GROSS INCOME Inclusions and Exclusions: Tel. Nos. (043) 980-6659

CABRIA CPA REVIEW CENTER
GROSS INCOME Inclusions and Exclusions Tel. Nos. (043) 980-6659

JIEXEL L. MANONGSONG
INCOME – In a broad sense, income means all wealth that flows into the taxpayer other than
as a mere return of capital.
General Classification of Income
NON-TAXABLE INCOME – earnings of the taxpayer that are excluded from gross income as
provided by NIRC and other tax laws. It should never be included in the computation of the gross
taxable income.
EXCLUSION FROM GROSS INCOME

UNDER THE TAX CODE:
1. Proceeds of life insurance;
Guidelines:
a. As a General rule, proceeds of life insurance policies received by heirs or beneficiaries are NOT
taxable
b. If the insured outlived or received the payment, PARTLY taxable and PARTLY not.
a. Return of Premium – NOT taxable
b. In excess of Premium - Taxable
c. If the beneficiary is himself/herself or his/her estate – subject to estate tax.
d. If the insured transfer to another person with consideration (payment), the proceeds are taxable
to the extent that exceeds the consideration (payment) made.
On January 1 of the current taxable year, Mr. Segu Resta took a life insurance policy of Php 5, 000,
000. The annual premium is Php 15, 000. The insurance is payable to the beneficiary indicated in the
face of the policy after 25years
Required: Determine whether the proceeds from the life insurance are taxable or not in the following
cases:
1. Mr. Segu Resta, after 10 years of paying the annual premium, died in a car accident.
2. Mr. Segu Resta outlive the policy, that is, he was still alive after 25 years and received personally
the proceeds
3. Mr. Segu Resta died after 15 years and the beneficiary other than the insured received the
proceeds. The insurer, however, as agreed by the beneficiary, held the proceeds with interest
of 12% per annum payable every end of the year
4. Mr. Segu Resta, after paying the annual premium for 10 years, transferred the policy to Ms.
Ginan Cyado for Php 200, 000. Later on, Mr. Segu Resta died and the transferee, Ms. Ginan
Cyado, received the face value of the policy.
2. Amount received as return of premium;

- premium on insurance refers to amount regularly paid (annual, semi-annual, quarterly or
monthly) by the insured or other than the insured to cover the life insurance, annuity or
endowment contract.
Page 1 of 24 cabria.batangas@gmail.com LAW.101

Cash Surrender Value – refers to the amount that the insurance company will pay in the event
insurance contract is cancelled or surrendered before the maturity date. (starts to accrue at the
end of 3rd year)
On January 1 of the current taxable year, Mr. Segu Resta has taken a life insurance policy of
Php 5,000, 000. Then annual premium of the policy is Php 15, 000. The insurance is payable
to the beneficiary indicated in the face of the policy after 25 years.
The life insurance policy of Mr. Segu Resta carries the following Cash Surrender Value:
End of Cash Surrender Value
3rd year Php 40,000
th
4 year Php 60,000
5th year Php 80,000
Required: Determine whether the amount received is taxable in the cases below: and if
taxable, compute the amount of taxable income.
Case 1 – Mr. Segu Resta canceled the life insurance policy at the end of 4 th year and
accordingly received the CSV as return of premium
Case 2 – Mr. Segu Resta surrendered life insurance policy at the end of 5 th year, thereby
receiving the equivalent CSV as return of premium
3. Gifts, bequests and devises;
4. Compensation for injuries or sickness;
5. Income exempt under treaty;
6. Retirement benefits, pensions, gratuities, etc.;
a. Retirement benefits received by officials and employees of private firms, individuals or

corporations.
Requisites for exclusions:
- Reasonable private plan approved by the BIR;
- Retiring official or employee has rendered at least 10 years of service with the same
employer;
- At least 50 years of age at the time of retirement;
- Availed only once.
b. Separation benefits due to:

- Death
- Sickness
- Other physical disability
- For any cause beyond the control of the official or employee
c. Social security benefits, retirement gratuities received from foreign government agencies
and other private or public institutions.
d. Benefits received from US Veterans Administration by veterans residing in the Philippines.
e. Payment of benefits under the Social Security System.
f. Benefits received from GSIS including retirement gratuity.
7. Income received by foreign governments from their investments in the Philippines;
NOTE: Foreign governments include;

- financing institutions owned, controlled and financed by them; and

- Regional financing institutions established by foreign governments.
8. Income derived by the Government of the Philippines or any political subdivision from any public
utility or from the exercise of any essential government function;
9. Prizes and awards under the following conditions;

- Received in recognition of charitable, artistic, religious, civic, educational, literary or scientific
achievement. (CARCELS)
- Recipient was selected without any action on his part to enter the contest or proceeding
- Recipient is not required to render substantial future services as a condition to receiving the
prize or award.
10. Prizes and awards in sports competition

granted to athletes whether held in the
Philippines or abroad and sanctioned by
their national sports associations;
11. 13th Month pay and other benefits;

- Other benefits cover productivity incentives and Christmas bonus;
- Total exclusion shall not exceed P90,000.
12. GSIS, SSS, Medicare and other contributions;

13. Gains from the sale or exchange or retirement of bonds, debentures, or other certificate of
indebtedness with a maturity of more than five (5) years.
14. Gains from redemption of shares in Mutual Fund Company
UNDER SPECIAL LAW:
1. Prizes received in charity, horse racing, sweepstakes from the Philippine Charity Sweepstakes
Office (R.A. No. 1169)
2. Salaries and stipend in dollars received by non-Filipino citizens serving as staff of:
a. International Rice Research Institute (R.A. No. 2707);
b. Ford Foundation Grants (R.A. No. 3538)
c. Agricultural Department of SEAFDEC (P.D. No. 246)
d. Population Council of New York (P.D. No. 246)
3. Income from bonds and securities:

a. For sale in the international market (P.D. No. 81)
b. Issued by EPZA (P.D. No. 66)
4. Income derived from the installment sales of houses to employees and workers or to low-income
groups in housing projects or income derived from rentals thereof (P.D. Nos. 745 and 1217 –
Housing program of the government.)
TAXABLE INCOME –
1. There must be a gain or profit, whether in cash or its equivalent.
2. The gain must be realized or received.
3. The income must not be excluded by law or treaty from taxation.
Classification of Taxable Income

1. Compensation Income
2. Business/Professional Income
3. Passive Income
4. Gains in Dealings in Properties
5. Other Income
COMPENSATION INCOME – Means all remuneration for services performed by employee for his
employer under the employer-employee relationship, unless expressly excluded by the Tax Code
Composition of Gross Compensation Income

