Professional Documents
Culture Documents
FINALS
DIVIDEND INCOME
1) Definition:
i) Dividend income are earnings derived from the profits of the corporation to be distributed to
the stockholders. This pertains to dividends declared by foreign corporations.
ii) It is an income received either by individuals or corporation representing return of capital or
investment. The same may either be taxable or exempt either in the form of cash or
property. The nationality of the taxpayer, the source of income whether form sources within
or without bears important determining the tax consequence of the dividends.
iii) Any distribution made by a corporation to its shareholders out of its earnings or profits and
payable to its shareholders, whether in money or property.
c) Reckoning Period: Upon the declaration kahit may declaration for the year 2015 pero
babayarin nya yung mga shareholders for the following year (2016), kelan niya idedeclare yung
dividend income? 2015.
3) Forms of Dividend Income: Cash, Property and Stock dividends
FOR TAXATION
PURPOSES
Example: Jollibee Food Corporation issued dividend income to San Miguel Corporation
(NOT SUBJECT to Tax)
e. STOCK Dividends
General Rule: Not Taxable
Reason: There is no flow of wealth so no realized gain. It is just transfer of Surplus
account to the capital account.
Exceptions:
a. Change in the Stockholders Interest in the net equity of the Corporation.
Changes on the three things:
a. Net Income or Losses, b. Payment of Dividends, and c. Share issuance or
repurchase.
The exception dito change of interest, instead of 10% due to the dividend
income naging owner na siya ng 15% ng corporation ibig sabihin merong
income. Kaya siya exempted. Kasi may income dapat 10% lang siya, upon
declaration may 15% may income on the part of the stockholder meaning may
additional profit. TAXABLE
NOTE: Always take note kung may additional profit on the part of the taxpayer,
kung may additional profit or income then TAXABLE sya except provided by law,
special law, rules or under NIRC.
e. Disguised dividends
NOTE:
Under Reciprocity: When one country gives country to other person which are foreign
country, the other country must also give same exemption
Example case of Pacquiao : Pacquiao earn income from boxing and under US law he is
subject to an income tax.
Resident Citizen All income derived within and without the Philippines.
300,000 TAX DUE. May binayaran na siya sa US. Pwede niya ng iclaim as Tax Credit. For
example binayaran mo 50,000. Ang babayaran niya nalang is 250,000.
Such is subject to reciprocity rule, under the US Law kung may na earn ang citizen nila
dito kung makakaclaim ng credit dito sa ating bansa ay makakaclaim din ang Pinoy sa
ibang bansa.
a) The excess of Annuity payments received by the recipient over premium paid is taxable
income in the year of receipt.
i) General Rule: Taxable if it represents mere Interest.
ii) Exception: However if the annuity represents only a mere return of Capital or
Premium it is non-taxable AMOUNT and NOT INCOME.
Example : Andrew purchased an annuity contract for P100,000 which shall pay him P10,000
annually until he dies.
The receipt of the first 10 annuity payments is a return of Capital . 10,000x10 = P100,000 (Mere
return of Investment) . Any further receipt from year 11 and onward is an item of gross income
subject to regular income tax.
a) PRIZES
i) DEFINITION: A reward for a contest or a competition. In other words, a prize is a
remuneration of an effort reflecting ones superiority, like prize money of a boxing
contest. Prizes and Winnings that are exempted from final tax are not items of gross
income subject to regular income tax.
ii) GR : Taxability of Prizes: More than Php10,000 Subject to Final Tax 20%
*If a person gets Php 15,000, the whole 15,000 shall be subject to 20%
(i) The recipient was selected without any action on his part to enter the
contest or proceeding; and (Ex. Outstanding women league )
d. All 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 sports associations.
b) Winnings:
i) Definition: A reward for an event that depends by chance.
Resident Citizen won outside the Philippines Subject to Normal Tax. Section 24 (B)
(1)
ILLUSTRATION: Regine Velasquez won the following prizes / winnings during the year:
FIRST PRIZE Singing Contest P 10,000
FIRST PRIZE Philippine Charity Sweepstakes Winning P1, 000, 000
THIRD PRIZE: : Raffle Ticket Winnings P 5, 000
Which of the prizes is subject to normal tax, final tax and tax exempt?
Answer: The prize from singing contest being earned in a contest and within threshold
amount of Php 10,000 and below is subject to Normal Tax (Section 24 (A), NIRC).
The winning on raffle ticket being earned by chance is subject to final tax of 20% even if
the amount is less than P10,000 and
PENSIONS
the winning from the Philippine Charity Sweepstake is tax exempt.
This pertains to pensions and retirement benefits that fail to meet the exclusion
criteria and hence subject to regular tax.
