Income Taxation

 

General Principles of Taxation and Tax Remedies Question 1

 The Sangguniang Bayan of Cainta enacted an ordina ord inance nce tha thatt imp impose oses s an occ occup upati ation on ta tax x up upon on owners owne rs of poul poultrie tries. s. The vali validity dity of the ordinance ordinance is being challenged on the ground that it consti con stitut tutes es dir direc ectt dou doubl ble e tax taxati ation on bec becau ause se the poultry is already subjected to a land tax. Is the ordinance VALID? Response: Yes. There is no direct double taxation beca be caus use e th the e ta taxe xes s co cove vere red d di diff ffer eren entt su sub bje ject ct matters and for different purposes.

Feedback Feedb ack:: Cor Correc rect! t! Sec Sectio tion n 1 of RA 109 10963 63 sta states tes that the act shall be known as the Tax Reform for Acceleration and Inclusion. Question 6

 This theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction. Response: Life-blood theory 

Feedba Feed back ck:: Co Corr rrec ect! t! Th The e ta taxe xes s im impo pose sed d co cove verr different subject matter and for different purposes. For the occupation tax, the subject matter is the owner ow ner and to reg regula ulate te the occ occup upati ation, on, whi while le for the land tax, it is the poultry and to maintain the property.

Feedback:: Corr Feedback Correct! ect! With Without out taxe taxes, s, no gover governmen nmentt can function.

Question 2

Response: If the taxpayer fails to file an administ admi nistrati rative ve prot protest est with the Comm Commissi issioner oner of  Inte In terrnal Re Reve ven nue (C (CIR IR)) wi with thiin 30 da days ys fr from om receipt and the tax involved is less than 100 pesos

What will be your possible action when the Court of Tax Appeal (CTA) denies your appeal for protest? Response: File for a motion for reconsideration to the CTA division within 15 days from the receipt of the decision Feedback: Correct! After you file for a protest and the th e CT CTA A de deni nies es it it,, yo your ur po poss ssib ible le ac acti tion on wi will ll be filing for a motion for reconsideration. You cannot  just go directly to the CTA en banc, the SC, and SC en banc. Question 3

 This basic principle principles s of a Sound Tax System can be described in the statement, “The more income earn ea rned ed by th the e ta taxp xpay ayer er,, th the e mo more re ta tax x he ha has s to pay.” Response:: Equitabi Response Equitability  lity  Feedback: Correct! It states that tax burden must be proportionate to the taxpayers’ ability to pay.

Question 7

All of the following cases may subject a taxpayer to constructive distraint, EXCEPT:

Feedback Feedb ack:: Cor Correc rect! t! The tax taxpa payer yer,, in thi this s ca case, se, is not subject to constructive disdain. Instead, a civil actio act ion n ma may y be tak taken en by the gov govern ernme ment nt aga agains instt the taxpayer. Question 8

 This is a remedy of the government where it seizes the real properties of the delinquent taxpayers to carry out the payment of taxes. Response: Levy  Feedback Feedb ack:: Cor Corre rect! ct! It sh shall all be eff effect ected ed in wri writin ting g upon the cert certific ificate ate detailing detailing a desc descript ription ion of the property. Question 9

Question 4

Wha Whatt per percen centag tage e of in inter terest est wi will ll run per year for any un unpa paid id ta tax x li lia abil iliity fro rom m the date of th the e prescription until the amount is fully paid?

Analyze the following statements:

Response: 20%

S oxupbaty , ertsax ala e cota ntsetm rueendt I:agIaninsctasetho ef d ta nw ds a tarx exemptions are construed against the government. Sta St ate tem ment II: In case of dou oub bt, ta tax x la law ws are constr con strue ued d lib libera erall lly y in fav favor or of the tax taxpa payer yers s and tax exemptions are construed liberally in favor of  the government.

Feedback: Correct! This will be in addition to the surcharges that will be paid by the taxpayer.

Response:: State Response Statement ment I is wron wrong, g, whil while e State Statement ment II is correct. Feedback: Correct! In case of doubt, tax laws are construed against the government and liberally in favo fa vorr of th the e ta taxp xpay ayer ers, s, an and d ta tax x ex exem empt ptio ions ns ar are e constr con strue ued d aga again inst st the tax taxpa payer yer and lib libera erall lly y in favor of the government. Question 5

It is the initial package of the Comprehensive Tax Refo Re form rm Pr Prog ogra ram m si sign gned ed in into to la law w by Pr Pres esid iden entt Rodrigo Duterte on December 19, 2017. Response:: RA 1096 Response 10963 3 Tax Refor Reform m for Acce Accelera leration tion and Inclusion

Question 10

 This inherent limitatio limitation n states that, generally, the power pow er of tax taxati ation on cou could ld be exe exerc rcis ised ed onl only y wit withi hin n the territorial boundaries of the taxing authority. Response:: Territoriali Response Territoriality  ty  Feedback Feedb ack:: Cor Correc rect! t! Th The e pow power er of tax taxati ation on is onl only  y  limited to person and property within and subject to its jurisdiction.

