income-taxation-answer-key-for-book-chapters-1-8-by-tabag-garcia.pdf

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Income Taxation Answer KEY FOR BOOK Chapters-1-8: BY
Tabag & Garcia
Income Taxation (Pontifical and Royal University of Santo Tomas, The Catholic
University of the Philippines)
Studocu is not sponsored or endorsed by any college or university
Income Taxation Answer KEY FOR BOOK Chapters-1-8: BY
Tabag & Garcia
Income Taxation (Pontifical and Royal University of Santo Tomas, The Catholic
University of the Philippines)
Downloaded by KRISTEL CAZANDRA EMPAS (k.empas.133788.tc@umindanao.edu.ph)
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S o l u t i o n s M a n u a l - I n c o m e T a x a t i o n ( 2 0 1 8 E d i t i o n ) b y T a b a g & G a r c i a
SOLUTIONS MANUAL
INCOME TAXATION
2018 Edition
By: TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION
TRUE OR FALSE-SET A
1. FALSE 9. TRUE 17. FALSE 25. FALSE
2. TRUE 10. TRUE 18. FALSE 26. TRUE
3. TRUE 11. TRUE 19. FALSE 27. FALSE
4. TRUE 12. TRUE 20. TRUE 28. TRUE
5. TRUE 13. FALSE 21. TRUE 29. TRUE
6. FALSE 14. FALSE 22. TRUE 30. FALSE
7. TRUE 15. FALSE 23. TRUE
8. FALSE 16. FALSE 24. FALSE
MULTIPLE CHOICE
1. A 21. D 41. D 61. C
2. C 22. D 42. A 62. C
3. B** 23. D 43. A 63. C
4. D 24. D 44. B 64. C
5. C 25. B 45. C 65. A
6. B 26. A 46. C
7. C 27. A 47. B
8. C 28. D 48. A
9. D 29. C 49. C
10. D*** 30. C 50. D
11. A 31. A 51. D
12. D 32. C 52. C
13. D 33. D 53. B
14. C 34. C 54. D
15. C 35. A 55. A
16. D 36. C 56. A
17. A 37. D 57. A
18. A 38. C 58. D
19. C 39. D 59. C
20. B 40. A 60. A
**Statement 1 – False; similarity of tax from license fee, not a distinction.
***Statement 1 – False; should be “jurisdiction” instead of “symbiotic relation”.
Statement 2 – False; should be “symbiotic relation” instead of “jurisdiction”
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CHAPTER 2 - INDIVIDUAL TAXPAYERS
ERRATUM:
(1) PAGE 77, TABLE 2-2;
Citizens and
Residents
NRA-ETB NRA-ETB
ROYALTY ON BOOKS AS WELL AS OTHER LITERARY WORKS….. 10% 10% 25%
(2)
FROM
PAGE 75
1)
2) Assume the SEP opted to avail the 8% tax under the
TRAIN Law, determine the tax due.
v Answer: P364,000
Solution:
On his compensation income:
Tax on
First P800,000 P130,000
In excess of P400,000
(P100,000 x 30%)
30,000 P160,000
On his business income =
**(P2.8M – P250,000) x 8%
204,000
TOTAL Tax Due P364,000
CHANGE TO:
PAGE 75
1)
2) Assume the SEP opted to avail the 8% tax under the
TRAIN Law, determine the tax due.
v Answer: P384,000
Solution:
On his compensation
income:
Tax on
First P800,000 P130,000
In excess of P400,000
(P100,000 x 30%)
30,000 P160,000
On his business income =
**(P2.8M – P250,000) x 8%
224,000
TOTAL Tax Due P384,000
PROBLEMS
2-1
1. RC 4. NRA-NETB
2. RC 5. NRC
3. RC 6. RA
2-2
TAX TYPE Tax RATE TAX TYPE Tax RATE
1 FWTx 20% 19 Exempt -
2 FWTx 7.5%/ 15%TL 20 FWT 20%
3 BTx Tax Table 21 FWTx 25%
4 FWTx 20% 22 BTx Tax Table
5 Exempt - 23 Exempt -
10 BTx Tax Table 28 BTx Tax Table
11 FWTx 20% 29 BTX Tax Table
12 FWTx 10% 30 FWTx 20%
13 FWTx 20%* 31 FWTx 25%
14 BTx Tax Table* 32 CGT 5%&10%/15%
15 BTx Tax Table 33 Exempt Sub.to OPT***
16 FWTx 20% 34 BTx Tax Table
17 FWTx 20% 35 BTx Tax Table****
18 BTx Tax Table
*Prizes received from Philippine sources exceeding P10,000 are subject to 20% final tax rate.
On the other hand, Other WINNINGS (regardless of amount) are subject to 20% final tax rate.
**PCSO/Lotto winnings under TRAIN Law:
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Amount RC, NRC, RA, NRAET NRANET
≤ P10,000 exempt exempt 25%
> P10,000 20% FWT 20% FWT 25% FWT
***Stock Transaction Tax on sale of shares of DC listed in the Local Stock Exchange:
Prior to TRAIN Law = ½ of 1% of GSP
TRAIN Law = 6/10 of 1% of GSP
****CGT on Real Properties
Must be pertaining to a real property classified as capital asset located in the Philippines. However, if it is sold
to the Government, the tax may either be CGT or Basic Tax at the option of the individual taxpayer.
2-3
1.
a. Exempt
b. Exempt
c. Income Tax Due = P130,000
d. P746,000 computed as follows:
Tax Due:
1st P2,000,000 P490,000
Excess over P2M = (P800,000 x 32%) 256,000
Total P746,000
2. Income Tax Payable = P95,000 computed as follows:
Gross sales P2,800,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P950,000
Tax Due:
1st P800,000 P130,000
Excess over P800,000M = (P150,000 x 30%) 45,000
Tax Due P175,000
Less: CWT (80,000)
Income Tax Payable P95,000
Less (250,000)
Balance subject to 8% tax P2,550,000
x 8%
Tax Due P204,000
Less: CWT (80,000)
Rental income (P380,000/95%) 400,000
Taxable net income P1,350,000
Tax Due:
1st P800,000 P130,000
Excess over P800,000M = (P550,000 x 30%) 165,000
Tax Due P295,000
Less: CWT (80,000)
5. The 8% optional tax is not applicable because the total of the gross sales and other operating income exceeded the revised vat threshold of P3,000,000.
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Gross receipts P4,000,000
Cost of direct services (1,800,000)
Other operating expenses (825,000)
Tax Due:
1st P800,000 P130,000
Excess over P800,000M = (P575,000 x 30%) 172,500
Tax Due P302,500
Less: CWT (80,000)
7. The 8% optional tax is not applicable because the gross receipts exceeded the revised vat threshold of P3,000,000.
Compensation income P1,400,000
Gross sales 2,800,000
Tax Due:
1st P2,000,000 P490,000
Excess over P2M = (P350,000 x 32%) 112,000
Tax Due P602,000
Less: CWT
On compensation income (310,000)
On business income (80,000)
9. The 8% optional tax is applicable because gross sales did not exceed the revised vat threshold of P3,000,000. The income tax payable shall be computed
as follows:
Gross sales 2,800,000
x 8%
8% Tax on sales P224,000
ADD: Tax due on compensation income
1st P800,000 P130,000
Excess over P800,000 = (P600,000 x 30%) 180,000 310,000
Tax Due P,000 P534,000
Less: CWT
On compensation income (310,000)
On business income (80,000)
& For mixed income earners, P250,000 is not deducted for purposes of computing the 8% tax
& The 8% tax is not applicable to compensation income.
2-4
1. Taxpayer is a resident citizen
1.1 Taxable income = P1,050,000
1.2 Income tax payable = P80,000
1.3 Final tax on passive income = P57,500
1.4 Total income tax expense = P262,500
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Gross business income, Philippines P1,000,000
Gross business income, USA 500,000
Business expenses, Philippines (700,000)
Business expenses, USA (430,000)
Compensation income, Philippines 600,000
Dividend income-foreign corp. 40,000
Interest income-bank deposit abroad 30,000
Raffle draw winnings 10,000
Basic personal exemption -
Taxable income P1,050,000
Tax Due [(P130,000)+(250,000 x 30%)] P205,000
Creditable withholding tax on bus. income (125,000)
Dividend income – DC (50k x 10%) P5,000
Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 15% 6,000
Royalty income from composition @10% 2,500
PCSO winnings (P200,000 x 20%) 40,000
Final Tax on Passive Income P57,500
Basic income tax due P205,000 The question is tax expense; ignore
Final taxes on passive income 57,500 the income tax payable of P80,000.
