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Tita L Notes in Taxation

(a) Cash Method – income is recorded which is directly received


Sources of Tax (b) Accrual Method – constructively received

(1) NIRC – national taxes (3) Revenue-Expense Cycle


(2) LGC – local taxes
(3) CMTA – tariff and customs duties  All taxpayers have revenue and requires expenses.
 When taxpayers spend (expenses) it becomes the revenue of others, and the cycle continues
Q: Bakit hindi nag-aaway ang local tax at national tax?  Because of this cycle, everybody becomes a taxpayer
 In recording of revenue-expenses, if cash method lang, cash method lang. If accrual method lang,
A: Because of principles accrual method lang. Bawal criss-cross.

(1) Residual – residue (tira) which means whatever is not tax by the national tax may be subject to (4) When is Income Realized?
local tax
(2) Pre-emption – among the LGUs, whoever imposes tax, it shall be to the exclusion of other LGUs (a) May tinanggap ka ba, cash or kind, legal or illegal?
(b) Yung tinanggap mo, income bay un?
Basic Concepts under the NIRC
 Income is anything which flows to the wealth of the taxpayer other than a mere return of capital or
(1) Income Tax anything that increases the net worth of a person other than a return of capital
(2) VAT and Percentage Tax (married to income taxes)
(3) Estate Taxes and Donor’s Taxes (c) Is it taxable income?

Basic Concepts under the LGC Individuals

(1) Regular/Ordinary Local Taxes (1) RC – citizen of the Philippines residing therein
(2) Special Local Taxes
Note: There is no difference between domicile and residence for purposes of tax
Basic Concepts under the CMTA
(2) NRC – (Sec. 22(E))
(1) Regular Tariff and Customs Duties
(2) Special Tariff and Customs Duties  Dual citizens are considered NRC
 Note: Only instance when a taxpayer is classified differently in a 12-month period (Sec. 22(E)(4))
Basic Concepts under the NIRC
Sec. 22(E)(4). The term “nonresident citizen” means:
(1) Taxable Period (12 months)
A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines
(a) Fiscal Year – beginning any month and ending in a 12-month period, starting on the first day of the at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a
month NRC for the taxable year in which he arrives in the Philippines with respect to his income derived from
sources abroad until the date of his arrival in the Philippines.
1. Corporations only
(3) RA – citizen of other country residing in the Philippines (domicile and residence is used
(b) Calendar Year – 12 months (January - December) interchangeably)
(4) NRA – citizen of other country not residing in the Philippines
1. Corporations
2. Individuals (a) Criteria for “Engaged in Trade or Business”

Q: Can a corporation change from fiscal year to calendar year? 1. 180-day period – if an alien stays in the Philippines for an “aggregate” period of 180 days, he is
considered as NRAETB. Dumating-umalis, Dumating-umalis, Dumating-umalis, Dumating-umalis,
A: Yes, provided the following requisites are present: Dumating-umalis, kapag 180 days ang total. Kahit kumain lang sa hotel, regardless of commercial
transactions entered into.
(1) There must be permission from the BIR Commissioner 2. Principle of Habituality – if an alien habitually enters into a commercial transaction, regularly, he is
(2) Filing of short return (meaning para kang nag-end, nag-sara) considered NRAETB
3. Hiring of agents
(2) Accounting Methods 4. Hiring of employees
5. Putting up a branch (2) GCP – any partnership other than the GPP

Note: These are mere indicators. What the law provides is the 180-day period. Outside the five (5) Note: GPP is not taxable as a corporate taxpayer. GCP is liable for corporate tax.
criteria, he is considered as NRANETB.
Note: Regardless of the kind of partnership, when the profits are divided among the partners, they shall
Illustration: Lumbera, alien, went to the Philippines, steps to the airport. be liable for NIT.

(a) What kind of taxpayer is Lumbera? Taxability is dependent on:

A: NRANETB (1) Source of income


(2) For estate or donor’s tax, it is dependent upon the location of the property
(b) What if Lumbera enters into a contract of lease?
Sources of Income for Income Tax Purposes (Sec. 42)
A: RA. Because the intention to reside in the Philippines by executing the Contract of Lease is manifest.
(1) Interests
Rule: If there is manifest intention to reside in the Philippines and the intention is clear regardless of the
number of days of stay, it is considered a RA (a) Interests on Bank Deposits

Alien Employed in MOP (Sec.25(B), (C) and (D)) – classified as NRANETB Note: If Bank is in the Philippines, within. If outside, without.

 They are working in the Philippines except AE in Petroleum since the Tax Code provides (b) Interests on Loans, Debentures or Other Interests Bearing Instruments of residents, corporate or
“permanent resident of a foreign country” otherwise

Corporations (2) Compensation for Services – where services are rendered


(3) Sale of Tangible and Intangible Properties – where property is located
(1) DC – incorporated in accordance with Philippine laws (4) Dividends
(2) RFC – incorporated in accordance with laws other than that of the Philippines. Automatically
engaged in business (counterpart of NRAETB) (a) DC – income within
(3) NRFC - (counterpart ng NRANETB) (b) FC –

Note: Foreigners may acquire equity in DC. However, presence of foreign equity is immaterial in a GR: Income within
corporation. What is important is the incorporation, not foreign stockholdings. XPN: Subalit kung tatlong taon bago binigay ang dividendo ang kinita sa Pilipinas ay mas mababa ng 50%
sa suma total ng kinita sa Pilipinas, hindi lahat ng income ay within, kaunti laang.
Note: Criteria to determine if RFC and NRFC is engaged in trade or business is same as individuals except
180-day period Illustration: RFC issued P100,000 dividends to X.

Foreign Corporations: In 2016, income of RFC 8M in the US, 1M in the Philippines.


In 2015, income of RFC 2M in the US, 1M in the Philippines.
(1) Regional Area Headquarters – not actually operating in the Philippines, and not earning income, In 2014, income of RFC 4M in the US, 2M in the Philippines.
thus, not subject to tax
(2) Regional Operating Headquarters – talagang nag-ooperate sila sa Philippines and so liable sila sa Hence, total income in the U.S. 12M, in the Philippines 4M. Which is give us 16M income worldwide.
tax ditto 50% of 16M is 8M.

JVA/ Consortiums (treated as DC) The income in the Philippines (4M) is less than 50% of its total income (16M * 50% = 8M).