 

Individual Income Taxation Dealings in Property, Taxpayers, and Tax Bases  Then, compute for the tax due using the income tax table:

Question 1

 This refers to the total sales transactio transactions ns net of  value added tax (VAT), if applicable, reported during the period, without any other deductions.

 Tax on the First P2,000,000

Response: Gross Sales

 Total Income Tax Due

Feedback: Correct! Per Section 2 of RR No. 8-2018, gross sales subject to the 8% income tax rate option shal sh alll be ne nett of sa sale les s re retu turn rn an and d al allo lowa wanc nces es an and d discounts. Question 2

Limu muel el Vi Vill llan anue ueva va is a mi mini nimu mum m wa wage ge ea earn rner er Li (MWE (M WE)) wor workin king g in Sta Sta.. Me Mesa sa,, Ma Manil nila. a. As suc such, h, his employer did not withhold any tax from his salary. Star St arti ting ng Fe Febr brua uary ry 20 2020 20,, he wa was s gi give ven n a ra rais ise e in salary, which was more than the statutory  minim mi nimum um wag wage. e. Wil Willl his ent entire ire com compen pensa satio tion n for 2020 be taxable and subject to withholding tax? Response: Only his earnings from February 2020 to Dece De cemb mber er 20 2020 20 sh shal alll be ta taxa xabl ble e an and d su subj bjec ectt to withholding tax. Feedback:: Corr Feedback Correct! ect! Only those portions portions of Limu Limuel’s el’s compensation income will be taxable and subject to with wi thho hold ldin ing g ta tax, x, wh whic ich h is by th the e ti time me hi his s sa sala lary  ry  exceeded the minimum wage rate. Question 3 2020 20,, Al Aldr drin in Bo Boni nior or,, th the e As Assi sist stan antt In 20 Vice President (AVP) of Macquarie Group earned compensation income of  P4,00 P4 ,000,5 0,500. 00. Thi This s am amoun ountt is inc inclu lusiv sive e of his 13t 13thhmonth pay and other benefits of P250,000, but net of mandatory contributions to SSS and PhilHealth. Aside from his employment, he also operates a shoe store. In 2020, the shoe store has a gross sale of P 1,500,000, cost of sales of P500,000, and operating expens exp enses es of P30 P300,0 0,000. 00. It als also o had non non-op -opera erati ting ng income of P700,000. What would be Aldrin’s total income tax due if he is a re resi side dent nt ci citi tize zen, n, an and d he di did d no nott av avai aill th the e 8% optional income tax rate?

P490,000

 Tax on the Excess (P5,310,50 (P5,3 10,500 0 – P2,0 P2,000,00 00,000) 0) x 32%

 

P1,059,360 P1,549,360

Question 4

Antoine Antoin e La Lavoi voisie sier, r, a Fre French nch cit citize izen n pe perma rmanen nently  tly  resid res iding ing in the Phi Philip lippi pines nes,, re recei ceived ved se sever veral al ite items ms during the taxable year. Which among the following items is NOT subject to Philippine taxation? Respon Resp onse se:: Se Serv rvic ice e fe fees es re rece ceiv ived ed fo forr de desi sign gnin ing g a compu com puter ter pro progra gram m an and d ins instal tallin ling g the sa same me in the Pakistan facility of an Arabian firm Feedback:: Corr Feedback Correct! ect! A resi resident dent alien is taxa taxable ble only  on income within. In the situation, the situs of the serv se rvic ice e fe fee e is in Pa Paki kist stan an,, he henc nce e wi with thou out, t, an and d is therefore exempt. Question 5 Mr.. an Mr and d Ms Ms.. Ga Garc rcia ia file filed d th thei eirr IT ITR R fo forr 20 2019 19.. Th The e foll fo llo owing are th the e id ide enti tifi fied ed inco com me for bot oth h husband and wife:

How did Mr. and Ms. Garcia divide the income that Annual Income Compensation

Husband P500,000

Wife P900,000

Total P1,500,000

Business Cannot attributed

60%

40%

P2,000,000

be

 

cannot cann ot be att ttrrib ibu ute ted d or id iden enti tifi fie ed exclusively earned by either of them?

