Northern CPAR: Taxation Individual Income Taxation

NORTHERN CPA REVIEW

th
4 Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail Address: ncpar@yahoo.com
REX B. BANGGAWAN, CPA, MBA

TAXATION
INDIVIDUAL INCOME TAXATION

Classification of Individual Income Taxpayers

A. Citizen
1. Resident a citizen of the Philippines residing herein
2. Non-resident a citizen of the Philippines residing abroad or who left the
Philippines during the year and have shown proof to the CIR of his extended stay
abroad. In default of intention, the presence of a citizen for at least 183 days
qualifies him as non-resident citizen.
B. Alien
1. Resident an alien who showed proof of his extended stay or who have stayed in
the Philippines for more than one year with indefinite purpose
2. In- business/engaged in trade or business in the Philippines an alien who stayed
in the Philippines for more than 180 days is deemed doing business in the
Philippines
3. Not engaged in trade or business an alien who stayed in the Philippines for 180
days or less
a. Subject to 25% final income tax on all income regardless of type, bracket or
category without benefit of any deduction (allowable deductions or personal
exemptions)
b. Special Aliens non-resident not engaged in trade or business employed by:
a. regional or area headquarters (RAH) or regional operating headquarters of
multinational companies
b. offshore banking units
c. petroleum service contractors or sub-contractors
They are taxable at final tax rate of 15% on gross income received
Filipinos occupying the same position are also entitled to the same 15%
final tax scheme.
Progressive/Schedular Tax Rates for Non-Corporate Taxpayers:
Over But Not Basic Tax plus % of excess
Over over
P P 5% P
0.00 10,000.00 0.00
10,000.0 30,000.00 P500 plus 10% of excess 10,000.00
0 over
30,000.0 70,000.00 P2,500 plus 15% of excess 30,000.00
0 over
70,000.0 140,000.00 P8,500 plus 20% of excess 70,000.00
0 over
140,000. 250,000.00 P22,500 plus 25% of excess 140,000.00
00 over
250,000. 500,000.00 P50,000 plus 30% of excess 250,000.00
00 over
500,000. Infinite P125,000 plus 32% of 500,000.00
00 excess over
Items of Income for Individual Taxpayers:
A. Capital Gain subject to Capital Gains Tax applicable to all individuals, estates
and trusts
1. Sale of domestic stocks directly to buyer
2. Sale of real property
B. Passive Income
1. Interest from deposits
2. Royalties
3. Winnings

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4. Prizes
5. Dividends (cash or property)
6. Income from cinematographic films and similar works earned by non-
resident aliens
taxable at 25% final tax
if earned by residents or citizens, this is taxable at progressive rates
7. Share in the net income of a taxable partnership
Business Partnership (taxable partnership)
a partnership formed for profit and not for the exercise of a common profession
treated as a corporation for tax purposes
the share in the distributable income of a partnership is subject to a 10% final
tax which is the same as those imposed with dividends when the recipient is an
individual or a non-resident taxpayer
Share in the net income of General Professional Partnership (exempt
partnership)
GPP - one formed for the common exercise of a profession (all partners must be
from the same profession)
GPP are not taxable as a separate entity but have reportorial responsibility with
taxation authority (i.e. filing of annual information return)
its net income is deemed constructive income of the partners pro-rata to their
ownership interests
share of partners from GPPs are subject to regular tax
Rules Compensation of partners from a partnership:
1. Business partnership the compensation falls as taxable compensation of the
receiving partner; the same is a deductible compensation expense of the
business partnership. It should be noted that registration is not necessary
before partnership are taxable as corporations.
2. General Professional Partnership compensation is viewed as a distribution
of income and hence represents a business income of the recipient
Taxation of Co-ownership Income
General Rule: Co-ownership are exempt from taxation since it is usually limited
to the preservation of the property owned in common and the collection of the
related income accruing therefrom. Co-owners therefore are required to report to
their separate income tax return their respective share in the net income of the co-
ownership
Exception Rule: when the income of the co-ownership is invested by the co-
owners in business or other income producing properties, the co-ownership is no
longer limited to preservation by virtue of the intention to engage in trade. The co-
ownership is constitutes itself into a business partnership and hence, taxable as a
corporation.
C. Income subject to Progressive Taxation
A. Compensation Income derived from employment and includes all income
arising form employer-employee relationship whether monetary or not
Inclusions:
1. salaries, wages, compensation, tips, commissions, emoluments and honoraria
2. bonuses
3. allowances (including straight allowances such as representation and
transportation allowances (RATA))
4. fringe benefits
5. retirement and separation benefits
6. fees, including directors fees
7. pensions
8. other income of a similar nature
B. Business of Professional Income- derived from activities which a person is
habitually engaged in such as trading, rentals, fees in the ordinary course of
business.
C. Other Income - these represent other items that meet the definition of income
which are neither subject to the final tax nor capital gains tax.

