income taxation finals PDF

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TRUE A government school is exempt from income tax  A farmers’ or fruit growers’ association is exempt from income tax  A non-profit hospital is an exempt corporation taxable only on income from unrelated activities  A non-stock, non-profit institution must be organized for religious, charitable...

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TRUE                               

A government school is exempt from income tax A farmers’ or fruit growers’ association is exempt from income tax A non-profit hospital is an exempt corporation taxable only on income from unrelated activities A non-stock, non-profit institution must be organized for religious, charitable, scientific, athletic, cultural, or for the rehabilitation of veterans A private school is subject to 10% tax on world taxable income subject to predominance test. A regional area headquarters is exempt from tax because it does not derive income All cooperatives, regardless of classification, are subject to income tax on their income from unrelated activities As a general rule, corporations are subject to final tax, capital gains tax and regular income tax. As a general rule, government schools are exempt from corporate income tax. Compensation income is not subject to business tax. Cooperatives that transacts business with non-members are taxable on income allocated to interest on members’ capital when their accumulated reserve exceeds P10,000,000 Corporation includes joint ventures, associations, and partnerships Corporations subject to a rate below 30% are referred to as special corporations Domestic corporations are subject to 30% regular tax on world taxable income. Employees’ trust fund which forms part of a pension, stock bonus, or profit sharing plan of an employer for the benefit of some or all of his employees is exempt from income tax. Exempt corporations and special corporations are mandated to use the itemized deductions Exempt corporations are subject to income tax on their income from unrelated activities Exempt corporations filing BIR Form 1702-EX will not pay tax as a rule Expenses of an exempt corporation not directly traceable to either related or unrelated operations are allocated based on the ratio of gross income. Expenses traceable to RBU & FCDU income subject to regular tax are deductible in the determination of taxable income. Foreign and domestic banks may have an EFCDU FCDUs are limited under their license to short-term foreign currency denominated transactions. GOCCs are generally proprietary or commercial in nature and are subject to corporate income tax. Government agencies & instrumentalities are inherently non-profit because of their public service functions. Government-owned and controlled corporations are subject to corporate income tax If the accumulated reserve of a cooperative is > P10M, it is subject to income tax on amount allocated for interest on capital If the employee has no other taxable income, he may avail of the substituted filing system if he meets the conditions. Income tax exemption of corporations related only to income from related activities. Income tax holiday of BOI registered enterprises may be extended not to exceed 10 years upon meeting certain conditions. In lieu of personal and cost of living expenses of individuals, the TRAIN Law provides for the P250,000 annual income exemption for every individual taxpayer. Individuals engaged in business opting to be taxed using the 8% tax option shall no longer pay percentage tax.

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Individuals who are pure business income earners opting to be taxed at the 8% tax option are allowed to deduct P250,000 to arrive at their tax base for the 8% tax. International carriers are generally subject to 2 1/2% on Gross Philippine Billings (GPB). Local water districts are exempt from income tax Minimum wage earners are not required to file income tax return. Multiple irrevocable trusts designated by the same grantor for the benefit of the same beneficiary shall be consolidated for income tax purposes. Non-forex income of domestic FCDUs earned from other FCDUs, other residents & non-residents are subject to RCIT. Non-revenue passengers and refunded tickets excluded from Gross Philippine Billings of international carriers. Non-resident cinematographic film owner, lessor or distributor is subject to 25% final tax on Philippine gross income. Non-resident foreign corporation is subject to 30% final tax on Philippine gross income. Only vatable businesses who are below the P3M annual VAT threshold and did not register as VAT taxpayer can opt to be taxed under the 8% tax option. Persons and service establishments inside an ECOZONE are subject to the regular tax RAH or RHQs are not subject to income tax. Refunded tickets and tickets of non-revenue passengers are excluded in the Gross Philippine Billings RHQs & ROHQs are exempt from all kinds of local taxes, except real property tax on land improvements & equipment. Sale of scrap materials and income from other activity by PEZA registered entities are subject to the regular tax. Sales agents in the Philippines of off-line international carriers are subject to RCIT. The 48-hour rule does not apply when another carrier continued the flight or voyage of transient passengers The 48-hour rule may be extended by force majeure The accounting period of a taxpayer who dies during the year shall be terminated at the date of his death. The compensation income of employees, except minimum wage earners, is subject to withholding tax on compensation. The correct tax due of the employee will least likely be withheld by the employers if he has concurrent employment. The excess quarterly estimated tax payments over the quarterly tax due may, at the option of the taxpayer, be carried forward to quarters of the succeeding taxable year or claimed through tax refund. The exemption of non-stock and non-profit corporations or associations shall commence when they secure their tax exemption ruling. The gross receipts from transient passengers are excluded from Gross Philippine Billings if they depart from the Philippines through the same carrier within 48 hours from their arrival The income of FCDU, OBU, and EFCDU from residents other than depositary banks in the EFCDS or FCDS is subject to 10% final tax The income of OBU from foreign sources is exempt from income tax The option to be taxed at 8% must be indicated in the first quarter income tax return of an individual engaged in business. The unrelated income of non-profit corporations is exempt from income tax if the same is diverted to its non-profit purpose