CUBAN
U The amount written off must be uncollectible in the near future, no slim chance of recovery collecting such
an amount.
A- Ascertain to be worthless
ILLUSTRATION:
Example: Nestle Philippines as the seller we have Tax Payer A a sari sari store owner as the Buyer.
SCENARIO: Nestle nagbenta siya ng grocery kay A worth Php100,000 upon the selling of the Goods, the
seller must declare the goods as the Sale which is subject to Tax. However, these goods were sold on
CREDIT, under the books of the Seller, irerecognize niya as account receivable or PAUTANG or
Collectible the amount of 100,000 from A assuming it is done on 2012.
On 2013, hindi niya na malocate si A. Now anong mangyayari sa Pautang? It is deemed paid off on the
part of the Seller since hindi niya na makolekta on the year 2012 which is subjected to the corporate tax.
As a claim for deduction the amount of 100k shall be recognized as BAD DEBTS. Kung merong masamang
utang ang isang buyer ang gagawin ng seller is to 1.) Charged off or written off against the books of the
Tax Payer which is tatanggalin niya na yung utang ni Buyer.
For the year 2013, Nestle reported sales of Php50,000 from the other buyer , sabi natin pwede siyang
mag claim ng worthless account na Php 100,000. In effect yung taxable income niya naging wala na kasi
dun sa worthless account.
If hindi niya clinaim yung recovery sa Bad debts magbabayad sana siya ng 50,000 subject to 30%
(Corporate Tax) . Yung clinaim niya yung Bad Debts natanggal na yung babayaran mo.
Pano naman siya nagiging income? Nag abroad kasi. Upon recovery of the bad debts, theres a
deemed income on the part of tax payer. However may condition yun , up to the extent of the tax
benefit or principle of tax benefit or Recapture Rule.
On the year 2016, si Nestle nag report ng income amounting to Php 100,000 and then narecover niya
yung na write off niya or charged off dati na utang ni Buyer kaya idadag niya as an ITEM OF GROSS
INCOME so iadd niya as item of gross income yung bad debts recovered amounting to 100k . Doon na
papasok yung tax benefit rule. Magkano ba yung nabenefit ng tax payer dito? Only the amount of 50k
kasi eto lang yung inabsorb niya. Etong 50k lang ang inabsorb niya nag karoon ng benefit ng tax payer.
Kaya ang iclaclaim niya dito ay only 50k
. At the year of the claim of Bad Debts, magkano dapat ang due mo? 15k sana. 50,000 x 30% (Corporate
Tax) = 15,000. Pero mag kano sana yung actually na binayaran mo = 0. Kasi recovery of bad debts.
Magkano yung benefit mo 15,000/tax rate. Yun lang yung extent na pwede mong iclaim.
2012
NESTLE PHILIPPINES
Hindi na malocate si Tax Payer A
(SELLER) sold Php
100,000 grocery to Hindi niya na macocollecta yung utang ni A kasi nga nag
A- (Sari-Sari Store) abroad siya ma write off na ito at considered as BAD
DEBTS.
b
2013
2016
Php50,000 na collect niya from Narecover niya yung 100,000 na bad debts
other sales. niya or yung utang na 100k from 2012.
Dahil may 100k siyang Bad Ngayon iadd mo yung Tax Benefit mo nuong
Debts, ang magiging TAX DUE 2013 na 15,000. (50,000 x 30% = 15,000
niya ay 0. benefited.
Example: Ikaw yung heir, namatay yung tatay nila and then yung anak nakatanggap ng proceeds
from the life insurance ng father. Yung heir additional income ba on his part? It is a contract of
indemnity because iniindemnify yung life ng tatay.
It shall not included as the Gross Income Section (32)(B)(1) but however it shall form part
as Gross Estate Section 85(E) of the deceased person. Kung ang beneficiary mo ay Revocable,
pwedeng mapalitan, however kapag namatay na hindi na pwedeng palitan. Ang mangyayari is
macocollate na sya sa estate ng decedent. ALWAYS EXCLUDED IN THE IRRESPECTIVE
OF THE BENEFICIARY DESIGNATED IN THE POLICY
2. Amount Received by Insured as Return of Premium The amount received by the insured
as a return of Premiums paid by him under life insurance, endowment or annuity of contracts,
either during the term or at the maturity of the term mentioned in the contract or upon surrender
of the contract. Dito papasok yung return of Capital / return of premium paid
REASON: It is just a mere return of Capital.
EXAMPLE
In life insurance, endowment or annuity payments, either during or at the maturity of the contract
- NOT TAXABLE
But , if the amount received exceeds the aggregate premiums paid, the excess shall be included in the Gross
Income and is taxable.
