation value of
a. Monetized unused vacation leave credits ownership is not the property
of PRIVATE employees not exceeding ten transferred
(10) days during the year AND THE
MONETIZED VALUE OF LEAVE CREDITS EXCEPTIONS:
PAID TO GOVERNMENT OFFICIALS AND
EMPLOYEES; KIND OF FRINGE BENEFIT VALUATION
b. Medical cash allowance to dependents of
employees not exceeding P1,500 per HOUSING
employee per semester or P250 per Employer leases a MV = Rental Paid
month; residential property for the x 50%
c. Rice subsidy of P2,000 or one (1) sack of use of his employee
50-kg. rice per month amounting to not
more than P2,000;
Employer owns a
d. Uniform and clothing allowance not
residential property and MV = (FMV vs. ZV,
exceeding P6,000 per annum;
the same is assigned for whichever is
e. Actual yearly medical benefits not
the use of his employee higher) x 2.5%
exceeding P10,000 per annum;
f. Laundry allowance not exceeding P300
Employer purchases a
per month;
residential property on MV = AC x 2.5%
g. Employees achievement awards, e.g., for
installment basis and
length of service or safety achievement,
allows the employee to use AC should be net
which must be in the form of a tangible
the same of interest
personal property other than cash or gift
certificate, with an annual monetary
Employer purchases a
value not exceeding P10,000 received by
residential property and MV = AC vs. ZV,
the employee under an established
transfers ownership in the whichever is
written plan which does not discriminate
name of the employee higher
in favor of highly paid employees;
h. Gifts given during Christmas and major
Employer purchases a
anniversary celebrations not exceeding
residential property and MV = (FMV vs. ZV,
P5,000 per employee per annum;
transfers ownership to his whichever is
i. Daily meal allowance for overtime work
employee, at a price less higher) – Cost to
and night/graveyard shift not exceeding
than the acquisition cost the Employee
twenty five percent (25%) of the basic
minimum wage.
j. Benefits received by an employee by MOTOR VEHICLE
virtue of a collective bargaining Employer purchases motor
agreement (CBA); and Productivity vehicle in the name of the MV = AC
incentive schemes (RR 1-2015); employee
Provided, that the total annual monetary
value received from the two (2) items Employer provides cash for
combined, do not exceed P10,000.00 per the purchase of a motor MV = Cash given
employee per taxable year. vehicle

FORMULA: Employer purchases the


Grossed-up Monetary Value PXXX car on installment basis, MV = AC/5 years
Rate XX% the ownership of which is
FBT PXXX placed in the name of the
employee
GROSSED-UP MONETARY VALUE (GMV)
FORMULA: Employer shoulders a
1) GMV = Monetary Value (MV)/GMV Factor portion of the amount of
GMV Factor = 100% - FBT Rate the purchase price of a MV = Amount
motor vehicle the shouldered by the
2) GMV = MV + FBT ownership of which is employer
placed in the name of the
employee

Employer owns and

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maintains a fleet of motor MV = AC of all


vehicles for the use of the motor vehicles for FORMULA:
business and the personal use/5 Gross Income PXXX
employees years x 50% Allowable Deductions XXX
Taxable Income PXXX
Employer leases and MV = Rental Rate XX%
maintains a fleet of motor payments of all Basic Income Tax PXXX
vehicles for the use of the motor vehicles for
business and the personal use x GROSS INCOME – includes all income not subject
employees 50% to final withholding tax and not considered
exempt under the law.
INTEREST
Employer lends money to ALLOWABLE DEDUCTIONS:
his employee free of MV = Principal x
interest 12% 1. Business Expenses & Losses/Optional
Standard Deduction
Employer lends money to MV = Principal x
his employee at a rate (12% - Actual NOTE: It cannot be claimed by pure
lower than 12% Rate) compensation income earner)