P1,000,000

as

inco com me

Response:  Based on equal ratio: 50% for Mr. Garcia and 50% for Mrs. Garcia Feedback:   Correct! Correct! Under Under the guideli guidelines nes issued issued by  the BIR on the filing of BIR Form 1701, any income cannot can not be def defini initel tely y attrib attribute uted d to or identi identifie fied d as income inc ome exclus exclusive ively ly earned earned or realiz realized ed by either either of  th the e spou spouse ses. s. Th The e same same shal shalll be divi divide ded d equa equall lly  y  between betw een the spouses spouses to determine determine their respecti respective ve taxable income.

Response: P1,549,360 Response:  P1,549,360

Question 6

Feedback:

Kwang-Soo, a Sout Lee Kwang-Soo, South h Kore Korean an nati nationa onal, l, arr arrived ived in the Philippines on January 1, 2020, to visit his Fil ilip ipin ina a gi girl rlfr friien end d. He pl pla ann nned ed to sta tay y in th the e country until January 31, 2021, by which time he would go back to his family in South Korea. KwangSoo So o de deri rive ved d in inco come me du duri ring ng hi his s st stay ay he here re in th the e Phili Phi lippi ppines nes.. Wh What at wi will ll be his cla class ssifi ifica catio tion n for the taxable year 2020?

Correc Corr ect! t! If a mi mixe xed d ea earn rner er fa fail iled ed to si sign gniify hi his s intention to be taxed at the 8% optional income tax rate, ra te, he wou would ld be tax taxed ed at gra gradua duated ted rates rates plu plus s a 3% percentage tax. First, get the total income: Income from Compensation (P4,000,500 (P4,000 ,500 – P90,00)

 

Gross Receipts

P1,500,000

Add: Other Income

P700,000

 Total Income

P2,200,000

Less: Cost of Sales

P500,000

Oper Op erat atin ing g Ex Expe pens nses es

P3,910,500

Response: Resident Alien Feedback Feedb ack:: Cor Correc rect! t! He is a re resid sident ent ali alien en si since nce he will stay in the country beyond one (1) year. Question 7

P300 P3 00,0 ,000 00

Nett In Ne Inco come me fr from om Bu Busi sine ness ss

P1,4 P1 ,400 00,0 ,000 00

Inco In come me fro from m Co Comp mpen ensa sati tion on

P1,50 P1, 500, 0,00 000 0

Income from Business

P700,000

 Total Income

P5,310,500

Which of the following CORRECT regarding de mini mi nimi mis s be bene nefi fits ts oris be bene nefi fits ts no not t su sub bje jec ct the to income tax? Response:: P250 Response P250/mon /month th medi medical cal cash allo allowanc wance e to dependents of employees

 

Feed edba back ck:: Co Corr rrec ect! t! Me Medi dica call ca cash sh al allo lowa wanc nce e to Fe dependents of employees is P250/month or P1,500 per semester (P250 x 6 months). Question 8

A citizen is deemed non-resident if he: Response Respo nse:: Is a cit citize izen n who est estab ablis lishes hes the fac factt of  his hi s ph phy ysic ica al pres esen enc ce abro roa ad wi with th a def efiinit ite e intention to reside therein Feedba Feed back ck:: Co Corre rrect! ct! Th This is is per Sec Sectio tion n 22( 22(E) E) of the National Internal Revenue Code (NIRC). Question 9

It is an ind indiv ividu idual al who comes to the Ph Phili ilippi ppines nes and an d sta stays ys the therei rein n for an agg aggre regat gate e pe perio riod d of mor more e than 180 days Response Respo nse:: Non Non-re -resi siden dentt al alie ien n eng engage aged d in tra trade de or business Feedback: Correct! If an individual whose residence is no nott wi with thin in th the e Ph Phil ilip ippi pine nes s an and d is no nott a ci citi tize zen n ther th ereo eoff st stay ays s th ther erei ein n fo forr an ag aggr greg egat ate e pe peri riod od of  more than 180 days but not exceeding one (1) year, he is a no nonn-re resi side dent nt al alie ien n en enga gage ged d in tr tra ade or business. Question 10 In 2020, Jon Dimakulangan, CFO of Power Source, Inc., earned compensation income of P2,001,000 in the th e Ph Phil ilip ippi pine nes. s. Th This is am amou ount nt is in incl clus usiv ive e of hi his s 13th13 th-mon month th pay and oth other er ben benefi efits ts of P8 P800, 00,000 000,, butt ne bu nett of ma mand ndat ator ory y co cont ntri ribu buti tion ons s to SS SSS S an and d PhilHealth.