 Maybe between (a) individual and corporation or (b) corporation and corporation Hence, 4M (total income in the Philippines)/16 (total income worldwide) * 100,000 = 25,000
 If the subject is construction or government project, the JVA, not the parties involved, not subject
Hence, P25,000 dividends within. P75,000 dividends without. By implication, P25,000 is taxable for NRC,
to tax.
RA, NRC, NRAETB and NRANETB since they are liable only for income within. RC is liable for both P25,000
 However, if the JVA is terminated, the profits of the parties thereto, shall be subject to tax.
and P75,000.
Partnerships
Note: If walang tatlong (3), lahat ng dividends within. Kapag less than three years, lahat yan within.
(1) GPP – is one which is established for the exercise of the common profession and no part of its
Kinds of Income Taxes
income is derived from its trade or business.
(1) NIT – gross income – additional deductions = Taxable Net Income * Tax Rate (5-32%) = Tax Due less
Tax Credit if any Interest
(2) FWT (Tong)
(1) Interest on Bank Deposits (20%)
(a) Creditable Withholding Tong - the income is considered gross income for NIT and the Tong (2) Interest on Foreign Currency (7 1/2%)
withheld is considered tax credit. Since kasama pa sya sa NIT, pede pa sya masubject sa ibang tax. (3) Interest on Long-Term Deposit (5, 12, 20%)
(b) Final Withholding Tong – tax with finality. Hindi na ito masusubject sa tax.
(c) Expanded Withholding Tong – any income other than compensation. (e.g. rents) Illustration: Lumbera with time deposit with BPI:

(3) Gross Income Tax/FT – tax on the gross. Final tax din. (a) 2-year term not pre-terminate – subject to tax 20% FWT.
(b) 5-year term not pre-terminated – exempt (pinagamit mo sa bangko ang pera so the law gives you
Individua Source of Income Sec. Sec. Sec. Sec. Interco MCIT IAET the exemption from tax since pinaikot mo yung pera)
ls 24(A). 24(B 24(C) 24(D) rporat (c) 5 year-term, pre-terminated on the 4th year – subject to 5% FWT
(Incom ) (CGT on (CGT e (d) 5-year term, pre terminated on the 3rd year – subject to 12% FWT
e) (Pass Shares of on Divide (e) 5-year term, pre terminated on the 2nd and 1st – subject to 20% FWT
ive) Stocks Real nds (f) Long term deposits nasa labas, wala sa Sec. 24(B), nasa Sec. 24(A)
NOT Proper
TRADED) ty) Royalties
Within Witho
ut Illustration: Lumbera has
RC Yes Yes NIT FWT FWT FWT
NRC Yes No NIT FWT FWT FWT (a) Invention in the Philippines, earned royalties – subject to FWT 20%
RA Yes No NIT FWT FWT FWT (b) Books – subject to FWT 10%
NRAETB Yes No NIT FWT FWT FWT (c) Royalties outside the Philippines – subject to NIT, wala sa Sec. 24(B), nasa Sec. 24(A)
NRANET Yes No GIT FWT FWT FWT
B Prizes and Winnings
Corporat
Illustration:
ions
DC Yes Yes NIT FWT FWT FWT Exempt 2% 10%
(a) Lumbera nanalo sa PCSO scratch-scratch P9,999 – exempted
(30%)
(b) Lumbera nanalo sa raffle P9,999 – subject to NIT
RFC Yes No NIT FWT FWT NA Exempt 2% NA
(c) Lumbera nanalo sa raffle P10,000 – subject to NIT
(30%)
(d) Lumbera nanalo sa raffle P10,000.01 – subject to FWT
NRFC Yes No GIT FWT FWT NA 15% NA NA
(e) Lumbera nanalo sa raffle sa States – subject to NIT
(30%)
(f) Lumbera nanalo sa lotto sa U.S., exempted sa U.S. – subject to NIT
Estates (g) Sanctioned sports competition - Sec. 32(A)(7)(d) –excluded (medals and prizes and winnings)
and (h) Prizes and winnings for various purposes (no active participation in the competition, no future
Trusts services) Sec. 32(A)(7)(c) – excluded
Partners
hips Dividends
GPP
GCP Illustration:
JV/Conso
rtium (a) Lumbera received dividends from DC – subject to FWT (10%)
(b) Lumbera received dividends from RFC – subject to NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala
GR: All income are taxable sa Sec. 24(B) nasa Sec. 24(A))
(c) RFC (exception) – both NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala sa Sec. 24(B) nasa Sec.
XPN: 24(A))

(a) Specifically, excluded Sec. 39 in relation to Sec. 24(C) and Sec. 24(D)
(b) Exempted
(1) Capital and ordinary assets (see list in Sec. 39)
Note: Kapag taxable, wala sa (B), (C) at (D), nasa (A)
(a) Stocks in trade and other property of a kind which would properly included in the inventory of the
Passive Income taxpayer if on hand at the close of the taxable year (depende sa business)
(b) Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or Bahay Philippines CGT 6% based on FMV or CGT 6% based on FMV or GSP whichever
business (Capital) GS whichever is higher is higher (basis Sec. 100)
(c) Property used in trade or business, of a character which is subject to allowance for depreciation Parlor Philippines NIT Donor’s tax (FMV – Consideration = Gift)
(d) Real property used in trade or business (Ordinary) or Estate tax if Transfer for insufficient
consideration under Sec. 85(B), (C), (D)
Note: While holding an asset, any increase in its value is not INCOME and any decrease in value is not Bahay U.S. (Capital) NIT Donor’s tax (FMV – Consideration = Gift)
LOSS or Estate tax if Transfer for insufficient
consideration under Sec. 85(B), (C), (D)
The only time that income is realized or loss is incurred is ONLY WHEN SAID ASSET IS SOLD. Parlor U.S. (Ordinary) NIT Donor’s tax (FMV – Consideration = Gift)
or Estate tax if Transfer for insufficient
The determination of INCOME OR LOSS is the FMV at the time of SALE not the time the asset WAS consideration under Sec. 85(B), (C), (D)
BOUGHT. based on FMV at time of death –
consideration.
When you transfer assets at a loss, it is not subject to NIT. However, it is subject to donor’s tax under Sec.
100. Kasalanan mo kung bakit ka nagbenta ng lugi. Q: Can we impose estate tax in Capital Asset?