N. MINIMUM WAGE EARNERS (RR 10-2008)


RATE Minimum Wage Earners (MWEs) are exempt from
income tax on:
2018 Prior to 1. Minimum wage
2018 2. Holiday pay
RC, NRC, OCW, RA and 35% 32% 3. Overtime pay
NRA-ETB 4. Night shift differential
5. Hazard pay
NRA-NETB 25% 25%
O. DETERMINATION OF BASIC TAX OF
MARRIED INDIVIDUALS
SFE - 15%
SAE - 15%
REQUIREMENTS IN THE FILING OF INCOME TAX
RETURN OF MARRIED INDIVIDUALS:
L. CAPITAL GAINS TAX ON SHARES
ü Married individuals (i.e., husband and wife)
The rules below are applicable to all individual
are required by law to file a consolidated
taxpayers.
income tax return, but they shall compute
separately their individual income tax.
REQUISITES:
1. The shares of stock sold, bartered,
ü Income which cannot be definitely attributed
exchanged or disposed must be a capital
to or identified as income exclusively earned
asset;
or realized by either of the spouses, the same
2. It must be issued by a domestic corporation;
shall be equally divided between the spouses
and
for purposes of determining their taxable
3. The transaction must not be through the
income.
stock exchange.
ü If the spouses are only physically separated
FORMULA:
and there is no legal separation, they are still
required by law to file consolidated or joint
Selling Price PXXX
returns for which they are considered as
Cost (XXX)
jointly and severally liable to the tax.
Selling Expense (XXX)
Net Gain PXXX
P. TAXATION OF NRA-NETB
Rate XX%
CGT PXXX
All income received by a NRA-NETB is subject to
25% FWT, except the following:
RATE:
1. Interest from a depositary bank under the
expanded foreign currency deposit system –
Prior to 2018
exempt
1. First 100T of the gain = 5%
2. Sale of real property and shares subject to
2. In excess of 100T = 10%
capital gains tax.
Beginning Jan. 1, 2018
FROM 2018 TO 2022
15% of Capital Gain
Over But not Tax Plus Of excess
over over
M. BASIC TAX
250,000 Exempt -
250,000 400,000 - + 20% 250,000
GENERAL PRINCIPLES: 400,000 800,000 30,000 + 25% 400,000
ü Income subject to basic tax is reflected in the 800,000 2,000,000 130,000 + 30% 800,000
income tax return of the taxpayer. 2,000,000 8,000,000 490,000 + 32% 2,000,000
ü It is the payee (income earner) who has the 8,000,000 - 2,410,000 + 35% 8,000,000
responsibility to file the return and pay the
applicable tax.

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b) Real Property – 30 days following each


Q. DEADLINE FOR FILING OF RETURNS sale or other disposition

1. Final Withholding Tax on passive income 3. Fringe Benefits Tax – 10th day of the month
following the end of the calendar quarter in
MANUAL FILING which the fringe benefits were granted to the
January to November 10th day of the month recipient.
following the month
the withholding was 4. Basic Income Tax
made a) Quarterly
December January 15 of the i. 1st Quarter – May 15 of the current
succeeding year year (CY)
ii. 2nd Quarter – August 15 of the CY
2. Capital Gains Tax iii. 3rd Quarter – November 15 of the CY
a) Shares of stock
i. Ordinary Return - 30 days after each b) Annual (Final Quarter) – April 15 of the
transaction succeeding year.
ii. Final Consolidated Return - on or before
April 15 of the following year

