A FAR EASTERN UNIVERSITY i Institute of Accounts. Business and Finance & TAXATION y Mom-real und Alien, EJ.GARCIA MAASCTE pre than iD days TAX 501 - D MANE hal re an dy *DmAled Shen’. Gino © ik nd AY he eh Rag A. Classification of Individual Taxpayers: wi any ee armen : ercse: Determine the cass ion ofthe individual. O rroinay wound oe Hee 4 00) 19 0c0/manan 7 ag ash yee on] Talker Ion to * Flip, recived his US vin asanimmigran oh iinet reside m Wes, Ms. Keis Tope, a Fil Workin the U.S. as an Pino who has an ex ete in fens aut wa ie auditor. He will be = Las an Yams aS ed slg im Sei ‘Slaying in the United States of Americ == abe ica because of her permanent employment, 1 "ment Agency (POE), for ight (8) months a the same petiod or longer tk having a vacation fort lef the Philippines wor fer which he will be in Saudi Arabia as a dance insttor His work '° (2) months and an option to renew the contrac for 3-Mr Ronald R. Blanca Filipino contact work Philippine Overseas Employment Agency (POF, contrac is for five (5) months, alter whi the same period of longer f. whose employment contrac A), left the Phil he will be having aw * passed through and was registered wih the pines vo workin Saud Arabia asa dance instructor His work ‘sation fortwo (2) months and an option to renew the contract for 5. Mrs Josephine Bolpangeo is an Services in Japan, He will iy, company architect and an emy Ployee of «domestic corporation in he Philippines. Hei assigned wo rendet | broad for a maxim tum period of 10 months. The architect remains inthe Philippine pyell of the 6. James George. an American bask train young basketball players to pl business because he has stayed in ball player. stayed inthe Phill lay systematic and sce the Philippines for an iphines for cight (8) months in the Philippines to educate and fentific basketball. James George is a non-resident alin engaged in trade or ageregate period of more than 180 days. 7 Leonel is a Jamaican singer, He was invited to hol a fury concer at Na Leonel is a non-reside ‘of mot mote than 180 days ‘Laguna on the of July ofthe current year. uring uted in trade or business because he has not tayed in the Philipines for an ogurepse prod during any calendar yea, : A non-resident alien not engaged in trade ‘than 180 days during any calendar year. ayer visited and spent a five (3) day vacation at El Nido Palawan, Serena Willams isa ‘or business because she has nat stayed in the Philippines for an ageregate period of not more Categories of Income of Individual (hip. n0e sos phi f-guide-partvincomet Income of individuals are grouped as follows |. Conpensation ncome- those arising from employeremployeetlaonship sonst incon la Sy a ier noi coins lsd ing re tute alone (has wapraon omen cession eae and the like, taxable pensions and retirement pay. pmounts drawn as salaries by partners of a Partnership and other incomes of a milarnalrenles special exemple ye Tx Code Business income and income from practice of profess incomes from business. suchas incomes fom manfcturing 2 and: ice of professions these are incomes fo ss pes om mantic and selling goods, incomes trom buying and selling goods, incomes, fes from te exercise of profession, gains fom lor ‘exchange of assets other than inventories, commissions, rental income, and athe incomes not covered by compen ann Scary bees om deo sues st nd income cons oferta arene depos ys nd ott money bene , * aan arbres ryan prs wns. loca tes ig carne data featipaemet Income dividend na dans corporation, rest on ng tem epost, +4 Capital gains include capital gains fom sales of shases-stosk and sais af eal popes fes income suchas informers ewards | 5. Other sources of income-thisinelud h TAX 501 INDIVIDUAL INCOME TAXC._ Taxable Income of Individuals 1. Resident tives tanable onal income derived from sources within and without the Phy 8, sve = sabe only on income derived from sources within the Philippines (See 2. Nonresident citizen is tax ly Suny, ings sa of the Philippines who 1s working and deriving income from nen, a an tect fumes she he PAIRS ion for services rendeted abroad as « za vi saci fie Palin an to ches opens He of he ex Iss. nrsonal ade shal be reed a an overseas coma Werke (Ste ‘esse! engaged exclusively in intemational trade complement of @ NIRC) ve 1 Philippines. Sec 23 (C), NIRC) income derived from sources wth the 3. Reside alien «is taxable only on income sources within the Philippines (See le 1s taxable only on income derived from sources 