Professional Documents
Culture Documents
Regular Income Tax - Gross Income
Regular Income Tax - Gross Income
06
INCOME TAXATION
REX B. BANGGAWAN, CPA, MBA
Taxable income means the pertinent items of gross income subject to regular tax less the deductions and/or exemptions, if
any, authorized for such types of income under the NIRC or other special laws.
GROSS INCOME
Gross income includes gains, profits, and income derived from whatever sources, whether legal or illegal not covered by
either final taxation or capital gains taxation.
(074) 665 6774 0916 840 0661 [email protected] MAY 2021 CPA REVIEW SEASON
Page 2 of 9 | TAX Handouts No. 06
improvement upon completion. (Note: Although the latter is the wordings of the law, apparently, the whole
fair value is, by common sense, not income.)
Spread-out method – recognize the book value of the property at the termination of the lease as income
over the period of the related lease
F. Royalties
G. Dividends
Dividends are subject to regular income tax when it is declared by foreign corporations.
Dividends can either be:
Cash dividend
Property dividend – when taxable, taxable at the fair market value of the property received as dividend. Note
property dividend includes stock of another corporation declared by the distributing corporation.
Stock dividend – generally not taxable except when the declaration confers to the recipient a different interest or
right after the declaration. When taxable, the measure of taxable amount is the fair market value of the stock
dividend received.
Liquidating dividends
This is considered an exchange or sale of property. Gain or loss is fully taxable or deductible.
Dividends received from resident corporations are subject to the Dominance Test.
H. Annuities
I. Prizes and winnings
J. Pensions; and
K. Partner’s distributable share in the net income of the general professional partnership and exempt joint venture
2. Mr. A donated his business to his son B in the middle of the year. The business has a net worth of P2,000,000 at the
start of the year. It earned P300,000 in during first half of the year and P200,000 for the rest of the year.
3. Mr. Pacquiao, a national athlete, received the following during the year:
Returns from life insurance (P40K annual premium for 15 years) P 800,000
Proceeds of father’s life insurance (P 600,000 premium paid) 1,000,000
Rent income from house worth P1M he inherited 400,000
Proceeds of redemption of mutual funds held 2 years (10,000 units bought at P10/unit) 140,000
Proceeds on sales of 10-year bonds bought P1M inclusive of P40,000 accrued interest 1,100,000
Interest on government securities 40,000
Damages awarded by the court (40% for unrealized profits) 500,000
Prize for winning 2019 Mr. Olympia in Las Vegas, Nevada, USA 20,000,000
5. Mrs. Calderon retired from ABS Corp. effective at the end of 2019. She received the following form ABS Corp:
The employee’s required contributions for SSS, PhilHealth and HDMF were P10,000, P8,000 and P7,000, respectively.
The employee stock options plan requires at least 15-year residency. Mrs. Calderon exercised the stock option during
the year by purchasing P1,000,000 worth of stocks for P600,000.
6. BT, Inc. received the following refunds during the taxable year:
Required:
1) Compute the total income to be reported assuming the taxpayer is a resident citizen.
2) Compute the total income to be reported assuming the taxpayer is a non-resident citizen.
Compensation, net of 15% withholding tax, P2,000 SSS, P1,500 PhilHealth, 170,000
P1,000 Pag-Ibig and P500 union dues
Professional fees, net of 10% withholding tax 90,000
Required:
Assuming Jeff is a
Determine the following: Resident citizen Non-resident citizen Resident alien
Reportable income
Final tax
10. Mabaca Corporation, a taxpayer under accrual basis, had the following write-off and recoveries of receivables:
2019 2020
Net income before write-off P 400,000 P 900,000
(Bad debts write-off) / Recovery 650,000 400,000
11. During the period, Mr. X earned P800,000 compensation income. Mrs. X also earned P1,200,000 from her professional
practice. The spouses also rented a portion of their residential house which earned them P400,000. They also have a
savings bank account which earned P24,000 in interest.
12. A certain taxpayer had the following income during the year: