UM Tagum College

Department of Accounting Education

Competency Appraisal Course (CAC)
Taxation
Individual Income Taxation

January 24-25, 2019 Joe Mari N. Flores, CPA

Classification of Individuals
a. Citizens 1) Those who are citizens of the Philippines at the time of the adoption of the
Constitution (on February 2, 1987);
2) Those whose fathers or mothers are citizens of the Philippines;
3) Those born before January 17, 1973 of Filipino mothers who elect Philippine
citizenship upon reaching the age of majority;
4) Those who are naturalized in accordance with law.
1) Resident citizen A citizen of the Philippines residing therein.
2) Non-resident 1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the
citizen fact of his physical presence abroad with a definite intention to reside therein;
2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis;
3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year;
4) A citizen who has been previously considered as non-resident citizen and who arrives in
the Philippines at any time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a non-resident citizen 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;
5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to return to and reside in the Philippines as
the case may be.
b. Aliens Individuals who are not Filipinos.
1) Resident alien;
2) Non-resident alien doing business in the Philippines;
3) Non-resident alien not doing business in the Philippines.
1) Resident alien An individual whose residence is within the Philippines and who is not a citizen thereof.
1) An alien who lives in the Philippines with no definite intention as to his stay;
2) One who comes to the Philippines for a definite purpose which in its nature would
require an extended stay and to that end makes his home temporarily in the Philippines,
although it may be his intention at all times to return to his domicile abroad;
3) An alien who has acquired residence in the Philippines retains his status as such until
he abandons the same and actually departs from the Philippines.
2) Non-resident alien An individual whose residence is not within the Philippines and who is not a citizen thereon.
1) One who comes to the Philippines for a definite purpose which in its nature may be
promptly accomplished.
2) A non-resident alien individual who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days during any calendar year shall be deemed a
“non-resident alien doing business in the Philippines.”
1. Formats of Computation (Annual Return)
a. Pure compensation Gross compensation income P xxx
income Less: Basic personal exemption xxx
Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable compensation income P xxx
Tax due [Sec. 24 (A)] P xxx
Less: Tax withheld on compensation xxx
Foreign tax credits xxx xxx
Tax payable (overpayment) Pxxx
b. Pure business or Gross business/professional income Pxxx
professional income Less: Allowable deductions xxx
Net income before personal exemptions xxx
Less: Basic personal exemption xxx
Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable net income Pxxx
Tax due [Sec. 24 (A)] Pxxx
Less: Tax credits/payments
Prior years’ excess credits xxx
Tax payments for the previous quarters xxx
Creditable tax withheld xxx xxx
Tax payable (overpayment) Pxxx
c. Mixed income Gross compensation income Pxxx
Less: Basic personal exemption xxx

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Additional exemption xxx
Premium payment for health and/or hospitalization insurance xxx xxx
Taxable compensation income xxx
Gross business income xxx
Less: Allowable deductions xxx
Net income xxx
Total taxable income Pxxx
Tax due [Sec. 24 (A)] Pxxx
Less: Tax credits/payments
Prior years’ excess credits xxx
Tax payments for the first three quarters xxx
Creditable tax withheld for the first 3 quarters xxx
Creditable tax withheld for the 4th quarter xxx
Tax withheld from compensation xxx
Foreign tax credits xxx xxx
Tax payable (overpayments) Pxxx
2. Tax Base and Tax Rate
Taxpayer Tax Base Tax Rate
a. Resident citizen Net income within and without Sec. 24 (A)
b. Non-resident citizen Net income within Sec. 24 (A)
c. Resident alien Net income within Sec. 24 (A)
d. Non-resident alien engaged in trade or business Net income within Sec. 25 (A) (1)
e. Non-resident alien not engaged in trade or business Gross income within Sec. 25 (B)
f. Estate and trust Net income within and without Sec. 24 (A)

3. Personal Exemptions
a. Personal exemptions Personal exemptions are arbitrary amount allowed in the nature of a deduction from gross
defined or net income for personal, living or family expenses of the taxpayer. These have been
calculated to be roughly equivalent to the minimum of subsistence.
b. Kinds of personal 1) Basic personal exemption;
exemptions 2) Additional exemptions.