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To be exempt, all of the net income or asset of a non-profit corporation or association must be devoted to its purposes, and no part of its net income or asset accrues to benefit any member or a specific person. TRAIN Law repealed the concept of personal exemption in order to simplify the tax system. VAT-registered taxpayers shall pay VAT and regular income tax. When the income from related activities constitutes at least 50% of total income, private schools are subject to tax at 10% of taxable income from related and unrelated activities. Withholding tax on compensation is treated as tax credit from total tax due for employees with taxable other income or if the tax is not correctly withheld. Within three years from the required date of filing of tax return, the taxpayer can amend the said tax return so long as no Letter of Authority for investigation is received from the Bureau of Internal Revenue.

FALSE 

A domestic carrier is subject to 30% tax on Philippine taxable income

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A non-profit organization is not allowed to engage in activities conducted for profit. A non-resident cinematographic film owner, lessor, or distributor is subject to 25% tax on taxable income A non-resident owner or lessor of aircraft, machineries and other equipment is subject to tax at 4.5% of gross rentals A non-resident owner or lessor of vessel is subject to tax at 7.5% of the gross rental. A regional operating headquarter of a multinational company is subject to 10% on world income An estate under extrajudicial settlement is subject to income tax. BOI-registered enterprises enjoy income tax holiday for 20 years

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Chong Hua, a private hospital, is subject to 10% tax on world taxable income. Common expenses of exempt corporations are allocated based on taxable income. Compensation income shall be included in the quarterly tax base of the 8% tax for individuals options to be taxed at this option.

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Consolidated or adjustment return is needed when correct tax is properly withheld. Cooperatives transacting only with members are subject to income tax as a general rule. Domestic film owners, lessors or distributors shall be subject to 25% tax on gross income from all sources within. Exempt corporations are never subject to corporate income tax Exempt corporations are not required to file income tax returns because they do not pay tax Exempt corporations who filed late are not subject to penalties because they have no tax due FCDU and OBU are divisions of a foreign bank For individuals opting to be taxed at the 8% tax option, the basis shall be the gross income arrived at by deducting cost of sales from sales amount. For individuals with tax payable of more than P2,000 opting to make installment payment, the deadline for the second installment is July 15 of the year following the close of the calendar year under TRAIN Law.

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For mixed income earners, gross receipts from business shall be reduced by P250,000 before applying the 8% tax rate.

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General professional partnerships are taxed like a corporation. If the employee has no other taxable income, he is mandatorily required to file an annual income tax return. If the individual engaged in business opted to be taxed using the 8% option, he is no longer required to file quarterly income tax return.

