SOLUTIONS MANUAL
INCOME TAXATION, 2024 edition
By: TABAG & GARCIA
CHAPTER 1 – PRINCIPLES OF TAXATION
TRUE OR FALSE
1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. FALSE
7. TRUE
8. FALSE
MULTIPLE CHOICE
1. A
2. C
3. B**
4. D
5. C
9.
10.
11.
12.
13.
14.
15.
16.
TRUE
TRUE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
17.
18.
19.
20.
21.
22.
23.
24.
FALSE
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
FALSE
25.
26.
27.
28.
29.
30.
FALSE
TRUE
FALSE
TRUE
TRUE
FALSE
21.
22.
23.
24.
25.
D
D
D
D
B
41.
42.
43.
44.
45.
D
A
A
B
C
61.
62.
63.
64.
65.
C
C
C
C
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.
2.
3.
RC
RC
RC
4.
5.
6.
NRA-NETB
NRC
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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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
2-3
1.
Case 1: Exempt
Case 2: Exempt
Case 3: Income Tax Due, 2024 = P102,000
Case 4: P642,500 computed as follows:
Tax Due:
1st P2,000,000
Excess over P2M = (P800,000 x 30%)
Income Tax Due, 2024
2.
3.
4.
Income Tax Payable = P60,000 computed as follows:
Gross sales
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P150,000 x 25%)
Tax Due
Less: CWT
Income Tax Payable
Income Tax Payable = P124,000 computed as follows:
Gross sales
Less
Balance subject to 8% tax
x
Tax Due
Less: CWT
Income Tax Payable
Income Tax Payable = P140,000 computed as follows:
Gross sales
Rental income (P380,000/95%)
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P550,000 x 25%)
Tax Due
Less: CWT on rent (P400,000 – P380,000)
Other CWT
Income Tax Payable
P402,500
240,000
P642,500
P2,800,000
(1,200,000)
(650,000)
P950,000
P102,500
37,500
P140,000
(80,000)
P60,000
P2,800,000
(250,000)
P2,550,000
8%
P204,000
(80,000)
P124,000
P2,800,000
400,000
(1,200,000)
(650,000)
P1,350,000
P102,500
137,500
P240,000
(20,000)
(80,000)
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
Cost of direct services
Other operating expenses
Taxable net income
Tax Due:
1st P800,000
Excess over P800,000M = (P575,000 x 25%)
Tax Due
Less: CWT; none was provided in the problem
Income Tax Payable
P4,000,000
(1,800,000)
(825,000)
P1,375,000
P102,500
143,750
P246,250
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
Gross sales
Cost of sales
Operating expenses
Taxable net income
Tax Due:
1st P2,000,000
Excess over P2M = (P350,000 x 30%)
Tax Due
Less: CWT
On compensation income
On business income
Income Tax Payable
P1,400,000
2,800,000
(1,200,000)
(650,000)
P2,350,000
P402,500
105,000
P507,500
(310,000)
(80,000)
P117,500
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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
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
P476,500
Less: CWT
On compensation income
(310,000)
On business income
(80,000)
Income Tax Payable
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.
10.
Lorna should be classified as MICRO taxpayer. The compensation income should be excluded in the determination of classification for responsive tax
administration purposes.
2-4
11.
12.
13.
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
Business expenses, Philippines
Business expenses, USA
Compensation income, Philippines
Dividend income-foreign corp.
Interest income-bank deposit abroad
Raffle draw winnings
Taxable income (within and without), 203
500,000
(700,000)
(430,000)
600,000
40,000
30,000
10,000
P1,050,000
Tax Due [(P102,500)+(250,000 x 25%)]
Creditable withholding tax on business income
Income Tax Payable, 2023
P165,000
(125,000)
P40,000
Dividend income – DC (50k x 10%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (P200,000 x 20%)
Final Tax on Passive Income
P5,000
4,000
6,000
2,500
40,000
P57,500
Basic income tax due
Final taxes on passive income
Total income tax expense
P165,000
57,500
P222,500
The question is tax expense; ignore
the income tax payable of P80,000.
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
Compensation income, Philippines
Dividend income-foreign corp.
Raffle draw winnings
Taxable income 2023 (within only)
(700,000)
600,000
40,000
10,000
P950,000
Tax Due [(P102,500)+(150k x 25%)]
Creditable withholding tax on bus. Income
Income Tax Payable
P140,000
(125,000)
P15,000
Dividend income – DC (50k x 10%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (P200,000 x 20%)
Final Tax on Passive Income
P5,000
4,000
exempt
2,500
40,000
P51,500
Basic income tax due
Final taxes on passive income
Total income tax expense
P140,000
51,500
P191,500
Assume the tax withheld pertain to
Income derived in the Phils.
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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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
d.
14.
Total income tax expense = P197,500 computed as follows:
Basic income tax due
Final taxes on passive income
Total income tax expense
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%)
Interest income bank deposit-Phls.@20%
Interest income FCDS deposit @ 15%
Royalty income from composition @10%
PCSO winnings (@ 20% under CREATE Act)
Final Tax on Passive Income
&
P10,000
4,000
exempt
2,500
40,000
P56,500
Use 20% rate for DI from DC instead of 10%
**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
Final taxes on passive income
Total income tax expense, 2023
15.
P140,000
57,500
P197,500
Taxpayer is a nonresident alien not-engaged in trade or business
Compensation income, Philippines
Dividend income - DC
Dividend income from resident foreign corp.
Interest income bank deposit, Phls.
Interest income on FCDS deposit
Royalty income from composition
Raffle draw winnings
PCSO winnings
Total GROSS Income
x
Income Tax Due/expense
P140,000
56,500
P196,500
P600,000
50,000
40,000
20,000
Exempt
25,000
10,000
200,000
P945,000
25%
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
P460,000
1,810,000
(1,340,000)
9,000
8,800
5,600
4,200
1,600
50,000
16,900
50,000
P1,076,100
Income from employment
P180,000
P280,000
Business income
850,000
960,000
Deductible business expenses
(610,000)
(730,000)
Interest income on personal loans**
6,000
3,000
Dividend income from foreign corp.
6,800
2,000
Prizes from singing contest
5,600
Interest income on bank deposits
4,200
Interest income on money market placements
1,600
Royalty income
50,000
Winnings/ prizes from lotteries, raffles
16,900
Lotto winnings
--50,000
Taxable income, 2023
TAX DUE, 203:
First P800,000
Excess = P276,100 @ 25%
**All incomes, regardless of source, are generally taxable. However, personal expenses are not allowed as
deduction from the gross income.
Final Tax on Passive income:
Interest income on bank deposits
Interest income on money market placements
Royalty income
Lotto winnings
Winnings/ prizes from lotteries, raffle draws
Total
@
Dividend income from domestic corp.
Royalty income from sale of books
Total
@
TOTAL FINAL TAX ON PASSIVE INCOME
10,800
7,500
90,000
150,000
45,000
P303,300
20%
5,700
68,000
P73,700
10%
P102,500
69,025
P171,525
P60,660
7,370
P68,030
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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
Capital Gains Tax:
Sale of lot (P1,060,000 x 6%)
Sale of house and lot (P950,000 x 6%)
Total
2.
P63,600
57,000
P120,600
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.
P180,000
850,000
(610,000)
6,000
6,800
5,600
P438,400
Income from employment
Business income
Deductible business expenses
Interest income on personal loans
Dividend income from foreign corp.
Prizes from singing contest
Taxable income, 2023
TAX DUE 2023:
First P400,000
Excess = P38,400 x 20%
P22,500
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
Interest income on money market placements
Royalty income
Dividend income from domestic corporation
Lotto winnings
Winnings/ prizes from lotteries, raffle draws
Total
@
10,800
7,500
90,000
5,700
150,000
45,000
P309,000
20%
68,000
10%
Royalty income from sale of books
@
TOTAL FINAL TAX ON PASSIVE INCOME
rate is 20%
P61,800
6,800
P68,600
2-6
a.
b.
c.
