THE AWESOME NOTES

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TAX ON RC, NRC, RA

PRELIMINARY

TH FF ARE TAXABLE FOR INCOME FROM

contractors or subcontractors, should
they choose to pay by way of FIT

SOURCES WITHIN AND WITHOUT SEPARATION PAY OR RETIREMENT

1. RC

2. DC
PAY

THE FF ARE TAXABLE FOR INCOME FROM

SOURCES WITHIN ONLY

IN RE: RETIREMENT PAY

GEN RULE:
1. NRC includible in the gross income for the
2. RA
3. NRA
computation of the net income

4. FC

NOTE: different tax treatment for NRA and FC.

EXE: FF RETIREMENT PLAN WHICH

ARE EXEMPT FROM TAX

usually, the basis of tax is the gross and not RETIREMENT BENEFITS UNDER
the net income of the taxable year. RA 7641 (in private firm without

retirement plan)

REQUISITES
1. t h e r e t i r i n g o f fi c i a l o r
TAXATION ON COMPENSATION employee is at least 60 yrs
old but not more than 65 yrs
old
2. he must have served the
INCLUSION

GROSS INCOME; defined
company for at least 5 years

RETIREMENT BENEFITS UNDER

gross income means all income derived from RA 4917 (in private firm with retirement
whatever source, including (but not limited to)
the following items:
1. Compensation for services in whatever
plan)

REQUISITES
form paid, including, but not limited to fees, 1. t h e r e t i r i n g o f fi c i a l o r
salaries, wages, commissions, and similar employee must not be less
items; than 50 years of age
2. Gross income derived from the conduct of 2. must have been in the service
trade or business or the exercise of a for at least 10 years
profession; 3. t h e e x e m p t i o n m u s t b e
3. Gains derived from dealings in property; availed only once; and
4. Interests; 4. the private benefit plan must
5. Rents;
6. Royalties;
7. Dividends;
be approved by the BIR

8. Annuities;
9. Prizes and winnings;

OTHER EXEMPT RETIREMENT PAY

1. given by government sector

10. Pensions; and through GSIS, SSS and PVAO
11. Partner's distributive share from the net 2. given by foreign government
income of the general professional agencies and other institutions,

partnership. private or public, to residents,

NRC of the Phil, or aliens who

IN RE: MONETARY COMPENSATION

come to reside in the Phil, without
qualification.

REGULAR SALARY OR WAGE

GEN RULE:
IN RE: SEPARATION PAY
the amount received by an employee or

includible in the gross income

EXE:
1. minimum wage, which is exempt from
tax following RA 9504
2. those received by Filipino Citizen
employed in multinational company,
offshore banks or petroleum service
official or by his heirs from employer as a
consequence of separation of such
employee or officer from the service of he
employer because of death, sickness or
other physical disability or for any cause
beyond the control of the said official or
employee

