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ASSOCIATION OF TAXATION AND LAW STUDENTS

REVIEW
Materials: Review Outline
Table
Review Questionnaires

TAX 1 Income Taxation TAX 2 Transfer and Business Taxes


1. General Principles 1. Estate Taxation
2. Individual taxation 2. Donors Taxation
3. Partnership Taxation 3. VAT
4. Corporate Taxation 4. Other Percentage Taxes
5. Gross Income 5. Others
6. Capital Gains and Losses
7. Fringe Benefits
8. Administrative function of BIR
9. Others

References References
1. Banggawan 1. Banggawan
2. Urbano 2. Urbano
3. Reyes 3. Reyes
4. Valencia 4. Valencia
5. Ampongan (Textbook and Reviewer) 5. Ampongan (Textbook and Reviewer)
6. Tamayo (Reviewer) 6. Tamayo (Reviewer)
7. Reviewers from review schools like CPAR 7. Reviewers from review schools like CPAR
and RESA and RESA

PRELIM TOPICS
1. General Principles
2. Individual Taxation
Basic Tax (5 32%)
Income Subject to Final Tax
Capital Gain taxes on 2 particular transactions
3. Gross Income
Exclusion

QUICK CHECK: TAX TABLE


Compute the income tax due Compute the net taxable income
Net Taxable Income Income Tax Due Income Tax Due Net Taxable Income
1. 9,400 1. 470 1. 12,500 1. 90,000
2. 180,000 2. 32,500 2. 325 2. 6,500
3. 800,000 3. 221,000 3. 82, 500 3. 358,333.33

GENERAL PRINCIPLES
a. Stages of Taxation
b. Inherent Powers of State
c. Constitutional and Inherent Limitations
d. Sound Tax System
e. Elements of Taxation
f. Classification of Taxation
g. Escape from Taxation
h. Powers of Commissioner
i. Others

BASIC TAX
*salaries, net income from other businesses and other income not subject to final tax, capital gain

Problem: The husband had the following data on income. The taxpayer is married with three
dependent children. Net income of the wife is P1,000,000.
Net income from business in the Philippines
Salary received in abroad
Other income in the Philippines
a. Compute the income tax due if resident citizen _____________
b. Compute the income tax due if non-resident alien engaged in business in Phil ____________

Answer: a 270,600 b. 230,600

FINAL TAX
1. Interest income under expanded foreign currency deposit system 7.5 %
2. Interest income on any currency bank deposit, yield, or other monetary 20%
benefits from a deposit substitute, trust fund or similar arrangement
3. Prizes exceeding 10,000 20%
4. Other winnings except lotto/PCSO 20%
5. Royalty income other than books, literary works or musical composition 20%
6. Royalty income from books, literary works and musical compositions 10%
7. Dividend income from a domestic corporation or joint stock, insurance, or 10%
mutual fund, and the regional operating headquarters of a multinational
company or share in distributable net income after tax of a partnership

Problem: An individual taxpayer, resident citizen, received the following data on income:
Annual Salary P362,300
Interest income from Banco de Oro 23,200
Dividend income from domestic corporation 32,600
Share in net income from general professional partnership 25,100
Interest on notes receivable 6,000
Other employment income 34,800
How much is the total final taxes in passive income? ____________

Answer: P 9,060.00

CAPITAL GAIN TAX


Capital Asset subject to capital gain tax
Land
Share
*Note: Other capital assets are subject to 5-32% tax table
1. sale of real property in Philippines held as capital asset on
Gross Selling Price (GSP) or Fair Market Value (FMV) or Zonal Value whichever is higher 6%
2. sales of shares of stocks issued by a domestic corporation not listed in local stock exchange,
held as capital asset sold to direct buyer
Not over 10,000 5%
Excess of 10,000 10%
*Stock Transaction Tax (Business Tax)
- of 1% of gross selling price
- stocks are trade in the Philippine Stock Exchange

Problem:
On August 15, 2015, Mr. Cruz sold a 500 square meter residential house for P3,000,000. The
house was acquired in 2002 for P2,000,000. On the date of sale, the fair market value of the house
as shown in the real property declaration was P2,500,000 and the assessors value amounted to
P2,200,000. The zonal value was P7,000 per square meter.

The capital gains tax is ____________.