Taxable income of the husband = P1,240,000
Taxable income of the wife = P890,000
Consolidated tax due of the husband and the wife = P337,500
Mr.
INCOME:
Compensation income
Income-Profession [P800,000/2)]
Income from trading business
LESS:
Expenses-practice of profession [ P320,000/2)]
Expenses – trading business
TAXABLE INCOME
Mrs.
P 850,000
400,000
250,000
P650,000
400,000
-
(160,000)
(100,000)
P1,240,000
(160,000)
P890,000
P102,500
110,000
P102,500
22,500
P212,500
P337,500
P125,000
Tax due:
First P800,000
In excess of P800,000 @ 25%
Total
Consolidated Tax Due
Note:
à
Personal expenses are not deductible.
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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
2-7
a.
Total capital gains taxes
Sale of shares of domestic corp. directly to a buyer (P150,000 x 15%*)
Capital gain on sale of land in the Philippines classified as capital asset (P5M x 6%)
Total capital gains tax
& *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
P22,500
300,000
P322,500
b.
Dividend income from domestic corp. P40,000 x 10%
Interest income on Philippine bank deposit (3,200 + 2,400 + 8,000)/80% x 20%
Interest income on Phl. bank deposit under FCDU (4,000 + 4,000 + 2,000) x 15%
Interest income on government bonds (deposit substitute) = P10,000 x 20%
Royalty – literary = P10,000 x 10%
Royalty other than literary = P12,000 x 20%
Total Final tax on passive income of Daniel and Kat
P4,000
3,400
1,500
2,000
1,000
2,400
P14,300
c.
Business income
Rental income net of tax (P200,000/95%)/2
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P6,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P350,000 +(75,000/2)]
Taxable net income of Daniel
P600,000
100,000
5,000
7,000
7,500
250,000
15,000
(387,500)
P597,000
Gross income from practice of profession (P360,000/90%)
Rental income net of tax (P190,000/95%)/2
Dividend income from resident corp.
Dividend income from nonresident corp. (P10,000/2)
Interest income on notes receivable [P4,000 + (P2,000/2)]
Interest income on bank deposit abroad [P5,000 + (P5,000/2)]
Capital gain on sale of land abroad (P500,000/2)
Gain on sale of shares – New York Stock Exchange P30,000/2
Expenses [P200,000 +(75,000/2)]
Taxable net income of Kat
P400,000
100,000
20,000
5,000
5,000
7,500
250,000
15,000
(237,500)
P565,000
d.
2-8
1.
2.
3.
4.
5.
6.
Income tax payable, first quarter = PIncome tax payable, second quarter = P20,700
Income tax payable, third quarter = P22,622
Income tax payable, fourth quarter = P53,838
Final tax on passive income = P15,800
Capital gains tax = P600,000 x 6% = P36,000
Gross Profit from Sales
Business expenses
Personal exemption
Taxable income 2023
1st Q
P300,000
(120,000)
2nd Q
P650,000
(262,000)
3rd Q
P910,000
(405,890)
P180,000
P388,000
P504,110
Q4/Year
P1,200,000
(426,700)
P773,300
-
P20,700
P43,322
P97,160
P-
-
(20,700)
P20,700
P22,622
(20,700)
(22,622)
P53,838
Tax Due (Tax Table for 2023 onwards)
Less: Tax Paid
Q1
Q2
Q3
Income Tax Payable
Note: The amounts shown above are cumulative.
(Amounts are cumulative)
Dividend received from domestic corp.
Interest income from
BPI
UCPB
Metro Bank
Total final tax on passive income
Amount
30,000
%
10
Tax
P3,000
16,000
18,000
30,000
20
20
20
3,200
3,600
6,000
P15,800
2-9
a.
b.
c.
d.
P6M x 6% = P360,000
ZV P2.2M vs. SP of P2.5M**; CGT = P2.5M x 6% = P150,000; **SP = Cost + Gain
Unutilized Proceeds = none; the proceeds were fully utilized; CGT = P0
Unutilized Proceeds = P5M x 20% = P1M; CGT = 1/5 x 6M x 6% = P72,000
2-10
a.
b.
c.
P15M x 6% = P900,000
P20M x 6% = P1,200,000
P0
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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
2-11
2-12
2-13
2-14
C.G. Tax = none; the transaction resulted to a loss
C.G. Tax = P80,000 x 15% = P12,000
C.G. Tax = P160,000 x 15% = P24,000
C.G. Tax = none; subject to business tax of 6/10 of 1% of GSP
TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6.
7.
8.
9.
10.
MULTIPLE CHOICE
1. D
2. C
3. A
4. A
5. A
FALSE
TRUE
TRUE
FALSE (should be final tax)
FALSE (should be located in the Phils.)
16.
17.
18.
19.
20.
B
A
A
B
D
31.
32.
33.
34.
35.
D
C
D
D
D
6.
A
21.
C
36.
C
7.
D
22.
B
37.
D
8.
9.
D
B
23.
24.
D
D
38.
39.
B
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
11.
12.
TRUE
FALSE
46.
47.
48.
49.
A
C
B
C
#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
Gross income, USA
Expenses, Philippines
Expenses, USA
Taxable income
P800,000
600,000
(400,000)
(300,000)
P700,000
(3 to 5)
Gross income, Philippines
Expenses, Philippines
Taxable income
P800,000
(400,000)
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%
Royalty (12,000/80%) x 20%
Share from Trade Partnership
(treated as dividend income)
(270,000/90%) x10%
FWT
P1,250
3,000
30,000
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%
Royalty (94,500/90%) x 10%
DI from DC (144,000/90%) x10%
FWT
P37,500
10,500
16,000
P64,000
Interest from FCDU (212,500/85%)x15%
Royalty (94,500/90%) x 10%
DI from DC (144,000/80%) x20%
FWT
exempt
10,500
36,000
P46,500
(22)
(28)
CGT = 1.5/4 X P4M X 6% = P90,0000
7|P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
(29)
Gross sales
Rental income (P308,750/95%)
Cost of sales
Business expenses
Taxable Net Income, 2024
P1,650,000
325,000
(500,000)
(425,000)
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
Rental income (P308,750/95%)
Less
Taxable Net Income
TAX DUE:
x
Total
Less: CWTx
Quarterly tax payments
Income Tax Payable
P1,650,000
325,000
(250,000)
P1,725,000
8%
P138,000
(65,000)
(50,000)
P23,000
(31). MIXED INCOME EARNER
Gross sales
Rental income (P308,750/95%)
Taxable Net Income
TAX DUE:
x Preferential tax rate
Total
Less: CWTx
Quarterly tax payments
Basic Tax on Compensation income
[P22,500 + (P200,000 x 20%)]
Income Tax Payable
P1,650,000
325,000
P1,975,000
8%
P158,000
(65,000)
(50,000)
62,500
P105,000
(32)
Professional income, gross
Rental income, gross
Wagering gains
Kickbacks from suppliers
Professional expenses
Taxable net income
P600,000
50,000
50,000
40,000
(325,000)
P415,000
(33)
Interest income – BDO; P20,000 x 20%
Interest income FDCU – P50,000 x 15%
Total FWT
P4,000
7,500
P11,500
CGT, residential house, P5M x 6%
CGT, shares = P150,000 x 15%
Total CGT
P300,000
22,500
P322,500
(34)
(35)
Gross sales, Phils.
