SOLUTIONS MANUAL

INCOME TAXATION, 2023 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”

CHAPTER 2 - INDIVIDUAL TAXPAYERS

PROBLEM SOLVING:
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 15% 20 FWT 20%**
3 BTx Tax Table 21 FWTx 25%**
4 FWTx 20% 22 BTx Tax Table
5 Exempt - 23 Exempt -
6 BTx Tax Table 24 FWTx 25%
7 BTx Tax Table 25 FWTx 20%
8 BTx Tax Table 26 FWTx 20%
9 BTx Tax Table 27 FWTx 10%
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 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.
Other WINNINGS (regardless of amount) are subject to 20% final tax rate.
**PCSO/Lotto winnings under CREATE Law:
Amount RC, NRC, RA, NRAET NRANET
≤ P10,000 exempt 25% FWT
> P10,000 20% FWT 25% FWT

***Stock Transaction Tax on sale of shares of DC listed in the Local Stock Exchange = 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.

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2-3
1.
a. Exempt
b. Exempt
c. Income Tax Due, 2023 = P102,000
d. P642,500 computed as follows:
Tax Due:
1st P2,000,000 P402,500
Excess over P2M = (P800,000 x 30%) 240,000
Income Tax Due, 2023 P642,500

2. Income Tax Payable = P60,000 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 P102,500
Excess over P800,000M = (P150,000 x 25%) 37,500
Tax Due P140,000
Less: CWT (80,000)
Income Tax Payable, 2023 P60,000

3. Income Tax Payable = P124,000 computed as follows:

Gross sales P2,800,000
Less (250,000)
Balance subject to 8% tax P2,550,000
x 8%
Tax Due P204,000
Less: CWT (80,000)
Income Tax Payable, 2023 P124,000

4. Income Tax Payable = P140,000 computed as follows:

Gross sales P2,800,000
Rental income (P380,000/95%) 400,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P1,350,000
Tax Due:
1st P800,000 P102,500
Excess over P800,000M = (P550,000 x 25%) 137,500
Tax Due P240,000
Less: CWT on rent (P400,000 – P380,000) (20,000)
Other CWT (80,000)
Income Tax Payable, 2023 P140,000

5. No. The 8% optional tax is not applicable because the total of the gross sales and other non-operating income exceeded the vat threshold of P3,000,000.

6. Income Tax Payable = P246,250 computed as follows:

Gross receipts P4,000,000
Cost of direct services (1,800,000)
Other operating expenses (825,000)
Taxable net income P1,375,000
Tax Due 2023:
1st P800,000 P102,500
Excess over P800,000M = (P575,000 x 25%) 143,750
Tax Due P246,250
Less: CWT; none was provided in the problem -
Income Tax Payable, 2023 P246,250

7. No. The 8% optional tax is NOT applicable because the gross receipts exceeded the vat threshold of P3,000,000.

8. Income Tax Payable = P117,500 computed as follows:

Compensation income P1,400,000
Gross sales 2,800,000
Cost of sales (1,200,000)
Operating expenses (650,000)
Taxable net income P2,350,000
Tax Due 2023:
1st P2,000,000 P402,500
Excess over P2M = (P350,000 x 30%) 105,000
Tax Due P507,500
Less: CWT
On compensation income (310,000)
On business income (80,000)
Income Tax Payable, 2023 P117,500

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9. The 8% optional tax is applicable because the gross sales (business income) did not exceed the vat threshold of P3,000,000. The income tax payable
shall be computed as follows:
Gross sales (business income) 2,800,000
x 8%
8% Tax on sales P224,000
ADD: Tax due on compensation income
1st P800,000 P102,500
Excess over P800,000 = (P600,000 x 25%) 150,000 252,500
Tax Due, 2023 P476,500
Less: CWT
On compensation income (310,000)
On business income (80,000)
Income Tax Payable, 2023 P86,500
& 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
10. Taxpayer is a resident citizen
a. Taxable income = P1,050,000
b. Income tax payable = P40,000
c. Final tax on passive income = P57,500
d. Total income tax expense = P222,500

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
Taxable income (within and without), 203 P1,050,000

Tax Due [(P102,500)+(250,000 x 25%)] P165,000

Creditable withholding tax on business income (125,000)
Income Tax Payable, 2023 P40,000

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 P165,000 The question is tax expense; ignore
Final taxes on passive income 57,500 the income tax payable of P80,000.
Total income tax expense P222,500

11. Taxpayer is a nonresident citizen

a. Taxable income = P950,000
b. Income tax payable = P15,000
c. Final tax on passive income = P51,500
d. Total income tax expense = P191,500

Gross business income, Philippines P1,000,000

Business expenses, Philippines (700,000)
Compensation income, Philippines 600,000
Dividend income-foreign corp. 40,000
Raffle draw winnings 10,000
Taxable income 2023 (within only) P950,000

Tax Due [(P102,500)+(150k x 25%)] P140,000

Creditable withholding tax on bus. Income (125,000) Assume the tax withheld pertain to
Income Tax Payable P15,000 Income derived in the Phls.

Dividend income – DC (50k x 10%) P5,000

Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 15% exempt
Royalty income from composition @10% 2,500
PCSO winnings (P200,000 x 20%) 40,000
Final Tax on Passive Income P51,500

Basic income tax due P140,000

Final taxes on passive income 51,500
Total income tax expense P191,500

12. Taxpayer is a resident alien

a. Taxable income = P950,000 (same answer with #11.a; nonresident citizen)
b. Income tax payable = P15,000 (same answer with #11.b; nonresident citizen)
c. Final tax on passive income = P57,500 (same answer with #10.c; resident citizen); include FWT on interest income from FCDS

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 d. Total income tax expense = P197,500 computed as follows:
Basic income tax due P140,000
Final taxes on passive income 57,500
Total income tax expense P197,500

13. Taxpayer is a nonresident alien engaged in trade or business

a. Taxable income = P950,000 (same answer with #11.a; nonresident citizen)
b. Income tax payable = P15,000 (same answer with #11.b; nonresident citizen)
c. Final tax on passive income = P56,500
d. Total income tax expense = P196,500

Dividend income – DC (50k x 20%) P10,000 Use 20% rate for DI from DC instead of 10%
Interest income bank deposit-Phls.@20% 4,000
Interest income FCDS deposit @ 15% exempt
Royalty income from composition @10% 2,500
PCSO winnings (@ 20% under CREATE Act) 40,000
Final Tax on Passive Income P56,500

& **Under the CREATE Act, PCSO winnings amounting to more than P10,000 is subject to 20% FWT if received by RCs, NRCs,
RAs and NRAs-ETB. The FWT rate is 25% if received by NRA-NET, regardless of amount.

Basic income tax due 2023 P140,000

Final taxes on passive income 56,500
Total income tax expense, 2023 P196,500

14. Taxpayer is a nonresident alien not-engaged in trade or business

Compensation income, Philippines P600,000
Dividend income - DC 50,000
Dividend income from resident foreign corp. 40,000
Interest income bank deposit, Phls. 20,000
Interest income on FCDS deposit Exempt
Royalty income from composition 25,000
Raffle draw winnings 10,000
PCSO winnings 200,000
Total GROSS Income P945,000
x 25%
Income Tax Due/expense P236,250

NOTE: The creditable withholding tax on business income shall be ignored because it is not applicable to a nonresident alien “not
engaged in business”.

2-5
1. Taxpayer is a resident citizen
a. Taxable net income = P1,076,100
b. Income tax payable = P171,525
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
Taxable income, 2023 P1,076,100
TAX DUE, 203:
First P800,000 P102,500
Excess = P276,100 @ 25% 69,025
**All incomes, regardless of source, are generally taxable. However, personal expenses are not allowed as P171,525
deduction from the gross income.

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

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 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 = P30,180
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
Taxable income, 2023 P438,400
TAX DUE 2023:
First P400,000 P22,500
Excess = P38,400 x 20% 7,680
P30,180
Final Tax on Passive income:
§ 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 = P30,180 (same with a non-resident citizen taxpayer)
c. Final tax on passive income = P68,600;
d. Capital gains tax = P120,600 (all individual taxpayers are subject to the same types of CGTs)

Final Tax on Passive income:

Interest income on bank deposits 10,800
Interest income on money market placements 7,500
Royalty income 90,000
Dividend income from domestic corporation 5,700 rate is 20%
Lotto winnings 150,000
Winnings/ prizes from lotteries, raffle draws 45,000
Total P309,000
@ 20% P61,800
- -
Royalty income from sale of books 68,000 -
@ 10% 6,800
TOTAL FINAL TAX ON PASSIVE INCOME P68,600

2-6
a. Taxable income of the husband = P1,240,000
b. Taxable income of the wife = P890,000
c. Consolidated tax due of the husband and the wife = P337,500

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) -
TAXABLE INCOME, 2023 P1,240,000 P890,000

Tax due:
First P800,000 P102,500 P102,500
In excess of P800,000 @ 25% 110,000 22,500
Total P212,500 P125,000
Consolidated Tax Due, 2023 P337,500
Note:
à Personal expenses are not deductible.