Total income tax expense P262,500
2. Taxpayer is a nonresident citizen
2.1 Taxable income = P910,000
2.2 Income tax payable = P38,000
Gross business income, Philippines P1,000,000
Business expenses, Philippines (700,000) ***Assume situs is without the Phls.
Compensation income, Philippines 600,000
Dividend income-foreign corp. ***
Taxable income P910,000
Tax Due [(P130,000)+(110k x 30%)] P163,000
Creditable withholding tax on bus. Income (125,000) Assume the tax withheld pertain to
Income Tax Payable P38,000 Income derived in the Phls.
Dividend income – DC (50k x 10%) P5,000
Interest income FCDS deposit @ 15% exempt
PCSO winnings (P200,000 x 20%) 40,000
Basic income tax due P163,000
Final taxes on passive income 51,500
3. Taxpayer is a resident alien
3.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
3.2 Income tax payable = P38,000 (same answer with #2.2; nonresident citizen)
3.3 Final tax on passive income = P57,500 (same answer with #1.3; resident citizen)
3.4 Total income tax expense = P220,500 computed as follows:
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4. Taxpayer is a nonresident alien engaged in trade or business
4.1 Taxable income = P910,000 (same answer with #2.1; nonresident citizen)
4.2 Income tax payable = P38,000 (same answer with #2.2; nonresident citizen)
Dividend income – DC (50k x 20%) P10,000 Use 20% rate for DI from DC instead of 10%
Interest income FCDS deposit @ 15% exempt
PCSO winnings Exempt**
& **Unfortunately, unlike RCs, NRCs and RAs, the PCSO exemption of NRAET under TRAIN Law was retained.
5. Taxpayer is a nonresident alien not-engaged in trade or business
Compensation income, Philippines P600,000
Dividend income - DC 50,000
Dividend income from foreign corp. - Assume situs is “without or abroad”
Interest income bank deposit, Phls. 20,000
Interest income on FCDS deposit Exempt
Royalty income from composition 25,000
PCSO winnings 200,000
Total GROSS Income P905,000
x 25%
Income Tax Due/expense P226,250
2-5
1. Taxpayer is a resident citizen
a. Taxable net income = P1,076,100
b. Income tax payable = P212,830
c. Final tax on passive income = P68,030
d. Capital gains tax = P120,600
Solution:
From Phils. From Abroad
Total
Income from employment P180,000 P280,000 P460,000
Business income 850,000 960,000 1,810,000
Deductible business expenses (610,000) (730,000) (1,340,000)
Interest income on personal loans** 6,000 3,000 9,000
Dividend income from foreign corp. 6,800 2,000 8,800
Prizes from singing contest 5,600 - 5,600
Interest income on bank deposits 4,200 4,200
Interest income on money market placements 1,600 1,600
Royalty income 50,000 50,000
Winnings/ prizes from lotteries, raffles 16,900 16,900
Lotto winnings --- 50,000 50,000
Basic Personal exemption -
Additional exemption -
TAX DUE:
First P800,000 P130,000
Excess = P276,100 @ 30% 82,830
**All incomes regardless of source are taxable. However, personal expenses are not allowed as deduction from
the gross income
P212,830
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Final Tax on Passive income:
Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Royalty income 90,000
Lotto winnings 150,000
Winnings/ prizes from lotteries, raffle draws 45,000
Total P303,300
@ 20% P60,660
Dividend income from domestic corp. 5,700 -
Royalty income from sale of books 68,000 -
Total P73,700
@ 10% 7,370
TOTAL FINAL TAX ON PASSIVE INCOME P68,030
Capital Gains Tax:
Sale of lot (P1,060,000 x 6%) P63,600
Sale of house and lot (P950,000 x 6%) 57,000
Total P120,600
2. Taxpayer is a non-resident citizen
a. Taxable income = P438,400
b. Income tax payable = P39,600
c. Final tax on passive income = P68,030
d. Capital gains tax = P120,600
Solution:
From Phils.
Income from employment P180,000
Business income 850,000
Deductible business expenses (610,000)
Interest income on personal loans 6,000
Dividend income from foreign corp. 6,800
Prizes from singing contest 5,600
Basic Personal exemption -
Additional exemption -
TAX DUE:
First P400,000 P30,000
Excess = P38,400 x 25% 9,600
P39,600
§ As long as there is no interest income from foreign currency bank deposit under FCDS/FCDU, the final tax on passive income of a nonresident
citizen is the same with that of a resident citizen.
Capital Gains Tax:
§ All individual taxpayers are subject to the same types of CGTs
3. Taxpayer is a nonresident alien engaged in trade
a. Taxable income = P438,400 (same with a non-resident citizen taxpayer)
b. Income tax payable = P39,600 (same with a non-resident citizen taxpayer)
c. Final tax on passive income = P38,600; The exemption on PCSO/Lotto winnings was retained on NRAETB
d. Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)
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Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Dividend income from domestic corp 5,700 rate is 20%
Winnings/ prizes from lotteries, raffle draws 45,000
Total P159,000
@ 20% P31,800
Dividend income from domestic corp.@ 20% - -
Royalty income from sale of books 68,000 -
@ 10% 6,800
TOTAL FINAL TAX ON PASSIVE INCOME P38,600
2-6
a. Taxable income of the husband = P1,165,000
b. Taxable income of the wife = P890,000
c. Consolidated tax due of the husband and the wife = P396,500
Husband Wife
INCOME:
Compensation income P 850,000 P650,000
Income-Profession [P800,000/2)] 400,000 400,000
Income from trading business 250,000 -
LESS:
Expenses-practice of profession [ P320,000/2)] (160,000) (160,000)
Expenses – trading business (100,000) -
Basic Personal exemption - -
Additional exemption (75,000) -
TAXABLE INCOME P1,165,000 P890,000
Tax due:
First P800,000 P130,000 P130,000
In excess of P500,000 @ 30% 109,500 27,000
Total P239,500 P157,000
Consolidated Tax Due P396,500
Note: Personal expenses are not deductible. The Personal exemptions and Premium payments for health insurance are no longer deductible
beginning Jan. 1, 2018 under TRAIN Law.
2-7
a. Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P150,000 x 15%*) P22,500
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%) 300,000
Total capital gains tax P322,500
& *CGT on shares of DC under TRAIN Law
& Sale of shares in the local stock exchange is subject to transaction tax of 6/10 of 1% of GSP under TRAIN Law
b.
Dividend income from domestic corp. P40,000 x 10% P4,000
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20% 3,400
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 15% 1,500
Interest income on government bonds = P10,000 x 20% 2,000
Royalty – literary = P10,000 x 10% 1,000
Royalty other than literary = P12,000 x 20% 2,400
Total Final tax on passive income of Daniel and Kat P14,300
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c.
Business income P600,000
Rental income net of tax (P200,000/95%)/2 100,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P6,000 + (P2,000/2)] 7,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P350,000 +(75,000/2)] (387,500)
Personal exemption -
Taxable net income of Daniel P597,000
d.
Gross income from practice of profession (P360,000/90%) P400,000
Rental income net of tax (P190,000/95%)/2 100,000
Dividend income from resident corp. 20,000
Dividend income from nonresident corp. (P10,000/2) 5,000
Interest income on notes receivable [P4,000 + (P2,000/2)] 5,000
Interest income on bank deposit abroad [P5,000 + (P5,000/2)] 7,500
Capital gain on sale of land abroad (P500,000/2) 250,000
Gain on sale of shares – New York Stock Exchange P30,000/2 15,000
Expenses [P200,000 +(75,000/2)] (237,500)
Taxable net income of Kat P565,000
2-8
1. Income tax payable, first quarter = P-
2. Income tax payable, second quarter = P17,600
3. Income tax payable, third quarter = P38,427.5
4. Income tax payable, fourth quarter = P67,297.5
5. Final tax on passive income = P15,800
6. Capital gains tax = P600,000 x 6% = P36,000
1st Q 2nd Q 3rd Q Q4/Year
Gross Profit from Sales P300,000 P600,000 P910,000 P1,200,000
Business e-xpenses (120,000) (262,000) (405,890) (426,700)
Taxable income P180,000 P338,000 P304,110 P773,300
Tax Due (Tax Table) - P17,600 P56,027 P123,325
Less: Tax Paid
Q1 - - - -
Q2 - (17,600) (17,600)
Q3 - (38,427.5)
Income Tax Payable P- P17,600 P38,427.5 P67,297.5
Note: The amounts shown above are cumulative.