4. Basic Personal Exemption

a. Taxpayers allowed to 1) Resident citizens;
claim basic personal 2) Non-resident citizens;
exemption 3) Resident aliens;
4) Non-resident aliens doing business in the Philippines (subject to reciprocity);
5) Estates and trusts.
b. Amount of basic Old New
personal exemption 1) Single (including married but legally separated, widow P20,000 P50,000
or widower), estates and trusts
2) Head of family P25,000 P50,000
3) Married (for each working spouse) P32,000 P50,000
c. Amount of personal a. Conditions for allowance:
exemption allowed 1) The foreign country of which the NRA-ETB is a subject or citizen has an income tax law;
to non-resident alien 2) The income tax law of the NRA-ETB’s country allows personal exemptions to citizens of
doing business in the the Philippines not residing therein;
Philippines (non- 3) The NRA-ETB files a true and accurate return of his income from all sources within the
resident alien Philippines.
engaged in trade or b. Amount allowed: The lower between what is allowed in the NRA-ETB’s country and
business) what is allowed in the Philippines.
5. Additional Exemptions
a. Taxpayers allowed 1) Resident citizens; 3) Resident aliens;
additional exemptions 2) Non-resident citizens; 4) NRA-ETB (subject to reciprocity)
b. Amount of additional
P25,000 (old P8,000) per dependent child
exemption
c. Maximum number of
Four (4) dependent children
dependent children
d. Dependents for 1) Legitimate child; 3) Adopted child.
additional exemption 2) Illegitimate child;
e. Requisites or 1) Chiefly dependent upon the taxpayer; 4) Unmarried;
qualifications of a 2) Living with the taxpayer; 5) Not gainfully employed.
dependent child 3) Not more than 21 years old;
f. Proper claimant of The additional exemption for dependents shall be claimed by only one of the spouses in the
additional exemption case of married individuals. The husband is the proper claimant.
g. Instances when the 1) When the husband explicitly waives his right to the additional exemption in favor of
wife can claim the his wife;
additional exemption 2) When the husband is unemployed;

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3) When the husband is a non-resident citizen deriving income from foreign sources.
h. Claimant of 1) The additional exemption may be claimed only by the spouse who has custody of the
additional exemption child or children;
in case of legally 2) The total amount of additional exemption that may be claimed by both shall not exceed
separated spouses the maximum additional exemption allowed.
i. Computation of 1) For married individuals, the husband and wife, shall compute separately their individual
married individual’s income tax based on their respective total taxable income.
income tax 2) If any income cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be divided equally between
the spouses for the purpose of determining their respective taxable income.

7. Optional Standard Deductions (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)
1) Persons covered The following may be allowed to claim OSD in lieu of the itemized deductions (i.e. items of
ordinary and necessary expenses allowed under Section 34 (A) to (J) and (M), Section 37,
other special laws, if applicable):
a) Individuals b) Corporations
(1) Resident citizen (1) Domestic corporation
(2) Non-resident citizen (2) Resident foreign corporation
(3) Resident alien
(4) Taxable estates and trusts
2) Determination of a) The OSD allowed to individual taxpayers shall be a maximum of forty percent (40%) of
the amount of gross sales (if on accrual basis) or gross receipts (if on cash basis) during the taxable year.
OSD for b) The “cost of sales” in case of individual seller of goods, or the “cost of services” in the case
individuals of individual seller of services, are not allowed to be deducted for purposes of determining
the basis of the OSD
c) For other individual taxpayers allowed by law to report their income and deductions under a
different method of accounting (e.g. percentage of completion basis, etc.) other than cash
and accrual method of accounting, the “gross sales” or “gross receipts” shall be determined
in accordance with said acceptable method.

