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ASSOCIATION OF TAXATION AND LAW STUDENTS

ACADEMICS DEPARTMENT
http://www.facebook.com/atlas.ue
0915-1049090 & 0905-2101285

Note: No Copyright Intented

Sources: Income Taxation, Omar Erasmo G. Ampongan; Transfer and Business Taxation, Edwin Valencia:

Review School of Accountancy notes

Topic: GENERAL PRINCIPLES OF TAXATION

Tax – it is an enforced contribution levied by the State by virtue of the sovereignty on persons and
property within its jurisdiction for the support of the government and all public needs.

Primary Purpose:

 To raise revenue to finance government expenditures.

Scope:

 Unlimited
 Comprehensive
 Plenary
 Supreme

Principles of Sound Tax System:

 Fiscal Adequacy – revenue must be sufficient to meet the demands of public expenditures.
 Equality or Theoretical Justice – based on ability to pay.
 Administrative Feasibility – capable of convenient, just and effective administration.

Essential Characteristics of Tax:

 It is an enforced contribution;
 It is levied pursuant to legislative authority;
 It is proportionate in character;
 It is payable in money
 It is levied on persons and property within the jurisdiction of the State;
 It is levied and collected for the purpose of raising revenue to be used for public purpose;
 It is commonly required to be paid at regular intervals (not all taxes).

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Limitations on Power of Taxation:

 Constitutional Limitations
 Due process of law
 Equal protection of the laws
 Non-impairment of obligation of contracts
 Non-imprisonment for non-payment of poll tax
 Rule of Taxation should be uniform and equitable
 Exemption from Real Property Tax of charitable institutions, churches, parsonages or
convents, mosques and non-profit cemeteries, and all lands, buildings and improvements
actually, directly and exclusively used for religious or charitable purposes.
 Exemption from Income Taxes, Real Estate Taxes and Custom Duties of non-stock, non-
profit educational institutions used actually, directly, and exclusively used for educational
purposes.

 Inherent Limitations
 Levied for public purpose
 Exemption from taxation of government entities
 Non-delegation of legislative power to tax
 Territorial

Classification of Taxes:

1) As to scope
 National – imposed by National government (ex. Income Tax, Estate Tax, Donor’s Tax,
Value Added Tax, Other Percentage Taxes, and Documentary Stamp Tax).
 Local or Municipal – imposed by municipal corporations (ex. Real Estate Tax and
Community Tax).
2) As to who bears the burden
 Direct – tax which is demanded from the person who also shoulders the burden of tax or
tax which the taxpayer cannot shift to another (ex. Income Tax, Estate Tax and Donor’s
Tax).
 Indirect – tax which is demanded from one in the expectation and intention that he shall
indemnify himself at the expense of another or tax which can be shifted to another person
(ex. Value Added Tax and Other Percentage Taxes).
3) As to the determination of the amount
 Specific – tax of fixed amount imposed by the head or number, or by some standard of
weight or measurement. It requires no assessment other than a listing or classification of
the subjects to be taxed (ex. Excise Tax on cigarettes and liquors).
 Ad Valorem – Tax of fixed proportion of the value of the property with respect to which
the tax is assessed. It requires the intervention of assessors or appraisers to estimate the
value of such property before the amount due from each taxpayer can be determined (ex.
Value Added Tax, Income Tax, Donor’s Tax and Estate Tax).

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4) As to purpose
 General/Fiscal – tax imposed solely for the general purpose of the government, to raise
revenue for government expenditures (ex. Income Tax, Donor’s Tax and Estate Tax).
 Special/Regulatory – tax imposed for a specific purpose, to achieve some social or
economic ends irrespective of whether revenue is actually raised or not (ex. Tariff and
Certain duties on Imports).
5) As to object or subject matter
 Personal/Poll/Capitation – tax of fixed amount imposed on individual, whether citizens or
not, residing within a specified territory without regard to their property or the occupation
in which he may be engaged (ex. Community Tax).
 Property – tax imposed on property, whether real or personal, in proportion either to its
value, or in accordance with some other reasonable method of apportionment (ex. Real
Estate Tax).
 Excise – any tax which does not fall within the classification of a poll tax or a property tax.
This is a tax on the exercise of certain rights or privileges (ex. Income Tax, Estate Tax,
Donor’s Tax, Value Added Tax and Other Percentage Taxes).
6) As to rates or gradation
 Proportional – tax based on a fixed percentage of amounts of the property, receipts, or
other basis to be taxed (ex. Value Added Tax and Other Percentage Taxes).
 Progressive – tax the rate of which increases as the tax base or bracket increases (ex.
Income Tax, Estate Tax and Donor’s Tax).
 Regressive – tax the rate of which decreases as the tax base or bracket increases.