Gross sales, Ukraine
Sales returns and allowances
Sales returns and allowances-Ukraine
Cost of sales, Philippines
Cost of sales, Ukraine
Business expenses, Philippines
Business expenses, Ukraine
Taxable net income
P5,000,000
3,000,000
(500,000)
(200,000)
(1,500,000)
(800,000)
(500,000)
(300,000)
P4,200,000
8|P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
(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%)
vs. Minimum P12,500 per month
FWT due (minimum amount)
P10,000
12,500
P12,500
CHAPTER 3 – FRINGE BENEFITS
PROBLEM SOLVING
P3.1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Subject to FBT
P120,000
50,000
250,000
60,000
-
Subject to Basic Tax
-
Exempt
P80,000
6,000/ yr. (RR 8-2018)
360,000
45,000
15,000
1,500
P3.2
a)
b)
c)
d)
e)
f)
P3.3
Yes
GUMV = P325,000/65%=P500,000
No. FBT is a final tax, hence, nonreturnable
FBT = P500,000 x 35% = P175,000
Within last day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.
No. It is subject to basic tax instead of FBT.
P963,000 computed as follows:
Compensation income
Monthly transportation allowance**
P900,000
36,000
De Minimis
Benefits
Other 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
Monthly transportation allowance**
P900,000
36,000
De Minimis
Benefits
§
§
§
Other 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
9|P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
P3.5 P540,000 computed as follows:
Compensation income
P540,000
De Minimis
Benefits
13th month pay and mid-year bonus
Christmas gift or bonus
Uniform allowance (7,500-6,000)
Actual Medical allowance (P15,000-10,000)
Medical allowance to dependents (limit is P3k per year)
Rice subsidy [entire amount is de minimis]; max. of P24k per year
Monetized vacation leave [24,000-(2,000x 10)]
Total 13th Month Pay & Other Benefits
Tax Exempt 13th Month Pay & Other Benefits; TRAIN Law
Taxable income
P3.6
1.
P5,000
6,000
10,000
2,000
18,000
20,000
Taxable
Benefits
P67,500
5,000
1,500
5,000
4,000
83,000
90,000
P540,000
4.
a)
b)
P165,000 x 50% = P82,500
P82,500/65% x 35% = P44,423
a.
b.
P1,200,000
P1,200,000/65% x 35% = P646,154
a.
b.
P800,000
P800,000/65% x 35% = P430,769
a.
b.
P1,200,000/5 = P240,000
P240,000/65% x 35% = P129,230
5.
2.
a.
b.
P4.5M x 5% /4 x 50% = P28,125
P28,125/65% x 35% = P15,144
a.
b.
P4.5M
P4.5M/65% x 35% = P2,423,077
6.
3.
TRUE OR FALSE
1. FALSE
2. FALSE
3. TRUE
4. TRUE
5. TRUE
6.
7.
8.
9.
10.
FALSE
TRUE
TRUE
TRUE
TRUE
11.
12.
13.
14.
15.
FALSE
TRUE
TRUE
TRUE
TRUE
MODIFIED IDENTIFICATION
1. B
2. B
3. A
4. B
5. B
6.
7.
8.
9.
10.
B
B
B
B
B
11.
12.
13.
14.
15.
A
A
B
A
B
MULTIPLE CHOICE
1. C
2. A
3. D
4. D
5. D
6. D
7.
8.
9.
10.
B
A
D
C
16.
17.
18.
19.
20.
11.
12.
13.
14.
15.
16.
C
A
A
B
B
D
21.
22.
23.
24.
25.
26.
A
D
C
D
A
D
31.
32.
33.
34.
35.
36.
17.
18.
19.
20.
C
B
C
D
27.
28.
29.
30.
B
D
B
D
37.
38.
39.
40.
B
A
D
A
C
P307,692;
P107,692
D
B
D
D
A
B
B
B
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
C
D
D
A
A
C (refer to
chapter 2)
B
D
A
D
D
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
Fringe benefit tax expense (P1.3M/68% x 35%)
Rank and File
Total
P1,300,000
700,000
5,000,000
P7,000,000
(23)
Expenditure attributable to Managerial employees
(P1.2M x 20%)
Divide by GUMVF
Grossed-up monetary value
x FBT rate
Fringe Benefit Tax
P240,000
65%
P369,231
35%
P129,231
10 | P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
(24)
Total deductible expense = P1,200,000 + 129,231 = P1,329,231
(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
Divide by GUMVF
GUMV
x FB rate
FBT
P48,000
65%
P70,588
35%
P25,846
Annual rental
x
Monetary value of housing benefit
Divide by GUMVF
GUMVF
X FBT rate
FBT
Add: Annual Rental
Total Deductible Expense
P637,500
50%
P318,750
65%
P490,385
35%
P171,635
637,500
P809,135
(28)
(29)
(32)
v
v
P2,000,000 x 5% x 50% = P50,000
P50,000/ 65% x 35% = P26,923
v
v
P3,000,000 x 5% x 50% / 12 = P6,250
P6,250/ 65% x 35%
= P3,365
v
v
P5,000,000
P5M/ 65% x 35% = P2,692,308
(30)
v
v
(P5,000,000-2,000,000) = P3,000,000
P3M/ 65% x 35% = P1,615,385
v
v
P1,000,000 / 65%
P1,538,462 x 35%
= P1,538,462
= P538,462
v
v
P800,000 / 65%
P1,230,769 x 35%
= P1,230,769
= P430,769
v
v
(P1,000,000/5) / 65% = P130,000; P307,692
P130,000; P307,692 x 35% = P45,500; P107,692
(34)
(31)
(35)
(36)
(51)
Taxable de minimis
Taxable 13th month pay (P122,000-90,000)
Taxable income
Income Tax Due (Tax Table, TRAIN Law)
(52)
P20,000
32,000
P52,000
exempt
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
Gross income (gross of 5% tax)
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Taxable income
Louie
P 325,000
(117,000)
12,000
Estate
P800,000
(420,000)
P220,000
Floyd
P 380,000
(105,000)
8,250
7,500
P290,750
P0
P6,112.5
P19,500
Tax Due/Payable
P380,000
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
Deductible operating expenses (estate)
Income distributed to Louie
Income distributed to Floyd
Taxable income
Tax due/payable
P1,000,000
(500,000
(50,000)
(50,000)
P400,000
P22,500
11 | P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
Louie
P 325,000
(117,000)
12,000
Gross Income
Deductible expenses
Dividend from foreign corporation
Prize, supermarket raffle
Amount received from the Income of the estate
Taxable income
Income Tax Due/Payable
50,000
P270,000
P3,000
Floyd
P 380,000
(105,000)
8,250
7,500
50,000
P340,750
P13,612.5
P4.3
1.
2.
Income tax payable of the trust = P177,500
Income tax payable of Pedro = P114,562.5
Gross income of the Trust
Deductible business expenses of the trust
Income distributed to Pedro during the year
Dividend income from resident foreign corporation
Net Taxable income
Income Tax payable
P3,000,000
(1,800,000)
(200,000)
100,000
P1,100,000
P177,500
Compensation income of Pedro
Rental income (gross)
Income of the estate distributed to Pedro
Rental expenses
Dividend from foreign corporation
Taxable income
Tax Due
Tax payments (Quarter 1-3)
CWTx on rent
Income Tax Payable-Pedro
MULTIPLE CHOICE
1.
D
2.
A
3.
D
4.
D
5.
D
6.
A
7.
D
8.
C
9.
A
10.
A
11.
D
12.
B
13.
A
14.
D
15.
A
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
C
C
D
D
B
B
D
C
D
C
D
D
D
D
Supporting Computations (Multiple Choice):
20.
Income of the estate
Expenses
Distribution of income to Francis
Taxable income of the estate
21.
Francis’ own income
Income of the estate received by Francis
Taxable income of Francis
P800,000
500,000
200,000
(80,000)
8,250
P1,428,250
P259,562.5
(120,000)
(25,000)
P114,562.5
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
B
C
D
C
C
D
B
D
D
D
B
D
C
B
A
P600,000
(150,000)
(120,000)
P330,000
P500,000
120,000
P620,000
39.
