Passive Income: NRFC= 30%

GR: Subject to Normal Income tax General Rule=20%

XPN: Other passive Income are subject to final Deposit from foreign corpo= 15%
tax.
Interest income from Government Deposit
Interest Income: system
As a general rule this is subject to 20% Treasury Bonds, Treasury notes and treasury
creditable withholding tax subject to normal notes under Government Deposit is subject to
tax. 20% Final withholding tax
XPN: Interest Income from banks are subject to Interest income from Foreign Currency Deposit
20% Final withholding tax. system
UNDER INTERST INCOME ARE: Person whether natural or judicial may DEPOSIT
FOREIGN CURRENCIES forming part of the
Income from long term Deposits:
Philippine international reserves.
RATE APP. TO LONG TERM DEPOSITS: (w/
RATE APP. TO FOREIGN CURRENCY DEPOSITS:
TERMINTION PERIOD)
RC&RA= 15%
5 years: EXEMPT
NRA&NRC=EXEMPT
4 less than 5- 5%
DOM, CORPO=15%
3 less than 4- 12%
NRFC=EXEMPT
3 or less- 20%
RFC=15% before 7.5%
This is only applicable to banks and not other
financial instituition Under the expanded foreign currency deposit
system, foreign currency loans granted by a
This is not applicable to NRE-NETB and
depository bank shall be subject to final income
Corporation
tax of 10%
Income from Deposit Substitute and Banks
Interest income from all other Instruments
Deposits
All other interest Income is subject to creditable
Deposit Substitute- It is called the paluwagan. It
withholding tax @20% normal tax.
is borrowing from a 20 indivuduals or
Corporation. There is also called a 19 lender Theoritical Interest Income
rule which is only applicable to private
No interest shall be imposed unless it has been
individuals or corpo. (This is subject to normal
expressly stipulated in writing.
tax) And not to public Corporation or
individuals. All treasury bonds are considered
deposit substitute regardless of the number of
purchasers and the time of the issuance.
This subject to 20% normal
tax.
Bank Deposits-
RATE APP. TO INCOME FROM BANK DEPOSITS:
NRE-NETB= 25%
Dividend Income Paid in Corporate property such as bonds,
securities, or stock investments held by the
Distribution made by a corporation to its
corporation.
shareholders out of its earnings.
They are taxable to the extent of the fair market
Payable to shareholders whether in money,
value of the property received at the time of
or in property
distribution.
Dividends that are paid within:
Liquidating Dividends
1. Paid by domestic corporation
Distribution of assets by a corporation to its
2. Paid by foreign corporation and FC’s
stockholders upon dissolution.
gross income for 3 years is 50% of
worldwide income. The Distribution of Liquidating dividends IS NOT
VIEWED AS A SALE OF ASSET of the liquidating
TAX ON DIVIDEND INCOME:
corporation to its stockholders but AS A SALE
RC= 10% OF SHARES BY THE STOCKHOLDERS TO THE
NRC=10% CORPORATION SO THE STOCKHOLDERS
RECIEVES PROPERTY OR MONEY FROM THE
RA=10% CORPORATION.
NRA-ETB=20% Gain from distribution of liquidating dividend is
NRA-NETB=25% subject to NORMAL INCOME TAX.

DOMESTIC CORPO=EXEMPT
RFC=EXEMPT
NRFC=30%
Dividend income from foreign corporation is
subject to normal income tax.
Dividend Income is not subject to Local business
tax
In a domestic corporation Filipino who receives
dividends is subject to Final Withholding Tax of
10%
Stock dividends are not taxable because it is not
an income rather it is a capital.
Condonation of Debts by Corporation
Indirect Distribution of Dividends by a
Corporation.
If a corporation cancels or redeems stocks it is
TAXABLE because it represents a distribution of
earnings or profits accumulated. Redemptiion
converts into money the stocks dividends which
becomes realized profit or gain.
Property Dividends
Royalty Income Scientific
The sum of money paid to creator or participant Charitable
in an artistic work based on the sales of the
Artistic
work.
Religious
In order to receive royalties it must have a
copyright or patent. Civic achievement
2 types of royalties this includes Educational
Passive Income (Final Tax) Literary
@10% -Intellectual, Books, Literary, arts and Prices that are won due to the exercise of
music profession like many pacquiao is subject to
normal tax.
@20%- General Rule
Lotto winnings above 10,000 is subject to 20%
Active Income (Normal Tax)
final tax
@30%- General Rule
Royalty When Considered Active Income
Royalty Income is considered as Active when it
is the Primary Business
For corporations the tax rate is always 20%.
Only printed books are allowed with the 10%
special tax rate.