Distinction of Tax from other Charges

1) Distinction of Tax from Toll


 Toll – is a sum of money collected for the use of something, generally applied to the
consideration which is paid for the use of road, bridge or the like, of a public nature.

Toll Tax
Whose demand Demand of proprietorship Demand of sovereignty
Paid for what Paid for use of another Paid for the support of the
person’s property Government
Basis Amount is based on the cost Amount is based on the
of construction or necessities of the State
maintenance of the public
improvements used
Authority that imposes Imposes by the Government Imposed by Government
or by Private Entities only

2) Distinction of Tax from Special Assessment


 Special Assessment – is an enforced proportional contribution from owners of lands for special
benefits resulting from public improvements.

Special Assessment Tax


Levied on what On land only On persons, property, or
the exercise of privilege
Whose personal liability Not a personal liability of Personal liability of the
the person assessed person taxed
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Basis Based wholly on the special Based on the necessities of
benefits to the property the government without any
assessed special benefit directly
accruing to the taxpayer
Application Exceptional both as to time Has general application
and place

3) Distinction of Tax from License Fee


 License Fee or Permit – is a charge imposed under the police power for the purpose of
regulations.

License Fee Tax


Imposed for what For regulation For revenue
Exercise of what power Involves an exercise of Involves exercise of taxing
police power power
Amount of imposition Amount is limited to the Amount is generally not
necessary expenses of limited
regulations
Subject of imposition Imposed on the right to Imposed on persons,
exercise a privilege property and the right to
exercise a privilege
Purpose Legal compensation or Enforced contribution
reward of an officer for assessed by sovereign
specific services authority to defray public
expenses
Consequence for failure to Makes the act or business Does not necessarily make
pay illegal the business illegal

4) Distinction of Tax from Debt

Debt Tax
Basis Based on contract Based on law
Assignability Assignable Generally not assignable
Payment mode May be paid in kind Generally payable in money
Consequence for failure to No imprisonment for non- Imprisonment for non-
pay payment payment except poll tax
Prescriptive period Governed by ordinary Governed by special
prescriptive period prescriptive period
Interest Draws interest when Does not draw interest
stipulated or when there is except when default
default

5) Distinction of Tax from Penalty

Penalty Tax
Purpose Designed to regulate Aimed at raising revenue
conduct
Authority that imposes Imposed by Government or Imposed by Government
Private entities only

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Sources of Tax Laws:

 The Constitution
 Statutory Enactments
 Administrative Rulings and Regulations
 Judicial Decisions

Tax Situs:

 Business, Occupation or Transaction – place where the business is conducted, place where the
occupation is practiced, or the place where the transaction took place.
 Real and Tangible Personal Property – location of property.
 Income – place where the same is earned, or citizenship or domicile of the owner.
 Gratuitous transfer of Property – residence or citizenship of the taxpayer, or location of property.

Other Charges or Related Terms:

 Subsidy – is pecuniary aid directly granted by the government to an individual or private


commercial enterprise deemed beneficial to the public.
 Revenue – refers to all funds or income derived by the government, whether from tax or any other
sources.
 Internal Revenue – refers to taxes imposed by the legislature other than duties on imports and
exports.
 Customs Duties (or simply Duties) – are taxes imposed on goods exported to or imported from a
country. Custom duties are really taxes but the latter is broader.
 Tariff – may be used in following three senses:
 A book of rates drawn usually in alphabetical order containing the names of several kinds
of merchandise with the corresponding duties to be paid for the same.
 The duties payable on goods imported or exported.
 The system or principles of imposing duties on the importation or exportation of goods.

