Professional Documents
Culture Documents
Add to page 82
Add to 73
GR: Net capital gain shall be reported in the ITR subject to the graduated income tax rates in
addition to the net income from other sources
o EXCEPT:
Capital gains from the sale of real property (subject to final tax)
Capital gains from sale of shares of stock that are not listed and traded at the
stock exchange (subject to final tax)
Percentage tax on the sale or exchange of shares of stock that are listed and
traded at the stock exchange (based on gross selling price)
Percentage tax on the sale or exchange though IPO at the stock exchange
These exceptions have their own special tax returns.
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo
am+dg
Taxation One Addendum
Add to 74
Examples of properties classified as capital assets:
o Personal property not used in trade or business
Movables in one’s residence, vehicles, appliances, furniture, jewelry
o Real property not used in trade or business
Residential house and lot, idle land not used in business operations
Limitations on the capital asset transactions of corporations:
o Holding period rules not applicable, always 100%
o Capital losses are allowed only to the extent of capital gains
o Net capital loss carry-over is not applicable.
Transactions considered capital transactions even if there is no sale of capital asset, hence
resulting into capital gains or losses:
o Worthless shares of stock
o Worthless bonds
o Retirement of bonds with interest coupons or in registered form
o Option gains and losses
o Liquidating dividends
o Liquidation of partnership
o Short sales
Computation of gain or loss of a partner when partnership is dissolved:
o Take note of the holding period k.
Return on investment upon liquidation
Less: investment on partnership
Less: share in undistributed net income
Equals: Gain (loss) on partnership liquidation
o See problem in p 104 of Co Untian.
Following sales or exchanges result into taxable gain but NO LOSS recognition:
o Sales or exchanges between related parties
o Wash sales, except those made by dealers in securities
o Exchanges NOT solely in kind in mergers and consolidations
o Illegal transactions
o Sales or exchanges in general which are NOT at arm’s length
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo
am+dg
Taxation One Addendum
Add to 80
Explain an exchange not solely in kind in a merger or consolidation
o One that involves an exchange of property NOT solely for stocks.
o In other words, the absorbed corporation receives stocks PLUS other property (cash or
non-cash) in exchange for its property.
o In a merger, X Corp transfers all its property costing 10m in favor of Y Corp (absorbing) in
exchange for the latter’s shares of stock worth P10m plus P1m cash.
The P1m gain resulting from the merger is taxable.
BU if the plan of merger or consolidation expressly provides that the
amount shall be distributed to the shareholders of X Corp, the gain shall
not be subject to income tax.
What if instead of P10m stock plus P1m cash, X corp is given P5m stock plus P5m
cash?
No gain, since break even only. (Problem in p 105 of Co)
Add to 91
Summarize the kinds of sale that may be reported in installments:
o The INCOME derived from the following sales may be reported using the installment
method:
Sale of personal property by a dealer
No need for the 25% requirement
Think appliance stores who sell TVs, etc
Casual sale of personal property, provided:
Selling price exceeds P1,000
Initial payments do NOT exceed 25% of the selling price, and
The property sold is NOT of a kind which would be includible in the
inventory on hand at the close of the year
Sale of REAL property, provided that the initial payments do NOT exceed 25% of
the selling price
The following FINAL capital gains taxes may be paid in installments:
o Final capital gains tax on the sale of real property (capital asset); provided that the initial
payments do NOT exceed 25% of the selling price
o Final tax on net capital gain from the sale in installments of shares of stock NOT listed and
traded at the stock exchange; provided, that the initial payments do NOT exceed 25% of
the selling price
o Formula for both:
Final tax due = (installments received/contract price) x final tax
What’s a deferred-payment sale?
o Wherein payments received in cash or property OTHER than evidences of indebtedness of
the purchaser during the taxable year in which the sale is made EXCEED 25% of the
selling price.
o If that’s the case, the tax shall be paid in full in the year of the sale.
“Initial payments” means:
o payments received in cash or property OTHER than evidences of indebtedness of the
purchaser during the taxable period (year) in which the sale or other disposition is made.
Does the holding period rule apply to installment sales?
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo
am+dg
Taxation One Addendum
o Yes.
But it does NOT apply to capital assets that are subject to final capital gains tax,
since the holding period applies only to those capital gains and losses that are
returnable (those reported in the ITR).
will form part of partner’s gross income in Partner’s distributive share in the net income
the ITR subject to the graduated income is subject to a final tax of 10% (resident
tax rates citizens, non-resident citizens, OCWs, or
will be subjected to a creditable resident aliens) or 20% (for NRAETB)
withholding tax of 15% (if income
payments exceed P720,000 for the
current year) or 10% (if income
payments do NOT exceed P720,000 for
the current year) to be withheld and paid
by the partnership to the BIR
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo
am+dg
Taxation One Addendum
Add to 91
Estate Trust
Definition Mass of property, rights, and Arrangement whereby the trustor
obligations left behind by the grants the control of certain property in
decedent upon his death. the person of the trustee for the benefit
of the beneficiary.
For purposes of income tax, an
estate may be under judicial Trusts subject to income tax: income…
administration or one that is not. a) accumulated for the benefit of
unborn or unascertained person or
persons with contingent interest
b) accumulated or held for future
distribution under the terms of the
trust
c) is to be distributed currently by the
fiduciary to the beneficiaries
d) collected by a guardian of an infant
is held or distributed as the court
may direct
e) income, in the discretion of the
fiduciary, may either be distributed
to the beneficiaries or accumulated
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo
am+dg
Taxation One Addendum
Mickey Ingles
4C Ateneo Law 2012
Atty Montero/Atty Salvador/Sources: Co Untian book/Mamalateo