(Amounts are cumulative) Amount % Tax
Dividend received from domestic corp. 30,000 10 P3,000
Interest income from
BPI 16,000 20 3,200
UCPB 18,000 20 3,600
Metro Bank 30,000 20 6,000
Total final tax on passive income P15,800
2-9
CASE A: 2017 Taxable Year
a. The Taxpayer is a Special Alien Employee (SAE).
Income Tax Due = P850,000 x 15% = P127,500
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b. The Taxpayer is a Special Filipino Employee (SFE), however, the income tax due is based on the old graduated tax table. The 15%
preferential rate is not applicable because the compensation income is lower than P975,000.
TNI = 750,000 + 100,000 – basic personal exemption of P50,000 = P800,000
Basic Tax Due (old rate) = 125,000 + (300,000 x 32%) = P221,000
c. The Taxpayer is a Special Filipino Employee (SFE) employed by an OBU.
d. The Taxpayer is a Special Filipino Employee (SFE) employed by an PC/SC.
CASE B: 2018 Taxable Year; The Preferential Tax Rate of 15% is no longer applicable
Answers for letters a-d are the same computed as follows:
TNI = P850,000
Income Tax Due = P130,000 + (P50,000 x 30%) = P145,000
2-10
a. P6M x 6% = P360,000
b. ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
c. Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
d. Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-11
a. P15M x 6% = P900,000
b. P20M x 6% = P1,200,000
c. P0
2-12 C.G. Tax = none; the transaction resulted to a loss
2-13 C.G. Tax = P100,000 x 15% = P15,000; TRAIN Law
2-14 C.G. Tax = (P150,000 x 15%) = P22,500; TRAIN Law
2-15 C.G. Tax = none; subject to business tax of 6/10 of 1% of GSP; TRAIN Law
TRUE OR FALSE
2. TRUE 7. FALSE; Train Law 12. TRUE
3. TRUE 8. TRUE 13. FALSE; TRAIN Law
4. TRUE 9. FALSE 14. TRUE; Prior to 2018
5. TRUE 10. FALSE; Abroad 15. FALSE;
MULTIPLE CHOICE
1. D 16. B 31. D
2. C 17. A 32. C
3. A 18. A 33. (P9,500)
4. A 19. B 34. B
5. A 20. D 35. C
6. A 21. C 36. D
7. D 22. B 37. D
8. D 23. D 38. D
9. B 24. D 39. C
10. D 25. A 40. D
11. B 26. B 41. B
12. A 27. D 42. B
13. D 28. B 43. B**
14. D 29. D 44. D
15. C 30. D 45. B
**Under the TRAIN Law, 1st Quarterly payment shall be on or before May 15 of the following year.
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Supporting Computations (Multiple Choice):
(2)
Gross income, Philippines P800,000
Gross income, USA 600,000
Expenses, Philippines (400,000)
Expenses, USA (300,000)
(3 to 5)
Gross income, Philippines P800,000
Expenses, Philippines (400,000)
(19)
Copyright (11,250/90%)x10% P1,250
Royalty (12,000/80%) x 20% 3,000
Share from Trade Partnership
(treated as dividend income)
(270,000/90%) x10%
30,000
FWT P34,250
(21)
Interest from FCDU (212,500/85%)x15% P37,500
Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/90%) x10% 16,000
FWT P64,000
(22)
Interest from FCDU (212,500/85%)x15% exempt
Royalty (94,500/90%) x 10% 10,500
DI from DC (144,000/80%) x20% 36,000
FWT P46,500
(28) CGT = 1.5/4 X P4M X 6% = P90,0000
(32)
Rental income (P308,750/95%) 325,000
Cost of sales (500,000)
Business expenses (425,000)
Taxable Net Income P1,050,000
TAX DUE:
1st P800,000 P130,000
In excess = P250,000 x 30% 75,000
Total P205,000
Less: CWTx (65,000)**
Quarterly tax payments (82,500)
& Assume inclusive of the CWT from rental income
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(33)
Rental income (P308,750/95%) 325,000
Less (250,000)
TAX DUE:
x 8%
Total P138,000
Less: CWTx (65,000)
Income Tax Payable (P9,500)
(34)
Rental income (P308,750/95%) 325,000
TAX DUE:
x 8%
Total P158,000
Less: CWTx (65,000)
Basic Tax on Compensation income
[P30,000 + (P200,000 x 25%)] 80,000
(35)
Professional income, gross P600,000
Rental income, gross 50,000
Wagering gains 50,000
Kickbacks from suppliers 40,000
Professional expenses (325,000)
Taxable net income P415,000
(36)
Interest income – BDO; P20,000 x 20% P4,000
Interest income FDCU – P50,000 x 15% 7,500
Total FWT P11,500
(37)
CGT, residential house, P5M x 6% P300,000
CGT, shares = P150,000 x 15% 22,500
Total CGT P322,500
(38)
Gross sales, Phils. P5,000,000
Gross sales, Ukraine 3,000,000
Sales returns and allowances (500,000)
Sales returns and allowances-Ukraine (200,000)
Cost of sales, Philippines (1,500,000)
Cost of sales, Ukraine (800,000)
Business expenses, Philippines (500,000)
Business expenses, Ukraine (300,000)
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CHAPTER 3 – FRINGE BENEFITS
CHANGES IN THE THRESHOLD OF DE MINIMIS in Page 161 (with the publisher already when the RR was issued):
1.
2.
3. Medical cash allowance to dependents of employees not exceeding P1,500 per semester or P250 a month.
4. Rice subsidy of not more than P2,000 per month or 1 sack (50kg.) rice per month.
5. Uniforms given to employees by the employer not exceeding P6,000 per annum (as amended by RR 8-2012).
PROBLEM SOLVING
P3.1
Subject to FBT Subject to Basic Tax Exempt
1. P120,000 - -
2. - - P80,000
3. 50,000 - -
4. - - 5,000/ yr. (RR 8-2012)
5. - - 360,000
6. 250,000 - -
7. - - 45,000
8. - - 15,000
9. 60,000 - -
10. - - 1,500
P3.2
a) Yes
b) GUMV = P325,000/65%=P500,000
c) No. FBT is a final tax, hence, nonreturnable
d) FBT = P500,000 x 35% = P175,000
e) Within 10th day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.
f) No. It is subject to basic tax instead of FBT.
P3.3 P957,000 computed as follows:
Compensation income P900,000
Monthly transportation allowance** 36,000
De Minimis
Benefits
Other Benefits
13th month pay - P75,000
Christmas bonus (P5,000 is de minimis) P5,000 -
Christmas bonus (P5,000 de minimis under RR 1-2015) 5,000 20,000
Productivity incentive pay (de minimis under RR 1-2015) 10,000 -
Uniform allowance (15,000-5,000) 5,000 10,000
Medical allowance (entire amount is de minimis) 10,000 -
Rice subsidy [24,000-(1,500 x 12)] 18,000 6,000
Total (known as 13th Month Pay & Other Benefits) 111,000
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law (90,000) 21,000
**Fixed Allowances received regularly shall be treated as part of basic compensation income
Productivity incentive pay not exceeding P10,000 shall be exempt de minimis
Christmas Gift/Bonus = 1st P5,000 shall be exempt de minimis
P3.4 P540,000 computed as follows:
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Compensation income P540,000
De Minimis
Benefits
Taxable
Benefits
13th month pay and mid-year bonus P67,500
Christmas gift P5,000 5,000
Uniform allowance (7,500-5,000) 5,000 2,500
Actual Medical allowance (P15,000-10,000) 10,000 5,000
Medical allowance to dependents (P2,000-1,500) 1,500 500
Rice subsidy [entire amount is de minimis] 18,000 -
Monetized vacation leave [24,000-(2,000x 10)] 20,000 4,000
Total 13th Month Pay & Other Benefits 84,500
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law 90,000 -
P3.5
1.
a) P165,000 x 50% = P82,500
b) P82,500/65% x 35% = P44,423
2.
a. P4.5M x 5% /4 x 50% = P28,125
b. P28,125/65% x 35% = P15,144
3.
a. P4.5M
b. P4.5M/65% x 35% = P2,423,077
4.
a. P1,200,000
b. P1,200,000/65% x 35% = P646,154
5.
a. P800,000
b. P800,000/65% x 35% = P430,769
6.
a. P1,200,000/5 = P240,000
b. P240,000/65% x 35% = P129,230
TRUE OR FALSE
2. FALSE 7. TRUE 12. TRUE
3. TRUE 8. TRUE 13. TRUE
MODIFIED IDENTIFICATION
1. B 6. B 11. A 16. A
2. B 7. B 12. A 17. B
3. A 8. B 13. B 18. B
4. B 9. B 14. A 19. B
5. B 10. B 15. B 20. B
MULTIPLE CHOICE
1. C 11. C 21. D 31. D 41. D
2. A 12. A 22. A 32. B 42. C
3. D 13. A 23. D 33. A 43. D
4. D 14. B 24. C 34. D 44. D
5. D 15. B 25. D 35. A 45. A
6. D 16. D 26. A 36. C 46. A
7. B 17. C 27. D 37. C 47. A
8. A 18. B 28. B 38. D 48. B
9. D 19. C 29. D 39. B 49. D
10. C 20. D 30. B 40. D 50. A
51. D
52. D
53. C
(* #13)
The journal entry in letter “a” is the journal entry provided in related revenue regulations. Nonetheless, the authors believe that the journal entry should have
been:
Compensation expense (@ GUMV) Pxx
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Cash Pxx
Consequently, from the journal entry shown above, the account debited as “fringe benefit tax expense” in revenue regulations should not form part of the
employer’s “Taxes Expense” but as a component of the employer’s “Compensation expense”.
#22. P97,500/65% = P150,000
(23)
To managerial – fringe benefit expense P1,300,000
Fringe benefit tax expense (P1.3M/68% x 35%) 700,000
Rank and File 5,000,000
Total P7,000,000
(24)
Expenditure attributable to Managerial employees
(P1.2M x 20%) P240,000
Divide by GUMVF 65%
Grossed-up monetary value P369,231
x FBT rate 35%
Fringe Benefit Tax P129,231
(25) Total deductible expense = P1,200,000 + 129,231 = P1,329,231
(26)
Salaries and wages gross of CWT P816,000
Fixed monthly allowance** 60,000
Total compensation income subject to graduated rate P876,000
*Fixed Allowances received regularly per payroll are considered part of regular compensation subject to graduated rate (RR 10-2008)
(27)
Allowance not subject to liquidation P48,000
Divide by GUMVF 65%
GUMV P70,588
x FB rate 35%
FBT P25,846
(29)
Annual rental P637,500
x 50%
Monetary value of housing benefit P318,750
Divide by GUMVF 65%
GUMVF P490,385
X FBT rate 35%
FBT P171,635
Add: Annual Rental 637,500
Total Deductible Expense P809,135
(30)
v P2,000,000 x 5% x 50% = P50,000
v P50,000/ 65% x 35% = P26,923
(33)
v (P5,000,000-2,000,000) = P3,000,000
v P3M/ 65% x 35% = P1,615,385
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(31)
v P3,000,000 x 5% x 50% / 12 = P6,250
v P6,250/ 65% x 35% = P3,365
(32)
v P5,000,000
v P5M/ 65% x 35% = P2,692,308
(35)
v P1,000,000 / 65% = P1,538,462
v P1,538,462 x 35% = P538,462
(36)
v P800,000 / 65% = P1,230,769
v P1,230,769 x 35% = P430,769
(37)
v (P1,000,000/5) / 65% = P130,000
v P130,000 x 35% = P45,500
(52) Pedro is taxable on excess benefits only
(53) Pedro is exempt as a minimum wage earner but his business income is taxable
CHAPTER 4 – CO-OWNERSHIP, ESTATES AND TRUSTS
PROBLEM SOLVING
P4.1
1. Income tax payable of the estate = P26,000
2. Income tax payable of Louie = P0
3. Income tax payable of Floyd = P8,150
Louie Floyd Estate
Gross income (gross of 5% tax) P 325,000 P 380,000 P800,000
Deductible expenses (117,000) (105,000) (420,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle 7,500
Taxable income P220,000 P290,750 P380,000
Tax Due/Payable (TRAIN Law) P0 P8,150 P26,000
P4.2
1. Income tax payable of the estate = P30,000
2. Income tax payable of Louie = P4,000
3. Income tax payable of Floyd = P18,150
Estate
Rental income of the estate P1,000,000
Deductible operating expenses (estate) (500,000
Income distributed to Louie (50,000)
Income distributed to Floyd (50,000)
Tax due/payable P30,000
Louie Floyd
Gross Income P 325,000 P 380,000
Deductible expenses (117,000) (105,000)
Prize, supermarket raffle 7,500
Amount received from the Income of the estate 50,000 50,000
Taxable income P270,000 P340,750
Income Tax Due/Payable P4,000 P18,150
P4.3
1. Income tax payable of the trust = P220,000
2. Income tax payable of Pedro = P113,475
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Gross income of the Trust P3,000,000
Deductible business expenses of the trust (1,800,000)
Income distributed to Pedro during the year (200,000)
Dividend income from resident foreign corporation 100,000
Net Taxable income P1,100,000
Income Tax payable P220,000
Compensation income of Pedro P800,000
Rental income (gross) 500,000
Rental expenses (80,000)
Dividend from foreign corporation 8,250
Tax Due P258,475
Tax payments (Quarter 1-3) (120,000)
CWTx on rent (25,000)
Income Tax Payable-Pedro P113,475
MULTIPLE CHOICE
1. D 16. D 31. B
2. A 17. C 32. D
3. D 18. C 33. D
4. D 19. D 34. C
5. D 20. D 35. C
6. A 21. B 36. D
7. D 22. B 37. B
8. C 23. D 38. D
9. A 24. C 39. D
10. A 25. D 40. D
11. D 26. C 41. B
12. B 27. D 42. D
13. A 28. D 43. C
14. D 29. D 44. B
15. A 30. D 45. A
20.
Income of the estate P600,000
Expenses (150,000)
Distribution of income to Francis (120,000)
Taxable income of Ramos P330,000
21.
Francis’ own income P500,000
Income of the estate received by Francis 120,000
39.
Compensation income P1,500,000
Business income 1,000,000
Income of the trust taxable to the grantor 1,000,000
Taxable income of Ramos P3,500,000
41.
Trust’s income P10,000,000
Business expenses (2,000,000)
Income distributed to Princess (1,500,000)
Taxable income of the Trust P6,500,000
42.
Compensation income (Gross amount) P2,500,000
Income of the trust received Princess 1,500,000
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Taxable income of Princess P4,000,000
43-45.
# 44 TRUST 1 # 45 TRUST 2
Taxable Net income P4,000,000 Net income P6,000,000
Tax due: Tax due:
1st P2,000,000 P490,000 1st P2,000,000 P490,000
Excess @ 32% 640,000 Excess @ 32% 1,280,000
Tax due/paid 1,130,000 Tax due/paid 1,770,000
Versus allocated tax due 1,244,000* Versus Share 1,866,000**
Income Tax Payable-Trust 1 P114,000 Income Tax Payable-Trust 2 P96,000
# 43
Consolidated:
Taxable Net income P10,000,000
Tax Due (Consolidated):
1st P8,000,000 P2,410,000
Excess @ 32% 700,000
Total Consolidated TAX DUE P3,110,000
Less Paid:
Trust 1 (1,130,000)
Trust 2 (1,770,000)
Consolidated Income Tax Payable 210,000
Share in the Consolidated Tax due:
Trust 1
(4/10) x P3,110,000 1,244,000*
Trust 2
(5,980/9,960) 1,866,000**
CHAPTER 5 – INCOME TAX FOR CORPORATIONS
PAGE 234
TABLE 5-3: Capital Gains subject to CAPITAL GAINS TAX (CGT)
1.) CAPITAL gains from sale of shares of stock not
traded in the local stock exchange
DC RFC NRFC
UNDER TRAIN LAW, beginning Jan. 1, 2018
Tax Base: Net Capital gain
Tax Rate:
Prior to Jan. 1, 2018
First P100,000 capital gain
Amount in excess of P100,000 capital gain
15%
5%
10%
NC***
5%
10%
NC***
5%
10%
*With tax sparing; 15% - If the country where the NRFC is domiciled allows a credit against the tax due from the NRFC
representing deemed paid in the Philippines equivalent to 15%.
