Incone Taxation Valencia Roxas Tax Chapter 11: Income Tax of Individuals

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

CHAPTER 11

INCOME TAX OF INDIVIDUALS Problem 11 – 1 TRUE OR FALSE 1. False – interest income under expanded foreign currency deposit of a nonresident alien is exempt from income tax in the Philippines. 2. False – taxable for income within only. 3. True 4. True 5. False – the installment payment of income tax due for individuals is allowed only when the income tax due is more than P2,000. 6. True 7. False – the income of a senior citizen is to be tax just like a minimum wage earner. 8. True 9. False – the quarterly income tax return of a self-employed taxpayer is not subject to personal exemption, only his adjusted annual income tax return. 10. True 11. False – No personal exemption is allowed to NRANEBT. 12. True Problem 11 – 2 TRUE OR FALSE 1. True 2. False – a Filipino special taxpayer has the option to be taxed using final tax of 15% or normal tax of 5% to 32%. 3. True 4. True 5. False – subject to creditable withholding income tax. 6. True. 7. False – Tax credit of income taxes paid outside the Philippines is allowed only for resident Filipino citizen and domestic corporation. 8. False – The creditable withholding tax is 15%. 9. False – Gross income includes other income but not compensation income. 10. False – tax-exempt 11. True 12. False – Only Philippine lotto and sweepstakes are tax-exempt. Problem 11 – 3 1. A 2. C 3. D 4. A 5. D 6. C 7. B 8. D 9. D 10. B

Problem 11 – 6

Problem 11 – 4 1. D 2. C 3. B 4. A 5. C 6. B 7. D 8. D 9. B 10. C

Problem 11 – 5 1. C 2. B 3. A 4. D 5. D 6. B 7. B 8. D 9. D 10. A

C

Basic personal exemption Additional exemptions for:

P50,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Mentally retarded legitimate son (40 years) old Illegitimate daughter (10 years old) Adopted child (6 years old) Total deductions allowed

P25,000 25,000 25,000

75,000 P125,000

For additional exemption of the taxpayer’s dependent, the Tax Code defines a “dependent” as a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer. Subject to the conditions that such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect. The additional exemption of P25,000 per child is granted to a maximum of 4 qualified dependent children. [Sec. 35 (B), NIRC as amended by R.A. 9504] A taxpayer supporting a senior citizen is not allowed to claim additional exemption. The Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of June 6, 2008 provides that additional exemption shall apply to qualified dependent children. When the law does not include it excludes. The old CTA decision is superseded by the two Special Laws – R.A. 8424 & R.A. 9504 which are superior to CTA decision. Furthermore, Rev. Regs. No. 4 – 2006, Sec. 7 last paragraph provides that “No personal exemption is allowed for senior citizen.” It must be noted that the principle of “lex posteriori derogate priori” – the more recent law governs. Problem 11 – 7 C Basic personal exemption Additional exemption (a & b only) (P25,000 x 2) Total personal and additional exemptions Problem 11 – 8 Not in the choices = P70,000. Basic personal exemption – reciprocity Add: Additional exemption – reciprocity (P10,000 x 2) Basic personal exemption – married

P50,000 50,000 P100,000 P 50,000 20,000 P 70,000

When there is reciprocity, nonresident alien engaged in business in the Philippines is allowed of personal exemptions subject to limit. The term “personal exemption” in the Philippines includes both the basic personal exemption (Sec. 35 (A), NIRC) and additional exemption for qualified dependent children not exceeding four. (Sec. 35 (B), NIRC) Problem 11 – 9 D Zero. Maria has no income. Problem 11 – 10 A Income from the Philippines (P10,000 x 12) Less: Personal exemption Income subject to tax in the Philippines

P120,000 50,000 P 70,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Note: Income earned by OFW outside the Philippines is not subject to tax in the Philippines. The income from the sari-sari store in the Philippines is earned from January to December of the taxable year. Problem 11 – 11 Not in the choices =P487,500. Gross compensation income – Philippines (P250,000 x 12) Add: 13th month pay Total taxable compensation Multiplied by special income tax rate Income tax payable