PERSONAL EXEMPTIONS
Items of Deductions from Individual Taxpayers Gross Income
A. Personal Exemptions

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a. Single individuals or married individual judicially decreed as legally separated
with no qualified dependents P20,000 (RA 8424) NOW: P50,000 (RA
9504)
b. Head of the family- sec. 35 par. A NIRC defines it as an unmarried or legally
separated man or woman with one or both parents, or with one or more brothers
or sisters, or with one or more legitimate, recognized natural or legally adopted
children living with and dependent upon him for their chief support, where such
brothers or sisters or children are not more than twenty-one (21) years of age,
unmarried and not gainfully employed or where such children, brothers, or sisters,
regardless of age are incapable of self-support because of mental or physical
defect. P25,000 (RA 8424) NOW: P50,000 (RA9504 as single taxpayer)
Note: the definition of Head of the Family has been effectively scrapped by R.A.
9504 which became effective on July 8, 2008.
c. Married individual P32,000 (RA 8424) NOW: P50,000 (RA 9504)
when one of the spouses is only deriving gross income, only such spouse is
allowed personal exemption
Items of income not directly traceable to either spouse is allocated to both
equally
B. Additional Personal Exemptions for dependents
Dependent a legitimate, illegitimate or legally adopted child chiefly dependent
upon and living with the taxpayer if such dependent is not more than twenty-one (21)
year of age, unmarried, and not gainfully employed or if such dependent, regardless of
age, is incapable or self-support because of mental or physical defect.
Additional exemption for each dependents not exceeding four: P8,000(RA 8424)
NOW: P25,000 (RA 9504)
In case of legally separated spouses, additional exemption is claimable only by the
one having custody of the child or children; provided, that the total amount of
additional exemptions claimable by both spouses shall not exceed 4 dependents.
Rules on Change of Status of an individual taxpayer during the year (partially
superseded):
1. Marriage of a taxpayer or having additional dependent the taxpayer may
claim the corresponding exemption as the case may be, in full (not prorated) for
such year.
2. Death of a taxpayer his estate may still claim the personal and additional
exemptions for himself and his dependent(s) as if he died at the close of such year.
3. Death of spouse or dependents, a dependent marries, a dependent
becomes 21 year old or a dependent becomes gainfully employed- these
losses of entitlement shall take effect at the end of the year.
Personal Exemptions Allowable to Nonresident Alien (sec. 35 (D) NIRC) a
nonresident individual engaged in trade or business or in the exercise of profession in the
Philippines shall be entitled to personal exemption in the amount equal to the exemptions
allowed in the tax law in the country of which he is a subject citizen, to citizens of the
Philippines not residing in such country, not to exceed the amount fixed in this Section
(referring to section 35) as exemption for citizens or residents of the Philippines.
Provided that said nonresident alien should file a true and accurate return of the total
income received by him from all sources in the Philippines, as required by this Title.
Note: Sec. 35 of the NIRC encompasses both personal exemptions, additional personal
exemptions including rules of change of status of taxpayers. It is clear from the
provisions that both personal and additional exemptions are claimable by non-resident
engaged in trade or business. However, the existing interpretation of the BIR is that NRA-
ETBs are allowed only basic personal exemption only.
C. Premium on Health and Hospitalization Insurance
the amount of premium not to exceed P 2,400 per family or P 200 a month paid
during the taxable year for health and hospitalization insurance paid by the
taxpayer for himself, including his family, shall be allowed as deduction from his
gross income; provided that said family has a gross income of not more than P
250,000 for the taxable year.
In the case of married individuals, only the spouse claiming additional exemptions
for dependents shall be entitled to this deduction.
D. Business Expenses ( Please consult Deductions from Gross Income)
SPECIAL RULES WITH MARRIED TAXPAYERS

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- each married person shall compute the amount of income tax separately but their
income tax liability shall be reported in one income tax return such that there will be
only one income tax payable or income tax refundable
- Joint income or income that cannot be clearly established as income of either spouse
is allocated equally.
Substituted Filing of Income Tax Return
- The employer of the taxpayer withholds the tax due on the employees income;
likewise the deductibility of the related compensation expense for the employer is
contingent on the withholding of the employee income tax.
- in case of purely compensation income earners, there should be no need to file a
separate income tax return, unless there are other income to be declared or the
withhold amount of tax is incorrect
- in case of concurrent employment, the taxpayer shall select a main and secondary
employer; the main employer shall compute tax liability with consideration for
personal deductions while the secondary employer shall compute and withhold tax
thereon without consideration of the personal exemption of the taxpayer; a
consolidated return shall be filed by the employer at the end of the taxable period
Rules on Centavos
- centavos on the taxable income are concatenated (i.e.: dropped off)
- centavos on the income tax due are rounded to the nearest peso