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 THE AWESOME NOTES
TAX ON RC, NRC, RA
WHEN NOT TAXABLE
1. when the cause of the separation is
beyond the control of the employer
2. when received from foreign govt,
agencies or institutions
BONUSES, 13th MONTH PAY, AND
OTHER BENEFITS
NOT TAXABLE WHEN;
the aggregate sum of all other benefits
- does not exceeds 30k
HENCE: once it exceed, it is subject to
tax.
NOTE: IN RE:
TERMINAL LEAVE PAY
IF GIVEN TO GOVT EMPLOYEE
- always exempt
I F G I V E N T O P R I VAT E
EMPLOYEES
sick leave is not exempt
vacation leave
a. exempt if it does not exceed
10 days
b. excess of 10 days, taxable.
QUERY: bakit hindi to kasama sa
other benefits?
DIRECTOR's FEE
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EXCLUSION
The following items shall not be included in
gross income and shall be exempt from
taxation under this title:
(1) Life Insurance - The proceeds of life
insurance policies paid to the heirs or
beneficiaries upon the death of the insured,
whether in a single sum or otherwise, but if
such amounts are held by the insurer under an
agreement to pay interest thereon, the interest
payments shall be included in gross income.
(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
contracts, either during the term or at the
maturity of the term mentioned in the contract
or upon surrender of the contract.
(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.
(4) Compensation for Injuries or Sickness -
amounts received, through Accident or Health
Insurance or under Workmen's Compensation
Acts, as 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.
(5) Income Exempt under Treaty. - Income of
any kind, to the extent required by any treaty
obligation binding upon the Government of the
Philippines.
( 6 ) R e t i r e m e n t B e n e fi t s , P e n s i o n s ,
Gratuities, etc. -
(a) Retirement benefits received under
Republic Act No. 7641 and those
received by officials and employees of
private firms, whether individual or
corporate, in accordance with a
reasonable private benefit plan maintained
by the employer: Provided, That the
retiring official or employee has been in
the service of the same employer for at
least ten (10) years and is not less than
fifty (50) years of age at the time of his
retirement: Provided, further, That the
benefits granted under this subparagraph
shall be availed of by an official or
employee only once.
For purposes of this Subsection, the term
'reasonable private benefit plan' means a
pension, gratuity, stock bonus or profit-
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 THE AWESOME NOTES
TAX ON RC, NRC, RA
sharing plan maintained by an employer
for the benefit of some or all of his officials
or employees, wherein contributions are
made by such employer for the officials or
employees, or both, for the purpose of
d i s t r i b u t i n g t o s u c h o f fi c i a l s a n d
employees the earnings and principal of
the fund thus accumulated, and wherein
its is provided in said plan that at no time
shall any part of the corpus or income of
the fund be used for, or be diverted to, any
purpose other than for the exclusive
benefit of the said officials and employees.
(b) Any amount received by an official or
employee or by his heirs from the
employer as a consequence of separation
of such official or employee from the
service of the employer because of death
sickness or other physical disability or for
any cause beyond the control of the said
official or employee.
(c) The provisions of any existing law to
the contrary notwithstanding, social
security benefits, retirement gratuities,
pensions and other similar benefits
received by resident or nonresident
citizens of the Philippines or aliens who
come to reside permanently in the
Philippines from foreign government
agencies and other institutions, private or
public.
(d) Payments of benefits due or to become
due to any person residing in the
Philippines under the laws of the United
States administered by the United States
Veterans Administration.
(e) Benefits received from or enjoyed
under the Social Security System in
accordance with the provisions of
Republic Act No. 8282.
(f) Benefits received from the GSIS under
Republic Act No. 8291, including
retirement gratuity received by
government officials and employees.
(7) Miscellaneous Items. -
(a) Income Derived by Foreign
Government - Income derived from
investments in the Philippines in loans,
stocks, bonds or other domestic securities,
or from interest on deposits in banks in the
Philippines by (i) foreign governments, (ii)
financing institutions owned, controlled, or
e n j o y i n g r e fi n a n c i n g f r o m f o r e i g n
governments, and (iii) international or
regional financial institutions established
by foreign governments.
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(b) Income Derived by the Government
or its Political Subdivisions. - Income
derived from any public utility or from the
exercise of any essential governmental
function accruing to the Government of the
Philippines or to any political subdivision
thereof.
(c) Prizes and Awards - Prizes and
awards made primarily in recognition of
religious, charitable, scientific, educational,
artistic, literary, or civic achievement but
only if: (i) The recipient was selected
without any action on his part to enter the
contest or proceeding; and (ii) The
recipient is not required to render
substantial future services as a condition
to receiving the prize or award.
(d) Prizes and Awards in Sports
Competition. - 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 national sports associations.
(e) 13th Month Pay and Other Benefits. -
Gross benefits received by officials and
employees of public and private entities:
Provided, however, That the total
exclusion under this subparagraph shall
not exceed Thirty thousand pesos
(P30,000) which shall cover: (i) Benefits
received by officials and employees of the
national and local government pursuant to
Republic Act No. 6686; (ii) Benefits
received by employees pursuant to
Presidential Decree No. 851, as amended
by Memorandum Order No. 28, dated
August 13, 1986; (iii) Benefits received by
officials and employees not covered by
Presidential decree No. 851, as amended
by Memorandum Order No. 28, dated
August 13, 1986; and (iv) Other benefits
such as productivity incentives and
Christmas bonus: Provided, further, That
the ceiling of Thirty thousand pesos
(P30,000) may be increased through rules
and regulations issued by the Secretary of
Finance, upon recommendation of the
Commissioner, after considering among
others, the effect on the same of the
inflation rate at the end of the taxable year.
(f) GSIS, SSS, Medicare and Other
Contributions. - GSIS, SSS, Medicare
and Pag-ibig contributions, and union dues
of individuals.
(g) Gains from the Sale of Bonds,
Debentures or other Certificate of
Indebtedness. - Gains realized from the
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 THE AWESOME NOTES
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TAX ON RC, NRC, RA