P3,000,000 250,000 P3,250,000 15% P 487,500

The entire compensation income is subjected to 15% tax rate. Problem 11 – 12 C Gross compensation income – within (P150,000 x 6) Add: Taxable 13th month pay [(P150,000/2) Bonus Total amount subject to final tax Multiplied by special income tax rate Income tax payable

P 900,000 75,000 50,000 P1,025,000 15% P 153,750

If the special taxpayer is an alien and qualifies to be taxed using 15% special tax rate, all of his gross compensation income is subject to 15% final tax. Take note that the 13 th month pay amounting to P30,000 is included as taxable compensation because the tax rate has been reduced to 15%. Problem 11 – 13 B Annual salary (P65,000 x 12 months) Annual cost of living allowance (P5,000 x 12 months) 13th month pay (P780,000/12) Gross compensation income Less: Nontaxable 13th month pay Taxable gross compensation income Less: Personal exemption – basic Net taxable income

P780,000 60,000 65,000 P905,000 30,000 P875,000 50,000 P825,000

Tax on P500,000 Tax on excess [(P825,000 – P500,000) x 32%] Income tax due

P125,000 104,000 P229,000

Since the compensation income is below the threshold of P975,000 per year of a Filipino Citizen Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies, his compensation income shall be subject to a regular tax for individuals. (Sec. 1, Rev. Regs. No. 11-2010) Take note that if the special Filipino taxpayer opted to be tax using normal tax, the 13 th month pay is deducted as nontaxable income.

Problem 11 – 14

C

Gross compensation income Add: Net income from rent

P200,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Rent income Less: OSD (P50,000 x 40%) Net income before personal exemption Less: Basic personal exemption Premium payments on hospitalization insurance, limit Net taxable income

P50,000 20,000

30,000 P230,000

P50,000 2,400

52,400 P177,600

For individual taxpayers, only gross sales or gross receipts are allowed as the basis of OSD (Sec. 34(L), NIRC; RA 9504). The Baybay vs. CIR, CTA Case No. 5280 dated Dec. 20, 1996 is no longer applicable because the most recent Tax Laws R.A. 8424 of January 1, 1998 and R.A. 9504 of June 6, 2008 provides that additional exemption shall apply to qualified dependent children. When the law does not include it excludes. The old CTA decision is superseded by the two Special Laws –R.A. 8424 & R.A. 9504 which are superior to CTA decision. Furthermore, Rev. Regs. No. 4 – 2006, Sec. 7 last paragraph provides that “No personal exemption is allowed for senior citizen.” It must be noted that the principle of “lex posteriori derogate priori” – the more recent law governs. Problem 11 – 15 1.

Letter B Compensation income Business and other income: Professional income (P300,000 + P200,000) Interest income – without Dividend income – without Total business and other income Less: OSD (P600,000 x 40%) Net business income Total net income before personal exemption Less: Basic personal exemption Net income to ITR – tabular tax

Subject to Tabular tax P240,000 500,000 60,000 40,000 P600,000 ( 240,000) P360,000 P600,000 ( 50,000) P550,000

Interest income within Dividend income within Income subject to final tax 2.

Letter A Compensation income Business income: Professional income, net of OSD (P300,000 x 60%) Total net income before personal exemption Less: Basic personal exemption Net income to ITR – tabular tax Interest income within Dividend income within Income subject to final tax

Final tax

P100,000 60,000 P160,000 P240,000 180,000 P420,000 50,000 P370,000 P100,000 60,000 P160,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Problem 11 – 16

D

Net taxable income, net of withholding tax Tax on P140,000 Tax on P250,000 Less: Withholding tax Net tax payable

Husband P140,000 P22,500

P50,000 45,000 P5,000

20,000 P 2,500

Problem 11 – 17 B Compensation as researcher Less: Personal exemption – basic Net taxable compensation income Tax on P500,000 Tax on excess (P50,000 x 32%) Total income tax from compensation Dividend income tax (P120,000 x 10%) Interest income tax (P500,000 x 7.5%) Total income tax due Problem 11 – 18 D Capital gains tax on shares of stock (P80,000 x 5%) Capital gains tax on sale of land (P2,000,000 x 6%) Total capital gains tax paid Problem 11 – 19 1. Letter B Final tax on copyright royalty (P11,250/90%) x 10% Final tax on mineral claim royalty (P12,000/80%) x 20% Final tax on share from trading partnership as dividend (P270,000/90%) x 10% Total final tax 2.

