154328052 Income Taxation Ampongan Sol Man PDF

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EXERCISES 1. None. The entire income is exempt because Minnie is a MWE. Basic salary P Overtime and differential pay Hazard pay Other benefits: 13th month pay P Less: Exemption . Total (not taxable) 2. a. None. Proceeds of life insurance policy payable upon the death of the insured are excluded from...

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EXERCISES 5-1 1.

None. The entire income is exempt because Minnie is a MWE. Basic salary P 48,000 Overtime and night-shift differential pay 14,000 Hazard pay 12,000 Other benefits: 13th month pay P 4,000 Less: Exemption 30,000 - . Total (not taxable) 74,000

2. a.

None. Proceeds of life insurance policy payable upon the death of the insured are excluded from gross income.

.

b Fernando must report P20,000 [(P12,000 x 10) – 100,000] as income. The rule is "amounts received in excess of the face amount of the policy are usually taxable as interest;” hence, included in the gross income.

.

c No. It does not matter whether the insured is the mother or the wife of the beneficiary. The exclusion exists because life insurance benefits closely resemble inheritances which are not taxable.

3.

None, because Angel is not required to pay income tax on the entire amount he received as proceeds from insurance policy. The reason being that the insured did not outlive the policy. If however, his father outlived the life insurance policy, Angel must report an income of P75,000 (the face amount of P100,000 minus the premiums paid in the amount of P25,000).

4.

Rodolfo must report an income of P75,000. Although acquired by him, he is not required to report the value of the inherited properties in his income tax return because properties acquired thru inheritance are subject to estate tax; the liability being on the estate and not on the recipient of the estate.

5. a.

The P20,000 given to cover medical expenses are actual damages, while the other P20,000 constitutes moral damages. Both actual and moral damages are not subject to tax. b The P150,000 awarded by the court for winning in the libel case is not . taxable. Libel is included in the phrase "personal injury or sickness," which is exempt from income tax.

c.

Not included in the gross income. The amount of P12,000 being given by the employer to its employees in case of disability are not salaries but compensation for personal injuries being suffered by its employees.

Taxable. Salaries received by employees who are unable to work due to personal injuries or sickness are taxable. It does not make any difference between receiving the salary while he is working and receiving the same even while the employee is unable to work.

d.

Not taxable. The P60,000 is in the form of moral damages which is not capable of pecuniary estimation. Besides, it is in the nature of a return of capital.

e.

6. 6. No, because all the requisites for exemption from income tax are present: (1) Tanda retired at age 60 which is more than the required age of 50 years; (2) a private pension plan is maintained by the employer; and, (3) he worked with San Jose Corporation for more than 10 years. The law does not require continuous service. Therefore, the 10-year service requirement is satisfied even if he had a broken service with the company. 7.

The amount is taxable to Nilo. Separation pay is exempt from income tax if the cause of separation from service is death, sickness, physical disability, or any cause beyond the control of the employee. None of the above-mentioned can be pointed out as the very cause of his separation from service. Inefficiency in service due to frequent tardiness caused by heavy traffic is not beyond the control of the employee. Taxable.

8. a.

b Taxable. . .

c Not taxable. Kay was awarded without joining the contest and not required to render substantial future services. Moreover, the prize given was in recognition of an educational attainment.

9.

The prize won by Tornado is taxable. The fight was not sanctioned by a national sports associations. As a matter of fact, it was held in a very secluded place. The main purpose of the fight is for the gamblers to bet on their favorite fighter and not to promote sports.

10.

Answer: P38,000 Salary (P20,000 x 12) Add: Benefits Christmas bonus Productivity bonus Loyalty award

240,0 00 20,000 2,000 3,000

Cash gift Anniversary bonus 13th month pay Total Less: Exemption

1,000 2,000 20,000 48,000 30,000

Income subject to tax

18,0 00 258,0 00

EXERCISES 5–2.1: 1.

2.

ANSWER: D The entire amount of proceeds of the insurance policy received by the beneficiary of Okeze from Filipinas Life Assurance Company is not taxable because they are more considered as indemnity rather than as gain or profit. ANSWER: B Proceeds of life insurance Less: Premiums paid (1,000 x 12 x 20) Subject to tax

3.

ANSWER: C Total amounts received (50,000 x 12) Less: Face value of the policy Deemed interest (taxable)

4.

