Sie sind auf Seite 1von 3

13-A: REGULAR ALLOWABLE ITEMIZED DEDUCTION

a. Interest Expense – subject to arbitrage limit


Arbitrage limit = 33% of total interest income subject to final tax
*applicable to individuals and corporation
*exempt – thrift banks
b. Taxes – incurred within the taxable year except:
i. Income Taxes
1. Final Income Tax
2. Capital Gains Tax
3. Regular Income Tax
*Fringe benefit tax can be deducted
ii. Foreign Income Tax- if claimed as tax credit
iii. Estate Tax and Donor’s tax/ Transfer Taxes
iv. Special Assessment
v. VAT
vi. Penalties for delinquent taxes

*Foreign Income Tax


- Income tax paid in other countries.
- Only taxpayers taxable in their world income are entitled to this deduction.
- can claim either as Deduction or Tax credit
Tax Credit – Actual Foreign income tax paid or Limit, whichever is lower
Limit – 1 Country
(Foreign Income/ World Income)*Phil. Income Tax Due
Limit – if more than 1 country
((Foreign Income1/Total World Income)*Phil. Income Ta x Due)+ ((Foreign Income1/Total World Income)*Phil. Income Ta x Due)
Vs
(Total Foreign Income/Total World income)*Phil Income Tax Due
*whichever is lower
c. Losses – Incurred during the year
- Not covered by insurance
- Loss must be actually sustained
i. Ordinary Loss – deductible in full
ii. Capital Loss - deductible up to the extent of capital gain
1. Net Capital Loss Carry Over – allowed only to individual taxpayers and can be deducted for one year only
a. Whichever is the lowest bet:
i. Net Capital Loss
ii. Limit 1 - net income in the year cap loss was sustained
iii. Limit 2 – available net cap gain in the following year
* NCLC cannot be claimed simultaneously with NOLCO.
*NCLC is different from NOLCO
*NOLCO- Net Operating Loss Carry Over – amount of net operating loss that can be deducted against net income for three
years
- All taxpayers subject to tax on taxable income can deduct NOLCO.
- NOLCO cannot exist without a prior year net operating loss
- NOLCO is different from Net Operating Loss (NOL) – NOL is the excess of allowable
deductions over gross income
- A NOL may occur but may not be carried over because taxpayers who are exempt or
enjoying tax holiday, subject to tax on gross income or final tax cannot deduct NOLCO.
Requisites for Deductibility of NOLCO
o Taxpayer must not be exempt from income tax during the taxable year the NOLCO was incurred
o No substantial change in ownership = at least 75% change is substantial
Rules in Carry-Over of NOLCO
o Claimable in FIFO method
o Can be claimed up to the extent of business net income in the next three years
o NOLCO that remains unused at the end of the three-year prescriptive period will expire
d. BAD DEBTS – refer to debts due which were ascertained to be worthless and were charged off within the taxable year.
- only for accrual basis of accounting
- there must be an actual loss to be deducted
- Subsequent recovery of Bad Debts – shall be included as part of gross income in the year of recovery to the extent of income tax benefit.
e. DEPRECIATION – revaluation surplus and impairment loss are not deductible.
f. DEPLETION –
i. Stages of Wasting asset activities
1. Exploration Period – ascertaining existence, location extent or quality of deposit or mineral.
2. Development Period – when minerals are shown to exist in sufficient commercial quantity.
3. Commercial Production – actual extraction, processing and sale.
ii. Tangible development costs – construction of mine-plant roads
1. Petroleum
a. Direct Costs – Company can choose either Straight Line Method or Double Declining Balance to be depreciated
within 10 years
b. Indirect Costs – Within 5 years using Straight Line Method
iii. Intangible Exploration & Development Costs
1. Before Commercial Production – capitalized as cost of wasting asset
2. After commencement of commercial production
a. Non producing mines
i. Deducted in the period incurred
b. Producing wells or mines, either:
i. Capitalized and amortized using cost depletion method
ii. Deducted in the period paid/incurred
g. CHARITABLE AND OTHER CONTRIBUTIONS – if the company who contributes failed to comply with the requisites indicated in page 495 of the book, it is non
deductible
- If the company met all the requisites it can deduct the gifts or contributions either as:
o Fully Deductible
o Partially deductible – this is subject to limit
 LIMIT – taxable income before deduction of any contribution
 Individual – 10%
 Corporations – 5%
h. CONTRIBUTIONS TO PENSION PLANS:
a. Defined contribution plan – regular payment of employer pension fund
i. Does not guarantee the amount of benefit
ii. The amount of contribution is considered deductible expense
b. Defined Benefit Plan – the amount of benefit is fixed, hence monthly contributions are not fixed
i. Current Service Cost – deductible in full
ii. Past Service Cost – amortized over 10years
i. RESEARCH DEVELOPMENT COSTS
a. R/D costs that are capital/property accounts are capitalized and expense thru depreciation
b. R/D costs that are not capital accounts may either be:
i. Expensed outright
ii. Deferred expense amortized not less than 60 months
j. EAR EXPENSE
a. LIMIT
i. Sale of goods/properties – 0.5% of net sales
ii. Sales of services – 1% of Net Revenues