ESTATE AND TRUST INCOME TAXATION

Estate and Trusts are taxable as a individual and shall be allowed a basic personal
exemption of P20,000 only.
Estate the totality of the property left by a deceased person, whether real, personal or
intangible. An estate is considered a separate taxpayer only when it is subject to court
proceeding (i.e. under judicial settlement).
Trust the totality of the property conveyed by a person, trustor, to another, trustee, for
the purpose of enabling the latter to safeguard the property for the benefit of another
person, the beneficiary. A trust is considered a separate taxpayer only when it is
irrevocably designated. A revocable trust is considered to be an extention of the
grantor and; hence, taxable upon the grantor.
Taxation Rules:
1. The same rule in individual taxation applies thus progressive rates also apply.
2. Taxable estate and trust are considered as individual taxpayer and allowed a P20,000
personal exemption only.
3. Additional deduction can be claimed for the following:
a. amount of income which is to be distributed currently to the beneficiary; and
b. amount of its income for the taxable year which is properly paid or credited during
such year to any heir, legatee, or beneficiary, but the amount so allowed as a
deduction shall be included in computing the taxable income of the heir, legatee or
beneficiary
4. Taxable incomes from multiple trusts are consolidated when the grantor and the
beneficiary of the several trusts are the same person in each instance.
Consolidated Gross income of xxx,xxx.xx
all trust
Less: consolidated deductions xxx,xxx.xx
Consolidated Net income xxx,xxx.xx
Less: Personal Exemptions 20,000.00
Consolidated Taxable income of xxx,xxx.xx
all trust
DRILL PROBLEMS
1. Which of the following statements is not correct?
a. In the case of married individuals, where only of the spouses is deriving gross
income, only such spouse shall be allowed the personal exemption
b. In the case of married individuals, the additional exemptions maybe claimed by
only one of the spouses
c. As a rule, the husband shall be deemed to the head of the family and proper
claimant of the additional exemption
d. In the case of legally separated spouses, additional exemption maybe claimed by
the spouses who has custody of the children but shall not exceed four(4) for each
spouse

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2. A resident citizen is taxable on all income derived from sources
a. Within the Philippines only c. Partly within and partly without
b. Without the Philippines only d. Within and without the Philippines
3. A non-resident citizen is taxable on all income derived from sources
a. Within the Philippines only c. Partly within and partly without
b. Without the Philippines only d. Within and without the Philippines
4. A resident alien is taxable on all income derived from sources
a. Within the Philippines only c. Partly within and partly without
b. Without the Philippines only d. Within and without the Philippines
5. A non-resident alien is taxable on all income derived from sources
a. Within the Philippines only c. Partly within and partly without
b. Without the Philippines only d. Within and without the Philippines
6. The following taxpayers are allowed to claim additional exemptions, except
a. resident citizens c. resident alien
b. non-resident citizens d. non-resident aliens
7. Which cannot claim additional exemption?
a. Non-resident alien c. Non-resident alien engaged in trade or business
b. Non-resident citizen d. Non-resident alien not engaged in trade
or business
8. Which of the following statements is not correct?
a. If only one spouse is deriving taxable income, only said spouse may claim the
additional exemption.
b. If both spouses earn taxable income only of the spouses can claim additional
exemption
c. If legally separated from the spouse, the husband can claim the additional
exemption unless he waives the right in favor of his wife
d. An unmarried individual with a child out of wedlock can claim a personal
exemption as a head of the family plus additional exemption
9. A citizen of the Philippines who works and derives income from abroad is a resident
citizen if he stayed outside the Philippines
a. for less than 180 days c. for 183 days or more
b. for more than 180 days d. for less than 183 days
10.A citizen of the Philippines who works and whose employment requires him to be
physically present abroad most of the time during the taxable year is
a. taxable on income within and without the Philippines
b. taxable on income from without the Philippines
c. exempt from income tax
d. taxable on income from within the Philippines
11.A citizen of a foreign country is considered a non-resident alien engaged in business
in the Philippines if he stayed inside the Philippines
a. for 183 days or more c. for more than 180 days
b. for less than 183 days d. for less than 180 days
12.Which of the following dependents is not qualified to entitle a taxpayer additional
personal exemption?
a. Recognized natural son who celebrated his 21st birthday during the taxable year
b. Legitimate son, 21 years old who got married on December 31 of the year
c. Legally adopted son, 21 years old who became employed December 31, of the
taxable year
d. Widowed mother, who celebrated her 59th birthday during the taxable year
13.For income tax purposes, which of the following is considered head of the family?
a. Married individual who has a dependent minor child
b. Married but legally separated individual with a dependent mother who is 59 years
old
c. Single individual with a common law wife
d. Married individual even if he has no children
14.Which of the following dependent will qualify a single taxpayer as head of the family?
a. Taxpayers brother 22 years old, unemployed, unmarried, living with him and
dependent upon him for support
b. Taxpayers sister, 18 years old, unemployed, unmarried, living with him and
dependent upon him for chief support

