Dimensión 3: Resultados de la enseñanza
III. RESULTADOS
3.1. Descripción de resultados
3.1.1. Descripción del examen de gestión de Aduanas
► shares of partners subject to NIT – Sec.
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SEC 32 B EXCLUSIONS FROM GROSS INCOME
Q: What do you mean by exclusions? Are these exempt from income tax?
A: these are not included in the gross income, THUS, exempt.
TAKE NOTE: Exemptions, exclusions, deductions, have the same characteristics → all tax do not apply.
1. Life insurance [Sec. 31 B (1)]
Q: What is the requirement?
A: only one requirement for exemption: that the proceeds of the life insurance be payable upon the death of the insured.
Q: Does it matter who the beneficiary is or paid in a lump sun or single sum?
A: No. it does not matter.
Exception: amounts held by the insurer under an agreement to pay interest thereon, the interest payment shall be included in the gross income.
2. Amount received by insured as return of premium [Sec. 32 B (2)]
Q: if the insurance is payable within a certain time, say 10 years and thereafter the insured did not die, how much will be excluded?
A: only the amount received by the insured as a return of the premiums.
Ex. 1 M – 100 thousand = capital It is exempt (100K)
900K is taxable.
Q: Why is it excluded?
A: because the amount received merely represents a return of capital.
Q: is this subject to Estate Tax under Sec. 85 E? do we have the same requirement?
A: no, the requirement for exemption is not the same under Section 85 E.
3. Proceeds of life insurance: decedent insured himself, inclusion or exclusion will depend on who the beneficiary is.
a. the beneficiary is the estate.
» subject to Estate tax, included in the gross estate regardless of whether or not the designation of the beneficiary is revocable or irrevocable.
b. the beneficiary is a third person other than the estate.
b.1 Revocable Designation → subject to estate tax, included in the gross estate.
Reason: because of the insured’s power to modify or change the beneficiary.
b.2 Irrevocable Designation → not subject to Estate tax, not included in the gross estate.
Reason: the insured loses the power to control, modify and change the beneficiary.
Q: Is it subject to VAT?
A: 1. Non-life insurance – yes, subject to VAT under 108 (A).
2. Life insurance – NO, subject to percentage tax under Sec. 123 of the Tax Code.
4. Gifts, Bequest and Devises [Sec. 32 B (3)]
Q: Why is the donee exempt from income tax?
TAXATION LAW REVIEW NOTES
- ATTY. FRANCIS J. SABABAN -
A: Because the law classify it as an exclusion, not important to know whether property is real or personal.
What is exempted is the “value of property acquired by gift, bequest or devise”
TAKE NOTE:
A. GIFTS are excluded because they are subject to donor’s tax.
B. BEQUEST and DEVISE are excluded because they are subject to ESTATE tax.
Q: what is included in the gross income?
A: income from such property.
► gift, bequest, devise or descent of income from any property in case of transfers of divided interest.
5. Compensation for injuries or sickness [Sec. 32 B (4)]
Q: is this the same as those provided under the workmen’s compensation act (wca)?
A: YES. There are 3 groups:
a. Health or accident insurance or those under workmen’s compensation.
b. personal injuries and sickness; and c. Damages to prevent injuries and
sickness.
Q: What does injury include?
A: The term injury includes death, even if not injured, if the person dies this will be available.
Q: when will the damages recovered be exempt?
A: General Rule: all damages awarded are tax exempt.
Exception: damages representing loss of income.
Q: Why is it considered an exclusion?
A: because this is just an indemnification for the injuries or damages suffered.
6. Income exempt under a treaty [Sec.
32 B (5)]
Q: What is excluded?
A: income of any kind required by treaty binding upon the Phil. Government.
7. Retirement benefits, pensions, gratuities [Sec. 32 B (6)]
Q: Why do we need to distinguish retirement pay, separation pay and terminal leave pay?
A: because they have different requirements for exemption.
Q: What is retirement pay?
A: the sum of money received upon reaching the maximum age of employment.
a. Under RA4917 (with Retirement Plan) 1. the private benefit plan is approved
by the BIR (RR2-98);
2. the retiring official or employee has been in the service of the same employer for the last 10 years;
3. he is at least 50 years old at the time of retirement; and
4. the official or employee avails himself/herself of the benefit only once.
b. Under RA7641 (without retirement plan) 1. the retiring official employee is at
least 60 years old but not more than 65 years old;
2. the employee or official must have served the company for at least 5 years;
» entitled to 15 days salary and ½ of the 13th month pay for every year of service.
TAKE NOTE: the retirement benefits under RA4917 and RA7641 are exempt from income tax provided the requirements are present.
SEC. 32 B(6)(c)
► retirement benefits given by foreign government, foreign corporation, public as well as private to RC, NRC, RA residing permanently in the Philippines - exempt without further qualifications – automatic exclusions.
