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Income Taxation

INCLUSIONS FROM GROSS


INCOME

Computation of taxable
income
Corporation
Gross income
Less: Deductions
Taxable income

P xxx
xxx
P xxx
2

Computation of taxable
income
Individual
Gross income
P
Less: Deductions
Income before personal
exemption
P
Less: Personal exemption
Taxable Income
P

xxx
xxx
xxx
xxx
xxx
3

Meaning of income
Broad sense Income means all wealth, which
flows into the taxpayers hands
other than as a mere return of
capital.

Meaning of income
Judicial definition
Income is the gain derived from
labor or from capital, or from both
labor and capital, including the
gain derived from the sale or
exchange of capital asset.

Income distinguished
from other terms
From capital
Capital is the fund or property
existing at one distinct time,
while income denotes a flow of
wealth during a definite period.

Income distinguished
from other terms
From receipts
Receipts have a reference to all
wealth that flows into the
taxpayer, which includes returns
of capital.
Receipts are broader in scope than
income.

Income distinguished
from other terms
From revenue
Revenue, as applied in taxation, refers
to all funds or income derived by the
government, whether from tax or any
other source while income, for tax
purposes, is employed in its natural
and obvious sense to mean money or
gain received, coming to a person
(natural or juridical) during a given
period of time.
8

Income distinguished
from other terms
From revenue

Revenue is to the government


while income is to a person
(natural or juridical).

Taxable Income
Requisites of a taxable income.
1. There must be gain
2. The gain must be realized or
received
3. The gain must not be excluded by
law from taxation

10

Gross income defined


Except when otherwise
provided, gross income
means all income from
whatever source, including
(but not limited to the
following items):
11

Classification of Income
1.Compensation Income
2.Profession or Business
Income
3.Passive Income
4.Capital Gain

12

Classification of Income
Compensation Income and
Profession or business
income normally subject
to normal tax,
while the passive income
and capital gain are
normally subject to final
tax.

13

Classification of Income
Final tax taxes that
withheld by the
government to further
classify if theyre tax base
has a tax consequences. If
theyre tax base are
nontaxable, the entity can
refund the withheld cash.

14

Inclusions
Taxable Gross Income

}Compensation Income
}Gross income from business
}Gains from dealings in property
}Interest
}Rents
}Royalties
}Dividends
}Annuities
}Prizes and Winnings
}Pensions
}Partners distributive share from the net
income of general professional partnership
15

Items of gross income


defined
A. Compensation for
personal services

16

Gross compensation
income defined
- means all remuneration for
services performed by an
employee for his employer,
whether paid in cash or in kind,
unless specifically excluded under
the Tax Code (e.g. salaries,
wages, emoluments, honoraria,
bonuses, allowances, directors
fee
17

Directors fee
is part of gross compensation income if
the director is at the same time an
employee of the employer/corporation.
If the director is not an employee, the
directors fee is subject to 10%
creditable withholding tax if the
current years gross income is
P720,000 and below (15% if current
years gross income exceeds
P720,000)
18

Compensation in the absence of


employer-employee relationship
In the absence of employeeemployer relationship,
compensation for personal
services shall be considered
as gross professional fee. (e.g.
audit fees received by CPA
from his client, lawyers fee)
19

Casual Labor
If the casual Labor is not business
related, not considered as
compensation and should be
excluded in determining the tax.
Otherwise, if the casual labor is
business related it should be
included in the compensation and
has tax consequences.
20

Examples of compensation for


services rendered
1.Salaries, wages and fees
2.Commissions paid to salesmen
3.Compensation for services on the
basis of a percentage of profits
4.Commissions of insurance
premiums
5.Tips
21

Examples of compensation for


services rendered
6. Pensions of retiring allowances paid
by private persons or by government
(except pensions exempt from tax)
7. Marriage fees, baptismal offerings,
sums paid for saying masses for the
dead and other contributions
received by a clergyman, evangelist
or religious worker for services
rendered
22

Retirement Pay
Retirement pay is taxable
except if it is administered
by the SSS/GSIS or
prescribed and approved by
the BIR.