*Without tax sparing; 30%
**The Higher between FMV as provided by City/Provincial Assessors and Zonal Value
***NC (No Changes); apply the old rates; 5% first P100,000 gain + 10% in excess of P100k
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PROBLEM SOLVING:
(P5.1)
CASE A (Domestic Corporation) – TRAIN Law:
1. P1,674,000
2. P92,500
3. P562,500
Solution
Philippines Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,000
Sales returns 200,000 (200,000)
Cost of goods sold 3,500,000 2,250,000 (5,750,000)
Operating expenses 2,800,000 1,100,000 (3,900,000)
Interest income from trade receivable 100,000 50,000 150,000
Interest income from BPI deposits-USA - 80,000 80,000
Interest income from money market placement 100,000 100,000
Dividend income-resident foreign corp. 45,000 - 45,000
Dividend income-nonresident foreign corp. - 30,000 30,000
Royalty income - 25,000 25,000
Tax rate 30%
Normal Corporate Income Tax Due P1,674,000
Philippines Final Tax
Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 15% 150,000 22,500
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P92,500
Capital Gains Tax
Gain on sale of shares sold directly to a buyer
[(150,000x 15%)
P22,500
Sale of real property in the Philippines
(SP of P9M** x 6%)
540,000
Total Capital Gains Tax P562,500
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV
CASE B (Resident Foreign Corporation) – TRAIN Law:
4. P1,093,500
5. P81,250
6. P10,000
Solution:
Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Tax rate 30%
Normal Corporate Income Tax Due P1,093,500
Philippines Final Tax
Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 7.5% (not amended) 150,000 11,250
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P81,250
Capital Gains Tax
Gain on sale of shares sold directly to a buyer
[(100,000 x 5%) + (50,000 x 10%)] P10,000
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CASE C (Non-Resident Foreign Corporation) – TRAIN Law:
7. P2,059,750 computed as follows:
Sales returns (200,000)
Cost of goods sold (3,500,000)
GROSS INCOME P6,300,000
ADD:
Interest income from trade receivable 100,000
Interest income from BPI deposits-Phils. 100,000
Income from money market placement 200,000
Dividend income-resident foreign corp. 45,000
Total “Gross” Income P6,795,000
Tax rate 30% P2,038,500
ADD:
Dividend income from DC = P75,000 x 15% 11,250
CGT on shares of DC:
[(P100k x 5%) + P50k x 10%)] 10,000
TOTAL FINAL TAXES P2,059,750
(P5.2) P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The incomes provided in the problem were all
derived in U.S.
(P5.3) RFC –TRAIN Law:
Current account, BDO @ 20% P120,000
Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Royalty income from various domestic corporations @ 20% 20,000
US dollar deposit, FCDU @ 7.5% 60,000
Total final taxes on passive income P340,000
(P5.4) – TRAIN Law
Q1 Q2 Q3 Q4
Gross profit from sales P1,600,000 P3,200,000 P4,800,000 P6,200,000
Business expenses (1,200,000) (2,400,000) (3,400,000) (4,200,000)
Taxable income 400,000 800,000 1,400,000 P2,000,000
RCIT 120,000 240,000 420,000 600,000
MCIT (Gross Profit x 2%) 32,000 64,000 96,000 124,000
TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000
Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (90,000) (90,000) (90,000)
Tax Paid Q2 (80,000) (80,000)
Tax Paid Q3 - (120,000)
Income Tax Payable P90,000 P80,000 P120,000 P80,000
(P5.5)
Year 4 Year 5 Year 6 Year 7 Year 8
MCIT 100,000 60,000 50,000 40,000 20,000
RCIT 30,000 70,000 60,000 30,000 90,000
TAX DUE (Higher) P100,000 P70,000 P60,000 P40,000 P90,000
Excess MCIT
Year 4 - (70,000) - - -
Year 7 (10,000)
Income Tax Payable P100,000 P0 P60,000 P40,000 P80,000
(P5.6)
1. P120,000
2. P690,000
3. P210,000
4. P495,000
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Q1 Q2 Q3 Q4
Tax Due 2018 NCIT P300,000 MCIT P990,000 NCIT P1,410,000 NCIT P2,010,000
Excess MCIT 2017 (90,000) - (90,000) (90,000)
Excess W/holding Tax 2017 (30,000) (30,000) (30,000) (30,00)
W/holding - 2018 (60,000) (150,00) (270,000) (375,000)
Quarterly Tax Payments (120,000) (810,000) (1,020,000)
Tax Payable P120,000 P690,000 P210,000 P495,000
(P5.7)
Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Income tax payable of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Income tax payable of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Income tax payable of DEF Company = P1.5M
Joint Venture ABC Co. DEF Co.
Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Tax Rate (RCIT) 30% 30% 30%
Tax Due P6,000,000 P3,000,000 P1,500,000
Case B (Tax Exempt Joint Venture)
7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of ABC Company = P24M
10. Income tax payable of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Income tax payable of DEF Company = P3.3M
Gross income P50,000,000 P30,000,000 P20,000,000
Share in the income of the joint venture - 14,000,000 6,000,000
Net/ Taxable income P20,000,000 P24,000,000 P11,000,000
Tax Rate (NCIT) 30% 30%
Tax Due P0 P7,200,000 P3,300,000
(P5.8)
Case A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Bryan = P10M
4. Taxable income Rianne = P5M
5. Final tax due of Bryan (10%) = P980,000
6. Final tax due of Rianne (10%) = P420,000
Joint Venture Bryan Rianne
Gross income P50,000,000 30,000,000 20,000,000
Taxable income P20,000,000 P10,000,000 P5,000,000
Less: Tax Due @ 30% (6,000,000)
Distributable income P14,000,000
Share in income
Bryan @ 70% P9,800,000
Rianne @ 30% 4,200,000
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Case B:
7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of Bryan = P24,000,000
10. Taxable income Rianne = P11,000,000
11. Final tax due of Bryan = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Rianne = P0 ; subject to basic and creditable withholding tax
Joint Venture Bryan Rianne
Gross income P50,000,000 30,000,000 20,000,000
Net income P20,000,000 P10,000,000 P5,000,000
Distributable income P20,000,000
Share in income
Bryan @ 70% P14,000,000 14,000,000
Rianne @ 30% 6,000,000 6,000,000
Taxable income P24,000,000 P11,000,000
(P5.9)
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
2. (P6M-4M) x 30% = P600,000
3. P6M x 30% = P1,800,000
4. P6M x 2.5% = P150,000
5. P6M x 1.5% = P90,000
6. P6M x 25% = P1,500,000
7. P6M x 4.5% = P270,000
8. P6M x 7.5% = P450,000
9. *P3,350,000 x 10% = P335,000; * from #1
10. P1,005,000; same computation with #1
11. nil; exempt
(P5.10)
1. [8M] x 2.5% = P200,000
2. [8M x 1%) = P80,000
3. nil; tax exempt on the basis of reciprocity
(P5.11)
1.Related 4.Related
2.Related 5.Related
3.Related 6.Unrelated
(P5.12) Proprietary Educational Institution:
Gross income, related activities P5,000,000
Gross income, unrelated activities (excluding rental income) 5,000,000
Rental income from commercial spaces (gross of 5% WT) – unrelated 2,000,000
Expenses, related activities (2,000,000)
Expenses, unrelated activities (3,000,000)
Tax Rate (RCIT); Unrelated income > Related income 30%
Tax Due 2,100,000
Less: CWT on rental income (P2M x 5%) (100,0000)
Quarterly tax payments for the first 3 quarters (500,000)
Income Tax Payable P1,500,000
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(P5.13)
Question 1:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Depreciation expense-classrooms (75,000)
Depreciation expense-furniture and equipment (50,000)
x Tax Rate 10%
Tax Due P210,500
Question 2:
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Construction of additional classrooms (1,300,000)
Acquisition of furniture and equipment (400,000)
x Tax Rate 10%
Tax Due P53,000
(P5.14)