Compensation income
Business income
P1,500,000
1,000,000
Income of the trust taxable to the grantor
Taxable income of Mr. Nag-aalangan (grantor)
1,000,000
P3,500,000
Trust’s income
Business expenses
Income distributed to Princess
Taxable income of the Trust
P10,000,000
(2,000,000)
(1,500,000)
P6,500,000
Compensation income (Gross amount)
Income of the trust received Princess
Taxable income of Princess
P2,500,000
1,500,000
P4,000,000
41.
42.
12 | P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
43-45.
# 44
TRUST 1
Taxable Net income
Tax due:
1st P2,000,000
Excess: P2M x 30%
Tax due/(assume paid)
Versus allocated tax due
Income Tax Payable-Trust 1
P4,000,000
P402,500
600,000
1,002,500*
1,161,000***
P158,500
# 45
TRUST 2
Net income
Tax due:
1st P2,000,000
Excess: P4M x 30%
Tax due/paid
Versus Share
Income Tax Payable-Trust 2
# 43
Consolidated:
Taxable Net income 2023
Tax Due (Consolidated):
1st P8,000,000
Excess; P2M @ 35%
Total Consolidated TAX DUE
Less Paid:
Trust 1
Trust 2
Consolidated Income Tax Payable
(1,002,500)*
(1,602,500)****
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****
P6,000,000
P402,500
1,200,000
1,602,500**
1,741,500****
P139,000
P10,000,000
P2,202,500
700,000
P2,902,500
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:
Gross sales
Cost of goods sold
Operating expenses
Other income
Taxable Income
Tax Rate
Income Tax Due
#1
P12,000,000
(3,600,000)
(2,200,000)
500,000
P6,700,000
25%
P1,675,000
#2
P12,000,000
(3,600,000)
(2,200,000)
500,000
P6,700,000
25%
P1,675,000
#3
P12,000,000
(3,600,000)
(2,200,000)
500,000
P6,700,000
25%
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:
Gross sales
Cost of goods sold
Operating expenses
Taxable Income
Tax Rate
Income Tax Due
#1 - MSME
P12,000,000
(5,600,000)
(2,800,000)
P3,600,000
20%
P720,000
#2
P12,000,000
(3,600,000)
(2,200,000)
P3,600,000
25%
P900,000
#3 - MSME
P12,000,000
(3,600,000)
(2,200,000)
P3,600,000
20%
P720,000
DC
P8,000,000
(3,500,000)
(2,200,000)
750,000
4,600,000
(1,430,000)
(1,250,000)
3,300,000
(900,000)
(800,000)
P6,570,000
25%
P1,643,000
RFC
P8,000,000
(3,500,000)
(2,200,000)
750,000
NRFC
P8,000,000
(3,500,000)
750,000
P3,050,000
25%
P762,500
P5,250,000
25%
P1,313,000
(P5.3). CREATE ACT
1.
P1,643,000
2.
P762,500
3.
P1,313,000
Solution:
Gross sales-Phils.
Cost of goods sold – Phils.
Operating expenses – Phils.
Other income – Phils.
Gross sales-USA
Cost of goods sold – USA
Operating expenses – USA
Gross sales-USA
Cost of goods sold – USA
Operating expenses – USA
Taxable Income
Tax Rate
Income Tax Due
13 | P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
(P5.4)
CASE A (Domestic Corporation):
1.
P1,107,000
2.
P1,383,750
3.
P92,500
4.
P562,500
Solution:
Philippines
P10,000,000
200,000
3,500,000
2,800,000
100,000
-
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Interest income from BPI deposits-USA
Interest income from money market placement
Dividend income from domestic corporation
Dividend income from ABC Corp. (RFC); the entire divided
is considered income within, hence, exempt under
CREATE Act
Dividend income-nonresident foreign corp.; the conditions
for exemption under CREATE Act were not satisfied
Royalty income
TAXABLE INCOME
No. 1: DC + MSME
Taxable income
Tax rate for MSME under CREATE Act
Regular Corporate Income Tax Due
P5,535,000
20%
P1,107,000
No. 2: DC Other than MSME
Taxable income
Tax rate for MSME under CREATE Act
Regular Corporate Income Tax Due
P5,535,000
25%
P1,383,750
No. 3:
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS @ 15%
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
No. 4:
Gain on sale of shares sold directly to a buyer
[(150,000x 15%)
Sale of real property in the Philippines
(SP of P9M** x 6%)
Total Capital Gains Tax
**SP = Cost + Gain = P4M + 5M = P9M;
exempt
exempt
-
Total
P15,000,000
(200,000)
(5,750,000)
(3,900,000)
150,000
80,000
100,000
exempt
exempt
-
30,000
30,000
-
25,000
25,000
P5,535,000
Philippines
100,000
150,000
200,000
50,000
Abroad
P5,000,000
2,250,000
1,100,000
50,000
80,000
100,000
Final Tax
P20,000
22,500
40,000
10,000
P92,500
Capital Gains Tax
P22,500
540,000
P562,500
SP is higher than FMV
CASE B (Resident Foreign Corporation; disregard sale of real property):
5.
6.
7.
P911,250
P92,500 (same computation with a DC)
P22,500
Solution:
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Dividend income-resident foreign corp.
Taxable income
Tax rate – CREATE ACT
Normal Corporate Income Tax Due
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS deposit @ 15% (CREATE)
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
P10,000,000
(200,000)
(3,500,000)
(2,800,000)
100,000
45,000
P3,645,000
25%
P911,250
Philippines
100,000
150,000
200,000
50,000
Final Tax
P20,000
22,500
40,000
10,000
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):
8.
9.
10.
P2,161,250
P92,500
P22,500
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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
Solution:
Gross sales
Sales returns
Cost of goods sold
Operating expenses
Interest income from trade receivable
Dividend income-resident foreign corp.
GAIN ON SALE OF REAL PROPERTY in the Philippines
Taxable income
Tax rate – CREATE ACT
Normal Corporate Income Tax Due
P10,000,000
(200,000)
(3,500,000)
(2,800,000)
100,000
45,000
5,000,000
P8,645,000
25%
P2,161,250
Philippines
100,000
150,000
200,000
50,000
Interest income from BPI deposits-Phils. @ 20%
Interest income from FCDS deposit @ 15% (CREATE)
Income from money market placement @ 20%
Royalty income @ 20%
Final tax on passive income
Final Tax
P20,000
22,500
40,000
10,000
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 D (Non-Resident Foreign Corporation; (disregard sale of real property and there was tax sparing):
11. P1,732,500
Solution:
Gross sales
Sales returns
Cost of goods sold
GROSS INCOME
ADD:
Interest income from trade receivable
Interest income from BPI deposits-Phils.
Income from money market placement
Dividend income-resident foreign corp.
Royalty income
Total “Gross” Income
Tax rate
ADD:
Dividend income from DC = P75,000 x 15%
CGT on shares of DC = P150,000 x 15%
TOTAL FINAL TAXES
P10,000,000
(200,000)
(3,500,000)
P6,300,000
100,000
100,000
200,000
45,000
50,000
P6,795,000
25%
P1,698,750
11,250
22,500
P1,732,500
CASE E (Non-Resident Foreign Corporation; (disregard sale of real property and there was no tax sparing):
12. P1,740,000
Solution:
Gross sales
Sales returns
Cost of goods sold
GROSS INCOME
ADD:
Interest income from trade receivable
Interest income from BPI deposits-Phils.
Income from money market placement
Dividend income-resident foreign corp.
Royalty income
Total “Gross” Income
Tax rate
ADD:
Dividend income from DC = P75,000 x 25%
CGT on shares of DC = P150,000 x 15%
TOTAL FINAL TAXES
P10,000,000
(200,000)
(3,500,000)
P6,300,000
100,000
100,000
200,000
45,000
50,000
P6,795,000
25%
P1,698,750
18,750
22,500
P1,740,000
(P5.5)
1.