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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 (deposit substitute) = 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

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)
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 = P20,700
3. Income tax payable, third quarter = P22,622
4. Income tax payable, fourth quarter = P53,838
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 P650,000 P910,000 P1,200,000
Business expenses (120,000) (262,000) (405,890) (426,700)
Personal exemption -
Taxable income 2023 P180,000 P388,000 P504,110 P773,300

Tax Due (Tax Table for 2023 onwards) - P20,700 P43,322 P97,160
Less: Tax Paid
Q1 - - - -
Q2 - (20,700) (20,700)
Q3 - (22,622)
Income Tax Payable P- P20,700 P22,622 P53,838
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
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

2-10
a. P15M x 6% = P900,000
b. P20M x 6% = P1,200,000
c. P0

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2-11 C.G. Tax = none; the transaction resulted to a loss
2-12 C.G. Tax = P80,000 x 15% = P12,000
2-13 C.G. Tax = P160,000 x 15% = P24,000
2-14 C.G. Tax = none; subject to business tax of 6/10 of 1% of GSP

TRUE OR FALSE
1. TRUE 6. FALSE 11. TRUE
2. TRUE 7. TRUE 12. FALSE
3. TRUE 8. TRUE
4. TRUE 9. FALSE (should be final tax)
5. TRUE 10. FALSE (should be located in the Phils.)

MULTIPLE CHOICE
1. D 16. B 31. D 46. A
2. C 17. A 32. C 47. C
3. A 18. A 33. D 48. B
4. A 19. B 34. D 49. C
5. A 20. D 35. D
6. A 21. C 36. C
7. D 22. B 37. D
8. D 23. D 38. B
9. B 24. D 39. B
10. D 25. A 40. B
11. B 26. B 41. D
12. A 27. D 42. B
13. D 28. B 43. A
14. D 29. C 44. C
15. C 30. A 45. D

#5 and 6: Personal exemption is no longer allowed under the Tax Code, as amended
#6: NRA-NETB is taxable based on Gross Income

Supporting Computations (Multiple Choice):

(2)
Gross income, Philippines P800,000
Gross income, USA 600,000
Expenses, Philippines (400,000)
Expenses, USA (300,000)
Taxable income P700,000

(3 to 5)
Gross income, Philippines P800,000
Expenses, Philippines (400,000)
Taxable income P400,000

(6). NRA-NETB is taxable based on Gross Income

(7) Interest income from bank deposit and dividend income from domestic corporations are passive incomes subject to FWT.

(19)
Copyright (11,250/90%)x10% P1,250
Royalty (12,000/80%) x 20% 3,000
Share from Trade Partnership 30,000
(treated as dividend income)
(270,000/90%) x10%
FWT P34,250

(20). All the incomes derived are subject to FWT, not basic or graduated tax rate

(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

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(29)
Gross sales P1,650,000
Rental income (P308,750/95%) 325,000
Cost of sales (500,000)
Business expenses (425,000)
Taxable Net Income, 2024 P1,050,000

TAX DUE 2024:

1st P800,000 P102,500
In excess = P250,000 x 25% 62,500
Total P165,000
Less: CWTx (65,000)**
Quarterly tax payments (50,000)
Income Tax Payable, 2024 P50,000
& **Assume inclusive of the CWT from rental income

(30) PURELY S.E.P.

Gross sales P1,650,000
Rental income (P308,750/95%) 325,000
Less (250,000)
Taxable Net Income P1,725,000
TAX DUE:
x 8%
Total P138,000
Less: CWTx (65,000)
Quarterly tax payments (50,000)
Income Tax Payable P23,000

(31). MIXED INCOME EARNER

Gross sales P1,650,000
Rental income (P308,750/95%) 325,000
Taxable Net Income P1,975,000
TAX DUE:
x Preferential tax rate 8%
Total P158,000
Less: CWTx (65,000)
Quarterly tax payments (50,000)
Basic Tax on Compensation income
[P22,500 + (P200,000 x 20%)] 62,500
Income Tax Payable P105,000

(32)
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

(33)
Interest income – BDO; P20,000 x 20% P4,000
Interest income FDCU – P50,000 x 15% 7,500
Total FWT P11,500

(34)
CGT, residential house, P5M x 6% P300,000
CGT, shares = P150,000 x 15% 22,500
Total CGT P322,500

(35)
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)
Taxable net income P4,200,000

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(46)
Solution:
Total gross income P143,000
FWT rate 25%
FWT due P35,750
à This amount is higher than the minimum monthly FWT due of P12,500

(47) RR 20-2021 provides that the minimum final withholding tax due for any taxable month from foreign nationals employed by OGLs shall not
be lower than P12,500.

Solution:
25% FWT (P40,000 x 25%) P10,000
vs. Minimum P12,500 per month 12,500
FWT due (minimum amount) P12,500

CHAPTER 3 – FRINGE BENEFITS

PROBLEM SOLVING
P3.1
Subject to FBT Subject to Basic Tax Exempt
1. P120,000 - -
2. - - P80,000
3. 50,000 - -
4. - - 6,000/ yr. (RR 8-2018)
5. - - 360,000
6. 250,000 - -
7. - - 45,000
8. - - 15,000
9. 60,000 - -
10. - - 1,500
11. - - 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 P963,000 computed as follows:

Compensation income P900,000
Monthly transportation allowance** 36,000
De Minimis Other Benefits
Benefits
13th month pay - P75,000
Productivity incentive pay (de minimis under RR 1-2015) 10,000 -
Christmas bonus (P5,000 de minimis under RR 1-2015) 5,000 20,000
Uniform allowance (16,000-6,000) 6,000 10,000
Medical allowance (entire amount is de minimis) 10,000 -
Rice subsidy [36,000-(2,000 x 12)] 24,000 12,000
Total (known as 13th Month Pay & Other Benefits) 117,000
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law (90,000) 27,000
Taxable income P963,000
**Fixed Allowances received regularly (transportation allowance) 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 P983,000 computed as follows:

Compensation income P900,000
Monthly transportation allowance** 36,000
De Minimis Other Benefits
Benefits
13th month pay - P75,000
Productivity incentive pay (BIR Ruling No. 293-2015) 20,000
Christmas bonus (P5,000 de minimis under RR 1-2015) 5,000 20,000
Uniform allowance (16,000-6,000) 6,000 10,000
Medical allowance (entire amount is de minimis) 10,000 -
Rice subsidy [36,000-(2,000 x 12)] 24,000 12,000
Total (known as 13th Month Pay & Other Benefits) 137,000
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law (90,000) 47,000
Taxable income P983,000
§ **Fixed Allowances received regularly (transportation allowance) shall be treated as part of basic compensation income
§ BIR RULING No. 293-2015 provides that Productivity incentive if more than P10,000 shall not be treated as de minimis benefit. The entire
amount shall be included as part of “other benefits”
§ Christmas Gift/Bonus = 1st P5,000 shall be exempt de minimis

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P3.5 P540,000 computed as follows:
Compensation income P540,000
De Minimis Taxable
Benefits Benefits
13th month pay and mid-year bonus P67,500
Christmas gift or bonus P5,000 5,000
Uniform allowance (7,500-6,000) 6,000 1,500
Actual Medical allowance (P15,000-10,000) 10,000 5,000
Medical allowance to dependents (limit is P3k per year) 2,000 -
Rice subsidy [entire amount is de minimis]; max. of P24k per year 18,000 -
Monetized vacation leave [24,000-(2,000x 10)] 20,000 4,000
Total 13th Month Pay & Other Benefits 83,000
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law 90,000 -
Taxable income P540,000

P3.6
1. 4.
a) P165,000 x 50% = P82,500 a. P1,200,000
b) P82,500/65% x 35% = P44,423 b. P1,200,000/65% x 35% = P646,154
5.
2. a. P800,000
a. P4.5M x 5% /4 x 50% = P28,125 b. P800,000/65% x 35% = P430,769
b. P28,125/65% x 35% = P15,144 6.
3. a. P1,200,000/5 = P240,000
a. P4.5M b. P240,000/65% x 35% = P129,230
b. P4.5M/65% x 35% = P2,423,077

TRUE OR FALSE
1. FALSE 6. FALSE 11. FALSE
2. FALSE 7. TRUE 12. TRUE
3. TRUE 8. TRUE 13. TRUE
4. TRUE 9. TRUE 14. TRUE
5. TRUE 10. TRUE 15. 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. A 31. B 41. C
2. A 12. A 22. D 32. A 42. D
3. D 13. A 23. C 33. D 43. D
4. D 14. B 24. D 34. A 44. A
5. D 15. B 25. A 35. C 45. A
6. D 16. D 26. D 36. C 46. A
7. B 17. C 27. B 37. D 47. B
8. A 18. B 28. D 38. B 48. D
9. D 19. C 29. B 39. D 49. A
10. C 20. D 30. D 40. D 50. D
51. D
52. C

Supporting Computations (Multiple Choice):

#7
Letter “B” is subject to FBT. To be exempt from FBT, the benefit granted shall be for the convenience of the “employer”. This is on the assumption that the
employee is holding managerial or supervisory position.
Letter “D” is exempt. Rice allowance up to P2,000 per month is de minimis.