1. Income Tax Due (Payable) = P249,000 – CWT 15,000 = P234,000
2. Improperly accumulated earnings tax = P46,425
Solution:
Gross income (gross of 1% WT) P1,500,000
Gain on sale of business asset 60,000
NOLCO in 2016 (130,000)
ADD:
2016 NOLCO 130,000
Interest on peso bank deposit (P5,000/80%) 6,250
Dividends from a domestic corporation 35,000
Gain on sales of shares, not listed and traded subjected to capital gains
tax (P150,000-115,000) 35,000 206,250
DEDUCT:
NCIT (P830,000 x 30%; higher than MCIT) 249,000
Final Tax on Passive income (6,250 x 20%) 1,250
Capital gains tax on shares (35,000 x 5%) 1,750
Dividends paid during the year 120,000 (372,000)
BALANCE P664,250
RE Jan. 1 200,000
RE Dec. 31, 2017 P864,250
LESS: Amount that may be retained (Par of Outs. Sh.) (400,000)
IMPROPERLY ACCUMULATED EARNINGS P464,250
x IAET RATE 10%
IMPROPERLY ACCUMULATED EARNINGS TAX P46,425
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(P5.15)
1. P103,000
2. P117,000
Solution:
2017:
CGT on Land = P1.5M x 6% P90,000
CGT on shares:
1st P100,000 capital gain @ 5% P5,000
In excess of P100,000 capital gain @ 10% 8,000 13,000
2018:
CGT on Land = P1.5M x 6% P90,000
CGT on shares = P180,000 x 15% 27,000
(P5.16)
1. P16,500
2. P36,000
Solution:
2017:
Sale#3; capital gain = P190,000:
1st P100,000 capital gain @ 5% P5,000
In excess of P100,000 capital gain @ 10% 9,000 P14,000
Sale#4; capital gain = P50,000; CGT@ 5% 2,500
Sale#5; capital loss = P30,000; CGT = none -
2018:
Sale#3; capital gain = P190,000:
CGT = P190,000 x 15% P28,500
Sale#4; capital gain = P50,000; CGT@ 5%
CGT = P50,000 x 15% 7,500
Sale#5; capital loss = P30,000; CGT = none -
TRUE OR FALSE
1. TRUE 11. TRUE 21. FALSE
2. FALSE 12. TRUE 22. TRUE
3. TRUE 13. FALSE 23. FALSE
5. FALSE 15. FALSE 25. TRUE
10. FALSE 20. TRUE 30. FALSE
(10) it shall be “prolonged labor dispute” resulting from temporary closure of the business
(15) treated as inter-corporate dividend, hence, nontaxable
(17) should be from “within and without”
(17) shall be ROHQ
(21) shall be IAET
(24) only if the taxpayer is a financial institution
(30) passive incomes are not subject to branch remittance tax
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MULTIPLE CHOICE
1. D 21. D 41. A 61. A
2. B 22. B 42. D 62. A
3. C 23. A 43. D 63. A
4. B 24. C 44. B 64. A
5. D 25. D 45. B 65. B
6. D 26. B 46. C 66. C
7. C 27. D 47. C 67. C
8. B 28. D 48. A 68. B
9. B 29. A 49. D 69. A
10. B 30. C 50. D 70. A
11. A 31. B 51. D 71. A
12. D 32. C 52. A 72. D
13. B 33. A 53. B 73. A
14. D 34. D 54. B 74. A
15. C 35. C 55. D
16. B 36. D 56. C
17. C 37. C 57. B
18. B 38. B 58. C
19. C 39. B 59. B
20. D 40. C 60. D
(4).
Domestic RFC NRFC
Gross Income, Philippines P975,000 P975,000 P975,000
Expenses, Philippines (750,000) (750,000)
Gross Income, Malaysia 770,000
Expenses, Malaysia (630,000)
Interest on bank deposit - - 25,000
Taxable income 365,000 225,000 P1,000,000
Tax Rate 30% 30% 30%
Tax Due P109,500 67,500 300,000
(5).
Gross profit from sales P3,000,000
Dividend income from a resident corporation 50,000
Dividend income from a nonresident corporation 40,000
Capital gain on sale of land in China 200,000
Interest income from notes receivable 20,000
Tax Due @ 30% P453,000
(6).
Sale of land-Phils. P2M x 6% P120,000
Sale of shares of DC = P120,000 x 15% 18,000
Capital gains tax P138,000
(7).
Interest income on peso bank deposit @ 20% P6,000
Interest income on foreign currency bank deposit @ 15% 3,750
Interest income on treasury bills @ 20% 2,000
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26 | P a g e
(8).
To Louie @ 10% P10,000
To Floyd @ 10% 10,000
To Zeus @ 10% 10,000
To JJ @ 20% 20,000
To Francis @ 25% 25,000
To Chen, a domestic corporation Exempt
To a resident foreign corporation Exempt
To a nonresident foreign corporation @ 15% 15,000
Total withholding taxes P90,000
(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500
(11).
Interest income from loans P10,000,000
OPEX (P12M x 10/15) (8,000,000)
Income Tax Rate 30%
Income Tax Due P600,000
(12 and 13)
Solution:
G Income P5,000,000 P3,000,000 P2,000,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P1,000,000 P500,000
NCIT 30% 30% 30%
Tax Due P600,000 P300,000 P150,000
(14).
G Income P5,000,000 P3,000,000 P2,000,000
Sh. in Inc. 1,400,000 600,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P2,400,000 P1,100,000
NCIT - 30% 30%
Tax Due - P720,000 P330,000
(17). Income Tax Due = (P10M-P4M) x 30% = P1,800,000
(18). Income Tax Due = P10M x 2.5% = P250,000
(20). Income Tax Payable = P8M x 2.5% = P200,000
(21). Tax Expense (Income Tax & Common carrier’s tax):
= (P8M x 2.5% ) + (P8M x 25% x 3%CCT) = P200,000 + 60,000 = P260,000
(22). Branch Remittance Tax = P2M x 15% = P300,000
(27).
Gross income, related activities P5,000,000
Gross income, unrelated activities (except rental income) 5,000,000
Rental income from commercial spaces (gross of 5% WT) 2,000,000 P12,000,000
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000 (5,000,000)
Tax rate (unrelated income>related income) 30%
Tax due P2,100,000
Less: Quarterly tax payments P500,000
Withholding tax on rental income 100,000 (600,000)
Income Tax payable P1,500,000
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27 | P a g e
(28).
Income from tuition fees P3,500,000
Miscellaneous school fees 1,500,000
Dividend income from foreign corp. 2,000,000
Rental income (gross of 5% WT) 2,000,000 P9,000,000
OPEX (4,000,000)
Taxable income P,000,000
Tax rate (related income>unrelated income) 10%
Tax due P500,000
Less: Withholding tax on rental income (100,000)
(29).
Tuition and other fees P5,000,000
Rental income (gross of 5% WT) 50,000
OPEX (1,500,000)
CAPEX (2,000,000)
Tax rate (related income>unrelated income) 10%
Tax due P155,000
(30).
Gross Receipts P8,500,000
Rental income (gross of 5% WT) 1,500,000
OPEX (8,200,000)
Tax rate (not a non-profit hospital) 30%
Tax due P540,000
Tax payable P465,000
(31).
Rental income (gross of 5% WT) 5,200,000
OPEX (9,450,000)
Tax rate (unrelated income is higher) 30%
Tax due P165,000
Tax payable (P95,000)
(#s 38 TO 45).
2008 2009 2010 2011 2012 2013 2014 2015
NCIT P25,000 P130,000 P200,000 P0 P100,000 P150,000 P8,000 P1,000
MCIT 100,000 150,000 190,000 300,000 50,000 60,000 40,000 50,000
DUE (Higher) 100,000 150,000 200,000 300,000 100,000 150,000 40,000 50,000
EXCESS MCIT 75,000 20,000 - 300,000 - - 32,000 49,000
TAX DUE P100,000 P150,000 P200,000 P300,000 P100,000 P150,000 P40,000 P50,000
MCITCO -
2008 (75,000)
2009 (20,000)
2011 (100,000) (150,000) -
TAX PAYABLE P100,000 P150,000 P105,000 P300,000 P0 P0 P40,000 P50,000
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28 | P a g e
CHAPTER 6 – PARTNERSHIPS, ESTATES AND TRUSTS
PROBLEM SOLVING
P6.1
1. Income tax due of the partnership = P0 (tax exempt)
2. Income tax due of LJ = P310,000
LJ
LJ’s gross income from his trading business P1,000,000
LJ’s expenses from his trading business (600,000)
Share from the net income of a GPP 400,000
Royalty, books published in USA 150,000
Salaries, gross of withholding tax 450,000
Basic exemption NA
Tax Due (TRAIN Law); P130k + (P600k x 30%) P310,000
P6.2
Case A (Ordinary Partnership):
1. Tax due of the partnership = P240,000
2. Tax due of Rivera = P30,000
3. Tax due of Reyes = P55,000
RR Partnership Rivera Reyes
Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (400,000) (500,000)
Basic exemption - - -
Tax Rate 30% TRAIN Table TRAIN Table
Tax Due P240,000 P30,000 P55,000
Note: The partners’ share in the net income of the partnership is treated as dividend income subject to a final tax rate of 10%.