ANSWER: C Total amounts received (50,000 x 12) Less: Amount of premiums paid (1,000 x 12 x 20) Subject to tax

500,00 0 240,00 0 260,00 0

600,00 0 500,00 0 100,00 0

600,00 0 240,00 0 360,00 0

Prob 5-2.2

1.

ANSWER: C Proceeds of insurance

500,0

Less: Premiums paid (P10,000 x 20) Income subject to tax

2.

00 200,00 0 300,00 0

ANSWER: D None because Sonia died.

Prob 5-2.3

ANSWER: D Income from coconut land Income from bus operation Income subject to tax

50,0 00 30,000 80,000

Prob 5-2.4:

ANSWER:

B

Proceeds of life insurance policy Less: Amounts of premiums paid Amount subject to tax

P 500,00 0 400,00 0 100,00 0

Prob 5-2.5:

ANSWER:

C

Proceeds of insurance policy Less: Amount paid upon P assignment 60,000 Premiums 80,000 subsequently paid Taxable income

P 200,00 0

140,00 0 60,00 0

Prob 5-3.1

ANSWER:

C

Applying the principle of “beyond the control test,” the separation from employment of Mr. Jacobo was due to a cause which is within his control, that is resignation; while the cessation from employment of

Mr. Kintanar was made without his control. Therefore, the separation pay received by Mr. Jacobo is a taxable income while the amount received by Mr. Kintanar is not taxable. Prob 5-3.2

ANSWER:

C

The retirement benefit of P300,000 is taxable to Jovito because he retired at the age of 48. To be exempt from the payment of income tax, the taxpayer must be at least 50 years on the date of his retirement. In the case of the proceeds from insurance policy, the amount exempt is P40,000 (P2,000 x 20) only which represents the return of the premiums paid. Prob 5-3.3

ANSWER: B There is no showing that Mario was in the service of the same employer for at least ten (10) years, that he is at least fifty(50) years of age at the time of retirement, that he has never availed of the benefit of exclusion, and that the retirement gratuity came from a reasonable retirement plan maintained by his employer. The amount of P250,000 is taxable because Remus is only 49 years old upon retirement. To be exempt from income tax, the retirement age of an employee must be at least 50 years. Prob 5-3.4

ANSWER: D The money value of the accumulated leave credits given to a retiring government official or employee is not subject to tax (CIR s. CA, et.al, 203 SCRA 72). Prob 5-3.5

ANSWER: A The P1,000,000 is part of Larry's retirement pay and not a gift. Considering that the requisites for exemption from payment of tax are satisfied, the additional P1,000,000 is not taxable. Prob 5-3.6

ANSWER: D

The separation pay received by Evelyn is taxable because of the voluntary action on her part. To be exempt, the causes for separation must be either death, sickness, physical disability, or any cause beyond the control of the employee. The separation pay received by Ling-ling and Gina are exempt because they are separated from service due to redundancy and disability, causes which are beyond their control. EXERCISES 5–4. Prob 5–4.1 ANSWER: C Only the amount of P300,000 corresponding to the income which was lost during the period of treatment is taxable because even if he did not meet an accident, that income would have been taxable. Prob 5-4.2 ANSWER: A Two months' salary Increase in value of car (P600,000 450,000) Income

40,0 00 150,00 0 190,00 0

Prob 5-4.3

ANSWER: C Payment for the salaries

60,0 00

Prob 5-4.4

ANSWER:

D

The amount of P500,000 should not be declared in the income tax returns of the heirs. The amount represents damages received on account of personal injuries (which includes death), therefore excludible from gross income [Sec. 32 (B) {1}, TRA). The reason is that life insurance proceeds represents indemnity and not income. The proceeds of life insurance policies paid to the beneficiary, in this case the wife, upon the death of the insured is excluded from gross income. EXERCISES 5–5

EXERCISE 5–

5.1: ANSWER: C Talent fee Professional fee Total amount taxable Cash prize Pay per view Talent fee Taxable amount

400,000 1,000,000 1,400,000 25,000,00 0 30,000,00 0 12,000,00 0 67,000,00 0

EXERCISES 55.2 a. The P350,000 value of the car is subject to a final tax of 20%. b. The P5,000 is subject to graduated tax to be reported in the income tax return. c. The cash prize and the equivalent amount of the 100 shares are subject to 20% final tax because the awards given are not in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement. EXERCISES 5-5.3 Being a resident citizen, Monique Salonga is taxable on income within and without the Philippines. Consequently: a.

