By Leonard C.

Canamo CPA, MBA

 Exclusion from gross income
are income which will not be
subject to income tax. They
are not included in gross
income subject to regular tax,
capital gains tax or final tax.
 Amount received by the insured as a return
of premium
 Gifts, bequest, devise, or descent
 Compensation for injuries or sickness.
 Income exempt under treaty
 Retirement benefits, pensions, gratuities,
etc
Miscellaneous items

 Income in the Philippines of foreign government or

foreign government-owned and controlled
corporations
 Income of the government and its political
subdivisions
 Prizes and awards in recognition of religious,
charitable, scientific, educational, artistic, literary, or
civic achievements
 Prizes and awards in athletic sports competitions
 Contributions to GSIS, SSS, Philhealth, Pag-Ibig, and
union dues
 Contribution to Personal Equity Retirement
Account(PERA)
 PERA investment income and PERA
distribution
 13th month pay and other benefits not
exceeding P90,000
 Gains from sales of bonds, debentures, or
certificate of indebtedness with ,maturity of
more than 5 years
 Gains from redemptions of share in mutual
fund.
 Income exempt under treaty

 Income items that are excluded by

international agreement to which the
Philippine government is a signatory are
excluded from income tax. It must be recalled
that treaty agreement override provisions of
our revenue tax laws in case of conflict under
the exemption doctrine of International
comity.
A. Retirement benefits under RA. 7641 and
those received by officials and employee of
private firms in accordance with a reasonable
private benefit plan maintained by the
employer.

 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 official or
employees.
 This is the first time availment of retirement
benefit exemption
 The retiring official or employee has been in
the service of the same employer for at least
ten(10) years
 The retiring employee is at least fifty(50)
years of age at the time of retirement.
 The employer maintains a reasonable private
benefit plan.
B. Separation or Termination

 Requisite of exemption:
 The separation or termination must be due to job
threatening sickness, deaths or other physical
disability
 The same must be due to any cause beyond the
control of the employees or officials such as
1. Redundancy
2. Retrenchment
3. Closure of employer’s business
4. Employee lay-off
5. Downsizing of employer’s business
6. Sickness or death of the employee
The exemption of termination or separation benefits does
not extend to:
1. Back wages or illegal deductions repaid by the employer
upon termination(BIR Ruling 003-2004)
2. Terminal leave pay or the commutation of accumulated
unused leave credits(BIR Ruling No. 199-2011)
C. Social Security Benefits, Retirement gratuities, and other
similar benefits from foreign government agencies and
other institutions, private or public received by resident
or non resident citizens or alien who come to settle
permanently in the Philippines
D. United States Veterans Administrations(USVA)-
administered benefits under the laws of the United
States received by any person residing in the Philippines.
E. Social Security Systems benefits
F. GSIS Benefits
A. Income derived on investments in the Philippines in
loans, stocks, bonds or other domestic securities,
or from interest on deposits in banks in the
Philippines by

1. Foreign government
2. Financial institutions owned, controlled or enjoying
refinancing from foreign government
3. International or regional financial institutions
established by foreign government.
B. Income derived by the government and its political
subdivisions from
1. Any public utility
2. Exercise of essential government function
C. Prizes and awards in recognition of
religious, charitable, scientific, educational,
artistic, literary, or civic achievements
1. The recipient was selected without any
action on his part to enter the contest or
proceeding and
2. The recipient is not required to render
substantial future services as a condition to
receiving the prize or award.
Examples of Exempt Prizes
 Nobel Prize award
 Gawad ng Sining Award
 CNN Hero of the Year
 Most Outstanding Citizen
D. Prizes and awards in Sports Competitions
granted to athletes
 In local or international competition and
tournament
 Whether held in the Philippines or abroad
 Sanctioned by their national sports
associations
E. Contribution for GSIS, SSS, Philhealth,
PagIbig and Union dues of individuals
F. Contibutions to Personal Equity Retirement
Account(PERA)