23

Separation Pay
If the separation pay is
voluntarily is has a tax
consequences, if it is
involuntary, nontaxable

24

th
13

Month Pay

nontaxable to the extent


allowed by law
- Excess is taxable
subject to normal tax

25

Gross Income from Business


Sales
Less : Sales Discount
Sales Return and Allowances
Net Sales
Less : Cost of Sales
Gross Income from Sales
Add : Other Income
Gross Income from Business
26

Gains from Dealings in Property


Types of Property
Ordinary Assets
Capital Assets

Ordinary Assets

1. Stock in trade which would be


properly included in an inventory of the
taxpayer at the end of the year.
2. Property held by the taxpayer
primarily for sale
3. property used in trade or business
subject to depreciation.
4. real property used on trade or
business.
27

Gains computation
Selling price
Less : Cost
Gain or Loss
Capital gain or capital loss
Capital gain less capital loss =
net capital gain/loss
Ordinary gain or ordinary loss
Ordinary gain less ordinary
loss = Net ordinary gain/loss
28

Interest income

Included in interest income


- such interest arising from
indebtedness, whether business
or non-business.
- Unless exempted by law, interest
received by a taxpayer, whether
or not usurious, are taxable.

29

Interest income

Subject to final tax 1. Interest income from Philippines


sources subject to final tax (not
included in the taxable net income
subject to tax rates in general)
2. Interest from any currency bank
deposit
3. Yield or any other monetary benefit
from deposit substitute
30

Interest income

Subject to final tax -

4. Yield or any other monetary benefit


from trust funds and similar
arrangements
5. Interest income received from a
depository bank under expanded foreign
currency deposit system
6. Interest income from long-term deposit
or investment evidence by certificates
prescribe by BSP if pre-terminated
before the fifth year.
31

Interest income
Exempt from tax
Interest income from Philippine
sources exempt from tax:
Interest income received by a
depository bank under the
expanded foreign currency
deposit system by non-residents
(individuals or corporations)
32

Interest income
Exempt from tax
Interest income from Philippine
sources exempt from tax:
Interest income from long-term
deposit or investments evidenced
by certificates prescribed by
Bangko Sentral ng Pilipinas.

33

Interest
Sources of Interest Income
}1. Bank deposits
}2. Loans
Note :
1. only interest income from loans
will be included in the
computation of gross income
2. Interest income from bank
deposits is subject to final tax
34

Interest income
exempt from tax

If received :

1. by members from a duly-registered


cooperative.
2. by investor from BSP prescribed form
of investment maturing more than 5
years.
3. by non-resident citizen/alien from
expanded foreign currency deposit
system.
4. by the landlord from a tenant who paid
the price of land under the tenantpurchaser agreement under CARP.
35

Rent/Lease Income

Advance Rent
Included in the computation of
the taxable gross income
Rent Deposits
Not included as gross income
because it is not an income on
the part of the taxpayer but
merely a form of security or
assurance to be returned to the
lessee
36

Rent/Lease Income
Cost of Improvements
To be added as rent
income if shouldered by
the lessee
If shouldered by the
lessor, the amount is an
expense on the part of
the lessor

37

Royalty Income
On books, literary works and
musical composition
From sources within the
Philippines subject to 10%
final tax
From sources outside the
Philippines to be added as
part of the taxable gross
income

38

Royalty Income

On other sources
From sources within the
Philippines subject to 20%
final tax
From sources outside the
Philippines to be added as
part of the taxable gross
income
39

Royalty Income

Subject to final tax


Royalties from Philippines
sources
Subject to tax rates in
general
Royalties from foreign
sources
40

Dividend income
Difference between direct and indirect
dividends
A direct dividend is one where the
paying corporation acknowledges that
the distribution is a dividend payment
An indirect dividend is a distribution
of profits disguised as payment of
services, properties, etc.
41

Dividend income

Tax exempt if:


1. Received from a domestic
corporation by:
A. Another domestic corporation.
B. Resident foreign corporation.
2. received from a cooperative.
3. pure stock dividend.
4. Pure Liquidating dividends (return
of capital)
42

Dividend income
Subject to final tax if received
from a Domestic Corporation by a:
1. a citizen or resident alien =
10% final tax
2. non-resident alien doing
business in the Philippines =
20% final tax
43

Dividend income
Subject to final tax if received from a
Domestic Corporation by a:
3. non-resident alien not doing
business in the Philippines 25%
final tax
4.non-resident foreign corporation
20% final tax with reciprocity and
30% if without reciprocity

44

Dividend income
Subject to normal tax if:
1. Not included as taxexempt dividends.
2. Not subject to final tax.
3. Distributive shares of
partner in professional
partnership.
45

Prizes and Winnings


Subject to tax rates in general
1. Prizes and winnings from foreign
sources received by individuals and
corporations
2. Prizes and winnings from Philippine
sources received by corporations
3. Prizes from Philippine sources
received by individuals amounting to
P10,000 or less.
46

Prizes and Winnings


Subject to final tax
Prizes received by individuals from
Philippine sources [except prizes
amounting to P10,000 or less which
shall be subject to tax under Sec. 24
(A)]
Other winnings of individuals from
Philippine sources (except Philippine
Charity Sweepstakes and Lotto
winnings)
47

Prizes and Winnings


Prizes are subject to final tax of 20%
if exceeding P10,000. If not exceeding
P10,000, it is subject to normal tax.
Winnings are subject to final tax of
20% regardless of amount. But if
received outside the Philippines, it is
subject to normal tax.
Winnings from Philippine Lotto and
PCSO are tax exempt.
48

Prizes and Winnings


Exempt/Excluded from gross income
Philippine charity sweepstakes and
Lotto winnings
All prizes and awards granted to
athletes to local and international
sports competitions and tournaments
whether held in the Philippines or
abroad and sanctioned by their
national sports association.
49

Prizes and Winnings


Exempt/Excluded from gross
income
Prizes and awards made primarily
in recognition of achievements in
the following fields:
- Religious, Charitable, Scientific,
Educational, Artistic, Literary,
Civic
50

Prizes and Winnings


Conditions for exemptions of prizes and
awards:
1. The recipient was selected without
any action on his part to enter the
contest or proceedings; and
2. The recipient is not required to
render substantial future services as
a condition to receiving the prize or
award
51

Bad Debts Recovery


Rules:
1. There must be a valid and
existing debt.
2. The debt must be actually
ascertained to be worthless and
uncollectible during the taxable
year.
52

Bad Debts Recovery


Rules:
3. The debt must be charged off
during the taxable year.
4. The debt must arise from the
business or trade of the taxpayer.
Note: the amount recovered is only
taxable to the extent of tax benefit
in the year the account was written
off.
53

Bad debt recovery is generally


taxable
Tax benefit rule:
If in the year the bad debt was
written off, there was a
reduction of taxable income,
bad debt recovery shall
constitute taxable income
54

Tax refunds
If the refunded tax is a
deductible tax, the tax
refund is taxable
If the refunded tax is not a
deductible tax, the tax
refund is not taxable
55

Tax Refund or credit


The ff tax refund are NOT taxable:
1. Philippine income tax, except
the fringe benefits tax
2. Estate or donors tax
3. Special assessment
4. income tax of a foreign country
claimed as a tax credit
5. stock transaction tax.

6. Value-added tax

56

Annuities
An annuity is a specified
income payable at a stated
intervals for a fixed or a
contingent period, often for
the recipients life, in
consideration of a stipulated
premium paid either in prior
installment payments or in a
single payment.
57

Annuities
If the annuity is a return of
premium paid by the
taxpayer, the annuity is not
taxable.
If the annuity represents
interest, it is taxable.
58

Damage Recovery
Types:
1. Compensatory Damages
representing returns of capital
are NOT taxable including
amount received as moral
damages for personal action.
2. Recovered damages
representing recoveries of lost
profits are taxable.
59

Damage Recovery

Recovery of lost profit is


taxable
Recovery of lost capital
is not taxable

60

Cancellation of Debts
If payment of income
taxable income
If a for m of gift not
subject to income tax but
subject to donors tax.