MULTIPLE CHOICE EXERCISES

1. Which of the following is not considered a non- and operation for which he had to stay in the
resident citizen? Philippines for an indefinite period. His coming to
a. A citizen of the Philippines who establishes to the Philippines was for a definite purpose which in
the satisfaction of the Commissioner the fact of its nature would require an extended stay and to
his physical presence abroad with a definite that end makes his home temporarily in the
intention to reside therein. Philippines. The American management expert
b. A citizen of the Philippines who leaves the intends to leave the Philippines as soon as his job
Philippines during the taxable year to reside is finished.
abroad, either as an immigrant or for
employment on permanent basis. For income tax purposes, the American
c. A citizen of the Philippines who works and management expert shall be classified as:
derives income from abroad and whose a. Resident alien.
employment thereat requires him to be b. Nonresident alien engaged in trade or
physically present abroad most of the time business.
during the taxable year. c. Nonresident alien not engaged in trade or
d. A citizen of the Philippines who went on a business.
business trip abroad and stayed therein most d. Resident citizen.
of the time during the year.
5. Rihanna, an American singer, was engaged to sing
2. Due to his expertise, Engr. Pedro D. Magiba (a for one week at the Western Philippine Plaza after
freelancer) was hired by a foreign petroleum which she returned to USA. For income tax
contractor in Thailand to provide technical purposes, she shall be classified as:
assistance for two months from February to March. a. Resident alien.
He was hired again for the months of June-July b. Nonresident alien engaged in trade or
and October-December of the same taxable year. business.
Engr. Pedro D. Magiba is a: c. Nonresident alien not engaged in trade or
a. Resident citizen business.
b. Nonresident citizen d. Resident citizen.
c. Special Filipino employee
d. None of the above 6. Which of the following interest income derived
within the Philippines is subject to basic income
3. Ronnie, worked in the United States as a Partner of tax?
a Big Four Accounting Firm and has been residing a. Interest income from bank deposits
therein for the past 25 years. He arrived in the b. Interest income from loans
Philippines on July 1, 2018 to reside here c. Interest income from deposit substitutes
permanently. Which of the following statements is d. Interest income from trust funds
correct with respect to Ronnie’s classification for
income tax purposes? 7. Which of the following interest income by a
a. He will be classified as nonresident citizen from resident taxpayer is subject to 15% upon
January 1, 2018 until the date of his arrival in the effectivity of the TRAIN Law?
Philippines. a. Interest income from peso bank deposits
b. He will be classified as nonresident citizen for the b. Interest income from deposit substitutes
whole year of 2018. c. Interest income trust funds
c. He will be classified as resident citizen for the d. Interest income from dollar deposits
whole year of 2018.
d. He will be classified as neither resident nor 8. A non-resident alien derived interest income from
nonresident citizen for the year 2018. his bank deposit here in the Philippines under the
FCDU system of a domestic bank. The interest
4. Dr. J, an expert American Physicist was hired by a amounted to $500. How much is the income tax
Philippine corporation to assist in its organization due of the said alien? ($1=Php50)

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a. P0 c. P3,750 a. Cash and/or property dividends from a


b. P1,875 d. P10,000 domestic corporation or from a joint stock
company
9. If an account in a depository bank under the b. Cash and/or property dividends from insurance
foreign currency deposit system is jointly in the or mutual fund companies
name of a nonresident citizen such as an overseas c. Cash and/or property dividends from regional
contract worker, or a Filipino seaman, and his operating headquarters of multinational
spouse or dependent who is a resident of the companies
Philippines, the interest on such deposit for 2018 d. Cash and/or property dividends from a
taxable year shall be: nonresident foreign corporation
a. Exempted in its entirety.
b. Subject to final withholding tax of 15% in its 16. Share in the net distributable income of a general
entirety. co-partnership by a resident citizen is subject to:
c. 50% exempt and 50% subject to final a. 10% final withholding tax
withholding tax of 15%. b. 20% final withholding tax
d. Subject to regular income tax rates for c. 6% capital gains tax
individuals. d. Basic income tax

10. Which of the following royalties earned within the 17. Share in the net distributable income of a general
Philippines is not subject to 10% final withholding professional partnership by a resident citizen is
tax? subject to:
a. Royalties from computer software a. 10% final withholding tax
b. Royalties from books b. 20% final withholding tax
c. Royalties from literary works c. 6% capital gains tax
d. Royalties from musical compositions d. Basic income tax