• Salary, wage or fee
• Commission
• Honoraria
• Allowances
• 13th month pay and other benefits
• Holiday pay, overtime pay, night shift differential and hazard/emergency pay
• Separation pay
• Retirement pay
• Sick leave and vacation leave pay
• Fringe Benefits
Salary, Wage or Fee

• Salary – an earning paid on regular intervals;
• Wage – is paid on hourly or daily basis
• Fee – implies payment to an individual who is of authority
– Fees paid to director who are employees of the company shall be considered as
compensation income subject to withholding tax on wages
– If the director is NOT an employee, not compensation rather income from exercise of
profession subject to 5% or 10% withholding tax
Tax-Exempt Compensation
• Minimum Wage Earner (MWE)
• Compensation Income of minimum wage earners in the private sector and being paid the
statutory minimum wage;
• Compensation Income of employees in the public sector with salary of not more than the
statutory minimum wage in the non-agricultural private sector.
Addt’l Tax Exempt Compensation of MWE

• Holiday Pay
• Overtime Pay
• Night Shift Differential Pay
• Hazard Pay
NOTE: if MWE receives other income from trade or business, or practice of profession, commissions,
honoraria, fringe benefits, benefits in excess of Php 90, 000, taxable allowances and other taxable
compensation income except subject to Final Withholding Tax, -ALL/Entire income will be subject to
Tax
Required: Determine whether the compensation received is taxable or not in the following cases:
1. Mr. Cera Doy received a monthly salary of Php 8, 300 as an employee of AA Company. The rate
was fixed as the statutory minimum wage in the place by concerned government authorities. In
addition, the taxpayer received an overtime pay of Php 1, 200 per month.

2. Mr. Di Zon, an employee of BB Company, received a monthly salary of Php 9, 800 that was
determined as the statutory minimum wage in the area. The employee, in addition, received a
monthly taxable allowance of Php 2, 000.
3. Mr. Mar Tinez, an employee of company CC, received a monthly salary of Php 12, 400 that was
fixed as statutory minimum wage in the region. The taxpayer has a small merchandising store
managed by his wife.
Commission, Honoraria and Allowances

• Commission – payment made based on a certain percentage of output, like salesman’s
commission or underwriter’s commission
• Honoraria – earnings derived from services usually undertaken by individual considered experts
in a particular field. E.g. special lecturers
• Allowance – additional benefits received by an employee either fixed or variable.
• Fixed if it is attached to the position or office
• Variable when it changes accordingly as influenced by certain factors like no. of visits,
distance of travel, frequencies of seminars.
• Transportation, Representation, and Other Allowances - if it is in addition to the regular
compensation FIXED for his position or office, - COMPENSATION subject to withholding
tax
EXCEPT:
• Ordinary and Necessary on the pursuit of trade, business or profession
• Required to Liquidate/Account for
• Cost of Living Allowance (COLA) – NOT TAXABLE and does not form part of the basic
salary
• Representation and Traveling Allowance (RATA) –
• If received by Regular Employee – Taxable
• If received by Public Officers and Employees under General Appropriations Act
(GAA) which constitute REIMBURSEMENT – NOT Taxable
• Personnel Economic Relief Allowance (PERA) – Not Taxable if received by government
Officials and employees
Case for Commission, Honoraria and Allowances

Ms. Jona Pawig is holding supervisory position at Mainit Company with a monthly salary of Php 22,
000. In addition to her basic pay, she is entitled to 5% commission on net sales and is being provided
representation and travelling allowance of Php 6, 000 monthly.
During the year, Mainit Company has gross sales of Php 8, 500, 000. Sales returns and allowances
amounted to Php 280, 000.The company maintained a mark-up of 60% to cover the operating
expenses.
Required:
Compute the gross compensation income of Ms. Jona Pawig for the year.
13th Month Pay – mandatory ONE-month basic salary

Other Benefits
– Christmas Bonus
– Productivity Incentive Bonus
– Loyalty Award
– Gift in cash or in kind
NOTE: this income is EXEMPTED from withholding tax provided they do not exceed Php 90, 000*. In
excess of Php 90, 000- subject to regular tax
Case for 13th month Pay and Other Benefits

Mr. D De Guzman is the vice president for operation of Walang Kayo Company with an annual salary
of Php 720, 000. At the end of the year, he received a cash gift of Php 35, 000 in addition to his 13 th
month pay equivalent to his one-month salary.
Required:
Compute the gross compensation income of Mr. D De Guzman.
Holiday pay, overtime pay, night shift differential and hazard/emergency pay
• Hazard pay – the amount paid by the employer to employees who were assigned to dangerous
or strife-torn areas, disease-infested places or in distressed or isolated stations and camps
which expose them to great danger of contagion or peril to life
• Holiday pay, overtime pay, night shift differential and hazard pay are generally TAXABLE except
received by MWEs’
CASE for Holiday pay, overtime pay, night shift differential & hazard/emergency pay
Mr. Borbon was paid a statutory minimum wage of Php 12, 000 per month. In addition, he received a
holiday pay and overtime pay amounting to Php 15, 000 during the year.
Question: is the income of the taxpayer taxable or not?
Mr. Lacena received a monthly salary of Php 10, 000 that was determined by the Wage Board as the
statutory wage in the region. In addition, Mr. Lacena received Php 45, 000 during the year as
commission on the sales he had made.
Question: is the income of the taxpayer taxable?
Separation Pay
General Rule:
Exceptions: in case of…

 Death
 Sickness
 Other physical disability
 For any cause beyond the control of the official or employee
Mr. Ambis Yoso, a chemical engineer of Kraft Company, recently tendered his resignation because of
a favourable financial offer of Nestle Company. His total basic salary for his 10-month stay at Kraft
amounted to Php 180, 000 at the monthly rate of Php 18, 000. Because of his exposure to chemicals
at Kraft he was given a hazard pay equivalent to 100% of his one month basic salary and an
overtime pay of 5% of his total salary for 10 months. Mr. Ambis Yoso also received a separation pay
of Php 25, 000 upon his resignation.
Required:
Determine the gross compensation income of Mr. Amis Yoso from Kraft Company.
Retirement benefits, pensions, gratuities, etc.;

a. Retirement benefits received by officials and employees of private firms, individuals or
corporations.
Requisites for exclusions:
a. Reasonable private plan approved by the BIR;
b. Retiring official or employee has rendered at least 10 years of service with the
same employer;

c. At least 50 years of age at the time of retirement;
d. Availed only once.
CASE for Retirement Pay
Mr. Kapoy Nha, with a monthly salary of Php 15, 000, retired from Alto Company on
December 31 of the current year as the company’s electrician for the last 10 years. In view of his
retirement, he received from SSS his lump sum retirement cash benefit of Php 600, 000 and Php
200, 000 from Alto Company under its retirement plan duly approved by the BIR Commissioner.
Before his employment with Alto Company, Mr. Kapoy Nha worked for Al-One Company for 12 years
and received a retirement pay upon his separation from his company.
Required:
Determine the gross compensation income of Mr. Kapoy Nha for the taxable year.
Sick Leave pay and Vacation Leave Pay