same or exchange or retirement of bonds, DEDUCTIONS

d e b e n t u r e s o r o t h e r c e r t i fi c a t e o f
indebtedness with a maturity of more than

PERSONAL EXEMPTION AND

five (5) years.

(h) Gains from Redemption of Shares in

ADDITIONAL EXEMPTIONS

BASIC EXEMPTION IN THE AMOUNT

Mutual Fund. - Gains realized by the OF Php 50,000.oo, for
investor upon redemption of shares of 1. single individual
stock in a mutual fund company as defined 2. married individual
in Section 22 (BB) of this Code.

3. head of the family

NOTE: if married individual

IN RE: FRINGE BENEFIT TAX & DE - if only one spouse is deriving an
MINIMIS BENEFITS

WHEN FRINGE BENEFIT IS NOT

income, he alone can can claim
the 50k exemption. if both are
earning, both can claim 50k
SUBJECT TO FRINGE BENEFIT TAX
1. those received by rank-and-file
employees

exemption

ADDITIONAL EXEMPTIONS FOR

2. required by the nature of or necessary TAXPAYERS WITH DEPENDENTS
to the trade, business or profession of
the employer
3. g i v e n f o r t h e c o n v e n i e n c e o r

Php 25,000.oo each

advantage of the employer
4. authorized and exempted from income
tax under the code or any soecial laws
5. contribution of the employer for the
benefit of the employee to retirement,
insurance and hospitalization benefit
plans (but in excess, shall be subject to
FBT. ie. in excess than what is
required by SSS or GSIS)
custody over the children
REQ:
1. only for married individual (valid)
2. allowed only foe each dependent not
exceeding 4 (so maximum ay 100k)
3. can be claimed only by one spouse,
and if legally separated, can be
claimed only by the spouse who has

H E A LT H A N D H O S P I TA L I Z AT I O N
6. de minimis benefits
7. RR no 3-98: for housing units
situated inside or adjacent to the

INSURANCE

WHO CAN CLAIM:

premises of a business or factory only pure compensation income earner/
(deemed adjacent to the remises
of the business if; it is located
within the maximum 50 meters

taxpayer

REQUISITES FOR DEDUCTIBILITY:

from the perimeter of the business 1. The amount of premiums not to exceed
enterprise. 2,400 per family or 200 a month paid
temporary housing unit fir 3 months during the taxable year for health and/
or less

DE MINIMUS BENEFITS; defined

limited to facilities or privileges
furnished or offered by an employer to
his employee that are
1. relatively of small value; and
2. offered or furnished by the
employer as a means of promoting
the health, goodwill, contentment,
or efficiency of his employees.
or hospitalization insurance taken by
the taxpayer for himself, including his
family, shall be allowed as a deduction
from his gross income:
2. That said family has a gross income of
not more than 250k for the taxable
year; and
3. That in the case of married taxpayers,
only the spouse claiming the additional
exemption for dependents shall be

IN RE: 13th MONTH OAY AND OTHER

entitled to this deduction.