11. Statement 1: A nonresident alien not engaged in 18. If a non-resident citizen received his share in the
trade or business shall be subject to a final tax income of a taxable joint venture, what type of
rate of 25% on all income derived from sources income tax that will apply on the said income?
within the Philippines, including gain on sale of a. Final withholding tax on passive income
shares of a domestic corporation. b. Capital gains tax
Statement 2: On OCW shall be subjected to the c. Basic income tax
same tax tax rules that applies to a resident d. Fringe benefit tax
citizen.
a. Only statement 1 is correct 19. Based on the preceding number, except that the
b. Only statement 2 is correct joint venture is exempt from income tax, what
c. Both statements are correct type of income tax will apply on the said income?
d. Both statements are incorrect a. Final withholding tax on passive income
b. Capital gains tax
12. In 2018, Bryan won P500,000 in a PCSO 6/42 c. Basic income tax
lotto draw. Uncertain on which investment should d. Fringe benefit tax
he devote the money, he decided to temporarily
deposit P300,000 of his lotto winnings in Gallaxy 20. If the amount of prize received in the Philippines
Bank, a local bank. His interest income from the did not exceed P10,000, what type of income tax
said deposit will be subjected to: will apply?
a. 10% final tax a. Final withholding tax on passive income
b. 20% final tax b. Capital gains tax
c. added to his gross income and subjected to c. Basic income tax
5%-32% tax. d. Fringe benefit tax
d. Exemption from income tax.
21. If the amount of Lotto winnings received did not
13. The PCSO 6/42 lotto winnings in the preceding exceed P10,000, what type of income tax will
number shall be subjected to: apply?
a. 10% final tax a. Final withholding tax on passive income
b. 20% final tax b. Capital gains tax
c. added to his gross income and subjected to c. Basic income tax
5%-32% tax. d. Exempt from tax
d. Exemption from income tax.
22. If the lotto winnings in the preceding number was
14. The following taxpayers who received a dividend received by NRANETB, what type of income tax will
income from a domestic corporation will received apply?
net of 10% final withholding tax, except: a. Final withholding tax on passive income
a. Resident citizen b. Capital gains tax
b. Non-resident citizen c. Basic income tax
c. Resident alien d. Exempt from tax
d. Non-resident alien engaged in trade or
business 23. Which of the following transactions is subject to
6% capital gains tax:
15. Which of the following cash and/or property a. Sale of condominium units by a real estate
dividends actually or constructively received by an dealer
individual shall not be subject to final tax but to b. Sale of real property utilized for office use
regular income tax for individuals? c. Sale of apartment houses
d. Sale of vacant lot by an employee

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24. Statement 1: Proceeds of sale of real property c. The grossed-up monetary value of the fringe
classified as capital asset may be exempt from the benefit shall be determined by dividing the
6% capital gains tax. monetary value of the fringe benefit by the
gross monetary value factor
Statement 2: Gain from sale of real property d. The person liable for fringe benefit tax is the
classified as capital asset to the Government may employer, whether he is an individual,
be taxed under Section 24 (A) at the option of the professional partnership or a corporation
individual taxpayer. regardless of whether the corporation is
a. True, True c. False, False taxable or not or the government and its
b. True, False d. False, True instrumentalities.

25. Which of the following is not a requisite for the sale 30. An employer subject to fringe benefit tax may be
or disposal of principal residence to be exempt a/an
from CGT? a. An individual
a. The proceeds are fully utilized in acquiring or b. General professional partnership
constructing a new principal residence within c. Corporation
18 calendar months from date of filing the CGT d. All of the above
Return.
b. The historical cost or adjusted basis of the real 31. Which of the following is subject to fringe benefit
property sold or disposed shall be carried over tax?
to the new principal residence built or a. Basic salary of the rank and file employees.
acquired. b. Basic salary of the supervisory or managerial
c. The BIR is notified within 30 days from the employees.
date of sale or disposition. c. Fringe benefit of the rank and file employee.
d. The tax exemption can only be availed of once d. Fringe benefit of the supervisory or managerial
every 10 years. employee.