• Salary of an employee on vacation or sick leave, which is paid to him notwithstanding his
absence from work, constitutes taxable compensation income.
• NOTE: however, the cash value of unused vacation leave credits of 10 days or less, which was
paid to the employee during the year, is NOT subject to tax
CASE for SL/VL Pay
Mr. Mapa Lad with a monthly salary of Php 12, 000 is an employee of Best Corporation. He was on
leave for one month but was paid his salary while on leave.
Required:
Determine the taxable income
FRINGE BENEFITS –
Rank and File Employees

Fringe Benefits- any good, service or other benefit granted in cash or in kind by an employer to an
employee in addition to his basic salary
Some Form of Fringe Benefits
1. Living quarters or meals
2. Payment of income taxes
3. Payment of insurance premium
4. Share in company’s profit
5. Bonus and award for exemplary performance
“Living quarters or meals”
• General Rule: Living quarters and meals provided to rank-and-file employees are taxable based
on the rental value of the living quarters and the value of the meals.
• NOTE: However, if living quarters and meals are provided to an employee for the convenience
of the employer, the value thereof need not be included as part of the compensation income
Requisites:
1. The value of living quarters and meals for the exclusive benefit of the employer is not taxable,
provided such are provided within the business premises of the employer
2. Living quarters and meal allowances provided to officials of the Armed Forces of the Philippines
are NOT taxable
3. In the event the employer is NOT benefited, the rental value of the living quarters provided to
the employee is an additional compensation income of the employee, hence, taxable

4. The living quarters and meals provided are expected to yield better work performance
Case for Living Quarters or Meals

Tulong Palagi Company provided benefits to the following employees in addition to their basic salary:
 Ms. Mha Taas, controller with monthly salary of Php 50, 000 is housed by the company in a
penthouse located outside the business premises. The prevailing rental value of the
penthouse is Php 18, 000
 Ms. Nhasa Lalim, a clerk with a monthly salary of Php 10, 000 is likewise housed by the
company in an ordinary dormitory with a monthly rental of Php 3, 000.
Required:
Determine the compensation income of Ms. Mha Taas and that of Ms. Nhasa Lalim for the taxable
year.
“Payment of income taxes”
Mr. Spartan, an employee of Mars Corporation, has a net taxable income of Php 120, 000. The
employer paid his tax liabilities amounting to Php 18, 500.
Required:
Discuss the appropriate treatment of the taxes paid.
“Payment of Insurance premium”
Beneficiary:
1.
2.
Mr. Brown, an employee of Stud Company with an annual salary of Php 300, 000, is insured by the
company at the face amount of Php 5, 000, 000. The employer paid the annual life insurance
premium amounting to Php 50, 000.
Required;
Discuss the appropriate tax treatment of the Php 50, 000 insurance premium
“Share in Company’s profits”

• The CBA between the employer and the employees sometimes includes a provision that the
company’s employees share in the profit earned during the taxable year.
• The share of the employees in the profit constitutes compensation; therefore TAXABLE
“Bonus and awards for exemplary performance”

• In case special services of an employee are paid, the amount paid will form part of the
compensation income, hence bonus and awards are taxable – Monetary
• Plaques, medals or certificates received as recognition of the special services performed are
NOT taxable. – Non Monetary
Valuation of Gross Compensation Income
“Cash as payment of compensation”
“Property as payment of compensation”

Mr. Da Vid, a CPA, with a monthly salary of Php 20, 000 received a Honda Civic from his employer
fro successfully representing the company at the BIR on tax compromise. The motor vehicle was
acquired three years ago at a cost of Php 800, 000 and has an accumulated depreciation of Php 400,
000. Its present fair market value is Php 200, 000.
Required;
How much is the gross compensation income?
Mr. Bode Gero received a television set from his employer Alpha Goma Company, a business entity
engaged in distribution of home appliances, as payment of his two month’s salary amounting to Php
25, 000. The appliance cost the company Php 20, 000 and with a prevailing market price of Php 28,
000.
What is the taxable income of Mr. Bode Gero?
“Service as payment of compensation”
Ms. Masi Phag, with a monthly salary of Php 15, 000, acts as the information attendant in the medical
clinice of Dr. Maa Wain. When the mother of Ms. Masi Phag underwent a major surgical operation,
Dr. Maa Wain performed the operation. The employee and the employer had agreed that the medical
services provided would serve as payment for the salary of Ms. Masi Phag for the month. The
prevailing surgical rate of Dr. Maa Wain is Php 20, 000.
How much is the gross taxable income of Ms. Masi Phag for the month?
“Cancellation of Debt resulting to recognition of income”
Mr. Pala Utang, a warehouseman with a monthly salary of Php 12, 000, borrowed from his
employer Php 25, 000 for the tuition fee of his younger brother payable after one month. On
due date, the employee cannot pay; so the employer decided to cancel the debt of Mr. Pala
Utang in lieu of his two months’ salary.
a. What is the appropriate tax treatment on the cancellation of the debt of Mr. Pala Utang?
“Cancellation of Debt resulting to donation”
b. Assume that in (a), the employer cancels the debt of Mr. Pala Utang without any consideration;
that is, he will be paid his monthly pay of Php 12, 000 and the debt of Php 25, 000 will be
condoned.
What is the appropriate tax treatment on the cancellation of the debt of Mr. Pala Utang?
“Issuance of shares of stock as payment of compensation”
Mr. Gaka Lisud is the management consultant of Brown Textile Company. He received 300 shares of
stock owned by the company with a par value of Php 100 on January 25, 2009 as payment of his
consultancy services in December 2008. The fair market value of the shares of stock on December
31, 2008 was Php 120 per share and as of January 25, 2009 it was already Php 150 per share.
How much is the gross compensation income in relation to shares of stocks received?
“issuance of note as payment of compensation”
Ms. Lagna Tin received a promissory note of Php 40, 000, representing payment for her services as
legal consultant of Tagilid Company. The note is payable after two years.