Wife P250,000

P 600,000 50,000 P 550,000 P125,000 16,000 P141,000 12,000 37,500 P190,500 P

4,000 120,000 P124,000

P 1,250 3,000 30,000 P34,250

Letter D None. All reported earnings are subject to final tax.

Problem 11 – 20 B Percent of service Add: Output VAT Total Less: Withholding tax Percent of net proceeds

100% 12% 112% 20% 92%

Net proceeds Divided by percent of net proceeds Service fee

P 92,000 92% P100,000

Withholding tax (P100,000 x 20%)

P 20,000

VAT (P100,000 x 12%)

P 12,000

Problem 11 – 21 1. Letter A Salaries of assistants

P 96,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Traveling expenses Light and water, Office Stationeries and supplies Office rent Total expenses before contribution Add: Contribution subject to limit (P500,000 – P176,850) x 10% Total allowable deductions 2.

3.

Letter C Professional fees Less: Allowable deductions Net income from business Add: Income from compensation: Allowance as director of Corporation A Commissions Net income before personal and additional exemptions Letter D Net income before personal and additional exemptions Less: Personal and additional exemptions: Basic – widower Additional exemptions (P25,000 x 3 qualified children) Net taxable income

11,000 7,890 1,960 60,000 P176,850 32,315 P209,165 P500,000 209,165 P290,835 P25,000 5,000

P320,835 P 50,000 75,000

Tax on P140,000 Tax on excess (P55,835) x 30% Income tax due Problem 11 – 22 1. Using itemized deduction Compensation income Gross income from business Less: Itemized deduction Total income before personal exemptions Less: Personal exemptions Basic personal exemptions Additional exemptions (P25,000 x 4) Taxable income

125,000 P195,835 P 22,500 13,959 P 36,459

P 20,000 P 400,000 150,000 P 50,000 100,000

Computation of income tax: Tax on P70,000 Tax on excess (P50,000) x 20% Income tax before withholding tax Less: Withholding tax Income tax due and payable 2. Using optional standard deduction Compensation income Gross income from business Less: Optional standard deduction (40%) Total income before personal exemptions Less: Personal exemptions Basic personal exemptions Additional exemptions (P8,000 x 4)

30,000 P320,835

250,000 P270,000 150,000 P120,000 P 8,500 10,000 P 18,500 1,000 P 17,500

P 20,000 P 400,000 160,000 P 50,000 100,000

240,000 P260,000 150,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Taxable income

P110,000

Computation of income tax: Tax on P70,000 Tax on excess (P40,000 x 20%) Income tax before withholding tax Less: Withholding Tax Income tax due and payable Problem 11 – 23 1. P71,200 Net worth, December 31, 200B Less: Net worth, December 31, 200A Unadjusted net income for year 200B Add back: Non-deductible expenses Contributions (P20,000 + P50,000) Total Less: Non-taxable income Income before contribution Less: Contributions: Deductible in full With limit Actual, P50,000 Limit, P268,000 x 10% = P26,800 Allowed Net income before personal exemptions Less: Personal exemptions (P50,000 +p100,000) Net taxable income 2.

P 8,500 8,000 P 16,500 1,000 P 15,500

P375,000 325,000 P 50,000 150,000 70,000 P270,000 2,000 P268,000 P 20,000

26,800

P47,000 Corrected net taxable income Less: Reported net income subject to tax Unreported taxable income

Problem 11 – 24 200B net income from business Capital gains transactions Short-term capital gains (P40,000 x 100%) Long-term capital gains (P30,000 x 50%) Short-term capital loss (P10,000 x 100%) Net capital gains Less: 200A Capital loss carry over – limit Income before personal exemptions Basic personal exemption- married Additional exemption (P25,000 x 3) Taxable income, 200B

46,800 P221,200 150,000 P 71,200 P 71,200 24,200 P 47,000 P 600,000

P 40,000 15,000 (10,000) P45,000 35,000 P 50,000 75,000

10,000 P 610,000 125,000 P 485,000

Note: The applicable capital loss carry-over should only be limited to P35,000, because it should not exceed the net income from operation of such year (Sec. 39D, NIRC). Problem 11 – 25 1. Compensation income (P240,000 + P30,000) Less: Personal exemption (P50,000 + P25,000) Net taxable compensation Business income

P270,000 75,000 P195,000 P100,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Less: Business expenses Net loss from business Net taxable income 2.