SEC. 32 B(6)(d,e,f)
► retirement benefits given by the Philippine Gov’t through the GSIS, SSS and PVAO are exempt without further qualifications = automatic exclusions.
TAXATION LAW REVIEW NOTES
- ATTY. FRANCIS J. SABABAN -
August 21, 2006.
- midterms 6-8 pm until sec 32 B(6) NIRC.
August 28, 2006.
ANSWERS = MIDTERMS
► Gross Income include both capital and ordinary gains, Sec. 31 says gross income-deductions, that which is ordinary loss.
- may be deducted from capital gains and ordinary gains.
Q: What is separation pay?
A: on given when one is terminated from the service because of (1) illness, (2)death, (3) physical incapacity or injury, or (4) causes beyond the control of the employee.
Q: Are there any requirement for separation pay granted by foreign gov’t or corp?
A: None, the separation pay granted by the aforementioned institutions are exempt without further qualifications (“other similar benefits”).
Q: is separation pay an exclusion, therefore, exempt?
A: No.
GENERAL RULE: Separation pay not exempt (?)
Exception:
1. Automatic exclusions, thus exempt if due to:
a. illness b. death
c. physical incapacity or injury.
2. Conditional exclusion
a. causes beyond the control of the employee- excluded
b. within employee’s control – included.
Examples:
1. registration – CBA provides separation pay, within the control = included.
2. installation of labor saving devises or bankruptcy – beyond the control = excluded.
Q: What is terminal leave pay?
A: the accumulated vacation leave and sick leave benefits converted to cash or money to
be given either every year or upon retirement or separation.
Terminal Leave Pay granted upon retirement or separation:
» uder PD220, TLP in the Gov’t or in the Private Sector shall be exempt from income tax if given or granted upon retirement or separation.
TLP granted on a yearly basis:
1. employee in the private sector:
a. accumulated sick leave – subject to income tax.
b. Accumulated vacation leave: if more than 10 days (meaning 11 pataas) – subject to income tax;
»If 10 days or less – exempt.
2. Gov’t Employee:
» governing law: EO 291 of Pres. Estrada, RMC 16-2000.
Rule: Gov’t workers (both officers or non-officers) granted TLP on a yearly basis → exempt from income tax.
→ there is no qualification as to vacation or sick leave.
► Take Note of 3 cases.
» be reminded of EO 291, Sec. 2. 78.2 par. 97, RR2-98, RR16-200 (3).
Case of Zialcita
► retired from DOJ, contention: TLP should be exempt from income tax pursuant to the old law.
SC: on a different ground – TLP is exempt because it is similar to Retirement pay, thus exempt but the ruling’s application is limited only to DOJ employees.
Borromeo case:
► Same as the Zialcita case
Issues: WON the TLP is subject to income tax and WON COLA and RATA are included?
SC: RULED TLP is Exempt!
Modified: the rule applies not only to DOJ officers but also to CSC commissioners.
COMMISSIONER v. CASTAÑEDA
- Castañeda –DFA officer in Phil. Embassy in England.
1. TLP is exempt.
2. Ruling applies to DFA officers.
TAXATION LAW REVIEW NOTES
- ATTY. FRANCIS J. SABABAN -
Q: Does the rule or decision applies to Gov’t officials only?
A: No. PD220: Exemption applies to both private and public sectors(?)
it does not matter if TLP is vacation or sick leave.
RR2-98, Sec. 2.78.1 par. (a)(7)
» JAN, 1998 – the rule applies to both private and public sectors.
EO291 (SEPT., 2000)
» Officer in gov’t receiving TLP is always exempt whether or not vacation or sick leave is granted.
Modified RR2-98:
» TLP will only apply to private sectors
» if granted on a yearly basis – may be subject to tax: VACATION LEAVE
1. MORE THAN 10 DAYS = TAXABLE 2. LESS THAN 10 DAYS = EXEMPT
8. Miscellaneous items (Sec. 32 B (7) (a) income derived by foreign Gov’t [Sec. 32 B (7) (a)]
Q: What kind of income?
A:
1. investments in:
a. loans b. stocks c. bonds
d. other domestic securities
2. interest from deposits in Banks in the Philippines.
Q: Who are income earners?
A:
1. foreign government
2. financing institutions owned, controlled or enjoying re-financing from foreign gov’ts; and
3. int’l or regional financial institutions established by foreign gov’ts (established in the Philippines)
TAKE NOTE: if plain foreign corp., subject to FIT 20%.
EXAMPLES of exclusions:
a. Brunei Gov’t earns interest by depositing money in Makati Bank – Exclusion.
b. SMC- Stock dividends to 3. Brunei Gov’t.
exclusion
c. Income derived by the Gov’t or its political subdivisions (Sec. 32 B (7) (b)
a. exercise of public utility
b. exercise of any essential gov’t function.