Tax Avoidance vs. Tax Evasion:

 Tax Avoidance – also known as Tax minimization. It is the use by the taxpayer or legally
permissible methods in order to reduce tax liability.
 Tax Evasion – also known as Tax dodging. It is the use by the taxpayer of illegal means to defeat
or lessen the payment of tax.

Other Forms of Escape from Taxation:

 Shifting – transfer of burden of tax by the original payor to another or someone else.
 Capitalization – reduction in the price of the taxed object equal to the capitalized value of future
taxes which the purchaser expect to be called upon to pay.
 Transformation – the manufacturer or producer upon whom the tax has been imposed, fearing
the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup
himself by improving his process of production thereby turning out his units of production at a
lower cost.

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Topic: ITEMS AND CONCEPT OF INCOME

Income – it means all wealth which flows into taxpayer other than the mere return of the capital. It
includes the forms of income specifically described as gains derived from the sale or other disposition of
capital.

Gross income – is the income reduced by exclusions. In other words, it is income from taxable sources.

Taxable income – means the pertinent items of income specified in the code, less the deductions and/or
personal and additional exemption, if any, authorized for such types of income by the code or other
special laws.

Income tax – is referred to as tax on all yearly profits arising from property, professions, trades or offices,
or as a tax on a person’s income, emolument, profits and the like.

Income tax classified: Classification of Income Taxpayers:

a. National tax a. Individuals


b. An Excise tax b. Partnership and Corporation
c. Direct tax c. Estate and Trust
d. General tax

 Inclusion in income tax:

1. Compensation for services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions and similar items.
2. Gross income derived from conduct if trade or business or the exercise of a profession.
3. Gains derived from dealings in property.
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pension
11. Partner’s distributive share from the net income of the general profession partnership.

 Receipt of dividends:

1. Cash dividends – it is a form of dividend which is paid in cash to shareholder.


2. Stock dividend – it is a distribution by a corporation to its shareholder of the corporation’s own
stock.
3. Property dividend – it is a dividend paid in shares of stock of another corporation or other property
of the corporation.

Refund of tax – is taxable if the tax was previously deducted as an expense in computing the tax during
the previous year.

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Topic: FRINGE BENEFITS & FRINGE BENEFITS TAX

Fringe Benefit
-is any good, service, or other benefit furnished or granted by an employer, in cash or in kind, in
addition to basic salaries.

Fringe Benefit Tax

-it is a tax on fringe benefits granted by the employer for the employee.

- paid by the employee within 30 days after the end of the month.

- is a final tax on the grossed-up monetary value of the fringe benefit being given to a managerial
or supervisory employee. It is considered a final income tax on the employee. Regardless of
whether the employer is an individual, partnership, or corporation, this tax applies.

1. Housing
2. Expense Account
3. Vehicle
4. Household Personnel
5. Interest on loan
6. Membership fees
7. Foreign travel
8. Holidays and Vacation expense
9. Educational Assistance
10. Life or Health Insurance

 Two Kinds of Fringe Benefit

a.) De Minimis Fringe Benefit

- It is a not taxable fringe benefit but taxable to the receiver in excess of the law requires.

b.) Taxable Fringe Benefit

- It is subject to fringe benefit tax paid by the employer.

 Two kinds of Employee

a.) Rank and File - it does not require managerial decision (Clerk/Bookkeeper/Accountant).

- They are not subject to fringe benefit tax but they are subject to De Minimis
Benefit.

b.) Supervisory or Managerial - it requires managerial decision (President/CEO/Manager).

- They are subject to fringe benefit tax.

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De Minimis Benefit

Medical Cash Allowance…………….….P750 per semester or P125 per month

Rice Subsidy………………………….….P1500 per month or 50kg per month

Uniform Allowance………………………P4000 per annum

Laundry Allowance…………..………….P300 per month

Gift……………………………………...…P5000 per annum

How do you compute for fringe benefits tax?

