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Taxation Law Review

NOLCO Rule:

Any capital loss


sustained by the
taxpayer during a
taxable year shall
be treated in
thesucceeding
taxable year as a

loss from sale or


exchange of capital
asset held for not
morethan 12
months.

Requisites
o

Amount of loss
should not exceed

net income for the


taxable year when
the loss
wasincurred.
o

There should be
capital gain from
which the carried
over loss can be
deducted

Can only be availed


by individuals!
D. GAINS AND
LOSSES FROM
SHORT SALES
Short Sale is
defined as a sale
where the seller is
selling a property

without distinction
of what kindof
property he is
selling, whether a
share of stock or
not. The seller is
selling property
which he is notin
his possession. Any

gains or losses are


considered as
capital gains or
losses.
E. CAPITAL TO
ORDINARY
ASSET, VICE
VERSA
Calasanz V CIR

A conversion from
capital to ordinary
asset is allowed
provided that it is:
o

In furtherance of
the taxpayers
business
o

Substantially
improved or very
actively sold or
both.RR 7-2003

Properties
classified as
ordinary assets are
automatically
converted into

capital assets
uponshowing of
proof that the same
have not been used
in business for
more than 2 years
prior tothe
consummation of
the taxable

transactions
involving said
properties.
VI. TAX ON
INDIVIDUALS
The RC is the only
individual taxpayer
who is liable for
income derived

from all sources,


within andwithout
the Philippines.
A. RESIDENT
CITIZEN, NONRESIDENT
CITIZEN, OCW
AND SEAMEN

AND RESIDENT
ALIEN
1.Net Income
Taxa.Defined as
the pertinent items
of gross income
less deductions
and/or personal
andadditional

exemptions.b.This
is the only kind of
income tax which
admits of
deductions,
personal
andadditional
exemptions.c.Marri
ed individuals shall

compute separately
their individual
income tax.
However,this is
applicable only for
individuals earning
purely
compensation
income.d.Married

individuals who do
not derive income
purely from
compensation, shall
file aconsolidated
return to include
income of both
spouses, except
where it

isimpracticable.e.R
A 9504 exempts
minimum wage
earners from the
payment of net
income tax.
Prepared by: Michael Gines
Munsayac
Taxation Law Review

2.Final Income
Tax ( for Passive
income)a.Interest,
Royalties, Prizes
and other
Winningi.Applica
ble tax is
20%ii.Passive
income should be

derived from
sources within the
Philippinesiii.FCD
U deposits apply
7.5%iv.Long Term
deposits or
investments
exempt from final
tax

4 to < 5 years 5%

3 to < 4 years
12%

< 3 years 20%For


prizes, before tax is
imposed:

Must be derived
from sources within
the Phils.

Must be >P10k

Must be pursuant to
a promotion or
contestPrizes
exempted from tax:

Received primarily
in recognition of
religious,
charitable,
scientific,
educational,artistic,
literary, or civic
achievement

The recipient was


selected without
any action on his
part to enter the
contest
or proceeding

The recipient is not


required to render
substantial future

services as a
condition
toreceiving the
prize or
award.Winnings are
subject to FWHT of
20% including
winnings pursuant
to gambling

(exceptPCSO).b.Ca
sh and/or Property
Dividendsi.Only
cash and property
dividends are
subject to 10%
final income
taxii.Stock
dividends are not

taxable since such


dividends are only
a transfer of
thesurplus profit
from the retained
earnings to the
authorized capital
stock.iii.Share of an
individual in the

distributable net
income after tax of
a partnershipof
which he is a
partner is subject to
final income
taxc.Capital Gains
from Sale of
Shares of Stock not

Traded in the Stock


Exchangei.The net
capital gains from
sale, barter,
exchange or other
disposition
of shares of stock
in a domestic
corporation not

listed and traded is


subject to afinal tax
rate of 5% for the
first P100k of the
net capital gain;
and 10% of thenet
capital gain of any
amount in >
P100k.ii.Elements

required1.Shares
must be shares in a
domestic
corporation.2.Shar
es are capital
assets.3.The shares
are not listed and
traded in the local
bourse.iii.For listed

shares, the gains


are not subject to
income tax but
subject to
abusiness tax
(percentage tax) at
the rate of of 1%
of the gross selling
price.d.Capital

Gains from Sale of


Real Propertyi.A
final income tax of
6% based on the
gross selling price
or FMV, whichever
ishigher shall be
imposed on CG
provided:1.the

property sold is
real
property2.located
in the Philippines
Prepared by: Michael Gines
Munsayac
Taxation Law Review

3.classified as a
capital assetii.Sale
of a natural

persons principal
residence maybe
exempted from
paymentof the 6%
CGT when the
proceeds of the sale
are fully utilized in
acquiring
or constructing a

new principal
residence within 18
months from the
date of notarization
of the Deed of
Sale.iii.Sale of
mortgaged
property taxable
only if the buyer is

other than a
financialinstitution.
B. NON
RESIDENT ALIEN
ENGAGED IN
TRADE OF
BUSINESS IN THE
PHILIPPINES

1.Net Income
Tax

An NRA ETB is
subject to the net
income tax.

Liable only for


income derived
from sources within
the Phils.2 . F i n a l

Income
T a x a.Cash and/or
property dividends
or share in the
distributable net
income of
apartnership (not
general
partnership),

Interests, Royalties
and Other
winnings.

20% final income


tax levied on letter
a.

For prizes less than


P10k, the
applicable tax is the

net income
tax.Prizes from
PCSO and Lotto
are exempt from
income tax.

Royalties for
literary work
subject to tax rate
of only 10%.

Interest income
from LT deposits
and investments are
exempt frofinal
income
tax.b.Capital
Gains

Same as RA ETB in
the Phils.

C. NON
RESIDENT
ALIENS NOT
ENGAGED IN
TRADE OR
BUSINESS IN THE
PHILS.
1. Net Income Tax

NRA NETB shall


be liable for the
entire income he
received from all
sourceswithin the
Philippines by way
of the gross income
tax.

Tax rate is 25% on


gross income2.
Final Income Tax

Sale of shares of
stock or sale of real
property which are
capital assets, use
taxrate in the next
section which is

15% final income


tax.
D. ALIENS
EMPLOYED BY
MNCS, OBUS
AND
PETREOLEUM
SERVICE
CONTRACTORS

1. Income Tax
Liability for
Salaries and
Compensation

These alien
individuals are
liable for final
income tax at a rate

of 15% on
their gross income

Same tax treatment


is applicable to
Filipinos employed
and occupying the
sameposition as the
aliens employed
therein.

The 15% final


income tax does not
apply R&F
employees both
aliens
andFilipinos.2.
Income Tax
Liability for Other
Income

Depends upon the


taxpayers
classification or
status.
Prepared by: Michael Gines
Munsayac