GROSS INCOME

1. COMPENSATION

Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items

FRINGE BENEFITS (FB)

Tax Rate: 32%
Tax Base: Grossed-up monetary value of fringe benefit
Fringe benefit furnished or granted to the: employee, except rank and file employees,
By: the employer, whether an individual or a corporation
Tax to be paid by: the employer
Exception:
a) Fringe benefit is required by the nature of, or necessary to the trade, business or profession of the
employer, or
b) when the fringe benefit is for the convenience or advantage of the employer.

How to determine the grossed-up monetary value of the fringe benefit: by dividing the actual monetary
value of the fringe benefit 68%. That the grossed-up value of the fringe benefit shall be determined by
dividing the actual monetary value of the fringe benefit by the difference between 100% and the applicable
rates of income tax under Subsections (B), (C), (D) and (E) of Section 25.

Section 33 (B) of NIRC

Fringe Benefit Defined. - For purposes of this Section, the term 'fringe benefit' means any good,
service or other benefit furnished or granted in cash or in kind by an employer to an individual employee
(except rank and file employees as defined herein) such as, but not limited to, the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted;
6. Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.

Not Taxable Fringe Benefits

1. Fringe benefits which are authorized and exempted from tax under special laws;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not; and
4. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.

De Minimis Benefits
NOT subject to income tax and withholding tax of both managerial and rank and file employees:
1) Monetized unused vacation leave credits of employees not exceeding 10 days during the year and
the monetized value of leave credits paid to government officials and employees.
2) Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 a
month.
3) Rice subsidy of not more than P1,500 per month or 1 sack (50 kg.) rice per month.
4) Uniforms given to employees by the employer not exceeding P5,000 per annum (RR 8-2012
effective January 1, 2012).
5) Actual medical benefits given to employees by the employer not exceeding P10,000 per annum.
6) Laundry allowance not exceeding P300 per month.
7) Employees achievement awards (e. g. for length of service or safety achievement, which must be in the
form of a tangible personal property other than cash or gift certificate with and annual monetary
value not exceeding P10,000 under an established written plan which does not discriminate in
favour of highly paid employees).
8) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum. (deleted: amounts provided to guests).
9) Daily meal allowance for overtime work not exceeding 25% of daily basic minimum wage.
The amount of de minimis benefits conforming to the ceiling herein shall not be considered in
determining the P30,000 ceiling of other benefits excluded from the gross income under
Section 32 (7) of the Code.
Allowances which are fixed in amounts and are regularly received by the employee as part of
his monthly compensation income shall not be treated as taxable fringe benefit but as
compensation income. (taxable as compensation income)
The Minimum Wage Earner receiving other benefits exceeding the P30,000 limit shall be
taxable on the excess benefit, as well as on his salaries, wages and allowances, just like an
employee receiving compensation income beyond the Statutory Minimum Wage.
Minimum Wage Earner receiving other income, such as income from the conduct of trade,
business, or practice of profession, except income subject to final tax, in addition to
compensation income, are not exempt from income tax on the entire income earned during
the taxable year.

2. INCOME FROM BUSINESS OR EXERCISE OF PROFESSION

Professional Income - fees received by a professional from the practice of his profession, provided that
there is NO employer-employee relationship between him and his clients.

Income from Business - Any income derived from doing business

Doing business implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization.

3. GAINS DERIVED FROM DEALINGS IN PROPERTY

CAPITAL GAINS AND LOSSES

a) Capital Gains on Stocks
For sale, barter, exchange or other forms of disposition of shares of stock subject to the 5%/10%
CGT on the NCG during the taxable year, the capital losses realized from this type of transaction
during the taxable year are deductible only to the extent of capital gains from the same type of
transaction during the same period.
If the transferor of the shares is an individual, the rule on holding period and capital loss carry-
over will not apply, notwithstanding the provisions of Section 39of the Tax Code as amended.
(RR 6-2008, c.4)

b) Capital Gains on Real Property

Final CGT Return (For Onerous Transfer of Real Property Classified as Capital Assets is 6%)
Sale of principal residence

c) Capital Gains on Other Capital Assets

Capital Assets means property held by the taxpayer (WON connected with his trade or business), but
does not include:
stock in trade of the taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or
business, or
property used in the trade or business, of a character which is subject to the allowance for
depreciation provided in Subsection (F) of Section 34; or
real property used in trade or business of the taxpayer.