 Housing

 Lease
Monthly Rental xx
Multiply by Taxable Portion 50%
Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx

 Own And Installment


FMV of Land/ Acquisition cost xx
Multiply by 5%
Value of the Benefit xx
Multiply by Taxable Portion 50%
Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx

 Transfer of ownership
FMV of CIR and FMV Assessor
(whichever is higher, minus the
cost to the employee) xx
Divide by 68%
Grossed up monetary Value xx
Multiply by Rate of Tax 32%
Fringe Benefit Tax xx

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 Vehicle

 Purchase or Cash paid


Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx
 Installment
Value of the Benefit xx
Divide by 5 yrs.
Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx
 Own
Value of the Benefit xx
Divide by 5 yrs.
Value of the Benefit xx

Multiply by Taxable Portion 50%

Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx
 Rental
Value of the Benefit xx
Multiply by Taxable Portion 50%
Monetary Value xx
Divide by 68%
Grossed-up Monetary Value xx
Multiply Rate of Tax 32%
Fringe Benefit Tax xx

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Topic: EXCLUSIONS FROM GROSS INCOME

Exclusions - income or receipts which are excluded from gross income and are not subject to income tax.
They do not part from the gross income.

The following items that are not included in the gross income are:

A.) Proceeds of life insurance

1.) Proceeds of life insurance policies excluded from gross income


 Proceeds life insurance policies paid to the heirs or beneficiaries upon the death
of the insured, whether in a single sum or otherwise are excluded from the gross
income.

2.) Interest on proceeds is included in the gross income


 If such proceeds are held by the insurer under an agreement to pay interest
thereon, the interest payment shall be included in the gross income.

B.) Amount received by insured as return of premium

1.) Excluded return of premium


 The amount received by the insured, as a return of 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.

2.) Excess of premium returned shall be included in gross income


 If the amount, when added to amount received before the taxable year under
such contract, exceed the aggregate premium paid, whether or not paid during
the taxable year, then the excess shall be included from the gross income.

3.) Excluded amount from in case of a transfer for a valuable consideration by
assignment or otherwise, of life insurance
 In the case of a transfer of a valuable consideration by assignment or otherwise,
of a life insurance, endowment or annuity contract or any interest therein, only
the actual value such consideration and the amount of the premiums and the
sums subsequently paid by the transferee are exempt from the taxation.

4.) Participating dividend


 Participating dividends are not income to be insured, they are treated as return of
capital.

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C.) Gifts, bequest and devises

1.) Subject to transfer taxes


 Gift,bequest and devises are subject to transfer taxes (estate tax or donor’s tax.)

2.) Income from devise or descent of income included in gross income


 Income from property dividend from the investment, sale or otherwise shall be
included in the gross income

3.) Gift, bequest, devises or descent of income included in gross income


 Gift, bequest, devises or descent of income from any property, in cases of
transfer of dividend interest, shall be included in the gross income.

4.) Alimony or an allowance based on a separation agreement


 Neither alimony nor allowance based on separation agreement is taxable
income.

D.) Compensation for injuries or sickness

1.) Excluded compensation for injuries or sickness


 Amount received through accident or health insurance or under worksmen’s
compensation act.
 Amount of any damages received, whether by suit or agreement on account of
such injuries or sickness.

2.) Recoveries of certain damages


 Recoveries of damages representing compensation for personal injuries
arising from libel, defamation, slander, breach of promise to marry, alienation
of affection are not subject to income tax shall not be included in gross
income.

E.) Income exempt under treaty

1.) Excluded income


 Income of any kind to the extent required by any treaty obligation binding
upon the government of the Philippines is exempt from taxation.
2.) Examples of income exempt under treaty
 Salaries of officials of the United Nations assigned in the Philippines if paid
by the united nation and certified by the secretary general of the united
nation.
 Salaries, allowances, fees, or wages received by the citizens of the United
States of America working in consular offices in the Philippines are exempt
from all taxes.
 Salaries of diplomatic officials and agent.

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F.) Retirement Benefits

1.) Retirement received under R.A. No.7641and those received by officials and
employees of private firms
 The retiring officials or employee has been in the service of the same
employer for at least 10 years and is not less than 50 yrs of age at the time of
his retirement.
 The benefits granted shall be availed of by an official or employee only once

2.) Any amount received by an official or employee as a consequence of separation


 Any amount received by an official or employee of his heir from the employer
as a consequence of separation of such official or employee from the service
of the employer because of death, sickness or physical disability or for any
cause beyond the control of the said official or employee is not included in
the gross income.