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c. Taxpayers illegitimate son, 12 years of age, unemployed, single, living with him
and dependent upon him for chief support
d. Taxpayers godchild, 10 years old and dependent upon him for chief support
15.Mr. A became a widower with three (3) dependent minor legitimate children in
January of 2005. In February of the following year, he got married to Ms. B and
subsequently in November of the same year, the latter gave birth to a baby boy. The
total basic and additional personal exemptions of Mr. A in 2006 is:
a. 150,000 b. P64,000 c. 125,000 d. P57,000
16.A German citizen residing in Germany, married, is doing business in the Philippines.
His country allows non-resident Filipino with income from Germany a basic personal
exemption equivalent to P80,000 as head of family, 100,000 as married and 70,000 as
single. The allowed personal exemption he can claim for 2009 is
a. 32,000 b. P70,000 c. 100,000 d. P50,000
17.Which of the enumerated taxpayers below can claim personal exemptions only if there
exist a reciprocity clause/law between the Philippines and his country?
a. Non-resident alien c. Non-resident alien not engaged in business in
the Philippines
b. Resident alien d. Non-resident alien engaged in business in
the Philippines
18.A legally married couple had the following data in year 2006:
A. Three qualified legitimate children dependent
B. Two nephews dependent
C. One illegitimate child of Husband
D. One legitimate child died in December 2006
E. Both spouses are gainfully employed
The claimable personal and additional exemptions of the couple:
a. H-64,000 , W-32,000 c. H-56,000 , W-62,000
b. H-32,000 , W-64,000 d. H-56,000 , W-40,000
18-19. A, who became a widower in February of taxable year of 2009, had the following
dependents:
A. Two legitimate minor children
B. Recognized natural child with current common law wife
C. B, his common law wife
D. Illegitimate child with another woman, died on January 2, 2009
19.The total basic personal and additional exemption in 2010 is:
a. 57,000 b. 64,000 c. 49,000 d. 150,000
20.The total additional exemption in 2010 is:
a. 57,000 b. 125,000 c. 49,000 d. 75,000
21.A taxpayer who was married but was legally separated a year before, earned P325,00
compensation income from employment during the taxable year. He has legally
adopted child as qualified dependent and paid P3,000 as health and hospitalization
insurance premiums. He can claim a total exemption of:
a. 75,000 b. 52,400 c. 77,400 d. 50,000
22.A taxpayer was legally separated and earned P250,000 during the year. He has legally
adopted child as qualified dependent and paid P3,000 as health and hospitalization
insurance premiums. He can claim a total exemption of:
b. 40,000 b. 35,400 c. 36,000 d. 33,000
23.Which of the following individuals taxpayers cannot avail of the deductions for health
and hospitalization insurance premiums?
a. Non-resident citizen c. Non-resident alien engaged in business in
the Philippines
b. Resident alien d. Non-resident alien not engaged in
business in the Philippines
24.May not claim personal exemption
a. Non-resident citizen
b. Non-resident alien engaged in trade or business in the Philippines under certain
conditions
c. Resident alien
d. Non-resident alien who stayed in the Philippines for 175 days
25.Which will qualify as dependent

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a. Illegitimate child b. Brother c. Mother d. Senior citizen
26.Persons with disability is claimable as additional exemptions
a. if not more than 21 years of age c. regardless of age and relationship to the
taxpayer
b. if not gainfully employed d. regardless of age, if he is a child of the
taxpayer
27.Personal exemption, if single
a. 20,000 b. 25,000 c. 32,000 d. 50,000
28.Personal exemption, if married but judicially declared as legally separated with a
dependent
a. 20,000 b. 25,000 c. 32,000 d. 8,000
29.The taxpayer is a head of the family in 2005, his personal exemption is
a. 50,000 b. 32,000 c. 25,000 d. 20,000
30.Amount of additional exemption for each qualified dependent child is
a. 8,000 b. 7,000 c. 50,000 d. 25,000
31.An unmarried or legally separated man or woman with one or both parents, or with
one or more brothers and sisters, or with one or more legitimate, illegitimate, or
legally adopted children living with and dependent upon him or her for their chief
support, where such brothers or sisters or children are not more than 21 years of age,
unmarred and not gainfully employed or where such brothers, or sisters or children,
regardless of age are incapable of self-support because of mental or physical defect is
a. Good father of a family c. Single
b. Married d. Head of the family
32.A non-resident alien is deemed doing business in the Philippines if he
a. Is an individual whose residence is within the Philippine
b. Is an individual whose father or mother is an alien who is engage in business in the
Phil.
c. Is an individual who is naturalized in accordance with law
d. Shall come to the Phil. and stay therein for an aggregate period of more than 180
days during a calendar year
33.One is not correct
a. If the taxpayer marries during the taxable year, he may claim the personal
exemption in full as a married person for such year
b. If the taxpayer dies during the taxable year, his estate may still claim the personal
and additional exemption for himself and his dependents as if he died at the close
of such year
c. If the spouse of the taxpayer or any of the dependents dies during the taxable year,
the taxpayer may still claim the same exemptions as if death occurred at the close
of such year
d. If the taxpayer should have additional dependent children during the taxable year,
he can always claim the additional exemption for such year
34.One is correct
a. Where both husband and wife receive compensation income, the additional
exemption shall be claimed by the wife unless she explicitly waives her right in
favor of her husband in the withholding exemption certificate
b. Husband and wife shall be treated as separate taxable units and each shall be
allowed to claim personal exemption for married individuals
c. If gross income does not exceed 20,000 a special additional personal exemption of
4,000 may be claimed by the taxpayer
d. Husband and wife shall be treated as separate taxable units and shall be allowed to
claim only one personal exemption either for the husband or the wife at their
option
35.A. The term chief support means more than one-half of the requirements for support
B. If two children contribute equal amounts for the support of a dependent, neither
one of them may qualify as head of the family
a. True, true b. True, false c. False, true d. False,
false
36.A. if any of the qualified dependents becomes 21 years old during the taxable year, the
taxpayer may still claim the same exemptions as if such dependent became 21 years
old at the close of such year.

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B. Parents living with and dependent upon the taxpayer for their chief support
regardless of their age will qualify as head of the family
a. True, true b. True, false c. False, true d. False,
false
37.A. If the dependent child marries during the taxable year, the taxpayer may still claim
the same exemption as if the marriage occurred at the close of such year
B. In the case of married individuals, the additional exemptions shall be claimed by
only one of the spouses
a. True, true b. True, false c. False, true d. False,
false
38.Who is a non-resident alien not engage in business in the Philippines?
a. An alien who comes to the Phil. for a definite purpose shall be claimed which in its
nature may be promptly accomplished
b. An alien who comes to the Phil. for a definite purpose which in its nature would
require an extended stay of more than 180 days
c. An alien who has acquired residence in the Phil
d. An alien who lives in the Phil with no definite intention as to his stay
39.The personal exemption of the non-resident alien engage in trade or business in the
Philippines is equal to that allowed by
a. The income tax law of his country to a citizen of the Phil not residing there
b. The income tax law of his country to a citizen of the Phil not residing there or the
amount provided by the NIRC to a citizen or resident whichever is lower
c. The NIRC to a citizen or resident
d. The income tax law of his country to a citizen of the Phil is not residing there or
the amount provided by the NIRC to a citizen or resident whichever is higher
40.A. If a taxpayer married during the year, he may claim the personal exemption for
married individual in full for such year
B. A dependent child who married within the year may still qualify as depended for
the year
a. True, true b. True, false c. False, true d. False,
false

41-45. A, married, had the following data for the taxable year:
Gross income, Philippines 400,000
Gross income, USA 300,000
Expenses, Philippines 200,000
Expenses, USA 150,000
41.If the taxpayer is a resident citizen, married, his taxable income is
a. 168,000 b. 318,000 c. 350,000 d. 400,000
42.If the taxpayer is a non-resident citizen, married, his taxable income is
a. 168,000 b. 318,000 c. 350,000 d. 400,000
43.If the taxpayer is a resident alien, married, his taxable income is
a. 168,000 b. 318,000 c. 350,000 d. 400,000
44.If the taxpayer is a non-resident alien engaged in business in the Philippines., married
and his country allows reciprocity of 30,000, as personal exemption for married
individuals his taxable income is
a. 168,000 b. 170,000 c. 200,000 d. 400,000
45.If the taxpayer is a non-resident alien not engaged in business in the Philippines
married and his country grants 35,000 as personal exemption for married individuals,
his taxable income is
a. 168,000 b. 318,000 c. 350,000 d. 400,000
46.Which is subject progressive tax?
a. Revocable trusts
b. Non-resident alien engaged in trade or business
c. Non-resident alien employed by offshore banking units, ROH or RAH of
multinational companies or petroleum service contractors or subcontractors
d. Filipinos occupying the same positions held by special aliens in OBUs, ROH or RAH
of MNCs or petroleum service contractors or subcontractors
47.With regard to deduction for premiums on hospitalization and health insurance, which
of the following statement is wrong?