120,000 (P20,000)

0 P195,000

Tax on P140,000 Tax on excess (P55,000 x 25%) Income tax due Less: Tax credit Income tax still due and payable

Problem 11 – 26 1. Salary (P30,000 x 12) Add: Taxable 13th month pay (P35,000 – P30,000) Total Less: SSS contribution Medicare/Philhealth contribution Taxable compensation income before personal exemption Less: Personal exemption Net taxable compensation income

P22,500 13,750 P36,250 30,000 P 6,250 P360,000 5,000 P365,000 P3,000 2,000

5,000 P360,000 50,000 P310,000

Estimated income tax due: Tax on P250,000 Tax on excess (P60,000 x 30%) Total income tax due per year Divided by number of months in a year Monthly withholding tax 2.

P50,000 18,000 P68,000 12 P 5,667

Quarterly business income tax Business income per quarter Less: Business expense per quarter Net income per quarter

P200,000 120,000 P 80,000

Tax on P70,000 Tax on excess (P10,000 x 20%) Quarterly business income tax per quarter Problem 11 – 27 1. Entertainment fee (P1,700,000/85%) Business income Philippines Japan Total gross income Less: OSD (P3,500,000 x 40%) Net income before personal exemption Less: Personal exemption - basic Additional (P25,000 x 4) Net taxable income 2.

Tax on P500,000 Tax on excess (P1,450,000 x 32%) Income tax due

3.

Tax credit Creditable withholding tax on fees

P

8,500 2,000 P 10,500 P2,000,000 500,000 1,000,000 P3,500,000 1,400,000 P2,100,000 P50,000 100,000

150,000 P1,950,000 P 125,000 464,000 P 589,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

(P2,000,000 x 15%) Business income tax paid - Philippines Japan (P589,000 x 594,000*/2,100,000)) P166,603 vs. actual P300,000, lower 4.

P300,000 40,000 166,603

Income tax still due (P589,000 – P506,603)

P 506,603 P 82,397

Supporting computation of net taxable income before personal exemptions: Gross receipts Percent

Within 2,500,000 71%

Outside 1,000,000 29%

Total 3,500,000 100%

Allocated OSD x percent Net income before personal exemption

994,000 1,506,000

406,000 594,000

1,400,000 2,100,000

Problem 11 – 28 Gross professional income (P100,000/90%) Rent income (P300,000/2) Total gross income Less: OSD (40%) Net income from business Add: Gross compensation income Total Less: Personal exemptions Net taxable income Tax on P140,000/ P250,000 Tax on excess: Mr. Bravo (P91,667 x 25%) Mrs. Bravo (P90,000 x 30%) Income tax due Withholding tax on compensation Withholding tax on professional income (P111,111 – P100,000) Income tax still due and payable

Mr. Bravo P111,111 150,000 P261,111 104,444 P156,667 225,000 P381,667 150,000 P231,667

Mrs. Bravo

P 22,500

P 50,000

22,917 . P 45,417 ( 25,000) ( 11,111) P 9,306

27,000 P 77,000 ( 50,000) . P 27,000

Problem 11 – 29 1. P290,000 Compensation income Taxable 13th month pay and bonuses (P40,000 – P30,000) Net business income (P400,000 – P300,000) Capital gains – long-term (P60,000 x 50%) Total Less: Personal exemptions (P50,000 + P100,000) Net taxable income 2. (P8,000) Tax on P250,000 Tax on excess (P40,000 x 30%) Total income tax due Less: Income tax paid on: Compensation Quarterly business income Income tax refund

P150,000 P150,000 60,000 P 90,000 300,000 P390,000 50,000 P340,000

P300,000 10,000 100,000 30,000 P440,000 150,000 P290,000 P P

50,000 12,000 62,000

(P

70,000 8,000)

P 50,000 20,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Problem 11 – 30 1. 13th month pay Other benefits: Excess of clothing allowance (P4,500 – P4,000) Excess of rice subsidy (P1,600 – P1,500) x 12 Total (not exceeding P30,000) – nontaxable Allowable de minimis: Clothing allowance Rice subsidy (P1,500 x 12) Total 13th month pay and other benefits – nontaxable 2.