2.
3.
4.
5.
Exempt
25% RCIT
20% RCIT
Exempt
Exempt
6.
7.
8.
9.
10.
Exempt
25% RCIT
Exempt
15% FWT
25% FWT
(P5.6) RISING START INCORPORATED. FWT on Passive Income:
A. Rising Star Incorporated is a domestic corporation
v Answer: P400,000
Solution:
Current account, BDO @ 20%
Savings deposit, BPI @ 20%
Interest income from government bonds @ 20%
Interest income from FCDU account @ 15%
Royalty income from various domestic corporations @ 20%
Total FINAL TAXES on passive income
P120,000
100,000
40,000
120,000
20,000
P400,000
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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)
Dividend income from Canon (foreign-sourced dividend)
Dividend income from Microsoft (foreign-sourced dividend)
Interest income from Savings deposit in Canada
C.
Non-taxable
Non-Taxable
Non-Taxable
Non-Taxable
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%
Dividend income from Intel (derived from Philippines)
Current account, BDO
Savings deposit, BPI
Interest income from government bonds
Royalty income from various domestic corporations
TOTAL
FWT rate
TOTAL FINAL TAXES
P45,000
P400,000
600,000
500,000
200,000
100,000
P1,800,000
25%
450,000
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)
Dividend income from Canon (foreign-sourced dividend)
Dividend income from Microsoft (foreign-sourced dividend)
Interest income from Savings deposit in Canada
D.
Non-taxable
Non-Taxable
Non-Taxable
Non-Taxable
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)
Dividend income from Intel (derived from Philippines)
Current account, BDO
Savings deposit, BPI
Interest income from government bonds
Royalty income from various domestic corporations
TOTAL
FWT rate
TOTAL FINAL TAXES
P300,000
400,000
600,000
500,000
200,000
100,000
P2,100,000
25%
P525,000
Refer also to the NOTES in Case C above.
(P5.7) – CASE A: 2023 taxable year (transition year for MCIT)
Gross profit from sales
Business expenses
Taxable Net Income
RCIT @ 20% - MSME
MCIT (Gross Profit x 1.5% transition rate)
TAX DUE (Higher)
Less: Income tax withheld
Tax Paid Q1
Tax Paid Q2
Tax Paid Q3
Income Tax Payable
Q1
P1,600,000
(1,200,000)
400,000
P80,000
P24,000
Q2
P3,200,000
(2,400,000)
800,000
P160,000
P48,000
Q3
P4,800,000
(3,400,000)
1,400,000
P280,000
P73,000
Q4
P6,200,000
(4,200,000)
P2,000,000
P400,000
P93,000
P80,000
(30,000)
-
P160,000
(70,000)
(50,000)
P50,000
P40,000
P280,000
(130,000)
(50,000)
(40,000)
P60,000
P400,000
(230,000)
(50,000)
(40,000)
(60,000)
P20,000
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(P5.7) – CASE B: 2024 taxable year (reversion to the original MCIT rate)
Gross profit from sales
Business expenses
Taxable Net Income
RCIT @ 20% - MSME
MCIT (Gross Profit x 2%)
Q1
P1,600,000
(1,200,000)
400,000
P80,000
P32,000
Q2
P3,200,000
(2,400,000)
800,000
P160,000
P64,000
Q3
P4,800,000
(3,400,000)
1,400,000
P280,000
P96,000
Q4
P6,200,000
(4,200,000)
P2,000,000
P400,000
P124,000
P80,000
(30,000)
-
P160,000
(70,000)
(50,000)
P50,000
P40,000
P280,000
(130,000)
(50,000)
(40,000)
P60,000
P400,000
(230,000)
(50,000)
(40,000)
(60,000)
P20,000
TAX DUE (Higher)
Less: Income tax withheld
Tax Paid Q1
Tax Paid Q2
Tax Paid Q3
Income Tax Payable
(P5.8)
MCIT
RCIT
TAX DUE (Higher)
Excess MCIT
Year 4
Year 7
Income Tax Payable
Year 4
100,000
30,000
P100,000
Year 5
60,000
70,000
P70,000
Year 6
50,000
60,000
P60,000
Year 7
40,000
30,000
P40,000
Year 8
20,000
90,000
P90,000
-
(70,000)
-
-
P100,000
P0
P60,000
P40,000
(10,000)
P80,000
(P5.9)
1.
2.
3.
4.
P120,000
P690,000
P210,000
P495,000
Tax Due 2024
Excess MCIT 2023
Excess W/holding Tax 2023
Creditable Withholding Tax - 2024
Quarterly Tax Payments 2024
Tax Payable, 2024
Q1
RCIT P300,000
(90,000)
(30,000)
(60,000)
Q2
MCIT P990,000
Q3
RCIT P1,410,000
(90,000)
(30,000)
(270,000)
(810,000)
P210,000
NA
(30,000)
(150,00)
(120,000)
P690,000
P120,000
Q4
RCIT P2,010,000
(90,000)
(30,00)
(375,000)
(1,020,000)
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
Gross income
Business expenses
Taxable income
Tax Rate (RCIT)
Tax Due
Joint Venture
P50,000,000
(30,000,000)
P20,000,000
25%
P5,000,000
ABC Co.
P30,000,000
(20,000,000)
P10,000,000
25%
P2,500,000
DEF Co. (MSME)
P20,000,000
(15,500,000)
P4,500,000
20%
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
Gross income
Business expenses
SHARE IN THE INCOME OF THE JOINT VENTURE
Net income
Tax Rate
Tax Due
Joint Venture
P40,000,000
(30,000,000)
P10,000,000
P0
Alpha Co.
P20,000,000
(10,000,000)
5,000,000
P15,000,000
25%
P3,750,000
Omega Co.
P8,000,000
(2,500,000)
5,000,000
P10,500,000
25%
P2,625,000
(P5.12)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
[(P6M-4M) + (($50,000-$20,000) x P55)] = P3,650,000** x 25% = P912,500
(P6M-4M) x 25% = P500,000
P6M x 25% = P1,500,000
P6M x 2.5% = P150,000
P6M x 1.5% = P90,000
P6M x 25% = P1,500,000
P6M x 4.5% = P270,000
P6M x 7.5% = P450,000
**P3,650,000 x 10% = P365,000
P912,500; same computation with #1
nil; exempt
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(P5.13)
1.
2.
3.
[8M] x 2.5% = P200,000
[8M x 1%) = P80,000
nil; tax exempt on the basis of reciprocity
(P5.14)
1.Related
2.Related
3.Related
4.Related
5.Related
6.Unrelated
(P5.15) Proprietary Educational Institution:
Gross income, related activities
Gross income, unrelated activities (excluding rental income)
Rental income from commercial spaces (gross of 5% WT) – unrelated
Expenses, related activities
Expenses, unrelated activities
Taxable income
Tax Rate (RCIT); Unrelated income > Related income
Tax Due
Less: CWT on rental income (P2M x 5%)
Quarterly tax payments for the first 3 quarters
Income Tax Payable
P5,000,000
5,000,000
2,000,000
(2,000,000)
(3,000,000)
P7,000,000
25%
P1,750,000
(100,0000)
(500,000)
P1,150,000
(P5.16).
