What is NOLCO?

A: It is the excess of allowable deductions over gross income of business for any taxable year which had not been previously
offset as deduction from gross income.
It shall be carried over as deduction from gross income for the next 3 consecutive years following the year of such loss. Provided that:
1. The taxpayer was not exempt from income tax in the year of such net operating loss; and
2. There has been no substantial change in the ownership of the business or enterprise.

Q: What is the meaning of substantial change in ownership of the business or enterprise?
A: The 75% equity rule (or ownership or interest rule) shall only apply to transfer or assignment of the taxpayers net operating
losses as a result of or arising from the said taxpayers merger or consolidation or business combination with another person.
The transferee or assignee shall not be entitled to claim the same as a deduction from gross income except when as a result of
the said merger, consolidation or combination, the shareholders of the transferor/assignor, or the transferor gains control of:
1. At least 75% or more in nominal value of the outstanding issued shares or paid up capital of the transferee/assignee, if a
corporation
2. At least 75% or more interest in the business of the transferee/assignee, if not a corporation (75% equity rule) (Sec. 2.4, RR
14-2001)

Q: How do you determine whether or not substantial change in ownership occurred?
A: Substantial change in ownership shall be determined on the basis of any change in the ownership in said business or
enterprise arising from or incident to its merger, consolidation, or combination with another person.
Q: When do you determine whether there is substantial change in ownership?
A: The substantial change in the ownership of the business or enterprise shall be determined as of the end of the taxable year
when NOLCO is to be claimed as deduction. (Sec. 5.1, RR 14-2001)
Q: In case of mines other than oil and gas wells, NOLCO shall be allowed for what period?
A: A net operating loss during the first ten years of operation shall be allowed as NOLCO for the next 5 years.

awards made be exempted from tax?
A:
1. Primarily in recognition of Scientific, Civic, Artistic, Religious, Educational, Literary, or Charitable achievement [SCAR-CEL]
2. The recipient was selected without any action on his part to join; and
3. He is not required to render substantial future services as condition to receiving the prize or award.

Q: JM, received a prize of P100,000 for winning the on-the-spot peace poster contest sponsored by the Lions Club. Is the
award included in the gross income of JM for tax purposes?
A: No, it is not included. It is subject to a final tax of 20% for the amount is in excess of P10,000, otherwise it would be included
in his gross income and subjected to a scheduler rate (Sec. 24 B [1], NIRC) (2000 Bar Question)
Note: The prize constitutes a taxable income for it was made primarily in recognition of his artistic achievement which he won due to
an action on his part to enter the contest. (Sec. 32 B [7] c, NIRC)
What are those items that are excluded in gross income and shall be exempt from gross income taxation?
A: These are: [GLAM-RIC]
1. Gifts, bequests and devises
2. Life insurance proceeds
3. Amount received by insured as return of premium
4. Retirement benefits, pensions, gratuities, etc.
5. Income exempt under treaty
6. Compensation for injuries or sickness
7. Miscellaneous items. (13P2I2G3)
a. 13thmonth pay and other Benefits;
b. Prizes and awards
c. Prizes and awards in sports competitions
d. Income derived by foreign government
e. Income derived by the government or its political subdivisions
f. GSIS, SSS, Medicare and other contributions
g. Gains from the sale of bonds, debentures or other certificate of indebtedness
h. Gains from redemption of shares in mutual fund (Sec. 32 [B],NIRC)

Q: What are the miscellaneous items excluded from gross income?
A: 13P2I2G3
1. 13th month pay and other Benefits
2. Prizes and awards
3. Prizes and awards in sports competitions;
4. Income derived by foreign government
5. Income derived by the government or its political subdivisions
6. GSIS, SSS, Medicare and other contributions
7. Gains from the sale of bonds, debentures or other certificate of indebtedness
8. Gains from redemption of shares in mutual fund. (Sec 32 [B], NIRC)

gratuities, etc. excluded from gross income?
A: 7FRUGS2
1. Retirement benefits under RA 7641
2. Social security benefits, retirement gratuities, pensions and other similar benefits received by resident or non-resident
citizens or resident alien from Foreign government agencies and other institutions, private or public
3. Retirement received by officials and employees of private firms, whether individual or corporate, in accordance with a
Reasonable private benefit plan maintained by the employer
4. Benefits from the US Veterans Administration
5. GSIS benefits
6. SSS
7. Separation pay