8. Premium Paid on Health and/or Hospitalization Insurance

a. Deductible premium Premium on health and/or hospitalization insurance taken by the taxpayer for himself,
including his family and paid for during the taxable year
b. Amount of deductible
P2,400 per family per year or P200 per month whichever is lower
premium
c. Gross income of
family that can claim The family’s total gross income does not exceed P250,000 for the calendar year
premium deduction
d. Total family income Total family income includes primary income and other income from sources received by all
members of the nuclear family.
e. Examples of nuclear 1) Father, mother, unmarried children living together as one household;
family 2) Single parent with children;
3) Single person living alone.
f. Claimant of premium In case of married taxpayers, the spouse claiming the additional exemption for qualified
deduction dependent children shall be the same spouse to claim the deduction for premium payments.
g. Exercises
1. A married resident citizen has five (5) qualified dependent children. The following information pertain to his income
and expenses in the year 2009:
Salary, net of P20,000 withholding tax P380,000
Rent expense, apartment house 36,000
Health insurance premium paid 5,000

How much is the taxable compensation income under the Old Tax Code?
How much is the taxable compensation income under the Train Law?

2. A single resident citizen has two (2) qualified dependent children. During the year 2009, he earns and spends the
following:
Gross receipts from practice of profession P750,000
Cost of services 500,000
Expenses in connection with the practice of profession 50,000
Hospitalization insurance premium paid 2,000
How much is the taxable net income under the Old Tax Code?
How much is the taxable net income under the Train Law?

3. A married individual has four (4) qualified dependent children. He has the following data on income and expenses
for the year 2009:
Salary, Philippines, gross of withholding tax of P5,000 P 60,000

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Gross business income, Philippines 500,000
Business expenses, Philippines 80,000
Gross business income, USA 900,000
Business expenses, USA 100,000

Compute the taxable net income in the Philippines assuming he is

a. resident citizen (Train Law) . b. non-resident citizen (Old Tax Code).

4. An individual taxpayer asked you to assist him in the preparation of his tax return for his income in 2009.
He provided you the following information:
Gross sales, Philippines P1,500,000
Cost of sales, Philippines 500,000
Gross sales, Japan 7,000,000
Cost of sales, Japan 2,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
How much was the taxable income assuming (old tax code) the taxpayer was a:
a. resident citizen, married and has six (6) qualified dependent children.
b. non-resident citizen, head of family with two (2) qualified dependent brothers under optional standard
deduction.
c. non-resident alien engaged in business, single (his country allows personal exemption of P40,000 to single
Filipinos not residing in that country).
d. non-resident alien not engaged in business, married with four (4) qualified dependent children (his country
allows basic personal exemption of P40,000 to married individuals and additional exemption of P10,000 for
each dependent child to non-resident alien including Filipinos in that country).
5. A husband and wife, resident citizens, with one (1) qualified dependent child, had the following income and expenses
for the year 2019. The husband waived the additional exemption in favor of his wife. (Train Law)
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
Gross professional income, husband, gross of 15% withholding tax 1,500,000
Cost of services, husband 500,000
Expenses, practice of profession 300,000
Gross sales, wife 800,000
Cost of sales, wife’s business 300,000
Business expenses, wife 100,000
Gross rent income, lease of common property, gross of 5% withholding tax 700,000
Expenses, leased common property 200,000
Business income, Singapore 600,000
Business expenses, Singapore 150,000

Question 1 - How much was the taxable income of the husband and wife using itemized deduction?
2 – How much was the taxable income of the husband and wife using optional standard deduction?