He al also so ow owns ns a re rest stau aura rant nt in Me Metr tro o Ma Mani nila la.. In 2020, the restaurant has gross receipts of  P2,000,000, cost of sales of P500,000, and operating expenses of P600,000. It also had a nonoperating income of P235,000. What would be Jon’s total income tax due if he is a non-re non -resi siden dentt cit citize izen n and av avai ails ls of the 8% opt optio ional nal income tax rate? Response: P642, Response:  P642, 100 Feedback: Correct! If a mixe Correct! mixed d ear earner ner signifies signifies his intention intention to be taxed at 8% optional income tax rate, his income from compensatio compensation n will be subj subjecte ected d to grad graduate uated d rate ra tes, s, wh whil ile e hi his s in inco come me on se self lf-e -emp mplloy oyme ment nt or pract pr actic ice e of pr profe ofess ssion ion wi will ll be sub subjec jected ted to the 8% optional income tax rate.  Thus, the tax for his compensa compensation tion income:  Total Compensation Income, Net of 13thmonth benefits benefits (P2,001 (P2,001,000 ,000 – P90,000 P90,000))

 

 Tax on the First P800,000  Tax on the Excess (P 1,911,000 – P800,000) x 30%  Tax Due on Compensation

P1,911,000 P130,000

 

P333,300 P463,300

 The 8% on total gross receipts: Gross Receipts Add: Other Income  Total Income Subject Su bject to 8% Multiply by:  Tax Due on Business

P2,000,000 P235,000 P2,235,000 8% P178,800

Getting the total of the two (2) tax-dues:  Tax Due on Compensation

P463,300

 Tax Due on Business

P178,800

 Total Income Tax Due

P642, 100

 

Final Withholding Taxes on Passive Income and Fringe Benefits Tax Question 1

Question 6

What is the annual value of benefit for the assi as sign gnme ment nt of re resi side dent ntia iall pr prop oper erty ty fo forr th the e us use e of  employees?

What at is th the e an annu nual al va valu lue e of th the e be bene nefi fitt on th the e Wh purc pu rcha hase sed d of a mo moto torr ve vehi hicl cle e in an in inst stal allm lmen entt basis by the employer in the name of the employee?

Response Respo nse:: Fa Fair ir ma marke rkett va value lue (F (FMV MV)) or zon zonal al va value lue (ZV), whichever is higher

Response: Acquisition cost

Feedback: Correct! To get the monetary value of the said sa id ben benefi efit, t, mul multip tiply ly the hig higher her bet betwee ween n the FM FMV V and ZV by 5%. Question 2  Jerone Gatdula is the Associate Vice President of  Pricewaterhouse Coopers. The company offered him a scholarship to pursue his master’s degree at New York Yo rk Un Univ iver ersi sity ty fo forr P1 P1,2 ,200 00,0 ,000 00 pe perr se seme mest ster er.. In retu re turn rn,, he is re requ quir ired ed to re rend nder er an anot othe herr fo four ur (4 (4))  years in the company. If Jerone accepts the progr pr ogram am,, wi will ll th the e be bene nefi fitt be su subj bjec ecte ted d to fr frin inge ge-benefit tax?

Respon Resp onse se:: No No.. Be Beca caus use e it is fo forr th the e be bene nefi fitt of th the e company. Feedba Feed back ck:: Co Corr rrec ect! t! A sc scho hola lars rshi hip p gr gran antt to th the e employee by the employer shall not be treated as a taxa ta xabl ble e fr frin inge ge be bene nefi fitt if th the e ed educ ucat atio ion n or st stud udy  y  invol in volved ved is dir direc ectly tly con connec nected ted wit with h the emp employ loyer er’s ’s trade, business, or profession. Question 3

Analyze the following statements: Statement I: Dividend received by a resident citizen from a foreign corporation is included in the Income  Tax Return whether within or without. Sta St ate teme ment nt II II:: Wh When en a di divi vide dend nd so sour urce ced d pa part rtly  ly  withi wi thin n an and d wit withou houtt is rec recei eived ved by a non non-re -resid sident ent not engaged engaged in a tra trade de or bus busin iness ess from a for foreig eign n corporation, the part within will be subjected Response: Both statements are correct. Feedback:: Corr Feedback Correct! ect! Divi Dividend dend inco income me from a fore foreign ign corporation that is received by a resident citizen is sub su bje ject ct to re regu gula larr in inco come me ta tax. x. The here refo fore re,, it is inclu in cluded ded in the Inc Income ome Ta Tax x Ret Retur urn n (IT (ITR), R), wh wheth ether er without or partly within or without. Question 4

Cr Crist istia ian n Pun Punzal zalan an is the Fi Fina nance nce Ma Manag nager er of BDO Rox oxa as Tagl gle. e. If allo low wed by BDO, wh whic ich h of th the e fol olllowi win ng expe pen nse ses s of Cri rist stia ian n WIL ILL L NOT be subjected to fringe-benefit tax?