If you transfer assets, at it is capital asset. It is capital gain, ordinary gain for ordinary assets. A: Transfer for insufficient consideration under Sec. 85(G) in relation to Sec. 85(B), (C) and (D), in which
case Donor’s tax is not imposed but ESTATE tax.
Stocks NOT TRADED through the Stock Exchange (Sec. 24(C))
Exception to CGT under Sec. 24(D)
Requirements:
(1) Selling of principal place of residence
(a) Shares of stocks (2) Within 30 days from the sale, inform the BIR that taxpayer is availing the exemption
(b) From domestic corporation (3) Within 18 months from the sale, I buy or build actual residence in liue of that sold.
(c) Not traded through the local stock exchange (4) Once every 10 years only
(d) Tumubo (5) Historical cost is considered in determining how much tax must be imposed

Illustration: Lumbera has the following stocks 1 Note: The exception is subject to future exception. The payment of CGT 6% is necessary to avail of the
exemption to be deposited to an escrow account subject with the compliance with the requirements
NOT TRADED TRADED above. Failure to pay the CGT within 30 days shall subject the taxpayer to interest and penalties for non-
Gain Loss Gain Loss payment of CGT.
PLDT Line CGT (5%) not Donor’s tax Percentage tax of Percentage tax of
(Bahay) (Capital) exceeding (nagbenta ng ½ of 1% of Gross ½ of 1% of Gross Any interest in the escrow account accrue to the Government.
P100,000 or lugi, namigay ng Selling Price Selling Price +
(10%) for libre) Donor’s Tax Involuntary Sales
additional
P100,000 (1) Foreclosure of Real Estate Mortgage – CGT attaches only after the expiration of redemption
PLDT Line NIT (5-32%), wala Donor’s tax Percentage tax of Percentage tax of period. To be paid by the winning bidder.
(Parlor) sa (C), nasa (A) ½ of 1% of Gross ½ of 1% of Gross (2) Expropriation – taxpayer has the privilege to choose whether subject it to CGT of 6%, or NIT (5-
(Ordinary) Selling Price Selling Price + 32%) on the just compensation
Donor’s Tax
ATNT (Bahay) NIT (5-32%), wala Donor’s tax NIT (5-32%) Donor’s Tax Non-Resident Citizen (Shares of Stock)
(Capital) sa (C), nasa (A)
ATNT (Parlor) NIT (5-32%), wala Donor’s tax NIT (5-32%) Donor’s Tax NOT TRADED TRADED
(Ordinary) sa (C), nasa (A) Gain Loss Gain Loss
PLDT Line CGT (5%) not Donor’s tax Percentage tax of Percentage tax of
CGT on Real Property (Sec. 24(D)) (Bahay) (Capital) exceeding (nagbenta ng ½ of 1% of Gross ½ of 1% of Gross
P100,000 or lugi, namigay ng Selling Price Selling Price +
(a) Real property, not limited sa land (10%) for libre) Donor’s Tax or
(b) Within the Philippines additional Estate Tax
(c) Must be Capital Asset P100,000
PLDT Line NIT (5-32%), wala Donor’s tax Percentage tax of Percentage tax of
Gain Loss (Parlor) sa (C), nasa (A) ½ of 1% of Gross ½ of 1% of Gross
(Ordinary) Selling Price Selling Price +
Donor’s Tax or
Estate Tax Q: Can RA be exempt from CGT 6%?
ATNT (Bahay) No tax (income Donor’s tax No tax (income Donor’s Tax
(Capital) without) without) A: Yes, but only through hereditary succession.
ATNT (Parlor) No tax (income Donor’s tax No tax (income Donor’s Tax
(Ordinary) without) without) NRAETB (same as RA and NRC)

Donor’s and Estate Tax (a) Lumbera received dividends from DC – subject to FWT (20%)
(b) Lumbera received dividends from RFC – subject to NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala
Within Without sa Sec. 24(B) nasa Sec. 24(A))
RC Yes Yes (c) RFC (exception) – both NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala sa Sec. 24(B) nasa Sec.
NRC Yes Yes 24(A))
RA Yes Yes (d) XPN: 25,000 – within (NIT)
(e) XPN: 75,000 – without (no tax)
NRC Yes No
NRANETB (subject to GIT – 25% on Sec. 24(A) and (B), combined yan)
Non-Resident Citizen (CGT on Real Property)
Filipino Counterpart (Sec. 25, AEMOP) –
Gain Loss
Bahay Philippines CGT 6% based on FMV or CGT 6% based on FMV or GSP whichever
Mark (Filipino) Lumbera (Alien)
(Capital) GS whichever is higher is higher (basis Sec. 100)
Has the option to pay tax on NIT 5-32% or GIT Has the option 15%
Parlor Philippines NIT Donor’s tax (FMV – Consideration = Gift)
15%
(Ordinary) or Estate tax if Transfer for insufficient
Has no option, NIT 5-32% Has no option, GIT 25%
consideration under Sec. 85(B), (C), (D)
Bahay U.S. (Capital) No tax Donor’s tax (FMV – Consideration = Gift)
or Estate tax if Transfer for insufficient
(a) There must be certification by DOLE that there is no Filipino available
consideration under Sec. 85(B), (C), (D)
(b) The position must be top management positions.
Parlor U.S. (Ordinary) No tax Donor’s tax (FMV – Consideration = Gift)
(c) Option is granted to Filipino to be taxed on GIT 15%
or Estate tax if Transfer for insufficient
consideration under Sec. 85(B), (C), (D)
CORPORATIONS
based on FMV at time of death –
consideration.
(1) DC
Q: Can NRC be exempt from CGT of 6%? (a) Interest on bank deposits
A: Yes, provided that the requisites are present. Actual residence is where when I leave, I intend to 1. Peso account – 20%
return. 2. Dollar account – 7 ½%
3. Long-term deposit – NOT EXEMPT (FWT 20% “all currency bank deposits” under Sec. 27). In other
Resident Alien (same as NRC) words, they are treated as ordinary deposits
Notes: (b) Prizes and Winnings
(1) Only Citizens may win the PSCO Lotto. RA may not win (PCSO Rules yan) 1. Walang Passive Income sa Sec. 27. In the event of prizes and winnings, they are treated as ordinary
income, hence, subject to NIT (30%).
Dividends
(c) Royalties
Illustration:
1. Royalties from sale lang, walang literary works (FWT 20%)
(a) Lumbera received dividends from DC – subject to FWT (10%)
(b) Lumbera received dividends from RFC – subject to NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala (d) Dividends
sa Sec. 24(B) nasa Sec. 24(A))
(c) RFC (exception) – both NIT (ang nasa Sec. 24(B) ay DC lang, so kung wala sa Sec. 24(B) nasa Sec. 1. DC – DC (intercorporate dividends) – exempt
24(A))
(d) XPN: 25,000 – within (NIT) IAET (10%)
(e) XPN: 75,000 – without (no tax)
Not Subject to IAET
Basis: 1987 Constitution and LGC
(1) Government corporations
(2) Insurance companies (b) Rentals?
(3) Banks
It is income – taxable income – since it is an activity for profit – subject no NIT
MCIT
(c) Interest income from bank – subject to tax NIT 20%
Illustration: Lumbera Corp. has a parlor (d) Long term deposit – FWT, there is no provision on passive income on long term deposit.
(e) Income used for painting and equipment – It is exempt? Under the last par. it is not exempt since it
Year of Operation Revenue Expenses Gain or Loss is “regardless of disposition
2017 4M 6M (2M) Loss (0 tax) (f) Mark donated P300,00 for the home for the aged
2018 4M 5M (1M) Loss (0 tax)
2019 4.5M 5.3M (800k) Loss (0 tax) 1. Is it income on the part of the home for the aged – Yes
2020 4.5M 5.2M (700k) Loss (0 tax) 2. NO. Gifts, bequests and exclusions for the gross income. (Sec. 32(B)(3))
2021 4.5M 4.6M (100k) Loss (2% MCIT) 3. If donation mortis causa – subject to estate tax? If donation inter vivos – subject to donation tax?