9. Head of Family
a. Meaning of head of
family
b. Requisites or
qualifications of
dependents of head of
family
c. Senior citizen
d. Requisites or
qualifications of senior
citizen as dependent of a
benefactor
e. Benefactor
The term “head of family” means an unmarried or legally separated man or woman
with any one of the following as dependent:
1) one or both parents;
2) one or more brothers or sisters; one or more legitimate, illegitimate,
recognized natural or adopted child;
3) senior citizen.
1) Dependent parent/s
a) Living with the taxpayer;
b) Dependent upon the taxpayer for chief support.
2) Dependent brother, sister or child
a) Living with the taxpayer; d) Unmarried;
b) Dependent upon the taxpayer for chief support; e) Not gainfully employed.
c) Not more than 21 years old;
3) Senior citizen
Senior citizen or elderly shall refer to any resident Filipino citizen aged 60 years old and
above.
The senior citizen, whose annual taxable income does not exceed the poverty level as
determined by the NEDA for the corresponding taxable year:
1) must be living with and
2) dependent upon his benefactor for his chief support.
It shall be the duty of the benefactor of a senior citizen to register the senior citizen as
his dependent and himself/herself as benefactor in the RDO having jurisdiction over the
place where he/she and the senior citizen reside.
Benefactor shall refer to any person, whether related to the senior citizen or not, who

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takes care of him/her as a dependent.
f. Benefactor of senior The benefactor of a senior citizen shall NOT, however, be entitled to claim the
citizen not entitled to additional exemption of P25,000 (P8,000) per dependent (not exceeding four) allowable
claim additional only to a married individual or head of family with qualified dependent
exemption child/children under Sec. 35 (B) of the Tax Code.
g. Exemptions/discounts of 1) If the returnable income of a Senior Citizen is in the nature of compensation income
senior citizens but he qualifies as a minimum wage earner, he shall be exempt from income tax on
the said compensation. He is also exempted from income tax if his taxable income
does not exceed his personal exemptions.
2) All establishments, supplying certain goods and services for their exclusive use and
enjoyment or availment, shall give a discount of 20%.
3) The monthly utilization of water and electricity by the Senior Citizen supplied by
public utilities will be subject to a 5% discount upon concurrence of certain
conditions.
4) Sale of any goods and services to Senior Citizens shall be exempt from the value-
added tax (e.g. medicines, professional fees of attending physicians and licensed
health workers, medical and dental services, actual fare for land transportation travel
as well as air transport services and sea shipping vessels, utilization of services in
hotels and similar lodging places, restaurants and recreation centers, admission fees
charged by theatres, cinema houses, etc. funeral and burial services for the death of
Senior Ciitizen)
h. Meaning of “living with” The term “living with” does not necessarily mean actual or physical togetherness at all
times and under all circumstances. As long as the other requirements of the law are
met, the dependent is considered living with the taxpayer, hence qualified, even if he is
not in actual physical togetherness with the taxpayer.
i. Meaning of “chief “Chief support” means principal or main support, not just partial support. It means
support” that the taxpayer is giving more than 50% of the dependent’s need for food, clothing
and shelter.
10. Rules on Change of Status (Applicable only to Old Tax Code)
a. Taxpayer marries or If the taxpayer marries or shall have additional dependents during the taxable year, the
shall have additional taxpayer may claim the corresponding additional exemption, as the case may be, in full
dependents during for such year.
the taxable year
b. Taxpayer dies during If the taxpayer dies during the taxable year, his estate may still claim the personal and
the taxable year additional exemptions for himself and his dependents as if he dies at the close of such
year.
c. The spouse or any If the spouse or any of the dependent dies or if any of such dependents marries,
dependent dies, becomes 21 years old or becomes gainfully employed during the taxable year, the
dependent marries, taxpayer may still claim the same exemptions as if the spouse or any of the dependents
becomes 21 years old dies, or if such dependent marries, becomes 21 years old or becomes gainfully
or becomes gainfully employed at the close of the year.
employed

11. Income Tax Returns (Individuals, Estates and Trusts)

a. Pure compensation The income tax return shall be filed on or before April 15 of the succeeding year.
income earner
b. Income from business Quarterly declarations:
or practice of First quarter April 15
profession Second quarter August 15
Third quarter November 15
Final adjusted return April 15 of the succeeding year

c. Place of filing of return 1)Authorized agent banks;

2)Revenue District Officer;
3)Collection agent;
4)Duly authorized city or municipal Treasurer in which the taxpayer has his legal
residence or principal place of business.
d. Payment of tax The tax is paid as the return is filed.

-=END=
Take your time, only fools rush in.

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