4. Non-resident aliensengaged in trade or business ly 23 4D). NIRC) in the Philippines 5 Non-resident alien- nat engaged in tae or business = - i taxable only on income derived from sources within the Philipp (Se 23(A), NIRC) : < Tacome without(Foreign Clasifation Tacome within am Resident Cire y t Non-Resident Cig y Resident Alien v Non-Residen’ Alien PTR v None Residen Alien NETH x D. Tax Base and Tax Rate Tanpayers Casificaion Ta Base Tax Rae Redan iizen “enable ocome win and without SHO) Non-resident citizen Taxable income within Sec.24 (10) Resident alien Taxable income within Sec. 24 (AN2) of Non-tesiden sien ETE “Toable nome within 28 ()0) e. Non-resident alien NETE ss income within ssHsec25(8) SEC: 24(2) Rates of Tax on Taxable Income of Indvidals ‘Theta shall e computed in acordance with nda the aes established in the following schedule ‘Over Bat not over ‘Theta shall be Phas Of exces over F_to.000 Ye z : F To,o0% 30,000 F500 To Fogo 30,000 70.000 2300 15% 30.000 70.000 4.000 8500 20% 78,000 740,000 750,000 2300 25% 140,000 250,000 500.000, 50,000 30% 250,000 (F~o0.000 : 725.000 3H $00,000 E. Format of Computation of Taxable Income ‘Gross compensation income Fox Less: Basic personal exempiion Pix ‘Additional exemption x Premium payment for health andlor hospiallaionTnaranee za Taxable compensation income xs | Tax due [See. 24 (A)] Prox ‘Less. Tax withheld on compensation a Foreign ux credits a mx | Tax payable (overpay meni) Baa | “Page 2 of 15 TAX 501 INDIVIDUAL INCOME TAX 4DW, ia Aiwa cos ay FF’ Passi) f PULARIS cad ~foss business professional income: Wet income before personal exemptions Tess: Basie personal exemption \ ‘Additional exemption’ — ear | : Tr | | zlele i on TN OR aT TS ‘Taxable net income = = Tax due [See FANT Ele Tess Tax credity payments a = Prior years” excess credits re = ‘Tax payments for the previous quarters = Creditable tax withheld a Tax payable (overpayment) = Ele eat ane So ‘Less: Basic personal exemption. _ { = Additional exemption = ‘Premium payment for health andlor hospitalization insurance ‘Gross business professional income a ts lanai ‘Net income alalal — “Total taxable income fa | 1 ‘Tax due [Sec. 24 (A)) rs ea cai = Te ms ri a eg se 1 Calabi mene ire fa aaa ss | ane aimee ga = | | ‘Taxable compensation Income os | Pax Tax wild fom compensation oc Foreign tax credits: : i Tax pavable (overpay mens) 1 a | ast ©] oe | meet er rare, Y on \ / aah wee Fapertoanneswenpitorne 4°) $\24\ ‘tl expt WAU | cts adware ten a0K \ @- wis & exiprcl ersona exemption te aitan, amen lone or ‘posta ining. or family expenses.of the taxpayer. These are the estimates of the minimum subsistence of an individual ina year. ‘datas : ol og a aa ate ESTED Bore es sala ote 1) Amount of deductible basic personal exemption — Vor punposes of determining the tax provided in Section 24 (A), an individual taxpayer cegacess of iam, whether [ingle or maried i entitled fo deduct abasic personal exemption amounting to fly. thousand pesos (250.000), ; indivi iving gross income, only such spouse shall be allowed the personal exemption (2 par. Sec. 35(K), NIRC) 2) Taxpayers allowed fo claim basic personal exemption The following taxpayers who are allowed to deduct personal exemptions are: (a) Resident citizens: - (b) Non-resident citizens: ~ (c) Resident aliens: - {a) Non-resident aliens doing business inthe Philippines (subjec1o sinensis} ‘The exemption allowed to non-resident aliens isa reciprocal one. It is only allowed if (1) The foreign country of which the NRA-ETB is a subject or citizen has an income tax law; {2) The income tax law of the NRA-ETB's country allows personal exemptions to citizens of the Philippines not residing therein, (3) That said nonresident alien should file a true and accurate return ofthe total income received by him from all sources in the Philippines. '3) Amount deductible for Non-resident aliens doing business in the Philippines For non-resident aliens doing business inthe Philippines the allowable amount of deductible basic personal exemption is the lowe between what is allow -ETB'S r ‘AX 501 INDIVIDUAL INCOME TAX Page 3. of 15sing wonehase zohan Dependent ines a) Legitimate cid 0) ‘egtimae- i aly oe RA 065)” ea Deepen wih iy (HD) is eee gto, legitimate an alae il on ; a reganless. of age, if such dependent is child who i cid depen tie cae as 9 Spot lxpn ote ee 6) amare cid nd ©) aclld who isang employs, 1 A dependent foster child (Section 220, RA SSM) Aqui dependent foster