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Included in Gross Philippine Billings are ticket sales for both incoming & outgoing flights of international airlines. Interest income earned by FCDUs from other residents is subject to creditable withholding tax of 10%. International carriers are subject to a tax of 2.5% on taxable income Joint ventures formed for the purpose of undertaking construction projects or engaging in energy operations are taxable as corporations Landbank is exempt from corporate income tax. Non-profit corporations must secure tax exemption ruling from BIR valid for 1 year to enjoy tax exemption. Non-resident lessor of vessels chartered by Philippine nationals are subject to 7 1/2%final tax. Non-resident owner or lessor of aircraft, machineries & other equipment are subject to 4 1/2 % final tax. PEZA-registered enterprises are exempt from tax PEZA & TIEZA registered enterprises are subject to 5% tax on their taxable income in lieu of all national & local taxes. Philippine Airlines is subject to 2 1/2% tax on gross Philippine billings for its international flights. Pioneer firms newly registered with Board of Investments are granted 4-year income tax holiday. Receipts from flight originating from a foreign country w/ stopover in the Philippines are subject to GPB tax at all times. Regular banking units (RBU) are subject to 10% preferential rate on taxable income. Resident foreign corporation is subject to 30% regular tax on world taxable income. Resident foreign EFCDUs are taxed exactly the same as domestic EFCDUs for their income within & outside the Philippines. ROHQs are exempt from income tax. Special corporations are subject to preferential tax rates higher than 30%. Special corporations can claim optional standard deduction The certificate of tax exemption ruling is valid for one year and renewable every year thereafter. The classification rule is applied to private schools and non-profit hospitals The compensation income of mixed income earners will not be subjected to the withholding tax on compensation by their employers. The deadline for the filing of first quarter income tax return of individuals engaged in business is on or before April 15 of the current year The compensation income of mixed income earners will not be subjected to the withholding tax on compensation by their employers. The deadline for the filing of first quarter income tax return of individuals engaged in business is on or before April 15 of the current year. The dominance test is applied to non-profit schools and private hospitals The expenses of exempt corporations from exempt operations are deductible to its gross income from unrelated operations

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The FCDUs, OBUs and EFCUs are never subject to regular income tax The Gross Philippine Billings of international carriers includes receipts from outgoing voyage or flights which must be billed in the Philippines. The income of FCDU or EFCDU from foreign sources is subject to regular income tax. Under the current income tax regime, there has to be separate accounting of personal exemptions allowed to individual taxpayers. When the income from unrelated activities exceeds 50% of total income, only the income from unrelated activities of private schools and non-profit hospitals is subject to 30% tax

MULTIPLE CHOICE A domestic carrier is subject to tax on A domestic cinematographic film owner, distributor, or lessor is subject to A domestic corporation is taxable on A domestic corporations is not subject to the 30% regular income tax on A domestic lessor of aircraft and other equipments is subject to A non-resident film owner, distributor or lessor is subject to

World taxable income 30% tax on global taxable income

A non-resident foreign corporation is taxable on A non-resident foreign corporations is

Philippine gross income Never subject to 30% tax on gross income abroad 4.5% tax on its gross rentals from Filipino nationals 7.5% tax on Philippine gross income Not subject to 30% tax on Philippine taxable income Philippine taxable income Exempt corporations

A non-resident lessor of vessels chartered by Filipino nationals is subject to A non-resident lessor of aircraft is subject to A resident foreign corporation is A resident foreign corporation is taxable on An allocation of common expenses between related and unrelated activities made to properly reflect taxable income. This procedure required only of An exempt corporation with no taxable income is delinquent in filing its tax return. Which penalty is it liable to? As a rule non-profit, non-stock corporations are exempt from income tax. Which of these non-profit entities is subject to income tax? Benguet State University, a public educational institution, is Exempt corporations are nevertheless subject to 30% tax on income from Generally, government-owned and controlled corporations are Generally, private proprietary educational institutions are International carriers are taxable on their gross income or receipt from The classification rule is not relevant to a The exemption of non-profit, non-stock corporations specifically pertains to income from The following taxpayers are subject to the progressive income

World taxable income Gross income 30% tax on global taxable income 25% tax on Philippine gross income

Compromise Hospital

Exempt from corporate income tax Neither related and unrelated activities Subject to regular income tax Subject to preferential tax Outgoing shipment or flight Profit-oriented agricultural organization Related parties Domestic corporations

tax, except The income from properties of exempt corporations is considered income from The preferential tax rate of 10% on taxable income applies to The resident and non-resident classifications do not apply to What percentage of profit will shareholders ultimately receive from the corporate earnings? When applicable, the 10% preferential tax rate applies to income from Which is not an exempt corporation? Which is not subject to corporate income tax? Which is not taxable on unrelated activities? Which of these concepts is not relevant to corporations? Which of these is a special corporate taxpayer Which of these foreign corporations is subject to the 30% regular corporate tax?