(a) 4th year following the commencement (5th year) Basis: No, Sec. 87(D). Not subject to estate tax exempt transmission. Sec. 101. Not subject to donor’s tax
(b) If the 2% of the gross (4.5 in 2021 x 2%) is higher than the NIT (100k loss x 30% = 0), you pay the provided that 30% thereof is used for administration purposes.
MCIT of 2% of P90,000
(c) If in 2022, kumita ng 100k. (100k x 30% = 30,000), (4.5M x 2% =90,000) regardless kung tubo o lugi, 4. The law recognizes the good heart of the donor. It gives tax benefit to Mark. Sec. 34(H) provides a
kung alin mas malaki, bayad ng MCIT. 10% deduction to individual, 5% to corporations prior to this deduction. Hindi sa amount donated
but the Taxable income prior to the deduction.
Resident Foreign Corporation (RFC) 5. If Mark is a compensation income earner, he cannot claim deduction. He is only allowed to claim
personal exemption 50k and additional exemption of 4 dependents.
(1) Principal place of business (US), branch (Philippines) – branch is liable for its income to NIT
(2) Nag-remit ang branch sa principal – liable sa additional tax – Branch Remittance Tax of 15% on the (2) Churches
amount applied for provided in the place where remittance is made, it is subjected to tax in the
minimum of 15% pursuant to the tax benefit rule. Illustration: Church has parsonage, reading area, office, parking lotto, tindahan ng ballot, Jolibee and
(3) PPB – 5%, BR – 30% McDo
(4) PPB – 20%, BR – 15%
(5) PPB – 30%, BR – 15% (1) Which is exempt from RPT? – Church has parsonage, reading area, office, parking lotto, tindahan ng
ballot. Kasi ADE. Jolibee and Mcdo – not exempt since it is not ADE
Sec. 30 of the Tax Code (2) Income from pamisa (business side of the church) – 2M. Income? Yes. Subject to income tax? No,
suince it is income as such under Sec. 30(E)
(1) Sec. 30 is in relation to DC only (3) Interest from banks – taxable under Sec. 30, last par.
(2) 11 corporations (4) Rents – income, yes, NIT under Sec. 24
(3) Yung 11 corporations nay an, na iba iba ang purpose, lahat ng kita nila as such ay exempt sa tax (5) Long term deposit – FTW
(NIT) “income nila as such” (6) Mark donated 300K – income, yes. Taxable? No. since it is an item of exclusion under Sec. 32
(4) Income as such pursuant to its purpose is exempt, subject to the last par. (7) Subject to estate or donor’s tax? No, provided that not more than 30% is not used for
administration purposes.
(1) Charitable Institutions and Religious Institutions (8) Can Mark claim deduction of 10%? No, if compensation income earner. Yes, if he is engaged in
trade or business.
Charitable institutes, churches, convents, mosques, parsonages as well as well land, buildings and
improvements – ADE – CRE – exempt from tax (RPT) (3) Proprietary Hospitals v. Charitable Hospitals

Note: ADE includes incidental use. Note: There is nothing in the Constitution that directly deals with charitable hospitals. Kapag
Constitution ang basis, it is considered as a charitable institution, hence it may be exempt from RPT (if
Illustration: Home for the aged with Building 1, Building 2, Office, Kitchen, Garden, Jolibee, McDo ADE)

(a) What is exempt in RPT? Illustration: Hospital has B1, B2, Medical Arts Building, Canteen and office, operating room, x-ray room,
parking lot, Jolibee, McDo with rents P100,000k. Paying patients with 20k
(1) Building 1, Building 2, Office, Kitchen, Garden since ADE
(2) Jolibee, McDo (not ADE) Test in Determining if a Hospital is a Charitable Institution:
a. Organizational test – it must be organized for charitable purpose. Its primary purpose is for (c) Mark gave P300,000 to educational institution. Income, yes. Taxable? No, since it exclusion from
charitable activities. gross income.
b. Operational test - it is actually operating as a charitable institution. (d) Subject to estate or donor’s tax? Estate – subject to estate tax. Donations – no, provided that not
more than 30% is used for administration purposes. (Note: dowries in favor of NSNP educational
(b) Income from paying patients? – exempt from tax Sec. 30(E) of the Tax Code since it is income as institution is exempt, basis is 1987 Constitution)
such
(c) Rents of Jolibee and Mcdo – subject to NIT under Sec. 30, last par. Note: Exemption under Sec. 30 requires registration to the PCNC
(d) Deposit from banks – subject to tax FWT 20%
(e) Mark donated P300,000. Subject to income tax? No, gifts bequests are items of exclusions. (b) Proprietary
(f) No, provided not more than 30% is used for administration purposes
(g) Can Mark claim exclusion? No, if compensation income earner. Yes, if engaged in trade or business. 1987 Constitution: Subject to the limitations provided by law, proprietary educational institutions may
likewise be exempt from similar taxes and duties.
(4) Proprietary Hospitals (Sec. 27(B)) (St. Lukes)
Simplified: Not exempt. Only time they are exempt if there is a law exempting them from such taxes.
Note: Failure in the two test (organizational and operational) regardless of AOI but if not operating as a
charitable institution what is applicable is Sec. 27(B) Illustration: B1, B2, B3, Gym, Library, Office, Auditorium, parking lot, Jolibee and McDo

