TAX602 Individual FTX&CGTX PDF

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCYCPA Review Batch 41  May 2021 CPA Licensure Examination  Weeks 6 – 7TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. BuenPage 1 of 5 0915-2303213  resacpareviewTAX-602: INCOME TAX RATES FOR INDIVIDUALS,ESTATES AND TRUSTS1. Sec. 24 (A) – The tax shall ...

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 41  May 2021 CPA Licensure Examinati on  Weeks 6 – 7

TAXATION

A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-602: INCOME TAX RATES FOR INDIVIDUALS, ESTATES AND TRUSTS 1.

Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at the rates established in the following schedule (resident citizens, non-resident citizens, resident alien, estate and trust): a. Effective January 1, 2018 If the taxable income is: Over P

250,000 400,000 800,000 2,000,000 8,000,000

But not over P 250,000 400,000 800,000 2,000,000 8,000,000

The tax shall be 0% 20% P 30,000 130,000 490,000 2,419,000

Plus

The tax shall be 0% 15% P 22,500 102,500 402,500 2,202,500

Plus

Of excess over P

25% 30% 32% 35%

250,000 400,000 800,000 2,000,000 8,000,000

b. Effective January 1, 2023 If the taxable income is: Over P

2.

250,000 400,000 800,000 2,000,000 8,000,000

But not over P 250,000 400,000 800,000 2,000,000 8,000,000

Of excess over P

20% 25% 30% 35%

250,000 400,000 800,000 2,000,000 8,000,000

Final Tax Rates on Certain Passive Income from Philippine Sources.

a. Rates of Tax Certain Passive Income 1) Sec. 24 (B) – For residents or citizens; 2) Sec. 25 (A) (2) – For non-resident aliens engaged in trade or business. a. b. c. d. e. f. g.

Interest from any currency bank deposit Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or corporate lenders) Yield or any other monetary benefit from trust funds and similar arrangements Royalties (except royalties on books and other literary works and musical compositions) Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 24 (A)] Winnings (except Philippine Charity Sweepstakes and Lotto winnings amounting to P10,000 or less which shall be exempt) Royalties on books and other literary works and musical compositions

20% 20% 20% 20% 20% 20% 10%

3) Sec. 25 (B) – For non-resident aliens not engaged in trade or business a. b. c. d. e. f. g.

Interest from any currency bank deposit Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or corporate lenders) Yield or any other monetary benefit from trust funds and similar arrangements Royalties, in general Royalties on books, as well as other literary works and musical compositions Prizes Other winnings

a. Interest income received by individual taxpayer ( except non-resident individual) from a depositary bank under expanded foreign currency deposit system

b. Interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by Bangko Sentral ng Pilipinas (BSP) If pre-terminated before fifth year, a final tax shall be imposed based on remaining maturity: 4 years but less than 5 years 3 years but less than 4 years Less than 3 years

25% 25% 25% 25% 25% 25% 25%

RES/CIT 7.5% (old)

NRA-ETB

NRA-NETB

15% (TRAIN law)

Exempt*

Exempt*

Exempt

Exempt

25%

5% 12% 20%

5% 12% 20%

25% 25% 25%

*also applies to non-resident citizens

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0915-2303213  www.resacpareview.com

TAX-602

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY Weeks 6 – 7: INCOME TAX RATES FOR INDIVIDUALS, ESTATES AND TRUSTS

4) Cash and/or Property Dividends

a. Cash and/or property dividends actually or constructively received from a DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of multinationals (beginning January 1, 2000} b. Share of an individual in the distributable net income after tax of a PARTNERSHIP (OTHER THAN a general professional partnership) of which he is a partner (beginning Jan. 1, 2000) c. Share of an individual in the net income after tax of an ASSOCIATION, a JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a corporation of which he is a member or coventurer (beginning January 1, 2000)

RES/CIT

NRA-ETB

NRA-NETB

10%

20%

25%

10%

20%

25%

10%

20%

25%

Provided, however, that the tax on dividends shall apply only on income earned on or after Jan. 1, 1998 . Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax. 5) Exercises: a. Identify whether the following are subject to final tax or not (year 2018). Taxpayer is RESIDENT CITIZEN unless otherwise stated (Y/N). Final tax? 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30)