Question 1:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Depreciation expense-classrooms
Depreciation expense-furniture and equipment
Taxable income
x Tax Rate 2024
Tax Due 2024
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(75,000)
(50,000)
P2,105,000
10%
P210,500
Question 2:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Construction of additional classrooms
Acquisition of furniture and equipment
Taxable income
x Tax Rate 2024
Tax Due 2024
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(1,300,000)
(400,000)
P530,000
10%
P53,000
Question 3 – Transition Year:
Tuition fees
Miscellaneous fees
Income from bookstore
Income of school canteen
Salary, allowances and bonus
Other operating expenses
Construction of additional classrooms
Acquisition of furniture and equipment
Taxable income
x Tax Rate 2023 – transition year
Tax Due 2023
P9,500,000
1,200,000
350,000
180,000
(6,400,000)
(2,600,000)
(1,300,000)
(400,000)
P530,000
5.5%
P29,150
(P5.17). CGT;
Answer: P117,000
CGT on Land = P1.5M x 6%
CGT on shares = P180,000 x 15%
Total capital gains tax
P90,000
27,000
P117,000
(P5.18)
Answer: P36,000
Solution:
Sale#3; capital gain = P190,000:
CGT = P190,000 x 15%
Sale#4; capital gain = P50,000; CGT@ 5%
CGT = P50,000 x 15%
Sale#5; capital loss = P30,000; CGT = none
Total capital gains tax
P28,500
7,500
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
2.
B
3.
C
4.
B
5.
A
6.
D
7.
C
8.
B
9.
B
10.
B
11.
C
12.
D
13.
A
14.
C
15.
C
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
B
B
B
C
D
D
B
A
C
D
D
B
A
D
D
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
C
C
C
A
D
C
D
C
A
D
D
B
B
B
D
Supporting Computations (Multiple Choice):
(4).
Gross Income, Philippines
Expenses, Philippines
Gross Income, Malaysia
Expenses, Malaysia
Interest on bank deposit
Taxable income
Tax Rate
Tax Due
Domestic
P9,750,000
(4,800,000)
7,000,000
(5,300,000)
P6,650,000
25%
P1,662,500
RFC
P9,750,000
(4,800,000)
NRFC
P9,750,000
P4,950,000
25%
P1,237,500
250,000
P10,000,000
25%
P2,500,000
(5).
Gross profit from sales
Business expenses
Dividend income from a resident corporation
Dividend income from a nonresident corporation
Capital gain on sale of land in China
Interest income from notes receivable
Taxable income
Tax Due @ 20% (MSME)
P3,000,000
(1,800,000)
50,000
40,000
200,000
20,000
P1,510,000
P302,000
Sale of land-Phils. P2M x 6%
Sale of shares of DC = P120,000 x 15%
Capital gains tax
P120,000
18,000
P138,000
Interest income on peso bank deposit @ 20%
Interest income on foreign currency bank deposit @ 15%
Interest income on treasury bills @ 20%
Total final taxes on passive income
P6,000
3,750
2,000
P11,750
(6).
(7).
(8).
To Louie @ 10%
To Floyd @ 10%
To Zeus @ 10%
To JJ @ 20%
To Francis @ 25%
To Chen, a domestic corporation
To a resident foreign corporation
To a nonresident foreign corporation @ 15%
Total withholding taxes
P10,000
10,000
10,000
20,000
25,000
Exempt
Exempt
15,000
P90,000
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(10).
Final W. Tax = $3,000 x P55 x 10% = P16,500
(11).
Interest income from loans
OPEX (P120M x 100/150)
Taxable income
Income Tax Rate
Income Tax Due
P100,000,000
(80,000,000)
P20,000,000
25%
P5,000,000
(12 and 13)
Solution:
G Income
Expenses
TNI
RCIT - MSME
Tax Due
Taxable
Joint Venture
P5,000,000
(3,000,000)
P2,000,000
20%
P400,000
ABC Co.
P3,000,000
(2,000,000)
P1,000,000
20%
P200,000
DEF Co.
P2,000,000
(1,500,000)
P500,000
20%
P100,000
(14).
G Income
Sh. in Inc. of JV
Expenses
TNI
RCIT
Tax Due
Tax Exempt
Joint Venture
P5,000,000
(3,000,000)
P2,000,000
-
ABC Co.
DEF Co.
P3,000,000
1,400,000
(2,000,000)
P2,400,000
20%
P480,000
P2,000,000
600,000
(1,500,000)
P1,100,000
20%
P220,000
(17).
(18).
Income Tax Due = (P10M-P4M) x 25% = P1,500,000
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
Gross income, unrelated activities (except rental income)
Rental income from commercial spaces (gross of 5% WT)
P5,000,000
5,000,000
2,000,000
Expenses, related activities
Expenses, unrelated activities
Taxable income, 2024
Tax rate (unrelated income>related income); use RCIT
Tax due
Less:
Quarterly tax payments
Withholding tax on rental income
Income Tax payable; 2024
2,000,000
3,000,000
P500,000
100,000
P12,000,000
(5,000,000)
P7,000,000
25%
P1,750,000
(600,000)
P1,150,000
(29).
Income from tuition fees
Miscellaneous school fees
Dividend income from foreign corp.
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (related income>unrelated income); Transition year
Tax due
Less:
Withholding tax on rental income
Income Tax payable, 2023 (Transition year)
P5,000,000
1,500,000
2,000,000
500,000
Tuition and other fees
Rental income (gross of 5% WT)
OPEX
CAPEX
Taxable income, 2024
Tax rate (related income>unrelated income)
Tax due
Less:
Withholding tax on rental income
Income Tax payable, 2024
P5,000,000
50,000
(1,500,000)
(2,000,000)
P1,550,000
10%
P155,000
(2,500)
P152,500
P9,000,000
(4,000,000)
P5,000,000
5.5%
P275,000
(25,000)
P250,000
(30).
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(31).
Gross Receipts
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate - MSME
Tax due
Less:
Withholding tax on rental income
Income Tax payable
P8,500,000
1,500,000
(8,200,000)
P1,800,000
20%
P360,000
(75,000)
P285,000
Tuition fees
Rental income (gross of 5% WT)
OPEX
Taxable income
Tax rate (taxable income is more than P5M)
Tax due
Less:
Withholding tax on rental income
Tax payable
P6,800,000
5,200,000
(6,000,000)
P6,000,000
25%
P1,500,000
(260,000)
P1,240,000
(32).
(#s 39 TO 43).
2017
2018
2019
RCIT
P25,000
P130,000
P200,000
MCIT
100,000
150,000
190,000
DUE (Higher)
100,000
150,000
200,000
EXCESS MCIT
75,000
20,000
P100,000
P150,000
TAX DUE
MCITCO
2020
2021
2022
2023
2024
P0
P100,000
P150,000
P8,000
P1,000
300,000
50,000
60,000
40,000
50,000
300,000
100,000
150,000
40,000
50,000
-
300,000
-
-
32,000
49,000
P200,000
P300,000
P100,000
P150,000
P40,000
P50,000
2017
(75,000)
2018
(20,000)
2020
TAX PAYABLE
P100,000
P150,000
P105,000
(100,000)
(150,000)
-
P0
P0
P40,000
P300,000
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 = P252,500
LJ’s gross income from his trading business
LJ’s expenses from his trading business
Share from the net income of a GPP
Royalty, books published in USA
Salaries, gross of withholding tax
Taxable income
Tax Due (Tax Table); P130k + (P600k x 30%)
LJ
P1,000,000
(600,000)
400,000
150,000
450,000
P1,400,000
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
Gross Income
P2,000,000
Allowed Deductions
(1,200,000)
Basic exemption
Taxable income
P800,000
Tax Rate
20% (MSME)
Tax Due
P160,000
Rivera
P800,000
(400,000)
P400,000
Graduated %
P22,500
Reyes
P1,000,000
(500,000)
P500,000
Graduated %
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
Gross Income
Allowed Deductions
Basic exemption
Share in partnership income
Taxable income
Tax Rate
Tax Due 2023
RR Partnership
P2,000,000
(1,200,000)
P800,000
EXEMPT
P0
Rivera
P800,000
(400,000)
Reyes
P1,000,000
(500,000)
320,000
P720,000
2023 Table
P86,500
480,000
P980,000
2023 Table
P147,500
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P6.3
1.
2.
3.
4.
5.
6.
7.
8.
9.