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a. Allowed as deduction even if income is from compensation only
b. Allowed as deduction even if income is from business or practice of profession
c. Allowed as deduction even if mixed income
d. Allowed as deduction only if the taxpayer is taking itemized deductions from gross
income
48.Which of the following statements is wrong? The premiums on hospitalization and
health insurance may be deducted
a. Not to exceed 2,400 a year per family c. If the family income does not exceed
250,000
b. Not to exceed 200 per month d. By either spouse in the case of married
individuals
49.A resident citizen, married with 4 qualified dependent children had the following
during the calendar year:
Gross compensation income P 200,000
Expenses related to his employment120,000
SSS premium contributions 3,600
PhilHealth contributions 2,400
Pag-ibig contributions 2,000
Union dues 1,000
Premiums on health insurance 4,000
The taxable income is
a. 41,000 b. 38,600 c. 123,000 d. 124,600
50.In which of the following should additional personal exemption of P25,000 not be
allowed to the taxpayer?
a. An alien, whose dependent child is living with him in the Philippines
b. A resident citizen, who has a 25 year old mentally retarded son
c. A resident citizen, who has a 50 year old mother as his dependent
d. A resident alien with an illegitimate child, 7 years old whose husband died during
the taxable year when their only child is 7 years old
51.Mr. Tajong, a single resident citizen with 15 recognized natural children, is a director
of Hippon Company. The following information pertains to Mr. Tajongs income in
2009:
Salary, net of SSS, PhilHealth and Pag-Ibig P
800,000
Directors fees 120,000
Meals of Mr. Tajong subsidized by Hippon 10,000
Company
House and lot, registered in Mr. Tajongs 1,020,00
name, FMV 0
Income tax withheld from Mr. Tajongs 186,000
compensation
Fringe benefits tax withheld by Hippon 480,000
Company
Compute the income tax payable (refundable) of Mr. Tajong.
a. P214,600 b. P28,600 c. (P125,000) d. P0

52.Mr. Uro, married with 5 dependents, is employed by an offshore banking unit in the
Philippines. Mr. Uro earned a total compensation income of P250,000, net of P2,000
SSS, P1,800 PhilHealth and P1,200 Pag-Ibig, in 2010 and paid P3,000 in premium of
health and hospitalization insurance for himself and his family. Compute the total
personal exemptions of Mr. Uro.
a. P150,000 b. P152,400 c. P177,400 d. P 0
53.Hirohito is an alien employed by a regional operating headquarter of a multinational
corporation. During 2010, Hirohito earned a total compensation income of P800,000,
exclusive of P200,000 professional fees on business advisory services rendered to a
Japanese client in the Philippines. Compute Hirohitos total income tax.
a. P 0 b. P150,000 c. P170,000 d. P250,000
54.A non-resident citizen has business income traceable from the Philippines of P150,000
and from abroad, P200,000. Expenses directly traceable to the Philippines and abroad
are P50,000 and P125,000, respectively. However, the taxpayer have an unallocated
deductions of P42,000. Compute the taxable income.
a. P133,000 b. P83,000 c. P82,000 d. P32,000
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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08
Northern CPAR: Taxation Individual Income Taxation
55.Bino and Gibo are partners in two partnerships, one general professional partnership
and a business partnership. The following data shows the separate income of Bino,
Gibo and their partnerships:
General
Profession Business
Bino Gibo al Partnershi
Partnershi p
p
Gross income P P P P
300,000 400,000 500,000 800,000
Other business ( 100,0 ( 250,00 ( 200,00 ( 400,00
expenses 00) 0) 0) 0)
Salaries to Bino 200,000 - ( 100,00 ( 100,00
0) 0)
Salaries to Gimo - 150,000 ( 50,00 ( 100,00
0) 0)
Net income - - P P
150,000 200,000
Bino and Gibo shares profits equally on both partnerships. Bino and Gibo are both
single but Gibo has 2 illegitimate children dependent upon him for chief support.
Compute the taxable income of Bino and Gibo, respectively.
a. P475,000; P375,000 c. P525,000; P375,000
b. P425,000; P325,000 d. P425,000; P275,000
56.Which of the following statements is correct?
a. Estates and trusts are allowed a personal exemption of 32,000 if the executor or
trustee is married
b. The income tax rates for corporate taxpayers apply to taxable estates and trusts
c. The taxable year of estates and trusts maybe calendar or fiscal year
d. For a trust to be taxable, it must be irrevocable, both as to corpus (principal) and
income
57.The property, rights and obligations of a person which are not extinguished by his
death and those which accrued thereto since the opening of succession
a. Assets b. Capital c. Estate d. Income
58.The term applied to the person whose property is transmitted through succession,
whether or not he left a will
a. Decedent b. Transferor c. Transferee d. Testator
59.A decedent who has a will upon death
a. Transferor b. Grantor c. Donor d. Testator
60.The person called to the succession either by the provision of a will or by operation of
law
a. Heir b. Devisee c. Legatee d. Trustor
61.The person to whom a gift of real property is given by virtue of a will
a. Heir b. Devisee c. Legatee d. Trustor
62.The person to whom a gift of personal property is given by virtue of a will
a. Heir b. Devisee c. Legatee d. Trustor
63.The person who establishes a trust
a. Heir b. Devisee c. Legatee d. Trustor
64.The person in whom confidence is reposed as regards property for the benefit of
another person
a. Devisee b. Trustee c. Legatee d. Trustor
65.The person for whose benefit the trust has been created
a. Legatee b. Heir c. Beneficiary d. Trustee
66.For income tax purposes, any person or corporation that holds in trust an estate of
another person or persons
a. Beneficiary b. Fiduciary c. Legatee d. Devisee
67.Ms. Hair Noh died during the year on July 1, 2009, leaving 2 heirs, Gay and Bald. The
estates of Ms. Noh undergo judicial settlement. The following relates to the gross
income of Ms. Noh, Gay and Bald in 2009.
Before After Ms.