#21. P97,500/65% = P150,000

(22)
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

(23)
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

(24) Total deductible expense = P1,200,000 + 129,231 = P1,329,231

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(25)
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)

(26)
Allowance not subject to liquidation P48,000
Divide by GUMVF 65%
GUMV P70,588
x FB rate 35%
FBT P25,846

(28)
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

(29) (32)
v P2,000,000 x 5% x 50% = P50,000 v (P5,000,000-2,000,000) = P3,000,000
v P50,000/ 65% x 35% = P26,923 v P3M/ 65% x 35% = P1,615,385

(30) (34)
v P3,000,000 x 5% x 50% / 12 = P6,250 v P1,000,000 / 65% = P1,538,462
v P6,250/ 65% x 35% = P3,365 v P1,538,462 x 35% = P538,462
(31) (35)
v P5,000,000 v P800,000 / 65% = P1,230,769
v P5M/ 65% x 35% = P2,692,308 v P1,230,769 x 35% = P430,769
(36)
v (P1,000,000/5) / 65% = P130,000
v P130,000 x 35% = P45,500

(51)
Taxable de minimis P20,000
Taxable 13th month pay (P122,000-90,000) 32,000
Taxable income P52,000
Income Tax Due (Tax Table, TRAIN Law) exempt

(52) Pedro is exempt as a minimum wage earner but his business income of P500,000 is taxable.

CHAPTER 4 – CO-OWNERSHIP, ESTATES AND TRUSTS

PROBLEM SOLVING
P4.1
1. Income tax payable of the estate = P19,500
2. Income tax payable of Louie = P0
3. Income tax payable of Floyd = P6,112.5
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, 2023 P0 P6,112.5 P19,500

P4.2
1. Income tax payable of the estate = P22,500
2. Income tax payable of Louie = P3,000
3. Income tax payable of Floyd = P13,612.5
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)
Taxable income P400,000
Tax due/payable, 2023 P22,500

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 Louie Floyd
Gross Income P 325,000 P 380,000
Deductible expenses (117,000) (105,000)
Dividend from foreign corporation 12,000 8,250
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, 2023 P3,000 P13,612.5

P4.3
1. Income tax payable of the trust = P177,500
2. Income tax payable of Pedro = P114,562.5
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, 2023 P177,500

Compensation income of Pedro P800,000

Rental income (gross) 500,000
Income of the estate distributed to Pedro 200,000
Rental expenses (80,000)
Dividend from foreign corporation 8,250
Taxable income P1,428,250
Tax Due P259,562.5
Tax payments (Quarter 1-3) (120,000)
CWTx on rent (25,000)
Income Tax Payable 2023-Pedro P114,562.5

MULTIPLE CHOICE
1. D 16. D 31. B
2. A 17. C 32. C
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

Supporting Computations (Multiple Choice):

20.
Income of the estate P600,000
Expenses (150,000)
Distribution of income to Francis (120,000)
Taxable income of the estate P330,000
21.
Francis’ own income P500,000
Income of the estate received by Francis 120,000
Taxable income of Francis P620,000

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 Mr. Nag-aalangan (grantor) 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
Taxable income of Princess P4,000,000

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43-45.
# 44 TRUST 1 # 45 TRUST 2
Taxable Net income 2023 P4,000,000 Net income 2023 P6,000,000
Tax due: Tax due:
1st P2,000,000 P402,500 1st P2,000,000 P402,500
Excess: P2M x 30% 600,000 Excess: P4M x 30% 1,200,000
Tax due/(assume paid) 1,002,500* Tax due/paid 1,602,500**
Versus allocated tax due 1,161,000*** Versus Share 1,741,500****
Income Tax Payable 2023-Trust 1 P158,500 Income Tax Payable 2023-Trust 2 P139,000

# 43
Consolidated:
Taxable Net income 2023 P10,000,000
Tax Due (Consolidated):
1st P8,000,000 P2,202,500
Excess; P2M @ 35% 700,000
Total Consolidated TAX DUE 2023 P2,902,500
Less Paid:
Trust 1 (1,002,500)*
Trust 2 (1,602,500)****
Consolidated Income Tax Payable 2023 P297,500

Share in the Consolidated Tax due:

Trust 1
(4/10) x P2,902,500 1,161,000***

Trust 2
(6/10) x P2,902,500 1,741,500****

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 CHAPTER 5 – INCOME TAX ON CORPORATIONS

PROBLEM SOLVING:
(P5.1). CREATE ACT
1. P1,675,000
2. P1,675,000
3. P1,675,000
Solution:
#1 #2 #3
Gross sales P12,000,000 P12,000,000 P12,000,000
Cost of goods sold (3,600,000) (3,600,000) (3,600,000)
Operating expenses (2,200,000) (2,200,000) (2,200,000)
Other income 500,000 500,000 500,000
Taxable Income P6,700,000 P6,700,000 P6,700,000
Tax Rate 25% 25% 25%
Income Tax Due P1,675,000 P1,675,000 P1,675,000

NOTE: The applicable RCIT rate shall be 25% because the domestic corporation in the problem is not qualified to be classified as
MSME.

(P5.2). CREATE ACT

1. P720,000
2. P900,000
3. P720,000
Solution:
#1 - MSME #2 #3 - MSME
Gross sales P12,000,000 P12,000,000 P12,000,000
Cost of goods sold (5,600,000) (3,600,000) (3,600,000)
Operating expenses (2,800,000) (2,200,000) (2,200,000)
Taxable Income P3,600,000 P3,600,000 P3,600,000
Tax Rate 20% 25% 20%
Income Tax Due P720,000 P900,000 P720,000

(P5.3). CREATE ACT

1. P1,643,000
2. P762,500
3. P1,313,000
Solution:
DC RFC NRFC
Gross sales-Phils. P8,000,000 P8,000,000 P8,000,000
Cost of goods sold – Phils. (3,500,000) (3,500,000) (3,500,000)
Operating expenses – Phils. (2,200,000) (2,200,000) -
Other income – Phils. 750,000 750,000 750,000
Gross sales-USA 4,600,000
Cost of goods sold – USA (1,430,000)
Operating expenses – USA (1,250,000)
Gross sales-USA 3,300,000
Cost of goods sold – USA (900,000)
Operating expenses – USA (800,000)
Taxable Income P6,570,000 P3,050,000 P5,250,000
Tax Rate 25% 25% 25%
Income Tax Due P1,643,000 P762,500 P1,313,000

(P5.4)
CASE A (Domestic Corporation) – CREATE ACT:
1. P1,107,000
2. P1,383,750
3. P92,500
4. 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 from domestic corporation exempt exempt
Dividend income from ABC Corp. (RFC); the entire divided exempt - exempt
is considered income within, hence, exempt under
CREATE Act
Dividend income-nonresident foreign corp.; the conditions - 30,000 30,000
for exemption under CREATE Act were not satisfied
Royalty income - 25,000 25,000
TAXABLE INCOME P5,535,000

No. 1: DC + MSME
Taxable income P5,535,000
Tax rate for MSME under CREATE Act 20%
Regular Corporate Income Tax Due P1,107,000

No. 2: DC Other than MSME

Taxable income P5,535,000
Tax rate for MSME under CREATE Act 25%
Regular Corporate Income Tax Due P1,383,750

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 No. 3: 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

No. 4: Capital Gains Tax

Gain on sale of shares sold directly to a buyer P22,500
[(150,000x 15%)
Sale of real property in the Philippines 540,000
(SP of P9M** x 6%)
Total Capital Gains Tax P562,500
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV

CASE B (Resident Foreign Corporation; disregard sale of real property) – CREATE ACT:

5. P911,250
6. P92,500 (same computation with a DC)
7. P22,500

Solution:
Gross sales P10,000,000
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
Taxable income P3,645,000
Tax rate – CREATE ACT 25%
Normal Corporate Income Tax Due P911,250

Philippines Final Tax

Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS deposit @ 15% (CREATE) 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
CGT under CREATE Act = P150,000 x 15% P22,500

CASE C (Resident Foreign Corporation; (there was a sale of real property in the Philippines) – CREATE ACT:

8. P2,161,250
9. P92,500
10. P22,500

Solution:
Gross sales P10,000,000
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
GAIN ON SALE OF REAL PROPERTY in the Philippines 5,000,000
Taxable income P8,645,000
Tax rate – CREATE ACT 25%
Normal Corporate Income Tax Due P2,161,250

Philippines Final Tax

Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS deposit @ 15% (CREATE) 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
CGT under CREATE Act = P150,000 x 15% P22,500

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 CASE D (Non-Resident Foreign Corporation; (disregard sale of real property and there was tax sparing) – CREATE ACT:
11. P1,732,500

Solution:
Gross sales P10,000,000
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
Royalty income 50,000
Total “Gross” Income P6,795,000
Tax rate 25% P1,698,750
ADD:
Dividend income from DC = P75,000 x 15% 11,250
CGT on shares of DC = P150,000 x 15% 22,500
TOTAL FINAL TAXES P1,732,500

CASE E (Non-Resident Foreign Corporation; (disregard sale of real property and there was no tax sparing) – CREATE ACT:
12. P1,740,000