Required:
Compute the gross compensation of Ms. Lagna Tin under the following situations:
1. The note is interest bearing with interest rate of 12%
2. The note is non-interest bearing, but the prevailing market rate of the same note is 10%
BUSINESS INCOME – Income from ordinary trade and business

Income from Merchandising and Manufacturing Businesses.
Formula:
Sales/Revenues/Receipts/Fees Php xxx
Less: Cost of Sales or Services (xxx)
Gross Income from Operations Php Php xxx
Add: Non-operating Income xxx
Total Gross Income Php xxx
Less: Deductions (Itemized/OSD) (xxx)
Net Income Php xxx
PROFESSIONAL INCOME – Income from the practice of profession

Income from Sole Proprietorship or Self-Employment
Formula:
Gross Receipts Php xxx
Less: Discounts (xxx)
Net Receipts Php xxx
Less: Cost of Services (xxx)
Gross Profit/Gross Income Php xxx
Add: Other Income xxx
Total Gross Income Php xxx
Less: Deductions (Itemized/OSD) (xxx)
Net Income Php xxx
Business Income
The following business income shall not be included in gross income subject to REGULAR income
tax:
1. Business income exempt from income tax, such as:
1. Gross income from a Barangay Micro-Business Enterprise (BMBE) under RA 9178
2. Gross income from enterprises enjoying tax holiday incentives under EO 226 which have
not yet graduated to their income tax holiday incentives
2. Business income subject to special tax regime, such as:
1. Philippine Economic Zone Authority (PEZA) – registered enterprises subject to 5% gross
income tax
2. Tourism Infrastructure and Enterprise Zone Authority (TIEZA) – registered enterprises
subject to 5% gross income tax
3. Business income subject to final tax, such as:
1. Subcontractors of petroleum service contractors subject to 8% final tax
2. Business income of foreign currency deposits units (FCDU) and offshore banking units
(OBUs) from Philippine residents subject to 10% final tax.
Accrual Basis/Method – the income, profits and gains are included in the gross taxable income
when EARNED, whether received or not, and expenses are included in the allowable deductions
when INCURRED, whether paid or not.

At the end of 2019, Polo Company reported the following:
Sales on account Php 3, 500, 000
Cash Sales 1, 800, 000
Cost of Sales 1, 600, 000
Salaries and wages paid during the year 250, 000
During 2019, the company collected 40% of the sales on account, and has unpaid salaries to
employees of Php 30, 000.
Required:
Determine the gross income and expenses using the accrual and cash basis method
Exemptions:
a. Deposit on rent without restriction - unrestricted deposit on rent shall be reported as
income in the year received.
b. Income, Gains or profits on installment basis. – the amount of income reported shall
be based on certain percentage of the collection.
c. Income collected on completed contract method. – the amount of income collected
every year shall be recognized upon the completion of the contracts.
Cash Basis/Method – the income, profits and gains are reported as gross income when received,
and expenses are deductible when paid.
FINAL withholding (FWT) tax on PASSIVE INCOME
GENERAL PRINCIPLES
 Applicable only to passive income from sources within the Philippines.

 It is constituted as the full and final payment of the income tax due.
 The liability for the payment of the tax is primarily on the payor as the withholding agent.
 The payee is not required to file an income tax return for the particular income subjected to
final withholding tax (FWT).
PROFORMA COMPUTATION
Passive Income PXXX

rate x%
FWT PXXX
KINDS OF PASSIVE INCOME

1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other Winnings
INTEREST INCOME
TP RATE
Interest income from: RC 20%

a) Bank deposit NRC

b) Deposit substitute RA
c) Trust funds NRA-ETB
TP RATE
Interest from a depositary bank under FCDU RC 15%*
* NIRC of 1997 RC and RA – 7.5% RA TRAIN
LAW
NRC 0%
NRA-ETB
NRA-NETB
SAE
TP RATE
Interest income from long-term deposit or investment (at RC 0%
least 5 years maturity) NRC
RA
NRA-ETB
In case of pre-termination of the above, depending on the RC

holding period: NRC
RA
NRA-ETB
- 5 years or more (long-term) 0%
- 4 years to less than 5 years 5%
- 3 years to less than 4 years 12%
- Less than 3 years 20%
ROYALTIES
TP RATE
Royalties from: RC 10%
a) Books NRC
b) Literary works RA
c) Musical compositions NRA-ETB
Other Royalties 20%
DIVIDEND INCOME
TP RATE
Dividend income from: RC 10%
a) Domestic Corporation NRC
b) Joint Stock Company RA
c) Insurance or mutual fund companies
d) Share in the distributable net income after tax of a partnership
NRA- 20%
(except GPP)
ETB
e) Share in the net income after tax of:
1. Association
2. Joint Account
3. Taxable Joint Venture or Consortium

PRIZES
TP RATE
Amount is more than P10,000. RC 20%
NRC
NOTE: If the amount of the prize does not exceed RA
P10,000, the same is subject to BASIC TAX. NRA-ETB
WINNINGS
TP RATE
Philippine Charity Sweepstakes RC 20% in
Lotto (PCSO) NRC excess of
*NIRC of 1997 - 0% RA Php 10, 000
NRA-ETB *TRAIN Law
Other Winnings 20%
GAIN IN DEALINGS WITH PROPERTY / CAPITAL GAINS TAX (CGT)

KINDS OF CGT
1. CGT on sale of shares of stock not traded in the stock exchange
2. CGT on sale of real property classified as capital asset.
NOTE: This is applicable to all INDIVIDUAL taxpayers.
CGT ON SHARES
Selling Price PXXX
Cost (XX)
Selling Expense (XX)
Net Gain PXX
*NIRC of 1997 First 100T 5% and in Excess (Net Gain – 100T)10%
*TRAIN Law – flat rate 15%
CGT ON REAL PROPERTY
Tax Base PXXX

Rate 6%
Capital Gains Tax PXX
Tax Base =
SALE TO PRIVATE VS. GOV’T

Buyer APPLICABLE TAX
Private Person CGT
Government Option 1 – CGT
Option 2 – Basic Tax
Note: Preference is with the Seller
EXEMPTION FROM CGT

Requisites:
1. Sale of principal residence;
2. Proceeds is utilized in acquiring or constructing a new principal residence;
3. Utilization must be made within 18 calendar months;