Charitable Proprietary (1) Subject to RPT – B1, B2, B3, Gym, Library, Office, Auditorium, parking lot the basis is the LGC.
RPT – exempt if ADE. Not if not ADE RPT – not exempt, all the way kahit ADE o hindi Jolibee and McDo not ADE
Paying patients - Income as such exempt Related Trade or Activity - (2) Tuition fees – related trade or activity (Sec. 27(B)) not subject to tax. Unrelated Trade or activity – if
Rentals – income not as such (Sec. 30, last par.) Unrelated Trade or Activity – if income does not 50% more than related subject to 30% tax
exceed 50% of income, it is given preferential (3) Donate si mark. Income – yes. Taxable – no, gift bequests are items of exclusion.
10%, otherwise 30% (4) Mark claim as deduction – no, if purely compensation earner. If engaged in trade or business, Sec.
34(H), yes.
Illustration:
(c) Government Educational Institutions
10M Related Activity
120k UTA (1) Public schools elementary, high school and SUCs
Total: 10,120,00/ 2 = 5,060,000. Can avail of preferential tax rate of 10%, vice versa subject to 30% (2) Under the LGC, all instrumentalities of the government is exempt from RPT unless the beneficial
use thereof is given to a taxable person.
(5) Education Institutions (3) Income – tuition fees are exempt since it is income as such (Sec. 30(I))
(4) Rental income – not income as such hence taxable (30%)
1987 Constitution: Revenue and Assets and Lots, Buildings and Improvements ADE for Educational (5) Interest income – taxable under last par of Sec. 30. Kapag binenta tas ginamit pampintura
Purposes is exempt from taxes and duties. National, local and RPT and Tariff and Customs Duties “regardless of disposition
(6) Mark gave P300,000 – not taxable since it is an item of exclusion under Sec. 32(B)
(a) Non-stock, not-profit (7) Estate or donor’s tax – NOT Subject. It is considered transfer for public use under Sec. 86 and Sec.
101, without any restriction (yung 30% sa administration purposes)
Illustration: B1, B2, B3, Gym, Library, Office, Auditorium, parking lot, Jolibee and McDo (8) Can Mark claim for deduction? Kapag pure compensation income earner, not allowed. If engaged in
trade or business, IN FULL PROVIDED THAT IT IS A PRORIETY PROJECT OF THE GOVERNMENT. If not
(a) What is exempt from RPT? B1, B2, B3, Gym, Library, Office, Auditorium, parking lot because ADE. priority project, 10% or 5% for corporations.
Jolibee and McDo is NOT ADE. 1987 Constitution and local government code of 1991
(b) Tuition fees – 3M. Income – yes. Exempt from income tax. 1987 Constitution and Sec. 30(H) of the (5) The GOVERNMENT ITSELF
Tax Code
(a) Governmental agencies through which the government exercises is governmental functions – not
Note: There is a conflict between 1987 Constitution and Sec. 30(H). RMC states there is no revalidation tax. EXEMPTED. Sec. 32(B)(7) (Miscellaneous items)
of tax exemption since it is a constitutional grant. How do we reconcile the conflict? (b) Government institutions proprietary functions – income is subject to tax.
(c) GOCC – subject to tax, yes. XPN: SSS, GSIS, PHIC, PCSO
Constitutional guaranteed exemption from income tax of NS-NP educational institutions shall refer only
to income realized from pursuing directly its educational purpose (tuition fees, since it is income as Items of Inclusions
such). Therefore, as it is now, tuition fees are exempt while rentals (dealings of property) are not exempt
under the last par. of Sec. 30 What is included in the income of the taxpayer? (Sec. 32(A))

Note: Revenues are exempt as long as they are used ADE for educational purposes. (1) Compensation for services rendered including fees, commission and other similar items – there
must be e-e relationship.
(a) Here, there is no element of VAT. It is exempt under Sec. 109 if there is e-e relationship. Reason: They are not income on the part of the employee

(2) Gross income from exercise of profession – there is no e-e relationship (this is subject to NIT and De Minimis Benefits
VAT)
(3) Gross income from trade or business Limits Beyond Limits
(4) Dealings in property Rice 1 sack worth of P1,500/ per
(5) Dividends month
(6) Interests Meals during overtime 25% of hourly rate of the No overtime binigyan ng
employee overtime
Note: Interests on loans NIT lang, not FTW. Sec. 24(B) pertains to bank deposits. Clothing Allowance P5,000/ per year
Laundry Allowance P300/ per month
(7) Rents Medical Allowance (employee) P10,000/ per year
(8) Royalties Medicine Allowance for P125 per month/ P750 per
(9) Annuities dependents semester
(10) Prizes and Winnings
Vacation Leave Credits
(11) Pensions converted to cash 10 days for a
(12) Partners distributives share in a GPP year
Christmas Basket Not exceeding P5,000 per year
Note: List is not exclusive due to the phrase “including but not limited to”
Small gifts during anniversary Not exceeding P5,000 per year
and birthdays
Compensation Productivity Bonus Not exceeding P10,000 per
year
(1) We are talking about e-e relationship
Note: Sick Leave converted into cash - DMB – taxable
(a) Managerial and Supervisory
(b) Rank and File Terminal Leave – Vacation Leave and Sick Leave in the Government, converted into cash upon
(c) Minimum Wage Earners retirement. DMB to subject to tax

Basic Pay Other Pays De minimis Benefits DMB Beyond Limits shall GR: All retirement benefits are subject to tax – NIT
(OP, HP, NSD) form part of other XPN: SSS, GSIS, US Veterans Act, Pursuant to a private retirement plan
benefits
Within Beyond Within Excess of Requisites of Private Retirement Plan
Limits Limits P82,000 82,000
Managerial Compensation Not paid Exempt Exempt Considered as (a) At least 50 years of age
and – NIT Fringe Benefit (b) The employee must render continuous service of 10 years
Supervisory – subject to (c) Availed once only
FBT (d) Private retirement plan must be approved by the BIR
Rank and Compensation It is also Exempt Exempt Considered as
File - NIT called combined Note: Second retirement is not exempt but taxable.
compensation with
income Compensation No private retirement plan (mandatory retirement 60-20)
combined – subject to Government sector retirement – EXEMPT ALWAYS
with basic pay NIT
- NIT Q: Financial assistance given to employee when he resigns. Taxable?
Minimum Statutory Exempt Exempt Subject to NIT
Wage Minimum but only to A: YES! Subject to NIT
Earners Wage - the excess
Exempt Note: Backwages are subject to TAX
Note: Moral damages and other damages are subject to tax
Note: The table is not applied when: Note: AF and Cost of suit (as to the excess only subject to tax)
Note: Retrenchment, installation of labor saving device and other causes beyond the control of the
(a) When it is furnished by the employer for the convenience of the employer employer is EXEMPT from tax. Otherwise, subject to tax
(b) When it is necessary for the trade or business of the employer
Items of Exclusions (Sec. 32(B)) Note: Kapag wala sa listahan ng exclusion, malamang included at subject sa tax depende sa table