Prizes and Winnings

1. Prizes subject to normal income tax
*w/in the Philippines, 10,000 or less
*source outside the Philippines
2. Prizes subject to 20% Final Tax
*w/in the Philippines, over 10,000
*source w/in the Philippines
3. Winnings subject to normal tax
*source outside the Philippines
4. Winnings subject to 20% Final Tax
*source w/in the Philippines
*Except winnings from PCSO amounting to
10,000 or less
5.TAX or WINNINGS EXCEMPT
* Winnings: PCSO winnings 10,000 or less
*Prizes: SCARCEL
Dealings in Properties Subject to Normal Income Tax.
Distinguish Capital Asset from Ordinary Asset Distinguish Actual Gain from Presumed Gain
CAPITAL ASSET is an exclusion of all ORDINARY Actual Gain- excess of the price of an asset over
ASSETS. its cost
Capital Assets includes property used in trade Presumed Gain- There is a realized gain when in
or business excluding all ordinary assets, all fact the seller incurred a loss.
ordinary assets includes:
(The Doctrine of presumed gains only applies to
1. Real property used in business by the the sale of real properties as capital assets)
taxpayer. Subject to 6% flat rate based on the higher
2. Inventories gross selling price or fair value
3. Depreciable property used in trade or
Rules @ to Sir Jason Chan
business.
4. Stocks na baligya Rule 1: You can deduct your Capital Loss only to
the extent of your capital gain.
Examples of Capital Assets
Rule2: NLCO (Net Capital Loss Carry Over) is
1. Asset na registered sa corporation pero
only for one year
waray guin gamit
2. Alahas na diri guin gagamit sa negosyo Rule 3: Capital loss cannot be deducted to
3. Residential houses and lands ordinary gains but only to capital gains the
4. Sarakyan na diri guin gagamit sa trade excess of deducting the capital gain to capital
or business loss is called the taxable income.
5. Stocks and securities held by taxpayer Rule4: In the next year your capital loss that will
other than dealers in securities. be deducted is limited, whichever is lower
6. Real and other Properties acquired in between Taxable income and capital gain.
the form of investment in stocks
7. Capital assets not used for more than 2 Differentiate Capital Gain from Capital Loss
years Capital gain- Gain from the sale of an asset that
8. Sale or Disposition of Real property are not connected to trade or business
According to the law capital assets excludes Capital loss- loss from the sale or exchange of
from its scope all the properties that are held an asset that are not connected to trade or
for the use in trade or business. business
Subject to Final Income tax. Kinds of capital Gains (the disposition or sale
Examples of Ordinary Assets of:)

1. Condominium building which are for Capital gain Subject to Final tax
rent A. Real Capital Property ( the disposition
2. Machinery and equipment subject to of REAL PROPERTY is not subj to final
depreciation tax)
3. Motor vehicles used in trade or B. Share of stock not traded through the
business. stock exchange
4. Real and Other Properties Acquired by
banks Capital gain subject to Normal tax
5. Sale of properties by real estate A. Sale and other disposition of capital
developers by normal operations assets
6. Capital Assets
Tax Treatment of Capital Gains and Losses Sales proceed partially applied-
1. From sale of Stock of Corpo.
*Stocks traded in the stock Exchange- Subject
to 1/6 of 1% stock transaction tax.
Sale of share of stock of Domestic Corporation
* Stocks not traded in the stock Exchange-
The sale of share of stock of a domestic
Subject to 15% capital gains tax
corporation which is a non-dealer is subject to
2. From sale of real properties in the capital gain stock
Philippines- subject to 6% capital gains tax no
Controlling Factor in sale of share of stocks
loss is recognized
Whether or not the sale is traded in the local
3. From sale of other capital assets-
stock exchange and not where the actual sale
Determination of the amount to be included in
happened.
gross income and not subj. to capital gains tax.
Stocks traded in the stock exchange is subject to
Capital Gains Tax
stock transaction tax of 1/6 or 1%. Sale of
It is applicable even if the sale is involuntary. income tax is exempted.
Land owned by a religious order if sold is Tax Treatment of Sale
subject to 6% capital gains tax.
Net capital gains realized during the taxable
All individual taxpayers are subject CGT of 6% year, which are not traded in the stock
for corporations only Domestic Corporation is exchange subject to 15% final tax.
applicable to the 6 % not for foreign
Share of stocks not listed in any local stock
corporations.
exchange shall be @ fair value.
Tax Treatment if property is not located in the
In Determining the value of the shares, the
Philippines
adjusted net asset method is used w/in all
Gains realized from the sale, disposition or assets and liabilities are adjusted to FAIR
exchange of property not located in the MARKET VALUES. The appraised value of the
Philippines owned by a resident citizen and a real property @ the time of sale shall be higher
domestic corporation is subject to ordinary than:
income but subject to foreign tax credits.
*FMV determined by the commissioner
Transactions covered by Presumed CGT
*FMV shown in the scheduler fixed by the
Sale, Exchange, Disposition/ Pacto de Retro/ provincial and city accessor
Other conditional sale.
*FMV determined by an independent appraiser.
Cost basis on new principal residence
The Determination of the selling price
Sales fully utilized- an im sale san pag baligya
1. Cash sale
nim san im una na balay asya la gihap it presyo
2. Consideration is partly in money and in
sit im bago na balay so waray gain and not
any kind
subject to CGT which is @ 6%
3. Exchange or Barter
Acquisition Cost exceed the entire sales 4. FMV of the stocks sold, exchange etc.
proceed- the cost of the new resident would be:
Tax on Gain from redemption of preferred
*Cost of the old Shares
*Addiional aquisition cost
Are not considered dividends subject to FINAL
TAX but as gain subject to ORDINARY INCOME
TAX.
Short Sale
The seller does not own or any sale which is
consummated by the delivery of a security
borrowed by, or for the account of the seller.
Other Capital Assets
1. Real Property
2. Shares of stock
Wash Sale
It is a wash sale if the gain is taxable and the
loss is not deductible.