3.

P25,000 P 500 1,200 P4,000 18,000

Basic salary (P25,000 x 12) Less: Personal exemptions Net taxable compensation income

1,700 P26,700 22,000 P48,700 P300,000 150,000 P150,000

Tax on P140,000 Tax on excess (P10,000 x 25%) Total income tax due

P22,500 2,500 P25,000

Withholding tax from January to November 200A (P25,000/12) x 11

P22,917

Net taxable compensation income P150,000 Add: Net business income: Professional fees (P224,000/1.12) P 200,000 Gross income from sales (P5,000,000 – P3,200,000) 1,800,000 Less: Itemized deductions: P2,000,000 Operating expenses, net of interest expense (P900,000 – P50,000) P850,000 Interest expense (P50,000 – (P75,000 x 33%) 25,250 824,750 Net income before contribution P1,175,250 Less: Contribution, actual = P100,000, lower Contribution, limit (P1,175,250 x 10%)= P117,525 100,000 1,075,250 Net taxable income P1,225,250 Tax on P500,000 Tax on excess (P725,250 x 32%) Total income tax due Less: Tax credits: WTW from Jan to Nov., 200A WT on Professional income (P224,000 – P200,000) Income tax still due and payable on December 31, 200A

Problem 11 – 31 Gross income from business (P1,000,000 – P700,000) Operating expenses (P250,000 – P60,000 – P30,000) Deductible interest expense (P30,000) – (P20,000 x 33%) Deductible contribution (P300,000 – P160,000 – P23,400) x 10% Net business income Capital asset transactions: Capital gains – short-term (P300,000 x 100%) Capital losses – long-term (P400,000 x 50%) Lotto winning, USA Gambling winnings

P125,000 232,080 P357,080 P22,917 24,000

46,917 P310,163 P 300,000 ( 160,000) ( 23,400) ( 11,660) P 104,940

P 300,000 200,000 P 200,000

100,000 300,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Gambling losses (excess cannot be deducted from other income) Gross compensation income (P180,000 + P20,000) Taxable 13th month pay (P35,000 – P30,000) Net taxable income before exemption Less: Personal exemptions (P50,000 + P100,000) Net taxable income

250,000 200,000 5,000 P 709,940 150,000 P 559,940

Tax on P500,000 Tax on excess (P59,940 x 32%) Total income tax due Less: Withholding tax on compensation Income tax still due and payable

P 125,000 19,181 P 144,181 20,000 P 124,181

Problem 11 – 32 Note: OSD is not applicable unless the taxpayer signified in his ITR that he opted to use OSD in lieu of itemized deductions. (Sec. 34 (L), NIRC)

Taxpayer is a resident citizen a. Normal (tabular) tax: Salaries: Within (P180,000/90%) Without ($2,250/90%) x P50 Commissions: Within (P57,000/ 95%) Without ($950/ 95%) x P50 Interest income-without ($1,200/80%) x P50 Dividend-without ($1,800/90%) x P50 Totals Less: Personal exemption – basic Taxable income Tax on P500,000 Tax on excess (P60,000) x 32% Total Less: Tax credits: Compensation (P200,000 x 10%) Commission (P60,000 x 5%) Allowable tax credit - foreign* Income tax due and payable, after tax credits