hi" means |. a child under the foster care ofthe taxpayer fora east a continunas period of ane (1) meal year. 2 ach who ice dependent pe be tear, 3. acid whos living with he txpye, acid who selon becuse of metal or pyskal defect unmade nd 6 achlé whois ot andy enpoyed ot eso aif sch dependents incapable of (1 fse pret fra particular table year. As such, no other Pern foster pet can ci thsi chi as depend fra pad “PHD (RALOTSESECI) 2 peat amt cies feng ny othe wpe, 2 reps a ge, 3: wh weno gif employed « ‘0 hey dependent won te payer Tope ld ein ation exemption sides ©) Nereis, - 9) Ree sens 0 Net he ig es ate Pipi ait acy - Uy thc yet anne sires en Ws oy lode Cre maeeepe RSME Senarcaee name oe MET ys a cs no igte resin tig eae An ee dace nett ne neon ‘nthe Pippin 3) Ado Esempin oar nde | fhe case of mace individual, the ‘Bass. Genel, he bod it ream tl hi Stn ceonerceemae ee of Menai tempcn Howeve, the it sa aes Sheil coepaseide bet cei efi ‘Tiss done in the Aplicaon or Regia (BR Fe onthe Ce sets ein (IR Form Ns 1902) rin te aerate || ee ‘TAX $01 INDIVIDUAL INCOME TAX Page 4 of 15©) When the husband is The total of . era anal exemption tata be lame y bah halo xs temo ion The maximum numberof qualified dependent-hildren for additonal exemption sal otexcead fa (A) §) Additional Exemption for Non-resident aliens doing business nthe Philippines For non-tesident aliens doing bus , f deductible additonal exemption is ing business inthe Philipines, the allowable amount of bo telanerbetven wht isalonedinthe NRA ET's oy awit allowed ine PIE Exercise nde 3, singe and Chinese zn enone ae doing bss athe Pipi. pens exemption of 40002 is allowed to singe Filipinos not residing in China. ing information: 2,500,000 “800,000 3,000,000 ‘andrew Sy is asking you to assis him in preparing his tx tums and had presented you the the follow Gross alex Pipes Cost of sales, Philipines Gross sales, Chi ‘Cost of sales, China TD Business expenses, Philipines Busines expenses, China $00,000] How much will the taxable income of Jandrew Sy? 2. Ron and Rubic are maried. They ae resident citizens and have the fllowing dependent children ‘Abby ~ 15 years od, studying at Don Macarola High Schoo! in Bulacan, ‘Toby ~22 years old living wit the taxpayer and mentally incapacitated, Patricia~ 18 years old, Wan 16 years old, studying and gainflly employed in South Korea [LJ person wit disability, 18 years, frst cousin and Fermin —ehild, 12 years ol, foster chil 1 Who of will qualify as dependent fr additional exemption purposes? 3. Ronald and Pia are marred. They are resident citizens and have the following dependent children: [Abby ~ 18 years old, studying at Don Macariola High Schoo! in Bulacan, ‘Toby —22 years ol, living with the txpayer and mentally incapacitated, Patricia ~ 18 years ol, living with her grandmother in US. duc to her studies van -21 years old, married to Elizabeth, LI person with disability, 18 yeas, son of his best fiend, legally adopted and Fermin child, 12 yeas old, legally adopted child “The following information pertains othe income and expense of Ronald inthe year 2015; Salary, net of P125,000 withholding tox 675,000 Rent expense, apartment house 36,000 12 Who ofthe following chien wil qualify as dependent of Ronald for additional exemption purposes? +b, How much isthe additional exemption of Rona? How much isthe taxable compensation income of Ronald? 4 Assuming Pais also employed sith an annul seary of P9S0,00, gross of P1S0,000 withholting tax, how much is her taxable income? «Assuming Pia is also employed with an annual selary of P9S0,000, goss of P1S0,000 withholding ax, how much is her taxable income assuming Ronald waives his right tothe additional exemption in favor of his wife Pin? {Assuming Pas the only one eaming sn income, how much i er taxable income assuming he has an annual salary of 0,000? ¢. Assuming Ronald is an OFW earning an anal salary of P2,000,000 abroad and Pia is teacher inthe Philippines earning an ‘annual salary of P650,000, how much isthe taxable income of Ronald andthe texable income of Pia? 4, Bong and Lanni, ate legally seperated. The following children are under the custody af = ram, daughter 25 yeas old and mentally incapacitated; Page 5 of 15Cayetano nephew of Bong: Lalla, 12 years old Lani: ‘Beer, son 30 years old {GREY 00, 18 years ld however nt lvng with Lani caus of his staisin USA Dolphy, foster child, © How much atone and Lane claim? ln are under the Hp i nc Sat an ey Ce et recy Monntaed