Rate

Interest from peso bank deposit, Equitable – PCIB, Makati Interest from Japanese yen bank deposit, Sumitomo Bank, Japan Interest from USA dollar bank deposit, First USA Bank, New York Interest income from a debt instrument not within the coverage of deposit substitute, Philippines Interest income from a debt instrument within the coverage of a deposit substitute, Philippines Interest on government debt instrument and securities (regardless of number of lenders at the time of the origination) Interest from overdue accounts receivable, Philippines Royalties, in general, Manila Royalties, books published in Manila Prize amounting to P30,000, Philippines Prize amounting to P10,000, Philippines Prize amounting to P40,000, USA Winnings amounting to P30,000, Philippines Winnings amounting to P10,000, Philippines USA Sweepstakes winnings Philippine Lotto winnings Interest received from depository bank under expanded foreign currency deposit system (jointly in the name of a non-resident citizen and his spouse who is a resident citizen) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a financial institution other than a bank in denomination of P10,000) Interest income from long-term deposit or investment evidenced by certificates issued by BSP (issued by a bank to an individual in denomination of P10,000) Dividend from a domestic corporation received on April 15, 2006 Share in distributive net income of local business partnership received on May 15, 2006 Share in net income after tax of an association, a joint account, or a joint venture or consortium received on August 15, 2006 Share in the net income of a general professional partnership Dividend from a foreign corporation Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS Interest income from long-term deposit or investment evidenced by certificates issued by BSP received by a NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS Interest income received by NONRESIDENT ALIEN individual from a depository bank under expanded foreign currency deposit system Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank under expanded foreign currency deposit system Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from a domestic corporation. Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a domestic corporation

b. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was transferred to Mr. Y (a resident alien) who, in turn, held it for 8 years. How much is final withholding tax due? Mr. X _____ Mr. Y _____ c. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and transferred it to Mr. Y (a resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a resident citizen), who held it until the day of maturity or for 5 years. How much is the final withholding tax due? Mr. X _____ Mr. Y ________ Mr. Z __________

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TAX-602

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY Weeks 6 – 7: INCOME TAX RATES FOR INDIVIDUALS, ESTATES AND TRUSTS

d. An instrument with maturity period of 10 years was held by Mr. X (a non-resident alien engaged in trade or business in the Philippines) for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a nonresident alien not engaged in trade or business), who pre-terminated it after 4 years. How much is the final withholding tax due? Mr. X _____ Mr. Y _________ Mr. Z ___________ 3. Capital Gains Tax a. Sec. 24 (C) – Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange Sale, barter, transfer and/or assignment of shares of stock of publicly-listed companies not compliant with mandatory minimum public ownership (10% of the publicly-listed companies’ issued and outstanding shares, exclusive of any treasury shares) (RR No. 16-2012) b. Sec. 24 (D) – Capital Gains from Sale of Real Property Classified as Capital Asset (Located in PH) c. Disposition of real property classified as capital asset by individual to the government or any of its political subdivisions or agencies or to GOCCs d.

Exemption from 6% capital gains tax on sale/transfer of principal residence

e. Carry-over of historical cost or adjusted basis

f.

Computation for the basis of the new principal residence

g. Notification required h. Exemption once every 10 years i. Taxable portion if no full utilization of proceeds

Tax base: Net capital gains Tax rates (old): 5% - not over P100,000 10% - excess of P100,000

Tax rate (new): 15%

Tax base: Gross selling price or fair market value whichever is higher Tax rate: 6% final tax The tax to be imposed shall be determined either under Section 24 (A) for the normal rate of income tax for individual citizens or residents or under Section 24 (D) (1) for the final tax on the presumed capital gains of property at 6%, at the option of the taxpayer-seller. 1) Exempt proceeds Capital gains presumed to have been realized from the sale or disposition of their principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale or disposition shall be exempt from capital gains tax. 2) Escrow agreement The buyer/tansferee shall withhold from the seller and shall deduct from the agreed selling price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s check in interest bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue District Officer, the Seller and the Transferee, and the AAB. The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired.

Historical cost of old principal residence Add: Additional cost to acquire new principal residence Adjusted cost basis of the new principal residence

xxx xxx* xxx

*Cost to acquire new principal residence xxx Less: Gross selling price of old principal residence xxx Additional cost to acquire new principal residence xxx The Commissioner shall have been duly notified by the taxpayer within 30 days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption. The tax exemption can only be availed of once every 10 years. If there is no full utilization of the proceeds of sale or disposition of principal residence, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. The taxable portion is computed as follows: Unutilized portion x Tax base Gross selling price

j.

Filing of Final Capital Gains Tax Return on sale of principal residence

Computation of adjusted cost basis of the new principal residence: Utilized portion x Historical cost Gross selling price 1) After depositing the amount representing the 6% capital gains tax, the Buyer/Transferee and the Seller, shall jointly file, within thirty (30) days from the date of sale or disposition of the principal residence, with the RDO having jurisdiction over the property, in duplicate, the Final Capital Gains Tax Return covering the property bought with no computed tax due stating that the supposed tax due/amount so withheld by the buyer is maintained in an escrow account, which amount will be used to satisfy future tax liability, if any, on the subject transaction. 2) For purposes of capital gains tax otherwise due on the sale, exchange or disposition of the said Principal Residence, the execution of the Escrow Agreement shall be considered sufficient....