Solution:
Gross sales P10,000,000
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
Royalty income 50,000
Total “Gross” Income P6,795,000
Tax rate 25% P1,698,750
ADD:
Dividend income from DC = P75,000 x 25% 18,750
CGT on shares of DC = P150,000 x 15% 22,500
TOTAL FINAL TAXES P1,740,000

(P5.5)
1. Exempt 6. Exempt
2. 25% RCIT 7. 25% RCIT
3. 20% RCIT 8. Exempt
4. Exempt 9. 15% FWT
5. Exempt 10. 25% FWT

(P5.6) RISING START INCORPORATED. FWT on Passive Income based on CREATE ACT:
A. Rising Star Incorporated is a domestic corporation
v Answer: P400,000
Solution:
Current account, BDO @ 20% P120,000
Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Interest income from FCDU account @ 15% 120,000
Royalty income from various domestic corporations @ 20% 20,000
Total FINAL TAXES on passive income P400,000

The dividends received and interest income from savings deposit in Canada shall be taxable as follows:
Dividend income from a domestic corporation Exempt
Dividend income from Intel (derived from Philippines) Exempt
Dividend income from IBM (foreign-sourced dividend) Exempt
Dividend income from Canon (foreign-sourced dividend) Subject to RCIT
Dividend income from Microsoft (foreign-sourced dividend) Subject to RCIT
Interest income from Savings deposit in Canada Subject to RCIT

B. Rising Star Incorporated is a resident foreign corporation

v Answer: P400,000
NOTE:
1. The FWT rates imposed to DCs and RFCs for Interest Income and Royalty income are the same under the CREATE Act.
2. The dividend income received from a domestic corporation is exempt from income tax.
3. The dividend income received from Intel corporation, considered as derived from Philippine sources, is subject to 25% RCIT
4. Foreign corporations are taxable only on income derived from sources within the Philippines. Therefore, the foreign-sourced
dividends and interest income from savings deposit in Canada shall not be subject to tax in the Philippines:
Dividend income from IBM (foreign-sourced dividend) Non-taxable
Dividend income from Canon (foreign-sourced dividend) Non-Taxable
Dividend income from Microsoft (foreign-sourced dividend) Non-Taxable
Interest income from Savings deposit in Canada Non-Taxable

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 C. Rising Star Incorporated is a nonresident foreign corporation – with tax sparing

v Answer: P495,000

Solution:
Dividend income from a domestic corporation (with tax
sparing), P300,000 @ 15% P45,000

Dividend income from Intel (derived from Philippines) P400,000

Current account, BDO 600,000
Savings deposit, BPI 500,000
Interest income from government bonds 200,000
Royalty income from various domestic corporations 100,000
TOTAL P1,800,000
FWT rate under the CREATE Act 25% 450,000
TOTAL FINAL TAXES P495,000

NOTE:
1. FWT on Interest income derived from FCDU deposits is applicable only to resident taxpayers.
2. Foreign corporations are taxable only on income derived from sources within the Philippines. Therefore, the foreign-sourced
dividends and interest income from savings deposit in Canada shall not be subject to tax in the Philippines:
Dividend income from IBM (foreign-sourced dividend) Non-taxable
Dividend income from Canon (foreign-sourced dividend) Non-Taxable
Dividend income from Microsoft (foreign-sourced dividend) Non-Taxable
Interest income from Savings deposit in Canada Non-Taxable

D. Rising Star Incorporated is a nonresident foreign corporation – without tax sparing

v Answer: P525,000

Solution:
Dividend income from a domestic corporation (without tax sparing) P300,000
Dividend income from Intel (derived from Philippines) 400,000
Current account, BDO 600,000
Savings deposit, BPI 500,000
Interest income from government bonds 200,000
Royalty income from various domestic corporations 100,000
TOTAL P2,100,000
FWT rate under the CREATE Act 25%
TOTAL FINAL TAXES P525,000

Refer also to the NOTES in Case C above.

(P5.7) – CASE A: 2023 taxable year (transition year for MCIT)

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 Net Income 400,000 800,000 1,400,000 P2,000,000
RCIT @ 20% - MSME P80,000 P160,000 P280,000 P400,000
MCIT (Gross Profit x 1.5% transition rate) P24,000 P48,000 P73,000 P93,000

TAX DUE (Higher) P80,000 P160,000 P280,000 P400,000

Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (50,000) (50,000) (50,000)
Tax Paid Q2 (40,000) (40,000)
Tax Paid Q3 - (60,000)
Income Tax Payable P50,000 P40,000 P60,000 P20,000

(P5.7) – CASE B: 2024 taxable year (transition year for MCIT)

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 Net Income 400,000 800,000 1,400,000 P2,000,000
RCIT @ 20% - MSME P80,000 P160,000 P280,000 P400,000
MCIT (Gross Profit x 2%) P32,000 P64,000 P96,000 P124,000

TAX DUE (Higher) P80,000 P160,000 P280,000 P400,000

Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (50,000) (50,000) (50,000)
Tax Paid Q2 (40,000) (40,000)
Tax Paid Q3 - (60,000)
Income Tax Payable P50,000 P40,000 P60,000 P20,000

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(P5.8)
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

(P5.9)
1. P120,000
2. P690,000
3. P210,000
4. P495,000
Q1 Q2 Q3 Q4
Tax Due 2023 RCIT P300,000 MCIT P990,000 RCIT P1,410,000 RCIT P2,010,000
Excess MCIT 2022 (90,000) NA (90,000) (90,000)
Excess W/holding Tax 2022 (30,000) (30,000) (30,000) (30,00)
Creditable Withholding Tax - 2023 (60,000) (150,00) (270,000) (375,000)
Quarterly Tax Payments 2023 (120,000) (810,000) (1,020,000)
Tax Payable, 2023 P120,000 P690,000 P210,000 P495,000

(P5.10) Taxable Joint Venture

1. Taxable income of the joint venture = P20M
2. Income tax payable of the joint venture = P5M
3. Taxable income of ABC Company = P10M
4. Income tax payable of ABC Company = P2.5M
5. Taxable income DEF Company = P4.5M
6. Income tax payable of DEF Company = P900,000

Joint Venture ABC Co. DEF Co. (MSME)

Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,500,000)
Taxable income P20,000,000 P10,000,000 P4,500,000
Tax Rate (RCIT) 25% 25% 20%
Tax Due P5,000,000 P2,500,000 P900,000

(P5.11) Tax Exempt Joint Venture

1. Taxable income of the joint venture = nil; tax exempt
2. Income tax payable of the joint venture = nil; tax exempt
3. Taxable income of Alpha Company = P15M
4. Income tax payable of Alpha Company = P3,750,000
5. Taxable income Omega Company = P10.5M
6. Income tax payable of Omega Company = P2,625,000
Joint Venture Alpha Co. Omega Co.
Gross income P40,000,000 P20,000,000 P8,000,000
Business expenses (30,000,000) (10,000,000) (2,500,000)
SHARE IN THE INCOME OF THE JOINT VENTURE - 5,000,000 5,000,000
Net income P10,000,000 P15,000,000 P10,500,000
Tax Rate 25% 25%
Tax Due P0 P3,750,000 P2,625,000

(P5.12)
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 25% = P837,500
2. (P6M-4M) x 25% = P500,000
3. P6M x 25% = P1,500,000
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 1% = P33,500
10. P837,500; same computation with #1
11. nil; exempt

(P5.13)
1. [8M] x 2.5% = P200,000
2. [8M x 1%) = P80,000
3. nil; tax exempt on the basis of reciprocity

(P5.14)
1.Related 4.Related
2.Related 5.Related
3.Related 6.Unrelated

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(P5.15) 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)
Taxable income P7,000,000
Tax Rate (RCIT); Unrelated income > Related income 25%
Tax Due P1,750,000
Less: CWT on rental income (P2M x 5%) (100,0000)
Quarterly tax payments for the first 3 quarters (500,000)
Income Tax Payable P1,150,000

(P5.16).

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)
Taxable income P2,105,000
x Tax Rate 2024 10%
Tax Due 2024 P210,500

Question 2:
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)
Construction of additional classrooms (1,300,000)
Acquisition of furniture and equipment (400,000)
Taxable income P530,000
x Tax Rate 2024 10%
Tax Due 2024 P53,000

Question 3 – Transition Year:

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)
Construction of additional classrooms (1,300,000)
Acquisition of furniture and equipment (400,000)
Taxable income P530,000
x Tax Rate 2023 – transition year 5.5%
Tax Due 2023 P29,150

(P5.17). CGT;
Answer: P117,000
CGT on Land = P1.5M x 6% P90,000
CGT on shares = P180,000 x 15% 27,000
Total capital gains tax P117,000

(P5.18)
Answer: P36,000
Solution:
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 -
Total capital gains tax P36,000

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 TRUE OR FALSE
1. TRUE 11. TRUE 21. FALSE
2. TRUE 12. TRUE 22. FALSE
3. TRUE 13. FALSE 23. TRUE
4. TRUE 14. TRUE 24. TRUE
5. FALSE 15. FALSE 25. TRUE
6. TRUE 16. TRUE
7. TRUE 17. TRUE
8. TRUE 18. TRUE
9. TRUE 19. TRUE
10. FALSE 20. FALSE
(10) it shall be “prolonged labor dispute” resulting from temporary closure of the business
(15) treated as inter-corporate dividend, hence, nontaxable
(20) should be July 1, 2020
(21) should be January 1, 2021
(25) TRUE based on RR 14-2021.