Income tax payable/(refundable) of the partnership = P2,800,000
Income tax payable/(refundable) of Villamin in 2024= P6,325
Income tax payable/(refundable) of Francis in 2024 = P0
Final tax on passive income of the partnership = P115,000
Final tax on passive income of Villamin = P432,000
Final tax on passive income of Francis = P879,500
Capital gains tax of the partnership = P1,500,000
Capital gains tax of Villamin = P0
Capital gains tax of Francis = P18,000
Partnership:
Gross revenue from sale of services
Direct cost of services
Business Expenses
Rental Income in business assets (gross)
(P1,425,000/95%)
Taxable income
Multiply: RCIT rate under CREATE Act
Tax due; RCIT
Quarterly tax payments
Withholding tax on rent
Income tax payable 2024
P35,000,000
(15,000,000)
(7,000,000)
1,500,000
Interest Income on peso bank deposits @ 20%
Interest income from FCDS deposits @ 15%
Final Tax on passive income of the partnership
Capital gains tax on real property (25M x 6%)
DISTRIBUTABLE INCOME:
Taxable income of the partnership
Total income subject to final tax
Capital gain on real property
Less:
Basic income tax due; RCIT
Final tax due
Capital gains tax
DISTRIBUTABLE INCOME
P40,000
75,000
P115,000
P1,500,000
P14,500,000
25%
P3,625,000
(750,000)
(75,000)
P2,800,000
P14,500,000
700,000
3,000,000
(3,625,000)
(115,000)
(1,500,000)
P12,960,000
Villamin:
Gross income from sole-proprietorship business
Allowable business expenses
Dividend Income-resident foreign corp.
Taxable income 2024
Tax due (Tax Table for 2023 onwards)
Quarterly tax payments
Income tax payable
Final Tax; share in partnership income = (P12,960,000 x 3/9 x 10%)
Capital gains tax - Villamin
925,000
(670,000)
120,500
P375,500
P18,825
(12,500)
P6,325
P432,000
P0
Francis:
Income Tax payable
(No income subject to basic tax)
Dividend Income @ 10%
Royalty Income @ 20%
Share in partnership income (P12,960,000 x 6/9 x 10%)
Total final tax on passive income
Capital gains tax on shares of stock
(P120,000 x 15%)
P0
P8,500
7,000
864,000
P879,500
18,000
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P6.4
1.
2.
3.
4.
Income tax payable of the business partnership in 2024 = P76,000
Income tax payable of the GPP in 2024 = P0; Exempt
Income tax payable of Louie in 2024 = P34,000
Income tax payable of Floyd in 2024 = P4,237.5
Business
Partnership
P800,000
(420,000)
P380,000
20%
P76,000
Gross income
Deductible expenses
Net or Taxable income
Tax rate – CREATE Act
Income tax due/payable
Louie and Floyd
Gross Income, 2024
Deductible expenses, 2024
Dividend from foreign corporation
Prize, supermarket raffle
Share in income of GPP
Taxable income, 2024
Income tax payable (Revised Table)
Louie
P 525,000
(117,000)
12,000
37,500
P457,500
P34,000
GPP
P500,000
(375,000)
P125,000
EXEMPT
Floyd
P 580,000
(205,000)
8,250
7,500
87,500
P278,250
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
2.
C
3.
A
4.
B
5.
B
6.
7.
8.
9.
10.
A
A
D
B
C
11.
12.
13.
14.
15.
D
A
B
C
C
16.
17.
18.
19.
20.
A
D
B
B
B
Supporting Computations (MCQ):
15.
16.
(P200M-100M) x 25% = P25,000,000
P0; Subject to 10% final tax
17.
18.
Partnership net profit (net of 25% RCIT
(P800,000 x 75%)
Other Income:
Interest income, net
Dividend income (tax exempt)
Total distributive income
P6,000,000
Share of T (50%)
Applicable tax (10% final tax)
P3,140,000
P314,000
80,000
200,000
P6,280,000
P60,000,000 – P35,000,000 x 50% = P12,500,000
19.
Share in GPP’s income
Own income (P15,000,000-7,000,000)
Taxable income of Ramos in 2024
P12,500,000
8,000,000
P20,500,000
20.
Gross income, 2024
Expenses, 2024
Net taxable income, 2024
Less: Corporate Tax @ 20% for MSME under CREATE Act
Net income in 2024 after corporate tax
Add:
Dividend received from a domestic corp. (tax exempt)
Bank interest income, Metrobank (net of final tax)
Distributable net income
P7,500,000
(3,000,000)
P4,500,000
(900,000)
P3,600,000
Juan: P4,600,000 x 55% x 10%
Ponce: P4,600,000 x 45% x 10%
P253,000
P207,000
200,000
800,000
P4,600,000
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CHAPTER 7 – INTRODUCTION TO GROSS INCOME
MULTIPLE CHOICE
1.
C
2.
D
3.
B
4.
A
5.
D
6.
D
7.
A
8.
D
9.
B
10.
C
11.
A
12.
C
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
A
B
D
A
C
C
A
D
D
B
B
A
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
A
D
D
B
A
B
B
A
C
D
C
Supporting Computations:
27. P300,000 4/12 = P100,000
28.
Gain on sale of personal property purchased in the Philippines
and sold in Hongkong
Compensation received for personal services in the Philippines
Rent income from real property in Malaysia
Gain from sale in the Philippines of shares of a foreign corporation
Deductions identified with:
Philippine income
Foreign income
Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000)
Philippine Net Income
P200,000
100,000
(80,000)
(9,000)
P211,000
29.
Gross income
Rental expenses
Salaries expense
Taxable income
30.
P600,000
(120,000)
(100,000)
P380,000
(Resident Alien)
Gross Income
Business expenses
Dividend income from foreign corp. (RMC 62-2021)
Taxable income
P2,000,000
(1,200,000)
50,000
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
Allowable deductions
Dividend income from Diaz- DC
Dividend income from Tokyo, RFC (exempt; RMC 62-2021); (derived
entirely from the Phils. based on RMC 62-2021)
Dividend income from Olympiad, RFC (exempt; RMC 62-2021); (derived
entirely from the Phils. based on RMC 62-2021)
Dividend income from NRFC (taxable – RCIT; foreign-sourced dividend
based on RR 5-2021 and RMC 62-2021)
Taxable income
33.
34.
(Resident Foreign Corp = Taxable on income from Philippine sources only
Gross Income
Allowable deductions
Dividend income from Diaz - DC
Dividend income from Tokyo-RFC; (derived entirely from the Phils.; RMC
62-2021)
Dividend income from Olympiad, RFC; ; (derived entirely from the Phils.;
RMC 62-2021)
Dividend income NRFC; (foreign-sourced dividend))
Taxable income
Resident Foreign Corporation
DI-Microsoft; NRFC; foreign-sourced dividend based on RMC 62-2021
DI-Intel (P400,000 x 25% RCIT); RMC 62-2021
DI – IBM, a domestic corp.