61

Cancellation of Debts
If debtor rendered service in
f a v o r o f t h e c r e d i t o r,
forgiveness of debt results
in a taxable income to the
debtor

62

Cancellation of Debts
If the debtor did not render
ser vice in favor of the
creditor, forgiveness of
debt results in a taxable
indirect gift

63

Cancellation of Debts
If the debtor is a
s t o ck h o l d e r o f a
corporation, forgiveness of
debt by the creditor
cor por ation r esults in
dividend distribution
64

Income from whatever


sources
Income from illegal sources
including
- gambling
- kidnapping
- extortion
- smuggling
-embezzlement
Illegal business

65

REASON:
- these funds are taxable
because title is merely
voidable

66

Even though the law imposes a


l e g a l o b l i g at i o n u p o n a n
embezzler or thief to repay the
funds, the embezzled or stolen
money is gross income.
REASON the embezzler or thief
has no intention of repaying
the money. This is known as
the James Doctrine. This has
overruled the Wilcox doctrine.
67

Proceeds of stolen or
embezzled property taxable
income.
REASON the money or other
proceeds of the sale or
disposition of stolen property
is subject to income tax
because the proceeds are
received under a claim of right
68

Under the Wilcox doctrine,


which is not followed in the
Philippines, the proceeds
of swindling or
embezzlement, theft or
robbery, not income
subject to tax.

69

Examples of income from


whatever source
Gains arising from
expropriation of property

70

Money received under


solutio indebiti

I n c o m e p a i d o r r e c e i ve d
thr ough mistake may be
considered as income from
w hatever sour ce derived
irrespective of the voluntary or
involuntar y action of the
taxpayer in pr oducing the
income.
71

Money received under


solutio indebiti
- u n d e r t h e c l a i m o f r i g h t
doctrine, the recipient, even if
he has the obligation to return
the same, has a voidable title to
the money received through
mistake
- taxable
72

Income Taxation
EXCLUSIONS FROM GROSS
INCOME

73

Definition

Income received or earned


but is not taxable because it
is exempted by law or treaty.

74

Rationale for the exclusion

Some receipts are excluded


from gross income because they
are not income.
Even if they are by definition
income, the exclusions are not
subject to tax because of policy
considerations such as to avoid
the effects of double taxation, or
to provide incentives for certain
socially desirable activities.

75

Taxpayers who may avail of


the exclusions
All kinds of taxpayers,
individual, estates and
trusts and corporate,
whether citizens, aliens,
whether residents or nonresidents may avail of
exclusions.
76

Classification of
Exclusion
Temporary Exclusion
Exclusions from gross income
which result from a timing of
recognition of income.
These are income which are
deferred recognition for
income tax purposes.
77

Classification of
Exclusion
Substantive exclusion
- Receipts which are not
considered as income.
- They shall not be included in
the income tax return and
therefore are exempt from
income taxation.
78

Exclusions from Gross income VS


Deductions from Gross Income
Exclusion

Refers to the a flow of wealth


to the taxpayer which are not
treated as part of gross income
for purposes of computing the
taxpayers taxable income
because it is exempted by the
fundamental law by statutes and
it does not come within the
definition of income.

79

Exclusions from Gross income VS


Deductions from Gross Income

Deduction

These are amounts


which the law allows to be
subtracted from gross
income in order to arrive at
net income.
80

Exclusions to Gross Income


under the National Internal
Revenue Code of 1997
(LAGCIRM)
L- Life Insurance proceeds
A- Amount received by insured
as return of premium
G- Gifts, bequest and devises
C- Compensation for injuries
or sickness

81

(LAGCIRM)
I- Income exempt under treaty
R- Retirement benefits, pensions,
gratuities
M- Miscellaneous Items
Income derived by foreign
government
Income derived by the government
or its political subdivisions
Prizes and awards
82

(LAGCIRM)
M- Miscellaneous Items
Prizes and awards in sports
competitions
13th month pay and other benefits
GSIS, SSS, Medicare and other
contributions
Gains from the sale of bonds,
debentures or other certificate of
indebtedness
Gains from redemption of shares in
mutual fund.