Feedba Feed back ck:: Co Corr rrec ect! t! It Its s mo mone neta tary ry va valu lue e wi will ll be computed by dividing the monetary. Question 7

Effective on January 1, 2018, and onwards, what is the final tax tha thatt wi will ll be imp impose osed d by the employ employer er on the grossed-up grossed-up monetary monetary valu value e of fring fringe e bene benefit fit granted to their managerial and supervisory citizen, resid res ident ent ali alien, en, and non non-r -resi eside dent nt ali alien en en engag gaged ed in business employees employees? ? Response: 35% Feedback: Correct! Starting January 1, 2018, under the TRAIN Law, the grossed-up monetary value will now be co compu mputed ted by div dividi iding ng the ac actua tuall mon moneta etary  ry  value of the fringe benefit by 65%. Question 8

In Inte tere rest st ea earn rned ed by ci citi tize zens ns,, re resi side dent nt al alie iens ns,, an and d nonno n-rres esid ide ent alie ien ns no nott en eng gage ged d in tr tra ade or business (NRAETB) from any currency bank deposit a nd yie yi ortitu any the th edr fr mom one on ettr arust y t befu nef ne fits fr from om depo de posi sit t eld subs su bsti tute tes s oan and from trus fund nds and an d similar arrangements is subject to what percentage of final tax? Response: 20% Feedback: Correct! Note that the 20% final withholding tax (FWT) for the interest from currency  bank and other monetary deposit is for the citizen, resident alien, and NRAETB only. Question 9 Uniq Un iqu ue Sa Sallon onga ga,, a resi sid den entt cit itiz izen en,, following prizes during the year: First Prize First Prize  Third Prize

won wo n

the th e

Singing Singi ng contest he volunt voluntarily  arily    P10,000  joined  

PCSO winnings

P1,000,000

 

Raffle ticket winnings

P6,000

Which of the following is TRUE under TRAIN? Response Respo nse:: Th The e wi winni nnings ngs fro from m the ra raffl ffle e tic ticke kett ar are e subject to a 20% final tax.

Response: Transportation expenses going to Baguio in order to meet the company clients, in which he took as an opportunity to explore the city 

Feedba Feed back ck:: Co Corr rrec ect! t! The The wi winn nnin ings gs fr from om th the e ra raff ffle le tick ti cket et we were re ea earn rned ed by chan chance ce,, he henc nce e su subj bjec ectt to a 20% final tax.

Feedback:: Corr Feedback Correct! ect! This is dire directly ctly connected connected with the empl employer oyer’s ’s trad trade, e, bus busines iness, s, or prof professi ession on sinc since e his main purpose in Baguio is to meet the clients.

Question 10

Question 5

 This is the tax on the income from registered activities activiti es of PEZA PEZA-regi -register stered ed indi individu viduals als ava availin iling g of  the Gross Income Tax (GIT) incentive. Response: 5% Feedback: Correct! The 5% GIT is in lieu of all other taxe ta xes, s, wh whet ethe herr na nati tion onal al or lo loca cal, l, ex exce cept pt fo forr re real al prop pr oper erty ty ta taxe xes s on la land nd ow owne ned d by an EC ECOZ OZO ONE developer or operator.

On January 1, 2020, Mr. Tulang invested P1,000 P1, 000,00 ,000 0 in a 12% lon long-t g-term erm dep deposi ositt cer certif tifica icate te (BSP-prescribed form) with a five-year maturity. He plan pl ans s to pr pree-te term rmin inat ate e th the e sa said id in inve vest stme ment nt on December What iscome the tax that will be im impo pose sed d31, on2023. the th e en enti tire re in inco mefinal on th the e sa said id pr preetermination plan? Response: 20% Feedback: Correct! This final tax will be imposed if  the th e remain iniing matu turi ritty fro rom m the ti tim me of pr pre etermination thereof is less than three (3) years.