B E N E F I T S A N D PAY M E N T S
SPECIFICALLY EXCLUDED FROM
TAXABLE COMPENSATION INCOME
- when it does not exceed 30k (aggregate

sum)

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 THE AWESOME NOTES
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TAX ON RC, NRC, RA

TA X AT I O N O F C O M P E N S AT I O N
I N C O M E O F A M I N I M U M WA G E
TAXATION OF PASSIVE INCOME

EARNER

STATUTORY MINIMUM WAGE; defined

the rate fixed by the Regional Tripartite IN GENERAL:
Wage and Productivity Board, as defined ff passive income subject to FIT
by the Bureau of Labor and Employment 1. Interest
Statistics (BLES) of the Department of 2. royalties

Labor and Employment (DOLE) 3. dividends from DC
MINIMUM WAGE EARNER; defined
a worker in the private sector paid the

4. prizes and winnings

INTEREST INCOME
statutory minimum wage, or to an if not subject to fit, included in the gross
employee in the public sector with
compensation income of not more than
the statutory minimum wage in the non-

income for the taxable year and subject to NIT

REQUISITES FOR FIT TO APPLY

agricultural sector where he/she is 1. the recipient must be RC, NRC, OCW &

assigned.

NOTE:
Seamen and/or RA
2. the income must be an interest income
3. the interest income must be from bank
That minimum wage earners shall be deposit and yield or any other monetary
exempt from the payment of income tax benefits from deposit substitutes, trust
on their taxable income: funds or similar arrangements; and
Provided, further, That the holiday
pay, overtime pay, night shift
differential pay and hazard pay

4. must be derived from sources within

received by such minimum wage

earners

RATES:

20% FIT: interest from banks

shall likewise be exempt 7.5% FIT: interest from Expanded Foreign
from income tax.

Currency Deposit

NOTE: IN RE: EFCD

TAXATION OF BUSINESS - a bank authorized by BSP to handle
INCOME / INCOME FROM different foreign currency transaction
PRACTICE OF PROFESSION
- for OCW; exempt from tax.

T R E AT M E N T O F I N C O M E F R O M
always included in the gross income since
there is no instance that such income is

LONG-TERM DEPOSIT

GEN RULE:

subject to the FIT

exempt from tax

NOTE: see graduated rate EXE:
pre-terminate before the 5th year; shall be
subject to the ff rate
5% FIT; 4 or less than 5 yrs
12% FIT; 3 or less than 4 yrs