83

LIFE INSURANCE
PROCEEDS
insurance on human life and
insurance appertaining thereto or
connected therewith.
An insurance upon life may be
payable on the death of the
person, or on his surviving a
specified period, or otherwise
contingently on the continuance
or cessation of life.
84

Conditions for exclusion from


gross income of life insurance
proceeds
The proceeds of life insurance
policies
paid to the heirs or
beneficiaries
upon the death of the insured,
whether in a single sum or
otherwise

85

Reasons for exclusion


Proceeds of life insurance are
excluded from gross income
because they partake more of
indemnity or compensation rather
than gain to the recipient
Life insurance proceeds serve the
same purpose as nontaxable
inheritance.
86

Interest paid on life insurance proceeds


when included as part of the gross
income and not an inclusion.

Such amounts of life insurance


proceeds are held by the insurer under
the agreement to pay interest
thereon, the interest payments shall
be included in the in gross income.
Interests do not form part of the
indemnity but earnings or income
from the use of capital which are
taxable.
87

Instances where the life insurance


proceeds are not excluded from
gross income
1.Where the life insurance
policy is used to secure a
money obligation
2.Where the life insurance
policy was transferred for a
valuable consideration
88

Instances where the life insurance


proceeds are not excluded from
gross income
3. The recipient of the insurance
proceeds is a business partner of
the deceased and the insurance
was taken to compensate the
partner beneficiary for any loss
income that may result as the
death of the insured partner
89

Instances where the life insurance


proceeds are not excluded from
gross income
4. The recipient of the insurance
proceeds is a partnership in
which the insured is a partner and
the insurance was taken to
compensate the partnership for
any loss in income that may result
from the dissolution of the
partnership caused by the death
of the insured partner
90

Instances where the life insurance


proceeds are not excluded from
gross income
5. The recipient of the life
insurance proceeds is a
corporation in which the insured
was an employee or officer.

91

AMOUNT RECEIVED BY INSURED


AS RETURN OF PREMIUM

Conditions for amounts received by


insured as return of premiums to be
excluded from gross income
1. The amount received by the insured
2. as a return of premiums paid by him
3. under life insurance, endowment or annuity
contracts
4. Either during the term, at the maturity

of the term mentioned in the


contract, upon surrender of the
contract

92

AMOUNT RECEIVED BY INSURED


AS RETURN OF PREMIUM

Reason for the exclusion


The amounts returned are
not income but return of
capital.
They represent earnings
which were previously taxed
93

Endowment
The insurer agrees to pay a
sum certain to the insured if
he outlives a designated
period.
If he dies before that date, the
proceeds are to be paid to the
designated beneficiary.
94

Tax treatment of proceeds


received under endowment
policies

if the insured dies, and the


beneficiary receives the life
insurance proceeds, these
are not taxable income
because they are excluded
from gross income
95

Tax treatment of proceeds


received under endowment
policies
if the insured does not die and
survives the designated period,
the amount pertaining to the
premiums he paid are excluded
from gross income, but the
excess shall be considered part
of his gross income.
96

GIFTS, BEQUESTS, AND


DEVISES
Property received as a gift or received
under a will or testament, or through
legal succession, is exempt from
income tax although the income
therefrom or income derived from its
investment, sale or otherwise is not.

97

GIFTS, BEQUESTS, AND


DEVISES
An amount of principal paid under a
marriage settlement is a gift. Neither
alimony nor an allowance based on
separation agreement is taxable
income.

98

GIFTS, BEQUESTS, AND


DEVISES
Reason for exclusion

The property is subject to donors


or estates taxes as the case may be.
Furthermore, there is no income.