PROBLEMS A private educational institution reported the following:

Unrelated sources Proprietary school Domestic corporation 63% of taxable income Both related and unrelated activities Government-owned and controlled corporations Philippine Charity Sweepstakes Office None of these Personal exemption A private school Call center

Gross Income

Related Activities P977,900

Unrelated Activities P698,500

P1,676,400

Less: Deductions

558,800

139,700

698,500

Net income

P419,100

P558,800

P977,900

Total

How much is income tax due? ANSWER: 97,790 (977,900 X 10%) Amazing Corporation has just completed its 3rd year of operations . It has the following information for the succeeding taxable year 2019: Gross income - Philippines Gross income - Qatar Deductions - Philippines Deductions - Qatar

P850,000 350,000 450,000 175,000

Compute normal income tax due assuming the taxpayer is a domestic corporation. ANSWER: 172,500 Compute normal income tax due assuming the taxpayer is a non-resident ANSWER: 255,000(850,000 x 30%)

foreign corporation.

Compute normal income tax due assuming the taxpayer is a resident foreign corporation. ANSWER: 120,000(850,000 - 450,000 = 400,000 x 30%) Eva Air, a resident foreign air carrier, reported the following summarized results of its Philippine operations during a quarter:

Gross receipts Less: Direct expenses Common expenses Gross income

Inbound Flights P7,857,000 4,365,000

Outbound flights Total P6,984,000 P14,841,000 3,492,000 7,857,000 1,746,000 P 5,238,000

How much is income tax due? ANSWER: 174,600(6,984,000 X 2.5%) Ms. Amiable operates a sari-sari store while she offers auditing services of her clients. In 2018, her gross sales amounted to P920,000. Receipts from auditing services is P345,000. Her cost of sales/services totaled P510,000. Allowable expenses are P170,000. She already signified her intention to be taxed at 8% income tax rate in her to be taxed at 8% income tax rate in her 1st quarter return. - How much is percentage tax due? 101200 - How much is income tax liability? 81200 - Assuming Ms. Amiable did not elect the 8% option, how much is percentage tax due for the year? 37950 - Assuming Ms. Amiable did not elect the 8% option, how much is income tax due for the year? 76250 Ms. Love is a newly registered non-VAT taxpayer engaged in merchandising of car accessories on February 1, 2018. Gross sales were: 1st quarter - P500,000; 2nd quarter - P1,300,000; 3rd quarter - P1,200,000 & 4th quarter - P2M. Costs and expenses for 2018 were P3,250,000 (including applicable catch up payment for percentage tax).

- If Ms. Love elected the 8% option, how much is income tax still due for the 4 th quarter (balance for the year)? 195000 - If Ms. Love elected the 8% option, how much is income tax still due for the 2nd quarter? 104000 - If Ms. Love elected the 8% option, how much is income tax due for the 1st quarter? 20000 - If Ms. Love elected the 8% option, how much is income tax still for the 3rd quarter? 96000 Mr. Savior, a COO of Zion Company earned annual compensation in 2018 of P1,680,000 inclusive of P140,000 13th month pay & other benefits, as well as his share of SSS, PHIC and HMDF contributions of P13,426. He also owns a convenience store with gross sales of P2,688,000. His cost of sales is P1,120,000; expenses were P672,000. He has also earned a non-operating income of P112,000. - What is his total income tax due if he failed to signify his intention to use the 8% option? 677064 - How much is total income tax due from both sources of income assuming he elected the 8% option for his Related Unrelated Total business? 586972 Gross Income P330,000 P220,000 P550,000  Summit Corporation Deductions 110,000 110,000 220,000 reporting the Taxable income P220,000 P110,000 P330,000 following:

How much is income tax due if cor...