4. Item of Gross Income- > taxable item of income
Item of Gross income
Note:
*An item of gross income that is subject to tax in one scheme will
not be taxed by other schemes.
*An item of income that is exempted in one scheme is not taxable
by the other schemes.
Taxable to any of the following:
1. Final Income Taxation
2. Capital Gains Taxation
3. Regular Income Taxation
5. Classification of Items of Gross
Income
1.Gross income subject to tax
2.Gross income subject to capital
gains tax
3.Gross income subject to regular
tax
6. Final Income Taxation
•The recipients of the income receives the income net
of tax
•The payor remits the tax to the government
•The recipient of the income does not need to file an
income tax return
•Applicable only on certain passive income
•Not all items of passive income are subject to final
tax
7. Difference between Passive Income and Active
Income
Passive income
Earned with very minimal or even
without active involvement of the
taxpayer
Examples:
1. Interest income from banks
2. Dividends from domestic
corporations
3. Royalties
Active Income
Earned with a considerable degree of
effort or undertaking from the taxpayer
Examples:
1. Compensation income- received
under an employer- employee
relationship, income from
employment
2. Business income
3. Professional income
8. Capital Gains Taxation
• Imposed on the gain realized on the sale, exchange and other dispositions of
certain capital assets
• Ordinary Assets- assets used in business, trade or profession, are assets held
for sale (inventory) and assets held for use (supplies, PPE)
• Capital Assets- assets other than ordinary assets
- capital assets are:
1. Personal assets of individual taxpayers
2. Business assets of any taxpayer which are:
a. Financial Assets- such as cash, receivables, prepaid
expenses and investments
b. Intangible assets- such as patents, copyright, leasehold
rights and franchise rights.
9. NOTE!
• Not all capital gains are subject to capital gains tax
•Most of capital gains are subject to regular income tax
• The taxpayer still files capital gains tax return to report the
capital gain and pay the tax to the government
• Capital gains taxation applies only to 2 types of capital
assets:
1. Domestic stocks
2. Real property
10. Regular Income Taxation
• General rule in income taxation
• Covers all other income such as
1. Active income
2. Other income
a. Gains from dealings in properties not subject to capital gains tax
b. Other passive income not subject to final tax
Items of gross income from these sources are valued or measured
using an accounting method, accumulated over an accounting period
and reported to the government through an income tax return.
12. Types of Accounting Period
• Regular accounting period- length is 12 months
1. Calendar accounting period- starts in January 1 and ends in December 1
- available to both corporate taxpayers and
individual taxpayers
• Under the NIRC, the calendar accounting period shall be used when the:
taxpayer's annual accounting period is other than a fiscal accounting period
taxpayer has no annual accounting period
taxpayer does not keep books
taxpayer is an individual
2. Fiscal Accounting period- ends on any day other than December 31
- example: February 1- January 31
- available only to corporate income taxpayers
• Short accounting period- length is less than 12 months
13. Deadline of Filing the Income Tax Return
- On the 15th day of the fourth month following the close of the taxable year of
the taxpayer.
- Regular tax due- payable upon filing
Example 1:
Who: Taxpayers using calendar year (whether individual taxpayer or corporate
taxpayer)
What to file: Annual income tax return for the current period
When to file: Not later than April 15 of the following year.
Annual income tax return for 2022 ( January 1, 2022 to December 31, 2022)
- file this on or before April 15, 2023
The 15th day of the fourth month after December 31, 2022 is April 15, 2023
14. Example 2:
Who: Corporate taxpayer using fiscal year ending April 30, 2020
(started on May 1, 2019)
What to file: Annual income tax return covering May 1, 2019 to April
30, 2020
When to file: Not later than August 15, 2019
The 15th day of the fourth month after April 30, 2020 is August 15,
2020. The annual income tax return covering May 1, 2019 to April
30, 2022 must be filed on or before August 15, 2020.
15. Instances of Short accounting period
• Newly commenced business
- The accounting period covers the date of the start of the business
until the designated year- end of the business
Example:
ABC, Inc. started its business operation on April 1, 2019 and opted to
use the calendar year accounting period.
Date of start of the business: April 1, 2019
Designated year- end of the business: December 31, 2019
ABC, Inc. should file its first income tax return covering April 1, 2019 to
December 31, 2019.
Filing of income tax return: on or before April 15, 2020
16. • Dissolution of business
- The accounting period covers the start of the current year to the date of dissolution
of the business
Example:
ABC, Inc. is on the fiscal year accounting period ending very March 31. Its ceased
business operation on August 15, 2019.
Start of the current year: April 1, 2019
Date of dissolution: August 15, 2019
ABC, Inc. should file its last income tax return covering April 1, 2019 to August 15,
2019.
Under the old NIRC, dissolving corporations shall file their return within 30 days from
the cessation of the activities or 30 days from the approval of merger by the SEC in
the case of merger. (Within 30 days from the cessation of activities)
Filling of income tax return: on or before September 15, 2019.
If filed later than September 15, 2019 there is a penalty for late filing.
For individuals, the return shall be due on or before April 15, 2020.- not eligible to use
fiscal year
17. • Change of accounting period by corporate taxpayers
- The accounting period covers the start of the previous accounting period up
to the designates year-end of the new accounting period. Note that BIR
approval is required in changing an accounting period. It is not automatic
Example 1: change from calendar accounting period to fiscal accounting
period.
Effective February 2019, ABC, Inc. changed its calendar accounting period to a
fiscal year ending every June 30.
Start of the previous accounting period: January 1, 2019
Designated year end of the new accounting period: June 30, 2019
ABC, Inc. shall file an adjustment return covering the income from January 1,
2019 to June 30, 2019.
Filing: on or before October 15, 2019
18. Example 2: Change from fiscal accounting period to calendar accounting
period
Effective August 2019, ABC, Inc changed its fiscal year accounting period
ending every June 30 to a calendar year
Start of the previous accounting period: July 1, 2019
Designated year end of new accounting period: December 31, 2019.
ABC, Inc. shall file an adjustment return covering the income from July 1,
2019 to December 31, 2019.
Filing: on or before April 15, 2020.
19. • Death of the taxpayer
- The accounting period covers the start of the calendar year until the
death of the taxpayer.
Example:
Mr. Bean died on November 1, 2019.
Start of the calendar year: January 1, 2019
Date of death of the taxpayer: November 1, 2019
The heirs of Mr. Bean or his estate administrators or executors should file
his last income tax return covering his income from January 1, 2019 to
November 1, 2019.
Filing of Income Tax Return: on or before April 15, 2020
20. • Termination of the accounting period of the taxpayer by the Commissioner of
Internal Revenue
- The accounting period covers the start of the current year until the date of the
termination of the accounting period.
Example:
The accounting period of a taxpayer using calendar year was terminated by the
CIR on August 2, 2019.
Start of the current year: January 1, 2019
Date of termination: August 2, 2019
The taxpayer must file an income tax return covering January 1, 2019 to August
2, 2019.
The income tax return and the tax shall be due and payable immediately.