 

Gross Income and Deductions Question 1

Upon th Upon the e reti retire reme ment nt of Mr. Mr. Tula Tulang ng,, an empl employ oyee ee from a private company, he received his lump-sum pension computed as 1.5 months for every year of  service from SSS. He was employed in the company  for 20 years, and his last pay was P15,000 a month. From the given data, his total lump sum pension is P450,000 (1.5 months x 20 x P15,000 ). Is the lump sum pension taxable? No, since this is a Social Security  Response:   No, retirement benefit. Feedback:   Cor Correct! ect! Soc Social ial secu securrity ity bene enefits fits,, retireme reti rement nt gratuiti gratuities, es, pensions pensions,, and other other similar similar be bene nefi fits ts rece receiv ived ed by citi citize zens ns or alie aliens ns ar are e nonnontaxable. Question 2

 These items or amounts are allowed by the law to be deducted from the gross income of a taxpayer to arrive at taxable income and thereby determine the amount of the tax which is due. Response:: Deducti Response Deductions ons Feedback: Correct! Deductions are something spent or paid on earning the gr gro oss income. These expenses must be ordinary and necessary  Question 3

Mr. Ha Harrol old d Al Ala as, a mana nage gerr of Maha hallimuy uya ak Corp Co rpor orat atio ion n wi with th to tota tall ne nett re rece ceip ipts ts of se serv rvic ices es amounting to P9,000,000 in 2020, incurred a total entertai ente rtainmen nmentt and recr recreati eation on expe expenses nses amou amountin nting g to P80,000. Which of the following is TRUE?

Question 6

Which of the following is taxable only when voluntary? Response: Separation Pay  Feedback: Correct! It is taxable if voluntarily availed. Sepa Se para rati tion on pa pay y is no nott ta taxa xabl ble e if it is ca caus used ed by  death, sickness, and disability. Question 7

Which of the following statements is INCORRECT? Response:: The optional Response optional stan standard dard dedu deductio ction n (OS (OSD) D) is an am amou ount nt eq equa uall to 40 40% % of th the e gr gros oss s in inco come me from fro m bus busine iness ss or pra practi ctice ce of the pro profes fessi sion on of the taxpayer. Feedback:: Corr Feedback Correct! ect! For indi individu viduals als,, the OSD must be 40 40% % of th the e gr gros oss s re rece ceip ipts ts or sa sale les s, no nott gr gros oss s income. Question 8

It re refe fers rs to it item ems s or re rece ceip ipts ts no nott in incl clud uded ed in th the e determ det ermina inati tion on of the ta taxab xable le inc income ome be becau cause se the law la w or tr trea eaty ty pr prov ovid ides es th that at th they ey ar are e ex exem empt pt fr from om income tax Response: Exclusion Response: Feedback: Correct! These items will considered as part of the gross income.

not

be

Question 9

Response:: The net sale Response sales s receipts receipts will be mult multipli iplied ed by 1% in or ord der to ge gett th the e cei ceilin ing g of dedu duc cti tib ble representation representa tion expenses.

Mr. Chester Alvin Acob took a life insurance policy  amount amou ntin ing g to P8 P800 00,0 ,000 00,, wh whic ich h is to be re rece ceiv ived ed after 30 years with an annual premium of P5,000. Moreover, he also irrevocably designates his wife as the beneficiary. Which of the following is TRUE?

Feedba Feed back ck:: Cor Correc rect! t! The am amoun ountt to be de deduc ducted ted is the lower between the actual and ceiling representation representa tion expense.

Response: If Mr. Acob died on the 25th year of the insurance policy, the P800,000 to be received by his wife would be exempt from income and estate tax.

Question 4

Feedback: Correct! If the insured person died before the maturity of insurance policy, the whole proceeds of P800,000 would be exempt from income tax.

individual al is:  The optional standard deduction for an individu Response: 40% of the gross receipts Feedba Feed back ck:: Co Corr rrec ect! t! Th The e gr gros oss s include the value-added tax.

rece re ceip ipts ts

shou sh ould ld

Analyze the following statements:

Question 5 Mari Ma ria, a, a re resi side dent nt ci citi tize zen, n, re repo port rted ed th the e fo foll llow owin ing g items for the year 2020:

What is the tot What total al gro gross ss inc incom ome e sub subjec jectt to re regul gular ar income taxation that Maria should report for 2020? Response:   P824,000 Response: Feedba Feed back ck:Co :Corre rrect! ct! Roy Royalt alty y in incom come e fro from m min mining ing is subject to a 20% final withholding tax. Gross Gro ss Inc Incom ome e fro from m Bus Busin iness ess (P2 (P240, 40,000 000 + P300,000 P300,000))