26. Vincent sold his principal residence for 32. How much is the allowable deduction from
P10,000,000 to his friend. Its FMV when he business income of a domestic corporation which
inherited it from his father was P12,000,000 granted and paid P97,500 fringe benefits to its key
although its present FMV is P15,000,000. He used officers in 2018?
½ of the proceeds to buy a new principal residence a. P150,000 c. P97,500
within eighteen (18) months after the sale. b. P100,000 d. P65,000
Assume further that Vincent properly informed the
BIR about the sale within the required period. It 33. In 2018, ABC Corporation gave the following fringe
shall be: benefits to its employees:
a. Exempt from capital gains tax
b. Subject to P300,000 capital gains tax To managerial employees P1,300,000
c. Subject to P450,000 capital gains tax To rank and file employees 5,000,000
d. Subject to P600,000 capital gains tax
The allowable deduction from the gross income of
27. Because of dire necessity, Juan sold a parcel of the corporation for the fringe benefits given to
land from for P8,000,000 with a cost of employees is
P10,000,000. At the time of sale, the fair market a. P2,000,000 c. P6,320,000
value of the land was P11,000,000. The proceeds b. P2,148,000 d. P7,000,000
of the sale were used to purchase principal
residence at Manila. As such, within 30 days from 34. Data from a managerial employee for taxable year
the sale, he informed the Commissioner of Internal 2018 revealed the following:
Revenue of his intention to avail of the exemption Salaries and wages (net of SSS and 785,000
and set-up an escrow deposit equivalent to the philhealth contributions amounting to
capital gain’s tax. The sale of land resulted a tax 25,000 and withholding tax of
consequence of: 150,000)
a. P480,000 capital gains tax on sale of real Allowance, not subject to liquidation 60,000
property. Gasoline allowance, subject to 19,500
b. P600,000 capital gains tax on sale of real liquidation
property. 13th month pay 80,000
c. P660,000 capital gains tax on sale of real
property. Taxable compensation income subject to graduated
d. None. rates is -
a. P785,000 c. P935,000
28. Fringe benefit tax is computed based on: b. P810,000 d. P960,000
a. Grossed-up monetary value
b. Monetary value 35. Based on the above problem, the fringe benefit tax
c. Gross compensation due is -
d. Net compensation a. P19,500 c. P31,500
b. P30,000 d. P32,307
29. The following statements are true, except
a. Fringe benefit tax shall be treated as a final 36. In the year 2018, Bank of Philippine Archipelago
income tax on the employee withheld and paid Inc. paid for the quarterly rental of a residential
by the employer on a quarterly basis house of its branch manager, Mr. Tolentino,
b. The grossed-up monetary value of the fringe amounting to P90,000.
benefit is the actual amount received by the
employee

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EXCEL PROFESSIONAL SERVICES, INC.

How much is the fringe benefit expense?


