4 Gross-Income
4 Gross-Income
4 Gross-Income
SIA
TAX.04-Gross Income MAY 2020
LECTURE NOTES
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2) The tax paid was deducted in arriving at the COMPENSATION FOR INJURIES OR SICKNESS
taxable income;
3) There is a resulting tax benefit on the deduction. Amounts received, through Accident or Health
Insurance or under Workmen's Compensation Acts, as
FORGIVENESS OF INDEBTEDNESS compensation for personal injuries or sickness, plus
the amounts of any damages received, whether by suit
TYPE TAX TREATMENT or agreement, on account of such injuries or sickness.
Debtor performs services to Compensation Income
the creditor INCOME EXEMPT UNDER TREATY
Creditor desires to benefit
the debtor without any Gift Income of any kind, to the extent required by any
consideration treaty obligation binding upon the Government of the
Creditor is a corporation and Philippines.
the debtor is a stockholder of Dividend Income
such corporation RETIREMENT BENEFITS, PENSIONS, GRATUITIES ETC.
E. EXCLUSIONS FROM GROSS INCOME 1) Retirement benefits received under Republic Act
No. 7641
The following items shall not be included in gross income
and shall be exempt from income tax: 2) Those received by officials and employees of
1) Life Insurance private firms, whether individual or corporate, in
2) Amount Received by Insured as Return of Premium accordance with a reasonable private benefit
3) Gifts, Bequests, and Devises plan maintained by the employer: Provided
4) Compensation for Injuries or Sickness a. That the retiring official or employee has been
5) Income Exempt under Treaty in the service of the same employer for at least
6) Retirement Benefits, Pensions, Gratuities, etc. ten (10) years;
7) Miscellaneous Items b. At least fifty (50) years of age at the time of
a) Income Derived by Foreign Government his retirement; and
b) Income Derived by the Government or its c. That the benefits granted shall be availed of by
Political Subdivisions an official or employee only once.
c) Prizes and Awards
d) Prizes and Awards in Sports Competition 3) Any amount received by an official or employee or
e) 13th Month Pay and Other Benefits by his heirs from the employer as a consequence
f) GSIS, SSS, Medicare and Other Contributions of separation of such official or employee from the
g) Gains from the Sale of Bonds, Debentures or service of the employer because of:
other Certificate of Indebtedness a. Death;
h) Gains from Redemption of Shares in Mutual b. Sickness;
Fund c. Other physical disability or for any cause
beyond the control of the said official or
LIFE INSURANCE employee.
GENERAL RULE: Exempt from tax since it is a mere The following are considered involuntary
reimbursement for the loss of life. separation, and therefore not taxable:
1. The installation of labor-saving devices;
EXCEPTION: The following shall be taxable: 2. Redundancy
1) The beneficiary was chosen for a valuable 3. Retrenchment
consideration. 4. Cessation of the employer’s business.
2) The interest earned on the insurance policy.
4) Social security benefits, retirement gratuities,
RETURN OF PREMIUM pensions and other similar benefits received by
resident or nonresident citizens of the Philippines
The amount received by the insured, as a return of or aliens who come to reside permanently in the
premiums paid by him under life insurance, Philippines from foreign government agencies and
endowment, or annuity contracts, either during the other institutions, private or public.
term or at the maturity of the term mentioned in the
contract or upon surrender of the contract. 5) Payments of benefits due or to become due to any
person residing in the Philippines under the laws of
Return of Premium Exempt the United States administered by the United
In excess Income States Veterans Administration.
GIFTS, BEQUESTS & DEVISES 6) Benefits received from or enjoyed under the Social
Security System in accordance with the provisions
The value of property acquired by gift, bequest, of Republic Act No. 8282.
devise, or descent: Provided, however, that income
from such property, as well as gift, bequest, devise, or 7) Benefits received from the GSIS under Republic
descent of income from any property, in cases of Act No. 8291, including retirement gratuity
transfers of divided interest, shall be included in gross received by government officials and employees.
income.
MISCELLANEOUS ITEMS
Property inherited or Exempt
1) Income derived from investments in the Philippines
received as gift
in loans, stocks, bonds or other domestic
Income of above Taxable
securities, or from interest on deposits in banks in
properties
the Philippines by:
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9. Assuming that due to the fault of the lessee, the lease 17. If Corazon survives the policy and is able to receive
contract was terminated on January 1, 2018, how the P500,000, she will report an income of:
much income is to be reported by the lessor in 2018? a. P500,000 c. P150,000
a. P32,400,000 c. P34,830,000 b. P260,000 d. nil
b. P30,600,000 d. P33,030,000
18. Marlon was hit by a car driven by Jaysee causing
10. Mr. Santiago purchased a life annuity for P100,000 severe injuries to the former. It was found out during
which will pay him P10,000 a year. The life expectancy trial that the driver was drunk at the time of the
of Mr. Santiago is 12 years. Which of the following will incident.