Case B (General Professional Partnership):
3. Tax due of the partnership = P0; exempt
4. Tax due of Rivera = P110,000
5. Tax due of Reyes = P184,000
RR Partnership Rivera Reyes
Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (400,000) (500,000)
Basic exemption -
Share in partnership income - 320,000 480,000
Tax Rate EXEMPT TRAIN Table TRAIN Table
Tax Due P0 P110,000 P184,000
P6.3
1. Income tax payable/(refundable) of the partnership = P352,500
2. Income tax payable/(refundable) of Villamin = P12,600
3. Income tax payable/(refundable) of Francis = P0
4. Final tax on passive income of the partnership = P11,500
5. Final tax on passive income of Villamin = P40,783
6. Final tax on passive income of Francis = P95,767
7. Capital gains tax of the partnership = P150,000
8. Capital gains tax of Villamin = P0
9. Capital gains tax of Francis = P18,000
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29 | P a g e
Partnership:
Gross profit from sale of services P3,500,000
Direct cost of services (1,500,000)
Business Expenses (700,000)
Rental Income in business assets (gross)
(P142,500/95%)
150,000
X tax rate 30%
Tax due P435,000
Withholding tax on rent (7,500)
Income tax payable P352,500
Interest Income on peso bank deposits @ 20% P4,000
Interest income-FCDS @ 15% 7,500
Final Tax on passive income of the partnership P11,500
Capital gains tax on real property (2.5M x 6%) 150,000
DISTRIBUTABLE INCOME:
Total income subject to final tax 70,000
Capital gain 300,000
Less:
Basic tax due (435,000)
Final tax due (11,500)
Capital gains tax (150,000)
DISTRIBUTABLE INCOME P1,223,500
Villamin:
Gross income from sole-proprietorship business 925,000
Allowable business expenses (670,000)
Dividend Income-resident foreign corp. 120,500
Basic exemption -
Tax due (TRAIN Table) P25,100
Income tax payable P12,600
Final Tax; share in partnership income = (P1,223,500 x 3/9 X 10%) P40,783
Capital gains tax - Villamin P0
Francis:
Income Tax payable
(No income subject to basic tax)
P0
Dividend Income @ 10% P8,500
Royalty Income @ 20% 7,000
Share in partnership income (P1,223,5003 X 6/9 x 10%) 81,567
Total final tax on passive income P95,767
Capital gains tax on shares of stock
(P120,000 x 15%)
18,000
P6.4
1. Income tax payable of the business partnership = P114,000
2. Income tax payable of the GPP = P0
3. Income tax payable of Louie = P-
4. Income tax payable of Floyd = P-
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30 | P a g e
Business
Partnership GPP
Gross income P800,000 P500,000
Net or Taxable income P380,000 P125,000
Tax rate 30%
Income tax due/payable P114,000 EXEMPT
Louie and Floyd Louie Floyd
Gross Income P 325,000 P 380,000
Prize, supermarket raffle - 7,500
Share in income of GPP 37,500 87,500
Basic exemption - -
Additional exemption - -
Taxable income P57,500 P178,250
Income tax payable (TRAIN Law) P- P-
NOTE:
§ The share in the net income of the business partnership, the dividend income from a domestic corporation and royalty from books are subject to
a final tax rate of 10%.
§ The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% final tax
15. (P2M-1M) x 30% = P300,000
16. P0; Subject to 10% final tax
17.
Partnership net profit (net of 30% tax)
(P800,000 x 70%)
P560,000
Other Income:
Interest income, net 8,000
Dividend income (tax exempt) 20,000
Total distributive income P588,000
Share of T (50%) P294,000
Applicable tax (10% final tax) P29,400
18. P600,000 – P350,000 x 50% = P125,000
19.
Share in GPP’s income P125,000
Own income (P150,000-70,000) 80,000
Basic exemption -
MULTIPLE CHOICE
1. A 6. A 11. D 16. A
2. C 7. A 12. A 17. D
3. B 8. C 13. B 18. B
4. B 9. B 14. C 19. B
5. B 10. C 15. B 20. B
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31 | P a g e
20.
Gross income P750,000
Expenses (200,000)
x 70%
Net income after corporate tax 385,000
Add:
Dividend received from a domestic corp. (tax exempt) 20,000
Bank interest income, Metrobank (net of final tax) 80,000
Distributable net income P485,000
Juan: P485,000 x 55% x 10% P26,675
Ponce: P485,000 x 45% x 10% P21,285
CHAPTER 7 – CONCEPT OF INCOME
MULTIPLE CHOICE
1. C 13. C 25. D 37. C
2. D 14. D 26. B 38. D
3. B 15. C 27. B 39. D
4. A 16. B 28. A 40. C
5. D 17. D 29. D 41. C
6. D 18. A 30. A 42. C
7. A 19. C 31. D 43. D
8. D 20. C 32. D 44. A
9. B 21. A 33. B
10. D 22. D 34. B
11. C 23. D 35. B
12. A 24. D 36. B
Supporting Computations:
32. P300,000 4/12 = P100,000
33.
Gain on sale of personal property purchased in the Philippines
and sold in Hongkong
P-
Compensation received for personal services in the Philippines 200,000
Rent income from real property in Malaysia -
Gain from sale in the Philippines of shares of a foreign corporation 100,000
Deductions identified with:
Philippine income (80,000)
Foreign income -
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000) (9,000)
Philippine Net Income P211,000
34.
Gross Receipts P600,000
Rental expenses (120,000)
Salaries expense (100,000)
Basic exemption (50,000)
35. (Resident Alien)
Gross Income P2,000,000
Dividend income from foreign corp. (50,000 x 60%) 30,000
Basic exemption -
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32 | P a g e
36. Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000
37. (Domestic Corp = Taxable on income within and without
Allowable deductions (4,000,000)
Dividend income from domestic corp. exempt
Dividend income foreign corp. (95% from R.P.) 1,000,000
Dividend income foreign corp. (60% from R.P.) 800,000
Dividend income foreign corp. (25% from R.P.) 400,000
38. (Resident Foreign Corp = Taxable on income from Philippine sources only
Allowable deductions (4,000,000)
Dividend income from domestic corp. exempt
Dividend income foreign corp. (80% from R.P.)
(P1M X 80%=considered from Phil. sources)
800,000
(P800,000 x 60%)
480,000
(entire amount is considered income from sources outside of
the Phils.)
-
39.
DI-Microsoft -
DI-Intel (P400,000 x 60% x 30%) P72,000
DI - IBM -
Interest income – BDO @ 20% 120,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
40.