Beshu, Johny and Dlphy ar unde te cto ef Lei? Cysts Lala ee drt cay « or prt kin! xempion cn Bong and Lance gn. ee sd that Bong wil elt, dena semy and Dolphy under cud of Lai? Assing Bon and La age 3 8 Addhona exemption in is retus. Now much additional can Bong and Laie lim? Asuka, ma basi personal 5: Abu marie and Japanese Hac @ nonresident alien dong busines in he Pilpines. napa, the sc pe | cient ilipinos not residing 's P6000 anda adit re lied dependent child i llowed to Fi Int ony te at tonal excptn P2000 frac ied rp 0 Cos of sales, Philipines — Gros aes, USA cee aco rene USA 4300.00 BuSitess expenses, Philippines Pusinss expenses, USA’ a ie tt ence ene 3p ellen ha man 2. The amount of premiums, se, Milne dtu hae ty Inthe ase of marie taxpayers, oly ips ciming he ional exsnption for dependents shal be. ited o this deduction Cases Case | Zoho Loyd Tamayo, single, has an anal slay of 235060, He SPs in6 an saul hsptlzaton insurance premiums of P20, {5 John Leyd Tamayo ened w deduct from his pros. “Onpenston income he opinion inrancepreians pid by him. How ‘much can he deduct? an annual salary of P200,0000, His wife has annual hospitalization insurance premiums of ness income of P7S0,000 and business 1s John Loyd Tamayo ented can he deduct? ct from his gross compensation the hospital ce premiums pid by him, How much Case 4 TAX 501 INDI Page 6 of 15,ean he! “ote Loyd Tamayo, maried, be Insurance and pi the flowing peony tury of 20000, Surg Otter of th erent yn, took «Rosa October P100 ‘November P200 ‘December P300 ty him, How rch Is John Loyd Tam i deduct)” Stile to deduct from his gross compensation the hospitalization insurance premiums paid » are, (eg. H, Optional Standard Deductions (OSD). - (0/8. (RR No. 16-2008 as amended by Gere Sat ‘The following be 1 O5D i a The following may be allowed o cin OSD inline. terized deductions (i men 'b) Non-resident citizen ) Resident alien 2) Determination of the amount of OSD for individuals 2) The OSD allowed to individual txpayers shall be snus ty seco sls i ssl i ross receipts (if on cash basis) 'b) The “cost of sales” in case of individual seller of goods, othe «) For other individual taxpayers allowed by law to report their income and deductions " ny yaw to repo site “gross sales” oF "BOSS receipts” shall be determined in accordance with said acceptable method. ‘items of ordinary and necessary EXPENSES Sesion 37, other sea as. apicablels dng the ale crlpaiphiat «in the case of individual seller of be Jaded fer purposes of tein the basis ofthe SD dose! nee = under a different method of accounting, percentage of competion bass, tc.) other than cash and acrual method of option Exercise: 1 Asin resident zen bas wo (2) gait dependent chien. During te year 2008, he ears and spends he following: ‘Gros receipts from practice of profession 750,000 Cost of services 00,000 Expenses ia connection with the practice of profession 0,000 Hospitalization insurance premium paid 2,000 ‘Compute the taxable net income using ‘itemized deductions al standard deduction “1, Status ofan Individual ‘Under the NIRC, 1, Single The term si 3. Married (Revenue regulation 10-2008) 2, Head ofthe family ead ft a single individual who aul supports ands none huscli-oe a mse nial > Aad fy al nd pie ee depend inviolate spon some mane working for the RHQ or ROHQ as employee and not just a consultant or contractual personnel, “Exclusivity” means just having one employer ata time, Offshore Banking Units ‘An offshore banking unit (OBU) isa branch of a multinational hank Jocated ina financial center away from its home country. Refer to Chapter 3 for additional discussions on OBUs. An alin individual employed by an OBU in the Philippines is subject to final withholding tax of 15% on gross income. Same tax treatment should be allowed to Filipinos employed and occupying managerial and ‘technical postions similar to those occupied by aliens employed by these offshore banking units. Petroleum contractors and subcontractors, ual rmanent resident of a fo hoi signed foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines shall be liable to a. tax of fifteen percent (15%) of the selaries, wages, annuities, compensation, remuneration and other emoluments, such as hon ‘and allowances, received from such eontractor or subcontractor: Provided, however, thatthe treat Gross income from practice of profession P Income from trading business Expenses in connection with the Require a a, Compute the deductible