99

Income from property acquired


by gift, bequest, devise or
descent included in gross
income
1.Income from such property
acquired by gift, bequest,
devise or descent
2.As well as gift, bequest, devise
or descent of income from any
property, in case of transfers of
divided interest shall be
included in gross income

100

Compensation VS Gift
If the payment is intended to
represent payment, whether
designated as compensation or
otherwise, for services rendered
either in the past, present or
future, the amount received will
be taxable income to the
recipient.
101

Compensation VS Gift
If the payment are made to show
goodwill or a mere kindness
towards the recipients and are
not intended as a recompense for
services rendered, then the
payments represent gifts and
should be exempt.

102

COMPENSATION FOR
INJURIES OR SICKNESS
Amounts received, through
accident or health insurance or
Workmens Compensation Acts as
compensation for personal
injuries or sickness plus the
amounts of any damages
received, whether by suit or by
agreement on account of such
injuries or sickness
103

COMPENSATION FOR
INJURIES OR SICKNESS
Reason for exclusion of damages
They are mere compensation for
injuries or sickness suffered and
not income. The legal theory of
personal injury damages is that
the amount received is intended
to make the plaintiff whole as
before the injury.
104

COMPENSATION FOR
INJURIES OR SICKNESS
Reason for exclusion of damages
There is need to exclude the
compensation so as to restore the
injured party whole as before the
injury.
To include the compensation for
injuries or sickness suffered in gross
income would be reducing the
restoration of the plaintiff whole as
before the injury.
105

Two kinds of compensation that


maybe excluded from gross
income
1. amounts received, through
Accident or Health Insurance or
Workmens Compensation Acts
as compensation for personal
injuries or sickness
106

Two kinds of compensation that


maybe excluded from gross
income
2. amounts of any damages
received whether
by suit or agreement
on account of or resulting from
such injuries or sickness
107

Compensation paid out of Accident or


Health Insurance are absolutely
excluded from gross income
Although the payments are intended
to compensate the insured taxpayer
for loss of future income, the
exclusion is expressly provided by law
and should not be subject to any
interpretation.
108

Compensation paid out of Accident or


Health Insurance are absolutely
excluded from gross income

The law does not make any


distinction whether the Accident or
Health Insurance was secured by the
taxpayer or his employer. Thus,
whatever amounts are received are
excluded from gross income.
109

Compensation paid out of Workmens


Compensation Acts are absolutely
excluded from gross income

There are instances where the


employer is required by labor laws
to compensate the employer for
work-related personal injuries.

110

Although the payments are


intended in part to compensate
for loss of future income, the
exclusion is expressly provided by
law and should not be subject to
any interpretation.
Thus, whatever amounts that are
received are excluded from gross
income.
111

Kinds of damages arising from


personal injuries and sickness,
that maybe excluded from gross
compensation
1. Actual or compensatory
2. Moral
3. Nominal
4. Temperate or moderate
112

Damages arising from libel or


slander, breach of contracts and
others that do not result from
personal injuries or sickness are
not excluded from gross income
and taxable
Such kinds of damages are
separate from damages received
on account of sickness and
personal injuries.
113

Actual or compensatory
damages
This is the adequate
compensation for pecuniary
loss suffered as may be duly
proved during the
proceedings.
114

The actual or compensatory


damages that may be
r ecover ed should be that
awarded by the court or by
agreement between the
parties as a consequence of
t h e s i ck n e s s o r p h y s i c a l
injuries suf fered by the
taxpayer.
115

Income exempt under treaty


excluded from gross income

Income of any kind to the


extent required by any treaty
obligation binding upon the
Government of the Philippines.
Although this is income, it is
excluded from gross income by
reasons of public policy.
116

Income exempt under treaty


excluded from gross income
Reason for the exclusion

Public policy recognizes the


principle of reciprocity and comity
among nations as the reasons
behind the exclusion.