DI-Microsoft & Intel @ 30% basic tax P270,000
DI - IBM -
Interest income – BDO @ 20% 120,000
Interest income U.K. @ 30% 210,000
FCDS deposit @ 15% 120,000
Royalty income @ 20% 20,000
CHAPTER 8 – INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
PROBLEM SOLVING:
P8.1
INCOME SUBJECT TO BASIC TAX:
Basic salary (P900,000+P300,000) P1,200,000
Director’s fee 200,000
Business income:
Retail business 250,000
Apartment rental (P190,000/95%) 200,000
Dividend income from a resident corporation 50,000
13th, Xmas and MidYear Bonus = (P180,000 – 1st 5,000 as de minimis
– P90,000 exclusions)
85,000
Gross Income subject to basic tax (Q#1) P1,985,000
LESS:
Basic exemption -
Net Taxable income P1,860,000
Income tax due – TRAIN Law (Q#4); [P130k + (P860k x 30%)] P448,000
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33 | P a g e
INCOME SUBJECT TO FINAL TAX:
Cash dividend from a domestic corporation @ 10% P5,000
Interest from savings deposit @ 20% 4,000
Royalties from book publications @ 10% 5,000
Prizes from contest won @ 20% 10,000
PCSO winnings @ 20% 10,000
Total final taxes on passive income (Q2) P34,000
INCOME EXEMPT FROM TAX:
Xmas Bonus and other benefits (P5k de minimis + 90,000) P95,000
Stock dividend from a domestic corporation 25,000
Damages received from injuries and sickness 85,000
Proceeds-life insurance coverage of his father 300,000
Total income exempt from tax (Q3) P505,000
P8.2
1) P10,000
2) P15,000
3) P715,000 computed as follows:
Gross profit from sales (P2.5M – P1.5M) P1,000,000
Taxable recovery-receivables 10,000
Taxable tax refunds (P30,000 x 50%) 15,000
Rent income excluding security deposit 250,000
Operating expenses excluding bad debts (500,000)
Write-off during the year (60,000)
P8.3
1) 2016 income = (P240,000 x 2) + 60,000 = P540,000
2) 2017 income = only the annual real property tax of P60,000
3) 2018 income (lump-sum) = P240,000 + 60,000 + P3,000,000 = P3,300,000
4) 2018 income (spread-out) = P400,000 computed as follows:
Annual rental P240,000
Annual real property tax 60,000
Annual income from leasehold improvement:
Cost P3,000,000
x 5/10
Remaining BV after lease term P1,000,000
Divide by remaining lease term 10 years P100,000
Total income 2018 P400,000
P8.4
Ramon Magsaysay award P50,000
Athlete of the year award 100,000
Prize for winning an Olympic Medal 500,000
Gift from Mayor Erap 250,000
Gift from Honda Cars 1,000,000
Total amount exempt from income tax P1,900,000
P8.5 P0; The P800,000 should be exempt from income tax
P8.6 P1,000,000; The interest income from expanded foreign currency deposit
P8.7 Taxable Proceeds = P1,000,000 – P600,000 = P400,000
P8.8 Income within = None. The ratio of income within over total income for the past 3 years < 50%.
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34 | P a g e
P8.9
Salary for the first quarter P180,000
Honorarium as speaker in one of ABC’s team building activities 10,000
Retirement pay; (Taxable; failed to meet the age requirement) 2,500,000
Commissions 30,000
Fee as a member of ABC’s board of directors (compensation income if he is an
employee at the same time)
50,000
10 days monetized vacation leave Exempt
Interest income from time deposit FW Tax/E
Productivity incentive pay and 13th month pay Exempt
(Productivity pay= 1st P10,000 is de minimis under RR 1-2015)
(Total of excess of productivity of P10,000 + 60,000 bonus is not more than
P90,000, hence tax exempt)
Total compensation income subject to tax P2,770,000
P7.10
INCOME Q#1 Q#2 Q#3 Q#4
Income within Income without Taxable
income (RC)
Taxable
income (NRC)
A. Rental income (gross)
• From an apartment unit in USA, - P240,000 P240,000
• From a parcel of land in Makati P180,000 180,000 P180,000
B. Royalties from book
• Published in the Philippines 30,000 FWT FWT
• Published in USA 20,000 20,000
C. Interest income earned on notes receivable
• From a debtor who resides in USA 15,000 15,000
• From a debtor who resides in Manila 25,000 25,000 25,000
D. Net profit from sales, merchandising business
• From Philippine outlet 300,000 300,000 -
• From USA outlet 200,000 200,000 200,000
E. Dividend income from two domestic corporations. Gross income
from the Phils. for the past 3 years
• 60% of its world income 60,000 - FWT FWT
• 85% of its world income 80,000 - FWT FWT
F. Dividend income from two resident foreign corporations. Gross
income from the Philippines for the past 3 years was equivalent
to:
• 40% of its world income - 40,000 40,000 -
• 60% of its world income 12,000 8,000 20,000 12,000
G. Prizes received from Supermarket raffle:
From the Philippines:
• ABC Supermarket 8,000 - 8,000 8,000
• DEF Superstore 12,000 - FWT FWT
From USA:
• UVW Supermarket - 6,000 6,000 -
• XYZ Supersavers - 14,000 14,000 -
H. Prizes and winnings from lotto
• Philippine lotto 200,000 - Exempt Exempt
• USA lotto 100,000 100,000 -
BASIC EXEMPTION (assume 2018 taxable year) - -
TOTAL P907,000 P643,000 P1,168,000 P425,000
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35 | P a g e
P7.11
DIVIDEND INJURIES/DAMAGES PRIZES/AWARDS
1. 10% F.Tax 8. Exempt 15. Basic tax
2. 10% F.Tax 9. Exempt 16. Exempt
3. Basic Tax 10. Basic Tax 17. Exempt
4. Exempt 11. Exempt 18. Exempt
5. Basic Tax 12. Basic Tax 19. Exempt
6. Exempt 13. Exempt 20. Basic Tax/FWT Depending on the
amount
7. N.taxable 14. Basic Tax 21. Basic Tax/FWT
22. 20% FWT; TRAIN Law
23. Basic Tax
24. 20% final tax (individual taxpayer)
25. Basic Tax (abroad)
VARIOUS PROCEEDS/INCOME
26. Final Tax
27. Exempt
28. Exempt
29. Exempt
30. Exempt
TRUE OR FALSE
1. TRUE 8. TRUE 15. FALSE 22. TRUE
3. TRUE 10. TRUE 17. TRUE 24. TRUE
5. FALSE 12. TRUE 19. FALSE
#7 – should be CWT not FWT
#14 – should be upon recovery
#20 - if not in single sum (like installment or annuity), it may include an interest, subject to tax
#21 – the interest is subject to tax
MULTIPLE CHOICE
1. C 16. A 31. D*** 46. A
2. B 17. D* 32. C**** 47. D
3. D 18. C 33. C 48. D
4. D 19. B 34. A 49. B
5. B 20. C** 35. D 50. B******
6. B 21. D 36. C 51. C
7. B 22. C 37. C 52. B
8. B 23. A 38. D 53. C
9. C 24. C 39. D***** 54. D
10. A 25. C 40. A (TRAIN Law) 55. D
11. C 26. D 41. D 56. D
12. C 27. D 42. B 57. C
13. B 28. D 43. D 58. A
14. C 29. C 44. D 59. B
15. B 30. D 45. D 60. B
61. C
*the P40,000 is subj. to FWT
**should be from banks only
***indirect dividends are subj. to FWT
**** Statement “II” is subject to FWT
*****ERRATUM: letter “D” shall be real property not used in business
******The interest is subject to FWT
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36 | P a g e
No. 13.
Write-off 2013 2013 Income (Loss) before
write off
2014 Recovery 2014 TAXABLE
RECOVERY
P50,000 P350,000 P20,000 P20,000
10,000 (50,000) 10,000 -
30,000 20,000 30,000 20,000
P40,000
No. 14.
Case A Case B Case C
2013 Income(loss) before write-off P120,000 P60,000 (P40,000)
Write-off 40,000 40,000 50,000
2014 Recovery P40,000 P10,000 P50,000
TAXABLE RECOVERY P40,000 P10,000 P0
No. 17.
Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income
Refund of income tax = not an income
No. 25.
Rent for 2015 and 2016 (prepaid rent is taxable yr. of receipt
regardless of accounting method)
P3,600,000
Total annual income P3,630,000
No. 26.
2016 2017 2018
Rent - P2,400,000 P2,400,000
Annual real property tax P30,000 30,000 30,000
Income from improvement
[(P36M x **5/15) / 10]
None; completed
only end of 2017
1,200,000
Total annual income P2,430,000 P3,630,000
Lease Term: 12.5 years
Remaining Lease term after completion of the improvement: 10 years
Useful life of the improvement: 15 years
Remaining useful life of the improvement after termination of the lease: 5 years**
No. 27 – LUMP SUM METHOD
2017
Annual Rent 2017 P2,400,000
Income from improvement 36,000,000
Total annual income P38,430,000
No. 28.
Royalty – as an author @ 10% P10,000
Other royalties P800,000
x 20% 160,000
Total final tax on royalty income P170,000
No. 47.
Proceeds from the taxpayers life insurance P2,000,000
Less premiums paid (P15,000 x 25) (375,000) P1,625,000
Rent income from inherited properties 200,000
lOMoARcPSD|20337076

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