Hospitalization insurance pr b. Compute the taxable net income? ‘A married resident citizen has five (5) children, All his ch income and expenses for the year 2009: Salary, Philippines, net of withholding tax of P2,000,000 Rental income, Philippines ; Expenses in relation to rental income, Philippines Gross business income, USA ‘Business expenses, USA Hospitalization insurance premiums paidRequired: a Compute the taxable net income in the Philippines? Assuming the taxpayer is a nonresident citizen, compute his taxable net income in the Philippines? Assuming the taxpayer is a nonresident alien, compute his taxable net income in the Philippines? Assuming the taxpayer is a nonresident alien doing business in the Philippines, and his country allowed P80,000 ‘basic personal exemption to married Filipinos not residing there, and P40,000 additional exemption for each dependent child. Compute his taxable net income in the Philippines? Assuming the taxpayer is a nonresident alien not doing business inthe Philippines, compute his taxable net income in the Philippines? five qualified dependent children. His compensation income and that of ‘In addition to his compensation income, he also derived id paid P30,000 business-related expenses. Balita, compute the his taxable income. ita, compute the his taxable 3. Mr. Balita a legally separated taxpayer has (5) Mrs. Balita amounted to P500,000 and P700,000, respectively. sgz0ss income of P300,000 from his merchandising business an ‘2. Assuming that the court awarded the custody of the children to Mr. b. Assuming that the court awarded the custody of three (3) children to Mr. Bali income. Assuming that the court awarded the custody of three (3) children to Mr. Balita, compute his taxable income. He and hi had agreed that he will claim all children under his custody? 4. Alwusband and wite resident citizens, with one (1) qualified dependent child, had the following information on their income and expenses for the year 2009: Salary of the husband, net of P50,000 withholding tax P 450,000 Salary of the wife, gross of P60,00 withholding tax 600,000 Professional income, husband, net of 10% withholding tax 900,000 Expenses, practice of profession 300,000 Premium payment for health insurance paid by the wife 5,000 Gross business income, wife 500,000 Business expenses, wife 100,000 Rent income, lease of common property, gross of 5% withholding tax 700,000 200,000 Expenses, leased common property ‘The husband waived the additional exemption in favor of his wife. Question 1: How much was the taxable income of the husband? ‘Question 2: How much was the taxable income of the wife? ified dependent children, received the following for the year 2009: 5. Mr. E, married and has two (2) quali Basié monthly salary P 45,000 ‘Overtime pay for November 5,000 Thirteenth month pay 45,000 12,000 Other benefits ‘The withholding tax from January to November was P98,082, How much was the tax to be collected (refunded) for the month of December? 6. MrF, married, whose wife is also employed, ha two (2) qualified dependent children. He res ‘year 2009: ‘Basie monthly salary P 16.500 Thirteenth month : it 16,500 Other benefits january to November is P12,924.23 ‘The withholding tax from J a rd lected (refunded) for the month of December? How much is the tax to be ol 7. Mr.G, single, was hired on July 6, 2009. He receives the following: Be P Basie monthly salary Thirteenth month pay ‘Monthly salary from previous employer Ganuary to June) 4 “The withholding tax from his previous employer is P2,899.68 and fr He pays forthe year an annual premium on health and hospital How much is the tax to be withheld (refunded) for the month of]Aoeo ac 000'08q pa [For taxable 2008, LCB Service Company employed Mr. J, Bala, married, with two (2) qualified dependent children, He received the following: Basic monthly salary (excluding SSS/HDMF/ PHIC employee's share) P 45,000 Overtime pay per month 5,000 Hazard pay per month 2,000 Thirteenth month pay given December 2008 45,000 Other benefits given December 2008 12, ‘The tax withheld from Jan 000 wuary to November amounted to P136,609.93. How much is the tax to be withheld (refunded) for the month of Decemt Mr. M got married on Ji Wve birth more. uly 20, 2008, when his girlfriend was four (4) months pregnant. On December 26, 2008, the wife to twins. Farnings from January 1 to July 5, 2008 was P150,000 and for the rest. of 2008, he earned P200,000 How much was the tax due for 20087 » END