20% FIT; less than 3 years

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 THE AWESOME NOTES
TAX ON RC, NRC, RA
ROYALTIES
REQUISITES TO BE CONSIDERED AS
PA S S I V E I N C O M E A N D H E N C E B E
SUBJECT TO FIT
it must be derived from sources within
ROYALTIES IS DEEMED FROM SOURCES
WITHIN WHEN
the use or right to use or privilege to use in
the Phil,
any copyright, patent, design or model,
plane, secret formula, goodwill,
trademark, trade brand, and other like
property
the use or the right to use in the Phil,
any industrial, commercial or scientific
equipment
the supply of
scientific, technical, industrial or
commercial knowledge or information
the supply of services by a non-resident
person or his employee in connection with
the use of property or right belonging
or the installation or operation of any
brand, machinery or other apparatus
purchased from such non-resident
person
the supply of any assistance that is
ancillary to and furnished as a means
of enabling the application or
enjoyment of any such property right,
as mentioned in (1,2, and 3)
technical advise or assistance or service
rendered in connection with
technical management or
administration of any scientific,
industrial or commercial undertaking,
venture, project or scheme.
the use or right to use
1. motion picture films
2. films or videotapes for use un
connection with television
receiving the prize or award
3. tapes for use in connection with radio
RATES:
broadcasting
20% FIT: in general
10% FIT: if derived from books, other literary
works and musical compositions
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DIVIDENDS
CORPORATION
FROM DOMESTIC
TAX RATE:
10% FIT
IMPOSED UPON
cash and/or property dividend actually or
constructively received by an individual from a
1. DC
2. Joint Stock Corp
3. Insurance or Mutual Fund Co.
4. ROHQ of multinational Co
5. Share of an individual in the distributable
net income after tax of a partnership of
which he is a partner, other than GPP
6. share of an individual in the in the net
income after tax of an Association, Joint
Account, Joint Venture or Consortium,
which is taxable as a corporation of which
he is a member or co-venturer.
NOTE: AS AN EXE: dividend received from a
RFC is subject to FIT when:
- 50% 3 YEAR RULE
PRIZES AND OTHER WINNINGS
IN RE: PRIZES
REQUISITES TO BE SUBJECT TO FIT
1. must be derived from sources within
2. just not be mire than 10k (excess, subject
to NIT)
3. must be pursuant to a promotion or contest
INSTANCES WHEN EXEMPT FROM TAX
REQUISITES:
1. received primarily in recognition of
religious, charitable, scientific, educational,
artistic, literary or civic achievement
2. the recipient was selected without any
action on his part to enter the contest or
proceedings; and
3. the recipient is not required to render
substantial future service as a condition of
ALSO;
those granted to athletes in local and
international sports competitions and
tournaments whether held in the Phil or abroad
and sanctioned by their national sports
associations
IN RE: WINNINGS
always subject to 20% FIT, so long as it is
derived within. no limitation as to the amount.
even derived from gambling
WHEN EXEMPT
- LOTTO and PCSO
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 THE AWESOME NOTES
TAX ON RC, NRC, RA
PASSIVE INCOME NOT SUBJECT TO FIT
pag di pumasok as requisites, NIT.
right
TAXATION OF CAPITAL GAINS
INCOME FROM SALE OF SHARES OF
STOCKS OF A PHILIPPINE CORPORATION
FOR SHARES TRADED AND LISTED IN THE
STOCK EXCHANGE
is exempt from income tax, but subject to
Percentage Tax of
1/2 of 1%
- based on the GSP or GVM of the
share of stock sold or transferred
NOTE: the selling price of the share of
stock is
- the FMV of the SOS transferred or
exchanged
AND NOT the FMV of the
property received in
exchanged.
SHARES NOT LISTED AND TRADED IN THE
STOCK EXCHANGE OR LISTED BUT NOT
TRADED IN THE STOCK EXCHANGE
FINAL CAPITAL GAIN TAX OF
5%; of the net capital gain not exceeding 100k
10%; on any amount in excess of 100k
QUERY: so supposing 200k yung kita,
habitually engaged in sale of real estate
the first 100k is subject to 5% and the
remaining 100k subject to 10%. or the
whole 200k subject to 10% FCGT?
REQUISITES:
1. the share must be a share from DC
2. share must be a capital asset
3. the share is not listed or traded in the local
stock exchange
NOTE:
if the share of stock sold is from FC;
treat as a personal property, making
the place where it was sold material.
so tax liability would depend as to
who is the taxpayer vis-a-vis
sources within or without
if the share is an ordinary asset, the
tax liability of the taxpayer would
depend to his status, whether NIT/
GIT
if traded in local stock exchange;
subject to percentage tax.
Page 7 of 8
HOWEVER: if made by a
dealers in securities, NIT/GIT?
INCOME FROM THE SALE OR EXCHANGE
OF REAL PROPERTY SITUATED IN THE
PHILIPPINES
6% FIT
BASED ON: the GSP or CMV, whichever is
higher
REQUISITES FOR FIT TO APPLY
1. the real property must be located within the
Philippines
2. the real property must be a capital asset
WHEN DEEMED AS AN ORDINARY ASSET
FOR TAXPAYER ENGAGED IN REAL
ESTATE BUSINESS:
1. all properties acquired by the real estate
dealer
2. acquired by real estate developer, whether
developed or underdeveloped at the time of
the acquisition, and those held primarily for
sale or lease to customers in the ordinary
course of T/B, and properly included in the
inventory of the taxpayer if on hand at the
close of the taxable year
3. acquired by the real estate lessor whether
land or improvement, which for lease or
rent or otherwise for use or being used in
T/B
4. acquired by person in the course of T/B
IF NOT ENGAGED IN REAL ESTATE
BUSINESS; deemed an ordinary asset when
1. used, being used or have been previously
used in T/B
EXE: used by an exempt corporation
in an exempt operation
NOTE: WHEN DEEMED HABITUALLY
ENGAGED IN REAL ESTATE BUSINESS
1. registered in HLURB / HUDCC
2. if not registered, deemed as such when
consummation during the taxable year of
at least 6 taxable real estate sale
transactions
registration as habitually engaged un
NOTE:
real estate business with the LGU or BIR
property purchased for future use shall remain
as an ordinary asset even if such purpose is
later thwarted by circumstances beyond his
control.
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TAX ON RC, NRC, RA