Mr. Santiago be able to exclude from his gross income? After trial, the court awarded the following:
a. P100,000 c. P20,000 P1,500,000 actual damages for hospitalization
b. P10,000 d. P120,000 P300,000 exemplary damages
P500,000 for loss of income,; and
11. The following data were provided to you by ABC P100,000 moral damages.
Company for the current year:
Amount 2018 Income Amount Marlon also received a cash gift of P100,000 from
written-off in (Loss) before Recovered in Jaysee. The taxable income received by Marlon is:
2018 write off 2019 a. P2,400,000 c. P1,500,000
P50,000 P350,000 P20,000 b. P1,900,000 d. P500,000
10,000 (50,000) 10,000
30,000 20,000 30,000 19. In order for gains realized from the sale or exchange
or retirement of bonds, debentures or other certificate
The income from bad debt recovery during 2017 is: of indebtedness be exempt from income taxation, what
a. P0 c. P50,000 is the prescribed length of its maturity?
b. P40,000 d. P60,000 a. 5 years or more
b. 5 years or less
12. Which of the following is not a taxable income? c. More than 5 years
a. Bad debts previously written off and recovered d. Exactly 5 years
subsequently.
b. Tax expense previously disallowed as deduction 20. Gains realized by the investor upon redemption of
from taxable income, fully refunded subsequently. shares of stock in a mutual fund company is:
c. Income from gambling. a. Exempt
d. Income from usurious financing. b. Subject to final withholding tax
c. Subject to basic tax
13. The following are not taxable, except d. Any of the choices
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b. P7,500,000 d. P7,430,000
21. Sandara, a nonresident Korean stockholder, received a
dividend income of P300,000 in 2020 from Super Bowl 26. Assume that F5 Corporation is a resident foreign
Corporation, a foreign corporation doing business in corporation, how much is the taxable income?
the Philippines. The gross income of the foreign a. P9,200,000 c. P8,200,000
corporation from within and without the Philippines b. P7,500,000 d. P7,280,000
for the past three years preceding 2015 were as 27. Which of the following is taxable?
follows: a. Interest on long-term deposit or investment
Source 2018 2019 2020 b. Gain on sale of 10-year bond
Philippines P16,000,000 P12,000,000 P14,000,000 c. Prize not exceeding P10,000
Abroad 8,000,000 14,000,000 16,000,000 d. PCSO Lotto winnings
The amount of income subject to tax should be: 28. Situs of taxation on income from sale of property
a. P0 c. P157,500 purchased.
b. P90,000 d. P300,000 a. Place of the seller
b. Place of sale
22. Assuming Super Bowl is a domestic corporation, the c. Place of buyer
amount of income subject to tax of Sandara s hould d. As determined by the Commissioner
be:
a. P0 c. P157,500 29. Which of the following test of source of income is
b. P90,000 d. P300,000 incorrect?
a. Interest income - residence of the debtor
Use the following data for the next two (2) questions: b. Income from services – place of performance
c. Royalties – place of use of intangible
A resident alien had the following data in 2018: d. Gain on sale of real property – place of sale.
Gross income, Philippines P2,000,000
Business expenses 1,200,000 30. Which of the following income is derived from sources
within the Philippines:
Dividends received: a. Dividends received from a non-resident foreign
From domestic corporation (net) corporation;
60% of its income came from 90,000 b. Gain on sale of personal property (movable)
the Philippines manufactured in the Philippines and sold outside of
40% of its income came from 72,000 the Philippines.
the Philippines c. Gains on sale of real property located in Malaysia.
From resident foreign corporation d. Royalty income arising from use in the Philippines
(gross) of technical know-how whereby the owner and
60% of its income came from 50,000 developer is situated in Japan.
the Philippines
40% of its income came from 40,000 31. Assume the following:
the Philippines Gain on sale of personal property P400,000
purchased in the Philippines and sold
23. The taxpayer’s taxable income is in Hongkong
a. P750,000 c. P796,000 Compensation received for personal 200,000
b. P780,000 d. P830,000 services in the Philippines
Rent income from real property in 300,000
24. The final withholding taxes on dividends amount to Malaysia
a. P16,200 c. P25,200 Gain from sale in the Philippines of 100,000
b. P18,000 d. P26,000 shares of a foreign corporation
Deductions identified with:
Use the following data for the next two (2) questions: Philippine income 80,000
F5 Corporation, a domestic corporation had the Foreign income 120,000
following data during the calendar year 2017 Deductions unidentified with any 30,000
Gross Income, Philippines P10,000,000 particular income
Allowable itemized 4,000,000
deductions/expenses The Philippine net income is
Dividend income FROM: a. P220,000 c. P190,000
a) Domestic corporation 1,000,000 b. P211,000 d. P111,000
b) Foreign corporation, 80% 1,000,000
of its gross income were
derived from the
Philippines
c) Foreign corporation, 60% 800,000
of its gross income were
derived from the
Philippines
d) Foreign corporation, 25% 400,000
of its gross income were
derived from the
Philippines
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