13-B: SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS

- Deductions that may or may not partake as the nature of an expense but allowed by NIRC or Special Laws as deductions.
a. INCOME DISTRIBUTION MADE BY TAXABLE ESTATE OR TRUSTS
b. NET TRANSFER TO RESERVE FUND AND PAYMENT TO POLICIES AND ANNUITY CONTRACTS OF INSURANCE COMPANIES
c. DIVIDEND DISTRIBUTION OF A REAL ESTATE INVESTMENT TRUST(REIT)
d. TRANSFER TO RESERVE FUND OF COOPERATIVES
e. EXPANDED SENIOR CITIZEN’S ACT OF 2003
- Senior Citizen/Elderly – citizens aged 60 years old and above
- Entitled to 20% discount in hotels and lodging establishments, restaurants, recreational centers and other places of culture, leisure and
amusements, hospitals, drugstores, and services such as medical, dental, domestic air, sea and land transport, and funeral or burial
service providers
Conditions for deductibility of sales discounts to senior citizens
a. Only portion of the gross sales used, consumed or enjoyed by senior citizen must be allowed as a deduction.
b. The gross selling price and the sales discount must be separately indicated in the official receipt or sales invoice issued to senior citizen.
c. 20% of Gross selling price, NET of VAT, is the amount granted as a discount to senior citizen.
d. Discount is deducted in the same year the discount is granted.
e. Documentation requirement of every establishment granting discount: Name, TIN, ID, Gross Sales/receipts, date of transaction, invoice number and
date of transaction.
Note: if given is Gross receipts, it only means the total collections net of senior citizen discount so you need to gross up by 80%

f. DISCOUNTS TO DISABLED PERSONS – same as the terms and conditions of those for senior citizens
g. ADDITIONAL CLAIMABLE COMPENSATION EXPENSE FOR SENIOR CITIZENS EMPLOYEES – equivalent to 15% of the total amount paid as salaries and wages to
senior citizens. This is not an actual expense but an incentive for employers who consider senior citizens for employment.
 Requisites for deductibility
i. Employment shall continue for at least 6 months.
ii. annual taxable income of senior citizen does not exceed the poverty level determined by NEDA
h. ADDITIONAL CLAIMABLE COMPENSATION EXPENSE FOR EXPENSE PERSONS WITH DISABILITY – additional deduction of 25% of the total amount paid as
salaries and wages to disabled persons.
 Requisites for deductibility
i. Evidence certified by the DOLE that disabled persons are under their employment
ii. Disabled employee is accredited with DOLE and DoH as to his disability, skills and qualifications.
i. COST OF FACILITIES IMPROVEMENT FOR DISABLED PERSONS – additional deduction from taxable income equivalent to 50% of the direct costs of the
improvements or modifications
j. ADDITIONAL TRAINING EXPENSE UNDER THE JEWELRY INDUSTRY DEVELOPMENT ACT OF 1998 – additional deduction from taxable income equivalent to
50% of the expenses incurred in training schemes approved by TESDA in the year the expenses were incurred.
 Conditions for Deductibility
i. It must be duly registered and accredited with BOI and a Certified True Copy of this must be submitted to BIR .
ii. Training scheme must be approved and certified by TESDA
k. ADOPT A SCHOOL ACT OF 1998- private entities are allowed to assist a public school in particular aspects of their educational program within an agreed
period of time. This is an additional deduction of 50% of the contribution made by the adopting entity. Take note that this is an additional deduction by
contributing to public schools aside from the deduction discuss in previous chapter which is under the Charitable and Other Contributions.
 Qualifications of Participating Schools – any government school in all levels. Priorities shall be given to schools located in the poorest
provinces.
 Qualifications of Adopting Private Entity – It must have a credible track record; it must have been in existence for at least one year; it must
not have been prosecuted and found guilty of engaging In illegal activities.
 Valuation of deductions
i. Cash assistance – actual amount appearing in the Official Receipt
ii. Assistance other than money
1. Personal property – acquisition cost of assistance or contribution
2. Consumable Goods – acquisition cost or value at the date of donation whichever is lower
3. Services – amount of services in MOA or actual expense whichever is lower
4. Real Property – fair value(higher of zonal or assessed value) or depreciated cost of property whichever is lower
l. EXPANDED BREASTFEEDING PROMOTION ACT OF 2009 – expenses incurred by a private health institution in complying with the rooming in and
breastfeeding practices shall be deductible expenses for income tax purposes up to twice the actual amount incurred. Example: A company that employs
primarily women installed a lactation station for its nursing employees amounting to 150,000. This 150,000 is claimed as regular deduction and an additional
150,000 special deduction. Note that non taxable companies like government or provincial hospital cannot claim deduction since it is non taxable.
 Conditions of deductibility
i. Deduction shall apply for the taxable period when expenses were incurred
ii. All health or non-health establishments and institutions shall comply with the IRR of RA 10028 within 6 months after its approval
iii. The institution shall secure a Working Mother Baby Friendly Certificate from DOH to be filed in BIR
m. FREE LEGAL ASSISSTANCE (RA 9999) – lawyers or professional partnerships providing pro-bono legal services are given deduction incentives for their free
legal services. They shall be entitled to an allowable deduction from gross income equivalent to the amount that could have been collected for the actual
performance of the actual free services rendered or up to 10% of gross income derived from the actual performance of the legal profession whichever is
lower.
 Note that the free-legal services must be exclusive of the 60-hour mandatory free legal assistance rendered to indigent clients as mandatorily
required under the Rule on Mandatory Legal Aid Services for Practicing Lawyers.
n. ADDITIONAL PRODUCTIVITY INCENTIVE BONUS EXPENSE – a business enterprise which adopts a productivity incentive program is entitled to a special
deduction equivalent to 50% of the total productivity bonuses given to employees.
- Also companies providing manpower training and special studies to rank and file employees as accredited by TESDA are entitled to 50%
additional deduction of the total grant for local trainings and special studies.
- These deduction incentives will not be allowed on bonuses accruing during the pendency of a strike or lockout from any violation of the
productivity incentive program.