HOLDING PERIOD (HP)

Percentage Taken into Account. - In the case of a taxpayer, other than a corporation, only the following
percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into
account in computing net capital gain, net capital loss, and net income: (HP applies only to individual
taxpayers, not to corporations)
1. 100% if the capital asset has been held for not more than twelve (12) months; and
2. 50% if the capital asset has been held for more than twelve (12) months;

Limitations on Capital Losses

Losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains
from such sales or exchanges.
Note: If a bank or trust company incorporated under the laws of the Philippines, a substantial part of
whose business is the receipt of deposits, sells any bond, debenture, note, or certificate or other evidence
of indebtedness issued by any corporation (including one issued by a government or political subdivision
thereof), with interest coupons or in registered form, any loss resulting from such sale shall not be subject
to the foregoing limitation and shall not be included in determining the applicability of such limitation to
other losses.

Net Capital Loss Carry Over

If any taxpayer, other than a corporation, sustains in any taxable year a net capital loss, such loss (in an
amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a
loss from the sale or exchange of a capital asset held for not more than twelve (12) months.

4. INTERESTS

5. RENTS

Rents refer to earnings derived from leasing real estate as well as personal property.
also includes all other obligations assumed to be paid by the lessee to the third party in behalf of
the lessor interest, taxes, loans, insurance premiums,etc.

Forms of Rent Income

1. Cash - at the stipulated price
2. Obligations of the lessor to third persons paid or assumed by the lessee in consideration of the
contract of lease, e.g., real estate tax on the property leased assumed by the lessee
3. Advance payment
Taxable income to lessor Not taxable income to lessor
Security deposit that is applied to If advance payment is actually:
rental i. a loan to the lessor, or
ii. an option money for the
property, or
 iii. a security deposit for the
faithful performance of
certain obligations of the
lessee, such advance payment
is not income to the lessor.

Advance payment as a prepaid rental,

received by the lessor under a claim of
right and without restriction as to its
use
Pre-paid rent must be
reported in full in the year of
receipt, regardless of the
accounting method used by
the lessor.

6. ROYALTIES

7. DIVIDENDS

Distribution of Dividends or Assets by Corporations

Dividends means any distribution made by a corporation to its shareholders out of its earnings or profits
and payable to its shareholders, whether in money or in other property.

Taxable income/deductible loss Not taxable

The gain realized or loss sustained by
the stockholder, whether individual or
corporate, where a corporation
distributes all of its assets in complete
liquidation or dissolution
Stock dividend: if a corporation Stock dividend: representing the
cancels or redeems stock issued as a transfer of surplus to capital account
dividend at such time and in such
manner as to make the distribution and
cancellation or redemption, in whole or
in part, essentially equivalent to the
distribution of a taxable dividend, the
amount so distributed in redemption or
cancellation of the stock shall be
considered as taxable income to the
extent that it represents a distribution
of earnings or profits.

8. ANNUITIES

Annuities are installment payments received for life insurance sold by insurance companies.

Taxable Annuity/TI Non-taxable Annuity

annuity payment representing interest annuity as a return of premium
 9. PRIZES AND WINNINGS

Taxable Not taxable

GR: Contest prizes and awards received Prizes and awards made primarily
As gain derived from labor in recognition of religious,
charitable, scientific, educational,
artistic, literary or civic
achievements are EXCLUSIONS
from gross income if:
1. The recipient was selected without
any action on his part to enter a
contest or proceedings;
2. The recipient is not required to
render substantial future services as a
condition to receiving the prize or
award.