4. Notify the BIR within 30 days from sale;
5. Can be availed only once every 10 years.
OTHER INCOME
1. Interest Income
2. Rent Income
3. Dividend Income
4. Annuities
5. Prizes and Winnings
6. Recovery of Bad Debts Written Off
7. Tax Refund
Interest Income
On January 1 of the current taxable year, Mr. Bong Gha lends Php 50, 000 to his officemate with
interest of 12% per annum payable within six months.
The interest income to be reported as part of gross income is?
Mr. Adams had the following income during the current taxable year;
Interest Income on savings account in the Philippines Php 80, 000
Interest income on time deposit account in Australia 150, 000
Interest income on notes receivable from customers 15, 000
Required:
Determine the interest income that shall be included n the taxable income.
Rent Income
-arises from leasing out of property, either real or personal
The amount of taxable rent shall be the sum of the following:
1. Current rent or lease payment
2. Advance rent payment or security deposit without restriction*
3. Payment of the lessee to third party like interest, taxes, loans insurance premium in behalf of
the lessor
4. Uncollected rent income earned already (accruals) at the end of the period
5. Income from leasehold improvement
Ms. Dormie Toryo leases two doors of her three-storey commercial building to Ms. Magren Tha on
January 1 of the current taxable year. The lessee, as agreed, shall make the following payments:
Monthly rental of Php 30, 000
Security deposits of Php 60, 000 for two months
Real estate tax, Php 3, 000
Annual premium for fire insurance, Php 7, 000
Required:
Determine the amount of gross rent income if
1. Advance rent was with restriction
2. Advance rent was without restriction
Cash Dividend
A self-employed individual, married, received the following dividends during the 2019 taxable year:
Cash dividend from Alpha Company, domestic corporation Php 180, 000
Cash dividends from Bravo Company, a resident foreign corporation 40, 000

The income data related to Bravo Company for a three-year period before declaration of dividends
were as follows:
Gross income derived from Philippines, Php 1, 200, 000
Gross income derived from Singapoor, Php 1, 800, 000
Required:
Compute the gross taxable income in subject to basic tax if the taxpayer is:
1. Resident citizen
2. A non-resident foreign alien engaged in business or trade in the Philippines
Property Dividends
Mr. Alfre Do has 2, 000 shares of investment in the common stock of Alpha Company costing Php
300, 000. During the current taxable year, he received from Alpha Company 150 shares of Bravo
Corporation with a par value of Php 100 as dividends. At the date of declaration, the fair market value
(FMV) of Bravo Corporation was Php 120 per share and by the time he received the dividend, the
FMV per share was Php 180.
Required:
Compute the amount of dividend subject to tax
Stock Dividends
Charlie Company has an outstanding 6, 000 shares of common stock with a par value of Php 100 as
of January 1 of the current taxable year. The following stockholders own the shares:
Mr. AA 1, 800 shares 30%

Ms. BB 1, 800 shares 30%
Mr. CC 600 shares 10%
Mr. DD 600 shares 10%
Mr. EE 600 shares 10%
Mr. FF 600 shares 10%
6, 000 shares 100%
Required: Determine if the stock dividend is subject to tax or not on the following cases
1. Charlie company declared 40% stock dividend and paid the dividend in stock
2. The company declared 40% stock dividend and only Ms. BB received stock as payment while
others opted for cash
Annuity
Annuity refers to the installment amount paid for life insurance coverage returned by an insurance
company.
The annuity received that represents INTEREST is taxable, and shall be included in the gross
taxable income, while the amounts that represent return of premium are not taxable.
Prizes and Winnings

Guidelines:
1. Shall be included as part of gross taxable income if:
a. Php 10,000 or less
b. From without (outside) the Philippines regardless of amount (RC)
2. Prizes and Winnings subject to FWT
a. Winnings from PCSO in excess of Php 10,000 (20%)

b. Passive income from within the Philippines (RC,NRC,RA,NRA-ETB) (20%)
3. Exemptions:
a. From national or international sports competition held in the Philippines and abroad
and governed by recognized sports associations.
b. From CARCELS (without action on his/her part, not required to render substantial
future service)
Recovery of Bad Debts Written Off
The amount of bad debts previously written off, but later on recovered, should be INCLUDED in
gross taxable income of the taxpayer in the year of recovery.
The records of Batangas Company showed the following data for year 2018:
Gross Taxable income 1, 500, 000
Less: Allowance bus. Expenses other than bad debts 800, 000
Bad debts written off 100, 000
Taxable net income 600, 000
Less: Tax expense (30%) 200, 000
In 2019, the bad debts of Php 100, 000 was recovered or collected.
Required:
Compute the amount of taxable income from recovery of bad debts written off
Tax Refund
The basic rule is that tax paid and later on refunded due to overpayment or erroneous
computation of tax is TAXABLE.
However, not all tax refund is taxable.

Guidelines:
1. If the tax paid is treated as DEDUCTIBLE EXPENSE, the tax refund is considered income,
hence, TAXABLE
2. If the tax payment cannot be deducted or classified as allowable deduction from gross income,
the tax refund is NOT taxable.
a. Philippine Income Tax, except Fringe Benefit Tax
b. Estate or Donor’s Tax
c. Stock Transaction Tax
d. Income tax paid in foreign country where the taxpayer claimed it as a Tax Credit
e. Income tax deficiency and Special Assessment
Allocation of Unidentified Gross Income
Mr. Ramirez, a self-employed individual, had the following data for the current taxable year:
Gross business income –Philippines Php 800, 000

Gross business income – Guam 600, 000
Gross compensation income – Philippines 500, 000
Interest income on time deposit – Philippines 80, 000
Interest income on bank deposit-Guam 100, 000
Other gross income partly Ph and partly Guam 200, 000
Required: Compute the gross taxable income if the taxpayer is:
1. A resident citizen

2. A non-resident citizen
Other Deductions
Mr. Pak Yawan, head of the family, received a monthly compensation of Php 45, 000. He contributed
monthly to the following: SSS Php 1, 500; Medicare, Php 1, 000; and Pag-ibig, Php 800. On
December of the current taxable year, Mr. Pak Yawan received a 13th month pay equivalent to his
one-month basic salary.
Required: compute the gross taxable compensation income of Mr. Pak Yawan.
-done-
MULTIPLE CHOICE THEORIES
1. Which of the following statements is not correct?
A. Minimum wage earners shall be exempt from the payment of income tax
B. Holiday pay, overtime pay, night shift differential and hazard pay shall be exempt from income
tax
C. Prizes and awards granted to athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national sports
associations are exclusions from gross income
D. Benefits received from or enjoyed under the Social Security System are exclusions from Gross
Income
2. Which of the following statements is correct as regards a resident citizen?