P540,0 P54 0,000 00

Div Di vid iden end d re rece ceiive ved d fro rom m a fo fore reig ign n co corrpo pora rattio ion n

30,, 00 30 000 0

Winn Wi nning ings s fro from m Am Ameri erican can Ch Chari arity ty Sw Sweep eepsta stakes kes Off Office ice

20, 000

Cost of living allowances

9, 000

13th-month pay and other benefits (P105,000 – P90,000)

 

Question 10

15,000

Salaries

210, 000

 Total Gross Income

P824,000

Statemen Statem entt I: An ex expen pense se tha thatt is nec neces essar sary y bu butt not ordinary, or ordinary but not necessary, is deductible from gross income. Sta St ate teme men nt II: The ta taxp xpa aye yerr mus ustt si sign gniify hi his s intention to elect itemized deduction; otherwise, he is de deem emed ed to ha have ve ch chos osen en th the e op opti tion onal al st stan anda dard rd deduction. Response: Both statements are incorrect. Feedback: Correct! For the Statement I, an expense must be both necessary and ordinary to be allowed as de dedu duct ctiibl ble. e. Fo Forr St Stat atem emen entt II II,, it is in inco corr rrec ectt because beca use the taxp taxpaye ayerr mus mustt sign signify ify his intention intention to be taxed at the optional standard deduction (OSD), not itemized deduction.

 

Income Tax on Corporations and Filing of Returns Question 1

Question 6

If a pe pers rson on ha has s no le lega gall re resi side denc nce e or pl plac ace e of  business in the Philippines, where should he file his return?

 The following are income to be added to the taxable income in order to arrive at the improperly  accumulated taxable income, EXCEPT:

Response: Office of the Commissioner

Response: Dividends paid

Feedback:: Corr Feedback Correct! ect! The offic office e of the Comm Commissi issioner oner is located at RDO No. 39, South Quezon City.

Feedback Feedb ack:: Cor Correc rect! t! Th This is wil willl be subtra subtracte cted d si since nce this th is is re rea all lly y an ou outf tflo low w fr from om th the e accu accumu mula late ted d earnings.

Question 2

Question 7

following ng are require required d to fil file e an in incom come e All of the followi tax return, EXCEPT:

Gross Income Business Expenses

Respon Resp onse se:: An in indi divi vidu dual al wh whos ose e so sole le in inco come me ha has s been subjected to final withholding tax Feedback: Correct! Income of an individual that are sub su bje ject ct to fi fina nall ta tax x ne need ed no nott be in incl clud uded ed in an income tax return. Question 3

 This is a non-reside non-resident nt foreign corporation subject to 4½ % tax on its gross rentals, lease, or charter fees. Response:: NonResponse Non-resi resident dent owne ownerr or less lessor or of ves vessels sels chartered by Philippine nationals Feedback:: Corr Feedback Correct! ect! This must be duly approved approved by  the Maritime Industry Authority (MARINA). Question 4

Analyze the following statements: Statement I: A non-eFPS tax filer may opt to use the ele lec ctr tro oni nic c fo forrma matt un unde derr “e “eBI BIR RFor orm ms” fo forr th the e prepa pr epara ratio tion, n, gen genera eratio tion, n, an and d sub submis missio sion n and and/o /orr paym ymen entt of th thiis re retu turrn wi with th gr grea eate terr ea eas se and accuracy. Statement II: Individuals engaged in business/practice of a profession, regardless of the amoun am ountt of sal sales es/re /recei ceipts pts,, ar are e req requi uired red to fil file e the quar qu arter terly ly inc income ome tax ret return urn on or bef before ore Apr April il 15, August 15, and November 15 of the current taxable  year, and an annual return on April 15 of the following taxable year. Response: Statement I is correct, while Statement II is incorrect. Feed Fe edba back ck:: Cor Corre rect! ct! Th The e fir first st sta statem temen entt is cor correc rectt becau be cause se,, und under er the gui guidel deline ines s iss issued ued by the BIR BIR,, they allow non-eFPS payers to use the eBIR Forms in pr prep epar arin ing g re retu turn rns. s. Th The e se seco cond nd st sta ate teme ment nt is wron wr ong g be beca caus use, e, un unde derr th the e TR TRAI AIN N La Law, w, th the e fi firs rsttquarter return should be filed on or before May 15, not April 15. Question 5

 The Minimum Corporate Income Tax (MCIT) shall not apply to the following resident foreign corporations, corporatio ns, EXCEPT:

Gain on sale of business asset

P1,300,000 600,00 60,000

Interest Intere st on dep deposi osits ts with with Met Metrob roban ank, k, net of    5,000 tax Dividend Divi dends s from from Alpa Alpas, s, a domes domestic tic corp corporat oration ion