3.) Social Security benefits, retirement gratuities, pensions and other similar benefits
received from foreign government agencies and other institutions, private or public.
 The provisions of any law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received
from foreign government agencies and other institutions, private or public by
resident or non-resident citizen of the Philippines or aliens who come to
reside permanently in the Philippines are not included in the gross income.

4.) United States veterans administration benefits


 Payments of benefits due or to become due under United States veterans
administration are not included in the gross income.

5.) Social Security System(SSS)


 Benefits received from or enjoyed under the SSS are not included in the
gross income.

6.) Government Service Insurance System (GSIS)


 Benefits received from the GSIS including retirement gratuity received by
government officials and employees are not included in the gross income.

G.) Miscellaneous items

1.) Income derived by governments


 Income derived by foreign governments, financing institutions owned,
controlled or enjoying refinancing from foreign governments and international
or regional financial institution established by foreign governments from
investment in loans, stocks, bonds or other domestics securities, or from
interest on deposits in bank in the Philippines.
 Income accruing to the government of the Philippines derived from any public
utility from the exercise of any essential government functions.
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2.) Prizes and awards
 Recognition of achievements made primarily in the following field are
religious, charitable, scientific, educational, artistic, literary, civic.
 All prizes and awards granted to athletes to local and international sports
competition and tournaments whether held in the Philippines or abroad and
sanctioned by their national sports association.

3.) 13th month and other benefits


 Gross benefits received by officials and employees of public and private
entities provided that the total exemption shall not exceed P30, 000.

4.) GSIS, SSS, Medicare, & Pag Ibig contribution, and union dues
 GSIS, SSS, Medicare, & Pag Ibig contribution and union dues of individual
shall not be included in the gross income.

5.) Gain realized


 Gain realized from the sale or exchange or retirement of bonds debentures
or other certificate of indebtedness with a maturity of more than 5 years shall
not be included in the gross income.
 Gains realized by the investor upon redemption of shares of stock in a
mutual fund company (mutual fund is an open-end and close investment
company.)

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Topic: TAXATION OF INDIVIDUALS

 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 Jan. 17, 1973 of Filipino mothers who elect Philippine citizenship upon
reaching the age of majority.
4. Those who are naturalized in accordance with law.

 Resident Citizen- a citizen of Philippines residing therein. A person who is born within the country
or state is called Resident Citizen.

 Non-resident Citizen-
1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of
his physical presence abroad with a definite intention to reside therein;
2. A citizen of the Philippines who leaves the phil. During the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis;
3. A citizen of the Phil. 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
phil. 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 Commisioner 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 Philipines.
3. Non-resident alien not doing business in the Philippines.

 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.

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 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.”

 Personal Exemptions
Personal Exemptions- are arbitrary amount allowed in the nature of a deduction from
gross 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.

 Basic Personal Exemption


a. Taxpayers allowed to claim basic personal exemption:
1. Resident Citizens;
2. Non-resident Citizens;
3. Resident Aliens;
4. Non-resident aliens doing business in the Philippines (subject to reciprocity);
5. Estates and trusts.
b. Amount of basic personal exemption
1.Single(including married but legally separated ,widow or widower), estates and trusts.
Old- 20,000php New-50,000php
2.Head of family
Old-25,000php New-50,000php
3.Married (for each working spouse).
Old-32,000php New- 50,000php
c. Amount of personal exemption allowed to non-resident alien doing business in the Philippines
(non-resident alien engaged in trade or business.)
 Conditions for allowance:
1. The foreign country of which the NRA-ETB is a subject or citizen has an income tax law;
2. The income tax law of the NRA-ETB’s country allows personal exemptions to citizens of
the Philippines not residing therein.
3. The NRA-ETB files a true and accurate return of his income from all sources within the
Philippines.
 Amount allowed: the lower between what is allowed in the NRA-ETB’s country and what
is alowed in the Philippines.

 Additional Exemptions
a. Taxpayers allowed additional exemptions.
1. Resident Citizens;
2. Non-resident Citizens;
3. Resident Aliens;
4. NRA-ETB (subject to reciprocity)
5.
b. Amount of additional exemption
-25,000 (old 8,000) per dependent child.

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c. Maximum number of dependent children
- four (4) dependent children.

d. Dependents for additional exemption.


1.Legitimate child;
2. illegitimate child;
3. Adopted child.

e. Requisites or qualifications of a dependent child.