A. Income from illegal activities are subject to final tax
B. Income tax refunds constitute taxable income to the taxpayer
C. Recovery of bad debts previously written off is pat of taxable income
D. As a rule, contest awards and prizes are subject to 20% final tax if they amount to more than
P10,000, otherwise they will be part of taxable income.
3. Which of the following statements is not correct?

A. Proceeds of life insurance policies paid to beneficiaries upon the death of the insured are
excluded from gross income regardless of whether the proceeds are received as a single sum
or in installments.
B. In case of transfer for a valuable consideration by assignment or otherwise of a life insurance,
endowment or annuity contract or any interest therein, only the actual value of such
consideration and the amount of the premium and the sums subsequently paid by the
transferee are exempt from income tax.
C. Marriage fees, baptismal offerings, sums paid for saying masses for the dead and other
contributions received by a clergyman, evangelist or religious worker for services rendered is
taxable income
D. Monetization of leave credits of employees who were unable to go on leave due to exigencies
of the service constitute taxable income.
4. Which of the following statements is correct?

A. The power of taxation reaches even the citizens abroad and their income earned from sources
outside the Phils.
B. Priests and religious institutions are exempt from income and property taxes.
C. Separation benefits received by terminated employees resulting from a deadlock in their
collective bargaining agreement are exempt from income tax
D. The value of a property received as a gift, or under a will or testament or through legal
succession is exempt from taxation

5. One of the following is taxable income
A. Gifts, bequests and devices
B. Amounts received as rewards for giving information instrumental in the discovery of violation
of the Tax Code and seizure of smuggled goods.
C. Proceeds from life insurance
D. Separation pay received by an employee due to a cause beyond his control
6. One of the following is part of taxable income subject to schedular rate

A. Compensation for damages
B. The share of a partner in the undistributed net income of a general co-partnership
C. Living quarters and meals furnished and given to an employee for the convenience of the
employee
D. Facilities or privilege of relatively small value offered by the employer as a means of promoting
the health, goodwill, contentment, or efficiency of the employee
7. Which is not a creditable withholding income tax?

A. Expanded withholding income tax
B. Withholding income tax on passive income
C. Withholding income tax at source
D. Withholding income tax on compensation income
8. As a rule, this is not part of taxable income

A. Overtime pay
B. 13 month pay
C. Profit sharing
D. Hazard pay
9. This is a taxable income

A. Separation pay due to resignation
B. Retrenchment pay
C. Refund of Philippine Income Tax
D. SSS/ GSIS benefits
10. Which of the following is taxable income?

A. Prizes and awards as an awardee of Ramon Magsaysay Award Foundation
B. Damages awarded as a consequence of a libel and slander suits
C. Interest on Philippine lotto winnings
D. Amounts received as returns of premiums
11. Which of the following statements regarding dividends is correct?

A. Exempt from tax if received by a resident citizen from a domestic corporation
B. Exempt from tax if received by a resident alien from a domestic corporation
C. Taxable subject to year-end tax if received by a resident citizen from a non-resident
corporation
D. Taxable subject to final tax if received by a non-resident citizen from a non-resident
corporation
12. As a rule, the following are taxable income, except

a. cash dividend b. property dividend c. scrip dividend d. stock dividend
13. The following items are exclusions from gross income, except
A. labor union dues

B. IOUs
C. SSS/GSIS premiums contributions
D. Pag-ibig premiums contributions
14. Which of the following is part of gross income?

A. PCSO& Phil. Lotto winnings c. Proceeds of life insurance
B. Bank interest on long-term deposit d. Raffle prize not exceeding P10,000
15. If refunded, this is taxable

a. estate tax b. donor's tax c. special assessment d. fringe benefit tax
16. Income tax payments to a foreign country, in the case of a resident citizen may be claimed as
A. tax credit and deduction from gross income
B. tax credit or deduction from gross income
C. tax credit only
D. deduction from gross income only
17. Dividends paid by a domestic corporation maybe taxable but subject to final tax, except.
A. if received by a resident citizen c. if received by a non-resident corporation
B. if received by a resident alien d. if received by another domestic corporation
18. A works as a minimum wage earner in an advertising firm in Makati. During the year, she received
P10,000 a month as salary or a total of P120,000. In addition, she also received 13 month pay,
Christmas bonus, productivity bonus, mid year bonus and 14" month pay amounting to P90,000.
The total deductions for her SSS premiums, Medicare, Pag-ibig, and Union dues contributions
amounted to P5,000. A's taxable income,
a. P70,000 b. P65,000 c. P95,000 d. P0
19. A) PCSO and Phil. lotto winnings are excluded from gross income because they are subject to
final tax
B) Prizes, awards and winnings are excluded from gross income because they are subject to final
tax
a. Both are true b. Both are false c. Only the first is true d Only the second is true
20. Which of the following is taxable?

A. P100,000 interest on long-term deposit or investment
B. P12,000 prize in a supermarket raffle
C. P200,000 gain on sale of 10-year bonds
D. P10,000 winnings from Phil. Lotto
21. Gain realized from the sale or exchange or retirement of bonds, debentures or other certificate of
indebtedness is excluded from gross income if with a maturity of
a.5 years or more b. More than 7 years c. More than 8 years d. More than 10 years
22. Gross benefits received by officials and employees of public and private entities as thirteenth
month pay and other benefits such as productivity bonus, service incentive pay and Christmas
bonus shall be excluded from taxable income up to
a. P30,0000 b. P82,000 c. P40,000 d. P90,000
23. Exclusions from gross income, except:

A. interest on the price of the land covered by the Presidential Decree on land reform
B. Interest payments on proceeds of life insurance held by the insurer.