a. P15,750 c. P90,000 45. A leading manufacturing firm in the country
b. P45,000 d. P105,750 provides educational assistance to all its
employees’ dependents provided the latter
37. How much is the fringe benefit tax? qualifies in the entrance examination given by the
a. P24,230 c. P90,000 school of their choice. The educational assistance
b. P45,000 d. P105,750 is/subject to:
a. Subject to basic income tax or fringe benefit
38. International Phone Inc. owns a condominium unit. tax depending on the rank of the related
During the year 2018, it allowed its CEO to use the employee.
said property as his residence. The zonal value of b. Subject to fringe benefit tax regardless of the
the property is P10,000,000 while its fair market rank of the related employee.
value as shown in its current Real Property Tax c. Subject to basic income tax regardless of the
Declaration amounts to P8,000,000. rank of the related employee
d. Tax exempt
How much is the fringe benefit expense?
a. P500,000 c. P200,000 The next five (5) questions are based on the following:
b. P250,000 d. nil Chris, married, supporting his 3 minor children had the
following data for taxable year 2018:
39. Based on the preceding number, how much is the
quarterly fringe benefit tax expense? Philippines Abroad
a. P50,000 c. P33,654 Business income P1,000,000 $20,000
b. P23,529 d. nil Professional income 400,000 10,000
Salaries 200,000
40. Using the same data in Number 39 and assuming Business and professional
that the acquisition cost of the residential property expenses 250,000 8,000
is P7,000,000 and the remaining useful life is 15 Income tax paid 4,000
years.
NOTE: $1 = P50
How much is the fringe benefit expense?
a. P500,000 c. P200,000 46. If he is a resident citizen, his income tax payable
b. P250,000 d. nil is:
a. P789,000 c. P589,000
41. In 2018, Jana Corporation purchased a residential b. P570,500 d. P434,000
house and lot for P2,300,000. The property was
later sold to its General Manager for P1,980,000. 47. If he is a resident alien, his income tax payable is:
The fair market value per Assessor’s Office is a. P360,580 c. P384,380
P2,200,000 while the zonal value is P2,100,000. b. P358,020 d. P295,000

How much is the fringe benefit tax? 48. If he is a non-resident citizen, his income tax due
a. P103,529 c. P150,588 after tax credit, if any is:
b. P118,462 d. nil a. P360,580 c. P384,380
b. P358,020 d. P295,000
42. Based on the preceding number, assuming the
selling price is P2,400,000, how much is the fringe 49. If he is a non-resident alien engaged in trade or
benefit tax? business in the Philippines but without the benefit
a. P103,529 c. P150,588 of Reciprocity Law, the income tax due after tax
b. P118,462 d. nil credit, if any is:
a. P295,000 c. P405,500
43. Mikaela Flower Shop Inc. purchased a motor b. P378,500 d. P338,500
vehicle in 2018 for the use of its manager, Mike. It
was registered under Mike’s name. The cost of the 50. If he is a non-resident alien not engaged in trade
vehicle was P400,000. The vehicle will be partly or business, disregarding professional & business
used for the benefit of the Company. data, the total income tax that should be withheld
from his income is:
How much is the fringe benefit tax? a. P50,000 c. P31,500
a. P188,235 c. P37,647 b. P18,500 d. P338,500
b. P215,385 d. nil
51. Mr. and Mrs. Tijam, both CPA’s and residents of
44. In general, educational assistance to the employee the Philippines, with 6 minor children, had the
by the employer may be taxable or tax exempt. following data for taxable year 2018:
Which of the following is required in order that
such educational assistance be exempt from fringe Salaries, wife P600,000
benefit tax? Bonus (13th month pay), wife 60,000
I. The education or study involved is directly Professional Fees, (net of 10%
connected with the employer’s business or withholding tax) 7,200,000
profession. Expenses – Practice of profession 3,200,000
II. There is a written contract between them Rental income (net of 5% withholding
that the employee is under obligation to tax 712,500
remain in the employ of the employer for a Rental expenses 280,000
certain period of time they have mutually Other income, husband 840,000
agreed upon.
a. I only c. Both I and II
b. II only d. Neither I nor II

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EXCEL PROFESSIONAL SERVICES, INC.