(1) This is specifically excluded by law. Not subject to tax. Exempted from Income Tax
(2) Not to be included in the Gross Income
(1) PCSO and Lotto winnings
Exclusions (2) Interest on long-term deposits not terminated for a period of 5 years
(3) Intercorporate dividends DC-DC and DC-RFC
(1) Proceeds of life insurance policy taken by the insured during his lifetime and the benefits are
received by the insured or his heirs. Provided, that if the life insurance policy earns interest, it shall Deductions
be exempt from tax
(1) If individual, purely compensation income earner – deductions ay personal and additional
Illustration: X is buhay took life insurance policy, premium 5k per month. Proceeds will be 1M, 10% exemption and Premiums on Health and Hospitalization insurance
interest and return of premium. Beneficiary is the wife. (2) If individual, business income or mixed income earner – PE, AE, Optional Standard Deduction or PE,
AE, Itemized Deductions
(a) Can X claim the payment of life insurance policy as a deduction? No, under the law, payment of (3) Corporations – Optional Standard Deductions or Itemized Deductions
premiums is only allowed in cases of health and hospitalization insurance in the amount of P2,400
provided that the income does not exceed P250,000. (Sec. 34(M)) Deductions:
(b) X dies. Proceeds goes to W. Is the 1M subject to tax? No, it is excluded
(c) X dies. Proceeds goes to W. Is the interest subject to tax? Yes, it is subject to tax under Sec. 24(A) (1) The concept of deduction is applicable only when the income is subject to NIT. If taxpayer is
(d) X dies. Proceeds goes to W. Return of premium taxable? Yes, it is subject to tax under Sec. 24(A) subject to GIT (NRANETB, NRFC).
(e) Is the estate of X liable for estate tax? If designation is himself, executor or administrator, or his (2) If no income is received, the concept of deduction will not be applied.
estate, whether revocable or irrevocable, included in the estate tax. If any person other than the (3) Personal exemption is P50,000
four (4), revocable, it is included. If other than four (4), irrevocable, this is excluded. (4) Additional exemption is P25,000
(5) Who are qualified as dependents?
Note: Sa life insurance policy, lagi may dalawang side income at estate kapag may namatay.
(a) Children of whatever status provided that the children are not married, not gainfully employed, not
(2) Return of Premium – obviously more than 21, leaving with and dependent for chief support from the parent who claims exemption
(3) Gifts, Bequests and Donations – (b) Children regardless of age incapable of self-support due to physical or mental disability
(c) PWD, related by consanguity – 4th degree, need not be living with taxpayer dependent for chief
Illustration: Lumbera (donor) and Mark (donee). support
(d) PWD related by affinity – 4th degree, need not be living with taxpayer dependent for chief support
(a) Is it income on the part of Mark. Yes. However, it is excluded under Gifts, Bequests and Donations (e) Foster Children provided that child not more than 12 years and takes care for more than 12 months
(b) Is the transmission subject to estate/donor’s tax? Yes, it is subject to estate and donor’s tax, except supervised by the DSWD dependent for chief support to the taxpayer
when it is made to a done which is charitable institution, religious, NS-NP educational institution
provided not more than 30% is used for administration purposes. If government – absolutely Q: Are senior citizen dependents?
exempt
(c) Can Lumbera claim it as a deduction? If purely compensation earner, no since only PE and AE are A: No.
allowed. If engaged in trade or business, 10% or corporations 5%. If priority project of the
government, Lumbera is allowed full exemption from the tax. Limitation: Maximum of 4 lang. Nasa loob ng apat

Note: If gift received earns income, on the part of the donee-recipient, the income of the gift is subject Note: Husband has a right to claim deduction if married. Unless there is a waiver in writing.
to tax.
Express waiver in writing is not required
(4) Income exempt from a treaty
(5) Compensation for Injury or Sickness – what is being excluded is the equivalent peso value of the (a) When husband is not employed, no income
sickness or injury directly sustained. (b) If NRC, whose income is purely coming without the Philippines.
(6) Retirement Benefits
(7) Miscellaneous Items Note: Waiver can only be done on the part of common children.

(a) Income of foreign government and investment in Philippine government. Sa mga alien, NRAETB lang ang pede sa exemption. (Reciprocity)
(b) Income of Government in the exercise of its governmental functions
(c) Prizes and winnings in sports competition and various purposes. Optional Standard Deductions
(d) 13th month pay and other benefits not exceeding P82,000
Base: Gross Receipts or Gross Sales (no documentary requirements) Individual and corporate taxpayers Straight Lease Contract – lessee introduce Straight Lease Contract – lessee introduce
lang engaged in trade or business. improvements which will inure to the benefit of improvements which will inure to the benefit of
the lessor (A) (Minor improvements) – 100k the lessor (A) (minor improvements) – 30k
Q: Can a taxpayer change from OSD to Itemized deductions and vice versa?
Income on the part of A – No, it is not realized Income on the part of A – No, it is not realized
A: Yes, but only for the succeeding taxable periods NOT within with prior approval of the BIR until it is sold. until it is sold.

Expenses Can X claim expense? – Yes. Expenses for minor Can Y claim deduction from rentals? - no, since
repairs are considered expenses of business it is a purely compensation income earner
(1) Necessary in the trade or business
(2) Actually paid or incurred by the taxpayer Can X claim depreciation – No, he did not incur Can A claim business expense? – No, he did not
(3) Reasonable in amount the expense. incur the expense

Deductions Can A claim depreciation – No, never. Hindi sya


gumastos
X – Employer Y – Employee (Compensation Income Earner) Kuryente, Tubig, Telepono, Internet Kuryente, Tubig, Telepono, Internet
Basic Pay Basic Pay – subject to tax if not a minimum wage
earner Considered as business expense for utilities Income on the part of utility companies –
Overtime Pay, Holiday Pay, NSD – can be Overtime Pay, Holiday Pay, NSD – subject to tax Subject to tax NIT. Deductions ay OSD at
claimed as deduction if managerial or rank and file, exempt if MWE Itemized deductions
De Minimis Benefits – deductible kung hindi De Minimis Benefits – if exceeds P82,000 may Lessee will shoulder the RPT – realized ito. Lessee will shoulder the RPT – realized ito.
lumagpas sa limit be subject to tax Subject to NIT Subject to NIT
Rentals – subject to tax NIT. Rentals – subject to tax NIT Taxes – Taxes –