C. GSIS, SSS, Philhealth and Pag-ibig contributions and Union dues of individuals.
D. Gains realized by an investor upon redemption of shares of stock in a mutual fund company.
24. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right and
without no restriction as to use is
A. Taxable income of the lessor in the year received if he is on the cash method of accounting
B. Taxable income of the lessor in the year received if he is on the accrual method of accounting
C. Taxable income of the lessor in the year received whether he is on the cash or accrual method
of accounting
D. Taxable income of the lessor up to the amount earned in the year the rental is received
25. Which payments made by the lessee under such terms of the lease contract should be
considered as additional rent income of the lessor?
A. If a lessee paid directly to the government a real estate tax on the property of the lessor
B. If the amount received by the lessor is in the nature of a security deposit for the faithful
compliance by the lessee of the terms of the contract
C. If the amount received by the lessor is in the nature of a loan extended by the lessee to the
lessor.
a. Only A b. Only A and C c. Only B and C d A, B, and C
26. Should the lessee make permanent improvements on the property leased under an agreement
that upon the expiration of the lease contract the improvements shall belong to the lessor, the
lessor may recognize income from the leasehold improvements
A. At the time when such improvements are completed the fair market value of such
improvements
B. By spreading over the remaining term of the lease the estimated depreciated value of such
improvements at the termination of the lease and report as income for each year of the
lease an aliquot part thereof
a. A but not B is allowed c. Either A or B is allowed
b. B but not A is allowed d. Neither A nor B is allowed
27. After 10 years of romantic relationship, A decided to end his relationship with B which made B
very angry, B with anger in her eyes boxed, kicked and berated A. A tried to pacify B, but B
slipped, lost control and fell to the ground requiring hospitalization. To buy peace, A decided to
shoulder the medical expenses for the injuries suffered by B. The amount is
a. Taxable income B c. Subject to final tax
b. Deductible expense of A d. Exempt from income tax
28. In 2012, inherited pieces of jewelry from her father with a FMV of P500,000. Her father acquired
the property in 1975 for P200,000. If A sells these pieces of jewelry in 2012 for P550,000, A's
gross profit is
a. P350,000 b. P50,000 c. P550,000 d. P300,000
29. Using the preceding no., except that A acquired the property as a birthday gift from her father, A's
gross profit is
a. P350,000 b. P50,000o c. PS50,000 d. P300,000
30. One of the following may be a taxable income for a resident individual:
a. Property received as gifts c. Interest on Philippine lotto winnings
b. Cash received as inheritance d. Benefits from the SSS and/or GSIs

31. One of the following represents taxable income:
A. Refund of overpaid rental expense in prior year
B. Refund of income tax in prior year.
C. Refund of donor's tax paid in prior year
D. Refund of special assessment paid in prior year.
32. Cash allowance of P125 per month given to Central Bank employees to cover the medical
expenses of their dependents shall be
A. Included as part of gross compensation income
B. Excluded from gross compensation income
C. Partly included, partly excluded from gross compensation income
D. Subject to final tax
33. At the testimonial dinner for new CPAs, C, a reviewer was requested to sing the theme song of
the movie "Ghost". A was so delighted that she feels she is falling in love with C, so she decided
to cancel C's indebtedness to her. As a result,
A. C realized a taxable income as compensation for services
B. If C accepts the cancellation, he will pay donor's tax*
C. C received a gift from A and therefore not part of his taxable income
D. The amount of indebtedness cancelled is partly taxable, partly exempt.
34. A, was adjudged the best boxer in the recently concluded Asian games. In recognition of his
splendid performance, he was awarded a trophy and a cash price of P1M. As a result,
A. The value of the trophy and the cash prize are part of his taxable income
B. Only the value of trophy is taxable
C. Only the cash prize is taxable
D. Both are exempt from income tax
35. A purchased a life annuity for P1,000,000 which will pay him P100,000 a year. The life
expectancy of A is 12 years. Which of the following will A be able to exclude from his income?
a. P1,000,000 b. P1,200,000 c. P200,000 d.P100,000
36. If an individual performs services fora creditor who in consideration thereof cancels the debt, the
cancellation of indebtedness may amount to
a. A gift b. A donation inter-vivos c. A capital contribution d. A payment of income
37. A transferred his commercial land with a cost of P600,000 and with a FMV of P900,000 to ABC
Corp. in exchange of the stock of the corporation with par value of P800,000. As a result of the
transfer A gained control of the corporation. As a result
A. The gain is the difference between the par value of the shares of stocks and the cost of the
land
B. The loss is the difference between the FMV of the land and the par value of the stocks
C. No gain because the land was in exchange of purely shares of stock and A became the
majority stockholder
D. No loss because the par value of the shares is greater than the cost of the land
38. This is not part of gross compensation income

A. Salary of P10,000 a month of an employee
B. Fringe benefits of P10,000 a month
C. Salary of P10,000 a month of a partner in a general professional partnership
D. Honorarium and allowances of P10,000 of a member of the board of directors of a corporation

Mr. A, a farmer, had the following data for the year:
Sales of livestock and farm products raised P 270,000
Sales of livestock and farm products purchased 160,000
Cost of raising livestock and farm products 190,000
Cost of livestock and farm products purchased and sold 140,000
Rental income of farm equipment 105,000
Inventory of livestock and farm products, January 1 110,000
Inventory of livestock and farm products, December 31 113,000
39. Using cash method of accounting, how much is the income?
a. P205,000 b. P208,000 c. P395,000 d. P202,000
40. Using accrual method of accounting, how much is the income?
a. P205,000 b. P208,000 c. P395,000 d. P202,000
41. Mr. Juanito had the following income in 2018:
Compensation income, net of P77,000 SSS, P 300,000
PhilHealth, HDMF and union dues
Supplemental compensation income 30,000
13th month pay and other benefits 25,000
What is the gross taxable compensation income?
A. P352,000
B. P325,000
C. P280,000
D. P330,000
42. The following relates to an annual payroll of the employee:
Gross compensation income, before P14,000 P 247,500
contributions to SSs, PHIC and HDMF
Additional compensation 45,000
13th month pay and other benefits 32,000
Compute the gross taxable compensation income.
A. P242,500 C. P278,500
B. P310,500 D. P324,500
43. Colyong, a government employee, receives a full 13th month pay of P20,000 exclusive of
P14,000 other benefits. He was deducted P18,000 during the year as premium for his SSS, PHIC,
and HDMF contributions. Compute Colyong's gross taxable compensation income.
A. P222,000 C. P226,000
B. P240,000 D. P256,000
44. An employee received the following compensation during the year:
Gross compensation (P11,000 x 13 months) P 143,000
Overtime pay 12,000
Less:
SSS, PHIC, HDMF and union dues 5,200
Withholding tax 10, 000 15,200
Net pay P 139, 800
A. P149,800 C. P144,000
B. P119,800 D. P138,800
45. A managerial employee received the following remunerations
Gross salaries, net of SSS, PHIC, and HDMF P 630,000
SSS maternity benefits 30,000
Profit sharing bonus 240,000