Answer: P210,0000

GROSS INCOME
Gross Income means all income derived from whatever source, including (but not limited to the
following) items:
1. Compensation for services in whatever form paid, including but not limited to fees, salaries,
wages, commissions, and similar items
2. Gross income derived from the conduct of trade or business or the exercise of a profession;
3. Gains derived from dealings in property
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and Winnings
10. Pension
11. Partners distributive share from the net income of the general professional partnership
Taxable Income Gross Income less deduction and or personal and additional exemption

Exclusion (not subject to income tax)


1. Proceeds of life insurance policy payable upon death of the insured. However, it is taxable if
the insured outlives policy.
2. Return of premiums either during the term, at the maturity, r upon surrender of the contract.
3. The value of the property acquired by gift, bequest, devise, or descent
4. Compensation for personal injuries or sickness received from insurance plus damages
5. Income of any kin which are contained in a treaty binding upon the Philippine Government
6. Retirement benefits, pensions, etc.
A. Retirement Benefits requisites
a. The employer must maintain a private pension plan which is approved by BIR
b. The employee has been in the service of the same employer at least 10 years
c. The retiring employee must not be less than 50 years old upon retirement
d. The benefit of exemption can be availed of only once
B. Separation Pay - separation of employee from service must be due to:
a. Death, sickness, physical disability, or
b. Any cause beyond the control of the employee (ex: bankruptcy)
7. Prizes and awards given to religious, charitable, scientific, educational, artistic, literary, or
civic achievement, provided that:
a. No action on the part of the recipient to enter the contest
b. He is not required to render substantial future services
8. Benefits received by persons residing in the Philippines under U.S. laws administered by U.S.
Veterans Administration
9. Benefits received from SSS, GSIS including retirement gratuity received by government
officials and employees
10. Income derived from foreign governments
11. Income derived by the government or its political subdivisions from public utility or any
essential government function
12. Prizes and awards granted to athletes in:
a. local and international sports competitions
b. in the Philippines or abroad
c. sanctioned by their national sports association
d. and the sports association must be recognized by the Philippine Olympic Committee
(POC)
13. 13th month pay and other benefits up to 82,000
14. GSIS, SSS, Philhealth, Pag-ibig and union dues of individuals
15. Gains from sale of bonds, debentures and other certificate of indebtedness with a maturity
period more than 5 years
16. Gains realized by investors upon redemptions of shares in a mutual fund company
17. Compensation income of Minimum Wage Earners (MWEs) who work in the private sector (and
public sector not exceeding the minimum in the agricultural sector) and being paid the
Statutory Minimum Wage (SMW) as fixed by the Regional Tripartite Wage & Productivity Board
(RTWBP)/ National Wages and Productivity Commission (NWPC), applicable to the place
where he/she is assigned including their holiday pay, overtime pay, night shift differential pay
and hazard pay.

Deduction (Midterm)
1. Expenses in general
2. Interest
3. Losses
4. Tax Credit
5. Bad Debts
6. Depreciation
7. Others

Problem: An employee received the following compensation and benefit during 2015:
Gross compensation income P800,000
th
13 month pay 70,000
14th month pay 60,000
Production incentive pay 8,000

Amount of exclusions from Gross Income ______________


Net taxable income _______________

Answer: 82,000; P806,000

KINDS OF TAXPAYER
A. Individual
Employee
Engaged in Business
Personal and Additional Personal
Exemption
1. Resident Citizen PE + APE
2. Non-resident Citizen PE + APE
3. Resident Alien PE + APE
4. Non Resident Alien engaged in PE only
business
5. Non Resident Alien not engaged in None
business
6. Special Alien Taxpayer None
*Note: Resident or Citizen qualified for
both PE and APE

Rules on Situs of Taxation


a. Only resident citizens are taxable on income within and without
b. Non-resident citizen, resident alien and not resident aliens are taxable on income within
only
B. Partnership
General Partnership taxable as corporation
General Professional Partnership exempt but required to file income tax return
C. Corporation (30% tax rate)
Domestic Corporation
Foreign Corporation
Resident
Non resident
D. Estate and Trust

Personal Exemption
Single or Married 50,000

Additional Personal Exemption

Each qualified dependent child up to four 25,000


Qualifications:
1. Unmarried
2. Not gainfully employed
3. Not more than 21 years old
4. Incapacitated
5. Living and depending upon chief support from the taxpayer

Who Claim the APE?


*Note: The right is the one who earns the fixed income

HUSBAND WIFE RIGHT TO APE


Employed Employed Husband
Engaged in business Engaged in business Husband
Employed Engaged in business Husband
Engaged in business Employed Wife
Waive the right to his wife Wife
Jobless Wife

Change of Status

Current Year Next Year


Taxpayer
Dies Yes No
Marries Yes Yes
Dependent Child
Born Yes Yes
Reaches 21 years old Yes No
Marries Yes No
Gainfully employed Yes No
Dies Yes No

REMINDERS:
1. Ready your heart for the departmental exam. Passing rate: Low! It hurts. STUDY HARDER!
2. Always be careful with the rules (tax is a law) to be applied and with the numbers. BE
OBEDIENT!
3. READ. READ. READ. READ. SOLVE. SOLVE. SOLVE. Do your best and PRAY!
Prepared by:
Rosslyn Dayrit, ATLAS Active Member

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