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08
Northern CPAR: Taxation Individual Income Taxation
Ms. Nohs Nohs
death death
Ms. Noh P P
400,000 300,000
Bald (2 200,000 P180,00
dependents) 0
Gay (1 300,000 250,000
dependent)
Bald and Gay received P80,000 distribution each from the executor of Ms. Nohs
estate during the year. of the respective distributions to Bald and Gay came from
the corpus of the estate.
Compute the 2009 taxable income of Ms. Noh.
a. P350,000 b. P375,000 c. P650,000 d P600,000
68.Compute the 2009 taxable income of Gay.
a. P555,000 b. P540,000 c. P525,000 d. P515,000
69.Compute the 2009 taxable income of Bald.
a. P320,000 b. P360,000 c. P370,000 d. P410,000
70.Compute the 2009 taxable income of the estate.
a. P90,000 b. P120,000 c. P170,000 d. P200,000
71.Ms. Mho designated a trust in favor of his minor boyfriend, Bacleito. Both the
P2,000,000 corpus and all future income of the trust is designated by Ms. Mho as
irrevocable. During the year, the trust earned P400,000 gross income, paid P40,000 as
management fees to the trustee and distributed P200,000 as allowance to Bacleito.
Bacleito has other income from part-time employment. Compute the taxable income
of the trust and the taxable income of Bacleito.
a. P160,000; P200,000 b. P140,000; P150,000 c. P140,000; P70,000 d.
P160,000; P180,000
72.A created a trust for his daughter, B, a minor and appointed C as the trustee. A
transferred an apartment where rent income of 380,000 (net of 5% withholding tax)
was received by the trust with an expense of 90,000 during the year. 50% of the gross
income was given to B, while 20% based on the net receipts was recorded as valid
expenses of the trust, compute the income tax due or refundable of the trust and the
taxable income of B.
a. (P15,300); P150,000 b. (P7,500); P200,000 c. (P15,300); P180,000 d.
(P7,500); P70,000
73.Angel created two irrevocable trusts, Trust 1 and Trust 2 with different trustee but
with common beneficiary, the following data pertain to the trust and the beneficiarys
own account:
Trust 1 Trust 2 Beneficiary Grantor
Gross income 400,000 800,000 250,000 800,000
Deduction 75,000 125,000 100,000 200,000
Income distributed to beneficiary150,000175,000

What is the income tax due of trust 1 and trust 2.