Can X claim for deduction? Yes, since it is a Can Y can claim expenses? – no, since it is a Deduction to X? Yes. Deduction to Y? No, purely compensation
necessary expense purely compensation income earner income earner
House is Bought – it is subject to NIT since it is in House is Bought – it is subject to NIT since it is in Refund of RPT – 8k Refund of RPT – 5k
the leasing business (not FWT, dahil wala sa Sec. the leasing business (not FWT, dahil wala sa Sec.
24(D), nasa Sec. 24(A)) 24(D), nasa Sec. 24(A)) Income on the part of X? Yes, it is income under Income on the part of Y? No, it is a return of
the tax benefit rule. Subsequently refunded capital
Can X claim as deduction? – No, since it is a Can Y claim deduction from buying? - no, since Reasonable allowance for marketing and Reasonable allowance for marketing and
capital expenditure (major repairs) (extending it is a purely compensation income earner promotions to increase sales – deductible promotions to increase sales – deductible
the life of a capital asset) Reasonable allowance for marketing and Reasonable allowance for marketing and
Installment Purchase (Rent to Own) – 100k per Installment Purchase (Rent to Own) – 20k per promotions to maintain sales – considered as promotions to maintain sales – considered as
month for 10 years – income subject to tax NIT month for 10 years – income subject to NIT goodwill not allowed as deduction. This is goodwill not allowed as deduction. This is
considered as capital expenditure considered as capital expenditure
Can Y claim deduction from rentals? - no, Can Y claim deduction from rentals? - no, since
because the amount is used to acquire the it is a purely compensation income earner Can be claimed depreciation as expense.
property other than a mere possessor (capital Illegal expenses – whether business is legal or Illegal expenses – whether business is legal or
expenditure) illegal – not allowed (bribe) illegal – not allowed (bribe)
Straight Lease Contract – lessee introduce Straight Lease Contract – lessee introduce
improvements which will inure to the benefit of improvements which will inure to the benefit of Legal expense – whether business is legal or Legal expense – whether business is legal or
the lessor (A) (Major improvements) – 300k the lessor (A) (major improvements) – 200k illegal – allowed as expense illegal – allowed as expense
Interest on Loans – X borrowed 150k with 15% Interest on Loans – Y borrowed creditor C 100k
Income on the part of A – No, it is not realized Income on the part of A – No, it is not realized interest with 10% interest.
until it is sold. until it is sold.
15k income on the part of C subject to NIT 10k is income on the part of C subject to NIT
Can X claim major improvements as Can Y claim deduction from rentals? - no, since
deductions? – No, since it is a capital it is a purely compensation income earner Deduction on the part of X? Yes, as interest on 10k is not allowed as deduction by Y since he is
expenditure loans if used for business. only allowed to claim PE, AE, and PHHI

Can X claim depreciation? – Yes. Note: Only upon full payment can only be
deducted in case of partial payments
Bad Debts Bad Debts
Income on the part of Y? Yes. Taxable? No,
Y died. Heirs may be allowed as deductions X died. Heirs may be allowed as deductions because it pursuant to a private retirement plan
claims against the estate. As to Creditor, it is claims against the estate. As to Creditor, it is Employers Share in SSS, PHILHEALTH – Employers Share in SSS, PHILHEALTH – Never,
considered as bad debts as deduction considered as bad debts as deduction deductible business. YES! allowed only to claim PE, AE, PHHI
Life Insurance – wife designated as beneficiary Life Insurance – wife designated as beneficiary
C died. Estate of C may claim be allowed as C died. Estate of C may claim be allowed as
deductions as claims against insolvent persons deductions as claims against insolvent persons Proceeds, interest, ROP Proceeds, interest, ROP
(Sec. 86) (Sec. 86)
Taxes – Taxes – Premium payments as deductions? No, health
and hospitalization insurance lang ang allowed.
X import kawali to be used in the house – 150k Y import kawali to be used in the house – 80k LIFE ito kaya hindi pede.
nagbayad ng tariff and duties 20k nagbayad ng tariff and duties 10k X insured the life of his employee Y and
designating as beneficiary himself or tapsilogan
Can X claim value of importation as deductions – Can Y claim tariff as deduction? No, he is only (5k premium)
no, it is a capital expenditure. He may be allowed allowed PE, AE and PHHI
deduction for depreciation Can X claim deduction the premium payments?
Refund of taxes – deductible? No.
Can X claim tariff as deduction? Yes A: No, Sec. 36(A)(4). Premiums paid by employer
Note: Taxes in estate tax is unpaid, in income in insurance where beneficiary is itself is not
Refund of Taxes – deductible? Yes, under the tax, taxes must be paid to be considered as a deductible
tax benefit rule. deduction. Research
Losses Losses
What MAY BE DEDUCTED? (Sec. 36)
Mr. M ninakaw si kawali ang FMV ay P90k Mr. M ninakaw si kawali ang FMV ay P35k.
(1) Personal, Family and Living Expenses
Can X claim as casualty loss? Yes. Can X claim casualty loss as deduction? No, he is
(2) Major Repairs (but taxpayer may allow)
a purely compensation income earner
(3) Life insurance taken by employer on the life of the employee where the employer or business is the
Requisites:
beneficiary
Note: Casulaty
(a) The loss must be incurred in relation to
trade or business Assets
(b) It should not be indemnified by insurance
(c) It is arising from theft, robbery, or any (1) Capital Assets (memorize Sec. 39)
other natural calamity (2) Ordinary Assets

Note: The loss must be sudden. Termites hindi (a) When Capital assets are sold for consideration they result to capital gain or loss
pwede kasi hindi yun sudden (b) When Ordinary assets are sold for consideration they result to ordinary gain or loss
Charitable, Religious, NSNP, Government – Charitable, Religious, NSNP, Government –
exclusion items of exclusion Note: You will never find a provision that capital and ordinary loss are deductible

