Tests in Determining Income 1. Flow of Wealth Test
Tests in Determining Income 1. Flow of Wealth Test
Tests in Determining Income 1. Flow of Wealth Test
2. Realization/Severance Test
There is no taxable income until there is a separation from capital of something of exchangeable
value, thereby supplying the realization or transmutation which would result in the receipt of
income. The essence of the test is that in order for income to be taxed, it is to be severed from the
property from which it was derived.
4. All-Events Test
For income to accrue, this test requires: a) the fixing of a right to income or liability to pay; and b)
the availability of the reasonable accurate determination of such income or liability.
6. Control Test
The power to dispose of income is the equivalent of ownership of it. The exercise of that power to
procure the payment of income to another is the enjoyment and hence the realization of the
income by him who exercises it.
Meaning of “Unintrerrupted”
The phrase “uninterrupted period” should not be interpreted literally as to negate the continuity of
residence abroad. If the reason for the physical presence abroad is established such as employment on a
more or less regular tenure, such physical presence abroad for the taxable year is not deemed
interrupted by reason of visits or travels to the Philippines, no matter how often made as to negate the
citizen’s status as a non-resident citizen.
Condominium Dues - NOT taxable
The common areas of a condominium are held by the unit owners through the condominium
corporation which is formed to preserve and maintain their appurtenant interest in the common areas.
This incidental activity conducted not for profit or gain is not a business activity. Considering the
character and purpose of the dues, it is more logical to consider them as contributions to be used to
directly benefit the unit owners themselves and not as income payments received by the corporation in
the ordinary course of business.
Condominium dues do not constitute income as they are only held in trust for the benefit of unit owners
from whom they were collected, to pay for authorized expenses incurred.
Joint Venture
The BIR has ruled that the MOA entered into by and between ALI and API providing for the construction
of an office tower to be jointly owned by them on a 60-40 basis to be leased out to and between the 2
corporations on the basis of their corresponding contribution to the corporation, has not by itself
created a taxable joint venture.
However, the joint venture to be subsequently entered into by and between them for the leasing of
building floors, or portions thereof separately owned by them will create a joint venture subject to tax
under Section 27 (A), separate and distinct from ALI and API.