a. P19,500; P119,000 b. P26,250; P119,000 c. P19,500 d. P 26,250; P
74.Compute the income tax due of the consolidated trust.
a. P42,500 b. P36,100 c. P35,750 d. P29,350
75.Compute the income tax due of the beneficiary.
a. P117,500 b. P102,500 c. P25,000 d. P14,500
76.Compute the taxable income of the Grantor if Trust 2 is designated as revocable
a. P357,000 b. P301,000 c. P157,000 d. P141,000
77.Give the total personal exemptions of the following in accordance with RA 9504:
A. Taxpayer is single, supporting his mother, 50 years old, has no mental or physical
defect, but living with the taxpayer. ___________
B. Taxpayer is single, supporting one minor child left by her boyfriend who is legally
separated from his wife ____________
C. Taxpayer is a widow, supporting her 18 year old daughter and the husband of her
daughter, living with the dependent upon the taxpayer for their chief support.
__________

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08
Northern CPAR: Taxation Individual Income Taxation
D. The taxpayer died including her husband and one of their three dependent children
in an accident during the year. ___________ ____________
E. Taxpayer is married, supporting the following dependents:
a. Recognized natural child, 9 years old, but living with the taxpayers mother
__________
b. Legitimate child, 7 years old, used to live with the taxpayer but is presently
studying is USA __________
c. Legally adopted child, 7 years old, living with the taxpayer ___________
d. Illegitimate child, 3 years old, living with the taxpayer __________
e. The natural child of his son who died during the year __________
f. Legitimate child by a former marriage. 8 years old __________
g. Common-law husband who is single, 20 years old __________
h. Natural child of her common law husband, one year old ___________
i. A newly born child on July 1 of the current year __________
j. A senior citizen related by blood to the taxpayer __________
F. Taxpayer married his girlfriend on December 30, 2006. The following occurred
afterwards:
a. His wife gave birth to a baby girl on December 31, 2006 ___________
b. His wife gave birth to twin boys on December 31, 2007 ___________
c. The baby girl died in July 1, 2008 ___________
d. His wife gave birth to triplets on December 31, 2009 ___________

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08
Northern CPAR: Taxation Individual Income Taxation
INTEGRATIVE CASES:
Case A: An individual income taxpayer, unmarried with 1 dependent, derived the
following income:
Philippin Abroad
es
Compensation income P P
200,000 400,000
Rent income 150,000 180,000
Gain on sale of domestic bonds directly to buyer 5,000 2,000
(held 14 months)
Gain on sale of foreign bonds directly to buyer - 38,000
(held 18 months)
Loss on sale of foreign shares directly to buyer (12 - 27,000
months)
Gain on sale of domestic stock directly to buyer 45,000 40,000
Interest from FCDU dollar deposit, gross 12,000 24,000
Prizes from dancing competition 7,500 12,000
Interest income from notes 12,000 23,000
Required: Complete the following table:
Taxpayer Taxable Final Tax Capital Gains
income Tax
1. Resident ___________ ___________ ___________
citizen
2. Resident alien ___________ ___________ ___________
3. NRA-NETB ___________ ___________ ___________
4. Special alien ___________ ___________ ___________

CASE B: A taxpayer, with one dependent child, has the following data:
2009 2010
Philippin Abroad Philippin Abroad
es es
Compensation income P P P P
200,000 120,00 300,000 150,00
0 0
Business gross income ( 80,0 50,000 200,000 50,000
00)
Long-term capital gain ( 40,0 25,000 40,000 ( 10,0
(loss) 00) 00)
Required: Compute the taxable income assuming the taxpayer is a:
1. resident alien ____________
2. resident citizen ____________

CASE C: Mr. X died, a bachelor, on August 30, 2009. With conflicting claims of various
heirs, his estate undergoes judicial settlement. Mr. Xs executor summarized the
following information for purposes of computing his income tax and estate tax:
Properties, net of obligations, at point of P
death 3,800,000
Rent income of properties(earned evenly 300,000
during 2009)
Net income of X business (40% earned after 500,000
death)
Teaching income of Mr. X 150,000
Judicial expenses of Mr. Xs estate 200,000
Funeral expenses (30% after interment) 250,000
Fire loss of business properties classified as
ordinary assets (25% before death) 100,000
Medical expenses of Mr. X just prior to death 120,000
Required: The executor decided to claim the loss as deduction for income tax purposes.
1. Compute Mr. Xs taxable income.
a. P0 b. P750,000 c. P625,000 d. P575,000
2. Compute the taxable income of Xs estate.

13
Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08
Northern CPAR: Taxation Individual Income Taxation
a. P0 b. P225,000 c. P205,000 d. P175,000
3. Compute Mr. Xs taxable estate.
a. P 3,305,000 b. P 2,855,000 c. P2,505,000 d.
P2,305,000

--- End of Handouts ---

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Driven for real excellence! TAX by Rex B. Banggawan, CPA, MBA TAX 5th Batch HQ08