3. Gifts, Bequests and Devises The value of property acquired by gift , bequest, devise or
descent : Provided, however, That income from such property as well as gift , bequest, devise or
descent of income from any property in cases of transfers of divided interest, shall be included in
gross income.
DONOR DONEE
DONATION MORTIS LIABLE FOR ESTATE TAX NEITHER SUBJECT TO DONORS TAX
CAUSA NOR INCONME TAX OR ESTATE TAX
Reason : It is NOT a product of capital or industry. They are gratuitously given and they are already
subject to Donors tax in case Donation Intervivos / Estate in case of Donation Mortis Causa where in
both instance the Donee neither subject to Donors Tax nor Income Tax nor Estate Tax. Thats the reason
why Gifts, Bequests and Devises are excluded from Gross Income.
- It is not a product of a Capital or services rendered, wala kang pinuhanan dito, binigyan ka ng Gift na
merong value. That value does not form part of the Gross Income. However, when the property donated
earns income, that income shall form part of the Gross income subject to tax.
4. Compensation for Inuries or Sickness Amounts received, through accident or health insurance or
under workmens compensation acts, as a compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness.
Compensation for persons sickness or injuries, when yung inaward is compensation for personal
injuries then it is not subject to tax. But when the award was the loss of income earned because of
incapacity, the award for that loss shall be subject to tax.
Reason: It is Compensatory, NOT GAIN / PROFIT. It adds nothing to the individual.
SUMMARY:
SUMMARY:
MORAL DAMAGES NOT TAXABLE
EXEMPLARY DAMAGES NOT TAXABLE / EXEMPT
Damages for Loss of Earnings / Income - TAXABLE
5. Income exempt under Treaty Income of any kind, to the extent required by any treaty obligation
binding upon the Government of the Philippines. (SECTION 32 (B) (5)
REASON: Adherence to the Generally Accepted Principle.
6. Retirement, Benefits, Pensions, Gratuities - Under R.A. 7641
-Separation benefits due to death , sickness or other physical disability or any causes beyond the control
of the said official or employee.
Conditions: at least 10 years service, at least 50 years of age at the time of retirement.
Under R.A 7651: retirement benefit of the employee who is retiring at 60 65 years old, and has rendered
service for at least 5 years.
MISCELLANEOUS ITEMS (G)
G. Gains from the sale of Bonds, Debentures or other certificate of Indebtedness gains from realized
from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a
maturity of more than five (5) years. Kapag binili mo yung bonds na yun, to earn an income kelangan
mong ibenta yun . Yung certificate of Indebtedness kailangan mong ibenta yun, it is not important kung
gano mo katagal nahawakan yung bond nay un as long as it has a maturity of five years then it is
exempted to five (5) years.
H. Gains from Redemption of Shares in Mutual Fund Gains realized by the investor upon redemption of
shares of stock in a mutual fund company as defined in Section 22(BB) of this code.
22- BB The term mutual fund company shall mean an open end and close end investment company
as defined under Investment Company Act.
I. (Additional from Maam Ngoslab) Income received by Minimum Wage earners (RA 9504)
TAX LIABILITY
1. Domestic Corporation are taxed Within and Without the Philippines subject to
the rate of 30% , rate on their taxable income or net income.(Section 27)
Note: Under Royalties (SECTION 27(D) on Passive Income Rate 20% : Except : Literary
Works, Books and Musical (10%) however under Corporation hindi dinistinguished yung LBM it
is therefore understood na lahat ng Royalties Acquired by domestic are tax at 20%.
EXAMPLE:
PROPRIETARY EDUCATIONAL INSTITUTION
Source of Income: Tuition Fees 80 %
Unrelated Trade of: a. Operation of Canteen 20 %
b. Bookstore
c. Related Space
________________________________________
GROSS INCOME: 100 %gross income subject to 10% TAX
THE UNRELATED TRADE DOES NOT EXCEED 50 % SHALL BE SUBJECT TO 10% TAXABLE of
THEIRINCOME
A.-Section 27 E A minimum corporate income tax of two percent of the gross income as of the
end of the taxable year, as defined herein is hereby imposed on corporation taxable under this
Title, beginning on the fourth taxable year immediately following the year in which such
corporation commenced its business operations, when the minimum income tax is greater than
that tax computed under Subsection (A) of this Section for the taxable year.
NOTE: MCIT is
a. only applicable to Domestic Corporation and Resident Foreign Corporation on
b. the tax rate of 2% of gross income and applicable only to the
c. 4th year of registration on Bureau of Internal Revenue.
Example:
You registered on January 01, 2010, when is your fourth year of Operation?