1. Chiefly dependent upon the taxpayer;
2. Living with the taxpayer;
3. Not more than 21 years old;
4. unmarried;
5. Not gainfully employed.

f. Proper claimant of additional exemption


- the additional exemption for dependents shall be claimed by only one of the spouses in the
case of married individuals. The HUSBAND is the proper claimant.

g. Instances when the wife can claim the


additional exemption.
1. When the husband explicitly waives his right to the additional exemption in favor of his
wife; (both must be employed)
2. When the husband is unemployed;
3. When the husband is a non-resident citizen deriving income from foreign sources.

h. Claimant of additional exemption in case of


legally separated spouses.
1. The additional exemption may be claimed only by the spouse who has custody of the
Child or children;
2. The total amount of additional exemption that may be claimed by both shall not exceed the
maximum additional exemption allowed.

i.Computation of married individual’s income tax


1. For married individuals, the husband and wife, shall compute separately their individual
income tax based on their respective total taxable income.
2.If any income cannot be definitely attributed to or identified as income exclusively earned or
realized by either of the spouses for the purpose of determining their respective taxable
income.

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 Situs of Taxable income and allow. Of personal exemptions to individual taxpayers (Table
1)
Individual Income Income Basic Additional
taxpayer within without personal exemption
exemption
1.Resident Taxable Taxable Allowed Allowed
Citizen
2.Resident Taxable Not Allowed Allowed
Alien Taxable
3.Non- Taxable Not Allowed Allowed
resident alien Taxable

4.Nonresident Taxable Not Allowed Not


alien (ETB) Taxable (reciprocity) allowed

5.Nonresident Taxable Not Not Not


alien (NETB) Taxable allowed allowed

 Income Tax Rates(Table 2)


Over Not over Tax Plus Of excess
over
10,000 5%
10,000 30,000 500 10% 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000

 Kinds of income of individual taxpayer

1. Compensation income – income arising from personal services under an employer-employee


relationship.
Examples:
 Salaries, Wages, Fees
 Commission on paid on salesman
 Compensation for service
 Tips

2. Business or professional income- income earned by an individual from the sole proprietorship
business or from the practice of the profession.
Examples:
 CPA’s
 Doctors

3. Passive income- income earned which are subject to different final withholding tax rates.

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 Tax on Nonresident Alien engaged in trade or business (NRA ETB)
A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate
period of morethan 180 days during any calendar year.
 If exact 180 days = Not engaged

 Personal Exemptions of NRA ETB


NRA ETB shall entitled to a personal exemption, provided the following conditions must be
satisfied:

a. The country of which the NRA is a subject or citizen has an income tax law.
b. His country grants personal exemptions to Filipinos who derive income in such country but
who are not residing therein (reciprocity).
c. He files a true and accurate statement of his income from an sources within the Philippines.

*The amount of exemption shall be equal to the exemptions allowed in the income tax law in the
country of which he is a citizen, to citizens of the Philippines not residing in such country, not to
exceed the amount fixed as exemption for citizens or residents of the Philippines.

 Tax on Nonresident Alien not engaged in trade or business (NRA NETB)


-are not entitled to claim additional exemptions.
-are subject to final withholding tax of 25% from all sources within the Philippines only.

a. Subject to 25% withholdng tax:


 Interest
 Cash/Property Dividends
 Rents
 Salaries, wages
 Premiums
 Annuities
 Compensation,remuneration,emoluments
 Capital gains
 Other fixed or determinable annual or periodic or casual gains,profits and income.

b. 6% in capital gains presumed to have been ralized from the sale, exchange or other
disposition of real property located in the Philippines, classified as Capital assets, including
pacto de recto sales and other forms of conditional sales.
Tax base shall be whichever is higher between:
 Gross selling price
 The higher between the FMV as determined by the CIR and the FMV as determined by
the Provincial or City Assessors.

c. In case of dispositions of real property classified as capital assets to government or any of its
political subdivisions or agencies or to government-owned or controlled corporations, the tax
to be imposed shall be determined in either of the following, at the option of the taxpayer:
 In accordance with the rates established in Table 2.
 6% final tax based on the gross selling price or FMV, whichever is higher.

ATLAS 2012-2013 TAXATION