The income of $75,000 is taxable to her unless she has acquired the status of a contract worker. In which case, the $75,000 is not taxable to her because contract workers are taxable only on income derived from sources within the Philippines;

b. The talent fees derived from Inter-Island Broadcasting Network amounting to P100,000 is a professional income subject to graduated rates of tax. c.

The $5,000 value of the trophy is not taxable to her because it is in recognition of an outstanding achievement. An award for outstanding achievement is a gift, and not a taxable income.

PROBLEM 5-6.1 ANSWER:

D

Salary (P25,000 x 12)

300,0 00

Other benefits: 13th month pay

25,00 0 2,500 30,000 57,500 30,000

Cash gift Longevity pay Total Less: Amount of exemption Proceeds of life insurance (300,000 – 200,000) Income subject to tax

27,5 00 100,00 0 427,50 0

EXERCISE 5 – 7 1. None. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by a minimum wage earner shall likewise be exempt from income tax. 2 Basic salary . Commissions Honoraria Holiday pay Overtime pay Hazard pay Other benefits (36,000 30,000) Income subject to tax

95,000

–

15,000 10,000 7,000 8,500 6,000 6,00 0 147,50 0

EXERCISES 5 – 8 1.

ANSWER:

D

Only option D has complied with the requisites for exemption from tax of retirement benefits, viz: (1) There must be a private pension maintained by the employer and approved by the BIR; (2) The retiring official or employee has been in the service of the same employer for at least ten (10) years; (3) The age must be at least 50 years old at the time of retirement; and (4) The benefit of exemption can be

availed of only once. 2.

ANSWER:

C

A monthly gratuity of P20,000 to a Medal of Valor awardee is exempt from income tax (RA 9049). Terminal leave pay of employees of the government are exempt from tax (CIR v. Castañeda, GR 96016, Oct. 17, 1991). Retirement per Collective Bargaining Agreement is considered voluntary, hence subject to income tax and withholding tax on wages (BIR Ruling No. 071-98). Separation benefits consisting of the market value/zonal value of the residential lot, is tax exempt (BIR Ruling No. 056-95). 3.

ANSWER:

C

Letter A refers to “deductions from gross income.” Letter B refers to “tax exemption.” Letter D refers to “tax credit.” Exclusion refers to income received or earned but is not taxable as income because exempted by law or treaty. Such tax free income are not to be included in the income tax return unless information regarding it is specifically called for (Sec. 61, Regs.). 4.

ANSWER:

A

This is a case of key insurance where the company insures the life of its key employee. The proceeds is not taxable to the corporation because it is considered as an indemnification for the loss of the president which is one of the company's key employees. 5.

ANSWER:

A

The P3,500,000 is exempt from income tax because it is given as indemnification for the loss on the destruction of the company building. 6.

ANSWER:

B

The proceeds of life insurance should be declared for estate tax purposes if the designation of the beneficiary was revocable. 7.

ANSWER: C The provision exempting "interest on government securities" has

been deleted in the Tax Reform Act. Therefore, interest on government securities are now subject to tax. 8.

ANSWER: D The pension from GSIS is not taxable while the interest from the time deposit is subject to a final tax of 20%. No, the separation due to the economic condition is one which is beyond the employee’s control, hence, excluded from gross income and not subject to withholding tax.

9.

ANSWER: A The phrase "personal injuries" which are exempt from income tax includes moral damages awarded by the court on account of mental anguish experienced by one person due to libelous statements made against him.

10.

ANSWER: C Prizes amounting to P10,000 or less are to be included in the computation of gross income. They are not subject to final tax.

11.

ANSWER: C The amount of P1,500 given by his mother to Luis is in the form of a condonation or gift and not a taxable income.

12.

ANSWER: D Dismissal from employer due to inefficiency in service is a cause which is not beyond the control of the employee. Under the “beyond the control test,” whenever an employee is separated from service for a cause or causes which is/are beyond his control, the separation pay received by him is not subject to tax.

13.

ANSWER: D Damages received by a taxpayer due to physical injuries or sickness are not taxable to him. However, damages received as compensation for lost profits are subject to tax.

14.