Prizes and awards granted to athletes in

local and international sports
competitions and tournaments held in
the Philippines and abroad and
sanctioned by their national
associations
The NSA must be duly
accredited by the Phil. Olympic
Community

10. PENSIONS

Pension a stated allowance paid regularly to a person on his retirement or to his dependents on his
death, in consideration of past services, meritorious work, age, loss, or injury.
Pensions, retirement benefit, or separation pay paid for past employment services rendered.

GR: Pension is taxable

E:
1. unless the law states otherwise, or
2. the BIR approves the pension plan of a private company.

Note: A stated allowance paid regularly to a person on his retirement or to his dependents on his death, in
consideration of past services, meritorious work, age, loss or injury, is generally taxable unless the law
states otherwise.

11. PARTNERS DISTRIBUTIVE SHARE FROM THE NET INCOME

OF THE GPP

xxxxxxxx
EXCLUSIONS FROM GROSS INCOME

Exclusions from Gross Income

The following items shall not be included in gross income and shall be exempt from taxation
under this title:

Item Excluded Taxable

Life Insurance proceeds of life insurance policies held by the
paid to the heirs or beneficiaries insurer under
upon the death of the insured, an agreement to
whether in a single sum or pay interest
otherwise thereon, the
interest
payments shall
be included in
gross income
Amount Received by1) The amount received by the
Insured as Return of insured, as a return of premiums
Premium paid by him under life insurance,
endowment, or annuity contracts,
either during the term or at the
maturity of the term mentioned in
the contract or upon surrender of
the contract.
Compensation for amounts received, through
Injuries or Sickness Accident or Health Insurance or
under Workmen's Compensation
Acts, plus the amounts of any
damages received, whether by
suit or agreement, on account of
such injuries or sickness
Income Exempt under 2) Income of any kind, to the extent
Treaty required by any treaty obligation
binding upon the Gov of the Phil
Retirement Benefits, Retirement benefits received under
Pensions, Gratuities, etc RA 7641 and those received by
officials and employees of private
firms, whether individual or
corporate, in accordance with a
reasonable private benefit plan
maintained by the employer (see
others below)
Miscellaneous Items (see enumeration below)

Retirement Benefits, Pensions, Gratuities, etc

Requisites: (50-10-1 Rule)
1. that the retiring official or employee has been in the service of the same employer for at least 10
years and
2. is not less than 50 years of age at the time of his retirement
3. that the benefits granted under this subparagraph shall be availed of by an official or employee
only once.
4. contributions are made by such employer for the officials or employees, or both, for the purpose
of distributing to such officials and employees the earnings and principal of the fund thus
accumulated, and
 5. wherein its is provided in said plan that at no time shall any part of the corpus or income of the
fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said
officials and employees.

Reasonable private benefit plan means a pension, gratuity, stock bonus or profit-sharing plan
maintained by an employer for the benefit of some or all of his officials or employees.

Retirement Benefits, Pensions, Gratuities, etc.

1. Retirement benefits received under RA 7641 and those received by officials and employees of
private firms, whether individual or corporate, in accordance with a reasonable private benefit
plan maintained by the employer.
2. Any amount received by an official or employee or by his heirs from the employer as a
consequence of separation of such official or employee from the service of the employer because
of death sickness or other physical disability or for any cause beyond the control of the said
official or employee.
3. The provisions of any existing law to the contrary notwithstanding, social security benefits,
retirement gratuities, pensions and other similar benefits received by NRC, NRC, RA from foreign
government agencies and other institutions, private or public.
4. Payments of benefits due or to become due to any person residing in the Philippines under the
laws of the US administered by the US Veterans Administration.
5. Benefits received from or enjoyed under the Social Security System in accordance with the
provisions of RA 8282.
6. Benefits received from the GSIS under RA 8291, including retirement gratuity received by
government officials and employees.