MULTIPLE CHOICE
1. D 16. B 31. C
2. B 17. B 32. D
3. C 18. B 33. C
4. B 19. C 34. A
5. A 20. D 35. D
6. D 21. D 36. C
7. C 22. B 37. D
8. B 23. A 38. C
9. B 24. C 39. A
10. B 25. D 40. D
11. C 26. D 41. D
12. D 27. B 42. B
13. A 28. A 43. B
14. C 29. D 44. B
15. C 30. D 45. D

Supporting Computations (Multiple Choice):

(4).
Domestic RFC NRFC
Gross Income, Philippines P9,750,000 P9,750,000 P9,750,000
Expenses, Philippines (4,800,000) (4,800,000)
Gross Income, Malaysia 7,000,000
Expenses, Malaysia (5,300,000)
Interest on bank deposit - - 250,000
Taxable income P6,650,000 P4,950,000 P10,000,000
Tax Rate – CREATE Act 25% 25% 25%
Tax Due P1,662,500 P1,237,500 P2,500,000

(5).
Gross profit from sales P3,000,000
Business expenses (1,800,000)
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
Taxable income P1,510,000
Tax Due @ 20% (MSME) P302,000

(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
Total final taxes on passive income P11,750

(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

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(10).
Final W. Tax = $3,000 x P45 x 10% = 13,500

(11).
Interest income from loans P100,000,000
OPEX (P120M x 100/150) (80,000,000)
Taxable income P20,000,000
Income Tax Rate 25%
Income Tax Due P5,000,000

(12 and 13)

Solution:
Taxable ABC Co. DEF Co.
Joint Venture
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
RCIT - MSME 20% 20% 20%
Tax Due P400,000 P200,000 P100,000

(14).
Tax Exempt ABC Co. DEF Co.
Joint Venture
G Income P5,000,000 P3,000,000 P2,000,000
Sh. in Inc. of JV 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
RCIT - 20% 20%
Tax Due - P480,000 P220,000

(17). Income Tax Due = (P10M-P4M) x 25% = P1,500,000

(18). Income Tax Due = P10M x 2.5% = P250,000

(19). Statement 1: False. 3% CCT shall be applicable only on their transport of goods.

(20). Income Tax Payable = P8M x 2.5% = P200,000

(21). Tax Expense (Income Tax and 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

(28).
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)
Taxable income, 2024 P7,000,000
Tax rate (unrelated income>related income); use RCIT 25%
Tax due P1,750,000
Less: Quarterly tax payments P500,000
Withholding tax on rental income 100,000 (600,000)
Income Tax payable; 2024 P1,150,000

(29).
Income from tuition fees P5,000,000
Miscellaneous school fees 1,500,000
Dividend income from foreign corp. 2,000,000
Rental income (gross of 5% WT) 500,000 P9,000,000
OPEX (4,000,000)
Taxable income 2023 P5,000,000
Tax rate (related income>unrelated income); Transition year 5.5%
Tax due P275,000
Less: Withholding tax on rental income (25,000)
Income Tax payable, 2023 (Transition year) P250,000

(30).
Tuition and other fees P5,000,000
Rental income (gross of 5% WT) 50,000
OPEX (1,500,000)
CAPEX (2,000,000)
Taxable income, 2024 P1,550,000
Tax rate (related income>unrelated income) 10%
Tax due P155,000
Less: Withholding tax on rental income (2,500)
Income Tax payable, 2024 P152,500

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 (31).
Gross Receipts P8,500,000
Rental income (gross of 5% WT) 1,500,000
OPEX (8,200,000)
Taxable income P1,800,000
Tax rate - MSME 20%
Tax due P360,000
Less: Withholding tax on rental income (75,000)
Income Tax payable P285,000

(32).
Tuition fees P6,800,000
Rental income (gross of 5% WT) 5,200,000
OPEX (6,000,000)
Taxable income P6,000,000
Tax rate @ 25% (unrelated income is higher) 25%
Tax due P1,500,000
Less: Withholding tax on rental income (260,000)
Tax payable P1,240,000

(#s 39 TO 43).
2017 2018 2019 2020 2021 2022 2023 2024

RCIT 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 -
2017 (75,000)
2018 (20,000)
2020 (100,000) (150,000) -
TAX PAYABLE P100,000 P150,000 P105,000 P300,000 P0 P0 P40,000 P50,000

CHAPTER 6 – PARTNERSHIPS, ESTATES AND TRUSTS

PROBLEM SOLVING
P6.1 (GPP):
1. Income tax due of the partnership = P0 (tax exempt)

2. Income tax due of LJ in 2023 = P252,500

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
Taxable income P1,400,000
Tax Due (2023 Tax Table); P130k + (P600k x 30%) P252,500

P6.2
Case A (Ordinary Partnership):
1. Tax due of the partnership (MSME under CREATE Act) = P160,000
2. Tax due of Rivera = P22,500
3. Tax due of Reyes = P42,500
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 - - -
Taxable income P800,000 P400,000 P500,000
Tax Rate 20% (MSME) 2023 Table 2023 Table
Tax Due (2023 using revised table for 2023) P160,000 P22,500 P42,500

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 = P86,500
5. Tax due of Reyes = P147,500
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
Taxable income P800,000 P720,000 P980,000
Tax Rate EXEMPT 2023 Table 2023 Table
Tax Due 2023 P0 P86,500 P147,500

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P6.3
1. Income tax payable/(refundable) of the partnership = P2,800,000
2. Income tax payable/(refundable) of Villamin in 2024= P6,325
3. Income tax payable/(refundable) of Francis in 2024 = P0
4. Final tax on passive income of the partnership = P115,000
5. Final tax on passive income of Villamin = P432,000
6. Final tax on passive income of Francis = P879,500
7. Capital gains tax of the partnership = P1,500,000
8. Capital gains tax of Villamin = P0
9. Capital gains tax of Francis = P18,000

Partnership:

Gross revenue from sale of services P35,000,000

Direct cost of services (15,000,000)
Business Expenses (7,000,000)
Rental Income in business assets (gross) 1,500,000
(P1,425,000/95%)
Taxable income P14,500,000
Multiply: RCIT rate under CREATE Act 25%
Tax due; RCIT P3,625,000
Quarterly tax payments (750,000)
Withholding tax on rent (75,000)
Income tax payable 2024 P2,800,000

Interest Income on peso bank deposits @ 20% P40,000

Interest income from FCDS deposits @ 15% 75,000
Final Tax on passive income of the partnership P115,000
Capital gains tax on real property (25M x 6%) P1,500,000
DISTRIBUTABLE INCOME:
Taxable income of the partnership P14,500,000
Total income subject to final tax 700,000
Capital gain on real property 3,000,000
Less:
Basic income tax due; RCIT (3,625,000)
Final tax due (115,000)
Capital gains tax (1,500,000)
DISTRIBUTABLE INCOME P12,960,000

Villamin:

Gross income from sole-proprietorship business 925,000

Allowable business expenses (670,000)
Dividend Income-resident foreign corp. 120,500
Taxable income 2024 P375,500
Tax due (Tax Table for 2023 onwards) P18,825
Quarterly tax payments (12,500)
Income tax payable P6,325
Final Tax; share in partnership income = (P12,960,000 x 3/9 x 10%) P432,000
Capital gains tax - Villamin P0

Francis:

Income Tax payable P0

(No income subject to basic tax)

Dividend Income @ 10% P8,500

Royalty Income @ 20% 7,000
Share in partnership income (P12,960,000 x 6/9 x 10%) 864,000
Total final tax on passive income P879,500

Capital gains tax on shares of stock 18,000

(P120,000 x 15%)

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P6.4
1. Income tax payable of the business partnership in 2024 = P76,000
2. Income tax payable of the GPP in 2024 = P0; Exempt
3. Income tax payable of Louie in 2024 = P34,000
4. Income tax payable of Floyd in 2024 = P4,237.5

Business
Partnership GPP
Gross income P800,000 P500,000
Deductible expenses (420,000) (375,000)
Net or Taxable income P380,000 P125,000
Tax rate – CREATE Act 20%
Income tax due/payable P76,000 EXEMPT

Louie and Floyd Louie Floyd

Gross Income, 2024 P 525,000 P 580,000
Deductible expenses, 2024 (117,000) (205,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle - 7,500
Share in income of GPP 37,500 87,500
Taxable income, 2024 P457,500 P278,250
Income tax payable (Revised Table) P34,000 P4,237.5

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

MULTIPLE CHOICE
1. A 6. A 11. D 16. A
2. C 7. A 12. A 17. D
3. A 8. D 13. B 18. B
4. B 9. B 14. C 19. B
5. B 10. C 15. C 20. B

Supporting Computations (MCQ):

15. (P200M-100M) x 25% = P25,000,000

16. P0; Subject to 10% final tax

17.
Partnership net profit (net of 25% RCIT P6,000,000
(P800,000 x 75%)
Other Income:
Interest income, net 80,000
Dividend income (tax exempt) 200,000
Total distributive income P6,280,000