Philippines P200,000

U. S. A.

Total

P125,000

P325,000

50,000 75,000

110,000 75,000

100,000 P350,000

100,000 P610,000 50,000 P560,000

60,000

. P260,000

P125,000 19,200 P144,200 P20,000 3,000 40,000

63,000 P 81,200

*Allowable tax credit paid outside the Philippines is lower than tax limit or actual tax paid. The tax credit is computed as follows: Limit (P350,000/P610,000) x P144,200 Actual foreign taxes paid: Interest (P75,000 x 20%) Compensation (P125,000 x 10%) Dividend (P100,000 x 10%) Commissions (P50,000 x 5%) Total

P82,738

Allowable foreign tax credit - lower

P40,000

P15,000 12,500 10,000 2,500 P40,000

Note: The actual tax paid outside the Philippines is lower than the computed tax limit; hence, the actual tax paid without is the allowable tax credit.

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 11: Income Tax of Individuals

b. Passive income tax: Interest income within (P50,000/ 80%) x 20% Dividend income within (P9,000/ 90%) x 10% Total passive income tax for the year

P12,500 1,000 P13,500

Note: Philippine Lotto winnings are tax-exempt.

Taxpayer is a nonresident citizen a. Normal (tabular) tax: Salaries - within (P180,000/90%) Commissions- within (P57,000/95%) Net income Less: Personal exemption - basic Taxable income Tax on P140,000 Tax on excess (P70,000) x 25% Total tax due Less: Withholding taxes within (P20,000 + P3,000) Income tax due and payable

P200,000 60,000 P260,000 50,000 P210,000 P22,500 17,500 P40,000 23,000 P17,000

b. Passive income tax: Interest income within (P50,000/80%) x 20% Dividend income within (P9,000/90%) x 10% Total passive income tax for the year

P12,500 1,000 P13,500

Note: Nonresident citizens are taxable only on income derived within the Philippines.

Taxpayer is a resident alien. Solution is the same as nonresident citizen. Taxpayer is a nonresident alien engaged in trade or business in the Philippines. The taxpayer cannot be regarded as doing business in the Philippines because he has no business income in the Philippines. If the taxpayer has stayed more than 180 days in the Philippines, he is regarded as doing business. The computation of his net income tax payable in the Philippines will be the same as in number 2 under the assumption that his country is granting the same privilege of reciprocity to nonresident Filipino doing business in that foreign country. Taxpayer is a nonresident alien not engaged in trade or business in the Philippines. Nonresident aliens are subject to tax of 25% based on their gross income derived within the Philippines. In our illustration, let us assume that the source of income has been deducted with 25% tax on the income given to the taxpayer - that is, the amount shown in the problem is net of 25% final tax. The income tax of Mr. Ramsay Colorado would be: Salaries- within (P180,000/75%) Commissions- within (P57,000/ 75%) Interest income within (P50,000/ 75%) Dividend income within (P9,000/ 75%) Gross income within

P240,000 76,000 66,667 12,000 P394,667

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 11: Income Tax of Individuals

Multiplied by tax rate Income tax for the taxable year within

25% P 98,667

Note: In computing the income tax, a fractional part of a peso less than P0.50 shall be disregarded. If the fractional part is P0.50 or more, it shall be rounded up to P1.00 (R.A. 590). Problem 11 – 33 Gross income from business (P1,000,000 – P700,000) Operating expenses (P250,000 – P60,000 – P30,000) Deductible interest expense (P30,000) – (P20,000 x 33%) Deductible contribution (P300,000 – P160,000 – P23,400) x 10% Net business income Capital asset transactions: Capital gains – short-term (P300,000 x 100%) Capital losses – long-term (P400,000 x 50%) Lotto winning, USA Gambling winnings Gambling losses (excess cannot be deducted from other income) Gross compensation income (P180,000 + P20,000) Taxable 13th month pay (P35,000 – P30,000) Net taxable income before exemption Less: Personal exemptions (P50,000 + P100,000) Net taxable income Tax on P500,000 Tax on excess (P59,940 x 32%) Total income tax due Less: Withholding tax on compensation Income tax still due and payable

P 300,000 ( 160,000) ( 23,400) ( 11,660) P 104,940 P 300,000 200,000

100,000 300,000

P 200,000 250,000 200,000 5,000 P 709,940 150,000 P 559,940 P 125,000 19,181 P 144,181 20,000 P 124,181