Miscellaneous Items
a) Income Derived by Foreign Government. - Income derived from investments in the Philippines
in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the
Philippines by
i) foreign governments,
ii) financing institutions owned, controlled, or enjoying refinancing from foreign
governments, and
iii) international or regional financial institutions established by foreign governments.
b) Income Derived by the Government or its Political Subdivisions. - Income derived from any
public utility or from the exercise of any essential governmental function accruing to the
Government of the Philippines or to any political subdivision thereof.
c) Prizes and Awards (supra)
d) Prizes and Awards in Sports Competition (supra)
e) 13th Month Pay and Other Benefits. - Gross benefits received by officials and employees of
public and private entities: Provided, however, That the total exclusion under this subparagraph
shall not exceed P30,000 which shall cover:
i. Benefits received by officials and employees of the national and local government
pursuant to RA 6686;
ii. Benefits received by employees pursuant to PD 851, as amended by Memorandum Order
No. 28, dated August 13, 1986;
iii. Benefits received by officials and employees not covered by PD 851, as amended by
Memorandum Order No. 28, dated August 13, 1986; and
iv. Other benefits such as productivity incentives and Christmas bonus: Provided, further,
That the ceiling of P30,000 may be increased through rules and regulations issued by the
Secretary of Finance, upon recommendation of the Commissioner, after considering
among others, the effect on the same of the inflation rate at the end of the taxable year.

f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig contributions,
and union dues of individuals.
g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized
from the same or exchange or retirement of bonds, debentures or other certificate of indebtedness
with a maturity of more than 5 years.
 h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon
redemption of shares of stock in a mutual fund company as defined in Section 22 (BB) of this
Code.

EXEMPTIONS FROM WITHHOLDING TAX ON COMPENSATION

The following income payments are exempted from the requirement of withholding tax on
compensation:
1) Remunerations received as an incident of employment, as follows:
a) Retirement benefits (supra)
b) Any amount received by an official or employee or by his heirs from the employer due to death,
sickness or other physical disability or for any cause beyond the control of the said official or
employee, such as retrenchment, redundancy, or cessation of business.

The phrase "for any cause beyond the control of the said official or employee" connotes
involuntariness on the part of the official or employee.
Involuntary Separation must:
i. The separation from the service of the official or employee must not be asked for or
initiated by him.
ii. The separation was not of his own making.
iii. It shall be duly established by the employer by competent evidence which should be
attached to the monthly return for the period in which the amount paid due to the
involuntary separation was made.
iv. Amounts received by reason of involuntary separation remain exempt from income
tax even if the official or the employee, at the time of separation, had rendered less than
ten (10) years of service and/or is below fifty (50) years of age.
Note: Any payment made by an employer to an employee on account of dismissal, constitutes
compensation regardless of whether the employer is legally bound by contract, statute, or otherwise, to
make such payment.

c) Social security benefits, retirement gratuities, pensions and other similar benefits received by
residents or non-resident citizens of the Philippines or aliens who come to reside permanently in the
Philippines from foreign government agencies and other institutions private or public.
d) Payments of benefits due or to become due to any person residing in the Philippines under the law of
the United States administered by the United States Veterans Administration;
e) Payments of benefits made under the Social Security System Act of 1954 as amended; and
f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by
government officials and employees.

2) Remuneration paid for agricultural labor

3) Remuneration for domestic services.
4) Remuneration for casual labor not in the course of an employer's trade or business.
5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an
international organizatio
6) Damages. Actual, moral, exemplary and nominal damages received by an employee or his heirs
pursuant to a final judgment or compromise agreement arising out of or related to an employer-employee
relationship.
7) Life Insurance
8) Amount received by the insured as a return of premium
9) Compensation for injuries or sickness
10) Income exempt under treaty
11) 13th month pay and other benefits
a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and
employees of the government, (whether national or local), including GOCCs, and or private offices
received after the twelfth (12th) month pay; and
 b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or
in kind and other benefits of similar nature actually received by officials and employees of both
government and private offices. The above stated exclusions (a) and (b) shall cover benefits paid or
accrued during the year provided that the total amount shall not exceed thirty thousand pesos
(P30,000.00) which may be increased through rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner, after considering, among others, the effect on
the same of the inflation rate at the end of the taxable year.

12) GSIS, SSS, Medicare and other contributions