EXE: WHEN EVEN SUBJECT TO FIT, INCOME FROM SALE, EXCHANGE OR

TAXPAYER MAY OPT TO PAY FOR NIT OTHER DISPOSITION OF OTHER CAPITAL
when the disposition from which gain was
derived at was made to the govt, any of its
ASSETS

political subdivisions or agencies.

NOTE: RR 2-98

SUBJECT TO: graduated income tax.

ie. OTHER DISPOSITION OF CAPITAL

payment of FIT constitute as full
settlement of tax liability on said
income. hence, no longer liable to pay

ASSETS

Retirement of Bonds, Etc. -

NIT should FIT had been paid.

WHEN EXEMPT FROM CAPITAL GAIN TAX

REQUISITES:
1. the property sold or otherwise disposed of
is the principal residence of the taxpayer
2. the proceeds of which is fully utilized in
acquiring or constructing a new principal
residence
3. the acquisition or construction of the new
principal residence is within 18 months from
received in exchange therefor.
amounts received by the holder upon the
retirement of bonds, debentures, notes or
certificates or other evidences of indebtedness
issued by any corporation (including those
issued by a government or political subdivision
thereof) with interest coupons or in registered
form,
shall be considered as amounts

Gains or Losses From Short Sales, Etc. -

the date of sale or disposition
4. the historical cost or adjusted basis of the
real property sold or disposed shall be
carried over to the new principal residence
built or acquired
5. the taxpayer should inform the BIR of his
intention to avail of the exemption within 30
Days from the sale or disposition; and
6. the tax exemption can only be availed only
gains or losses.
1. Gains or losses from short sales of property
shall be considered as gains or losses from
sales or exchanges of capital assets; and
2. Gains or losses attributable to the failure to
exercise privileges or options to buy or sell
property shall be considered as capital

SHORT SALE; defined

once every 10 years

EFFECT WHEN THERE IS NO FULL

a sale where the seller is selling a
property
without distinction if what kind of
UTILIZATION OF THE PROCEEDS property he is selling, whether a
the portion of the gain presumed to share of stock or not, or
have been realized from sale or which is not in his possession.
disposition, shall be subject to Capital

Gain Tax.

FORMULA
GSP/FMV whichever is higher shall be
multiplied by a fraction which the
unutilized amount bears to the GSP, in

order to determine the taxable portion

NOTE: PRESUMED GAIN IN SALE/

EXCHANGE OF REAL PROPERTY
CLASSIFIED AS A CAPITAL ASSET
- including pacto de retro sale and other
conditional sale, by an individual, estate or

trust.

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