Share of T (50%) P3,140,000

Applicable tax (10% final tax) P314,000

18. P60,000,000 – P35,000,000 x 50% = P12,500,000

19.
Share in GPP’s income P12,500,000
Own income (P15,000,000-7,000,000) 8,000,000
Taxable income of Ramos in 2024 P20,500,000

20.
Gross income, 2024 P7,500,000
Expenses, 2024 (3,000,000)
Net taxable income, 2024 P4,500,000
Less: Corporate Tax @ 20% for MSME under CREATE Act (900,000)
Net income in 2024 after corporate tax P3,600,000
Add:
Dividend received from a domestic corp. (tax exempt) 200,000
Bank interest income, Metrobank (net of final tax) 800,000
Distributable net income P4,600,000

Juan: P4,600,000 x 55% x 10% P253,000

Ponce: P4,600,000 x 45% x 10% P207,000

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 CHAPTER 7 – INTRODUCTION TO GROSS INCOME
MULTIPLE CHOICE
1. C 13. A 25. A
2. D 14. B 26. D
3. B 15. D 27. D
4. A 16. A 28. B
5. D 17. C 29. A
6. D 18. C 30. B
7. A 19. A 31. B
8. D 20. D 32. A
9. B 21. D 33. C
10. C 22. B 34. D
11. A 23. B 35. C
12. C 24. A

Supporting Computations:
27. P300,000 4/12 = P100,000
28.
Gain on sale of personal property purchased in the Philippines P-
and sold in Hongkong
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

29.
Gross income P600,000
Rental expenses (120,000)
Salaries expense (100,000)
Taxable income P380,000

30. (Resident Alien)

Gross Income P2,000,000
Business expenses (1,200,000)
Dividend income from foreign corp. (RMC 62-2021) 50,000
Taxable income P850,000

31. Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000

32. Domestic Corp = Taxable on income within and without

Gross Income P10,000,000
Allowable deductions (4,000,000)
Dividend income from Diaz- DC exempt
Dividend income from Tokyo, RFC (exempt; RMC 62-2021); (derived exempt
entirely from the Phils. based on RMC 62-2021)
Dividend income from Olympiad, RFC (exempt; RMC 62-2021); (derived exempt
entirely from the Phils. based on RMC 62-2021)
Dividend income from NRFC (taxable – RCIT; foreign-sourced dividend 400,000
based on RR 5-2021 and RMC 62-2021)
Taxable income P6,400,000

33. (Resident Foreign Corp = Taxable on income from Philippine sources only
Gross Income P10,000,000
Allowable deductions (4,000,000)
Dividend income from Diaz - DC exempt
Dividend income from Tokyo-RFC; (derived entirely from the Phils.; RMC 900,000
62-2021)
Dividend income from Olympiad, RFC; ; (derived entirely from the Phils.; 800,000
RMC 62-2021)
Dividend income NRFC; (foreign-sourced dividend)) Non-taxable
Taxable income P7,700,000

34. Resident Foreign Corporation

DI-Microsoft; NRFC; foreign-sourced dividend based on RMC 62-2021 Non-taxable
DI-Intel (P400,000 x 25% RCIT); RMC 62-2021 P100,000
DI – IBM, a domestic corp. exempt
Interest income – BDO @ 20% 120,000
Interest income from FCDS deposit @ 15% - CREATE Act 120,000
Royalty income @ 20% 20,000
Total income tax expense P360,000

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35. Domestic Corporation

Dividend income from Microsoft; NRFC; considered as foreign-sourced

dividend under RR 5-2021 and RMC 62-2021; subject to RCIT unless exempt
provided certain conditions are met; P500,000 x 20% RCIT for MSME P100,000
Dividend income from Intel – exempt under RMC 62-2021 exempt
Dividend income from IBM, a DC exempt
Interest income – BDO @ 20% 120,000
Interest income U.K. @ 20%RCIT for MSME 140,000
Interest income from FCDS deposit @ 15% 120,000
Royalty income @ 20% 20,000
Total income tax expense P500,000

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
Taxable 13th, X’mas and Mid-Year Bonus 85,000
(P180,000 – 1st 5,000 as de minimis – P90,000 exclusions)
Gross Income subject to basic tax (Q#1) P1,985,000
LESS:
Business expenses (125,000)
Basic exemption -
Net Taxable income, 2024 P1,860,000
Income tax due – TRAIN Law (Q#4); [P102,500 + (P860k x 25%)] P367,500

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% (TRAIN Law) 10,000
Total final taxes on passive income (Q#2) 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 (Q#3) 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 of previously written-off 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)
Taxable income P715,000

P8.3
1) 2023 income = (P240,000 x 2) + 60,000 = P540,000
2) 2024 income = only the annual real property tax of P60,000
3) 2025 income (lump-sum) = P240,000 + 60,000 + P3,000,000 = P3,300,000
4) 2025 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 2025 P400,000

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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 Vico Sotto 250,000
Gift from Honda Cars 1,000,000
Total amount exempt from income tax P1,900,000

NOTE: The gifts received are subject to Donor’s Tax. The donor’s tax returns shall be filed and paid by the donors, not the donee.

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
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 since he 50,000
is at the same time an employee of the company)
10 days monetized vacation leave Exempt
Interest income from time deposit FW Tax/E
***Productivity incentive pay and 13th month pay (refer to explanation below)
(However, the total of the productivity bonus amounting to P20,000 + 60,000 Exempt
bonus is not more than P90,000, hence tax exempt)
Total compensation income subject to tax P2,770,000

***NOTE: for Productivity incentive pay – refer to BIR Ruling No. 293-2015
à If not more than 10k = exempt de minimis
à If more than 10k = the entire amount is considered part of “other benefits” subject to P90,000 limit.

P8.9.
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. Exempt (CREATE Act) 12. Basic Tax 19. Exempt
6. Exempt 13. Exempt 20. Basic Tax
7. Non-taxable 14. Basic Tax 21. 20% FWT
22. 20% FWT; TRAIN Law
23. Basic Tax; (“abroad”)
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
2. FALSE 9. TRUE 16. FALSE 23. FALSE
3. TRUE 10. TRUE 17. TRUE 24. TRUE
4. FALSE 11. TRUE 18. FALSE 25. FALSE
5. FALSE 12. TRUE 19. FALSE
6. TRUE 13. TRUE 20. FALSE
7. FALSE 14. FALSE 21. FALSE
#7 – should be CWT not FWT
#14 – should be upon recovery for the subsequent period
#21 – the interest is subject to tax

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 MULTIPLE CHOICE
1. C 16. D* 31. C 46. D
2. B 17. C 32. C 47. D
3. D 18. B 33. A 48. D
4. D 19. C** 34. D 49. B
5. B 20. D 35. C 50. C
6. B 21. C 36. C 51. B
7. B 22. A 37. D 52. C
8. B 23. C 38. D 53. D
9. D 24. C 39. C 54. D
10. A 25. B 40. D 55. D
11. C 26. D 41. B 56. C
12. C 27. D 42. D 57. B
13. C 28. C 43. D 58. B
14. B 29. C 44. D 59. B
15. A 30. C 45. A 60. C

*the P40,000 is subj. to FWT; refund of “income tax” is not considered as taxable gross income
**should be from banks only

Supporting Computations (Multiple Choice):

No. 13.
Case A Case B Case C
2023 Income(loss) before write-off P120,000 P60,000 (P40,000)
Write-off in 2023 40,000 40,000 50,000
2024 Recovery or accounts written-off in 2023 P40,000 P10,000 P50,000
TAXABLE RECOVERY in 2024 P40,000 P10,000 P0

No. 16. P0
Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income
Refund of income tax = not an income

No. 24.
2022:
Rent for 2022 and 2023 (prepaid rent is taxable yr. of receipt P3,600,000
regardless of accounting method)
Annual real property tax - 2022 30,000
Income from leasehold improvement -
Total taxable income in 2022 P3,630,000

2023:
Rent (NA; already recognized in 2022) P0
Annual real property tax - 2023 30,000
Income from leasehold improvement -
Total taxable income-2023 P30,000

No. 25. Spread out Method

2022 2023 2024

Annual Rent P1,200,000 Recognized in 2022 P2,400,000
Advance rent 2,400,000 -
Annual real property tax P30,000 30,000 30,000
Income from improvement None; completed only on
[(P36M x **5/15) / 10] Dec. 31, 2024
Total annual income P3,630,000 P30,000 P2,430,000

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**

Spread Out Method; 2022 taxable year

Rent - 2024 P2,400,00
Annual real property tax 2024 30,000
Income from leasehold improvement 2024 – None since the
improvement was completed only on Dec. 31, 2024. -
Recognition of income shall start only in 2025 for P3.6M per
year ; (P36M/10 remaining lease term; shorter term)
Total taxable income-2024 P2,430,000

No. 26. Lump-sum Method

2024 taxable year
Rent - 2024 P2,400,00
Annual real property tax 2024 30,000
Income from leasehold improvement (upon completion on 36,000,000
Dec. 31, 2024)
Total taxable income-2024 P38,430,000

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No. 27.
Royalty – as an author @ 10% P10,000
Other royalties P800,000
x 20% 160,000
Total final tax on royalty income P170,000

No. 46.
Proceeds from the taxpayer’s life insurance P2,000,000
Less: premiums paid on his life insurance (P15,000 x 25) (375,000) P1,625,000
Rent income from inherited properties 200,000
Taxable income P1,825,000

CHAPTER 9– DEALINGS IN PROPERTIES

PROBLEM SOLVING
P9.1 Question #1
Gross income, 2023 P760,000
Business expenses (380,000)
Add: Net capital gains
Short term capital loss (@100%) (60,000)
Long term capital gain (@100%) 40,000
Net Capital Gain (Loss) (20,000) -
Net Taxable Income in 2023 P380,000
*capital losses are deductible only from capital gains.
*holding period and capital loss carry-over are not applicable to corporate taxpayers.