PERA is a contributor’s voluntary retirement

account established from a qualified
contribution of the contributor and or his
employer for the sole purpose of being
invested in qualified PERA investment
products.
 PERA contributors are allowed to claim 5% of
their PERA contributions as tax credit against
any lnternal revenue taxes.
 Minimum wage and certain benefits of
Minimum wage earners
 Income of Barangay Micro-Business
Enterprise(RA9178)(BMBA)
 Income of Cooperative(RA9520)
 Income of non-stock,non-profit entities
 Income of qualified employee trust funds.
 Transfer of place of business
 Value of assets exceeds of P3,000,000
 Voluntary surrender of the Certificate of Authority
 Death of the registered individual owner; violation or non-
compliance with the provision of RA 9178
 Merger or concolidation with an entity which is not eligible
to be a BMBE
 Sale or transfer of the BMBE if a Sole proprietorship
without prejudice to the transferee applying for
registration
 Submission of fake or falsified registration
 Retirement from business, or cessation/suspension of
operation for one year
 Making false or omitting required declaration or
statements.
The term items of gross income or inclusion in
gross income is a broad category pertaining
to all items of income subject to taxation,
namely
 Gross income subject to final tax
 Gross income subject to capital gains tax
 Gross income subject to regular tax
 Compensation for service in whatever form
paid
 Gross income from the conduct of trade,
business or exercise of a professional
 Gains derived from dealing in properties
 Interest
 Rents
 Royalties
 Dividends
 Annuities
 Prizes and winnings
 Pensions
 Partner’s distributive share from the net
income of general professional partnership
 This particularly refer to interest income
other than passive interest income subject to
final tax. A taxable interest income must have
been actually paid out of agreement to pay
interest. It cannot be imputed
 Example
1. Interest income from lending activities to
individuals and corporations by banks.
Financial companies and other lenders
2. Interest income from bonds and promissory
notes
3. Interest income from bank deposit abroad
 Interest income earned by landowners in
disposing their lands to their tenants
pursuant to the Comprehensive Agrarian
Reform Law
 Imputed Interest Income
 For advance rentals
1. Items of gross income upon receipts if:
 Unrestricted
 Restricted to be applied in the future years or
upon termination of the lease
2. Not an item of gross income if:
 It constitutes a loan
 It is a security deposit to guarantee payment
or rental subject to contingency which may or
may not happen..
 Royalties earned from sources within the
Philippines are generally subject to final
income tax except when they are active by
nature. Active royalty income and royalty
earned from sources outside the Philippines
are subject to regular income tax.
 NRA-ETB is subject to a 20% final tax on
dividend
 NRA-NETB is subject to a 25% final tax
 Non Resident Foreign Corporation is subject
to 30% general final tax
 Prizes and winnings that are exempted from
final tax are not items of gross income
subject to regular income tax
 Exempted prizes and winnings
1. Prizes received without effort to join contest
2. Prizes in athletic competitions sactioned by
their respective national sports association
3. Winnings from PCSO or lotto, not exceeding
P10,000 in amount.
 These pertain to pensions and retirement
benefits that fail to meet the exclusion
criteria and hence subject to regular tax.
 It should be recalled that general professional
partnerships are not subject to income tax
because they are merely viewed as pass-
through entities. The partners are the one
subject to regular tax on their share in the
net income from the general professional
partnership
 For this purpose, the net income of the
general professional partnership shall include
items of income which are exempted from
final tax or capital gains tax to the general
professional partnership
 Income Distribution from taxable estate or
trusts
Any income distribution received by an heir
or beneficiary from a taxable estate or trust
shall be included in his gross income subject
to regular tax, provide that such income must
not have been subject to final tax or capital
gain tax.
 Recoveries of past deductions
 Examples of recoveries of past deduxction
1. Recoveries of previously claimed bad debt
expense
2. Refund of local tax expense
3. Refund of foreign tax previously claimed as
deduction
4. Recommissioning of abandoned petroleum
service contracts or mining tenement
5. Release of reserve funds of insurance
companies
6. Interest expense which were subsequently
condoned by the lender
 Reimbursement of expenses
 Expenses of the taxpayer that are reimbursed
or paid by the customer or client constitute
additional income to the taxpayer.
 Cancellation of indebtedness
 In 2020 the taxpayer received the following
prizes and winnings
 Passive Income Philippines Abroad
Prizes P10,000 P400,000
Winnings 400,000 100,000

What is the reportable item of gross income if

the taxpayer respectively is a resident citizen
and non resident citizen
 What if te reportable item of gross income if
the taxpayer respectively is a domestic
corporation and resident foreign corporation?
 Mr. Kapalong has several interests in various business
and partnerships. He received the following income
during the year
 Dividend from a domestic
corporation P120,000
Dividends from resident
foreign corporation 80,000
Share in Net Income of
a business partnership 200,000
Share in Net Income of
a professional partnership 100,000

What is the total income to be reported in gross

income?