The taxable income of Mr. Tijam is: 58. Which of the following statements regarding
a. P3,475,000 c. P3,335,000 minimum wage earner (MWE) is correct?
b. P3,235,000 d. P4,800,000 a. The MWE is exempt from income tax on his
basic statutory minimum wage (SMW).
52. The taxable income of Mrs. Tijam is: b. The MWE is exempt from income tax on his
a. P3,475,000 c. P3,335,000 overtime pay, holiday pay, night shift
b. P3,235,000 d. P4,800,000 differential, and hazard pay.
c. The MWE is subject to income tax on income
53. Mr. Panganib had the following data for taxable other than those mentioned in “a” and “b”.
year 2018: (Exchange rate $1-P40) d. All of the above

Philippines Abroad 59. What is the correct treatment of overtime pay,


Salaries P165,000 $2,000 holiday pay, night shift differential, and hazard pay
Business income 450,000 6,000 received by those whose basic pay is more than
Business expenses 120,000 1,500 the SMW?
Interest income: a. Exempt from income tax.
Personal receivable 10,000 b. Subject to income tax, and consequently, to
FCDU $2,500 the withholding tax on compensation income.
On bank deposits (20% c. Considered as fringe benefit subject to fringe
long-term) 25,000 600 benefit tax, provided the employee is holding
Royalty income (20% from managerial or supervisory position.
books) 22,000 500 d. None of the above.
Prize won in contest 10,000
Dividend income: 60. Lorna, a minimum wage earner, works for E di
From domestic corp. 7,000 Wow, Incorporated. She earned compensation
From resident foreign income of P135,000 in 2018. Aside from her basic
corp. 3,000 50 pay, she also earned P140,000 consisting of
From non-resident foreign P80,000 overtime pay, P30,000 night shift
corp. 5,000 75 differential, P15,000 hazard pay, and P15,000
Winnings from Phil. Charity holiday pay. She also contributed to the SSS,
Sweepstakes 80,000 Philhealth, and HDMF amounting to P5,000 and
has received a 13th month pay of P11,000.
Mr. Panganib is married with the following children as Lorna’s income tax due for the taxable year should
dependents: be:
• Haze, born March 15,1993 a. P1,800 c. P7,200
• Diane, born April 5,1994 b. P3,600 d. P0
• Christine, born May 6,1995
• Batman, born February 27, 1996. 61. Ana, not a minimum wage earner, works for
Maharlika Corporation. She earned compensation
During the year, he sold a condominium unit in Manila income of P240,000 in 2018. Aside from her basic
(residential) for P2,000,000 although its FMV is pay, she also earned P140,000 consisting of
P3,000,000 but with a zonal value of P4,000,000. P80,000 overtime pay, P30,000 night shift
differential, P15,000 hazard pay, and P15,000
Finally, his shares of stocks in a domestic corporation, holiday pay. She also contributed to the SSS,
bought for P10,000, were sold outside the local stock Philhealth, and HDMF amounting to P5,000 and
exchange for P30,000. has received a 13th month pay of P11,000. Ana’s
income tax due for the taxable year should be:
The taxable income of Mr. Panganib is: a. Exempt c. P76,000
a. P655,000 c. P699,000
b. P26,000 d. P80,000
b. P707,000 d. P832,000

54. Mr. Panganib’s total final taxes on his passive 62. Statement 1: Generally, qualified Senior Citizens
income is: deriving returnable income during the taxable
a. P16,160 c. P15,460 year, whether from compensation or otherwise,
b. P16,020 d. P39,660 are required to file their income tax returns and
pay the tax as they file the return.
55. The total capital gains tax for the year is: Statement 2: A Senior Citizen who is a
a. P243,000 c. P240,000 compensation income earner deriving from only
b. P251,720 d. P257,000 one employer but whose income had been
subjected to the withholding tax on compensation,
56. If he is a non-resident citizen his total final tax on shall, although not exempt from income tax, be
passive income is: entitled to the substituted filing of income tax
a. P16,020 c. P24,660 return.
b. P16,160 d. P8,520 a. Only statement 1 is correct
b. Only statement 2 is correct
57. If he is a non-resident alien not engaged in trade c. Both statements are correct
or business, his total combined taxes on all income d. Both statements are incorrect
from Philippines is: (excluding business income)
a. P81,750 c. P324,750 63. Statement 1: CGT on sale of real properties shall
b. P241,000 d. P319,000 be paid within 30 days from sale or disposition.
Statement 2: The CGT on the unutilized portion of
the proceeds in case of sale of a real property
classified as a principal residence shall be paid