P9.1 Question #2
Gross income, 2024 P500,000
Business expenses (350,000)
Net Capital Gain
Short term capital gain (@ 100%) 80,000
Capital loss (@ 100%) (20,000) 60,000
Net Taxable Income in 2024 P210,000
*holding period and capital loss carry-over are not applicable to corporate taxpayers.
*capital losses are deductible only from capital gains.

P9.1 Question #3
Gross income, 2021 P760,000
Business expenses (380,000)
Short term capital loss (@100%) P(60,000)
Long term capital gain (@50% ) 20,000
Net capital loss 2023 (P40,000) -
Net Taxable Income in 2023 P380,000

P9.1 Question #4
Gross income, 2024 P500,000
Business expenses (350,000)
Add: Net capital gains
Short term capital gain (@100%) 80,000
Long term capital loss (@50%) (10,000)
Net capital loss carry-over (NCLCO) from 2023 (40,000) 30,000
Net Taxable Income in 2024 P120,000
***NCLCO must not exceed the taxable income during the year the net capital loss was incurred. Capital loss is deductible only to the
extent of capital gain.

P9.2
Taxable income exclusive of capital gains and losses P400,000
Add(Deduct): Ordinary gains(loss)
Gain on sale of land used in business, for 3 years P50,000
Loss on sale of machinery used in business, for 8 months (26,000)

Add: Net capital gains

Loss on sale of securities held for 3 years (8,000)
Loss on sale of securities held for 3 months (6,000) -
Taxable income for Royale, Inc. P424,000
*capital losses are deductible only from capital gains
*holding period and capital loss carry-over are not applicable to corporate taxpayers.

P9.3
Ordinary income P640,000
Add: Net capital gain:
Long term capital gain @ 50% P20,000
Long term capital loss @ 50% (5,000) 15,0000
Taxable Income P655,000

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 MULTIPLE CHOICE – Chapter 9 (Dealings in Properties)
1. C 6. D 11. A
2. D 7. D 12. D
3. D 8. D 13. B
4. D 9. A 14. D
5. D 10. D 15. D

CHAPTER 10 – DEDUCTIONS FROM GROSS INCOME

PROBLEM SOLVING:
P10.1
1. P142,500
2. P239,000
3. P10,000
Solution:
Interest Tax Expense Taxable tax
Expense refunds
Taxes and licenses 40,000
Documentary stamp taxes 4,000
Other percentage taxes - 120,000 -
Refund of local business taxes and licenses in 2021 10,000
Interest expense on bank loan - -
[P150,000 – (P100,000 x 20%)] 130,000
Tax assessment for underpayment of OPT 75,000
Interest expense on tax assessments 12,500 - -
Surcharges on tax assessments - - -
P142,500 P239,000 P10,000

P10.2
Solution:
2021 2022 2023
Annual Rent P2,400,000 P2,400,000 P2,400,000
Annual real property tax 30,000 30,000 30,000
Depreciation exp. – Leasehold Improvement**
(P9.5M/9.5 years x 6/12) - - 500,000
Deductible Expense P2,430,000 P2,430,000 P2,930,000
v **Remaining lease term upon completion of the improvement = 9.5 years
v Useful life of the improvement = 15 years
v Depreciation expense for 2023 = 6 months from July to December 2023

P10.3
Interest expense (P1M x 10%) P100,000
Less: 20% x (P1M x 12%) (24,000)
Deductible Interest Expense P76,000

P10.4 Deductible Interest = P25,000.

*Interest paid or accrued on taxes related to business of practice of profession, such as those paid for deficiency or delinquency (since
taxes are considered indebtedness) are deductible as interest expense, provided that, the tax is a deductible tax. The interest
expense is deductible in “full”. It shall not be reduced by 20% of interest income subjected to final tax.

The Stock Transaction Tax is a nondeductible tax, hence, the related interest expense of P50,000 on such assessment shall not be
deductible from the gross income.

P10.5
1. 2021: P0; 2022: P6M-P5,280,000 = P720,000
2. P360,000; P360,000
3. P360,000; P360,000

PREPAID INTEREST
“Prepaid interest” of an individual under cash basis is deductible not in the year that the interest was paid in advance but in the year that
the indebtedness was fully paid. However, if the indebtedness is payable in periodic amortization, the amount of interest which corresponds to the
amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year. Prepaid interest shall likewise be allowed
as deduction from the gross income “at the time of payment” for businesses engaged in rendering services using cash basis of accounting.

P10.6 Question#1
Interest expense (bank loan) P200,000
Less: 20% x P40,000 (8,000)
Allowable interest expense on bank loan P192,000

Question#2
Acquisition cost of computers P2,000,000
ADD: Interest expense 200,000
Capitalizable cost of the computers P2,200,000

Depreciation expense
(P2,200,000/8 x 9/12) P206,250

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P10.7
Interest paid for late payment of 2020 income tax P50,000
Surcharge and compromise penalty for late payment of 2020 income tax -
Interest on bonds issued by Omega 250,000
Deductible interest P300,000
P10.8
Professional tax P750
Gravel and sand tax 20,000
Road user’s tax on his delivery trucks 50,000
Local annual fixed tax for his delivery trucks 10,000
Other local business taxes 12,000
Total deductible taxes P92,750
Real property tax on his residential house is not deductible, it is considered as personal expense not related to trade, business, or practice of
profession. However, Real property taxes on real properties used in business are deductible taxes.

P10.9
Plane tickets P100,000
Transportation expenses-officers (136,000 + 64,000) **200,000
Transportation expenses-messengers 80,000
Deductible expenses P380,000
**Not subject to FBT. Regularly received allowances as part of compensation package.
Special assessment is a non-deductible expense

P10.10. Deductible Premium = P75,000

P10.11
(1)
Gross business income P1,000,000
Business expenses (400,000)
Net income before capital gains and contributions P600,000
Contributions deductible in full (accredited NGO) (30,000)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000x10%= P60,000) (20,00)
Add (Deduct):
Net capital gain 30,000
Compensation income 600,000
Taxable Net Income P1,180,000
(2)
Gross business income P1,000,000
Business expenses (400,000)
Net income before capital gains and contributions P600,000
Contributions deductible in full (accredited NGO) (30,000)
Contributions with limit (CBCP):
Actual=P20,000; Limit (P600,000 x 5% = P30,000) (20,00)
Add:
Net capital gain 30,000
Taxable Net Income P580,000

P10.12.
1. Total Charitable and other contributions with limit = P250,000 + 300,000 = P550,000
2. Total nondeductible contributions = P200,000 + 350,000 = P550,000

P10.13.
Actual (w/ limit) P190,000
Limit [(6,200,000 – 2,500,000) x 5%] 185,000

Allowed P185,000
Add: deductible in full (priority project) 100,000
Total P285,000

P10.14.
Gross Income P5,000,000
Cost of Sales 3,000,000
Sales P8,000,000

Sales P8,000,000
COS (3,000,000)
Gross Income 5,000,000
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of employees, gross of (950,000)
P100,000 withholding tax and P50,000 SSS, Medicare and Pag-Ibig premiums
contributions
Fringe benefits given to rank and file employees (300,000)
Fringe benefits given to managerial employees (200,000)
(@Grossed-up monetary value)
Rent expense (120,000)
Representation and entertainment expenses ( ½ % of N.Sales) (40,000)
Net income before contributions P3,390,000
Donation to religious and charitable institutions (Limit) (339,000)
Limit: P3,390,000 x 10%
Taxable net income P3,051,000
v Representation expenses = limit is ½% of net sales (if merchandising) or actual whichever is lower. If service concern, limit is 1% of net revenues or
actual whichever is lower.