Can Y claim it as deduction? To the extent only Can Y claim it as deduction? No. Note: You recognize gains up to the extent of losses
of 10% if individual or 5% if corporation prior to
this deduction. Illustration: Tapsilogan of X bought kawali for P150K bought in 2017. Y stole the kawali
Gift to Mr. R Gift to Anak
Kawali1 2017 2018 2019 2020 2021 2022 2023 2024 2025
Can it be claimed as deduction? Never, since it is Subject to tax? No. exclusion from gross income 150K 120K 90K 60 30 0
not necessary to its trade or business. Gas 50K 40K 30K 20K 10K 0
Pension Pension Range1
Kawali2 100K 80K 60K 40K 20K 0
X has a retirement plan for employees. Y retires from service, complied with 50-10 Gas 200K 160K 120K 80K 40K 0
requirements Range2
Can X claim as deduction? Yes.
Note: The fact that an ordinary asset depreciates, does not mean that there are losses.
Note: Kawali1 and Gas Range1 if not used in business is considered Capital Asset
In 2021, Kawali1 is a Capital Asset Q: Can you claim ordinary gains against capital loss? Yes. Because after all, an ordinary asset may
become capital asset if it is not used in trade or business
Kawali1 P30k
Bought P38k Q: Can you claim capital gains against ordinary loss? No.
Capital Gains P8k
Note:
Note: 8k is not included in the gross income. Recognize the gain and use the holding period. More than
12 months it was held hence the gain is 50% x P8k = P4,000. (1) Holding period and NCLCO is only applicable only to individuals
(2) NCLCO is applicable only for the succeeding year, not afterwards
Is the P4,000 included in the gross income? No. It should be recognized to the extent of loss
Q: When do not recognizes gains and losses?
In 2021, Gas Range1 is a Capital Asset
GR: All gains and losses are recognized.
Kawali1 P20k
Bought P5k XPN:
Capital Loss P15,000
(a) When it involves Capital Gains in Shares of Stocks NOT TRADED (Sec. 24(C))
Note: 4k is not included in the gross income. Recognize the loss and use the holding period. More than (b) Sale of Real Property in the Philippines which is Capital (Sec. 24(D))
12 months it was held hence the gain is 50% x P15k = P7,500. (c) Pursuant to a valid merger and consolidation (property – property) (property - stocks) (stocks –
stocks) (stocks - property) (tax-free transfer of property)
Net Capital Loss = Capital Loss (P7,500) – Capital Gain (P3,000) = 3,500
Illustration: Corp. A merged with Corp. B creating Corp. (AB). Corp. A has a painting worth 1M. Corp. B
Note: The NET CAPITAL LOSS CAN BE CARRIED OVER (NCLCO) but only to the succeeding year. has a Real Property worth 2M. Both Corp. A and B will NOT RECOGNIZE gains or losses because it is not
applicable because it will be absorbed by Corp. AB
Illustration: Suppose in 2022, the capital asset is sold, and it results to Net Capital Gains amounting
P25,000. This is already included in the gross income. However, since there is NCLCO of P3,500, it may be (d) Individual, alone or together with others NOT exceeding four (property - stocks) with existing
carried over and only P21,500 is taxable. corporation and they acquire 50% + 1 of the existing corporation (Sec. 40) (tax-free transfer of
property)
Suppose in 2022, the Net Capital Gains is 2000, Net Capital Loss is (3,500), it may no longer be carried
over since it may only be exercised the following year. Illustration: Mark exchange 5M to Corp. ABC acquiring 51%. No gain or loss because Mark will determine
whether there will be loss or gain since he has control of the corporation.
Suppose in 2023, the Net Capital Loss is 1,200, and in 2021 P3,500. Can the P4,200 be carried over? No, it
can only be to the extent of P1,200. Note: Mark + 4 = 5, if with others.

In other words, pinagyayakap ang Net Capital Gains and Net Capital Loss (e) Wash Sales (labada) – only gains are recognized but not loss.

Ordinary Assets Illustration: Mark has shares of stocks in the amount of 3M. He sold for 1.2. Loss of (1.8M) not
recognized. Sold for 4.2M as gain.
Illustration: In 2021, Kawali2 is ordinary asset.
Net-Operating Loss Carry Over
Kawali2 P80,000
Bought P75,000 (1) What is the difference between NCLCO and NOLCO? IN NCLCO, loss incurred in exchanges of
Ordinary Loss (P5,000) assets. In NOLCO, loss is incurred in the operation of the business. In NCLCO, is allowed only for
individuals. NOLCO is allowed to corporations. NCLCO is only for one year. NOLCO is for three years.
In 2021, Gas Range2 is ordinary asset
2021 2022
Gas Range 2 P160,000 Gross Income 3M 4M
Bought P170,000 Deductions 4.5 3.5
Ordinary Gain P10,000 Net Operating Loss (1.5M) P500K

Net Ordinary Gains = Net Ordinary Gains (P10,000) – Net Ordinary Loss (P5,000). If vice versa, there is Note: In 2021, No tax due on Net Operating Loss. But it may be subject to MCIT if 5 years na in
no tax benefit. The only benefit is the use of such asset to the ordinary trade or business of the taxpayer. operation. In 2022, P500K is Taxable as NIT. Loss (1.5M) carried over to Gain (500K). 1M may be carried
NOLCO is not Net Ordinary Loss Carry Over (but Net OPERATING Loss Carry Over) over up to 3 years.
VAT Estate Tax

(1) Tax added to the value (1) Mortis causa ang transfers
(2) Three transactions: (2) Gross estate is defined as all properties real or personal, tangible or intangible, wherever located.
Provided that in case of a non-resident alien decedent, only those properties located within shall
(a) Sales of goods in the course of trade or business (Sec. 108) form part of his gross estate (Sec. 85)
(b) Sales of service in the course of trade or business (Sec. 106) (3) Taxability is dependent upon the location of the property
(c) Importation of goods whether or not in the course of trade or business (Sec. 107) (4) Kinds of Decedent Estates

(3) Excess output – pay VAT. Excess input – tax credit Kinds of Within Without
(4) Tax credit may only be availed of VAT Registered entities Decedents
(5) Transactions Deemed Sale RC Yes Yes
NRC Yes Yes
(a) Transfer, use or consumption of goods originally intended for sale to customers RA Yes Yes
(b) Payment to shareholders, investors, creditors NRA Yes No
(c) Consignation of goods if not sold within 30 days from date of consignment of goods.
(d) Closure of establishment which relates to all stocks in trade. (5) Estate tax may also result to double taxation
(6) Remedies available in estate taxation in relation to double taxation
(6) Output for sales, input for purchase
(7) When do you register? (a) Tax Credit
(b) Reciprocity Rule
(a) You register when your gross sales or receipts exceed P1,919,500. If not, percentage tax on 3% on (c) Vanishing Deduction – Property Previously Taxed
the gross without the benefit of tax credit for excess input
(7) Intangible Personal Property (Sec. 104) (NRA)
(8) Importation – 12%. Export sales – 0% ang VAT
(9) Import is exempt and to whom is transferred is not VAT exempt, the latter shall pay the VAT (a) Franchise exercised in the Philippines
(10) Exempt (b) Share obligations and bonds issued by a DC
(c) Share obligations and bonds issued by a FC, 85% of the business of which is located in the
(a) Sales of goods in the original state and simple procedure for preservation Philippines
(b) Threshold residential units – 12,800. Lease. No threshold for commercial lease of units. (d) Share obligations and bonds issued by a FC which has acquired Philippine situs
(c) Sale of real property - low cost (regardless of amount) – exempt (e)
(d) Sale of real property – lots (no house) threshold 1919500
(e) Sale of real property – 2 adjacent lots 1919500 for both. (within 50 meter radius) and bought within
6 months
(f) Sale of real property – house and lot (threshold 3,199,200)
(g) Sale of real property – house and lot adjacent (both are threshold 3199200, each)
(h) Sale of real property not primarily held for sale to customers -exempted no threshold

Sec. 112: Tax Credit (Procedural)

(1) Refund of Excess input VAT in 0 rated transaction

(a) No element of bad faith or fraud

(2) 2 years from the close of quarters where zero-rated transaction was made.

Illustration: Sale was made on May 9 2017. It starts on July 1, 2017 (close of quarter) to June 30, 2019

(3) 120 days administrative claim


(4) 30 days must be appealed to CTA
(5) If claim for refund, you must execute affidavit stating that you will comply with the documents.
Otherwise, the 120 days will run.