» accruing to the gov’t.
d prizes and awards (Sec. 32 B 7 c)
» primarily for religious, charitable, scientific, educational, artistic, literary or civic achievements:
1. recipient was selected without any action on his part to enter the contest or proceedings;
2. the recipient was not required to render substantial future services as a condition to receive the prize or award.
D. prizes and awards in sports (Sec. 32B 7 d) 1. granted to athletes;
2. local or int’l competitions;
3. held here or abroad;
4. sanctioned by the nat’l sports associations.
E. 13th month pay and other benefits (Sec.
32B 7 e)
Q: Do you include Christmas bonus in your ITR?
A: No, because the law says 13th month pay and “other benefits”/”similar benefits” – xmas bonus is included in the category.
Q: Who can increase the 30,000 limit?
A: The Sec. of Finance.
Q: Applicable to whom?
A:
1. gov’t; and
2. Private institutions.
F. GSIS, SSS, Medicare and other contributions (Sec. 32 B 7 f)
► must be deducted from the GI not NIT because it is an exclusion.
-creditable withholding tax is an exclusion- must be deducted first from the GI before you compute the NIT. Otherwise, you are including in the GI something that is excluded from the same.
TAXATION LAW REVIEW NOTES
- ATTY. FRANCIS J. SABABAN -
G. Gains from the Sale of bonds, debentures, or other Certificate of indebtedness. (Sec. 32 B 7 g)
Q: Why 5 years?
A: certificate of indebtedness is similar to Bank Interest in a long term deposit.
- Sec. 32 B 7 g is similar or the same as 24 B in long term deposit.
H. Gains from redemption of shares in mutual fund (Sec. 32 B 7 h)
1. Fiscal Year – means an accounting period of 12 months ending on the last day of any month other than December.
2. Calendar year – a period of 12 months beginning on January and ending on December.
Q: Business expense incurred in February 2006, is it possible to include it for April 2006?
A: yes, it is possible or it is possible if fiscal year is employed, if it falls under the fiscal year and all the elements are present.
- related to trade or business.
REASON: Capital loss has no connection to the trade or business.
TAKE NOTE:
► for taxpayers liable for income within and without (RC & DC)), they can claim deduction for expenses incurred within and without.
► for taxpayers who are liable only for income within, they can claim a deduction for expenses incurred within the Philippines.
Sec. 34 A EXPENSES
1. For those business expenses not enumerated under A. You need to prove that it is an ordinary and necessary expense.
2. For those enumerated under A, all you have to prove is that it is incurred during the taxable year.
Feb. 12, 2007 (Sec. 34 A, Expenses) Q: Did the law define what is reasonable?
A: No. for salaries and wages all that is required by law is for it to be reasonable.
- for other forms of compensation, there must be services actually rendered.
AGUINLDO Case
F: involves a corporation engaged in selling fish nets, and the corporation have a land sold through a broker.
►there was substantial profits gained from the sale of a land which was sold by a broker.
The profit was in turn given to the workers as special bonus.
►the corporation claimed the bonus as a deduction.
ISSUE: Should the deduction be allowed?
H: The SC did not allow the deduction, for other forms of compensation, it must be made or given for services actually rendered.
►in this case, it was proven that the sale was not made by the employees, no effort or services actually rendered by them because the sale was made through a broker.
►
Q: Reasonable Travel Expenses, What is the requirement?
A:
1. Travel must be in pursuit of business, trade or profession.
2. Travel expense while away from home.
Q: Is there a travel expense which was not in pursuit of business?
A: yes, those which are considered as fringe benefits (FB), expenses for foreign travel is considered a FB only if it is not in pursuit of the trade or business.
Q: can you claim it under Sec. 34 A (1)(a)(ii)?
A: No, you can claim it under Sec. 34 A (1)(a)(i) last paragraph.
Q: Reasonable Allowances for rentals for meralco bills, requirements?
A:
TAXATION LAW REVIEW NOTES
- ATTY. FRANCIS J. SABABAN -
1. required as a condition for the continued use or possession, for the purpose of the trade, business or possession of the property.
2. taxpayer has not taken any title or no equity other than a lessor.
Q: Reasonable allowance for entertainment, amusement and recreation expenses, what is the requirement?
A:
1. connected with the development, management, and operation of the trade (DOM);
2. Does not exceed the limits or ceiling set by the Secretary of Finance; and 3. Not contrary to law, morals, good customs, public policy or public order.
Q: How about bribe, kickbacks, and other similar payments
A: even without this provisions, kickbacks will not pass the requirement of (i) ordinary and (ii) necessary hence not deductible
EXPENSES ALLOWABLE TO PRIVATE