13th month pay 60,000
Determine the gross taxable compensation income.
A. P870,000 C. P930,000
B. P900,000 D. P960,000
46. An employee received the following remunerations aside from the basic pay:
Fixed representation and transportation allowance P 24,000
Night shift differential pay 12,000
Hazard pay 12,000
Honoraria 8,000
Profit sharing 24,000
A. P68,000 C. P44,000
B. P56,000 D. P80,000
The following relate to the compensation income of a private rank and file
employee during the year:
Annual compensation income P 540,000
Commission from employer 12,000
Christmas gift 8,000
47. Compute the gross taxable compensation income.
A. P570,000 C. P560,000
B. P553,000 D. P540,000
48. A managerial expatriate employee received the following benefits during the year
Gross compensation income P 1,080,000
Housing allowance in addition to regular pay
(P30,000 x 12; actual rent is P25,000/month) 360,000
What is the gross taxable compensation income?
A. P1,500,000 C. P1,440,000
B. P1,80,000 D. P1,200,000
49. A government employee received the following benefits in 2018:
Gross salaries P 204,000
RATA 12,000
PERA 24,000
Additional compensation (ADCOM) 24,000
Christmas bonus 17,000
Determine the gross taxable compensation income.
A. P204,000 C. P257,000
B. P220,000 D. P240,000
50. A private employee had the following remuneration:
Gross salaries P 314,000
Fixed RATA 12,000
Cost-of-living allowance 24,000
51. Salary at gross Php 240, 000

Allowances 48, 000
Thirteenth month pay 20, 000
Christmas bonus 20, 000
Reimbursement for transportation expenses 5, 000
Payroll deductions:
SSS 4, 000
Philhealth 2, 000
Pag-ibig 2, 400
Payments to employer of a loan 20, 000
What is the total of exclusions from gross income?
How much is the gross taxable compensation income?
52. Mr. A an employee, received a retirement pay of Php 250, 000 from a retirement plan maintained
by his company registered with the BIR. He retired at the age of sixty-five years after rendering
service for twelve years. His own contributions to the plan amounted to Php 50, 000, while the
contributions of the employer amounted to Php 100, 000.
How much are the taxable income and exclusions from gross income if the conditions on
exclusions are satisfied?
53. Super G has earned the following net income in 2019:
Salary as a professor, net of withholding tax of Php 20, 000 Php 280, 000
Income from practice of profession as CPA 200, 000
Thirteenth month pay 35, 000
First prize in essay writing contest in Nora Foundation 50, 000
What is the amount of gross taxable compensation income? 305, 000
54. The following income are reported by RFGR, a CPA:
Salary as an accountant Php 150, 000
Overtime pay 30, 000
th
13 month pay and other bonuses 15, 000
Audit retainer’s fee 60, 000
Capital gains from sale of car 25, 000
What is the total compensation income from employment of RFGR? 195, 000
55. The following are reported by Maxxi: 480, 000
Salary as guest relation officer Php 120, 000
Tips 360, 000
Monetized 10-day unused vacation leave 4, 000
13th month pay 10, 000
Cost and Living allowance 5, 000
Achievement awards (champion in spelling) 20, 000
How much is the taxable compensation income?
56. EDD reported the following retirement:
First employment (SGV) for 30 years received at the age of 50 Php 500, 000
Second employment (LPU) for 10 years received at the age of 60 400, 000
Third employment (SA) for 10 years received at the age of 70 300, 000
How much is the non-taxable retirement pay of EDD? 500, 000
Super G works as the CEO of Nora Co. Her compensation income is Php 50, 000 per month. In
January 31, she borrowed Php 300, 000 from Nora Co. As a result, his monthly compensation
income is reduced by Php 25, 000 as payment to his borrowing. If on December 31, Nora Co.
cancelled Super G’s indebtedness, how much is the latter’s compensation income in December?

GROSS INCOME Inclusions and Exclusions: Tel. Nos. (043) 980-6659

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CABRIA CPA REVIEW CENTER

GROSS INCOME Inclusions and Exclusions Tel. Nos. (043) 980-6659

General Classification of Income

EXCLUSION FROM GROSS INCOME

2. Amount received as return of premium;

Page 1 of 24 cabria.batangas@gmail.com LAW.101

3. Gifts, bequests and devises;

4. Compensation for injuries or sickness;

5. Income exempt under treaty;

6. Retirement benefits, pensions, gratuities, etc.;

a. Retirement benefits received by officials and employees of private firms, individuals or

b. Separation benefits due to:

7. Income received by foreign governments from their investments in the Philippines;

NOTE: Foreign governments include;

Page 2 of 24 cabria.batangas@gmail.com LAW.101

9. Prizes and awards under the following conditions;

10. Prizes and awards in sports competition

11. 13th Month pay and other benefits;

12. GSIS, SSS, Medicare and other contributions;

UNDER SPECIAL LAW:

3. Income from bonds and securities:

Classification of Taxable Income

Page 3 of 24 cabria.batangas@gmail.com LAW.101

Composition of Gross Compensation Income

Salary, Wage or Fee

Addt’l Tax Exempt Compensation of MWE

Page 4 of 24 cabria.batangas@gmail.com LAW.101

Commission, Honoraria and Allowances

Case for Commission, Honoraria and Allowances

13th Month Pay – mandatory ONE-month basic salary

Case for 13th month Pay and Other Benefits

Page 5 of 24 cabria.batangas@gmail.com LAW.101

Question: is the income of the taxpayer taxable or not?

Question: is the income of the taxpayer taxable?

Exceptions: in case of…

Retirement benefits, pensions, gratuities, etc.;

Page 6 of 24 cabria.batangas@gmail.com LAW.101

CASE for Retirement Pay

Sick Leave pay and Vacation Leave Pay

CASE for SL/VL Pay

Rank and File Employees

Page 7 of 24 cabria.batangas@gmail.com LAW.101

Case for Living Quarters or Meals

“Payment of income taxes”

“Payment of Insurance premium”

“Share in Company’s profits”

“Bonus and awards for exemplary performance”

Valuation of Gross Compensation Income

“Cash as payment of compensation”

“Property as payment of compensation”

Page 8 of 24 cabria.batangas@gmail.com LAW.101

“Service as payment of compensation”

“Cancellation of Debt resulting to recognition of income”

“Cancellation of Debt resulting to donation”

“Issuance of shares of stock as payment of compensation”

“issuance of note as payment of compensation”

Page 9 of 24 cabria.batangas@gmail.com LAW.101

BUSINESS INCOME – Income from ordinary trade and business

PROFESSIONAL INCOME – Income from the practice of profession

Page 10 of 24 cabria.batangas@gmail.com LAW.101

FINAL withholding (FWT) tax on PASSIVE INCOME

 Applicable only to passive income from sources within the Philippines.