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P10.15
BV = P1M x 2/5 P400,000
Vs. Cost to restore 200,000
Allowed (lower amount) P200,000
Less: insurance coverage (100,000)
Deductible Loss P100,000

P10.16.
(a)
Sales P6,200,000
Cost of sales (2,500,000)
OPEX:
Bad debts written-off 20,000
Salaries and wages excluding fringe benefits/de minimis 350,000
De minimis (P70,000 + P30,000) 100,000
Fringe benefits provided to rank and file employees 50,000
Fringe benefits provided to managerial employees 240,000
(GUMV = P156,000/65%)
Taxes and licenses 50,000
Tax assessment including interest 115,000
Utilities expense 100,000
Casualty losses 60,000
Depreciation expense 40,000 (1,125,000)
Net capital Gain(Loss)
Capital gain on sale of a 10-year bonds held for 8 years Tax exempt
Capital loss on sale of bonds of a domestic corporation (20,000) -
Dividend income:
From domestic corporation exempt
From resident corporation (foreign-sourced, non exempt
From nonresident corporation exempt -
Interest income:
From trade notes receivable 75,000
From bank deposits abroad 30,000 105,000
Other Income:
Recovery of bad debts written off preceding year 10,000
Refund of taxes and licenses for the preceding year 10,000 20,000
TAXABLE INCOME P2,700,000

RCIT for MSMEs @ 20% (higher than MCIT) P540,000

Less: Payments for the first 3 quarters (240,000)
INCOME TAX PAYABLE P300,000

(b)
Interest income from peso bank deposit @ 20% 10,000
Interest income from U.S.$ deposit (Philippines) @ 15% 6,000
Royalty income @ 20% 8,000
Income from trust indenture with Security Bank @ 20% 5,000
Total final tax on passive income P29,000

(c)
Capital gain on sale at P6M of land in the Philippines held for 10 years = P360,000
P6M x 6% = P360,000
Capital gain on sale of shares of stock of a domestic corporation held for 2,250
six (6) months, sold directly to a buyer
P15,000 x 15% = P750
Total Capital Gains Tax P362,250

TRUE OR FALSE
1. FALSE 11. TRUE 21. TRUE
2. FALSE 12. FALSE 22. TRUE
3. FALSE 13. FALSE 23. TRUE
4. TRUE 14. TRUE 24. FALSE
5. FALSE 15. TRUE 25. TRUE
6. TRUE 16. TRUE
7. TRUE 17. TRUE
8. TRUE 18. TRUE
9. TRUE 19. TRUE
10. TRUE 20. TRUE

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 MULTIPLE CHOICE
1. B 16. C 31. A 46. D
2. C 17. B 32. B 47. C
3. B 18. A 33. B 48. C
4. D 19. B 34. A 49. B
5. C 20. B 35. C 50. B
6. A 21. A 36. C 51. D
7. C 22. C 37. C 52. B
8. D 23. B 38. C
9. D 24. C 39. D
10. D 25. B 40. D
11. A 26. C 41. D
12. D 27. D 42. C
13. D 28. D 43. C
14. D 29. D 44. D
15. C 30. A 45. C

Supporting Computations:
No. 17-19:
2020 2021 2022
Gross sales P3,300,000 2,340,000 P825,000
Cost of sales (2,400,000) (1,070,000) (380,000)
Deductions (1,475,000) (1,025,000) (459,000)
GP(Loss) (P575,000) P245,000 (P14,000)
Dividend – resident foreign corporation 140,000 - 32,000
Interest income on notes receivable 28,000 16,400 -
Capital gain (ignore holding period) 13,000 18,500
Capital loss (ignore holding period) - ***(18,500)
Income (Loss) before NOLCO 274,400 18,000
NOLCO (274,400) (18,000)
Taxable income (P407,000) P0 P0
*** To the extent only of capital gain only

No. 21. The fire loss pertains to the residential house of the taxpayer, hence non-business related property. Unless there’s a capital gain, such
loss cannot be deducted from the taxpayer’s gross income.

No. 22. Unlike in the preceding problem, the property destroyed by fire this time is a property used in business. Hence, deductible from the
taxpayer’s gross income less any proceeds from insurance.

No. 43.
Contribution to charitable org. (w/ limit) P190,000
Limit [(6,200,000 – 2,500,000) x 5%] 185,000

Allowed P185,000
Add: deductible in full (priority project) 100,000
Total P285,000

No. 44.
Gross Income P5,000,000
Cost of Sales 3,000,000
Sales P8,000,000
Sales P8,000,000
COS (3,000,000)
Gross Income 5,000,000
Salaries (gross of withholding tax, SSS, Medicare/Medicare/Pag-ibig) of employees, net of (950,000)
P100,000 withholding tax and P50,000 SSS, Medicare and Pag-Ibig premiums
contributions
Fringe benefits given to rank and file employees (300,000)
Fringe benefits given to managerial employees (200,000)
(@Grossed-up monetary value) = 136,000/68%
Rent expense (120,000)
Representation and entertainment expenses ( ½ % of Net Sales) (40,000)
Net income before contributions P3,390,000
Donation to religious and charitable institutions (Limit) (339,000)
Limit: P3,390,000 x 10%; Actual= P500,000
NET TAXABLE INCOME P3,051,000
• Representation expenses
= Limit of ½% of net sales (if merchandising) or actual whichever is lower
= Limit of 1% of net revenues (if service concern) or actual whichever is lower

No. 46.
2021 2022 2023
Current service costs P2,000,000 P2,000,000 P2,000,000
Past service costs
2021 (P1,600,000/10) 160,000 160,000 160,000
2022 (P1,200,000/10) - 120,000 120,000
Deductible Contributions P2,160,000 P2,280,000 P2,280,000

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 CHAPTER 11 – INSTALLMENT REPORTING OF INCOME
1. A 6. C 11. C
2. D 7. D 12. B
3. B 8. C
4. A 9. A
5. A 10. B

CHAPTER 12 – INCOME TAX CREDIT AND OPTIONAL STANDARD DEDUCTION (OSD)

1. D 11. C 21. D 31. A
2. B 12. C 22. B 32. C
3. B 13. C 23. B
4. D 14. D 24. A
5. D 15. A 25. B
6. D 16. D 26. D
7. D 17. C 27. D
8. C 18. B 28. D
9. A 19. D 29. D
10. C 20. B 30. A

Supporting Computations:
No. 11.
Net income, Philippines P1,450,000
Net income, Canada 1,250,000
Taxable Income 2,700,000
Tax Due (TRAIN Law):
First P2,000,000 P490,000
Excess: P700,000 x 32% 224,000 P714,000
Less Tax Credit:
Limit: (1,250/2700 x P714,000) P330,556
Actual: ($3,000 x P50) 150,000 (150,000)
Income Tax Payable P564,000

No. 12.
Net income, Philippines P1,450,000
Net income, Canada 1,250,000
Taxable Income 2,700,000

Tax Due @ 25% under CREATE Act P675,000

Less Tax Credit:
Limit: (1,250/2,700 x P675,000) P312,500
Actual: ($3,000 x P50) 150,000 (150,000)
Income Tax Payable P525,000

No. 13.
Taxable income, world P2,000,00

Tax Due @ 25% (under CREATE Act) P500,000

Less Tax Credit:
L1:
Country X (600/2,000 x P500,000) P150,000
Paid 250,000
Allowed P150,000

Country Y (400/2,000 x P500,000) P100,000

Paid 120,000
Allowed 100,000
Total L1 P250,000

L2 (1/2 x 500,000) P250,000

Paid (Total) 370,000 250,000

TAX CREDIT ALLOWED (250,000)

Tax paid, three quarters (110,000)
Income tax payable P140,000

No. 14.
Taxable income before tax credit P2,000,000
Taxes paid foreign countries (370,000)
Taxable income P1,630,000
x RCIT under CREATE Act 25%
Tax Due 407,500
Less: Payments, 3 quarters (110,000)
Tax payable P297,500

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No. 29.
Gross sales P12,000,000
Less: Sales returns 1,000,000
Sales discounts 500,000 (1,500,000)
Net sales P10,500,000
Less: Cost of sales NOT ALLOWED
Add: other income
Interest on notes receivable 100,000
Dividend income from resident corporation 100,000 200,000
GROSS INCOME FOR OSD purposes 10,700,000
Less:
OSD (P10,700,000 x 40%) (4,280,000)
TAXABLE INCOME P6,420,000

No. 30. Taxable income = P900,000 x 60% + 200,000 = P740,000

No. 31. Distributable income (GP; taxable) = P900,000-500,000 x 60% x 75% = P180,000
No. 32. Distributable income (GPP; nontaxable) = P900,000-500,000 x 60% = P240,000

CHAPTER 13 – ACCOUNTING PERIODS AND METHODS

1. A 11. A
2. B 12. D
3. B 13. D
4. C 14. D
5. A 15. C
6. D 16. C
7. B 17. A
8. C 18. B
9. D 19. D
10. B 20. C

CHAPTER 14– TAX REMEDIES

MULTIPLE CHOICE
1. A 16. A 31. C 46. D 61. A 76. A
2. C 17. D 32. D 47. C 62. D 77. C
3. A 18. B 33. B 48. B 63. A 78. C
4. D 19. B 34. C 49. B 64. B 79. C
5. B 20. C 35. D 50. C 65. B 80. C
6. A 21. C 36. D 51. A 66. D 81. C
7. A 22. D 37. D 52. D 67. C 82. C
8. C 23. D 38. C 53. C 68. C 83. B
9. C 24. B 39. D 54. D 69. B 84. B
10. A 25. C 40. D 55. B 70. D 85. A
11. B 26. B 41. C 56. D 71. A 86. D
12. C 27. B 42. B 57. C 72. C 87. C
13. D 28. C 43. C 58. D 73. A 88. C
14. A 29. C 44. D 59. A 74. A
15. D 30. B 45. B 60. A 75. D

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