Interest income – BDO @ 20%
Interest income from FCDS deposit @ 15% - CREATE Act
Royalty income @ 20%
Total income tax expense
P10,000,000
(4,000,000)
exempt
exempt
exempt
400,000
P6,400,000
P10,000,000
(4,000,000)
exempt
900,000
800,000
Non-taxable
P7,700,000
Non-taxable
P100,000
exempt
120,000
120,000
20,000
P360,000
24 | P a g e
Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
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
Dividend income from Intel – exempt under RMC 62-2021
Dividend income from IBM, a DC
Interest income – BDO @ 20%
Interest income U.K. @ 20%RCIT for MSME
Interest income from FCDS deposit @ 15%
Royalty income @ 20%
Total income tax expense
P100,000
exempt
exempt
120,000
140,000
120,000
20,000
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)
Director’s fee
Business income:
Retail business
Apartment rental (P190,000/95%)
Dividend income from a resident corporation
Taxable 13th, X’mas and Mid-Year Bonus
(P180,000 – 1st 5,000 as de minimis – P90,000 exclusions)
Gross Income subject to basic tax (Q#1)
LESS:
Business expenses
Basic exemption
Net Taxable income, 2024
Income tax due – TRAIN Law (Q#4); [P102,500 + (P860k x 25%)]
INCOME SUBJECT TO FINAL TAX:
Cash dividend from a domestic corporation @ 10%
Interest from savings deposit @ 20%
Royalties from book publications @ 10%
Prizes from contest won @ 20%
PCSO winnings @ 20% (TRAIN Law)
Total final taxes on passive income (Q#2)
P5,000
4,000
5,000
10,000
10,000
P34,000
INCOME EXEMPT FROM TAX:
Xmas Bonus and other benefits (P5k de minimis + 90,000)
Stock dividend from a domestic corporation
Damages received from injuries and sickness
Proceeds-life insurance coverage of his father
Total income exempt from tax (Q#3)
P95,000
25,000
85,000
300,000
P505,000
P1,200,000
200,000
250,000
200,000
50,000
85,000
P1,985,000
(125,000)
P1,860,000
P367,500
P8.2
1)
2)
3)
P10,000
P15,000
P715,000 computed as follows:
Gross profit from sales (P2.5M – P1.5M)
Taxable recovery of previously written-off receivables
Taxable tax refunds (P30,000 x 50%)
Rent income excluding security deposit
Operating expenses excluding bad debts
Write-off during the year
Taxable income
P1,000,000
10,000
15,000
250,000
(500,000)
(60,000)
P715,000
P8.3
1)
2)
3)
4)
2023 income = (P240,000 x 2) + 60,000 = P540,000
2024 income = only the annual real property tax of P60,000
2025 income (lump-sum) = P240,000 + 60,000 + P3,000,000 = P3,300,000
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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Solutions Manual-Income Taxation(2024 Edition) by Tabag & Garcia
P8.4
Ramon Magsaysay award
Athlete of the year award
Prize for winning an Olympic Medal
Gift from Mayor Vico Sotto
Gift from Honda Cars
Total amount exempt from income tax
P50,000
100,000
500,000
250,000
1,000,000
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
P8.7
P1,000,000; The interest income from expanded foreign currency deposit
Taxable Proceeds = P1,000,000 – P600,000 = P400,000
P8.8
Salary for the first quarter
Honorarium as speaker in one of ABC’s team building activities
Retirement pay; (Taxable; failed to meet the age requirement)
Commissions
Fee as a member of ABC’s board of directors (compensation income since he
is at the same time an employee of the company)
10 days monetized vacation leave
Interest income from time deposit
***Productivity incentive pay and 13th month pay (refer to explanation below)
(However, the total of the productivity bonus amounting to P20,000 + 60,000
bonus is not more than P90,000, hence tax exempt)
Total compensation income subject to tax
P180,000
10,000
2,500,000
30,000
50,000
Exempt
FW Tax/E
Exempt
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
1. 10% F.Tax
INJURIES/DAMAGES
8. Exempt
2.
3.
4.
5.
6.
7.
10% F.Tax
Basic Tax
Exempt
Exempt (CREATE Act)
Exempt
Non-taxable
26.
27.
28.
29.
30.
Final Tax
Exempt
Exempt
Exempt
Exempt
9.
10.
11.
12.
13.
14.
Exempt
Basic Tax
Exempt
Basic Tax
Exempt
Basic Tax
PRIZES/AWARDS
15. Basic tax
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Exempt
Exempt
Exempt
Exempt
Basic Tax
20% FWT
20% FWT; TRAIN Law
Basic Tax; (“abroad”)
20% final tax (individual taxpayer)
Basic Tax (abroad)
VARIOUS PROCEEDS/INCOME
TRUE OR FALSE
1. TRUE
8. TRUE
15.
2. FALSE
9. TRUE
16.
3. TRUE
10. TRUE
17.
4. FALSE
11. TRUE
18.
5. FALSE
12. TRUE
19.
6. TRUE
13. TRUE
20.
7. FALSE
14. FALSE
21.
#7 – should be CWT not FWT
#14 – should be upon recovery for the subsequent period
#21 – the interest is subject to tax
FALSE
FALSE
TRUE
FALSE
FALSE
FALSE
FALSE
22.
23.
24.
25.
TRUE
FALSE
TRUE
FALSE
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MULTIPLE CHOICE
1.
C
2.
B
3.
D
4.
D
5.
B
6.
B
16.
17.
18.
19.
20.
21.
D*
C
B
C**
D
C
31.
32.
33.
34.
35.
36.
C
C
A
D
C
C
46.
47.
48.
49.
50.
51.
D
D
D
B
C
B
7.
8.
9.
10.
11.
12.
13.
14.
15.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
C
C
B
D
D
C
C
C
37.
38.
39.
40.
41.
42.
43.
44.
45.
D
D
C
D
B
D
D
D
A
52.
53.
54.
55.
56.
57.
58.
59.
60.
C
D
D
D
C
B
B
B
C
B
B
D
A
C
C
C
B
A
*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.
2023 Income(loss) before write-off
Write-off in 2023
2024 Recovery or accounts written-off in 2023
TAXABLE RECOVERY in 2024
Case A
P120,000
40,000
P40,000
P40,000
Case B
P60,000
40,000
P10,000
P10,000
Case C
(P40,000)
50,000
P50,000
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
regardless of accounting method)
Annual real property tax - 2022
Income from leasehold improvement
Total taxable income in 2022
P3,600,000
30,000
P3,630,000
2023:
Rent (NA; already recognized in 2022)
Annual real property tax - 2023
Income from leasehold improvement
Total taxable income-2023
P0
30,000
P30,000
No. 25. Spread out Method
Annual Rent
Advance rent
Annual real property tax
Income from improvement
[(P36M x **5/15) / 10]
Total annual income
2022
P1,200,000
2,400,000
P30,000
2023
Recognized in 2022
30,000
P3,630,000
P30,000
2024
P2,400,000
30,000
None; completed only on
Dec. 31, 2024
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
Annual real property tax 2024
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
No. 26. Lump-sum Method
2024 taxable year
Rent - 2024
Annual real property tax 2024
Income from leasehold improvement (upon completion on
Dec. 31, 2024)
Total taxable income-2024
P2,400,00
30,000
-
P2,430,000
P2,400,00
30,000
36,000,000
P38,430,000
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No. 27.
Royalty – as an author @ 10%
Other royalties
x
Total final tax on royalty income
P10,000
P800,000
20%
160,000
P170,000
No. 46.
Proceeds from the taxpayer’s life insurance
Less: premiums paid on his life insurance (P15,000 x 25)
Rent income from inherited properties
Taxable income
P2,000,000
(375,000)
P1,625,000
200,000
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
Business expenses
Short term capital loss (@100%)
Long term capital gain (@50% )
Net capital loss 2023
Net Taxable Income in 2023
P760,000
(380,000)
P(60,000)
20,000
(P40,000)
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
Add(Deduct): Ordinary gains(loss)
Gain on sale of land used in business, for 3 years
Loss on sale of machinery used in business, for 8 months
P400,000
P50,000
(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.
* capital losses are deductible only from capital gains
* holding period and capital loss carry-over are not applicable to corporate taxpayers.
P424,000
P9.3
Ordinary income
Add: Net capital gain:
Long term capital gain @ 50%
Long term capital loss @ 50%
Taxable Income
P640,000
P20,000
(5,000)
15,0000
P655,000
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MULTIPLE CHOICE – Chapter 9 (Dealings in Properties)
1.
C
6.
D
2.
D
7.
D
3.
D
8.
D
4.
D
9.
A
5.
D
10.
D
11.
12.
13.
14.
15.
A
D
B
D
D
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