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EXCEL PROFESSIONAL SERVICES, INC.

within 30 days after the expiration of the eighteen 69. Mr. MAG, a financial Comptroller of JAB Company,
(18) month period. earned annual compensation income in 2018 of
A. B. C. D. 1,500,000, inclusive of 13th month and other
Statement 1 True False True False benefits in the amount of P120,000 but net of
mandatory contributions to SSS and Philhealth.
Statement 2 True False False True
Aside from employment income, he owns a
convenience store, with gross sales of P2,400,000.
64. Who of the following may avail of substituted filing His Cost of Sales and operating expenses are
of Income Tax Return (ITR)? P1,000,000 and P600,000, respectively, and with
ANA: non-operating income of P100,000. Assume he
§ Deriving compensation income from ABC signified his intention to be taxed at 8% income
Company, her only employer for the taxable tax rate in his 1st quarter return, the total income
year. tax due is:
§ The correct amount of tax was withheld by a. P513,000 c. P313,000
ABC Company b. P589,200 d. P493,000
§ She also sold her personal car and some of her
jewelries resulting to a capital gain of 70. Based on the preceding number, if he did not opt
P100,000. for the 8% income tax, his income tax due is:
a. P513,000 c. P313,000
PEDRO:
b. P589,200 d. P493,000
§ Deriving purely compensation income from
XYZ Corporation, his only employer for the
taxable year. 71. On February 2019, Mr. MAG tendered his
§ The correct amount of tax was withheld by XYZ resignation to concentrate on his business. His
§ Pedro’s spouse is engaged in business total compensation income amounted to P150,000,
a. Ana only c. Ana and Pedro inclusive of benefits of P20,000. His business
b. Pedro only d. Neither Ana nor Pedro operations for 2019 remains the same. He opted
for the 8% income tax rate. His income tax liability
65. Which of the following statements on the 8% is:
income tax rate is incorrect? a. P200,000 c. P190,400
a. The Financial Statements (FS) is not required to be b. P589,200 d. P493,000
attached in filing the final income tax return.
b. Existing rules and regulations on bookkeeping and 72. Ms. Cyril is employed in MAFD Corporation and is
also a part-time real estate agent for a real estate
invoicing/receipts shall still apply.
broker. In addition to SMW of P180,000 she
c. The income tax is in lieu of the graduated rates of received from her employer, she likewise received
income tax and percentage tax under Section 116 P75,000 as commissions from her real estate
of the Tax Code. dealings for the year 2018. How much is the
d. None of the above income tax liability for the year under the
graduated income tax (IT) regime?
66. Pedro is an individual taxpayer under a “contract of a. P1,000 c. P20,400
service” or “job order arrangement” with DPWH, a b. P6,000 d. nil
government agency.
Statement 1: Pedro is considered self-employed. 73. Based on the preceding number, how much is the
Statement 2: Pedro is liable both to income tax income tax liability under the 8% IT regime?
and business tax. a. P1,000 c. P20,400
a. Only statement 1 is correct. b. P6,000 d. nil
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.

67. Ms. EBQ operates a convenience store while she


offers bookkeeping services to her clients. In 2018,
her gross sales amounted to P800,000, in addition
to her receipts from bookkeeping services of
P300,000. She incurred cost of sales and operating
expenses amounting to P600,000 and P200,000,
respectively. She already signified her intention to
be taxed at 8% income tax rate in her 1st quarter
return.

How much is the income tax liability for the year?


a. P68,000 c. P88,000
b. P10,000 d. P60,000

68. Based on the preceding number, if Ms. EBQ failed


to signify her intention to be taxed at 8% income
tax rate on gross sales on her initial Quarterly
Income Tax Return, her income tax liability is:
a. P68,000 c. P88,000
b. P10,000 d. P60,000

Page 11 of 11 TAX 2806