117

Reciprocity

A principle in international law


that refers to the practice among
sovereign nations of giving
concessions on the basis of
similar concessions accorded
them by other nations. It is
premised upon a prior grant of a
privilege, in short a quid pro quo.
118

COMITY
the respect accorded by sovereign
nations because they are equal.
Since, the power of taxation is an
exercise of sovereignty, and then
it is not exercised upon other
equal sovereign nations, as well
as courtesies of the port
exempting their importation of
personal and household effects.
119

Retirement benefits, gratuities,


pensions that excluded from
gross income

1. Retirement benefits received


under the Republic Act No. 7641
2. Retirement received from
reasonable private benefit plan
after compliance with certain
conditions
3. Amounts received for beyond
control separation

120

Retirement benefits, gratuities,


pensions that excluded from
gross income
4. Foreign social security,
retirement gratuities,
pensions
5. USVA benefits
6. SSS benefits
7. GSIS benefits
121

Conditions for excluding retirement


benefits from gross income
A. Retirement benefits
1. Received under Republic Act No.
7641 and those
2. Received by officials and
employees of private firms,
whether, individual or corporate,
in accordance with a reasonable
private benefit plan maintained
by the employer. Provided that,
122

Conditions for excluding retirement


benefits from gross income
B. Retiring official or employee has
been
1. In the service of the same
employer for at least ten years
2. Not less than 50 years of age at
time of retirement
3. The benefits granted under this
subparagraph shall be availed of
by an official or employee only
once

123

Kinds of Retirement
1. Optional Retirement under
Republic Act No. 7641

a. In the absence of a retirement plan


or agreement providing for
retirement benefits of employees in
the establishment,
b. an employee upon reaching the age
of 60 years or more,

124

Kinds of Retirement
1. Optional Retirement under
Republic Act No. 7641

C. who has served at least 5 years in


the said establishment,
D. may retire and shall be entitled to
retirement pay equivalent to at least
one-half month salary for every year
of service, a fraction of at least 6
months being considered as one
whole year
125

Kinds of Retirement
2. Mandatory Retirement under
Republic Act No. 7641

a. In the absence of a retirement plan


or agreement providing for
retirement benefits of employees in
the establishment,
b. an employee upon reaching the age
of beyond 65 years which is hereby
declared the compulsory retirement
age,
126

Kinds of Retirement
2. Mandatory Retirement under
Republic Act No. 7641

C. who has served at least 5 years in


the said establishment,
D. may retire and shall be entitled to
retirement pay equivalent to at least
one-half month salary for every year
of service, a fraction of at least 6
months being considered as one
whole year.
127

Separation pay excluded from gross


income
1. any amount received by an official,
employee or by his heirs
2. from the employer
3. as a consequence of separation of
such official or employee from the
service of the employer
because of death, sickness or other
physical disability
for any cause beyond the control of the
said official or employee such as
128

Retrenchment- it means reduction of


personnel
Redundancy- a position is redundant
where it is superfluous, as superfluity
of a position or positions may be the
outcome or a number of factors, such
as over hiring of workers
Cessation or closure of the businessan employer has the right to close
entirely totally or partially his
business and this would occasion the
beyond control separation of his
employees
129

OTHER EXCLUSIONS
Benefits received from foreign
government agencies and other
institutions, public or private
Pensions, gratuities from foreign
government agencies and other
institutions, public or private

130

OTHER EXCLUSIONS
- Benefits under the laws of the United
States given to veterans
- benefits derived from or enjoyed under
the Social Security System in
accordance with the provision of
Republic Act No. 8282
- Benefits received from the GSIS under
Republic Act No. 8291
131

OTHER EXCLUSIONS

Income derived from investments in


the Philippines in loans, stocks, bonds
or other domestic securities, or from
interest on their deposits in the
Philippines by
Foreign government
Financing institutions owned, controlled
or enjoying refinancing from foreign
government
International or regional financing
institutions established by foreign
government
132

OTHER EXCLUSIONS

- Income derived by the


Government or its political
subdivision
From any public utility
From the exercise of any
essential governmental function
accruing to the government of
the Philippines or to any
political subdivision thereof.
133