ANSWER: D Thirteenth month pay and other benefits are exempt from income tax. However, the amount in excess of P30,000 are taxable to the employee.

15.

ANSWER: B Exclusion from gross income

16.

1,000,0 00

ANSWER: D The exemption from income tax on a qualified senior citizen does include exemption from value-added tax, estate tax, donor’s tax and income tax on passive income.

17.

ANSWER: A Monthly salary and allowance (P3,500 + 1,000) Months received (January to June 15) Actual amount of salaries received Net income from trimobile Income subject to tax

4,5 00 5.5 24,750 24,000 48,750

EXERCISES 6-1 1.

CLASSIFICATION

SITUS OF TAXABLE INCOME a. Nonresident citizen Within only b. Nonresident alien Within only (NETB) c. Nonresident citizen Within only d. Resident alien Within only e. Nonresident alien Within only (NETB) f. Nonresident alien Within only (ETB)

2. a. No. A mother is not a qualified dependent for purposes of additional exemption. b. No. An aunt is not a qualified dependent for purposes of claiming additional exemption. c. Yes. Cindy because she is supporting her daughter who is living with her. d. Yes. He is entitled to an additional exemption on his dependent daughter. e. No. A benefactor of a senior citizen is not a qualified dependent for

purposes of additional exemption. 3. a. In the absence of an agreement, John has the right to claim the additional exemption because under Revenue Regulation 2-98, husbands have the right to claim additional exemption on the dependent children. Besides, he has actual custody over the two children. b. If Marsha could prove that she provided chief support over the children, both spouses would be disqualified to claim additional exemption. Marsha is disqualified because the children are not living with her despite the support she is extending. John is disqualified because he does not furnish chief support to his children. c. None. Each taxpayer is entitled to a basic personal exemption of P50,000 regardless of his status. The additional exemption on each dependent child is P25,000 regardless of the status of the taxpayerclaimant. 4. a. None. Additional personal exemption can be claimed only on dependent children regardless of the support being extended by other persons. 5. a. None. Aunties are not qualified dependents for purposes of claiming additional exemption. b. None. The mother is not a qualified dependent. c. None. The daughter is disqualified because of her age. She is already more than 21 years old. d. None. Both Decepeda and his sister cannot claim additional exemption on their father. e. P 100,000. Elantra is allowed to claim dependents on his four children only. 6. a. No. A mixed income earner cannot be classified as a MWE regardless of his compensation income from employment. b. Yes, because the daughter is a qualified dependent. c. Gross compensation income Less: Basic personal exemption Additional exemption Taxable compensation income

240,0 00 50,000 25,000

75,0 00 145,0 00

Tax on P 140,000 5,000 x 25% Income tax

22,500 1,250 23,750

d. Gross compensation income

240,0 00 50,00 0 190,0 00

Less: Basic personal exemption Taxable income

Tax on P 140,000 50,000 x 25% Income tax

22,500 12,500 35,000

7. a. Compensation income – Jim

160,0 00 50,0 00 110,0 00

Less: Personal exemption Taxable compensation income

Business income – Pat

500,0 00 275,0 00 225,0 00 50,00 0 175,0 00

Less: Expenses Net income Less: Personal exemption Taxable income

b. Compensation income – Jim Less: Personal exemptions Basic personal Additional exemptions

160,0 00 50,000 25,000

Taxable income

Tax on P 70,000 15,000 x 20%

P 8,500 3,000

75,00 0 85,00 0

Income tax due

11,500

Business income – Pat

500,0 00 275,0 00 225,0 00 50,00 0 175,0 00

Less: Expenses Net income Less: Personal exemptions Taxable income

Tax on P 140,000 35,000 x 25% Income tax due Income tax – Jim Income tax – Pat Total income tax 8. a. Tax on P 40 x 5% b. Tax on P 10,000 x 5%

22,500 8,750 31,250 P 11,500 31,250 42,750 2.00 500

c. Tax on P 10,000 2,245.40 x 10% Income tax

500.00 224.54 724.54

d. Tax on P 250,000

50,000

e. Tax on P 250,000 206,780 x 30% Income tax due f.

Tax on P 500,000 623,251.27 x 32% Income tax due

9 a. Salary . b. Interest on bank deposit

50,000 62,034 112,034 125,000. 00 199,440. 41 324,440. 41 - Compensation - Passive income – tax exempt (long-