35,000 35,00 0

Dividend paid during the year

130,000

Reserved for plant acquisition

400, 000

 The record of Maduya Corp., a closely-h closely-held eld corporation, shows the following data for 2020: In 2019, the corporation suffered an operating loss of P120,000. This amount was carried forward and claim cla imed ed as ded deduct uctio ion n fro from m gro gross ss inc incom ome e in 202 2020. 0. What is the improperly accumulated earnings (IAE) of Maduya Corp. for 2020? Response:  P78,000 Response: P78,000 Feedback: Correct! Solve for the income tax payable first:  Then, compute for the improperly accumula accumulated ted Gross Income:

P1,300,000

Add: Other Income

60,000

 Total Income Less:

P1,360,000

Business Expenses NOLCO

600,000 120,000

 Taxable Net Income

P640,000

Multiply: Tax Rate

30%

Income Tax Due

192,000

earnings.  Taxable Net Income

P 640,000

Add: NOLCO

120,000

Dividend from Alpas Company

35,000

Interest on depo Interest deposits sits with Metr Metroban obank k (P5, (P5,000 000   / .80)  Total Less:

6,250 P 801,250

Income Tax Due

192,000

Final Tax on Interest

1,250

Dividend Paid

130,000

Reserved for Plant Acquisition

400,000

 Total Improperly Accumula Accumulated ted Earnings

P 78,000

Question 8

Response: A resident foreign corporation engaged in business as a regional operating headquarters

Wh Whic ich h of th the e fo foll llow owin ing g DO DOES ES NO NOT T fa fall ll un unde derr th the e definition of a “corporation” for income tax purposes according to Section 22(B) of the NIRC.

Feedba Feed back ck:: Co Corre rrect! ct! A res resid ident ent for foreig eign n eng engage aged d in busine bus iness ss as a re regio giona nall ope operat ratin ing g hea headqu dquart arter ers s is subject to 30% corporate income tax, hence can be subjected to MCIT.

Response: Sole proprietorship Feedba Feed back ck:: Co Corr rrec ect! t! Th This is do does es no nott fa fall ll unde underr th the e defi de fini niti tion on of a co corp rpor orat atio ion n an and d wi will ll be su subj bjec ectt to individuall taxation. individua

 

Question 9

A br bran anch ch pr prof ofit it re remi mitt ttan ance ce is su subj bjec ectt to wh what at percentage of tax? Response: 15% Feedba Feed back ck:: Co Corr rrec ect! t! Th This is is a ta tax x to be pa paid id as asid ide e from the income tax of 30%. Question 10 A dom domes estic tic cor corpor porati ation on has the fol follo lowin wing g dat data a for 2020: Excess MCIT 2019

P10,000

Quarter

1

2nd

Income per quarter

P500,000

P800,000

480, 000

700, 000

Deductions

st

How much is the income tax payable in the second quarterly return? Response: P16,000 Response:  P16,000 Feedba Feed back ck:: Co Corr rrect ect!! Det Determ ermine ine the tax due to the company under the 30% Regular Income Tax (RIT) first: Quarter

1st

2nd

Cumulative Gross Income

P500,000

P1,300,00

Les ess; s; Cu Cumu mullat ativ ive e De Dedu duc cti tion ons s

P480 P4 80,0 ,000 00

P1,1 P1 ,180 80,0 ,00 0

 Taxable Net Income

P20,000

P120,000

Multiply by:

30%

30%

Income Tax Due

P6,000

P36,000

 Then, determine the tax due under 2% Minimum Corporate Income Tax (MCIT):  

Quarter

1st

Cumu Cu mula lati tive ve Gr Gros oss s In Inco come me

P500 P5 00,0 ,000 00

2nd P1,3 P1 ,300 00,0 ,00 0

Multiply by: 2% 2% Income Tax Due P10,000 P26,000 By co comp mpar arin ing g th the e ta tax x du due e un unde derr ea each ch ta tax, x, it is deter de termi mined ned tha thatt in the 1st qu quar arter ter,, the com compa pany  ny  will wi ll pa pay y th the e ta tax x du due e un unde derr MC MCIT IT.. Th Thus us,, th the e pr prio iorr  year’s MCIT cannot be credited: Quarter 1st Income Tax Due P10,000 Less Le ss:: MC MCIT IT fr from om Pr Prio iorr Year   Income Tax Paid Income Tax Payable P10,000

2nd P36,000 P10,000 P10,000 P16,000